home first finan share price Management discussions

The following section will give you an overview of the macro environment, the changes in the operating environment, the key drivers for housing nance and the enormous size of the housing nance opportunity. The section is structured in the following manner:

1. GDP growth expectation and peer comparison.

2. Economic momentum: India through charts

3. Manufacturing & Export led growth

4. Rise of Middle Class & working-age population

5. Per Capita Income analysis and correlation with

Mortgage to GDP

6. Digital leapfrogging

7. Other Demand Drivers

8. Conclusion

1. GDP growth expectation and peer comparison

Strong FY23, Strong GDP Growth Outlook

According to the latest IMFs World Economic Outlook (Apr23), the world economy is projected to grow by 2.8% in 2023 and 3.0% in 2024 from a growth of 3.4% seen in 2022 and will normalize in the range of 3.0%-3.2% over the medium term.

India is the fth largest economy as per IMF and is projected to fare better than peers with an impressive estimated growth of 5.9% in 2023 and 6.3% in 2024 (April23 Update). As per various leading research institutions, Indian GDP has the potential to deliver the highest CAGR globally in the medium term amongst large economies, driven by various structural policy measures taken by the Indian government.

India is expected to be the third largest economy by 2027 after USA and China moving up from its 5th position currently (non-PPP basis). India is already 3rd largest economy on PPP basis after USA and China.

GDP of major economies (USD Bn in Current Prices). India will be a USD 5 Trn economy and 3rd largest economy by 2027 (non-PPP adjusted)

Country	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028
USA	18,695	19,477	20,533	21,381	21,060	23,315	25,464	26,855	27,741	28,766	29,903	31,092	32,350
China	11,227	12,265	13,842	14,341	14,863	17,759	18,100	19,374	20,881	22,408	24,036	25,722	27,493
India	2,295	2,651	2,703	2,836	2,672	3,150	3,386	3,737	4,062	4,403	4,766	5,153	5,575
Japan	5,004	4,931	5,041	5,118	5,049	5,006	4,234	4,410	4,526	4,731	4,923	5,077	5,344
Germany	3,469	3,690	3,976	3,889	3,887	4,263	4,075	4,309	4,446	4,635	4,822	4,947	5,044
UK	2,710	2,686	2,882	2,859	2,707	3,123	3,071	3,159	3,375	3,574	3,793	4,016	4,245
France	2,472	2,594	2,792	2,729	2,636	2,957	2,784	2,923	3,019	3,133	3,233	3,322	3,391
Canada	1,528	1,649	1,725	1,744	1,648	2,001	2,140	2,090	2,179	2,281	2,385	2,492	2,605
Italy	1,877	1,961	2,093	2,012	1,896	2,116	2,012	2,170	2,218	2,285	2,347	2,407	2,450
Russia	1,281	1,575	1,653	1,696	1,488	1,837	2,215	2,063	2,118	2,159	2,206	2,235	2,266

Rank

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

USA

China

Japan

India

Germany

Japan

India

Germany

France

India

France

India

France

India

France

Italy

Russia

Italy

Canada

Italy

Russia

Italy

Russia

Indian economys three major pillars witnessed growth in FY23 as per government provisional estimates; with Industry sector expected to grow the highest by 10.1%. Services sector growth is also expected to grow at a robust 7.4% despite its higher share in GDP. As per various economists, governments focus on manufacturing and services will raise economic output and create more jobs driving per capita income.

Indian Economy contribution by 3 major sectors. Services continue to grow on strong IT sector growth, followed by manufacturing sector where government has a strong focus.

Strong FDI In ows

India has been a preferred economy within emerging markets when it comes to long-term investments by foreign investors. During FY22, India received USD 85bn of investments which is also the highest India has ever received and in 9MFY23, India has received USD 55bn FDI in ows. This is due to strong long-term prospects of the economy, stable government, structural policies for a reliable business destination expected by corporates and large market with a growing middle-class and working-age population.

Also, the favorable business dynamics has improved Indias rank in FDI In ows from 43rd Rank in the year 1990 to 7th Rank in 2021.

Industrialised states receiving large FDI share (USD Mn) HomeFirsts 6 focused states of Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka contributed 48% of total FDI investments in 9MFY23 indicating business friendly environment supporting Housing ecosystem (USD Mn)

State #	FY21	FY22	9MFY23
Gujarat	21,890	2,706	4,141
Karnataka	7,670	22,072	8,773
Maharashtra	16,170	15,439	10,766
Tamil Nadu	2,323	3,003	1,890
Telangana	1,155	1,607	1,081
Focused States Total	49,208	44,827	26,651
Delhi	5,471	8,189	6,114
Haryana	1,697	2,798	2,010
Jharkhand	792	6	5
Rajasthan	272	707	764
West Bengal	415	428	238
Others	24,118	27,880	19,492
FDI Grand Total	81,973	84,835	55,274
Focused State%	60.0%	52.8%	48.2%

Indian economy will continue to bene t from structural positives like higher urbanization rate, higher discretionary spending, government push on transparency through digitization (for eg: Faceless Tax Assessment, FASTag, digitalization of land records, etc) and government push for reforms in various sectors are expected to continue to drive GDP growth in medium to long term. Indias medium-term growth is supported by stimulus provided by the current scal budget promoting an uptick in public investment with main focus on Infrastructure investments and corporate capex led by PLI Scheme.

As per Crisil, few factors adding to resilience of the Indian economy are 1) Healthy corporate balance sheets providing a better cushion against shocks 2) A robust nancial system providing impetus to growth and 3) Government capex focused on building infrastructure.

3. Manufacturing & Export led growth

Renewed thrust on manufacturing sector: Over medium to long term, Indian economy to get further strength from capex led by government infra and PLI Scheme.

The Covid pandemic has turned the spotlight on being Atmanirbhar (self-dependent) considering the quantum of foreign exchange we spend on imports like Oil, Gold, Electronic Goods, etc. Government of India introduced a scheme in April 2020 called “Production Linked Incentive”, “PLI scheme” in short, for the manufacturing of large-scale electronics. Since then, PLI scheme is being extended to other sectors. PLI is an innovative scheme that provides incentives in terms of cash to various companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods.

It is expected that Indian capex theme will receive another llip, in addition to Infrastructure capex, Production-Linked Incentive (PLI) scheme is expected to drive industrial capex in India over the next decade.

Around 2.5 Tn worth of capex is expected via PLI scheme as per Crisil. The PLI scheme has given impetus to integration across supply chains, reducing import dependencies, and propelling exports. PLI scheme is particularly attractive for mobile phones, electronic components, telecom equipment, and IT hardware, which have high dependence on imports across value chains and relatively lower domestic base.

As per Ministry of Labour & Employment (Govt of India), PLI scheme has potential to add 6 mn new jobs (directly + indirectly) over 5 years. Crisil estimate that PLI would help Indian manufacturers add ~$25 billion to the ~$450 billion merchandise of exports of FY23. In FY22, ~$9 billion, or 2% of exports, were from PLI-based projects. Potentially, PLI-linked exports alone can be as high as $140 billion annually in medium to long term.

Locations for 50% of PLI capex identi ed. Sites are concentrated in large states with major HomeFirst presence.

Success of PLI is already visible as mobile manufacturing has taken-o .

Before 2014, there were 2 mobile manufacturing factories; Post 2021, over 200 manufacturing units have been set up in India. India became the preferred destination for Global manufacturing giants. Samsung opened the worlds largest phone manufacturing unit in India, and leading global Giants like Apple have shifted major units to India. According to a Business Standard report, Apple has already created 1 Lakh new jobs in the last 19 months. Indias agile policies and anti-fragile mindset is propelling Indias holistic and inclusive growth.

Mobile phone exports in 2015-16 were near zero. Exports in 7MFY23 surpassed the $5 Bn mark (FY23 expectation is $9 Bn). The worlds leading economies like the UK, Netherlands, Austria, Italy, South Africa, and other countries are using Made-in-India Mobiles. India envisions an ambitious plan to scale annual mobile manufacturinCg to $126 billion by 2025-26.

Governments focus on exports will drive manufacturing sector going forward over the already strong services sector. HomeFirst has strong presence in 6 states of large exporters.

As per CII, India is poised to target $1 trillion of merchandise exports and a similar level for services exports by 2030. Electronics, machinery, vehicles, pharmaceuticals and plastic products are top ve categories that have the potential to contribute the most to the $1 trillion target.

In FY23, India is expected to deliver merchandise exports of USD 439bn, an increase of 4% on Yoy basis and also the highest ever despite the concerns in global economy. Services export has already crossed FY22 levels of USD 252bn in rst 10months at USD 264bn and is expected to cross USD 300bn in FY23 (all-time high).

HomeFirst focused states amongst top States in Exports: Our 6 States of focused presence are the leading states in terms of exports. Gujarat is the highest exporter and also our largest state in terms of presence. On the basis of FY23 (10 months data), we have presence in 8 out of top 10 exporting states in India. Also, we have strong presence in top 4 export states in India i.e. Gujarat, Maharashtra, Tamil Nadu and Karnataka.

HomeFirst focused 6 states have higher concentration in Total Export Mix (Average of 65% during FY20-22, 71.4% in 10MFY23). These 6 states contributes 78% of business (new origination) for HomeFirst in FY23.

Today, the gap in the share of India in world exports (around 2%) & the working age population (around 11%) is very high vis-a-vis other large peers like China which is in sync at 13% & 11% respectively. With the reforms & export focused policies, this gap is expected to reduce materially.

The di ering demographic outlook is also one of the key reasons India can still sustain much higher growth rates as compared to China. At the outset, Indias per-capita income of US $2084 (FY22) is where China was back in 2007. While this is a 15-year gap, Indias median age today is 28, which is 11 years younger than China today. Interestingly, the size of Indias working-age population today is also right where China was in 2007. In other words, while there is a gap between the two economies developmental paths, the gap is smaller when the state of demographics is accounted for.

4. Rise of Middle Class & working-age population

Manufacturing sector driven growth will lead to rising middle class population and provide a secular opportunity for Housing Finance.

Perfect combination of rising Middle class + high working-Age Population

The demographic dividend of a young population combined with a large middle class ampli es the attractiveness of Indias growth potential. Indias age dependency* has been declining since the 1970s and is expected to continue declining until 2040. According to UN estimates, by 2030 India will emerge as one of the largest suppliers of labor, accounting for almost 22% of the increase in the global working-age population. The growth rate for Indias working-age population is expected to remain higher than the world average (ex- India) through 2038. A higher share of working-age population relative to dependents creates an opportunity to accelerate economic growth through the creation of productive job opportunities. UN projects that Indias working-age population will continue growing until 2050 whereas Chinas working-age population has been in decline since 2015.

*Age dependency ratio is the ratio of dependents--people younger than 15 or older than 64--to the working-age population--those ages 15-64.

Indias working age population saw increase whereas Chinas working age population stagnant

5. Per Capita Income analysis and correlation with Mortgage to GDP

As per IMF estimates, Indias per capita income (at constant prices) is expected to grow at 7.8% CAGR from FY20 to FY25 rising from USD 1877 in 2020 to USD 2729 by FY25. The per capita income is expected to grow along with improvement in GDP growth. As per ADB, higher per capita income leads to higher discretionary income which will lead to higher spending including buying of larger housing space. This can be corroborated with the trend of mortgage to GDP seen in the USA from 1946 to 2000. In 1946, per capita income in the USA was at similar levels as where India is now (~$2000 non-PPP adjusted). As incomes rose from $2000 to $5000 (between 1946 to 1973), mortgage penetration has increased from 12% to 30%. If adjusted for PPP, India is at similar levels to where USA was in 1973. USAs per capita income has strong correlation with mortgage to GDP since then.

As income rises, the share of EMI on Household income also reduces. As shown in the chart below from HDFC Securities, the mortgage penetration is higher in Australia, UK, US, Germany, etc where the per capita income is higher vs other countries and the mortgage penetration is also higher.

Similar is the observation if we analyse various states in India. Higher Per Capita Income have high correlation with mortage penetration. Maharashtra, Telangana, Karnataka, Gujarat, Kerala, Haryana, etc are high GDP states and also have high mortgage penetration. Our strategy is to target these states and hence decided to focus on 6 speci c large market of Maharashtra, Gujarat, Tamil Nadu, Karnataka and AP&T.

6. Digital Leapfrogging - IndiaStack to drive e ciency & productivity gains, drive long term economy growth

IndiaStack is digital transformation of Indian economy at population scale. It is the collective name of a set of commonly used Digital Public Infrastructure (DPIs) in India. It consists of three di erent layers unique identity (Aadhaar), complimentary payments systems (Uni ed Payments Interface, Aadhaar Payments Bridge, Aadhaar Enabled Payment Service), and data exchange (DigiLocker, Account Aggregator, Open Credit Enablement Network (OCEN), Open Network for Digital Commerce (ONDC), etc). Together they enable online, paperless, cashless, and privacy-respecting digital access to a variety of public and private services.

This has changed the way India processes documents (especially o cial ones), invests, and makes payments. It is Indias highly inclusive and transaction-led model. IndiaStack provides interoperability, democratizes data and is decentralized.

In under a decade, nearly 100% of the countrys population has been given a digital identity, something which is now powering a digital revolution providing tremendous e ciency gains in both public and private sectors.

High penetration / increasing usage of DPIs:

1.Aadhar ID issued for 1.37bn out of 1.4bn population (almost 98% penetration) 2.UPI has more than 50% share in total payments, rising from around 24% few years ago

Outcome has bene ted HomeFirst and many other players with tech stack. We believe that companies with better technology capabilities backed by talented workforce and strong leadership will witness superior business performance in the new world. There is an increased willingness of customers to avail nancial services through digital channels. This has also helped in penetrating new regions. We have been proponents of technology usage almost since the inception of the company as we believe this will drive scalability and pro tability for the company. Digital payments have evolved from being viewed as a cost centre to a revenue centre and will be a key lever for customer acquisition in the near future.

7. Major Demand Drivers

Indian Housing Demand Scenario & Housing Finance Opportunity

Credit Penetration in India is lower vs other peers, Housing penetration is one important trigger for increasing this number. Household credit* penetration is at 36% which highlights that housing penetration is likely to be even lower and hence, the large opportunity.

Rising Mortgage Penetration to GDP ratio: Mortgage to GDP Ratio is rising every year though India is still behind many countries in mortgage penetration ratio.

Highly Industrialised / Urbanised centers have high mortgage to GDP ratio and we believe it will continue as housing ecosystems are developed around these Centers. Also, reforms in other states will propel the housing ecosystem driving mortgage nance.

Housing Loans contributes a small share of overall credit in the system, this is one sector which can increase the overall credit penetration in India. Banks Credit to Housing sector (directly to individual customers + on-lending vis HFCs) witnessed growth of 12.9% CAGR over 4 years from 2019 to 2023

Strong growth potential in Housing Finance

Indias real estate sector, which is a $200-billion market currently, has come out of the disruptions caused by the Covid and is on the path to become a $1 trillion industry by 2030 (as per NARDECO & EY report). With growing urbanization, nuclearization, increasing working population coupled with increasing per capita income, demand for housing will see a rise. As per a report by Knight Frank, there will be a housing gap for about 97 mn households by 2030, up from 70mn households in 2019. These numbers are very close to that in the RBI document published in 2019.

As per Experian, the overall a ordable housing outstanding credit growth grew at a CAGR of ~12% during Mar18-Dec22. The major growth drivers being increase in penetration of nanciers in rural and semi-urban areas, favourable demographics, government push to promote “Housing for All”, and improved a ordability of borrowers. The a ordable housing market outstanding is ~ 10 trillion as on Dec22 and as per various research, it is projected to grow by at least 15% CAGR in the medium term to touch ~ 28 trillion by FY30. In volume terms, a ordable housing loans comprises majority of overall housing loan volumes.

As per our analysis, there is demand of 2mn units in a year for housing ticket size between 0.5-2.5 Mn. We believe, for HomeFirst, assuming 1.07 Mn (with in ation of 5% p.a) as average ticket size, there is an opportunity for housing nance of USD 336 Bn over next 10 years for our target segment in core a ordable housing business.

Banks share increases in the prime segment

It is witnessed that banks and large HFCs are focused on high ticket size loans which is evident from the rising share of >25 Lakh ticket size loans. This creates a huge opportunity for players like HomeFirst who can add value for loans with ticket-size less than 2.5 Mn.

The major growth drivers supporting higher mortgage penetration are:

Apart from the positives highlighted on domestic economy, there are some speci c drivers of housing sector growth bene ting housing nance business.

Increasing Population:

The pace of rising population will propel India to the most populated country by 2050. India is currently the second most populated country in the world after China. Indias population currently stands at around 1417 Mn Crs which is expected to rise to 1568 Mn by 2035 and 1670Mn by 2050. This is one of the key drivers to rising housing demand potential in the country.

Covid led to change in house ownership dynamics:

As per various surveys, reverse migration has further supported an increase in housing demand in tier II/III cities. This is validated by the strong recovery seen in Real Estate sector post in the past 2 years. Also, as per experts, the demand dynamics of the Indian real estate have undergone a change during pandemic. Buyers are demanding homes which o er more liveable space. The residential property now doubles up as an o ce corner, virtual gym as well as a place for online schooling.

Initiatives to boost housing ownership by government:

Initiatives such as Income tax deductions along with various regulatory measures to boost liquidity and demand for housing have been instrumental in boosting the housing demand in the past. We expect that these will continue going forward as well given that housing ownership in India is low as compared to other countries.

Urbanisation:

According to Census 2011, Urbanisation in India rose from 28% in 2001 to around 31% by 2011. Currently it is around 36% as per World Bank. Urban population is expected to cross Rural population in the year 2045 and to reach 53% by 2050 as per United Nations report on World Urbanization Prospects 2018 Revision. Higher urbanisation is expected to boost demand for housing in urban areas. It is estimated that around 70-75% of Indias GDP will be contributed by Urban centres by 2030.

UN expects India to have more cities due to rapid urbanization. This will help build ecosystem and opportunity for housing sector

Rising Per-capita income & its strong linkage with mortgage penetration as explained earlier on Page no. 93

Nuclear Families Led Consumption

Reducing average household size driven by changing lifestyle of people, changing social culture, and increased mobility of labour is expected to continue in future. The average household size has reduced from 5.5 persons in 1991 to 4.6 persons in 2021 and will further reduce to 4.5 by 2031 as per Morgan Stanley.. Nuclearization is also expected to drive housing demand.

Working Population led Economic growth

As per Economic Survey FY19, working age population will grow by 9.7 million per year during FY21-31 and 4.2 million per year during FY31-41. Favourable demographics coupled with declining age of home loan borrowers, growth in salaries/ incomes and increasing preference to accumulate assets is also expected to boost mortgage penetration in India.

Stable Housing Prices driving a ordability

As per RBI statistics, the a ordability of housing is at its highest and as shown in the chart below, the housing price rise has slowed down since mid of 2017. With lower price levels of houses, the housing demand is expected to continue to be strong.

8. Conclusion

We believe that there are various factors at play for the growth of housing sector and its nance through mortgage. Indias will have highest GDP growth amongst large peers and this is expected to sustain from structurally strong policy reforms. These reforms will continue to result in higher manufacturing sector growth and exports helped by FDI ows. This economic momentum will drive higher working-age population and create more middle-class households. Globally, Per Capita Income growth has led to higher mortgage penetration and India will witness the same over the next few decades. We believe, your company HomeFirst is placed at the right spot to bene t from these reforms and we are working on our to mission of being the Fastest Provider of Home Finance for the Aspiring Middle Class, delivered with Ease and Transparency.

During FY23, HomeFirst continued scaling up and maintained its growth momentum with an increase of 33.8% in AUM over FY22. Further, we registered a growth of 48.4% y-o-y increase in annual disbursements. Our annual disbursal for the year 2016 was 277 Crs - which is close to our disbursal for the month of Mar23. This robust growth was possible on account of the focus on distribution in core markets, strong liquidity position, risk management processes and increased use of technology across the processes. This focus has translated into best in class return on assets of 3.9% (Mar22 :3.6%) and return on equity of 13.5% (Mar22 :11.8%). Gross Stage 3 (GNPA) stands at 1.6% in line with the RBI circular dated 12 Nov 2021. Prior to such classi cation, it stands at 0.9%. The corresponding gures for Mar22 are 2.3% post-RBI circular and 1.3% prior to circular.

Let us examine the building blocks of our growth story for the scal year ending 2023.

Assets Under Management

Our AUM increased from 5380 Crs as of Mar22 to 7198 Crs as of Mar23 - a y-o-y growth of 33.8% (36.6% prior to CLSS subsidy). We crossed another milestone of 7000 Crs AUM. We have multiplied by 8.5X in a 5-yr span of 2017 to 2023. This shows our ability to meet customers demands and improve our market share across our focus markets while maintaining our portfolio quality.

We are committed to driving our growth pan-India and reducing any concentration risk. We started with a presence in 98 districts at the beginning of the year and have grown our reach to 119 districts at the end of the scal year 2023. Our core states remain Gujarat, Maharashtra, Tamil Nadu, Telangana, Andhra Pradesh and Karnataka. For 9MFY23 these states comprise more than 50% of total a ordable housing nance market in the country. HomeFirst has shown growth in these states over the years (see table below). Our contiguous expansion in these markets is facilitating us to reach our long-term target of 10% market share in each of these markets in due course of time.

AUM in States	FY17	FY20	FY23	CAGR
Gujarat	280	1438	2343	42%
Maharashtra	310	785	1037	22%
Tamil Nadu	80	360	988	52%
Telangana	9	176	639	104%
Andhra Pradesh	-	47	322	89%
Karnataka	76	325	539	39%

Geographic Presence

We ended the year with 265 touchpoints and having a presence in 119 districts spreading over 13 states/UT. The Top 200 districts comprise of 82%* of the total a ordable housing nance market in India. HomeFirst present in 101 of these 200 districts. Our expansion strategy focusses on presence in large a ordable housing markets in Tier 1, Tier 2 and Tier 3 markets. The distribution is granular and branches / touchpoint expansion is done in a calibrated manner - ensuring market capture as well as asset quality, productivity and operating costs. We have stuck to our tried and tested strategy of contiguous expansion across regions by evaluating areas with high economic growth and substantial demand for a ordable housing nance, along with industry portfolio-at-risk and socio- economic risk pro le. This approach has helped us to reach 36 physical branches in 6 years by 2017, and thereon the number of branches grown 3x in the next 6 years by 2023 to touch 111 physical branches.

*5-25L Ticket Size

For our presence across India, please refer to Geographic Presence on pg no xx

Disbursements

During the year, we have been successful in growing our disbursements month on month! We have exhibited a steady increase in loan disbursements with a growing customer base and a healthy loan portfolio. This is possible on account of the strategic expansion of our branch network, the introduction of innovative loan products, and Best-in-class tech stack to enhance operational e ciency and customer experience. Disbursements crossed 3000 Crs during the year.

Product Metrics

Our product metrics continue to focus towards salaried customers having credit history. Our approach to LAP is cautious and bulk of our LAP customers are quasi home loans and for self use. We continue to carefully monitor our risk pro le and continue to have low under construction properties exposure. Our LTV at the time of sanction stands at 56%.

Credit Approval & Disbursement Process

Step 1: Initial Screening and Pre-Sanction Check	Step 2: Customer Credit Underwriting	Step 3: Property Underwriting & disbursement process	Step 4: Loan Collection and Monitoring
1. Customer leads are logged into the system	1. Centralized underwriting team is assisted by data science backed customer-scoring model	1. Collateral value is assessed at the time of sanctioning as well as disbursal	1. Robust collection management system with prescribed collection at each stage of severity of default.
2. Each lead checked against KYC, credit bureau and third-party database checks
3. Workspace and residence veri cations undertaken by RMs	2. Integrated customer relationship management and loan management system allow our underwriters to conduct the credit appraisal process in a quick and e cient manner.	2. Legal and technical assessment through third party vendors is initiated to verify the authenticity of the technical documents. legal title to the collateral property and its market value.	2. We can track status of installments collected on a real time basis through a collection module
4. Loan application is submitted on central platform			3. Customers are reminded of their payment schedules through automated calls and text messages
5. Centralized credit underwriting is then conducted	3. Third-party databases along with proprietary machine learning credit scoring models to assist us with our credit assessment process.	3. Our proprietary ML backed property price predictor coupled with geo-tagging of properties further assists in reducing our turnaround times for approving loans and improving accuracy in determining loan to value ratio.	4. Our collection process is completely managed by our branch teams and a signi cant portion of our employee incentives are dependent on collections.

Asset Quality: Healthy Leading Indicators

Our bounce rates have been continuously improving and are inching towards pre-covid numbers. Collection e ciency has also remained high consistently .

We continued our relentless focus on early bucket collections. Also, we have provided the feature to our customers to make the payments via app as well as through remote payment links. This has made the process of making payments much easier for our customers and is re ected in our collections strength. This has given results by bringing down our 1+ DPD as well as 30+ DPD. Our 30+ DPD metrics are amongst the best in the industry. Additionally, the improving trend in bounce rate and strong collection e ciency has resulted in controlling our GNPA % to 1.6% in Mar23. This has improved by 70bps compared to our GNPA levels at Mar22 which stood at 2.3%. Prior to RBI circular, our GNPA % for Mar23 stands at 0.9% (Mar22 is 1.3%). Our Stage 3 Provision Coverage Ratio stands at 59.5% (104.8% pre-RBI circular) as at Mar23 compared to 47.1% (83.6% pre-RBI circular) as at Mar22.

Our Financial Performance:
Particulars (Crs)	FY23	FY22	YoY%
Interest Income on term loans	682.50	477.04	43%
Net gain on DA	38.04	67.83	-44%
Non-interest income	75.06	50.82	48%
Total Income	795.60	595.70	34%
Interest on borrowings and commercial papers	303.26	214.82	41%
Net Interest Income	379.24	262.23	45%
Net Total Income	492.34	380.89	29%
Operating Expenses	175.60	129.57	36%
Credit Cost	21.52	25.02	-14%
Pro t before tax	295.22	226.30	30%
Tax expense	66.93	52.21	28%
One-time adjustment	-	-12.01
Pro t after tax	228.29	186.10	23%
Adjusted PAT	228.29	174.09	31%
Basic EPS	26.01	21.26
Diluted EPS	25.20	20.54
Key Financial Ratios
Particulars (Crs)	FY23	FY22	Variance
Pro t after tax on average total assets (ROA)	3.9%	3.6%^	+ 30 bps
Leverage (Average total assets/average Equity or average	3.5	3.3
Net-worth)
Pro t after tax on average equity or average Net-worth (ROE)	13.5%	11.8%#	+170 bps
Cost to Income Ratio (Operating Expenses / Net Total Income)	35.7%	34.0%	+170 bps
Operating Expenses / Average total assets	3.0%	2.7%
Debt to equity ratio	2.6	2.2

Pro t After Tax

Our Pro t After Tax increased by 31.1% as compared to previous scal year. The key drivers to this growth were strong NIMs, optimal use of cash and judicious operating costs. Our RoE has grown from 11.8% to 13.5% in a span of 1 year. This has been possible due to healthy growth of portfolio book coupled with strong collections.

Spread on Loans

Our spreads were consistently above 5.5%. We have implemented 2 repricing actions of 25 bps in Q2 and 50 bps in Q3 totaling to 75 bps in FY23. The repricing and increase in interest earning assets have resulted into increase of “Interest Income on Term Loans to Average Total Assets” to 11.5% in FY23 from 9.9% in FY22. Our cost of borrowing has been competitive at 7.4% and incremental cost on fresh borrowing for the year was 8.2%.

Resource Mobilisation Shareholders Funds

Our Shareholders Funds as of Mar23 stood at 1,817 Crs. The increase was primarily due to increase in retained earnings.

Particulars	Rs. in Crs
Opening Equity as on Mar22	1,573.68
Add: Shares issued during the year represents increase on account of face value for the shares allotted pursuant to ESOPs exercised	0.08
Add: Increase in securities premium on account of premium received on allotment of shares	5.18
Add: Statutory Reserve transfer for the period	45.90
Add: Increase in retained earnings (net o transfer to statutory reserve)	182.40
Add: Option valuation linked credit	10.24
Add: Other Comprehensive Income	(0.14)
Closing Equity as on Mar23	1817.34

ESOP allotment

During FY23, the company has issued and allotted 3,83,064 equity shares pursuant to the exercise of stock options by eligible employees of the company under ESOP plans. Further during the year 1,25,900 ESOPs were granted to the employees under the HomeFirst ESOP Scheme 2021.

Borrowings

The Borrowings of the company stood at 4,813.47 Crs as at Mar23 as against 3,466.77 Crs as at Mar22. During the year, funding to the tune of 3,618 Crs was raised. The Company also placed long term NCD of 280 Crs with International Finance Corporation for nancing a ordable home loans and green homes. The Companys liability pro le is well diversi ed and comprises 26 lending relationships and continues to focus on raising long term borrowing at a competitive rate. During the year we added 5 new banks i.e. Qatar National Bank, J&K Bank, Karnataka Bank, Yes Bank and Shinhan Bank (Seoul based South Korean Bank).

During FY23, the Company had not issued any Commercial Paper or any Short-Term Instrument.

Accordingly, the Companys Commercial Paper outstanding was NIL as at Mar23.

As at the end of Mar23, we had a liquidity bu er of 1,802 Crs comprising of unencumbered cash and cash equivalent of 537 Crs and 665 Crs of un-availed sanctions from the banks and 600 Crs of un-availed sanctions from NHB.

Our analysis of Strengths and Weaknesses helps us identify and manage our business risks in a better manner

S T R E N G T H S

Strategic selection of markets, deeper and contiguous penetration in large a ordable housing nance markets with omnichannel distribution strategy.

Best in class tech stack to enhance risk management, customer experience and operational e ciency.

Robust risk management framework coupled with strong collection process and culture. Data science-backed underwriting.

W E A K N E S S E S

Sensitive to changing interest rates and market conditions.

Limited brand recognition compared to banks.

T H R E A T S

Competitive intensity from time to time. Any adverse movement in the industry/ macro-economic environment.

Economic downturns and natural disasters a ecting portfolio quality.

O P P O R T U N I T I E S

Growing demand for a ordable housing nance in India coupled with existing low mortgage penetration.

Demographic factors such as urbanisation, nuclearization and the increasing working population of India.

Expansion into new geographies. Government initiatives to boost a ordable housing.

Risk Management

Risk Management at HomeFirst includes risk identi cation, risk assessment, risk measurement and risk mitigation, with its main objective being to minimize the negative impact on pro tability and capital. HomeFirst is exposed to various risks that are an inherent part of any nancing business. The major risks are Credit Risk, Market Risk, Liquidity Risk, Interest Rate and Operational Risk, including IT Risk. Alongside, some of the critical non- nancial risk applicable are Reputation Risk, Compliance Risk, ESG Related Risk and Cybersecurity risk, etc. To enable e cient management of risk, an independent Risk Governance Structure, in line with Regulatory was put in place in the context of separation of duties and ensuring the independence of risk measurement, monitoring and control functions. The Risk management framework enhanced in line with new Regulatory guidelines/directives with formal Risk Appetite Framework, Stress Test Scenarios and assessment of risks (those that are not captured/factored in the capital adequacy prescribed by Regulator) under Internal Capital Adequacy Assessment Process (ICAAP).

The various risks across HomeFirst are monitored and reviewed through the Management Level Committees and the Risk Management Committee (RMC), which meets regularly.

Corporate Governance Structure

HomeFirst believe that sound corporate governance is critical in enhancing and retaining stakeholders trust. It is a re ection of HomeFirsts principles of fairness, responsibility and sustainability. Accordingly, Home First seek to ensure that the performance is driven by integrity.

The Board exercises its duciary responsibilities in the widest sense and provide strategic guidance. The Board members are individuals with diverse backgrounds and expertise, and includes independent directors to provide objective oversight.

We also have cumulative positive ALM gaps in all buckets. ALM framework is monitored in tandem with Companys business strategy and risk management. Further LCR requirements were duly adhered to. As at Mar23, the company holds a liquidity bu er of 1,802 Crs and LCR of 157.2%.

Risk Management Framework

The Risk Management Committee reviews all the risks and policies at timely intervals to ensure they are in line with the growth of the Company. Further, the Board also monitors the risks and their mitigants through its sub-committees like ALCO, Risk Management Committee, and IT Strategy Committee. The Audit Committee observes how the management oversees compliance with the risk management policies and procedures. It also reviews the adequacy of the risk management framework with respect to the risks faced by the Company from time to time.

Risk Appetite

The Risk Appetite is the aggregate level and types of risk an organisation is willing to assume to achieve its strategic objectives and business plan. It is decided in advance and within its risk capacity.

At HomeFirst, Risk Appetite framework incorporates limits for signi cant risks with monitoring parameters. Its a combination of quantitative and qualitative parameters, shortlisted and aligned with its business strategy. The board and senior management team reviews and assesses the parameters to ensure it remains appropriate and aligned with its business objectives.

Internal Capital Adequacy Assessment Process (ICAAP)

As per the RBI noti cation, Housing Finance Companies (HFCs) are categorized as Middle Layer and accordingly HFCs are required to have internal assessment of the need for capital, commensurate with the risks in their business.

Accordingly, HomeFirst has designed its ICAAP Policy and assessed applicable risk in ICAAP, as per internal methodology, which is proportionate to the scale and complexity of HomeFirsts operations.

Stress Test

During the year, HomeFirst also initiated stress test covering severe but plausible adverse scenarios. The stress test policy document list-out stress test shocks, frequency of stress test, tolerance, tentative mitigation plan and reporting framework for Credit Risk, Credit Concentration Risk, Liquidity Risk and Interest Rate Risk (IRR).

Type of Risk	Description	Mitigation Measures
Credit Risk	The possibility of losses associated with decrease in the credit quality of borrowers or counterparties. In a credit portfolio, losses stem from outright default due to inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, settlement and other nancial transactions.	The Company has a Board approved Credit Policy in place which is prepared post considering inputs from Senior Management. This policy entails a set of credit procedures and guidelines for e ective credit risk management and to ensure a healthy portfolio.
		l The Credit Committee reviews adherence to the policy and the credit portfolio performance metrics on a quarterly basis.
		This is presented to the Audit Committee of the Board and their inputs are also taken on record.
		l The credit policy is reviewed annually and amended periodically to ensure compliance with guidelines of RBI, NHB as well as other regulatory bodies. The inputs received from credit committee and audit committee are considered while reviewing and renewing the policy.
		Robust Processes
		l Credit Approval - Veri cation of information through independent third- party/applications (to understand nancial discipline and other credit risk dimensions).
		l Property Assessment - Support from Technical and Legal Expert to evaluate ownership rights on property.
		l Centralized approval and risk-based pricing.
		l Exposure limits on groups / sub groups, builder, Product & Property type.
		l Re ning sourcing strategy based on portfolio performance and business opportunities.
		l Continuous training to existing credit o cers and new recruits who form the rst line of defence for the company.
		l Regular internal audits and reviews by the Audit Committee ensure that the credit policy is implemented e ectively.
Market Risk	Risk of loss arising from movements in market prices or rates away from the rates or prices set out in a transaction or agreement.	l Investment process is guided by detailed investment policy. Investments of temporary surplus funds is done as per the policy principle which provides for strict controls in terms of tenure, product, rating, limits and authorization.
	Considering the nature and scope of business, HomeFirsts primary objectives of investments is liquidity management, through investments in liquid mutual funds, debt mutual funds, NCDs, CD/CPs, xed deposits with high quality instrument.
		l Regular assessment of all investments along with underlying portfolios is carried out and the investments are reported to ALCO on a quarterly basis.
Operational Risk	Risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.	l The Board approved Operational risk management policy enlists the processes and controls for monitoring people, systems and processes at various points of time.
		l We have a comprehensive system of internal controls , systems and procedures to monitor transactions, employee rotations, contingency planning, insurance cover, document storage and retrieval arrangements as well as maintenance of back-up procedures to minimize operational risks.
		l In addition, we have appointed independent audit rms to conduct internal and process audits at all of our o ces to assess adequacy of and compliance with our internal controls, procedures and processes, as well as all applicable statutory and regulatory guidelines.
		l Reports of the internal auditors as well as the action taken on the matters reported upon are discussed and reviewed in the Audit Committee meetings.
Liquidity Risk & Interest Rate Risk	Liquidity risk is the inability of a nancial institute to meet its obligations as they become due, without adversely a ecting the nancial condition.	l In order to manage the liquidity risk, we have a comprehensive Asset Liability Management Policy in place. The Policy provides for several risk management measures including short term liquidity forecasts which is done to identify any short-term liquidity gaps and implementing immediate actions to correct such gaps, diversifying our sources of funding to facilitate exibility in meeting our funding requirements, and maintaining strong capital adequacy.
	Interest Rate Risk in Banking Book
	(IRRBB) refers to the current or prospective risk to a Financial Institutes capital and earnings arising from adverse movements in interest rates that a ect its book positions.
		l The Company has adopted the stock approach to measure liquidity bu ers along with quarterly reporting of critical ratios and threshold levels to ensure adequate liquidity planning. We have positive ALM ows across all buckets in line with prudent ALM practices.
		l E ective simulation method is also adopted to periodically stress test bucket - wise ows and change in the Net Interest Income (NII) or Net Interest Margin (NIM) due to interest rate movements.
		l Quarterly monitoring of liquidity ratios including Liquidity Coverage Ratio (LCR).
		l Further, to strengthen internal controls, an audit process is in place to ensure implementation of the above-mentioned measures is carried out e ectively.
Compliance & Regulatory Risk	The risk of legal or regulatory sanctions, material nancial loss, or loss to reputation as a result of its failure to comply with laws, regulations, rules, related self- regulatory organization standards, and applicable codes of conduct.	l The Company has a robust framework, monitored by senior management team to mitigate compliance and regulatory risk.
		l Monitoring through compliance tracker and reporting timelines.
		l Coordination and clear communication amongst departments in case of inter- dependencies.
		l The amendments by any of the regulators are monitored closely.
		l Further internal audit process assists in complying with all the existing laws and regulations.
Reputation Risk		l HomeFirst has robust Governance framework as per applicable Regulations.
	Reputational risk can be de ned as the risk arising from negative perception on the part of customers, counterparties, shareholders, investors, debt- holders, market analysts, other relevant parties or regulators that can adversely a ect entitys ability to maintain existing, or establish new, business relationships and continued access to sources of funding.
		l Tracking Reputation risk related parameters, including Digital & Social Media Monitoring.
		l Enhance compliance culture through training and awareness workshops.
		l Customer grievance redressal policy with robust redressal mechanism.
		l Communication with stakeholders through appropriate mechanisms to address their expectations and concerns.
		l Dedicated investor relations team and adherence to Regulatory disclosures.
Information Technology Risk, Cyber Security Risk and Information Security Risk	Information technology risk is the risk arising on account of inadequacies or failure of technical infrastructure or IT systems which can have an adverse impact on the availability, integrity, accessibility and security of the data and the IT infrastructure.	l HomeFirst has IT Policy prepared as per NHB and RBI guidelines, which sets out processes and controls that are required to be maintained in relation to the IT systems.
		The IT Policy is amended regularly.
		l Further we have an IT Strategy Committee of the Board. The main responsibility of this Committee is to assess the IT systems of the Company and gauge the vulnerability of the system to various risks and its mitigants.
	Cyber Security Risk means risk of cyber-attacks on Home Firsts systems through hacking, phishing, ransomware and other means, resulting in disruption of our services or theft or leak of sensitive internal data or customer information.
		l T h e C o m p a n y h a s a d e q u a t e codes/policies to ensure that there is no breach in the privacy of the information of the customers.
		l End Point security software and Antivirus software in all laptops.
	Information Security refers to protecting sensitive information and ensuring use of information only by legitimate users with proper authorization. Risk of information getting compromised or being accessed without proper authorization exposes organization to Information Security Risk.
		l Robust access-control and log tracking for server security.
		l To ensure IT security, performance stability and exibility, Home First has a well- established IT infrastructure in place. The loan processing applications of the company are built on Salesforce.com which is a globally recognized platform with low downtime and low security risk.
		l Further, we conduct IT audit once every two years to determine issues and process level gaps, if any.
		l Training is provided to existing and new employees on IT policies, procedures and code of conduct.
Environment Social & Governance related risk	The risk related to environmental, social and governance-related that may impact an entity in terms of its sustainability and may exposes it to non- nancial risk	l HomeFirst has dedicated ESG policy
		l Involvement of senior management in tracking and monitoring ESG related risk
		l Negative list/exclusion for restricting funding to inappropriate property/development location which may either lead to loss of life and/or deterioration in quality of life in nearby habitats.

Direct Assignment

During the FY23, we received a purchase consideration of 289 Crs from direct assignment and the corresponding assets were derecognized in the books of the company. As at Mar23, the company has Direct Assignment of 1,056.49 Crs in the total portfolio compared to 1,025.16 Crs as at Mar22.

Co-lending

During the scal year, we entered into co-lending tie-ups with the “Central Bank of India” apart from our previous tie-up with “Union Bank of India”. We have executed co-lending transactions of an amount of 65.18 Crs with Union Bank and 23.90 Crs with Central Bank of India during the year. We plan to scale up the co-lending transactions in the medium term.

Capital to Risk-Weighted Assets Ratios

The following table sets forth our capital to risk-weighted assets ratios for the periods indicated:

	Mar23	Mar22
CRAR (%)	49.38%	58.61%
CRAR - Tier I capital (%)	48.89%	58.05%
CRAR - Tier II capital (%)	0.49%	0.56%

Credit Ratings

As at Mar23, the following table sets forth our credit ratings:

Instrument	Rating Agency	Rating	Amount (in )	Outlook
Term Loan	ICRA	AA-	3500 Crs	Stable
	India Ratings	AA-	2300 Crs	Stable
	CARE	AA-	44.23 Crs	Stable
Commercial Paper	ICRA	A1+	100 Crs	-
	India Ratings	A1+	100 Crs	-
Non-Convertible Debentures	ICRA	AA-	131 Crs	Stable
	India Ratings	AA-	400 Crs	Stable

During FY23, ICRA Limited upgraded the rating to ICRA AA- Stable Outlook from ICRA A+ Positive Outlook for Term Loans and NCDs. CARE Ratings upgraded the rating to CARE AA- Stable Outlook from CARE A+ Positive Outlook for Term Loans.

Human Resources

One of the most important and critical assets and foundation of our operations is human capital. We strive to create a conducive environment for growth and development of our employees. Continuous training is provided to employees to uplift their skills and advance in their careers. Our culture is what sets us apart from the rest of the companies. In addition to our culture as well as our employee engagement programs, HomeFirst received a "Great Place to Work" certi cation from the GPTW Institute for the third time in a row. More details on training, employee bene ts, employee engagement activities can be found in Human Capital Chapter refer page no. 60 As of Mar23, the employee strength stood at 993 as compared to 851 as at Mar22.

ESG

ESG is gaining wider traction the world over - sustainability in operations is becoming a pre-requisite for functioning rather than a hygiene factor. HomeFirst has taken early lead and has demonstrated transparency in its governance with adequate disclosures, green initiatives and digitalization of processes. Pursuant to adoption of such measures and creating a thriving and vibrant workplace environment, we were not only adjudged as one of Great Places to work, but also HomeFirst has been rated “Low Risk” on ESG Risk parameters by Morningstars Sustainalytics. Our score of 16.2, we believe, is the best amongst BFSI peers. This validation by a large agency highlights HomeFirsts focus on sustainability & superior corporate governance. More details on ESG practices can be found in the Sustainability report starting from page no. 33

Internal Control Systems and Internal Audit

The RBI had mandated the introduction of Risk-Based Internal Audit for all deposit-taking housing nance companies with e ect from June 30, 2022. Accordingly, the Corporation has put in place a Risk-Based Internal Audit Policy and has appointed Ms. Harshita Mulay - Dixit as the Head of Internal Audit. The internal audit is performed as per the Annual Audit plan approved by the Audit Committee of the Board. HomeFirst has a Risk based Internal Audit process covering branches and HO processes which is commensurate with the size and nature of its business. Observations and recommendations from the Internal Audit review are placed before the Audit committee. Agreed actionables are monitored till closure and the status of the actionables are presented to the Audit Committee periodically.

The Company has an adequate internal Control System to ensure adherence to companys policies and procedures, compliance with applicable laws and regulations, to ensure that management information and nancial reporting is correct, reliable, and. complete, to enable detection and prevention of frauds and errors and to safeguard the company assets against loss from unauthorised use or disposition, amongst others. Further, the internal control system is commensurate with the size of the business as well as the industry in which the Company operates The framework endorses ethical values, good corporate governance, and risk management practices. The Company has appointed Internal Auditors to ensure compliance with the companys policies and procedures and compliance with applicable laws and regulations. The Audit Committee of the Board reviews the performance of the internal audit and the adequacy of the internal control systems and compliance with regulatory guidelines. The Audit Committee also provides necessary oversight, gives recommendations, and monitors implementation of such recommendations.

Outlook

We believe HomeFirst is at an in ection point to bene t from the multi-decadal opportunity in housing nance underpinned by multiple macro drivers as highlighted above along with our strong balance sheet and a robust risk management framework. We will continue to leverage technology to automate processes, reduce costs and improve customer service with a lean business model architecture. We are committed to build a strong brand in Housing Finance while staying true to our mission of being the

"Fastest Provider of Home Finance for the Aspiring Middle Class, delivered with Ease and Transparency.”

Cautionary Statement

This document contains statements about expected future events, nancial and operating results of the Company, which are forward looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a signi cant risk that the assumptions, predictions, and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward- looking statements as several factors could cause assumptions, actual future results, and events to di er materially from those expressed in the forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward- looking statements based on any subsequent developments.

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