Mukesh Babu Financial Services Ltd Management Discussions

Annexure -I

Mukesh Babu Financial Services Ltd. ("MBFSL" or "the Company") is a non-deposit taking Non-Banking Financial Company (NBFC-ND) registered with the Reserve Bank of India (RBI). The Company is classified as an NBFC-Investment and Credit Company (NBFC-ICC) and has been categorized as a Base Layer NBFC (NBFC-BL) under the RBIs Scale Based Regulation (SBR) framework since 2022. MBFSL is involved in lending and investment activities. The Company has one Subsidiary-Mukesh Babu Securities Limited.

The management wishes to present its Analysis Report.

During the year under review Income from Operations has decreased from 1,67,897 Thousands to 89,351 Thousands (decrease of 46.78%) and

Profit after Tax has decreased from 59,107 Thousands to 22,344 thousand (decrease of 62.20%).

The internal control systems and their adequacy have been discussed in detail in the Directors Report.

The global economy stands at a critical juncture. After a prolonged and unprecedented period of shocks, it appeared to stabilise through much of

2024, marked by steady yet modest growth. Global GDP is projected to grow by 2.8% in 2025 and 3.0% in 2026, maintaining a pace similar to that of 2023. Despite substantial interest rate hikes by central banks aimed at restoring price stability, the global economy demonstrated resilience and withstood a series of mutually reinforcing shocks. However, growth remained subdued amid persistent uncertainty, weak investment, sluggish productivity, and elevated debt levels. However, the global landscape has since shifted, as governments around the world have realigned their policy priorities in response to rising uncertainties. Geopolitical conflicts, escalating trade tensions, and elevated borrowing costs in several regions have emerged as significant risks. Further compounding these challenges, the ongoing war in Ukraine has pushed energy prices even higher, placing additional strain on energy-dependent economies. Regrettably, CY2025 has witnessed considerable uncertainty thanks to US announcing reciprocal tariffs on several nations, including India, and punitively high tariffs on China. This action, if it continues, would lead to reduced exports, along with unfavourable trade balances, export rates and forex rates; and for most nations, especially large trading ones, to a reduction in GDP growth. While the US has paused the imposition of higher tariffs for 90 days for most nations except China with the assumption that this will induce many countries to sit at the negotiating table, it is still too early to tell what the final outcome will be with several countries considering retaliatory tariffs on US exports. It remains to be seen how long this tariff war will last; and how it can significantly impact the economies of nations.

Despite the challenging global environment, India has emerged as a resilient economic powerhouse. Indias growth story remains a compelling narrative of ambition, innovation, and immense potential. The country is steadily moving up the global value chain and continues to hold its position as the worlds fifth-largest economy. This ascent is underpinned by solid economic fundamentals, ongoing structural reforms, robust domestic demand, prudent fiscal management, a high savings rate, and favourable demographic dynamics.

According to the second advance estimates released by the National Statistics Oce (NSO), under the Ministry of Statistics and Programme Implementation (MOSPI), Indias real GDP is projected to grow by 6.5% in FY25. This follows a robust real GDP growth rate of 9.2% in FY24, the highest recorded in the past 12 years (excluding FY22).

Non-Banking Financial Companies (NBFCs) have emerged as powerful engines of credit, significantly expanding access to financial services, especially for historically underserved or excluded segments. By complementing the traditional banking system, NBFCs have utilised innovative credit delivery models that leverage technology and local insights to create customised financial products tailored to diverse borrower needs. Their agility and close customer connections have enabled them to play a role that is not only complementary to traditional banks but also catalytic in building a financial ecosystem characterised by deeper intermediation and wider opportunities.

Indias NBFC sector has become a significant driver of financial inclusion and economic growth. Key segments such as housing finance, microfinance, and consumer finance have contributed to its impressive expansion, making their Assets Under Management (AUM) from less than H2 trillion at the turn of the century to approximately H43 trillion by 30 September 2024. Between FY2019 and FY2024, NBFC credit is estimated to have grown at a Compound Annual Growth Rate (CAGR) of around 12%, primarily driven by the retail segment, which is estimated to have grown at a CAGR of some 18%. In contrast, NBFC non-retail credit is estimated to have grown at a CAGR of about 9% during the same period.

As NBFCs have become more significant, the RBI has enhanced its regulation of the sector to address the industry specific issues such as contagion risk in the financial system, oversimplified underwriting processes, concentration of credit risk, exposure towards technology related risks, etc. Accordingly, the RBI, over last few years, has issued various guidelines on (i) vigil over asset-liability management practices, (ii) maintaining liquidity ratios, (iii) increased reporting requirements, and (iv) scale-based regulations. These have led to NBFCs adopting practices in line with banks. The regulatory vigil is based on four key cornerstones of: (i) responsible financial innovation, (ii) accountable conduct, (iii) responsible governance, and (iv) centrality of the customer.

On 9 April 2025, the RBI announced additional measures related to banking regulation, fintech and payment systems. It has proposed:

Enabling securitisation of stressed assets through market-based mechanism. This is in addition to the existing ARC route under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. Extending co-lending guidelines to all regulated entities and all type of loans, which were earlier applicable to banks and NBFCs for priority sector loans. Harmonising guidelines for lending against gold jewellery across all regulated entities. Evaluating and revising limits for Unified Payments Interface (UPI) transactions, with appropriate safeguards to mitigate risks associated with higher limits.

India is well-positioned to take the lead in the global economic landscape, continuing to retain its status as the fastest growing major economy. According to the World Banks Global Economic Prospects (GEP) report, Indias economy is projected to grow at a robust 6.7% in both FY26 and FY27- significantly outpacing global and regional counterparts. With global growth expected to remain at 2.7% in FY 2025- 26, Indias strong performance underscores its economic resilience and its growing influence in shaping the future of the global economy. This sustained momentum is a testament to the countrys solid economic fundamentals and its capacity to navigate and thrive amid global uncertainties. Indias continued expansion reinforces its standing as a key driver of global growth and a critical contributor to the worlds economic stability and progress.

Non-banking financial companies (NBFCs) have significant potential to capitalize on growth opportunities by serving underserved segments, such as small businesses, MSMEs and low-income households. Regulatory support and government initiatives aimed at financial inclusion, particularly in rural and semi-urban areas, provide NBFCs with opportunities to expand their reach where traditional banking services may be limited. However, these opportunities also come with challenges, including increased compliance costs and operational difficulties, especially for smaller NBFCs.

As a financial services provider, the Company is exposed to multiple risks, including risks related to credit, operations, liquidity, digital lending and information security.

Overall, while the NBFC sector in India holds substantial growth potential, it must navigate several challenges. Effective risk management, innovation, and adherence to regulatory requirements will be crucial for NBFCs to leverage these opportunities and manage potential risks. Their ability to adapt and embrace change will be essential for sustaining their role as a key source of financing for underserved populations and as a driver of economic growth.

This Management Discussion and Analysis (MD&A) contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these statements due to various factors, including economic conditions, regulatory changes, market dynamics and other unforeseen circumstances. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are advised to exercise caution and not to place undue reliance on these forward-looking statements.

(Data Sources: RBI, International Monetary Fund, Economic Surveys, Industry, Rating Agency reports, KPMG report on NBFCs in India: Growth and stability, February 2024, India Today, Department of Economic Affairs Report on Monthly Economy Review, January 2024, OECD Economic Outlook, Interim Report April 2024)