Indo Credit Capital Ltd Management Discussions

We submit herewith the "Management Discussion and Analysis Report" on the business of the Company as applicable to the extent relevant.

Industrial Scenario - NBFC Sector in India

NBFCs have emerged as a critical pillar of Indias credit delivery mechanism, especially for segments underserved by banks ? such as MSMEs, microfinance borrowers, infrastructure projects, vehicle finance, and consumer lending. As per an updated Industrial Scenario for NBFCs in India based on the latest RBI Financial Stability Report (June 2025) and Department of Economic Affairs updates, NBFCs (including Housing Finance Companies) continue to anchor roughly 16.5% of the countrys total financial system assets, holding a 99% concentration of the shadow banking system.

The Reserve Bank of India (RBI) Financial Stability Report (June 2026) and recent credit trackers from CRISIL and ICRA provided the updated macroeconomic and industry-wide benchmarks for the FY 2025-26 cycle. The sector has seen significant regulatory-driven calibration, causing a intentional deceleration in unsecured assets while solidifying capital protection. NBFCs (including Housing Finance Companies) continue to anchor roughly 16.5% of the countrys total financial system assets, holding a 99% concentration of the shadow banking system. Overall NBFC credit growth moderated to 16-18% YoY in FY26 (down from peak highs in FY24). This reflects the deliberate cooling of unsecured retail segments following stricter risk-weight mandates from the RBI. NBFC market share in small business/MSME lending successfully converged toward the projected 38% threshold by March 2026, driven by a surge in secured loans against property (LAP) and co-lending platforms. Asset quality reached an impressive multi-decadal best. The sector-wide GNPA fell sharply to 2.4% as of March 2026, down from historical pandemic highs. Net NPAs closed at a lean 0.8%. The Systemic Capital to Risk-Weighted Assets Ratio (CRAR) stands rock-solid at 24.6% (with a baseline stress floor hovering around 22.3%). This buffer remains well above the 15% statutory regulatory limit. Average Return on Assets (RoA) for the sector stabilized between 2.2% and 2.4%. Net Interest Margins (NIMs) faced slight compression due to an industry-wide rise in bank-linked borrowing costs. While retail, gold loans (+30%), and infrastructure financing (+10-12%) remained strong, the NBFC-MFI sector witnessed an acute slowdown, plummeting to just 4% AUM growth in FY26. This drop was triggered by rising localized credit stress and aggressive portfolio write-offs, though a sharp cyclical recovery to 20% is projected for FY27.

Policy & Regulatory Landscape

Scale-Based Regulation: Introduced in October 2021, classifies NBFCs into Base, Middle, Upper, and Top Layers, with progressively tighter oversight.

Industry bodies (e.g., FIDC) have urged the government to create a refinance/liquidity window via SIDBI and raise the bank lending limit to NBFCs under Priority Sector Lending from 5% to 10%. In January 2025, RBI began unwinding restrictions on major NBFCs after compliance improvements.

The NBFC sector is positioned for sustained double-digit growth in the medium term, supported by digital adoption, government policy support, and underserved market penetration.

The sectors systemic significance means it will remain under close regulatory watch, but reforms (co-lending, capital norms) are expected to make it more resilient and competitive.

The Reserve Bank of Indias (RBI) Financial Stability Report (June 2026) shifts the classification of AI cyber risk from a standard operational issue to a major systemic financial stability risk. In an industry-wide survey of 33 Scheduled Commercial Banks and 10 Upper-Layer NBFCs, respondents ranked AI-enabled cyber threats as the single most critical risk over the next 12 months. They placed it ahead of traditional ransomware, malware, and application vulnerabilities. To address these vulnerabilities, the RBI introduced the "Cybersecurity, Technology: Risk, Resilience and Assurance Framework Directions, 2026

OPPORTUNITIES, THREATS, CHALLENGES AND OUTLOOK:

Opportunities

NBFCs have served the unbanked customers by pioneering into retail asset-backed lending, lending against securities and microfinance. Following variables in the external environment may be seen as opportunities for the Company:

• NBFCs aspire to emerge as a one-stop shop for all financial services.

• The sector has witnessed moderate consolidation activities in recent years, a trend expected to continue in the near future.

• New RBI guidelines on NBFCs with regard to capital requirements, provisioning norms & enhanced disclosure requirements are expected to benefit the sector in the long run.

• Government and RBI initiatives (such as Jan Dhan Yojana, Digital India, and priority sector lending) continue to promote credit access in semi-urban and rural areas where NBFCs already have a strong presence.

• MSME credit demand is growing at a CAGR of over 15%, with NBFCs market share in small business lending expected to touch 38% by FY26 (CRISIL MI&A data, DEA report).

• Adoption of Al-based credit assessment, e-KYC, and digital disbursement allows NBFCs to scale faster and reduce costs.

• The revised RBI co-lending framework (effective January 2026) enables NBFCs to share risk and funding costs with banks, improving margins and loan book diversity.

• Opportunities in renewable energy finance, supply chain finance, affordable housing, and unsecured personal loans.

• Inclusion in systemic risk assessments and IMF FSAP acknowledgment of sector resilience boosts investor confidence.

Threats

Being a NBFC, the Company has to face various threats as under mentioned -

• Unlike banks, NBFCs cannot accept low-cost demand deposits and depend on bank borrowings or market instruments.

• Rapid changes in monetary policy can compress spreads and increase funding costs.

• Intensifying competition from fintechs, payment banks, and aggressive bank lending in retail and SME segments.

• Convergence of NBFC norms with bank regulations on capital adequacy, provisioning, and disclosure may pressure smaller NBFCs.

• Overexposure to high-risk borrower categories could raise NPAs if macro conditions deteriorate.

• Economic slowdown, currency volatility, and geopolitical events could dampen credit demand.

Challenges

• Despite easing of pandemic-era stress, smaller NBFCs still face difficulties in maintaining adequate liquidity buffers.

• The Scale-Based Regulation framework requires stronger governance, risk management, and capital, increasing operational costs.

• Maintaining low NPAs in the face of rapid loan growth requires stronger underwriting and recovery mechanisms.

• As switching costs are low, NBFCs must continuously innovate in service delivery to retain clients.

• While digital adoption offers opportunities, it also brings cyber security risks and the need for substantial IT investment.

Outlook:

The sector is projected to maintain 15-17% credit growth CAGR between FY24 and FY27, driven by MSME lending, retail finance, and co-lending models. With RBIs co-lending norms, capital enhancement requirements, and relaxation of earlier restrictions on major NBFCs, the sector is moving toward a more resilient and transparent framework. NBFCs role in bridging the credit gap, especially in underserved markets, will keep them central to Indias financial ecosystem. Strong demand, technological advancement, and policy support point to sustained growth, although profitability will hinge on effective cost control, prudent risk management, and diversification.

The NBFC sector is projected to maintain a steady 16-18% credit growth rate, with overall Assets Under Management (AUM) securely on track to cross the T50 lakh crore threshold by March 2027. Growth is primarily anchored by secured MSME lending, vehicle finance, and a high-performing gold loan segment, effectively counterbalancing the regulatory slowdown in unsecured personal credit. While core retail and infrastructure financing are moving fast, the NBFC-MFI (Microfinance) segment faced a steep deceleration down to 4% growth in FY26 due to localized asset quality stress, though a cyclical rebound to 20% is projected for FY27. Growth is no longer unrestrained. The structural expansion is heavily governed by the RBIs strict risk-weight mandates on consumer loans and strict enforcement of the 10% minimum loan retention rule in co-lending platforms. To optimize capital, NBFCs have aggressively turned to the off-balance-sheet asset pools. This trend pushed Q1 FY27 securitisation volumes to a record peak of ~T60,000 crore, heavily driven by gold loan pools. Average sector Return on Assets (RoA) remains healthy at 2.2% to 2.4%. However, peak Net Interest Margins (NIMs) are facing minor compression due to rising bank-linked borrowing costs. Institutional durability is no longer judged solely on Gross NPAs (which stand at an excellent multi-decadal low of 2.4%). Long-term stability now hinges on mitigating AI-driven cyber vulnerabilities and managing high third-party vendor concentrations flagged directly by the RBI.

DISSCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE.

The financial statements have been prepared in accordance with the requirements of the Companies Act, 2013 and applicable accounting standards issued by the Institute of Chartered Accountants of India. The details of the financial performance of the Company are appearing in the Balance Sheet, Profit & Loss Accounts and other financial statements forming part of this annual report.

INTERNAL CONTROL SYSTEM

Given the magnitude and nature of its business, the Company has maintained sound and commercial practice with an effective internal control system. The system ensures that all transactions are authorized, recorded and reported correctly to safeguard the assets of the Company and protect them from any loss due to unauthorized use or disposition. The adequate internal information system is in place to ensure proper information flow for the decision- making process. The Company also has well-established processes and clearly defined roles and responsibilities for people at various levels.

The control mechanism also involves well documented policies, authorization guidelines commensurate with the level of responsibility and standard operating procedures specific to the respective businesses, adherence to which is strictly ensured. Internal audit is carried out frequently to create awareness and to take corrective actions on the respective units or areas, which need rectification. These reports are then reviewed by the "Management Team" and the "Audit Committee" for follow-up action.

HUMAN RESOURCE DEVELOPMENT

The Company regards its human resources as amongst its most valuable assets and proactively reviews policies and processes by creating a work environment that encourages initiative, provides challenges and opportunities and recognizes the performance and potential of its employees attracting and retaining the best manpower available by providing high degree of motivation.

Your Company believes in trust, transparency & teamwork to improve employees productivity at all levels.

CAUTIONARY STATEMENT

The management discussion and analysis report containing your Companys objectives, projections, estimates and expectation may constitute certain statements, which are forward looking within the meaning of applicable laws and regulations. The statements in this management discussion and analysis report could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operation include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.

	For & on behalf of the Board of Director
	For Indo Credit Capital Limited
	Sd/-
	Ramkaran Saini
Date: 18/08/2026	Whole Time Director
Place: Ahmedabad	DIN:00439446
Registered Office:
304 Kaling, Near Mt. Carmel School,
B/h. Bata Show Room,
Ashram Road, Ahmedabad 380009
E-mail: indocredit@rediffmail.com
Phone: 079-26580366
Website: www.indocreditcapital.com