The Management of the Company is pleased to present this Management
Discussion and Analysis Report in compliance with Regulation 34(2)(e) of the Securities
and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,
2015 (as amended from time to time).
1. INDUSTRY STRUCTURE AND DEVELOPMENT:
The global landscape is displaying signs of recuperation in the
aftermath of the various challenges encountered over the past few years. Despite these
formidable trials, India has emerged as a notable stronghold in the realm of economic
expansion, all within the overarching context of a worldwide deceleration. Recent
pronouncements by The World Bank have underscored Indias superior aptitude to effectively
steer through international economic adversities and manage the cascading impacts of the
global milieu, setting it apart from its peers among major emerging economies. The
observed upswing in demand during the festive season further contributes to our grounds
for optimism.
Real GDP or GDP for the year 2023-24 is estimated to grow at a rate of
6.5%, making India one of the fastest-growing economies in the world. The growth is
expected to be achieved on the back of robust credit growth, lower commodity prices, and
an increase in government spending and capital expenditure prior to the upcoming general
elections.
Non-Banking Financial Corporations (NBFCs) have emerged as a paramount
source of financial support for a broad spectrum of the population. This encompasses small
and medium-scale enterprises, as well as individuals who have traditionally remained
financially underserved. These NBFCs have adeptly addressed the diverse financial needs of
borrowers, characterized by their extensive geographical reach, nuanced comprehension of
financial requirements, and remarkable promptness in processing. As a result, non-bank
lenders have played a pivotal role in advancing financial inclusion, thereby propelling
the growth trajectory of countless micro, small, and medium enterprises (MSMEs), along
with self-employed individuals. In conjunction with their escalating role in consumer
finance, the expansion of crucial economic sectors like housing, consumer goods, and
transportation has gained a substantial boost from the contributions of nonbank lenders.
In anticipation of the upcoming budget, non-banking finance companies
(NBFCs) specializing in gold loans are advocating for the attainment of priority sector
classification for eligible gold loans. This encompassing eligibility entails microloans,
loans directed towards farmers, and loans for micro businesses. The plea for such
recognition stems from the fact that leveraging household jewellery for gold loans has
emerged as a pivotal financing avenue for various sectors, including MSMEs, small
businesses, individuals, and women borrowers. The gold loan segment has notably
experienced consistent growth in demand and disbursal. This can be attributed to a shift
in perception surrounding the act of pledging gold, which has contributed to fostering a
positive market atmosphere and instilling confidence in consumers regarding economic
resurgence.
NBFCs in India have also been rooting for a robust co-lending
framework. Such a framework would serve to incentivize robust collaboration between gold
loan entities and banking institutions, with the primary objective of collectively
addressing the existing gaps in credit access. This collaborative approach would
undoubtedly bolster the capacity to cater to unmet credit needs more effectively and
comprehensively.
2. OPPORTUNITIES AND THREATS:
The unprecedented rise in interest rates has had a detrimental impact
on the world economy. High inflation, borrowing costs and lower growth rates have only
increased the magnitude of the difficulties faced by various countries slowing the
economic growth worldwide.
Amidst the challenges, NBFCs in India will need to adopt strategic
measures that encompass innovation, risk management, regulatory compliance, and
adaptability to changing market dynamics.
Opportunities:
• Digital Transformation: The ongoing digital revolution offers a
chance for NBFCs to enhance operational efficiency, customer experience, and accessibility
through digital platforms, contributing to increased market penetration.
• Financial Inclusion: There remains a significant untapped market
of financially underserved individuals and small businesses. NBFCs can seize the
opportunity to cater to their unique needs and drive financial inclusion.
• Rural and Semi-Urban Expansion: Extending operations to rural
and semi-urban areas can lead to substantial growth opportunities, as these regions often
lack adequate access to formal financial services.
Threats:
• Liquidity Challenges: The availability of liquidity and the cost
of funds are critical for NBFCs. Sudden liquidity crunches can impact their lending
capacity and financial stability.
• Credit Risk and Asset Quality: Economic uncertainties or changes
in borrower behavior can lead to a rise in non-performing assets, potentially affecting
profitability and sustainability.
• Interest Rate Fluctuations: Volatile interest rates can impact
borrowing costs and interest rate spreads, potentially affecting NBFCs profitability and
loan demand.
3. SEGMENT-WISE OR PRODUCT WISE PERFORMANCE:
The Company operates in only single segment. Hence segment wise
performance is not applicable.
4. OUTLOOK AND FUTURE PROSPECTS:
The growth projection has been revised upwards, with assessments from
the ratings agency indicating a robust expansion in the retail assets under management of
NBFCs. The anticipated growth for the fiscal year 2024 now stands at an impressive 18-20%,
surpassing the earlier estimate of 12-14%. Among specific segments, housing finance
companies are anticipated to register growth within the range of 12-14%, while the NBFC
infrastructure sector is poised for a steady advancement at 10-12%.
The growth trajectory of net interest margins and additional income is
predicted to moderate due to an elevation in the cost of funds. As with several banking
entities, operating expenses are also expected to escalate as issuers embark on expansion
endeavours during the fiscal period. Of notable significance, the unsecured loan category
has emerged as a principal driver for the overall augmentation of NBFCs. This phenomenon
can be largely attributed to the surge in digitalization, effective cross-selling
strategies, and a notable upsurge in the proportion of personal loans. The sector has
demonstrated an impressive compound annual growth rate of 33% over the past five years.
While the outlook for NBFCs in this fiscal appeared sanguine owing to
the gradual subsiding of Covid-19 pandemic effects, there exist four critical areas of
observation. These encompass data protection measures, the potential risks associated with
borrower over-leveraging, the state of unseasoned loan portfolios, and the ongoing
evolution of the regulatory framework.
5. RISKS & CONCERNS:
The NBFC sector faced a notable compliance challenge in 2022, with the
RBI issuing more than 27 specific regulatory updates. Even a single-state NBFC needs to
adhere to around 621 compliances, including over 35 registrations and approvals. These
encompass various aspects like record-keeping, returns, and filings under laws such as the
Prevention of Money Laundering Act and RBI Guidelines on Fair Practices Code. Depending on
size, NBFCs must manage numerous acts and rules, adding complexity, especially given the
fluid regulatory environment. Major compliance challenges include the new PCA framework,
revised regulations, poor license tracking, intricate requirements, lack of awareness, and
manual, paper-based processes.
Facing challenges in upholding compliance standards, an overwhelming 94
percent of compliance officers within NBFCs express a lack of confidence in possessing the
essential visibility and control over their organizations compliance program.
6. INTERNAL CONTROL SYSTEMS AND THETR ADEQUACY:
The extant Internal Control Systems within the organization are
sufficiently robust to ensure the diligent monitoring and effective regulation of all
activities, mitigating any potential instances of asset misuse or misappropriation.
Furthermore, these systems diligently authorize, accurately record, and impeccably report
transactions.
It is noteworthy that these internal control mechanisms undergo
continuous vigilance by the Audit Committee of the Company, underscoring the commitment to
maintaining the highest standards
of operational integrity. This ongoing scrutiny also fosters a culture
of perpetual enhancement, as these internal control systems are consistently refined to
uphold their efficacy.
7. HUMAN RESOURCES:
The company considers its employees as highly valuable assets. It
consistently reviews and refines policies to attract and retain technical and managerial
staff, fostering a favourable work environment.
8. CAUTIONARY STATEMENT:
The Management Discussion and Analysis Report may contain statements
that might be considered forward looking. These statements are subject to certain risks
and uncertainties. The actual results may differ materially from those expressed in the
statement. Important factors could influence the Companys operations such as government
policies, local, political and economic development, risk inherent to the Companys growth
and such other factors.
9. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL
PERFORMANCE:
The Financial as well as Operational performance of the Company has
increased considerably during FY 2022-23 as compared to the FY 2021-22 due to availability
of working capital.
|
For and on behalf of the Board of Directors |
|
Sd/- |
|
Ketan Kothari |
| Place: Mumbai |
Chairman |
| Date: 30th August, 2023 |
DIN:00230725 |
+91-9892691696
