Capfin India Ltd Management Discussions

1. Industry Structure and Developments

The Indian Non-Banking Financial Company (NBFC) sector continued to play an important role in expanding access to credit and providing last-mile financing to underserved and unbanked customers during FY 2025-26.The year was marked by successive repo rate cuts and a reduction in the Cash Reserve Ratio (CRR) by the Reserve Bank of India (RBI), which improved system liquidity and supported the transmission of lower lending rates, even as overall systemic credit growth moderated, with NBFC-specific credit off-take growing at a comparatively subdued pace.

The RBI continued to strengthen the regulatory architecture governing NBFCs during the year, notably through the operationalisation of the Finance Industry Development Council (FIDC) as a Self-Regulatory Organisation (SRO) in April 2025, and the introduction of the Co-Lending Arrangements Directions, 2025 (effective January 1, 2026), which formalised bank-NBFC collaboration through a minimum 10% retention requirement for each originating entity. The Scale-Based Regulation (SBR) framework continued to guide differentiated, proportionate supervision across NBFC layers based on their systemic significance.

Capfin India Limited ("the Company"/"Capfin"), a non-systemically important, non-deposit taking NBFC categorised under the Base Layer of the RBIs Scale-Based Regulation framework and Equity listed on the BSE, has maintained compliance with all applicable regulatory requirements during the year. The Company continued to align itself with the evolving regulatory and market landscape while strengthening its internal governance and leadership structure to position itself for future growth.

2. Opportunities and Threats

Opportunities:

Sustained credit demand from Tier 2 and Tier 3 cities and the underserved MSME segment

Formal recognition of co-lending arrangements under the Co-Lending Arrangements Directions, 2025, opening structured partnership avenues with banks

Softer interest rate environment following repo rate and CRR cuts, improving system liquidity and cost of funds

Continued Government focus on financial inclusion and MSME support

Growing adoption of digital lending and technology-led underwriting, reducing operational costs and expanding credit reach

Threats:

Moderation in credit growth specific to the NBFC segment relative to overall systemic credit

Heightened competition from banks, following improved rate transmission, and from fintech-led NBFCs and small finance banks

Credit risk arising from potential borrower defaults amid a tighter margin environment

Increased compliance obligations arising from SRO oversight and the new co-lending regulatory framework

Economic disruptions impacting liquidity and repayment cycles

3. Segment-wise or Product-wise Performance

During the year under review, since the Company operates in a single segment, segment-wise or product-wise performance disclosure does not stand applicable.

4. Outlook

The medium-term outlook for the NBFC sector remains constructive, supported by continuing monetary easing, sustained credit demand from MSMEs and the informal sector, and progressive regulatory formalisation such as the Co-Lending Arrangements Directions, 2025.

Capfin India Limited aims to leverage these opportunities by:

Strengthening its capital base, including through the preferential allotment of equity shares undertaken during the year, to support future business expansion;

Reconstituting and strengthening its Board and leadership team to steer the Companys renewed growth strategy;

Maintaining a diversified, generic business approach to cater to evolving customer and market needs; and

Continuing to strengthen its governance, compliance, and internal control frameworks in line with regulatory expectations.

With these focused initiatives, the Company remains committed to rebuilding its growth trajectory while ensuring financial stability and regulatory compliance.

5. Risks and Concerns

The Company remains exposed to various risks:

Credit Risk: Inherent in lending operations; managed through robust credit appraisal systems.

Liquidity Risk: Addressed through Asset-Liability Management (ALM) planning and maintenance of adequate liquidity buffers.

Operational Risk: Regular system audits and cybersecurity checks are in place.

Regulatory Risk: Continuous monitoring of regulatory updates, including developments under the SRO and Co-Lending Arrangements framework, with prompt compliance ensured.

Concentration Risk: Given the Companys relatively small scale of operations, income remains sensitive to a limited number of transactions, which may result in volatility in reported financial performance.

6. Internal Control Systems and Their Adequacy

The Company has implemented adequate internal control systems to safeguard its assets and ensure proper accounting and compliance. Periodic internal audits are conducted, and findings are reviewed by the Audit Committee. During the year, the Board appointed new secretarial and internal auditors for FY 2026-27 as part of its continuing efforts to strengthen the internal control and compliance architecture.

7. Financial and Operational Performance

During FY 2025-26, the Company reported the following financial highlights (Rs. in lakhs):

Total Revenue from Operations: 23.49

Net Loss After Tax: (59.54)

Net Worth: 1,002.76

The decline in profitability during the year was primarily on account of subdued business volumes, in line with the broader moderation in NBFC-specific credit growth across the industry. The Company remains focused on rebuilding its income base while maintaining a prudent and conservative balance sheet.

8. Human Resources

The Company believes in developing a strong and motivated workforce. The Board inducted new leadership, including the appointment of Mr. Umesh Kumar Sahay as Chairperson, and continued to strengthen its internal people management systems. Following the change in promoter shareholding pursuant to the preferential allotment of equity shares, Capfin India continued its efforts towards recruitment planning, performance management, policy updates, and employee engagement to ensure alignment with the Companys renewed vision and growth strategy.

9. Cautionary Statement

Certain statements in this Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, and expectations may be forward-looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied due to economic conditions, government policies, regulatory changes, and other factors beyond the Companys control.