Aar Shyam (India) Investment Company Ltd Management Discussions.

1. Overview

Non-banking financial companies (NBFCs) form an integral part of the Indian financial system. They play an important role in nation building and financial inclusion by complementing the banking sector in reaching out credit to the unbanked segments of society, especially to the micro, small and medium enterprises (MSMEs), which form the cradle of entrepreneurship and innovation. NBFCs ground level understanding of their customers profile and their credit needs give them an edge, as does their ability to innovate and customise products as per their clients needs. This makes them the perfect conduit for delivering credit to the unbanked and SMEs. However, NBFCs operate under certain regulatory constraints, which put them at a disadvantage position vis-a-vis banks. While there has been a regulatory convergence between banks and NBFCs on the asset side, on the liability side, NBFCs still do not enjoy a level playing field. This needs to be addressed to help NBFCs realise their full potential and thereby perform their duties with greater efficiency.

Industry Structure and Developments

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises of commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities.

So far, Non-banking Finance Companies NBFC(s) have scripted a great success story. Their contribution to the economy has grown in leaps and bounds. In terms of financial assets, NBFC(s) have recorded a healthy growth. With the ongoing stress in the public sector banks due to mounting of bad debts, their appetite to lend (especially in rural areas) is deteriorating.


NBFCs have served the unbanked customers by pioneering into retail asset-backed lending, lending against securities and microfinance. Following variables in the external environment may be seen as opportunities for the Company:

• NBFCs aspire to emerge as a one-stop shop for all financial services

• The sector has witnessed moderate consolidation activities in recent years, a trend expected to continue in the near future

• New banking license-related guidelines issued by RBI place NBFCs ahead in competition for licenses owing largely to their rural network

• New RBI guidelines on NBFCs with regard to capital requirements, provisioning norms & enhanced disclosure requirements are expected to benefit the sector in the long run.


Competitive rivalry between big players is intense in the industry

• Financial services companies often compete on the basis of offering lower financing rates, higher deposit rates and investment services;

• Stringent regulatory norms prevent new entrants;

• Customers prefer to invest their money with a reputed financial services company offering a wide range of services;

• Low bargaining power of suppliers as the industry is highly regulated by RBI;

• Medium bargaining power of customers. Although customers do not have much bargaining power, they can easily switch to another company based on the terms and quality of services provided.


The existing management has a strong technical, finance and administrative expertise in various industries and corporate sectors including the business of the Company.

Internal Control Systems and their adequacy

Given the magnitude and nature of its business, the Company has maintained sound and commercial practice with an effective internal control system. The system ensures that all transactions are authorized, recorded and reported correctly to safeguard the assets of the Company and protect them from any loss due to unauthorized use or disposition. The adequate internal information system is in place to ensure proper information flow for the decision- making process. The Company also has well-established processes and clearly defined roles and responsibilities for people at various levels. The control mechanism also involves well documented policies, authorization guidelines commensurate with the level of responsibility and standard operating procedures specific to the respective businesses, adherence to which is strictly ensured. Internal audit is carried out frequently to create awareness and to take corrective actions on the respective units or areas, which need rectification.

Outlook, risks and concerns

This section lists forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these statements as a result of certain factors. Our Outlook, risks and Concerns inter-alia as follows:

1. Our revenues and expenses are difficult to predict and can vary significantly from period to period.

2. Our success depends in large part upon our management team and key personnel, and our ability to attract and retain them.

Covid-19 Pandemic

The Corona Virus (Covid-19) Pandemic has contributed to a significant decline and volatility in global and Indian markets, and significant decrease in economic activity. On March 24, 2020 the Government of India announced a nation-wide lockdown till April 14, 2020, which was extended till May 31, 2020 through subsequent announcements, to control the spread of the virus. From 1st June onwards, further relaxations in lockdown has been granted across the country, which has helped the company employees to contact the borrowers. This has lead to significant disruption and dislocations for individuals and businesses, impacting the companys regular operations including lending and collection activities due to inability of employees to physically reach borrowers.

Segment-wise or product-wise performance.

Please refer financial statement for this.

Exchange Rate Fluctuation

The functional currency of your Company is the Indian rupee.

Human Resources

The Company regards its human resources as amongst its most valuable assets and proactively reviews policies and processes by creating a work environment that encourages initiative, provides challenges and opportunities and recognizes the performance and potential of its employees attracting and retaining the best manpower available by providing high degree of motivation.

Your Company believes in trust, transparency & teamwork to improve employees productivity at all levels. Discussion on Financial Performance With Respect To Operational Performance

The financial statements have been prepared in accordance with the requirements of the Companies Act, 2013 and applicable accounting standards issued by the Institute of Chartered Accountants of India. The details of the

financial performance of the Company are appearing in the Balance Sheet, Profit & Loss Accounts and other financial statements forming part of this annual report.

Significant Change in Financial Ratios

Based on the reported financial statements, following are the key financial ratios with respective variations:

Particular 31.03.2020 31.03.2019
(%) (%)
Current Ratio 636.73 441.79
Debt Equity Ratio 10.81 9.61
Operating Profit Margin 139.86 416.82
Net Profit Margin 143.39 437.66
Return on Net Worth -12.45 -9.54
Net Interest Margin 7.77 9.57

The several ratios presented under ‘Key Ratios, above mentioned ratios have declined by more than 25% over the previous year except debt equity ratio.


During the year the Company has not entered into any transaction of material nature with its promoters, the directors or the management, their subsidiaries or relatives etc that may have potential conflict with the interest of the Company at large.

All details of transaction covered under related party transaction are given in the notes to account.

Cautionary Statement

The management discussion and analysis report containing your Companys objectives, projections, estimates and expectation may constitute certain statements, which are forward looking within the meaning of applicable laws and regulations. The statements in this management discussion and analysis report could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operation include changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.

2. Disclosure of Accounting Treatment

The Company has prepared their annual financial results for the year ended March 31, 2020 in accordance with the applicable Indian Accounting Standards (Ind AS).