CSL Finance Ltd Management Discussions

Indian Economy

In 2025, Indias economy stands out as a powerful example of resilience and dynamism amid a challenging global landscape. The country retains its status as the fastest-growing major economy, with real GDP growth estimated at 6.4% for FY25 and projections for FY26 ranging from 6.3% to 6.8%. This sustained momentum places India ahead of most global peers and aligns closely with its own decadal average, despite disruptions in global trade and ongoing geopolitical tensions. Growth in India is broad-based, with agriculture, industry, and services all making strong contributions. The agricultural sector is set to recover, forecasting a 3.8% uptick owing to record Kharif crop yields and robust rural demand. Meanwhile, the industrial sector is projected to expand by 6.2%, propelled by vigorous construction activity, solid utility performance, and a manufacturing base proving resilient in the face of weak global demand. The services sector remains the key growth driver, expanding at 7.2% and now representing over 55% of total Gross Value Added. Notably, the IT, finance, and hospitality segments have recorded impressive growth in exports. Indias industrial performance is further bolstered by solid gains in steel, automobile, and electronics manufacturing, with electronics output rising rapidly. Significant progress has also been made in inflation management, with headline retail inflation declining from 5.4% in FY24 to 4.9% by the end of 2024, largely driven by effective government interventions and stronger food supply chains. The Reserve Bank of India expects inflation to approach its 4% target in FY26, fostering a stable environment for both consumers and investors. Fiscal discipline remains a top priority, with government policies emphasizing capital expenditure, particularly in infrastructure development. The health of the banking sector has improved considerably, as gross non-performing assets have fallen to a historic low of 2.6%. The credit-to-GDP gap has narrowed and the insurance market continues to expand robustly year-on-year.

Indias external sector has demonstrated remarkable strength in the face of global challenges. Exports of both goods and services continue to grow, foreign direct investment inflows are rising, and remittances from the Indian diaspora play a crucial role in narrowing the current account deficit. As of December 2024, the countrys external debt-to-GDP ratio is a modest 19.1%, one of the lowest among emerging markets, highlighting the soundness of Indias macroeconomic fundamentals.

Several key factors underpin this positive economic trajectory. Domestic consumption remains buoyant, reflecting strong rural recovery and steady urban spending. Ongoing public investment in infrastructure and manufacturing, alongside improving financial sector health and greater credit availability, has further boosted growth. The digital economy is expanding rapidly and is expected to surpass $1 trillion by 2025, enhancing Indias integration into the global digital marketplace. However, challenges persist. Global uncertainties, including trade disruptions, geopolitical instability, and commodity price volatility, continue to pose risks. Inflationary pressures from food price swings and supply chain constraints require vigilant management. Moreover, structural reforms in taxation, labor laws, and governance are necessary to sustain high growth levels.

Looking forward, the outlook for 2025-26 remains optimistic, with the Reserve Bank of India projecting real GDP growth at 6.5%. The governments sustained focus on fiscal consolidation, capital investment, and structural reforms is expected to maintain this growth momentum. Continued efforts to control inflation, boost productivity, and foster innovation will be vital to realizing the long-term vision of a developed India by 2047. Ultimately, Indias economic trajectory in 2025 is defined by its ability to navigate global headwinds, leverage domestic strengths, and enact policy reforms that promote inclusive and sustainable growth — cementing its role as a leading force in the global economy.

Indias NBFC sector is currently navigating an important transitional period, marked by growth, shifting funding patterns, and emerging challenges in asset quality and profitability. It is evident that after a period of strong double-digit expansion, the NBFC sectors growth is now moderating. The asset under management (AUM) growth, for instance, is expected to slow to about 13–15% in FY25 from the impressive 18% logged in FY24. As of March 2024, total NBFC AUM approached _47 trillion, projected to cross the _50 trillion milestone by FY25 and exceed _60 trillion by FY26, highlighting the sectors deepening credit intermediation role within the Indian economy.

NBFCs have played a pivotal role in retail lending, driving credit expansion especially in segments like consumer finance, MSME lending, and vehicle loans. Retail assets comprised 58% of NBFC credit as of December 2024. However, the frenetic retail lending of the post-pandemic period has also led to caution, as concerns rise about borrower overleveraging and the sustainability of such growth rates. This, coupled with a high base effect, suggests that retail credit growth is expected to slow somewhat in the near term.

A significant challenge confronting NBFCs is their access to funding. The sectors projected need for incremental debt in FY25 stands at _5.6–6 trillion to sustain the anticipated pace of expansion. Over recent months, direct bank credit flow to NBFCs has faced constraints, especially following the tightening of bank lending norms. This has forced NBFCs to diversify their funding bases, increasingly tapping capital markets for securitisation and loan sell-downs, while also exploring new avenues like private equity and venture capital. As a result of these funding headwinds and the shift toward more diversified sources, the average cost of funds for NBFCs is set to rise by 20–40 basis points in FY25. Despite these pressures, the sector remains largely well capitalised.

Asset quality is now in sharper focus, after a period of rapid portfolio expansion. Early warning signals are emerging, particularly in unsecured lending, whose share in NBFC AUM increased from 7% in 2021 to 11% in March 2024. Gross stage 3 loan ratios, an indicator of stressed assets, are expected to deteriorate by 30–50 basis points in FY25 for NBFCs (excluding housing and infrastructure financiers). While asset quality stress is most pronounced in retail lending, NBFCs focused on housing finance and infrastructure are comparatively better placed, with expectations of slight improvements in their portfolios.

Profitability, meanwhile, is set to come under pressure. Rising funding costs, intensifying competition, and asset quality concerns are likely to erode the net profitability of the sector (excluding housing and infrastructure NBFCs) by 25–45 basis points versus the previous year. However, there are also pockets of strong growth — such as the small-ticket loan against property (LAP) segment, where AUM reached an estimated _1 trillion by March 2024. This segment, largely serving MSMEs and self-employed borrowers, is expected to expand at 20–25% annually for the next five years, though it is not without operational and recovery risks.

On the regulatory front, authorities have introduced more stringent capital, liquidity, and governance requirements, ushering in a more risk-sensitive and resilient operating environment for NBFCs. The sector is also witnessing increased innovation and collaboration, with NBFCs engaging in co-lending with banks and tying up with asset reconstruction companies — enabling them to diversify funding and expand into underserved markets.

In summary, while Indias NBFCs face immediate headwinds in terms of slower growth, funding constraints, asset quality risks, and margin pressures, the sector remains resilient and vital to the countrys financial inclusion and credit delivery efforts. Continued innovation, prudent regulation, and capital strength provide a stable foundation for NBFCs as they navigate a changing landscape and contribute to Indias broader economic ambitions.

After a period of sustained growth since 2020, the National Capital Region (NCR)s residential real estate market experienced a strategic pause in H2 2024. Developers launched 30,119 housing units during this period, carefully aligning new offerings with evolving buyer preferences and upcoming infrastructure projects. While sales moderated slightly to 28,656 units, the markets core fundamentals remain robust — demand for upscale living continues to define NCRs appeal among homebuyers seeking lifestyle upgrades and solid investment avenues.

Gurugram reaffirmed its position as the dominant micro-market, comprising 51% of NCRs launches and 49% of its sales during H2 2024. The areas growing attractiveness stems from infrastructure advancements like the ongoing development of the Dwarka Expressway and other key connectivity projects such as the Southern and Central Peripheral Roads. Premium projects catering to high-net-worth individuals, particularly in emerging pockets, have driven both launches and sales.

Noida and Greater Noida accounted for 33% of the regions total sales. Improved buyer sentiment, buoyed by government-backed dispute resolution mechanisms and revived infrastructure drives — like the Noida International Airport and expanding metro connectivity — boosted confidence, especially in Greater Noida. Conversely, the pace of new launches in Noida remained subdued, a consequence of rising construction expenses and a cautiously optimistic stance from developers.

Ghaziabad maintained a steady performance, attracting 13% of total sales in H2 2024. Affordability and enhanced access via NH-24 and the Delhi-Meerut Expressway have made it a favored destination for mid-income home seekers. In contrast, Delhi and Faridabad contributed less than 6% to total sales, largely because of limited land availability and a scarcity of large new developments. Its notable that over 38,000 housing units launched by the Delhi Development Authority (DDA) — in locations like Dwarka, Jasola, Rohini, and others — were not factored into these figures, even though they are a major source of new supply.

The rise of premium housing has become a key trend: homes priced above INR 10 mn made up 88% of sales, representing 30% year-over-year growth. Affluent buyers are driving demand for larger, amenity-rich dwellings. Most transactions occurred within the INR 10-50 mn range, reflecting a shift in market focus towards luxury living. The affordable (<INR 5 mn) and mid-segment (INR 5-10 mn) categories, however, saw muted absorption, accounting for less than 5% of sales due to higher EMIs and borrowing costs.

NCRs unsold inventory edged up 3% YoY to 106,652 units in H2 2024. While this uptick results from the increased pace of launches, it also indicates slow absorption in the budget and mid-market brackets. Premium and luxury segments, conversely, are seeing healthier quarters-to-sell (QTS) metrics (4.2 for INR 20-50mn and 3.0 for INR 50-100 mn), while affordable inventory faces protracted challenges (QTS of 23.6).

Residential prices climbed 6% YoY, reaching an average of INR 54,530 per sq m (INR 5,066 per sq ft). Prime locations like Dwarka in Delhi and Golf Course Extension Road in Gurugram experienced notable price growth, although persistent affordability concerns for mid-income buyers may moderate future momentum. The market is further shaped by strategic infrastructure investments, including the Delhi-Mumbai Expressway, Regional Rapid Transit System (RRTS), and airport projects, which are unlocking growth in peripheral corridors. NCRs residential sector remains investment-oriented, with speculative activity occasionally influencing trends. Looking forward, cautious growth is likely, with developers emphasizing premium and mid-segment housing in well-connected areas. Market resilience will depend on regulatory stability, accessible financing, and the timely delivery of major infrastructure.

NCRs office real estate sector witnessed an exceptional surge in 2024, buoyed by strong domestic economic fundamentals and renewed corporate activity. Total office space leasing reached 1.2mn sq m (12.7mn sq ft) — a 25% jump over 2023. H2 was especially active, delivering 0.7mn sq m (7mn sq ft) in transactions and a 39% YoY increase. Gurugram led the region, capturing 64% of leasing activity. Landmark locations such as DLF Cyber City, Golf Course Extension Road, and Udyog Vihar continued to attract diverse occupiers. Noida followed with strong demand focused around prime expressway sectors. Delhis Secondary Business District (SBD) also saw rising transaction volumes as companies prioritized accessibility and business infrastructure.

New office completions totaled 0.5mn sq m, a 20% YoY decline, yet market vacancy rates dropped sharply by 395 basis points to 8.4%. The improved absorption underscores a clear tilt toward high-quality, ESG-compliant spaces, with India-facing businesses responsible for 55% of leasing, flexible space operators 26%, and Global Capability Centers (GCCs) 11%.

Average office rents rose 3% YoY to INR 944.9 per sq m per month (INR 87.8 per sq ft), with Gurugram Zone A and SBD Delhi leading the upward trajectory. Such increases are primarily a function of persistent demand in key micro-markets outpacing new supply.

The outlook for NCRs office sector remains optimistic, propelled by continuing infrastructure upgrades — including mega-projects like the ‘New Noida city initiative and the completion of expressways. While global economic uncertainties and regulatory delays pose risks, the market is expected to see further growth as occupiers prioritize sustainable, high-quality workspaces and long-term lease strategies.

Source: Knight Frank

The Micro, Small, and Medium Enterprise (MSME) sector continues to be a pivotal engine for Indias economic growth. In FY25, it demonstrated both resilience and areas for caution, amid evolving credit dynamics, asset quality improvements, growing financial inclusion, and reinforced policy support.

As of March 2025, the MSME sectors outstanding commercial credit portfolio surged to _35.2 lakh crore, reflecting a robust 13% year-on-year (YoY) expansion. This marks ongoing confidence from lenders and borrowers in the sectors prospects. Despite this, credit trends became nuanced over the year. While overall commercial credit supply grew by 3% YoY, the last quarter (Jan–Mar 2025) saw an 11% YoY decline in new originations. This retreat—most pronounced among private banks (-14% YoY, especially in medium-to-large loan segments): suggests a more conservative stance from lenders, likely due to external uncertainties and recalibrated risk strategies.

Credit demand, however, remained strong. Loan enquiries grew 11% YoY in the final quarter, indicating MSMEs ongoing optimism and intent to expand, even as lenders tightened their approval norms.

A standout positive in FY25 was the significant enhancement in asset quality. Overall MSME portfolio delinquencies dropped to a five-year low of 1.79% (down 35 basis points YoY), underscoring better lending practices, improved risk assessment, and more vigilant portfolio monitoring. Private banks posted the healthiest portfolios, with delinquencies at just 1.2%, compared to 2.1% for public sector banks. This reflects differing lending philosophies, with private banks favoring high-quality borrowers and refined risk models.

However, early delinquencies increased in the sub-_10 lakh category, a segment dominated by micro-enterprises, suggesting heightened vulnerability at the lower end. This highlights the need for more rigorous monitoring and tailored support for very small businesses, especially during economic shocks.

MSMEs continued to be instrumental in deepening financial inclusion. New-to-Credit (NTC) borrowers (those accessing formal credit for the first time) constituted 47% of new loan originations in Jan–Mar 2025, a slight dip from 51% in the previous year, but still significant. Public Sector Banks led the NTC segment, accounting for 60% of such originations, a testament to their alignment with government inclusion mandates.

Yet, a sizable gap persists. Of the 6.35 crore registered Udyam MSMEs, only 3.68 crore have accessed formal finance, leaving 2.67 crore on the sidelines. This gap represents a prime opportunity for lenders to expand outreach while advancing national financial inclusion objectives.

Across sectors, trade accounted for 53% of NTC borrowers, while manufacturing notched the strongest growth in new NTC accounts (up 70% YoY), reflecting shifting industry dynamics.

Manufacturing remains the largest sector by origination value (34%), though its share has declined, indicating the rise of other industries. Interestingly, while manufacturing accounts for only 23% of origination count, its share by value is larger, reflecting higher average ticket sizes.

Professional and Other Services have grown steadily now constituting 36% of loans by value, up 5 points in four years, mirroring Indias tilt towards a services-driven economy. Meanwhile, the trade sector remains vibrant, especially in the _1-10 crore exposure segment, spurred by formalization and priority sector norms.

Geographically, credit remains concentrated: Maharashtra, Gujarat, Tamil Nadu, Uttar Pradesh, and Delhi together accounted for 48% of credit origination, in line with their economic clout. Maharashtra maintains leadership with a manufacturing and private bank focus; Gujarat leads in manufacturing concentration (53% of loans); and Tamil Nadus Tirupur cluster is a standout for manufacturing and private banking. Uttar Pradesh, with 68 lakh registered MSMEs, has untapped potential, especially in cash credit and overdrafts, and exhibits diverse lender participation.

Government initiatives, particularly CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises), have been transformative. In FY25, guarantees covered 27 lakh beneficiaries for _3.06 lakh crore (a 51% YoY increase), broadening coverage, lowering fees, and targeting women-led and service enterprises. Policy changes, such as increasing the guarantee cap and expanding eligible business activities, have deepened impact. Automation and improved claim settlement have further boosted system efficiency.

On the technology front, lenders adopting integrated assessments (evaluating both individual and business profiles) saw borrower performance improve by 40%, signaling the benefits of holistic, data-driven underwriting.

Despite solid progress, the moderation in credit supply late in FY25 signals external risks. Early stresses in low-ticket lending and the enduring gap in formal credit access warrant targeted interventions. Emphasis must be placed on bringing the credit-excluded MSMEs into the fold, enhancing risk monitoring, and supporting micro-enterprises resilience.

Established in 1992, CSL Finance Limited is a Non-Banking Financial Company (NBFC) that has steadily broadened its offerings to become a full-service financier for Small and Medium-sized Enterprises (SMEs), as well as both real estate and non-real estate corporations. The Company is deeply committed to addressing the unique financial needs of small businesses, especially those with limited access to traditional banking services. To serve these underserved and unbanked segments, CSL Finance has developed a comprehensive suite of financial products designed to address a range of capital requirements.

CSL Finance stands out for its focus on supporting the underbanked and unbanked small business sector, delivering a wide variety of tailored financial solutions. The Company leverages alternative data and robust underwriting practices to simplify the loan approval process, ensuring that access to credit is both quick and straightforward.

The SME Retail Lending division at CSL Finance is committed to serving the financing needs of SMEs and MSMEs that are often overlooked by traditional lenders. It provides secured, collateral-backed loans using a forward-thinking approach that relies on alternative data rather than conventional banking and lending scorecards. The underwriting process evaluates various elements, including operational performance, cash flow, and business history, to better understand the borrowers profile. After thorough due diligence, the division promptly disburses small, flexible loans customized for the unique needs of SMEs and entrepreneurs. These financial solutions are extended across sectors such as education, healthcare, agriculture, and FMCG trading, and are also available to salaried professionals with restricted access to traditional credit facilities.

The Wholesale Lending division at CSL Finance offers specialized loan products to real estate developers in the NCR region, catering mainly to group housing and plotted development projects. These loans are backed by collateral from the completed or upcoming projects themselves. CSL Finance has introduced distinct loan categories to suit different project requirements, including Affordable Group Housing, Mid-Income Group Housing, and Small Builder Floors (G+4 buildings). The companys lending strategy emphasizes projects where developers commit substantial capital, thereby mitigating execution risks and ensuring a more secure financial ecosystem for all stakeholders.

Despite facing external challenges and undergoing internal transitions within the SME Retail lending segment, CSL Finance maintained strong financial performance throughout the year. Assets Under Management (AUM) rose from _1,030 crore in FY24 to _1,195 crore in FY25 — a year-on-year growth of 16%. The loan book expanded by 25% YOY to _1,157 crore in FY25, driven primarily by growth in the Wholesale segment, which offset the softer performance in SME Retail.

The increase in AUM supported higher interest income, contributing to a 30% increase in Total Income, which reached _216 crore for the year. Net Interest Income grew by 21% to _146 crore. Consequently, Profit After Tax (PAT) climbed 14% year-on-year to _72 crore. Robust expansion in the Wholesale segment led to a 10% increase in its share of the AUM mix. Operational capabilities were further enhanced with the workforce rising 9% to 460 employees by the end of FY25 and the opening of a record 14 new branches. The number of loan accounts in the SME Retail segment (excluding MSL) grew by 9%, up from 2,814 in FY24 to 3,063 in FY25. Additionally, extensive training and transition initiatives remained a focus, and 9 new lending partners were onboarded during FY25, bringing the total to 32 as of March 31, 2025.

The company experienced a slight impact on asset quality due to increased slippages in the SME Retail segment during FY25. As a result, Gross Non-Performing Assets (GNPA) rose marginally to 0.46% (from 0.44% in FY24), while Net Non-Performing Assets (NNPA) increased to 0.34% (versus 0.25% the previous year).

Return on Assets (ROA) stood at 6.46% in FY25, compared to 7.18% in FY24, while Return on Equity (ROE) was 13.31%, marginally lower than 13.33% last year.

Looking ahead, CSL Finance remains cautiously optimistic about the upcoming financial year. The Wholesale business continues to display resilience and is expected to sustain its positive momentum. Following strategic realignment, the SME Retail segment is set for a return to growth and is anticipated to make a significant contribution to overall profitability.

Management expects the AUM mix to gradually shift toward a more balanced profile. Margins and returns are likely to improve as SME Retail disbursements gain traction, credit costs stabilize, and operational efficiencies emerge from recent investments. CSL Finance remains committed to generating sustainable value for stakeholders through prudent risk management, technology-driven innovation, and a strong focus on customer-centric lending practices.

CSL Finance maintains vigilant oversight of both external and internal risks to ensure robust mitigation strategies are in place. This proactive approach enables the company to effectively manage emerging threats, capitalize on new opportunities, and respond swiftly to challenges. The principal risks and concerns currently identified are:

A potential slowdown in the global or

1 Indian economies, possibly triggered by heightened geopolitical tensions.

2 Unexpected increases in interest rates. A potential downturn in the real estate sector, 3 which may impact collections and loan book growth in the Wholesale lending division.

Difficulties in accessing funds at competitive 4 borrowing costs, which could influence profitability and hinder growth objectives.

5 Execution risks associated with newer business segments such as SME Retail.

Through continuous monitoring of these risks, CSL Finance is committed to proactive risk management and seeks to sustain financial strength while pursuing opportunities for long-term growth.

CSL Finance considers its workforce as the cornerstone of its ongoing success. The well-being and motivation of employees are recognized as direct drivers of organizational productivity, efficiency, and overall performance. The company strives to nurture a positive, supportive work environment that addresses employee needs and cultivates a strong sense of belonging and dedication.

To empower, engage, and appreciate its staff, CSL Finance has implemented various initiatives, including: To empower, engage, and appreciate its staff, CSL Finance has implemented various initiatives, including:

• Monthly birthday celebrations

• Festival observances

• Quarterly team lunches

• Rewards and Recognition (R&R) awards

• Surprise treats

As of March 31, 2025, CSL Finance employed a team of 460 skilled and dedicated professionals.

In todays fast-paced technological environment, utilizing its extensive potential to improve organizational efficiency is essential for all companies. At CSL Finance, we understand this necessity and have concentrated our efforts on capitalizing on technologys significant advantages across different operational areas.

CSL Finance operates on a robust, digital-first, API-driven technology stack tailored to maximize operational efficiency, scalability, and compliance. By adopting a fully digital onboarding and processing approach, CSL achieves end-to-end paperless customer journeys, resulting in significant reductions in turnaround time (by 24–48 hours) and lowering operational overheads. About 80% of onboarding is managed digitally, with only specific physical checks required for collateral documentation and personal discussions.

1 Modular API-First Architecture

CSLs stack is designed around modular APIs, providing ease of integration with third-party systems and future-ready scalability. This enables rapid deployment of new products, facilitates ecosystem partnerships, and ensures compliance with evolving regulations.

2 Digital Onboarding & Processing

Customer onboarding is efficient and nearly instantaneous—averaging just 30 minutes from the first interaction to login. The process features multi-layered verification, including ID, bank, geo-location, and criminal checks, supporting robust KYC and fraud control.

3 Hybrid Credit Decisioning

CSL deploys a hybrid credit decisioning engine that utilizes bureau data, alternative data sources, and real-time risk algorithms. The data is synthesized for enhanced credit evaluation and fraud mitigation, contributing to smarter lending practices.

4 Proprietary Applications

Multiple proprietary tools serve both sales and credit teams, such as mobility apps for collections, dashboards, and loan origination systems (LOS). These empower agile field operations with seamless updates, real-time task tracking, and performance monitoring.

5 Digital Collections & Servicing

Nearly 99% of collections occur via digital channels, leveraging UPI, NACH, and SMS-based payment links. Customers benefit from digital welcome kits and a call center powered by cloud telephony, while servicing channels include WhatsApp, email, and toll-free support.

6 Data Analytics & Regulatory Technology

CSLs stack incorporates advanced dashboards at multiple levels, real-time performance tracking, and BI tools which are constantly enhanced. It automates functions like accounting entries and incentive calculations and incorporates RegTech for real-time monitoring and near-instant compliance reporting in line with RBI mandates.

7 Secure, Scalable Infrastructure

All core business applications are hosted on a SOC2-compliant AWS Cloud, ensuring data security, high uptime, and business continuity through disaster recovery (DR) and business continuity planning (BCP) protocols.

In essence, CSL Finances tech stack provides a future-ready, agile, and customer-centric platform that powers the entire loan lifecycle, from onboarding and underwriting to disbursal, collections, and analytics, enabling it to thrive in an increasingly digital financial landscape.

Statements in the Management Discussion and Analysis describing our objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to our Company operations include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which we operate, changes in government regulations, tax laws and other statutes and incidental factors.