Arco Leasing Ltd Management Discussions

Indias growth momentum moderated sequentially in FY 24-25, but services and agriculture sectors remained robust. Going forward, growth in FY 25-26 is expected to moderate in comparison to FY 24-25 but is likely to be better than most global peers. Private consumption is also expected to get a boost going forward due to income tax relief announced by the government and monetary easing by the Reserve Bank of India (RBI). Further, private corporate sector capital expenditure has potential to accelerate in view of low leverage, increasing capacity utilisation, consistent corporate profitability and a robust banking sector balance sheet. However, a difficult external environment due to trade uncertainties could dampen investment sentiments. Comfortable current account deficit (due to better-than- expected services export) and adequate forex reserves have also fared well for Indias external sector. However, an escalation in geopolitical tensions and the possibility of a trade war are key risks to this growth outlook

Looking ahead, the medium-term outlook for the Indian economy seems optimistic, driven by policy continuity, benefits from production-linked incentive schemes, opportunities arising from shift in the global supply chain and the likely boost to private consumption due to income tax relief and lower borrowing cost.

FY 24-25 witnessed relative stability from the debt market perspective. Liquidity conditions tightened post September 2024 due to FII outflows from Indian equities. However, RBI action to ease liquidity conditions through a host of measures (OMO purchases, currency swaps VRRs etc.) since December 2024 helped bring down the deficit and liquidity is likely to be in reasonable surplus in the coming months. The government also followed its fiscal consolidation path, a positive development from the perspective of the debt market. The RBI has highlighted that CPI inflation is likely to touch a low of 3.8% YoY by Q3FY26 (before rising marginally to 4.2% in Q4FY26). However, global trade environment has become uncertain amidst sweeping tariffs by the US.

Non-Banking Financial Companies (NBFCs) play a pivotal role in Indias financial ecosystem, catering to a wide spectrum of borrowers including MSMEs and financially underserved populations thereby advancing financial inclusion and generating employment across the country. Leveraging their deep market understanding and widespread geographic reach, NBFCs have efficiently addressed diverse credit needs with agility and responsiveness. In FY 2023-24, the sector continued to anchor credit growth, with assets under management (AUM) reaching approximately H 47 trillion11 and is projected to reach H 53.7 trillion as on March 31, 2025. Growth was primarily driven by robust retail lending activity and demand from small businesses, despite increased regulatory scrutiny such as enhanced risk weights on unsecured loans and tighter supervision of riskier segments.

In FY 2025-26, the sector is expected to benefit from supportive macroeconomic measures. Budgetary tax reliefs and sustained repo rate cuts are likely to increase disposable income and enhance loan eligibility, offering a tailwind to credit expansion. Strategic public investments and digital lending innovations are also set to drive operational efficiency and sustained growth across the NBFC landscape and more conservative growth approaches in unsecured lending. Despite this, the sector remains on a strong footing, buoyed by continued retail demand, digital transformation, and its integral role in Indias broader financial inclusion journey.

The NBFC sector is poised for stronger growth in FY 2025-26, supported by recent repo rate cuts by the Reserve Bank of India and changes in income tax slabs aimed at boosting consumer spending. According to a CRISIL report, AUM growth is expected to recover to 16-18%12 in FY 2026-27, following a moderation in FY 2025-26. The report also projects stable overall asset quality for the sector in the current fiscal.

With the RBIs supportive regulatory framework and initiatives aimed at promoting financial inclusion and literacy, the financial services sector showed sustained growth.

The Company has not generated any revenue from its operations, during the year under review. The Total Revenue for the financial year under review was Rs. 1.41 lakhs as against Rs. 1.28 lakhs for the previous financial year, there was slight increase in the other income of the Company than the previous year. However, total expenditure of the Company during the financial year 2024-25 is Rs.12.65 Lakhs as compared to Rs.13.60 Lakhs in the previous year. It has resulted in the losses of Rs.11.24 Lakhs to the Company during the financial year of 2024-25.

There were no material changes and commitments affecting the financial position of the Company, between the end of the financial year and the date of this Report.

The NBFC sector is poised for stronger growth in FY 2025-26, supported by recent repo rate cuts by the Reserve Bank of India and changes in income tax slabs aimed at boosting consumer spending. According to a CRISIL report, AUM growth is expected to recover to 16-18%12 in FY 2026-27, following a moderation in FY 2025-26. The report also projects stable overall asset quality for the sector in the current fiscal.

The company has established Risk Management (IRM) policy, endorsed by the Board and subject to regular review, to oversee and manage the spectrum of risks inherent in our operations.

Your Company is taking continuous efforts to generate the growth drivers, considering the strategic priorities and keeping a track on information technology developments and compliances thereon.

Statements in the Management Discussion and Analysis, describing our Companys objectives, outlook, opportunities, and expectations may constitute "Forward Looking Statements" within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied expectations or projections, among others. Several factors make a significant difference to our Companys operations including the government regulations, taxation and economic scenario affecting demand and supply, natural calamity and other such factors over which our Company does not have any direct control.