I K F Finance Ltd Management Discussions

STRATEGIC FOCUS AND GROWTH STRATEGY

At IKF Finance, our strategic focus for FY 2025-26 continued to build on the product-focused, granular growth strategy established in the preceding year, with our dedicated retail lending vertical for small and light commercial vehicles and cars maintaining its position as the core engine of portfolio growth. We continued to prioritise high-yielding retail loans in these segments to diversify portfolio growth, while continuing to build our Heavy Commercial Vehicle, Construction Equipment and MSME lending books. This targeted approach continues to allow us to manage business cycles and concentrate on more profitable segments, ensuring sustainable growth in margins even as the broader NBFC sectors overall AUM growth moderated from the exceptional pace of the preceding two years.

Our commitment to these products reflects our continued dedication to reaching niche markets and curating underwriting within the underbanked and unbanked segments that remain crucial to the economic fabric of rural and semi-urban India. We aim to continue optimizing our portfolio and harnessing high-yield opportunities to deliver stronger returns for our stakeholders.

COMMITMENT TO DIGITALISATION AND CUSTOMERCENTRIC SOLUTIONS

In line with our strategic priorities, we remain committed to offering curated and intuitive customer journeys and financial solutions, on the back of robust digital investments. This focus on digital transformation enhances the customer experience, streamlining our processes and making it easier for our clients to access financial services. Our transparent communication practices empower customers to make informed decisions, reinforcing our reputation as a trusted and preferred lender in a competitive landscape.

The continued growth in our portfolio and margins is evidence of the trust our customers place in our core loan products and our ability to meet the financial needs of underserved markets effectively.

LIQUIDITY MANAGEMENT

Unlike the prior fiscal year, in which the Company experienced a modest increase in its cost of debt due to prevailing market rates, FY 2025-26 saw a broadly favorable funding environment, aided by the Reserve Bank of Indias cumulative 125-basis-point repo rate cut and 100-basis- point CRR reduction during the year. The borrowing mix continues to diversify across bank term loans, NCDs, subordinated debt and institutional refinance.

All Asset-Liability Management (ALM) buckets remain positive, with a significant cumulative surplus up to one year. The Company continues to maintain sufficient liquidity buffers to manage its liability repayments effectively.

FUTURE OUTLOOK Global Economic Scenario:

The global economy proved more resilient than expected through calendar year 2025, with growth now estimated at approximately 3.3%, an upward revision from earlier projections made during the year. Growth is projected to hold steady at around 3.3% in 2026 before moderating slightly to 3.2% in 2027, according to the IMFs January 2026 World Economic Outlook Update. This resilience reflects a combination of front-loaded activity ahead of tariff changes, lower-than-feared effective tariff rates, easier financial conditions, and continued fiscal support in several major economies, with technology-related investment particularly around artificial intelligence providing a further tailwind in North America and Asia.

Global headline inflation has continued its gradual decline, falling from an estimated 4.1 % in 2025 to a projected 3.8% in 2026 and 3.4% in 2027. Major central banks, including the US Federal Reserve and European Central Bank, extended their gradual policy-easing cycles through 2025, though the pace and timing varied by geography as services- sector inflation remained comparatively sticky in several developed markets. Geopolitical tensions, including the ongoing conflict in the Middle East and continued disruption in Eastern Europe, remain a source of volatility for energy markets and a key downside risk to the global outlook, even as global supply chains have continued to demonstrate improved adaptability.

Looking ahead, the outlook for 2026-27 remains constructive but is described by the IMF as "steady amid divergent forces" with tailwinds from technology investment and accommodative financial conditions broadly offsetting headwinds from shifting trade policy. Downside risks include a reassessment of technology-sector valuations and any escalation of geopolitical tensions, while emerging markets, particularly in Asia, are expected to continue leading global growth.

Indian Economic Scenario:

India has maintained its position as the worlds fastest- growing major economy. Following the National Statistics Offices release of a revised GDP series with base year 2022-23 in early 2026, Indias real GDP growth for FY 2024-25 has been placed at approximately 7.1%, while the provisional estimate for FY 2025-26 stands at approximately 7.7% the fastest pace of expansion since FY 2021-22, and ahead of the Reserve Bank of Indias own in-year projection of 7.3%. Growth in FY 2025-26 was

underpinned by an acceleration in private consumption expenditure, a pick-up in gross fixed capital formation, robust rural demand, and steady public expenditure.

A defining feature of the year was the Reserve Bank of Indias monetary easing cycle: the MPC cut the repo rate cumulatively by 125 basis points during 2025 from 6.50% to 5.25% alongside a 100-basis-point reduction in the Cash Reserve Ratio, before holding rates steady through the first half of FY 2026-27. This easing cycle, combined with GST rate rationalization ("GST 2.0") and personal income-tax relief announced during the year, meaningfully improved household affordability and corporate borrowing costs, and is a direct tailwind for NBFC funding costs of the kind discussed later in this report.

Indias fintech ecosystem has continued to expand, and the countrys digital public infrastructure including UPI continues to deepen financial inclusion. The Production Linked Incentive (PLI) schemes have continued to attract investment in electronics, renewable energy and, increasingly, electric-vehicle component manufacturing. The Union Budget for FY 2025-26 allocated approximately Rs. 11.21 lakh crore to infrastructure capital expenditure, with the Union Budget for FY 2026-27 introducing a further dedicated incentive scheme for the construction and infrastructure equipment manufacturing sector.

Looking ahead to FY 2026-27, most external agencies including India Ratings (Fitch Group) and the Asian Development Bank expect growth to moderate from FY 2025- 26s exceptional pace to a still-robust 6.9-7.2%, supported by continued monetary and fiscal support, easing global trade tensions, and sustained domestic demand.

Indian Financial Services Sector:

The financial services sector saw robust, broad-based credit expansion through FY 2025-26. Non-food bank credit grew 15.9% year-on-year sharply up from 10.9% in FY 2024-25 with aggregate outstanding credit reaching approximately Rs. 212.9 lakh crore as of March 2026, an increase of Rs. 29.2 lakh crore over the year. Growth was led by the services sector (up 19%, from 12% a year earlier), driven substantially by bank lending to NBFCs, trade and commercial real estate, while credit to micro and small industries grew a particularly strong 33.1% and medium industries grew 21.7%.

NBFCs: The sectors assets under management crossed the Rs. 50 trillion milestone in FY 2024-25 and are estimated to be approaching Rs. 60 trillion during FY 2025-26, even as year-on-year AUM growth moderated to an estimated 16-18% for NBFC-Retail portfolios (from approximately 18-19% in FY 2024-25), reflecting a high base, more conservative underwriting in unsecured segments, and continued regulatory emphasis on governance and capital adequacy. Secured retail asset classes, including gold loans, loans against property and vehicle finance,continued to outperform unsecured segments over the year.

Digital Financial Services: The adoption of digital lending platforms has continued to accelerate, with NBFCs increasingly partnering with fintech companies and leveraging GST, UPI and Account Aggregator data for alternative, cash-flow-based credit assessment. Insurance and Mutual Funds: The insurance sector has continued to see steady growth in penetration across tier-2 and tier-3 cities, while mutual fund assets under management have continued to reach new highs, supported by sustained retail participation through systematic investment plans.

Sectoral Performance Updates:

Commercial Vehicles:

The Commercial Vehicle sector delivered its strongest performance in seven years in FY 2025-26, with domestic sales reaching a record 10.80 Lakh units, up 12.6% year- on-year, according to the Society of Indian Automobile Manufacturers (SIAM). This was driven by increased capital expenditure, lower financing costs following the RBIs rate cuts, improving freight demand, and continued fleet replacement and modernization. The fourth quarter alone delivered 3.25 Lakh units, up 18.9% year-on-year, while exports grew 17.4% to 0.95 Lakh units on steady demand from neighboring countries and the Middle East.

Passenger Vehicles:

The Passenger Vehicle market closed FY 2025-26 with record annual sales of 46.43 Lakh units, a growth of 7.9% over FY 2024-25 notable given a subdued first half (down 1.4%) that gave way to a strong second-half rebound (up 16.7%) following the GST 2.0 rate rationalization, personal income-tax relief, and successive RBI repo rate cuts. Utility vehicles continued to dominate the segment, and electric passenger vehicle registrations surged by more than 80% year-on-year during the year, a marked acceleration from the low single-digit EV penetration of prior years.

Two-Wheelers and Three-Wheelers:

Two-Wheelers: The segment closed FY 2025-26 at a record 2.17 crore units, up 10.7% year-on-year and surpassing the pre-pandemic FY 2018-19 benchmark that the industry had long treated as its high-water mark. The fourth quarter alone delivered 57.73 Lakh unit, up 26.4% year-on-year, aided by the same GST and rate-cut tailwinds supporting the broader auto sector.

Three-Wheelers: The segment also posted record sales of 8.36 Lakh units in FY 2025-26, up 12.8% year-on-year, driven by rising economic activity, urban mobility demand and continued expansion of electric autorickshaws. Electric three-wheelers (L5 category) have emerged as Indias most electrified mainstream vehicle segment, with penetration exceeding 31% of the category meaningfully ahead of the 15-20% levels seen in the prior year. Across all vehicle categories, India registered approximately 2.55 Mn EV sales in FY 2025-26, a 25% year-on-year increase, taking overall EV penetration to approximately 8.3-8.5% of total vehicle sales, with electric two-wheelers contributing close to 58% of total EV volumes.

Construction Equipment:

The construction equipment industry had a more mixed FY 2025-26 than in the preceding year: total equipment sales eased by approximately 2%, to 136,995 units from 140,191 units in FY 2024-25, as domestic demand declined by around 7% across most categories amid slower infrastructure execution, project delays and land- acquisition-related bottlenecks. The industry nonetheless remained resilient, supported by a robust 31.5% surge in exports, reinforcing Indias position as the worlds third- largest construction equipment market. Indias construction equipment market is now estimated at approximately USD 10 billion (FY 2024-25) and is projected to grow to approximately USD 14.76 billion by 2030, an 8.3% CAGR, aided by the Union Budget FY 2026-27s new incentive scheme for domestic equipment manufacturing and an expected recovery in project awarding and execution activity through FY 2026-27.

MSME Sector Performance:

The MSME sector continued to show resilience through FY 2025-26, even as the pace of formalization and credit expansion showed some signs of moderation from the exceptional growth of the preceding two years:

?€? MSME credit outstanding crossed Rs. 40 trillion as of March 2025, having grown approximately 20% year- on-year in FY 2024-25, with credit to micro and small industries specifically growing a further 33.1% during FY 2025-26 per Ministry of Finance data - among the strongest-growing segments of the entire credit system.

?€? Despite this, the overall MSME credit gap remains substantial, with recent independent estimates ranging from approximately Rs. 25 lakh crore to Rs. 30 lakh crore, and formal credit access reportedly reaching only around 14% of Indias MSMEs, underscoring the scale of opportunity that remains for NBFCs and other formal lenders.

?€? Government initiatives, including Udyam registration formalisation, revised MSME turnover-based classification thresholds, and continued priority- sector-lending push, have continued to support credit flow, alongside deepening integration of GST, UPI and Account Aggregator data into underwriting.

?€? Digital Transformation: Digital lending, e-commerce integration and cash-flow-based underwriting have continued to expand, materially improving turnaround times and formal credit access for previously underserved MSME borrowers.

Key Outlook and Trends for FY 2026-27:

?€? Continued Economic Growth: India is expected to remain the fastest-growing major economy, with growth likely to moderate from FY 2025-26s exceptional 7.7% toward a still-robust 6.9-7.2%.

?€? Digital Finance Expansion: Continued integration of AI, alternative data and cash-flow-based underwriting into financial services, particularly for MSME and last- mile borrowers.

?€? Electric Vehicle Ecosystem: Continued acceleration across all vehicle segments EV penetration has already moved from low single digits to approximately 8.3-8.5% of total vehicle sales, with three-wheelers and two-wheelers leading adoption supported by improving charging and battery-swap infrastructure.

?€? Infrastructure Investment: Continued government and private-sector investment, with construction- equipment demand expected to recover through FY 2026-27 as project execution normalises.

?€? MSME Formalisation and Financial Inclusion: Continued closing of the credit gap through formal, digitally- enabled, cash-flow-based lending channels, including supply chain and anchor-led financing models.

RISK MANAGEMENT & CREDIT MONITORING:

1. Risk Management Philosophy and Approach

1.1 Our Philosophy

Risk management at IKF Finance Limited is not a separate function anchored onto the business. It is built into the way we lend, the way we borrow, the way we operate branches, the way we use technology, and the way we govern the institution. Three decades of lending to under-served and unbanked customers across Bharat has taught us that the right time to think about risk is before a loan is made, and the wrong time is after a loss has occurred. This belief sits at the heart of our risk philosophy.

Our approach rests on four convictions. The first is that risk and return are inseparable. Every lending decision involves a deliberate trade-off, and the discipline lies in pricing the risk correctly, not avoiding it. The second is that secured lending against tangible assets, underwritten by people who understand the asset and the customer, is the most durable form of credit. The third is that diversification, of borrowers, of asset classes, of geographies and of funding sources, is the strongest defence against tail risks. The fourth is that the cost of recognising stress promptly is always lower than the cost of recognising it late.

These convictions translate into operating principles. We underwrite the customer and we underwrite the asset, in both vehicle finance and secured MSME lending. We maintain capital and liquidity buffers comfortably above regulatory minima. We diversify our borrowing base. We invest in field-level credit and collection capability. We provide for stress early under Ind AS 109. We write off promptly. And we measure ourselves not by the loans we make but by the loans we recover.

The risk environment in which your Company operates continues to evolve. The Reserve Bank of India has progressively converged the prudential standards for Middle Layer NBFCs with bank- equivalent norms. Cyber threats have grown more sophisticated. The Digital Personal Data Protection Act, 2023 has changed how customer data must be handled. Climate considerations have entered the credit conversation. Artificial Intelligence, while a powerful capability, has brought a new category of model risk. Our risk management framework has been built to absorb these shifts and to keep the franchise resilient through them.

1.2 Risk Appetite Framework

The Risk Appetite Framework articulates the level and type of risk your Company is willing to assume in pursuit of its strategic objectives. The framework has been approved by the Board and is reviewed on an annual basis. It cascades from a Board-level Risk Appetite Statement into specific tolerance thresholds at the business unit, product and portfolio level. These thresholds inform day-to-day credit decisioning, treasury limits, operational risk parameters and compliance expectations.

The Risk Appetite Statement covers four dimensions. On capital, we maintain a Capital to Risk-Weighted Assets Ratio meaningfully above the regulatory minimum of 15.0 per cent applicable to NBFC-Middle Layer, and a Tier I ratio above the regulatory minimum of 10.0 per cent. As on March 31,2026, CRAR stood at 27.34 per cent and Tier I of 26.34 per cent. On asset quality, we operate within defined thresholds for gross stage-3 ratio, net stage-3 ratio and credit cost, with the explicit principle that growth will not be pursued at the expense of these thresholds.

On liquidity, we maintain cumulative ALM surpluses across all maturity buckets at all times, and a contingency liquidity buffer that can support normal operations for at least 6 months under base-case projections without fresh borrowing. On concentration, we operate within Board-approved limits on single-borrower exposure, group exposure, sectoral exposure, and exposure to individual states or regions. These limits are calibrated to our business mix and are tightened where we see early signs of concentration build-up.

Compliance with the Risk Appetite Framework is monitored monthly by management and quarterly by the Board Risk Management Committee. Any breach, actual or potential, is escalated promptly with an action plan and timeline for restoration. The framework is reviewed annually to ensure it remains aligned with the strategy, the operating environment and regulatory expectations. The IND AA- rating awarded by India Ratings during FY 2025-26, with a Stable outlook, is an external endorsement of the discipline with which this framework is applied.

2. Risk Governance Architecture

2.1 The Three Lines of Defence

Your Company operates a structured three- lines-of-defence model. This is the foundation of how risk responsibility is allocated, how independence between risk ownership and risk oversight is preserved, and how the Board is given comprehensive assurance on the control environment.

The first line of defence is the business and operations function. Branches, credit underwriters, collection teams, treasury, technology, customer service and the supporting back-office functions own the risks they create in the course of their work. They are responsible for following approved policies, applying defined controls, identifying issues, and escalating concerns. The first line is where credit decisions are made, where customers are met, where cash and collateral are handled, and where loans are recovered. The quality of risk management at the first line determines the overall risk profile of the franchise.

The second line of defence is the independent risk and compliance functions. The Risk Management function, headed by the Chief Risk Officer, owns the overall risk framework, sets the policies, monitors portfolio metrics, runs stress tests, and challenges the first line where required. The Compliance function, headed by the Chief Compliance Officer, owns the compliance framework, tracks regulatory requirements, monitors compliance with applicable laws and Reserve Bank directions, and reports

independently to the Board. Both functions are independent of the business and have direct reporting lines to the Managing Director and to the appropriate Board committees.

The third line of defence is the Internal Audit function. It provides independent assurance to the Audit Committee and the Board on the design and operating effectiveness of the first and second lines. It conducts risk-based audits across branches, processes and information systems on a recurring basis. It tests the controls that the first line operates and the oversight that the second line provides. The function is governed by a Board-approved Internal Audit Charter and an annual Risk-Based Internal Audit Plan.

2.2 Board and Management Committees

Risk oversight at the Board level is exercised through a structured set of committees, each operating under a Board-approved charter with defined terms of reference, meeting frequency and quorum requirements. The Board Risk Management Committee, constituted in accordance with the Reserve Banks Scale- Based Regulation framework, is chaired by an Independent Director and meets quarterly. It oversees the risk framework, reviews portfolio risk metrics, approves risk policies, monitors risk appetite compliance, and provides directional guidance on emerging risk themes.

The Audit Committee, also chaired by an Independent Director, meets at least quarterly. It oversees financial reporting, internal audit, statutory audit and internal financial controls. It receives and acts on whistle-blower complaints. It approves the Risk-Based Internal Audit Plan and tracks closure of audit findings. The IT Strategy Committee, constituted in line with the Reserve Banks Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices dated November 07, 2023, oversees technology strategy, cyber security and information security.

At the management level, the Asset Liability Committee meets monthly under the chairmanship of the Managing Director. It includes the Chief Financial Officer, the Chief Risk Officer, the Treasurer, the head of credit, head of business and other invitees. It reviews structural and dynamic liquidity statements, interest rate sensitivity reports, and the performance of treasury investments. It issues directional guidance on borrowing strategy, fixed-floating mix, and the Contingency Funding Plan. The

Credit Committee operates in tiered structures across branch, regional and head office levels with defined sanctioning authorities. The Information Security Committee, the Operational Risk Management Committee, the Model Governance Committee, and the Outsourcing Risk Management Committee operate at the management level on their respective domains.

The interaction between these committees is structured, not ad hoc. Committee minutes are exchanged where there are dependencies. Cross-committee escalations are made formally. The Risk Management Committee receives summarised inputs from the management- level committees on a quarterly basis. The Audit Committee receives audit findings on the operation of all committees. This architecture is designed to ensure that no risk falls between governance gaps.

2.3 The Chief Risk Officer

The Chief Risk Officer holds a position of independent authority within your Company, in line with the Reserve Bank of Indias expectations for NBFCs in the Middle Layer. The CRO reports administratively to the Managing Director and functionally to the Board Risk Management Committee. The functional reporting line ensures that the CRO has direct access to the Board and that the CRO can raise concerns to the Board independent of management.

The CROs mandate covers the overall risk framework in its entirety. This includes credit risk, market and interest rate risk, liquidity risk, operational risk, model risk, climate and ESG risk, and reputation risk. Compliance and cyber risk are governed separately by the Chief Compliance Officer and the Chief Information Security Officer respectively, with structured coordination arrangements between the three functions. The CRO chairs the Model Governance Committee and is a permanent invitee to the Asset Liability Committee, the Operational Risk Management Committee and the Credit Committee.

The CROs office is staffed with a team of credit analysts, model validators, operational risk specialists and stress-testing capability. The team prepares the monthly risk dashboard for management, the quarterly risk report for the Board Risk Management Committee, the annual capital planning exercise aligned to ICAAP principles, and the annual review of the Risk Appetite Framework. The team also drives the second-line review of new product approvals,

new geographies, model deployments and material policy revisions.

Beyond the formal mandate, the CRO plays a cultural role. Risk culture is built through repeated, visible example. The CROs challenges in the Credit Committee, the comments at the Asset Liability Committee, the questions at the Board Risk Management Committee, and the standards held in model validation set the tone for how risk is treated across your Company. We see the CRO function not as an administrative compliance role but as a substantive partner to the business in building a durable franchise.

3. Principal Risks and Mitigation

3.1 Credit Risk

Credit risk is the most material risk to which your Company is exposed. It is the risk that a borrower will fail to meet contractual obligations as they fall due, and that the security held against the loan will not fully recover the amount outstanding. Credit risk arises in every lending decision. It is managed through a combination of policy, process, people and technology, and through the dual-track underwriting discipline.

The credit policy framework is approved by the Board and reviewed at least annually. It defines the customer segments we serve, the asset classes we finance, the underwriting standards we apply, the loan-to-value caps, the income assessment norms, the documentation requirements, the legal and technical due diligence expectations, and the delegation of sanctioning authority across branch, regional and head office levels. In vehicle finance, the credit framework requires independent valuation of the asset by a panel of empanelled valuers, application of an asset- grade depreciation matrix, and verification of vehicle history, registration and insurance. In secured MSME lending, the framework requires legal title verification, technical valuation by empanelled valuers, marketability assessment, and triangulation of borrower income through formal documents and income proxies including kucha bills, stock analysis, supplier checks, peer references and on-site business observations.

Credit decisioning is supported by scorecards. The Retail Credit Scorecard for used Small Commercial Vehicles and used Cars, built using machine learning techniques and embedded in the new Loan Origination System, outputs one of three decisions for each application: Go, No- Go or Refer-to-Credit. The scorecard has been built with explainability principles in line with the

regulators expectations. It improves consistency, speeds up decision turnaround, and routes complex cases to credit underwriters for human evaluation. The scorecard methodology will be progressively extended to other asset classes. Across all decisions, scorecards inform but do not replace human judgement, and underwriter discretion is preserved within defined parameters.

Concentration limits are an active part of credit risk management. Single-borrower exposure, group exposure, sectoral exposure and geographic concentration are monitored against Board-approved thresholds. Asset class concentration within vehicle finance, including the relative weights of used HCV, used LCV, used SCV, used cars, used CE and used tractor exposures, is monitored monthly. Where concentration approaches threshold, business teams are guided to recalibrate origination towards underweight segments. The Early Warning System scans the performing book on a recurring basis to identify accounts displaying early signs of stress, based on behavioural patterns, transactional indicators, bureau triggers and external signals. This enables proactive engagement before formal delinquency.

3.2 Expected Credit Loss and Provisioning

Your Company recognises impairment provisions on financial instruments under Ind AS 109, using the Expected Credit Loss model. The model is structured around three stages. Stage-1 covers performing loans with no significant increase in credit risk since origination, where 12-month ECL is recognised. Stage-2 covers loans that have experienced a significant increase in credit risk, where lifetime ECL is recognised. Stage-3 covers credit-impaired loans, where lifetime ECL is recognised on a credit-impaired basis. The staging criteria are aligned to RBI guidance and to internal credit policy. Stage-2 is triggered at 30 days past due or on qualitative triggers. Stage-3 is triggered at 90 days past due.

ECL is computed as the product of Probability of Default, Loss Given Default and Exposure at Default, applied at the segment level. PD is estimated using through-the-cycle data from internal cohorts, supplemented with macroeconomic overlays. LGD is estimated from historical workout recoveries, with secured exposures carrying lower LGD than unsecured. EAD reflects the outstanding exposure at the point of default, including expected drawdowns where applicable. The model is applied uniformly across

the loan book, with segment-specific parameters for vehicle finance and secured MSME.

The ECL methodology is reviewed annually by the Risk Management function and is subject to independent validation. Back testing is conducted quarterly to compare modelled outcomes against actual loss experience. Where back testing reveals material divergence, parameters are recalibrated and the change is approved by the Model Governance Committee chaired by the Chief Risk Officer. The Statutory Auditors review the methodology and the application of the model as part of the annual audit.

3.3 Market and Interest Rate Risk

Market risk is the risk of loss arising from movements in market prices, principally interest rates. Your Company does not have a trading book, does not take proprietary positions in equities or commodities, and does not have material foreign currency exposure. The principal market risk we are exposed to is interest rate risk in the banking book, which arises from the mismatch between the repricing characteristics of our assets and our liabilities.

Interest rate risk is managed within the framework approved by the Board and operationalised by the Asset Liability Committee. The framework measures interest rate sensitivity through Earnings at Risk and Economic Value of Equity perspectives. Earnings at Risk captures the impact on the next twelve months of Net Interest Income from a parallel shift in the yield curve. As on March 31, 2026, a parallel upward shift of 100 basis points in the yield curve would have an impact of approximately Rs. 43.77 Crore, equivalent to 7.6% of projected Net Interest Income, well within the threshold approved by the Board. Economic Value of Equity captures the impact on the present value of equity from a parallel shift, and is similarly maintained within Board-approved tolerances.

The repo rate trajectory through FY 2025-26, was supportive of the overall margin profile. The cumulative reduction of around 125 basis points in the repo rate during calendar year 2025 began to transmit into our incremental cost of borrowings from the second half of the year. Looking forward, we will continue to manage fixed-floating mix and asset-liability tenor to balance the predictability of interest expense with responsiveness to monetary policy easing. Currency risk is not material to your Company. Where any foreign currency borrowing is undertaken in future, hedging will be on a fully covered basis with no open exposure.

3.4 Liquidity and Funding Risk

Liquidity risk is the risk that your Company is unable to meet its obligations as they fall due, or is able to meet them only at unsustainable cost. For an NBFC, where the asset side is largely illiquid and the liability side is largely wholesale, liquidity management is among the most critical risk disciplines. Your Company manages liquidity risk through the framework set out in the Reserve Bank of Indias Liquidity Risk Management Framework for NBFCs, supplemented by Board- approved policy and operationalised through the Asset Liability Committee.

The framework operates across multiple horizons. Short-term liquidity is managed through the cash and liquid investments buffer, the undrawn but committed bank credit lines, and the day-to-day cash flow forecasting that the Treasury team operates. Structural liquidity is managed through the maturity match between assets and liabilities, as expressed in the structural liquidity statement. Dynamic liquidity is managed through forward projections of inflows and outflows under base, stress and severe-stress scenarios. As on March 31, 2026, structural liquidity reflects cumulative surplus across all maturity buckets, with the cumulative position in the up-to-one-year bucket comfortably positive.

Your Companys Assets size crossed the Reserve Banks threshold of Rs. 5,000 Crores in March 2025, bringing it within the ambit of the Liquidity Coverage Ratio (LCR) framework applicable to non-deposit-taking NBFCs of this asset size. The LCR framework requires maintenance of unencumbered High Quality Liquid Assets sufficient to meet net cash outflows over a 30- day stress horizon. Accordingly, your Company has complied with the LCR requirement, and as on March 31, 2026, its LCR stood at 495.73%, comfortably above the regulatory floor. The position is reviewed monthly.

The Contingency Funding Plan is the framework that activates when liquidity stress emerges. The Plan defines triggers based on internal liquidity metrics, market indicators and idiosyncratic events. It identifies the actions to be taken at each trigger level, the responsibilities of the Treasury team, the Asset Liability Committee and

the Managing Director, and the communication protocols with lenders, rating agencies and the Board. The Plan is tested annually under simulated scenarios. The diversification of the borrowing base, is the structural foundation that makes the Contingency Funding Plan credible.

3.5 Operational Risk

Operational risk is the risk of loss arising from inadequate or failed internal processes, people and systems, or from external events. It is the most diverse category of risk your Company manages, covering everything from a cash counting error at a branch to a vendor outage to a fraud attempt by an external party. Operational risk is managed through a structured framework that combines policy, process design, control testing, loss data collection and escalation.

The Risk and Control Self-Assessment process is conducted annually across all critical processes and across the branch network. Process owners identify the risks in their processes, assess the design and operating effectiveness of the controls in place, identify gaps and define mitigation actions. The output of the RCSA process feeds into the Key Risk Indicator dashboard, which is reviewed quarterly by the Operational Risk Management Committee. Loss events are captured in a Loss Event Database, categorised in line with Basel operational risk categories, and analysed for thematic learnings.

Fraud risk is managed through a dedicated framework. The framework covers fraud prevention through control design, fraud detection through monitoring, and fraud response through structured investigation. The Fraud Risk Management Committee reviews material fraud events, the trend in fraud incidents, the effectiveness of preventive controls, and the recovery action on confirmed cases. Fraud Monitoring Returns are filed with the Reserve Bank of India in the manner prescribed for NBFC- Middle Layer entities.

Business Continuity and Disaster Recovery preparedness is the third pillar of operational resilience. Your Company maintains a Business Continuity Plan that covers people, premises, technology and third-party dependencies. The Disaster Recovery site for critical IT systems is operational and is tested annually through simulated drills. Recovery Time Objectives and Recovery Point Objectives are defined for each critical system. Outsourcing arrangements with third-party vendors are governed by the Outsourcing Risk Management framework, aligned to the Reserve Banks Master Direction on Outsourcing of Financial Services. Material outsourcing relationships are reviewed periodically by the Outsourcing Risk Management Committee.

3.6 Information and Cyber Security Risk

I nformation and cyber security risk has emerged as one of the most rapidly evolving risk categories in financial services. The Reserve Bank of India addressed this in November 07, 2023 through the Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices, which sets out comprehensive expectations on IT governance, cyber security, business continuity and information assurance. Your Company has implemented the requirements of this Master Direction and continues to strengthen the underlying capabilities.

The cyber security framework is governed by a Board-approved Cyber Security Policy. The Chief Information Security Officer leads an independent function responsible for cyber risk identification, defence, monitoring and incident response. The CISO has a direct reporting line to the IT Strategy Committee of the Board, ensuring that cyber risk receives independent governance attention. The Information Security Committee at the management level meets at defined intervals to review cyber posture, threat intelligence, security incidents and the effectiveness of preventive and detective controls.

Defensive capabilities span multiple layers. A 24x7 Security Operations Centre monitors security events across the network, supported by Security Information and Event Management tools. Endpoint Detection and Response controls operate on all critical endpoints. Web Application Firewalls protect public-facing applications. Privileged Access Management controls govern administrative credentials. Multi-Factor Authentication is in force across remote and privileged access. Vulnerability Assessment and Penetration Testing are conducted on a recurring basis by qualified external specialists, with quarterly scans on critical applications. Cyber security awareness training is mandatory for all employees and is refreshed annually.

The Digital Personal Data Protection Act, 2023 has formalised the obligations of data fiduciaries in handling personal data. Your Company has appointed a Data Protection Officer, conducted a gap assessment against the Act, and is

operationalising the consent architecture, data retention norms and data subject rights process. Customer data is encrypted at rest and in transit. Role-Based Access Control governs internal access to personal data. Incident reporting obligations under CERT-In, including the requirement to report material cyber-security incidents within six hours, are implemented through standard operating procedures. We continue to invest in cyber and data protection capabilities as an ongoing strategic priority.

3.7 Compliance and Regulatory Risk

Compliance risk is the risk of regulatory or legal action, financial loss or reputational damage arising from failure to comply with applicable laws, regulations or codes of conduct. For an NBFC operating under the Reserve Bank of Indias progressively converging prudential framework, compliance is both a regulatory expectation and an operating discipline. Your Company maintains an independent Compliance function led by the Chief Compliance Officer, in line with the Reserve Banks expectations for NBFCs in the Middle Layer.

The Compliance function maintains a comprehensive regulatory tracker covering RBI Master Directions, applicable circulars, the Companies Act, 2013, the Income-tax Act, 1961, the Goods and Services Tax framework, the Prevention of Money Laundering Act, 2002, the Digital Personal Data Protection Act, 2023, the Information Technology Act, 2000, and other applicable laws. The tracker is updated continuously as new regulations are notified or existing regulations amended. The function performs periodic compliance testing, escalates breaches, and reports independently to the Audit Committee of the Board.

Customer protection is a specific area of focus within the compliance framework. The Fair Practices Code, approved by the Board and placed on your Companys website, governs the conduct of all customer-facing functions. The Reserve Bank of Indias Integrated Ombudsman Scheme and Internal Ombudsman framework, where applicable, are implemented. Customer grievances are tracked, triaged and resolved within defined turnaround thresholds. The AntiMoney Laundering and Counter-Financing of Terrorism framework, including risk-based KYC, Central KYC Registry uploads, AML transaction monitoring, and Suspicious Transaction Report filings, is maintained in line with PMLA requirements.

The regulatory environment for NBFCs continues to evolve at pace. During FY 202526, the Reserve Bank notified the Co-Lending Arrangements Directions, 2025, refined the Liquidity Risk Management Framework, updated Fair Practices Code guidance, and continued the implementation of the Master Direction on IT Governance issued in November 2023. Each of these has been reviewed by the Compliance function and operationalised within your Company in letter and in spirit. Looking forward, we expect the convergence between NBFC and bank prudential standards to continue, and we have built compliance and operational capability to absorb this convergence without disruption.

3.8 Model Risk and AI Governance

Model risk is the risk of adverse outcomes arising from errors in the development, implementation or use of analytical models. As your Company has expanded its use of machine learning and Artificial Intelligence in credit decisioning and operational processes, the importance of disciplined model governance has grown. The Company follows Artificial Intelligence policy, that defines the principles and protocols under which AI and machine-learning models are developed, validated and deployed.

The Model Governance Committee, chaired by the Chief Risk Officer, oversees the model inventory across the institution. Each model in production, including the Retail Credit Scorecard for used SCV and used Cars, the Early Warning System, the collection prioritisation logic, the fraud detection rules, and the ECL estimation model, is documented in a structured Model Documentation Standard. Documentation covers the business purpose, the data sources, the methodology, the assumptions, the performance metrics, and the operating boundaries within which the model is to be used.

Validation is performed independently of the model development team. New models are validated before production deployment. Models in production are subject to ongoing performance monitoring against pre-defined metrics, with quarterly backtesting and annual full revalidation. The principle of champion-challenger is applied to credit scorecards, with challenger models maintained alongside production champions to test for performance drift and to inform the timing of model refresh. Where any model exhibits performance deterioration beyond tolerance, it is recalibrated or retired under a defined protocol approved by the Model Governance Committee.

Explainability is a non-negotiable principle. The Retail Credit Scorecard has been built using machine learning techniques in line with the regulators emphasis on explainability of AI- based credit models. For every applicant, the scorecard provides not only the Go, No-Go or Refer-to-Credit output but also the principal contributing factors. This ensures that adverse decisions can be communicated to applicants in a manner consistent with the Fair Practices Code and that human underwriters can challenge model outputs where they appear inconsistent with on-ground observations.

3.9 Climate, ESG and Transition Risk

Climate-related risk is an emerging dimension of credit risk that has begun to feature in regulatory thinking globally and in India. For your Company, climate risk manifests through two channels. The first is physical risk, where extreme weather events affect borrower cash flows in agricultural geographies, freight movement on key routes, and the value of property collateral in flood- prone or drought-affected zones. The second is transition risk, principally the transition from internal-combustion engine vehicles to electric vehicles, which could affect the residual value of pre-owned ICE vehicles in our portfolio over the medium to long term.

Your Company has begun the work of integrating climate considerations into the risk framework. We have identified geographies that are particularly exposed to climate-related events, based on historical patterns and forward-looking indicators. We monitor weather and climate developments through the year and adjust origination and collection intensity in affected zones. Property valuation guidelines for secured MSME lending consider climate-related marketability factors, particularly in the technical assessment of residential and commercial properties offered as collateral.

On the EV transition, your Company is monitoring closely. The transition is currently most visible in two-wheelers and three-wheelers. In commercial vehicles, electrification is gaining ground in last- mile delivery and small commercial vehicles, while heavy commercial vehicles remain predominantly internal-combustion. We do not see near-term residual value risk to our portfolio from EV transition. Over the medium term, we expect a phased evolution. We are assessing the framework under which used-EV financing might become a meaningful part of our portfolio, including the unique considerations around battery health, charging infrastructure availability, and secondary-market depth.

ESG considerations are integrated into credit underwriting for secured MSME exposures above defined thresholds. Sectors with elevated environmental concerns are subject to additional review. A negative list of sectors and activities is maintained in the credit policy. The Board- approved ESG Policy, provides the broader framework. We expect climate and ESG risk integration to deepen progressively, in line with regulatory developments and our own capability build-out.

3.10 Reputation, Concentration and Strategic Risk

Reputation risk is the risk of damage to the standing of your Company in the eyes of customers, lenders, regulators, employees and other stakeholders. In a lending business that depends on customer trust and lender confidence, reputation is among the most valuable assets we hold. Reputation risk arises from many sources, including service failures, unfair customer treatment, compliance breaches, social media discourse, and adverse media coverage. The Risk Management function works closely with the Compliance, Customer Service and Communications teams to monitor reputation indicators on a continuous basis, and to ensure that escalations are handled with discipline and care.

Concentration risk is the risk that the franchise becomes disproportionately exposed to a single borrower, group, sector, geography or product. Your Companys geographic concentration in southern Indian states, while a natural outcome of three decades of franchise building, is a sensitivity that the rating agencies have noted. The progressive expansion of the branch network into new geographies, will moderate this concentration over the medium term. The diversification of the borrowing base, addresses concentration on the funding side. Both dimensions of concentration are monitored against Board-approved thresholds.

Strategic risk is the risk that strategic decisions fail to deliver the intended outcomes, or that the operating environment shifts in ways that undermine the strategic premise. Your Companys strategic premise is built across vehicle finance, construction equipment, secured MSME and affordable housing, served to under-served and unbanked customers in Tier I, Tier II, Tier III cities and beyond. Each of these is a multi-year, structural opportunity, and we do not see near- term scenarios that would invalidate the strategic premise. The calibration of growth pace, the selection of new geographies, the pace of secured MSME scale-up, and the deployment of new technology platforms are tactical strategic decisions where execution risk is managed through structured project governance and Board oversight.

Across reputation, concentration and strategic risk, the common discipline is that of measured judgement. We do not chase scale at the cost of quality. We do not chase quality at the cost of relevance. We listen to feedback from customers, lenders, employees and regulators with the assumption that they have something useful to tell us. The IND AA- rating awarded by India Ratings during FY 2025-26 is an external validation that this measured approach is translating into franchise quality.

4. Stress Testing, ICAAP and Capital Planning

4.1 Stress Testing Framework

Stress testing is the discipline of asking what could go wrong, quantifying the impact, and confirming that the franchise has the capital and liquidity to absorb the impact without operational disruption. Your Company conducts stress testing as a recurring exercise, with results reviewed by the Asset Liability Committee, the Risk Management Committee and the Board on defined frequencies.

The stress testing framework operates across multiple dimensions. Credit stress tests examine the impact of higher default rates and lower recovery rates on asset quality, ECL provisioning and capital adequacy. Liquidity stress tests examine the impact of accelerated deposit-equivalent outflows, restricted access to fresh borrowings and deferred recoveries on the Contingency Funding Plan. Interest rate stress tests examine the impact of parallel and non-parallel yield curve shifts on Net Interest Income and Economic Value of Equity. Operational stress tests examine scenarios such as cyber incidents, technology outages and branch-level fraud events.

Scenarios are defined at three intensities. Base case scenarios reflect the expected operating environment under managements central forecast. Stress scenarios reflect adverse but plausible developments, calibrated to historical experience and forward-looking judgement. Severe stress scenarios reflect extreme but conceivable developments, designed to test the outer envelope of the franchises resilience.

The scenarios are revised at least annually to ensure they remain relevant to the prevailing risk environment.

The output of stress testing informs multiple downstream decisions. Capital planning incorporates stress scenarios to determine capital headroom under adverse conditions. The Contingency Funding Plan is calibrated to liquidity stress test outputs. Risk Appetite Framework thresholds are set with reference to stress scenario outcomes. Stress testing is, in our view, the most useful internal exercise to validate that the franchise is built to last.

4.2 Internal Capital Adequacy Assessment

Your Company conducts an annual capital planning exercise aligned to the principles of the Internal Capital Adequacy Assessment Process. The exercise is designed to ensure that capital is adequate not just in relation to the regulatory minimum, but also in relation to the risk profile of the franchise under base, stress and severe- stress scenarios. The output is reviewed by the Risk Management Committee and approved by the Board.

The exercise begins with a comprehensive identification of risks to which your Company is exposed, going beyond the risks that are explicitly capitalised under the Reserve Banks risk-weighted asset framework. This includes credit concentration risk, interest rate risk in the banking book, liquidity risk, operational risk, model risk, reputation risk, strategic risk, climate risk and any other material risk identified in the period. For each risk, the exercise considers whether the regulatory capital requirement is sufficient or whether additional internal capital should be set aside.

The exercise then projects capital consumption over a three-year horizon under each scenario. Inputs include projected business growth, projected asset quality, projected provisioning, projected profitability, planned capital raises, and planned use of off-balance-sheet structures including securitisation and direct assignment. The output is the projected Capital to Risk- Weighted Assets Ratio and the projected Tier I ratio at the end of each year of the projection horizon, under each scenario.

The exercise informs three decisions. The first is the timing and quantum of future capital raises, whether through equity, sub-debt or other instruments. The second is the optimisation of risk-weighted assets through securitisation and

direct assignment, where commercially attractive. The third is the calibration of business growth pace to ensure that growth aspirations and available capital headroom remain in alignment. As on March 31, 2026, your Companys CRAR of 27.34 per cent and Tier I of 26.34 per cent provide comfortable headroom under base case and absorb projected stress scenarios without approaching the regulatory minimum.

5. Internal Audit and Assurance

5.1 Internal Audit The Third Line of defence

The Internal Audit function is the third line of defence in your Companys risk management architecture. It provides independent and objective assurance to the Audit Committee and the Board on the design and operating effectiveness of the first and second lines. The function operates under a Board-approved Internal Audit Charter that defines its mandate, authority, independence and reporting lines.

The function is staffed with qualified internal auditors, supported where appropriate by external specialists for technical reviews. The annual Risk-Based Internal Audit Plan, approved by the Audit Committee, prioritises audit coverage based on the risk profile of branches, processes and information systems. High-risk branches and processes are subject to deeper or more frequent reviews. Lower-risk areas are covered on a rotating basis with appropriate frequency.

Audit findings are categorised by severity and tracked through to remediation. Closure rates and ageing of open findings are reviewed by the Audit Committee at every meeting. Repeat findings, or findings of systemic nature, receive specific Audit Committee attention and remediation timelines. The function maintains independence from the management lines whose work it audits, and the Head of Internal Audit reports functionally to the Audit Committee with administrative reporting to the Managing Director.

Beyond traditional audit, the function plays a forward-looking role in assessing emerging risk areas. During FY 2025-26, audit reviews included the implementation of the Retail Credit Scorecard, the cyber security posture against the November 2023 Master Direction expectations, and the readiness of the data protection framework ahead of full DPDP Act operationalisation. These reviews provide management and the Board with independent perspectives on initiatives that are central to the strategic agenda.

5.2 Concurrent Audit and Information Systems Audit

Concurrent audit complements the Internal Audit function by providing real-time, in-process review of key transactions at high-volume branches. Coverage is weighted towards the branches that account for the largest share of disbursements, and is periodically reassessed as branch-level volumes shift, providing in-process review across the disbursement workflow, the cash and asset handling process, the documentation and storage process, and the operational and compliance controls at branch level. Concurrent audit findings are reviewed monthly by the Internal Audit team and quarterly by the Audit Committee.

Information Systems audit is conducted by qualified external specialists on a recurring basis. The IS audit programme covers the application landscape, the infrastructure, the cyber security controls and the operational discipline of the technology function. The programme has been calibrated to align with the Reserve Banks Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices issued in November 07, 2023. Vulnerability Assessment and Penetration Testing, conducted independently of the IS audit programme, provides a continuous assessment of cyber posture across critical applications and infrastructure.

Statutory audit, conducted by the firm of Chartered Accountants appointed in line with the Reserve Banks guidelines on appointment of statutory auditors for NBFCs, provides the external validation of the financial statements and the operating effectiveness of internal financial controls over financial reporting. Secretarial audit, conducted by an independent firm of Practising Company Secretaries, provides external validation of compliance with the Companies Act, 2013, and applicable corporate laws.

The outputs of internal audit, concurrent audit, IS audit, statutory audit and secretarial audit together provide the Audit Committee and the Board with a comprehensive view of the control environment and the actions being taken to strengthen it on an ongoing basis. This multisource assurance architecture is an important element of the governance discipline that the IND AA- rating awarded by India Ratings during FY 2025-26 reflects.

6. Looking Ahead - Risk Priorities for FY 2026-27

6.1 Risk Agenda for FY 2026-27

The risk management agenda for FY 202627 is organised around four priorities. The first is the deepening of credit risk capability commensurate with the strategic shift towards a more balanced vehicle finance and secured MSME mix. This includes the extension of the Retail Credit Scorecard methodology to additional asset classes, the strengthening of MSME industry, sector and sub-sector specific assessment models, the maturing of the Early Warning System with broader signal integration, and the continued investment in field-level credit and collection capability.

The second priority is the deepening of cyber and information security capability. The November 07, 2023 Master Direction on IT Governance has set a higher bar for cyber resilience across NBFCs. We will continue to invest in the people, tools and processes required to meet and exceed this bar. The DPDP Act, 2023 operationalisation will move from gap-closure to steady-state during FY 2026-27, with consent architecture, data subject rights processes and data lifecycle controls all maturing into business-as-usual operations.

The third priority is the further maturation of model risk governance as AI and machine learning use cases expand. The bots for customer queries, the Retail Credit Scorecard for SCV and Cars, and the additional AI use cases currently under exploration will all be governed under the Board- approved AI Policy. The Model Governance Committee will continue to play the central challenge and approval role, supported by the validation team in the Risk Management function. The principle of explainability, particularly important for credit decisions, will continue to be a non-negotiable expectation.

6.2 In Closing

Risk management at IKF Finance Limited is a continuing endeavour, not a destination. Each year brings new risks to manage, new regulations to absorb, and new capabilities to build. What stays constant is the philosophy that risk and return are inseparable, that secured lending against tangible assets is the most durable form of credit, and that the cost of recognising stress promptly is always lower than the cost of recognising it late.

The architecture described in this Risk Management section is the institutional expression of that philosophy. The three-lines- of-defence model, the Board and management committees, the role of the Chief Risk Officer, the principal risk frameworks across credit, market, liquidity, operational, cyber, compliance, model, climate and reputation domains, the stress testing and capital planning exercises, and the audit and assurance functions, are not separate constructs. They form an integrated system that is designed to keep the franchise resilient through cycles.

FY 2025-26 was a year of strong external validation. The IND AA- rating awarded by India Ratings, with a Stable outlook, and the continued CARE A+ rating reaffirmation, signal that the discipline with which we operate the franchise is being noticed by the most experienced observers of credit quality in our system. We do not take this for granted. The same discipline that earned this validation is the discipline we will continue to operate with, every day, every transaction, every customer.

We thank our customers, our employees, our lenders, our investors, our rating agencies, our regulators and our Board for the trust they have placed in IKF Finance Limited. The franchise we operate today is the result of three decades of cumulative work by people who have believed in the proposition of serving Bharats under-served and unbanked aspirational entrepreneurs. The franchise we will operate tomorrow will be built on the same foundation. The Risk Management section closes with this commitment, and this section is to be read together with the Management Discussion and all other Analysis as a complementary view of how we run the institution.