Bajaj Housing Finance Ltd Management Discussions

Bajaj Housing Finance Limited (BHFL or the Company) is registered with National Housing Bank (NHB) as a non-deposit taking Housing Finance Company and has been engaged in the business of mortgage lending since FY2018. It is subsidiary of Bajaj Finance Limited (BFL) and part of Bajaj group. Under the scale-based regulations of the Reserve Bank of India (RB), BHFL is classified as an Upper Layer NBFCs (NBFC-UL).

Pursuant to these regulations, it got listed on the National Stock Exchange of India Ltd. (NSE) and the BSE Ltd. in September 2024 through an Initial Public Offering (IPO). The Company is regulated by the RBI, the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI) and supervised by the NHB.

RS.6,560 crore

Initial Public Offering (IPO)

Macroeconomic Overview

According to the IMFs World Economic Outlook (April 2025), global growth has been projected at 2.8% in CY2025 and 3.0% in CY2026, 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 to 3.6% in CY2026.

According to the Second Advance Estimates released by the NSO on 28 February 2025, real GDP for FY2025 has been pegged at 6.5%; analogously, the growth of real gross value added (GVA) has been estimated at 6.4%. Though these growth rates are lower than those of the previous year - GDP growth at 6.5% versus 9.2% in FY2024, and GVA growth at 6.4% versus 8.6% in FY2024 - these are still very creditable rates of growth.

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 reacRs. 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. The quarterly GVA growth rates were quite similar: 6.5% in Q1, followed by 5.8% in Q2 and then 6.2% in Q3.

In terms of real GVA across the three broad sectors:

• The primary sector (agriculture, livestock, forestry and fishing and mining and quarrying) has grown by 4.4% over the first three quarters of FY2025.

• The secondary sector (manufacturing, electricity, gas, water supply and other utility services and construction) has grown by 5.8%.

• The tertiary sector (trade, hotels, transport, communication and services related to broadcasting, financial, real estate and professional services and public administration, defence and other services) has grown

by 7.3%.

The major drivers of growth have been the tertiary sector and construction, though these have grown at marginally lower levels compared to the previous year. The disappointment has been manufacturing, which has grown at 4.3% in the first three quarters of FY2025 versus 12.3% in the corresponding previous year.

Good news has been the continued moderation of price inflation. Starting from April 2024 for every month right up to February 2025, inflation based upon the Wholesale Price Index (WPI) has remained well under 4%. Indeed, for 10 of these 11 months, it has been at under 3%. Over the same period, inflation of the Consumer Price Index for Industrial Workers (CPI-IW) stayed between 2% and 4%, except for two months (September and October 2024) when it marginally exceeded 4%. Similarly, inflation based on the Consumer Price Index for Agricultural Labourers (CPI-AL) began with a high of just above 7% in April 2024 but then steadily fell over the period to a tad over 4% in February 2025. Thus, it would seem that inflation is under control.

Therefore, India has enjoyed creditable GDP and GVA growth without inflation raising its ugly head.

With respect to the current account deficit (CAD), Indias CAD for Q3 of FY2025 (October-December 2024) stood at $11.5 billion, or 1.1% of GDP. Though this was slightly higher than the $10.4 billion (1.1% of GDP) deficit in the same period of the previous year, it has moderated from the $16.7 billion (1.8% of GDP) deficit in Q2 of FY2025. For an economy growing at no less than 6.5% real and with no near term inflation risks, this is not a CAD that one should worry about.

The RBI has estimated real GDP growth for FY2025 at 6.5%. It has projected growth at the same percentage rate for FY2026; and has forecast CPI inflation at 4%. With no imminent fear of inflation, the RBIs Monetary Policy Committee (MPC), in its first meeting of FY2026, unanimously decided to reduce the policy repo rate by 25 basis points, bringing it down to 6% with immediate effect.

Therefore, as it stands, the Indian economy seems to be in a good place. At 6.5%, it continues to clock the highest real GDP growth rate among all major countries in the world, including China. Both wholesale and consumer price inflation are under control. The CAD is reasonable given the size and growth of the economy. And the central bank has been confident enough to reduce the repo rate and inject further liquidity into the system. The only fly in the ointment is President Donald Trump and his arbitrary raising of US tariffs.

How these will affect India is anyones guess, and policy-makers will have to watch this very carefully in the coming months. Even so, it is probably fair to say that India can expect another excellent year of growth and income generation.

Industry Overview

The Real Estate Sector and Housing Finance Companies

Indias housing sector remains robust, driven by favourable demographics, lower mortgage-to-GDP ratios compared to developed nations, rising per capita income, urbanisation, demand for larger homes, a large increase in the number of nuclear families and increased affordability.

As a crucial part of the economy, the housing sector significantly impacts both employment and growth. Given the forward and backward linkages of real estate with its ancillary industries, it remains a focus area for both the central and state governments. The central governments emphasis on this sector is evident through its various initiatives such as the Real Estate Regulatory Authority (RERA), the Pradhan Mantri Awas Yojana for interest subsidies, infrastructure development allocations and increasingly rapid digitisation of land records.

The real estate sector experienced notable growth in FY2023 and FY2024, with increased launches and absorption in residential real estate thanks to the governments measures for Housing for All, growing affordability and higher demand for larger homes - which resulted in reduced inventory overhang. However, FY2025 saw a slight decline in both launches and absorption, though unsold inventory continued to decrease due to higher absorption than launches.

The commercial real estate sector maintained strong momentum post-pandemic, with FY2025 growth supported by corporate demand and increased penetration of Global Capability Centers (GCCs) in India. Launches and leasing trends were healthy, resulting in lower vacancy levels. Commercial real estate is expected to continue to do well in short to medium term.

As far as the housing finance sector is concerned, the outstanding housing loans portfolio of Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) witnessed good traction. Here are some data:

• The overall outstanding home loan portfolio stood at RS.33.34 lakh crore as of 31 March2024, which represented a 16.4% growth against 31 March2023.

• The ratio of housing loan to nominal GDP penetration also increased by 80 bps from 10.5% in FY2023 to 11.3% in FY2024 (Source: NHB Annual Report 2023-24).

• The ratio of outstanding housing loans to total loans from the Scheduled Commercial Banks (SCBs) has also steadily increased from 9.4% in March2010 to 16.6% in March2024 (Source: NHB Report on Trends and Progress of Housing in India, 2024).

• The SCBs account for a major share of total housing loan portfolio - 82% share, with housing finance companies accounting for 18% market share as of 31 March2024 (Source: NHB Annual Report 2023-24).

• As per the RBIs Report on Trends and Progress of Banking 2023-24 (26 December 2024), as of March2024, the gross NPA ratio of the housing finance sector stood at 2.3% and the net NPA of 1.2%. These have remained broadly stable. Additionally, the cost-to-income ratio of housing finance companies inched up

in FY2024 owing to marginal increase in expenditure. However, the return on assets (ROA) for FY2024 remained in line with that of FY2023 at 1.7%.

Regulatory Change

To protect consumer interests, the RBI continues to implement various measures to enhance transparency and strengthen stakeholders in the sector. It focuses on harmonising regulations across lending entities to ensure financial stability, improved oversight and a seamless customer experience. For the NBFC/HFC sector, the RBI has issued Scale Based Regulations (SBR), categorising NBFCs into four tiers with additional regulatory provisions for each. According to the latest RBI notification dated 16 January 2025, BHFL remained part of the Upper Layer NBFCs for FY2025.

The RBI issued several regulations and guidelines throughout the year. The key regulations include:

• Key Fact Statement (KFS): To foster greater transparency and disclosure in loan pricing and charges, NBFCs/HFCs are required to provide a KFS containing key loan agreement information, including the all-in-cost of the loan, for all retail and MSME loans.

• Credit Information Reporting: To provide a more up to date picture of a borrowers indebtedness, the RBI has increased the frequency of credit information reporting to Credit Information Companies (CIC) from monthly to fortnightly.

• Operational Risk Management: To promote resilience within the financial sector, the RBI released a guidance note on Operational Risk Management and Operational Resilience.

• Fraud Risk Management: The RBI revised its Master Directions on Fraud Risk Management, including a framework on Early Warning Signals, Red Flagging of Accounts, and principles of natural justice.

• Interest Charging Practices: To address varied practices in interest charging that may not align with fairness and transparency, the RBI released a circular in April 2024 directing all lenders to review their interest charging practices.

Additionally, the National Housing Bank (NHB) issued circulars/advisories to HFCs on monthly reporting of delinquent loan accounts, separation of roles of Chief Compliance Officer and Company Secretary, mis-selling of insurance, and monitoring and reporting of Principal Business Criteria on a monthly basis.

The Company

Bajaj Housing Finance Limited. (BHFL), a subsidiary of Bajaj Finance Limited (BFL), is registered as a nondeposit taking HFC with the National Housing Bank (NHB) since September 2015 to carry the business of housing finance. It is categorised as an Upper Layer NBFC (NBFC-UL) under Scale Based Regulations (SBR) issued by the RBI.

BHFL started its lending operations from July 2017 and crossed two significant milestones during FY2025:

i. In its eight year of operations, the Company surpassed the AUM milestone of RS.1,00,000 crore;

ii. It got listed on the equity segment of the National Stock Exchange of India Limited and the BSE Limited with its IPO in September 2024.

Hi lakh crore

AUM milestone in its 8^th year of operations

The Company offers full mortgage product suite spanning: (i) Home Loans; (ii) Loans Against Property;

(iii) Lease Rental Discounting; (iv) Developer Financing; and (v) Others, covering non-collateralised loans. Through this varied product suite, BHFL addresses the diverse mortgage needs of all retail customer segments, which include salaried individuals, self-employed and professionals. It serves all sub-segments, including prime, near-prime, and affordable customers; and offers various transaction types such as purchase, resale, self-construction, and balance transfer.

Through its commercial product suite, which includes Construction Finance and Lease Rental Discounting,

BHFL caters to a wide range of marquee clients, including real estate developers, high net worth individuals (HNIs), real estate investment trusts (REITs), sovereign wealth funds and corporations.

BHFL holds the highest credit rating of AAA/stable from both CRISIL and India Ratings for its long-term debt program; and A1+ from CRISIL and India Ratings for its short-term debt program. These ratings are supported by strong parent backing and reflect the Companys stable financial position and repayment capability.

The Company is the largest non-deposit taking HFC in terms of AUM and second largest HFC in India with an AUM of RS.1,14,684 crore as of 31 March2025.

It remains resolutely focused on building a low-risk medium-return portfolio through five key strategies viz.:

i. Build a scalable balance sheet with focus on prime housing and lease rental discounting.

ii. Maintain a low risk portfolio through a strong and consistent risk management framework.

iii. Deliver medium returns through a balanced and optimised product mix.

iv. Offer the entire suite of mortgage products.

v. Maintain a diversified borrowing mix.

BHFLs balanced product mix - consisting of 56% home loans and 19% lease rental discounting - ensures lower risk to the balance sheet while allowing it to scale rapidly. Around 89% of home loans are given to lower-risk salaried and professional segment customers.

The Company employs an omnichannel sourcing strategy for both retail and commercial products, utilising direct and indirect channels. For retail products, BHFL sources loans from the developer ecosystem, selfsourcing, and various digital assets under the direct model. The indirect model includes partnerships with channel partners, aggregators, direct selling agents and connectors. Commercial products, primarily sourced through relationship-based direct channels, also utilise indirect channels via international property consultants, wealth management companies, aggregators, and direct selling agents. This approach enhances BHFLs sourcing funnel.

For retail products, BHFL follows a micro-market approach for home loan origination and aims to increase market share by:

• Expanding the distribution network across intermediaries by deepening relationships with existing partners and activating new ones.

• Enhancing home loan penetration in developer financing projects.

• Scaling up near-prime and affordable housing through a newly launched strategic business unit (SBU).

• Expanding its geographic footprint.

For commercial products, the Company focuses on building a granular portfolio while maintaining a strong risk management framework, reflected in its healthy asset quality. The commercial businesses are involved in deepening relationships with existing customers and expanding the origination funnel by onboarding new-to- Bajaj (NTB) customers.

The lease rental discounting portfolio has maintained excellent performance with nil GNPA since inception while sustaining growth momentum. This business covers the entire commercial real estate product lifecycle, from greenfield to stabilised assets, and offers lease rental discounting and construction financing to developers and HNIs. It is also expanding in emerging markets to leverage the growing formalisation of the commercial real estate sector.

The developer financing portfolio maintains quality growth within acceptable portfolio health parameters, thanks to an experienced business team and strong risk management standards. The business is deepening its presence in existing markets and expanding into emerging ones, with the NCR and northern India locations getting operational during the year.

The performance highlights for FY2025 are given below:

BHFLs Performance Highlights, FY2025

• Assets under management (AUM) increased by 26% to RS. 1,14,684 crore.

• Net interest income grew by 20% to RS. 3,007 crore.

• Net total income (NTI) rose by 23% to RS. 3,597 crore.

• Operating expenses (Opex) increased by 6% to RS. 747 crore.

• Opex to NTI improved to 20.8% in FY2025 from 24.0% in FY2024.

• Pre-impairment operating profit grew by 28% to RS. 2,850 crore.

• Impairment on financial instruments were RS. 80 crore as against RS. 61 crore in FY2024.

• Profit before tax (PBT) increased by 28% to RS. 2,770 crore.

• Profit after tax (PAT) rose by 25% to RS. 2,163 crore.

• Capital adequacy ratio stood at 28.24% as of 31 March2025. The Tier-1 ratio was 27.72%; both well above regulatory norms.

The Company had two rounds of capital raise during the FY2025. The first was a rights issue of RS. 2,000 crore in April 2024. The second was its IPO of RS.6,560 crore, of which the primary issue was RS.3,560 crore. While the ROA remains steady for FY25, ROE for the year due to capital infusions is diluted.

Business Update

Throughout the year, the RBI kept policy rates unchanged before reducing them by 25 basis points in its February 2025 Monetary Policy Committee (MPC) meeting.

The real estate market experienced a slight slowdown in residential real estate during the first half of FY2025, while demand in commercial real estate remained strong. In the residential market, both absorption and launches were lower than the previous year. However, absorption outpaced launches, leading to a further reduction in unsold inventory. The commercial real estate market remained resilient, with healthy supply and leasing trends reducing vacancy levels. Both unsold inventory in the retail sector and vacancy levels in the commercial sector are at comfortable levels.

FY2025 saw intense competition in the housing finance market, particularly from public sector banks. Amidst this competition, BHFL managed to sustain growth and increase its market share.

RS.1,14,684 crore

Indias 2^nd largest HFC and the largest non-deposit taking HFC by AUM

BHFL continued to grow both its retail and commercial portfolios, with AUM reaching RS.1,14,684 crore as of 31 March2025, a 26% year-on-year increase.

To address the mortgage needs of Near Prime and Affordable customers, expand its customer segments and deepen presence in home loans as well as loans against property products, a Strategic Business Unit (SBU) was established in June 2024. This SBU has dedicated sales, underwriting, and operations teams to handle the unique needs of this customer segment. With the launch of the SBU, the Company now serves the entire spectrum of customer sub-segments, including prime and non-prime (i.e. near prime and affordable).

To diversify its borrowing strategy, BHFL issued floating rate linked NCDs for the first time during the year, aligning with the floating nature of its assets.

The overall borrowing mix remained diversified. As on 31 March2025, bank loans accounted for 41% of BHFLs total borrowings; the money market constituted another 49%; and NHB refinance comprised 10%.

Following equity raises through a rights issue in April 2024 and the IPO in September 2024, BHFLs capital position has remained strong, with a capital adequacy ratio of 28.24% as of 31 March2025, versus the regulatory requirement of 15%.

Asset quality remained robust across portfolios, with an overall gross NPA of 0.29% as of 31 March2025 (versus 0.27% as of 31 March2024). This was due to the Companys stringent underwriting practices, continuous portfolio monitoring for retail and commercial products, plus an early warning signal framework to identify potential threats.

Home Loans

The Company addresses the home loan needs of all customer segments, including salaried individuals, selfemployed professionals and others, covering various transactions such as new purchase, resale, balance transfer and self-construction. BHFL utilises both direct-to-customer and intermediary channels for sourcing home loans. It offers home loans at 174 locations nationwide, with an average loan value of RS. 4.6 million.

Within the home loan segment, salaried and professional customers constitute approximately 89% of the mix. BHFL also leverages a large approved project finance (APF) base of over 7,300 projects for home loan sourcing, which reduces processing time for new purchase transactions from such projects. Additionally, it utilises developer financing relationships to source home loans from residential properties under construction by these developers.

During the year, the Company launched non-prime (near prime and affordable) segment loans, further expanding its customer base.

As of 31 March2025, the home loans AUM grew by 22%, reaching RS. 64,447 crore.

Loan Against Property

The Company provides cash flow-backed lending for Loans Against Property (LAP) to SMEs, MSMEs, professionals and salaried customers against their commercial or residential properties using both intermediaries and direct-to-customer sourcing channels. Operating across 74 locations, the business primarily deals with self-occupied residential properties, with an average loan value of RS.6.8 million.

BHFL caters to a diverse customer base, with a significant portion coming from the self-employed segment.

It also leverages developer financing relationships to offer purchase financing to commercial properties under construction by these developers.

As of 31 March2025, loans against property AUM grew by 28%, reaching RS.12,262 crore.

Lease Rental Discounting

BHFL provides Lease Rental Discounting (LRD) to large corporates, HNIs, real estate developers, REITs, private equity players, and sovereign wealth funds. This is done through a relationship-based model against stabilised commercial assets, primarily Grade-A office spaces, warehousing, and industrial properties with a diverse lessee base. The business operates from 17 locations, with an average loan value of RS.986 million.

These loans are secured by an escrow mechanism for rental cashflows received from lessees, and a dedicated portfolio monitoring team tracks these rentals periodically. BHFL supports the entire commercial real estate lifecycle of its customers, from funding greenfield assets through commercial construction finance to stabilised assets via lease rental discounting.

As of 31 March2025, lease rental discounting AUM was RS.21,913 crore, a year-on-year growth of 24%. Developer Financing

The Company offers construction financing for residential real estate projects to developers with a proven track record of timely construction, sales, and repayment capabilities. Disbursements are made in tranches based on multiple milestones relating to construction stages, sales and collections - which , help to minimise execution risk. Operating from 16 locations, the business has an average loan value of RS.481 million and uses a relationship-led sourcing model.

As with loan rental discounting, these loans are secured by an escrow mechanism, where project cash flows are received into separate accounts and monitored by a dedicated portfolio team. The business focuses on building a granular portfolio, spanning 798 projects and 519 active developers. BHFL also provides inventory financing for unsold inventory of these customers. Developer financing serves as an additional sourcing funnel for retail teams, which further leverage these projects to source home loans and loans against property.

As of 31 March2025, developer financing AUM grew by 49%, reaching RS.14,346 crore.

Partnerships and Services

The Company is registered as a corporate agent with the IRDAI for distribution of life and health insurance products. BHFL offers life insurance, general insurance, health insurance and other financial services products to its customers in partnership with various financial service providers. It currently has partnership with seven insurance companies to enhance insurance penetration and fee income for the Company.

Assets Under Management (AUM): Snapshot

Table 1 (a): AUM across major business verticals

Particulars	FY2025	FY2024	Change	AUM Mix
Housing loans (including top ups)	64,447	52,819	22%	56%
Loan against property	12,262	9,568	28%	11%
Lease rental discounting	21,913	17,637	24%	19%
Developer finance	14,346	9,599	49%	13%
Other loans	1,716	1,747	(2%)	1%
Total	1,14,684	91,370	26%	100%

Table 1 (b): AUM as per regulatory criteria

Particulars	AR FY2025	AUM FY2025	AUM Mix FY2025	AR FY2024	AUM FY2024	AUM Mix FY2024
Housing loans	52,946	54,541	48%	41,949	43,832	48%
Non-Housing loans	16,731	21,869	19%	16,323	19,916	22%
CRE-residential housing	11,837	11,837	10%	8,095	8,095	9%
CRE	17,999	26,437	23%	12,934	19,527	21%
Total	99,513	1,14,684	100%	79,301	91,370	100%
IHL PBC%*	51.72%			51.49%
Overall PBC%#	63.28%			61.43%

*Percentage of total assets towards housing finance for individuals.

•Percentage of total assets towards housing finance.

Borrowings

BHFL maintains a diversified borrowing mix that includes term loans, money market instruments, and NHB refinance to align funding with long-term mortgage lending. To further diversify its borrowing profile, the Company issued floating rate non-convertible debentures (NCDs) for the first time in FY2025. This new avenue helps reduce interest rate risk, as the majority of its advances are floating in nature.

As of 31 March2025, BHFLs borrowing profile mix consisted of:

• Term loans: 41%.

• Non-convertible debentures (NCD): 46%.

• Commercial papers (CP): 3%.

• NHB Refinance of 10%.

Overall borrowings stood at RS.82,072 crore as of 31 March2025, versus RS.69,129 crore as of 31 March2024.

In terms of incremental borrowing, during FY2025, BHFL raised RS.17,297 crore from NCDs, RS.7,000 crore from term loans, RS.2,894 crore from NHB refinance and RS.3,550 crore from CP.

The Company maintains assignment as an integral part of borrowing strategy where it executes assignment transaction with multiple partners while servicing the loan portfolio. As of 31 March2025, outstanding assigned portfolio stood at RS.15,171 crore.

Investments

The Company has a Board-constituted Asset Liability Committee (ALCO) and an investment committee that oversee incremental investments and ensure that the overall investment portfolio aligns with the Board-approved investment policy and its limits. These investments are reviewed monthly by the ALCO committee, providing a second level of defense.

BHFL remains focused on optimising returns and diversifying its investment portfolio while ensuring that the investments are made in highly liquid instruments. To further diversify its investment portfolio, the Company began investing in state development loans (SDL), thereby expanding its investment options and enhancing overall portfolio returns.

The Company meets the regulatory liquidity coverage ratio requirement by investing in high quality liquid assets as defined by the RBI. As of 31 March2025, BHFLs investment portfolio (including cash and cash equivalents) stood at of RS.2,394 crore - invested across treasury bills/ government securities (RS.2,332 crore) and balances with banks (RS.62 crore).

Table 2: Average return on investments

Particulars	Average Yield (%)
Government Securities	7.03%
Tri-party Repo Dealing and Settlement (TREPS)	6.39%
Mutual Funds	6.87%
Fixed deposit with banks	6.37%
Overall Return	6.90%

Financial Performance

Table 3 gives BHFLs financial performance for FY2025 vis-a-vis FY2024. Table 4 highlights the key ratios.

Table 3: Financials

Particulars	FY2025	FY2024	Change
Total income	9,576	7,618	26%
Interest and finance charges	5,979	4,693	27%
Net total income	3,597	2,925	23%
Total operating expenses	747	703	6%
Pre-impairment operating profit	2,850	2,222	28%
Impairment on financial instruments	80	61	31%
Profit before tax (PBT)	2,770	2,161	28%
Profit after tax (PAT)	2,163	1,731	25%
Other comprehensive income/ (expenses)	11	(1)
Total comprehensive income	2,174	1,730	26%
Earnings per share (EPS) basic, in H	2.67	2.58

Table 4: Key Ratios

Ratios	FY2025	FY2024
Net total income (NTI) to average loans	4.0%	4.1%
Total operating expenses to Net Total Income (NTI)	20.8%	24.0%
Return on equity (ROE)	13.4%	15.2%
Capital to risk-weighted assets ratio (CRAR)	28.24%	21.28%
Tier I	27.72%	20.67%
Tier II	0.52%	0.61%
Gross NPA (GNPA)	0.29%	0.27%
Net NPA (NNPA)	0.11%	0.10%
Provisioning coverage ratio (PCR)	60.3%d>	63.7%
EPS - Basic (H)	2.67	2.58
Diluted (H)	2.67	2.58

Risk Management and Portfolio Quality

The Company faces various risks in its normal course of business, including credit, market, liquidity, interest rate, operational and technological risks. To identify and mitigate these risks, BHFL has established robust risk governance frameworks. The Board of Directors is supported by a dedicated Risk Management Committee (RMC), comprising directors and senior management personnel, which oversees the implementation of risk management policies, practices and metrics across the Company. This RMC reviews the performance of various risk metrics on a quarterly basis.

Additionally, the Company has institutionalised the Internal Capital Adequacy Assessment Process (ICAAP) policy, approved by the Board. This policy outlines the principles for identifying, evaluating and mitigating multiple risks in the business and assessing the additional capital required to alleviate these risks. The Company continuously assesses existing and emerging risks and updates its ICAAP policy accordingly.

BHFL has separate risk monitoring frameworks for retail and commercial portfolios. The retail portfolio monitoring team reviews key indicators for each product, including portfolio health, gross NPA and bounce rates to quickly identify potential risks and implement additional controls and policy enhancements. The commercial risk management team monitors critical elements in the developer financing portfolio, such as construction stages, sales and collection milestones; in the lease rental discounting portfolio, it monitors rental cash flows, vacancy trends and escrow compliance.

Credit Risk

The Company has a Board-approved credit policy with a delegation matrix that outlines approval authority separately for retail and commercial product underwriting. Additionally, there are specific product policies for due diligence, covering segment-wise credit evaluation, legal and technical reviews, and documentation requirements. These policies help assess customer profiles and inherent risks. Based on these principles, the centralised in-house credit appraisal teams thoroughly evaluate cases, ensuring consistent experiences, enhanced operational efficiency and quicker approval turnaround times. The underwriting process is supported by digital tools and modern initiatives like Account Aggregator for comprehensive assessments, ensuring faster turnaround times.

Credit risk is further monitored by dedicated portfolio monitoring units for both retail and commercial products. These units assess portfolio health, identify early warning signals, and conduct through-the-door monitoring to detect emerging concerns and implement real-time mitigation strategies to protect portfolio metrics. Both retail and commercial risk management units continuously monitor the portfolio to control delinquencies by addressing emerging risk segments.

As a preventive measure to identify fraud by any internal or external stakeholder, a dedicated risk containment unit examines early warning signals through automated workflows and exception reports, performing detailed checks on red flag cases before disbursement.

Periodic portfolio review mechanism and robust underwriting has helped the Company to maintain portfolio health, lower credit cost and expand sub-product offerings.

• BHFLs loan losses and provision for FY2025 was RS. 80 crore versus RS.61 crore for FY2024, owing to normalisation of overlay release in current year.

• Gross NPA stood at 0.29% as of 31 March2025 and net NPA at 0.11% - which underscores BHFLs robust risk management practices.

• The Companys overlay provision was RS. 34 crore as on 31 March2025 as against RS. 94 crore as on 31 March2024.

Table 5: Various stage wise assets of BHFL

Particulars	Exposure at Default (EAD)	Expected Credit Loss (ECL)	ECL/EAD (%)	EAD Mix (%)
Stage 1	99,483	334	0.34%	99.39%
Stage 2	321	71	22.12%	0.32%
Stage 3	287	173	60.28%	0.29%
Total	1,00,091	578	0.58%	100.00%

Market Risk, Liquidity Risk and Interest Rate Risk

According to the Board-approved investment policy, the Company invests its surplus funds in various instruments that are subject to market risk. To mitigate this risk, BHFLs investments include treasury bills, government securities, liquid funds and term deposits with banks, all of which are highly liquid instruments aimed at maintaining adequate liquidity and minimising fair value changes.

Following the RBI guidelines, BHFL has a liquidity risk management framework to manage liquidity risk. The Assets and Liability Committee (ALCO) reviews operational procedures monthly to ensure there are no material gaps beyond regulatory limits or excessive concentration on the balance sheet. Mismatches between assets and liabilities across time buckets are monitored, and the Company maintains adequate liquidity, as evidenced by a higher Liquidity Coverage Ratio (LCR) of 192.81% compared to the regulatory requirement of 100% as of 31 March2025.

The Company is also exposed to interest rate risk on investments and both fixed and floating rate linked assets and liabilities. BHFL has diversified borrowing sources, including term loans from banks, non-convertible debentures, commercial papers, and NHB refinance, spanning different maturity profiles and interest benchmarks, thereby exposing the Company to interest rate risk. Interest rate fluctuations can arise from various internal factors (such as maturity profile, mix between fixed and floating borrowings, product composition) or external factors (such as regulatory changes, macroeconomic developments, and competitive intensity). To assess interest rate sensitivity on assets and liabilities, BHFL uses Duration Gap Analysis, which is reviewed monthly by the ALCO.

Operational and Reputational Risk

The Company manages its operational risk based on its Board approved Operational Risk Management (ORM) Policy, which focuses on systematic and proactive identification, assessment, measurement, monitoring, mitigation and reporting of risks. These risks are continuously tracked through transactional-level internal process audits and further reinforced by the Internal Compliance Audit team. Additionally, automated and digitised processes are used to enhance efficiency and reduce operational risk. Moreover, compliance units within each business vertical identifies and mitigates operational risks arising from the processes of the business unit. The centralised service team continuously monitors customer requests and escalations on its CRM, social media and regulatory channels to provide end-to-end resolution for seamless customer experience and avoid reputational risk to the Company.

Technological Risk

The Company mitigates its technological risk through a three-tiered oversight structure over its IT landscape consisting of (i) the IT Strategy Committee, (ii) the IT Steering Committee, and (iii) the Information Security Committee. These operate within a well defined information and cyber security framework. The Company has implemented multiple initiatives to address technological risks, some of which are as follows:

• Web Application Firewall (WAF) protecting against various attacks like DDoS, SQL-Injection, etc.

• Data Leakage Prevention (DLP) for critical data and customer personal information protection.

• Endpoint Detection and Response (EDR) detects and protect from malicious activity on endpoints.

• Successful upgradation to ISO 27001-2022 certification to the latest standards for information security.

• 24x7 Securities Operations Center (SOC) monitoring security events.

• Disaster Recovery (DR) providing resilience against any unforeseen event.

The Company additionally conducts regular internal security audits, vulnerability assessments and penetration testing of systems, products and practices affecting user data in compliance with ISO 27001 standards.

Debt Management

The Company aims to maintain a low-risk portfolio, where a structured debt management approach plays a crucial role in its portfolio management strategy. A dedicated in-house debt management team focuses on high efficiency and minimal delinquency levels. This team operates from various locations to recover delinquent and current month outstanding accounts. The Company offers multiple digital payment options for overdue instalments, including UPI, NEFT, RTGS, and wallets, to facilitate convenient transactions.

Customers receive digital reminders in advance of their upcoming instalment payments, helping them maintain sufficient bank account balances. This approach ensures timely repayments and prevents unintentional defaults that could impact customers credit histories.

A centralised team analyses customer payment patterns and allocates accounts to appropriate channels, such as a centralised touch-free collection unit or the field team. The debt management structure is divided into three teams each requiring a tailored debt management approach. These are: (i) the current month outstanding team, (ii) the early delinquency customer team, and (iii) the NPA and write-off customer segments team. Early delinquent and NPA customers are further supported by a dedicated DMS team with a legal framework that includes arbitration notices, customised legal notices, enforcement actions through SARFAESI and auctioning of repossessed properties to accelerate recovery.

For the commercial portfolio, BHFL follows a relationship-driven model where dedicated relationship managers handle both sourcing and debt management, acting as a single point of contact for customers.

Asset Liability Management (ALM)

BHFL employs a three-tiered structure to oversee its asset liability management, consisting of a board-level Committee of Directors, a management-level Asset Liability Committee (ALCO), and a sub-committee.

The Management-level committee reviews macroeconomic indicators affecting the industry and the Company, monitors interest rate scenarios, liquidity positions, balance sheet growth, and liability maturities, and guides the treasury team on fundraising plans. It also reviews monthly asset liability mismatches to ensure there are no excessive concentrations or material imbalances on either side of the balance sheet, maintaining adequate liquidity to navigate a market liquidity crunch.

Liquidity risk is managed according to the liquidity risk management framework and Asset Liability Management Policy. To diversify its borrowing sources, the Company meets its liquidity needs through various instruments such as term loans from banks, money market borrowings, and NHB refinance.

BHFL maintains minimum daily liquidity as per the regulatory Liquidity Coverage Ratio (LCR) requirement, investing in high-quality liquid assets like government securities, state development loans, treasury bills, and cash and bank balances.

Any surplus above the regulatory minimum LCR is invested in liquid mutual funds to meet the Companys liquidity needs.

The committee monitors the regulatory LCR to ensure compliance and liquidity maintenance, with BHFL maintaining an LCR of 192.81% as of March31, 2025, which is well above the 100% regulatory requirement. The Management-level Investment Committee also monitors the investment position monthly, following the board- approved investment policy.

To manage interest rate risk from mismatches between fixed-rate liabilities and floating-rate assets, the Company hedges interest rate risk by converting fixed-rate liabilities into floating-rate liabilities. BHFL also monitors interest rate risk by categorising rate-sensitive assets and liabilities into defined tenor buckets and monitoring gap limits set by the board through the ALM policy.

The Company monitors asset liability mismatches for defined maturity buckets as per regulations and the ALM policy limits. Inflows are categorised based on behavioural patterns from the loan book, considering past prepayments and foreclosure trends. Outflows are categorised based on the maturities of borrowings according to their contractual maturity dates, with other assets and liabilities considered based on past trends.

BHFL maintained a cumulative positive ALM position with maturity up to the one-year bucket with cumulative inflow amounting to RS.31,327 crore and cumulative outflow amounting to RS.31,491 crore. Moreover, the Company has positive ALM position in 1-7 days, 8-15 days and 15-31 days as against the extant RBI regulation which permits a negative ALM mismatch of up to 10%, 10% and 20% respectively.

Table 6 gives the behavioural maturity pattern of BHFLs asset and liabilities. Table 6: Behaviouralised ALM snapshot as on 31 March2025

Particulars	1 to 7 days (one month)	8 to 15 days (one month)	15 to 30/31 days (one month)	Over one month to 2 months	Over 2 months to 3 months	Over 3 months to 6 months	Over 6 months to one year	Over one year to 3 years	Over 3 to 5 years	Over 5 years	Total
A. Inflows
Cash and investments	63	6	60	300	209	148	528	-	1,281	-	2,595
Advances	1,074	431	1,101	2,002	1,945	5,555	9,953	28,982	16,941	31,529	99,513
Other Inflows	9	-	1,088	66	1,617	2,959	2,213	7,568	5,875	8,015	29,410
Total inflows	1,146	437	2,249	2,368	3,771	8,662	12,694	36,550	24,097	39,544	1,31,518
B. Cumulative total inflows	1,146	1,583	3,832	6,200	9,971	18,633	31,327	67,877	91,974	1,31,518
C. Outflows
Borrowings repayment	338	-	563	564	2,707	5,619	9,412	31,229	15,716	15,924	82,072
Capital reserves and surplus	-	-	-	-	-	-	-	-	-	19,947	19,947
Other outflows	549	268	1,617	975	909	2,579	5,391	13,083	494	3,634	29,499
Total outflows	887	268	2,180	1,539	3,616	8,198	14,803	44,312	16,210	39,505	1,31,518
D. Cumulative total outflows	887	1,155	3,335	4,874	8,490	16,688	31,491	75,803	92,013	1,31,518
E. Gap (A - C)	259	169	69	829	155	464	(2,109)	(7,762)	7,887	39
F. Cumulative gap (B - D)	259	428	497	1,326	1,481	1,945	(164)	(7,926)	(39)	-
G. Cumulative gap (%) (F/D)	29%	37%	15%	27%	17%	12%	(1%)	(10%)	(0%)	0%
H. Permissible cum. gap (%)	(10%)	(10%)	(20%)

Digitalisation

To provide a seamless customer experience, BHFL utilises technological initiatives to enhance its processes and minimise manual interventions, thereby improving turnaround times and customer satisfaction. It is dedicated to delivering a consistent and smooth experience to its key stakeholders: customers, salesforce and intermediaries. In line with this commitment, the Company launched a customer onboarding platform where customers, salesforce, and channel partners can digitally log in loan applications, work on application fulfilment from any location, perform banking verification checks through various methods, pay fees, and upload multiple documents directly to the centralised underwriting team.

The Company has adopted RBI-supported initiatives like the Account Aggregator functionality, which eliminates the need for physical bank statements from customers, based on their consent, and supports banks within the ecosystem.

Penetration in March2025

Other digital initiatives by the Company include Aadhar OTP-based e-agreements and OTP-based KFS cum e-sanction letters, providing a transparent and hassle-free experience for customers while reducing manual intervention and eliminating physical documents throughout the loan process. New initiatives of e-agreement and online customer onboarding have shown encouraging results crossing penetration of 93% and 80% respectively in March2025. Additionally, in compliance with regulatory guidelines, all agreements are bilingual and available in seven different languages.

To ensure a smooth onboarding experience for partners, the Company has dedicated portals for intermediaries, thus enabling field teams to easily expand their distribution network. For customer convenience and a seamless experience, BHFL uses its digital touchpoints, allowing potential customers to reach out for any loan requirements through features like Call me back, Call to apply, Digital Sanction Letter and Apply through WhatsApp on the website.

Underwriting

The Company has distinct underwriting frameworks and dedicated teams for retail and commercial products to assess various loan products, transaction types, and customer profiles.

To ensure faster approvals and a consistent process, BHFL has established a centralised hub-based underwriting model, operating through five hubs. These hubs utilise various digital tools and Account Aggregator functionality for detailed loan analysis and quicker delivery. The Company has specific underwriting frameworks and policies for salaried and self-employed customers to assess different transaction types. BHFLs Business Rule Engine (BRE)-based customer segmentation helps categorise customers to optimise resource allocation and maintain approval turnaround times (TAT). The underwriting process includes telephonic personal discussions and video discussions before loan approval. Additionally, physical business verification checks are conducted for self-employed customers. The central hindsight team also reviews credit and collateral decisions before disbursement. The Company has in-house dedicated collateral teams for both legal and technical evaluations, dispersed across various hubs nationwide.

The dedicated commercial underwriting team, with subject matter expertise based in operating locations, recommends transactions that are then sent for final decision/approval to the centralised team, employing a hybrid approach of field due diligence and centralised approval. The field team assesses the customer profile, transaction structure, funding schedule, etc., followed by a comprehensive credit appraisal memo with an exhaustive assessment of customer financials, operational performance, and micro-market assessment, which is then reviewed by the centralised team.

The underwriting team for lease rental discounting loans reviews three critical elements involved in such transactions: the lessor, collateral, and the lessee. Developer financing underwriting includes reviewing the developers financial strength, project completion track record, repayment capacity, project approvals, micromarket assessment, etc. Both lease rental discounting and developer financing transactions are backed by escrow mechanisms for rental and project cash flows, respectively.

Customer Service

Customer engagement is a continuous process throughout the loan lifecycle, and the customer service function ensures prompt and efficient resolution of concerns. Our goal is to provide a seamless experience that fosters customer loyalty and strengthens brand recall.

Recognising the growing preference for non-intrusive digital communication, BHFL proactively empowers customers with enhanced self-service options. These initiatives automate many processes and digitise the customer journey. Through our customer portal and mobile app, customers can easily raise service requests, download essential loan documents, access flexible payment options (including advance instalments, part pre-payments, increased instalments, reduced tenure, and missed instalment payments via ECMS, UPI, and Bill Desk), and use a self-service query form to independently troubleshoot concerns.

To ensure effective resolution of customer queries, the Company has established a robust grievance redressal mechanism with defined turnaround times and a structured escalation hierarchy for unresolved or delayed queries/complaints. By leveraging Machine Learning (ML) for sentiment analysis, BHFL prioritises and categorises customer queries, enabling more personalised and timely responses. The Companys enhanced ML framework strengthens customer service capabilities by processing straight-through requests and analysing data points shared by customers, leading to faster resolutions and better customer experiences.

Additionally, our advanced data analytics and risk modelling capabilities help predict customer behaviour and segment portfolios throughout the loan lifecycle. This allows us to proactively engage customers with personalised solutions and assess their needs for additional funding which, in turn, enhance customer retention and foster long-term relationships.

To improve service quality, the Company actively manages customer complaints, follows regular feedback processes, and conducts Root Cause Analysis (RCA) of customer issues. It also monitors social media and other platforms to address any unfavourable viewpoints or concerns, and takes corrective actions when necessary.

Human Resources

BHFLs commitment to maintaining high standards of execution and fostering an empowered workplace remained a key focus area throughout the year.

To develop and retain in-house talent for organisational growth and a diverse workforce, the Company offers various career growth initiatives such as internal job postings and job rotations to accelerate employee progress within the organisation. It has a dedicated employee engagement and retention framework involving active participation from senior management. BHFL continues to attract and hire best-in-class industry talent to create a diverse pool for sustainable growth.

The Company offers a variety of training programs for existing and new employees. Two signature training programs for frontline sales leaders are (i) the Managerial Excellence Program (MEP), and (ii) the Leadership Excellence Program (LEP). MEP focuses on developing essential managerial skills and driving operational efficiency, while LEP addresses the developmental needs of leaders, emphasising team leadership and organisational goals. These programs covered 320 employees during FY2025.

To ensure a smooth onboarding experience for new frontline sales employees, the Company has a dedicated training program called STEPS, which covers an overall understanding of the organisation, its cultural anchors, policies and processes to understand on-the-job nuances. Additionally, the Company offers a four- day corporate induction program and has a dedicated learning platform to cater to specific upskilling needs of existing employees.

To promote a culture of diversity, equity, and inclusion across the organization, the Company introduced the DEI Spectrum policy. During the year, 93 women employees participated in the Building Resilient Minds program, designed to build resilience and thrive in a dynamic work environment.

BHFL organised an annual family day event across 11 cities, celebrating the role of families in supporting our workforce and offering a fun-filled day that recognises the importance of inclusivity for employees and their family members.

To recognise exceptional contributions of our employees, BHFL has a reward and recognition program aligned with our cultural anchors. Under this program, employees delivering outstanding performance are rewarded periodically - monthly, quarterly and yearly - to foster a culture of recognition and encourage them to exceed their performance.

BHFLs employees are also focused on community well-being and public health. There has been active participation in various social initiatives of the Company like Daan Utsav across pan-India branches where 2,999 items were donated under different categories to underserved communities, There were also blood donation camps across 8 major cities, where employees donated 370 blood bags.

As on 31 March2025, BHFL had 1,977 employees.

Internal Control Systems and their Adequacy

BHFL has a robust internal control system and established processes across its businesses and functions to identify and mitigate both existing and potential risks. The Risk Management Committee (RMC) and the Assets and Liabilities Committee (ALCO) are established to review key aspects related to business and functional risks, with representation from business and functional stakeholders. BHFL has institutionalised three levels of defence:

• Internal Operations Management.

• Risk and Compliance Functions.

• Internal Audit Function.

To test the implementation and efficiency of Internal Control over Financial Reporting (ICOFR), the Company has dedicated functions that regularly check these controls, identify potential operational risks and ensure timely rectification. Additionally, BHFL conducts Information and Technology General Controls (ITGC) reviews to periodically test the efficiency of internal controls across systems and rectify any deficiencies. Specialised

units ensure regular checks on internal processes within the operations and IT departments, identify gaps and implement mitigation measures. The Company also has a concurrent audit team to regularly review, identify and assess transactional risks in credit, collateral, and operational compliances.

Compliance is an inherent part of each business operation, with internal controls acting as the first level of defence. The Company has a dedicated compliance unit for additional review. Under the supervision of the Chief Compliance Officer (CCO), the Compliance function is responsible for reviewing and assessing compliance risks and monitoring regulatory compliances across businesses and functions.

In accordance with an RBI notification, BHFL has implemented a Risk-Based Internal Audit (RBIA) framework linked to the overall risk management framework. As the third line of defence, internal audits are carried out by an internal team.

The Board-approved Audit Committee reviews significant observations reported by the internal audit function, along with periodic follow-up actions on a quarterly basis, to assess the performance of internal audits and the adequacy and effectiveness of internal controls.

Fulfilment of the RBI and NHBs norms and standards

BHFL remains compliant with the prevailing rules and regulations on housing finance companies as issued by the RBI as well as the NHB. The Company continues to be classified as Upper Layer NBFC under the Scale Based Regulations issued by the RBI - under which the Company has implemented required policies and processes to comply with these regulations including the regulatory threshold of maintaining minimum 60% of total assets towards housing finance and 50% of total assets for individual housing as laid down under Principal Business Criteria. As of 31 March2025, BHFL has 63.28% of total assets towards housing finance and 51.72% of total assets towards individual housing finance.

Table 7: Regulatory ratios versus the minimum requirements stipulated by the RBI

Particulars	As on 31 March2025	RBI Stipulation
Capital to Risk-weighted Assets Ratio (CRAR)	28.24%	15.00%
Of which Tier-I	27.72%	10.00%
Liquidity Coverage Ratio (LCR)	192.81%	100.00%
Asset liability mismatch (ALM)
1-7 days	29%	(10%)
8-14 days	37%	(10%)
15-30 days	15%	(20%)
Principal Business Criteria (PBC)
IHL PBC	51.72%	50.00%
Overall PBC	63.28%	60.00%

Cautionary Statement

Some statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward looking within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied.