Dear Shareholders,
We present the Management Discussion and Analysis Report (MDA), an integral part of
Companys Annual
Report, which aims to provide you with a comprehensive understanding of our Companys
performance, future prospects, and the industry landscape. This report is a narrative
explanation, through the eyes of management, of how the Company has performed in the past
and its outlook for the future. We would like to emphasize that the forward-looking
statements mentioned in this report which may involve risks and uncertainties, including
but not limited to the risk inherent to the Companys growth strategy, changes in
regulatory norms, economic conditions, and other incidental factors. Actual results could
differ materially from those expressed or implied.
Industry Overview:
The financial year 2022-2023 began amidst a complex economic landscape. The global
recovery post the pandemic was hindered by geopolitical conflicts and normalization of
monetary and fiscal policies. Due to this Indian economy faced various challenges,
including inflationary trends, supply chain disruptions from China, and the Russia-Ukraine
conflict impacting commodity prices. Despite these challenges, we witnessed positive signs
as the impact of the COVID-19 pandemic on lives and livelihoods started receding, allowing
the economy to show resilience.
Non-Banking Financial Companies (NBFCs) played a pivotal role in the Indian financial
intermediation space by complementing bank credit, promoting financial inclusion, and
providing credit financing to unorganized and underserved sectors. The sector has been
operating in a favorable environment since the end of the global financial crisis,
supported by measures from the Government and RBI to improve funding access through
mechanisms like the partial credit guarantee. Though increasing rate of interest may have
negative impact on the sector and economy as a whole.
Looking ahead, NBFCs are now in the positioned for a strong revival. The economy is
showing signs of recovery, with businesses witnessing an uptick in activities. The risk of
high NPAs is decreasing as economic activities improvement, and disbursements are expected
to return to pre-COVID levels. Moreover, NBFCs have reduced their dependence on short-term
and market borrowing, with an increase in bank borrowing share.
Economic Review:
Global Economy:
The global economy demonstrated growth, driven by resilient labour markets, robust
household consumption, business investments, and a better-than-expected response to the
energy crisis in Europe. However, abrupt interest rate hikes by central banks to curb
persistently high inflation, along with other global headwinds like the Russia-Ukraine
conflict and the resurgence of COVID-19 in China, impacted economic growth during the
year. Despite these challenges, the recent reopening of China brings hope for a rapid
rebound in activity.
Indian Economy:
Indias economy quickly regained its pre-pandemic growth trajectory and surpassed the
UK to become the worlds fifth-largest economy. The Indian economy recorded a growth rate
of 7.2% in FY2023, slightly slower than the previous year due to the prevailing global
scenario. However, the economy remained resilient, driven by robust domestic demand and an
uptick in private consumption. Various structural and governance reforms, including ECLGS
extension and PMEGP extension, further strengthened the economys fundamentals and
financial markets.
The rural economy showed steady improvement, with the informal sector gradually
normalizing in terms of labor force participation. The agricultural sector exhibited
resilience, supported by favorable RABI sowing and above-average reservoir levels. The
governments continued focus on rural development is expected to drive further growth in
this sector.
Financial Life-Cycle Needs and NBFCs:
In todays financial landscape, customers life-cycle needs can be broadly classified
into five phases:
Asset acquisition, asset protection, family health and income protection, investment
and wealth management, and retirement. NBFCs have played a crucial role in addressing
these needs by fostering credit expansion in various industries, including microfinance,
personal loans, and auto finance.
Non-Banking Financial Companies (NBFCs):
NBFCs have become an integral part of the financial services system, complementing the
banking system and promoting financial inclusion. The credit extended by NBFCs as a
proportion of GDP has consistently risen, with the aggregate outstanding amount reaching
31.5 lakhs crores as of September 2022.
The critical Micro, Small, and Medium Enterprise (MSME) sector still faces significant
credit gaps, with only 39% of formal sources of credit reaching them. This presents an
enormous opportunity for NBFCs to provide last-mile credit delivery, leveraging technology
for enhanced operational efficiency and risk management.
Performance in FY 2023:
After overcoming the challenges posed by COVID-19, NBFCs have returned to normalcy.
Disbursements in FY 2023 (excluding Infra-NBFCs) exceeded pre-pandemic levels for three
consecutive quarters. Collection efficiency remained healthy, supported by improved
economic activity and a positive outlook for most sectors, assuming no significant
disruptions.
Asset quality and capital adequacy have also shown ongoing improvements. The GNPA
(Gross Non-Performing Assets) ratio declined from a peak of 7.2% during the second wave of
the pandemic to 5.9% in September 2022, close to pre-pandemic levels.
Key Regulatory Developments:
The regulatory landscape has become more stringent over time, leading to a robust and
relevant business model. Notable regulations guiding the sector include:
Prudential norms for Income Recognition, Asset Classification, and Provisioning
(IRACP) on advances:
These new norms, effective from October 2022, require an NBFC to upgrade an NPA to a
standard asset only if the borrower pays the entire arrears in the form of interest and
principal. Additionally, the recognition of NPAs shifted to a daily due-date basis.
Scale-based regulation for NBFCs:
Introduced in October 2021, the RBI introduced scale-based regulation for NBFCs. Under
this framework NBFCs based on their size, activity, and perceived risks were classified
under four layers: Base Layer (BL), Middle Layer (ML), Upper Layer (UL), and a possible
Top Layer (TL). The new framework will tighten. Each layer is subjected to specific
regulatory requirements, with progressively tighter norms for the higher layers.
The Prompt Corrective Action Framework
This framework is applicable to deposit-taking and non-deposit-taking NBFCs in the
Middle, Upper, and Top Layers identified under RBIs Scale-Based Regulations. This
excludes NBFCs not accepting/ not intending to accept public funds, government companies,
primary dealers, and Housing Finance Companies (HFCs). This framework serves as an
early-intervention mechanism for lending institutions with weak financial records (lower
profitability or poor asset quality).
Opportunities, Challenges, and Threats:
NBFCs have harnessed opportunities to serve unbanked customers through retail
asset-backed lending, microfinance, and lending against securities. Measures by the
Reserve Bank of India to inject liquidity and promote economic growth have provided
further credit off-take opportunities to MSMEs and consumer segments. New RBI guidelines
on capital requirements, provisioning norms, and enhanced disclosure requirements are
expected to benefit the sector and fuel a new wave of entrepreneurship. However, rising
competition from banks, increasing cost of funding, and talent retention remain
challenges. Additionally, stringent regulatory norms and uncertain global political
environments pose threats to the NBFC sector.
Segment-Wise Performance:
The Company operates as a Non-Banking Finance Company (NBFC) in a single segment, the
financial activity segment.
Outlook, Risk, and Concern:
We are committed to identifying risks and maintaining robust risk management mechanisms
to achieve our Companys mission and vision. Effective risk management is essential to
balance risk and rewards in todays complex business environment. The Company recognizes
potential risks, deploys appropriate systems and processes to measure and monitor them,
and implements mitigation strategies within the appropriate framework.
Adequacy of Internal Control System:
The Company maintains a system of internal controls to ensure effectiveness and
efficiency in operations, safeguard assets, ensure reliability in financial controls, and
comply with applicable laws and regulations. The internal audit function continuously
evaluates the adequacy of policies, regulatory compliance, and risk management. The Audit
Committee oversees the internal audit function and periodically reviews the findings.
Performance Review:
During the financial year, the Company achieved a Total Income of 35.26 Lacs compared
to 430.59 Lacs in the previous year. The Net Profit (after tax) for the year stood at
14.30 Lacs compared to 10.34 Lacs in the previous year. Our directors are exploring new
opportunities for the long-term growth of the Company.
Human Resources and Industrial Relations:
We consider our employees as our most valuable asset and foster an open, transparent,
and meritocratic culture. Despite the challenges posed by the COVID-19 pandemic, the
employee relationship with the Company remained harmonious. The Company has 3 permanent
employees on its rolls as of March 31, 2023.
Changes in Key Financial Ratios:
| Ratio |
FY 2022-23 |
FY 2021-22 |
| Debtors Turnover Ratio |
0.03 |
0.52 |
| Inventory Turnover Ratio |
0.15 |
0.42 |
| Interest Coverage Ratio |
21.94 |
17.47 |
| Current Ratio |
29.23 |
60.26 |
| Debt Equity Ratio |
0.80 |
0.82 |
| Operating Profit Margin |
77.27% |
4.90% |
| Net Profit Margin |
40.55% |
2.40% |
| Return on Net Worth |
2.53% |
1.87% |
We have also been going through some of the toughest challenges ever faced by humanity
owing to the outbreak of Covid 19. Your Company continues to support all its employees in
all possible ways and means in these tough times. The employee relationship with the
company remained harmonious throughout the year.
|
For and on behalf of the Board |
|
For Lead Financial Services Limited |
|
SD/- |
|
Kriti Jain |
| Place: New Delhi |
(Company Secretary) |
| Date: 24.08.2023 |
M. No. - A68277 |
+91-9892691696
