DCM Financial Services Ltd Management Discussions

We submit herewith the "Management Discussion and Analysis Report" on the business of the Company as applicable to the extent relevant.

Global growth is projected at 3.3 percent for 2026 and 3.2 percent for 2027, revised slightly up since the October 2025. Technology investment, fiscal and monetary support, accommodative financial conditions, and private sector adaptability offset trade policy shifts. Global inflation is expected to fall, but US inflation will return to target more gradually. Key downside risks are reevaluation of technology expectations and escalation of geopolitical tensions. Policymakers should restore fiscal buffers, preserve price and financial stability, reduce uncertainty, and implement structural reforms.

The crisis in the Middle East has delivered yet another shock to the global economy, slowing growth, reigniting inflationary pressures and heightening uncertainty.

Global GDP growth is now forecast at 2.5 per cent in 2026, 0.2 percentage points below the January projection and well below pre-pandemic norms. A modest recovery is projected at 2.8 per cent in 2027. Solid labour markets, resilient consumer demand, and AI-driven trade and investment in select economies are expected to provide some support, but the downgrade underscores a further weakening of an already subdued global outlook.

The shock is primarily felt in the energy sector—through constrained supply, surging prices, and rising freight and insurance costs—with effects cascading through supply chains and increasing production costs globally. While the surge in prices delivers substantial windfall gains for energy companies, it has intensified cost pressures for households and businesses worldwide. The overall impact will depend on the duration of disruptions in energy markets, leaving the outlook highly uncertain and risks tilted to the downside.

The conflict has halted the global disinflation trend underway since 2023. In developed economies, inflation is forecast to rise from 2.6 per cent in 2025 to 2.9 per cent in 2026, edging further above central bank targets in most cases. In developing economies, the uptick is sharper: inflation is projected to accelerate from 4.2 per cent to 5.2 per cent, as higher energy, transport and import costs erode real incomes and broaden price pressures across a wide range of goods.

The global Non-Banking Financial Company (NBFC) sector is experiencing rapid expansion and regulatory overhaul, with the United States, China, and the United Kingdom leading by asset volume. India is the fastest-growing market (over 20% growth), driven by credit offtake and green financing.

While the US and China dominate in pure asset size, emerging markets are taking center stage in digital lending and microfinance. Globally, stablecoins and AI integration are transforming alternative lending, though regulatory environments are tightening to manage risk

The sector remains resilient, but regulatory bodies have instituted stringent, Scale-Based Regulations (SBR) to mitigate risks. Key shifts include:

a. The Scale-Based Regulation (SBR) Framework: Classifies NBFCs into Base, Middle, Upper, and Top Layers with proportionate regulatory intensity.

b. Stricter Outsourcing Norms: NBFCs are held fully accountable for all actions by technology and outsourcing vendors.

c. Compliance Crackdowns: The central bank has clamped down on aggressive loan pricing and unverified practices by some microfinance/digital entities.

In a scenario of rising interest rates and intense competition from banks, NBFCs will further need to focus on their pricing power to maintain profitability and also focus on higher-yield segments for growth. Needless to say, NBFCs with stronger business models, strong capital adequacy, strong underwriting capabilities and focus on digital strategy will continue to perform better and grow stronger in years to come.

Competitive pressures shall remain elevated, which will impact margins, notwithstanding the reduction in the cost of funds. ICRA anticipates the rise in credit costs in line with increasing delinquencies, especially in unsecured loan segments, as growth slows down. Overall, the profitability of NBFCs, barring housing finance companies (HFCs), shall witness some headwinds with return on average managed assets (RoMA) projected to decline by about 30-50 bps in FY2025-FY2026 vis-?-vis FY2024 levels. While the HFCs performance has remained relatively stable, the impact of portfolio seasoning on credit costs remains to be seen.

Overall, ICRA has a stable outlook on the sector, barring NBFC-microfinance, which is expected to witness moderate growth and elevated credit costs even in FY2026, albeit better than FY2025 when it witnessed higher stress. The impact of tightening in microfinance credit norms on borrower leveraging, applicable in FY2026, remains to be seen.

For NBFCs in 2025-26, the primary opportunities lie in capitalizing on the credit gap left by traditional banks, expanding into tier-2 and tier-3 markets, and diversifying portfolios with secured products like vehicle loans, gold loans, and affordable housing. Companies are also finding new growth avenues through co-lending with banks and leveraging digital lending technology. The most lucrative opportunities and strategic areas of focus for NBFCs this year include:

1. High-Growth Asset Segments

Vehicle & Gold Loans: With seasonal demand patterns in full swing, vehicle finance (driven by rural/semi-urban demand) and gold loans (backed by stable gold prices) are delivering double-digit AUM growth. MSME Financing: Providing working capital and micro-loans to small and medium enterprises—a segment traditionally underserved by mainstream public sector banks. Affordable Housing: Rapid urbanization and government housing initiatives are driving high demand for home equity and affordable housing loans across regional markets.

2. Strategic Partnerships & Technology

Bank-NBFC Co-lending: Partnering with Public Sector and Private Banks allows NBFCs to originate loans using their superior last-mile reach, while banks provide lower-cost capital. Fintech Collaborations: Leveraging specialized fintech platforms for underwriting, customer onboarding, and instant credit decisions enables NBFCs to capture tech-savvy, younger demographics.

3. Emerging Focus Areas

Green & Sustainable Finance: Upper and middle-layer NBFCs are establishing specialized portfolios to finance electric vehicles (EVs), renewable energy projects, and energy-efficient infrastructure. Priority Sector Lending (PSL): NBFCs have a unique opportunity to act as direct originators for banks looking to fulfill their Priority Sector Lending quotas.

NBFCs in 2025-26 face a complex environment defined by tighter RBI oversight, narrowing margins, and heightened credit stress in unsecured loans. Key hurdles include surging funding costs, rising Non-Performing Assets (NPAs) in micro-segments, and the operational strain of strict compliance mandates. Top Challenges for NBFCs in 2025-26:

Intensifying Regulatory & Compliance Pressures: The Reserve Bank of India (RBI) has escalated its supervisory scrutiny. NBFCs are struggling to adapt to stricter provisioning norms, higher capital adequacy requirements, and complex, evolving disclosure frameworks.

Funding Costs & Liquidity Squeeze: Unlike commercial banks, NBFCs lack access to low-cost current and savings account (CASA) deposits. They are heavily reliant on bank loans and bonds, which keeps borrowing costs high and eats directly into Net Interest Margins (NIMs).

Asset Quality & Credit Stress: There is notable stress spilling over from the microfinance (MFI) and unsecured lending segments into micro-Loan Against Property (LAP) portfolios. Delinquencies are rising, forcing companies to increase credit provisioning.

Adapting to Digital Ecosystems: Transitioning to fully automated underwriting, lead generation, and collections—while keeping up with regulatory mandates for data privacy and digital lending—requires significant capital and tech-muscle.

The NBFC outlook for FY 2025-26 projects a steady loan book growth of 15-17%. While softer borrowing costs from RBI rate cuts will help margins, elevated credit costs and stricter RBI regulations will weigh on near-term profitability, prompting lenders to focus on secured segments like gold and property loans.

The financial statements have been prepared in accordance with the requirements of the Companies Act, 2013 and applicable accounting standards issued by the Institute of Chartered Accountants of India. The details of the financial performance of the Company are appearing in the Balance Sheet, Profit & Loss Accounts and other financial statements forming part of this annual report.

The Company deals in Single Segment i.e. Finance and Leasing. During the year, the revenue from operations stood at Rs. 0 similar to last financial year on standalone basis.

Given the magnitude and nature of its business, the Company has maintained sound and commercial practice with an effective internal control system. The system ensures that all transactions are authorized, recorded and reported correctly to safeguard the assets of the Company and protect them from any loss due to unauthorized use or disposition. The adequate internal information system is in place to ensure proper information flow for the decision-making process. The Company also has well-established processes and clearly defined roles and responsibilities for people at various levels. The control mechanism also involves well documented policies, authorization guidelines commensurate with the level of responsibility and standard operating procedures specific to the respective businesses, adherence to which is strictly ensured. Internal audit is carried out frequently to create awareness and to take corrective actions on the respective units or areas, which need rectification. These reports are then reviewed by the "Management Team" and the "Audit Committee" for follow-up action.

The Company regards its human resources as amongst its most valuable assets and proactively reviews policies and processes by creating a work environment that encourages initiative, provides challenges and opportunities and recognizes the performance and potential of its employees attracting and retaining the best manpower available by providing high degree of motivation.

Your Company believes in trust, transparency & teamwork to improve employees productivity at all levels.

While preparation of financial statements, a relevant Accounting Standard treatment has been followed.

The return on Net Worth stood at 2.00% for the current financial year as compared to 2.35% for the previous financial year.

The management discussion and analysis report containing your Companys objectives, projections, estimates and expectation may constitute certain statements, which are forward looking within the meaning of applicable laws and regulations. The statements in this management discussion and analysis report could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operation include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.

There were no significant changes during the year in the area of working & operations of the company in Comparison to the previous financial year.