Banas Finance Ltd Management Discussions

The Management Discussion and Analysis Report for the year ended 31^st March, 2025 as stipulated under Regulation 34 (2) (e) read with Schedule V of SEBI (LODR) Regulations 2015 have been included in consonance with the Code of Corporate Governance as approved by The Securities and Exchange Board of India (SEBI).

Investors are cautioned that these discussions contain certain forward-looking statements that involve risk and uncertainties including those risks which are inherent in the Companys growth and strategy. The company undertakes no obligation to publicly update or revise any of the opinions or forward-looking statements expressed in this report consequent to new information or developments, events or otherwise.

The operational performance and future outlook of the business has been reviewed by the management based on current resources and future development of the Company. Banas Finance Ltd. is a non-deposit-taking Non-Banking Financial Company (NBFC-D) registered with the Reserve Bank of India (RBI). It is mainly engaged into business of Finance and Share Trading activity. The Company has a good lending portfolio.

MACRO ECONOMIC ENVIRONMENT:

The macroeconomic environment for India in 2024-25 was characterized by sustained economic growth, driven by strong domestic demand and a resilient financial system, with real GDP growing by 6.5%. Inflation was brought under control, falling significantly, and the external sector demonstrated stability. Key factors included robust services sector growth, increasing government tax revenues, and continued focus on fiscal prudence and infrastructure development, setting a positive outlook for long-term investment.

INDUSTRY OVERVIEW:

NBFCs have become important constituents of the financial sector and have been recording higher credit growth than scheduled commercial banks (SCBs) over the past few years. NBFCs are leveraging their superior understanding of regional dynamics and customised products and services to expedite financial inclusion in India. Lower transaction costs, quick decision making, customer orientation and prompt service standards have typically differentiated NBFCs from banks. Considering the reach and expanse of NBFCs, they are well-suited to bridge the financing gap in a large country like India. Systemically Important NBFCs have demonstrated agility, innovation, and frugality to provide formal financial services to millions of Indians.

The Non-Banking Financial Companies (NBFC) sector in India has witnessed significant developments in the fiscal year 2024-25, marked by growth and regulatory changes. The sector strengthened its financial soundness during the year through robust capital buffers, improved asset quality and consolidation of the balance sheet. The recently adopted changes to the finance bill withdrawing exemptions on long term capital gains to investors in debt mutual funds is estimated to have minimal impact on the NBFC sector given limited exposure of mutual fund in long term papers of NBFCs.

NBFC credit grows faster than systemic credit between Fiscals 2024 and 2026 CRISIL MI&A projects NBFC credit to grow at 16%-18% between Fiscal 2024 and Fiscal 2026. The credit growth will be driven by the retail vertical, including housing, auto, and microfinance segments. Rapid revival in the economy is expected to drive consumer demand in Fiscal 2025, leading to healthy growth NBFCs. Moreover, organic consolidation is underway with larger NBFCs gaining share with some of the merger and acquisition in the NBFC space such as Ambit Finvests acquisition of SME Corner and merger of Incred and KKR India. Further 15 growth of the NBFC industry will be driven mainly by large and medium size players with strong parentage who have funding advantage and capability to invest and expand into newer geographies.

OUTLOOK FOR FY 2025-2026:

After weathering a year of global headwinds, from elevated interest rates to geopolitical tensions, Indias macroeconomic fundamentals have shown remarkable resilience. The economy grew 7.4% year over year1 in the final quarter of fiscal year 2024 to 2025 with 6.5% growth for the whole year setting the stage for a more confident outlook for fiscal year 2025 to 2026.

Entering the new fiscal, Indias economic outlook is buoyed by three key engines: a resilient consumer base, a broadening investment landscape, and a digitally skilled, dynamic workforce. Urban spending is rising, private capital expenditures are showing green shoots, and Indias tech-adaptive talent is driving innovation and showcasing its global capabilities.

ECONOMIC OVERVIEW OF FINANCE INDUSTRY:

GLOBAL ECONOMY:

Global growth is projected at 3.0 percent for 2025 and 3.1 percent in 2026, an upward revision from the April 2025 World Economic Outlook. This reflects front-loading ahead of tariffs, lower effective tariff rates, better financial conditions, and fiscal expansion in some major jurisdictions. Global inflation is expected to fall, but US inflation is predicted to stay above target. Downside risks from potentially higher tariffs, elevated uncertainty, and geopolitical tensions persist. Restoring confidence, predictability, and sustainability remains a key policy priority.

INDIAN ECONOMY:

Indias GDP growth numbers for the last quarter of fiscal 2024 to 2025 came as a welcome surprise, with the economy growing at a brisk 7.4% year on year. Growth for the full fiscal year came in at 6.5%, driven by strong private consumption expenditure and investments, indicating domestic demand might be more resilient than expected, supported by easing inflation and favorable conditions in rural economies.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

NBFCs have emerged as the crucial source of finance for a large segment of the population, including SMEs and economically unserved and underserved people. They have managed to cater to the diverse needs of the borrowers in the fastest and most efficient manner, considering their vast geographical scope, understanding of the various financial requirements of the people, and extremely fast turnaround times.

NBFCs play an important role in credit intermediation, providing last-mile credit delivery with the help of technology. They are critical to the financial inclusion process, complementing the banking system by supporting the growth of millions of MSMEs, and independently employing people. Over the years, NBFCs have seen a rising credit-to-GDP ratio ("credit intensity") and a growing role in credit provisioning vis-?-vis scheduled commercial banks

NBFCs:

Over the past few years, NBFCs have undergone a significant transformation and today they form an important component of Indias financial system. Playing a critical role in the development of infrastructure, transport and employment generation, NBFCs are changing the business loan landscape in the country. Most NBFCs, leverage alternative and tech-driven credit appraisal methodologies to assess the credit worthiness of prospective borrowers.

This difference in approach allows them to meet loan requirements of individuals and businesses left traditionally underserved by banks. With the introduction of e-KYC, making borrowing an instant and hassle-free experience, NBFCs are already offering the right financial products to consumers and small businesses in a customized manner. The use of technology to optimize business processes also keeps cost overheads to a minimum, enabling credit to be availed at highly competitive interest rates.

KEY OPPORTUNITIES:

Increasing the penetration in the Micro, Small and Medium Enterprise (MSME) segment with new and dynamic operating models.

Synergistic alliances with fintech companies to tap niche markets.

Accessing new customers and cheaper funding sources by developing a viable co-lending business model.

Tapping into the fast-growing e-commerce segment.

Diversifying assets by targeting new profitable segments and developing the capabilities required to serve those segments.

Developing digital capabilities to boost sales productivity.

Increasing fee income through advisory services.

Using digital competencies and tools to improve sales productivity the use of advanced analytics and machine learning to build propensity models for lead generation, making real-time offers available to sales representatives by using customer data from multiple internal and external sources.

OPERATIONAL REVIEW:

Total Revenue/income from Operations on standalone basis is Rs. 4348.27 lakhs for the FY 2024-2025 comparison to FY 2023-2024 Rs. 7364.40 lakhs.

Total Revenue/ Income from operation on consolidated basis is Rs. 4348.27 lakhs for the FY 2024-2025 comparison to FY 2023-2024 Rs. 7364.40 lakhs.

SUBSIDIARY COMPANY:

As there are no subsidiaries of the Company, Investment made in Subsidiaries is NIL.

However the company has an Associate Company i.e M/s. Tilak Ventures Limited.

SEGMENT-WISE PERFORMANCE:

The Company operates in single reported segment with main business of Finance and Share Trading activity.

RISKS AND CONCERNS:

NEW RISK MANAGEMENT FRAMEWORK

However, another green shoot that emerged from the regulatory intervention as the RBI introduced a new liquidity risk management framework to holistically counter future risks in the sector.

Under the new framework, non-deposit taking NBFCs with asset size of more than INR 10,000 crore and all deposit taking NBFCs will have to maintain a liquidity coverage ratio (LCR) requirement of 50 per cent by December 1, 2020, and progressively increase it to 100 per cent by December 2024. Similarly, non-deposit taking NBFCs with asset size between INR 5,000 crore and INR 10,000 crore would be required to have a minimum LCR of 30 per cent by December 1, 2020.

This might have produced short-term pain in the industry but its an excellent long-term measure to protect the sector from externalities and improve the overall risk management frameworks across the industry. This will not only boost the confidence in the robustness of the sector, but it could also potentially lower the cost of funds for NBFCs as their risk perception goes down massively due to the new LCR reporting framework.

Moreover, the RBIs emphasis on its commitment to not let any NBFC fail came as a strong signal from the government that it firmly stands behind the sector. Due to the easier liquidity provisions, the flow of funds to NBFCs from banks improved by over 30 percent in just a year.

As a result, the sector now stands on a firm footing with the right regulatory provisions in place along with liquidity windows which have allowed NBFCs to raise funds. Overall, the signs are encouraging as the asset quality for SME lending remains stable and lower than commercial lending non-performing asset rates in India.

According to CIBIL, SME 1 segment had just 9 per cent delinquencies compared to NPAs reaching up to 14 per cent in the larger ticket size segment. Meanwhile, NBFCs looked outwards for funds to keep the credit cycles running. Many players have raised funds outside the country and these offshore borrowings are expected to continue going into 2020, at least till the time credit flow in the Indian economy resumes.

The crucial bit to note here is that lending by NBFCs forms the backbone of Indias economy, especially for the micro, small and medium enterprises sector.

As an NBFC, Banas is exposed to Credit, Liquidity and Interest Rate Risk. The Company takes risk management seriously and its procedures and policies in the area are well defined and considered appropriate for the assessment and management of individual risk categories. Sustained efforts to strengthen the Risk Framework have yielded consistently better outcomes for the company.

Company is well placed on the liquidity front and appropriate policies exist for underwriting credit risk. The Company endeavors to continuously learn and modifies its policies to manage the aforementioned risks.

The Audit Committee has been periodically reviewing the risk profile of the Company and evaluating the adherence by the branches/ functions of the systems and processes in place for monitoring, evaluation, assessment and mitigation of risk through a systematic and effective audit Programme. The observations of Audit Committee, if any, on the risk management are reported to the board.

The key risks are:

i) Liquidity risk ii) Interest rate risk iii) Credit risk iv) Business risk v) Regulatory risk vi) Pandemic risk.

INTERNAL CONTROL SYSTEM & ADEQUACY:

The company has adequate internal control system commensurate with its size and business. The company Com- plied with all applicable statutes, policies, procedures, listing requirements and management guidelines. It Adheres to applicable accounting standards and polices.

Banas has robust internal audit Programme, where the internal auditors, an independent firm of chartered accountants, conduct a risk-based audit with a view to not only test adherence to laid down policies and procedures but also to suggest improvements in processes and systems. Their audit program is agreed upon by the Audit Commit- tee. Internal audit observations and recommendations are reported to the Audit Committee, which monitors the implementation of such recommendations.

HUMAN RESOURCE:

The Company has excellent combination of experienced and talented employees. The Company also undertakes on regular basis various training Programmes to keep its employees updated on new technical developments and information which directly results in optimum capacity utilization and cost effectiveness. The Companys relation with its employees continues to be cordial.

The Company always reciprocates commitment to its employees in order to motivate them to perform the best.

FULFILLMENT OF RBI NORMS AND STANDARDS:

The Company continues to fulfill all applicable norms and standards laid down by the Reserve Bank of India pertaining to prudential norms, income recognition, accounting standards, asset classification as applicable to NBFCs (ND) except few, explanation pertaining to which has been provided in Boards report.

OUTLOOK:

The company is cautiously optimistic in its outlook for the year 2024-2025. The outlook of the company for the year ahead is to diversify risk and stabilize its asset quality. The Corporate Finance Division will adopt a cautious approach and focus on customer relationships. This division will look to grow its supply chain, structured finance and leasing business.

CAUTIONARY STATEMENT:

Statements in foregoing paragraphs of this report describing the current industry structure, outlook, opportunities, etc., may be construed as "forward looking statements", based on certain assumptions of future events over which the Company exercises no control. Therefore, there can be no guarantee as to their accuracy. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those that may be implied by these forward looking statements.

CFO CERTIFICATE

To

The Members

Banas Finance Limited

I undersigned, CFO of Banas Finance Limited ("the Company") to the best of my knowledge and belief certify that:

a. I have reviewed financial statements and the cash flow statement for the year ended 31^st March, 2025 and that to the best of my knowledge and belief; I state that:

(i) These statements do not contain any materially untrue statement or omit any material fact or contain statements that may be misleading; (ii) These statements together present a true and fair view of the listed entity affairs and are in compliance with existing accounting standards, applicable laws and regulations. b. I further state that to the best of my knowledge and belief, no transactions entered into by the company during the year, which are fraudulent, illegal or violation of the Companys Code of Conduct. c. I am responsible for establishing and maintaining internal controls for financial reporting and that I have evaluated the effectiveness of internal control systems of the Company pertaining to financial reporting of the Company and have disclosed to the Auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which I am aware and the steps I have taken or propose to take to rectify these deficiencies.

d. I have indicated to the Auditors and the Audit Committee:

i) Significant changes, if any, in internal control over financial reporting during the year. ii) Significant changes, if any, in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

iii) Instances of significant fraud of which they have become aware and the involvement therein, if any, of the managementor an employee having a significant role in the Companys internal control system over financial reporting.

DECLARATION ON COMPLIANCE OF CODE OF CONDUCT OF BOARD & SENIOR MANAGEMENT DECLARATIONS

Compliance with the Code of Business Conduct and Ethics As provided under Regulation 26 (3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, all Board Members and Senior Management Personnel have affirmed compliance with Banas Finance Limited Code of Business Conduct and Ethics for the year ended March 31,2025.