Indostar Capital Finance Ltd Management Discussions

Global Economy

Global economic growth has been showing a steady decline since 2022 and this continued through 2024-25, driven by a mix of geopolitical uncertainty around evolving trade policies and continued supply chain disruptions due to conflicts that have affected the global energy markets since the start of the Russia-Ukraine war in 2022. Despite these headwinds, global GDP grew 2.8% in 2024, similar to 2023, and is expected to moderate further to 2.3% in 2025, owing to trade disruptions due to the impositions of high tariffs on trade partners by the United States (US) government. The Russia-Ukraine war, now in its third year, continues to disrupt energy flows and commodity markets in Europe. The Israel-Hamas conflict has escalated tensions in the Middle East, raising concerns over supply chains, oil prices, and regional stability. Renewed tariff measures, particularly from the US, have escalated trade tensions. Retaliatory actions have deepened the divide, further weakening global trade.

In the US, growth for 2025 is projected at 1.4%, as higher tariff-related input costs take a toll on consumption and manufacturing activity.

The Federal Reserve reduced the interest rates in three rate cuts aggregating 100 bps from 5.25%-5.50% level in September 2024 to 4.25%-4.50% level in December 2024, as inflation broadly remained below the 3% mark. The Fed has indicated it may pursue further rate cuts through 2025, if the labour market softens. In the Euro Area, economic performance remains fragile with growth revised downward to 0.7% for 2025, due to weak demand and continued uncertainty around energy supply and pricing.

Growth in emerging markets and developing economies I

(EMDEs) is also showing signs of slowing momentum. In countries like China, the growth is expected to moderate at 4.5% in 2025, reflecting internal structural adjustments, weak global demand, and risks of deflation. For India, the growth outlook is relatively more stable at 6.3% in 2025, bouyed by a

strong monsoon, spurring private consumption, particularly

in rural areas.

(Sources: World Economic Outlook Update by IMF, July 2025; Global Economic Prospects, World Bank, June 2025)

Currency volatility, particularly movements in the USD, continues to disrupt global capital flows. Meanwhile, global headline inflation is projected to ease gradually from 4.2% in 2025 to 3.5% in 2026 supported by advanced economies approaching inflation targets and easing price pressures in emerging markets. Central banks across key regions are pivoting towards accommodative policies, in helping improve credit availability and support investment sentiment over the medium term.

(Source: IMF Report on World Economic Outlook, April 2025)

Indian Economy

India continues to demonstrate robust economic performance amidst global uncertainty, reaffirming its position as one of the fastest-growing major economies. According to the International Monetary Fund (IMF), Indias provisional GDP growth stood at 6.5% in 2024-25 supported by strong domestic consumption especially in rural areas, sustained government capital expenditure, and steady private investment across core sectors. In a milestone achievement, India emerged as the worlds fourth- largest economy in nominal GDP terms, crossing the USD 4 trillion threshold and overtaking Japan.

The Reserve Bank of India has projected real GDP growth at 6.5% for 2025-26 as well, driven by buoyant rural demand, revival in urban consumption, an uptick in investment activity supported by aboveaverage capacity utilisation, and the governments continued thrust on capital expenditure. The resilience of the economy is further underscored by high-frequency indicators pointing to steady services sector momentum, robust agricultural output aided by forecasts of an above-normal southwest monsoon, healthy GST collections, and congenial financial conditions. However, the recent US imposition of significant tariffs on several countries has impacted critical Indian industries such as steel, aluminium, and automobiles, adding pressure to the growth outlook.

(Sources: IMF Report on World Economic Outlook, April 2025; Article from The Hindu dated April 08, 2025)

Indias economic momentum continues to be supported by robust household spending, with private consumption rising to 61.4% of nominal GDP in 2024-25, up from 60.2% in 2023-24, representing

the second-highest share in the past two decades. This increase was primarily driven by a 7.2% growth in private final consumption expenditure, a notable acceleration from 5.6% in the previous fiscal year, supported by a rebound in rural demand and improving consumer sentiment.

(Source: Article by The Economic Times dated June 28, 2025)

From a monetary policy standpoint, the Reserve Bank of India (RBI) adopted an accommodative stance as inflationary pressures eased. Food price pressures declined due to a strong rabi harvest and effective buffer stock management. Headline inflation moderated to 3.16% in April 2025 and further fell to a six-year low of 2.8% in May 2025, remaining well within the RBIs comfort zone. This downward trajectory paved the way for rate cuts that brought the repo rate down to 5.5% by June 2025, creating a supportive environment that aided credit growth and improved business sentiment across industries.

(Sources: Financial Stability Report - June 2025, RBI; Mospi, May 2025; Article from The Hindu dated August 06, 2025)

Further, the Governments thrust on capital expenditure, allocating 11.11 lakh crore, or 3.4% of GDP, to infrastructure spending remained a strong pillar of growth, with continued investments in transport, digital infrastructure, and energy transition. The Production Linked Incentive (PLI) schemes across key sectors further bolstered the manufacturing ecosystem, while initiatives like PM Gati Shakti, ONDC, and the National Logistics Policy are reshaping Indias competitiveness. A critical

component of this transformational agenda is Indias strong intent to reduce logistics costs, which have historically been a significant barrier to export competitiveness and domestic manufacturing efficiency.

The micro, small, and medium enterprises (MSMEs) also remain key players in supply chains, showing healthy expansion across various industries. Exports from MSMEs have seen substantial growth, rising from 3.95 lakh crore in 2020-21 to 12.39 lakh crore in 2024-25. MSMEs continue to drive innovation and contribute to the diversification of Indias manufacturing base, making them an essential part of the economys broader growth narrative. In line with this, the Union Budget 2025-26 had also introduced a series of measures aimed at strengthening the MSME sector by raising investment and turnover limits, enhancing credit access, supporting first-time entrepreneurs, and rolling out sector-specific productivity initiatives.

With over 130 crore Aadhaar-linked mobile connections, UPI processing over 1,400 crore transactions per month, Indias digital transformation continued to accelerate. The Jan Dhan Yojana added 5 crore new bank accounts in 2025, taking the total to 51 crore accounts, and reinforcing financial inclusion efforts.

Digital transformation remains a key growth enabler for NBFCs as well, with the adoption of AI-driven credit assessments, digital lending platforms, and data-driven risk management significantly enhancing efficiency and customer accessibility.

(Sources: Public Sector Banks: A Resurgent Force, Ministry of Finance, PIB; Digital Infrastructure in India, Ministry of Communications, PIB)

Non-Banking Financial Companies (NBFCs) Industry

The Indian financial sector demonstrated strength and resilience despite global headwinds. Both banks and non-banking financial companies (NBFCs) enhanced their capital and liquidity positions while steadily improving asset quality. NBFCs, in particular, deepened their role in driving financial inclusion, recording nearly 20% credit growth, outpacing commercial banks, with net advances touching 24.50 lakh crore. This expansion was supported by strong capital buffers and healthier credit quality.

A supportive interest rate environment, aided by monetary policy easing, is expected to further stimulate credit demand in the period ahead.

Within the sector, credit growth of NBFCs in the Upper and Middle Layers accelerated to 20.7% (YoY) in March 2025, compared to 16.00% in September 2024, though still below the level seen in September 2023. However, credit expansion is expected to moderate to 13-15% in 2025-26. This shift reflects a maturing market cycle influenced by structural adjustments and refined lending strategies.

(Sources: Financial Stability Report - June 2025, RBI; Article from The Economic Times dated April 24, 2025)

This recalibration has renewed the focus on asset quality, with rising stress observed in segments such as microfinance, credit cards, personal loans, and unsecured business loans, reflected in higher delinquencies and write-offs. Notably, unsecured business loans made up nearly 28% of retail NBFC exposure as of December 2024, highlighting the need for sharper portfolio risk assessment. In contrast, stress in secured segments remains limited, with asset classes like small-ticket vehicle finance and affordable housing loans continuing to exhibit relative stability.

Amid this shift, NBFCs are strengthening their risk frameworks to sustain credit health. A key consideration is the ability of borrowers, particularly in lower-income brackets, to refinance or service multiple obligations. This makes the performance of secured retail products a significant monitorable in the current environment.

From a policy standpoint, regulatory actions underway are expected to temporarily influence growth trajectories but are ultimately designed to fortify long-term sectoral stability. Most NBFCs are well-positioned to absorb transitional impacts, backed by prudent capital buffers, RBI mandated liquidity risk management and resilient earnings. The enhanced regulatory framework is also promoting better governance and risk alignment, laying a stronger foundation for sustainable expansion.

On the funding side, the outlook remains constructive. Moderate credit growth projections, combined with reduced reliance on short-term borrowings, have ensured adequate sector liquidity. Debt issuances have improved in

2024- 25 and are projected to remain active, supported by expectations of interest rate easing. However, maintaining access to timely and appropriately priced funding will be important, particularly as competitive intensity rises and exerts pressure on net interest margins.

Profitability metrics are adjusting to reflect the current environment. Credit costs are likely to rise, in line with elevated stress especially in unsecured lending. Consequently, return on average managed assets for non-housing NBFCs is expected to compress by 30-50 basis points over 2024-25 to

2025- 26 compared to 2023-24 levels. Meanwhile, housing finance entities continue to report steady performance, though the full implications of portfolio seasoning are yet to play out.

(Source: Article from The Economic Times dated April 24, 2025)

Growth Drivers for NBFC Industry

NBFCs have been playing a pivotal role in deepening financial inclusion by reaching segments traditionally underserved by the formal banking sector. Their agile operating models, localised reach, and flexible underwriting practices have enabled them to serve small businesses, first-time borrowers, rural populations, and informal income groups - effectively bridging the credit divide.

(Source: Article from SMFG India Credit dated January 30, 2025)

Credit Demand from the MSME Sector

The Micro, Small and Medium Enterprises (MSME) sector, which contributes nearly 30% to Indias GDP and employs over 25 crore people, continues to face a significant credit gap. With a credit addressable market estimated at 92 lakh crore, NBFCs have a vital role to play in meeting this growing and underpenetrated demand. Their ability to offer tailored financing solutions positions them as preferred partners for MSME growth.

(Source: Understanding the Indian MSME Sector, SIDBI, May 2025)

Policy Push for Entrepreneurship and Manufacturing

Government schemes like Startup India, MUDRA loans, and PLI are boosting credit demand from MSMEs, entrepreneurs, and the manufacturing sector. Initiatives such as the FAME-II policy and SWAMIH Fund are also creating new lending avenues. These policy measures are reinforcing the role of NBFCs in driving inclusive, sector-led growth.

(Sources: A Decade of Growth with PM Mudra Yojana, PIB; DPIIT, Ministry of Commerce And Industry, GoI)

Technology and Digital Transformation

NBFCs have been early adopters of digital technology, which has enhanced both reach and efficiency. Digital loan origination platforms, eKYC, automated credit scoring, and real-time disbursals have significantly improved customer experience and reduced operational costs. Technology has also enabled NBFCs to serve remote geographies with minimal physical infrastructure.

Digital channels like online lending platforms, mobile apps, and digital wallets have become popular among customers, especially the younger generation. NBFCs have been quick to adopt these digital channels, enabling them to offer a more personalised and convenient service to their customers. Further, NBFCs have also started using data analytics to gain insights into customer behaviour and preferences. This has enabled them to offer more personalised products and services to their customers.

(Source: Article from SMFG India Credit dated January 30, 2025; Article by Faster Capital dated April 02, 2025)

Flexibility and Customisation

Unlike traditional banks, NBFCs have the flexibility to design niche products catering to specific borrower needs. Whether it is unsecured business loans for micro-entrepreneurs, gold loans for rural households, or consumer finance for semi-urban buyers, NBFCs have built domain expertise in various lending verticals that banks often find less viable.

(Source: Article from SMFG India Credit dated January 30, 2025)

VEHICLE

FINANCE

INDUSTRY

Vehicle Financing Industry

The Indian Vehicle Financing Industry benefited from resilient demand across urban and rural markets in 2024-25, supported by the healthy performance of the Indian automobile and allied equipment sectors. Domestic automobile sales grew 7.3%, reflecting strong consumer sentiment and rising global interest in India as a manufacturing hub.

Passenger Vehicles (PV) touched a record 4.3 million units, with Utility Vehicles contributing 65% of the segment. Two-Wheelers rose 9.1% to 19.6 million units, aided by rural recovery, while Three-Wheelers achieved their best-ever sales at 0.74 million units on the back of last-mile mobility demand. Commercial Vehicles, despite a 1.2% overall decline, recovered towards year-end and posted 23% export growth.

EV adoption accelerated, with total registrations rising 16.9% to 2.0 million units, supported by government schemes such as EMPS, PM E-Drive, and new model launches.

Domestic Sales Trends (in million units)

(Source: Society of Indian Automobile Manufacturers (SIAM))

The Indian tractor market, valued at USD 7.42 billion in 2023, is projected to grow at a CAGR of 6.7% to USD 11.68 billion by 2032, driven by technology adoption, subsidy schemes, and increasing focus on sustainable, lower- emission models.

The construction equipment market expanded strongly, driven by infrastructure programmes and technology integration. Valued at USD 10-14.3 billion in 2024, it recorded a 32% sales jump between H1 2022 and H1 2024, with exports nearly doubling. The market is projected to reach USD 29.5 billion by 2031-32 at a CAGR of 11.9%. Short-term growth was tempered by monsoons and election-related slowdowns, but demand for earthmoving equipment and sustainable electric/hybrid models continues to build momentum.

Looking ahead, the automotive, farm, and construction equipment industries are expected to sustain growth in 2025-26, supported by stable macroeconomic conditions, government initiatives, and infrastructure investments. A normal monsoon, tax reforms, and lower interest rates should boost rural and semi-urban demand, while new model launches, EV adoption, and mechanisation will expand financing opportunities.

Vehicle and Equipment Finance AUM is projected to reach 9.4 lakh crore by March 2026, reflecting 15-16% CAGR. While challenges such as tighter financing norms and global uncertainties remain, innovation and efficient capital deployment will be key to capturing growth.

(Sources: Society of Indian Automobile Manufacturers (SIAM); Article by Indian Infrastructure dated February 05, 2025; Article by Times of India dated December 03, 2024)

COMMERCIAL

VEHICLES

INDUSTRY

Indias automobile sector recorded a 7.3% growth in domestic sales in 2024-25, reflecting improved consumer sentiment, a resilient rural economy, and post-pandemic normalisation in mobility demand. Within this, the Commercial Vehicle (CV) segment maintained a steady performance, with wholesale volumes at 9.57 lakh units, marginally lower than the 9.69 lakh units in 2023-24. While this reflected a flat trajectory in headline terms, the underlying trends were marked by segmental shifts and strategic demand resilience, particularly in the second half of the year.

The Medium and Heavy Commercial Vehicle (M&HCV) segment held firm, driven by sustained replacement demand, improving freight movement, and an uptick in infrastructure activities post the general elections. The LCV (Light Commercial Vehicle) segment saw a slight moderation, with demand realignment across 0-7.5T sub-categories, influenced by evolving last- mile logistics and consumption patterns. Despite this recalibration, LCV buses grew 5.9%, reflecting rising rural and semi-urban connectivity needs.

A bright spot for the industry was CV exports, which grew 23.0% year-on-year, led by strong growth in MHCV Trucks (46.3%) and LCV Trucks (20.2%), as global markets witnessed economic recovery, easing inflationary pressures, and supportive monetary policies. This robust export performance underscored the competitiveness of Indias CV manufacturing base and its growing role in global logistics and infrastructure supply chains.

While 2024-25 reflected a period of transition, the Indian Commercial Vehicle sector remains structurally sound and well-aligned with the countrys broader growth narrative. With enablers such as electric and alternate-fuel adoption, regulatory support for scrappage and vehicle modernisation, and expanding road connectivity, the sector is gearing up to play a pivotal role in powering Indias economic momentum and evolving logistics ecosystem.

(Sources: ICRA Indian Commercial Vehicle Industry February 2025; Society of Indian Automobile Manufacturers)

Financing plays a critical enabling role in the CV ecosystem, particularly for small fleet owners, driver-entrepreneurs, and buyers in semi-urban and rural regions. NBFCs remain dominant players in this space, with a sizable share in new vehicle lending. The Vehicle Financing AUM have expanded strongly, rising from 5.9 lakh crore as on March 31, 2023, to an estimated 8.1 lakh crore by March 31, 2025, recording a robust CAGR of ~17%.

According to CRISIL Ratings, vehicle finance AUM growth for NBFCs is expected to moderate to 15-16% in 2025-26, down from over 20% in 202425, reflecting a calibrated shift in underwriting and market consolidation.

As a result of the above, many NBFCs are increasingly deploying data-driven models for credit appraisal and adopting digital origination tools to enhance cost efficiency and improve customer onboarding, especially in underpenetrated regions. Meanwhile, asset quality remains a key focus area, with NBFCs enhancing collection infrastructure, tightening recovery mechanisms, and adjusting loan tenures to better align with operating cash flows of transport operators.

With a recovery in infrastructure spending and potential improvement in freight activity postelection, financing demand is expected to revive in the second half of 2025-26. Policy initiatives around vehicle scrappage, rural road development, and fleet modernisation could further stimulate the CV lending market in the medium term.

(Sources: Article by Business Standard dated December 28, 2023; Article by Financial Express dated April 11, 2025)

Vehicle Financing AUM Growth

*Estimated Projected

(Source: Article by Financial Express dated April 11, 2025)

Trends in the CV Industry

?Shift towards Used CV and Fleet Replacement Financing

There is a growing trend of financing used commercial vehicles, driven by increased adoption of scrappage policies, fleet replacement cycles, and demand from cost-sensitive buyer segments. With the rising cost of new CVs (due to BS-VI norms and feature additions), financing entities, especially NBFCs, are focussing more on refinancing and second-sale vehicles, offering structured loans with flexible tenures. This is also supported by OEM-led buyback programmes and organised used vehicle marketplaces.

?Formalisation and Digitisation of Small Fleet Financing

The CV lending ecosystem is undergoing structural formalisation, as small fleet operators, driver- entrepreneurs, and rural transporters become part of organised logistics chains. This is accelerating the adoption of digital origination, e-KYC, and data- led underwriting models. Lenders are increasingly using telematics data, cash-flow-based appraisal, and embedded finance partnerships with logistics aggregators and vehicle OEMs to deepen credit penetration in Tier 2 and 3 towns.

?Sustainable Vehicles and Green Financing Gain Ground

Electrification remains a gradual but important trend in the commercial vehicle sector. EV penetration in the CV market grew from 0.8% in 2023-24 to 0.9% in 2024-25, with urban areas contributing over 50% of EV retail sales. This trend is reinforced by the increasing availability of green financing options - loans designed specifically for eco-friendly vehicles.

Banks and NBFCs are offering lower interest rates, flexible repayment schedules, and tax incentives on electric CVs. Combined with government subsidies, these financing models are removing barriers for companies aiming to shift to sustainable fleets, especially in urban logistics and last-mile delivery.

As a result, businesses are reducing their carbon footprint while lowering operational expenses.

(Source: Article by The Banking Finance dated April 25, 2024)

Used Vehicle Financing

Used vehicle finance is a growing sector that provides financial solutions to help consumers and businesses purchase pre-owned vehicles affordably. Driven by rising vehicle prices and demand for cost-effective mobility, especially in India, financing options from banks, NBFCs, and digital platforms are expanding rapidly. Innovations in digital lending and risk assessment are increasing access to used vehicle loans, supporting both individuals and fleet operators. This sector also promotes sustainability by extending vehicle lifespans and boosting economic activity through improved transport and logistics.

In India, the used car market is witnessing a significant upswing, with sales projected to grow by 8-10% in 2025-26, outpacing new car sales by more than double. The volume of used car sales is expected to surpass 6 million units, reflecting growing consumer preference for affordability and faster access to vehicles. The ratio of used-to-new car sales has risen to 1.4 from less than 1 just five years ago, signalling a shift driven by enhanced digital platforms, increasing financing options, and evolving buyer behaviour. The market value of used cars has reached approximately 4 trillion, almost matching new car sales.

Indias used vehicle industry is undergoing a significant transformation, driven by the dual forces of cost- efficiency and rising logistics demand. This steady growth trajectory reflects a wider shift in Indias transport ecosystem, where fleet operators, logistics providers, and small enterprises are increasingly favouring pre-owned vehicles to manage operational costs while meeting delivery requirements. Additionally, the extension of Bharat Stage VI (BS-VI) emission norms has raised acquisition and compliance costs for new vehicles, indirectly creating stronger demand for used CVs as a more economical alternative.

The used CV segment continues to outperform, driven by affordability and strong resale demand. Many NBFCs have sharpened their focus on this segment, leveraging local sourcing networks and field-level reach to cater to rural and semi-urban buyers. North India leads with over 35% of market share, supported by dense freight corridors and high agricultural and industrial output. Light trucks dominate segmental demand, accounting for 45.7% of sales in 2024, primarily due to their suitability for last-mile delivery and intra-city logistics.

The transition towards digital platforms is further supporting this shift, streamlining inspections, documentation, and loan processing while promoting pricing transparency and broader inventory access. Emerging trends such as trials of cleaner fuel CVs are

gradually influencing buyer decisions, as operators weigh regulatory risks and depreciation linked to older diesel trucks. Additionally, organised spare part supply chains are improving uptime and operational reliability, especially critical in semi-urban and remote markets, enabling faster, more efficient fleet maintenance. Together, these developments are not only formalising the used CV ecosystem but also positioning it as a reliable, value-driven solution for Indias evolving mobility and logistics needs.

(Source: Article by The Business Standard dated July 11, 2025;

India Used Truck Market, Imarc)

SME Financing and Micro Loan Against Property (LAP)

Indias SME lending ecosystem is undergoing a structural transformation, driven by increasing formalisation, digitalisation, and demand from underserved small businesses. NBFCs are playing a pivotal role, with their MSME loan books projected to grow from 4.2 lakh crore in 2024-25 to over 5.3 lakh crore by 2025-26. Their agility in underwriting, localised presence, and focus on underserved borrowers have helped bridge the sectors vast credit gap. Enhanced asset quality, supported by better risk assessment and recovery mechanisms, and evolving co-lending partnerships with banks are further strengthening the ecosystem, even as NBFCs navigate margin compression and rising credit costs.

Within this broader landscape, Micro LAP has emerged as a fast-growing segment, offering secured credit to small borrowers, typically between 1 lakh and 10 lakhs, against self-owned property. With high adoption in Tier 2 and Tier 3 towns,

Micro LAP is leveraging real estate ownership to extend formal credit to informal-sector borrowers. NBFCs lead this space with over 45% market share, and have registered a 38.6% CAGR in Micro LAP between 2019-20 and 2023-24. While asset quality has seen improvement, with PAR 90+ (portfolio at risk over 90 days) declining gradually from 2022-23 to 2024-25, this remains a key area of monitoring, especially as the segment caters to relatively informal borrowers.

Looking ahead, NBFCs are expected to continue growing their Micro LAP portfolios by 25% annually in 2024-25 and 2025-26, though some moderation in profitability is anticipated. Net Interest Margins (NIMs) are projected to reduce slightly from 12.8% in

2024-25 to 12.6% in 2025-26, while credit costs may rise from 0.8% in 2023-24 to 1.0-1.1% over the next two years. Despite these pressures, the segment remains attractive due to its scalable business model, lower delinquency compared to unsecured lending, and high demand from underserved markets.

(Source: CareEdge Ratings Report dated May 14, 2025;

Article by The Business Standard dated May 26, 2025)

Insurance Industry

With rising financial literacy and awareness around risk protection, Indias insurance sector is emerging as a vital part of the financial ecosystem. Participation is deepening across urban and rural markets, driven by digital access, simplified offerings, and proactive regulation. Even with exposure to climate- related risks, insurers are strengthening their capabilities and focussing on resilient, customer-centric solutions.

Life insurance dominates with 74% of total premium volumes, led largely by investment- linked products. Real premium growth for life is projected at 5% in 2025. Non-life insurance is expected to grow at 7.3%, supported by strong momentum in health and motor segments. Agricultural insurance is also gaining ground following recent policy reforms.

Improved household incomes, expanding formal employment, and greater risk awareness are key growth drivers. Insurers are broadening reach through digital platforms, regional agents, and targeted products, especially in semi-urban and rural areas. Health and protection-based offerings are seeing increased traction, supported by evolving customer preferences and enhanced distribution.

With strong fundamentals in place, the industry is poised for sustainable expansion backed by demographic shifts, urban development, and continued policy support. By maintaining a balanced approach to innovation and risk, insurers are well-positioned to deepen financial inclusion while building long-term resilience.

COMPANY OVERVIEW

IndoStar Capital Finance Limited (also referred to as ‘IndoStar or the Company) is a middle-layer NBFC. The Company operates across 23 states through 446 branches. The Companys product portfolio spans Vehicle Finance including Commercial Vehicle Finance, Car and MUV financing, Farm and Construction Equipment Loans, SME loans and Micro LAP. The Company is also engaged in composite insurance distribution services.

The Companys strong institutional foundation is anchored by Brookfield, holding 56.20%, and Everstone Group with 17.09% as of March 31, 2025. IndoStar serves a diverse customer base across underserved markets, including small transport operators, self-employed professionals, traders, and first-time credit users. With a focus on disciplined lending, product diversification, and expanding distribution, IndoStar continues to build scale while ensuring financial prudence and inclusive access to credit.

Expansion of Services

To become a truly diversified retail NBFC, IndoStar successfully launched a Micro LAP business in April 2025. This segment targets micro enterprises with average ticket sizes below 6 lakh, yields around 22%, and predominantly uses self-occupied residential property as collateral. The Micro LAP business operates on a 100% direct origination model with a local team and full digital integration.

While currently a small percentage of total AUM, it is a key area for future growth.

IndoStar has also registered itself as a composite corporate agent, having tie-ups with both General and Life Insurance Companies. IndoStar provides its customers with Motor, Life and Accidental Insurance as an additional service to enrich its primary lending offering.

In 2024-25, IndoStar continued to expand its operations in the Vehicle Financing segment, which remains a major component of its retail lending portfolio. The vehicle industry contributes significantly to Indias logistics and employment landscape, and IndoStars financing activity in this space aligns with the demand from self-employed and small fleet operators. While domestic CV sales witnessed moderation due to market uncertainties and delays in financing cycles, the Company sustained growth in its loan book during the year. A focussed shift towards financing used vehicles and small commercial vehicles and pickups helped address consumption-led demand and improve collection efficiencies, particularly in rural markets.

Used Vehicle Segment Overview

The used vehicle segment accounted for the majority of the Companys disbursements throughout 2024-25. IndoStar has built its position in this market through its knowledge of vehicle resale dynamics and borrower profiles. Consistent focus on this category helped the Company meet the credit requirements of a broad customer base, particularly in semi-urban and rural regions. The demand for pre-owned vehicles remained steady due to pricing gaps between BS- IV and BS-VI models, availability of longer-tenure financing, and overall affordability. The Companys credit evaluation framework and revised underwriting standards contributed to maintaining asset quality while scaling volumes.

-? Digital Origination Platforms:

The Company implemented automated loan onboarding tools, enabling wider outreach and timely approvals in remote areas.

Geographic Expansion: IndoStar continued to add new locations in Tier 3 and Tier 4 towns, supporting growth in underserved markets.

Product Development: Efforts were made to introduce additional offerings such as tyre financing and small ticket LAP to address working capital needs and improve customer engagement.

Portfolio Monitoring: Analytical tools were deployed for early- stage risk identification and tracking repayment behaviour.

Distribution Network: The

Company expanded its branch network by adding 54 locations during 2024-25, supporting business volumes and customer servicing.

SME Finance

IndoStars SME Finance segment historically offered secured small business loans to micro and small enterprises, primarily for working capital needs. These loans were typically backed by property collateral and catered to borrowers in semi-urban and peri-urban geographies with limited access to formal credit. However, since 2023-24, the Company significantly scaled down this legacy business as part of its broader retailisation strategy, focussing instead on high-yield retail secured products.

The Company has discontinued new originations in this segment, while focussing efforts on resolving its existing SME book much of which is already provisioned. This realignment is a key part of IndoStars transition towards becoming a focussed retail NBFC.

SME Finance Segment Performance

Outlook

The vehicle financing business is expected to remain a key focus area in the coming years. IndoStar aims to further expand its reach, improve process efficiencies, and introduce supplementary products to increase loan volumes. Continued attention to borrower selection, ticket size calibration, and technology integration is expected to support steady portfolio growth. With a larger share of the business now coming from used vehicles and deeper presence in smaller towns, the Company is positioned to capture emerging opportunities in this segment.

Reduction of Non-Core SME Exposure: The SME Finance portfolio was consciously reduced, with AUM dropping to 353 crore by 2024-25, now forming only 3% of total AUM

™? Provisioning and Resolution Strategy: The old SME

book, amounting to 211 crore, has been substantially provided for ~60%. Recovery and settlement processes are underway, with expectations of gradual resolution over the next two years

Curtailment of Fresh Disbursements: No new

disbursements were made, indicating the near-complete winding down of legacy SME lending activity

Outlook

The SME Finance segment played a minimal role in IndoStars growth during 2024-25, as the Company continued executing its exit strategy from legacy exposures. No incremental originations, a declining AUM share, and focussed provisioning reflect IndoStars clear intent to prioritise scalable and high yield secured retail products. This transition enables more efficient capital allocation and supports the Companys positioning as a retail-focussed NBFC.

Micro LAP

5-7 YEARS

Loan Tenure

IndoStar Capital Finance Limited introduced its Micro LAP product in 2024-25 as part of its broader shift toward retail-focussed, secured lending solutions.

This offering is specifically crafted for self-employed individuals operating small-scale businesses in rural and semi-urban areas, addressing the unmet credit needs of segments typically excluded from formal financing. With a focus on offering small-ticket, fully secured loans against residential property, the product aims to support working capital and business expansion for micro-enterprises while maintaining prudent risk metrics.

The Micro LAP business was launched through IndoStars existing vehicle finance branch network, initially piloted in Tamil Nadu. This branch-sharing strategy optimises operational costs while expanding market reach. The Company enabled a fully digital loan journey from origination to servicing, with API integrations and no major incremental tech investment. A dedicated on-ground team of over 300 people has been deployed by March 2025, for origination and customer servicing, ensuring direct engagement and credit quality control.

( ? n

Outlook

The early traction of the Micro LAP product signals strong market acceptance and operational viability. With plans to expand the business to additional states in a calibrated manner, IndoStar aims to scale the portfolio gradually while maintaining credit discipline. Though the segment currently contributes a modest share to AUM, it is expected to play an increasingly important role in diversifying the Companys retail book and supporting sustainable, secured asset growth in the coming years.

V J

Corporate Lending

The corporate lending segment at IndoStar Capital Finance Limited has been significantly scaled down in alignment with the Companys retail-focussed strategy. As of 2024-25, it contributes just 2% to the total AUM, compared to 6% in 2023-24. This sharp decline reflects the Companys deliberate exit from large-ticket corporate exposures, which previously formed a major part of its loan book.

Corporate Lending Segment Performance

AUM (in crore)

Looking ahead, IndoStar does not intend to originate any new corporate loans. With recovery processes progressing as planned, the segment is positioned to be phased out completely, further solidifying IndoStars transformation into a retail- focussed NBFC.

O

Niwas Housing Finance

Niwas Housing Finance Private Limited (NHFPL), formerly, IndoStar Home Finance Private Limited, was a wholly owned subsidiary of IndoStar Capital Finance Limited, offering home loans to selfemployed and salaried individuals and also provides LAPs. With the sale of 100% shareholding of the Company in NHFPL, NHFPL ceased to be the subsidiary of the Company with effect from July 17, 2025.

Insurance Products

ICFL has partnered with 3 new Insurance Companies under the corporate agency license obtained in February 2024 - Magma General Insurance, Tata AIA General Insurance, Bajaj Allianz General Insurance. Insurance Income was 4.76 crore in the previous year.

Loans

During the year, total outstanding loans increased to 7,464 crore from 6,298 crore and registered a growth of 19%.

The total outstanding loans at fixed rates stood at 7,076 crore (previous year 5,549 crore), which was 95% (previous year 88%) of the total outstanding loans.

Loans to total assets stood at 67.05% as of March 31, 2025.

ICFLs outstanding retail loans of 7,308 crore constitute 98% of the total outstanding loans. MSME Loans including Loan Against Properties of 232 crore and Micro LAP Loans of 52 crore constituted 3% and 0.70% respectively of the total outstanding loans.

The average yield realised on the loan assets during the year was 16.5% (previous year 16.0%).

Classification of Loan Assets as per Ind AS

Under Ind AS, asset classification and provisioning moves from the rule based, incurred losses model to the Expected Credit Loss (ECL) model of providing for expected future credit losses. Thus, loan loss provisions are made on the basis of the Companys historical loss experience and future expected credit loss, after factoring in various macro-economic parameters. Under Ind AS, asset classification comprises three categories based on ageing of Exposure at Default (EAD) which is

principal and accrued interest. Outstanding between 0 to 30 days are Stage 1 assets, outstanding between 31 days to 89 days are Stage 2 assets, and Stage 3 assets are those where outstanding EAD is for 90 days and above.

ICFLs Stage 1 loan assets have been steady, comprising of 89% of the total exposure as of March 31, 2024, and March 31, 2025. Stage 2 loans have increased from 5.15% as of March 31, 2024, to 6.09% as of March 31, 2025. Loans under Stage 3 have improved from 4.97% as of March 31, 2024 to 4.52% as of March 31, 2025.

As per Ind AS 109 on Financial Instruments, ICFL is carrying total provisions of 247.45 crore towards expected future credit losses which is 3.32% on Loan Assets of 7,464 crore. Of this, provision of 157.28 crore is required towards Stage 3 loans of 337.14 crore. Provisions amounting to 90.17 crore are required on Stage 1 and Stage 2 loan assets of 7,126.83 crore.

During the year, the Company has written off

61.75 crore in respect of CV loans and 0.99 crore in respect of MSME loans where the recovery was difficult in the near future. However, the Company continued the recovery efforts in respect of written off loans of earlier years and could effect recoveries of 10.71 crore during the year in respect of such written off loans.

RBI Guidelines and Prudential Norms

ICFL has complied with the guidelines issued by RBI regarding accounting guidelines, prudential norms for asset classification, income recognition, provisioning, capital adequacy, concentration of credit, credit rating, Know Your Customer (KYC) guidelines and Anti Money Laundering (AML) Standards, Fair Practices Code, grievance redressal mechanism, valuation of properties, recovery of dues, channel partners and real estate and capital market exposures.

ICFL had no investment in excess of the limits prescribed by RBI with any one company or any single group of companies. ICFL has not made investment in any of the promoter group companies or in the stock markets.

ICFLs CRAR as of March 31, 2025 was 28.46% as against RBIs prescribed limit of 15%.

IndoStars Key Business Strengths

Experienced Leadership

The Companys strong and experienced leadership brings deep expertise in banking, finance, risk management and digital transformation - ensuring that the Company remains agile and forward-looking in a competitive industry.

Deep Market Penetration

With a strong presence in rural, semi-urban and underserved areas, the Company plays a vital role in driving financial inclusion and building long-term customer relationships.

Flexible Payout Options

We offer a diverse range of payment methods for customers, resulting in cash payments accounting for only 3-4% of total transactions.

Operational Efficiency

Focussed on opening micro branches that operate with less manpower, leveraging the Customer App for service fulfilment and technology across loan lifecycle contribute to reducing cost and improves quality of customer services.

Strong Liquidity Position

The Company strategically manages the liquidity through a balanced mix of shortterm instruments, credit lines and diversified funding sources. This strength supports timely loan disbursement, smooth servicing of debt and liabilities and operational stability.

Centralised Underwriting Framework

Emphasising Income Assessment from Informal Sources

Targeting New-to-Credit Customers and Loans under 20 lakhs, while deprioritising Higher Delinquency Categories

Expanding the LAP Portfolio

Tapping into significant Micro LAP opportunities in Tier 3 and 4 cities.

Key Achievements of IndoStar Capital Finance Limited (2024-25)

Retail Diversification and Micro LAP Rollout

IndoStar launched its Micro LAP offering in May 2024 to support underbanked micro enterprises in rural and semi-urban markets. Piloted through existing branches in the State of Tamil Nadu, this secured, low-ticket, high-yield product follows a fully digital process. The early success has set the stage for phased national expansion through its established vehicle finance network.

Branch Network

The Company expanded its reach to 446 branches, adding 54 locations in underserved towns, aiding deeper customer access.

Operational Efficiency and Digitisation

Focussed digitisation across loan processes improved turnaround times, lowered service costs, and increased productivity. IndoStar implemented paperless workflows.

Granular Retail Lending Focus

Retail loans formed nearly 95% of the total portfolio, supported by a significant drop in average ticket size. Non-CV segments contributed 35% to disbursements, indicating effective diversification into farm, construction, and passenger vehicle loans.

Multi-Product Delivery Model

The shift to a multi-product branch model allowed IndoStar to offer multiple financial solutions through a single outlet, driving operational leverage and cost efficiency without expanding physical infrastructure.

Asset Quality and Collection Gains

Refined underwriting and tech-enabled collections improved portfolio quality and reduced delinquencies. Collection efficiency improved steadily, reflecting disciplined borrower behaviour and focussed risk management.

Funding Profile Strengthening

New lender additions, successful public NCD issuance, revision in rating outlook to stable by CRISIL and over 5,000 crore in funding raised at better rates led to a stronger balance sheet. The refinancing of high-cost debt is expected to reduce borrowing costs further in 2025-26.

Strategic Divestment of Housing Subsidiary

The sale of the housing subsidiary for 1,750 crore will boost liquidity, enhance key financial ratios, and simplify group operations.

Operational Performance in 2024-25

AUM (in crore)

Segment	2024-25	2023-24	2022-23	2021-22	2020-21
Vehicle Finance	7,401	5,594	3,672	4,908	4,194
Home Finance	3,091	2,270	1,623	1,406	996
SME Finance	353	485	1,293	1,776	1,849
Corporate Lending	156	388	1,200	1,543	1,932
Micro LAP	52	-	-	-	-
Total	11,053	8,763	7,813	9,658	8,998

Disbursements (in crore)

Segment	2024-25	2023-24	2022-23	2021-22	2020-21
Retail Lending	6,428	5,190	1,937	4,885	1,609
Corporate Lending	29	307	162	61	218
Total	6,457	5,497	2,099	4,947	1,827

Financial Performance in 2024-25

In 2024-25, IndoStar continued its strategic pivot towards a retail-centric model with a focus on operational discipline, asset quality, and portfolio diversification. The year was marked by a sharp execution of priorities, including deepening presence in underpenetrated markets, expanding product offerings, and further consolidation of its core businesses.

The Companys AUM reached 7,963 crore in 202425, compared to 6,493 crore in 2023-24 with the Profit After Tax (PAT) for the year standing at 52.6 crore in 2024-25.

On a consolidated basis, which includes the performance of its former wholly owned subsidiary Niwas Housing Finance Private Limited (formerly IndoStar Home Finance Private Limited), AUM grew by 26% YoY, reaching 11,053 crore in 2024-25, compared to 8,763 crore in 2023-24. Consolidated PAT for the year stood at 120.5 crore in 2024-25, up from 115.8 crore in 2023-24.

Statement of Profit and Loss

Key elements of the statement of profit and loss for the year ended March 31, 2025 are:

•••? Profit After Tax (PAT) reduced by 26.56% as against 61.76% in the previous year

? Post-tax return on average assets was 0.51% as against 0.9% in the previous year

Ratio of net interest margin to average assets was 5.6% for the current year as against 5.5% in the previous year

? Cost to income ratio was 71.7% for the year as against 71.6% in the previous year

™> The Earnings per Share (Basic) was 3.86 for the current year as against 5.26 for the previous year

·? Debt-to-equity ratio was 2.03 times in the current year as against 1.96 times in the previous year

Investments

In order to maintain adequate liquidity and to reduce negative carry between the time lag of raising resources and its further deployment for lending purposes, the surplus funds are invested by the Company in various debt schemes of mutual funds, Treasury Bills (T-Bills), Government Securities (G Secs) and other debt products or securities like Commercial Papers (CPs) & Non-Convertible Debentures (NCDs) of other entities and fixed deposits with scheduled banks.

All the investment transactions are strictly in accordance with the Board approved Investment Policy of the Company and no deviation from the permitted products, their respective credit rating requirements and stipulated limits as well as the authorisation matrix as mandated in the Investment Policy are allowed by the Company.

Further, the investment assets particularly the T-Bills and G Secs also form a part of the High-Quality Liquid Assets (HQLA) for the mandatory Liquidity Coverage Ratio (LCR) requirement by RBI.

During the year, the Company earned 32.43 crore from mutual funds, 10.81 crore from T-Bills & G Secs, 4.03 crore from CPs and NCDs of other entities and 0.79 crore from fixed deposit investments.

Apart from unencumbered cash and bank balances and unutilised credit lines, the Company at the end of the year, maintained liquidity of 875.58 crore in the form of mutual funds, fixed deposits, T-Bills, G Secs and NCDs as against 585.91 crore during the previous year.

Borrowings

The Company has been raising funds to support its lending activities through both short term (original maturity less than 12 months) and long-term borrowings. The short-term borrowings constitute Commercial Papers (CP) from market investors and Working Capital Demand Loans (WCDL) from banks. The long-term borrowings mainly represent both public and private placement of Non-Convertible Debentures (NCD)s and term loans from banking as well as other financial institutions.

In order to sustain a healthy Net Interest Margin (NIM) with reduced risk of ALM mismatch, the Company has Board approved internal norms and limits for each of the funding sources to maintain a prudent mix of all the borrowing instruments.

During the year due to greater interest/participation from the market lenders, the Company raised 1,320 crore CPs as against 553.80 crore CPs in the previous year. Consequently, quantum of short term WCDLs raised during the year were marginally lesser i.e. 495 crore as against 517.50 crore in the previous year. Similarly, the Company concluded its maiden public issue of NCDs in this year and raised 265.59 crore for tenors from 2 to 5 years. NCDs raised through private placement were 890 crore as against 2,455 crore in the previous year. Further, long term loans raised in the year were 1,370 crore as against 245 crore in the last year due to increased exposure by existing and new banks. The Company also did securitisation of assets through Pass though Certificates (PTCs) amounting to 1,016.93 crore during the year as against 1,103.27 crore in the previous year. The outstanding PTC at the end of the year stood at 1,182 crore as against 1,474 crore. The proportion of outstanding PTC to total borrowings reduced to 17% at the end of the year compared to 24% in the last year. The outstanding borrowings at the end of year stood at 5,752 crore as against 4,632 crore in last year.

All the borrowings were a mix of fixed and floating rate interests and the short term borrowings constitute 14.17% of the total outstanding borrowings at the end of the year.

Other than CPs all the borrowings are secured on a pari-passu basis by way of floating charge against the standard loan receivables and unencumbered treasury assets of the Company in favour of IDBI Trusteeship Services Limited.

The average cost of total borrowings incurred during the year was 10.9% per annum compared to 11.6% per annum for last year and the average cost of incremental borrowings incurred during the year has reduced to 10.0% per annum from 11.2% per annum in the last year. The short term rating of the Company is A1+ from both CRISIL and CARE indicating a very strong degree of safety for timely payment of financial obligations with the lowest credit risk whereas the long term rating is AA- with Stable Outlook signifying high degree of safety regarding timely servicing of financial obligations with very low credit risk. During the year CRISIL revised the long-term rating outlook to Stable from earlier Negative citing improving diversification in the borrowing profile owing to traction in fund raising from new and existing banks and also improvement in commercial vehicle asset quality of the Company.

Debt Instruments and Associated Costs

During 2024-25, IndoStar successfully completed its maiden public issue of secured, redeemable NonConvertible Debentures (NCDs), raising 266 crore at coupon rates ranging from 10.3% to 10.7% per annum. This issuance, filed with stock exchanges on July 29, 2024, was well received by debt market investors and marked the Companys entry into the NCD market as a new source of funding. In addition, the Company repaid high-cost NCDs aggregating over 2,500 crore during the year, significantly reducing its borrowing costs. As a result, the incremental cost of borrowing declined to nearly 10% by the close of 2024-25.

Human Resources

IndoStar considers its workforce as a key enabler of growth and operational excellence. In 2024-25, the Company strengthened its human capital strategy in alignment with its retail-led expansion, focussing on efficient workforce deployment, technology-driven productivity, and long-term talent retention.

The total workforce increased to 4,437 employees as of March 31, 2025, from 3,213 a year earlier, reflecting the scale-up of operations in Tier 3 to Tier 5 markets. Manpower deployment was strategically aligned with branch-level potential and emerging business priorities to ensure optimal resourcing.

The Company continued to foster a culture of collaboration, inclusivity, and performance excellence, supported by four pillars: capability building, employee engagement, wellness, and performance-linked rewards. A structured learning agenda was implemented through initiatives such as the Lead Next leadership programme, Sales Yodha for sales excellence, and targeted Area Yodha and Credit Yodha programmes. Foundational training on compliance, cybersecurity, KYC, POSH, and digital tools was delivered through the Learning Management System (LMS).

Talent retention remained a focus area. While annualised attrition stood at 36%, primarily in frontline roles, stability was maintained in credit and collections teams, ensuring strong risk oversight. Robust performance management processes, including Performance Improvement Plans (PIPs), were implemented to strengthen accountability.

The seasoned leadership team with deep BFSI experience continues to anchor the Companys transformation and growth journey.

Information Technology

IndoStar has made significant progress in enhancing its digital infrastructure, transitioning to a fully digital lending framework with the adoption of a next-generation Loan Origination System (LOS). This system upgrade has greatly improved transparency and control across the entire lending lifecycle.

Key technological advancements include the automation of KYC processes, data-driven underwriting models, and robust API integrations, all of which have contributed to increased operational efficiency. The Companys partnerships with fintech developers have also delivered tangible results, such as the launch of a customer mobile application that reduces the need for in-person branch visits. Similarly, a newly deployed sales app has enhanced the productivity of the sales team by streamlining lead management and field operations.

To further improve accuracy and reduce manual workload, IndoStar has implemented Robotic Process Automation (RPA) in various functions such as incentive processing, data entry, KYC documentation, and daily reporting. Additional technology-led improvements include automated bank ledger reconciliation and real-time PAN and Aadhaar verification, ensuring better compliance with regulatory requirements.

On the infrastructure side, IndoStar has undertaken a phased shift to cloud-based systems from legacy on-premise solutions. This transition has helped optimise costs while improving agility and scalability for core business applications.

Cybersecurity remains a top priority for the Company. Measures such as firewall deployment at all branches, enforced use of complex passwords, dark web surveillance, and mobile device management have significantly strengthened IndoStars defence against data breaches. Secure email gateways and other data protection tools have been integrated to bolster data security and minimise the risk of leaks.

A testament to these efforts, in May 2025 IndoStar achieved a perfect score of 100 in the Cyber Reconnaissance Exercise conducted by the Reserve Bank of India with external experts - a rare distinction that underscores the robustness of its cybersecurity framework.

Together, these initiatives have positioned IndoStar as a technology-forward NBFC, ready to scale securely and efficiently in a digital-first lending environment.

Risk Management

The Company understands the critical role of a robust risk management framework in realising its business objectives. This enterprise-wide framework, aligned with industry best practices, employs a proactive approach to identify potential threats.

This framework employs a proactive approach to identify potential threats. Once identified, each risk is meticulously assessed based on its likelihood of occurrence (probability) and potential impact (level of impact and criticality) on financial performance, operations, reputation, and regulatory compliance.

The risk governance structure is as below:

Chief Risk Officer

(Establish framework, tools and techniques, create risk awareness, work with functional heads to identify, assess, mitigate, monitor and report key risks)

The Companys Enterprise Risk Management framework comprehensively covers the following aspects of risk:

•••* Credit Risk ¦¦¦* ALM and Liquidity Risk Operational Risks Fraud Risks

Reputational and Compliance Risks Cybersecurity Risks Strategic and Business Risks

The Companys risk governance framework operates on a set of fundamental principles to ensure effective management of risks across the organisation. The Board of Directors holds overall responsibility for governance and oversight of core risk management activities which delegates the execution strategy to the RMC. Segregation of duties follows the three lines of defence model, ensuring independence between front-office functions, risk management and oversight, and internal audit roles. Risk strategy, aligned with the Companys risk appetite, is approved by the Board annually to align risk, capital, and performance targets. Major risk classes, including credit risk, market risk, operational risk, and liquidity risk, are managed through focussed and specific risk management processes.

Functional managers support the entitys risk management philosophy, promote compliance with its risk appetite, and manage risks within their spheres of responsibility consistent with risk appetite.

Risk	Description	Mitigation Measures
Credit- Related	Credit risk arises from borrower default, stemming from liquidity crises, economic downturns, bankruptcy, or other factors.	Comprehensive and well-defined credit policy, strengthened underwriting, tech-led collections, early warning systems, regular review of loan portfolio performance and higher provisioning ensure better asset quality.
ALM and Liquidity- Related	The ALM risk arises from a discrepancy in the maturity profiles of assets and liabilities, caused by varying loan tenures for customers compared to debt obligations raised by the Company.	A detailed ALM and Contingency Funding Plan Policy, regular monitoring of key ratios and structural liquidity statements, and ensuring sufficient liquidity assets and reserves to support growth and meet obligations, along with continual access to funds, help maintain liquidity in unforeseen circumstances.
Operational	Operational Risk pertains to operational failures, including breakdowns in processes and controls, which can adversely affect business continuity, reputation, and profitability of the Company.	Robust control and audit mechanisms, adherence to standard operating procedures, and a comprehensive reporting framework ensure that operational risks are minimised and always managed efficiently.
Frauds	The Company may encounter various fraud risks, including loan fraud, identity theft, internal fraud, and cyber fraud. These risks can lead to financial losses and damage to ICFLs reputation due to deliberate deception or misrepresentation by individuals or entities, both internally and externally.	Control framework covering segregation of duties at various levels, maker- checker concept, strengthening of internal controls across the organisation, effective internal audit mechanism, strict adherence to the delegation of authority and dedicated Risk Control Unit has been implemented to mitigate fraud risk.
Reputational and Compliance- Related	In the financial sector, there are intricate regulatory requirements. Failure to comply with these regulations can lead to financial penalties and harm the Companys reputation.	Dedicated compliance teams ensure adherence to applicable laws and regulations, regular audits and reviews, and robust internal control framework.

 

Cyber security- Related	We may encounter risks such as data breaches, cyberattacks, and unauthorised access, potentially compromising sensitive information and harming the Companys reputation.	Implementation of rigorous information classification and controls, including Data Leak Prevention (DLP) measures, to prevent unauthorised data disclosures, Security Operations Centre (SOC) monitors and responds to security incidents, conducting vulnerability assessment on a regular basis, maintaining robust email and network security measures, development of Business Continuity and Disaster Recovery plans to ensure resilience and preparedness in the face of any disruptions.
Strategic and Business- Related	Such risks arise from poor business decisions, incorrect strategic planning or failure to adapt to changing market conditions, regulations or competition.	Detailed annual business plans, regular competitive analysis, regulatory updates, regular feedback collection and product customisation to improve retention, colending and variable cost models are some of the practices adopted by the Company to mitigate such risk.

Internal Financial Controls

In 2024-25, IndoStar maintained a structured framework of internal financial controls aimed at ensuring operational discipline, asset protection, regulatory compliance, and reliable financial reporting. The Company continued to enhance its control environment by identifying and addressing gaps through regular policy reviews and system upgrades. Internal audits, conducted both by the in-house team and with external assistance on an ongoing basis, provided independent assurance. Risk-based internal audit plans focused on high- priority areas, with critical observations first reviewed by the internal audit team and then evaluated by the Audit Committee. Based on the findings, corrective actions were initiated by respective functional heads to strengthen the overall control framework and improve process efficiency. These steps reflect the Companys focus on maintaining strong corporate governance and effective risk oversight.

Cautionary Statement

This document contains forward-looking statements that reflect IndoStars current expectations regarding future events and performance. These statements involve assumptions and are subject to known and unknown risks and uncertainties. Actual outcomes may differ materially from those projected. Readers should not place undue reliance on these statements, which are qualified in their entirety by the risk disclosures and assumptions detailed in the Management Discussion and Analysis section of the 2024-25 Annual Report.