Asset Reconstruction Company India Ltd Directors Report

According to a report by the RBI, 9.7 per cent of the previous year Rs. s stock of gross NPAs were sold
to ARCs in FY 2023 compared to only 3.2 per cent in FY 2022. The growing stress in retail
loans/small and medium enterprise segments provides opportunity for ARCs to diversify their
business from the corporate segment to retail and SMEs.

Looking ahead, our acquisition strategy is towards cash acquisitions with co-investment model
along with financial investors and strategic investors. In coming years, apart from focus on
recoveries, we are also focusing on acquisitions to build an incremental AUM with a healthy mix of
fee based and fund-based income. Overall, the business outlook for Arcil in Fiscal 2025 remains
positive, with opportunities for growth in the distressed assets market. However, the industry will
continue to face challenges related to delayed legal & IBC proceedings, regulatory compliances
etc.

The last few years have seen faster settlements and restructurings because of proactive
monitoring by the Company as well as increased willingness of promoters to retain their
businesses due to the deterrence effect of IBC. An improving domestic economy and credit
outlook for corporates after the pandemic, including upturn for some cyclical sectors, will continue
to also aid the recovery rate this fiscal and the next. During the year, there has been further
improvement in recovery by 35% as compared to previous financial year. AUM has decreased by
7% due to high redemption than fresh acquisition. But its success in coming years will depend on
our ability to develop an ecosystem and a vibrant distressed debt market.

The performance of unsecured loans and restructured accounts continues to be monitorable.
Additionally, credit costs are estimated to remain benign. The downside risks include any material
weakening of asset quality, impact of regulatory changes, a tighter liquidity environment and
global issues. Amidst all this, Arcil continues to align the business strategies in light of the evolving
stressed assets opportunity in the Indian market. It is important to strengthen the market position,

with other alternatives (such as proposed amendments to Special Situation Funds and
Securitisation of Stressed Assets Framework) in stressed assets markets likely to emerge over the
medium term. Success on this front will remain critical for the long-term sustainable growth of the
Company. The year ahead is likely to see continued growth impulses, the recovery trend, more
transparency and greater corporate governance, right pricing for right acquisitions, robust tech
platform, etc. The mix of above factors is likely to keep activities heightened in the next fiscal year,
impacting the good growth.

Nevertheless, it must be noted that over a longer period, asset quality is cyclical, and if the past is
any indication, NPAs are expected to go up again after the current decline continues and they
bottom out. As growth picks up and Banks move out of their extremely cautious stance towards
the corporate segment in recent years to meet credit demand and as leverage levels among
borrowers go up, NPAs are likely to rise again, offering an opportunity for stressed assets players.

Operating performance

The operating performance of your Company during the year under review is summarized below:

• Acquisition

During the year under review, financial assets involving principal dues of Rs. 4,012 Crore
(Previous Year Rs. 7,044 Crore) were acquired from Banks / Financial Institutions (sellers) for an
aggregate consideration of Rs. 2,069 Crore (Previous Year Rs. 4,289 Crore).

• Collections

The aggregate collections during FY 2024 have been Rs. 3,678 Crore vis-a-vis recoveries of
Rs. 2,716 Crore in fiscal 2023. The recovery performance for FY 2024 was higher, for the third
consecutive year in running, because of increased focus on collections.

• Assets under Management

Assets under Management (AUM) based on SRs issued is Rs. 15,230 Crore as on March, 2024
compare to Rs. 16,223 Crore as on March, 2023.

NUMBER OF MEETINGS OF THE BOARD

The Board met eleven times during the financial year. All the Board meetings were held in
accordance with the provisions of the Companies Act, 2013. All the applicable Rules and
Secretarial Standards for conducting the Meeting of the Board of Directors were complied with.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received the declaration of independence from each Independent Director
under Section 149(7) of the Companies Act, 2013 (the Act) stating that they meet criteria of
independence as laid down in sub-section (6) of Section 149 of the Act.

The following statutory Committees constituted by the Board function according to their
respective roles and defined scope:

In accordance with the provisions of Section 177 of the Act, the Board of Directors of the Company
has constituted the Audit Committee. As on March 31, 2024, the Audit Committee was comprised
of Mr. Narayanan Subramaniam (Chairman), Mr. Balachander Rajaraman and Mr. Sudarshan Sen.
All the recommendations made by the Audit Committee during the year under review were
accepted by the Board.

In accordance with the provisions of Section 178 of the Act, the Board of Directors of the Company
has constituted the Nomination and Remuneration Committee (NRC). As on March 31, 2024, the
NRC was comprised of Mr. Pradeep Kumar Panja (Chairman), Mr. Ashish Shukla, Mr. Salee
Sukumaran Nair and Mr. Narayanan Subramaniam.

In accordance with the provisions of Section 135 of the Companies Act, 2013, the Board of
Directors of the Company has constituted the Corporate Social Responsibility Committee (CSRC).
As on March 31, 2024, the CSRC was comprised of Mr. Pavan Pal Kaushal (Chairman), Mr. Salee
Sukumaran Nair and Mr. Pallav Mohapatra.

BOARD OF DIRECTORS:

During the year under review, Mrs. Naina Krishna Murthy was appointed as an Independent
Director on the Board of Arcil for an initial term of three years from May 8, 2023 to May 7, 2026,
Mr. Balachander Rajaraman was appointed as an Independent Director on the Board of Arcil for an
initial term of three years from November 1,2023 to October 31, 2026, Mr. Sudarshan Sen, being a
representative of Avenue India Resurgence Pte Ltd, was appointed as a Director w.e.f November
13, 2023 and Mr. Salee Sukumaran Nair was appointed as a Nominee Director of State Bank of
India w.e.f December 18, 2023. In the opinion of the Board of Directors, Independent Directors
appointed during the year possess the integrity, expertise and experience including the proficiency
as required by the Company.

Brief profiles of the Directors appointed are as follows:

Mr. Balachander Rajaraman: Mr. Balachander Rajaraman is a Commerce Graduate from Delhi
University, a Fellow Chartered Accountant, a member of The Indian Institute of Insolvency
Professionals of ICAI and has done a Post-graduate Programme in International Management from
IMI India, Delhi. He has 30+ years Rs. experience working with large corporates and has served as a
trusted advisor to senior management, CEOs, and Board/Audit Committee of Companies. His
areas of expertise include Accounting & Audit; Corporate Laws; Financial Management &
Reporting; Risk Management; Taxation: Digital Transformation Strategy; Restructuring/Insolvency
proceedings. At EY, Mr. Balachander Rajaraman has held a wide range of leadership roles and is

currently an Advisor, having retired in June 2019, as Partner & National Leader for Accounting,
Reporting & Compliance. Prior to his association with EY, Mr. Bala was a Partner in Thakur,
Vaidyanath Aiyar & Co. (TVA) carrying out Audits and a wide variety of Management Consultancy
assignments. He was a Management Committee member of the PHD Chamber of Commerce and
had been associated with expert committees at ASSOCHAM & CII.

Mr. Sudarshan Sen: Mr. Sudarshan Sen has retired from the Reserve Bank of India (RBI) as an
Executive Director. He has looked after the Department of Banking Regulation, Department of Co-
operative Banking Regulation and Department of Non-Banking Regulation. In a career spanning
over 3 decades with the RBI, he worked in a number of areas, including banking regulation, bank
supervision, fintech regulation, human resources, information technology, and currency
management. He has been on a number of major national and international committees; he has
served as the RBI Rs. s Nominee on the Supervision and Implementation Group and the Policy
Development Group of the Basel Committee on Banking Supervision, and was a member of the
Committees which drafted and subsequently reviewed India Rs. s Insolvency and Bankruptcy Code.
He has also Chaired the Committee constituted by the RBI for review of the legal and regulatory
framework applicable to Asset Reconstruction Companies. He has also chaired the Inter-
Regulatory Working Group on Fintech and the Working Group on Implementation of Ind AS by
Banks, constituted by the RBI. He holds a Masters degree in Mathematics from Delhi University
and an MBA in International Banking and Finance from the University of Birmingham, UK.

Annual report on Corporate Social Responsibility activities during financial year 2023-24 [pursuant
to Clause (o) of Sub-section (3) of Section 134 of the Companies Act, 2013 and Rule 8 of the
Companies (Corporate Social Responsibility) Rules, 2014] is attached as Annexure II to this Report.

At Arcil, we recognize that our employees are our most valuable assets. Their unwavering
dedication and exceptional talent drive our success. We are deeply committed to fostering a
workplace culture that promotes collaboration, transparency, and empowering our employees to
excel in their roles and contribute meaningfully to our shared goals.

Throughout the fiscal year 2023-24, we continued to prioritize our employee Rs. s development, well-
being and engagement. We continue to foster an environment where every individual feels
supported and empowered to thrive.

Transparency lies at the heart of our communication strategy. We facilitated open dialogue
through a series of town halls and fireside chats with our CEO&MD, uniting all of us under a
common vision and fostering a sense of belonging. Listening to our employees is paramount.
Through an anonymous Employee Pulse Survey, we gained valuable insights into their needs and
concerns, guiding our initiatives to enhance the employee experience at Arcil. Additionally, we
introduced 360-degree feedback mechanisms to provide individuals with a comprehensive view of
their strengths and areas for growth, catalyzing personal and professional development.

Investing in our employees Rs. development remains a cornerstone of our approach. Our learning
initiatives, tailored to align with business priorities, offered a diverse range of internal and external
training opportunities, empowering our workforce to acquire new skills and adapt to evolving
challenges.

We acknowledge the commitment and passion of our employees and the organization Rs. s
commitment to building a culture of inclusiveness, diversity, growth, progression, and well-being
for all our employees. We conducted various wellness programs on financial, mental, and physical
wellness, fun, and celebrations throughout the year. Central to our holistic approach to employee
well-being we have had wellness talks by acclaimed medical practitioners.

Celebrating diversity and inclusion is integral to who we are. We honored the contributions of our
women employees on Women Rs. s Day and reaffirmed our commitment to providing equal
opportunities for growth and development. Beyond the workplace, we actively engaged with our
communities, collaborating with NGOs and encouraging employee involvement in meaningful
initiatives that enrich lives and foster positive change. As we celebrated our Foundation Day, we
took a moment to recognize and applaud the focused efforts, commitment, and ownership
demonstrated by our employees. The event served as a platform to share our CEO& MD Rs. s vision
for the future and to honor outstanding performance and tenure through various awards.

Our dedication to elevating employee engagement and well-being remains unwavering. By
fostering a culture of transparency, empowerment, and continuous learning, we are not only
investing in the success of our employees but also positioning for continued growth and
excellence.

As on March 31, 2024, the Company had strength of 221 employees.

During the year under review, there were no frauds reported by the Auditors to the Audit
Committee or the Board under Section 143 (12) of the Act.

Our Company has framed a Policy on Prevention of Sexual Harassment at the Workplace and as
per the requirement of the Sexual Harassment of Women at Workplace (Prevention, Prohibition &
Redressal) Act, 2013 ( POSH Act ) and Rules made thereunder, Our Company has constituted an
Internal Complaints Committees (ICC). There were no cases reported during the year that ended
on March 31, 2024, under the Policy. To build awareness in this area, induction/refresher programs
have been conducted during the year. Also, posters have been placed in every branch and head
office informing employees and visitors of the same.

AUDITORS:

The members of the Company at the 19^th Annual General Meeting (AGM) had appointed M/s K. S.
Aiyar & Co., Chartered Accountants (Firm Registration No.100186W) as Statutory Auditor of the
Company, to hold office till the conclusion of the 22^nd AGM of the Company.

The Auditors Rs. Report for the financial year ended on March 31, 2024 does not contain any
qualification, reservation or adverse remark and hence do not require any further explanation.

The Board of Directors, on the recommendation of the Audit Committee, have recommended the
appointment of M/s MSKA & Associates (member firm of BDO International), Chartered
Accountants (Firm Registration No.105047W) as Statutory Auditor of the Company, to hold office
from the conclusion of the ensuing AGM until the conclusion of the 27^th AGM of the Company.

SECRETARIAL AUDIT:

The Board has appointed M/s. Khanna & Co., Practicing Company Secretaries, to conduct
Secretarial Audit for the financial year ended on March 31, 2024. The Report of the Secretarial
Auditor is provided as Annexure III to this Report. The Secretarial Audit Report does not contain
any qualification, reservation or adverse remarks hence does not require any further explanation.
The Company has complied with applicable Secretarial Standards of the Institute of Company
Secretaries of India.

COST RECORDS AND COST AUDIT:

Maintenance of cost records and requirement of cost audit as prescribed under the provisions of
Section 148 (1) of the Companies Act, 2013 are not applicable for the business activities carried
out by your Company.

Loans and Investments pursuant to Section 186 of the Companies Act, 2013 are disclosed in the
financial statements.

There were no contracts or arrangements with related parties referred to in sub-section (1) of
section 188 of the Companies Act, 2013.

No disclosure is required in respect of the details relating to conservation of energy and
technology absorption under Rule 8(3) of the Companies (Accounts) Rules, 2014.

Details of income and expenditure in foreign currency are given below:
a. Income in foreign currency

( Rs. in Lakh)

( Rs. in Lakh)

The Risk Management Group (RMG) has strengthened the internal controls and processes during
the FY 2024 ensuring an appropriate risk / reward trade off. Some of the notable updates during
the year are:

• Formation of an internal management level risk committee - During FY 2024, we have formed
an Internal Risk Committee based on the suggestion of the Risk Management Committee
namely Operational Risk Committee (ORCO) to review and monitor the operational risk areas
of the Institution. The Committee is being chaired by CEO & MD and comprises of CFO, Head
Retail, Chief Business Officer and Chief Risk Officer as its members. The Committee was
formed in July, 2023 and there have been 3 quarterly meetings during the year. Agenda
included deliberation on various operational aspects that need attention such as pendency of
post-acquisition compliance, CIBIL updates, Portfolio Concentration, Trusts completing 8
years, IT Risk/Cyber Security Incidence, Key Changes in Regulatory/Legal etc.

• Risk Management Committee - Further, during the FY 2024, four meetings of Risk
Management Committee (RMC) were held and various aspects such as the Risk Appetite
Statement, Portfolio Concentration Risk, Information Security Risk and Key Changes in
Regulatory/Legal were discussed in detail and inputs from Committee members were noted
by the Risk Management Group. Additionally, the Committee had asked for analysis on
various additional items like performance of the portfolio acquired from largest Selling
Institutions, performance of some of the closed trusts etc. which were provided from time to
time. The Risk Appetite Statement has been reviewed and updated in order to be better
aligned with Arcil Rs. s objectives. Also, the limits for some of the industries as well as selling
institutions have been increased in order to provide and enable business growth.

• Risk Control & Self-Assessment (RCSA) - During the year, the RCSA testing for previous year
(FY 2023) was completed and results were presented to the RMC as well as the ORCO. The
corrective actions resulting from the activity are being monitored for completion. Additionally,
the RCSA process for FY 2024 has also been initiated and a revised testing frequency for the
same is also being implemented.

• Cyber Security - During the year we have inducted a full time Chief Information Security
Officer (CISO) in order to strengthen the information security practice. During the year the
CISO has conducted various awareness sessions with both the employees and the Board of
Directors and is in the process of evaluating and implementing various tools to strengthen the
information security areas like Incident Management, Change Management, Cyber Crisis
Management etc. Regular awareness mailers are also being sent to all the employees.
Further, a cyber security helpdesk has been set up during the year in order to address any
type of cyber security related risk. Additionally Cyber Security Portal has been developed on
Cloud that stores the documents related to Cyber Security at Arcil and the news around the
cyber security.

The Company has adopted guidelines for prohibition of Insider Trading to regulate, monitor and
ensure reporting of trading while in possession of any unpublished price sensitive information in
respect of the securities of listed companies whose debt is acquired by Arcil. Necessary
disclosures are obtained in compliance with the guidelines.

No disclosure is required in respect of the details relating to deposits covered under Chapter V of
the Companies Act, 2013, as the Company has not accepted any deposit.

There were no significant or material order passed by any regulator or court or tribunal which
would impact the status of the Company as a going concern and the operations in future.

Further no application against the Company has been filed or is pending under the Insolvency and
Bankruptcy Code, 2016, nor has the Company done any one-time settlement with any Bank or
Financial Institution.

Pursuant to Section 134(5) of the Act, the Directors of your Company hereby state and confirm
that:

1. In the preparation of the annual accounts for the year ended on March 31, 2024, the applicable
accounting standards have been followed along with proper explanation relating to material
departures;

2. The Directors have selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view of
the state of affairs of the company at the end of the financial year and of the profit of the
company for the same period;

3. The Directors have taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Act for safeguarding the assets of
the company and for preventing and detecting fraud and other irregularities;

4. The Directors have prepared the annual accounts on a going concern basis; and

5. The Directors have devised proper systems to ensure compliance with the provisions of all
applicable laws and these are adequate and are operating effectively.

The Directors place on record their gratitude for the Ministry of Finance, Ministry of Corporate
Affairs, Reserve Bank of India, other Government authorities, Shareholders and Investors, Banks
and Financial Institutions, Rating Agencies, Depositories and other service providers for their
continued co-operation, guidance and support. The Directors also express appreciation for the
committed services of employees at all level.

For and on behalf of the Board,