Kreon Finnancial Services Ltd Management Discussions

Indian Economic Review

Indias economic landscape in 2024-2025 reflects sustained resilience, digital leadership, and strategic growth. Following strong GDP performance and record FDI inflows, the nation advanced with key milestones like the Gaganyaan test missions and landmark global trade deals. These developments have not only reinforced Indias global standing but also elevated its reputation as a hub for innovation, opportunity, and long-term investment potential.

Stock Market Performance

The Indian equity markets have demonstrated robust growth in FY 2024-25. The Nifty 50 index experienced a strong rally, rising approximately 15.5% from its low of 21,744 to a high of 25,116, reflecting growing investor confidence and economic momentum. In terms of market capitalization, Indias stock market reached an estimated $5.13 trillion by December 2024, marking a substantial rise and positioning India as the worlds fifth-largest market by capitalization.

Export Growth and Trade Facilitation

Indias export sector continues to thrive. During April-December 2024, total exports (merchandise and services) were estimated at $602.64 billion, registering a 6.03% growth compared to the same period in the previous year.

On the trade facilitation front, India has made significant strides. The country has implemented paperless trade measures as part of its logistics and trade facilitation policy, aligning with the Framework Agreement on Facilitation of Crossborder Paperless Trade in Asia and the Pacific (CPTA).

INDUSTRY STRUCTURE AND DEVELOPMENTS NBFC segment in India

Strategic Role in Financial Inclusion

NBFCs continue to play a pivotal role in Indias financial ecosystem, offering tailored financial solutions to underserved segments, including MSMEs and rural populations. Their agility, customer-centric approaches, and technological innovations have enabled them to bridge credit gaps left by traditional banking institutions.

Sector Growth and Credit Expansion

• Credit Contribution: As of December 2024, NBFCs total credit stood at approximately ^52 trillion, with projections to exceed ^60 trillion by FY 2025-26. Retail assets, accounting for 58% of the overall NBFC credit, have been the primary growth drivers, expanding at a compounded annual growth rate (CAGR) of 23% during FY 2023-24.

• Loan Growth: The sector experienced a moderation in credit growth, with a projected increase of 13-15% in FY 2024-25 and FY 202526, down from 17% witnessed in the previous two fiscals.

Co-Lending Model Expansion

• AUM Growth: NBFCs co-lending assets under management (AUM) reached ^80,000 crore by the end of March 2024, reflecting strong growth under the existing model. The colending AUM is expected to grow at a robust rate of 35-40% annually over the medium term.

• Regulatory Developments: Co-lending charges levied by NBFCs will soon be subjected to 18% Goods and Service Tax (GST), following an agreement between NBFCs and banks on the presence of a service component in such arrangements.

Asset Quality and Profitability

• GNPA Ratio: The gross non-performing assets (GNPA) ratio for NBFCs improved to 3.4% at the end of September 2024, indicating enhanced asset quality.

• Profit Margins: Despite a 25-50 basis points increase in borrowing costs in the last quarter of FY 2023-24, NBFCs have maintained profitability through diversified portfolios and efficient risk management strategies.

Regulatory Developments

• Scale-Based Regulation (SBR): The RBIs implementation of SBR has categorized NBFCs into four layers-Base, Middle, Upper, and Top- based on size, activity, and risk perception, promoting a more structured regulatory framework.

• Credit Line Restrictions: In response to concerns over disguised borrower stress, the RBI directed large NBFCs to halt the renewal of certain credit lines, emphasizing the need for prudent lending practices.

Technological Advancements

• Digital Lending: NBFCs have increasingly adopted digital platforms to streamline loan processing, enhance customer experience, and expand their reach, particularly in underserved regions.

• Digital Lending: NBFCs have increasingly adopted digital platforms to streamline loan processing, enhance customer experience, and expand their reach, particularly in underserved regions.

Outlook

During FY 2024-25, the NBFC sector witnessed calibrated credit growth of 13-15%, driven by tighter regulatory frameworks and a renewed focus on portfolio quality. In response to the RBIs enhanced Digital Lending Directions, 2025, and evolving compliance standards, we proactively adapted our digital lending architecture to ensure full regulatory alignment, prioritizing responsible lending, customer transparency, and data integrity.

Amidst rising funding costs and increased risk weights, we undertook strategic realignments- diversifying into secured lending, strengthening co-lending partnerships, and optimizing our asset- liability profile. Our investments in digitization and risk analytics positioned us well to respond to the changing credit landscape, while continuing to serve MSMEs and financially underserved segments with speed, precision, and integrity.

As India progresses toward its $7 trillion GDP vision by 2030, our company remains committed to enabling inclusive credit access and building a resilient, technology-forward lending platform that delivers long-term stakeholder value.

Fintech and digital lending segment in India Indias Fintech and Digital Lending Landscape - FY 2024-25

Indias fintech sector continues its rapid expansion, with the market projected to reach $150 billion by 2025, driven by increasing smartphone penetration, the rise of UPI, and the adoption of AI-driven financial services. The digital lending platform market is expected to grow at a CAGR of 30.2% from 2025 to 2030, reaching a projected revenue of $2.38 billion by 2030.

In the first quarter of FY25, digital lenders disbursed over 2.6 crore loans, reflecting a 15% year-on-year increase. This surge is supported by the widespread adoption of smartphones, with 85.5% of Indian households possessing at least one, and the dominance of UPI among youth, with 99.5% usage.

Indias leadership in digital payments is evident, accounting for nearly 49% of global real-time payment transactions. This robust digital infrastructure, coupled with regulatory support, positions India as a global fintech powerhouse.

Looking ahead, the convergence of technology andfinance is set to deepen, with AI and machine learning playing pivotal roles in credit assessment and risk management. The governments initiatives, such as the Open Credit Enablement Network (OCEN) and the Account Aggregator framework, are expected to further streamline digital lending processes.

The country is experiencing rapid economic growth, with household consumption forecasted to reach Rs.224 lakh crore (US$ 3 trillion) by FY26. This growth spans across all income levels, creating significant opportunities in the financial services sector, particularly in the realm of credit. Despite the increasing demand for credit, there remains a notable disparity between supply and demand. Scheduled commercial banks have traditionally been at the forefront of meeting credit needs, but there is now a surge in the emergence of technology-driven players in the market, driving the shift towards digital lending. While digital lending in India is still in its early stages compared to traditional lending, it is rapidly expanding. It is projected that total digital lending disbursements will exceed Rs.47.4lakh crore by 2026 up from Rs.21.6 lakh crore in FY 22, representing a CAGR of 22%. At 87%, India has the highest Fintech adoption rate among the public compared to the global average of 64%. With this, India has gained the 3rd place in digital payments only after the US and China. These opportunities, along with the favorable ecosystem, create a large growth potential for Fintechs in India.

Factors such as socio-economic conditions, demographics, technological progress,infrastructure development, and increasing credit demand are distinct to India and are fueling the expansion of digital lending in the nation. The growth of digital lending players (LendTechs) is extending across borders, encompassing a substantial segment of the overall Indian FinTech market. It is anticipated that their market share will continue to increase Infrastructure development initiatives, such as eKYC, Open Network for Digital Commerce, Open Credit Enablement Network, etc., and policy-led initiatives such as First Loss Default Guarantee (FLDG) program approval are being targeted towards the promotion of digital lending and are helping solve persistent challenges of Indian lending market. There is also a concerted attempt on the part of the government and regulators to push financial institutions to scale up green/sustainable digital lending and financial inclusion via collaboration among FinTechs, banks, and NBFCs.

The growth of digital lending has been driven by various factors which includes:

The global financial services industry has undergone significant transformation through the adoption of emerging technologies and innovative solutions, and Indias financial services industry is no exception. Furthermore, with Indias FinTech adoption rate at 87%, significantly surpassing the global average of 64%, the pace of change has accelerated even more.

LendingTechs, which provide digital lending solutions, constitute a significant portion of the overall Indian FinTech market, accounting for 46% of the total market in FY22 and expected to rise to 60% by FY30.

OPPORTUNITIES AND THREATS

Opportunities Socio-economic factors

Increase in employment: Worker Population Ratio (WPR) as per Period Labor Survey conducted between June 2022-June 2023, increased to 59.4% in 2023 against48.1% in 2017-18 . WPR for male in India increased from 71.2% in 2017-18 to 76.0% in 2022-23 and corresponding increase in WPR for female was from 22.0% to 35.9%.

Improving banking access: 50 crore plus people under the formal banking system with cumulative deposits surpassingRs.2 lakh crore.

Higher per capital income: Indias per capita income of the population for 2024 is 2.85%.

Increasing smartphone and internet access

Indias internet penetration stood at 52.4% at the start of 2024, with an estimated 1.12 billion cellular mobile connections, translating to a mobile phone penetration of around 78% and average internet consumption stood at 24.1 GB to 28 GB per user per month.

Demographic trends

Increase in tech savvy millennial and Gen-Z customers: India has 116 million Generation Zconsumers, with two out of every five urban Indian consumers aged between 15 and 55 falling into the Gen Z category.

Enabling public infrastructure

Account Aggregator (AA) Framework, Open Credit Enablement Network (OCEN), TReDS, Open Network for Digital Commerce (ONDC).

Digital trail of data and technological advancements

• Interconnected systems and platforms.

• Widespread use of Aadhar, PAN, GSTIN for audit trail.

• Cloud, Big data and analytics, AI, open APIs, automation, etc.

Rise in credit demand

• Untapped MSME market: Credit gap of Rs.25 lakh crore.

• Rising demand for small ticket loans: 85% of personal loans originations in FY22 were with a value of less than Rs.1 lakh.

• Rising gig economy: India had 7.7 million workers in gig economy and is expected to expand to 23.5 million in 2030.

Threats

Indias fintech lending sector has strong growth potential but faces key challenges. Success depends on robust risk management, innovation, regulatory compliance, and customer trust. Proactively addressing these ensures sustained growth and industry impact.

BUSINESS AND FINANCIAL OVERVIEW

Kreon Finnancial Services Limited, a distinguished non-banking financial institution domiciled in India, has cultivated a robust legacy spanning over three decades within the financial services domain. Since its strategic pivot in FY 2018-19, the Company has transitioned into a dynamic fintech enterprise, harnessing the power of cutting-edge digital infrastructure to redefine credit access. Its operations are structured across two principal verticals: Commercial Lending and Digital Lending.

As a forward-looking digital lender, Kreon Finnancial Services Limited has pioneered an inhouse technology platform-its proprietary mobile application "StuCred" -to extend agile, short-duration credit solutions to the underservedtransitioned into a dynamic fintech enterprise, harnessing the power of cutting-edge digital infrastructure to redefine credit access. Its operations are structured across two principal verticals: Commercial Lending and Digital

Lending.

As a forward-looking digital lender, Kreon Finnancial Services Limited has pioneered an inhouse technology platform-its proprietary mobile application "StuCred" -to extend agile, short- duration credit solutions to the underservedstudent demographic across India. The platform is engineered to offer rapid, frictionless financial access, thereby empowering youth in managing educational and lifestyle expenses while circumventing the conventional rigidity of institutional lending channels.

The Companys financial statements have been meticulously prepared in accordance with the Indian Accounting Standards (Ind AS), as notified under Section 133 of the Companies Act, 2013 and read with the Companies (Indian Accounting Standards) Rules, 2015 and 2016. The financial disclosures are compiled on a historical cost basis, with modifications for fair valuation were prescribed under applicable standards. In addition to conforming to statutory provisions under the Act, the financial statements also reflect adherence to regulatory pronouncements issued by the Reserve Bank of India (RBI) governing NonBanking Financial Companies. This integrated compliance framework ensures transparency, comparability, and governance in line with global financial reporting conventions and Indias evolving prudential norms.

With a future-ready outlook, Kreon Finnancial Services Limited remains committed to leveraging financial technology to deepen credit inclusion, optimize user-centric lending journeys, and reinforce its position at the intersection of financial innovation and regulatory integrity.

Its brief financial performance for 2024-25 is given below:

Particulars	Year ended on 31st March 2025	Year ended on 31st March 2024
Total Income	2664.57	1637.28
PBDIT	(44.48)	262.73
Interest and Financial Charges	283.47	95.96
Depreciation	79.36	70.5
Profit before tax	(407.31)	96.27
Tax expenses	6.82	33.95
Net Profit	(407.31)	62.32

Details of significant changes(i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios, along with detailed explanations thereof including:

Particulars	2024-25	2023-24	% Change	Reason (if more than 25% change)
Current Ratio	1.81	1.69	7%	NA
Debt-Equity Ratio	102.29	85.05	20%	NA
Debt Service Coverage Ratio	-13.43	8.71	-254%	Significant variance is due to change in bad debts policy during the year which has resulted in higher write-off of loans.
Return on equity ratio	-13.38	2.45	-646%	NA
Net profit ratio	-15.54	3.85	-504%	NA
Return on capital employed ratio	-2.16	2.96	-173%	NA
Return on Investment - Equity Instruments	-	-	-	-

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Our Company employs a comprehensive internal control system supplemented by concurrent and internal audits, special audits, and regular management reviews. These internal processes ensure the existence of appropriate checks and balances and regulatory compliance at all levels. The internal audit team conducts risk-based audits of these processes to ensure that internal controls for fraud prevention, detection, reporting, and remediation are sufficient and effective.

Our Company places significant emphasis on the inspection of process controls, risk monitoring, and fraud prevention methods. Therefore, we have made substantial investments to ensure that our internal audit and control systems are appropriate and sufficient to meet our regulatory requirements and operational scale.

In order to benefit from expert oversight, diverse verification approaches, and optimize the return on investment from the audit process, we have engaged top-tier firms to handle the internal audit of our major businesses. M/s Darpan & Associates, Chartered Accountants the statutory auditors of the Company have audited the financial statements included in this annual report and have issued an attestation report on our internal control over financial reporting (as defined in Section 143 of Companies Act 2013). In line with companys business & presence, the Company has engaged M/s. R. Baskaran & Co., Chartered Accountants to manage and execute internal audits and towards the review of internal controls and risks in the companys operations.

Your Board is of the opinion that the Internal Financial Controls, affecting the Financial Statements of your Company are adequate and are operating effectively.

RISK AND CONCERN

A company in its normal course of working takes on many risks. For a Non-Banking Finance Company the risks that are most important are operational risk, credit risk, regulatory risk, liquidity risk, competition risk and employee risk. The identification, monitoring and mitigation of these risks are integral to the success of the company.

Risk Management broadly covers the above risk. The risk management framework is based on a meticulous assessment of risks through proper analysis and understanding of the underlying risks before undertaking any transactions and changing or implementing processes and systems. This risk management mechanism is supported by regular review, control, self-assessments and monitoring of key risk indicators.

	The Company is exposed to various external risks which have a bearing on its sustainability and profitability. The volatile macroeconomic scenario and sector-specific imbalances result in loan asset impairment.
Industry risk	Mitigation: Our dedicated team evaluates the trends in the economy and various other sectors. The Company possess an experience of more than 3 decades in the NBFC sector coupled with its customer reach enables it to sustain growth even in difficult financial conditions.
Operational Risk	Operational risks can result from a variety of factors, including failure to obtain proper internal authorizations, improperly documented transactions, failure of operational and information security procedures, computer systems, software or equipment, fraud, inadequate training and employee errors. Mitigation: We have adopted all contemporary and proficient operational methods and systems.
	Faster loan disbursement through quick credit appraisal has defined the Companys operational benchmarks. Additionally, regular internal audit provides a check on deviation arising from any contingent operational inefficiency.
Credit Risk	The risk associated with the failure of the borrower to meet financial obligations to the lender in accordance with the agreed terms is known as Credit Risk. If any of our borrowers fail to discharge their obligations to us, it would result in financial loss.
	Mitigation: Comprehensive review exercise is conducted for credit approvals, ensuring proper documentation, carrying out extensive credit appraisal, conducting periodic reviews etc., is done as a part of credit risk mitigation. Various norms for customer identification and evaluation procedure for prospective credit proposals have been stipulated as a part of risk mitigation.
Regulatory Risk	The risk arises out of a change in laws and regulation governing our businesses. It could also arise on account of inadequate addressable of regulatory requirements or differences in interpretation of regulations vis-a-vis the regulators. Mitigation: All the periodic guidelines issued by the RBI are fully adhered to and complied with by the Company. We also follow stringent review systems to ensure compliance with the statutory guidelines and norms of the NBFC and Fintech lending industry. We have a team of experienced professionals reporting to Group Head - Compliance, Legal & Company Secretary which takes care of compliance with applicable laws, rules, regulations and guidelines affecting our businesses.
Liquidity Risk	Liquidity risk is the risk of not honoring liabilities to different financial and non-financial institutions. This risk can result in shortfall and cash flow and can permanently damage the credibility of a Company. Mitigation: Board of Directors meets regularly to review the liquidity position, based on future cash flows. As and when required the Company get its funding requirements from diverse sources, including Banks, Institutions, etc.
Competition Risk	Competition from new entrants or unorganized sector or diversification by existing financial Institutions may hamper the future growth of the Company. Mitigation: Fair and transparent practices help the Company gain competitive advantage over other entities. Our human resource policies and a healthy positive work environment help us attract and retain best talent on a continuous basis
Employee Risk	The Companys success depends largely upon the quality and competence of its management team and key personnel.
	Mitigation: Attracting and retaining talented professionals is therefore a key element of the Companys strategy and a significant source of competitive advantage. While the Company has a salary and incentive structure designed to encourage employee retention. Any failure to attract and retain talented professionals, or the resignation or loss of key management personnel, may have an impact on the Companys business, its future financial performance and the results of its operations.
Regulatory Risk	The risk arises out of a change in laws and regulation governing our businesses. It could also arise on account of inadequate addressable of regulatory requirements or differences in interpretation of regulations vis-a-vis the regulators. Mitigation: All the periodic guidelines issued by the RBI are fully adhered to and complied with by the Company. We also follow stringent review systems to ensure compliance with the statutory guidelines and norms of the NBFC and Fintech lending industry. We have a team of experienced professionals reporting to Group Head - Compliance, Legal & Company Secretary which takes care of compliance with applicable laws, rules, regulations and guidelines affecting our businesses.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

The Company firmly believes that its people are at the heart of everything it does. Employees are not merely part of the organizational fabric-they are the catalysts for innovation, resilience, and sustained progress. The Company is committed to fostering a workplace culture that values integrity, collaboration, and continuous learning. By nurturing individual growth and aligning personal aspirations with organizational goals, the Company builds a workforce that is agile, empowered, and future-ready. Regular capability-building programs, leadership development initiatives, and cross-functional learning opportunities equip employees with the tools they need to thrive. This approach not only enhances individual performance but also contributes meaningfully to the Companys long-term strategic objectives.

As on 31st March, 2025, there are 112 employees in the company (108 on the rolls of the company). Our headcount has grown by a whopping 111.3% over the past financial year.

The Company maintains a balanced and inclusive workforce, with a gender distribution of 47.22% women and 52.78% men.

And out 11 functions, 7 are headed by Women.

A vibrant 51% of our team-55 out of 108 employees-are between the ages of 22 and 25, bringing fresh ideas, enthusiasm, and early-career momentum to the workplace.

CAUTIONARY STATEMENT

The statements made in this section describe the Companys objectives, projections, expectation and estimations which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized by the Company. Actual result could differ materially from those expressed in the statement 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.