HDB Financial Services Ltd Management Discussions

GLOBAL ECONOMIC OVERVIEW

In 2024, the global economy reflected a mix of resilience and uncertainty, shaped by geopolitical developments, evolving trade policies and shifting market dynamics. Geopolitical tensions, including the Russia-Ukraine war, conflict in west Asia and trade disputes continued to influence global stability and investment decisions. While inflationary pressures eased, they remained a concern in certain regions, driven by supply chain adjustments and fluctuations in energy markets.

At the same time, global trade volumes rebounded, growing by 3.6% in CY 2024, as economies adapted by diversifying trade routes and strengthening supply chains, highlighting the evolving nature of global commerce.

The International Monetary Fund (IMF) forecasts global growth to stabilise at 3.3% in both CY 2025 and CY 2026, indicating steady, albeit below historical average, expansion. Advanced economies are expected to grow by 1.9% in CY 2025 and 1.8% in CY 2026 as monetary policy easing and fiscal consolidation shape economic conditions. In contrast, emerging market and developing economies (EMDEs) are projected to expand by 4.2% in CY 2025 and 4.3% in CY 2026, supported by strong domestic consumption and infrastructure development.

GLOBAL ECONOMIC GROWTH PROJECTS

Year		World (%)	Advanced Economies (%)	Emerging Markets and Developing Economies (%)
CY 2024	Estimates	3.2	1.7	4.2
CY 2025	Projections	3.3	1.9	4.2
CY 2026		3.3	1.8	4.3

Global headline inflation is anticipated to decrease from 4.2% in CY 2025 to 3.5% in CY 2026, with advanced economies likely reaching target inflation levels sooner than their emerging market counterparts. As major central banks, including the US Federal Reserve and European Central Bank, shift towards more accommodative policies, they are expected to reduce interest rates to support economic activity.

The US Federal Reserve (Fed), which kept rates at a two- decade high of 5.25%-5.50% in January 2024, began its rate cuts in CY 2024, with estimates pointing to a cumulative reduction of 50-75 basis points in 2025. Similarly, the

European Central Bank (ECB), which set rates at 4.0%, is likely to ease its stance gradually as inflation moderates in the Euro area. Consequently, global financial conditions are expected to ease supporting credit growth and investment sentiment across regions. However, trade uncertainties and geopolitical risks continue to influence investment sentiment, leading to varied economic expansion across different regions.

Currency volatility remains a significant concern, as fluctuations in the US Dollar continue to impact capital flows. Emerging markets have been particularly affected, witnessing net portfolio outflows of US$ 45 Bn as of January 2025. This shift can be attributed to a stronger US dollar and an evolving investor sentiment.

On a positive note, global Foreign Direct Investment (FDI) inflows have shown a moderate 3.8% recovery with investments, favouring sectors such as clean energy, digital infrastructure and advanced manufacturing. This trend signifies that the economy is moving closer to prioritising supply chain resilience and sustainability. The US and EUs push to de-risk supply chains has led to a 12% increase in manufacturing FDI inflows to Southeast Asia and India, further solidifying the trend of diversification beyond China.

Sectoral performance shows marked disparities across regions with services consistently surpassing manufacturing, fuelled by robust consumer demand and a strong recovery in post-pandemic tourism. In contrast, the manufacturing sector faces challenges, hindered by trade tensions, restructured supply chains and sluggish global demand. At the same time, the energy market is adapting to evolving geopolitical dynamics, with oil prices forecasted to decline by 2.6%, while non-fuel commodities are expected to experience a modest increase of 2.5% in CY 2025.

Looking ahead, monetary policies in advanced economies are anticipated to ease, fostering improved global liquidity and credit availability. Conversely, emerging markets are likely to adopt a more measured approach, balancing inflation control with growth objectives. Ongoing tariff escalations, including the sharp rise in cross-border duties in April 2025, have added to trade uncertainties, impacting global commerce and production strategies. As these trends unfold, trade dynamics, particularly US-China relations, evolving sanctions regimes, ongoing wars and regional trade agreements, are expected to influence supply chain realignments and global investment flows.

Technological innovations and Al-led automation are increasingly becoming central to industrial strategies. Meanwhile, Chinas tempered growth and its ongoing domestic rebalancing continue to reverberate across global trade and commodity flows. Climate resilience and ESG compliance are also becoming pivotal in global investment decisions. As economies adapt to structural shifts, geopolitical developments, evolving financial conditions, technology, sustainability and policy reforms will remain critical in shaping long-term economic momentum and resilience.

INDIAN ECONOMIC OVERVIEW

As per the Economic Survey 2024-25, Indias GDP growth rate is projected at 6.4% in FY 2024-25. This positions the country among the fastest-growing major economies globally, despite prevailing global uncertainties. The growth is largely fuelled by strong domestic demand, higher capital expenditure, private investment and a resilient services sector.

Agricultural output is expected to rise by 3.8% in FY 2024-25, supported by favourable monsoons, higher Kharif production and improved Rabi sowing. Rising rural incomes are reflected in growing sales of two-wheelers and tractors. Higher Minimum Support Prices (MSP) and a decline in demand for MGNREGA jobs further indicate strengthening financial conditions across the rural economy. As rural demand remains strong and urban consumption remains constant, private spending is anticipated to sustain overall economic expansion going forward.

A major contributor to this growth is the revival of private consumption. Private Final Consumption Expenditure (PFCE), at constant prices, rose by 7.3% as of January 2025, compared to 4.0% in the previous financial year. This improvement reflects stable household spending.

The growing middle class, rising incomes and aspirational spending trends are reshaping consumption patterns. A growing number of consumers are choosing premium products and experiences, propelling demand in sectors such as luxury goods, automobiles and lifestyle services. The governments decision to raise the income tax exemption limit to 12 Lakhs in the Union Budget FY 2025-26 is likely to further support consumer sentiment and discretionary spending in retail, apparel and luxury segments.

The services sector remains the backbone of Indias economic performance, with services exports projected to expand at 12.8% YoY in FY 2024-25. Government initiatives like Unified Payments Interface (UPI) and Open Network for Digital Commerce (ONDC) are promoting and facilitating digital transactions, with UPI alone recording 23.24 Lakh Crore in transactions in December 2024, up from 707.93 Crore in December 2016. This rapid digital transformation is advancing financial inclusion and reshaping consumer behaviour.

Inflation is anticipated to remain stable, supported by prudent fiscal and monetary policies. Headline inflation, measured by the Consumer Price Index (CPI), moderated to 3.16% in April 2025, compared to 5.4% in FY 2023-24. This decline is primarily due to a sharp reduction in food price index, which decreased to 1.78% in April 2025. The Reserve Bank of India (RBI) further reduced the repo rate by 25 basis points to 6% as of April 2025. This move is expected to stimulate economic activity by making borrowing cheaper, thereby encouraging spending and investment. As of April 2025, the Monetary Policy Committee (MPC) also changed its stance from neutral to accommodative, signalling that, going forward- absent any shocks—the MPC would consider only two options: maintaining the status quo or implementing a rate cut.

Infrastructure investments and manufacturing incentives under the Production Linked Incentive (PLI) scheme are expected to further strengthen economic momentum. To realise the long-term ambition of Viksit Bharat by 2047, India aims to sustain an 8% annual growth rate. This objective is supported by policy measures such as Ease of Doing Business 2.0, systemic deregulation, labour law simplification, tax rationalisation and digital governance.

Additionally, MSMEs continue to drive innovation and contribute to the diversification of Indias manufacturing base. In line with this, the Union Budget for FY 2025-26 introduced several measures to strengthen the sector. These include higher investment and turnover thresholds, improved credit access, targeted support for first-time entrepreneurs and productivity-linked initiatives across key industries. With these structural reforms and a continued emphasis on innovation and investment, India is well-positioned for sustained and inclusive growth.

On the infrastructure front, the government maintained strong focus by allocating 11.2 Tn for capital expenditure in the Union Budget FY 2025-26. This substantial outlay is directed towards transportation, energy and digital infrastructure projects. Urban development is also seeing growth, with projections indicating that Indias urban population is expected to reach approximately 500 Mn in 2025. To meet growing housing needs, the government remained committed to affordable housing initiatives, including the Pradhan Mantri Awas Yojana, which aims to ensure housing for all.

OUTLOOK

Indias economic outlook remains strong, driven by stable domestic consumption, rising infrastructure investment and a dynamic services sector. Inflation is expected to stabilise enabling a more accommodative monetary policy, while robust credit growth and strong banking fundamentals continue to support private sector expansion and capital formation.

The digital economy and formalisation of financial services continue to unlock new opportunities, particularly in Tier-II and Tier-III markets, while a booming start-up ecosystem continues to prosper. With a youthful workforce, accelerating digital adoption and targeted policy reforms in manufacturing, MSMEs and favourable taxation are expected to enhance productivity and long-term competitiveness. Over the coming decade, India is expected to play a pivotal role in shaping global economic momentum, contributing meaningfully to innovation, supply chain diversification and sustainable development worldwide.

INDUSTRY OVERVIEW

The Indian Non-Banking Financial Companies (NBFC) sector remains a critical pillar of financial inclusion and economic growth. Over the years, NBFCs have demonstrated remarkable endurance, expanding their prominence within the financial ecosystem. The sectors assets under management (AUM) have grown significantly, from less than 2 Tn at the turn of the century to 41 Tn by the end of FY 2023-24. Between FY 2018-19 and FY 2023-24, NBFC credit has expanded at a compound annual growth rate (CAGR) of approximately 11%.

Despite this significant expansion, AUM growth is expected to moderate, with year-on-year growth projected at 15-17% in FY 2024-25 and FY 2025-26, compared to 23% in FY 2023-24. This deceleration is primarily attributed to rising delinquencies, funding constraints and heightened regulatory oversight.

However, certain lending segments, including SME loans, loans against property (LAP) and used vehicle financing are expected to maintain strong growth. This underscores the strength of specific market verticals. MSME sector continues to offer strong growth potential supported by growing demand for alternate credit. Additionally, government initiatives aimed at promoting digital financial inclusion and expanding access to credit will further support the sectors growth. In this context, NBFCs have remained instrumental in widening credit outreach in underserved areas, especially in Tier-II and Tier-III cities, enabled by the rise of fintech partnerships and embedded finance ecosystems.

The Reserve Bank of India (RBI) has recently reduced the risk weight on bank loans to NBFCs to 100%, thus reinstating the previous framework.

This revision is poised to expand banks lending capacity, offering NBFCs enhanced access to bank funding. Consequently, NBFCs are likely to rebalance their funding mix, increasing reliance on bank loans and reducing their dependence on short-term commercial papers. This strategic shift is anticipated to enhance funding stability and facilitate long-term growth.

Simultaneously, the regulatory expectations have risen sharply, particularly for larger NBFCs under the RBIs Scale- Based Regulatory (SBR) framework. NBFCs in the Upper Layer now face stricter governance, capital adequacy, risk management and disclosure norms, aligning them more closely with the regulatory standards set for banks. This represents a significant shift in the supervisory approach towards systemically important NBFCs.

In addition, the RBI has mandated public listing for Upper Layer NBFCs, with the aim of fostering greater transparency and improved market discipline. This move is expected to strengthen governance frameworks, deepen investor engagement and enhance long-term capital access for eligible NBFCs.

Recent restrictions on First Loss Default Guarantee (FLDG) arrangements have redefined the contours of NBFC-fintech collaboration. The cap on such exposures at 5% is set to promote more balanced risk-sharing models. These changes are likely to drive more equitable risk-sharing models and encourage responsible growth in digital lending partnerships.

GROWTH STRATEGIES

Regulatory Compliance and RegTech Adoption

A strong compliance framework is crucial for NBFCs to effectively navigate an ever-evolving regulatory environment. Harnessing RegTech solutions will streamline reporting, enhance risk management and ensure transparency. Additionally, automated compliance systems will enhance regulatory adherence, while also boosting investor confidence and operational efficiency, securing long-term sustainability.

For Upper Layer NBFCs, compliance expectations now encompass enhanced governance protocols. These include board independence, risk committee oversight and senior management accountability, all vital components of the new regulatory regime.

Technology-Driven Transformation

Digital innovation is set to drive enhanced efficiency and customer engagement within NBFCs. Data analytics and digital lending platforms will streamline credit assessments, fraud detection and onboarding processes, resulting in quicker loan approvals and more tailored financial solutions. These advancements will improve the borrower experience, reduce operational costs and reinforce the competitive standing of NBFCs within the financial sector.

Diversification of Funding Sources

Expanding funding channels will be crucial for mitigating liquidity risks and ensuring financial stability. Securitisation, co-lending with banks and fintech partnerships will offer alternative capital sources, reducing reliance on traditional funding. In addition, a diversified financial structure will enable NBFCs to adapt to market shifts and sustain long-term growth. Furthermore, a strategic tilt towards longer-tenure borrowings, diversified debt instruments and calibrated co-lending models will be essential to building resilient funding architecture in a dynamic interest rate and regulatory environment.

Focus on Tier-II and Tier-III Cities

As urban markets mature, NBFCs will expand into semiurban and rural areas, where financial services remain underpenetrated. To capture this high-growth market and drive long-term growth, offering region-specific products, using digital outreach and providing vernacular language support will be essential.

Customer-Centric Strategies

Personalised financial solutions will set NBFCs apart in a competitive market. Dynamic credit scoring and data-driven decision-making will help address diverse customer needs, improving satisfaction and retention. Therefore, by harnessing real-time insights, NBFCs will strengthen customer relationships, drive growth and improve their market positioning.

Sustainability and ESG Financing

ESG considerations are set to influence NBFCs lending strategies, with an increasing emphasis on green financing and sustainable investments. By aligning portfolios with ESG principles, NBFCs can enhance their credibility and attract responsible investors.

Despite facing headwinds from asset growth deceleration and regulatory changes, the NBFC sectors ability to innovate and adapt will define its long-term trajectory. With the right mix of technology adoption, policy alignment and financial prudence, NBFCs will continue to play a pivotal role in Indias financial ecosystem, driving inclusive growth and expanding credit access across various segments.

Although the new regulatory environment poses transitional challenges, it is laying the groundwork for lasting strength. The framework promotes greater transparency, institutional maturity and structural resilience, ensuring the sector remains aligned with Indias evolving financial goals.

COMPANY OVERVIEW

HDB Financial Services Limited (hereafter referred to as HDBFS or The Company) is a leading, diversified retail- focussed NBFC. Established in 2007, the Company delivers a wide range of lending solutions through three primary verticals: Enterprise Lending, Asset Finance and Consumer Finance. It caters to the underserved and underbanked customers, including salaried individuals, self-employed professionals and entrepreneurs.

With a firm focus on customer centricity, the Company uses data insights to deliver tailored financial solutions beyond conventional lending. A strong commitment to integrity and transparency drives its ethical business practices and expanding service portfolio. This focussed strategy strengthens the Companys reputation as a trusted and respected player in Indias financial sector.

PRODUCTS AND SERVICES Loans

HDBFS offers tailored financial products and services that address the distinct needs of its customers, including firsttime borrowers and underserved segments. It operates across three core areas, lending, fee-based financial solutions and business process outsourcing services. With each of its offerings, the Company ensures end-to-end support across a wide range of financial needs.

Consumer Loans

HDBFS provides a comprehensive suite of loan offerings designed to support individuals in meeting personal and household financial needs, both short term and medium term. The Companys consumer loan portfolio includes the following:

• Consumer Durable Loans: HDBFS offers loans that help customers purchase essential home appliances and consumer electronics such as air conditioners, washing machines, televisions and refrigerators. They also enable customers to spread out their payments, making these purchases more affordable without putting a strain on their finances.

• Digital Product Loans: The Company offers financing solutions for a variety of digital products, from everyday essentials to premium devices. With these loans, customers can purchase smartphones, laptops, tablets and other electronic gadgets without bearing the burden of upfront costs, ensuring access to the latest technology with financial ease.

• Lifestyle Product Loans: These loans empower customers to enrich their living standards by financing premium furniture, high-end home appliances and luxury goods, among others. These loans offer an effortless way to improve comfort and style, all while maintaining financial stability.

• Personal Loans: HDBFS extends financial solutions to individuals seeking support for various personal requirements. Whether addressing major life events, unforeseen expenses, or home improvements, these loans offer flexibility and convenience. With repayment plans and costs tailored to align with individual financial situations, customers can access funds in a way that suits their specific needs.

• Auto Loans: The Companys auto loans simplify the process for individuals and businesses looking to finance the purchase of new or pre-owned vehicles. With flexible repayment options, competitive interest rates and a seamless application process, these loans make vehicle ownership more attainable. Whether for personal use or business purposes, the Company provides customised financing solutions to suit diverse customer needs while ensuring a smooth and seamless borrowing experience.

• Two-Wheeler Loans: Tailored financing solutions are offered to make two-wheeler ownership more accessible and affordable. With competitive interest rates, flexible repayment plans and minimal documentation, the offering serves both first-time buyers and experienced riders. Designed for daily commutes or personal use, these loans ensure a smooth and hassle-free purchase journey.

• Micro Lending: With the aim of promoting financial inclusion and empowering underprivileged segments of society, the Company provides micro loans to customers through the Joint Liability Groups (JLGs) framework.

ENTERPRISE LOANS

The Company offers financial support to small and micro enterprises, enabling them to scale and meet working capital requirements. Its business loan offerings include:

• Business Loans: The Company offers unsecured loans designed to help small businesses address financial needs such as acquiring equipment, replenishing inventory, managing working capital, or renovating outlets.

• Loan Against Property: This facility enables businesses to get access to capital by using the market value of their property. The funds can be used for business expansion, working capital, debt refinancing, or other financial obligations. As a secured offering, it typically carries lower interest rates than unsecured alternatives.

• Enterprise Business Loan: HDBFS extends these loans to self-employed individuals, professionals, private firms and partnership businesses. They offer flexible terms, competitive interest rates and easy repayment options, helping businesses expand operations, acquire assets and manage day-to-day expenses efficiently.

• Salaried Personal Loans (SPL): The Company offers personal loans to salaried individuals, providing financial flexibility to address both personal and professional needs.

• Gold Loans: The Company provides secured loans against gold jewellery, allowing customers to access quick credit for urgent financial requirements.

ASSET FINANCE

The Company offers specialised financing solutions under Asset Finance, enabling customers to purchase new and preowned vehicles and equipment. These loans are structured to promote income generation and business expansion. The offerings include:

• Commercial Vehicle Loans: The Company finances the purchase of new and used commercial vehicles, along with offering refinancing for existing ones. It serves a wide range of customers, including fleet operators, firsttime users, first-time buyers and captive users. Branch- based field officers (FOS) and strategic alliances with OEMs and dealers drive customer acquisition for this segment.

• Construction Equipment Loans: Designed for the construction sector, these loans support the purchase of both new and used machinery. Customers can also refinance existing equipment, ensuring ready access to essential machinery for their projects efficiently.

• Tractor Loans: HDBFS provides specialised loan solutions for acquiring tractors and related equipment, addressing both agricultural and commercial needs. These solutions enable customers to invest in vital equipment for farming and business operations.

FEE-BASED PRODUCTS/INSURANCE SERVICES

The Company holds a Corporate Insurance Agent licence from the Insurance Regulatory and Development Authority of India (IRDAI) and is authorised to offer both Life and General (NonLife) insurance products. HDBFS has established partnerships with HDFC Life Insurance Co. Limited and Aditya Birla Sun Life Insurance Co. Limited for life insurance offerings. For general insurance, the Company collaborates with HDFC Ergo General Insurance Co. Limited, Tata AIG General Insurance Co. Limited and Go Digit General Insurance Limited, expanding its portfolio with comprehensive risk coverage solutions.

BPO SERVICES

The Company delivers a comprehensive range of BPO services, including collection support, sales assistance, back office operations and processing functions. An overview of its service offerings is provided below:

• Collection Services: HDBFS operates collection call centres for HDFC Bank, managing collections for its full suite of retail lending products. With a presence in 700 locations, the Company offers both telephonic and onground support. It has set up 18 call centres nationwide, equipped with 5,500 seats to deliver seamless and efficient collection services.

• Back Office and Sales Support: The Company supports HDFC Bank with back office operations and sales enablement. Its services include form processing, document verification, accounting tasks and transaction handling.

DIGITAL FIRST APPROACH

The Company has invested and built an advanced technology and data analytics platform that covers all key areas and stages of its business, including customer sourcing, onboarding and underwriting as well as operations and collections. The Company strives to elevate customer experience and operational efficiency through the use of technology. Our digital vision is to adopt new technologies to enable it to further develop and grow business within the regulatory environment we operate in. When investing in technological solutions, we ensure that our systems are built with customer-centric propositions that allows us to combine different services and improve customer experience with a strong security underpinning.

To realise this vision, we have adopted a structured platform categorisation strategy as explained below.

> Systems of Innovation: Over the past two years, HDBFS has prioritised investments in this foundational layer, recognising it as the core of the Companys differentiation strategy. Key focus areas include:

• Loan Origination System (LOS): Platform that addresses specific product requirements, empowering the Company to craft customised business propositions for the market.

• Customer Relationship Management (CRM): Deployed an industry-standard CRM system that serves as the omni-channel hub for sales and customer engagement, streamlining interactions with leads, prospects and existing customers.

• Data Lake and Analytics: Consolidated a data repository that ensures consistent, timely access, supporting data-driven decision-making with structured access rights.

• Digital Innovations: Integrated modern technologies such as Low-Code/No-Code platforms and Robotic Process Automation (RPA) to optimise operations. Deployed reusable components like CKYC, eNACH and UPI 2.0 to facilitate seamless digital transactions throughout the organisation.

• Systems of Engagement: This functions as the API layer through which all channels, both direct- to-customer (D2C) and assisted digital platforms, interact with the Companys systems for acquisition and service-related needs. The channel framework is designed to accommodate existing engagement models, including APIs, IVR, contact centres, mobile applications, email, SMS, web platforms, chatbots, social media, DSAs, aggregators and frntech collaborations. It also remains adaptable to future engagement models ensuring scalability and innovation.

• Mobile App: Redesigned a Flutter-based native mobile application, complemented by a Progressive Web App (PWA) framework, serving as a comprehensive platform for prospects, existing customers and alumni to access the Companys services seamlessly.

• Assisted Digital App: Developed a dedicated mobile application for the sales, credit and collections teams, enabling them to assist customers through guided digital journeys.

• API Gateway: Integrated a modern API gateway with a developer and partner portal, supporting a selfservice model and an Open API approach for secure and rapid onboarding.

• DIY Platform: Implemented a low-code platform that facilitates customer onboarding through a fully self-service, unassisted process.

• Account Aggregators: Established an end-to- end digital customer onboarding, pre-filling customer and prospect data to enhance credit decision-making and ensure a smooth, frictionless experience.

• Communication Gateways: Standardised solutions for email, SMS, WhatsApp, contact centres and chatbot interactions, all integrated with the CRM system to deliver a seamless omni-channel experience.

DIGITAL CUSTOMER SERVICE CHANNELS

The Company has introduced multiple digital channels to elevate customer service and ensure a smooth user experience:

• HDB On-the-Go App: Upgraded the mobile application with an enhanced user interface and advanced functionalities, designed to offer a seamless experience for users on both Android and iOS platforms. The app had 8.8 Mn downloads as of March 31, 2025.

• Web-based Version: A web-based version of the mobile app is deployed on the Companys website, enabling customers to conveniently access their loan account on their desktop.

• WhatsApp Account Management: The Companys customers can receive real-time updates on their loan accounts by sending a simple Hi to the Companys WhatsApp number, +91 73049 26929. This feature allows easy and instant access to account details via a widely used messaging platform.

• Chatbot Assistance: The Companys virtual assistant, #AskPriya, provides instant responses to customer queries regarding loans and the latest offers. Powered by AI, this chatbot enhances service efficiency by delivering accurate and timely information.

• Missed Call Service: A service where customers can retrieve loan details via SMS by giving a missed call from their registered mobile number to 044 4560 2401. This service offers a quick and hassle-free way to access essential account information without requiring an internet connection.

OTHER KEY INITIATIVES

• Customer Service Week: Customer Service Week is an engaging initiative to educate walk-in customers about HDBFSs self-service tools. The programme highlights how customers can manage their loan accounts, apply for new loans, explore digital payment options, understand the grievance redressal system and learn about RBIs Ombudsman Scheme. Additionally, customer feedback is collected to assess service quality and drive continuous improvements.

• Personalised Relationship Management: Select customers are connected to a dedicated Relationship Manager who assist them with their financial needs.

SEGMENT-WISE PERFORMANCE

Revenue from the Companys lending business increased to 15,083.62 Crore in FY 2024-25, up from 12,221.57 Crore in FY 2023-24 driven by an increase in assets under management.

Revenue from the BPO services division was 1,216.66 Crore in FY 2024-25 compared to 1,949.55 Crore in FY 2023-24.

GEOGRAPHICAL PRESENCE

HDBFS has adopted a comprehensive approach to expanding its pan-India presence through a hybrid distribution model that combines both physical and digital channels. This strategy has enabled the Company to establish a significant nationwide footprint, with a network of 1,771 branches across 1,170 cities as of March 31, 2025.

The Companys strategy aims to ensure seamless customer access across urban, semi-urban and rural areas. This is achieved not only through its extensive branch network but also by strengthening partnerships with OEMs, dealers and brands. Additionally, the Company uses digital platforms to create multiple touchpoints that enhance customer reach, engagement and convenience. Majority of its network is located outside the top 20 cities, underscoring a strong emphasis on rural and semi-urban outreach.

The Companys data centres are located in Bengaluru and Mumbai, while its centralised operations are managed from Hyderabad, Chennai and Noida. To further optimise internal processes, HDBFS has implemented a specialised quality management system tailored for its centralised operations. This initiative is designed to enhance process efficiency, standardise operations and maintain consistent service quality across all branches.

OUTLOOK

The Company has a balanced approach to growth, regulatory compliance and customer-focussed innovation and is strategically positioned to create long-term value and make a significant contribution to Indias financial inclusion and formalisation initiative.

With the economy projected to continue growing, the Company, with its diversified product portfolio, broad reach through its network of branches across the country and its digital infrastructure, is cautiously optimistic in its outlook for FY 2025-26.

RISK MANAGEMENT

As a financial services provider, the Company is exposed to multiple risks, including risks related to credit, operations, liquidity, digital lending and information security. To address these challenges, HDBFS has implemented a comprehensive risk management framework, ensuring proactive identification and mitigation of risks.

Risk oversight is a key priority, with the Board of Directors taking a central role in monitoring all risk categories. Dedicated committees have been established to provide focussed supervision and ensure stringent risk controls. The Company continually strengthens its security infrastructure, particularly in cybersecurity, to defend against emerging threats. With risk mitigation remaining a core priority, HDBFS remains confident in its ability to safeguard its financial stability, operational efficiency and market reputation.

Risk	Mitigation
Credit Risk, including Credit Concentration Risk	The Company has established policies, procedures and systems for managing credit risk. Credit quality is monitored and losses from defaults are minimised by setting credit parameters and monitoring exposures against approved limits. Credit concentration of exposures is also monitored to avoid unacceptable risk concentrations.
Business/Strategic Risk	HDBFS pursues diversification through various products, customer segments and geographies to mitigate business and strategic risks. A balanced growth approach is maintained while adhering to a healthy asset-liability mix and prudent provisioning policies.
Reputation Risk	The Company mitigates reputation risk by implementing a code of conduct for employees, strong governance policies and a customer grievance mechanism. Stakeholders are engaged regularly to address concerns and expectations.
Technology Risk	HDBFS leverages technology to enhance customer experience, improve productivity and manage risks. The Company aims to continuously improve its processes and controls to mitigate cyber threats and has established a Cyber Resilience Framework and a next-generation Security Operations Centre with AI-ML capability. A layered technology and cybersecurity architecture, Disaster Recovery and Business Continuity Plans and access control mechanisms have been implemented. This is consistently monitored through a third-party assurance mechanism, on an ongoing basis. Further all employees undergo annual cybersecurity and compliance training and periodic simulation exercises to keep them abreast with the latest trends in the cybersecurity happenings, which helps the Company to continuously improve on its cybersecurity posture.
Digital Lending Risk	The Company has automated its loan application process by leveraging tools like CRM, rule engine and bureau integration to enhance productivity and deliver a seamless customer journey. HDBFSs controls have been implemented and analytics and reporting systems are in place for collection and recovery to maintain a healthy asset quality.
Compliance Risk	The Company manages and monitors compliance risks by implementing a Compliance Policy overseen by the Chief Compliance Officer and a dedicated team. The team regularly reviews products and processes for regulatory compliance and updates internal policies to minimise legal or regulatory risk.
Liquidity Risk	The Companys Asset-Liability Committee (ALCO) is responsible for managing liquidity risk and ensuring adequate levels of liquidity and interest rate risk management. To manage liquidity risk, the ALCO monitors various metrics, including the maturity profile, stock ratios and asset-liability mix. Additionally, the committee ensures sufficient unencumbered High-Quality Liquid Assets (HQLA) to meet short-term obligations by monitoring the Liquidity Coverage Ratio (LCR) daily. The Company has also implemented a liquidity risk framework which is monitored by the ALCO and the Risk Management Committee.
Interest Rate Risk	HDBFSs Asset-Liability Committee (ALCO) is responsible for managing balance sheet planning for risk-return and strategic management of interest rate and liquidity risks. The Company its sensitivity to interest rate movements using traditional gap analysis to identify and mitigate potential risks. The Advances Book and funding strategy are tailored to offset the repricing of borrowings by repricing loans.
Operational Risk	Operational risk is the chance of financial loss due to insufficient internal processes, personnel, technology systems, or external factors. It covers legal risk but not strategic or reputational risks.
	Operational risk is monitored by the Operational Risk Management Committee (ORMC). The Company has a three-layered defence mechanism which includes the business units, operational risk team and internal audit, combined with established policies, procedures and robust internal controls.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements include the financial performance of the Company along with its subsidiaries, collectively referred to as the Group. Control is determined based on the Groups ability to direct relevant activities and derive benefits from its association with the investee. A uniform set of accounting policies is applied across all entities within the Group to maintain consistency in financial reporting. In cases where any entity follows different accounting policies, necessary adjustments are made to align them with the Groups standard accounting practices, ensuring uniformity in the consolidated financial statements.

INTERNAL CONTROL SYSTEM AND INTERNAL AUDIT

The Company has implemented a comprehensive internal control framework to ensure operational efficiency, regulatory compliance and accurate financial reporting. The Internal Audit Department (IAD) plays a crucial role in strengthening Governance, Risk and Compliance (GRC) by conducting independent and objective evaluations. These assessments enhance transparency, accountability and trust across the organisation.

The internal audit function operates under a clear and comprehensive internal audit charter, supported by a risk- based audit policy that defines the departments purpose, structure, authority and responsibilities. Adopting a risk- based approach, the IAD focusses on high and medium-risk areas, ensuring effective resource allocation and addressing potential vulnerabilities.

The risk-based Internal Audit Framework also offers independent assurance to the Boards Audit Committee, tailored to the Companys scale, complexity and operations. The audit plan, developed based on activity risk profiles, is reviewed and approved annually by the Audit Committee, which also evaluates audit findings and performance.

To enhance audit quality and efficiency, while ensuring extensive data coverage, the IAD utilises advanced data analytics tools. Additionally, recognising the evolving industry scenario, Information Systems (IS) audits have become a key component of the internal audit function. This comprehensive audit strategy not only strengthens risk management practices but also reinforces the Companys ability to navigate technological advancements and emerging challenges.

HUMAN RESOURCES Nurturing the Workforce

People are the driving force behind the success and operational efficiency of HDBFS. Recognising this, the Company is dedicated to creating an environment that empowers employees to achieve both their professional goals and personal milestones. By fostering safe, inclusive and supportive workplaces, HDBFS ensures that its employees adopt a mindset focussed on growth and positivity.

Cultivating a Strong Organisational Culture

The culture at HDBFS is rooted in six core values—Integrity, Collaboration, Agility, Respect, Excellence and Simplicity. These principles influence internal interactions and shape the Companys engagement with customers, suppliers and stakeholders. HDBFS conducts regular training sessions and workshops for both new hires and existing employees. Through this commitment, HDBFS strives to realise its ambition of becoming Indias most admired NBFC.

Fostering Diversity, Equity and Inclusion

HDBFS is committed to creating an equitable workplace where every individual is valued, respected and provided with equal opportunities. Recruitments and promotions are driven by merit, taking into account factors such as skills, experience and competence.

As part of its commitment to inclusivity, HDBFS actively hires individuals with disabilities and assigns roles aligned with their strengths. Office spaces are designed for accessibility, ensuring smooth mobility across locations. To further support their integration, tailored training programmes equip them with the skills needed to thrive in their roles. The Company also conducts regular awareness sessions to educate employees on inclusive policies and respectful workplace behaviour.

Developing Future-Ready Leaders

Talent development forms a critical pillar of the Companys growth strategy, evident in its consistent investment in people. Employees are continuously empowered through structured learning & development (L&D), skill enhancement and talent management programmes. The approach includes a blend of instructor-led training and digital learning platforms, equipping employees with technical expertise, emerging industry insights and advanced skill sets.

The Company conducts specialised programmes to prepare first-line managers for future leadership. Management Development Programmes sharpen strategic thinking, market understanding and leadership ability in high-potential talent. Taking this further, Leadership Development Programmes identify and nurture future leaders through holistic coaching and mentoring initiatives.

The Company also emphasises internal growth, with over 67% of middle and senior management roles filled through internal promotions. With a belief that career progression is not only about vertical progression, employees are encouraged to explore cross-functional roles across diverse functions and geographies.

Prioritising Employee Well-being and Recognition

Employee well-being remains a key priority for the Company, supported by a proactive focus on both physical and emotional health. Events like health check-ups, yoga and meditation workshops, sports tournaments, cultural celebrations and community outreach programmes are organised throughout the year. These activities improve engagement, boost morale, strengthen teamwork and support work-life balance.

The Company also places strong emphasis on acknowledging employee contributions. Through dedicated reward and recognition programmes, it celebrates high performance and motivates individuals to pursue excellence and continuous development.

CSR ACTIVITIES

HDBFS remains committed to its role as a responsible corporate entity, actively working to create a meaningful and lasting impact in the communities it serves. Through a structured and expansive Corporate Social Responsibility (CSR) framework, the Company has strengthened its outreach across multiple regions, focussing on critical areas such as healthcare accessibility, hygiene awareness, education, livelihood enhancement and environmental sustainability.

In collaboration with grassroots organisations, HDBFS has successfully implemented 10 targeted initiatives, extending support to underserved communities across 151 districts in 20 states and 2 union territories. These efforts have directly improved the lives of over 1,25,000 individuals, driving positive social transformation and fostering long-term resilience.

For further details on the Companys CSR activities, please refer to page 35.

CAUTIONARY STATEMENT

This Management Discussion and Analysis (MD&A) contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these statements due to various factors, including economic conditions, regulatory changes, market dynamics and other unforeseen circumstances. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are advised to exercise caution and not to place undue reliance on these forward-looking statements.

(Source: IMF Report on World Economic Outlook, January 2025, Economic Survey 2024-25, Press Information Bureau, Economic Times, Economic Survey of India, India Infrastructure, Crisil Report on NBFC Sector in India, Economic Times, Business Standard, Economic Times)

GREEN INITIATIVES

In line with the Green Initiatives, the Notice of Eighteenth Annual General Meeting of the Company is being sent to all Members whose email addresses are registered with the Companys Registrar and Share Transfer Agents /Depository Participant(s). Members who have not registered their e-mail addresses, are requested to register their e-mail IDs with their Depository Participant(s)/Companys Registrar and Share Transfer Agents, MUFG Intime India Private Limited.

ACKNOWLEDGEMENT

The Directors are grateful to the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Ministry of Corporate Affairs (MCA) and Registrar of Companies (ROC) and other government and regulatory authority for their continued co-operation, support and guidance. The Directors would also like to take this opportunity to express their sincere thanks all the customers, shareholders, employees, bankers and distributors for reposing their trust, commitment, loyalty and confidence in the Company. The Directors also express their gratitude for the advice, guidance and assistance received from time to time, from the auditors and statutory authorities.

For and on behalf of the Board of Directors
	Arijit Basu
	Chairman, Independent Director
Place: Mumbai	DIN: 06907779
Date: May 15, 2025