Assam Entrade Ltd Management Discussions

OVERVIEW

Non- banking finance companies (NBFCs) play an important role in an economy like India, as they provide credit facilities to individuals, small and medium-sized enterprises (SMEs), and other entities that may not have access to traditional banking services. They often cater to niche segments or specific industries that banks may overlook.

The NBFC sector is witnessing a resurgence post-pandemic, with anticipated credit growth rates of 13-14% for FY 2024. The industry is also seeing the emergence of new NBFCs focusing on niche customer segments, a trend likely to continue in the foreseeable future. The pandemic has accelerated technology adoption and changed consumer behaviors, making it feasible for NBFCs to operate without extensive physical networks, reducing the capital requirements traditionally associated with setting up financial services institutions. As of 30th September 2023, there were a total of 9,356 NBFCs registered with the Reserve Bank of India (RBI).

The RBI continued to tighten regulatory norms to enhance resilience, focusing on capital adequacy, liquidity, and governance. Digitalization gained momentum, with initiatives promoting digital lending and fintech collaborations. However, NBFCs faced challenges in liquidity management and rising interest rates, affecting borrowing costs and loan demand. Despite these challenges, NBFCs played a crucial role in financial inclusion and supporting MSMEs, positioning themselves well for future growth through digital innovation and regulatory support. The outlook for FY 2024-25 remains positive, underpinned by continued economic recovery and government support for key sectors.

Diversified Presence and Market Segmentation

The NBFC sector in India showcased a well-diversified structure in FY 2023-24, with a broad range of financial services catering to different market segments. Large NBFCs, leveraging their extensive branch networks and technological advancements, maintained a dominant position in the industry. These entities focused on retail lending, offering products such as personal loans, vehicle loans, and home loans. Mid-sized and smaller NBFCs carved out niches by providing specialized financial products tailored to the needs of underserved markets, including small and medium enterprises (SMEs) and rural customers. This diversification helped in mitigating risks and ensuring a balanced growth trajectory across the sector.

Regulatory Enhancements and Compliance

The regulatory framework governing NBFCs saw significant enhancements during the year, driven by the Reserve Bank of Indias (RBI) efforts to fortify the sectors resilience and stability. Key regulatory developments included stricter capital adequacy requirements, aimed at ensuring that NBFCs maintain a robust capital base to absorb potential losses. Enhanced liquidity norms were introduced to manage short-term funding risks more effectively. Pursuant to Circulars issued by the Reserve Bank of India (RBI) dated 22.10.2021 with the captioned subject - "Scale Based Regulation (SBR) : A revised regulatory framework for NBFCs" -NBFCs have been segregated into four layers, namely, a Base Layer (NBFC-BL), a Middle Layer (NBFC-ML), an Upper Layer (NBFC-UL) and a Top Layer (NBFC-TL), based on size, activity, and the perceived level of riskiness. Our Company falls under the category of NBFCs - Base Layer (NBFC - BL) entity.

In conclusion, FY 2023-24 was a transformative year for the Indian NBFC sector, marked by a diversified industry structure, robust regulatory enhancements, a strong push towards digitalization, and increased consolidation.

COMPANY OUTLOOK Strategic Focus and Growth

As we look ahead to FY 2024-25, our company is well-positioned for continued success and strategic growth. Operating within the base layer category, we specialize in lending loans to corporate clients, a focus that has proven to be both stable and profitable. Our strategic initiatives will center around deepening this relationship, ensuring that we meet our clients evolving financial needs while maintaining the high standards of service and reliability that have become our hallmark.

Regulatory Compliance and Governance

We remain committed to adhering to the highest standards of regulatory compliance and corporate governance. Aligning with the stringent norms set by the Reserve Bank of India (RBI), we will continue to ensure robust capital adequacy and effective liquidity management. Our focus on compliance and governance will not only protect the interests of our stakeholders but also enhance our credibility and reputation in the financial industry.

Future Prospects and Strategic Initiatives

The future holds promising prospects for our company as we continue to build on our strong foundation. The supportive economic environment and our strategic initiatives provide a conducive backdrop for sustained growth. We plan to explore new opportunities within our niche, leveraging our expertise to deliver superior financial solutions and drive further profitability. Our unwavering commitment to excellence and innovation will be the driving force behind our continued success.

Financial performance

The financial performance of the company for the year under review is discussed in detail in the Directors Report.

OPPORTUNITIES AND THREATS IN THE CURRENT MARKET ENVIRONMENT AND FUTURE PROSPECTS

Non-banking financial companies (NBFCs) have the potential to seize growth opportunities by catering to underserved segments of the population, such as small businesses and low- income households.

Regulatory support and government efforts towards financial inclusion, especially in rural and semi-urban areas, also offer an opportunity for NBFCs to expand their reach where traditional banking channels may not have reached.

However, NBFCs must also contend with several threats, such as borrower defaults, competitive pressure from traditional banks and fintech, startups and regulatory changes that can impact their operations and profitability. Moreover, rising interest rates and inflation leading to an increase in the cost of funds for NBFCs poses pressure on margins.