Mahindra & Mahindra Financial Services Ltd Management Discussions.

1. MAHINDRA & MAHINDRA FiNANCiAL SERViCES LIMITED - AN OVERVIEW

Mahindna & Mahindna Financial Services Limited (the Company), pant of the Mahindna Group, has emerged as one of Indias leading Non-Banking Financial Companies (NBFCs). Mahindna Finance is primarily engaged in financing auto and utility vehicles, tractors, passenger and commercial vehicles, along with pre-owned vehicles.

For oven two decades, the Company has played an important pant in the confidence-building drive of semiunban and rural India on the strength of its diverse portfolio of financial solutions and services and a strong nationwide distribution model. A powerful army of 21,000+ employees energise the Companys brand salience. Mahindna Finance enjoys presence in every state of India and has footprint in 85% of its districts.

The Company has a network of oven 1,300 offices, serving customers in 3,70,000+ villages - thats one in every two villages in the country; and has assets under management (AUM) of oven Rs. 77,000 crone.

Mahindna Insurance Brokers Limited (MIBL), the Companys insurance broking subsidiary, is a licensed Composite Broken providing direct and reinsurance broking services. Mahindna Rural Housing Finance Limited (MRHFL), another subsidiary, provides loans for purchase, renovation and construction of houses to individuals in rural and semiunban areas. Mahindna Asset Management Company Private Limited (MAMCPL), a wholly owned subsidiary, acts as the investment manager of Mahindna Mutual Fund. The Company has a joint venture (JV) in the US, Mahindna Finance USA LLC, with De Lage Landen, a subsidiary of Rabobank, for financing Mahindna tractors in the country. During the yean, the Company entered a joint venture with Ideal Finance Limited, a fully owned subsidiary of the leading Sni Lankan conglomerate, Ideal Group. The joint venture will capitalise on Mahindna Finances expertise in the financial services domain and Ideal Finances domestic market knowledge to build a leading financial services business in Sni Lanka.

Key strengths

• In-depth knowledge: With a presence of oven two decades in the industry, we have gathered a comprehensive understanding of the rural and semi-unban markets.

• Lange customer base: Oun strength lies in oun large and even-gnowing base of oven 6 million satisfied customers. It is a testimony to oun continued commitment to enhance the lives of rural and semiunban India and help support Indias inclusive growth.

• Employee strength: We recruit candidates who are capable, and have deep local insight. We regularly train and motivate oun employees to gather industry-relevant knowledge and strengthen their relationships with business partners and existing and potential customers.

• Wide network: Oun extensive network of 1,300+ branches across the country ensures that a person is never too fan from a Mahindna Finance outlet.

• Fasten disbursal: We have put in place an accelerated loan disbursement process, which is powered by technology. With minimal documentation and utmost flexibility, oun loans are usually disbursed within two days.

• Strong parentage: The parentage of Mahindna Group and its close association with dealers throughout the country provides us an edge oven oun peers.

2. economy review

2.1 Global economy

The US economy was performing well prion to the COVID-19 outbreak, with job growth accelerating in January and February 2020, consumer spending holding up well with the support of broad-based strength in the services sector.

The initial outlook for the ensuing yean was for stronger growth, especially oven the subdued 2019 economic performance, buoyed by favourable development on US-China trade negotiations, the UK transitioning to a new economic relationship with Europe by December 2020 and a healthy performance of emerging markets. However, 2020 saw a significantly changed scenario with the outbreak of the COVID-19 pandemic.

The International Monetary Fund (IMF) projects that world will slip into a recession in 2020 oven COVID-19 induced global lockdown and the resulting suspension of economic activity. As per IMFs April World Economic Outlook, global growth will contract by 3.0% in 2020 compared to 2.9% growth in 2019, and further mark a V-shape normalisation to 5.8% growth in 2021, although half of it will come on a low base. Also, the global trade volume in goods and services will slip into a degnowth of 11.0% in 2020 from an already weak growth of 0.9% in 2019, before growing by 8.4% in 2021. COVID-19 has interrupted manufacturing supply chains and sharply reduced energy and commodity demand.

Outlook

Strict containment and social distancing policies will bring economic activity to a near standstill, and lead to a sharp contraction in growth for the second quarter. Despite relief measures provided in the form of easing of monetary policy by central banks and fiscal packages announced by some governments, we are expected to see a contraction in global economy. Currently, the consensus of analysts is a degrowth in 2020 and subsequently a gradual recovery in 2021. However, it is marked with uncertainty depending on the ground reality, that is, the duration of lockdown, growth in infection rate with the opening up of economies, timeline for development of the vaccine and other factors.

2.2 indian economy

In India, growth softened in 2019 as economic and regulatory uncertainty, together with concerns about the health of the non-banking financial sector, weighed on demand. The sluggish demand is attributed to the decline in consumption growth (tightening of credit terms and poor consumer sentiment), investment and exports. There was a strong hope of recovery in the last quarter of 2019-20. However, the COVID-19 pandemic made this recovery extremely difficult in the near to medium term. The GDP growth for 2019-20 touched 4.2% vis-a-vis 6.1% in 2018-19. The pandemic has presented fresh challenges for the Indian economy now, causing severe disruptive impact on both demand and supply side elements.

The Reserve Bank of india (RBI) announced the following measures in March 2020 to mitigate the risk of an economic fallout due to COVID-19:

• Announced a Rs 3.74 lakh crore of liquidity package for Indian banking system to support financial markets hit by COVID-19.

• Slashed the Cash Reserve Ratio (CRR) by 100 basis points to 3% of bank deposits.

• Allowed banks to borrow an additional 1% from their investment of Statutory Liquidity Ratio (SLR) securities.

• Cut repo rate by 75 bps to 4.40%.

• Cut the reverse repo rate or the rate at which it accepts excess funds from banks by 90 basis points to 4% widening the existing policy rate corridor from 50 bps to 65 bps.

• Permitted all lending institutions to allow a moratorium of three months on repayment of instalments for term loans outstanding between March 1, 2020 and May 31, 2020.

• Permitted all lending institutions to allow the deferment of three months on payment of interest with respect to all such working capital facilities outstanding as of March 1, 2020.

Annual GDP growth rate (%)

2016-17 2017-18 2018-19 2019-20
8.0 6.6 6.1 4.2

Source: Central Statistics Office (CSO]

Outlook

The likely duration, intensity and the spread of COVID- 19 have brought escalating uncertainty into the global and domestic economic outlook. The concerns have transformed from the impact of imports from China on domestic supply chains, into a domestic and external demand shock, the duration of which remains uncertain, with social distancing and lockdowns raising the prospect of production shutdowns and job losses in some sectors.

In the near term, the negative impact of the COVID-19 outbreak on economic growth and consumer sentiment may be modestly mitigated by higher spending by the Government of India and state governments and a brighter outlook for crop yields. Furthermore, the decline in commodity prices would provide some cushion to earnings in the near term.

3. Indian financial services industry

India has a diversified financial sector undergoing rapid expansion with many new entities entering the market along with the existing financial services firms. The sector comprises commercial banks, insurance companies, NBFCs, housing finance companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The RBIs continued focus on financial inclusion has expanded the target market to semi-urban and rural areas. NBFCs, especially those catering to the urban and rural poor namely Non-Banking Financial Company- Micro Finance Institutions (NBFC-MFIs) and asset finance companies, have a complementary role in the financial inclusion agenda of the country. After the COVID-19 impact gradually tapers off, the financial services sector is poised to grow eventually on the back of strong fundamentals, adequate liquidity in the economy, significant government and regulatory support, and the increasing pace of digital adoption. In fact, digital transactions will play a larger role in the financial eco-system than hitherto witnessed.

Opportunities

Shift of savings to financial instruments

The shift of savings to financial instruments from physical assets and bank deposits has been largely on account of high inflation and high interest rate scenario over the period. Tax policy has been used to provide incentives and promote savings in financial assets and encouraging longterm savings. The Government of Indias (GOI) efforts to increase banking penetration through its Jan Dhan Yojna and the integration of PAN and Aadhar are expected to further enhance the savings in financial assets.

The number of digital transactions in India have already increased manifold over the past two years and the access to investments via digital channels is expected to accelerate in the coming years. The strong flow of funds from Foreign Institutional Investors (FIIs), Domestic Institutional Investors (DIIs) and retail investors into equity markets, mutual funds and insurance are expected to continue in the long run.

Growth of digital financial services

The financial services sector is witnessing growing digitisation. The digitisation efforts have seen accelerated growth in financial services sector, and it is set to grow significantly, by 2021, according to the RBI. The financial sector is leveraging digitisation to increase internal efficiencies, provide value-added customer services, minimise risk and support Indias expanding economy.

Artificial intelligence

Financial institutions are looking at artificial intelligence (AI) solutions to deliver superior customer experiences, reduce costs and unlock new revenue streams. According to the NASSCOM-CMR survey (Artificial Intelligence for Banking, Financial Services and Insurance Sector, 2018) adoption of AI in the countrys financial services sector will help financial institutions to offer enhanced customer experience, followed by automation of backend business processes, and effective compliance and risk management. Data analytics, block-chain, and artificial intelligence are also expected to provide financial institutions considerable leverage over the traditional banking systems.

3.1 NBFCs

Over the past few years, NBFCs have undergone a significant transformation and today they form an important component of Indias financial system. Playing a critical role in the development of infrastructure, transport and employment generation, NBFCs are changing the business loan landscape in the country. Most NBFCs, leverage alternative and tech-driven credit appraisal methodologies to assess the credit worthiness of prospective borrowers.

This difference in approach allows them to meet loan requirements of individuals and businesses left traditionally underserved by banks. With the introduction of e-KYC, making borrowing an instant and hassle-free experience, NBFCs are already offering the right financial products to consumers and small businesses in a customised manner. The use of technology to optimise business processes also keeps cost overheads to a minimum, enabling credit to be availed at highly competitive interest rates.

Key opportunities

• Increasing the penetration in the Micro, Small and Medium Enterprise (MSME) segment with new and dynamic operating models.

• Synergistic alliances with fintech companies to tap niche markets.

• Accessing new customers and cheaper funding sources by developing a viable co-lending business model.

• Tapping into the fast-growing e-commerce segment.

• Diversifying assets by targeting new profitable segments and developing the capabilities required to • serve those segments.

• Developing digital capabilities to boost sales productivity.

• Increasing fee income through advisory services.

• Using digital competencies and tools to improve sales productivity - the use of advanced analytics and machine learning to build propensity models for lead generation, making real-time offers available to sales representatives by using customer data from multiple internal and external sources.

Hthe financial sector is leveraging digitisation to increase internal efficiencies, provide value-added customer services, minimise risk and support Indias expanding economy.

initiatives launched by the RBI to support NBFCs

Measures RBI guidelines impact
Increasing exposure limit The RBI increased the counterparty exposure limit of banks to a single NBFC to 20% of Tier-I capital from 15%. While the measure was intended to encourage banks to lend more to NBFCs, banks have been largely cautious and have refrained from making the best use of higher limits. Many banks are still below the former limit.
Priority sector classification Loans given by banks to NBFCs for lending to agriculture, micro and small enterprises, and housing to be classified as Priority Sector Lending (PSL). The measure has benefited some of the larger NBFCs and specialised NBFCs. However, it has not directly addressed the refinancing challenges of the NBFC sector.
Easing of risk-weightage norms for banks The RBI has allowed banks to risk-weight their exposures to NBFCs based on the respective credit rating. The move is likely to expand flow of credit to better-rated NBFCs.
Partial credit guarantee GOI has created a mechanism whereby it will provide partial credit guarantee to banks for the purchase of NBFC assets, amounting to Rs. 1 trillion during 2019-20. The guarantee will be provided on a one-time basis for six months for a public sector banks first loss of up to 10%. The measure is in the initial stages of implementation. Market participants are confident that the guarantee is adequate to cover typical losses. This could help some of the large and mid-sized NBFCs with their liquidity needs for about six months.
Co-origination model The RBI released guidelines on co-origination of loans by banks and non-deposit taking NBFCs in the priority sector. NBFCs must take a minimum exposure of 20% with the remaining contribution by the participating bank. There are obvious benefits from this arrangement in terms of the liquidity support, especially for struggling NBFCs. The NBFCs are also likely to benefit from the risksharing model and will be able to target a new customer base.
Securitisation The RBI guidelines on securitisation allow NBFCs to securitise their loans with original maturity of more than 5 years. NBFCs would benefit from the liquidity generated by securitisation of assets to address problems arising from asset liability mismatch.

Union Budget 2020-21 highlights

• The limit for NBFCs to be eligible for debt recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is proposed to be reduced to an asset size of Rs. 100 crore from Rs. 500 crore or the loan size to Rs. 50 lakh from the existing Rs. 1 crore.

• Increase in the allocation under Pradhan Mantri Awas Yojana (PMAY) to Rs. 27,500 crore for 2020-21 from Rs. 25,328 crore for 2019-20; extra budgetary allocation of Rs. 10,000 crore each for PMAY-Urban and PMAY-Rural.

• Government will offer support by guaranteeing securities floated under the Partial Credit Guarantee Scheme to provide liquidity to NBFCs/HFCs.

• Equity support of Rs. 22,000 crore to India Infrastructure Finance Company Limited (IIFCL) and a subsidiary of National Investment and Infrastructure Fund (NIIF) to cater to funding requirement of infrastructure projects under National Infrastructure Pipeline.

• Amendments to the Factor Regulation Act, 2011 to enable NBFCs to extend invoice financing to MSMEs through Trade Receivables Discounting System (TReDS).

• Expansion of National Bank for Agriculture and Rural Development (NABARD) refinance scheme for NBFCs and co-operatives.

SwOT analysis

Strengths

• Distinguished financial services provider, with local talent catering to local customers.

• Vast distribution network, especially in rural areas and small towns, diversified product range and robust collection systems.

• Simplified and prompt loan request appraisals and disbursements.

• Product innovation and superior delivery.

• Ability to meet the expectations of a diverse group of investors and excellent credit ratings.

• Innovative resource mobilisation techniques and prudent fund management practices.

weakness

• Regulatory restrictions - continuously evolving government regulations may impact operations.

• Uncertain economic and political environment.

Opportunities

• Demographic changes and under penetration.

• Large untapped rural and urban markets.

• Growth in commercial vehicles, passenger vehicles and tractors market.

• Use of digital solutions for business/collections. Threats

• High cost of funds. v Rising Non-Performing Assets (NPAs).

• Restrictions on deposit-taking NBFCs.

• Competition from other NBFCs and banks.

Performance

The NBFC sector has been stung by a crisis set off by the shock collapse of non-bank lender group in 2018. The situation further worsened with another Housing Finance Company (HFC) defaulting in loan repayment in 2019. The current operating environment has resulted in three major limiting implications affecting sustainability and denting business growth:

• liquidity crunch due to cautionary approach by banks and mutual funds - the largest source of funds for NBFCs.

• high cost of borrowing from alternate liquidity channels leading to margin pressures.

• deterioration in asset quality with stress in the infrastructure finance and micro-finance sector, contributing to higher NPAs.

According to CARE Ratings, NBFCs borrowing profile has changed significantly from capital market instruments to bank borrowings. Banks lending to NBFCs registered a growth of 34.7% from September 2018 to January 2020.

India Ratings and Research (Ind-Ra) expects consolidation within the NBFC space leading to players with market leadership, operations in niche business segments, proven track record and limited overlap with banks in borrower profile, gaining the market share. Managing asset quality is likely to gain prominence over loan growth in 2020-21, as the major asset classes funded by non-banks face strong headwinds. Ind-Ra expects NBFCs to grow their portfolio at 8-10% in 2020-21, and the growth would be driven by retail-focused NBFCs with a long track record and an established franchise. The slowdown in auto sales, cash flow challenges for small businesses and sluggishness in real estate sector would keep the collection and recovery teams active.

Outlook

India has a huge proportion of un-banked and underbanked consumers and businesses. Hence, there is a lot of potential for NBFCs, which can still be tapped for

COVID-19 IMPACT ON THE NBFC SECTOR

- Retail financing industry, which was one of the key drivers of credit growth, will be impacted for at least two quarters, as the demand for housing assets, consumer goods and working capital financing will get hit due to general slowdown in economic activity.

- There is an enormous risk of defaults and insolvencies unless the regulatory framework is modified urgently to address the unprecedented challenge.

- Uncertainty on the potential credit loss in portfolios will result in lower securitisation deals thus impacting the fund-raising ability of NBFCs.

- NBFCs will have to strike the right balance between continuity of repayment of cash flows vis-a-vis extending the three-month moratorium to the eligible borrowers.

- Auto and auto-ancillary, aviation, travel and hospitality, retail and consumer durables, real estate and construction are likely to be stressed assets in the absence of significant government stimulus to these sectors.

The actual impact is still difficult to predict, and it will depend upon the time frame required to curb the pandemic and the various relief measures, which the government is expected to roll out. The NBFC/ HFC sector, which has managed to sustain amid a challenging funding scenario by taking various mitigating steps, will now have to weather the COVID-19 disruption. While the sector remains fairly well-capitalised, the trend in delinquencies in retail asset classes will be a key factor to monitor for the sector over the next few quarters, along with resource mobilisation capabilities.

Opportunity landscape for Mahindra Finance

• Decades of rich experience in the financial sector and the expertise of the management provide Mahindra Finance with deep insight into the requirements of our customers.

• Provides a range of financial products and services to customers through a nationwide distribution network. Presence in multiple businesses is a logical extension of being a facilitator of rural transformation in more ways than one.

• Sound financials based on fiscal prudence.

• The AAA credit rating helps to fund the aspirations of rural India.

• Preferred partner of prominent Original Equipment Manufacturers (OEMs) and associated with nearly 9,000 dealers providing assured business and cross-sell opportunities.

4. AUTOMOBILE INDUSTRY

The Indian automotive industry is seeing significant transformation with respect to its sustainable growth and profitability. Currently, the industry is witnessing five megatrends that are expected to transform the industry in a significant way. Rapidly evolving customer needs, the disruptive impact of technology, the dynamic regulatory environment, changing mobility patterns and global interconnectedness are all impacting the way auto companies are doing business today, globally as well as in India.

Performance

Production: According to Society of Indian Automobile Manufacturers (SIAM), the industry produced a total of 14,47,345 vehicles, including passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and quadricycles in March 2020, as against 21,80,203 in March 2019, a de-growth of 33.61%.

april 2019 - March 2020

Production: The industry produced a total of 2,63,62,284 vehicles, including passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and quadricycles in April-March 2020 as against 3,09,14,874 in April- March 2019, a decline of 14.73%.

Domestic sales:

• v Passenger vehicles sales was 27,75,679 units in April-March 2020, compared to 33,77,389 units in April-March 2019, down by 1782%.

• Commercial vehicles sales was 7,17,688 units in April- March 2020, compared to 10,07,311 units in April- March 2019, down by 28.75%.

• Three-wheeler sales was 6,36,569 units in April- March 2020, compared to 7,01,005 units in April- March 2019, down by 9.19%.

• Two-wheeler sales was 1,74,17,616 units in April- March 2020, compared to 2,11,79,847 units in April- March 2019, down by 1776%.

Indias automobile industry faced weak consumer sentiment in 2019-20 with sales in most segments declining. The outlook for 2020-21 looks challenging with the outbreak of COVID-19 and the resultant lockdown. Apart from the challenges revolving around the uncertainties caused by COVID-19, the domestic automobile industry will also struggle to clear inventory of Bharat Stage IV (BS-IV) vehicles in post lockdown era. According to the Federation of Automobile Dealers Association, there is a BS-IV inventory worth Rs. 63.5 billion, the majority of which are two-wheelers.

Weak consumer sentiment and a fall in discretionary spending are expected to keep the sales in the passenger vehicle segment subdued. Adding to the weak demand scenario will be ambiguity surrounding the availability of financing options to vehicle dealers and consumers, disruption of supply chains, and overall weakness in the global economy. Muted spending by auto companies on new launches coupled with lack of discounts, is likely as companies will look to maintain cash reserves and strengthen their distribution channels. This will also keep customer sentiments low.

Megatrends driving the indian automotive industry

Rapidly evolving customer expectations • Changing customer profile.
• High level of product awareness.
• Digitally savvy.
• Surge in corporate customers.
Disruptive impact of technology • Rapid adoption of technology in vehicles, industry supply chain and business models.
• Disruption through innovative products and services.
Dynamic regulatory environment • Regular but uncertain regulatory intervention (GST, shift from BS-IV to BS-VI, Cafe norms, ABS for two- wheelers, higher axle loads in CVs etc.)
• Increasing investments in regulatory compliance by industry players.
Changing face of mobility infrastructure • Efforts to enable electric vehicle infrastructure.
• Investment in roads and highways.
• Shared mobility as an alternative.
• Smart cities.
Globally interconnected industry • Indian companies going global.
• Next wave of investments from global companies.
• Shift in economic power to countries such as India.

Source: PwC - Indian automotive sector: Creating future-ready organisations

Union Budget 2020-21 highlights

Union Budget 2020-21 focuses more on localisation. Effective from April 1, 2020, customs duty on Completely Built Units (CBUs) of commercial Electric Vehicles (EVs) will be increased to 40% as against the current custom duty of 25%. As for passenger EVs, the Finance Minister has proposed to enhance customs duty on Semi-Knocked Down (SKD) passenger EVs to 30% as against the currently applicable 25%. Additionally, the government has also proposed hiking the duty on SKD forms of electric buses, two-wheelers and trucks to 25% as against the current custom duty of 15%.

The government has however introduced a new scheme to promote electronics, semi-conductor manufacturing and assembly to attract foreign investment in the country. It is believed that the initiative will help with EV manufacturing in the country. As revealed by the Finance Minister, a scheme of Rs. 1,000 crore will be anchored by the Exim Bank together with Small Industries Development Bank of India (SIDBI). Both these institutions will contribute Rs. 50 crore each, which will be achieved towards equity and technical assistance. Debt-funding of Rs. 900 crore will be made available from banks.

Outlook

Considering the COVID-19 outbreak and resultant lockdown, which aggravated the issues faced by the economy on account of slowdown, the outlook in the near to mid-term period remains unencouraging. The consumer sentiments and demand are expected to remain muted during H1 2020-21.

5. TRACTOR INDUSTRY

Easy credit availability, fund access, and high usage of tractors in farming operations have led India to be one of the largest markets for tractors, globally. To retain its status of global leader in the agricultural tractor industry, the GOI is actively involved in the credit and subsidy process. Domestic sales de-grew by ~10% in 2019-20 after three years of robust growth where the industry grew by 22%, 22% and 8% in 2016-17, 201718 and 2018-19 respectively owing to poor commercial demand. According to CRISIL Research, domestic tractor demand is expected to be resilient in 2020-21 and will pick up in 2021-22.

• Easy credit availability, fund access, and high usage of tractors in the farming operations have led india to be one of the largest markets for tractors, globally.

Factors mentioned below are expected to aid the tractor sales growth:

• Expectation of fourth consecutive normal monsoon to lead to higher crop production, thereby positively impacting tractor demand.

• Government support (central and state) of Rs. 2 lakh crore through farm loan waivers and direct farm income support.

• Government funding towards rural development activities such as road construction, rural housing and others; will support commercial demand for tractors.

Already reeling under subdued consumer sentiment, domestic sales were further hit by supply chain disruptions due to the COVID-19 outbreak. This adversely impacted production at manufacturing facilities in India in February. Since then, substantial progress has been made in developing alternate sources for procuring components. The business was hugely impacted by the lockdown just before the start of festive days in large parts of the country. In compliance with the regulations, the anticipated retail surge and billing totally stopped in all states.

(Source: auto.economictimes.indiatimes.com/news/automotive/ farm-equipment/etauto-originals-tractor-industry-enters-negative- territory-first-time-in-3-years/75193809]

The Government of India has undertaken timely initiatives for the farming community in the form of specific relief packages. Hopefully, this will help bring in momentum for tractor sales, after the lockdown ends. In fact, just as the automotive sector will move to the new BS-VI emission norms from April 1, the tractor industry is also gearing up to adopt the BS TR-Tractor EM-Emission (TREM) IV norms (for tractors over 50 HP) by October this year.

The proposed switchover to BS TREM IV is likely to impact ~15% of current industry volumes in the near term, while the rest of the industry (tractors below 50 HP) will migrate to the new norms by October 2023. The phased approach of transition to new norms will, however, give OEMs an opportunity to test the response of the Indian tractor consumer, tweak their product portfolios in the medium term and also gradually manage incremental product costs over the next couple of years.

Outlook

In 2020-21, capacity utilisation levels are expected to improve marginally. While tractor demand is expected to improve moderately, capacity additions are also expected by players, off-setting the contribution by growth in tractor production.

The current tractor penetration in India is ~5 million, which is only 1.5 hp/ha, much below the benchmark of 8-10 hp/ha in developed nations, which leaves considerable room for growth. The government is promoting measures such as doubling farm incomes by 2022, direct farmer income support through PM-KISAN scheme and improving crop productivity by distributing soil health cards, which are expected to renew rural economy. This will also be supported by other measures like the e-NAM (National Agriculture Market), expanding crop insurance, and gradual spread of custom hiring centres.

6. HOUSING FiNANCE

The affordable housing finance industry received a much- needed growth impetus from the Housing for All by 2022 scheme of the GOI. Sustained support from the government has allowed the industry to thrive in India. According to ICRA, Indias mortgage market has been steadily growing at a CAGR of ~15% over the past 8 years. In 2018-19, the mortgage market touched Rs. 19.9 trillion. Despite steady growth in the formal mortgage market, Indias mortgage to GDP ratio remains lowest among the key G20 countries, at just about 10%.

Indias housing finance market grew to ~Rs. 21.8 lakh crore in 2018-19 witnessing a CAGR of 18.6% during 2018-19, comprising both SCBs and HFCs. The housing finance industry has exhibited remarkable resilience over the past two broad economic cycles.

HFCs experienced moderation in credit growth and muted profitability as market confidence in the sector waned post H1 2018-19 and the share of HFCs in the housing finance market stagnated. The stress faced by the NBFC sector led to a sharp deceleration of growth in the credit extended by HFCs, as some major HFCs had to temporarily withhold disbursements to maintain essential liquidity.

CARE Ratings has stated that the growth in the housing finance companies loan book is expected to remain subdued due to funding challenges and lowered consumption due to a slowdown in GDP growth. Most HFCs are looking to conserve liquidity and correcting asset and liability management through sell downs and slowing disbursements. Further, moderation in the loan book growth of non-banks has curtailed the growth of interest margins. Overall, the growth is expected to remain under pressure as the benefits of the relief measures initiated by the GOI and state governments on the liquidity front are yet to fully unfold. The slowdown in the real estate sector coupled with higher risk perception of refinancing developers could impact the asset quality of players in the sector.

Opportunities

• Lower effective interest rates: Pradhan Mantri Awaas Yojana (PMAY) subsidy and tax incentives have led to lower effective interest rates for the affordable housing sector borrowers. This will perpetuate demand for housing in 2019-20 and beyond.

• Government preference: The current government views housing as the core of its economic policy and announced various schemes and policies to increase home ownership. Housing is the fourth largest contributor to Indian GDP and the sector has the potential to become the engine of domestic growth for the Indian economy in the coming years.

• Demand for rural and semi-urban sector: With rising rural income and the government investing heavily in enhancing rural demand, there could be a big demand upswing emanating from rural and semi-urban areas. This will highly benefit HFCs.

• Others: Urbanisation in India is very high. However, as compared to other countries, mortgage penetration in India is very low. With nuclearisation of families and two-thirds of the population in India being below 35 years of age, encouraging demand for housing can be expected in the coming years.

Outlook

India Ratings and Research (Ind-Ra) has maintained a stable outlook for HFCs providing affordable housing and a negative outlook on large HFCs for 2020-21. Ind-Ra expects the overall loan growth of HFCs to be moderate to 6% y-o-y in 2020-21..

Ind-Ra believes the affordable housing finance segment remains margin accretive as it faces moderate competition from banks, and lenders in this segment have pricing power as they lend to informal borrowers. The government sponsored schemes such as Credit Linked Subsidy Scheme (CLSS) and, in case of self-construction loans, existing equity in land help moderate loan to value ratio, thereby moderating loss given default risk in the segment.

7 INFRASTRUCTURE AND REAL ESTATE

Indias infrastructure sector is poised for strong growth over the coming years as the government investment in public infrastructure projects is expanding. Also, gradual reforms in Indias regulatory environment like Make in India initiative, changes in Insolvency and Bankruptcy Code (IBC) and reduced barriers in foreign investment will help improve the markets attractiveness to private and foreign firms. India has started marching and is being seen on the path of global standards in infrastructure and civic amenities.

Given the current market conditions, developers are calibrating strategies to meet market requirements and their focus has shifted on right-sizing and right-pricing which has supported pick-up in sales velocity. Buoyed by change in sentiments and signs of possible long-term recovery, large listed players have increased their pace of project launches. The rate of execution of ongoing projects has been simultaneously maintained, given the increasing home buyer preference for completed inventory.

With a number of initiatives and policies coming up, 2020 is expected to be the year of emerging micro-markets, with huge demand for quality homes, along with the transparency in the real estate deals and improved accountability of builders. According to an industry report, the real estate sector will be at the centre of rapid economic and social development, which will further transform the economy. These emerging trends are supposed to create a highly competitive environment for the developers. CREDAI and IBEF reports predict that the sector will reach US$ 1 trillion by 2030, from US$ 120 billion in 2017, and contribute 13% to the countrys GDP by 2025. Moreover, the housing sectors contribution to the GDP is expected to almost double to more than 11% by 2020.

Emerging trends reshaping the real estate sector Technology to act as a game changer

Emerging technologies in the construction sector have made the large players implement new and innovative techniques that ensure fast and quality delivery within the stipulated time. The technological innovations such as Robotics and Cognitive Automation, Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT) is supposed to impact transformation of Indian realty sector. These technology innovations will further pave the way for effective planning in construction project management, leading to leaner construction, optimised cost value, better quality, and value engineered products.

increase in NRI investments

The transparency in policies and the ease to do business have attracted many foreign investors to enter the real estate market and capture a substantial share. Now, with the increase in NRI investments, the real estate sector is expected to grow substantially.

• Affordable housing will continue to be a key driver for real estate market and provide a big opportunity for both developers as well as investors in coming years.

Sustainable housing to be adopted by the builders and agents

Undoubtedly, the future of the real estate sector is sustainable housing. Architects and builders are working towards creating buildings with sustainable infrastructure, green housing concept with good air quality, spaces for social gatherings and better concepts to manage resources and waste. A current industry report says that the developers will look forward to integrating sustainability criteria into prime office buildings, new cities and individual homes. Therefore, to secure the future of our next generation, prudent investments in designs that strengthen sustainable housing is expected to increase.

REITs to bring in further transparency in real estate transactions

The reformative steps and policies in the form of Real Estate (Regulation and Development) Act, 2016 (RERA), Goods and Services Tax (GST), Real Estate Investment Trust (REIT), Benami transaction Amendment Act and Pradhan Mantri Awaas Yojana have made the real estate sector much more transparent with financial discipline and increased efficiency. The concept of REIT is a great boon to investors. In the coming years, they will get capital appreciation and income from the property without having to essentially purchase and maintain it. It will open real estate to a broader spectrum of investors who are particularly looking to invest in the affordable housing sector. The implementation of REITs is expected to encourage Non-Resident Indians (NRIs) to invest in real estate in India.

Affordable Housing: A big opportunity

Affordable housing will continue to be a key driver for real estate market and provide a big opportunity for both developers as well as investors in the coming years. There is a possibility of collaboration of the developers and government organisations. This would ensure the minimisation of risks.

Union Budget 2020-21 highlights

• Provision of Rs. 1.7 lakh crore for transport infrastructure in 2020-21.

• Accelerated development of highways: development of 2,500 km of access-controlled highways, 9,000 km of economic corridor, 2,000 km of coastal and land port roads, and 2,000 km of strategic highways.

• Allocation of Rs. 22,000 crore to power and renewable energy sector in 2020-21.

• Driving demand of affordable housing: An additional deduction of up to Rs. 1.5 lakh for interest paid on loans for purchase of affordable housing assets has been extended till 31st March, 2021.

• Driving supply of affordable housing: Tax holiday on the profits earned by developers of affordable housing project has been extended till 31st March, 2021.

• Relaxation while taxing income from capital gains, business profits and other sources in respect of transactions in real estate; increased the limit from 5% to 10%.

implications

• Although Indias real estate sector has not witnessed any direct announcements except affordable housing, boost to other sectors such as education, infrastructure, data centre, and warehousing and logistics are expected to have positive impact on the sector.

• Affordable housing continued to be the focus area. The affordable segment is expected to witness increased activity across the country.

• Continued focus on infrastructure for the job creation and sustainable future. Well established infrastructure clears many bottlenecks, eases business and has a positive ripple effect on the economy for the long term.

Outlook

The residential real estate sector has already been stumbling from the adverse impact of the prevailing liquidity crunch, a high inventory overhang, weak affordability and subdued demand conditions. The COVID-19 outbreak is expected to further affect the sector adversely, with sales and collections expected to witness further moderation. However, reduced construction outflows, attributable to a slowdown in project execution activity, are expected to limit the overall decline in net cash flows, at least in the case of a short-term disruption. The three-month moratorium on term loan instalments announced by the RBI also provides comfort on overall developer cash flows during this period. In case of a longer disruption though, the impact on overall economic activity is likely to be deeper and more sustained. This could, in turn, result in impact on developer cash flows and project execution abilities, giving rise to wider negative implications.

8. MUTUAL FUND iNDUSTRY

Average Assets Under Management (AAUM) of Indias mutual fund industry for the month of March 2020 stood at Rs. 24,70,882 crore. The AUM of the Indian mutual fund industry has grown from Rs. 6.14 trillion as on 31st March, 2010 to Rs. 22.23 trillion as on 31st March, 2020 more than 3/ fold increase in a span of 10 years. The industry AUM stood at Rs. 22.26 trillion (Rs. 22.26 lakh crore) as on 31st March, 2020.

The total number of accounts (or folios as per mutual fund parlance) as on 31st March, 2020 stood at 8.97 crore (89.7 million), while the number of folios under equity, hybrid and solution-oriented schemes, wherein the maximum investment is from retail segment stood at 794 crore (79.4 million). This is 70th consecutive month witnessing rise in the number of folios.

Source: www.amfiindia.com

Outlook

Going forward, it is expected that the industry would witness robust growth as the sector is yet to tap its full potential. Besides, several measures taken by Securities and Exchange Board of India (SEBI), the regulator, will help increase the penetration of mutual funds. Some of the factors that will drive the growth in 2020 include the untapped potential, rising investor awareness about mutual funds as an investment alternative, and consistent promotion campaign by the Association of Mutual Funds in India (AMFI).

9. business review

Key highlights

• Additional branches and talent pool will add further muscle in marketing initiatives and drive the business forward.

• Entered into a joint venture with Ideal Finance Ltd. to capitalise on Mahindra Finances 25-year expertise in the financial services domain and Ideal Finances domestic market knowledge to build a leading financial services business in Sri Lanka.

• Through subsidiaries Mahindra Asset Management Company Pvt. Ltd. and Mahindra Trustee Company Pvt. Ltd., entered into a 51:49 joint venture for Mahindra Mutual Fund with Manulife Investment Management (Singapore) Pte. Ltd., with an aim to expand the depth and breadth of fund offerings and retail fund penetration in India

Credit Ratings

type of Instrument Rating Agency / Rating Outlook
CRISIL
Fixed Deposit Programme FAAA Stable
Short-term debt CRISL A1 + -
Long-term and Subordinated debt, Bank Facilities CRISL AA+ Stable
India Ratings
Long-term and Subordinated debt IND AAA Stable
Short-term debt IND A1 + -
CARE Ratings
Long-term and Subordinated debt CARE AAA Stable
Brickwork
Long-term and Subordinated debt BWR AAA Stable

Asset quality

Risk assessment of customers is made at the time of initial appraisal for pricing and granting loans. The Company also makes a portfolio risk analysis at frequent intervals with its stringent review mechanism. The Gross Non-Performing Assets (NPAs / Stage-3 Impaired Assets) as a percentage of loan assets outstanding as at March 31, 2020, stood at 8.4% vis-a-vis 6.4% as at corresponding previous year end. The Company has complied with the requirements of Indian Accounting Standards (Ind AS 109) - Financial Instruments, in making provision for impairment allowances on loan assets outstanding as per Expected Credit Loss (ECL) method. Any application guidance/clarifications/directions issued by the RBI are implemented as and when they are issued/ to the extent they are applicable.

10. OPERATIONAL REVIEW

The key operational highlights of 2019-20 are:

• Total income increased to Rs. 10,245.14 crore in 2019-20 from Rs. 8,809.81 crore in 2018-19, an increase of 16.3%.

• Assets Under Management (AUM) rose to Rs. 77,159.56 crore in 2019-20 from Rs. 68,94758 crore in 2018-19, an increase of 11.9%.

• Customer base crossed 6.85 million.

• Increased employee base to 21,862 as on 31 st March, 2020, as against 21,789 as on 31st March, 2019.

• Opened more rural branches to remain close to customers, to better understand their cash flows and to approach the customers for recovery when they have the money. These branches will seize new opportunities when the economic cycle and farm cycle improve.

11. financial review

The following table presents the Companys standalone abridged financials for financial 2019-20, including revenues, expenses and profits.

Abridged Statement of Profit and Loss

Particulars Year ended 31st March, 2020 Year ended 31st March, 2019
Revenue from operations 10,097.85 8,722.91
Other income 147.29 86.90
Total revenue 10,245.14 8,809.81
Expenses:
Employee benefits expense 1,148.45 1,090.12
Finance costs 4,828.75 3,944.56
Depreciation and amortisation expense 118.29 60.23
Impairment on financial instruments 2,054.47 635.21
Other expenses 751.42 697.25
Total expenses 8,901.38 6,427.37
Profit before tax 1,343.76 2,382.44
Tax expense 437.36 825.38
Profit for the year 906.40 1,557.06

Key Ratios

Key indicators 2019-20 2018-19
PBT/Total Income* 13.1% 27.0%
PBT/Total Assets* 1.8% 3.6%
RONW [Avg. Net Worth]* 8.1% 15.2%
Debt/ Equity 5.23:1 4.84:1
Capital Adequacy 19.6% 20.3%
Tier-I Capital 15.4% 15.5%
Tier-II Capital 4.2% 4.8%
Book Value (Rs.) 184.0 176.6
NIM [Gross Spread) 7.7% 8.1%

Note:

*Of the several ratios presented under ‘Key Ratios following ratios have declined by more than 25% over the previous year.

PBT/ Total income - a decline of 51.5%

PBT/ Total assets - a decline of 48.9%

RONW [Avg. Net worth) - a decline of 46.5%

During the financial year ended March 31, 2020, although the total income grew by 16.3% over previous year, the profit before tax and profit after tax have declined by 43.6% and 41.8%, respectively, primarily due to higher charge on account of impairment loss provisions on financial instruments. The Company, in order to cover the contingencies that may arise due to COVID-19 pandemic, has incorporated the management overlays in the impairment loss provisions and accordingly made higher provisions towards impairment loss in the Statement of Profit and Loss. Consequently, as a result of lower profits as explained above, the profitability and net worth ratios have declined significantly as compared to the previous year.

Analysis of Profit & Loss

• Revenue from operations during 2019-20 increased by 15.8% over previous year and net interest income grew by 11.3% over previous year. The profit before tax for the year 2019-20 was at Rs. 1,343.76 crore as against Rs. 2,382.44 crore during the previous year.

• Profit After Tax [PAT) for the year, stood at Rs. 906.40 crore as compared to Rs. 1,55706 in 2018-19.

• Net Interest Margin (NIM) [gross spread) for the year stood at 7.7% as compared to 8.1% during the previous year.

• Pre-tax returns on average assets for the year 2019-20 stood at 1.9% whereas post-tax returns stood at 1.3%.

• Return on Equity (RoE) for the year stood at 8.1% as against 15.2% during the previous year. Return on Assets (RoA) for the year stood at 1.3% as compared to 2.6% for the previous year.

• The Companys cost to income ratio for the year 2019-20 improved to 373% as compared to 38.0% during the previous year.

12. RISK MANAGEMENT

In view of the growing volatility in the operating environment impacting global businesses on an unprecedented scale, we are reinforcing the risk management and mitigation mechanism. It will be regularly reviewed by the Board and corrective actions will be implemented with diligence.

Risk management process

The risk management system includes the following key elements:

• A strategy that is driven by objectives and principles.

• Clearly defined assignment of responsibilities across hierarchies.

• A framework and reporting cycle to identify, assess, manage, monitor and report the risks that the Company is or may be exposed to.

• A combination of ‘top down and ‘bottom up approach to risk assessment and management process.

• A risk monitoring plan that outlines the review, challenge and oversight activities.

• Reporting procedures which ensure risk information is actively monitored, managed and appropriately communicated at all levels within the Company.

• Embedding a robust and resilient risk-management culture across all hierarchies of the Company.

• Developing risk appetite statements with the strategic planning process subsequently monitoring and reporting on these statements

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 key risks are:

Liquidity risk

Liquidity risk is the risk of being unable to raise funds from the market at optimal costs to meet operational and debt servicing requirements.

Mitigation: The Asset Liability Committee (ALCO) of the Board of Directors meets regularly to review the liquidity position, based on future cash flows. The Company also maintains adequate liquid assets and reserves, and has access to funding to hedge against unexpected requirements.

Interest rate risk

Fluctuations in interest rates could adversely affect borrowing cost, interest income and net interest margins of companies in the financial sector.

Mitigation: The Asset Liability Committee (ALCO) of the Board of Directors lays down policies and quantifiable limits that involve assessment of various types of risks and modifications in assets and liabilities to manage such risks.

Operational risk

It arises when the flow of and controls over the operations of the Company are lacking, which has adverse impact on the continuity of business, reputation and profitability of the Company.

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

It is a risk of default or non-repayment of loan by a borrower, which involves monetary loss to the Company, both in terms of principal and interest.

Mitigation: The stringent credit appraisal system and post-disbursement monitoring ensures high quality of loan assets with minimum probability of default. We have a robust credit appraisal mechanism and efficient monitoring in place.

Business risk

Being an NBFC, the Company is exposed to various external risks, which have a direct bearing on its sustainability and profitability. Foremost among them are industry risk and competition risk. The volatile macroeconomic scenario and sector-specific imbalances result in loan asset impairment.

Mitigation: Our dedicated team evaluates the trends in the economy and various other sectors. In step with market trends, we have developed tailor-made products to deepen market penetration. Driven by a nimble-footed sales force, wide range of products, continuous efforts to improve turnaround time and customer-friendly culture, the Company is efficiently staying ahead of the curve.

Regulatory risk

It is the risk of change in laws and regulations materially impacting the business.

Mitigation: All the periodic guidelines issued by the RBI are fully adhered to and complied with by the Company. It adheres strictly to Capital Adequacy, Fair Practice Codes, RBI Reporting, Asset Classification and Provisioning Norms, etc. to ensure zero-level tolerance on the non-compliance aspect. We also follow stringent review systems to ensure compliance with the statutory guidelines and norms of the NBFC industry.

Human capital risk

The risk of not being able to attract and retain qualified personnel.

Mitigation: We provide an encouraging and congenial work environment to our employees across all sections for better work-life balance. The compensation paid by the Company is comparable with industries of its class and size.

Pandemic risk

The COVID-19 pandemic has had an unprecedented impact on societies and economies worldwide. The Company faces impact from this event at different levels. In addition, the pandemic impact may result in an increase in political and macro-economic risks.

Mitigation: Our proactiveness in setting up crisis management teams, mature business continuity processes and robust infrastructure ensured uninterrupted services to our customers, while maintaining health and safety of employees.

Information Technology risk

IT and cyber risks are an ever-expanding area as professionals combat a continual wave of attacks, fraudsters and criminals.

Mitigation: We have put in processes, systems and tools for ensuring vigilant monitoring, audit logging and suspicious activity reporting.

Management periodically reviews various technology risks such as protecting sensitive customer data, identify theft, data leakage, business continuity, access control etc.

Market risk

Market risk is the risk of losses arising from fluctuations in interest rates, credit spreads, foreign currency rates, equity prices, commodity prices and other factors, such as market driven volatilities, that may lead to a reduction in earnings, economic value or both.

Mitigation: Mahindra Finance is safeguarded against any market or liquidity risk owing to prudent approach of continuously maintaining a positive liquidity gap on a cumulative basis. Along with this, maintaining an adequate liquidity buffer at consolidated and at each lending entity level further safeguards the Company. Such conservative and prudent liquidity risk management measures and practices adopted by the Management demonstrates the robustness of our asset liability management during the COVID-19 related stress.

13. COVID-19 - RESPONSE PLAN

We took a number of steps to address the challenges posed by COVID-19, including the following:

Maintaining business continuity: We ensured Business Continuity Planning (BCP) by taking proactive measures before formal lockdown announcement. We started actioning initiatives in advance of the lockdown and simultaneously ensured that the IT infrastructure and systems were in place, tested and checked.

Resumption of operations: We resumed operations in a phased manner, in accordance with the directives issued by the central and state governments and the district authorities. The health and safety measures undertaken by us include issuing safety guidelines, conducting regular fumigation of office premises, conducting thermal screening of customers visiting our branch offices and providing masks and hand sanitisers at our offices.

Kin order to minimise the disruption in our operations and protect the health and safety of our employees, we have leveraged our technology systems and undertaken a number of measures to support our employees working from home by providing them with laptops and tablets and conducting online training sessions.

Safety of employees: In order to minimise the disruption in our operations and protect the health and safety of our employees, we have leveraged our technology systems and undertaken a number of measures to support our employees working from home by providing them with laptops and tablets and conducting online training sessions. We will continue to enhance our digital capabilities and the use of technology to improve our operational efficiencies. We organised multiple interactions with employees on staying fit and taking care of their health during the lockdown.

Moratorium: In accordance with our Board approved moratorium policy, we granted moratorium on the payment of installments falling due between March 1, 2020 and May 31, 2020 to all eligible borrowers, in line with the RBI guidelines. We informed our customers of the interest that would accrue and would have to be paid by them if the moratorium period is availed by our customers. The pandemic situation is still evolving and it is difficult to determine with certainty the impact of the moratorium on our business and we may be required to adopt additional steps in future, including by way of making higher provisions which may impact our overall profitability.

Collections: Our field executives typically visit customers to collect installments as they become due. However, on account of the work from home orders issued in various jurisdictions, we have been calling our customers and sending them intimations on phone. We informed our customers of the different digital modes through which they can make their payments and we intend to sharpen our focus on our collections after the completion of the moratorium period.

Maintaining our liquidity position and reducing our cost of borrowings: We undertook steps to ensure that we have adequate liquidity to meet our financial and other commitments. We continue to evaluate various funding opportunities so as to continue maintaining adequate liquidity and lower our cost of funds.

14. HUMAN RESOURCE

At Mahindna Finance we recognise our people as our greatest asset and we constantly strive to create an ecosystem of continuous learning, collaboration, inclusivity and work-life balance.

Mahindra Rise philosophy of Accepting No Limit, Alternate Thinking and Driving Positive Change reflects evidently in efforts of our business-focused HR partners, who benchmark and adopt best practices to support business, enabling employees to achieve exceptional outcomes.

Our employee-friendly and inclusive policies, health and fitness benefits ensure safe and secured environment for employees at workplace.

We have been ranked 6th in Asias best workplaces in 2020, ranked 8th in Indias Best Companies to work for in 2019 and we have also been recognised as one of the top 25 BFSI workplaces in India in 2020. This is awarded by Great Places to Work, the Global Authority on Workplace Culture Assessment.

The Companys HR practices have been certified at People Capability Maturity Model (PCMM) - Optimising, Level 5 Maturity Model, by the CMMI Institute in 2017-18, which certifies that the Company strives towards continuous improvement in its HR practices and focuses on widening organizational capabilities and improving organisational effectiveness by having a competent and engaged workforce, and has been able to sustain it.

Our Talent Management and Development initiatives aim to identify high potentials and building capability and leadership skills, enabling them to grow professionally and personally. We constantly strive to upgrade the skills of employees and give them the edge to compete in the dynamic market and become future ready.

We have partnered with best-in class global universities to create pipeline of future leaders. Through our digital learning platforms, we are driving culture of personalised learning empowering our employees to learn anywhere at any time.

15. INFORMATION TECHNOLOGY

Our Company has taken further steps in its technology roadmap toward future readiness and digitalisation. It has moved to a cloud-oriented infrastructure for its applications. Mobility solutions for its pan-India field force across lending and collections has seen significant utilisation. A real-time, integrated, fully digital platform for the consumer durables lending has been another major step in the organisations technology capabilities. The organisation has exhibited the ability to integrate with external service providers such as credit bureaus, payment gateways, KYC utilities etc. Short-term, personal loan products have been launched leveraging analytics and CRM. The organisation has been strengthening its enterprise platform benefits through the use of mobile application development platform, datalake, enterprise service bus, robotic process automation etc.

16. INTERNAL CONTROL

The Company has put in place an adequate internal control mechanism to safeguard all its assets and ensure operational excellence. The mechanism also meticulously records all transaction details and ensures regulatory compliance. The Company also has a team of internal auditors to conduct internal audit.

Reputed audit firms also ensure that all transactions are correctly authorised and reported. The reports are reviewed by the Audit Committee of the Board. Wherever necessary, internal control systems are strengthened, and corrective actions initiated.

17. cautionary statement

Certain statements in the Management Discussion and Analysis describing the Companys objectives, predictions may be "forward-looking statements” within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and Government policies that may impact the Companys business as well as its ability to implement the strategy. The Company does not undertake to update these statements.