MANAGEMENT DISCUSSION AND ANALYSIS REPORT (MDAR)
INDIAN FINANCIAL SERVICES SECTOR OVERVIEW:
The Indian financial services sector is a vital component of the countrys economy,
comprising a diverse range of players such as commercial banks, insurance companies,
non-banking financial companies, pension funds, mutual funds and other smaller financial
entities. The sector has been evolving over the years, coupled with changes and reforms by
the Government and regulatory bodies to strengthen the industry, enhancing its growth
prospects.
One of the key growth drivers for the sector has been the increasing focus on financial
inclusion and providing better access to finance for the underbanked and underserved
sections of the society. This has led to the emergence of digital banking, microfinance,
and fintech collaborations that are disrupting traditional banking models.
Despite the uncertain global environment since early 2020, the Indian financial sector
has remained stable and resilient. Furthermore, the Non-Banking Financial (NBFC) sector
has played a crucial role in bridging the credit gap and supporting the growth of various
sectors such as micro, small and medium enterprises (MSMEs), agriculture and affordable
housing, among others.
INDUSTRY OVERVIEW AND FINANCING:
The financial institutions have a vital role in promoting stability and implementing
regulatory measures to support households and businesses, especially amid economic crises.
At present, the geopolitical conflicts have slowed down countries post-pandemic
recoveries, hastening the normalization of monetary and fiscal policies.
In India, NBFCs have emerged as the principal institutions providing credit financing
to the unorganized and underserved sectors. NBFCs have revolutionized the lending system
in India by providing financial inclusion for those who lack easy access to credit. They
offer a range of services, including MSME financing, home finance, microfinance, gold
loans and other retail segments. On the back of digitalization and technology, NBFCs are
further offering quick and convenient customer financing experience, especially for low-
income and untapped segments of the creditworthy population. These companies have unlocked
industrial opportunities by leveraging a hybrid model of physical and digital delivery.
Despite facing competition from banks in traditional segments, NBFCs have raised Rs.
700 Billion in equity over the past 3.5 years, improving their gearing levels.
With more robust balance sheets, lower leverage and steadily improving funding access,
NBFCs are well- positioned to capitalise on credit demand. This could lead to an increase
in Assets Under Management (AUM) by 13-14% in FY 2023-24, with a strategic focus on non-
traditional segments such as unsecured loans, used vehicles and the MSME sector.
According to the Reserve Bank of India (RBI) data, outstanding bank credit to NBFCs has
significantly increased from Rs. 3.68 Lac crore in 2017 to Rs. 13.20 Lac crore as of
December 2022. NBFCs are expected to play a crucial role in financing Indias transition
from the worlds fifth-largest to the third-largest economy by the end of this decade. The
Government is also focusing on developing NBFCs with high emphasis on driving quality
corporate governance across these entities. Following sluggish years amid liquidity
stress, NBFCs have bounced back strongly with higher capital levels, reasonable stability
in delinquency accounts, better asset quality and larger balance sheets. Stronger risk
assessment frameworks, Government support such as debt moratorium and liquidity
enhancement measures and broader economic revival have helped them tide through these
challenges and pursue innovative strategies to meet evolving opportunities.
MICRO, SMALL AND MEDIUM ENTERPRISES (MSME):
The MSME sector in India plays a crucial role in providing employment opportunities and
contributing significantly to the countrys GDP. The outbreak of the Covid-19 pandemic
accelerated the adoption of digital technologies, resulting in increased efficiency and
revenue for small business owners. However, the MSME sector is currently facing a credit
gap from formal financial institutions, with only 15% of the total addressable market
being served by them. This situation presents a promising opportunity for NBFCs to offer
customised products and digital solutions to help the sector grow.
Regarded as the cornerstone of the Governments Make in India campaign, the Indian
Governments numerous supportive measures aimed at creating a favorable environment for
MSMEs will continue to propel a positive growth outlook. It is expected to lay strong
emphasis on providing MSMEs with access to easy and secure funding to overcome
credit-starvation and the hazards of credit fraud. The numerous Government initiatives
supporting this positive outlook include tax exemptions, access to funding and expansion
of financing, marketing and technology. Some other notable policies in this direction are
the Pradhan Mantri MUDRA Yojana (PMMY), Special Credit Linked Capital Subsidy Scheme
(SCLCSS), SAMBHAV and National MSME Policy.
NBFCs have played a significant role in boosting credit flow to MSMEs, especially in
underbanked areas of the country. These companies have adopted innovative tools,
unconventional risk modelling and personalised offerings to cater to the specific
requirements of small businesses. Additionally, NBFCs have leveraged technology for data
analytics and streamlined their processes for faster disbursement of credit.
Compared to banks, they have been more agile and introduced personalised products based
on the risk profiles and demands of different segments of the sector. Furthermore, NBFCs
have partnered with fintech players, banks and alternative lenders to extend credit and
bundled products for businesses.
OUTLOOK:
As observed in FY 2022-23, the fundamentals of the countrys economy remained resilient
despite the challenges felt by the global economy. India is further expected to witness a
growth of 6.0% in FY 2023-24. RBI projects CPI inflation for Q1 - FY 2023-24 at 5.0% and
for Q2 -FY 2023-24 at 5.4% on the assumption of a normal monsoon. Whereas on the
inflationary front, it is anticipated that the rates would remain moderate somewhere
between 5-6%, due to the Governments adherence to calibrated monetary policies.
The Governments continued focus on infrastructure development, coupled with rising
private investment, is providing the necessary momentum for the countrys economy to
flourish, backed by robust GST collections and forex reserves. The total gross collection
for FY 2022-23 stands at Rs. 18.10 Lac crore with revenue increased by 22% that FY
2021-22. Way forward the GST collections would grow in the coming years and will be
utilised in the economic development.
The forex reserve stood at USD 595.976 Billion in the first week of May 2023 marking
second consecutive weekly rise in reserves. However, a high degree of synchronisation
between Indias growth cycles with advanced countries urges to remain cautious about
plausible hindrances. This could have a significant impact on Indias deepening trade and
financial connections with advanced economies
OPPORTUNITIES AND THREAT:
Your Company is committed to addressing the changes boosted by its strengths in market
position, agile execution capabilities, robust early warning systems and extensive use of
analytics for risk mitigation and resource allocation. It will ensure to take advantage of
the tailwinds that may emerge during the course of the year.
The stringent RBI and other regulatory norms governing the functioning of NBFC and
certain government restrictions acts as hindrance in smooth functioning of NBFC.
Accounting Treatment
The Company has followed all the applicable Indian Accounting Standards (Ind AS) issued
by the Ministry of Corporate Affairs (MCA) in the preparation of financial statements
SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE OF THE COMPANY:
The Company identifies primary segments based on the dominant source, nature of risks
and returns and the internal organisation and management structure. The operating segments
are the segments for which separate financial information is available and for which
operating profit/loss amounts are evaluated regularly by the executive Management in
deciding how to allocate resources and in assessing performance. During the Financial Year
ended March 31, 2023, the Segment wise gross revenue before allocating expenses of the
Company under different segments was as under (all figures are in thousand):
| Sale of Shares |
Rs. 1,614.88 |
| Interest |
Rs. 4,963.39 |
| Dividend |
Rs. 5.93 |
RISK MANAGEMENT:
The Company prioritises risk management to protect the interest of customers,
colleagues, shareholders, and the Company while ensuring sustainable growth. Our risk
management framework aligns with industry standards, and a strong control framework forms
the foundation for effective risk management. The Risk Management Committee identifies
major risk classes, including Credit, Market, legal and regulatory, operational,
liquidity, interest rate, cyber security, information technology, strategic, and economic
risks.
We address increasingly complex risks through our risk management system, which
conducts risk analysis and implements preventive measures. Our risk-focussed culture is
supported by standards, guidelines, processes, procedures, and controls.
Our philosophy is to ensure a sustainable and ethical business environment, reflected
in our risk management practices.
Further, the company has always maintained strict credit norms and processes to ensure
financial assistance is granted only to able borrowers.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
The Company has a well-defined organisational structure, documented policy guidelines,
and a defined authority matrix that ensures efficiency of operations, compliance with
internal policies and applicable laws and regulations, as well as protection of resources.
The Company believes that a strong internal control system and processes play a critical
role in the day-to-day operations of the Company.
To this end, the Company has put in place an effective internal control system to
synchronise its business processes, operations, financial reporting, fraud control, and
compliance with extant regulatory guidelines and compliance parameters. Strict internal
control and systems are devised as a depiction of the principles of the highest standards
of governance. The Company ensures that a standard and effective internal control
framework operates throughout the organisation, providing assurance about safekeeping of
the assets and execution of transactions as per the authorisation in compliance with the
internal control policies of the Company.
The internal control system is supplemented by extensive internal audits, regular
reviews by the management and standard policies and guidelines, which ensure reliability
of financial and all other records. The Management periodically reviews the framework,
efficacy, and operating effectiveness of the Internal Financial Controls of the Company.
The Company has, in material respect, an adequate internal financial control over
financial reporting and such controls are operating effectively. Internal Audits are
carried out to review the adequacy of the internal control systems, compliance with
policies and procedures. Internal Audit areas are planned based on inherent risk
assessment, risk score and other factors such as probability, impact, significance and
strength of the control environment. Its adequacy is assessed, and the operating
effectiveness was also tested. The Company has framed risk-based internal audit policy as
part of its oversight function. The objective of risk-based internal audit review is to
identify the key activities and controls in the business processes, review effectiveness
of business processes and controls, assess the operating effectiveness of internal
controls and provide recommendations for business process and internal control improvement
DISCUSSION ON FINANCIAL PERFORMANCE
Details of the Companys financial performance on standalone basis for the last two
years is as follows: (Amount in thousand)
| Year |
Total Revenue |
Profit/ Loss after tax |
EPS |
| 2021-22 |
12,401.25 |
4,547.10 |
0.86 |
| 2022-23 |
6,584.20 |
(1,593.88) |
(-0.30) |
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES /INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER
OF PEOPLE EMPLOYED:
Human resources are a valuable asset for any organization. The Company is committed to
create an environment of constant learning and development, drive an effective and
transparent performance culture and build a culture of appreciation & transparent
communication. The Company had 4 employees as at March 31,2023.
RELATED PARTY DISCLOSURE
Related parties and transactions with them as required under Indian Accounting Standard
(Ind AS-24) are furnished under Note No. 25.20 of the Notes to Accounts attached with the
Financial Statement for the year ended March 31, 2023. There are no other pecuniary
relationships or transactions with non-executive independent directors.
The transaction with related parties is neither materially significant nor they have
any potential conflict with interests of the Company at large.
DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE
IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED
EXPLANATIONS THEREFORE, INCLUDING:
Following are the details of significant changes in the key financial ratios as
compared to the immediately previous financial year:
| s. No |
Ratio |
Numerator |
Denominator |
Current Period |
Previous Period |
% Variance |
| 1 |
Current Ratio (in times) |
Current Assets |
Current Liabilities |
58.25 |
15.29 |
281.14 |
| 2 |
Debt - Equity Ratio (in times) |
Total Debt |
Shareholders Equity |
0.02 |
0.13 |
(81.64) |
| 3 |
Debt Service coverage Ratio (in times) |
Earnings available for debt service |
Debt Service |
(1.11) |
(0.69) |
61.58 |
| 4 |
Return on Equity (ROE) (in %) |
Net Profit after taxes |
Shareholders Equity |
-2.34 |
0.07 |
-3443.01 |
| 5 |
Inventory Turnover Ratio (in times) |
Sales |
Average Inventory |
2.88 |
5.29 |
(45.55) |
| 6 |
Trade Receivable turnover Ratio (in times) |
Net Credit sales |
Average Trade Receivable |
498.52 |
3.13 |
15,827.15 |
| 7 |
Trade Payables Turnover Ratio (in times) |
Net Credit Purchases |
Average Trade Payables |
10.66 |
1.74 |
512.61 |
| 8 |
Net Capital Turnover Ratio (in times |
Net Sales |
Working Capital |
0.75 |
2.34 |
(68.08) |
| 9 |
Net Profit Ratio (in %) |
Net Profit |
Net Sales |
-24.21 |
36.67 |
-166.02 |
| 10 |
Return on Capital Employed |
Earnings before interest and taxes |
Capital Employed |
(0.03] |
0.08 |
(135.38) |
Reason for Variances
1. Return on Equity is negative due to decrease in the profit.
2. Net Profit ratio and return on capital employed is negative due to decrease in
profit.
3. Trade receivable and trade Payable ratio were affected due to COVID-19 considerably.
4. Capital turnover ratio has decreased as compared to previous year due to reduction
in working capital.
CAUTIONARY STATEMENT
This report contains forward-looking statements extracted from reports of Government
Authorities/ Bodies, Industry Associations etc. available on the public domain which may
involve risks and uncertainties including, but not limited to, economic conditions,
government policies, dependence on certain businesses and other factors. Actual results,
performance or achievements could differ materially from those expressed or implied in
such forward-looking statements. This report should be read in conjunction with the
financial statements included herein and the notes thereto. The Company does not undertake
to update these statements.
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