Advik Capital Ltd Management Discussions

NBFCS: AN INDUSTRY OVERVIEW

NBFCs remain a pivotal part of Indias financialservices ecosystem, leveraging their deep regional knowledge, faster decision-making capabilities, and customer-centric services to promote financial inclusion. They continue to fill credit gaps, particularly in underserved segments where traditional banks have limited penetration.

The RBIs Financial Stability Report highlights a recent reduction in the policy repo rate to 5.50%, with corresponding adjustments to the Standing Deposit Facility (5.25%) and the Marginal Standing Facility and Bank Rate (5.75%). While the global economic outlook has shown signs of stabilization, uncertainties continue to weigh on growth and policy direction.

Global growth is projected at 3.3 percent both in 2025 and 2026, below the historical (2000 19) average of 3.7 percent.

The forecast for 2025 is broadly unchanged from that in the October 2024 World Economic Outlook (WEO), primarily on account of an upward revision in the United States offsetting downward revisions in other major economies. Global in 2025 and to 3.5 percent in 2026, converging back to target earlier headline inflation in advanced economies than in emerging market and developing economies.

Medium-term risks to the baseline are tilted to the downside, while the near-term outlook is characterized by divergent risks. Upside risks could lift already-robust growth in the United States in the short run, whereas risks in other countries are on the downside amid elevated policy uncertainty. Policy-generated disruptions to the ongoing disinflation process could interrupt the pivot to easing monetary policy, with implications for fiscal sustainability and financial stability. Managing these risks requires a keen policy focus on balancing trade-offs between inflationand real activity, rebuilding buffers, and lifting medium-term growth prospects through stepped-up structural reforms as well as stronger multilateral rules and cooperation.

After enduring a prolonged and unprecedented series of shocks, the global economy appeared to have stabilized, with steady yet underwhelming growth rates. However, the landscape has changed as governments around the world reorder policy priorities and uncertainties have climbed to new highs. Forecasts for global growth have been revised markedly down compared with the January 2025 World Economic Outlook(WEO) Update, reflecting effective tariff rates at levels not seen in a century and a highly unpredictable environment. Global headline inflation is expected to decline at a slightly slower pace than what was expected in January.

Intensifying downside risks dominate the outlook, amid escalating trade tensions and financial market adjustments. Divergent and swiftly changing policy positions or deteriorating sentiment could lead to even tighter global financial conditions. Ratcheting up a trade war and heightened trade policy uncertainty may further hinder both short-term and long-term growth prospects. Scaling back international cooperation could jeopardize progress toward a more resilient global economy

According to the IMFs World Economic Outlook 2025 reference forecast global headline, inflation is expected to decline to 4.3 percent in 2025 and to 3.6 percent in 2026. Inflation is projected to converge back to target earlier in advanced economies, reaching 2.2 percent in 2026, compared with emerging market and developing economies, for which it declines to 4.6 percent over the same time horizon. Compared with that in the January 2025 WEO Update, the global inflation forecast is slightly higher.

Indias economic performance in FY 2024-25 reflects a consistent and robust growth trajectory, with the nations Gross

Domestic Product (GDP) growing by 6.5%, thereby solidifying its status as the fastest-growing major economy. This growth is primarily driven by substantial government investment in infrastructure, a resurgence in rural demand driven by a thriving

Kharif crop, and the sustained expansion of the services sector, notably in finance and real estate. The Reserve Bank of Indias prudent, accommodative monetary policy, which includes an interest rate reduction, has further spurred both investment and consumption. In addition, a marked improvement in manufacturing output and resilient urban consumption have further invigorated the economic momentum. While global trade uncertainties remain an external risk, Indias intrinsic economic strength, coupled with policy interventions and robust private sector investments, is set to underpin continued growth.

Agriculture and Allied revival with a 4.6% growth in FY 2024-25, Sectors: Theagricultural sectorexperienced a significant emerging from a period of subdued performance. Beneficial monsoon conditions have led driving rural income growth and fuelling increased demand. In parallel, government-led initiatives focussed on empowering farmers and advancing agricultural infrastructure have further reinforced the sector, fostering a foundation for continuous growth and resilience. Industrial Sector: The industrial sector recorded a GDP growth of 6.1% in FY 2024-25, propelled by substantial progress in construction and key utility sectors, including electricity, gas, and water supply. The manufacturing segment, in particular, has shown resilience, with increased output across key industries, further strengthening the overall industrial performance. Services Sector: With its continued dominance in Indias GDP, the services sector grew at a pace of 7.2% in FY 2024- 25, driven by financial, real estate, and professional services. In parallel, trade, transport, and communication services saw a growth of 6.4%, reflecting an uptick in both economic momentum and consumer-driven demand.

Construction Sector: The construction sector recorded a growth of 9.4% in FY 2024-25, largely driven by extensive infrastructure development and an increase in investments. Government allocations to key projects have played a critical role in stimulating employment, while also fostering growthinrelatedindustries.In significantdevelopment, Indias inflation eased to 3.16% in April 2025, remaining below inflation the RBIs 4% target for the third consecutive month, as food prices rose at a slower pace. The easing inflation also signals improving supply-side dynamics, particularly across food and core components, further reinforcing the outlook for sustained economic momentum. In its June 6, 2025 policy review, the RBI executed a 50 bps repo rate cut, bringing the rate down to 5.50%, and simultaneously trimmed the Cash Reserve Ratio (CRR) by 100 bps, injecting nearly INR 2.5 Trillion of liquidity into the banking system. This front-loaded easing, building on earlier cuts of 25 bps in February and April, signals a decisive pivot to rejuvenate growth. The policy stance has shifted from "accommodative" to "neutral," reflecting a strategic pause, even as the central bank signals readinesstoactfurtherifconditionswarrant.Withinflationfirmly under control and ample liquidity, these measures aim to stimulate lending (especially to MSMEs and retail borrowers), support credit transmission, and fortify the broader economic recovery amid external uncertainties.

The Union Budget FY 2025 26 reinforced the governments commitment to sustainable growth while maintaining fiscal discipline. Capital expenditure was raised to an unprecedented INR 11.21 Lakh Crores (~3.1% of GDP), underscoring a strategic focus on infrastructure, rural upliftment, and catalyzing private sector investment. The fiscal deficit target was further trimmed to 4.9%, demonstrating prudent budget management. A major boost came from the RBIs record dividend transfer of INR 2.69 Lakh Crores, substantially above the budgeted INR 2.56 Lakh Crores, which creates roughly INR 70,000

Crores of extra fiscal room. This contribution alone could lower the deficit by 20 30 bps, potentially bringing it near 4.2% of GDP, or alternatively, enabling enhanced capital spending onkeypriorities,allwhilepreservingfiscalprudence Consumption revival remained a key policy focus, with higher allocations to rural flagship schemes, enhanced Direct Benefit Transfers

(DBTs), and tax relief under the new income tax regime effected to achieve intended outcome. These steps are expected to strengthen disposable income and boost consumption recovery, particularly among rural and middle-income households.

Road Ahead

The Indian economy is projected to experience a growth rate ranging from 6.3% to 6.8% in FY 2025-26, driven by transformative structural reforms, digital evolutions, and a rising wave of consumer demand. Initiatives such as Make in India and the Production-Linked Incentive (PLI) schemes are strengthening the manufacturing sector, channelling significant investments into key sectors like electronics, semiconductors, and renewable energy.

In parallel, large-scale infrastructure projects—spanning highways, ports, and smart city developments—are expected to enhance economic activity and generate substantial employment prospects. With continued policy support and strategic investments, India is well-positioned to sustain its growth trajectory, solidifying its role as a global economic powerhouse.

Indias financial servicessectorhasadeptlynavigated fluctuatingenvironment, influencedby evolving monetary policies and shifting global dynamics. The Reserve Bank of India (RBI) initiated a cycle of monetary easing, reducing key policy rates to stimulate economic growth. Despite this, banks struggled with higher borrowing costs, exacerbated by the rising demand for infrastructure bonds. As of February 2025, the liquidity shortfall had escalated to approximately Rs. 1.7 Trillion. To counterbalance this, the RBI intervened with a USD 10 Billion forex swap, designed to stabilise shortterm interest rates and ensure financial equilibrium. The sectors transformation was further strengthened by rapid advancements. The advent of Artificial Intelligence (AI), Open Banking, and digital currencies has become pivotal in refining financial services. The introductionoftheDigitalRupeemarked significantstep towards a fully cashless economy. AI-driven innovations enhanced both customer experience and risk management, while Open Banking paved the way for broader financialinclusion. Simultaneously, the insurance industry adapted to emerging risks, with health insurers in Delhi considering premium adjustments due to the increasing prevalence of air pollution-related health issues. However, the sector continues to face challenges, including rising levels of unsecured lending and an increase in credit card delinquencies, particularly among younger demographics. The recent interest rate cuts have also placed additional pressure on banks net interest margins. Despite these obstacles, Indias financial for sustained growth and long-term resilience, supported by proactive regulatory measures, robust digital infrastructure, and a persistent commitment to financial inclusion.

The Non-Banking Financial Companies (NBFC) sector continues to serve as an indispensable pillar in Indias financial framework, playing a pivotal role in enhancing financial inclusion and broadening access to credit. As of FY 2024-25, the sector has expanded to approximately USD 350 Billion, marking a consistent increase from the previous years USD 326 Billion. However, the growth of the sectors Assets Under Management (AUM) is forecasted to moderate, with year-on-year growth projections for FY 2024-25 and FY 2025-26 ranging between 15-17%, a decline from the robust 23% recorded in

FY 2023-24. This deceleration is attributed to mounting challenges such as rising delinquencies, intensified frameworks, and tighter funding conditions. Despite these obstacles, essential lending verticals, including SME financing, loans against property (LAP), and used vehicle financing, are poised to continue their growth trajectory, demonstrating the sectors resilience in the face of adversity.

Regulatory reforms continue to reshape the NBFC landscape, with the Reserve Bank of India (RBI) implementing scalebased regulations to enhance governance, risk management, and operational stability. The focus on diversifying funding sources to reduce reliance on traditional banking channels has become more critical in ensuring liquidity and financial health. Additionally, the sector faces increasing competition from traditional banks and fintech players, necessitating strategic realignments to maintain market relevance. The RBIs emphasis on prudent lending practices, particularly in unsecured loan segments, highlights the need for NBFCs to strengthen their risk assessment frameworks and financial prudence.

Technological Advancements and Emerging Opportunities Digital transformation remains a key growth enabler for NBFCs, with the adoption of AI-driven credit assessments, digital lending platforms, and data-driven risk management significantly efficiency and customer accessibility. The governments push for financial inclusion, along with enhancing initiatives like PMJDY and Mudra Yojana, further supports the sectors expansion into underserved markets. Meanwhile, co-lending partnerships with banks and increased Foreign Direct Investment (FDI) are providing access to lowcost capital, strengthening financial sustainability. While challenges such as regulatory compliance, competition from banks and fintechs, and macroeconomic uncertainties persist, NBFCs that leverage technology, diversify funding sources, and strengthen risk management frameworks will be well-positioned for sustainable growth. The sectors ability to innovate and adapt will ultimately determine its long-term success in Indias evolving financial landscape.

The Indian passenger vehicle (PV) market is experiencing a period of moderate growth, influenced by a complex interplay of evolving consumer preferences, economic factors, and technological advancements. In FY 2025, the sector achieved an all-time high in sales, registering a 2.0% year-on-year increase to approximately 43 lakh units. However, this growth has been tempered by the high base effect from the preceding years. Sports Utility Vehicles (SUVs) continue to lead the market, driven by strong consumer interest and a wave of new product introductions. Additionally, favourable government policies and a stable macroeconomic backdrophavereinforcedconsumerconfidence,sustaining demand despite inflationary pressures and rising borrowing costs. That said, the competitive intensity within the sector remains formidable, leading to significant pricing pressures and the imperative for continuous innovation to maintain market dominance. Looking ahead, the passenger vehicle market is poised to reach a remarkable valuation of USD 300 billion by 2026, driven by escalating income levels, urbanisation trends, and an increasing middle class with enhanced purchasing capacity. The electric vehicle (EV) segment, in particular, is expected to emerge as a primary growth catalyst in the coming years, fuelled by investments in EV technology and the expansion of necessary infrastructure. Nonetheless, challenges such as limited charging infrastructure and affordability issues continue to pose barriers to mass adoption. Additionally, the increasing integration of digitalisation within the sector is redefiningsales, marketing, and customer engagement, with manufacturers utilising online platforms to drive growth. Despite short-term challenges, the long-term growth trajectory remains positive, underpinned by robust demand in the SUV segment and the accelerating pace of electrification.

The Indian MSME sector continues to exhibit strong growth supported by favourable government policies, rising exports and improved access to credit. MSMEs have played a crucial role in Indias export performance, with MSM Eexports growing from Rs. 3.95 Lakh Crores in FY 2020-21 to Rs. 12.39 Lakh Crores in FY 2024-25, highlighting their increasing global expansion, 5 presence.93 Crore MSMEs registered on the Udyam Portal as Additionally,thesectorwitnessed significant of 4th February, 2025, including 5.84 Crore micro enterprises. The governments decision to revise the MSME classification criteria in the Union Budget 2025, increasing investment limits is expected to further support business scalability while retaining the benefits associated with the sector.

The sectors growth trajectory will be shaped by continued government initiatives such as increased credit guarantees, special credit cards for small businesses and expanded procurement support. Public sector procurement from micro and small enterprises(MSEs)reachedRs.71,560Crores,benefiting2.02 Lakh MSEs as of April 2024. However, challenges such as limited credit accessibility, infrastructure bottlenecks, and competitive global markets persist. With MSMEs contributing nearly 30% to Indias GDP and accounting for 40% of the countrys exports, sustained policy support and investment in infrastructure will be crucial in maintaining their growth momentum and fostering longterm resilience in the sector. The MSME sector also plays a vital role in employment generation, providing livelihoods to millions across urban and rural India. With its contribution to nearly 45% of the countrys total manufacturing output, the sector remains a backbone of industrial development. The increasing digitalisation of MSMEs, driven by fintech solutions and e-commerce platforms is further enhancing their market reach and operational efficiency. Additionally, the rise of sustainable and green manufacturing practices within MSMEs is gaining traction, aligning with global environmental standards and enhancing their competitiveness in international markets. Strengthening digital infrastructure, skill development programmes and technology adoption will be key to unlocking the full potential of the sector in the coming years.

The landscape of the Indian gold loan market is undergoing a paradigm shift, with a growing trend of urban and semiurban consumers opting for gold-backed credit financing solutions. Traditionally dominated by rural borrowers and small-scale businesses, the sector is now witnessing an increasing adoption among salaried professionals and selfemployed individuals to address their immediate liquidity needs. The convenience of gold loans, facilitated by minimal paperwork and rapid approval processes, has contributed significantly to their rising popularity. Furthermore, the advent of digitalisation has played a key role in enhancing the efficacyof loan applications and online channels and mobile apps. Additionally, NBFCs are concentrating their efforts on product innovation to cater to an increasingly diverse customer demographic. New gold loan products, featuring flexible repayment schedules, reduced interest rates, and enhanced loan-to-value (LTV) ratios, are being introduced to appeal to a wide array of borrowers. The growing trend of digital gold loans, which allows customers to electronically pledge their gold, is reshaping the landscape of the industry. Additionally, synergies between fintech companies and conventional lenders are enhancing the customer experience by offering streamlined loan processes and real-time valuation of gold assets. growth, it continues to contend with obstacles like regulatory Although the sector has demonstrated significant tightening and the inherent volatility of gold prices. The Reserve Bank of Indias intensification has enforced stricter compliance protocols for lenders, thereby promoting transparency and fostering equitable lending practices. Additionally, fluctuations in gold prices present a double-edged sword: rising valuations encourage greater loan disbursements, yet price declines may expose lenders to amplified risks.

Advik Capital Limited, headquartered in New Delhi, is an emerging Non-Deposit Taking Non-Banking Financial Company

(NBFC), registered with the Reserve Bank of India (Registration No. B-14.00724). Classified as an NBFC Investment and

Credit Company (NBFC-ICC), the Company falls under the Base Layer (NBFC-BL) category as per the RBIs Scale Based Regulation (SBR) framework.

Advik Capital is primarily engaged in providing financial loans and allied services. As a listed entity, the Companys equity shares are actively traded on the Bombay Stock Exchange (BSE) under Scrip Code: 539773.

With a legacy spanning over 36 years, Advik Capital has evolved into a dynamic financial institution, having built a diversified product portfolio and strong regional presence while serving a growing customer base. Our core businesses include extending loans and advances to industrial concerns, leasing operations, bridge financing investments in emerging businesses and securities. Recently, the Company has been actively evaluating growth avenues within personal and consumer finance.

To diversify into electronic manufacturing and trading, Advik Capital established Advik Optoelectronics Limited in 2013 as a wholly owned subsidiary. However, it ceased to be a subsidiary effective September 30, 2024.

In 2022, we incorporated Advikca Finvest Limited (CIN: U65900DL2022PLC406590), a wholly owned subsidiary focused on dealing in shares, securities, rights, and interests in movable and immovable assets. Advik Capital currently holds 100% of the paid-up share capital of Advikca Finvest (with 6 equity shares held by nominee shareholders).

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 to focus on developing a diversified funding model 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. Increased revenue, profitability and 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.

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.

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 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 such 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 collateral or amounts whicharesufficientto 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 senior management team comprises seasoned professionals with expertise across management, finance, operations, corporate law, and compliance. Their diverse backgrounds and commitment to regulatory integrity form the backbone of our strategic and operational excellence.

We uphold high standards of corporate governance, reinforced by robust internal policies, transparent practices, and adherence to statutory frameworks. This is supported by sound risk management, credit evaluation systems, and responsible business conduct.

A dedicated marketing team ensures tailored financialsolutions to meet evolving customer needs, helping us retain and expand our client base.

Operating in a highly competitive market, we differentiate ourselves through agility, deep customer insight, and innovative lending models. While banks and fintechs present strong competition, our understanding of underserved markets and flexible structures gives us an operational advantage.

Our employees are a core asset. We foster a growth-oriented, performance-driven culture with continued investment in leadership development and employee capability building.

We integrate CSR into our operations by promoting education, environmental sustainability, and community development, aiming to create long-term social impact.

We maintain robust internal controls aligned with the scale of our operations. These systems ensure compliance, accuracy in financial reporting, and safeguard of assets. The Audit Committee periodically reviews and strengthens these controls for enhanced accountability and transparency.

The Board has outlined a strategic roadmap for the next 3 to 5 years, centered on driving sustainable growth and achieving operational excellence. The key initiatives include: Periodic Review of Business Strategies: Conducting regular evaluations to ensure alignment with market dynamics while maintaining efficient liquidity management.

Optimising Operations and Expanding the Product Portfolio: Streamlining workflows and broadening the range of products across all branches to better serve customer needs.

• Enhancing Loan Disbursement and Collections: Utilizing advanced data analytics to strengthen loan processing, improve collection efficiencies, and ensure

• Strengthening Market Leadership: Driving continuous innovation and pursuing strategic advancements to reinforce Finances position as an industry leader.

• Improving Loan Portfolio Quality: Implementing comprehensive risk assessment and mitigation strategies to enhance asset quality and ensure long-term stability.

• Deepening Customer Relationships: Fostering customer loyalty and satisfaction through personalized engagement and relationship-building initiatives.

• Expanding Customer Acquisition: Offering seamless digital payment solutions to attract and onboard a wider customer base.

Adopting Artificial Intelligence and Machine Learning: Increasing the integration of AI and ML technologies across operations to deliver superior customer service and operational efficiency.

• Launching Tailored Financial Solutions: Introducing customized products that address evolving customer needs, expanding the product suite, and enhancing market competitiveness.

• Maximizing Customer Lifetime Value: Deepening customer engagement through effective cross-selling and upselling strategies, providing relevant products and services.

• Expanding the Agent Network: Growing the network of agents to enhance the distribution and penetration of retail liability products, supporting the Companys focus on mobilizing low-cost funds.

• Promoting Diversity and Inclusion: Fostering a more equitable workplace by increasing the representation of women across various roles and leadership positions, thereby creating a dynamic and inclusive environment