Kalyan Capitals Ltd Management Discussions

Global Economy

The global economy in 2024 exhibited both progress and emerging challenges. Inflation eased from multidecade highs but shown uneven trends, with core goods inflation seeing an uptick late in the year and service inflation being on a downward trend. Labour markets stabilized, as unemployment returned to pre- pandemic levels. Trade dynamics faced disruptions from widespread U.S. tariffs, which triggered historic equity market corrections, spikes in bond yields and amplified policy uncertainty. Trade activity, particularly driven by heightened Chinese exports and U.S. imports, showcased the capacity of economies to pivot effectively amid evolving policy landscapes.

Geopoltical tensions remained heightened, posing risks to international monetary system. Primary commodity prices rose by 1.9% between August 2024 and March 2025, driven by increase in natural gas, precious metals, and beverage prices. Consequently, oil prices declined due to concerns over reduced global demand from trade tensions, alongside robust production growth outside OPEC+ supply cuts. The global economic environment is thus poised for significant shifts in 2025, driven by evolving market dynamics, geopolitical realignments and structural transformations across industries.

Global growth forecast (%)

Source: International Monetary Fund April 2025 report Outlook

The global economy faces increasing headwinds in 2025, with growth expected to moderate to 2.8%. Trade tensions continue to weigh on investment sentiment, while widespread tariffs amplify inflationary pressures. Advanced economies are anticipated to experience slower growth due to subdued consumption and fiscal constraints. Emerging markets are likely to see uneven progress, with domestic vulnerabilities and structural challenges hampering recovery in some regions, particularly in Asia.

Inflation is anticipated to decline gradually; however risks persist to supply chain disruptions and volatile commodity prices. Faster progress on disinflation and stronger demand in key economies could result in greater-than-expected global activity. While uncertainties surrounding trade policies and inflation persist, proactive fiscal measures and international collaboration are expected to mitigate risks. By leveraging innovation, strategic investments, and policy realignments, the global economy remains well positioned to sustain growth and unlock new opportunities.

Indian Economy

The Indian economy demonstrated resilience amidst global uncertainties during FY2025, supported by robust domestic growth drivers and sound macroeconomic fundamentals. Despite external headwinds from escalating trade tensions and a weakening global outlook, India continues to be one of the fastest-growing major economy. Key sectors such as agriculture benefited from favourable monsoon, but also pose incremental regulatory challenges. The expansion of consumer debt, unsecured lending, and the influx of young investors into equity markets highlight the need for balanced growth and stability in the sector. While these developments mark a new era for Indias financial landscape, they require careful oversight to ensure stability and sustainability amidst rapid changes.

Indian NBFC Industry

India, as one of the fastest growing and largest economies globally, presents a conductive environment for the expansion of its credit market. The total NBFC credit outstanding stood at approximately Rs. 52 trillion as of December 2024 and is projected to cross Rs. 60 trillion by FY 2026, reflecting the sectors continued expansion. Amongst banks, NBFC and All India Financial Institutions, NBFCs have maintained 21-24% share of credit from FY 2017 to FY 2024. As India targets becoming $5 trillion economy in the coming years, the demand for financing is set to increase, underscoring the vital role of NBFCs in supporting economic growth and development. Retail loans, which accounted for 58% of total NBFC credit in December 2024, remain the cornerstone of growth. Unsecured business loans accounted for 28% of retail NBFC credit in December 2024. Earlier, RBI had raised risk weights by 25 bps to 125% on unsecured retail loans, due to indiscriminate growth, especially in personal loans, credit cards and unsecured business loans witnessed higher stress in FY2025, leading to higher delinquencies and write-offs.

Over the years, NBFCs have significantly strengthened their balance sheets, marked by reduced leverage and improved asset quality, with a notable shift towards the retail segment. NBFCs are effectively utilizing digital data to improve credit assessments and operational efficiency. The interest of equity investors remain strong and there is vast pool of debt capital overseas, which is largely untapped. With such a stable foundation, the sector remains well positioned to navigate the evolving regulatory environment while maintaining momentum.

Growth Drivers for the Indian NBFC Industry

1. Digital Transformation and Technological Advancements

NBFCs are increasingly leveraging digital technologies to enhance operational efficiency, manage fraud, and improve customer engagement. The adoption of super apps, digital sourcing platforms, and improve customer engagement. The adoption of super apps, digital sourcing platforms, and strategic partnerships with fintech firms is driving innovation and reshaping the lending landscape.

2. Focus on Key Segments

Retail Loans: The retail lending sector remains a key driver of growth, with strong demand for home loans, vehicle financing, and personal loans. Favourable demographic trends, rapid urbanization, and rising disposable income are further driving growth in this segment.

1. Financial Inclusion

India has made significant progress in financial inclusion, with a total of 55.1 crore beneficiaries under the Pradhan Mantri Jan Dhan Yojna (PMJDY) Scheme as of March 2025. NBFCs play a crucial role in bridging the credit gap for underserved and unbanked populations. By leveraging technology and customized product offerings, they are driving financial inclusion across rural and remote regions, ensuring wider access to credit gap for undeserved and unbanked populations. By leveraging technology and customized product offerings, they are driving financial inclusion across rural and remote remote regions, ensuring wider access to credit and banking services.

2. Sustainability and EV Financing

The Governments push for eco-friendly projects, including solar energy, waste management, and sustainable infrastructure, has opened new avenues for NBFCs in green financing and impact investing. With the rapid adoption of electric vehicles in India, NBFCs are capitalizing on emerging opportunities in green finance.

3. Healthy Asset Quality Levels

While concerns persist over rising household indebtedness and asset quality risks in unsecured lending (such as personal loans and microfinance), NBFCs that priorities proactive risk management, digital credit monitoring and diversified lending portfolios are better positioned to maintain financial stability and portfolio health

Internal Control Systems and their Adequacy

The Internal Financial Controls with reference to financial statements as designed and implemented by the Company are proper, adequate and operating effectively. The Companys internal control system is commensurate with its size, scale and complexities of its operations.

The Board has appointed Internal Auditors to more strengthen the Internal Financial Controls. Internal Auditors directly reports to the Audit Committee or Board of Directors of the Company.

The Audit Committee of the Board actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same. During the year under review, no material or serious observation has been received from the Internal Auditors of the Company for inefficiency or inadequacy of such controls.

Strengths:

• Strategic selection of markets, deeper and contiguous penetration in large affordable housing finance markets with Omni channel distribution strategy.

• Robust risk management framework coupled with strong collection process and culture.

• More operational flexibility than banks, enabling quicker decision-making and tailored product.

Weaknesses:

• Sensitive to changing interest rates and market conditions.

• Limited brand recognition compared to banks.

• Cost of borrowings remain elevated.

• Slower adoption of digital and technological solutions.

Opportunities:

• In general, NBFCs have big opportunities in lending last mile, where the banks cannot reach. Such sectors could be retails, infrastructure, affordable housing, renewable energy, small business loans, vehicle loans, etc. These sectors offer robust growth with high margin. Therefore, the expected credit growth is a significant opportunity for NBFCs. The growth in demand for credit is driven by the increase in consumer spending, the rise of e-commerce, and the expansion of small and medium-sized enterprises. NBFCs can leverage this opportunity by expanding their offerings and catering to the diverse needs of their customers.

• Demographic factors such as urbanization, nuclearization and the increasing working population of India driving income growth.

• Expansion into new geographies.

• Growing middle class, with diverse financial needs.

Threats

• Competitive intensity from time to time.

• Any adverse movement in the industry / macro- economic environment.

• Economic downturns and natural disasters affecting portfolio quality.

• Risk of NPA, default by borrowers can trigger systematic liquidity crises.

• Intensifying competition from banks

• Growing fraud risks impacts customer trust and operational efficiency.

Initiatives by Kalyan Capitals

Considering the positive growth trends in NBFC sector, Kalyan Capitals has initiated the following steps:

• Building strategic partnerships with larger financial institutions or fintech companies to access funding, technology, and expertise.

• Investing in modern technology infrastructure and automation solutions to streamline processes, improve efficiency, and enhance customer experience.

• Prioritizing regulatory compliance through dedicated compliance personnel, regular training, and leveraging external consultants when needed.

• Developing a strong risk management framework by hiring experienced professionals and implementing robust risk assessment processes.

• Implementing effective customer acquisition and retention strategies, including targeted marketing, personalized customer service, and loyalty programs.

• Exploring collaborations and associations with industry bodies to access market data, industry insights, and credit-scoring models.

• Developing a proactive liquidity management strategy that includes contingency plans, diversification of funding sources, and stress testing.

Segment

The Company currently operates only in one segment i.e. Retail Loans and the entire income as reported in the financial statements pertains to this business activity only.

Cautionary Statement

Statements in this "Management Discussion and Analysis Report" describing the Company objectives, projections, estimates, expectations or predictions may be "forward looking statements". The Company cannot guarantee that these assumptions and expectations are accurate or will be realized by the Company. Actual results could differ materially from those expressed or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.

The details of significant changes in financial ratios, along with detailed explanation there of as per the SEBI (LODR) Amendment Regulations, 2018