Indostar Capital Finance Ltd Management Discussions

Global Economy: Resilience Amid Policy and Geopolitical Transitions

The global economy entered 2026 at a critical inflection point, balancing moderating inflation and easing monetary conditions against rising geopolitical uncertainties and structural shifts in trade, investment and industrial policy. Despite persistent global challenges, economic activity remained relatively resilient during 2025, supported by strong public and private investments, technology-led capital expenditure and softer energy prices for a significant part of the year.

Global GDP expanded by 3.4% in 2025, with growth remaining uneven across regions. Advanced economies recorded growth of 1.9%, supported by fiscal spending, infrastructure investments and industrial policies focused on strengthening domestic manufacturing, energy security and technological competitiveness. Emerging Market and Developing Economies (EMDEs) continued to serve as the primary engine of global growth, expanding by 4.4%, led by Chinas growth of 5.0%.

National governments increasingly relied on fiscal and industrial policies to stimulate economic activity and strengthen strategic sectors. Significant investments were directed towards semiconductors, clean energy, advanced manufacturing, digital infrastructure and supply chain resilience, resulting in a gradual reconfiguration of global investment and trade flows.

Technology emerged as one of the defining themes of the year, with substantial capital being deployed towards artificial intelligence, cloud infrastructure, semiconductor manufacturing and data centres. These investments are expected to reshape productivity, competitiveness and long-term economic growth across industries.

Global inflation moderated to 4.1% during 2025, aided by easing supply chain disruptions and softer commodity prices.

The moderation in inflation enabled several central banks to cautiously initiate monetary easing measures. However, policymakers remained vigilant as inflationary pressures persisted across certain economies and borrowing costs continued to remain above pre-pandemic levels.

Looking ahead, geopolitical developments remain a key source of uncertainty. Escalating tensions in the Middle East during early 2026 renewed concerns regarding energy security and inflation, resulting in Brent crude prices increasing from approximately USD 70 per barrel towards the USD 100 per barrel mark. Against this backdrop, the IMF projects global growth to moderate to 3.1% in 2026 before improving marginally to 3.2% in 2027.

India Continues to Outpace Major Economies

India remained one of the worlds fastest-growing major economies during 2025-26, with real GDP estimated to have expanded by 7.7%, supported by resilient domestic demand, sustained public investment, healthy private sector participation and broad-based sectoral growth. Headline inflation remained well contained at 3.4% in March 2026 and 3.5% in April 2026, reflecting continued macroeconomic stability.

Despite an uncertain global environment, India strengthened its economic fundamentals through coordinated fiscal, monetary and structural reforms. During the year, S&P Global Ratings upgraded Indias sovereign rating from BBB- to BBB, its first sovereign rating upgrade in nearly eighteen years, while the implementation of GST 2.0 further enhanced the countrys economic resilience and long-term growth prospects.

Policy Reforms and Monetary Easing Supporting Investment-Led Growth

As inflation moderated, the Reserve Bank of India initiated a calibrated monetary easing cycle to support growth and liquidity. During the year, the repo rate was reduced by 125 basis points to 5.25%, while the Cash Reserve Ratio (CRR) was lowered from 4.0% to 3.0%, improving liquidity and supporting credit growth.

On the fiscal front, the Union Budget 2026-27 reaffirmed the Governments focus on infrastructure development, manufacturing and productivity enhancement. Continued public investment and Production Linked Incentive (PLI) schemes strengthened industrial growth and supply-chain competitiveness, while the services sector remained the largest contributor to the economy, accounting for over 53% of GDP, supported by growth in information technology, financial services and digital adoption.

Digitalisation, Consumption and MSMEs Expanding the Economic Opportunity Set

Domestic consumption remained a key driver of Indias economic growth during 2025-26, supported by resilient urban demand and a recovery in rural consumption driven by improving agricultural income, lower inflation and stronger economic activity. Rising household confidence and purchasing power continued to support consumption across sectors.

Indias digital transformation accelerated, with the digital economy continuing to outpace overall GDP growth and remaining on track to contribute nearly 20% of national income by 2029-30. Widespread adoption of UPI, the Jandhan bank accounts, Aadhaar identification cards and increasing mobile penetration: the (JAM) Architecture and the Account Aggregator framework strengthened financial inclusion, enabled paperless underwriting and expanded access to formal credit.

The MSME sector remained a key engine of economic growth, with outstanding credit reaching approximately 67.6 lakh crore as of December 2025, reflecting 16% year-on-year growth, while serious delinquencies declined to a five-year low of 1.87%. However, formal credit penetration among Udyam-registered MSMEs remains at approximately 47%, highlighting significant opportunities for further expansion of formal credit.

External Strength and Rural Transformation Underpin Long-Term Growth

Agriculture and allied activities remain integral to Indias economy, contributing nearly one-fifth of national income and supporting approximately 46% of the workforce. The Union Budget 2026-27 allocated approximately 1.63 lakh crore towards agriculture and rural development, while initiatives such as the AI-enabled Bharat-VISTAAR (Virtually Integrated System to Access Agricultural Resources) platform, integrated with AgriStack, are expected to enhance farm productivity and strengthen rural resilience.

Indias external sector remained resilient despite geopolitical uncertainties, with combined merchandise and services exports reaching a record USD 863.11 billion during 2025-26. Foreign exchange reserves increased to USD 681.38 billion as of May 2026, supported by strong remittance inflows and providing a robust buffer against external volatility.

Looking ahead, Indias growth outlook remains favourable, supported by resilient domestic demand, sustained infrastructure investments, accelerating digitalisation and an increasingly formalised economy. While geopolitical tensions, elevated crude oil prices and weather-related risks may pose near-term challenges, strong macroeconomic fundamentals and a supportive policy environment are expected to sustain growth momentum, with real GDP projected to grow by approximately 6.5% in 2026-27.

Industry Overview

Non-Banking Financial Companies (NBFCs)

Indias Non-Banking Financial Company (NBFC) sector continued to play a pivotal role in expanding credit access and driving financial inclusion during 2025-26. Supported by resilient economic growth, rising consumption demand, increasing formalisation of economic activity and accelerating digital adoption, NBFCs strengthened their position as key providers of credit to retail customers,

MSMEs, self-employed borrowers and underserved geographies.

The sector remained one of the fastest-growing segments within the financial services landscape, with NBFC credit growth continuing to outpace that of the banking sector, reflecting their deep customer reach, agile underwriting capabilities and specialised lending models.

Strong Growth Momentum across Lending Segments

The NBFC sector sustained healthy growth during 2025-26 despite evolving regulatory requirements and a calibrated approach to risk management. According to ICRA, retail NBFC AUM expanded by approximately 17% year-on-year during H1 2025-26 and is projected to grow by 17-19% in 2025-26 and 16-18% in 2026-27, driven by strong demand across vehicle finance, gold loans, personal loans, consumer finance and MSME lending. Retail NBFC AUM is expected to exceed 30 lakh crore by 2026-27, while CRISIL Ratings projects overall industry AUM to surpass 50 lakh crore, underscoring the sectors long-term growth potential.

(Sources: ICRA NBFC Retail Sector Outlook, January 2026; CRISIL Ratings, November 2025)

Digitalisation and Technology-Led Transformation

Technology continued to reshape the NBFC landscape during 2025-26, with increased investments in digital lending platforms, artificial intelligence, machine learning and advanced analytics to enhance customer acquisition,

underwriting and operational efficiency. The growing adoption of Aadhaar, UPI and the Account Aggregator framework enabled faster onboarding, improved credit assessment and deeper penetration into semi-urban and rural markets. According to BCG, technology-enabled underwriting and customer servicing have become key differentiators for sustainable growth and portfolio quality.

(Source: BCG NBFC Sector Update H1 2025-26)

Funding Environment Improves

Funding conditions improved during 2025-26 as liquidity eased and bank lending to NBFCs strengthened. According to ICRA, the retail NBFC segments incremental funding requirement is estimated at 3.5-3.7 trillion in 2025-26 and is expected to increase to 4.1-4.3 trillion in 2026-27. NBFCs continued to diversify their funding mix through market borrowings, securitisation and co-lending partnerships, while lower interest rates are expected to reduce the weighted average cost of funds by 10-30 basis points during 2025-26 and 2026-27.

(Source: ICRA NBFC Retail Sector Outlook, January 2026)

Consolidation and Capital Market Activity

2025-26 witnessed increasing consolidation across the NBFC sector, driven by scale requirements, evolving regulatory expectations and growing investor interest. According to CRISIL, private equity investors are expected to accelerate exits through strategic sales, public offerings and secondary transactions, reflecting the sectors growing maturity. Larger NBFCs are expected to benefit from stronger funding access, wider distribution networks and superior technological capabilities, while smaller players continue to face rising compliance costs and competitive pressures.

(Source: CRISIL, PE Exit Cycle Looms for NBFCs, June 2026)

Strengthening Regulatory Oversight

The Reserve Bank of India (RBI) continued to strengthen the regulatory architecture for the NBFC sector during 2025-26. A key development was the consolidation and revision of regulations under the Scale-Based Regulation (SBR) framework, providing a more integrated regulatory structure across NBFCs based on their size, activities and risk profile. The framework continues to classify NBFCs into Base, Middle, Upper and Top Layers, with progressively higher regulatory requirements for entities with greater systemic significance.

RBI also maintained its focus on enhanced supervision of systemically important entities through the Upper Layer framework. During the year, regulatory action, including cancellation of registration of non-compliant NBFCs, further reinforced compliance discipline, governance standards and financial stability across the sector.

Key Regulatory Developments during 2025-26

Development	Implication
Consolidation and Revision of SBR Regulations	Created a more integrated and updated regulatory framework for NBFCs across different layers
Revised Upper Layer NBFC Framework	Enhanced supervision of systemically important entities
Cancellation of 135 NBFC licences	Strengthened sector discipline and compliance standards
Continued Scale-based Regulation	Risk-based and proportionate regulatory oversight
Enhanced Governance Focus	Improved transparency and risk management practices

Asset Quality and Profitability

Asset quality remained broadly stable despite pockets of stress in unsecured retail lending and microfinance. NBFCs strengthened collections, portfolio monitoring and provisioning to manage emerging risks, while maintaining adequate capital buffers. ICRA expects retail NBFC RoA of 2.3-2.5% during 2026-27, supported by stable margins and operational efficiencies.

(Source: ICRA NBFC Retail Sector Outlook, January 2026)

^Outlook^

The long-term outlook for the sector remains favourable, underpinned by rising credit penetration, digital adoption and increasing formalisation of the economy. The sector is expected to continue delivering healthy growth, with retail NBFC AUM projected to grow by 16-18% in 2026-27 and exceed 30 lakh crore, while overall industry AUM is expected to surpass 50 lakh crore. Well- capitalised NBFCs with diversified funding, disciplined risk management and technology- enabled operating models are expected to be best positioned to capitalise on the next phase of industry growth.

(Source: ICRA NBFC Retail Sector Outlook, January 2026; CRISIL Ratings, November 2025)

Indian Vehicle Finance Industry

The Indian vehicle finance industry recorded healthy growth during 2025-26, supported by reduction in the GST rates, improving rural consumption, and rising mobility demand. Increasing credit penetration, digital lending adoption and favourable economic conditions further expanded financing opportunities across Passenger Vehicles, Commercial Vehicles, Two-Wheelers and Farm Equipment.

Indias automobile industry delivered its strongest-ever annual performance during the year, with total vehicle sales growing 10.4% to 2.83 crore units. Passenger Vehicle sales increased 7.9% to 46.43 lakh units, Commercial Vehicle sales grew 12.6% to 10.80 lakh units, two-wheeler sales rose 10.7% to 2.17 crore units, three-wheeler sales expanded 12.8% to 8.36 lakh units, and tractor sales increased to approximately 11 lakh units in 2025-26 from 9.4 lakh units in 2024-25.

Automobile Industry Performance (2025-26)

Segment	2024-25	2025-26	Growth (%)
Passenger Vehicles (lakh Units)	43.03	46.43	7.9
Two-Wheelers (crore Units)	1.96	2.17	10.7
Commercial Vehicles (lakh Units)	9.59	10.80	12.6
Three- Wheelers (lakh Units)	7.41	8.36	12.8
Total Automobile Sales (crore Units)	2.56	2.83	10.4

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Rural markets remained a key growth driver, supported by improving agricultural incomes, reduction in GST, expanding financial inclusion and deeper penetration of organised lenders. Meanwhile, digital onboarding, data-driven underwriting and technology-enabled collections continued to enhance operational efficiency and customer reach.

The transition towards sustainable mobility also gained momentum, with government initiatives such as the PM E-DRIVE (Electric - Drive Revolution in Innovative Vehicle Enhancement) Scheme and a 2,000 crore allocation for EV charging infrastructure supporting long-term growth in electric vehicle financing.

According to CRISIL Ratings, vehicle finance Assets Under Management (AUM) are expected to increase from approximately 9.4 lakh crore in March 2026 to 11 lakh crore by March 2027. At the same time, ICRA estimates the share of pre-owned vehicles in NBFC vehicle finance portfolios will rise from 34% in March 2020 to over 41% by March 2027, reflecting growing demand for affordable mobility solutions.

Vehicle Finance Industry Outlook

Particulars	March 2026E	March 2027E

(Source: March%202027.%20used,ratings%20%C2%B7%20 Acquisition%20cost%20of%20fleet%20operators)

Looking ahead, the outlook for the Indian vehicle finance industry remains favourable. Continued growth in vehicle sales, improving rural demand, increasing EV adoption and ongoing digital transformation are expected to sustain credit demand across vehicle categories. However, environmental factors, including El Nino-related weather variability, floods and other extreme weather events, could affect agricultural activity, rural incomes and vehicle demand in certain regions. While evolving regulations and competitive pressures may present challenges, lenders with strong underwriting capabilities, technology- enabled processes and diversified funding sources are expected to be well positioned to capitalise on emerging opportunities.

Commercial Vehicle Financing Industry

The Indian commercial vehicle financing industry remained resilient during 2025-26, supported by sustained infrastructure development, healthy freight movement, expanding logistics networks and rising transportation demand. According to the Society of Indian Automobile Manufacturers (SIAM), commercial vehicle sales increased 12.6% to 10.80 lakh units, driven by strong demand across both Medium & Heavy Commercial Vehicles (M&HCVs) and Light Commercial Vehicles (LCVs). While M&HCV demand was supported by infrastructure and long-haul freight movement, LCVs benefited from growth in last-mile logistics and e-commerce.

Commercial Vehicle Financing Industry

Particulars	2024-25	2025-26	Growth (%)

NBFCs continue to play a key role in financing small fleet operators, first-time borrowers and customers in semi-urban and rural markets through flexible underwriting and strong distribution networks. The industry is also witnessing rising demand for used commercial vehicle financing. According to ICRA, the share of pre-owned vehicles in NBFC vehicle finance portfolios is expected to increase from approximately 34% in March 2020 to over 41% by March 2027, supported by increasing formalisation of the used vehicle market and favourable risk- adjusted returns.

Looking ahead, continued infrastructure investments, expanding logistics activity and fleet replacement demand are expected to sustain longterm growth in the commercial vehicle financing market.

Used Vehicle Financing

Used vehicle financing has emerged as one of the fastest-growing segments within Indias vehicle finance industry, driven by rising vehicle prices, affordability considerations and the increasing formalisation of the pre-owned vehicle market.

With transaction volumes significantly exceeding those of new vehicles, the segment continues to witness strong demand from first-time buyers, small businesses, transport operators and self-employed individuals.

Financing penetration in the used vehicle market remains substantially lower than that of new vehicles, providing significant headroom for growth. According to ICRA, the share of pre-owned vehicles in NBFC vehicle finance portfolios is expected to increase from approximately 34% in March 2020 to over 41% by March 2027, supported by favourable risk-adjusted returns and expanding organised financing.

Micro Loan Against Property (Micro LAP) Industry

The Micro Loan Against Property (Micro LAP) segment has become an increasingly important component of Indias secured lending landscape, providing formal credit to self-employed individuals, micro enterprises, traders and small business owners. By leveraging residential or commercial property as collateral, the product enables borrowers to access higher loan amounts, longer repayment tenures and more competitive borrowing costs than unsecured credit.

Demand for Micro LAP continued to strengthen during 2025-26, driven by increasing business formalisation, expanding entrepreneurial activity and rising credit requirements among underserved borrower segments. The secured nature of the product supports portfolio stability, while advances in digital sourcing, automated underwriting and property valuation are improving operational efficiency and expanding customer reach.

NBFCs continue to play a pivotal role in the segment through their ability to assess non-traditional income profiles, offer customised lending solutions and serve customers beyond the reach of conventional banking channels. According to SIDBIs MSME Pulse Report, outstanding MSME credit reached 67.6 lakh crore as of December 2025, registering 16% year-on-year growth, while serious delinquency improved to 1.87%. Supported by increasing financial inclusion, digitalisation and sustained demand for secured credit, the long-term outlook for the Micro LAP segment remains favourable.

Insurance

Industry

The Indian insurance industry continued its steady growth during 2025-26, supported by rising protection awareness, increasing financial inclusion, digital adoption and a supportive regulatory environment. According to the Insurance Regulatory and Development Authority of India (IRDAI), the industry collected gross premiums of approximately 11.93 lakh crore during 2024-25, issued over 41.8 crore policies and settled claims worth 8.36 lakh crore.

Technology continues to reshape the sector through digital distribution, AI-enabled underwriting and automated claims processing,

improving customer experience and expanding access across urban and rural markets. Meanwhile, the Government and IRDAIs vision of Insurance for All by 2047, coupled with the increase in the foreign direct investment (FDI) limit from 74% to 100%, is expected to accelerate innovation, capital inflows and insurance penetration.

With a large underinsured population, increasing digital adoption and supportive policy reforms, the Indian insurance industry remains well positioned for sustained long-term growth, creating significant opportunities for insurers, distributors and financial institutions.

IndoStar Capital Finance Limited

IndoStar Capital Finance Limited (IndoStar or the Company) is a middle-layer Non-Banking Financial Company (NBFC) focused on serving the credit needs of underserved retail customers across India through its Vehicle Finance and Micro Loans Against Property (Micro LAP) businesses.

2025-26 marked a defining year in IndoStars transformation journey. Following the successful divestiture of its housing finance subsidiary, the Company sharpened its strategic focus on its core retail lending businesses strengthened its operating model, accelerated digital transformation, enhanced risk management and governance practices and reinforced its balance sheet.

With a scalable distribution network, technology-enabled processes, disciplined underwriting framework, robust governance and internal controls and strong capital position, IndoStar is well positioned to capitalise on opportunities in Indias growing retail credit market while delivering sustainable and profitable growth.

I Focused retail lending franchise with

established positions in the Vehicle Finance and Micro LAP segments, supported by a secured and granular portfolio

Extensive distribution network of 454 branches across 24 States and Union Territories, enabling deep penetration in underserved and high-growth markets

• Technology-led operating model with a cloud-based Loan Origination System, advanced analytics and high digital adoption across customer acquisition, underwriting and collections

• Disciplined risk management framework driven by centralised underwriting, proprietary credit scorecards, early warning systems and continuous portfolio monitoring.

Strong capital adequacy, diversified funding profile and comfortable liquidity buffers, providing financial flexibility to support future growth

• Customer-centric engagement model combining branch-led distribution, referral partnerships, digital self-service capabilities and flexible repayment options

• Experienced leadership team with deep domain expertise across banking, financial services, risk management and digital transformation, supported by robust governance practices

Strategic Transformation

• Successfully completed the divestiture of Niwas Housing Finance Limited, enabling a sharper focus on the Companys core Vehicle Finance and Micro LAP businesses, while deploying the sale proceeds towards strengthening the balance sheet.

Launched Project LEAP (Lean, Efficient, Agile and Profitable) to improve operating efficiency and optimise costs

Business Expansion

• Expanded Assets Under Management (AUM) to 8,056 crore.

• Scaled the Micro LAP business to 175 crore AUM and expanded its footprint from 61 to 108 branches across multiple states.

• Strengthened the Vehicle Finance franchise, with an AUM of 7,500 crore and improved customer profile quality.

• Increased frontline sales capacity by approximately 30% to support future growth.

Digital and Operational Excellence

• Transformed the loan journey into a paperless process, achieving 100% digital adoption in Micro LAP and 84% in Vehicle Finance, eliminating paper-based documentation while retaining the existing lending model.

• Implemented end-to-end digital processes, including e-applications, e-agreements and eNACH-enabled customer journeys.

• Reduced lead-to-disbursement turnaround time significantly.

• Established a dedicated Data Science function to enhance analytics-led decisionmaking across the lending lifecycle.

Strengthening Credit and Risk Management

• Strengthened underwriting through proprietary scorecards, enhanced analytics and tighter credit filters.

• Enhanced portfolio monitoring through Early Warning Systems (EWS) for timely risk identification.

• Improved portfolio quality, with Non-Starter accounts declining from 3.29% to 1.05%.

• Reduced potential earnings volatility through additional provisioning for the Security Receipt portfolio.

• Maintained a strong capital position with Capital Adequacy Ratio of 36.1% and Debt- to-Equity ratio of 1.5x

Leadership Strengthening

• Strengthened senior leadership across key verticals, with the appointment of experienced leaders as Chief Human Resource Officer (CHRO), Chief Compliance Officer (CCO), Chief Operating Officer (COO) - Vehicle Finance, Chief Operating Officer (COO) - Micro LAP and Chief Technology Officer (CTO), bringing diverse industry expertise to support the Companys transition into a focused, retail-led NBFC and enable its next leap forward.

• Appointed Mr. Amit Khan as Chief Operating Officer - Micro LAP, bringing over 25 years of secured lending experience and expertise in building mortgage businesses.

• Appointed Mr. Amandeep Singh Sandhu as Chief Operating Officer - Vehicle Finance, bringing over 25 years of BFSI experience and experience managing portfolios exceeding 22,000 crore.

Vehicle Finance

Vehicle Finance remained IndoStars largest business segment during 2025-26, accounting for over 93% of the Companys total Assets Under Management (AUM). Through a network of 454 branches across 24 States and Union Territories, the business provides financing solutions across Commercial Vehicles, Passenger Vehicles, Farm Equipment And Construction Equipment, catering primarily to transport operators, self-employed individuals and small business owners in underserved and emerging markets.

During the year, the Company continued to focus on four strategic priorities: portfolio diversification, customer quality, operational efficiency and risk management. These initiatives enabled the business to strengthen its market position, improve portfolio resilience and maintain sustainable growth momentum despite a dynamic operating environment.

Vehicle Finance for IndoStar

Particulars	2025-26
Disbursements	4,072 crore
AUM	7,500 crore
Branch Network	454
States and UTs	24
Frontline Sales Force	1,600+
Digital Adoption	84%
Disbursement Yield	17.5%

Building a Diversified Portfolio

Over the last two years, IndoStar has undertaken a conscious transformation of its Vehicle Finance portfolio. While Commercial Vehicles continue to remain the foundation of the business, the Company has steadily expanded its Presence Across Passenger Vehicles, Construction Equipment and Farm Equipment financing.

The AUM trend reflects the Companys ability to grow the portfolio while maintaining underwriting discipline and improving portfolio quality. Vehicle Finance AUM increased to 7,500 crore as of March 31, 2026, supported by healthy customer acquisition, deeper market penetration and a strengthened distribution network.

The product mix continued to evolve during 2025-26. The share of Medium & Heavy Commercial Vehicle (M&HCV) disbursements reduced significantly from 57% in 2023-24 to 31% in 2025-26, while Passenger Vehicles, Construction Equipment and Farm Equipment financing increased their contribution to overall disbursements.

This diversification strategy has broadened the Companys addressable market, reduced concentration risk and enhanced portfolio resilience across economic cycles.

Deepening Market Reach

IndoStars extensive branch network continues to provide a strong competitive advantage in underserved markets. The Company maintains a diversified geographic presence across regions, reducing dependence on any single market and enabling balanced portfolio growth.

The South region continued to contribute the largest share of the portfolio, supported by strong branch penetration and healthy economic activity. The Company remains focused on strengthening its presence across high-potential markets while leveraging local market knowledge and customer relationships to drive growth.

Technology-Led Transformation

Technology continues to play a central role in enhancing customer experience, improving productivity and strengthening risk controls. During 2025-26, the Company further expanded the use of digital processes across sourcing, onboarding and collections through e-applications, e-agreements and eNACH-enabled customer journeys. Digital adoption in the Vehicle Finance business reached 84% by the end of the year.

The implementation of scorecard-based underwriting and workflow automation contributed to a reduction in lead-to-disbursement turnaround time, while the establishment of a dedicated Data Science function strengthened analytics-led decision-making across sourcing, underwriting, portfolio monitoring and collections.

Asset Quality and Risk Management

The Company continued to strengthen its risk management framework through enhanced underwriting standards, portfolio monitoring mechanisms and Early Warning Systems (EWS). These initiatives have improved customer selection, strengthened portfolio oversight and enabled proactive identification of emerging risks.

The Company continued to respond through tighter credit filters, enhanced portfolio monitoring and proactive risk management.

Note:

Non-Starter (NS) - Number of accounts with 0+ days past due disbursed in last 6 months Early Delinquency (ED) - POS with 30+ days past due disbursed in last 12 months

A notable achievement during the year was the significant improvement in early portfolio indicators, reflecting the quality of recent originations and the effectiveness of the revised credit framework.

^Outlook^

The long-term outlook for the Vehicle Finance business remains positive, supported by increasing freight movement, infrastructure development, replacement demand and continued formalisation of credit in underserved markets. Going forward, IndoStar will focus on strengthening portfolio diversification, enhancing customer quality, expanding digital adoption and leveraging analytics-led underwriting to drive sustainable growth while maintaining prudent risk management and portfolio resilience.

Micro LAP

Micro Loans Against Property (Micro LAP) emerged as an important growth business for IndoStar during 2025-26, reinforcing the Companys strategy of building a diversified, secured retail lending franchise. The business is designed to address the credit needs of Indias self-employed households, many of whom remain underserved by formal finance due to informal income profiles and limited documentation, despite owning residential assets.

Micro LAP bridges this gap by providing small- ticket, secured credit against residential property, supported by in-person income assessment and delivered through branches located close to customers homes and businesses. For IndoStar, the business combines granular, secured and high- yielding assets with a scalable operating model; for customers, it provides formal access to credit against an asset built through years of hard work.

2025-26 marked a strong foundation year for the Micro LAP business. Assets Under Management increased to 175 crore, while disbursements reached approximately 136 crore. The business ended the year with 108 branches across four states, supported by a steadily expanding customer franchise.

MLAP for IndoStar

Particulars	2025-26
Disbursements	136 crore
Assets Under Management	175 crore
Branches	108
States	4
Live Accounts	2,879
Average Ticket Size	6.65 lakhs
Portfolio Yield	22.4%
Loan-to-Value (LTV)	29.0%

The business recorded disbursements of 136 crore, reflecting increasing traction across its operating markets. The average ticket size of 6.65 lakhs reflects a calibrated move towards higher-ticket customers, while the portfolio continued to generate a yield of approximately 22.4%.

Scaling Efficiently through an Established Distribution Network

IndoStar has expanded the Micro LAP business by leveraging its existing Vehicle Finance distribution infrastructure. This shared operating model enables the Company to enter new markets efficiently, deepen customer reach and optimise operating costs while benefiting from established local relationships and experienced field teams.

By the end of 2025-26, the business had expanded to 108 branches across four states, creating a scalable platform for future growth.

Building a High-Quality Portfolio

The Company is building the Micro LAP franchise by leveraging its existing Vehicle Finance branch network. The co-located operating model enables the Company to enter new markets with minimal incremental distribution costs, while leveraging established local relationships, branch infrastructure and experienced field teams.

By the end of 2025-26, Micro LAP had expanded to 108 branches across Tamil Nadu, Andhra Pradesh, Telangana and Gujarat, creating a scalable platform for further geographic expansion. The direct-led sourcing model keeps origination, underwriting and fulfilment within the Companys control, supporting consistent credit standards as the portfolio scales.

A Disciplined Model Built around Four Pillars

The Micro LAP model is anchored in four operating principles:

Capital-Light	Conservative	Assessed-Income	Digital to the
Distribution	Security	Underwriting	Core
Co-location	More than 95%	Credit officers	Near-universal
within the	of the portfolio	meet customers	adoption of
existing Vehicle	is backed by	in person and	e-agreements and
Finance branch	self-occupied	assess household	eNACH, alongside
network enables	residential	and business	an almost
new market	property, aligning	income rather	entirely cashless
entry at minimal	customer	than relying solely	collections
incremental	commitment to	on documented	process,
cost and creates	the collateral	income.	supports efficient
operating leverage	with the		execution.
as volumes scale.	Companys risk
	framework.

Asset Quality and Risk Management

Portfolio quality remains central to the Companys approach to Micro LAP. Underwriting is supported by in-person customer assessment, independent property valuation, conservative LTV thresholds and continuous portfolio monitoring.

Despite the rapid expansion of the portfolio during the year, asset quality remained strong. Gross Stage 3 assets remained contained at 0.21% at year-end, while Net Stage 3 stood at just 0.10%, reflecting disciplined customer selection and prudent underwriting. The provisioning framework also remained robust, with a Provision Coverage Ratio of 51% and overall coverage of 0.9%, supporting a prudent approach to credit risk as the portfolio grows.

The portfolios 29% LTV (YTD) further provides a conservative collateral cushion, while the predominance of self-occupied residential properties strengthens the security profile of the book.

^Outlook^

The opportunity for formal, secured credit among Indias self-employed households remains significant. IndoStar will continue to scale the Micro LAP business in a calibrated manner, expanding into additional regions through its existing branch network and adopting a state-by-state approach.

Growth will be supported by technology- enabled processes, direct-led sourcing and disciplined underwriting, with portfolio quality remaining central to the expansion strategy. As the customer base and geographic footprint deepen, Micro LAP is expected to become an increasingly meaningful component of IndoStars diversified retail lending portfolio, extending secured and dignified credit to more self-employed households.

Insurance Distribution

Insurance distribution complements IndoStars retail lending franchise by enhancing customer protection and strengthening portfolio resilience. Through partnerships with insurance entities, the Company offers insurance solutions alongside its lending products. Within the Micro Loans Against Property (Micro LAP) business, 100% of loan disbursements are covered by life insurance, providing an added layer of security for customers while mitigating credit risk. Leveraging its branch network, the Company continues to deepen cross-selling opportunities and reinforce its multi-product retail strategy.

Loans

As on March 31, 2026, the Companys outstanding loan assets (Assets Under Management) stood at 8,056 crore, compared to 7,963 crore in the previous year, reflecting the continued expansion of its retail lending franchise. Vehicle Finance remained the largest business at 7,500 crore, representing 93.1% of the total AUM. The Micro Loans Against Property (Micro LAP) business continued to scale during the year, with AUM increasing to 175 crore, while the de-focused portfolio reduced further to 380 crore, in line with the Companys strategy of exiting non-core businesses.

The Vehicle Finance portfolio remained well diversified across Commercial Vehicles,

Passenger Vehicles, Construction Equipment and Farm Equipment, reducing concentration risk while broadening the Companys addressable market. The average disbursement yield in the Vehicle Finance business remained healthy at approximately 17.5%, while the Micro LAP portfolio continued to deliver yields in excess of 22.4%, supporting overall portfolio profitability.

Classification of Loan Assets as per Ind AS

The Company classifies its loan assets in accordance with the Expected Credit Loss (ECL) framework prescribed under Ind AS 109 - Financial Instruments, which requires recognition of expected credit losses based on historical portfolio performance, current credit quality and forwardlooking macroeconomic assumptions.

Under the ECL framework, loan assets are classified into Stage 1, Stage 2 and Stage 3, based on changes in credit risk since origination. As on March 31, 2026, 89.1% of the Companys loan assets remained classified as Stage 1, while Stage 2 assets represented 6.1% of the portfolio. Stage 3 assets stood at 4.8%, supported by a Provision Coverage Ratio (PCR) of 57.4%. The Company continues to review its ECL assumptions periodically and maintains prudent provisioning, including management overlays wherever considered necessary, to ensure adequate coverage against potential credit losses.

RBI Guidelines and Prudential Norms

The Company has complied with all applicable guidelines issued by the Reserve Bank of India (RBI) relating to asset classification, income recognition, provisioning, capital adequacy, liquidity management, Know Your Customer (KYC), Anti-Money Laundering (AML), Fair Practices Code, corporate governance and other regulatory requirements applicable to Non-Banking Financial Companies (NBFCs).

As on March 31, 2026, the Company maintained a Capital Adequacy Ratio (CRAR) and Tier I Capital Ratio well above the regulatory minimum, with a Tier I Capital Ratio of 36.1%. The Company also maintained robust liquidity buffers, with its Liquidity Coverage Ratio (LCR) consistently remaining above RBI-prescribed levels throughout the year.

During 2025-26, the Company further strengthened its prudential framework through tighter underwriting standards, product-specific credit scorecards, revised technical write-off norms and enhanced provisioning on stressed assets. These measures, together with proactive portfolio monitoring and periodic stress testing, reinforce the Companys commitment to maintaining a resilient balance sheet and supporting sustainable long-term growth.

Financial Performance in 2025-26

2025-26 was characterised by improved profitability stronger operating efficiency. The Companys strategic focus on secured retail lending, disciplined portfolio management and active liability optimisation resulted in improved earnings while reinforcing long-term financial resilience.

The successful divestment of Niwas Housing Finance Limited enabled the Company to sharpen its strategic focus on its core retail lending businesses while strengthening capital allocation. Simultaneously, the Company adopted a conservative approach towards stressed assets through enhanced provisioning, reducing future earnings volatility and reinforcing balance sheet quality.

Improved portfolio mix, stronger customer quality and a lower cost of funds contributed to higher Net Interest Income and margin expansion during the year. Cost optimisation initiatives under Project LEAP further enhanced operating efficiency, delivering meaningful annualised savings across the organisation.

Statement of Profit and Loss

Particulars	2025-26
Revenue from Operations	1,392.9 crore
Net Interest Income	771.7 crore
Operating Expenses	506.0 crore
Profit After Tax	130.2 crore

Investments

The Company manages its investment portfolio in accordance with its Board-approved Investment Policy, with a focus on liquidity management, capital preservation and regulatory compliance. Investments are primarily maintained to support treasury operations, meet liquidity requirements and strengthen balance sheet resilience.

As on March 31, 2026, standalone investments stood at 981.94 crore, comprising primarily Security Receipts (SRs), debt mutual funds and fixed deposits. During the year, the Company strengthened its balance sheet by creating an additional provision of 326.13 crore against its SR portfolio, reducing potential future earnings volatility.

The net carrying value of the SR portfolio stood at 588.63 crore, with strong visibility on recoveries. Approximately 76% of the exposure relates to two large corporate accounts with projects progressing as planned, while 13% pertains to SME exposures managed by a specialised Asset Reconstruction Company (ARC), where redemption of junior Security Receipts commenced during the year. The Company also maintained adequate liquidity buffers through investments in liquid instruments and sanctioned but undrawn banking facilities to support business growth and funding requirements.

Borrowings

The Company continued to maintain a diversified borrowing profile during 2025-26, balancing funding costs, maturity profiles and liquidity requirements. As on March 31, 2026, total financial liabilities stood at 5,697.4 crore, comprising 3,074.2 crore of debt securities, 2,402.6 crore of borrowings from banks and financial institutions, and 220.5 crore of other financial liabilities.

The Company further diversified its funding mix by increasing the share of long-term borrowings while continuing to access multiple funding channels,

including bank borrowings, debt securities, securitisation transactions and money market instruments. This diversified funding strategy has strengthened funding stability, reduced refinancing risk and enhanced the Companys ability to support sustained retail portfolio growth.

Robust Asset-Liability Management (ALM) practices and comfortable liquidity buffers continued to provide adequate funding flexibility while ensuring compliance with regulatory liquidity requirements.

Debt Instruments and Associated Costs

During 2025-26, the Company continued to optimise its liability profile through proactive treasury management and the replacement of higher-cost borrowings with lower-cost funding. These initiatives contributed to a reduction in borrowing costs and enhanced overall funding efficiency.

The weighted average cost of borrowings improved to 10.2% p.a., while the incremental cost of funds declined to approximately 9.0% p.a., reflecting improved market access, stronger lender confidence

and a favourable borrowing mix. The refinancing of higher-cost borrowings also generated meaningful interest cost savings, supporting profitability during the year.

The Companys borrowing programmes continue to be supported by strong external credit ratings of AA- (Stable) for long-term instruments and A1+ for short-term instruments, reaffirming the strength of its balance sheet, prudent financial management and diversified funding profile.

Human Resources

IndoStar considers its workforce a key enabler of growth and operational excellence. As the Company continues to strengthen its retail franchise, its human capital strategy remains focused on building organisational capability, leadership and a high-performance culture aligned with long-term business priorities.

As on March 31, 2026, the Company employed 4,585 people across 454 branches. Workforce deployment continued to be aligned with branch-level business potential, enabling the Company to support its expanding retail footprint while maintaining operational efficiency.

During 2025-26, the Human Resources function strengthened its role as a strategic business partner by attracting high-potential talent, enhancing leadership capability and aligning workforce strategies with business priorities; while upholding our core People Charter to ensure employee wellbeing, meritocracy, and organisational culture remain uncompromised. To support business expansion, the Company materially strengthened its Vehicle Finance frontline sales capacity, with sales headcount increasing by approximately 32% since 2024-25. In line with market best practices, we introduced a verticalised, product-specialist organisational structure to bring dedicated product expertise, ensure deeper focus across individual product lines, and drive frontline productivity and customer service.

The Company continued to strengthen its performance management framework through

balanced scorecards, clearly defined KRAs and targeted capability-building programmes. Structured induction and role-based learning, delivered through the Companys Learning Management System (LMS), covered compliance, cybersecurity, KYC, POSH, digital tools and functional capabilities, enabling faster productivity ramp-up and improved performance across business functions.

Digital transformation remained a key focus, driven by the end-to-end digitisation of core employee journeys; including recruitment, onboarding, and offboarding. This transition strengthened governance, enhanced operational efficiency, and significantly elevated the overall employee experience. Furthermore, continued investments in digital HR platforms and self-service workforce analytics enabled faster, data-driven workforce planning and strategic decision-making. Employee engagement remained a priority through four quarterly town halls, structured reward and recognition programmes, and continuous leadership communication. These initiatives reinforced collaboration, accountability and an ownership mindset across the organisation.

Operational excellence was further strengthened through Project LEAP, which helped in cost savings through contract optimisation and disciplined cost management, while ensuring employee welfare remained protected. Reinforcing a culture of frugality, accountability and high performance, the programme continues to support the Companys next phase of sustainable growth.

Information Technology

Technology continues to play a pivotal role in IndoStars transformation into a retail-focused, digitally enabled Non-Banking Financial Company. The Company continues to strengthen its digital capabilities through scalable technology platforms, intelligent automation and advanced analytics to enhance customer experience, improve operational efficiency and reinforce risk management.

As digital adoption continues to expand, cybersecurity remains a key priority for the Company. IndoStar has strengthened its cyber resilience through continuous monitoring by its Security Operations Centre (SOC), Data Leak Prevention (DLP) measures, vulnerability assessments, red-team exercises and automated security controls. These initiatives, supported by regular employee awareness programmes and robust business continuity planning, help safeguard critical information assets while ensuring business continuity in an evolving threat environment.

In line with the Digital Personal Data Protection Act, 2023, the Company is working towards implementing a data protection framework covering

During 2025-26, the Company further advanced its digital ecosystem by strengthening its cloud- based technology infrastructure and enhancing its next-generation Loan Origination System (LOS). By digitising the lending journey - from customer sourcing and onboarding to underwriting, documentation and loan disbursement, the Company has simplified processes, reduced turnaround times and improved transparency across the lending lifecycle.

consent management, data minimisation and breach notification protocols, reinforcing its data governance practices alongside existing information security controls.

Technology governance is overseen by the IT Strategy Committee, which ensures that technology investments remain aligned with the Companys strategic priorities while providing oversight of cybersecurity, technology risks and regulatory compliance.

Risk Management

A disciplined risk management framework remains central to IndoStars strategy of delivering sustainable, profitable and resilient growth. The Companys Enterprise Risk Management (ERM) framework enables the proactive identification, assessment, monitoring and mitigation of risks across the organisation, ensuring that risk-taking remains aligned with its strategic objectives, regulatory expectations and approved risk appetite.

Strengthening the Risk Framework

During 2025-26, the Company further strengthened its enterprise risk architecture by enhancing credit underwriting, embedding data-driven decisionmaking, expanding early warning capabilities and adopting a prudent provisioning approach. Proprietary credit scorecards, tighter customer selection filters, risk-based pricing and asset- class-specific underwriting models strengthened credit quality, while bureau intelligence, analytics and collections were increasingly integrated to enable proactive portfolio monitoring and early identification of emerging stress.

The Company also undertook its annual Expected Credit Loss (ECL) model refresh, recalibrating provisioning assumptions based on portfolio performance. In addition, a comprehensive reassessment of Security Receipt (SR) pools, along with prudent overlays for evolving macroeconomic uncertainties, further strengthened balance sheet resilience and reinforced the Companys conservative provisioning philosophy.

Risk Management Outcomes

The Companys disciplined risk actions translated

into measurable improvements in portfolio quality

during 2025-26:

• Strengthened portfolio quality by increasing the share of prime borrowers (CIBIL score above 725) to 79%, compared with 70% in 2024-25.

• Enhanced underwriting effectiveness, reducing the Non-Starter Ratio to 1.05% from 3.29% and Early Delinquency to 2.24% from 5.22%.

• Strengthened provisioning levels, with the Provision Coverage Ratio improving to 57.4% from 46.7%, while ECL provisions increased to 5.3% of total loan assets from 3.3%.

• Strengthened balance sheet resilience through prudent provisioning on Security Receipt (SR) pools and additional macroeconomic overlays, reflecting the Companys conservative approach to risk management.

Risk Matrix

Risk	Description	Mitigation Measures
Credit Risk	Risk of borrower default arising from adverse economic conditions, business challenges or deterioration in borrower repayment capacity.	Strengthened underwriting through proprietary scorecards, tighter bureau cut-offs, risk-based pricing, asset-class-specific underwriting, early warning systems, analytics-led portfolio monitoring and periodic ECL model refresh.
ALM and Liquidity Risk	Risk arising from mismatches between the maturity profile of assets and liabilities.	Robust ALM framework, contingency funding plans, diversified borrowing profile, continuous liquidity monitoring and maintenance of adequate liquidity buffers.
Operational Risk	Risk arising from failures in internal processes, systems or people that may impact business continuity and operational efficiency.	Standardised operating procedures, automation, strong internal controls, periodic audits and technology-led process improvements.
Fraud Risk	Risk of financial losses arising from internal or external fraud, identity theft or fraudulent lending activities.	Maker-checker controls, segregation of duties, dedicated Risk Control Unit, analytics-driven fraud monitoring and strengthened internal audit mechanisms.
Reputational and Compliance Risk	Risk arising from regulatory non	Dedicated compliance teams, periodic policy reviews, regulatory monitoring, internal audits and robust governance framework.
Cybersecurity Risk	Risk of cyberattacks, unauthorised access, data breaches or disruption to critical systems.	Security Operations Centre (SOC), Data Leak Prevention (DLP), vulnerability assessments, network security controls, business continuity and disaster recovery planning.
Strategic and Business Risk	Risk arising from changing market dynamics, competitive pressures or ineffective strategic decisions.	Annual business planning, portfolio diversification, continuous market assessment, product innovation, scenario analysis and disciplined capital allocation.

The Company continues to closely monitor evolving macroeconomic conditions, regulatory developments, technology and cybersecurity threats, climate-related disruptions and changing customer behaviour. Risk assessments and stresstesting exercises are periodically undertaken to evaluate potential impacts and ensure preparedness for emerging risks.

The Company continues to strengthen its risk culture through periodic policy reviews, employee awareness programmes, risk-based decision-making frameworks and active engagement across business and control functions. This promotes accountability and ensures that risk considerations remain embedded in day-to-day business activities.

Vintage-level static pool analysis indicates that portfolio quality has remained resilient across origination cohorts, with delinquency emergence

Corporate Governance and Compliance Framework

Strengthened governance and compliance mechanisms remain central to IndoStars transformation. Strong oversight by the Board and Management-level Committees, supported by annual policy reviews, automated compliance monitoring, periodic risk assessments and testing, reinforces accountability and regulatory discipline.

The framework is further supported by a robust whistle-blower mechanism, Anti-Bribery and Anti-Corruption programme, stringent insidertrading controls and regular employee training, strengthening a culture of ethical and responsible conduct.

Internal Financial Controls

The internal audit function, supported by both inhouse resources and external experts, carried out risk-based audits across key business and functional areas throughout the year. Audit observations were reviewed by the internal audit team and subsequently presented to the Audit Committee for oversight. Based on the findings, appropriate corrective and preventive actions were implemented by the respective functional heads to enhance process efficiency, strengthen governance practices, and reinforce the overall internal control framework.

During 2025-26, IndoStar continued to maintain a robust framework of internal financial controls designed to ensure operational effectiveness,

trends tracking within expected ranges despite significant growth in disbursement volumes. The consistency of cohort performance reflects the effectiveness of the Companys risk selection, pricing and collection strategies.

Continued portfolio diversification across customer segments and asset classes has enhanced portfolio resilience and reduced concentration risk.

As data-driven underwriting and analytics capabilities continue to expand, the Company has strengthened model governance, validation processes and monitoring controls to ensure robustness and reliability of risk assessment frameworks.

Maintained strong liquidity buffers and diversified funding sources, supporting balance sheet resilience amid evolving market conditions.

safeguard assets, support regulatory compliance, and enable accurate financial reporting. The Company further strengthened its control environment through periodic reviews of policies, processes and systems, while continuously identifying and addressing control gaps.

The Board believes that the Companys internal financial controls are commensurate with the nature, scale and complexity of its operations and are adequate to ensure orderly and efficient conduct of business, the safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, and timely preparation of reliable financial information.

Cautionary Statement

This document contains forward-looking statements that reflect IndoStars current expectations regarding future events, business performance, growth prospects and strategic initiatives. These statements are based on assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required under applicable laws and regulations. These statements should be read in conjunction with the risks, assumptions and other disclosures presented in the Management Discussion and Analysis section of the Annual Report 2025-26.