KEN Financial Services Ltd Management Discussions

Overall Review

Ken Finance Service Limited (‘KFSL or ‘the Company) is a non-systemically important nondeposit taking non-banking financial company (NBFC) registered with the Reserve Bank of India (RBI) since March 24, 1998, with registration number 13.00423 and classified as NBFC- Investment and Credit Company (NBFC-ICC) pursuant to circular DNBR (PD) CC.No.097/03.10.001/2018-19 dated 22 February 2019. The Company is mainly engaged in the business of financing. The Company has a diversified lending portfolio across retail, SMEs and commercial customers with significant presence in urban and rural India..

NBFCs plays a vital role in the Indian financial market, providing a range of financial services. The NBFC Sector in India has experienced significant growth in recent years, with a compound annual growth rate (CAGR) of 19.3% from FY 2014 to FY2019. It is projected to continue growing at 18% between FY 2020-2024, showing its importance in Indian economy. However, the NBFC industry has faced the challenges in recent years due to regulatory changes, such as liquidity crisis in 2018 and the introduction of stricter regulations by the RBI. These changes have affected the growth and profitability of NBFCs, making it crucial for investors to carefully, analyze and choose their investments in this sector.

Industry Structure and Development

The NBFC sector in India has witnessed remarkable transformations since its emergence, with segments such as housing finance, microfinance and consumer finance contributing to its expansion. This growth is driven by various factors, such as a rising middle class, enhanced financial inclusion and positive policy interventions. Additionally, the sector has benefited from a favorable regulatory framework and a stable macroeconomic scenario. The sector has also shown resilience in terms of sound capital position, improved asset quality, adequate provisioning and higher profitability. Furthermore, the sector has leveraged digitisation to offer alternative financing options, especially to the MSMEs, which face challenges in obtaining loans from traditional banks. With the growth witnessed in the NBFC sector and India reaching an estimate of USD7 trillion GDP by 2030, Indias financial need will rise, creating ample opportunities for NBFCs.

Digitisation has been a game-changer for the Non-Banking Financial Company (NBFC) sector, enabling faster and more efficient processes, as well as a superior customer experience. NBFCs are increasingly focusing on digitisation as a key differentiator, with a particular emphasis on the use of super apps to source and partner with customers. This trend is set to continue, as the demand for digital services continues to grow. The role of technology, data and analytics across the value chain is also set to increase, with a particular emphasis on credit and underwriting, collections, fraud management and cyber and data security/privacy. The use of scorecards powered by traditional and new age data sources is becoming increasingly popular, as NBFCs seek to improve their credit assessment capabilities. Digital collections and the role of data and analytics are also set to increase, as NBFCs seek to improve their collections efficiency.

Another area of focus for NBFCs is the lending model, with a particular emphasis on First Loss Default Guarantee (FLDG) and co-lending models. The guidelines for FLDG have been a major catalyst for growth in this segment, while colending requires further initiatives to scale up this model. Green and sustainable financing is also emerging as a sunrise sector, with NBFCs playing a key role in financing projects that promote environmental sustainability.

Nonetheless, the NBFC sector faces significant challenges, especially from the banking industry. Banks targeting the same customer base as NBFCs will require scale, resulting in intensified competition in the sector. NBFCs will have to explore securitisation, co-origination and colending to sustain their competitiveness in this scenario. It investigates the impact of technology, data and analytics throughout the value chain of NBFCs. It analyses the emergence of super apps, the potential of digital sourcing and partnerships and the application of data- driven scorecards for credit and underwriting. Moreover, it emphasises the significance of digital tools in collections, fraud management and cyber and data security. Finally, it unfolds the challenge posed by the banking industry and the strategies that NBFCs can adopt to thrive in this competitive scenario.

Opportunities and Threats

There are lot of opportunities and wide range of financial services offered by NBFCs which includes:

• Personal loans

• Leasing and hire-purchase services

• Investment and asset management services

• Home loans

• Credit card services

• Vehicle loans

• Microfinance

• Insurance services

• Gold loans

Further Government of India has exempted NBFCs from the hard rules and regulations which are mandatory for the traditional banks, keeping in mind the financial needs of the people. NBFCs get to enjoy flexibility in the rules for paperwork and other restrictions due to which many entrepreneurs put their interest in these financial institutions. Government of India has provided many opportunities for the establishment of NBFCs in the Indian market. The NBFCs are eligible for a foreign investment of up to 100%.

NBFCs are contributing to Indias GDP by facilitating credit access, supporting investment, and contributing to various sectors. The diverse range of services offered by NBFCs have contributed to the overall growth and resilience of the Indian economy. This is why the Indian Government has taken many initiatives to protect the interests of NBFCs and help them to emerge. NBFCs are in the business of profit. The contributions made by the NBFCs in the growth of the Indian economy highlights how well NBFCs have been functioning.

Asset Quality and Credit Risk: NBFCs face challenges related to asset quality and credit risk, especially during economic downturns or in sectors prone to volatility. Poor risk management practices can lead to asset quality deterioration and increase the likelihood of defaults.

Segment-wise/Product-wise Performance

The Company is engaged mainly in business of financing and as such there are no other reportable segment. The revenue for the year was Rs. 58,007 hundreds in comparison to Rs. 7,74,184 hundreds during the previous year.

Outlook

The conditions most likely to play out over the next few months—the combination of high interest rates, greater regulatory pressure, and potentially moderating, but still troubling, inflation—are trends many senior financial services industry (FSI) leaders have seen before. But many of their employees, especially those from younger generations, havent, so leaders will need to help their people navigate through uncertainty and near-term challenges and find opportunities.

Theyll also need to focus on whats coming next. In 2024, the technological turbulence— including generative AI, transition to the cloud, increased fraud and cyber risk, and blurring of industry lines, such as the embedded finance trend—will require financial services leaders to be much more agile than ever. New strategic options will need to be created to help firms tack in the direction of the prevailing breeze, wherever its coming from.

History shows the financial services industry has frequently been a catalyst for progress, helping organizations and people manage economic and societal changes. By decades end, FSI leaders may look back at 2024 as the year the future started to unfold, in real terms.

Risk and Concern

It is essential to correctly assess the risk in each segment so that the risk is mitigated before it becomes a possible threat. General risk segments are statutory compliances, economy, financials, Government policies, market related, operational, products & technology etc.,

The management has a rapid review of likely risk areas with the objective to define a framework for identification, evaluating and mitigating the risk in the decision-making process and to encourage proactive management and not reactive management. From the perspective of the company the risks are of the following nature:

Strategic risk

Those risks associated with operating in a particular industry and includes risk arising from demand changes, changes in customers choice and industry changes. These risks pose threats or opportunities which materially affect the ability of the organization to survive.

Compliance risk

Those risks associated with the need to comply with laws and regulations. They also apply to the need to act in a manner which stakeholders and customers expect.

Operational risk

Those associated with the companys operational and administrative procedures which inter alia include accounting controls, regulations, recruitment, I.T systems, board composition, contractual risks and exposures, organizational risks and exposures.

Financial risk

Those associated with financial structure of the company, its transactions and the financial system in place.

Environmental risk

Those associated with release of polluting materials, environmental performance/compliance limits, business opportunities and breach of regulations.

Internal Control System

KFSLs has in place adequate system of internal control. It has documented procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or assets, compliance with regulations and for ensuring reliability of financial reporting.

The company had continued its efforts to align all its processes and controls with best practices in these areas as well.

Financial Performance w.r.t. Operational Performance

During the year under review, the Company has earned Total Income of Rs. 58,007 hundreds in comparison to Rs.7,90,297 hundreds during the previous year. The total expenses have been reduced from Rs. 6,91,331 hundreds to Rs. 46,544 hundreds. The Net Profit after tax is Rs. 7,682 hundreds in comparison with Rs. 61,758 hundreds during the previous year. Your directors are of the opinion of performing better in forthcoming FY 2024-2025.

Safety, Health and Environment

Y our Company as a matter of policy gives greater importance to safety, health and environment and also ensures compliance with applicable legislative requirements.

Human Resources

The Company firmly believes that Human Capital is its most important asset. A series of engagement interventions across identified key themes were undertaken to increase employee morale and the initiatives focused on key aspects such as physical and mental wellness, celebrations, continuing with its journey of "Happiness at the workplace".

Key Financial Ratios:

In accordance with the SEBI (Listing Obligations and disclosures Requirements) Regulations 2018 (Amendment) Regulations, 2018, the Company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in Key sector-specific financial ratios.

Particulars	F.Y. 2023-24	F.Y. 2022-23
Debt equity Ratio 1	0.30 Times	0.31 Times
Net Profit Margin (%)2	13.24 %	7.81%
Return on Networth (%)3	1.07%	8.75%

1Debt Equity ratio has not changed.

2Net Profit Margin has increased as a result of improved business structure of the Company. ³Return on Networth decreased as a result of decreased in business without increase in capital investment.

Cautionary Statement

The report contains forward looking statements describing expectations, estimates, plans or words with similar meaning. Your Companys actual result may differ from those projected depending on various factor. Your Company cannot guarantee that the assumptions and estimates in the forward-looking statements are accurate or will be realized.