Akme Fintrade (India) Ltd Management Discussions

ECONOMIC AND INDUSTRY OVERVIEW

Despite enduring three turbulent years marked by a global pandemic, supply chain disruptions, ongoing conflict in Ukraine, and elevated interest rates aimed at curbing high inflation, India emerged as by far the worlds fastest-growing major economy. Calendar Year (CY) 2024 began with optimism, as inflation seemed largely under control and major economies were expected to avoid recession. These expectations proved accurate.

However, as the year ended, it became clear that global inflation was more persistent than anticipated. And while the United States of America experienced robust growth, most other advanced economies did not. Additionally, many economies faced currency depreciation, posing potential disruptions, particularly for developing nations.

According to the IMFs World Economic Outlook (April 2025), global growth has been projected at 2.8% in 2025 and 3.0% in 2026, which is below the historical average of 3.7% for the period 2000-2019. It is worth noting that at 6.5% for FY2025 and FY2026, the IMF pegs Indias real GDP growth as the highest among all major nations - including that of China. IMF also forecasts global headline inflation to decline to 4.3% in CY2025 and further to3.6% in CY2026.

Regrettably, CY2025 has witnessed considerable uncertainty thanks to US announcing reciprocal tariffs on several nations, including India, and punitively high tariffs on China. This action, if it continues, would lead to reduced exports, along with unfavourable trade balances, export rates and forex rates; and for most nations, especially large trading ones, to a reduction in GDP growth. While the US has paused the imposition of higher tariffs for 90 days for most nations except China with the assumption that this will induce many countries to sit at the negotiating table, it is still too early to tell what the final outcome will be with several countries considering retaliatory tariffs on US exports. It remains to be seen how long this tariff war will last; and how it can significantly impact the economies of nations.

The second advance estimate of national income for FY2025, released by the National Statistics Office (NSO) on 28 February 2025, has pegged real GDP growth at be 6.5% versus 9.2% (1st revised estimate) in FY2024.

Table 1 gives the data.

Table 1: India, Real Gross Domestic Product (GDP) and Gross Value Added (GVA) at constant prices

	FY2022(FE)	FY2023(FE)	FY2024 (1st RE)	FY2025 (2nd AE)
Real GDP (Rs. in trillion)	150.2	161.7	176.5	188.0
Real GVA (Rs. in trillion)	138.8	148.8	161.5	171.8
Real GDP growth	9.7%	7.6%	9.2%	6.5%
Real GVA growth	9.4%	7.2%	8.6%	6.4%

Source: Government of India, National Statistical Office (CSO). AE denotes advance estimate, FE denotes final estimate, and RE denotes revised estimate

Real GDP growth experienced a significant downward trend after Q3 FY2024. However, according to the second

estimates for Q3 FY2025, it appears to be gaining momentum and is projected to reach 6.5% for FY2025.

Quarterly GDP growth for Q1 FY2025 was 6.5%, followed by 5.6% in Q2 and 6.2% in Q3. As before, private final consumption expenditure (PFCE) has been the major contributor to GDP, with an estimated share of 56.7% in FY2025.

Indias current account deficit (CAD) for Q3 FY2025 stood at US$ 11.5 billion or 1.1% of GDP versus US$ 10.4 billion (1.1% of GDP) in Q3 FY2024. For the first three quarters of FY2025, the CAD aggregated US$ 37 billion, or 1.3% of GDP - compared to US$ 30.6 billion, or 1.1% of GDP over same period of FY2024. Robust growth in services exports and remittance receipts cushioned the effect of a widening merchandise trade deficit on CAD during Q2 FY2025.

After peaking at 6.21% in October 2024, the consumer price index, or CPI(General), steadily declined to 3.34% by March 2025. Following an assessment of evolving macroeconomic and financial developments, the Monetary Policy Committee (MPC) of the RBI decided to cut the repo rate from 6.50% to 6.25% in February 2025, maintaining a neutral stance. With inflation coming down to the RBIs target of 4%, the central bank shifted its monetary policy stance from neutral to accommodative in April 2025 and announced a further repo rate cut from 6.25% to 6%. Supported by healthy rabi crop prospects and an expected recovery in industrial activity in FY2026, the RBI in its communication on 9 April 2025 forecast real GDP growth at 6.5% for FY2026. Among the key drivers on the demand side, household consumption is expected to remain robust aided by the tax relief in the Union Budget 2025-26. Fixed investment is expected to recover, supported by higher capacity utilisation levels, healthy balance sheets of financial institutions and corporates, buttressed by the central governments continued emphasis on capital expenditure.

Industry Overview

Financial Industry: The Indian financial services industry is a dynamic and evolving sector, poised for further growth and innovation. It is a vital component of the countrys economy, providing arrange of financial products and services to individuals and businesses alike. Over the past two years, the financial services industry has demonstrated its ability to successfully navigate unprecedented levels of uncertainty. The industry is diverse, with a mix of traditional players such as commercial banks, insurance companies, and NBFCs, along with newer entities such as payment banks and small finance banks. The sector is well-regulated by the RBI, which has also allowed fintech companies to enter the fray, bringing innovation and efficiency to the industry. Digital transformation has been an important driver in increasing the reach of financial services in the country and transparency.

Indias financial services sector is undergoing a profound transformation, driven by the widespread adoption of digital technologies, shifting consumer preferences and heightened competition. This dynamic landscape is reshaping the sectors growth direction. Additionally, the integration of rapid technology has revolutionised the way Indians access and pay for services, with even street vendors embracing QR code payments. Consequently, the Boston Consulting Group anticipates a remarkable surge in Indias digital payments market, projecting a threefold increase from USD 3 trillion to USD 10 trillion by 2026.

NBFC Industry: Non-Banking Financial Companies (NBFCs) have emerged as powerful engines of credit, significantly expanding access to financial services, especially for historically underserved or excluded segments. By complementing the traditional banking system, NBFCs have utilised innovative credit delivery models that leverage technology and local insights to create customised financial products tailored to diverse borrower needs.

Their agility and close customer connections have enabled them to play a role that is not only complementary to traditional banks but also catalytic in building a financial ecosystem characterised by deeper intermediation and wider

opportunities.

Over the past decade, the growth of NBFCs has consistently outpaced that of banks, a trend that has become even more pronounced in recent years. This rapid growth underscores the sectors relevance and resilience. As NBFCs continue to grow in importance, it is crucial to focus on governance, risk management, and customer treatment to ensure their sustainable development

Credit growth of N BFCs, which has historically outpaced Indias nominal GDP growth, is expected to continue accelerating. NBFCs have demonstrated remarkable resilience and have become increasingly significant in the financial sector, expanding their Assets Under Management (AUM) from less than Rs. 2 trillion at the turn of the century to approximately 43 trillion by 30 September 2024. Between FY2019 and FY2024, N BFC credit is estimated to have grown at a Compound Annual Growth Rate (CAGR) of around 12%, primarily driven by the retail segment, which is estimated to have grown at a CAGR of some 18%. In contrast, NBFC non-retail credit is estimated to have grown at a CAGR of about 9% during the same period.

The latest edition of the RBIs Financial Stability Report highlights that credit growth of NBFCs slowed to 16% from 22.1% a year ago. This deceleration is attributed to the high base effect and the increased risk weight for consumer lending introduced by the RBI in November 2023. The Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) ratios of NBFCs have continued to decline. As of September 2024, the overall GNPA ratio was 3.4%, down from 4.6% in September 2023, while the NNPA ratio decreased to 1.1% from 1.5% over the same period. Equally, the capital adequacy ratio fell to 26.1% from 27.6%, primarily due to higher risk weights and business growth.

Post-COVID, both banks and NBFCs have experienced rapid and sustained growth in overall credit and retail loans. Between FY2021 and FY2024, banks overall credit and retail loans grew at a CAGR of 15% and 21% respectively. Analogously, NBFCs CAGRs were 14% and 20%, respectively. Higher growth rate in retail credit for both banks and NBFCs underscores that credit growth is predominantly driven by consumption credit.

This growth in retail loans is due to increased leverage among retail customers. The good news is that both the banks and the NBFCs have demonstrated financial robustness while maintaining this growth. Chart A plots the data for NBFC and Scheduled Commercial Banks (SCBs).

Company Overview

In recent years, NBFCs were severely tested by four major external events: demonetisation, GST implementation, the collapse of some large NBFCs and the pandemic. Despite these challenges, many NBFCs have maintained a commendable track record. Their ability to navigate these stresses without substantial impact on their financial positions highlights their resilience and agility.

As NBFCs have become more significant, the RBI has enhanced its regulation of the sector to address the industry specific issues such as contagion risk in the financial system, oversimplified underwriting processes, concentration of credit risk, exposure towards technology related risks, etc. Accordingly, the RBI, over last few years, has issued various guidelines on (i) vigil over asset-liability management practices, (ii) maintaining liquidity ratios, (iii) increased reporting requirements, and (iv) scale-based regulations. These have led to NBFCs adopting practices in line with banks. The regulatory vigil is based on four key cornerstones of: (i) responsible financial innovation, (ii) accountable conduct, (iii) responsible governance, and (iv) centrality of the customer.

On 9 April 2025, the RBI announced additional measures related to banking regulation, fintech and payment systems. It has proposed:

• Enabling securitisation of stressed assets through market-based mechanism. This is in addition to the existing ARC route under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

• Extending co-lending guidelines to all regulated entities and all type of loans, which were earlier applicable to banks and NBFCs for priority sector loans.

• Harmonising guidelines for lending against gold jewellery across all regulated entities.

• Evaluating and revising limits for Unified Payments Interface (UPI) transactions, with appropriate safeguards to mitigate risks associated with higher limits.

Company Overview:

Akme Fintrade (India) Limited (hereinafter referred as "AFIL" (the Company) is an Udaipur based diversified Non- Banking Finance Company (NBFC) registered with the Reserve Bank of India (RBI). Incorporated in 1996, the Company is engaged in providing specialized retail financing services to the lower income and middle-income groups of the society. Since over two decades, the Company primarily caters to the financially underserved masses spread across urban, semi-urban, and rural areas in the formal and informal sectors. The Company offers a wide range of retail finance products such as micro enterprise loans, SME loans, two-wheeler loans, used car loans and commercial vehicle loans to satisfy the varied needs of customers. A highly experienced management team, huge borrower base, diverse product mix, efficient liability management, and a well-spread branch network underpin the operations of the Company. The Company shares relevant applications with multiple lenders, increasing the probability of securing a loan and providing choices to the lenders to select the best loan for their portfolio.

Distribution Network

The distribution network of the company is characterized by its efficiency and customer-centric approach. The Company has established a strong distribution network and believes in offering best-in-class services at the doorstep of its customers. The Company has presence across Gujarat, Maharashtra, Rajasthan and Madhya Pradesh around 27

branches & 30+ Business Points.

The well-entrenched network enables the Company to serve underserved masses and capture a significant share of the untapped demand in the hinterlands ensuring last-mile delivery of credit. AFIL is focused on catering to the borrowing needs of lower income and middle income groups of the society spread across urban, semi-urban and rural areas, in the formal and informal financial sectors.

Till 31st March, 2025, AFIL has catered to more than 2,00,000 customers through its robust network of 27 branches & 30+ business points.

OVERVIEW

In a volatile economic environment, the Company focused on capital preservation, collections, stringent operating expenses management and strengthening Balance Sheet. The credit rating of the Company is ACUITE BBB+ Stable*. The new initiatives undertaken by the Company continue to show positive impact in all areas during the current year.

Disbursements and Loan Assets

The disbursements for the year increased from Rs. 9,704.00/- Lacs in FY 2023-24 to Rs. 25,378/- Lacs in FY 2024-25.

The focus of the Company was on maintaining the portfolio quality and focusing more on credit tested customers. Total Loan Assets as on 31 March, 2025 on stood at Rs. 58,109/- Lacs against Rs. 40,372/- Lacs for the previous year.

OPPORTUNITIES & THREATS

Opportunity

• Proven track record and powerful brand recognition among small income groups of the society including urban, semi urban, and rural areas.

• Embracing digital initiatives

• Understanding the customers approach

• Easy and simplified sanction procedure and disbursement

• Flexible operation & ability to innovate

• Successful track record of catering to the MSME sector.

• Operates in underpenetrated business segment with huge growth potential.

• Initiatives by the Government to further boost MSME sector.

• Untapped credit needs of MSME segment.

• Consolidation and shift towards digital and organized space.

Threats

• Sharper monetary tightening.

• Rise in competitive intensity due to Strong and dynamic competitors

• External political risk.

• New Entries in same space with Digitisation.

• Unpredictable policy changes by the Government.

• Higher exposure to semi-formal and informal sector customers.

OUTLOOK

In the face of market competition from banks, NBFCs will retain their significance due to their extensive outreach, enhanced flexibility, personalized services, and innovative digital offerings. The role of NBFCs in the larger financial sector is expected to gain in strategic importance. NBFCs have become an integral part of the financial system, complementing the role of traditional banks and contributing to the inclusive growth of the economy. They cater to the diverse financial needs of different customer segments and play a significant role in promoting financial access and deepening financial markets. Being predominantly digital natives, there is already a trend towards greater use of digital tools and technology amongst NBFCs in their processes and customer outreach. This will enhance their efficiency parameters, going forward.

Additionally, as NBFCs cater to those at the bottom of the pyramid, both at the individual as well as enterprise level, it is assumed that while their clients rise in economic status, they will continue to patronise the financiers that have introduced them to the formal financial sector, assuming that they receive good service and suitable products. Within this evolving scenario, AFIL has clarity on the path ahead with respect to its approach to Asset Creation and Liability Management.

Furthermore, NBFCs are increasingly adopting digitisation to enhance operational efficiency, elevate customer experiences, drive cost savings and ensure compliance with regulatory standards. Despite facing stiff competition from public and private sector banks and Microfinance Institutions (MFIs) across market share, customer acquisition, asset quality and technological innovation, NBFCs have spearheaded innovative digital initiatives. Through frugal innovation, they leverage cutting-edge technologies like cloud computing, low- code/no-code platforms, data lakes and artificial intelligence (Al). These technologies propel multiple concepts like application modernisation, super apps, data transparency and robust information security.

This digital transformation enables NBFCs to compete effectively with larger institutions for customer engagement, while delivering seamless experiences for both customers and employees. In recent times, NBFCs have surpassed banks in terms of new credit disbursals, leveraging technology to reach underserved sectors and capitalising on banks limitations in swiftly expanding operations and adapting inflexible policies.