India Finsec Ltd Management Discussions

I. COMPANY OVERVIEW:

India Finsec Limited (the "Company") is an NBFC and is engaged in the business of providing various financial services, such as Inter Corporate Deposits, advancing Short term loans, Long term loans, credits to individuals & companies and more. The Company is regulated by the Reserve Bank of India (RBI) under the framework of the RBI Act, 1934. The main objective of the Company is to finance various individuals, corporates, firms, societies and Industrial enterprises by way of making loans and advances in India and to carry out all such activities as may be ancillary to the achievement of main objectives of the Company.

INDUSTRY STRUCTURE AND DEVELOPMENT:

Non-banking financial companies (NBFCs), public and private banks, and financial institutions form the four broad constituents of the credit ecosystem of the Indian financial sector, with NBFCs being a key pillar therein.

NBFCs remain an important constituent of India?s financial sector, and continue to leverage their superior understanding of regional dynamics and customised products and services to expedite financial inclusion in India. Lower transaction costs, innovative products, quick decision making, customer orientation and prompt service standards have differentiated NBFCs from banks.

Considering the reach and expanse of NBFCs, these entities are well-suited to bridge the financing gap in a large country like India. Systemically important NBFCs have demonstrated agility, innovation and frugality to provide formal financial services to millions of Indians.

The sector has undergone remarkable growth and has established itself as a significant player in the country?s financial landscape. As of FY 2024, the NBFC sector reached an impressive size of US$ 560 billion, underscoring its influence in the financial domain. Growth in the business of NBFCs is primarily attributed to a substantial increase in the demand for specialised financial services, particularly from Micro, Small, and Medium Enterprises (MSMEs), which typically face challenges in obtaining loans from traditional banks. Moreover, the rise of digitisation has been a driving force behind the NBFC sector?s growth. Adoption of digital platforms has enabled NBFC?s to broaden their customer base, streamline operations, reduce costs and enhance overall customer experience. This transformation is further accentuated by the role of emerging technologies like artificial intelligence, machine learning, robotic process automation and big data.

NBFCs are stronger and more resilient today, and better positioned in almost all operationally critical parameters. Provisioning levels have also increased in the past couple of years, as NBFCs created management overlays to provide for uncertainty pertaining to the pandemic. Overall, the sector has much stronger balance sheets today.

NBFCs also contribute to capital formation in the economy by channelling savings into productive investments. They mobilize funds from various sources and invest them in projects and businesses that require financing. NBFCs indirectly contribute to overall economic growth. Their role in credit intermediation helps in stimulating consumption and investment, leading to economic expansion.

Your Company?s performance for the F. Y. 2024-25 has to be viewed in the context of aforesaid economic and market environment.

II. OPPORTUNITIES AND THREATS:

The establishment of Non-Banking Financial Companies (NBFCs) in India is driven by various threats and challenges that traditional banking institutions may not be equipped to address adequately. These risks include potential asset-liability mismatches, credit concentration risks, and operational vulnerabilities. As a result, regulatory oversight is crucial to ensure the stability of the NBFC sector and protect the interests of consumers and investors. The Reserve Bank of India (RBI) closely monitors NBFCs and implements prudential regulations to mitigate these risks and promote a robust and resilient financial system in the country.

NBFCs have various ways to grow their business, including obtaining affordable loans from multilateral development banks and using blended finance instruments to access concessional capital. Additionally, NBFCs can transform their operations by utilising digital tools and resources, which not only reduces their environmental impact but also improves governance and resource management. Overall, opportunities and sustainability are important drivers for growth in the NBFC sector and being innovative and ahead of the curve will lead to success in the market.

NBFC creates an opportunity in creating for the Indian financial system, contributing significantly to economic growth, financial inclusion, and credit availability. Following are the areas where NBFC sector played a crucial role in India?s1 overall development over the years:

1. Credit Penetration and Financial Inclusion: NBFCs have been instrumental in increasing credit penetration in India, especially in regions and sectors where traditional banks have limited reach. They have been successful in catering to the needs of underserved and unbanked segments of the population, contributing to financial inclusion.

2. Diverse Financial Products: NBFCs have introduced innovative and specialized financial products to meet the specific needs of different customer segments. From microfinance for the economically weaker sections to housing finance and vehicle loans, NBFCs have diversified the range of financial services available in the country.

3. Complementing Banking Sector: NBFCs complement the role of banks by providing additional channels for credit intermediation. They have been crucial in easing the pressure on the banking sector by taking up certain types of lending and serving niche markets, thereby promoting a more balanced and diversified financial system.

4. Supporting MSMEs and Infrastructure Development: NBFCs play a significant role in supporting the growth of Micro, Small, and Medium Enterprises (MSMEs), which are vital contributors to the Indian economy. They also contribute to infrastructure development by financing projects in this sector.

5. Job Creation: The growth of the NBFC sector has led to increased employment opportunities in various financial services-related roles. This has a positive impact on the overall economy by generating income and increasing consumer spending.

6. Enhanced Competition and Innovation: The presence of NBFCs has spurred healthy competition in the financial sector, leading to innovation in products and services. This benefits consumers as they get access to a broader range of financial products at competitive rates.

7. Rural and Agricultural Finance: NBFCs have played a significant role in rural and agricultural finance. They have supported farmers and rural businesses by providing credit and financial services tailored to their needs.

Further, a major threat appears to be on account of further increase in interest rates trends in takes over of loans, which might affect the profitability of the Company. However your Company is confident of facing the challenges and is optimist about the sustenance of this finance segment for quite a long time.

In conclusion, the NBFC sector has significantly contributed to Indias overall development by expanding credit access, promoting financial inclusion, supporting economic growth, and offering innovative financial products. Its continued growth and evolution will remain vital for sustaining and strengthening Indias financial ecosystem in the future.

III. SEGMENT-WISE PERFORMANCE:

The Company is engaged in a single segment i.e. finance/lending. Details of performance have been provided in this report.

IV. OUTLOOK:

The Non-Banking Financial Company (NBFC) sector is poised for continued expansion in FY 2024 25, driven by strong macroeconomic fundamentals, increased credit demand, and evolving digital infrastructure. With Indias GDP projected to grow at a steady pace and a supportive regulatory environment in place, NBFCs are expected to play an increasingly vital role in credit delivery, especially to underserved and unbanked segments of the population.

Credit growth is likely to remain robust in FY 2024 25, led by rising demand for personal loans,

MSME financing, and vehicle finance. The sector is expected to cross 50 trillion in Assets Under Management (AUM), continuing its momentum from FY 2023 24. The structural shift towards formal credit, aided by digital platforms and partnerships with fintechs, will further enable NBFCs to scale efficiently and improve customer outreach.

Asset quality is expected to remain stable, backed by strengthened risk assessment practices and tighter underwriting norms. The GNPA ratio, which stood at 2.5% at the end of FY 2023 24, is likely to remain under control, though heightened vigilance will be necessary in unsecured consumer segments. Regulatory measures introduced by the Reserve Bank of India in late 2023, including increased risk weights on unsecured lending, are expected to moderate excessive risk-taking and improve the sector?s long-term resilience.

The capital position of NBFCs is projected to remain healthy, with CRAR levels well above the regulatory minimum. This will provide sufficient headroom for growth and enable institutions to absorb external shocks if needed.

The sector will also see increasing alignment with banking standards in areas such as liquidity management, governance, and compliance, as regulatory convergence continues under the RBI?s scale-based regulation framework. These changes will reinforce sectoral discipline while supporting sustainable growth.

India Finsec Limited views FY 2024 25 as a year of opportunity and consolidation. The Company aims to build on its existing foundation by maintaining a prudent balance between growth and risk. Strategic priorities include enhancing digital capabilities, deepening customer engagement, strengthening internal risk controls, and investing in talent development. With a forward-looking approach and continued regulatory compliance, the Company aspires to improve its operational and financial performance while contributing to the broader objective of financial inclusion.

V. RISK MANAGEMENT:

In view of the growing volatility in the operating environment impacting global businesses on an unprecedented scale, we are reinforcing the risk management and mitigation mechanism. It is a fundamental aspect of good governance and prudent business practices, contributing to the long-term success and sustainability of the organization.

Incorporating risk management as an integral part of the business strategy requires a systematic approach, involving risk assessments, risk appetite determination, risk monitoring, and periodic reviews. It also necessitates a risk-aware culture where employees at all levels understand their roles in managing risks and are encouraged to report potential issues promptly. Ultimately, effective risk management strengthens a companys resilience and contributes to its long-term success in a dynamic and unpredictable business landscape.

VI. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company?s internal control system is designed to ensure operational efficiency, protection and conservation of resources, accuracy and promptness in financial reporting and compliance with laws and regulations. The internal control system is supported by an internal audit process for reviewing the adequacy and efficiency of the Company?s internal controls, including its systems and processes and compliance with regulations and procedures. Internal Audit Reports are discussed with the Management and are reviewed by the Audit Committee of the Board which also reviews the adequacy and effectiveness of the internal controls in the Company. The Company?s internal control system is commensurate with the size, nature and operations of the Company.

VII. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

The financial performance of the Company during the year under reference was reasonably good. For detailed information, please refer to Directors? Report, which forms part of this Annual Report.

VIII. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED:

We recognize people as our most valuable asset and we have built an open, transparent and meritocratic culture to nurture this asset. Talent Management is a key people planning tool that provides an integrated means of identifying, selecting, developing and retaining top talent within our Organization. Attrition has been managed well and has been below industry benchmarks. India Finsec Limited has kept a sharp focus on employee engagement. We have a strong system of grievance handling too. No concern of our people goes without addressing. We strive for excellence by thriving on our positivity.