Capital Trust Ltd Management Discussions

A. Executive Summary

The fiscal year 2024-2025 has been a testament to Capital Trust Limiteds (CTL) resilience and strategic agility in navigating an increasingly complex macroeconomic environment. Against the backdrop of persistent inflationary pressures, tightening monetary policies across advanced economies, and evolving regulatory frameworks in the Indian financial sector, CTL has demonstrated remarkable operational robustness. The companys performance has been characterized by prudent risk management practices, technological innovation in credit underwriting, and a disciplined approach to portfolio diversification. Strategic initiatives during the year included the full integration of our digital lending platform with Indias Account Aggregator ecosystem, resulting in a 40% reduction in turnaround time for repeat borrowers. Furthermore, our co-lending partnerships have enabled deeper penetration into tier-3 - tier-4 markets while optimizing capital efficiency through risk-sharing arrangements. This comprehensive MD&A report provides stakeholders with detailed insights into:

The global macroeconomic landscape and its implications for emerging markets

Structural trends reshaping the NBFC sector globally and in India

CTLs financial and operational performance across key metrics

Our enhanced risk management framework addressing emerging risks including cybersecurity and contagion

B. World Economy Overview (2024-2025)

The global economy in FY2024-25 has been navigating a precarious path between inflationary containment and growth preservation. According to the International Monetary Funds (IMF) October 2024 World Economic Outlook, global GDP growth is projected at 2.9%, representing a modest deceleration from the 3.4% recorded in FY2023-24. This slowdown has been particularly pronounced in advanced economies, where tighter monetary conditions have dampened consumption and investment activity. The United States economy has demonstrated relative resilience, growing at 2.1% in FY25, supported by strong labour markets (unemployment at 3.8%) and robust consumer spending. However, the Federal Reserves restrictive monetary policy maintaining the federal funds rate at 5.25%-5.50% for most of the fiscal year has begun to weigh on interest-sensitive sectors such as housing and durable goods. The Eurozone, by contrast, has verged on stagnation with mere 0.9% growth, as energy market dislocations and weak industrial production, particularly in Germanys manufacturing sector, continue to pose headwinds.

Emerging markets have remained the bright spot in the global growth narrative, expanding collectively at 4.0%. This outperformance has been led by Asia, where India (6.5% growth) and Vietnam (5.2%) have benefited from manufacturing realignment under the China+1 strategy. However, these economies face their own set of challenges, including:

Commodity price volatility: Brent crude has oscillated between 85 85 95/barrel due to geopolitical tensions and OPEC+ supply management.

Debt sustainability concerns: Emerging market debt-to-GDP ratios have surpassed 250% in aggregate (IIF data).

Currency volatility: The U.S. dollar index (DXY) has remained elevated near 105, pressuring EM currencies and complicating monetary policy.

The global inflation trajectory has shown signs of moderation but remains above central bank targets in most jurisdictions. U.S. core PCE inflation has eased to 3.0% (from 4.5% in FY24), while Eurozone HICP inflation stands at 2.5%. This sticky inflation has compelled major central banks to maintain restrictive policies longer than initially anticipated, with the Feds balance sheet runoff continuing at $95 billion/month and the ECB only commencing rate cuts in Q2 FY25.

C. Structural Challenges in the Global Economy

1. Debt Overhang and Fiscal Constraints

The global debt stock reached a record $307 trillion in Q1 2024 (IIF data), representing 336% of world GDP. This debt accumulation has been particularly acute in emerging markets, where dollar-denominated corporate debt has created vulnerability to currency shocks. The U.S. Treasury market has seen prolonged selloffs, with 10-year yields breaching 4.5% multiple times during FY25, tightening financial conditions globally.

2. Trade Fragmentation and Supply Chain Reconfiguration

The geopolitical realignment of global trade flows has accelerated in FY25, with "friend-shoring" initiatives redirecting an estimated $1.2 trillion in cross-border investment. The U.S. CHIPS Act and EUs Critical Raw Materials Act have spurred semiconductor and clean technology investments within aligned blocs, while Chinas dual circulation strategy has deepened its domestic supply chains. This balkanization has increased production costs McKinsey estimates a 3-5% uplift in manufacturing input costs globally.

3. Climate Transition Risks

The physical and transition risks associated with climate change have moved from theoretical to material concerns for financial institutions. The NGFS climate scenarios now inform stress testing at systemic banks, with carbon-intensive portfolios facing higher risk weights. Insurance premiums for climate-exposed assets have risen 40-60% in vulnerable regions, per Swiss Re data.

D. Indian Economy Performance and Prospects

1. FY2024-25 Macroeconomic Performance

The Indian economy has demonstrated remarkable resilience, growing at 6.5% in FY25 despite global headwinds. This outperformance has been anchored by:

Domestic consumption: Private final consumption expenditure grew at 7.2%, supported by urban demand recovery and rural consumption revival post-monsoon normalization

Investment revival: Gross fixed capital formation expanded by 8.1%, driven by government infrastructure spending ( 11.1 lakh crore allocation) and private sector capex in PLI scheme sectors

Services sector dynamism: The GVA for services grew at 7.8%, with IT-enabled services and financial services leading the expansion

The inflation trajectory has shown moderation but remains above the RBIs 4% target, with FY25 average CPI at 5.2%. Food inflation volatility particularly in cereals and pulses has been the primary driver, while core inflation has eased to 4.8% by March 2025. The RBI maintained a calibrated tightening stance for most of the year, with 50 bps of rate hikes in H1 FY25 followed by status quo, before delivering a 25-bps cut in February 2025 as inflation expectations anchored. growth particularly in retail and MSME segments the Reserve Bank of India (RBI) has introduced measures to mitigate systemic risks, especially in unsecured lending. Key developments include:

Strong credit growth (15-18% YoY), with NBFCs outpacing banks in retail and MSME lending.

Regulatory tightening, including higher risk weights on unsecured loans, moderating personal loan growth.

Persistent deposit-credit growth gap (12% vs. 15-18%), straining liquidity.

Digital acceleration, with UPI transactions exceeding 20 billion monthly and the Account Aggregator framework covering 85% of systemic deposits.

This article delves into these dynamics, focusing on RBIs regulatory measures particularly the new base layer framework for NBFCs, risk weight adjustments, and co-lending guidelines while incorporating the latest data and policy updates.

1. Credit Growth and Sectoral Trends 1.1 Robust Credit Expansion

Indias credit growth has remained strong, averaging 15-18% YoY (as of Q1 FY25), driven by retail, MSME, and infrastructure financing. Key trends include:

NBFCs outpacing banks: NBFCs have grown at ~20% YoY, compared to banks ~15%, due to their agility in retail and MSME lending.

Retail loans dominate: Personal loans (including credit cards and consumer durables) grew at 23% YoY (down from 35% in FY24 after RBIs risk weight hike).

MSME credit surge: The Emergency Credit Line Guarantee Scheme (ECLGS) and digital lending platforms have pushed MSME credit to ~18% YoY.

1.2 Deposit Growth Lag and Liquidity Pressures

Despite strong credit demand, deposit growth lags at ~12% YoY, sustaining liquidity pressures:

Credit-Deposit Ratio (CD Ratio) at 78% (up from 75% in FY24), indicating tighter liquidity.

RBIs liquidity operations: The central bank has intermittently injected liquidity via variable rate repos (VRRs) to ease short-term deficits.

2. Regulatory Tightening: RBIs Measures to Curb Risks 2.1 Higher Risk Weights on Unsecured Lending (Nov 2023)

In November 2023, the RBI increased risk weights on unsecured loans to 125% for banks and 100% for NBFCs (from 100% and 75%, respectively). The impact:

Personal loan growth slowed to 23% YoY (from 35% in FY24).

Credit card outstanding growth moderated to 28% (from 34% in FY23).

NBFCs cost of funds rose as banks reduced lending to them due to higher capital requirements.

2.2 Base Layer Framework for NBFCs (Effective Oct 2024)

The RBIs new four-tier regulatory framework for NBFCs (announced in April 2024) categorizes them based on size and risk:

Layer	Criteria	Key Regulations
Base Layer	Assets < 1,000 crore	Simplified norms, lower compliance
Middle Layer	Assets 1,000-10,000 crore	Stricter governance, liquidity norms
Upper Layer	Top 25-30 NBFCs by size	Near-bank regulations (CRR, SLR)
Top Layer	NBFCs posing systemic risks	Additional capital buffers

2.3 Implications of Regulatory Changes for NBFCs

The regulatory framework introduced by the Reserve Bank of India (RBI) has significant implications for different categories of Non-Banking Financial Companies (NBFCs). Small NBFCs, classified under the Base Layer, benefit from lighter compliance requirements. This regulatory leniency is designed to support the growth of smaller players, including fintech companies and local lenders, by reducing their cost and burden of compliance. This, in turn, helps promote financial inclusion and innovation in underserved markets. On the other hand, Upper Layer NBFCs, are subject to more stringent regulatory requirements. These entities are now mandated to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), similar to banks. While this move aligns larger NBFCs with the prudential norms applicable to traditional banking institutions, it also raises their funding costs. This could affect their lending rates and margins, especially in competitive segments like consumer and SME lending.

2.4 Revised Co-Lending Guidelines (June 2024 Update)

In June 2024, the RBI revised its Co-Lending Model (CLM) to enhance collaboration between banks and NBFCs in financing priority sectors such as agriculture and MSMEs. The updated guidelines are aimed at improving risk alignment and process standardization. One of the key changes is the requirement for banks to retain at least 20% of the loan on their books, up from the earlier 10%. This change ensures that banks maintain a meaningful stake in the co-lent loans, thereby promoting better credit evaluation and monitoring. Another major update is the standardization of underwriting processes. The revised framework mandates that both the bank and NBFC use common digital platforms for credit appraisal and due diligence. This ensures transparency, reduces duplication, and enhances the overall efficiency of the lending process. Furthermore, co-lending arrangements targeting agriculture and MSMEs now fully qualify under Priority Sector Lending (PSL) obligations for banks, providing an added incentive for such partnerships. The impact of these revisions has been substantial. In FY24, MSME co-lending volumes grew by 35% year-on-year, indicating strong demand and increased trust in the co-lending structure. Additionally, the number of NBFC-bank tie-ups has risen, with notable examples like SBI partnering with Five Star Business Finance to provide tailored MSME loans. This trend reflects growing confidence in co-lending as a viable and scalable model for financial inclusion.

3. Digital Finance Acceleration 3.1 UPI Dominance

Monthly UPI transactions crossed 20 billion (May 2024), up from 12 billion in FY23.

RBIs credit line on UPI: Allows pre-sanctioned credit via UPI, boosting digital lending.

3.2 Account Aggregator (AA) Framework Expansion

The Account Aggregator (AA) framework has witnessed significant progress, with its coverage expanding to nearly 85% of systemic deposits as of FY24, compared to just 60% in FY23. This expansion reflects growing adoption by banks and financial institutions, enabling a broader base of customers to securely share their financial data. As of April 2024, over 1.2 billion data-sharing consents had been processed through the AA ecosystem. This surge in usage highlights the increasing reliance on digital consent-based data sharing to streamline processes such as loan underwriting, credit assessments, and personalized financial services. The AA framework is instrumental in building a data-rich financial infrastructure that ensures transparency, customer control, and faster access to credit. 3.3 Rise of Fintech Lending India has witnessed a rapid rise in fintech-led lending, with digital lending growing at a compound annual growth rate (CAGR) of 35% between 2020 and 2024. This growth has been spearheaded by platforms such as Paytm, BharatPe, and Lendingkart, which have leveraged technology to offer quick, paperless, and personalized loans to underserved segments, especially small businesses and individual borrowers. However, this fast-paced expansion has also prompted regulatory tightening by the Reserve Bank of India. To curb excessive risk-taking, the RBI has imposed stricter norms, including a cap on the First Loss Default Guarantee (FLDG) at 5%. This cap limits the extent to which fintechs can bear the initial credit loss on loans originated in partnership with regulated lenders, thereby promoting more responsible lending practices and reducing systemic risk in the digital credit ecosystem.

4. Future Outlook and Challenges 4.1 Liquidity Management

The persistent gap between deposits and credit growth continues to be a concern for the Indian banking system. While credit demand particularly from retail, MSME, and infrastructure segments has surged, deposit growth has not kept pace. This widening deposit-credit gap puts pressure on banks ability to fund loans through traditional low-cost deposits. As a result, banks may be compelled to increase deposit rates to attract more funds from savers, which in turn could raise overall lending rates, affecting borrowers across sectors.

The market is increasingly factoring in expected rate cuts in the second half of FY25, driven by moderating inflation and a potential global monetary easing cycle. If implemented, these rate cuts by the Reserve Bank of India (RBI) could ease funding costs for banks, NBFCs, and corporates. Lower policy rates would translate into reduced cost of borrowing, enabling lenders to access cheaper capital and pass on the benefit to borrowers in the form of lower interest rates.

This monetary easing would be especially beneficial for sectors that are highly sensitive to interest rates, such as housing, infrastructure, and MSMEs. For financial institutions, a reduction in funding costs can improve net interest margins and support credit growth. Additionally, lower rates could stimulate consumption and investment, giving a further boost to economic activity. However, the timing and extent of rate cuts will depend on macroeconomic indicators, including inflation trends, global financial conditions, and fiscal dynamics.

4.2 Regulatory Scrutiny on Shadow Banking

Upper Layer NBFCs, identified by the RBI based on size, interconnectedness, and systemic importance, are set to face stricter regulatory norms in line with the scale-based regulation framework. These norms include higher capital adequacy requirements, mandatory maintenance of liquidity buffers, and closer supervision akin to that of scheduled commercial banks. While the objective is to strengthen risk management and ensure financial stability, these additional compliance requirements will inevitably lead to higher operational and funding costs.

With rising compliance costs, tightening regulations, and increasing competition from banks and fintechs, mid-sized NBFCs are expected to pursue consolidation as a strategic response. Mergers and acquisitions will help these players achieve scale, improve operational efficiency, and enhance access to capital. The trend is likely to accelerate as only well-capitalized and digitally agile NBFCs will thrive in the evolving regulatory landscape.

4.3 Digital Lending and Cybersecurity Risks

The Reserve Bank of India (RBI) has been increasingly monitoring the use of Artificial Intelligence (AI) and Machine Learning (ML) in credit underwriting and risk assessment by financial institutions. While these technologies offer greater efficiency, speed, and data-driven insights, they also pose risks related to algorithmic bias, transparency, and data privacy. As a result, the RBI is expected to issue new guidelines to ensure responsible and ethical use of AI/ML in credit models. These guidelines may focus on model explainability, fairness, auditability, and consumer protection, aiming to strike a balance between innovation and financial stability.

Fraud prevention: As digital lending and financial transactions grow rapidly, fraud prevention has become a top priority for regulators and institutions. Technologies like biometric KYC using fingerprint or facial recognition are increasingly being adopted to ensure robust and tamper-proof identity verification. In parallel, blockchain-based verification systems are gaining traction for their ability to create immutable, transparent, and secure records of customer data and transaction history. Together, these technologies enhance the reliability of onboarding processes, reduce identity theft, and build greater trust in the financial ecosystem.

Indias financial sector remains dynamic, balancing high credit growth with regulatory prudence. The RBIs tightening on unsecured loans, revised NBFC regulations, and co-lending reforms aim to ensure stability without stifling innovation. Meanwhile, digital finance led by UPI and AA continues to redefine lending. Going forward, managing liquidity, enhancing deposit growth, and mitigating fintech risks will be critical for sustained expansion.

Key Takeaways:

Credit growth at 15-18%, but deposits lag at 12%:

Strong credit demand has pushed loan growth to 15 18%, but slower deposit growth at 12% may strain bank liquidity and force rate hikes or increased reliance on market borrowing.

RBIs risk weight hikes slowed unsecured loan growth to 23%:

RBIs increased risk weights on unsecured personal loans have cooled growth to 23%, prompting banks and NBFCs to rebalance portfolios and tighten lending norms in the high-risk retail segment.

New NBFC base layer framework imposes tiered regulations:

RBIs revised NBFC framework introduces a four-layer classification system, imposing tighter governance, disclosure, and capital norms depending on size and systemic importance, aimed at reducing sectoral risks.

Co-lending gains traction, especially in MSMEs:

Co-lending models between banks and NBFCs are expanding, especially in MSME financing, leveraging NBFC reach and bank capital to improve last-mile credit delivery while sharing risk.

Digital finance (UPI, AA) is reshaping credit accessibility:

Platforms like UPI and Account Aggregator are revolutionizing credit by enabling seamless, consent-based data sharing, improving credit assessments, and expanding formal financial access in underserved segments.

The RBIs calibrated approach seeks to foster growth while safeguarding financial stability, ensuring Indias banking system remains resilient amid global uncertainties.

E. Global Macroeconomic Analysis: Structural Shifts and Implications

The global economic landscape in FY2024-25 has been characterized by three fundamental structural shifts that are reshaping financial markets worldwide. First, the transition from synchronous monetary tightening to asynchronous policy normalization has created divergent growth trajectories across advanced and emerging economies. While the Federal Reserve maintained its hawkish stance through most of the fiscal year, emerging market central banks like the Reserve Bank of India front-loaded rate cuts to support growth, resulting in unprecedented interest rate differentials. Second, the reconfiguration of global supply chains under the China+1 strategy has altered trade patterns, with Southeast Asian economies capturing 42 billion in redirected manufacturing investment (World Bank estimates). Third, the energy transition has accelerated beyond expectations, with renewable energy investments surpassing fossil fuels for the first time in history. These macroeconomic shifts present both opportunities and challenges for non-bank financial institutions. The interest rate divergence has created attractive arbitrage opportunities in cross-border funding but requires sophisticated currency risk management. Supply chain realignment has generated 120 billion in new financing demand for factory construction and working capital across India, Vietnam and Mexico.

F. Indian Macroeconomic Deep Dive: Growth Drivers and Vulnerabilities

Indias economic engine continues to fire on multiple cylinders, with FY2024-25 GDP growth of 6.5% making it the fastest-growing major economy. This performance stems from four powerful structural advantages:

1. Demographic Dividend: With 68% of the population in the working-age bracket and urban household formation growing at 5.2% annually, consumption demand remains robust. The expanding middle class (projected to reach 600 million by 2030) is driving premiumization across financial products.

2. Manufacturing Renaissance: The Production Linked Incentive (PLI) scheme has catalysed $55 billion in private manufacturing investment, particularly in electronics (32% growth), pharmaceuticals (18%) and renewable energy equipment (41%).

3. Digital Infrastructure Leap: India Stack adoption has reached critical mass, with 850 million Aadhaar-linked accounts, 500 million UPI users and 12 billion monthly AA framework API calls - creating an unprecedented data backbone for credit underwriting.

4. Financial Deepening: Credit penetration has increased from 56% to 63% of GDP since FY2020, with NBFCs accounting for 35% of incremental credit flow to commercially underserved segments.

However, three vulnerabilities require vigilant monitoring:

Twin deficit pressure (fiscal deficit at 5.8% of GDP, current account deficit at 2.1%)

Private sector capex concentration in only 4 sectors

Uneven monsoon distribution impacting rural demand

G. NBFC Sector Global and Indian Perspectives

1. Global NBFC Trends

The global non-bank financial intermediation (NBFI) sector has grown to $230 trillion in assets (FSB data), representing 48% of total global financial assets. Key trends include:

Digital lending disruption: Fintech lenders now account for 28% of U.S. personal loan originations (TransUnion data), leveraging AI/ML models that reduce approval times to under 24 hours

Regulatory recalibration: The EUs CRR III implementation has increased capital requirements for non-banks, triggering portfolio rebalancing toward higher-yielding assets

Private credit expansion: Global private debt AUM surpassed $2.1 trillion (Preqin data), filling financing gaps left by retreating banks

2. Indian NBFC Sector Evolution

Indias NBFC sector has crossed 150 lakh crore in AUM, growing at 18% CAGR over FY20-25. Structural shifts include:

Asset class specialization: Gold loan NBFCs (20% AUM growth), vehicle financiers (17%), and microfinance (22%) have outperformed generic lenders

Co-lending proliferation: 35% of NBFCs now have active co-lending arrangements, improving leverage ratios while maintaining asset ownership

Resolution mechanism innovation: The adoption of Insolvency and Bankruptcy Code (IBC) processes for financial firms has improved recovery rates to 45% (from 32% in FY20)

3. Deep Dive: Global NBFC Sector Transformation

The global non-banking financial sector has undergone a fundamental transformation in FY2024-25, reshaping competitive dynamics across all major markets. Three powerful forces have converged to drive this evolution: digital disruption reaching maturity, comprehensive regulatory reforms, and macroeconomic rebalancing in a higher interest rate environment. These structural shifts have created both significant challenges and substantial opportunities for agile financial intermediaries like Capital Trust Limited. Digital lending platforms have achieved critical mass in advanced economies, fundamentally altering credit distribution channels. In the United States, digitally native lenders now command nearly one-third of the personal loan market, leveraging sophisticated algorithms that incorporate alternative data sources beyond traditional credit scores. These platforms have achieved remarkable efficiencies, reducing loan approval times from days to hours while maintaining robust underwriting standards. The European market has seen parallel developments, with open banking frameworks enabling seamless data sharing between traditional financial institutions and fintech lenders. This convergence has been particularly impactful in the SME lending segment, where real-time access to business banking data has improved credit assessment accuracy. Regulatory changes have compelled a strategic reorientation across the sector. The implementation of Basel IV standards has significantly increased capital requirements for non-bank lenders globally, prompting portfolio rebalancing toward higher-yielding secured assets. In the European Union, the revised Capital Requirements Directive (CRD VI) now subjects systemic non-banks to the same minimum capital standards as traditional banks. This regulatory tightening has accelerated industry consolidation, with smaller players either merging with larger institutions or exiting capital-intensive business lines. The resulting landscape favours well-capitalized NBFCs with diversified funding sources and sophisticated risk management capabilities.

4. Indian NBFC Sector: Structural Evolution

The Indian non-banking financial sector has demonstrated remarkable adaptability in FY2024-25, evolving through several structural transformations that have redefined competitive dynamics. The most significant development has been the rapid specialization across asset classes, marking the end of the era of generic, undifferentiated NBFCs. Gold loan providers have emerged as clear leaders, benefiting from both rising gold prices and innovative loan-to-value optimization strategies. Microfinance institutions have achieved impressive growth through joint liability group model innovations, while digital inspection tools have revolutionized the used vehicle financing segment.

On the liability side, Indian NBFCs have displayed impressive innovation in funding strategies. Direct assignment structures have gained substantial traction, now accounting for over a quarter of sector-wide funding. Co-lending partnerships with banks have proliferated, creating a symbiotic relationship that combines NBFCs distribution strength with banks balance sheet capacity. The retail bond market has witnessed unprecedented activity, with NBFC issuances crossing 1.2 lakh crore as investors seek higher yields in a rising rate environment. This diversified funding approach has enhanced sector resilience against liquidity shocks. Digital transformation has moved from aspiration to implementation across the Indian NBFC landscape. The Reserve Bank of Indias Digital Lending Guidelines have provided a clear regulatory framework for technology adoption, resulting in near-universal implementation of e-KYC for customer onboarding. API-based credit decisioning has become mainstream, enabling real-time risk assessment and faster disbursals. Perhaps most significantly, the account aggregator framework has gained critical mass, with two-thirds of NBFCs now participating in this data-sharing ecosystem that promises to reduce information asymmetry in credit markets.

H.Capital Trust Limited: Strategic Positioning

Capital Trust Limited has successfully navigated the evolving financial landscape through a combination of strategic foresight and operational excellence. Our competitive positioning rests on five key pillars that differentiate us in the marketplace. The foundation of our success lies in our diversified funding architecture, which carefully balances multiple liability sources to ensure stability across market cycles. Term loans, comprising 35% of our funding, are meticulously tenor-matched to our asset profile, while our retail bond program has established CTL as a recognized name in the fixed income market. Our digital lending ecosystem represents a significant competitive advantage in todays technology-driven financial environment. The CTL Digital Platform integrates advanced artificial intelligence capabilities with seamless user experiences, creating a virtuous cycle of efficiency and customer satisfaction. The platforms AI-powered credit scoring system, built on the sophisticated FICO 8.5 model, delivers superior risk assessment while reducing turnaround times. Automated document processing handles 85% of cases without manual intervention, and our real-time fraud detection system achieves 98% accuracy in identifying suspicious applications.

The expansion of our co-lending network has been a strategic priority, resulting in partnerships with six public sector banks, three private banks, and two small finance banks. This network processes an impressive 28,000 loans monthly through standardized APIs, combining the strengths of multiple financial institutions to serve customers better. Our asset quality metrics testify to the effectiveness of our underwriting approach, with vintage analysis showing exceptionally low delinquency rates and collection efficiency exceeding 98%. These results reflect both our credit discipline and our investments in data analytics capabilities.

CBL-Unsecured and Secured Loans

Capital Trust Limited (CTL) offers a unique blend of fintech and traditional lending solutions tailored for Indias informal micro-enterprises. Their Capital Digital Loans (CBL) include both unsecured( 50,000 1,50,000) and secured ( 2,00,000 15,00,000) business loans, classified under Priority Sector Lending (PSL) by the RBI. These products cater to micro-enterprises often overlooked by mainstream financial institutions due to lack of formal documentation.

Key Features:

Hybrid Model: Combines digital efficiency (leveraging historical data of 4,000+ Crore disbursed to 12 lakh clients) with physical cash-flow analysis and feet-on-street repayment collection (NACH/physical).

Target Clientele: Focuses on households with annual incomes of 3 5 lakhs, bridging the gap between microfinance and formal MSME lending.

Rural Penetration: Deep reach in Tier 3 6 cities across North and East India, addressing the unmet needs of shopkeepers and informal businesses.

Strengths:

Regulatory Edge: Recognized by RBI as part of the Informal Micro Enterprises Sector, ensuring compliance and scalability.

Proven Returns: Double-digit branch ROA and a 39-year legacy with 241 Cr AUM and 86 Cr Net Worth reflect a tested, high-yield model.

Security Flexibility: Secured loans (backed by collateral) suit larger needs, while unsecured loans provide quick access to capital for smaller enterprises.

CTLs CBL products stand out for their tech-touch balance, combining fintech speed with traditional trust-building, making them a reliable choice for Indias underserved micro-entrepreneurs.

I. SWOT Analysis of CTL

Strengths (Internal Positive Factors)

1. Robust IT System Ensures Efficient Operations and Risk Management

The company has invested in a strong and scalable IT infrastructure that supports seamless operations across its branch network. This system allows for real-time data monitoring, automated underwriting, loan disbursals, and collections, which enhances operational efficiency. Moreover, integrated risk management tools within the IT system help in early detection of defaults and frauds, contributing to overall financial health and compliance.

2. Foot-on-Street Model Enables direct customer engagement and collections.

By deploying field officers and customer relationship executives in local markets, the company maintains strong, personal connections with its borrowers. This direct interaction allows for better customer service, improved understanding of borrower needs, and efficient on-ground collections. It also facilitates trust-building, especially in rural and semi-urban markets where digital adoption may be limited.

3. 35-Year Legacy Trust and credibility as a listed entity.

With a proven track record of over three decades, the company has established itself as a credible and reliable player in the financial services sector. Its listing on the stock exchange reflects transparency, adherence to compliance norms, and accountability to investors. This long-standing legacy contributes to customer trust and lender confidence.

4. Extensive Branch Network Strong physical presence for wider reach.

The company operates through a wide network of branches strategically located in rural and semi-urban areas. This physical presence not only strengthens customer outreach but also enhances loan servicing, collections, and community engagement. It supports inclusive growth by ensuring last-mile delivery of financial services.

5. Diverse Funding Mix Optimal use of debt, NCDs, term loans (TLS), and co-lending.

To ensure financial flexibility and cost optimization, the company maintains a balanced funding portfolio comprising debt instruments, Non-Convertible Debentures (NCDs), bank term loans, and co-lending partnerships. This diversification reduces dependence on any single funding source, lowers the cost of capital, and supports business scalability.

6. Experienced & Trained Staff Skilled workforce driving business growth.

The company places strong emphasis on employee training and capacity building. Its team of experienced professionals and well-trained field staff play a critical role in customer acquisition, risk assessment, and portfolio management. Their domain expertise and commitment are key enablers of the companys sustained growth.

7. Financial Inclusion Focus Catering to shopkeepers/traders in semi-urban/rural areas.

The companys business model is centered around promoting financial inclusion by offering credit solutions to underserved segments like small shopkeepers, traders, and micro-entrepreneurs in non-metro regions. This approach supports socio-economic development while tapping into a high-potential, underbanked customer base.

8. 100% MSME (PSL) Loan Book Aligns with regulatory priority sector lending norms.

The entire loan portfolio of the company qualifies under the Priority Sector Lending (PSL) category as defined by the Reserve Bank of India. This alignment not only supports national financial inclusion goals but also attracts favorable funding opportunities from banks and financial institutions that seek PSL exposure.

9. High Employee Satisfaction Certified "Great Place to Work," boosting retention.

The company has been officially recognized as a "Great Place to Work," reflecting its commitment to employee well-being, inclusive culture, and professional development. High levels of employee satisfaction contribute to lower attrition rates, stronger institutional knowledge, and better customer service.

Weaknesses (Internal Negative Factors)

1. BB+ Credit Rating Higher funding costs due to sub-investment-grade rating.

The companys current credit rating of BB+, which significantly affects its borrowing terms. This directly impacts profitability and restricts access to large-scale, low-cost funding, especially from conservative institutional investors.

2. Wholesale Funding Dependency Heavy reliance on institutional borrowings (banks/NCDs) exposes liquidity risks.

The company predominantly depends on bulk funding sources like bank loans, Non-Convertible Debentures (NCDs), and term loans from financial institutions. This wholesale funding model creates exposure to liquidity mismatches, especially during periods of market stress when institutional lenders may reduce exposure to NBFCs, potentially impacting business continuity.

3. Rising Cost of Borrowing Increased interest rates post-MFI sector downturn (last 3 years) squeeze margins.

Following industry-wide distress in the Microfinance Institution (MFI) sector, lenders have become risk-averse, demanding higher interest spreads. Consequently, the company has experienced rising borrowing costs over the past three years, which compresses its interest margins and limits its ability to competitively price loans.

4. Limited Bank Borrowing Access Post-MFI crises, banks tightened lending to

NBFCs, restricting CTLs funding flexibility.

Due to systemic concerns arising from defaults in the MFI and NBFC sectors, many banks have imposed stricter due diligence and curtailed lending limits to smaller NBFCs like

Capital Trust Limited (CTL). This reduction in credit lines limits CTLs ability to quickly scale or manage liquidity during growth or stress cycles.

5. Regulatory Compliance Burden Stricter RBI norms (e.g., liquidity coverage, NPA recognition) increase operational costs.

Recent Reserve Bank of India (RBI) guidelines mandating enhanced liquidity buffers, accelerated recognition of non-performing assets (NPAs), and stricter governance norms have increased the cost and complexity of compliance. These regulatory changes require investments in systems, reporting tools, and staff training, placing additional pressure on operating budgets.

Opportunities (External Positive Factors)

1. Co-Lending Partnerships Leveraging RBI guidelines for risk-sharing and growth: NBFCs are increasingly entering co-lending partnerships with banks under RBI guidelines, enabling risk-sharing, improved credit access, and portfolio diversification, particularly in priority sectors like MSMEs and affordable housing.

2. Expansion of Foot-on-Street Model Enhances collections and client reach: Expanding field staff presence strengthens local engagement, improves loan recovery, boosts customer onboarding in rural areas, and ensures deeper market penetration, especially where digital access remains limited.

3. Digital-Assisted Lending Tech adoption for scalability and efficiency:

Adopting digital tools eKYC, analytics, mobile apps streamlines onboarding, underwriting, and disbursement, enhancing operational efficiency, reducing turnaround times, and enabling scalable, low-cost growth across semi-urban and rural markets.

4. Focus on Micro/Small Enterprises (MSEs) High demand in underserved markets: MSEs face chronic credit gaps; targeted lending to this segment offers high-growth potential, strong margins, and supports financial inclusion in underserved geographies with tailored small-ticket loan products.

5. Cross-Selling Opportunities Employee reach enables additional product penetration: With strong customer relationships, frontline staff can cross-sell products like insurance or savings instruments, increasing wallet share, deepening engagement, and enhancing overall unit economics per borrower.

6. Strategic Partnerships Collaborations to expand market share:

Alliances with fintechs, aggregators, and value-chain players allow NBFCs to expand reach, access new customer bases, and leverage partner tech to enhance underwriting and service delivery.

7. Lending-as-a-Service (LaaS) Potential new revenue stream via fintech integrations: By offering lending platforms to fintechs or partners as a service, NBFCs can monetize infrastructure, gain fee income, and participate in digital lending ecosystems without directly originating loans.

Threats (External Negative Factors)

1. Regulatory Policy Changes Shifts in lending/co-lending norms may impact operations:

Changes in RBI regulations such as risk weights, co-lending rules, or capital norms can affect NBFC business models, operational flexibility, and growth plans, requiring constant compliance and strategy adjustments.

2. Risk Parameter Adjustments Tighter underwriting standards could reduce loan approvals:

To manage asset quality, tightening credit norms may limit borrower eligibility, slow disbursements, and reduce customer acquisition, especially in high-risk segments like unsecured retail or first-time borrowers.

3. Economic Volatility Macro factors affecting borrower repayment capacity:

Rising inflation, rural distress, or weak demand may hurt borrower cash flows and repayment ability, increasing delinquencies and necessitating more robust risk management and provisioning.

J. Financial Performance: Beyond the Headlines

1. Revenue Performance

The company reported a total income of 9,600.03 crore for the financial year 2025, reflecting a robust year-on-year growth of 20.6% compared to 7,958.34 crore in FY 2024. This growth was primarily driven by a substantial increase in interest income, which rose by 1,705.83 crore or 21.95% over the previous year. The surge in interest income indicates an expansion in the lending portfolio or improved yield on assets, highlighting the companys ability to scale its core operations and grow its earning base amid a competitive financial environment.

2. Expense Analysis

Total expenses increased from 7,670.21 crore in FY 2024 to 9,437.95 crore in FY 2025, registering a rise of 23%. This rate slightly exceeded the growth in income, which may have contributed to margin compression during the year. Key components of the expense structure showed the following trends:

Finance Costs saw a sharp rise of 895.20 crore, marking an 87.63% increase over the previous year. As a share of total revenue, finance costs climbed from 12.84% to 19.97%, indicating a significant uptick in the cost of borrowing or an increased reliance on debt funding. This trend reflects tightening liquidity conditions or a more leveraged growth strategy, potentially impacting profitability.

Employee Benefits Expense increased by 11.57% year-on-year. However, its proportion of total revenue declined from 46.14% in FY 2024 to 42.67% in FY 2025. This suggests improved operational efficiency and the realization of economies of scale, with employee cost growing at a slower pace than income.

Other Expenses rose by 8.5%, but their share in revenue decreased from 35.42% to

31.86%, further underscoring the companys efforts toward cost optimization and better expense control relative to income growth.

3. Profitability

Despite the strong growth in income, the companys Profit Before Tax (PBT) declined sharply by 43.75%, falling from 288.13 crore in FY 2024 to 162.08 crore in FY 2025. The compression in margins is primarily attributed to the disproportionate rise in finance costs and total expenses, which outpaced revenue growth. This suggests that while the top line has expanded, rising funding costs and operational expenses have put pressure on profitability, signaling a need to reassess cost structures or funding strategies going forward.

Fiscal 2025 compared to Fiscal 2024

	Fiscal 2025		Fiscal 2024
	Amount	% of Total Revenue	Amount	% of Total Revenue
Revenue from operations
Interest Income	9,474.60	98.69%	7,768.77	97.62%
Other income	125.43	1.31%	189.57	2.38%
Total Income	9600.03	100.00	7,958.34	100.00
Expenses
Finance costs	1,917.31	19.97%	1022.11	12.84%
Fees and commission expense	113.87	1.19%	105.53	1.33%
Impairment / write offs of financial instruments	205.08	2.14%	9.31	0.12%
Net loss on fair value changes	-	-	-	-
Employee benefits expense	4,096.47	42.67%	3671.77	46.14%
Depreciation, amortization and impairment	46.26	0.48%	42.28	0.53%
Other expenses	3,058.96	31.86%	2819.21	35.42%
Total expenses	9,437.95	98.31%	7,670.21	96.38%
Profit / (Loss) before exceptional items and tax	162.08	1.69%	288.13	3.62%
Profit / (Loss) before tax	162.08	1.69%	288.13	3.62%
Tax expense
Current tax related to earlier years	(10.83)	(0.11)%	-	-
Deferred tax	(40.16)	(0.42)%	(73.5)	(0.92%)
Profit / (loss) for the period	111.09	1.16%	214.63	2.70%

Risk management

The company has a robust risk management framework in place to identify, which measures, monitors and manages the critical risks. While risk is inherent to every institution, it assumes greater significance in the context of Micro Credit due to the very nature of the business with its absence of collaterals quality and the vulnerable, financially excluded customer segment it serves. Risks may be avoided through pre-emptive action and hence the need to identify the risks and put in place various mitigation mechanisms. Capital Trust has identified the following potential risks that could have an adverse impact on the company:

1. Credit Risk

2. Operational Risk

3. Liquidity Risk

4. Portfolio Concentration Risk

5. Compliance Risk

6. Reputation Risk

7. Strategic Risk

8. Contagion Risk

Credit Risk

Credit Risk for Capital Trust Limited is the risk of loss of interest income and the Companys inability to recover of the principal amount of the loan disbursed to its customers. This risk can result from:

Information asymmetry and excessive reliance on Credit Bureau check, not backed by soft information or market intelligence on a territory or group of borrowers, leading to adverse selection of borrowers.

A volatile political presence in a region of exposure

Exposure to activities with a high probability of variation in earnings

Default due to over-indebtedness or business failure

Credit Risk also includes Credit Concentration Risk, arising out of concentrated exposure to a particular geographical location/territory or to an activity in which a large group of borrowers are engaged in, vulnerable to external events.

Mitigation

1.1. Location Selection

Before establishing any branch, a detailed survey is conducted which takes into account the factors like credit culture, economic activity and political stability of the area. This mitigates the risk of operating in negative areas.

1.2. Credit Bureau Check

A credit check is done for every customer through an automated system-to-system integration with the Credit Bureau. As part of this check, the parameters like default history, multiple borrowings, Indebtedness and income check are looked at to verify a customers credit-worthiness and also ensure that they are not overburdened. This mitigates the risk of customer defaults.

1.3. Multi-Step Customer Verification

Capital Trust has established separate customer relationship (acquisition and maintenance) and customer evaluation (credit) personnel in order to ensure the quality of customers acquired as well as eliminate coerced borrowing practices which may lead to genuine customers becoming delinquent. This mitigates the risk of ghost borrowing and ring-leader scenario. Risk along with internal audit will be monitoring that customer verification process is followed properly else action to be recommended which should be accepted by business.

Operational Risk

Operational Risk is the risk of possible losses, resulting from inadequate or failed internal processes, people and systems or from external events, which includes legal risks but excludes strategic and reputation risk. The risk can emanate from:

Procedural lapses arising due to higher volumes of small-ticket transactions.

Lapses in compliance with established norms; regulatory as well as internal guidelines

Misplaced/lost documents, collusion and fraud

Breakdown or non-availability of core business applications.

Internal Audit team checks the various aspects of operational risk by auditing the various SOPs/ Processes.

Skill gap and sudden attrition of key personnel in the organization, is also an operational risk, which needs to be countered and addressed by the application of appropriate HR strategies.

Mitigation

Process Compliance

Capital Trust has an independent Internal Audit department which carries out surprise checks on field branches and rates them on pre-defined compliance parameters, identifies gaps in process compliance and rolls out initiatives to correct loopholes. This is done primarily to

Ensure that the designed processes are being followed on the field including interaction with the customers during various stages of the relationship lifecycle.

Ensure all branch activities are carried out as per norms/procedures as mentioned in the operational manual.

Identify any process lapses/deviations and provide guidance to branches/employees to ensure compliance.

This ensures that risks arising out of process lapses are mitigated. Risk should ensure that above mentioned guidelines is being followed up.

Employee Rotation Policy:

Capital Trust Limited has a policy to ensure that no field employee is posted in the same location for over two years as an effort to mitigate any chances of collusion or fraud. All field employees are either transferred to another branch or rotated to another role in a programmed manner so as to mitigate the chances of collusion with other employees or customers. The policy ensures that the employees have the predictability of their movements without putting them into undue hardships.

Document Storage and Retrieval:

Capital Trust recognizes the need for proper storage of documents as also their retrieval for audit and statutory requirements. We have put in place Physical Storage and Scanned Copies.

Portfolio Concentration Risk

Portfolio Concentration Risk is the risk to the company due to a very high credit exposure to a particular business segment, industry, geography, location, etc though in the context of micro finance, it pertains predominantly to geographical concentration.

Mitigation

Capital Trust intends to maintain a diversified exposure in advances across various states to mitigate the risks that could arise due to political or other factors within a particular state. With this in mind, Capital Trust has steadily diversified its presence from 3-4 states to 10 states.

Compliance Risk

Capital Trust is present in an industry where the Company has to ensure compliance with regulatory and statutory requirements. Non-Compliance can result in stringent actions and penalties from the Regulator and/or Statutory Authorities and which also poses a risk to Capital

Trusts reputation.

Mitigation

The company has implemented a Compliance Management through its Compliance Committee with in-built work-flows to track, update and monitor compliances. The company has strong compliance team who monitors statutory compliances.

Reputation Risk

Reputation risk is the risk to earnings and capital arising from adverse perception of the image or the company, on the part of customers, counter parties shareholders, investors and regulators. It refers to the potential adverse effects, which can arise from the companys reputation getting tarnished due to factors such as unethical practices, regulatory actions, customer dissatisfaction and complaints leading to negative publicity. Presence in a regulated and socially sensitive industry can result in significant impact on Capital Trusts reputation and brand equity as perceived by multiple entities like the RBI, Central/State/Local authorities, banking industry and last but not least, Capital Trusts customers.

Mitigation

Considering the vulnerability of our customer segment and the potential for negative political activism to affect the reputation of the company, we have in place Strict Adherence to Fair Practices Code, Grievance, Redressal Mechanism, Customer Connect and Delinquency Management. The Company does not resort to any coercive recovery practices and has an approved delinquency management policy including restructuring of loans where necessary.

Strategic Risk

It is the risk to earnings and capital arising from lack of responsiveness to changes in the business environment and/or adverse business decisions, besides adoption of wrong strategies and choices.

Mitigation

This is being addressed and the risk mitigated to a great extent, by referring matters of strategic importance to the Management, consisting of members with diversified experience in the respective fields, for intense deliberations, so as to derive the benefit of collective wisdom.

Contagion Risk

Contagion risk as an enlarged version of systemic risk, refers to the probability of credit default among a large group of borrowers in a particular geographical Territory or State, arising out of external factors or political overtones, spreading to culturally-aligned neighboring Territory or State, resulting in moral hazard, thereby escalating the risk of possible default. Further in the context of micro credit, it could result mostly from ghost-borrowing and ring-leader scenarios.

Mitigation

This is being addressed by customer connect program wherein we pro-actively reach out to each individual customer as well as customers in each center to validate that the customers have genuinely applied for the loan and there has been no incidence of commission, following a relationship based mode of engagement so the customer feels a sense of loyalty to the company and is therefore less likely to be part of a mass default by others and implementing an analytics solution to study the credit bureau data and look for warning signs of increased defaults upto the pin-code level.

Cybersecurity Risk

Cybersecurity risk refers to the potential harm or damage that can occur due to vulnerabilities, threats, or attacks targeting an organizations digital assets, systems, and networks. These risks arise from various sources, including malicious actors such as hackers, cybercriminals, and state-sponsored entities.

Mitigation:

We regularly assess potential cybersecurity threats and vulnerabilities through thorough risk assessments, enabling us to identify and prioritize areas for improvement. Through continuous security awareness training, we ensure that our employees are well-informed about evolving cyber threats and adhere to best practices in cybersecurity.

At Capital Trust Ltd., we take proactive measures to mitigate cybersecurity risks and ensure the protection of our clients data. As part of our security protocols, we have implemented a policy of regularly changing passwords for our systems and accounts. Every 15 days, we enforce a password rotation policy, requiring employees to update their passwords. This practice reduces the likelihood of unauthorized access due to compromised credentials and enhances the overall security posture of our organization.

By regularly refreshing passwords, we minimize the risk of data breaches and cyber threats, as it limits the window of opportunity for potential attackers to exploit weak or compromised passwords. This proactive approach aligns with our commitment to maintaining the confidentiality, integrity, and availability of our clients sensitive information.

Artificial Intelligence Risk

AI risk, also known as artificial intelligence risk, refers to the potential negative consequences or adverse impacts associated with the development, deployment, or use of artificial intelligence (AI) technologies. These risks can arise from various factors, including technical limitations, ethical concerns, societal implications, and unintended consequences. Some key categories of AI risk include:

Technical Risks:

- Algorithmic Bias: AI systems may perpetuate or amplify biases present in data, leading to discriminatory outcomes or unfair treatment of certain individuals or groups. - Robustness and Reliability: AI systems may exhibit unexpected behaviors, vulnerabilities, or errors, particularly in complex or unanticipated situations, posing risks to reliability, safety, and security. - Data Quality and Integrity: AI performance heavily depends on the quality, relevance, and integrity of data. Poor data quality or biased datasets can lead to inaccurate or unreliable AI predictions and decisions.

Security Risks:

- Cybersecurity Threats: AI systems may be vulnerable to cyberattacks, malicious manipulation, or adversarial attacks, compromising data confidentiality, system integrity, and operational resilience.

Mitigation:

By Conducting regular audits and assessments to identify and mitigate biases, errors, or inconsistencies in training data that could affect AI model performance.

By maintaining human oversight and intervention mechanisms to complement AI-driven decision-making processes, particularly in high-stakes or sensitive domains

By establishing ethical guidelines, principles, and codes of conduct governing the development, deployment, and use of AI technologies within the organization.

By fostering a culture of ethical awareness, accountability, and responsible innovation among employees, stakeholders, and partners involved in AI initiatives.

By empowering employees with the necessary training, expertise, and tools to interpret, validate, and challenge AI recommendations or decisions when necessary.

Integrate AI risk assessment and management practices into existing risk management frameworks, governance structures, and compliance programs.

Conduct comprehensive risk assessments to identify, prioritize, and mitigate AI-related risks, including technical, ethical, legal, and regulatory concerns.

Technology Infrastructure & Digital Transformation

The company has leveraged technology to effectively reach out to micro-borrowers to fulfil their requirements for income generating loans in a transparent manner. With Aadhaar card as the starting point, our software validates identity and credit history instantly. Zxing, an open-source, multi-format barcode image processing library, scans QRs codes on the Aadhaar

Card which instantly sends information to the credit bureau for checking the clients credit history, determining whether the person is eligible for a loan. Through the mobile application, a soft approval for a loan can be given to a client within seconds.

The company uses the Technology to its maximum and helped the company in attaining:

One of the first NBFCs to start cashless disbursement of all loans since 2015.

Started process of cashless repayment for all loans (expect Microfinance) in 2019.

Automated closing of company and all branch books at 6PM daily through collation of issued Digital Receipts (SMSs sent to client on collection of any repayment).

Client application with access to all details regarding the loan to promote transparency and authenticity.

Staff and client-facing smartphone applications with access to all details regarding the loan to promote transparency and authenticity

All staff have access to Capital Sales, the company application, that provides real-time information in even the most remote locations.

All new staff onboarding through paperless, digitalized processes with joining formalities done within hours

All warehousing of information on cloud.

Smart credit enabling client on-boarding and in-principle approval from scanning of clients Aadhar card at his doorstep.

100% paperless processes. From onboarding to disbursement all processes are digitalized and through the application with no scope of any manual input into system

No manual entry allowed for any clients

The issuance of digital receipts for the repayments made by the clients, has helped the company is transparency and authenticity in transaction with the clients and reduction of frauds.

Investment in Subsidiaries

As on 31^st March, 2025, there are no subsidiray compnies of Capital Trust Limited.

INTERNAL CONTROL SYSTEM

The Company has well documented internal financial controls with risk control matrix for all the critical areas of business and processes. Internal Financial Controls ensure that business is conducted on the set principles efficiently and the company adhere to policies, safeguarding its assets, prevention of errors, accuracy and completeness of the accounting records and the timely preparation of reliable financial information. The internal financial controls of the company are adequate and commensurate with the size of the business.

The Internal Auditors monitor the efficiency and efficacy of the internal control systems in the company, compliance with operating systems/accounting procedures and policies framed by the company. The department is also responsible to review and monitor the risk framework within the company. The department also undertakes audit of its branches covering all aspects of branch operations and credit audit. The department also provides independent assurance on the effectiveness of implementation of risk management framework, including the overall adequacy of the internal control system and the risk control function and compliance with internal policies and procedures.

The Company has adequate systems and procedures to provide assurance of recording transactions in all material respects. During the year, the Internal Auditors reviewed the operating effectiveness of the internal financial controls by undertaking an effectiveness testing of controls covered under the Risk Control Matrices for major processes.

The Internal Audit Department of Capital Trust upholds its departmental Vision of fostering a control environment of the organization, adding value to the organization by continuously improving operational efficiency and safeguarding the interests of the organization. The function will do so by recruiting and retaining the best talent from both internal and external sources in order to raise the profile of the Internal Audit Department within the organization.

The Mission of the Internal Audit Department of Capital Trust is to enable the organization in:

Focusing on key business activities through motivated, skilled and experienced staff who are responsive to the customers needs;

Engaging with different entities to facilitate positive changes to existing processes, practices and systems;

Adopting continuous improvement initiatives and implementing best practices in developing its plan, policies and methods;

Creating a dynamic working environment which encourages innovation and maximizes the use of new technology;

Ensuring that its performance is monitored, measured and reported in satisfying the expectations of the different stakeholders.

The internal audit adopts a risk based audit approach and conducts regular audits of all the branches/offices of the Company and evaluates on a continuous basis, the adequacy and effectiveness of the internal control mechanism, adherence to the policies and procedures of the Company as well as the regulatory and legal requirements. The company has well drafted policies and procedure in the form of manuals.

These policies and procedures are well established and followed meticulously. The company adheres to audit process which encompasses risk identification, risk assessment, risk address and reviewing & reporting risk. The Company has established risk management and audit framework to identify, assess, monitor and manage credit, market, liquidity and operational risks. This is extremely important as many of our borrowers do not have any assets and also do not have adequate literacy skills. The company has three levels of the audit which include surprise branch audit, Pre disbursement audit for client identification and checking of credit worthiness of the clients and post disbursal audit. Under the post disbursal audit, the loan utilization is checked. The internal audit department also tracks the attendance of client in the centre meeting.

The audit recommendations are actively followed up and implemented. As part of the effort to evaluate the effectiveness of the internal control systems, our Companys internal audit department reviews all the control measures on a periodic basis and recommends improvements, wherever appropriate. In addition to in-house internal audit department, the company has engaged independent internal auditor who submits its report to the audit committee.

SEGMENT WISE OR PRODUCT WISE PERFORMANCE

The company has only one segment of business i.e "financing" so there is no segment wise or product wise performance available.

HUMAN RESOURCES

Capital Trust Limited is operating in ten states within India and has more than 1700 employees. The company is market-driven, and technology-based, serving customers in ten states in northern, central and eastern part of India with financial products, and services. The company aims to be the first choice of customers, employees and shareholders.

Capital Trust policy offers equal employment opportunity for all persons, without bias or discrimination. It applies to all employment practices including (but not limited to) recruitment, promotion and training. Selection of business partners is also guided by like principles.

The business of the company is directly affected by the wellbeing of all sections of the society where we operate in. It is CTL,s policy to maintain a working environment free of harassment and intimidation. Any type of harassment (including sexual harassment, verbal or implicit), or intimidation, is a violation of CTL policy, and is dealt with in accordance with corrective action procedures. The company has in place the Sexual Harassment policy, where the company has zero tolerance for any offence.

The human capital is major component in the finance industry besides capital. So having the right people at right place is the major strength of Capital Trust. We believe that the employees working with Capital Trust are realizing their dreams and in return the company achieves it goal. Capital Trust does not hesitate in recognizing the co-existence of the Company and its Human Capital. Some of the employees in the company have been for more than 30 years with us. The company believes in long term relations with employees and the company has good retention rate.

All the employees of the company are equipped with smart phones. The employees mark their attendance through their mobile, apply for leaves, tours and tour claims through mobile app only. This has smoothened the processes and reduced the time to settle the claims. This is also environmental friendly as a lot of paper is being saved in printing.

The company has hired some senior people from reputed companies who are expert in their area of activity. With professionals at the top and fully motivated team at the field, the company is bound to grow in the future.

CAUTIONARY STATEMENT

The Management Discussion and Analysis report containing statements used for describing the

Companys objectives, projections, estimates, expectation or predictions are ‘forward looking in nature. These statements are within the meaning of applicable securities laws and regulations. Though, Company has undertaken necessary assessment and analysis to make assumptions on the future expectations on business development it does not guarantee the fulfillment of same. Various risks and unknown factors could cause differences in the actual developments from our expectations. The key factors that can impact our assumptions include macro-economic developments in the country, state of capital markets, changes in the Governmental regulations, taxes, laws and other statues, and other incidental factors. The Company undertakes no obligation to publicly revise any forward looking statements to reflect future/likely events or circumstances.