Abhinav Capital Services Ltd Management Discussions

GLOBAL ECONOMY

In 2024, the global economy demonstrated resilience despite challenges such as persistent inflation, geopolitical tensions, and policy uncertainties. Global GDP growth stabilized between 2.8% and 3.2%, according to various forecasts, slightly below the pre-pandemic average of 3.6% (2000 2019). The United States led with approximately 2.8% growth, driven by robust consumer spending and productivity gains, while the euro area experienced weaker growth of around 1%, constrained by structural issues and high energy costs, particularly in Germany. Emerging markets, notably India (6.7%) and China (5%), provided a growth counterbalance, though China faced challenges from a property sector downturn. The global economic outlook for 2025 remains cautious, with growth projected between 2.3% and 3.3%, depending on policy execution and external shocks. Global inflation declined from a 2023 peak of 6.8% to an average of 2.4% 5.9% in 2024, reflecting successful monetary tightening by central banks. Inflation is forecasted to ease further to 2.1% 4.5% in 2025, with advanced economies nearing 2% targets by mid-2025, while emerging markets may face higher rates due to tariff-induced supply shocks. Overall, the global economy in 2024 and 2025 remains stable but subdued, constrained by trade barriers, geopolitical tensions, and high debt levels. India stands out as a global bright spot, achieving 6.6% growth in 2024 and projected growth of 6.5% 6.6% in 2025, surpassing major economies and ascending to the fourth-largest economy in 2025. Despite global risks such as tariffs and geopolitical uncertainties, Indias domestically driven growth, policy reforms, and strategic investments position it favorably for sustained economic momentum.

INDIAN ECONOMY

The Indian economy in 2024 and 2025 has exhibited remarkable resilience amid a complex global landscape marked by inflationary pressures, geopolitical tensions, and supply chain disruptions, retaining its position as the worlds fastest-growing major economy. While growth has moderated from the high double-digit expansions of the immediate post-pandemic recovery (e.g., 8.2% in FY 2021-22), reflecting normalization as global demand stabilizes and domestic challenges emerge, Indias economic performance continues to outpace peers like the United States (2.8% in 2024), the euro area (1% in 2024), and China (5% in 2024). By the end of 2025, India is projected to surpass Japan in 2025 to become the fourth-largest economy, with a nominal GDP of approximately $4.34 trillion. It is expected to overtake Germany by 2027 or 2028 to become the third-largest economy, potentially reaching a nominal GDP of around $7.3 trillion by 2030.

In FY 2024-25, Indias economy demonstrated resilience at the microeconomic level, driven by strong household consumption (accounting for nearly 60% of GDP), rural income growth supported by government schemes like PM Kisan Samman Nidhi, and a robust services sector attracting global outsourcing contracts. Agriculture grew by an estimated 3.5%, supported by improved irrigation and crop diversification, while the services sector outperformed manufacturing, which faced headwinds from global trade disruptions, including supply chain bottlenecks and reduced demand from key markets like the European Union. Government policies, including a record capital expenditure of Rs. 11.11 lakh crore in FY 2024-25 and initiatives like the Skill India Mission, have bolstered micro-enterprises and rural households, fostering inclusive growth. However, challenges such as workforce skill gaps, AI-driven job displacement in sectors like IT and manufacturing, and global uncertainties (e.g., geopolitical conflicts and currency fluctuations) require proactive measures. For firms and households, including our NBFC, opportunities abound in the burgeoning digital economy through fintech innovations, untapped rural markets via financial inclusion, and sustainable sectors like green financing, though careful navigation of risks such as regulatory tightening, credit quality deterioration, and market volatility is essential.

Retail inflation, measured by the Consumer Price Index (CPI), declined significantly from 4.85% in March 2024 to 3.34% in March 2025, and further to 2.82% in May 2025, driven by improved agricultural supply chains and favorable monsoon conditions. This reduction has bolstered household purchasing power, particularly for urban consumers, stimulating demand for consumer durables, housing, and financial services sectors where NBFCs play a pivotal role. The Reserve Bank of Indias (RBI) inflation target range of 2% 6% (with a midpoint of 4%) is well within reach, with projections for FY 2025-26 suggesting inflation of 4.0% 4.2%, supported by stable global commodity prices and domestic policy measures.

Outlook

Real GDP growth for FY 2024-25 is estimated at 6.4% 6.5%, the slowest since the pandemic year (2020-21), yet India remains the fastest-growing major economy. Quarterly growth in Q4 FY 2024-25 reached 7.4%, driven by agriculture (5.4%) and construction (10.8%). Projections for FY 2025-26 range from 6.3% to 6.8%. India is projected to surpass Japan in 2025 to become the fourth-largest economy, with a nominal GDP of approximately $4.34 trillion. It is expected to overtake Germany by 2027 or 2028 to become the third-largest economy, potentially reaching a nominal GDP of around $7.3 trillion by 2030.

Retail inflation is projected to remain within the RBIs 4% target by the end of 2025, with FY 2025-26 estimates ranging from 4.0% to 4.2%, and core inflation between 4.2% and 4.4%.

The 2025 Union Budget introduced significant personal income tax reductions to boost middle-class consumption, potentially increasing GDP by 0.6% 0.7%. However, U.S. tariffs (reduced from 26% to 10% temporarily) could offset gains by 0.1% 0.3%.

NBFC

The NBFC sector in India remains a critical component of the financial ecosystem, complementing banks by providing credit to underserved segments such as micro, small, and medium enterprises (MSMEs), rural borrowers, and niche markets like second-hand vehicle financing and infrastructure projects. The sector supports diverse areas, including housing finance, microfinance, consumer finance, and infrastructure, driven by a rising middle class, enhanced financial inclusion, and supportive government policies.

As of June 2024, 9,306 NBFCs were registered with the RBI, catering to diverse borrower needs alongside banks and financial institutions. The NBFC sectors loan book doubled to Rs. 48 lakh crore in FY 2024-25 from Rs. 24 lakh crore in FY 2020-21, reflecting a compound annual growth rate (CAGR) of approximately 18.7%. Despite rising funding costs, strong credit demand fueled by Indias robust economic growth supports the sectors profitability, while stable economic conditions help maintain asset quality amid increasing interest rates.

Funding costs for non-bank finance companies (NBFCs) in India are rising, but strong credit demand fueled by the countrys robust economic growth will support the sectors profitability. Also, robust economic conditions will help them preserve their asset quality even as interest rates increase their customers debt burdens

According to RBI reports, NBFCs maintained a healthy Capital to Risk-Weighted Assets Ratio (CRAR) of 26.1% as of September 2024, well above the regulatory minimum of 15%. The Gross Non-Performing Assets (GNPA) ratio improved to 3.4%, reflecting strengthened asset quality. Profitability indicators remained stable, with a Net Interest Margin (NIM) of 5.1% and Return on Assets (RoA) of 2.9%. Overall loan growth was 20% year-on-year (YoY) in FY 2024-25.

The RBI introduced stricter regulations in 2023-24, effective April 2024, including higher risk weights for unsecured loans, increased capital requirements, and new IT governance directives to enhance operational resilience, data integrity, and cyber security. The threshold for systemically important non-deposit-taking NBFCs (NBFC-ND-SI) was raised from Rs. 500 crore to Rs. 1,000 crore, subjecting more NBFCs to stringent oversight. These measures aim to curb unsecured lending and ensure financial stability but have led to margin pressures and cautious growth strategies. The RBIs scale-based regulations classify NBFCs into layers (Base, Middle, Upper, and Top) based on size, activity, and risk, with Upper Layer NBFCs facing stricter oversight.

Conclusion

In FY 2024-25, the Indian NBFC sector demonstrated robust growth, with a loan book of Rs. 48 lakh crore and 20% YoY loan growth, driven by gold loans and diversified NBFCs. Despite challenges such as regulatory tightening and margin pressures, the sectors focus on financial inclusion, digital innovation, and strong capital buffers positions it for sustained growth. NBFCs remain a cornerstone of Indias financial system, supporting MSMEs, rural borrowers, and infrastructure development.

Outlook

The outlook for Indias Non-Banking Financial Companies (NBFC) sector in the financial year 2025-26 is cautiously optimistic, shaped by a mix of growth opportunities, regulatory challenges, and macroeconomic factors.

Strong Credit Growth:

NBFCs are expected to maintain robust credit growth, outpacing traditional banks. In FY 2025, NBFC credit growth was estimated at 11.7 12.5% year-on-year, down from 16.3% in FY 2024-25, but still significant. This trend is likely to continue into FY 2025-26, driven by demand in retail, MSME, and rural segments. Sectors like housing finance, vehicle financing, and microfinance are seeing sustained demand due to rising per capita income and government initiatives like the Credit Guarantee Fund Scheme for MSMEs and MUDRA.

Digital and Fintech Integration:

With over 2,100 fintechs operating in India, NBFCs are leveraging digital platforms for faster loan disbursal, better customer reach, and enhanced operational efficiency. The rise of digital lending platforms, AI-driven credit scoring, and block chain-based transactions is transforming the sector.

Regulatory Environment:

The RBIs focus on financial stability will ensure tighter oversight, but supportive policies like increased FDI limits and digital initiatives will create growth opportunities

The NBFC sector in India for FY 2025-26 is poised for growth, driven by digital innovation, financial inclusion initiatives, and strong demand in retail and MSME lending. However, challenges like asset quality stress, liquidity pressures, and regulatory changes will require NBFCs to adopt prudent risk management and technological advancements to sustain growth. While larger NBFCs with diversified portfolios are likely to thrive, smaller players may face challenges in navigating the evolving landscape

OPERATION

The companys operational performance in FY 2024-25 reflected a challenging environment, with Revenue from Operations declining by 64.2%, from Rs. 15,29,47,257/- in FY 2023-24 to Rs. 5,47,73,165/- in FY 2024-25, a strategic decision by management to shift focus toward higher-quality assets and reduce lending activity amid market uncertainties. This reduction was accompanied by a sharp decline in Profit Before Tax, dropping from Rs. 10,88,87,723/- to Rs. 2,05,74,017/-, a significant decrease largely attributable to the absence of substantial investment disposal gains that bolstered profits in the prior year, despite successful expense reduction efforts. Borrowings (other than debt securities) decreased dramatically from Rs. 37,50,00,000/- to Nil, indicating a proactive repayment of loans to strengthen the balance sheet and reduce leverage, a move that aligns with the companys conservative financial strategy.

As a small NBFC registered with the RBI, the company maintains a net worth of approximately Rs. 79.83 crores and a loan portfolio of Rs. 8.18 crores, focusing exclusively on corporate loans and investment activities, with a current investment portfolio valued at Rs. 43.23 crores (as detailed in Note 6 of the balance sheet). The company benefits from a strategic tie-up with an expert market research team, which provides critical insights into diverse investment options, enabling informed decision-making in a volatile market. Operating solely with reputed and long-term associated clients, the company deliberately avoids retail funding and unsecured lending, minimizing risk exposure and aligning with its risk-averse business model.

Outlook for the Company

The financial year 2024-25 proved to be a challenging period for the company, marked by significant reductions in assets, revenue, and profitability due to adverse market conditions, including global economic slowdowns and domestic regulatory shifts. For FY 2025-26, the Board has outlined a comprehensive strategy to leverage cost efficiencies through streamlined operations, explore digital lending opportunities to enhance reach and efficiency, and address asset quality concerns through rigorous credit assessment processes, aligning the company with the sectors cautious yet promising growth outlook. With a strong capital base, a focused loan portfolio, and strategic investments guided by expert advice, the company anticipates an improvement in net profit for the current financial year, provided it effectively monitors liquidity, ensures compliance with evolving RBI regulations, and adapts to fluctuating market demand. The companys commitment to serving established corporate clients and avoiding high-risk segments positions it well to capitalize on emerging opportunities in the Indian financial landscape, though proactive risk management will remain essential.