Indian Infotech and Software Ltd Management Discussions

The Management Discussion and Analysis Report for the year ended 31^st March, 2025 as stipulated under Regulation34(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 Companys 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.

Macroeconomic Overview

As per the International Monetary Fund (IMF) (World Economic Outlook April 2025 outlook), global GDP growth is projected at 2.8% in CY2025 and 3.0% in CY2026 as compared to 3.3% projected in January 2025 for both CY2025 and CY2026. Global growth numbers have been revised on account of swift escalation of trade tensions and high level of policy uncertainty intensifying downside risks. Global inflation is projected at 4.3% in CY2025 and 3.6% in CY2026. Furthermore, the risks to inflation remain significant going forward, with tariffs being imposed by US on imports. US economy contracted by 0.2% in the first quarter of CY 2025 on account of lower consumer and government spending, offset by increase in fixed investments. The euro areas GDP rose 0.6% in the first quarter of 2025 vs a growth of 0.3% in the previous quarter. India is expected to remain one of the fastest-growing economies in the world despite challenges posed by geopolitical instability. In May 2025, the National Statistical Office (NSO), in its first revised estimates of national income, estimated the countrys real gross domestic product (GDP) to have expanded 6.5% onyear in Fiscal 2025.

The Trump Administration in the United States (US) announced a host of tariffs on products such as automobile, automobile parts, steel and aluminium in the first three months of CY2025. On April 5, 2025, US announced additional tariff of 10% on nearly all countries in addition to the existing tariffs. China and European Union announced retaliatory tariffs on the US. On April 9, 2025, US government paused differential tariffs for most countries for 90 days excluding China which will face a higher tariff of 125 percent. Introduction of tariffs on major global economies is expected to increase downside risks on global growth.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

The robust economic growth, which the RBI Governor predicts will push Indias growth rate to 7.2 percent in the current financial year, is expected to fuel strong credit demand and support the NBFC sectors profitability. This growth, coupled with current regulatory measures, will help mitigate the risk of rising credit costs on profitability.

NBFCs have demonstrated strong financial health, similar to the banking sector. As of the end of March 2024, the gross non-performing assets (GNPAs) of both scheduled commercial banks (SCBs) and NBFCs were below 3 per cent of total advances. Provisional data shows that the GNPA ratio for NBFCs stood at 2.5 per cent at the end of March 2024.

Capital adequacy for NBFCs remained comfortable, and asset quality improved as of the end of September 2023. Profitability indicators, such as Return on Assets (RoA) and net interest margin (NIM), remained strong, and the cost-to-income ratio improved. This sustained robust credit growth was supported by a strong demand for retail credit.

Between September 2022 and September 2023, the NBFC sector experienced a significant upward trend in credit growth, with gross advances increasing by 20.8 per cent compared to 10.8 per cent the previous year. This growth was predominantly driven by a substantial rise in personal loans, which grew by 32.5 per cent, and lending to the agriculture industry, which saw a 43.7 per cent increase. Over the past four years, the personal loans category surged by a compound annual growth rate (CAGR) of 33 per cent, significantly outpacing the overall credit growth of nearly 15 per cent CAGR.

NBFCs Credit to GDP Ratio

The credit growth of NBFCs which has trended above Indias GDP growth historically, is expected to continue to rise at a faster pace. NBFCs have shown remarkable resilience and gained importance in the financial sector ecosystem, growing from less than Rs 2 trillion AUM at the turn of the century to Rs. 48 trillion at the end of FY25. During FY19 to FY25, NBFC credit is estimated to have witnessed a growth at CAGR of 13.2%. NBFCs AUM as of FY19 was approximately Rs. 23 trillion which has grown at a 6 year CAGR of 13.2% to Rs. 48 trillion as of FY25. Rapid revival in the economy is expected to drive consumer demand in FY26, leading to healthy growth in NBFCs

NBFC credit to grow at 15-17% between FY25 and FY28

With high focus on retail loans, NBFCs are driving financial inclusion While banks are the primary institutions for banking in India, retail loan portfolio forms only 36% of the overall banking credit as of FY25. Other focus areas for banks are wholesale lending to large corporates, credit to services sector and agriculture sector. Lower presence of banks in the retail space has created an opportunity for NBFCs to penetrate the segment which has also led to greater financial inclusion as NBFCs also cater to riskier customer profiles with lower income. Compared to that of banks, NBFC credit to retail segment forms 47% of its portfolio as of FY25 indicating larger focus on retail customers. Rural areas, presents vast market opportunity for NBFCs. NBFCs have played a major role in meeting this need, complementing banks and other financial institutions. NBFCs help fill gaps in the availability of financial services with respect to products as well as customer and geographic segments. A strong linkage at the grassroots level makes them a critical cog in the financial machine. They cater to the unbanked and underbanked masses in rural and semi-urban India and lend to the informal sector and people without credit histories, thereby enabling the government and regulators to realize the mission of financial inclusion

The NBFC sector has, over the years, evolved considerably in terms of size, operations, technological sophistication, and entry into newer areas of financial services and products. The number of NBFCs as well as the size of the sector have grown significantly, with several players with heterogeneous business models starting operations. The increasing penetration of neo-banking, digital authentication, and mobile phone usage as well as mobile internet has resulted in the modularization of financial services, particularly credit. Overall NBFC credit during FY19 to FY25, is estimated to have witnessed a CAGR of ~13.2% which was majorly led by retail segment which is estimated to have witnessed a CAGR of ~15.4%, while NBFC nonretail credit is estimated to have witnessed a growth of ~11.5% during the same time period.

Institutional and Regulatory Initiatives for NBFCs

The RBI has warned micro-lenders and non-bank financiers against usurious lending practices, particularly targeting small-ticket borrowers. Despite general compliance with guidelines on Key Facts Statements (KFS), some regulated entities still impose undisclosed fees and high-interest rates. The RBI Governor Shaktikanta Das emphasised that customer protection remains a top priority for the Reserve Bank, highlighting the need for transparent and fair lending practices in the microfinance sector and among non-banking financial companies (NBFCs)

The Finance Industry Development Council (FIDC), representing non-banking financial companies (NBFCs), has urged the Reserve Bank of India (RBI) to review its recent draft circular on infrastructure provisioning. NBFCs demand flexibility in supporting the sector, particularly regarding standard asset provisions during the construction phase. The draft proposes maintaining a general provision of 5 per cent of the funded outstanding for all existing and stressed exposures on a portfolio basis, a measure FIDC seeks to amend.

Recently, NBFCs have explored new avenues to access funding, diversifying their sources beyond traditional channels. Co-lending partnerships with banks, facilitated by the RBIs regulatory framework, have emerged as a significant source of funds for NBFCs. These collaborations enable NBFCs to leverage the low-cost funds available with banks to deliver credit to the underserved segments.

The foreign direct investment inflows into the NBFC sector have surged in recent years, driven by favourable regulatory policies and Indias robust economic growth prospects. Venture capital and private equity firms have also shown keen interest in investing in NBFCs, recognising their potential to tap into underserved markets and drive financial inclusion.

The RBI has asked NBFCs to restrict cash loans to 20,000, according to media reports. This comes after the regulator took action against IIFL Finance for several violations including disbursal and collection of loans in cash over the statutory limit.

The RBI has adopted a hybrid regulatory approach for NBFCs, combining activity-based and entity-based regulations to safeguard financial stability and protect customers. This method leverages the strengths of both approaches to achieve a comprehensive and flexible regulatory framework, suitable for the evolving NBFC sector.

Entity-Based Regulations: Entity-based regulations offer a holistic view of overall risk exposure for specific financial institutions, addressing systemic risks arising from various activities within a single entity. These regulations are generally easier to implement and enforce, as they apply uniformly to a set of entities. But they may be less precise in targeting specific activities and slower to adapt to changes.

Activity-Based Regulations: Activity-based regulations allow for precise targeting of risky financial activities, regardless of the type of institution involved. This approach can result in a fragmented regulatory landscape, making oversight more complex, and systemic risks from multiple activities may remain undetected. To avoid regulatory arbitrage, the principle of "same risk, same activity, same regulation" is advocated but needs to be calibrated for effective yet non-stifling regulations.

Regulatory Approach: The RBI has developed a nuanced approach, recognizing the specialized activities of NBFCs, each carrying unique risks. This approach balances prudential regulations, focusing on solvency and financial stability, with conduct of business regulations, ensuring fair practices towards customers. The current regulatory landscape combines entity and activity-based approaches under these two pillars.

Peer to Peer Lending Platforms (NBFC-P2Ps):

Prudential regulations for NBFC-P2Ps are kept minimal since they do not undertake credit risk themselves, focusing on basic entry-level requirements.

Conduct norms are stringent, comparable to other regulated financial entities, due to the trust placed by lenders on these platforms for services like KYC authentication and credit scoring.

Microfinance Sector:

The regulatory framework for microfinance loans is entity-agnostic and activity-based, targeting customer protection for vulnerable borrowers.

The framework ensures comprehensive regulation across all regulated entities providing microfinance loans.

Infrastructure Debt Fund-NBFCs (IDF-NBFCs):

The regulatory framework for IDF-NBFCs has been harmonized with other NBFCs engaged in infrastructure financing.

Requirements like a sponsor have been withdrawn, and regulatory capital requirements and exposure norms aligned with NBFC-IFCs and NBFC-ICCs.

Regulatory Calibrations:

Despite some harmonization, significant differences remain between regulations for banks and NBFCs, especially those in the upper layer. For instance, the minimum initial capital requirement for a universal bank is 1000 crore, compared to

10 crore for an NBFC. Banks face stricter scrutiny for licensing and have restrictions on activities, priority sector lending requirements, and detailed branch authorization policies, unlike NBFCs. Additionally, while the regulatory capital requirement for NBFCs is higher at 15 percent compared to 9 percent for banks, it only covers credit risk, not market and operational risks as it does for banks.

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.

Road Ahead

The future of Non-Banking Financial Companies (NBFCs) in India is poised for significant growth and transformation. To capitalize on emerging opportunities, NBFCs need to focus on enhancing financial literacy and fostering responsible borrowing and saving behaviours. With technology becoming more integral to daily life, the risk of cyber fraud and unscrupulous activities increases. By empowering individuals with financial knowledge, NBFCs can drive sustainable and responsible economic growth, ensuring that all segments of society benefit from financial advancements.