Karnavati Finance Ltd Management Discussions

This Management Discussion and Analysis ("MDftA") forms part of the Annual Report of Kamavati Finance Limited ("the Company" / "NBFC") for the financial year 2025-26 ("FY26" or "the year under review") and is furnished in terms of Regulation 34(2)(e) read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, and other applicable provisions of the Companies Act, 2013. The Company is registered with the Reserve Bank of India ("RBI") as a non-deposit taking NonBanking Financial Company classified in the Base Layer ("NBFC-BL") under the RBIs Scale Based Regulation ("SBR") framework, and its equity shares are listed on BSE Limited.

Karnavati Finance Limited ("KFL" or "the Company") holds a Certificate of Registration from the RBI as a non-deposit accepting NBFC and, in terms of the RBIs Scale Based Regulation framework, is classified as an NBFC-Base Layer. The Company is an Investment and Credit Company and does not carry on any other business of its own. The Company is engaged in providing finance, including personal loans, business loans, auto loans, education loans and mortgage/property-backed loans, to its customers.

1. Economic Overview

1.1 Global Economy

The global economy during FY26 continued to navigate a complex environment shaped by uneven growth across advanced and emerging markets, elevated geopolitical tensions including continuing conflict-driven disruptions in energy and shipping routes, volatile crude oil prices, and monetary policy divergence among major central banks. While inflationary pressures moderated from the highs of the preceding years, the pace of disinflation remained uneven across geographies, keeping global monetary authorities cautious. Trade policy uncertainty, tariff actions and currency volatility, particularly in the second half of the year, added to the headwinds faced by emerging markets, even as global financial conditions remained broadly supportive of risk assets.

1.2 Indian Economy

The Indian economy demonstrated continued resilience in FY26, emerging as one of the fastest-growing large economies in the world, supported by robust domestic consumption, strong investment activity, buoyant services exports and continued momentum in manufacturing. Growth was broad-based, with agriculture recording moderate growth while industry and services outperformed. Retail inflation remained benign through most of the year and within the Reserve Bank of Indias tolerance band, aided by softer food prices and the moderation in global commodity prices.

On the policy front, the RBI maintained an accommodative-to-neutral monetary stance through the year, continuing with calibrated easing alongside liquidity support measures. The Union Budgets continued thrust on capital expenditure, the rationalisation of Goods and Services Tax rates that boosted consumption demand, and steady progress on financial inclusion and digital public infrastructure provided further tailwinds to credit growth, with credit to NBFCs among the fastest growing segments, reflecting the increasing role of NBFCs as a conduit for last-mile credit delivery.

Notwithstanding these positives, the operating environment was not without risks - rupee volatility, elevated global crude oil prices at points during the year, external sector pressures and an uneven monsoon in certain regions tempered the outlook for tlie following year. The Companys business and financial performance during the year should be read in the context of this macroeconomic backdrop.

2. Industry Structure and Developments

2.1 The NBFC Sector in India

Non-Banking Financial Companies continue to play a critical role in deepening credit penetration in India, particularly to underserved retail, MSME and semi-urban/rural segments that are not fully served by the banking system. The sector continued to record healthy growth during FY26, led by MSME financing, vehicle finance, gold loans and affordable housing, in several quarters outpacing the growth in overall bank credit. The sectors asset quality and capitalisation levels remained broadly healthy, though funding costs and access to diversified liability sources continued to be a key differentiator between larger and smaller NBFCs.

2.2 Scale Based Regulation (SBR) Framework and the Companys Positioning

The RBIs Scale Based Regulation framework classifies NBFCs into four layers - Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL) and Top Layer (NBFC-TL) - with the intensity of regulation increasing progressively with scale, systemic footprint and interconnectedness. The Base Layer, in which the Company is classified, principally comprises smaller non-deposit taking NBFCs, together with NBFCs undertaking certain specified activities.

NBFCs in the Base Layer are subject to a comparatively lighter regulatory framework relative to the Middle and Upper Layers, while remaining subject to core prudential requirements, including income recognition and asset classification, fair practices and KYC/AML norms. The Company monitors regulatory timelines applicable to Base Layer NBFCs, including those relating to asset classification

norms, and takes such steps as may be required from time to time to align its internal policies and processes with applicable RBI directions, in consultation with its statutory auditors and professional advisors.

2.3 Key Regulatory Developments during FY26

• Continued evolution of the RBIs registration and Scale Based Regulation framework for NBFCs, including periodic amendments to the criteria used for classification across layers.

• Ongoing regulatory glide path for asset classification and non-performing asset recognition norms applicable to Base Layer NBFCs.

• Clarifications issued by the RBI from time to time on capital and prudential computations applicable to NBFCs.

• Continued regulatory emphasis on digital lending guidelines, fair practices in outsourcing and recovery/collection conduct, and cyber-security and IT governance across tire NBFC sector.

These developments are not expected to have a material adverse impact on the Companys operations. The Company continues to monitor regulatory developments closely and will align its policies, systems and processes as may be required from time to time, in consultation with its professional advisors.

2.4 Opportunities and Threats Opportunities

• Continued formalisation of the economy, rising financial inclusion and under penetration of formal credit in the Companys target customer segments and geographies.

• A favourable interest rate environment supporting the cost of funds and transmission to borrowers.

• Growing acceptance of co-lending and on-lending partnerships with banks, expanding access to funding for well-run NBFCs.

• Digitisation of underwriting, collections and customer on-boarding, improving cost-to-serve and turnaround time.

Threats / Challenges

• Intensifying competition from banks, larger NBFCs and new-age fintech lenders, particularly for prime and near-prime customer segments.

• Sensitivity of asset quality to macroeconomic shocks and borrower over-leverage in certain segments.

• Rising compliance and technology costs as regulatory expectations evolve for the sector.

• Relatively limited access to diversified and low-cost funding sources as compared to larger, higher-rated NBFCs and banks.

• Currency, interest rate and liquidity risks arising from any market borrowings and asset-liability mismatches.

3. Business Overview

The Company is a Base Layer, non-deposit taking Non-Banking Financial Company registered with the RBI, engaged primarily in the financing of personal loans, business loans, auto loans, education loans and mortgage/property-backed loans. The Companys business model focuses on extending loans, including loans secured against immovable property, allowing it to cater to customer segments that are typically underserved by larger financial institutions. The Company operates through its registered office and such other locations as it may establish from time to time, and continues to build its customer base in line with its business strategy.

4. Financial and Operational Performance

4.1 Overview

During FY26, the Company grew its loan book amid a supportive macroeconomic and interest rate environment, while continuing its focus on asset quality and prudent financial management. A summary of the Companys standalone financial performance for FY26, as compared to the previous year, is set out below. The figures below should be read together with the audited financial statements and notes thereto forming part of this Annual Report.

4.2 Financial Highlights

Particulars (Rs. in lakh)	FY 2025-26	FY 2024-25	Y-o-Y Change
Total Income	530.79	157.23	+237.59%
Particulars (Rs. in lakh)	FY 2025-26	FY 2024-25	Y-o-Y Change
Net Interest Income (Nil)	530.79	155.35	+241.67*
Net Total Income	530.79	157.23	+237.59*
Operating Expenses	448.06	150.68	+197.21*
Pre-Provisioning Operating Profit (PPOP)	82.85	6.57	+1160.91*
Impairment on Financial Instruments / Provisions	657.42	174.52	+276.71*
Profit Before Tax (PBT)	(574.57)	(167.94)	-242.12*
Profit After Tax (PAT)	(590.07)	(168.06)	-251.11*
Assets Under Management (AUM) / Loan Book	6,474.74	2,132.02	+203.69*
Net Worth	432.63	1,022.71	-57.70*
Total Borrowings	5,989.85	1,109.46	+439.89*
Balance Sheet Size (Total Assets)	6,526.02	2,161.19	+201.96*

4.3 Resource Mobilisation and Liquidity Management

The Company did not avail of any bank borrowings during FY26. The Companys funding requirements were met through internal accruals and unsecured borrowings raised from corporate/related entities, without recourse to public deposits, debt capital markets or institutional term lending. As at March 31, 2026, total outstanding unsecured corporate borrowings stood at T5,989.85 lakh, as compared to T1,109.46 lakh as at March 31, 2025, representing the entirety of the Companys total borrowings.

Given the Companys largely internally-funded liability structure, its exposure to market borrowing costs, refinancing risk and interest rate risk arising from external debt capital markets remains limited. The Company continues to maintain adequate liquidity to meet its near-term obligations and monitors its asset-liability position in line with applicable RBI guidance for NBFCs-BL. The Company will continue to evaluate the need for diversifying its funding sources, including bank lines and other market instruments, in line with its future growth plans.

4.4 Asset Quality

The Company assesses its asset quality on the basis of the income recognition, asset classification and provisioning norms prescribed by the RBI for NBFCs-BL, which are subject to periodic revision as part of the applicable regulatory glide path for the sector. The Company follows a Board-approved policy on provisioning for its loan assets and continues to maintain provisioning cover that it considers appropriate in the context of the composition and performance of its loan book. Detailed asset quality metrics for the year are set out in the notes to the audited financial statements forming part of this Annual Report.

4.5 Segment / Product-wise Performance

The Companys loan book comprises personal loans, business loans, auto loans, education loans and mortgage/property-backed loans. During the year, growth in the loan book was driven by continued disbursements across these product lines, in line with tlie Companys business strategy and credit policy. The Company continues to evaluate its product mix, geographic presence and portfolio composition with a view to balancing growth with prudent risk management. Further details of the Companys loan portfolio are set out in the notes to the audited financial statements forming part of this Annual Report.

5. Outlook

Going into FY27, the Company expects the operating environment for NBFCs-BL to remain broadly supportive, aided by the continuing monetary easing cycle, sustained domestic consumption and the Governments continued thrust on financial inclusion, even as external

and macroeconomic risks warrant continued vigilance. The Company intends to continue building its loan book in a calibrated manner, deepen its presence in its existing markets, diversify its liability base over time, and invest in its risk management and technology capabilities, with a continued focus on asset quality. The Company will also continue to align its policies and systems with regulatory requirements applicable to Base Layer NBFCs as they evolve.

6. Risk Management

The Company has in place a Board-approved Risk Management Policy and framework designed to identify, assess, monitor and mitigate the principal risks to which the Company is exposed, commensurate with its size, complexity and Base Layer classification under the SBR framework. Key risks and mitigants are summarised below:

Risk	Description	Mitigation
Credit Risk	Arising from borrower default or delay in repayment.	Defined credit policy, multi-level underwriting controls, portfolio diversification, and continuous monitoring of early-warning indicators.
Liquidity and Interest Rate Risk	Arising from asset-liability mismatches and interest rate movements.	Regular monitoring of the Asset-Liability Management (ALM) position, maintenance of adequate liquidity buffers, and diversification of funding sources and tenors.
Operational Risk	Arising from inadequate or failed internal processes, people, systems or external events, including cyber-security risk.	Documented standard operating procedures, internal controls, business continuity planning, and investment in IT security and data privacy infrastructure.
Regulatory and Compliance Risk	Arising from changes in the regulatory framework applicable to NBFCs-BL.	A dedicated compliance function, periodic training, and active tracking of regulatory circulars, directions and amendments.
Concentration Risk	Arising from excessive exposure to a particular geography, product, sector or borrower group.	Diversification objectives embedded in the Companys business strategy and periodic portfolio reviews.

7. Internal Control Systems and their Adequacy

The Company has in place internal control systems commensurate with the nature of its business and the size and complexity of its operations. These systems are designed to ensure that transactions are authorised, recorded and reported appropriately, that assets are safeguarded against unauthorised use or disposal, and that applicable laws, regulations and internal policies are complied with. The Companys Internal Audit function conducts periodic risk-based reviews of key processes and reports its findings to the Audit Committee of the Board. The Statutory Auditors have also evaluated the internal financial controls over financial reporting as part of their audit under Section 143 of the Companies Act, 2013, and their observations are set out in the Independent Auditors Report forming part of this Annual Report.

8. Human Resources and Industrial Relations

The Company recognises its employees as a key resource in delivering on its business strategy. During the year, the Company continued to focus on talent acquisition, training and development, employee engagement, and building a performance-oriented culture. Industrial relations remained cordial throughout the year. Details of the Companys employee strength as at the year-end are set out elsewhere in this Annual Report.

9. Information Technology

The Company continued to invest in strengthening its technology infrastructure during FY26, with a continued focus on the security, reliability and resilience of its systems, in line with the RBIs guidelines on IT Governance, Risk, Controls and Assurance Practices

applicable to NBFCs and the growing regulatory emphasis on cyber resilience across the sector. The Company will continue to invest in its technology and data security capabilities in line with its business requirements and applicable regulatory expectations.

10. Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand and supply, changes in Government regulations, tax laws and other statutes, the interest rate environment, and other incidental factors, both in India and in the markets in which the Company operates. The Company assumes no obligation to publicly update, amend or revise any forward-looking statements, on the basis of any subsequent developments, information or events.