L&T Finance Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS

Macroeconomic Review

The global economy exhibited uneven yet steady growth across regions in 2024. Cyclical imbalances from post covid resurgence in 2022 and 2023, eased since the beginning of 2024, leading to a better alignment of economic activity with potential output in major economies. This adjustment also brought inflation rates across countries closer to target levels and contributed to lower global inflation. Moreover, despite a sharp and synchronised tightening of monetary policy around the world, the global economy remained unusually resilient throughout the disinflationary process, avoiding a global recession. While the global decline in inflation was a major milestone in 2024, downside risks to global growth started to emerge towards the end of the year and now dominate the outlook for 2025. Heightened uncertainties surrounding tariffs outcomes, following the US election verdict in Nov24, and its repercussion on global trade shroud the prospects of global economy. Economic policy uncertainty has increased sharply, especially on the trade and fiscal fronts and various risks viz; escalation in regional conflicts, monetary policy remaining tight for too long, possible resurgence of financial market volatility and the continued ratcheting up of protectionist policies dominate business sentiments across the globe.

Against the uncertain global economic backdrop, India displayed steady economic growth supported by agricultural and services sector activities, with rural demand improving on the back of record Kharif production and favourable agro-climatic conditions. Domestic macro fundamentals continued to remain resilient as astute fiscal management, coordinated monetary policy and strong external balances helped steer away the impact of extreme weather conditions and high inflationary levels in the first half of 2024.

Despite slower growth in first half of the year, quick recovery in the second half put India on track to remain the fastest-growing major economy in the world in FY25.

Revisions in Indias GDP Growth Outlook for FY25

During H1-FY25, growth in real GDP (Gross Domestic Product) turned out to be much lower than anticipated, largely due to lower government spending and extreme heatwave conditions. In Q2-FY25, real GDP growth slowed to a seven- quarter low of 5.6%, led mainly by a substantial deceleration in industrial growth due to subdued performance of manufacturing companies, contraction in mining activity and lower electricity demand. In the subsequent quarter, however, growth in real GDP recovered to 6.2% supported by robust rural demand and increased government expenditure.

The second advance estimate of the National Statistical Office puts Indias real GDP growth at 6.5% for FY25 (compared to 9.2% in FY24), reflecting strong recovery in H2-FY25. On the demand side, private consumption expenditure is estimated to grow by 7.6% in FY25 driven by a rebound in rural demand and pick up in government expenditure in H2-FY25. While rural consumption demand remained resilient, considerable slack in urban demand was observed due to factors such as high interest rates, elevated food inflation, subdued growth in inflation-adjusted salary levels, elevated unemployment levels and preemptive regulation-induced slowdown in retail credit growth.

On the supply side, real GVA (Gross Value Added) is estimated to grow by 6.4% in FY25 (vs. 8.6% in FY24), mainly driven by strong recovery in the agriculture & allied sector and resilient services sector while growth in industrial sector moderated.

Retail inflation based on the Consumer Price Index (CPI) peaked at 6.21% in Oct24 and softened in subsequent months to reach 3.34% in Mar25 as food price pressures softened. The contribution of food inflation to headline CPI has significantly risen over the past three years, from 34% in FY22 to 46% in FY23 to 59% in FY24 and 65% in FY25, reflecting grim repercussion of climate risks. For instance, the percentage of heatwave days in India rose to 18% in 2022-2024 vs 5% in 2020-2022 which affected crop yields. Core inflation continues to remain below 4% despite significant uptick from its record-low levels of 3.12% in the month of May24.

As inflationary pressures receded, the Monetary Policy Committee (MPC) of the RBI unanimously decided to reduce policy repo rate by 25 basis points to 6.25% in Feb25, after a gap of almost five years. The MPC recognised the moderation in retail inflation in FY25 and its benign outlook for FY26 along with moderation in GDP growth.

On the fiscal front, the Central Government reaffirmed its commitment to fiscal discipline by achieving better-than-budgeted fiscal deficit to GDP ratio of 4.8% for FY25 mainly due to lower than budgeted capital expenditure.

The quality of public expenditure, however, continued to improve in FY25 as growth in capital expenditure (7.3%) outpaced growth in revenue expenditure (5.8%). The market borrowings in FY25 (both gross and net) was lower than the previous year which helped narrowing public debt to GDP ratio by 160 bps to 57.1% in FY25.

Indian rupee, following a stable H1-FY25, depreciated by 2.3% in H2-FY25 due to strengthening of dollar vis-a-vis other currencies. Moreover, foreign capital outflows (due to tariff-tantrum induced global trade uncertainty and lower-than-expected quarterly earnings performance by domestic corporates) exacerbated the pressure on Indian rupee. RBIs intervention to curb the excess volatility in rupee- dollar exchange rate led to depletion in foreign exchange reserves by about US $ 40 billion in H2-FY25 (in contrast to accretion of US $ 60 billion in H1-FY25). Nevertheless, Indias foreign currency reserves continue to remain adequate as reflected in the comfortable import cover ratio of about 11 months.

Outlook for FY26

The International Monetary Fund (IMF) projects global economy to grow at 2.8% in CY2025, significantly lower than the historical (2000-19) average of 3.7%, largely due to increasing trade tensions and surge in policy uncertainty. Weaker global economic growth could lead to slowdown in global trade, investment, and overall economic activity, potentially impacting business sentiments, employment conditions and consumer spending. With growth varying across economies and last-mile disinflation proving sticky, global central banks are likely to take varying paths of monetary policy.

The global trade outlook for CY25 remains uncertain, despite global trade volume registering 3.7% on- year growth in 2024. Escalating trade tensions and a heightened wave of uncertainty around the scope and intensity of tariffs will test the resilience of the global economy. Persistent policy uncertainty could drive structural adjustments in global value chains and its adverse impact could affect economies beyond the US amid ongoing geopolitical realignments.

Against the backdrop of turbulent global environment, the Indian economy is expected to continue to demonstrate resilience in FY26 supported by robust sectoral performance and improving consumption trends. The RBI projects 6.5% growth in Indias real GDP in FY26 supported by strong momentum in domestic demand amid cooling food inflation, tax benefits and lower borrowing costs.

External factors such as rising US tariffs and global trade pushback will be the headwinds. The uncertain and volatile global environment could further defer the much-anticipated revival in private capex.

On the inflation front, the RBI projects retail inflation at 4% in FY26 which will provide policy space for further rate cuts to support economic activity. Second advance estimates of agricultural production projects kharif and rabi food grain output to increase by 6.8% and

2.8%, respectively which suggests a benign outlook for food inflation. Moreover, according to the IMD (India Meteorological Department), south-west monsoon is expected to be above-normal in 2025 which will support reigning in inflation. Upside risk to inflation, however, could emanate from global uncertainties leading to pressure on Rupee and imported inflation.

The Central Government envisages to contain fiscal deficit to GDP ratio at 4.4% in FY26, 40 bps lower than

the previous year and reduce the debt to GDP ratio from 57.1% in FY25 to 56% in FY26. While prudently balancing fiscal consolidation and growth objectives, the Union Budget for FY26 has announced several measures under four engines of growth - agriculture, MSMEs, investment and exports. The tax cuts on individuals as announced in the Union Budget for FY26 are set to increase disposable income, boosting consumer spending and improving their loan eligibility which is expected to drive demand for credit.

Projections for Indias	IMF	World Bank	OECD	RBI	Fitch	Moodys*	S&P
GDP Growth in FY26	6.20%	6.30%	6.40%	6.50%	6.50%	6.10%	6.50%

On the credit front, FY25 was a mixed picture. While lenders benefitted from improved profitability and stable asset quality, credit growth was tempered by cautious credit expansion, driven by stricter regulatory measures to prevent overheating in certain lending segments. Credit uptake among new-to-credit consumers and towards consumption-led credit products witnessed a sharp decline in loan originations as regulatory forbearance turned cautious in the first half of the year. Towards the end of the year however, much of the caution has started to fade as economic impulses are getting stronger.

Indias financial system remains stable and prepared for potential global challenges in Fiscal Year 20252026. RBIs Financial Stability Report notes that Indian banks have achieved a significant milestone, with gross nonperforming assets (NPAs) declining to a 12-year low of 2.6% as of September 2024. This improvement is attributed to positive recovery efforts, the strategic write-off of legacy bad loans, and a slowdown in the accumulation of new bad assets. The Report also indicates progress in critical areas such as asset quality, regulatory compliance, and the robustness of non-banking entities, while highlighting areas requiring attention, such as liquidity management and macroeconomic risks.

The Report makes notes on strengthening of the balance sheets of non-banking financial companies (NBFCs) as well. It states that stress tests conducted by the RBI reveal that even under high-risk scenarios, NBFCs would retain capital levels well above the required minimum, showcasing their improved financial resilience.

In Feb25, the RBI has also reversed its Nov23 decision on higher risk weights on bank lending to NBFCs. This is expected to enhance funding access of NBFCs from banks.

Overall, the NBFC sector remained healthy with sizable capital buffers (CRAR stood at 26.1% in September, 2024), robust interest margins and earnings (NIM at 5.1% and RoA at 2.9%) and improving asset quality (GNPA at 3.4%). The RBIs policy measures in Q4-FY25 suggest a more balanced regulatory approach, fostering growth while ensuring compliance. Furthermore, RBIs commitment to maintain sufficient systemic liquidity could expedite transmission of policy rate cuts and help the NBFC sector to reduce their overall cost of funds.

Granular Execution on the 5-Pillar Strategy in FY25

FY25 witnessed a granular implementation of 5-Pillar strategy on all accounts. The pillars that witnessed focused execution were deepening credit underwriting through execution of Project Cyclops, the three dimensional credit underwriting engine and launch of one of its kind portfolio management engine Project Nostradamus and other nuanced policy and process controls. The implementing futuristic digital architecture pillar witnessed the launch of various loan origination and partnership journeys while ensuring best-in-class system uptime. Heightened brand visibility became a reality through various brand and product campaigns launched along with the launch of one of its kind AI conference R.AI.SE24. Last but not the least, capability building was at the heart of the efforts through the creation of the Regional Business Head structure and a 3-tier compliance structure.

Pillar 1: Enhancing Customer Acquisition

Given the dynamic and volatile credit environment that prevailed through FY25, your Company focused on responsible growth by calibrating customer acquisition while optimising channel management. This is evident from the new customer acquisition and sourcing strategy that has been followed throughout the year. In the Rural Group Loans and Microfinance segment LTF followed a measured approach in enhancing its geographic presence due to the overleveraging of customers in the industry. On the TwoWheeler and Farm Equipment Finance front, your Company followed a conscious channel rationalisation effort to enhance customer quality and sourcing. On the Personal Loan front, customer sourcing and distribution was strengthened multifold through tie-ups with big tech companies. Lastly, on the Home Loan and LAP front, your Company concentrated on improving the developer channel for sourcing Home Loans, while in SME Finance LTF focused on increasing the sourcing through direct channels.

Customer Acquisition	Q1FY25	Q2FY25	Q3FY25	^Q4FY25
New Customer Acquisition (No. in lakh)	6.7	6.6	5.8	5.2
Expanding	Reach
„ - „ Rural Group Loans and MFI New Villages Activated (Nos.)	21,832	22,743	19,975	25,401
Two-Wheeler Finance • " Active Sourcing Points (Nos.)	11,178	10,438	9,768	8,425
Farm Equipment Finance O* d Active Sourcing Points (Nos.)	2,433	2,316	2,512	2,355
Personal Loans Active DSAs and E-Aggregators (Nos.)	43	35	49	55
Home Loan/LAP - Active Sourcing Points (Nos.)	336	371	389	385

Towards creating a deeper customer and distribution footprint

Cross-Sell and Up-Sell		Q2FY25	Q3FY25	Q4FY25
Total Retail Repeat Disbursement Share (Count)	46%	43%	43%	49%
Total Retail Repeat Disbursement Share (Value)	36%	35%	32%	36%
- ~ - Rural Group Loans & MFI Repeat % (Count)	59%	53%	56%	60%
Rural Group Loans & MFI Repeat % (Value)	71%	66%	69%	73%
0 (j Farm Equipment Finance Repeat % (Value)	19%	39%	22%	34%
^ O Personal Loans to Existing Customers % (Value)	63%	61%	49%	40%

Pillar 2: Sharpening Credit Underwriting

The highlight of FY25 has been the deployment of LTFs proprietary digital credit engine, Project Cyclops, the first of its kind engine in the industry which facilitates a thorough credit underwriting on a multi-dimensional axis. The Beta version of Project Cyclops was launched in July 2024 in the Two-Wheeler Finance business and implemented 100% during the course of the year. It was also implemented on a pilot basis in the Farm Equipment Finance business. The AI-ML powered underwriting engine facilitates an in-depth assessment of the customers potential by ingesting bureau, account aggregator and alternate trust signals at scale using ML-based ensemble scorecards, built after an extensive data analysis and overlay of historical credit performance data. With Project Cyclops, LTFs underwriting capabilities have become more comprehensive and accurate, enabling it to make faster and more informed decisions at scale.

Operationalised Project Cyclops in Two-Wheeler and Farm Equipment Finance

I

Furthermore, your Company has commenced work on Project Nostradamus, a first of its kind Al-driven automated portfolio management engine which is expected to transform LTF from a reactive portfolio management paradigm to a proactive portfolio management paradigm. The key features of this project are the ability to push data at scale, to process data at low latency speeds, and to develop the ability to predict, risk model and run simulations in real time. The beta version of this new technology engine is expected to get released in Q2FY26.

LTF remains dedicated to driving innovation and enhancing its offerings to better serve its customers.

Pillar 3: Implementing Futuristic Digital Architecture

1 _ 2 3 4 - ⁵

LTF is committed to becoming one of the pre-eminent technology-driven lenders in the country. During FY25, LTF launched a revamped customer portal and the next generation of PLANET App, which is aimed at enhancing the experience of the customers. While certain journeys were launched like DIY Home Loan, others were revamped like Rural Business Finance sourcing app. Progress has been made in optimising cloud usage costs and building robust disaster recovery infrastructure, alongside beefing up the cybersecurity capabilities. The organisation has embarked on the task of housing the entire Core IT, Data Sciences & Operations capabilities in an integrated facility in Navi Mumbai.

LTF will constantly harness cutting-edge technology to simultaneously enhance the customer experience as well as improving the operational metrics.

Pillar 4: Heightened Brand Visibility

In FY25, your Company augmented its brand visibility to enhance customer mindshare by building its presence through targeted product campaigns that covered high traffic customer points like airports and in-flight advertising on the urban side and wall paintings and melas on the rural side.

LTFs Targeted Marketing Campaigns

Integrated Marketing Campaign: LTF launched its first integrated marketing campaign for the Housing Finance business The Complete Home Loan, which generated sizeable leads and aided in overall lift in awareness of the brand. The integrated Home Decor Finance proposition is a first of its kind in the industry and addresses a whitespace in the home buying process for the customers.

Brand Ambassador: Your Company is pleased to inform you that it has onboarded Mr. Jasprit Bumrah as the brand ambassador of L&T Finance. Mr. Bumrah is an eminent cricketer and captain of Indias One Day International Cricket team. Going forward, there will be extensive marketing campaigns involving him, LTF products and customers.

R.AI.SE 2024: Another marquee strategic initiative envisioned and executed successfully from the stable of LTF was R.AI.SE24, Indias premier AI-focussed event for the BFSI sector.

Held on November 26, 2024 at the Jio World Convention centre under the theme of Re-Imagining Financial Services with AI, the event was inaugurated by L&T Group Chairman Mr. S.N. Subrahmanyan. Also, present were L&T Groups President, Whole-Time Director and Group CFO Mr. R. Shankar Raman along with the MD & CEO of LTF Mr. Sudipta Roy.

The conference featured 52 guest speakers in enlightening panel discussions, use cases, and real-world applications of AI in the BFSI sector, along with masterclass sessions. This event saw more than 8,000 registrations and reached an engagement level of 3 lakh during the course of three days.

By gathering Al leaders from regulatory bodies, unicorn start-ups, deep tech companies, and L&T Group companies together, R.AI.SE 24 shone the spotlight on the challenges and promises of AI applicability and its use in enhancing output. This bespoke event is expected to become an annual highlight going forward.

Other Key Events: Apart from this, LTF participated in the Global Fintech Fest 2024, and the India Bike Week, 2024 where the unveiling of the LTF Zoom Two-Wheeler Loans took place.

Pillar 5: Capability Building

On the capability building front, your Company has further strengthened the Risk and Compliance culture in the organisation by creating a 3-tier compliance structure i.e. a Central compliance, a Business compliance and a Regional compliance structure, reporting to the Chief Compliance Officer. To ensure the robustness of the compliance framework, a separate compliance testing team has been created for continuous monitoring and testing.

Further, in-line with the objective of boosting the human capital with an execution bias towards various initiatives, the Regional Business Head structure was operationalised in FY25 to tap emerging market opportunities. This structural change is expected to provide more granular distribution & risk control on the ground, aid cross-sell, drive inter-business synergies and reduce response times. Four senior professionals from the banking sector have been onboarded in FY25 to transition L&T Finance to this structure.

During FY25, your Company also launched its first Model Branch in Madurai, Tamil Nadu, inaugurated by L&T Group Chairman Mr. S.N. Subrahmanyan, for elevated customer experience and brand visibility. LTF would replicate this templated design across all the new and existing identified branches.

Standardising Branch Infrastructure

FINANCIAL RATIOS

During the year under review, there were no significant changes (i.e. change of 25% or more as compared to FY24) in key financial ratios of the Company.

Retail Finance

Farmer Finance

In the Farmer Finance business, your Company endeavours to build products across the farmer lifecycle by addressing requirements across the agri value chain.

Farm Equipment Finance

Tractor sales experienced a revival in FY25 post witnessing a compression in FY24, due to good rainfall, higher reservoir levels, and unhindered agricultural activities. The healthy mandi arrivals and MSP prices for both Kharif and Rabi crops, along with ongoing government support programmes, continue to foster positive sentiment in rural areas. As a result, the domestic tractor industry witnessed a year-over-year growth of 8%, with approximately 940,000 units sold during the fiscal year.

Your Company remains a leading farm equipment financier, driven by consistent disbursements and strong relationships with dealers and OEMs. In FY25, LTF financed nearly 96,000 new tractors, supported by best-in-class digital architecture and paperless sourcing process. The existing paperless sourcing process is powered by an in-house employee- assisted app which is bolstered industry witnessed a degrowth in the overall JLG book outstanding by 13% to 3.8 lakh Cr. The silver-lining in this environment has been normal monsoons, supported by healthy harvests and MSP prices that has facilitated rural consumption stability.

Even in this challenging environment, LTF remained resilient and stood out vis-a-vis competition due to its prudent sourcing policies focused on conservative association and exposure norms, time tested credit assessment procedures and risk guardrails. This has resulted in a portfolio that reflected customers upto 3 lenders including LTF comprising almost 92% of the entire loan book of which 45% are exclusive to LTF. This in-turn has resulted in industry best collection efficiency levels of 99.4% and 0-DPD book of 95%.

On the operational front, in FY25, LTF empowered over 61 lakh women entrepreneurs (~1.5 Cr customer base) through calibrated growth and a strong rural network of over 2,000 meeting centres (branches) in rural areas and 14,000+ on-field workforce. Accordingly, LTF ended the year with disbursements of 20,472 Cr, with the lending book at Rs. 25,838 Cr, a growth of 5% Y-o-Y.

Going into FY26, the Company will continue to closely monitor developments and grow in a calibrated manner by diversifying into underpenetrated and lesser leveraged geographies. Thus, LTF believes that it may be poised to emerge as a differentiated player, thereby, leveraging its strength in tech and data analytics to gain market share as the sector starts picking up momentum towards the second half of the next financial year.

Calibrating the Rural Business Finance portfolio towards Secured Loan Propositions

Micro LAP

Building on its deep rural expertise, LTF has pivoted towards establishing the Micro Loan Against Property product catering to the financing needs of a niche segment of the rural population largely against self-occupied residential property.

In FY25, the Micro LAP product has gained traction through a fastgrowing granular branch network of 132 branches across the states of Tamil Nadu, Karnataka, Maharashtra, Gujarat, Andhra Pradesh and Telangana with a modest book size of Rs. 482 Cr. This business is being catered to by an exclusive in-house field team supported by a robust onground credit unit.

Urban Finance

Two-Wheeler Finance

The Indian Two-Wheeler sector retail sales witnessed an annual growth of 6% compared to the previous year with annual sales reaching 1.86 Cr units. This growth highlights the continuing popularity of two wheelers for commute and underscores the demand for two- wheelers in the market. Two-wheeler sales during the festive season (Oct 2024 to mid Nov 2024) saw a growth of 13.8% Y-o-Y with sales of 33 lakh units driven by strong rural demand. Retail finance penetration, which increased from 62% to 66%, has helped in facilitating this growth. Another catalyst for growth has been the increasing demand for electric two-wheeler vehicles which showed a significant growth of 30% Y-o-Y. Sales of entry-level motorcycles (up to 150 cc) grew 8.6% Y-o-Y and accounted for 80% of overall motorcycle sales.

LTFs growth in FY25 continued to be driven by focus on sourcing prime customers through its dealer sourcing points (~4,500 active dealers).

LTF also successfully launched the Valued Partner Programme (VPP), a loyalty programme for dealerships that monitors and rewards dealers for performance while ensuring the desired portfolio quality. This has resulted in the prime disbursement mix increasing from 53% in March 2024 to 82% in March 2025 and the portfolio prime mix increasing from 39% to 54% in FY25. Additionally, the impetus on financing high end bikes, led to an increase in ATS (average ticket size) from Rs. 90,000 to Rs. 1,06,000.

Project Cyclops, the new threedimensional underwriting engine, was piloted at 5% of new sourcing in June 2024 and gradually implemented for 100% sourcing throughout the dealer network by January 2025. Further, in anticipation of strong demand during the festive season, company took proactive and risk mitigating actions such as additional stability document proof, and further stringent policy actions for identified customer cohorts aiding in sourcing better customer profiles. The servicing journey continues to be supported by LTFs PLANET App which also acts as an excellent engagement tool with customers.

On the collections front, your company has taken stringent actions to improve portfolio quality, enhance credit monitoring and has used analytics with the right mix of personnel and collection agencies to contain credit and collection costs. Further, with the improved customer profile, the company has seen a consistent improvement in bounce % along with overall collection efficiency in early buckets.

All these measures have resulted in a robust FY25 disbursement of Rs. 9,285 Cr, which is an 8% increase Y-o-Y, and a stable FY25 loan book of Rs. 12,321 Cr, which is a 10% increase Y-o-Y.

Home Loans and Loan Against Property

The Indian mortgage market,

Home Loans (HL) and Loan Against Property (LAP), has been a mixed bag in FY25 growing to a total size of 50 lakh Cr. While limited price rises backed up by monetary policy expectations, flexible payment plans and lucrative incentives have maintained the absorption rate, However, the rising land prices and regulatory compliances have affected new project launches leading to a greater shift towards either the affordable segment or the high-end luxury segment.

In this scenario your company has done well to reach a combined disbursal of Rs. 9,582 Cr and a combined closing book of Rs. 24,929 Cr (including Home Loans and LAP), reflecting a growth of 27% & 35% respectively (YoY). While the home loan sector in particular saw a roller coaster journey due to the above factors, the burgeoning middle class along with its increasing purchasing power led the growth in the mortgage sector as a whole.

Your Company clocked 20% disbursement growth in the Home Loan segment to reach Rs. 6,898 Cr. The LAP segment, with its comparative advantage of attractive interest rates vis-a-vis personal and business loans, has emerged as a popular financial tool for individuals and businesses seeking quick funding. For FY25, disbursals in LAP have aggregated to Rs. 2,685 Cr, thereby achieving a growth of 51% Y-o-Y.

Also, with respect to distribution, it is to be noted that LTF has doubled its Home Loans disbursements through the builder channel. Additionally, LTF also entered into a strategic tie-up with PhonePe towards augmenting its digital sourcing channels.

FY25 saw launch of new products such as The Complete Home Loan, which dealt with funding home interiors and furnishing have led to increased yields and is expected to create a greater positive impact in the next fiscal.

With regard to asset quality, LTF continues to maintain industry competent asset quality through its superior sourcing mix and monitoring rigor.

LTF also launched new digital initiatives for the purpose of enhancing overall customer satisfaction and reduce TAT. A DIY or Do it Yourself journey was launched at the beginning of the year to enable customers to apply for loans online by themselves without any dependency. Another major initiative was the launch of Knowledgeable AI or "KAI" in November 2024, - a customer chatbot for helping customers with their queries on the go.

Personal Loans

The personal loan industry in India aggregates to a market size of ~ Rs. 14.5 lakh Cr For FY25 the Y-o-Y industry growth was 11%, led by disbursements in high ticket size loan segments. The annual growth for FY25 is lower than the previous year on the back of measures taken by RBI for lenders to curtail overleveraging in the unsecured segment.

In LTF, Personal Loans was launched in FY21, initially leveraging its two wheeler customer base. This segment of customers continues to contribute ~52% of the disbursements in FY25. During the year, your Company focused on growing the business in a risk calibrated manner for superior customer selection through introduction of Large Partnership and Direct Selling Agents (DSA) channels. These channels support with scale up of Personal Loans from new-to-LTF customers in a risk calibrated manner.

The Large Partnership channel is focused on using LTF and partner scorecards to acquire new customers digitally at scale leveraging partner customer base. For FY25 your Company went live with Cred, Amazon & PhonePe. These partners have contributed to 10% of disbursements for FY25. The DSA channel primarily focusses on customer acquisition of prime salaried segment from top 10 cities and scaling it up to more cities in a phased manner. Both these channels will support your Company to scale up the Personal Loans business across new geographies and customers segments.

As a result of these concerted efforts, your Company disbursed Rs. 6,096 Cr in FY25 in Personal Loans with the book size reaching Rs. 8,648 Cr. As the regulatory landscape continues to evolve with the increasing use of technology, your Company is well- positioned to navigate the changes and continue its growth trajectory in the coming years.

SME Finance

The Micro, Small, and Medium Enterprises (MSME) sector continues to be a cornerstone of Indias economy, contributing significantly to manufacturing, exports, and employment. As of November 2024, as a part of the details shared in Economic Survey 2024-2025, credit to MSMEs registered a Y-o-Y growth of 13%, surpassing the 6.1% growth observed in credit to large enterprises.

Among the factors that contributed to LTFs growth were comprehensive expansion in 4 states in addition to the existing 118 locations, introduction of new product variant that meets evolving customer needs and expansion of Direct Channel.

LTF also implemented a new Loan Origination System (LOS), thereby streamlining processes.

These initiatives contributed to the loan book scaling to Rs. 6,524 Cr in FY25 vs Rs. 3,905 Cr in FY24. LTF disbursed Rs. 5,000 Cr during the year, a 37% increase from the previous year, with the on- book customer base growing to 35,000+.

The Union Budget 2025-26 has further bolstered this sector by enhancing the investment and turnover limits for MSME classification by 2.5 and 2 times, respectively, facilitating business expansion and improved efficiency.

Human Resources

Over the last few years, your company has enhanced its Processes, improved its Policies and accelerated its Performance which translated into increased Profits and improved Productivity. Recognising that a robust HR strategy is essential to complement any successful business plan, your Company made Capability Building the cornerstone of strategy, propelling its vision to become a premier retail NBFC. This framework is built to harmonise human resources initiatives with LTFs larger business goals.

The underlying factor contributing to the significant Progress achieved is the People of your Company who represent the L&T Finance brand to diverse customer groups across rural and urban areas, enabling your Company to fulfil the financial aspirations of Indians as a trusted partner in every customers financial journey.

As of March 2025, your Company employed 36,521 employees across three different categories

> The field force that comprises the sales, collections, and operations staff

> The supervisory and middle management personnel at the state and zonal levels

> The middle and top management located at the corporate office

The field force employees approximately form 74% of the workforce composition. They are instrumental in delivering financial services to geographically dispersed customer segments in rural and urban areas.

Your Company has a rural customer segment across the Rural Business Finance and the Farmer Finance verticals, largely comprising women entrepreneurs and farmers. They are distributed across ~2 lakh villages and contribute to around 44% of your companys retail business. These rural customer segments are catered to by 25,856 employees. Most of these employees are recruited from deep rural areas, generating sustainable employment and advancement opportunities. This emphasises your Companys connect with the local community, thereby empowering rural India to forge ahead. The remaining employees cater to our Urban and SME Finance customers.

To serve the rural and urban active customer franchise of around ~92 lakh, your Company has a focused approach to engage, develop and demonstrate care for its employees, thus facilitating capability building which is one of our strategic pillars to obtain sustained growth.

LTF People Philosophy

In FY25, LTF adopted a voice- driven approach to employee engagement through its first- ever anonymous company-wide survey facilitated by Great Place to Work (GPTW), achieving an 86% favourable response rate and earning certification as a Great Place to Work. The feedback shaped the LTF People Philosophy [Experience the C.U.R.V.E. of Happiness (Connected, Understood, Respected, Valued, and Enabled)], which emphasises holistic employee well-being and happiness. This framework ensures employees are empowered and supported in their roles. Additionally, the 5-Pillar of Human Resources Strategy guide HR initiatives to attract diverse talent and foster a growth-oriented, supportive environment. LTFs commitment to a Digital Mindset drives innovation and collaboration, helping create a thriving workplace where individuals and the organisation succeed together.

Communicating

Purpose

Your Companys leaders ensure that the organisations vision, mission, and values—Pride, Ambition, Discipline, Integrity—are communicated and assimilated at all levels through a multichannel strategy involving townhalls, regular emails, broadcasts over mobile communication channel, standees, laptop wallpapers, and campaigns across our digital assets like HRMS portal.

Long Range Planning

It is an annual exercise where every vertical shares a comprehensive plan with the top leadership to support the strategic priorities of the organisation in an inclusive and cohesive manner. It ensures alignment, encourages collaboration and facilitates sustained growth.

Townhall

To drive the goals of Lakshya 2026, your Company organises townhalls, where the Managing Director and Chief Executive Officer and Senior Management directly address the managerial workforce. They are broadcasted across the organisation, enhancing transparency, inclusion, and collective ownership.

LTF Employee Connect

Essential information and companywide updates are broadcasted to all employees through a mobile communication channel, targeted to relevant employee groups, supporting our quest to become a boundaryless organisation.

Investing In People

Investing in human capital through training and well-being programmes yield long-term financial benefits by enhancing productivity, reducing employee turnover, and fostering innovation.

Employee Induction Programme (Parichay)

The Parichay programme guides new recruits through LTFs fundamental values, culture, business operations, and goals. Key training areas include Know Your Customer,

Code of Conduct, Prevention of Sexual Harassment, Information Security Awareness, Operational Risk Management and ESG.

Role Appreciation Programme

Targeted at Frontline employees, the RAP programme is a unique four-day experience combining immersive field visits and interactive classroom sessions. A standout aspect of RAP is its emphasis on informed consent. Candidates participate in experiential learning prior to making a commitment to your Company, ensuring mutual alignment of expectations.

e-Gurukul

LTFs digital learning portal offers diverse, gamified and bite-sized learning tools, accessible through popular channels like WhatsApp and internal Learning & Development hub.

Udaan

Your Companys flagship Campus to Corporate includes an orientation conducted by HR and senior management, followed by customised technical training tailored to their specific roles. In FY25 we have recruited 100+ Graduate Engineer Trainees and Management Trainees who will play an instrumental role in our journey to become a fintech@ scale.

Career

Development and Growth

Aspire

The Aspire initiative is a tailored succession programme designed for front-line sales employees, emphasising capacity building to prepare them for advanced roles.

Leadership Development Programme

The Leadership Development Programme addresses key imperatives such as mitigating people risks, creating a succession plan for critical roles, and providing aligned career paths for leaders.

Competency Framework

A customised framework has been built through Visionary Discussions with the leadership team along with focused group discussions with employees. This is to drive performance and support an integrated Talent Management Strategy at your Company.

STRIDE

Launched in October 2024 based on GPTW survey insights, STRIDE

supports self-driven learning through courses, certifications, and degrees aligned with career goals.

It includes financial assistance and a collaboration with Symbiosis School for Online and Digital Learning (SSODL)

Winspire

With an aim towards fostering and focusing on women leadership, your Company has taken a significant and maiden step by nominating women employees for three tracks of the Winspire programme. These tracks focus on empowering and advancing women at various stages of their professional journey.

Rewarding

Excellence

At LTF, recognising and celebrating employee achievements is a core value that energises the workforce. In FY25, your Company continued its commitment to excellence with recognition initiatives designed to honour those who make extraordinary contributions.

Long Service Award

This award honours employees who have dedicated a significant portion of their careers to the organisation. During the year, 173 Awardees with a tenure milestone of 10+,

15+ and 20+ years with LTF were felicitated, celebrating their loyalty and commitment to your Company over the years.

STAR Awards

The Star Awards is the flagship recognition programme at LTF, celebrating employees who go above and beyond their duties to achieve success in areas where others may not have dared to venture. This award recognises individuals who demonstrate exceptional performance and commitment, contributing to the overall success of the organisation in a truly remarkable way.

Wall of Fame

The Wall of Fame honours employees who demonstrate extreme ownership, commitment, and dedication to delivering outstanding results. This recognition initiative acknowledges individuals whose performance aligns with your Companys quarterly and monthly business priorities.

Champions League

Champions League was designed with the underlying idea of identifying top performers across businesses and functions who possess the intent of delivering superlative performance for the organisation while working within the predefined credit and risk guidelines from February to March 2024. 2,004 employees were identified as winners across categories, with 104 employees taken on a cruise to Sri Lanka.

Giving

Employees A Voice

IdeaXpress

Launched in FY25, the IdeaXpress is an initiative that is designed to drive transformative ideas by encouraging employees to propose solutions that improve business operations. This initiative aligns with LTFs Listening Framework, ensuring that employee feedback is heard and acted upon.

We Hear You

In alignment with our commitment to building a transparent and inclusive organisation, your Company launched We Hear You, an employee forum that encourages open dialogue across all levels.

The platform offers employees a confidential space to share their opinions, provide valuable insights, or highlight any concerns, even anonymously if they choose.

Engaging

Employees

L&T Finance follows a structured annual plan for employee engagement, meticulously crafted at the start of each financial year. This plan is developed in alignment with organisational goals and executed collaboratively by the HR team, which includes zonal and regional representatives.

Thank God Its Friday (TGIF) - Monthly Celebration Initiative

A monthly celebration initiative launched to enhance engagement and foster a positive work environment, based on insights from the Great Place to Work survey. Held on the last Friday of every month, TGIF features cultural events, festive gatherings, food-sharing, and creative activities. From celebrating milestones like the Companys 30-year journey to theme-based events, the initiative promotes team bonding and reinforces LTFs people-first culture.

Sports and Wellness

As part of the L&T Sea Bridge Marathon at Atal Setu in Mumbai, a contingent of employees, led by senior executives, participated in the run—promoting fitness, teamwork, and a spirit of collective achievement.

Competitions

LTF fostered employee creativity and engagement through initiatives like LTF Got Talent, where employees showcased their creative skills and talents, ranging from music to comedy; the Photography Contest themed India Through My Lens, QuizWiz, and ArtBeat.

Cultural and Festive Celebrations

Your Company celebrated key events like International Womens Day 2025 with the theme #AccelerateAction, honouring womens achievements; Independence Day - Lets Make News, a creative contest using newspapers; and key festive celebrations to highlight creativity and cultural pride.

Community and Social Impact

LTF employees participated in Swachhata Hi Seva, contributing to the national Swachh Bharat Abhiyan through a cleanliness drive, and engaged in Daan Utsav - Hafta Challenge during the Joy of Giving Week, promoting acts of kindness like writing thank-you notes, helping those in need, and connecting with nature.

Localised Engagement for Rural Workforce

With over 25,000 employees across branches and meeting centres, LTFs decentralised initiatives ensure inclusivity and engagement for rural employees, including One Team One Lakshya, where employees left handprints on a canvas symbolising unity; the BM Connect Programme to strengthen engagement and communication at the branch level; Cultural Celebrations like Lohri, Bihu, Pongal, and local events; and wellness awareness through doctor- led video sessions on seasonal health precautions in regional languages.

Caring For Employees

Health and Well-Being

To safeguard employee health and wellbeing, LTF offers several initiatives, including an Employee Assistance Programme (EAP) with 24/7 AI-enabled psychological first-aid and consultations across 53 specialties; physical consultations at office dispensaries twice a week; SOS services for emergency ambulance access via an app; and health and well-being workshops focusing on physical, mental, and emotional wellness to help employees manage the challenges of modern life.

Women Friendly Policies

Your Company has introduced progressive women-friendly policies, including extended leave of up to one year for young mothers with work-from-home options, alongside childcare leave and maternity benefits. Your Company also offers creche reimbursements for up to two children under six, local conveyance reimbursements, ergonomically designed chairs, and priority parking spaces for expecting mothers.

Mess Facility

Launched for branches of Rural Business Finance, this initiative provides employees with access to healthy and hygienic home-cooked meals. Extended to over 1,100 branches across eleven states, the facility encourages better nutrition, convenience, and social interaction among employees during meals, helping reduce reliance on fast food, thereby promoting well-being.

Distribution of Helmets for Road Safety

As part of LTFs commitment to road safety, your Company has introduced the provision of helmets for all frontline officers, a proactive step towards ensuring their well-being and fostering a culture of safety from the very start.

Installation of Air Coolers

Demonstrating its commitment to employee well-being, your Company installed Air coolers across 1,007 Meeting Centres, ensuring a more comfortable and conducive working environment.

Elevating

Employee

Experience through

Workplace

Infrastructure

In FY25, LTFs Facilities and Channel Management team executed multiple infrastructure projects across 1.5 lakh square feet, adding 2,600 seats, including the launch of 25 new branches for the MLAP business. Notable projects include the Application Engineering Centre, designed to foster collaboration; the New Mahape Office in Navi Mumbai for over 1,300 employees; a fully equipped Auditorium at Mumbai Kalina Office; and standardisation of branch infrastructure to ensure a consistent, high-quality experience for both employees and customers.

Driving a Culture Of HR Excellence

In FY25, your Company participated in the HR Excellence Model (HREM) assessment, a robust framework utilised by your Group Company, aligned with the CII HR Excellence Model. This involved a comprehensive evaluation of key people processes, focusing on both execution and measurable outcomes. The exercise enabled a structured identification of gaps, adoption of best practices, and a clear roadmap for sustained process improvement. Your Companys efforts were recognised with the "Emerging Leader" distinction, reaffirming commitment to building a culture of excellence in HR.

Risk Management

Effective risk management involves a systematic approach to identifying, evaluating, and mitigating potential and existing risks. This process encompasses both qualitative and quantitative analysis, focusing on the establishment and refinement of controls to minimise or prevent adverse outcomes. LTF has a Board-approved Risk Management Framework, Strategy and Plan in the form of Board-approved Enterprise Risk Management Policy which is reviewed annually or on need basis whichever is earlier. The framework is designed to provide a way to proactively identify and mitigate risks that could impact LTFs ability to achieve strategic objectives. Your Companys risk management framework focuses attention on key areas of risk such as credit, model, operational risks and Infosec. Wherever feasible, such risks are mitigated through processes/ procedures which are developed and suitable steps are taken for effective mitigation and continuous management. Other risks which the LTF faces like reputation, regulatory/ compliance risk, outsourcing risk etc. are managed by respective independent functional departments of risk with periodic reporting to Management and Board wherever considered necessary.

Maintaining robust risk management practices is crucial for achieving strategic objectives while ensuring resilience across economic cycles.

The Board of Directors oversees these activities through the Risk Management Committee (RMC), which convenes quarterly.

This committee monitors the implementation of the Board- approved risk management framework, which outlines risk tolerance, limits, monitoring tools, and early warning systems. Collaborative efforts between business units and the risk management department ensure alignment between business strategies and established policies, facilitating informed decision-making and continuous oversight. To evaluate financial stability during significant events, LTF conducts rigorous stress testing.

LTFs Risk Appetite Statement is a written articulation of the aggregate level and types of risk that it accepts, or avoids, to achieve its business objectives. It includes qualitative and quantitative risk measures expressed relative to solvency (credit rating, tier 1 capital ratio), liquidity (survival horizon, structural liquidity), earnings (return on assets) and franchise protection (operational risk scorecard, emerging risks like cyber risk, sustainability and climate risk, reputation risk). Risk limits like regional exposure limits, limit for unsecured book, sectors limit and management limits are set to cascade the Risk Appetite Statement to business line, specific risk categories and concentrations. Further the LTF uses Earnings at Risk ("EAR") approach as a key forwardlooking metric to convey risk levels as financial outcomes and provide an anchor for setting hotspot limits. Using EAR as the anchor metric, concentration limits are set across all retail Business Units (BUs) so as to allow earnings loss within the acceptable buffer. Thresholds of the Risk Appetite Statement as well as risk limits are monitored on a quarterly basis and presented to the Risk Management Committee. All of the above ensures that the business planning process of the LTF meets the Risk Level objectives.

Early identification of emerging risk and updation of the same to Senior Management and RMC is done on a periodical basis. In the event of any material events which has been observed either internally or externally, it is discussed and suitable learnings and actions are incorporated into processes. Stress testing of key risks is undertaken to understand the resilience of the LTF along with suitable actions (if required).

For effectively managing the credit risk on Retail assets of LTF like Micro Loans, SME Loans, Two-Wheeler Loans, Farm Equipment Finance, Warehouse Receipt Finance, Housing Loans, and Personal Loans, among others., Retail Risk management framework covers portfolio monitoring through real time risk dashboards in combination of risk analytics validating and monitoring credit models.

Early Warning Signals (EWS) at LTF works at two levels - Macro and Micro. In house economic team track multiple macro variables and have analysed its trend with portfolio quality. Team issues regular bulletin to each business with respect to relevant macro trend, which helps to steer portfolio in right direction.

Further, Risk team has identified micro parameters and monitor portfolio performance based on these parameters. Portfolio reviews are carried out to take portfolio level actions and minimise losses. These monitoring mechanisms help take remedial measures and limit losses.

At LTF, Risk team keeps a close watch on latest developments in external world in form of field meetings with customers, dealers, DSAs, regional team, front line staff, vendors and Risk Departments and Business/ Credit departments of competing banks and NBFCs. In addition, there are frequent senior management meetings where all emerging and existing risks are discussed and along with appropriate strategies to mitigate the same. Various internal meetings like Risk Management Committee (RMC), Operational Risk Management Committee (ORMC), Outsourcing Management Committee (OMC), Model Risk Management Committee (MRMC) and Asset Liability Committee (ALCO) are conducted on periodical intervals for assessing and review various aspects of risk arising from the business operations of the LTF as shown in the following:

> The Companys commitment to fostering a forward-thinking risk culture has contributed to its position as a top-tier Non-Banking Financial Company (NBFC) with a AAA credit rating. Recognising the evolving business environment and emerging risks, such as reputational and climate-related concerns, LTF has developed new frameworks to proactively manage these challenges. Furthermore, the company has implemented the Internal Capital Adequacy Assessment Process (ICAAP), which encompasses the evaluation and management of various risks, including credit, market, liquidity, interest rate, operational, strategic, regulatory, climate, and model risks, and determines the necessary capital for current and future periods. LTFs business faces considerable credit risk, necessitating a robust management system. To address this, your Company is upgrading its underwriting architecture with a modern engine that utilises bureau, account aggregator, and alternate data, enhancing their existing analytical framework.

> Credit Risk is generally made up of transaction risk or default risk and portfolio risk. The portfolio risk in turn comprises of intrinsic and concentration risk. Credit risk of portfolio depends on both external and internal factors. Credit risk management is essential to minimise default risk and concentration risk.

LTF follows a pragmatic framework for evaluating financing opportunities aligned to the risk-return strategy of the organisation, within the applicable regulatory environment.

A structured approach to credit risk management is established in line with the goals/strategy of the organisation, internal and external environment. The company ensures adherence to RBIs policies and guidelines to optimise benefits for the clientele and other stakeholders. Your Company has better management of credit risk profile of the portfolio with emphasis on quality, close monitoring, timely collection and well delineated exit options, both at portfolio and borrower level.

LTF is bolstering its existing data and analytics-based underwriting architecture with a new-age underwriting engine comprising bureau, account aggregator and alternate data signals. Project Cyclops, the AI-driven digital credit engine is working towards strengthening credit risk assessment by delivering real-time, data-driven insights. Leveraging advanced machine learning algorithms and big data analytics, Project Cyclops streamlines the entire credit lifecycle—from origination and underwriting to continuous risk monitoring. This innovative platform integrates seamlessly with existing systems and utilises alternative data sources alongside historical performance metrics to optimise credit evaluations, enabling precise risk categorisation and targeted lending decisions while significantly reducing default risks.

The other ancillary advantages that will accrue includes swift credit decisioning as well as ensuring faster onboarding of prime credit worthy customers, thereby sifting between sensitive and resilient borrowers and the swap-in swap-out rates.

For the retail finance assets portfolio, monitoring is undertaken at a portfolio level at regular intervals through Retail Portfolio Review meetings attended by Senior Management of various Products as well as Risk Management department. Portfolio Review is a very important tool in managing credit risk as it enables Senior Management of LTF to understand the institutions aggregate credit risk, make decisions regarding improving the returns on those risks, making changes to the extant credit policy and identifying and managing concentrations of credit risk. Your Company further uses advanced dashboards which provide real-time identification of trends and breaches, empowering it to proactively manage risks and take immediate action to mitigate any potential threats.

Your Company is in process of developing an advanced Early Warning Signals engine to proactively identify stress signals and take corrective measures to mitigate risks. By analysing behavioural patterns, alternative data sources, geopolitical data, and macroeconomic factors,

LTF can make informed decisions and predict future defaults.

Operational Risk Management

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. Thus, operational risk is an event risk. Operational Risk includes all the risk events that may potentially cause a loss to the company. These events are foreseeable and avoidable to a large extent. This risk appears at different levels: people, processes, technical and information technology. Given the dynamic nature of financial market, new products need to be introduced from time to time and existing product features modified. A detailed product note for the new product which captures all the salient features or change in the existing product(s), including product specific credit policies is made in consultation with all the relevant functions/stakeholders and is approved by the Product and Process Approval Group (PAG). Any new product policies as approved under above delegation is submitted in the ensuing RMC for noting. Annually all updated product notes are noted in the RMC. Further, Operational risk department in LTF periodically reviews and updates the Standard Operating Procedures (SOP) for various products/activities and documents the same. Modifications to SOPs are also discussed by cross functional teams (including representative of risk management department) to ensure comprehensiveness of the process and suitable controls being in place. This mitigates people risk which refers to unintentional human errors, lack of expertise, fraud, failure to comply with the procedures and policies, work and safety norms in the office premises, vendor and outsourcing risks. This also mitigates process risk which includes inadequate procedures and controls for reporting, monitoring and decision making; organisational deficiencies; management deficiencies in monitoring risks, errors in recording process of transaction. Under Operational risk, LTF manages Outsourcing risk to mitigate non-performance, or poor performance by a service provider under a material outsourcing arrangement resulting in financial loss, regulatory breaches, and reputation loss.

LTF OR framework follows an approach of Risk and Control Matrix (RCM) which is a key risk identification and assessment tool. Such RCMs are thematic which covers customer onboarding journeys, business operations, and collections, among others.

Scope of RCM is as follows:

> Enable business and support units to attain a transparent and complete end-to- end view of the key risks that could impair the achievement of business objectives and/or impact core business processes;

> Assist management in attaining a holistic view on how internal controls mitigate risks and their actual effectiveness;

> Formulate and implement action plans to address any gaps/ lapses in the internal control environment;

> Promoting awareness of operational risk and control throughout organisation.

> Results of RCM are presented in the ORMC.

To conduct effective risk assessment, the impact and likelihood of risk are calculated based on which inherent risk is determined. Inherent risk is defined as the risk prior to the application of controls. Root Cause Analysis (RCA) helps to analyse event for ascertaining cause-effect relationship and initiating necessary corrective steps including improvement to processes, controls and training. Corrective and Preventive Action Plan (CAPA) is drafted in detail along with the respective Turn Around Time (TAT) for closure. CAPA is monitored until closure and the update of the same is also published on monthly basis to all the Heads, GECs and CXOs (Senior Management). Annual calendar is published for testing of the RCA and the results of the same are also published in the ORMC.

Model Risk - Model risk refers to the potential for errors or inaccuracies in the models used for decision-making that can lead to incorrect assessments of risk or value and increase the risk of losses for the Company. Models are used in various areas including credit risk management, collection decisions, market risk management, and financial reporting. Model Risk Management in LTF is carried out by the Model Risk Management team whose responsibilities includes managing a Model Governance Framework containing sets of policies, procedures, and controls that are designed to manage the risks associated with the use of models in decision-making processes. The decision-making includes evaluation of consumers at various stages of the customer journey (onboarding, cross-selling, and collection, among others), of various financial parameters (asset valuation, and income estimation, among others), and of portfolio parameters for the purpose of regulatory reporting PD, and LGD, among others). To govern the Model risk, Board-approved Model Risk Management policy and Model Risk Management Committee has been put in place in FY24. The objective is to review various model aspects at different stages of the model (development, active use, change and retirement), and to set a high standard for the model by putting in place a robust risk dependent review and monitoring framework. In case any potential weakness is realised or observed, then set of appropriate compensating controls are put in place to mitigate exposed risk around it. Furthermore, Company-appropriate model development guide will be defined based on observations made during the model reviews over the course of a quarter, ensuring a minimum standard is set up and thereby enriching the entire model development process leading to a more robust and reliable model.

Climate and ESG Related Risk

Your Company acknowledges the material risks associated with climate change, which may manifest as operational interruptions, elevated costs, and alterations in asset values. To mitigate these potential impacts, the Company integrates climate risk considerations within its decisionmaking protocols, undertakes periodic portfolio assessments, and allocates resources towards environmental impact mitigation. Detailed analyses, encompassing variables such as rainfall deviation, reservoir storage capacity, and agricultural practices, are performed to ensure effective risk management.

Moreover, the Economic Affairs Group of the Company provides valuable input regarding environmental and social determinants influencing assets under management during the regular Asset Liability Management Committee (ALCO) meetings.

Portfolio reviews are conducted periodically with a specific focus on evaluating exposures arising from climatic and meteorological events, including floods, cyclones, and droughts. ESG risks, with particular attention to climate-related concerns, are diligently monitored and embedded within LTFs risk management framework.

In recognition of emerging risks, including those pertaining to reputation, sustainability, and climate, the Company has formulated a structured approach to address these challenges. Furthermore, in compliance with the directives of the RBI, an ICAAP incorporating ESG risks has been established

Infosec Risk: The Infosec team at LTF is responsible for securing business applications from cyber threats by incorporating security in design of applications, monthly security assessments on GCP, cloud and data centre, having best in class virus and threat protection practices, carry out ethical hacking through external experts, round-the-clock security event monitoring of all IT assets. The Information Technology Strategy Committee (ITSC), comprising board members, has been established to oversee the companys security posture. This committee conducts quarterly reviews of the status of all security initiatives, identified risks within the IT infrastructure/ applications, summary of vulnerability management, and threats prevented. Furthermore, the ITSC is responsible for reviewing and approving policies mandated by regulatory to ensure compliance.

In addition, there is a Monthly Security Dashboard meeting which discusses the IT security posture of IT infrastructure security, application security, security governance, data security, and business resiliency and is measured and reported monthly to the respective IT and Application heads, including the CRO and CDO. The comprehensive summary is presented and discussed which includes application security testing, patch and vulnerability management, cloud posture and workload risks, data security risks, phishing drill activities, antivirus compliance, SOC summaries, DR tests, user access reviews, and other identified risks. The Infosec follows Board-approved Policies such as:

> Master Cybersecurity

> Data Privacy Policy

> Cyber Crisis Management Plan

> Change Management Policy

> Information Technology

> Business Continuity Policy

> IT Outsourcing Policy

LTF has set up an Information Security Management System (ISMS) for effective management and operation, which is ISO 27001:2022 compliant and certified. To prevent emerging threats, your Company has implemented controls to ensure business continuity and data protection. LTFs digital platform has a 3-tier security architecture with in-built disaster recovery, along with multiple-layer security. This security system protects its IT Network, Websites and Application, Databases and end-user laptops/desktop for data leakage, denial-of-service attacks, ransom ware and malwares. Furthermore, the system implements effective access control and monitors system health and availability 24X7.

Regulatory Risk

Assessing the effectiveness of compliance is a key aspect of the Compliance framework, with your Company deploying techniques to evaluate the level of compliance and identifying instances of non-compliance. The Compliance Risk framework adopted by your Company provides robust parameters to assess and monitor your Companys key compliance risks and regulatory activities. The framework interalia identifies risks arising from regulatory environment and assesses the effectiveness of controls in place to mitigate the compliance risks. The guiding principles are enshrined in the Compliance policy of LTF. Your Company has undertaken assessment and testing under a Compliance Testing

Programme, which enables it to identify compliance failures/gaps, and flag any impending problems before they become significant and potentially damaging. Your Company prepares an annual compliance test plan which identifies key test areas considering variables like major new circulars, deficiencies identified in the regulatory inspection reports, fair practices code and know your customer/anti-money laundering compliance, among others. Compliance testing is carried out on a quarterly basis through selecting and reviewing samples, walk-throughs with relevant stakeholders, among others. Identified issues are discussed with the Management and reported to the Audit Committee with the target timelines for addressing/closing the issue. This activity enables your Company to get better control over activities and helps in building compliance culture within the organisation.

Geopolitical Risk

Your Company proactively identifies, assesses, and mitigates risks stemming from an array of challenges like global/ domestic geo- political events and tensions, economic uncertainties, high inflation and financial volatility that can impact business strategies and financial stability of your Company. LTF monitors these emerging risks, and calibrates its strategies across different regions/ customer segments to adjust exposure in line with assessed risk perception.

Note: For details on internal control systems and their adequacy, please refer the Boards Report.

Environmental, Social and Governance (ESG)

Leading Sustainable Growth and Business Impact

Driven by its core values, ethics and belief in creating a positive impact and value creation for all its shareholders, LTF has been a pioneer in embedding ESG in its business strategies, operations and business impact. Guided by purpose to foster positive economic, social, and environmental impact, your Company has embedded ESG as a core enabler of responsible growth. In FY25, your Company has advanced from proactive to transformative leadership in the industry, backed by robust capability building across people, processes, and platforms. LTF is committed to becoming carbon neutral by FY35, maintaining water positive/surplus status, enhancing workforce diversity, upholding the highest standards and transparency in disclosures for sustainable business growth. FY25 has been a significant year as your Company has built the ESG roadmap and achieved key milestones that has positioned your Company to further ESG Impact.

The Board and the CSR & ESG Committee are responsible for providing oversight for ESG policy implementation and initiatives. In FY25, LTF strengthened its ESG governance system with the aim to further enhance ESG integration into operations by establishing the Sustainability Steering Council (SSC). The SSC reviews and recommends ESG policies and actions to the CSR & ESG Committee.

The comprehensive ESG policy framework that underpins your Companys operations continues to

guide sustainability commitment.

All ESG policies are approved by the Board, CSR & ESG Committee of the Board as recommended by the SSC. In FY25, all the ESG policies were reviewed with a special lens of Diversity, Equity, and Inclusion (DE&I) lens and changes were made accordingly. LTF also adopted its maiden Sustainable Procurement Policy in FY25, aimed at ensuring regulatory compliance and reinforcing Companys standing as a responsible, future-oriented organisation.

LTF has also upgraded its DE&I Policy, to ensure it supports evolving workplace expectations, and promotes a more inclusive and equitable environment for all employees and a key advancement of revising the POSH policy to a gender-neutral policy was done. Your Company also has an environment, health & safety, human rights policy. Policies like Data Privacy, Fair Practise Code, Internal Corporate Governance, KYC, Information Technology and other existing policies have been approved by the Board.

Additionally, your Company also has a third-party code of conduct which encourages ESG consciousness among its value chain partners. Moreover, your Company also has a Sustainable Finance Framework (SFF) with the intent to drive positive environmental and social change by channelling investments into impactful projects aligned with the UN SDGs.

All Board members were trained on ESG, Infosec & Double Materiality.

Strategy towards Transformative ESG Leadership

LTF has integrated ESG accountability at the highest levels, ensuring leadership alignment through ESG- linked KPIs. Your Company has been setting public, long-term, middle- term and short-term ESG targets and has been achieving them.

As an early adopter of decarbonisation strategies and financed emissions baselining, LTF is contributing to Indias 2070 Net- Zero goal with a strategic focus on green, inclusive, and social finance. LTF is not just driving business growth but also fostering economic empowerment and environmental responsibility. Through this multi-faceted ESG strategy,

LTF is reinforcing its position as a responsible financial institution, ensuring that sustainability remains central to its business transformation.

In FY25, LTF has developed a structured five-year roadmap to drive its ESG goals with clear milestones and targets. This roadmap ensures a comprehensive approach to sustainability, covering sustainable finance, climate action, social impact and governance. The roadmap began with peer analysis using maturity assessments, enabling LTF to benchmark its ESG performance against industry best practices. It was further strengthened by a Double Materiality Assessment, ensuring a comprehensive understanding of the financial and societal impact of sustainability risks and opportunities.

This roadmap was translated into well-defined ESG targets and Key Performance Indicators (KPIs) with structured timelines and measurable objectives. LTF remains committed to continuous ESG improvement and industry leadership.

Advancing Environmental Stewardship

Your Companys environmental strategy for its goal on Carbon neutrality by FY35 is guided by a science-based approach and a deep sense of climate accountability. In FY25 too, LTF continues to remain on track to meet this target. A measurable progress in reducing operational emissions, with an ~16% year-on-year decline in Scope 1 and 2 emissions has been achieved.

LTF also expanded its renewable energy adoption, sourcing green energy for a growing number of operational sites while optimising energy consumption through advanced technologies and real-time monitoring. Currently, ~33% of our total energy consumption is sourced from renewables. Your Company has also introduced energy-efficient infrastructure across key facilities.

The afforestation initiatives have resulted in the planting of over 1 lakh trees and achieved a carbon sequestration of ~973 tCO₂e leading to creating carbon sinks through sapling plantations and increase in green cover.

As a proud signatory to the PCAF framework, your Company is amongst the 1^st NBFCs enhancing transparency in financed emissions. Your Company has also conducted energy audit for 50 locations to reduce operational carbon footprint and ensure impact is both far- reaching and future-ready.

Your Company has successfully retained Water Positive/Surplus Status for over last 3 years with assurance by third-party. A major milestone was the revamping of the Sewage Treatment Plant (STP) at its head offices, enhancing recycling capacity and reducing freshwater dependency. Water User Groups from the communities were trained to maximise water replenishment through water shed management leading to ~176 lakh KL of water.

Additionally, a comprehensive waste management assessment across top 50 branches was conducted to estimate per capita waste generation, enabling data-driven waste management strategies. In FY25, a special biodiversity study conducted revealed that 39 flora and 69 fauna species were being supported through your Companys Miyawaki plantation.

Creating

Impact

Through

Stakeholders

Collaboration

Your Company recognises talents, experiences, and viewpoints that each employee and stakeholder brings, cultivating a culture rooted in equality.

Employees

LTF has embedded diversity and inclusion at workplace in every aspect of its operations and in FY25 is focused on increasing women representation in total workforce.

LTF formed a working council to lead DE&I initiatives. As a result, your Company has been able to increase women representation in total workforce from 4.6% to 5.4%, while women representation of 18% and 9% maintained in senior and mid management. There was a 4.5x increase in women FLOs.

Your Company has been conducting DE&I sensitisation and awareness session for employees to promote a more inclusive and equitable workplace by increasing understanding and awareness of diversity, equity, and inclusion concepts. Continuing DE&I training, a Gamified module in 7 vernacular languages was launched for BL, FL - l, ll & FML & OL lll. For the first time in FY25, your Company nominated women employees across all levels for the Winspire programme with the aim of empowering and advancing women at various stages in their professional journey. 5 such batches of women participated in this leadership programme.

Another significant area of focus was Occupational Health & Safety (OHS). In FY25 your Company has undertaken and conducted Hazard Identification and Risk Assessments (HIRA) across 25 branches across PAN India proactively addressing potential risks. The Head Office has achieved ISO 45001 certification, demonstrating adherence to the highest global standards in occupational health and safety. Various other preventive measures were undertaken to ensure health and safety of employees. A road safety element was also incorporated into the daily pledge of the frontline employees, to upheld the best practices of health & safety. Helmets were also distributed to frontline officers as safety gears at multiple locations in PAN India.

Workshop and training was arranged on Certified Internal Auditor for ISO 45001:2018 Std. (Occupational Health and Safety) and a green skill training for Financed Emission for internal stakeholder by third- party experts to enhance the understanding on OHS and climate- related financial risks.

Value Chain Partners

LTF has been engaging with its value chain partners over the last couple of years with an intent to encourage ESG consciousness amongst them. Incrementally, in FY25, LTF hosted its first-in-person ESG value chain partner meet which brought together key stakeholders, including leading banks as well as investors, to discuss ESG best practices, innovative strategies, and success stories. This initiative, building on LTFs virtual engagements since FY23, has reinforced collaboration and commitment to sustainable business practices, strengthening ESG awareness and integration across its value chain.

Customers

LTF undertook its maiden Net Promoter Score (NPS) initiative in FY24, to gauge customer loyalty and satisfaction across all its products during the customer onboarding journey. Progressively, in FY25, your Company has successfully deployed and measured Net Promoter Score (NPS) for customer interactions at various touch points.

LTF regularly educates its customer on various topics through blogs, social media campaigns, other communication channels. By focusing on continued transparency and engagement your Company has not only grown its customer base but cultivated customer loyalty.

Communities

During FY25, your Company through its CSR activities continued to transform rural communities impacting over 16.90 lakh people.

Creating Impact ESG in Operations

During the reporting year, your Company continued to integrate ESG in its operations by reducing dependency on paper by going digital, shifting to renewable energy to reduce carbon footprint, integrating ESG due diligence in selection process of new branches, enhancing waste segregation practices and tying up with external authorised waste segregation and recycler. 100% employees were trained on ESG mandatory module.

ESG Impact through Business

Your Company is able to achieve responsible growth aligned with the ESG vision by leveraging technology to deliver inclusive lending solutions that empower underserved communities, including women, farmers, and small business by combining scale with social impact.

Your Companys product portfolio qualify as ESG-aligned— encompassing inclusive lending (micro-loans for women, farmer loans and Farm Equipment Finance, Rural Business Finance, SME Loans, Urban & Two-Wheeler Finance for underserved segments) and social impact offerings. By supporting rural entrepreneurship, agriculture and urban needs your Company drives equitable growth and fosters social impact aligning with organisations ESG commitment.

Your Company continues to reimagine technology as a powerful tool for empowerment. The digital platform is driving equity by enabling access to financial services for underserved and remote communities along with the rural population. Over 1.72 Cr customers, many of them first-time users were onboarded through inclusive digital outreach PLANET App in FY25, which also supports multilingual capability and accessibility features.

LTF has also scaled digital inclusion, with more women and marginalised youth gaining access to finance and digital skills through in-house developed platforms and outreach programmes.

In a world where fintech is reshaping financial access, your Company believes innovation must be built on a foundation of ethics and trust. In FY25, your Company has recorded 0 cybersecurity breaches, maintained data privacy and expanded secure digital access to users. Your Companys responsible finance approach empowers users while safeguarding the integrity of the digital platforms.

On the inclusion front, your Company has scaled use of digital platforms to reach rural populations, offering accessible financial services through digital- first interfaces, multilingual support, and assisted channels. These tech-led interventions have allowed LTF to serve over 1.7 Cr customers in rural regions, driving economic empowerment where it is needed most.

Your Companys core operations now leverage AI-driven analytics, and intelligent automation to streamline processes through paperless workflows, digital onboarding, and virtual servicing, your Company has significantly cut resource consumption and improved turnaround times, enhancing both customer experience and operational sustainability.

Sustainable Finance

LTFs sustainable finance strategy emphasises providing financial support to key sectors like agriculture, agriallied services, and SMEs, particularly targeting underserved and marginalised communities. Your Company provides services to aspirational districts and laggard states to drive positive social impact. Your Company, through its sustainability focused loans and priority sector lending, has been creating a positive business impact.

Your Company continues to lead with conviction, driving sustainable fintech solutions that balance growth with long-term impact. As part of this journey, your Company has:

> Financed over 64,000 EVs encouraging sustainable product financing

> Leveraged over ~2.6 Cr database of customers, with ~1.7 Cr from rural regions

Corporate Social Responsibility

Driving Sustainable Impact through Strategic CSR Initiatives

In FY25, our Corporate Social Responsibility (CSR) initiatives demonstrated a robust commitment to addressing critical societal and environmental challenges, aligning with our vision of fostering financial and digital transformation, while creating sustainable livelihoods. Our strategic approach based on 3S principles, centred on projects Social impact, Scalability and Sustainability, allowed us to achieve significant milestones across our key thrust areas of Digital & Financial Inclusion (DFI), Disaster management, Climate Impact Management and Social Inclusion.

A cornerstone of our efforts was the Digital Financial Inclusion programme, anchored by the flagship Digital Sakhi 2.0 CSR initiative. We surpassed our targets, educating over 1.05 lakh community members through vernacular digital modules and empowering more than 7,500 women entrepreneurs in the Karnataka, Kerala, Tamil Nadu, West Bengal, Bihar and Uttar Pradesh.

The expansion of the Digital Sakhi project to new districts in state of Bihar (Saharsa), Uttar Pradesh (Kushinagar), and Rajasthan (Udaipur, Chittorgarh and Rajsamand) resulted in onboarding and training of 300 new Digital Sakhis, spreading digital and financial awareness amongst more than 3 lakh community members. Additionally, 3,000 new women entrepreneurs were identified and trained on entrepreneurship skills.

One of the significant achievements was linking over 2 lakh community members with state specific financial and social schemes, unlocking nearly Rs. 180 Cr in entitlements. Special campaigns focussing on prevention and control of cyber and digital frauds were conducted in more than 1000 villages reaching out to 1.40 lakh community members.

Another impactful contribution under Disaster Management was our immediate response to the states that faced several disasters in the form of floods and cyclones. Despite so many on-ground challenges like tough and restricted terrains, unavailability of relief material, and vast geographical spread, we provided immediate relief, ensuring affected communities received essential supplies on time. Over 33,000 relief kits were distributed in Bihar, Uttar Pradesh, and Telangana, aiding recovery and resilience. This immediate relief effort underscored our dedication to supporting communities in times of crisis.

In the realm of Climate Impact Management, our flagship projects, Project Prakruti and Jalvaibhav 2.0, made substantial strides in the state of Karnataka. Under Project Prakruti 1,00,000+ horticulture saplings covering an area of more than 250 acres were planted Pavagada, Tumkur, Karnataka, contributing to expanding green cover as well as enhancing farmers income.

Jalvaibhav 2.0 in Kolar, Karnataka focused on sustainable water resource management by constructing 58 water structures and setting up 30 Farmer Field Schools for promoting climate resilient agriculture practices. Besides this, in Maharashtra, we continued our efforts in building the capacities of 120 Water User Groups (WUGs) in seven districts of Marathwada region.

Our Social Inclusion initiatives encompassed impactful programmes in road safety (YOUth Drive for Safety) for two-wheeler drivers in Delhi NCR, pilot programme in skilling under Banking, Financial Services and Insurance (BFSI) sector in Salem, Tamil Nadu.

The YOUth Drive for Safety project in Delhi NCR sensitised more than 1,00,000 youth and community members on safe and defensive driving practices like Street plays (Nukkad Nataks), Drunk Buster (using Drunk Buster impairment goggles), Good Samaritan (awareness on rules of Good Samaritan Law), Be Shine - Be Seen (conspicuity tape pasting), and traffic management through wardens.

Furthermore, our pilot project in skilling, successfully trained 200 youths, who subsequently secured employment in the BFSI sector.

We have amplified our CSR initiatives by adopting various communication strategies like extensive wall paintings in project villages, releasing a coffee table book titled 3KALAN, a compilation of transformative and inspirational stories of Digital Sakhis and women entrepreneurs, audio and video podcast series, partnership with AIR (All India Radio) Gulbarga on financial literacy, press conferences during the project launches, social media posts and press releases in the print media.

These achievements have garnered significant recognition, including the renewal of ISO 26000:2010 - Social Responsibility Certificate of Conformance, ASSOCHAM CSR & Sustainability Awards 2023 for Excellence in Diversity, Inclusion & Women Empowerment, and the FAME National Award 2024 for Best CSR Practices. We have also won the ICC Awards 2025 in the Mega Enterprise category.

Looking ahead, we plan to scale our Digital Sakhi programme, as well as expand climate resilience initiatives, and strengthen our disaster response framework. By leveraging technology and partnerships in CSR, we aim to maximise social and environmental impact, ensuring inclusive and long- lasting change for communities at large.