The Management Discussion and Analysis Report for the year ended 31st
March, 2023 as stipulated under Regulation 34(2) read with Schedule V of SEBI (LODR)
Regulations 2015 have been included in consonance with the Code of Corporate Governance as
approved by The Securities and Exchange Board of India (SEBI). Investors are cautioned
that these discussions contain certain forward looking statements that involve risk and
uncertainties including those risks which are inherent in the Company?s growth and
strategy. The company undertakes no obligation to publicly update or revise any of the
opinions or forward-looking statements expressed in this report consequent to new
information or developments, events or otherwise.
The operational performance and future outlook of the business has been
reviewed by the management based on current resources and future development of the
Company.
ECONOMIC OVERVIEW OF FINANCE INDUSTRY:
GLOBAL ECONOMY
Last two years have been the struggling to overlap crises, the latest
being the liquidity trouble in a series of global bank crises. Global economic activity is
experiencing a broad based and sharper than expected slowdown. The cost of living crisis,
tightening financial conditions in most regions , Russia?s invasion of Ukraine and
the lingering Covid -19 pandemic all weight heavily on the world economic outlook.. Global
growth slowed in 2022 to 3.2% more than 1 percentage point weaker than expected, mainly
weighed down by Russia?s war of aggression in Ukraine. Global growth has stabilized
towards the end of the year but the improvement is fragile. Policymakers are confronted
with a challenging trade-off: maintaining near-term support for the global economy while
preventing unintended consequences and medium-term financial stability risks. A prolonged
period of extremely easy financial conditions, while needed to sustain the economic
recovery, may result in overly stretched asset valuations and could fuel financial
vulnerabilities. Some warning signs for example, increased financial risk- taking and
rising fragilities in the nonbank financial institutions sector point to a deterioration
in the underlying financial stability foundations. If left unchecked, these
vulnerabilities may evolve into structural legacy problems, putting medium-term growth at
risk and testing the resilience of the global financial system
INDIAN ECONOMY
In FY2023, the Indian economy faced multiple challenges. The
country?s retail inflation indicator, consumer price inflation (CPI) went above the
RBI?s tolerance range of 6% in January 2022. It remained above this range for almost
ten months, right up to October 2022. Rising international crude prices coupled with
inimical domestic weather conditions kept food prices high, fuelling retail inflation. The
government cut excise and customs duties and restricted exports to cool off inflation.
Like other central banks, the RBI raised the monetary policy rates and reduced excess
systemic liquidity. Major areas of concern were elevated commodity prices, higher retail
inflation, depreciation of the Indian rupee and a rising current account deficit (CAD).
The Government of India has introduced several reforms to liberalise,
regulate and enhance this industry. The Government and Reserve Bank of India (RBI) have
taken various measures to facilitate easy access to finance for Micro, Small and Medium
Enterprises (MSMEs). These measures include launching Credit Guarantee Fund Scheme for
MSMEs, issuing guideline to banks regarding collateral requirements and setting up a Micro
Units Development and Refinance Agency (MUDRA). With a combined push by Government and
private sector, India is undoubtedly one of the worlds most vibrant capital markets.
PROACTIVE MEASURES BY THE GOVERNMENT BRINGS INFLATION WITHIN
RBI?S TOLERANCE
LIMIT
Consumer Price Inflation: (CPI)
The Survey states that the Consumer price inflation in India went
through three phases in 2022. A rising phase up to April 2022 when it crested at 7.8 per
cent, then a holding pattern at around 7.0 per cent up to August 2022 and then a decline
to around 5.7 per cent by December 2022. The rising phase was largely due to the fallout
of the Russia-Ukraine war and a shortfall in crop harvests due to excessive heat in some
parts of the country. Excessive heat in summer and uneven rainfall thereafter in some
parts of the country affected the farm sector, reducing supply and causing prices of some
major products to rise.
Policy measures for price stability:
RBI?s Monetary Policy Committee increased the policy repo rate
under the liquidity adjustment facility
(LAF) by 225 basis points from 4.0 per cent to 6.25 per cent between
May and December 2022. Central Government has undertaken fiscal measures like reduction in
excise duty on petrol and diesel, prohibition of the export of wheat products, imposition
of export duty on rice, reduction in import duties and cess on pulses, rationalization of
tariffs and imposition of stock limits on edible oils and oil seeds, maintenance of buffer
stock for onion and pulses and rationalization of import duties on raw materials used in
the manufactured products.
INDUSTRY STRUCTURE AND DEVELOPMENTS:
The NBFC sector saw a largely stable outlook for major NBFC?s.
From the perspective of larger financial systems, scheduled commercial banks continued to
be a dominant players accounting for nearly 47% of the bilateral expo- sure followed by
Asset Management Companies managing mutual funds, NBFC?s, Insurance Companies,
Housing Finance Companies and all India Financial Institutions.
For several years, NBFCs have rapidly emerged as an important segment
of the Indian Financial System. The sectors now being recognized as complementary to the
banking sector due to the implementation of innovative marketing strategies, introduction
of tailor made products, customer oriented services, attractive rates of return on
deposits and simplified procedures. NBFCs in India have recorded marked growth in recent
years. After their existence, they are useful and successful for the evolution of a
vibrant, competitive and dynamic financial system in Indian money market. The success
factors of their business has been by making the most of their ability to contain risk,
adapt to changes and tap demand in markets that are likely to be avoided by the bigger
players. Thus the need
foruniformpracticesandlevelplayingfieldforNBFCsinIndiaisindispensable.
NBFCs
Over the past few years, NBFCs have undergone a significant
transformation and today they form an important component of India?s financial
system. Playing a critical role in the development of infrastructure, transport and
employment generation, NBFCs are changing the business loan landscape in the country. Most
NBFCs, leverage alternative and tech-driven credit appraisal methodologies to assess the
credit worthiness of prospective borrowers.
This difference in approach allows them to meet loan requirements of
individuals and businesses left traditionally underserved by banks. With the introduction
of e-KYC, making borrowing an instant and hassle-free experience, NBFCs are already
offering the right financial products to consumers and small businesses in a customized
manner. The use of technology to optimize business processes also keeps cost overheads to
a minimum, enabling credit to be availed at highly competitive interest rates.
Key Opportunities
Increasing the penetration in the Micro, Small and Medium Enterprise
(MSME) segment with new and dynamic operating models
Synergistic alliances with fintech companies to tap niche markets.
Accessingnewcustomersandcheaperfundingsourcesbydevelopingaviableco-
lending business model. Tapping into the fast-growing e-commerce segment.
Diversifying assets by targeting new profitable segments and developing
the capabilities required to serve those segments.
Increasing fee income through advisory services.
Using digital competencies and tools to improve sales productivity the
use of advanced analytics and machine learning to build propensity models for lead
generation, making real-time offers available to sales representatives by using customer
data from multiple internal and external sources.
Initiatives launched by the RBI to support NBFCs
| Measures |
RBI guidelines |
Impact |
| Increasing exposurelimit |
The RBI increased the counterparty exposure limit of banks to
a single NBFC to20% of Tier-I capital from 15%. |
While the measure was intended toencourage banks to lend more
to NBFCs,banks have been largely cautious andhave refrained from making the best useof
higher limits. Many banks are still below the former limit. |
| Priority sector classification |
Loans given by banks to NBFCs for lending to agriculture,
micro and small enterprises, and housing to be classified asPriority SectorLending (PSL) |
The measure has benefit some of thelarger NBFCs and
specialized NBFCs. However, it has not directly addressed the refinancing challenges of
the NBFC sector. |
| Partial credit guarantee |
GOI has created a mechanism whereby it will provide partial
credit guarantee to banks for the purchase of NBFC assets, amounting to Rs. 1 trillion
during 2019- 20. The guarantee will be provided on a one- time basis for six months for
public sector bank?s first loss of up to 10%. |
The measure is in the initial stages of implementation.
Market participants are confident that the guarantee isadequate to cover typical losses.
This could helpsome of the large and mid- sized NBFCs with their liquidity needs for about
six months. |
| Co-origination model |
The RBI released guidelines on co-origination of loans by
banks and non-deposit taking NBFCs in the priority sector.NBFCs must take a minimum
exposure of20% with the remaining contribution bythe participating bank |
There are obvious benefits from this arrangement in terms of
the liquidity support, especially for struggling NBFCs. The NBFCs are also likely to
benefit from the risk sharing model and will be able to target a new customer base. |
| Securitization |
The RBI guidelines on securitization allow NBFCs to
securities their loans with original maturity of more than 5 years. |
NBFCs would benefit from the liquidity generated by
securitization of assets to address problems arising from asset liability mismatch. |
The government has approved 100% FDI for insurance intermediaries and
increased FDI limit in the insurance sector to 74% from 49% under the Union Budget
2021-22.
Government Initiatives:
? In January 2021, the Central Board of Direct Taxes launched an
automated e-portal on the e-filing website of the departmentto process and receive
complaints of tax evasion, foreign undisclosed assets and register complaints against
‘Benami? properties.
? In December 2020, the Reserve Bank of India issued a draft circular
on declaration of dividends by NBFCs, wherein it proposed that NBFCs should have at least
15% Capital to Risk Weighted Assets Ratio (CRAR) for the last 3 years, includingthe
accounting year for which it proposes to declare a dividend
? In November 2020, the Union Cabinet approved the governments equity
infusion plan for Rs. 6,000 crores (US$ 814.54 million) in the NIIF Debt Platform funded
by the National Investment and Infrastructure Fund (NIIF) consisting of
AseemInfrastructure Finance Limited (AIFL) and NIIF Infrastructure Finance Limited (NIIF)
(NIIF- IFL).
? In November 2020, two MoUs were signed one between India
International Exchange (India INX) and Luxembourg Stock Exchange and another between State
Bank of India and Luxembourg Stock Exchange for cooperation in financial services,ESG
(environmental, social and governance) and green finance in the local market.
? On November 11, 2020, The Cabinet Committee on Economic Affairs
approved continuation and revamping of the scheme for financial support to public-private
partnerships (PPPs) in ‘Infrastructure Viability Gap Funding (VGF) Scheme? until
2024-25with a total outlay of Rs. 8,100 crore (US$ 1.08 billion)
SUBSIDIARY COMPANY:
As there are no subsidiaries of the Company, Investment made in
Subsidiaries is NIL.
SEGMENT-WISE PERFORMANCE:
The Company operates in single reported segment with main business of
Finance and Share Trading activity.
OPPORTUNITIES AND THREATS:
Growth of the company?s asset book, quality of assets and ability
to raise funds depends significantly on economy. Unfavorable events in the Indian economy
can affect consumer sentiments and in turn impact consumer decision to purchase financial
products. Competition from a broad range of financial service providers, unstable
political environment changes in government policies/regulatory frame work could impact
the company?s operations. There are several large and profitable opportunities for
NBFCs and the sector plays an important role in the Indian financial system. The key is
for the NBFC sector to grow in a prudential manner while focusing on financial innovation
and in having in place, the adequate risk management systems and procedures before
entering into risky areas. The regulator constantly endeavors to balance the multiple
objectives of financial stability, consumer and depositor protection and regulatory
arbitrage concerns.
RISKS AND CONCERNS:
As an NBFC, Indian Inoftech and Software Limited is exposed to Credit,
Liquidity and Interest Rate Risk. The Company takes risk management seriously and its
procedures and policies in the area are well defined and considered appropriate for the
assessment and management of individual risk categories. Sustained efforts to strengthen
the Risk Framework have yielded consistently better outcomes for the company.
Company is well placed on the liquidity front and appropriate policies
exist for underwriting credit risk. The Company endeavors to continuously learn and
modifies its policies to manage the aforementioned risks.
The Audit Committee has been periodically reviewing the risk profile of
the Company and evaluating the adherence by the branches/ functions of the systems and
processes in place for monitoring, evaluation, assessment and mitigation of risk through a
systematic and effective audit programme. The observations of Audit Committee, if any, on
the risk management are reported to the board.
The key risks are:
Liquidity Risk Interest Rate Risk Credit Risk Regulatory Risk
INTERNAL CONTROL SYSTEM & ADEQUACY:
The company has adequate internal control system commensurate with its
size and business. The company Com- plied with all applicable statutes, policies,
procedures, listing requirements and management guidelines. It Adheres to applicable
accounting standards and polices.
Indian Infotech and Software Limited has robust internal audit
programme, where the internal auditors, an independent firm of chartered accountants,
conduct a risk-based audit with a view to not only test adherence to laid down policies
and procedures but also to suggest improvements in processes and systems. Their audit
program is agreed upon by the Audit Commit- tee. Internal audit observations and
recommendations are reported to the Audit Committee, which monitors the implementation of
such recommendations.
HUMAN RESOURCE:
The Company has excellent combination of experienced and talented
employees. The Company also undertakes on regular basis various training programmes to
keep its employees updated on new technical developments and information which directly
results in optimum capacity utilization and cost effectiveness. The Company?s
relation withits employees continues to be cordial. The Company always reciprocates
commitment to its employees in order to motivate them to perform the best.
FULFILLMENT OF RBI NORMS AND STANDARDS:
The Company continues to fulfill all applicable norms and standards
laid down by the Reserve Bank of India pertaining to prudential norms, income recognition,
accounting standards, asset classification as applicable to NBFC?s (ND) except few,
explanation pertaining to which has been provided in Boards? report.
OUTLOOK:
The company is cautiously optimistic in its outlook for the year
2018-19. The outlook of the company for the year ahead is to diversify risk and stabilize
its asset quality. The Corporate Finance Division will adopt a cautious approach and focus
on customer relationships. This division will look to grow its supply chain, structured
finance and leasing business.
CAUTIONARY STATEMENT:
Statements in foregoing paragraphs of this report describing the
current industry structure, outlook, opportunities, etc., may be construed as
"forward looking statements", based on certain assumptions of future events over
which the Company exercises no control. Therefore, there can be no guarantee as to their
accuracy. These statements involve a number of risks, uncertainties and other factors that
could cause actual results to differ materially from those that may be implied by these
forward looking statements.
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