Advik Capital Ltd Management Discussions

Advik Capital Limited, headquartered at New Delhi is one of the emerging non-deposit taking Non-Banking

Finance Company (NBFC) registered with the Reserve Bank of India bearing Registration No. B-14.00724. Our Company is engaged primarily in the business of providing financial loans and in providing ancillary services.

In addition to this the Company is a listed entity and its equity shares are frequently being traded at the Bombay

Stock Exchange Limited (BSE) with Scrip Code: 539773.

The Company is carrying on the business of investing funds, assisting the financial accommodation by way of loans/advances to the industrial concerns and undertaking the business of leasing and to finance lease operations of all kinds, purchasing, selling, hiring or letting on hire or all kinds of plants and machinery, bridge loan to corporates, investment in emerging businesses, their securities, interests and other rights. Very recently the Company is exploring and evaluating various other business avenues in personal and consumer finance space.

In our thirty-eight years of journey, we have transformed our operations by building a diversified product portfolio, establishing a strong geographic presence, and serving a large customer base.

SUBSIDIARIES OF ADVIK CAPITAL

1. In year 2013, the Company had formed a subsidiary in the name of Advik Optoelectronics Limited (CIN: U31900DL2013PLC256393) to further diversify activities of trading and manufacturing of electronic products which is an unlisted pubic company.

Advik Optoelectronics Limited is engaged in the business of manufacturing of various kinds of emergency life safety signage, evacuation system made of phosphorescent effect, photo luminescent, glow sign board, led board, led electronic board, life safety apparels, road safety signage, lights, emergency lights and equipment.

2. Further, in year 2022, Our Company formed a wholly owned subsidiary in the name of Advikca Finvest

Limited (CIN: U65900DL2022PLC406590) to deal in the securities market and investment consultants.

Presently, our Company holds 100% of the total issued and paid-up share capital of the Advikca Finvest

Limited (6 Equity Shares held by the Nominee Shareholders).

Advikca Finvest Limited is engaged in the business to deal in shares, securities, right interests, obligation in movable and immovable assets of all kind, with infinite technology, advanced techniques and to acquirer, buy, sell, hold, trade, dispose of or otherwise deal in shares.

INDIAN ECONOMIC ENVIRONMENT

Despite global uncertainties, the Indian economy had a strong year in 2023. It closed the year with a GDP of US$ 3.73 trillion and a GDP per capita of US$ 2,610. The projected GDP growth rate was 6.3 percent, compared to the global average of 2.9 percent. Real GDP growth in India was 7.6 percent in FY 2023-24, up from 7 percent in FY 2022-23, according to the Second Advanced Estimate by the Central Statistical Organisation. This growth was driven by a 10 percent increase in capital formation (Capex), led by high public sector investment. Non-agricultural growth was strong, with industry growing by 9 percent and services by 7.5 percent.

Inflation remained at 5.4 percent in FY 2023-24, within the Reserve Bank of Indias 6 percent upper limit. Inflation had exceeded this limit in July and August 2023 due to high prices of vegetables, pulses, and milk products. Food price inflation was high at 7.5 percent, while energy prices declined from September 2023. Core inflation was decreasing throughout FY 2023-24 but rose in the last two months, mainly due to services.

Further, the Indias Equity Market Index also denotes the inflation,growth, ups and downs in the country. It can be presented by the following chart:

TYPES OF NBFCS

Type of NBFC	Nature of activity / Principal business
Investment and Credit Company (ICC)	Lending and investments.
Infrastructure Finance Company (IFC)	Providing loans for infrastructure development.
Infrastructure Debt Fund (IDF)	Facilitate flow of long-term debt to infrastructure projects.
Core Investment Company (CIC).	Investment in equity shares, preference shares, debt, or loans of group companies.
NBFC- Micro Finance Institution (NBFC-MFI)	Collateral free loans and advances to small borrowers.
NBFC – Factor	Factoring business i.e., financing of
Non-Operative Financial Holding Company (NOFHC)	For setting up new banks in private sector through its promoter/promoter groups.
Mortgage Guarantee Company (MGC)	Providing mortgage guarantees for loans.
Asset Reconstruction Company (ARC)	Acquiring and dealing in financial assets sold by banks and financial institutions.
Peer-to-Peer Lending platform (P2P)	Providing an online platform to bring lenders and borrowers together to help mobilise funds
Account Aggregator (AA)	Collecting and providing information about a customers financial assets in a organised and retrievable manner to the customer or others as specified by the customer.
Housing Finance Company (HFC)	Financing for housing.

In October 2021, RBI decided to classify NBFCs based on size and risk perception using Scale Based Approach

The Filtering Process by segregating NBFCs into four categories namely NBFC Base Layer (BL), NBFC Middle Layer (ML), NBFC Upper Layer (UL), and NBFC Top Layer (TL).

CLASSIFICATION OF NBFCS

NBFC BL		NBFCs with asset size of not more than Rs. 10 billion, Type 1 NBFC, Peer to Peer (P2P),
		Account Aggregator (AA), and Non-Operative Financial Holding Company (NOFHC)
NBFC ML		NBFC-ND that are systematically important (SI) having an asset size of less than Rs. 10 billion and also NBFC-HFCs, IFCs, IDFs, CICs, and Standalone Primary Dealers irrespective of their asset size
NBFC UL	Top NBFCs to be filtered based on their size & leverage, inter-connectedness, complexity, and superior inputs (including group structure, liability mix, and segment penetration).
NBFC TL	Top Layer will remain empty unless RBI takes a view on specific NBFCs in the Upper Layer

Additionally, Investment and Credit Companies (NBFC-ICC), Micro Finance Institution (NBFC-MFI), NBFC-

Factors and Mortgage Guarantee Companies (NBFC-MGC) that can be classified under any layer of the regulatory structure depending on the parameters of the scale based regulatory framework. Government owned NBFCs can only be classified under base layer or middle layer.

Further, as per RBIs notification as on October 11, 2022 titled "Multiple NBFCs in a Group: Classification in Middle Layer". NBFCs that are part of a common Group or are floated by a common set of promoters are required to be viewed on a consolidated basis. For the consolidation of assets of the NBFCs in a Group, the total assets of all the NBFCs in a Group shall be consolidated to determine the threshold for their classification in the Middle Layer.

Further, RBI , being the governing authority over NBFCs issues various notifications and circulars on time-to-time for protecting the interest of the public-in-large. The present move of the Reserve Bank of India to harmonize the regulations pertaining to NBFCs and HFCs is a strategic move in order to streamline the financial sectors regulatory environment through standardization of practices, introduction of uniform regulatory norms and various changes pertaining to government records. The RBI has also aimed to enhance the stability and transparency of financial institutions and the entities impacted by these changes are also bound to conduct a thorough review of their current practices in order to ensure effective compliance by the due date i.e., 1st January, 2025.

INDIAS FINANCIAL SERVICES SECTOR

Wide-ranging financial sector reforms in India were introduced as an integral part of the economic reforms initiated in the early 1990s. Financial sector reforms in India were grounded in the belief that competitive economy will not be realized to its full potential unless the financial sector was reformed as well.

Non-banking financial sector grew rapidly, but there was no regulation of their asset side. Financial markets were characterized by control over pricing of financial assets, barriers to entry, high transaction costs and restrictions on movement of funds/participants between the market segments. Apart from inhibiting the development of the markets, this also affected their efficiency.

Reforms in financial markets focused on removal of structural bottlenecks, introduction of new players/ instruments, free pricing of financialassets, relaxation of quantitative restrictions, improvement in trading, clearing and settlement practices, more transparency, etc. Reforms encompassed regulatory and legal changes, building of institutional infrastructure, refinementof market microstructure and technological upgradation. In the various financial market segments, reforms aimed at creating liquidity and depth and an efficient discovery process.

OVERVIEW OF THE NON-BANKING FINANCIAL INSTITUTIONS

NBFC is a Financial Institution that is into Lending or Investment or collecting monies under any scheme or arrangement but does not include any institutions which carry on its principal business as agriculture activity, industrial activity, trading and purchase or sale of immovable properties. A company that carries on the business of accepting deposits as its principal business is also an NBFC.

India has a diversified financial sector undergoing rapid expansion, both in terms of the strong growth existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds, and other smaller financial entities. The banking regulator has allowed new entities such as payments banks to be created recently thereby adding to the types of entities operating in the sector.

Non-Banking Lenders have witnessed exponential growth in the last decade driven largely by regulatory reforms and their ability to cater to unbanked areas through innovative products and service delivery mechanisms. This was further supported by their effective collection platforms. Today, non-bank lenders constitute about 25%

(over INR 35.9 lakh crore as on Sept-2019) of the systemic credit outstanding and have financed over 10 crore customers drawing strength from their extensive footprint largely in rural and semi-urban areas (70% of total branches).

Non-bank lenders form an integral part of the Indian financial ecosystem. They provide underbanked/ unbanked individuals and MSMEs an opportunity to be a part of the financial mainstream. They have been successful in bridging the credit gap for the entire spectrum of customers ranging from high ticket structured loans to corporates/HNIs to microfinance credit assessment skills and deep understanding of customers. They have emerged as a vehicle for financing business activities that Banks neglected due to regulatory restrictions such as credit exposure constraints and sector concentration norms.

Non-bank lenders collaborate with banks through various modes like securitization, on-lending, and business correspondents to complement credit dissemination by underwriting small ticket loans to the agriculture sector and MSMEs. Over the years, non-bank lenders have also acquired a skill-based arbitrage over banks due to continuous innovation in their business model and processes that rely on surrogate non-financial information, use of third-party sales channels and collection processes.

Furthermore, non-bank lenders have gained market share from banks in key segments such as retail consumer loans, lending to micro small enterprises, vehicle loans and housing loans. They have been able to capture share by catering to underserved and unbanked customer segments.

However, over the past 3-4 years, the non-banking finance sector came under stress due to multiple adverse events which impacted growth and profitability. COVID-19 has further amplified the stress in the system. Loan volumes for most of the non-bank lenders have come down considerably, particularly for lenders who are directly competing with banks and have limited pricing power.

Non-bank lenders play an important role in the economy by financing micro and small-scale industries (informal sector) and provide employment and entrepreneurial opportunities at a ground level. Banks prefer lending to entities with stronger balance sheets or to lower risk segments such as the salaried class of people. Non-bank weaker sections of lenderssupportfinancially society by channelizing financial resources to capital formation. A large share of their assets (45%) is deployed into retail, MSME and vehicle finance segments.

ADVIK CAPITAL LENDING POLICY

The standard process adopted by the company from sourcing to collection is summarised as under:

1. Credit Appraisal Process – The credit appraisals are based on;

• Need for credit: the borrowers need for credit will be assessed, as per the context of the product segment. The intent is to ensure that the credit is targeted for use in a constructive way, to improvements to the borrowers earning or to improve the quality of life.

• Affordability: an assessment of the borrowers ability to service the loan will be conducted in all cases. While the assessment methodology may vary across product, the intent is always to set product features such as the disbursal amount and tenure such that the loan is affordable (within the context of the product).

• Credit rating: the borrowers credit history, and track record in managing debt, will be considered in all applications.

2. Credit Pricing - Credit will be priced after considering our cost of funds, expected credit cost and the operational cost. Pricing may be varied through the term of the loan or credit facility, based on product needs. In addition to fixed rate loans, interest rates may be floatingand reset to reflect market conditions during the term of the loan.

3. Security, insurance and charge – We may require creation of enforceable charge over the borrowers/ third party assets in favour of our Company, before the disbursement of a loan.

4. Credit Administration and Monitoring - We have a credit administration and monitoring framework which enables us to effectively identify and mitigate risks associated with clients portfolios and mark such account as early stressed account and if required limit the exposure and/or accelerate the repayment schedule of the loan of such client.

5. Collections and Recoveries – We except our clients to regularly serve the interest portion and /or the Principal amount; failing which we are required to move legally against such defaulting client.

OUR BUSINESS STRATEGY

Maintain and Expand Long-term Relationships with Clients

Our Company believes that business is a by-product of relationship. The business model is based on client relationships that are established over period of time rather than a project-based execution approach. Our

Company believes that long-term client relationship fetches better dividends. Long-term relations are built on trust and continuous satisfaction of the customers. It helps understanding the basic approach of our Company, its products and its market. It also forms basis of further expansion for our Company, as we are able to monitor a potential product/ market closely.

Leveraging of our Marketing Skills and Relationships

We continue to enhance our business operations by ensuring that our network of customers increases through our marketing efforts. Our core competency lies in our deep understanding of our customers buying preferences and behavior, which has helped us in achieving customer loyalty. We endeavor to continuously improve the product mix offered to the customers as well as strive to understand and anticipate any change in the expectation of our clients towards our products.

Diversified credit profile, strong credit evaluation and risk management systems

We seek to diversify our credit risk and ensure that no individual credit product contributes a large portion to our overall credit book. We believe that this mitigates the risk of concentration to any particular product or sector and helps us to manage our risk exposure in a more effective manner. Diversify our assets and liabilities

We intend to remain diversified in our loan book by strategically focusing on adjacent high growth and profitable lending businesses and further expand our lending and other businesses. We intend to continue tofocuson developingadiversified to achieve optimal cost of funds while balancing liquidity and concentration risks. As our cost of borrowings is determined by our financial discipline and business performance, we intend to source funding at competitive rates. In particular, with respect to our credit business, a decrease in cost of borrowings will enable us to price our products in a more competitive manner. We intend to further diversify and strengthen our profile, strategically adding additional funding resources.

Growth of the business through increasing geographical presence across India

We intend to continue to grow our loan portfolio by expanding our network through the addition of new branches. A good reach to customers is very important in our business. Increasedrevenue,profitabilityand visibility are the factors that drive the branch network. Our strategy for branch expansion includes further strengthening our presence in various parts of India by providing higher accessibility to customers.

RISK & Threats

In any business, risks and prospects are inseparable. As a responsible management, the Companys principal endeavour is to maximize returns. The Company continues to take all steps necessary to minimize its expenses through detailed studies and interaction with experts.

General Risks-

The NBFC industry in general faces the risk of re-entry and new entry of players and existence of several unorganized regional players increasing the competition which mainly affects the asset quality. This is further characterized by captive NBFCs floated by other business houses. The ever existing systemic and delinquency risks and fluctuations in interest rates and risk weight make the companies more vulnerable. Deployment of funds in sensitive and volatile sectors increases the risk exposure while concentration risk increases dependency.

Other Risks-

Management of Advik Capital Limited contemplates the following as risk and threats to its business, namely

1. Being a NBFC, we are subjected to supervision and regulation by the RBI, and any changes in RBIs regulations governing us would affect our business.

2. We depend on the accuracy and completeness of information about customers and counterparties for certain key elements of our credit assessment and risk management process, any misrepresentation, errors in or incompleteness of sucah information could adversely affect Companys business and financial performance.

3. Since we are evolving business and thus it makes difficult to evaluate our business and future operating results on the basis of our past performance, and our future results may exceed or may not meet our past performance.

4. Our financial performance is particularly vulnerable to interest rate volatility. We need to continuously manage interest rate risk.

5. High levels of customer defaults or delays in repayment of loans. We may not be able to recover, on a timely basis or at all, the full value of collateraloramountswhicharesufficientto cover the outstanding amounts due under defaulted loans. .

6. Our indebtedness and the conditions and restrictions imposed by our financing agreements could restrict our ability to conduct our business and operations in the manner we desire.

7. We face increasing competition in our business which may result in declining margins if we are unable to compete effectively.

Our Strength

Experienced Leadership Team

Our Companys senior management comprises of some of the most talented and experience leaders who have proved his excellence in various fields also. The diverse knowledge of members of the Advik Capital Limited is real assets of the company, which can make it stands out of crowd. Every member of the Company is special and experts in his hard-core field such as management, finance, operation, corporates law, legal matters etc.

The company exceptionally believe following all the rules, regulations, law prescribed by the applicable law for the time being such as Corporate Law, Listing Agreement with Stock Exchange etc.

Strong Corporate Governance Standards

Creating an institution that is built to last requires strong corporate governance standards. The governance standards are further strengthened by strong policies and processes enshrined in the Articles of Association and strong human resource. We have successfully placed process of credit evaluation, risk management, technology upliftment and business development. Further, we believe in fair trade practices and follow high standards of governance in managing the business of the Company.

Marketing

We have dedicated marketing teams who cater to the demands of the customers and ensure that tailor made solutions are offered to attract and retain the customers.

Competition

We face competition from organized as well as unorganized players in the domestic market. The financial services industry is highly competitive and we expect competition to intensify in the future. We face competition in the lending business from domestic and international banks as well as other NBFCs, fintech lending platforms and private unorganized lenders. Banks are increasingly expanding into retail loans in the rural and semi-urban areas of India. We are exposed to the risk that these banks continue to expand their operations into the markets in which we operate, which would result in greater competition and lower spreads on our loans. In particular, many of our competitors may have operational advantages in terms of access to cost-effective sources of funding and in implementing new technologies and rationalising related operational costs.

Employees

We believe our human capital is one of our most important strengthsand efficiency akeydriverofgrowth, productivity. We invest in developing our talent and leadership through various initiatives aimed at strengthening the ability of our managers to bring together people, strategies, and execution to drive business results.

Corporate Social Responsibility

The Companys CSR mission is to contribute to the social and economic development of the community through a series of efforts. Companys strategy is to integrate its activities in community development, social responsibility and environmental responsibility and encourage each business unit or function to include these considerations into its operations. The Company, for Corporate Social Responsibility activities, endeavours to promote education and ensure environmental sustainability/ ecological balance etc.

Human Resources and Work Culture

Your Company is focussed on building a high-performance culture with a growth mindset where employees are engaged and empowered to be the best they can be. Developing and strengthening capabilities of all employees in your Company has remained an ongoing priority.

Internal Control Systems

Your Company has adequate internal control system, commensurate with the size of its operations. Adequate records and documents are maintained as required by laws. The Companys audit Committee reviewed the internal control system. All efforts are being made to make the internal control systems more effective. The

CEO and CFO certification provided in the CEO and CFO certification section of the annual report discusses the adequacy of our internal control systems and procedures. Internal Control measures and systems are established to ensure the correctness of the transactions and safe guarding of the assets. The Management ensures adherence to all internal control policies and procedures as well as compliance with regulatory guidelines. The audit committee of the Board of Directors reviews the adequacy of internal controls. This improved the management of the affairs of the Company and strengthened transparency and accountability.

CAUTIONARY STATEMENT

This Statement contains forward-looking statements about the business, financial prospects of the Company. Statements about the plans, intentions, expectations, beliefs, estimates, predictions or similar expressions for future are forward-looking statements. Forward-looking statements should be viewed in the context of many risk issues and events that could cause actual performance to be different from that contemplated in the Directors Report and Management Discussions and Analysis Report. Actual results could differ materially from those expressed or implied.