HB Leasing & Finance Co Ltd Management Discussions

1) OPERATING RESULTS

During the year under review, the Companys Total Revenue is Rs. 52.88 Lakhs as compared to Rs. 54.82 Lakhs in the previous year. The Company incurred total expenses amounted to Rs. 32.19 Lakhs as compared to Rs.34.99 Lakhs during the previous year. ProfitaftertaxstoodatRs.21.08LakhsasagainstProfitof Rs.19.87 Lakhs in the previous year.

2) INDUSTRY STRUCTURE AND DEVELOPMENTS

NBFCs have emerged as the principal institutions providing credit financing to the unorganised and underserved sectors. NBFCs have revolutionised the lending system in India by providing financial inclusion for those who lack easy access to credit. They offer a range of services, including MSME financing, home finance, microfinance, gold loans and other retail segments.

Considering the evolution of NBFCs in terms of size, complexity, and interconnectedness within the financial sector and as a part of the overall objective of aligning the regulatory/ supervisory framework with their changing risk profile, important strides in the areas of risk management, regulatory compliance and enforcement, and consumer education and protection were made during the year. The Reserve Bank had put in place a scale-based regulation for NBFCs in October 2021 to align the regulations for NBFCs with their changing risk profile. This framework categorises NBFCs in base layer (NBFC-BL), middle layer (NBFC-ML), upper layer (NBFC-UL) and top layer (NBFC-TL).

In addition to that, several other guidelines were issued by RBI during the year, pertaining to digital lending, review of regulatory framework for Asset Reconstruction Companies (ARCs), establishment of digital banking units (DBUs), and a revised regulatory framework for Urban Co-operative Banks (UCBs) to strengthen the financial system. Further, in order to alleviate COVID-19 related stress in the financial markets and specific segments of the economy, the Reserve Bank had used a number of targeted and system-level liquidity measures as part of unconventional monetary policies.

3) OPPORTUNITIES AND THREATS

The Indian financial markets remained resilient notwithstanding persistent impact global spillovers. Indias stock market outperformed most of its EME peers in 2022-23 on the strength of macroeconomic fundamentals and favourable growth prospects. However, primary segment of the equity market witnessed moderation in fundraising amid volatile market conditions.

Investment companies is influenced by a multitude of factors, and the investment landscape is inherently unpredictable. Investment companies must conduct thorough research, monitor market trends, and adapt their strategies to changing circumstances to navigate the future successfully. Consulting with financial professionals and conducting comprehensive due diligence is crucial when making investment decisions. Our Company will continue to look for opportunities to invest in companies which have consistent growth prospects with high quality earnings.

4) FUTURE PROSPECTS AND OUTLOOK

The Indian economy demonstrated an exceptional performance during FY 2022-23, positioning itself as one of the fastest-growing economies. Despite global macroeconomic challenges and tighter domestic monetary policies aimed at addressing inflationary pressures, the growth momentum remained steady, showcasing the underlying strength of Indias economy in recovering and revitalizing growth drivers.

Currently, Indian economy is facing few challenges, such as the balance of payments risk, sticky inflation, and tighter global financial conditions. On the other hand, there are noteworthy positives as well, such as solid momentum in GST collections and the Government Capex push. As per IMF, India continues to be a bright spot in an uncertain global economy. There could be some moderation in growth in FY 2023-24, owing to weak exports and the impact of past interest rate tightening on Indias domestic demand. But overall, the Indian economy has a strong long-term potential.

5) RISKS AND CONCERNS

The Company like any other Company is exposed to specific risks that are particular to its business and the environment within which it operates. The Company is exposed to the market risk (including liquidity risk) and also the factors that are associated with capital market, which inter alia includes economic/business cycle, fluctuations in the stock prices in the market, besides the interest rate volatility and credit risk.

Risk Management Policy

The Company has implemented a systematic process to assist in the identification, assessment, treatment and monitoring of risks which provides the necessary tools and resources to management and staff to support the effective management of risks. The Company is primarily engaged in investment in Securities viz. Equity Shares, Preference Shares, Mutual Funds etc. which involves macroeconomic risks, investee company specific risks, market wide liquidity risks and execution risks relating to the Company / its intermediaries.

(a) The macroeconomic risks, investee company specific risks are covered by investment decisions based on third party research and internal assessment.

(b) Market wide risks are assessed and managed by investment timing decisions.

(c) The execution risk is managed by dealing with reputed intermediaries and through own back office discipline re accounting and follow up of trades.

(d) All investment decisions are made after distinguishing among alternative courses of action with identification of expected risks. The Company also faces credit default risks, concentration risk and industry specific risk while making Inter corporate loans to other body corporate. The Company performs the credit check on the prospective borrower considering various factors relating to the loan such as loan purpose, credit rating, and loan-to-value ratio and estimates the effect on yield (credit spread). The Company mitigates the concentration risk, industry specific risks by diversifying the borrower pool relating to different industries. The Company periodically monitors and reviews the financial condition, credit rating, debt to equity ratio to minimize the credit default risks associated with the borrowers. The Company has established Internal Financial Control Systems to provide reasonable assurance regarding safeguarding of assets, maintenance of proper accounting records and the reliability of financial reporting.

The Company controls the operational risks associated with its business activities by way of prescribing / amending processes, imposing controls and defining roles and responsibilities. The Company assesses the effectiveness of its risk management plan through structured continuous improvement processes to ensure risks and controls are continually monitored and reviewed.

6) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has put in place an effective internal control system to synchronise its business processes, operations, financial reporting, fraud control, and compliance with extant regulatory guidelines and compliance parameters. Strict internal control and systems are devised as a depiction of the principles of the highest standards of governance. The Company ensures that a standard and effective internal control framework operates throughout the organisation, providing assurance about safekeeping of the assets and execution of transactions as per the authorisation in compliance with the internal control policies of the Company.

The Audit Committee of the Board of Directors actively reviews the adequacy & effectiveness of the internal control system at periodic intervals in close coordination with the Internal Auditors. Internal Audits are also carried out to review the adequacy of the internal control systems, compliance with policies and procedures.

7) FINANCIAL PERFORMANCE

a) Share Capital: The Companys Issued and Subscribed Share Capital consists of Equity Share Capital only. The Paid-up Share Capital of the Company as at 31^st March, 2023 stood at Rs. 11,06,27,310/- comprising of 11062731 Equity Shares of Rs.10/- each.

b) Financial Assets and Non-Financial Assets: The Financial Assets and Non-Financial Assets for the year under review stood at Rs. 239.82 Lakhs and Rs. 74.75 Lakhs respectively as against Rs. 224.35 Lakhs and Rs. 70.77 Lakhs for the previous year.

c) Financial Liabilities and Non-Financial Liabilities: During the year under review, the Financial Liabilities and Non-Financial Liabilities stood at Rs. 13.42 Lakhs and Rs. 52.62 Lakhs respectively as against Rs. 16.40 Lakhs and Rs. 50.32 Lakhs during the previous year.

d) Key Financial Ratios:

* The Company is a non-deposit taking/accepting Non-Banking Financial Company and asset size of the Company is less than Rs. 100 crores, so Liquidity Coverage ratio is not applicable to the Company.

8) HUMAN RESOURCES

The Company has adequate human resources which is commensurate with the current volume of activity and is reviewed by the management periodically and the Company would induct competent personnel on increase / expansion of the activity.

9) CAUTIONARY STATEMENT

Statements in this "Managements Discussion and Analysis" describing the Companys objectives, projections, estimates, expectations or predictions 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 the Companys operations include interest rates and changes in the Government regulations, tax regimes, economic developments and other factors such as litigation etc.