IIFL Finance Ltd Management Discussions

GLOBAL ECONOMY

The global economic landscape continues to face significant headwinds, prompting a downward revision of growth projections. The International Monetary Fund (IMF) has lowered its global GDP growth forecast for 2025 to 2.8%, from an earlier estimate of 3.3% on account of persistent geopolitical tensions, tightening financial conditions, supply chain disruptions and tariff imposition leading to price wars. Rising trade tensions are expected to significantly dampen global trade activity. As per IMFRss World Economic Outlook, global trade growth is projected to slow sharply from 3.8% in 2024 to just 1.7% in 2025. This decline reflects heightened trade policy uncertainty, which is affecting all countries by prompting businesses to scale back procurement and investment decisions, while financial institutions re-evaluate credit exposures.

Although inflationary trends have begun to ease, headline inflation remains elevated averaging around 4.5% with underlying pressures from rising services costs and wage growth. These factors are collectively weighing on consumption, investment, and overall economic momentum, reinforcing a cautious and fragmented global landscape.

The U.S. economy is forecasted to grow at 1.8% in 2025, impacted by renewed trade tensions and tariff measures, while ChinaRss projected slowdown to 4% reflects continued challenges in export-led growth and its real estate sector.

India remains on a strong footing, with GDP growth projected at 6.5% in 2025, underpinned by resilient domestic consumption and sustained infrastructure investment. This favorable macroeconomic environment supports continued expansion in credit demand and fosters growth across key sectors including housing, MSMEs, renewable energy, logistics, and manufacturing.

To sum up the global economic scenario, the growth trajectory is expected to be moderate in 2025, with advanced economies projected to expand at a slower pace. Advanced economies are projected to grow at a subdued pace of 1.4% in 2025, down from 1.8% in 2024. Emerging Markets and Developing Economies (EMDEs) are expected to grow at 3.7% in 2025, compared to 4.3% in 2024. The outlook through 2025 indicates that central banks will adopt measured monetary policy decisions that will steer interest rates and investment patterns. The heightened uncertainty and tightening of financial conditions are expected to weigh on economic activity in the near term. On the flip side, it is that estimated the global growth prospects could strengthen significantly if economies adopt a more constructive and stable trade policy approach, restoring confidence among investors that would stimulate global economic expansion. Sources:

IMF - Press Briefing - Transcript - WEO, April 2025 IMF - WEO update - April 2025

Deloitte Insights - U.S tariff impacts on global economy

INDIAN ECONOMY

India has demonstrated remarkable resilience amid global headwinds in FY 2024-25, firmly retaining its position as the worldRss fifth-largest economy and continuing on a path of robust and inclusive growth. While advanced economies continued to face macroeconomic headwinds ranging from persistent inflation and tight monetary policies to geopolitical tensions and supply chain vulnerabilities, India remained resilient, charting a strong and steady growth trajectory. India recorded GDP growth of 6.5% for FY 2024-

25. From an aggregate demand perspective, private final consumption expenditure grew 7.2% in FY 2024-25, driven by a revival in rural demand. On the supply side, real gross value added (GVA) grew by 6.4% in FY 2024-25. The services sector is expected to remain resilient, growing at 7.2%, driven by robust activity in financial services, real estate, professional services, public administration, defence, and other related sectors. The agriculture sector grew 4.6% in FY 2024-25, while the industrial sector grew by 5.9%, supported by strong performance in construction, electricity, gas, water supply, and other utility services.

India on the global trade front:

IndiaRss total exports grew by 6.3% to reach a record US$ 824.9 Billion in FY 2024-25, up from US$ 778.1 Billion in FY 2023-24, as per data released by the RBI for March 2025.

As of March 2025, IndiaRss gross Foreign Direct Investment (FDI) inflows for FY 2024-25 reached US$81 Billion, marking a 13.7% increase from the previous fiscal year.

IndiaRss current account deficit (CAD) in Q3 FY2024- 25 inched up to US$ 11.5 Billion from US$ 10.4 Billion in Q3 FY2023-24, remaining steady at 1.1% of GDP in both quarters. Notably, the deficit was lower than ICRARss projection of 1.4% of GDP for the period.

As of April 4, 2025, IndiaRss foreign exchange reserves stood at US$ 676.3 Billion, offering an import cover of nearly 11 months and reflecting the strength of the external sector.

Source:

https://www.pib.gov. in/PressReleaseIframePage.aspx- RsPRID=2120509

IndiaRss net FDI slumps to $0.4 bln in FY25; Gross inflows rise, OFDI

surges - RBI - CNBC TV18

ICRA, Outlook on Current Account Deficit

Press Release: Press Information Bureau

IndiaRss resilience: Navigating growth amid global uncertainty

Despite a global economic slowdown amid high interest rates and geopolitical tension, India demonstrated resilience and stands strong as the worldRss fifth-largest economy. What cushions India against a moderated global growth outlook and a delayed synchronized recovery in industrial economies amid evolving trade and policy regulations, is the countryRss robust domestic consumption-led growth model. Unlike several major global economies that are more dependent on external demand, IndiaRss relatively self-reliant economic structure offers a shield against global headwinds. While economies such as China continue to face pressure from subdued export demand and domestic sectoral imbalances, IndiaRss internal demand dynamics provide greater stability and supports sustained growth momentum. The surge in capital flows from DIIs have helped to reduce the sensitivity of Indian capital markets to foreign capital volatility.

The long-term objective under "Viksit Bharat 2047" to transform India into a self-reliant and prosperous economy by 2047 and the focus on de-regulation and adapting to global shifts from the model of Globalization to "GeoEconomic Fragmentation" entails that India invigorates its domestic manufacturing and strengthens its SME sector. Structural reforms through initiatives such as Smart Advanced Manufacturing and Rapid Transformation Hub (SAMARTH) Udyog centers, RsMake in IndiaRs and RsDigital IndiaRs

have further fortified domestic manufacturing, making it an attractive arena for foreign investment. The ease of doing business in India got fresh impetus by rationalizing regulatory burdens and promoting a more business- friendly environment. Boosting consumption through higher income tax exemption limit and implementing many structural reforms as presented in the Budget FY 2024-25, is expected to augment investments in critical sectors and maintain a stable macroeconomic environment conducive to robust and sustainable growth. According to the Ministry of Statistics and Programme Implementation (MoSPI), the combined (rural and urban) headline inflation stood at 3.16% in April 2025, down from 3.34% in March 2025.

In response to the sustained moderation in inflation, the Reserve Bank of India (RBI) implemented three consecutive repo rate cuts in 2025, totaling 100 basis points. The latest reduction occurred on June 6, bringing the repo rate down to 5.50%.

Sources:

Economic Survey 24-25 KPMG-Deciphering Economic Survey Indian Economic Outlook-PIB

Real GDP growth

IndiaRss economy maintained strong momentum in FY 2024 -25, with Real GDP growing by 6.5% and Nominal GDP growing by 9.8%. This growth has been supported by structural policy initiatives such as the RsMake in IndiaRs campaign, Production-Linked Incentive (PLI) schemes, and targeted measures for MSMEs. Ongoing enhancements in logistics infrastructure and a more efficient tax regime have further catalyzed industrial activity and manufacturing competitiveness. Together, these factors are driving economic resilience and positioning India for sustained long-term growth despite external headwinds.

Inflation

Inflation plays a pivotal role in shaping the economic environment and directly impacts consumer spending behavior, lending monetary policy decisions. In FY 2024-25, India witnessed a significant easing in inflationary pressures, providing a favorable backdrop for economic activities and growth in financial services.

IndiaRss inflation trajectory has shown a consistent downward trend, with the Consumer Price Index (CPI) inflation rate decreasing to 3.16% in April 2025 from 3.34% in March, marking the first time in six months that it has fallen below 4%. This decline is largely attributed to easing food prices, particularly vegetables.

The moderation in IndiaRss retail inflation for April 2025 is largely attributed to a pronounced decline in food prices, which form a substantial portion of the Consumer Price Index (CPI) basket. Food inflation eased markedly to 1.78% from 2.69% in March, led by deflationary trends in key categories such as vegetables and pulses-most notably, vegetable inflation plummeted to -10.98% year-on-year. However, fuel and light inflation registered a notable uptick, rising to 2.92%

in April 2025 from 1.42% in March, according to data from the Ministry of Statistics and Programme Implementation. Meanwhile, housing inflation edged up marginally to 3.00%, and inflation in miscellaneous goods remained stable at 5.02%. Despite sector-specific fluctuations, the broader inflation trajectory remains favorable, reinforcing macroeconomic stability.

All India inflation rates for CPI (General) and Consumer Food Price Index (CFPI) (%)

Looking ahead, the Reserve Bank of India projects inflation to stabilize at 4.0% for FY 2025-26. The Monetary Policy Committee (MPC) estimates inflation to be 3.6% in the first quarter, moderating to 3.9% in the second quarter, followed by 3.8% and 4.4% in the third and fourth quarters, respectively, of the financial year 2025-26. However, the inflation outlook remains susceptible to potential volatility stemming from global commodity price fluctuations, energy price swings, adverse weather conditions, and domestic supply chain disruptions.

The Indian government has reinforced its commitment to infrastructure-led growth by allocating Rs11.21 Lakh Crores

for capital expenditure (Capex) in the FY 2025-26 budget, reflecting a 0.9% increase from FY 2024-25. This allocation constitutes 3.2% of GDP and accounts for approximately 22.1% of total government expenditure, signaling a balanced approach between infrastructure investments and stimulating consumption through tax relief measures. Key initiatives such as the National Infrastructure Pipeline (NIP) and National Monetization Pipeline (NMP) aim to attract private sector participation to meet the growing demands for infrastructure development. Additionally, Rs1.5 Lakh Crore has been allocated as interest-free loans to states for capital spending and reform incentives, further supporting localized infrastructure growth.

Significant progress has been made across transportation and aviation sectors. About 5,853 km of National Highways were constructed, while 2,031 km of railway network was commissioned between April and November 2024. In aviation, IndiaRss airport infrastructure has seen substantial capex over the past five years, achieving 91% of the targeted expenditure of over Rs 91,000 Crores. The PM Gati Shakti initiative is integrating aviation with railways, roads, and waterways to enhance connectivity nationwide. Under the

regional connectivity scheme (UDAN), 619 routes connecting 88 airports, including 2 water aerodromes and 13 heliports, have been operationalized, demonstrating the governmentRss focus on improving regional accessibility and connectivity.

First quarter

The GDP growth rate in Q1 of FY 2024-25 stood at 6.5%, moderating from 9.7% in the corresponding quarter of the previous fiscal (Q1 FY 2023-24). Despite this slowdown, the industrial and services sectors exhibited robust growth of 8.4% and 6.8%, respectively. The deceleration was primarily driven by reduced government expenditure amid the 2024 general elections, weaker urban consumption, and sluggish rural demand. Nevertheless, India retained its position as the worldRss fastest-growing major economy during this period, outpacing ChinaRss GDP growth of 4.7% in the April-June quarter.

Press Release:Press Information Bureau https://pib.gov.in/PressReleaseIframePage. aspx RsPRID=2050139 Second quarter

In Q2 of FY 2024-25, GDP growth stood at 5.6% year-overyear, significantly lower than the Reserve Bank of IndiaRss projection of 6.8%. On the expenditure side, a slowdown in exports and investment weighed on economic momentum. Geopolitical tensions and supply disruptions, particularly in the Red Sea region, continued to dampen exports, resulting in a modest expansion of 2.5%. While the industrial sector faced temporary disruptions due to the monsoon, rural consumption provided a silver lining with robust growth. Meanwhile, the services sector remained resilient, recording a 7.2% year-over-year growth. Additionally, the government managed to reduce the fiscal deficit by 10% compared to Q2 FY 2023-24.

Third quarter

IndiaRss GDP expanded by 6.2% during Q3 FY 202425, accelerating from the 5.6% growth recorded in the previous quarter. The rebound in growth momentum was widely anticipated, as reflected in several high-frequency macroeconomic indicators, including higher GST collections, increased public spending, a rise in electricity generation, and a recovery in exports. The upturn was primarily driven by an 8.3% surge in government spending and a 6.9%

increase in private final consumption expenditure, compared to 2.3% and 5.7%, respectively, in the same period last year. Additionally, exports registered a robust 10.4% growth in Q3 FY 2024-25, a sharp improvement from the 3% expansion recorded in the previous year.

India recorded its strongest quarterly performance in Q4 FY 2024-25 with Q4 GDP growing 7.4% year-on-year depicting the highest quarterly growth of the year, according to the Ministry of Statistics and Programme Implementation.

Growth was powered by three key domestic drivers: rising capital formation, a broad-based services revival, and stronger rural demand. Capital formation rose 9.4%, driven by a 10.8% surge in construction amid accelerating infrastructure execution. Services expanded across both public and private sectors, with financial and real estate segments growing 7.8% on the back of healthy credit offtake. Rural GVA rose 5.0%, supported by a strong rabi harvest and increased mining activity. This investment- and consumption-led momentum positions India to remain resilient amid global uncertainties.

Outlook

India is poised to ascend in the global economic hierarchy, with projections indicating it will become the fourth- largest economy by 2026 and the third-largest by 2028, surpassing Japan and Germany, respectively. This trajectory is underpinned by robust GDP growth forecasts and strategic economic reforms. According to RBI, IndiaRss economic outlook for FY 2025-26 remains positive, with GDP growth projected at 6.5% This expansion is supported by rising rural consumption, increased capital investment by the Government, and easing inflation, aided by a more accommodative monetary policy. The recent Union Budget introduced tax reforms and incentives for manufacturing and exports, aimed at stimulating economic activity. However, certain challenges persist, which includes evolving U.S. trade policies, global trade tensions, and geopolitical uncertainties that could impact exports and foreign investment. Despite these headwinds, IndiaRss economy is expected to sustain its growth momentum, driven by structural reforms and rapid digital transformation. Furthermore, the countryRss relatively lower dependence on external demand enhances its resilience amid global economic volatility.

INDUSTRY OVERVIEW The NBFC industry

Non-Banking Financial Companies (NBFCs) have emerged as vital pillars of IndiaRss financial ecosystem, enabling credit access for a wide spectrum of borrowers-particularly Small and Medium Enterprises (SMEs) and financially underserved segments such as women and first-time home buyers. By facilitating the transition from informal borrowing channels to formal financial systems, NBFCs contribute meaningfully to financial inclusion. Over the years, the sector has witnessed remarkable growth, evolving into a dynamic force across segments like housing finance, consumer finance, and microfinance. Their extensive geographical reach, deep understanding of diverse financial needs, agile underwriting, and swift turnaround times position them as responsive and efficient lenders. Fueled by a growing middle class, expanding financial awareness, and supportive policy frameworks, NBFCs continue to play a pivotal role in advancing financial inclusion, driving MSME growth, and fostering self-employment across the country.

Over the past decade, the NBFC sector has recorded a healthy growth of approximately 14%, driven by its expanding role in bridging credit gaps across underserved segments. NBFCs have emerged as a key pillar of IndiaRss financial ecosystem, offering a diverse portfolio of products-including housing, vehicle, personal, and microfinance loans—tailored to the needs of rural populations and lower-income groups. The rapid adoption of digital technologies has further

strengthened the sector, streamlining operations, enhancing customer experience, and widening access. Intuitive apps and online platforms have made financial services more convenient, inclusive, and accessible than ever before.

NBFCs have emerged as key drivers in enhancing credit penetration across India, particularly in regions and customer segments that remain beyond the extensive reach of traditional banks. By leveraging digital innovation, simplified underwriting processes, and customized financial products, NBFCs continue to bridge the credit gap, enabling inclusive growth and financial empowerment for underserved communities across the country.

Source: NBFCs continue to hold major share in retail loans despite liquidity crisis : NBFC News - Business Standard Bridging the Credit Gap: How NBFCs are Empowering MS- MEs in IndiaRss Tier-2 and Tier-3 Cities, ET BFSI

According to CRISIL Ratings, the NBFC sector is expected to register an AUM growth of 15-17% in FY 2024-25, surpassing the decadal average of ~14% and underscoring the sectorRss resilience. While this marks a moderation from the robust 23% growth seen in the previous fiscal, the outlook remains optimistic. The tempered pace is primarily attributed to three key factors: heightened concerns around household indebtedness and asset quality, particularly in segments like microfinance and unsecured loans; increased regulatory scrutiny focusing on customer protection, pricing transparency, and compliance; and varied access to diversified funding sources, especially amid a slowdown in bank lending. Despite these dynamics, the sector continues to demonstrate adaptability, with NBFCs recalibrating strategies to sustain growth and strengthen their operating frameworks.

As per the Reserve Bank of India sectoral deployment of credit data, bank credit growth to NBFCs moderated to 6.4% in October 2024, down from 18.3% Y-o-Y Outstanding bank credit to NBFCs stood at Rs15.36 Trillion in October 2024, compared to Rs14.44 Trillion in the same month last year, at Rs15.29 Trillion in September 2024, and Rs15.48 Trillion in May 2024. RBI observed that NBFCs have diversified funding sources and reduced bank borrowings following the increase in risk weights. In November 2023, RBI hiked risk weights on NBFC exposures by 25% points to curb potential systemic risks. On a positive note, NBFCsRs earnings remained robust, supported by healthy interest margins of 5.1% and a return on assets (RoA) of 2.9% as of September 2024.

Asset quality

The asset quality of the NBFC sector remains healthy, supported by a strong capital position, with the Capital to Risk-Weighted Assets Ratio (CRAR) at 26.7% as of September 2024. The Gross Non-Performing Assets (GNPA) ratio improved to 3.4%, down from 4.6% in September 2023, reflecting better credit performance. Special Mention Accounts (SMA-1 and SMA-2), considered early indicators of stress, remained relatively low at 3.5%. However, there is a rising trend in loan write-offs, with a few outlier NBFCs contributing disproportionately to this increase.

The Financial Stability Report, December 2024, also highlights a nuanced picture of the asset quality and delinquency

Asset quality of retail loans

trends in consumer credit. While overall delinquency levels have remained stable for both banks and NBFCs, stress is mounting within the unsecured retail loan segment, particularly in personal loans and credit cards. There has been a noticeable decline in upgradation rates, alongside a rise in slippages from Special Mention Account-2 (SMA-2) to non-performing assets (NPAs), indicating increased movement of accounts from 61-90 days past due into the 90+ days past due category.

Notes: (1) Roll Forward rate is the percentage change (by amount) from SMA-2 category (61-90 dpd) in the current month, which moved to NPA category (90+dpd) in the next month (aggregated quarterly).

(2) Rollback + Cure rate is the percentage change (in amount) in SMA-2 category in the current month, which rolled back to SMA-1/SMA-0/0 dpd in the next month (aggregated quarterly).

Source: RBI Financial Stability Report, December 2024

Liquidity and Borrowing updates

In FY 2024-25, IndiaRss NBFCs experienced significant shifts in their funding strategies due to regulatory adjustments and market dynamics. In November 2023, RBI raised risk weights on bank lending to NBFCs by 25 percentage points, citing rising inter-linkages as a potential systemic risk. This move led to a notable slowdown in credit growth to NBFCs, which dropped to 6.7% in December 2024 from 15% a year earlier. As a result, credit growth further moderated to 5.7% YoY in March 2025, down from 17.6% in October 2023.

To counter this, RBI reversed its decision in February 2025, restoring the earlier risk weights effective April 1, 2025, to revive bank funding to NBFCs. The adjustment is expected to improve the attractiveness of bank loans, encouraging NBFCs to gradually shift back from commercial papers over the next six to nine months.

Concurrently, NBFCs increasingly turned to the corporate

bond market for funding, with corporate bond issuances reaching a record high of over Rs 10.66 Lakh Crores in 2024, driven significantly by NBFC participation.

In FY 2024-25, IndiaRss securitization market reached a record high of approximately Rs2.35 Lakh Crores, marking a 24% year-on-year growth. This surge was propelled by significant deals from private sector banks and consistent fund-raising efforts by NBFCs. The industry played a pivotal role, not only maintaining steady issuance volumes but also diversifying into newer asset classes and re-entering the market after periods of inactivity. Vehicle loans dominated the securitized assets, comprising 47% of the total volume, followed by mortgage-backed loans at around 22%. The market also witnessed increased participation, with 175 originators in FY 2024-25 compared to 165 in the previous year, indicating a broadening base and growing confidence in securitization as a viable funding mechanism for NBFCs.

Outlook for NBFCs

NBFCs are set to become key enablers of IndiaRss economic progress by extending access to formal credit in traditionally underserved segments, aligning with the countryRss goals. In a landscape where customer demands are evolving and digital-first models are gaining ground, incumbent NBFCs must reimagine their operational frameworks, while new players need to carefully evaluate their entry strategies. As lending activities scale, it becomes imperative for these institutions to strengthen their risk management practices and governance structures.

Asset growth of NBFCs is projected at 15-17% year-on- year for FY 2024-25 and FY 2025-26, according to CRISIL Ratings. Moreover, RBI is also taking measures to uplift the sector through reduction of risk weights on bank lending to NBFCs, which is expected to enhance funding access. Additionally, the sector is likely to benefit from easing liquidity conditions and potential interest rate cuts, which could support net interest margins and return on assets of NBFCs. However, challenges such as asset quality concerns in microfinance and unsecured lending segments remain monitorable. Overall, NBFCs are anticipated to experience stable asset quality and sustained earnings growth, positioning them favorably in IndiaRss evolving financial landscape.

PESTEL Analysis for NBFC sector in India Political

Financial inclusion programs: Government schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY) and Mudra Yojana, which are designed to promote financial inclusion, have benefited the NBFC sector. These schemes have increased the number of bank accounts and provided access to credit for underserved segments, making NBFCs an important partner in delivering financial services to these groups. Additionally, policy support for affordable housing is also helping to improve house affordability for a large segment of the population.

Liquidity support: The government has introduced various measures to provide liquidity support to NBFCs, including credit guarantee schemes and refinance facilities. These measures help NBFCs navigate challenging situations and maintain their financial stability, allowing them to continue providing credit to various sectors.

Encouraging Co-Lending Models (CLM): RBI has also promoted co-lending partnerships between banks and NBFCs to improve credit flow to priority sectors such as MSMEs and affordable housing.

Economic

Initiation of rate cuts: In early 2025, the RBI began a monetary

easing cycle after nearly five years, cutting the repo rate by 25 bps in February to 6.25%, followed by another 25 bps cut in April to 6.00% and another 50 bps cut in June 2025 to 5.50%. The policy stance shifted from "accommodative" to "neutral".

Inflation stability reinforcing credit momentum: The

sustained moderation in retail inflation-declining to 3.34% in March 2025-has reinforced macroeconomic stability and improved consumer sentiment. This favorable inflation trajectory is contributing to a more supportive credit environment, encouraging both retail and small business borrowers to accelerate credit uptake. With cost pressures easing and purchasing power improving, loan demand is expected to improve, particularly in segments such as home loans, personal finance, and MSME lending-benefiting NBFCs positioned to cater to these rising financing needs.

Augmenting system liquidity: To ensure effective monetary transmission and ease funding pressures across the financial ecosystem, including NBFCs, the Reserve Bank of India rolled out key liquidity support measures in 2025. RBI has announced Rs1.25 Trillion worth of government bond purchases through Open Market Operations (OMOs) in May 2025, aimed at easing market borrowing costs and strengthening systemic liquidity. Further, a US$10 Billion USD/INR buy/sell forex swap auction was conducted in February with a three-year tenor to infuse durable rupee liquidity, thereby supporting long-term funding access for NBFCs and other financial intermediaries.

Social

Rural penetration and financial inclusion: A significant portion of IndiaRss population resides in rural areas, where access to formal banking services remains limited. NBFCs bridge this gap by extending microfinance, agricultural loans, and other credit facilities to rural households and entrepreneurs, thereby promoting financial inclusion and supporting rural economic development.

Expanding middle class and rising aspirations: IndiaRss burgeoning middle class, characterized by increasing disposable incomes and evolving consumption patterns, has amplified demand for diverse credit products. NBFCs adeptly cater to this segment by offering tailored financial solutions, including personal loans, vehicle financing, and consumer durables loans, thereby facilitating lifestyle enhancements and economic mobility.

Empowerment of women and youth: NBFCs play a pivotal role in empowering women and youth by providing them with access to credit for education, entrepreneurship, and personal development. Through customized loan products and financial literacy programs, NBFCs enable

these demographics to participate actively in the economy, fostering inclusive growth.

Technology

AI-Driven credit assessment and risk management: NBFCs are increasingly leveraging Artificial Intelligence (AI) and Machine Learning (ML) to enhance credit risk assessment and underwriting processes. These technologies enable the analysis of alternative data sources, such as transaction histories and social media activity, allowing for more accurate credit scoring, especially for new-to-credit customers. This approach facilitates faster loan approvals and reduces default rates.

Expansion of digital lending platforms: The digital lending landscape is rapidly evolving, with NBFCs adopting end- to-end digital platforms to streamline loan origination, disbursement, and repayment processes. This shift enhances customer experience by offering quick, paperless, and hassle-free loan services, thereby increasing outreach, particularly in semi-urban and rural areas.

Implementation of Unified Lending Interface (ULI): RBI is

introducing the ULI, a digital platform aimed at expediting credit delivery to small and rural borrowers. ULI facilitates the seamless flow of digital information, such as land records and KYC data, to lenders, thereby reducing loan processing times and enhancing financial inclusion.

Environmental

Green finance momentum and market expansion: IndiaRss green finance market is gaining steady momentum, driven by rising investor interest, supportive regulatory frameworks, and the countryRss long-term net-zero target. With green bonds, sustainability-linked loans, and ESG funds becoming more mainstream, financial institutions—including NBFCs— have the opportunity to diversify portfolios while supporting environmentally sustainable sectors. This evolving landscape encourages capital flow into clean energy, green mobility, and low-carbon infrastructure, offering NBFCs a compelling growth avenue.

Introduction of green loan products: Green loan products are specialized credit instruments designed to finance environmentally sustainable projects. These loans support initiatives such as renewable energy installations, electric vehicles, energy-efficient housing, waste management systems, and sustainable agriculture. In India, NBFCs are increasingly developing and promoting green loans to align with national climate goals and cater to the growing demand for eco-conscious financing.

Energy efficiency and sustainability focus: NBFCs are actively adopting energy-efficient measures such as rooftop

solar panels, passive cooling systems, and LED lighting to reduce operational energy use. These initiatives reflect the sectorRss growing commitment to sustainability and alignment with IndiaRss climate goals.

Legal

Revised risk weights and capital treatment norms: RBI has

made amendments to the treatment of certain exposures under capital adequacy norms. Notably, changes include the treatment of Right-of-Use (ROU) assets and recalibration of risk weights for exposures to commercial real estate. These revisions are aimed at aligning prudential norms with emerging business models and accounting standards.

Cyber resilience and payment security: In light of increasing digital exposure, RBI has introduced guidelines specifically for non-bank entities (including NBFCs and PSOs) to adopt strong cyber resilience frameworks. This includes a mandatory Cyber Crisis Management Plan (CCMP) for prompt response to cyber threats.

Draft Co-Lending Framework 2.0: RBI has released draft directions for Co-Lending Arrangements (CLAs) in 2025, aiming to directly regulate co-lending agreements between regulated entities. This framework seeks to streamline colending practices and ensure better risk management in joint lending ventures.

Housing Finance

IndiaRss housing finance sector has been on an upward trajectory, with the outstanding individual housing loan portfolio touching Rs33 Trillion by March 2024, registering a healthy CAGR of nearly 13% over the past six years. Public sector banks remain the frontrunners, commanding 40% of the market, followed by private banks at 34.5%, and Housing Finance Companies (HFCs) contributing around 19%. This sustained momentum is driven by a mix of structural and policy-led enablers—rising affordability, rapid urbanization, growing preference for nuclear family setups, and flagship schemes like RsHousing for AllRs.

The residential real estate market has also mirrored this momentum, recording a remarkable 74% surge in home sales since 2019, with 460,000 units sold in 2024 alone—a clear indication of persistent end-user confidence. HFCs have primarily concentrated on smaller, retail-focused loans, with those under Rs30 Lakhs forming 53% of their total AUM as of March 2024. Asset quality within the segment has witnessed meaningful improvement, with Gross NPAs reducing to 2.2% by March 2024, from a high of 4.3% two years prior. Profitability, too, has normalized to pre-COVID levels, supported by lower credit costs and expanding spreads.

momentum, recording a remarkable 74% surge in home sales since 2019, with 460,000 units sold in 2024 alone-a clear indication of persistent end-user confidence. HFCs have primarily concentrated on smaller, retail-focused loans, with those under Rs30 Lakhs forming 53% of their total AUM as of March 2024. Asset quality within the segment has witnessed meaningful improvement, with Gross NPAs reducing to 2.2% by March 2024, from a high of 4.3% two years prior. Profitability, too, has normalized to pre-COVID levels, supported by lower credit costs and expanding spreads.

Segment wise retail GNPA ^

Source: CareEdge Ratings Sources for HFC:

Textile market report - HFC market to double in 6 years Mint.com- Emerging Housing Finance market Housing finance market to grow at 15-16% CAGR through 2029-30: CareEdge

Key government initiatives

The Government of India has implemented a range of policy initiatives to boost the housing finance sector, with a focus on affordability and accessibility. Flagship schemes like PMAY, interest subsidies, and infrastructure status for affordable housing have collectively enhanced credit flow and supported inclusive urban development. Following are the key policies addressing the challenges of the housing sector in India.

Pradhan Mantri Awas Yojana (PMAY)

Pradhan Mantri Awas Yojana is a flagship housing initiative launched by the Government of India with the vision of RsHousing for AllRs. Aimed at providing affordable housing to economically weaker sections, low-income groups, and middle-income families, the scheme offers financial assistance and interest subsidies for building, purchasing, or renovating homes. Implemented in both urban and rural areas. In the Union Budget 2025-26, the government proposed an allocation of Rs19,794 Crores for its flagship affordable housing scheme, Pradhan Mantri Awas Yojana. This marks a 36% increase in funding for the PMAY-Urban component compared to the revised estimate of Rs13,670 Crores for FY 2024-25 in the previous July Budget.

https://www.cnbctv18.com/budget/budget-2025-pmay-

low-cost-housing-scheme-outlay-19550789.htm

SWAMIH FUND 2

The Special Window for Affordable and Mid-Income Housing Investment Fund II (SWAMIH Fund 2) is a Rs15,000 Crores initiative launched by the Government of India in February 2025 to address the issue of stalled housing projects across

the country. Building upon the success of the initial SWAMIH Fund established in 2019, which completed over 50,000 housing units and aimed to finish an additional 40,000 by 2025, SWAMIH Fund 2 seeks to expedite the completion of approximately 1 Lakh more housing units. This fund operates as a blended finance facility with contributions from the government, banks, and private investors.

https://www.business-standard.com/industry/news/ swamih-touches-50-000-mark-fm-sitharaman-hands- over-keys-to-homebuyers-125021701092_1.html Interest Subsidy Scheme (ISS) erstwhile Credit Linked Subsidy Scheme (CLSS)

The Interest Subsidy Scheme (erstwhile Credit Linked Subsidy Scheme or CLSS) offers interest rate subsidies of up to Rs 1.8 Million to first-time homebuyers, enhancing affordability and encouraging homeownership among low and middle-income families.

The scheme has also been expanded to include middle- income groups, providing subsidies on home loans for properties priced below Rs 40 Lakhs - making housing more accessible and affordable for a broader section of society.

15-000-Crores-for-completion-of-1-Lakhs-units-in-union-

budget-2025-12926516.html

National Housing Bank (NHB)

NHB plays a critical role in strengthening IndiaRss housing finance ecosystem by providing both financial and

developmental support to HFCs. One of NHBRss key functions is to offer refinancing facilities to HFCs, which helps them maintain liquidity and expand their lending capacity, particularly in the affordable housing segment. By refinancing loans extended by HFCs to borrowers, NHB ensures a steady flow of credit to the housing sector.

Housing and Urban Development Corporation (HUDCO)

HUDCO supports the housing finance ecosystem in India by providing long-term finance and technical assistance to various stakeholders, including Housing Finance Companies (HFCs), state governments, and urban local bodies. HUDCO plays a key role in promoting affordable housing and infrastructure development, particularly in underserved regions. HUDCO offers project-based lending for affordable housing projects, extending financial assistance for land acquisition, construction, and basic civic amenities.

Outlook

The Indian housing finance sector is poised for strong growth, with the market projected to expand at a CAGR of 15-16% between FY25 and FY30, potentially doubling to Rs77-81 Trillion by 2030. Favorable policies and macroeconomic stability continue to make housing finance a scalable and attractive lending segment.

Banks are expected to maintain dominance due to low- cost funding and wide reach, while HFCs will sustain their niche through customized offerings and focus on underserved regions, particularly in tier 2 and below cities. As premiumization drives demand for Rs30-50 Lakhs loans, HFCs are adjusting their portfolio accordingly. Backed by structural tailwinds and proactive reforms, the sector is well- positioned for transformative expansion.

Source: CareEdge Ratings Gold loans

The gold loan segment has evolved into a critical component of IndiaRss retail lending landscape, underpinned by the countryRss cultural and economic reliance on gold as a store of value. With vast household holdings of gold-estimated to be among the highest globally-this asset has increasingly served as an accessible source of credit, especially during periods of financial stress or liquidity constraints.

In recent years, the growth of the gold loan market has been supported by rising gold prices, greater financial awareness, and expanding digital infrastructure. Both Banks and NBFCs, along with specialized gold loan institutions, have increased their focus on this segment, attracted by its low default rates and strong collateral backing. As a result, the gold loan segment continues to play a pivotal role in promoting financial inclusion and supporting credit penetration across underserved segments of the Indian economy.

As of March 2025, the gold loan portfolio of banks (excluding agricultural gold loans) registered a sharp year-on-year growth of 103%, driven by a cautious slowdown in retail credit to bottom-of-the-pyramid customers amid asset quality concerns in the microfinance sector. NBFCsRs share in the overall gold loan market has also risen, expanding from approximately 6% in FY 2020-21 to nearly 8% in FY2024-25. This surge was particularly notable when compared to the significant slowdown witnessed in other segments such as unsecured personal loans and microfinance. The increased traction in gold loans can be attributed to their secured nature, relatively lower credit risk, and ease of access, especially for borrowers in semi-urban and rural regions.

NBFCs and Banks are experiencing a surge in demand for gold loans, capitalizing on the metalRss inherent value and liquidity. According to The Rise of IndiaRss Gold Loan Market report, the organized market for gold loans was valued at

Rs 7.1 Lakh Crores in FY 2023-24. IndiaRss gold loan segment experienced remarkable growth, emerging as the fastest- growing component within the personal lending sector. As of December 27, 2024, the total gold loan portfolio held by banks surged to Rs 1.7 Lakh Crores, marking a 71% year- on-year increase and a 68.3% rise within the financial year. This surge in gold loans can be attributed to several factors, including the ease of obtaining loans against gold, higher l oan amounts due to increased gold prices, and a shi ft i n investment preferences amid fluctuating equity markets.

However, this rapid expansion has raised concerns regarding asset quality. In response to this RBI has proposed stricter regulations to enhance risk management in gold loan processes.

Proposed RBI Gold Loan Regulation

In April 2025, the Reserve Bank of India released a comprehensive draft framework aimed at harmonizing the regulatory norms for lending against gold collateral across all regulated entities, including banks and NBFCs. The directions seek to enhance transparency, borrower protection, and risk management in the gold loan segment.

Key provisions include a uniform Loan-to-Value (LTV) ceiling of 75%, applicable throughout the loan tenure including accrued interest. There are also restrictions on renewals and a requirement for 1% additional provisioning in the event of an LTV breach. The guidelines prescribe standardized procedures for assaying and valuation based on 22-carat gold pricing and clear categorization of loans into consumption and income-generating types. For income-generating loans, quantum and tenor must be determined based on expected cash flows, not merely collateral value, while consumption- based bullet loans are capped at a 12-month tenure.

Further, the directions impose limits on collateral quantity (1 kg for gold ornaments; 50 gm for specified gold coins)

and mandate prompt release of pledged gold within seven working days of loan closure. Additionally, top-ups and renewals are permitted only for standard accounts, and only after a fresh credit appraisal that includes assessment of income, repayment capacity, and end-use verification.

The draft also emphasizes enhanced conduct standards, including borrower communication in regional languages, transparent auction processes with reserve price safeguards, and strong internal audit controls to deter operational misuse. These proposals reflect RBIRss intent to balance prudential oversight with customer-centric practices in a segment marked by growing demand and systemic relevance.

Outlook

The gold loan segment is expected to witness sustained growth over the near to medium term, underpinned by strong demand for quick, secured credit and the continued preference for gold as a reliable financial asset. Favorable factors such as increasing rural credit requirements and greater formalization of the lending ecosystem are likely to support higher disbursements. Both banks and NBFCs are deepening their presence in this space, leveraging digital platforms to enhance operational efficiency and expand customer reach. The segment is projected to grow to Rs14.19 Lakh Crores by FY 2028-29, reflecting a robust CAGR of 14.85%. This momentum aligns with broader trends in the financial services sector, where lenders are actively scaling their gold loan portfolios to meet growing consumer demand.

The Micro, Small and Medium Enterprises (MSME) sector forms the backbone of the Indian economy, playing a pivotal role in employment generation, industrial output, and exports. Encompassing a wide range of industries across manufacturing, services, and trade, the sector contributes nearly 30% to IndiaRss GDP and accounts for about 45% of total exports. With over 6 Crores enterprises operating across the country, MSMEs are instrumental in driving inclusive growth, fostering entrepreneurship, and supporting regional development. In recent years, policy reforms, digital transformation, and increased access to finance have further strengthened the sectorRss potential, positioning it as a key engine for sustainable economic growth and resilience.

The Ministry of Micro, Small and Medium Enterprises reported that as of May 2025, India had approximately 6.39 Crores MSMEs, employing around 27.54 Crores individuals as registered on the Udyam Registration Portal and Udyam Assist Platform (UAP). Recognising the critical role of MSMEs in driving economic growth, employment, and entrepreneurship, the Government of India has introduced various initiatives to strengthen the sector. Key programs such as the Udyam Registration Portal, PM Vishwakarma Scheme, Prime MinisterRss Employment Generation Programme (PMEGP), Scheme of Fund for Regeneration of Traditional Industries (SFURTI), and the Public Procurement Policy for MSEs aim to formalize informal businesses, promote innovation, and create sustainable livelihoods.

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The sector faces a significant credit gap, with only about 14% of MSMEs having access to formal credit channels. This limited penetration is underscored by the RBI estimate of a credit shortfall ranging between Rs20 to Rs25 Lakh Crores. Addressing this gap is crucial for the sectorRss growth and the broader economic development of the country. Recognising this, the Government has undertaken several

initiatives to improve credit accessibility. Notably, under the Pradhan Mantri Mudra Yojana (PMMY), loans amounting to Rs 2.57 Lakh Crores (US$30.84 Billion) were sanctioned up to November 2024, benefiting 2.6 Crores non-corporate and non-farm micro and small enterprises in FY 2024-25. Furthermore, a Rs1 Lakh Crores (US$11.99 Billion) corpuscomprising 50-year interest-free loans-was announced in the interim budget for FY 2024-25 to catalyse long-term capital investments and enhance productive capacity across key sectors.

Traditional banking institutions often impose stringent collateral and documentation requirements, which many MSMEs find challenging to meet. NBFCs address these challenges by offering tailored financial products with more flexible terms, thereby enhancing credit accessibility for these enterprises. A notable strategy employed by NBFCs is the utilization of alternative credit assessment models. By evaluating factors such as business cash flows and transaction histories, NBFCs can extend credit to MSMEs that may lack extensive credit histories or substantial assets.

Exports from the MSME sector have witnessed a significant rise, growing from Rs3.95 Lakh Crores in 2020-21 to Rs12.39 Lakh Crores in 2024-25. In a continued effort to empower the sector, the Union Budget 2025-26 announced a series of measures focused on enhancing credit access, supporting first-time entrepreneurs, and encouraging labour-intensive industries. Notably, the Government has expanded the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) by doubling the guarantee coverage limit from Rs5 Crores to Rs10 Crores. This enhancement is expected to unlock an additional Rs1.5 Lakh Crores in credit over the next five years. Special benefits have been introduced for women-led enterprises, with the extent of guarantee coverage increased from 85% to 90%. Under the Credit Guarantee Fund for Micro Units (CGFMU), micro-enterprises and borrowers under the Pradhan Mantri MUDRA Yojana continue to benefit from collateral-free loans of up to Rs10 Lakhs. The scheme now also covers the new RsTarun PlusRs category, allowing eligible borrowers who have successfully repaid previous loans to access funding between Rs10 Lakhs and Rs20 Lakhs. Additionally, the Government enhanced the credit guarantee cover for micro and small enterprises. Start-ups can now

access an increased guaranteed limit of Rs20 Crores, along with a reduced 1% fee for loans across 27 priority sectors. Exporter MSMEs have been granted access to term loans up to Rs20 Crores under an expanded guaranteed framework, while a new scheme under the Stand-Up India initiative will extend term loans of up to Rs2 Crores to 5 Lakhs firsttime women, SC, and ST entrepreneurs. These concerted efforts reaffirm the governmentRss commitment to fostering inclusive and resilient growth in the MSME sector.

These credit guarantee schemes align with the Reserve Bank of IndiaRss guidelines on Priority Sector Lending (PSL), ensuring that eligible loans under these schemes are classified accordingly. This classification mandates financial institutions to allocate a specified portion of their lending portfolio towards such sectors, thereby enhancing credit availability to MSMEs and supporting inclusive economic growth.

The revised PSL guidelines effective April 1, 2025, further strengthen this framework through several progressive measures. The scope of PSL has been expanded to include renewable energy and weaker sections, and loan limits have been increased for segments such as housing and renewable energy to accommodate larger, impactful projects. Urban Cooperative BanksRs PSL targets have also been raised to 60% of Adjusted Net Bank Credit, aligning cooperative lending practices with broader developmental priorities.

To promote collateral-free access to credit, the RBIRss Public Tech Platform for Frictionless Credit (PTPFC) has facilitated disbursement of Rs3,640 Crores in MSME loans as of March 31, 2024. Additionally, the Government has mandated simplified working capital assessment norms for MSEs- requiring at least 20% of projected annual turnover to be considered as the working capital need for loans up to Rs5 Crores. These collective initiatives underscore the regulatory intent to bolster credit flow to underserved sectors through both technology and policy reforms.

Outlook

The MSME sector in India is poised for significant growth, bolstered by supportive government policies and a resilient entrepreneurial spirit. The Union Budget 2025-26 has introduced several measures aimed at enhancing the sectorRss competitiveness, including revised classification criteria that raise investment and turnover limits, thereby enabling more businesses to benefit from MSME- specific schemes. MSMEs are increasingly focusing on

sustainability and technological integration. Investments in green technologies and digital transformation are becoming priorities, positioning the sector to meet evolving market demands and environmental standards.

Micro Finance sector

The microfinance sector in India has emerged as a pivotal instrument for promoting financial inclusion, offering essential financial services to underserved and economically disadvantaged segments of society. Over the past few decades, the sector has witnessed substantial growth, driven by regulatory reforms, technological advancements, and targeted government initiatives aimed at extending credit to millions of previously unbanked households. Notably, the industry has scaled up significantly over the last decade, with the total Gross Loan Portfolio (GLP) expanding from Rs0.4 Lakh Crores in 2015 to Rs 3.9 Lakh Crores as of December 2024. Concurrently, the number of borrowers served has grown from 35 Million in FY 2017-18 to 146 Million as of FY 2024-25. This expansion underscores the sectorRss critical role in fostering entrepreneurship, alleviating poverty, and empowering women across the nation.

As of December 2024, IndiaRss microfinance sector demonstrated resilience amid evolving market dynamics.

The Gross Loan Portfolio (GLP) stood at Rs3.85 Lakh Crores reflecting a marginal 3.5% dip year-on-year, driven by a strategic recalibration in funding flows and tighter credit underwriting to enhance long-term sustainability. While the number of active loan accounts moderated to 139 Million from 146 Million, this was accompanied by a notable rise in the average loan size to Rs53,350 from Rs47,374, highlighting a shift toward more meaningful credit deployment per borrower. The proportion of loans overdue between 31 to 180 days rose sharply to 6.4% in December 2024, compared to 2% in December 2023, signalling a deterioration in asset quality. To curb these overleveraging concerns, MFIN, the sector self-regulatory organization (SRO) has proposed a series of measures like reducing lenders per borrower to three (effective from April 2025), capping total borrower indebtedness at Rs 2 Lakhs (including unsecured retail loans), not lending to customers being delinquent for 60 days or more, etc. However, there are green shoots with incremental collection efficiencies of non-delinquent customers improving towards the end of FY 2024-25 with the implementation of these guardrails and the stress recognition by lenders in FY 2024-25. This trend underscores the sectorRss maturing risk awareness and the ongoing efforts by lenders to strengthen monitoring and recovery mechanisms in a high-inflation environment.

Notes:(1) Represents 99.7% of total lending to microfinance segment

(2) NBFC-MFI is a non-deposit taking NBFC which has a minimum of 75% of its total assets deployed towards microfinance loans.

(3) NBFCs are those that do not qualify as NBFC-MFI and can extend microfinance loans up to 25% of their total assets.

Source: CRIF High Mark Credit Information Services Pvt. Ltd

As of December 31, 2024, the Indian microfinance industry recorded a robust portfolio outstanding of Rs3.48 Lakh Crores, driven by 87.7 Million active borrowers and over 119 Million active loans. NBFC-MFIs continued to lead the market, accounting for the highest share across key parameters with 42% of active loans and 39% of the portfolio followed by banks and small finance banks (SFBs). While the industrywide average ticket size stood at Rs53,776, NBFCs reported the highest at Rs63,027, indicating a shift toward larger loan

sizes. Asset quality remained under scrutiny, with SFBs posting the highest 30+ day delinquency rate at 7.73%, while NBFCs demonstrated the best credit performance with the lowest 90+ DPD at 2.04%. The sectorRss sustained expansion reflects a revival in rural demand, increased credit access, and resilience in consumption-led growth, albeit amid the need for continued focus on portfolio quality and credit discipline.

Source: MFI Pulse Report 22nd edition, SIDBI

Outlook

The outlook for IndiaRss microfinance sector is cautiously optimistic, with signs of continued expansion tempered by emerging risks to asset quality. Despite these challenges, the sector remains vital for deepening financial inclusion and supporting low-income households, particularly women. However, rising borrower indebtedness and increased lending by multiple institutions underscore the need for enhanced credit discipline and responsible lending practices. The Reserve Bank of India has taken supervisory actions in response to elevated interest rates charged by some NBFC-MFIs, highlighting the importance of maintaining affordability and transparency in lending. https://rbidocs.rbi.org.in/rdocs//PublicationReport/Pdfs/ FSR30122024F992B788790C44DCFBA4E8C9F98D912D9

Key regulatory updates for FY 2024-25

On April 15, 2024, RBI issued a circular introducing the Key Facts Statement (KFS) for Loans & Advances to improve transparency and help borrowers make informed

decisions. This applies to all retail and MSME term loans sanctioned on or after October 01,2024. The KFS, which includes details like the annual percentage rate (APR), amortization schedule, and third-party charges, must be provided in a clear and understandable format. It will have a unique proposal number and be valid for a minimum of three working days for loans of seven days or more, and one working day for loans under seven days. Any fees not listed in the KFS cannot be charged without borrower consent.

https://website.rbi.org.in/web/rbi/-/notifications/key-

facts-statement-kfs-for-loans-advances

On April 29, 2024, RBI issued a communication on the "Fair Practices Code for Lenders-Charging of Interest," reiterating that the guidelines on Fair Practices Code issued to various Regulated Entities (REs) since 2003, inter-alia, advocate fairness and transparency in charging of interest by the lenders, while providing adequate freedom to REs as regards their loan pricing policy. The communication states that during the course of the onsite examination of REs for the period ended March 31, 2023, the Reserve Bank came across instances of lenders resorting to certain unfair practices in charging of interest and exhorts REs to review and update their loan disbursal methods, interest application, and charges to ensure fair practices. REs are also encouraged to use online account transfers instead of cheques for loan disbursals to improve efficiency and security.

On April 30, 2024, RBI issued a “Guidance Note on Operational Risk Management and Operational Resilience," building on the 2005 guidance. The note outlines a comprehensive framework to strengthen operational risk management, addressing risks from human factors, technology, geopolitical conflicts, fraud, business interruptions, and natural disasters. The circular mandates that regulated entities (REs) adopt a holistic risk assessment strategy, implement robust internal controls, monitor operational risks, and enforce effective risk mitigation measures.

On July 15, 2024, RBI issued "Master Directions on Fraud Risk Management in Non-Banking Financial Companies (including Housing Finance Companies)" with a view to providing framework to applicable NBFCs for prevention, early detection and timely reporting of incidents of

fraud to Law Enforcement Agencies (LEAs), Reserve Bank of India and National Housing Bank and matters connected therewith or incidental thereto. Accordingly, the NBFCs shall frame a Board approved Policy on fraud risk management delineating roles and responsibilities of Board / Board Committees and Senior Management. The Policy shall also incorporate measures for ensuring compliance with principles of natural justice in a time- bound manner. Additionally, Early Warning Signals (EWS) Framework implementation should be in place within six months from the date of issuance of these directions.

On August 8, 2024, RBI issued a direction on the "Frequency of Reporting of Credit Information by Credit Institutions to Credit Information Companies," effective from January 1, 2025. The direction requires all NonBanking Financial Companies (including Housing Finance Companies) to report credit information to Credit Information Companies (CICs) on a fortnightly basis, either on the 15th or last day of each month, or more frequently if decided. Credit Institutions (CIs) must submit this information within seven days of the reporting date, and CICs must process it within five days, as per the revised timeline from the October 26, 2023 circular. Additionally, CICs must report defaulting CIs to RBIRss Department of Supervision every six months, on March 31 and September 30.

On August 12, 2024, the RBI issued a directive to all Housing Finance Companies and Non-Banking Finance Companies regarding the "Review of the Regulatory Framework for HFCs and Harmonization of Regulations." Following the transfer of HFC regulation from the National Housing Bank to RBI in August 2019, RBI has been harmonizing regulations for HFCs and NBFCs. As part of this process, regulations applicable to NBFCs have also been reviewed and revised regulations are detailed in Part B of the Annex, will take effect from January 1, 2025.

On September 30, 2024, RBI issued advisory highlighting the deficiencies observed during review of gold loans in the select Supervised Entities (SEs) "Gold Loans - Irregular practices observed in grant of loans against pledge of gold loan ornaments and jewellery". All SEs were advised to comprehensively review their policies, processes, and practices on gold loans to identify gaps, including those highlighted in this advice and initiate appropriate remedial measures in a timebound manner. Further, the gold loan portfolio was advised to be closely monitored, especially in the light of significant growth in the portfolio in certain SEs, to ensure that adequate controls are in place over outsourced activities and third- party service providers.

On October 10, 2024, RBI issued a circular addressing the credit information reporting mechanism after the cancellation of licenses or Certificates of Registration (CoR). As per the Credit Information Companies (Regulation) Act, 2005 (CICRA), entities whose licenses or CoRs are cancelled by RBI are no longer classified as Credit Institutions (CIs) and their credit information cannot be accepted by Credit Information Companies (CICs). To address the issue of borrowers whose repayment history is not updated, the RBI directed CICs and CIs to establish a mechanism for reporting credit information following the cancellation of licenses or CoRs for banks and Non-Banking Finance Companies.

On January 17, 2025, RBI issued notification on "Prevention of financial frauds perpetrated using voice calls and SMS - Regulatory prescriptions and Institutional Safeguards" with a view to mitigate the potential misuse of mobile numbers. As per notification, Regulated Entities (REs) are advised to: Utilize the Mobile Number Revocation List (MNRL) available on the Digital Intelligence Platform (DIP) developed by Department of Telecommunications (DoT), Ministry of Communications, Government of India to monitor and clean their customer database, to enhance fraud risk monitoring and prevention, the REs are advised to develop Standard Operating Procedures (SOP) incorporating the required action to be taken including, inter alia, updating the registered mobile number(RMN) after due verification; enhanced monitoring of accounts linked to these revoked mobile numbers for preventing the linked accounts from being operated as Money Mules and/or being involved in cyber frauds, etc., Undertake transactional/

service calls only using Rs1600xxRs numbering series, when operationalized; undertake promotional voice calls only through phone numbers using Rs140xxRs numbering series; follow the "Important Guidelines for sending commercial communication using telecom resources through Voice Calls or SMS" issued by Telecom Regulatory Authority of India (TRAI) and annexed to this circular.

On March 21, 2025, a circular was released by RBI on "Treatment of Right-of-Use (ROU) Asset for Regulatory Capital Purposes." Regulated entities will not be required to deduct an ROU asset (arising as per Ind AS 116-Leases) from Owned Fund/CET 1 capital/Tier 1 capital (as may be applicable), provided that the underlying asset being leased is a tangible asset. The ROU asset will have a risk weight of 100%, as per the risk weight previously applicable for owned tangible assets. This circular will come into force with immediate effect for all NBFCs (including HFCs) and Asset Reconstruction Companies implementing Companies (Indian Accounting

Bank-NBFC co-lending model, aimed at broadening the reach of organized lending

Underserved MSME sector offering significant opportunities for NBFC growth

Growing digitalization and analytics leading to improved lending efficiency

Gold loans, housing loans and microfinance loans are helping towards improved financial inclusion

Credit-risk sharing agreements being facilitated between fintech companies and regulated financial institutions such as banks and NBFCs

Sectoral threats

Liquidity challenges may create an adverse impact on the sectorRss lending capability

Unforeseen changes in the regulatory landscape may require the NBFCs to modify their operations significantly

Rapid pace of technological advancement may pose the threat of obsolescence

Heightened geopolitical uncertainties may impact the macroeconomic environment for the NBFC sector

ABOUT US

IIFL Finance Limited (Herein referred to as RsIIFL FinanceRs or RsThe CompanyRs, RsOur CompanyRs or RsWeRs), formerly IIFL Holdings Limited, is a diversified non-banking financial company headquartered in Mumbai that offers a suite of financial services. Serving both retail and corporate clients with tailored financial products, the Company, along with its subsidiaries—IIFL Home Finance Limited and IIFL Samasta Finance Limited —provides a diverse range of loan products, including gold loans, home loans, MSME secured loans, MSME unsecured loans, supply chain finance and microfinance loans, through a widespread branch network across India. The Company operates on an asset-light model, collaborating with banks through direct assignment, securitization and co-lending arrangements. This approach aligns well with banks as most of its assets qualify under the Reserve Bank of IndiaRss priority sector lending norms or are zero risk weight for the banks. At the end of the Financial Year 2024-25, off-book assets totalled Rs23,395 Crores, covering 30% of the total Asset Under Management.

The Company has a strong phygital footprint that integrates both physical and digital distribution channels, extending their reach within the home loans, gold loans, and MSME loans categories. The Company manages a network of 4,906 branches, complemented by a robust online infrastructure and advanced mobile platforms. Serving a customer base of over 4.5 Million across various business segments, IIFL Finance Limited. offers a diverse range of financial solutions.

Founded by first-generation entrepreneurs Mr. Nirmal Jain and Mr. R.Venkataraman, the Company is backed by prominent institutional investors such as the Fairfax Financial Holdings, Capital Group and ADIA. Our Company is built on the core values of honesty, transparency and responsible lending to underserved communities. Identifying them as the backbone of IndiaRss sustainable economic growth, IIFL Finance Limited equips these small enterprises with the right financial tools to empower them with the resources they need to forge ahead.

Led by a team of highly skilled professionals with extensive expertise in financial services, risk management and

technology-driven solutions, the Company fosters a dynamic culture focused on growth, entrepreneurship and innovation. By adopting industry best practices, leveraging data-driven insights and prioritizing customer-centric strategies, the Company drives operational excellence and long-term business sustainability.

During the year under review, the Reserve Bank of India lifted its six-and-a-half-month embargo on September 19, 2024 on IIFL FinanceRss gold loan disbursals, initially imposed on March 4, 2024. The action followed the CompanyRss successful compliance with regulatory directives and substantial strengthening of its compliance, risk, audit and assurance functions. With this clearance, IIFL Finance has resumed gold loan operations through its branches, marking a pivotal step in restoring growth momentum in its core secured lending segment.

FINANCIAL PERFORMANCE AND OPERATIONAL REVIEW

IIFL Finance Limited navigated FY 2024-25 amidst a challenging macroeconomic environment, which tested its resilience and weighed on overall financial performance. A cyclical slowdown dampened earnings and subdued market sentiment, with the impact most pronounced in the unsecured and microfinance segments. This stress was largely attributed to rising consumer leverage in the absence of real income growth, leading to stagnation in disposable income.

The consolidated Assets Under Management (AUM) stood at Rs 78,341 Crores, registering a marginal de-growth of 1% over the previous year. Home loans remained the largest contributor to the core product portfolio, with an AUM of Rs31,588 Crores, accounting for 40% of the total AUM. The segment recorded a robust 15% year-on-year growth. Gold loans followed with an AUM of Rs21,022 Crores, comprising 27% of the total AUM and demonstrated a strong recovery post the RBI embargo. MSME loans, including MSME secured loans, MSME unsecured loans and supply chain finance, stood at Rs14,185 Crores, reflecting an 18% growth compared to the previous financial year and contributing 18% to the total AUM. The Microfinance segment followed with an AUM of Rs 9,859 Crores. Overall, the core AUM reached Rs 76,654 Crores, comprising 98% of the total AUM.

Total Comprehensive Income, post non-controlling interest, stood at Rs 367.5 Crores, representing a decline of 79% over FY 2023-24. On the asset quality front, the Gross NPA (GNPA) stood at 2.2%, declined by 10 basis points year-on-year, while the Net NPA (NNPA) declined by 15 basis points and stands at 1%. Despite a challenging operating environment and a temporary dip in income and profitability, IIFL Finance continued to demonstrate robust asset quality, reflecting its disciplined underwriting practices, focused recovery efforts and conservative risk management framework. Aligned with its capital optimization strategy, the CompanyRss assigned and co-lending portfolio accounted for approximately 29.9% of the total AUM.

FY2020-21 figures are excluding discontinued healthcare finance portfolio. Without this change GNPA is 2.1%, NNPA is 1.0%.

IIFL Finance maintained a healthy liquidity buffer, with cash, cash equivalents and committed credit lines from banks and financial institutions aggregating to Rs5,216 Crores as of March 31,2025. This position is adequate to meet nearterm liabilities while supporting growth requirements. The Company continues to maintain a positive Asset-Liability Management (ALM) profile across all maturity buckets, with a net gearing ratio of 3.4.

Capital adequacy remained robust across all lending entities of IIFL, with the consolidated CRAR (computed) at a strong 29.0%. Our Housing Finance subsidiary reported a CRAR of 47.2%, our Microfinance subsidiary stood at 32.4% and the standalone NBFC at 18.5%—all comfortably above the regulatory minimum of 15%. These healthy capital buffers underscore the GroupRss conservative leverage stance, disciplined off-book strategy and commitment to sustainable, well-capitalized growth.

Loan growth across core products remained subdued during the year, with overall Loan AUM recording a marginal year-on-year decline of 1%. Gold loan AUM was impacted by

RBI embargo during the year, resulting in a 10% contraction. The microfinance portfolio also faced pressure, de-growing by 25% due to prevailing macroeconomic headwinds and a cautious lending environment. On the other hand, the Company sustained its focus on affordable housing in nonmetro areas within the home loans segment, which led to a healthy 15% year-on-year growth. MSME loans also registered an 18% growth, supported by targeted outreach and strengthened underwriting. Nonetheless, subdued demand and restrained disbursements continued to weigh on overall portfolio momentum.

As of March 31,2025, IIFL Finance operated 4,906 branches, primarily dedicated to its gold loans, home loans, MSME loans and microfinance loans. Profitability was under pressure during the year due to restrictions on gold loan business, industry-wide stress in microfinance and onetime exceptional provisions on security receipts. Return on Assets (RoA) declined to 0.9% and Return on Equity (RoE) to 3.4%.

The Company continued to extend tailored credit solutions, particularly in the affordable housing segment, offering small-ticket loans to salaried and self-employed individuals, with an average onboarding ticket size of Rs 16.4 Lakhs. Through its subsidiary, IIFL Home Finance, the Group remained aligned with the GovernmentRss RsHousing for AllRs agenda under the Pradhan Mantri Awas Yojana (Urban) - Credit Linked Subsidy Scheme.

Microfinance loans amounted to Rs 9,859 Crores (13%), serving a widespread customer base through 1,660 branches across India. These core segments reflect the CompanyRss diversified lending model and its commitment to financial inclusion.

Retail loans-secured by mortgages, gold, or reliable income streams—comprised 99% of the total loan book as of March 31, 2025, primarily targeting financially underserved customer segments. While business fundamentals remain intact, performance was adversely impacted by reduced

demand, tighter funding conditions and an elevated cost of capital. The CompanyRss retail lending platform, supported by a wide distribution network, co-lending partnerships, digital-first initiatives and a solid balance sheet, continues to be a strategic differentiator. The share of retail loans qualifying under the RBIRss Priority Sector Lending (PSL) norms (excluding gold loans) stood at 64% as of March 31,

2025. The proportion of loans sold down by way of direct assignment and co-lending stood at 30% of total AUM.

IIFL Finance maintained a stable AUM composition, with secured loans forming 80% of the portfolio. Despite sectoral pressures, the Company remains committed to navigating macroeconomic uncertainties through conservative lending, calibrated growth and robust risk management.

During the year, the Company raised Rs 17,486.71 Crores through various funding sources such as term loans, bonds, refinancing, and securitization. Additionally, Rs 7,449.69 Crores was raised via loan assignments to further strengthen the liquidity position.

Details of significant changes in key ratios (consolidated business):

Ratios	March Rs25	March Rs24	Variance	Net Profit Margin dropped to 5.65% owing to the
Debt equity ratio	3.66	3.87	(5.47%)	RBI embargo and one-time exceptional provisions on security receipts. Return on Equity stood at 3.37%, reflecting a prudent approach to elevated
Total debts to total assets	0.75	0.75	0.94%
Operating Profit Margin %	27.34%	33.98%	(19.55%)	credit provisioning in Samasta Microfinance amidst sectoral headwinds Gross and Net NPAs
Net Profit Margin %	5.65%	18.82%	(69.99%)	saw slight improvement, supported by better
GNPA	2.23%	2.32%	(4.15%)	recoveries and prudent underwriting. Specific Provision coverage was strengthened to 53.59%, reinforcing our conservative risk stance. Capital
NNPA	1.05%	1.20%	(12.52%)
Specific provision coverage ratio	53.59%	49.12%	9.09%	adequacy (consolidated) remained stable at 29%, and liquidity levels, with an LCR of 180 (computed) 62%, continued to exceed regulatory thresholds.
CRAR (Standalone)	18.48%	18.85%	(1.94%)
LCR (Standalone)	180.62%	192.47%	(6.16%)	Our Debt-Equity Ratio improved to 3.66, while Total Debt to Assets remained steady at 0.75, reflecting
ROE	3.37%	18.42%	(81.72%)	a balanced and resilient capital structure.

Details of significant changes

The consolidated Net Profit Margin was lower due to business being impacted in the Standalone entity owing to RBI Embargo and one off provision on the Secuity receipts; In Samasta Microfinance due to higher NPA and loan lossess & provision due to Industry wide asset quality stress. The return on net worth was lower due to reasons as stated above.

Disclosure of accounting treatment

The CompanyRss financial statements were prepared without deviation from the treatments prescribed in any of the Accounting Standards (AS).

AFFORDABLE HOME LOANS Business overview

IIFL Finance Limited, through its subsidiary IIFL Home Finance, offers an array of housing finance solutions, including loans for home purchases, home construction and renovation. We also provide small and medium businesses with mortgage-backed loans against residential or commercial properties for a variety of purposes, including working capital, business usage, commercial property acquisition and more. Our product range covers small- ticket home loans and project financing for affordable housing projects. We have a robust pan-India distribution network throughout Tier 1, Tier 2 city suburbs, Tier 3 and Tier 4 cities that serve as our sources of low-cost financing for underserved segments, primarily serving first-time homebuyers and the Economically Weaker Section (EWS) and Low-Income Group (LIG) segments. As of March 31, 2025, the average ticket size of our housing loans and affordable housing project loans has been Rs15.35 Lakhs and Rs 6.95 Crores, respectively.

Our commitment aligns with the key government initiatives, RsHousing for All,Rs where we have extended loans to Affordable Housing Project beneficiaries. Providing seamless borrowing via technology and digital innovations, as well as our Jhatpat Loan Approval process, we ensure quick disbursement with minimal paperwork, allowing fast processing and swift turnaround times.

FY 2024-25 under review- IIFL Home Loans segment

IIFL Home Loans reported a solid financial performance during FY 2024-25, with an AUM of Rs31,588 Crores, indicating a growth of 15% year-on-year. This business continued to maintain superior asset quality, with a GNPA ratio of 1.4%. With 2.35 Lakh customers across a network of 376 branches, we remain committed to advancing financial inclusion and expanding our presence in the housing finance market through technology adoption and customer-centric solutions.

We entered into a strategic partnership with Maharashtra Housing Development Corporation Limited. (MHDC) to promote affordable housing projects and facilitate home financing in Maharashtra with an aim to accelerate the sale of approximately 3,000 tenements under the Pradhan Mantri Awas Yojana 2.0 (PMAY 2.0) within the state. Our Company also entered a partnership with the agrobusiness division of ITC Limited, enabling underserved farmers in rural areas to access a wide range of home loan services offered by the Company. IIFL Home Finance has done an integration with the ITC MAARS App (Meta Market for Advanced Agricultural Rural Services), a full-stack Agri-Tech application for reaching out to the farmers and addressing their financial requirements.

Our Company continued to advance our commitment to green-certified affordable housing through the Green Value Partnership (GVP) platform.

GOLD LOANS

Business overview

With a widespread network of 2,833 branches across 26 states and Union Territories, we offer loans against gold jewellery to a diverse customer base, including small business owners, merchants, farmers, salaried individuals, self-employed individuals, etc. Our competitive interest rates, minimal documentation requirements and swift processing ensure a seamless and efficient borrowing experience. Gold jewellery valuations are conducted by appraisers trained in gold quality assessment, reinforcing our commitment to responsible lending.

FY 2024-25 under review: gold loans business

During March 2024, the Reserve Bank of India observed various material supervisory concerns in our gold loan portfolio and directed us to immediately cease sanctioning or disbursing new gold loans. As a result, the CompanyRss gold loan AUM declined by 10% year-on-year, standing at Rs 21,022 Crores as of March 31, 2025, compared to Rs 23,354 Crores in FY 2023-24. The yield from the gold loan portfolio dropped to 17.83%, from 19.0% in the previous year.

In a positive development, on September 19, 2024, RBI had lifted the embargo, allowing resumption of normal gold loan operations, including sanctioning, disbursal, securitization and sale of loans.

The gold loan business maintained strong asset quality, with a GNPA ratio of 0.54% in FY 2024-25, significantly improved from 3.83% in FY 2023-24-demonstrating prudent risk controls and portfolio resilience. We expect a sustained gold loan AUM growth in the coming quarters.

MSME LOANS

Business overview

IIFL FinanceRss secured MSME loan portfolio primarily comprises small-ticket loans, with an average ticket size of approximately Rs9.95 Lakhs per customer. This segment is geared towards digital lending, targeting the MSME and individual borrower segments, where agility in disbursement must be balanced with robust credit underwriting. FY 202425, the secured MSME loan portfolio recorded a year- on-year AUM growth of 4%, reaching Rs8,972 Crores. FY 2024-25, the unsecured MSME loan portfolio recorded a year-on-year AUM growth of 54%, albeit on a small base, reaching Rs5,213 Crores.

At IIFL Finance, the focus on unsecured business loans

is centered around meeting the evolving credit needs of the MSME sector, backed by cash flow assessments. The Company has built a robust internal framework for credit evaluation, involving stringent underwriting protocols and thorough in-house due diligence.

Driven by digital innovation, IIFL Finance has embraced a paperless loan journey, redefining customer experience through scorecard-led platforms.

FY 2024-25 under review-MSME loans

We reinforced our MSME lending with a purpose-driven, tech-enabled strategy. Continued investments in scorecard- driven underwriting, early warning systems and automated workflows enabled faster credit decisions. The segment delivered an overall yield of 19.05%, including 18.52% from secured, 21.16% from unsecured loans and 13.17% from supply chain finance.

In FY 2024-25, the secured MSME loan segment focused on strengthening portfolio quality and enhancing risk controls amid a cautious lending environment. The Company streamlined credit assessment using digital workflows and early warning systems to ensure prudent underwriting. Despite macroeconomic headwinds, the portfolio maintained stability, supported by targeted sourcing, realtime monitoring and deeper engagement with self-employed and small business borrowers across semi-urban locations.

MICROFINANCE

Business overview

IIFL Finance is committed to fostering financial inclusion by providing micro-loans tailored for income-generating activities, with a strong emphasis on community upliftment. The portfolio is designed to ensure high returns while maintaining a granular approach. A key focus area is supporting women-led self-help groups (SHGs), reinforcing the CompanyRss role in grassroots empowerment.

Through its subsidiary, IIFL Samasta Finance, the Company offers term loans, including Dairy Cattle Loans, to individuals and businesses engaged in dairy farming. These loans facilitate the purchase of high-quality livestock-such as cows and buffaloes-or support the expansion and modernization of dairy farming operations. Additionally, IIFL Samasta provides specialized financing solutions, such as Samriddhi loans, which enable women entrepreneurs to scale their micro-enterprises. Meanwhile, Suvidha (Consumer Product Loans) and Sajal (Water & Sanitation Loans) loans cater to essential life needs, ensuring access to crucial resources for underserved communities.

FY 2024-25 under review- microfinance

We maintained our focus on small-ticket loans, with an

average ticket size of approximately Rs0.50 Lakhs per customer. The business was driven by enhanced risk frameworks and digital workflows aimed at improving credit quality and turnaround time. The portfolio yield stood at 24.35%. Asset quality remained in check despite broader sectoral stress, with a GNPA ratio of 4.81%. We also advanced operational efficiency through scorecard-led underwriting, digital onboarding and automated early warning systems, while expanding reach via co-lending models and fintech partnerships.

RISK MANAGEMENT AND GOVERNANCE

IIFL Finance Limited places strong emphasis on robust risk management as a cornerstone for long-term business sustainability and performance. The Company views risk management monitoring and measuring process not merely as a compliance requirement, but as a strategic tool to optimize the risk-reward equation while adhering to applicable laws, regulations and industry standards.

Recognizing that risk is inherent in all aspects of business, IIFL Finance adopts a proactive, comprehensive and integrated approach to identify, assess, report and mitigate existing and potential threats. This holistic approach safeguards the Company from financial and reputational losses, while reinforcing its position as a prudent and responsible NBFC. Fostering a strong culture of disciplined risk awareness, the Company ensures that employees across all levels are informed about the risks associated with their roles and are equipped with the tools and training programs necessary to mitigate them. Risk management is treated as an ongoing process-one that evolves with changing market dynamics, regulatory developments and business needs. In line with regulatory mandates from the Reserve Bank of India and the Securities and Exchange Board of India (SEBI), IIFL Finance has constituted a dedicated Risk Management Committee. This Committee plays a pivotal role in shaping the risk governance framework by reviewing risk exposures and providing actionable policy and operational guidance.

Through a structured and comprehensive risk management framework, the Committee monitors key risk areas- including credit risk, market risk, interest rate risk, collection risk, fraud risk, market risk, liquidity risk, legal risk, compliance risk, reputation risk, information technology risk, cyber risk, outsourcing risk, people/conduct risk, environment social governance risk and operational risk-ensuring they are effectively addressed through strategic interventions and risk mitigation mechanisms.

Fundamental changes introduced in the gold loans business in FY 2024-25

I IIFL Finance has set a maximum cash disbursement and collection limit as per the regulatory requirements

Conforming to RBI master directions ensuring transparency and adherence, we have detailed the process of auction in the loan agreement

To reduce risks related to delinquent customers, new loan requests are automatically denied to those customers whose repayment records reflect a Days Past Due (DPD) exceeding the defined threshold, lowering the chances of issuing credit to high-risk parties

We have intensified due diligence for borrowers with loans sanctioned during the financial year in the bracket of > Rs30 Lakhs, > Rs1 Crores loan and and above 10 loans sanctioned during financial year

This involves procuring a certification from a Chartered Accountant (CA) to confirm the proposed end use of funds

Due diligence procedures are intensified for customers with loan exposures of and above threshold limits for proper risk evaluation

Ongoing Anti-Money Laundering (AML) monitoring is performed regularly for all active customers to ensure compliance and prevent financial crime

To further mitigate risks associated with the gold loan profile, certain occupations such as jewellers have been added to the restricted profile category

Comprehensive credit information of all gold loan customers is submitted to Credit Information Companies (CIC) enabling informed lending decisions

A Certificate of Purity is issued for the pledged gold assets, along with the loan agreement created during loan disbursement

To increase transparency in customer communication, SMS reminders are sent when the Portfolio Loan-to- Value (LTV) ratio exceeds a pre-determined threshold, signaling either the levying of MTM charges or gold auctioning based on limits

To enhance operational efficiency and security, we are setting a maximum cash disbursement and collection limit as per the regulatory requirements

In compliance with the Fair Practices Code, loan agreements are made available in 11 languages to suit varied linguistic preferences, ensuring transparency and inclusivity

HUMAN RESOURCES

At IIFL Finance, our employees are the backbone of our

success, driving innovation and operational excellence. Their

diverse skills, expertise and commitment shape our culture

and fuel our growth. We prioritize their development and well-being by fostering a dynamic, inclusive and integrity- driven workplace.

Through robust health and safety programs, skill development initiatives and tailored training, we ensure our workforce is equipped to navigate challenges and deliver outstanding value to our customers. Read more in the Our People chapter on pages 102-111.

INTERNAL CONTROLS

The Company maintains a robust system of internal control augmented by concurrent audits, internal audits, control testing, special audits and frequent management reviews. The internal audit team conducts risk-based audits to validate the adequacy and efficacy of internal controls for fraud prevention, detection, reporting and remediation. Moreover, the Company emphasizes reviewing process controls, risk monitoring and fraud prevention measures. The Company ensures adequate insurance coverage for pledged ornaments and employs on-site and off-site security surveillance measures at branch locations. The Company minimizes operational risks by having strong internal controls, overseeing transactions, having backup procedures and developing extensive contingency plans. These measures reduce employee and consumer fraud, fire incidents, theft and burglary. Additionally, risk-based internal audits are performed at all branches to assess the adequacy and conformity of internal controls, systems and procedures.

To strengthen oversight and governance, the Company engages leading audit firms to support the Head of Internal Audit in evaluating internal controls across core business verticals and support functions. Subject matter experts are deployed to ensure robust audit coverage of the NBFC, HFC and MFI segments.

Implementing the Rsthree lines of defenseRs risk management approach, the CompanyRss line management function acts as the first line of defense, followed by the risk management and compliance functions and ultimately, the audit function. The CompanyRss internal audit function, led by the internal auditor, is independent under the oversight of the Audit Committee of the Board. Additionally, close working with the risk management and compliance department guarantees the efficacy of controls and compliance with internal processes and procedures. Activities are audited based on inherent and control risks determined through an annual risk assessment exercise. Additionally, being an ISO/IEC 27001:2022 certified Company reflects its dedication to delivering clients with dependable and secure technology solutions. We have introduced substantial internal control

enhancements to fortify our compliance infrastructure and operating resilience. We have augmented our monitoring systems with a strong quarterly dashboard to enable management to respond quickly to track and resolve compliance issues promptly. Our internal audit function has adopted a proactive and dynamic approach, leveraging data analytics and conducting specially designed audits based on regulatory guidelines and sanctions, ensuring responsiveness and precision in compliance initiatives. We had also engaged expert consultants to update our Standard Operating Procedures (SOPs) and Risk Control Matrix, ensuring alignment with industry best practices and regulatory requirements. These measures fortify our internal controls, ensuring robust compliance and sustained resilience to meet current and future regulatory expectations.

INTERNAL FINANCIAL CONTROLS

The Company recognizes the importance of robust internal financial controls in enhancing operational performance and

boosting financial prudence. The internal auditors scrutinized the design and effectiveness of the primary controls and found no significant deficiency during their investigation. Additionally, the statutory auditors assessed the systems and procedures, confirming their appropriateness while reiterating the successful functioning of the internal financial controls system for financial reporting.

CAUTIONARY STATEMENT

Statements made in this Management Discussion & Analysis (MD&A) outlining the CompanyRss objectives, projections, estimates, general market trends and expectations may fall under the category of Rsforward-looking statementsRs as per applicable laws and regulations. Actual results may significantly differ from the suggestions put forth by these Rsforward-looking statementsRs due to various risks, uncertainties and other factors.