F Mec International Financial Services Ltd Management Discussions.

1. INDUSTRY OVERVIEW

NBFCs are considered as the integral part of the Indian economy as they play an important role in promoting inclusive growth by complementing the banking sector in providing last mile linkages to the underserved sections of the society.

Their ability to extend smaller ticket loans, ground level understanding of the customers profile, faster Turnaround Time (TAT) and wider reach gives them the opportunity to invent and innovate their systems as per the evolving needs of borrowers, which makes them the perfect fit for serving the business requirements of the Micro, Small and Medium Enterprises (MSMEs). With the deployment of technology, analytics and partnering with new age fintechs, NBFCs have started a new wave of change that has the potential to extend credit to financially unorganized population and achieve the goal of financial inclusion in the country.

The role of NBFCs has become even more important as the focus on entrepreneurship is very critical and the NBFCs continue to take a lead in providing business loans in comparison to banks. Not only the weaker sections but offering long term funds to trade and commerce, growth of large infrastructure projects across the country, the sector continues to create growth and development at the macro level.

Additionally, factors like latent credit demand, digital disruption for SMEs, increased consumption, and their distribution reach presents a strategic opportunity for the NSFCs to ensure a sustainable long-term growth.

COVID 19 OUTBREAK

There has been a major impact on the liquidity position and asset quality of the NBFC sector. Just before the outbreak, the RBI took various measures to contemplate the NBFCs especially after the default by a leading Infrastructure Finance Company. The industry was hoping to be at improved liquidity levels during FY 20.

Unfortunately, NBFCs have been bearing the brunt of the pandemic which would absolutely last longer than expected. The immediate lockdown imposed by the government has severely impacted the incomes of borrowers further affecting the revenue streams due to the drop in transactions and loan repayments.

The central bank took measures like providing a 3month moratorium for banks and NBFCs which the NBFCs have likely offered to their borrowers. According to a rating agency report, "the immediate implication for NBFCs is the lack of clarity on their debt servicing ability in the near term. "With collections coming to a standstill, the primary cash flows of the NBFCs have been completely disrupted."

Post the lifting of the nationwide lockdown, the NBFCs would clearly have cash flow and operational issues during the second half of FY 21 . The sector needs to be well versed with their contingency plan which can be implemented post the business restarts and the economy will definitely bounce back and would rise above the crisis.

2. COMPANY OVERVIEW

F MEC INTERNATIONAL FINANCIAL SERVICES LIMITED, a Non-Deposit taking Systemically Important NBFC. F mec International Financial Services Limited is a professionally managed Company focused on providing structured term financing solutions to corporate, real estate lending and loans to Micro, Small and Medium Enterprise (MSME) borrowers. The Company is driven by a highly experienced management team and is focused on building a respected NBFC in the years to come.

During the year under review the Company has disinvested in the shares of YDS Securities Private Limited from 8,26,530 Equity Shares of Rs. 10/- each to 2,10,000 Equity Shares of Rs. 10/- each and therefore YDS Securities Private Limited ceases to be the subsidiary of the company. The funds so arising out of disinvestment are invested in the main business of the company.

The year under review was challenging for the financial sector in terms of leverage/liquidity. However, The Company has been able to establish relationships with various lenders and got sanctions of INR 4.39 crore loans. The liquidity position of the Company is very comfortable. As on 31 March 2020, considering the liquidity policy and market volatility profit for the year stands at INR 7,15,742/-.

3.DRIVERS OF GROWTH

F mec International Financial Services Limited intends to successfully accelerate its growth in FY 20-2 1 through the below mentioned growth drivers.

COR PORATE LENDING BUSINESS

The company offers long term working capital loans and other loans to corporate and non corporate and caters to needs of financial requirements of both corporate and non corporate borrowers. The Company follows a rigorous credit appraisal process io maintain the highest level of lending compliances.

The strategy for the financial year to come is to initiate a lending relationship with pedigreed business groups, while simultaneously developing robust internal systems, procedures and guidelines for the business.

4.BUSINESS PERFORMANCE

As on 31 st March 2020, the overall disbursements for the corporate and non corporate lending business aggregated at INR 4.39 crore. The total income of the business stood at INR 87.90 Lakhs with interest and fee income counted at INR72.90 Lakhs and Consultancy & Commission Income INR 15.00 Lakhs.

OPERATIONS & TECHNOLOGY

The Company successfully executed various strategic initiatives:

The Company has implemented various systems like HR management system. G-Suite collaboration tools. Board Managcment App, AP1 gateway, Website and the Intranet which are supported and collaborated on SAAS (Software as a service) model. The Company has adopted IT policies which are implemented as per the direction of RB1. Additionally, a LMS (Loan Management System) has been developed to have a stable and efficient book keeping system where all the loans are hosted.

5. BUSINESS OUTLOOK

The Company is confident on the growth outlook from lending as its business is all geared up to take off in the coming months. Company aims to create a footprint in the years to come. Through the efforts of the experienced management and the strong internal processes, the growth drivers of the Company would maximize both in terms of profits and leverage of the Company.

CORPORATE LENDING

The strategy for the coming year will be to maintain a steady growth of the credit portfolio by building diversity in the borrower base and being alive to the opportunities of secondary purchase of assets / portfolios, given the dislocation in the funding market.

This would be supplemented by developing robust internal systems and procedures for managing the risk of the existing asset book. An aligned business objective would be to leverage relationships with corporate, market intermediaries and co-lenders to initiate the rollout of a robust syndication / advisory franchisee.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company is taking steps for a proper and robust system of internal controls, to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposal and that transactions are authorized, recorded and reported correctly. The internal control system would be

designed to ensure that the financials and other records are reliable for preparation of financial statements and other data and for maintaining accountability of assets. The Board of Directors of the Company would be keeping a close watch on compliance and internal control systems as per regulatory requirements.

6.OPPORTUNITY & THREATS

Opportunity - The transformed landscape of the corporate lending business amongst NBFCs has resulted in few large players consolidating market share and consequently throwing up opportunities for long term players with pedigreed parentage and patient capital to build a sustainable lending franchise.

Threat - In light of the current scenario, corporate credit off take continues to remain subdued, on the back of slowing demand. low capacity utilizations and lack of confidence for significant capital outlay amongst larger industrial houses.

7.OPERATIONS & TECHNOLOGY

The Company believes that technology is not just a business enabler but a core process to the business model of any organization and the Company plans to embrace the new digital trends to transform the business process and deliver an enriching customer experience.

The Company made significant advancements that lead to flexibility and speed differentiates the same from other lending institutions. Further, the Company has implemented various other systems like HR management system, G-Suite collaboration tools, Board management app, API gateway, Website and the Intranet which are supported and collaborated on SAAS (Software as a service) model. The Company has adopted IT policies which are implemented as per the direction of RBl. Additionally, a LM S (Loan Management System) has been developed to have a stable and efficient bookkeeping system where all the loans are hosted.

Since its inception, the Company chose to implement cloud based systems which eventually helped the team to fight the extraordinary challenges posed by the COVID 19 crisis where a quick and efficient work from home setup was provided without any changes in the infrastructure.

Going forward, the Company intends to implement various other digital platforms like mobile apps for the upcoming business and also implement various security solutions to ensure confidentiality of the information systems.

8.HUMAN RESOURCES

FY 20 being the 27th year of operations, allowing the HR department to build and implement the key processes such as recruitment, training and development, payroll systems, performance management systems and other necessary executions.

For the year ended 31st March 2020, the headcount of the Company stands at 31 employees.

The Company successfully rolled out HR policies, salary benchmarking, employee handbook, HRMS and payroll system, biometric system, tie-ups with specific banks for salary account opening.

As a part of building the organization culture, the core values along with organizational behaviours were co-created for the employees to live the values and practice the behaviours with a view of making them ‘A way of life at Company. The HR department also continues to create a light and fun environment thereby engaging employees in various activities like fun at work, festivals and birthday celebrations, employee health and wellbeing practices.

With the rapid increase in employee base, the HR department plans to create a uniform and transparent culture across the network through employee engagement activities and other practices. Also, simplify the HR process through various technological additions in the system for the entire F mec family.

9.RESPONSIBILITY FOR THE MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Board of Directors have reviewed the Management Discussion and Analysis prepared by the Management, and the Independent Auditors have noted its contents. Statement in this report of the Companys objective, projections, estimates, exceptions, and predictions are forward looking statements subject to the applicable laws and regulations. The statements may be subjected to certain risks and uncertainties. Companys operations are affected by many external and internal factors which are beyond the control of the management. Thus the actual situation may differ from those expressed or implied. The Company assumes no responsibility in respect of forward looking statements that may be amended or modified in future on the basis of subsequent developments, information or events.