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.

INDUSTRY STRUCTURE AND DEVELOPMENT

Non-banking financial companies (NBFCs) are experiencing a moderation in credit expansion at present. Growth in this segment is expected to ease to 13-15% in FY2025 and FY2026 from the 17% expansion witnessed in the previous two fiscals.

Overall, NBFC credit stood at about Rs. 52 trillion in December 2024 and it is set to exceed Rs. 60 trillion in FY2026. Within this, the retail assets, which accounted for 58% of the overall NBFC credit in December 2024, have been the key growth drivers, while other wholesale and infrastructure credit expanded at a stable rate of 10-12% during FY2023-FY2025. The retail assets of NFBCs expanded at compounded annual growth rate (CAGR) of 23% during FY2023-FY2024. ICRA expects this segment to grow at a relatively slower 16-18% CAGR during FY2025-FY2026, given the high base created in the post-Covid expansion of this segment, amid concerns of borrower overleveraging, which has impacted loan quality in some asset segments within this space. However, with the budget expected to be tabled in the second half of July, essentially covering expenditure to be taken up for eight months ending March 2025, experts feel that the capacity to spend on projects may be curtailed.

Industry Overview

According to ICRA?s recent report, in 2024 non-bank lenders will focus on reviving growth by improving asset quality supported by increasing retail demand and liquidity. As part of the same, MSME sector and other developing sectors will witness increased participation from NBFCs. Also, with the introduction of 5G services in the country more NBFCs will tap into exploring Artificial Intelligence and Machine Learning for offering services or full-fledged applications.

Gold loan industry has now gained respectability, as compared to 15-20 years back, and the persisting competition in the gold loan industry suggests it is a growing industry. While the sector will continue to face competition from banks, we believe NBFCs will continue to play a vital role due to its deeper reach, ability to offer more flexibility, personalised services and innovative digital solutions. Gold loans have played an important part during the pandemic and will continue to be an important source of credit to MSMEs, agri sector, small businesses, un-organised sector and this is also evident from the steady demand for gold loans.

To keep this momentum of growth going in 2025 as well, it is important to address the key challenges faced by the NBFC sector. One such challenge is the recent revision of securitisation norms by RBI which state that loans with residual maturity of less than 365 days cannot be securitised. We do believe that this can have an impact on the level of securitisation, as gold loans, MFI loans are of shorter duration.

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-a-vis FY2024 levels. While the HFCs? performance has remained relatively stable, the impact of portfolio seasoning on credit cost 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.

OPPORTUNITIES, CHALLENGES AND OUTLOOK

Opportunities

NBFCs have served the unbanked customers by pioneering into retail asset-backed lending, lending against securities and microfinance. Following variables in the external environment may be seen as opportunities for the Company:

• The Government of India announced a slew of wide-ranging reforms across varied sectors amidst a comprehensive package aggregating Rs. 20 lakh crore — or approximately 10% of nominal subordinated debt and equity support to MSMEs.

• NBFCs aspire to emerge as a one-stop shop for all financial services.

• The sector has witnessed moderate consolidation activities in recent years, a trend expected to continue in the near future.

• New banking license-related guidelines issued by RBI place NBFCs ahead in competition for licenses owing largely to their rural network.

• New RBI guidelines on NBFCs with regard to capital requirements, provisioning norms & enhanced disclosure requirements are expected to benefit the sector in the long run.

Challenges

Competitive rivalry between big players is intense in the industry

• Working Capital and Liquidity Stress in the market.

• Low demand in the market.

• Financial services companies often compete on the basis of offering lower financing rates, higher deposit rates and investment services;

• Stringent regulatory norms prevent new entrants;

• Customers prefer to invest their money with a reputed financial services company offering a wide range of services;

• Medium bargaining power of customers. Although customers do not have much bargaining power, they can easily switch to another company based on the terms and quality of services provided.

Outlook

From FY19 to FY24, credit growth by NBFCs is estimated to have grown by a compounded annual growth rate (CAGR) of 12 per cent. The report expects this trend to continue in FY25, supported by a rapid revival in the Indian economy and rising consumer demand.

DISSCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

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.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

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.

INTERNAL CONTROL SYSTEM

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.\

HUMAN RESOURCE DEVELOPMENT

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.

DISCLOSURE OF ACCOUNTING TREATMENT

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

CAUTIONARY STATEMENT

The management discussion and analysis report containing your Company?s 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 Company?s operation include raw material availability and prices, cyclical demand and pricing in the Company?s 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.

DETAILS OF SIGNIFICANT CHANGES

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