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Manappuram Finance Limited - An Overview

Manappuram Finance Limited ("MAFIL" or "the Company") is a renowned Non-Banking Financial Company (NBFC) serving the credit requirements of people belonging to the lower socio-economic classes, particularly in rural and semi-urban areas of India. The Company offers a range of retail credit products and financial services. The Company has a diversified lending portfolio encompassing retail, microfinance, SME and commercial customers. It has been the second-largest gold finance NBFC in India. The Company offers credit against the security of used household gold jewelry (henceforth referred as gold loan). The Companys short-term gold loan product has been availed largely by customers who is requiring immediate funds and may not have access to other types of formal credit readily available. The Company competes directly with informal moneylenders and pawnbrokers, in its efforts to outreach the marginalized to achieve the larger goal of financial inclusion..

Our Micro finance subsidiary, Asirvad Microfinance Limited, an authorized and regulated NBFC-MFI by the Reserve Bank of India, provides microfinance loans and other financial services to low-income rural and semi-urban communities from its Branches spread across pan India. Through another subsidiary, Manappuram Home Finance Limited, the Company provides loans to customers in the affordable housing market for home building, extension, purchase, and improvement. The third subsidiary, Manappuram Insurance Brokers Limited, offers life and non-life insurance products via partnerships with numerous top insurance firms. The recently purchased Manappuram Comtech and Consultants Limited provides cost-effective and high-quality IT solutions with over two decades of experience.

Economic Review Global Economic Overview

Global economy is witnessing signs of resilience in 2023 after a turbulent year. The geopolitical tensions caused by the prolonged Russia-Ukraine war, supply chain disruptions, higher inflation, and tighter monetary conditions have been disrupting economic recovery in 2022. The slowdown is expected to be less pronounced in 2023 than previously anticipated. However, higher inflation, tighter monetary conditions, and the ongoing war continue to impact the global economy. Further, the global banking crisis in the United States has raised concerns over macroeconomic stability across the markets and an impending global recession. However, key factors such as the rebounding of Chinas economy, the gradual unwinding of supply chains, and the recent decline in energy and food prices indicate the improvement in economic activity and sentiment in 2023.

International Monetary Fund (IMF) has projected global growth to decline from 3.4% in 2022 to 2.8% in 2023 and rise to 3.0% in 2024. Growth across Advanced Economies (AEs) is expected to decline from 2.7% in 2022 to 1.3% in 2023 before rising to 1.4% in 2024. The real GDP of the United States grew at 2.1% in 2022 on the back of increased private investment and consumer spending. It is projected to grow at 1.6% in 2023 and 1.1% in 2024. The European economy recorded 2.7% growth in 2022 and is projected to grow at 0.8% in 2023 before rising to 1.4% in 2024. Emerging and Developing Economies (EMDEs) fared better and grew at 4.0% in 2022 and are expected to grow at 3.9% in 2023 and 4.2% in 2024. The developing economies like South-East Asia and Latin America are poised to do well and benefit from strong job markets, commodity price boom and ambitious investment plans by governments in many countries. Asia-Pacific will be the most dynamic of the worlds major regions in 2023, predominantly driven by the buoyant outlook for China and India, which will be the major contributors to global economic growth in 2023.

Outlook

Despite the economic uncertainties and underlying inflationary pressures, the outlook for the global economy seems less gloomy. With the central banks efforts to curb inflation by tightening monetary policy, global inflation is projected to decline from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024. The global economy is expected to pick up modestly in 2024, as inflationary pressures are expected to abate.

Indian Economic Overview

India continues to be among the fastest growing economies in the world. The Indian economy continues to show resilience to exogenous shocks caused by the prolonged war between Russia and Ukraine, higher inflation, tighter monetary conditions and supply chain challenges, among others. Indias real GDP growth is pegged at 7.2% in FY 2022-23 as against 9.1% in FY 2021-22.

Domestic economic growth is gaining strength and further traction in 2023. According to the IMF, Indias GDP per capita at current prices is US$ 2,600 in 2023, leading to a surge in household consumption. The growth rate is expected to decline to 5.9% in FY 2023-24. Higher inflation remains a challenge and the

Reserve Bank of India (RBI) increased the repo rate by 250 basis points in FY 2022-23 to curb inflation. As a result, retail inflation eased to 4.7% and the wholesale price index (WPI) inflation fell to -0.92% in April 2023 amid lower food and fuel costs. This could lead to a pause in repo rate hike in the ensuing MPC meeting on June 6. Though the manufacturing sector is yet to gain traction, the services sector is expected to show strong growth in FY 2024 as evidenced by the rising services Purchasing Managers Index (PMI). However, the Indian Meteorological Department (IMD) has forecasted moderate El Nino conditions and its impact on the agriculture sector and rural inflation needs close monitoring.

International trade contributed significantly to economic growth in FY 2022-23. The Annual merchandise exports were the highest-ever at US$ 447.46 billion with 6.03% growth during FY 2022-23 surpassing the previous years record exports of US$ 422.00 billion. As the world economy experienced slower growth, commodity prices softened which had a positive impact on domestic inflation. Brent crude averaged just about US$80 per barrel in FY 2023 as against US$100 in FY 2022. Moreover, the Russia-Ukraine conflict provided India an opportunity to source cheaper crude from Russia which has gone up to 20% of our overall sourcing needs. This also opened up the possibility of trade between Russia and India in Rupees with Vostro accounts of Russian banks being opened with banks in India. These developments have had a salutary and positive effect on inflation which also makes it easy for RBI to have a better handle over price increases.

Outlook

As per the IMF, the Indian economy is expected to grow at 6.3% in FY 2024-25 after registering around 6% growth in FY 2023-24. Growth will be supported by a conducive domestic policy environment, driven by various dynamic reforms undertaken by the government such as higher capital expenditure, thrust on domestic manufacturing and infrastructure development, rebound in domestic consumption, technology-enabled development, revival in credit growth, and energy transition among others. The benefits of reforms like the Goods and Services Tax (GST) and Insolvency and Bankruptcy Code (IBC) are slowly trickling in and will be felt in the years to come. India will slowly graduate to the league of developed nations in terms of per capita income in a decade which augurs well for the financial services sector. Moreover, as urbanization gathers pace demand for housing, real estate and automobiles will see an upswing in tune with the rising aspirations of the populace. In the Union Budget 2023-24, the government has envisaged 10 lakh crore for the development of the infrastructure sector, which will accelerate economic growth. In addition, growth-enhancing policies such as the production-linked incentives (PLI) scheme, Atmanirbhar Bharat and PM Gati Shakti will have a multiplier effect on economic growth.

Financial Services Industry

Over the past two years, the financial services industry has demonstrated its ability to successfully navigate unprecedented levels of uncertainty. Despite the geopolitical and economic challenges such as the Russia-Ukraine war, higher inflation, monetary policy tightening, volatility in the forex markets and the possibility of regional or global recession in 2023, the financial services sectors in India showed remarkable resilience and adaptivity in FY 2022-23.

Indian financial sector is diversified and consists of commercial banks, modern fintech startups, non-banking financial companies (NBFCs), insurance companies, co-operatives, housing finance companies, pension funds, mutual funds, small and medium financial entities, and newly founded payment banks. These diverse financial services offer solutions to a wide variety of customers based on their needs and access. Indias private wealth management industry has huge potential as it is expected to have 6.11 lakh high-net-worth individuals (HNWI) by 2025. This will lead India to be the fourth-largest private wealth market globally by 2028.

Digital transformation has been an important driver in increasing the reach of financial services in the country. The pandemic propelled the adoption of digital technology for financial activities, which is becoming increasingly popular due to the rapid expansion of smartphones and internet across the country. Financial services firms are keen on a non-branch acquisition and service approach and they have been focusing on a digital-first omni-channel experience over the past few years.

Reforms in the financial sector including credit discipline, responsible lending and improved governance, adoption of digital technology, the governments initiatives and digital services such as the PM Jan Dhan Yojana, India Stack and UPI have led to financial inclusion at scale, better and faster service delivery, ease of access to credit and participation in financial markets. The growth of the financial service sector has been recognized as one of the seven priorities in the Union Budget 2023-2024. As per the Budget, fiscal support for digital public infrastructure will continue in FY 2023-24, which will help to boost the economy. As per the Global FinTech Adoption Index, India has accomplished 87% fintech adoption, compared to the world average of 64%. Digital transactions witnessed an increase of 76% and 91% in value in 2022. With more than 2,100 fintechs operating currently, India is positioned to become one of the largest digital markets.

Rising income is driving the demand for financial services across income brackets. While there was sustained growth in all the segments, digital payments recorded exponential growth in FY 2022-23. Total digital payment transactions increased from 5,554 crore in FY 2021-22 to 9,192 crore (provisional/ till December 31, 2022) in FY 2022-23. Digital transactions were mainly dominated by the NEFT mode of payment, followed by Unified Payments Interface (UPI). NEFT recorded 38 trillion transactions, followed by UPI with 14 trillion transactions, CTS with 7 trillion transactions and Credit and debit cards with 1 trillion and 2 trillion transactions respectively. BHIM UPI has emerged as the preferred payment mode in the country and has recorded 803.6 crore digital payment transactions with a value of 12.98 lakh crore in January 2023.

Despite the rise in rates, bank credit increased across all sectors including Industry, agriculture, retail and services sectors due to accelerated economic activities and robust demand for personal loans. Bank credit grew by 15% Y-o-Y in FY 2022-23 against 9.6% Y-o-Y in FY 2021-22. Credit growth is highest in FY 2022-23 since FY 2011-12. The outstanding credit stood at 136.75 trillion as of March 24, 2023, rising from 118.91 trillion recorded in March 2022. Further, Bank deposits expanded 9.58% Y-o-Y in FY 2022-23 against 8.9% Y-o-Y growth seen in the previous financial year.

Credit to agriculture and allied activities rose by 15.4% Y-o-Y in March 2023 compared to 9.9% the previous year. Credit to the industry sector registered a growth of 5.7% Y-o-Y in March 2023 compared to 7.5% in March 2022. Size-wise, credit to large industries rose by 3% compared to 2% in March 2022. Credit growth of medium industries was 19.6% as against 54.4% a year ago. Credit to micro and small industries accelerated to 12.3% in March 2023 as against 23.0% during the same period of March last year. Credit growth to the services sector accelerated to 19.8% Y-o-Y in March 2023 from 8.7% in March 2022 due to the improved credit offtake to Non-Banking Financial Companies (NBFCs) and trade. Personal loans continued to expand at a robust rate of 20.6% Y-o-Y in March 2023 compared to 12.6% the previous year, primarily driven by housing loans.

The resilience of the domestic financial system is reflected in the healthy balance sheet of banks, stronger capital levels of NBFCs and robust growth in the assets under management (AUM) of domestic mutual funds. Buoyant demand for bank credit and early signs of a revival in the investment cycle are benefiting from improving asset quality, a return to profitability and resilient capital and liquidity buffers.

Outlook

Indias financial services industry has experienced huge growth in the past few years and this momentum is expected to continue driven by rising incomes, favorable demographics and heightened government focus on financial inclusion and digital adoption. The year 2023 will witness the impact of various regulatory measures, especially around the Account Aggregator, digital lending guidelines, regulators expectations around data availability and depth in regulatory reporting, and co-lending initiatives, among others. Indias fintech market is expected to reach US$1 trillion by 2030. Going forward, credit growth is expected to remain positive in 2023. The financial services sector expects more investments in technology and a rise in demand for Artificial Intelligence (AI) and Machine Learning (ML).

NBFC Industry

Non-Banking Financial Companies (NBFCs) are financial intermediaries that conduct financial transactions and offer almost all banking services except for issuing self-drawn checks and demand drafts. They solicit funds from the public, directly or indirectly, and execute loans to parties having repayment capacity. They provide credit to the unorganized sector and small local borrowers, such as wholesale/retail merchants, small and medium-sized businesses, and sole proprietors. As a key accelerator in the Indian financial landscape and for addressing the needs of numerous sectors, NBFCs are becoming more advantageous alternatives to traditional banks. Despite the competition with banks in the market, NBFCs will remain important because of their wider reach, increased flexibility, individualized services, and cutting-edge digital solutions. As per the Economic Survey 2022-2023, the growing importance of the NBFC sector in the Indian financial system is reflected in the consistent rise of NBFCs credit as a proportion to GDP as well as in relation to credit extended by Scheduled Commercial Banks (SCBs). The continuous improvement in asset quality is seen in the declining GNPA ratio of NBFCs from the peak of 7.2% recorded during the second wave of the pandemic (June 2021) to 5.9% in September 2022, reaching close to the pre-pandemic level. With the decline in GNPAs, the capital position of NBFCs also remains robust.

The Reserve Bank of India (RBI) regularly makes the required modifications to the NBFC regulatory framework to proactively give regulatory assistance to the sector and maintain long-term financial stability. The RBI has introduced scale-based regulation to enhance regulatory oversight over the sector. To further strengthen the supervisory tools applicable to NBFCs, the RBI also issued Prompt Corrective Action (PCA) Framework for NBFCs effective October 2022. The PCA Frameworks purpose is to allow Supervisory intervention at the appropriate time and to require the Supervised Entity to initiate and implement corrective measures in a timely manner to restore its financial health. Further, through the recent change in the RBIs securitization regulations, it issued a master direction on transferring loan exposures and securitizing standard assets.

The RBIs stress test to assess the resilience of the NBFC sector to credit risk shocks for a sample of 152 NBFCs reveals that the number of NBFCs that would fail to meet the minimum regulatory capital requirement of 15% stood at 8% under the baseline scenario. It increases to 10% and 13% under medium and severe stress scenarios, respectively. NBFCs continued to deploy the largest quantum of credit from their balance sheets to the industrial sector, followed by retail, services, and agriculture.

NBFCs credit offtakes reached 11-year high in FY 2022-23. It expanded to 136.8 lakh crore as of March 24, 2023, despite rising interest rates. The AUM of NBFCs exceeded Rs 14 lakh crore as of March 2023. According to India Ratings, the assets under management (AUM) of NBFCs will grow at 15-16% in the coming year. The growth has been driven by demand for personal loans and higher working capital requirements due to inflation and robust growth in NBFCs. In recent times, several NBFCs have seen a rise in their borrowing costs as the central bank intends to remove excess liquidity from the financial system. NBFCs are tapping into various routes like selling assets through loan pools and entering into co-lending partnerships to meet their funding needs. Despite challenges over funding, the loan growth of NBFCs is expected to sustain in FY 2023-24.

Outlook

NBFCs are expected to witness an upward trajectory and become stronger in the financial landscape with more robust business models, adequate capital, robust and diverse loan portfolios, excellent underwriting capabilities and a focus on digital strategy. Further, credit growth is expected to be in sync with the GDP growth in FY 2023-24, which will benefit the NBFCs. However, the slowdown in the global economy, higher inflation and rising interest rates in India may impact credit growth.

According to ICRA, NBFCs will focus on reviving growth in 2023 by improving asset quality supported by rising retail demand and liquidity. The MSME sector and other growing sectors will witness increased participation from NBFCs. Moreover, with the introduction of 5G services in the country, more NBFCs will start exploring AI and ML for offering services or full-fledged applications. NBFCs have the potential to emerge as superior alternatives to conventional banking practices to secure long-term, sustainable growth.

Gold Loan Industry

The gold loan industry has gained credibility and has been expanding over the past few years with consistent demand for gold loans. Gold loans are a crucial source of financing for MSMEs, the agricultural sector, small companies and the unorganized sector. The organized gold loan segment includes public banks, private banks, small finance banks, cooperative banks, non-banking financial companies (NBFCs) and Nidhi companies and accounts for 35% of the gold loan market. NBFCs constitute the largest share of the organized market. The unorganized segment accounts for 65% of the market and is dominated by moneylenders and pawnbrokers. The organized gold loan market size is estimated at 6 lakh crore industry, out of which there is an 80:20 split between banks and NBFCs.

The assets under management (AUM) for the gold loan industry have been organized or serviced by banks, NBFCs and cooperatives. The flexibility of NBFCs coupled with the average Indians preferences for gold is an important driver in the gold loan market. The gold loan industry is increasingly becoming significant in India, with a steady rise in the AUM of gold loan NBFCs which is estimated to grow 12-14% in FY 2022-23, on the back of buoyancy in the gold prices and limited borrowing avenue for select customer segments. While asset quality is expected to continue to improve, leading to the unwinding of provisions and Lower credit costs, margins are Likely to face pressure in FY 2024-25.

NBFCs are facing intensified competition from banks, especially in the higher loan ticket segment. Banks are improving their visibility in the gold loan segment by opening branches and increasing their portfolio of gold loans. Banks are targeting the gold loan segment aggressively with lesser interest rates on gold loans, which has attracted more borrowers recently. However, NBFCs are expected to remain key players in this segment due to their pan-India presence and ability to disburse loans quickly with a hassle-free process. Further, NBFCs face challenges in collecting payments and meeting liquidity requirements, which adversely impact their margins. NBFCs are seeking Priority Sector Status and liquidity support in 2023 due to multiple factors affecting their ability to access funds from traditional sources of funding. While challenges such as margin pressure and competition from banks persist, the sector is expected to benefit from improved asset quality and a favorable funding mix.

With the surge in gold prices, financial institutions are witnessing a surge in demand for gold loans, which are considered to be one of the safest and most secure loans. With the current macroeconomic volatility, geopolitical tensions flaring and equity markets giving less returns, people are buying gold as it is considered to be a safe investment because it holds its value over the long haul despite fluctuations in the currency. The increasing price of gold allows borrowers to get more value from the gold that has been pledged to the bank and borrowers can receive more for the same amount of gold kept with the bank as collateral. Moreover, millennials have been keen on investing in the yellow metal, adding digital gold, ETFs, SGBs and gold-oriented mutual funds to their portfolios. The gold loan NBFCs have huge potential to significantly expand their businesses as only 500 tons of the estimated 25,000-30,000 tons of household gold in India have been able to be monetized by NBFCs so far.

Aided by the governments thrust toward a digital economy and the evolving Fintech industry, the gold financing industry has undergone a major transformation in the past few years with the adoption of digital technology which offers several advantages to both consumers and service providers. It has aided the growth of the gold loan market. The use of digital technologies is allowing financial institutions such as banks and NBFCs to avail loans to borrowers at a much faster rate.

Outlook

Despite the slowdown and high inflation, demand for gold loans is picking up steadily and the industry is poised to grow in the long run. A reasonable increase in gold loan AUM and disbursements is expected during FY 2023-24. Demand for gold loans is expected to expand further as risk profiles of borrowers have depreciated considerably and lenders are becoming risk-averse.

The penetration of banks in the gold loan sector and competition with NBFCs indicate huge opportunities in the sector. There is enough unsatisfied demand for gold loans in India which will ensure that all players can co-exist without erosion of profitability. Moreover, banks and NBFCs are creating a market by transferring customers from the unorganized sector to the organized sector. Banks are also exploring partnerships with smaller NBFCs to enhance their gold loan portfolio. The growth of gold loan NBFCs is expected to remain moderate considering the prevailing competitive scenario, especially in the higher ticket segment with the continuation of low credit cost and relatively higher returns on total assets (RoTA ).

Overview Of Other Business Verticals Microfinance Industry (MFI)

The microfinance industry has faced challenges such as pandemic-led disruptions and process realignment as per the revised MFI regulation in Q1 FY 2022-23 which derailed its growth momentum. However, the industry has emerged stronger and experienced a growth spurt on the back of a favorable macroeconomic climate, revised regulatory norms and renewed demand from Tier-III cities, which have led to a surge in disbursements over the past few months. New regulatory norms have created a level-playing field and it is reflected in the growth of the portfolio of non-banking finance companies and NBFCs working as microfinance institutions (NBFC-MFIs). The industry exhibited a sharp improvement in credit cost trajectory in FY 2022-23. Microfinance accounted for ~11% of the retail AUM of NBFCs as of March 2023. Moreover, with steady improvement in collections and subsiding asset quality challenges, MFI players have accelerated new customer acquisition during H1 FY 2022-23.

According to MFINs Micrometer report Q3 - FY 2022-23, as on December 31, 2022, the microfinance industry served 6.4 crore unique borrowers, through 12.6 crore Loan accounts. The overall microfinance industry currently has a total Gross Loan Portfolio

(GLP) of 3,20,584 crore. Microfinance loans in India increased 21.3% YoY at 3.5 lakh crore in FY 2022-23. Asset quality profile improved with loans due in more than 90 days dipping to 1.06% in March 2023 from 2.43% a year ago.

All regulated entities have registered healthy growth on a Y-o-Y basis during Q3 FY 2022-23. NBFC-MFIs surpassed banks in the overall microfinancing landscape and became the largest provider of micro-credit with a loan amount outstanding of Rs 1,23,386 crore, accounting for 39% of the total industry portfolio. SFBs (Small Finance Banks) have a total loan amount outstanding of 52,192 crore with a total share of 16%. NBFCs account for 8% and Other MFIs account for 1% of the industry.

The regional spread is depicted in the pie chart below which shows around 63% portfolio is concentrated in the East & Northeast and South regions. The Top 10 states (based on universe data) constitute 83.1% in terms of GLP. Bihar has emerged as the largest state in terms of portfolio outstanding followed by Tamil Nadu and West Bengal. Among the Top 10 states, West Bengal has the highest average loan outstanding per unique borrower of 47,466 followed by Karnataka at 46,146.

Outlook

The near-term outlook for the microfinance (MFI) industry remains positive on the back of factors like regulatory clarity, the use of technology and declining credit cost. Credit costs for microfinance lenders will continue to moderate, settling at an average of 2.3% in FY 2023-24. The MFI sector is well poised to deliver double-digit AUM growth of 20% plus and 3.5%+ sector return on assets (RoA) by the end of FY 2023-24.

The profitability of non-banking financial company-microfinance institutions (NBFC-MFIs) is expected to improve with higher margins and improved collection efficiency. However, profitability is likely to remain lower than the pre-Covid level in FY 2023-24 as an increase in interest rates and high inflation could potentially impede economic growth and, as a result, impact the Microfinance sector adversely.

Automobile Industry

The Indian automobile industry has seen a healthy revival in FY 2022-23, aided by a recovery in economic activities, global supply rebalancing and increased mobility. The automobile industry is benefiting from new tailwinds, such as global supply rebalancing and the governments strong push for domestic manufacturing. The industry attracted Foreign Direct Investment (FDI) equity inflow of US$ 33.53 billion (accounting for 5.54% of the total equity FDI) between April 2000-June 2022.

According to the Society of Indian Automobile Manufacturers (SIAM), the total automobile production increased to 25.93 million units in FY 2022-23 from 23.04 million units in FY 2021-22. The domestic sales for FY 2022-23 were 21.20 million units. The Passenger Vehicles (PV) and Commercial Vehicles (CV) segments have recorded robust growth in volumes during FY 2022-23.

The two-wheelers segment grew by a moderate 17% (Y-o-Y), after witnessing de-growth for the previous three consecutive years. The domestic sales of two-wheelers in FY 2022-23 were 15.86 million units as against 13.46 million units in FY 2021-22. The sales of Electric two-wheeler in India grew over two-and- half-fold to 7,28,090 units in FY 2022-23 over the previous fiscal, aided by subsidies offered by the government and growing penetration of electric vehicles across segments.

The two-wheelers segment grew by a moderate 17% (Y-o-Y), after witnessing de-growth for the previous three consecutive years. The domestic sales of two-wheelers in FY 2022-23 were 15.86 million units as against 13.46 million units in FY 2021-22.

Automobile Domestic Sales Trends

(In Numbers)

Category 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
Passenger VehicLes 32,88,581 33,77,389 27,73,519 27,11,457 30,69,523 38,90,114
CommerciaL VehicLes 8,56,916 10,07,311 7,17,593 5,68,559 7,16,566 9,62,468
Three-WheeLers 6,35,698 7,01,005 6,37,065 2,19,446 2,62,385 4,88,768
Two-WheeLers 2,02,00,117 2,11,79,847 1,74,16,432 1,51,20,783 1,35,70,008 1,58,62,087
QuadricycLes 0 627 942 -12 124 725
Grand TotaL 2,49,81,312 2,62,66,179 2,15,45,551 1,86,20,233 1,76,17,606 2,12,04,162

Outlook

The growth momentum of the Indian automotive industry is expected to continue in 2023 despite the constraints such as high input costs, soaring fuel prices, higher interest rates and inflation, Leading to escalating prices of vehicles. However, factors such as sales of automobiles on digital platforms, wide availability of credit and financing options, population growth, integration of wireless technology in cars, and popularity of electric vehicles (EVs) will spur the growth of the automotive industry.

By 2026, India is predicted to be the third-Largest automotive market globally in terms of volume. Further, the government has been taking proactive measures, including Make in India, Production Linked Incentive (PLI) scheme, Foreign Trade Policy (FTP), and schemes such as Advance Authorization, Export Promotion Capital Goods Scheme, etc. to boost manufacturing and export of automobiles.

The government has also extended the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME-II) scheme tiLL 2024. The FAME scheme was Launched in 2015 under the National Electric Mobility Mission to encourage electric and

hybrid vehicLe purchases by providing financiaL support. The second phase (FAME II) is a 3-year subsidy program, which aims at supporting the eLectrification of pubLic and shared transportation: 7,000 e-Buses, 5 Lakh e-3 Wheelers, 55,000 e-4 WheeLer Passenger Cars (incLuding Strong Hybrid) and 10 Lakh e-2 WheeLers. The program aLso finances charging infrastructures. Further, increased capitaL expenditure of 10 Lakh crore on infrastructure development incLuding road construction and higher demand for Logistics especiaLLy from the e-commerce sector wiLL create Lucrative opportunities for the automobiLe industry.

Housing Finance Industry

In India, banks, NBFCs and housing finance companies (HFCs) provide housing finance. The Indian housing finance sector is dominated by banks with 67% market share. Banks are responsibLe for disbursing a majority of the housing Loans to higher-income bracket customers whereas housing finance companies and NBFCs focus on Lending to Lower and middLe-income segments and those with an uneven income pattern.

After the pandemic-induced sLowdown, the reaL estate industry has strongLy bounced back, primariLy due to the governments focus on affordabLe housing, various initiatives and interest subsidies under PM Aawas Yojana (PMAY). Moreover, the Union Budget 2023-24 has increased the outLay for PMAY by 66% to 79,000 crore. The higher aLLocation may Lead to higher Loan demand in the Lower income segment.

Despite rising interest rates, housing Loans outstanding rose 15%

Y-o-Y to a record 19.36 Lakh crore in FY 2022-23. Housing and housing finance activities in India have witnessed resiLient growth over the years. Some of the factors that have Led to this growth are the introduction of severaL economic reforms, tax concessions to borrowers, increasing disposabLe incomes and rise in nucLear famiLies, urbanization and increasing penetration beyond Tier-I Locations. After the pandemic, the work-from-home and hybrid work modeL with the priviLeges of working from anywhere encouraged first-time home buyers to move away from the metros and resuLted in a pent-up demand in the residentiaL reaL estate markets in Tier-II and Tier-III cities. Despite high-interest rates, housing finance companies (HFCs) witness higher demand, especially in the Low-income affordable housing Loan segment from Tier-II and Tier-III cities. Millennials and young borrowers with high disposable incomes are potential consumers for home loans.

Banks are expected to sustain their dominant market share in the home loan (HL) segment as most NBFCs are enduring interest rate hikes. Amidst rising competitive intensity, banks are gradually beginning to shift their home loan (HL) origination models based on their target customer segment. Commercial banks are likely to increase their market share in the highly competitive housing loans business due to their lower cost of funds compared with housing finance companies (HFCs), structural shift in sourcing models, the renewed focus on retail HL and transient rate cycle tailwinds. HFCs have gradually reverted to a growth phase with strong housing demand and a relatively improving liquidity environment. Affordable-focused HFCs, which account for 4% of the home loan market have emerged as high-growth and profitable businesses. Banks and HFCs/NBFCs are experimenting with multiple asset-light models (Co-lending, DA, etc.) to optimize their portfolios, capital structures and liquidity. RBIs adoption of the Co-lending Model (CLM) has paved the way for a model in which NBFCs, HFCs and banks can collaborate and enter into an agreement to perform joint origination and lending in the market. This model aids in not only leveraging the liquidity capabilities of banks and other financial institutions but also in making efficient use of the extensive reach of NBFCs and HFCs, making money accessible to the intended beneficiaries at a reasonable price.

Outlook

The demand momentum in housing finance is expected to sustain in FY 2023-24. The home loan market is poised to double by the end of FY 2028, growing at a ~15-16% CAGR during FY 2023- FY 2028, driven by multiple structural-demographic tailwinds such as a large population base, a burgeoning middle class, rapid urbanization, increasing trend towards home ownership, improving affordability, etc. Further, RBIs decision to keep the repo rate unchanged at 6.5% augurs well for the residential real estate market as it provides relief to affordable and mid-segment homebuyers as the home loan rates remain unchanged. It will also help in sustaining the current demand trends.

The housing finance sector is well positioned to benefit from the governments thrust towards housing projects, pick-up in construction and real estate activities and strategic investments. Going forward, the recent government measures, such as the reduction in import duties on steel products, iron ore, and steel intermediaries, will cool off the construction cost and help to control the rise in housing prices which will further boost housing demand.

Insurance Industry

Insurance is an integral sector of the financial services industry in India. The growth of the insurance industry in recent years can be attributed to various factors such as a conducive regulatory environment, increased participation of the private sector, improvement in distribution capabilities and rapid digitalization. Insurance products get a fillip after the pandemic and rising medical inflation. The pandemic increased the insurance penetration rate and triggered awareness of insurance and demand for protection products, especially health insurance. Moreover, the adverse impact of frequent natural catastrophes such as floods and cyclones on vulnerable segments such as agriculture underlines the need for suitable insurance products for their protection.

Due to the rise of insure-techs and digital transformation, the industry has undergone a transformation. The Insurance Regulatory and Development Authority India (IRDAI)s mission of "Insurance for all by 2047" has unveiled a slew of measures to strengthen the insurance sector. The growth of the insurance market is also supported by government initiatives and schemes such as the Pradhan Mantri Fasal Bima Yojana (PMFBY) for crop insurance, Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Jan Arogya Yojana (PMJAY) etc. These schemes are being concentrated with the public sector general insurance companies compared to the last year and have driven insurance adoption and penetration across all segments. These schemes have increased their share in the last two years to pandemic-induced awareness.

Moreover, Indias demographic factors such as a growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of the Indian insurance sector. In FY 2022-23, the non-life insurance segment recorded an impressive growth of 16.4% Y-o-Y compared to 11.1% the last year. The industry reported a total premium of 2,56,912.14 crore in FY 2022-23. First-year life insurance premiums increased to 3,70,543.02 crore in FY 2022-23 from 3,14,263 crore the previous year, an increase of 17.91%. In FY 2022-23, the cumulative premiums for the life insurance sector expanded by 17.9%.

Movement in Gross Direct Premium Underwritten

(Rs Crore)

Insurers Mar-21 Mar-22 Mar-23 Mar-22 Growth Mar-23 Growth FY21 FY22 FY23 FY22 Growth FY23 Growth
General Insurers 15,660.0 17,818.4 19,542.1 13.8 9.7 1,69,844.7 1,84,886.0 2,14,836.7 8.9 16.2
SAHI 2,447.3 2,829.9 3,428.4 15.6 21.2 15,755.2 20,867.2 26,242.3 32.4 25.6
Specialized PSU Insurers 1,370.7 1,119.5 1,300.9 -18.3 16.2 13,114.9 15,046.9 15,841.2 14.7 5.3
Total 19,478.0 21,767.8 24,271.4 11.8 11.5 1,98,714.7 2,20,800.0 2,56,920.2 11.1 16.4

(Source: www.careratings.com/uploads/newsflles/1682598910_Non-Ufe%20Insurance%20Update%20for%20March%202023.pdf)

ALL segments have recorded Y-o-Y growth in FY 2022-23. Health insurance premiums have been the primary growth lever of the non-life insurance industry. This has resulted in the segment increasing its market share from 29.5% for FY 2020-21 to 35.3% for FY 2022-23. The heaLth segment has grown by 23.2% in FY 2022-23 compared to 25.4% in FY 2021-22.

In FY 2022-23, the total premium of the Motor insurance segment reached 81,291.7 crore, growing at 15.4% as against 4% in FY 2021-22. The Crop insurance premiums witnessed a growth rate of 8.7% Y-o-Y with a total premium of 32,015.6 crore compared to 29,465.3 crore the previous year. The Fire segment recorded a total premium of 23,933.5 crore with a healthy growth rate of 11.1% in FY 2022-23 as against 7% the last year.

The market share of private non-life insurance companies increased to 62% in FY 2022-23 from 59% in FY 2021-22. The private pLayers grew by 2.2x of their pubLic counterparts given their strong market presence and reLativeLy better solvency levels.

Outlook

The insurance industry is expected to maintain its growth trajectory on the back of supportive reguLatory Landscape and insurance requirements. IRDAI predicts that the Indian insurance market will reach US$ 200 billion by FY 2027. The insurance market is expected to reach US$ 222 billion by FY 2026. Premiums generated by Indias life insurance industry are anticipated to reach 24 lakh crore by FY 2031. The life insurance industry is expected to increase by 14-15% annually for the next three to five years. The growth would be driven by the popularity of health insurance products/schemes, growing demand for motor insurance (Third party and Owner damage) products, rise in per capita/disposable income levels, a greater volume of transactions under segments such as fire, marine, export credit, customized products, especially in motor and health insurance and gradual introduction of new products.

Further, the rapid economic expansion, supported by digital infrastructure and innovation and demographic factors will contribute to the growth of the insurance industry. The Internet of Things (IoT) and telematics are expected to change the insurance sector in the coming years permitting insurance companies to use the data from internet-connected devices to increase operational efficiency. Technology-enabled customization and transparency are expected to increase the demand for insurance in Tier-II and Tier-III cities of India.

Business Review

Manappuram (hereafter referred to as Manappuram or the Company) provides financial services through transparent processes and procedures in credit approval and disbursement, as well as prompt, amicable, and adaptable terms of repayment, tailored to the specific characteristics of its clientele. The Company is the most preferred choice of customers due to its easy and quick loan evaluation and disbursements. The Companys established reach and network enable it to serve even the most remote regions of India. It has a strong base in rural and semi-urban areas.

One of the driving forces behind the Companys practices is its focus on the consumers. The Company has a competitive edge due to its robust business model, keen understanding of its clients requirements and enhanced risk management. Further, the implementation of advanced technology has improved sales productivity, market coverage, channelization, and customer experience.

With a consolidated AUM of 355 billion in FY 2022-23, the Company is the second-largest NBFC operating in the gold loan segment, with gold loans (Standalone) accounting for 190 billion. It has a strong Pan-India presence through its strong network of 5,232 branches across 28 states and 4 union territories and serves more than 5.09 million active customers.

Business Performance in FY 2022-23

The Company has achieved substantial growth in business volume and profitability and is in a strong position to sustain this growth. The consolidated Assets under Management (AUM) grew by 17.2% YoY to 355 billion in FY 2022-23 from 303 billion reported in the previous fiscal. Operating income for the year stood at 66.84 billion, up by 10.28% against 60.61 billion recorded in the previous fiscal. Consolidated PAT (before OCI and Minority Interest) reached 15 billion as against 13.29 billion the last year, with 12.9% YoY growth. The Company reported consolidated ROE of 16.6% and a ROA of 4.1%.

The Companys core business of gold loans faced challenges arising from the intense price competition among the NBFCs which prevailed for much of FY 2022-23 and impacted our profitability. The gold loan business constituted 67% of the consolidated AUM and the remaining 33% comprised of non-gold businesses such as microfinance, vehicle, housing, and SME finance. The Companys gold loan AUM decreased by 2.1% YoY to 197.4 billion as against 201.6 billion in the previous year. As of March 31, 2023, the number of active gold loan customers stood at 2.41 million. With an average ticket size of 57,500, the Companys gold loan portfolio is extremely resistant to gold price fluctuations. Gold Loan LTV stood at 60% as on March 31, 2023. The Companys gold holdings stood at 60.14 tons in FY 2022-23 compared to 68 tons last year. The online gold loan (OGL) book represented 50% of the overall gold loan.

The diversification efforts made by the Company were successful. Overall, the non-gold businesses contributed a share of 44.3% to the total loan book of the Company. The automobile industry in India recorded a healthy revival in FY 2022-23, supported by a recovery in economic activities. The Passenger Vehicles (PV) and Commercial Vehicles (CV) segments recorded robust results in FY 2022-23. The Companys Vehicle and Equipment Finance division closed the year with an AUM of 24.55 billion against 16.43 billion in FY 2021-22, showing a substantial growth of 49.4% YoY.

The Companys microfinance (MFI) subsidiary, Asirvad Microfinance Ltd., continued to be an industry outperformer with an AUM of 100.41 billion in FY 2022-23, with a robust increase of 43.4% over 70.02 billion reported for the previous fiscal. The Company is rated AA-minus stable by CRISIL, the highest credit rating in the MFI sector. Asirvad delivered a return on equity (ROE) of 16.7% and a return on assets (ROA) of 2.6% in

FY 2022-23 and is currently one of Indias lowest-cost microfinance loan providers. With 1,684 locations, 15,874 workers, and a presence in 25 states/UTs, Asirvad is the second-largest NBFC MFI in the country. The companys home finance subsidiary, Manappuram Home Finance Ltd., recorded an AUM of 10.96 billion in FY 2022-23, a growth of 29.7% against 8.45 billion achieved in the previous fiscal.

The total borrowing of the Company on a consolidated basis was valued at 285 billion in FY 2022-23. On the liquidity front, we have not faced any issues in raising funds for growth, even at the peak of a liquidity crisis. We do not expect any funding challenges to come in the way of our plans and are comfortably placed with our ALM.

The Company recorded financial expenses of 21.87 billion in FY 2022-23 and closing AUM increased by 17.2% YoY.

Employee expenses increased to 14.69 billion from 11.25 billion last year. The Company has undertaken various cost rationalization initiatives. Moreover, there is significant operating expense leverage as the Companys new branches mature.

The Companys consolidated net worth in FY 2022-23 increased to 96.44 billion from 83.68 billion the previous year. The book value per share stood at 113.95. Consolidated earnings per share (EPS) for the year stood at 17.7 while the capital adequacy ratio (standalone) was maintained at 31.70%. The Companys gross non-performing assets (NPA) was 1.33% and the net NPA position of the standalone entity stood at 1.15%. The Companys total number of live customers in FY 2022-23 stood at 5.88 million compared to 5.09 million in FY 2021-22.

Digital Transformation

The Company has incorporated an enterprise-wide digital transformation journey and has its human and technological capabilities around business outcomes - personalizing customer experiences, improving processes, and building new solutions moving faster to achieve them. The Company is looking to improve its operational efficiency and transform its relationship with customers by utilizing new technologies. The Company is working towards extending the security features of the office wherever employees work, unlocking communication and interaction from anywhere. Digital transformation of a company includes the process of integrating digital technologies into all parts of an organization, such as products, services, or operations, to deliver value to customers. It involves adopting a digital-first approach to all aspects of a business, from its business models to customer experiences to processes and operations. It also is leveraging data and driving intelligent workflows, automation, hybrid cloud and other digital technologies.

Credit Rating

The credit rating details of the Company as of March 31, 2023 were as follows:

Credit rating Type of Facility

March 31, 2023

March 31, 2022

RS In Million Rating Rs In Million Rating
Brickwork Non-Convertible Debentures 9,506 BWR AA(Stable) 10,030 BWR AA+(Stable)
Bank Loan Facility 0 Withdrawn 70,000 BWR AA+(Stable)
Bank Loan Facility Long Term 54,500 CRISIL AA/Stable 43,200 CRISIL AA/Stable
Bank Loan Facility Short Term 15,500 CRISIL A1 + 6,800 CRISIL A1 +
Non-Convertible Debentures 46,250 CRISIL AA/Stable 26,750 CRISIL AA/Stable
CRISIL Principal Protected Market Linked Debenture 0 Withdrawn 5,000 CRISIL PP - MLD AAr/Stable
Commercial Paper 40,000 CRISIL A1 + 40,000 CRISIL A1 +
PCG DA 0 Withdrawn 1,000 CRISIL AA (SO)
Bank Loan Facility Long Term 64,900 CARE AA Stable 49,270 CARE AA Stable
CARE Bank Loan Facility Short Term 45,100 CARE A1+ 40,730 CARE A1 +
Non-Convertible Debentures 27,206 CARE AA Stable 19,806 CARE AA Stable
Commercial Paper 40,000 CARE A1+ 40,000 CARE A1 +
S&P Senior Secured Bond 0 0 21,288 BB-/Stable
FITCH Senior Secured Bond 0 0 21,288 BB-/Stable

Asset Quality

At the time of the initial appraisal for Loan price and approval, a customers risk profile is determined. With its strict review methodology, the Company also conducts periodic portfolio risk assessments. Gross NPA declined from 2.95% in FY 2021-22 to 1.33% in FY 2022-23 and net NPA decreased from 2.72% in FY 2021-22 to 1.15% in FY 2022-23.

Swot Analysis Strengths

Proven track record and powerful brand equity

Manappuram has been in the gold lending industry for almost six decades. The Company has developed and continually refined the assessment and underwriting methods for lending against gold jewelry based on its business experience. As an experienced player in the Gold loan market in India for several decades, the Company has been able to garner a substantial amount of consumer confidence and brand equity.

Portfolio diversification

Manappuram has been steadily diversifying its portfolio to avoid concentration risks. This will hedge the portfolio against adverse movements in gold prices which is the core business function. Gold price face downside risks from an upward interest rate scenario, dollar appreciation and a surge in equity indices. Portfolio diversification into CVs, home loans, microfinance and small corporate loans will help the company reap the benefits of economic growth as the fortunes of these sectors are directly correlated with economic growth. A balanced portfolio also leads to higher investor interest.

Adequate Capitalization

As of March 31, 2023, the capital adequacy ratio stood at 31.7%, which is significantly more than the regulatory requirement. Stable asset quality, sustained profitability and sufficient capital buffers augur our risk taking capacity in diversification of our portfolios. While asset impairment in gold loans is definitely low, our improved collection efficiency in microfinance and reduction in provisions for the pre-Covid portfolio add to the capital base. Credit cost and delinquency levels in other portfolios are also healthy and manageable.

Stable asset liability profile and low liquidity risk

More than half of the Companys consolidated borrowings (including off-balance sheet finance via securitization assignment and ECBs) have been from banks and financial institutions with whom we enjoy very high credibility and are reasonably priced. On the asset-liability front, we enjoy positive gaps which lead to comfortable liquidity. We also maintain liquidity coverage higher than the regulatory minimum norms.

Embracing digital initiatives

We have been embracing digital initiatives in a very big way. For instance, almost 50% of gold loan portfolio are digital loans and we have also made big gains in the digital personal loan space. Taking our digitization efforts, a step further, we have developed a digital super app that brings all products under one roof. We have entered into tie-ups with leading universities to impart training to our employees on major developments in this space.

Weakness / Area of Improvement

Market Share

Though the company posts 12-15% annual AUM growth, the total assets under management are low compared to the outstanding loans of both banks and NBFCs taken together. Low market share in the lending space, despite having high capital, means sub-optimal utilization of big opportunities that come our way.

• Rising operating expenses

Operating expenses of the company are high vis-a-vis peers due to several factors like cost of training employees and infrastructure-related expenses. Our operating expenses are higher relative to the AUM which is a metric that merits attention.

•v Inability to raise public deposits

As the company is not registered as a deposit-taking company, we need to scout for other resources like NCDs or ECBs to fund its assets which exposes us to interest rate volatility. This will have a negative bearing on the companys cost of funds especially in a higher interest rate-high inflation regime. Higher cost of funds will reduce the leeway to disburse loans at lower interest rates to customers.

Opportunities

• Interest rate cycle set to reverse which will lift demand

The interest rate cycle seems to have peaked after RBI hiked the repo rate by 250 bps points. The peak is attributable to low inflation and the possibility of banking system liquidity improving due to the withdrawal of the 2000 series currency. Lending rates are not likely to rise which will stimulate demand and present an opportunity to lend.

• Persistence of the Unorganized Sector

Credit penetration is much lower in India when compared to advanced economies. The vast unorganized sector implies that there is tremendous potential for credit creation. For instance, the organized gold loan market is estimated to be only ?6 trillion and 90% of it is still unorganized Similar potential exists in other areas like microfinance. Costs of operations in this sector can be minimized through the co-lending model.

• The governments capex and infrastructure push

The governments capex push which is steadily increasing every year augurs well for the commercial vehicles segment while the urban infrastructure development fund in the budget helps housing demand. Affordable housing is sure to get a boost which presents a great opportunity. Opportunities will also come as overall growth improves consequent upon government spending and job creation.

• Technological Advancements

Technological advances like AI and analytics offer unlimited opportunities. Effective use of analytics enables us to harness the power of data to glean insights about customer behavior and design suitable products while artificial intelligence and automation help reduce the cost of operations. These add directly to the bottom line.

Threats

• Rising competition in the core business of gold loans

All lending institutions including banks and other NBFCs are entering the gold loan space sensing an opportunity. This could impact our profitability and growth.

Attrition

While growth prospects remain positive, customer and employee attrition could adversely impact our growth plans. Meanwhile, as a result of rising competition, there would be pressure on field employees to acquire more clients and avoid client attrition.

Operational hazards from robbery and theft

The threat of robbery and theft, especially in gold loan branches, is something to be dealt with. Though all securities pledged with us are fully insured, such hazards adversely impact the Companys reputation. There are also operational risks arising from frauds and misappropriations which are equally detrimental to the company.

A Geopolitical and domestic developments

Though low inflation and a peak in interest rates are positives, an uncertain global environment is a threat. If geopolitical tensions continue unabated it may revive inflation and supply-side constraints which will dampen domestic growth and demand. Meanwhile, the El Nino weather phenomenon could be a threat to monsoon if it materializes, adversely impacting the rural economy.

Financial Review

The following table illustrates the standalone and consolidated financials of the Company for FY 2022-23, including revenues, expenses, and profits.

Consolidated Results At a Glance

(In Billion)

Particulars FY 2020 FY 2021 FY 2022 FY 2023 % growth
Income from operations 54.65 63.31 60.61 66.84 10.28%
Profit before tax 20.07 23.16 17.84 20.41 14.44%
Profit after tax (After minority interest) 14.8 17.25 13.29 15.00 12.89%
AUM 252.25 272.24 302.61 354.52 17.15%
Net Worth 57.46 73.07 83.68 96.45 15.26%
RoA (%) 5.9 5.61 4.08 4.10 0.54%
RoE (%) 28.4 26.17 16.95 16.60 -2.05%
No. of branches 4,622 4,637 5,053 5,057 0.08%
Total No. of Employees 27,726 30,522 41,396 48,369 16.84%

Standalone Results At a Glance (In Billion)

Particulars FY 2020 FY 2021 FY 2022 FY 2023 % growth
AUM 191.22 205.73 224.13 244.46 9.07%
Gold Loan AUM 169.67 190.77 198.67 190.41 -4.16%
Gold Holding (Tons) 72.39 65.33 67.01 58.00 -13.45%
Live Gold Loan Customers (million) 2.62 2.59 2.37 2.30 -2.92%
Gold Loans Disbursed 1,689.09 2,638.33 1,236.75 1,293.14 4.56%
Capital Adequacy Ratio 21.74 29.02 31.33 31.70 1.18%
Cost of Fund 9.29 9.12 7.50 7.90 5.33%
Gross NPA (%) 0.88 1.92 2.95 1.33 -54.92%
Net NPA (%) 0.47 1.53 2.72 1.15 -57.72%
Number of Branches 3,529 3,524 3,524 3,524 0.00%
CV Loans (AUM) 13.44 10.53 16.43 24.55 49.46%

Key Financial Ratios (Standalone)

Particulars FY 2020 FY 2021 FY 2022 FY 2023
Return on Net Worth (%) 25.13% 27.47% 17.58% 14.97%
Basic EPS (after exceptional items) 14.58 20.08 15.41 14.96
Interest Coverage Ratio 2.21 2.32 2.26 2.14
Current Ratio 1.97 2.34 1.68 1.96
Debt Equity Ratio 3.3 2.56 2.26 2.14
Operating Profit Margin (%) 42.54% 46.89% 41.80% 38.92%
Net Profit Margin (%) 32.54% 32.50% 28.44% 26.23%

Risk Management

Risk management has emerged as a major focus area with implications for a companys financial stability in a volatile and dynamic landscape. Credit Risk, Market Risk, Liquidity Risk, Operational Risk, Interest Rate Risk and Reputation Risks are the major risks. Risk management processes ensure efficient risk monitoring to contain these within tolerance limits.

The Board of Directors has effective supervision and oversight of the risk management function of MAFIL. The Risk Management Committee (RMC) governs and reviews all risks integral to MAFIL. RMC also monitors the asset-liability profile, state of impaired assets, IT system vulnerabilities, internal capital adequacy Assessment framework, the impact of stress tests and the risk profile of subsidiaries on a regular basis.

RMC also monitors Business Continuity plans, Cyber securitymeasures and IT risks with the help of an information security team led by the Chief Information Security Officer (CISO) and assisted by reputed external consultants. The Risk Management function headed by the Chief Risk Officer maintains an arms-length relationship with business verticals and reports directly to the MD & CEO.

Risk Management Process

The risk management system consists of the following essential components:

a Strategic objectives and guiding principles

* Delegation and supervision of obligations

• Internal capital adequacy assessment to ensure that the Company has required capital commensurate with the risks at MAFIL and its subsidiaries a Framework and reporting cycle for identifying, evaluating, managing, monitoring and reporting top down and bottom-up risk

The major risks include:

Credit Risk

The Company has a robust credit risk assessment framework which include fair assessment of the collateral, prudential loan-to-value limitations, individual and group exposure restrictions, industry limits, appraisal of creditworthiness of the borrowers based on their own income and family income, demographic profile, their past credit history, indebtedness of themselves and that of their family.

While retail loans across multiple products and segments are managed primarily on a portfolio basis, the small book of a corporate portfolio is managed on an individual basis. The management of credit risk also involves monitoring of exposures based on borrower group, region, and industry. Credit Risk Management tools include portfolio diversification, post-disbursement monitoring, credit audits, borrower relationship management, and remedial action.

Interest Rate Risk and Foreign Exchange Risks

The Company is vulnerable to interest rate risk primarily because it lends to customers at set interest rates and for durations that may differ from its financing sources, which carry both fixed and floating interest rates. Interest rates are susceptible to a host of factors such as the monetary policies of the RBI, domestic and global factors and inflation. MAFILs Gold loan portfolio is relatively insulated from interest rate risk as the average duration of the loans is less than three months. The Company has Board-approved Interest Rate Policy, Liquidity Risk Management Policy, Resource Planning Policy, and Asset Liability Management Policy (ALM Policy). Interest risk and liquidity risks are periodically monitored by the Asset Liability Management Committee (ALCO). The Company also runs stress tests to determine the impact of interest rate fluctuations on its profitability. The Foreign Exchange Risk Management Policy lays down that all foreign exchange liabilities and assets over 10 million must be hedged which is also examined by ALCO and takes stock of forex risks.

Operational Risk

Operational risks arise from failed internal procedures, people and systems, or due to external events. To mitigate such risks, for instance, the Company uses decentralized loan approval technologies to facilitate quick turnaround time. MAFIL has sound internal control mechanisms like separation of roles and duties, reliance on the maker-checker principle, joint custody agreements and planning for contingencies. The securities pledged with the Company are adequately insured against various human and natural hazards. The Company also undertakes risk-based internal audits supplemented by an independent agency to ensure internal controls are in place, apart from a fool-proof disaster recovery plan to deal with contingencies. The Company has a Board mandated robust technology architecture to guard against business disruptions and data security breaches.

At the Periodic Review Meeting (PRM) of senior executives, operational risk occurrences are reviewed, and remedial actions are taken. The Audit Committee of the Board also evaluates and discusses the reports of the internal auditors. The Risk Management Committee of the Board examines effectiveness of operational risk management mechanisms in the company.

The BSI Group (British Standards Institution) UKs national standards organization issued ISO 27001-2013 certification to the Company which testifies the risk management credentials. The Whistleblower Policy for fraud prevention ensures that the perpetrators do not go unpunished.

Liquidity Risk

Liquidity risk arises due to the inadequacy of funds at an optimal cost. As the Company has a positive ALM mismatch at the portfolio level, liquidity risk is negligible. The Company strives to mitigate this risk through diversification of funding sources, securitization and assignment of receivables, capping short-term funding and maintaining liquidity buffers. ALCO monitors liquidity mismatches in various maturity buckets and ensures compliance to regulatory RBI guidelines. MAFIL has sufficient High-Quality Liquid Assets (HQLA) and the LCR is comfortable. The Company also has a sound cash management policy that adheres to the highest compliance standards.

Asset/Security Risk

Asset risks arise due to a possible decline in collateral values. For gold loans, the maximum gold loan LTV is based on one-month moving average gold prices, in accordance with industry standards (as per RBI rules). The Company also guards against potential logistical obstacles during auction process of gold ornaments and follow necessary legal procedures. The Company has also instituted suitable mechanisms to prevent operational risks arising from theft and robbery including a 24 by 7 online monitoring system.

The Company adheres to a prudent LTV range on immovable properties of between 30% and 40% for secured loans that fall under the Micro Loans category. The immovable properties are valued by external appraisers and internal credit managers, and lower of the value is considered for fixing loan amount. Credit monitors, auditors, and the vigilance team independently verify the value of the properties mortgaged as collateral to assure conformity with business policy.

Business Risk

The Company is exposed to Industry Risk and Competition Risk that impacts its bottom line and top line which include externalities like changing macro-economic conditions that merit close tracking and monitoring. In accordance with market trends and practises, the Company has designed customized loan products to increase market penetration. As competition is one of the perceived risks, our dedicated sales teams ensure reduction of turnaround time apart from conceiving a slew of new products.

Regulatory Risk

The Company is fully compliant with various rules framed by RBI, SEBI, NHB and IRDAI and adheres fully to the Fair Practices

Code and extant income recognition and asset classification norms. The liquidity risk management policy of the Company aligns fully with LCR norms and has sufficient High-Quality

Liquid Assets. The Company is also compliant of Scale Based Regulations and completely satisfies all requirements applicable to a middle layer NBFC. The Company has adopted Internal Capital Adequacy Assessment Process (ICAAP) identifying all material risks. The ICAAP document covering stress scenarios indicates that the Company is adequately capitalized to absorb moderate to worse shocks.

Human Capital Risk

The Company attached significant importance to human capital and has devised various courses and skill-enhancing programs to upskill and reskill them. The Company follows a fair compensation policy in tune with industry peers.

Reputation Risk

The Company has a Reputation Risk Management policy approved by the Board, which defines certain tolerance thresholds for such risk incidents to be frequently evaluated by the Risk Management Committee.

External Risk

MAFIL takes cognizance of external risks arising from various developments. The credit and collection practises of MAFIL have been revised in light of macroeconomic risks like global uncertainties, inflationary concerns and recent episodes of bank failures in major economies like the US and Switzerland.

Human Resource

Human resource has always been the mainstay at Manappuram Group, attracting the best available talent from the market in building new skills through continuous learning and developmental initiatives and enabling an increase in productivity and profitability has empowered employees at Manappuram while moving onto a new trajectory in excellence & growth. Enabling Career Growth coupled with higher skill sets promise the Company with better performance and precision, fostering sustained & continuous high-level performance at all times. Manappuram has focused its approach on employee development for upskilling each employee. Manappuram has a dedicated learning & development team led by a Chief Learning Officer to develop training content, and its execution.

Internal Control

The Company has implemented a sufficient system of internal control to preserve all of its assets and guarantee operational excellence. Additionally, the system precisely documents every transaction detail and assures regulatory compliance. Further, the Company employs a staff of internal auditors to ensure that all transactions are correctly authorized and reported. The Boards Audit Committee evaluates the reports. Where required, reinforce internal control systems and initiate corrective actions.

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.