Muthoot Capital Services Ltd Management Discussions

Overview

Muthoot Capital Services Limited is pleased to present this years Management Discussion and Analysis Report, which elucidates the actions taken by the Company to move closer to its vision. It illustrates the strategic objectives and efforts invested in a bid to achieve long-term objectives. The management commits itself to creating value and this section analyzes the processes and procedures implemented to get optimum results.

This Report provides a comprehensive look into the organizations performance in light of the macroeconomic landscape. Through interpreted financial ratios and economic indicators, investors would gain insight into the views of management. These may be associated with some risks and uncertainties such as those involved in the Companys development, alterations in regulatory law, economic climate and other incidental business elements.

1. Global Economic Environment

The global economy continued to demonstrate resilience into 2026, with the International Monetary Funds World Economic Outlook (January 2026 update) projecting global GDP growth at around 3.3% for 2026. Advanced economies are expected to grow modestly at approximately 1.5%-1.6%, while emerging markets and developing economies are projected to expand faster at about 4.0%, led by India and parts of Southeast Asia.

Global inflation, after showing signs of moderation, is now expected to remain elevated due to recent energy shocks, with the OECD projecting world inflation of around 4.0%-4.2% in 2026, driven primarily by geopolitical tensions and commodity price volatility.

Geopolitical tensions (notably in Eastern Europe and the Middle East), ongoing realignment of global supply chains (nearshoring and diversification), and tightening financial conditions continue to shape the macroeconomic landscape. Recent global outlooks by institutions such as the IMF and World Bank indicate a slight moderation in growth expectations for 2026 (in the range of ~2.6%-3.1% depending on scenario assumptions) due to persistent inflationary pressures, trade uncertainties, and monetary policy tightening.

2. Indian Economy Overview

India continued to demonstrate strong economic momentum in FY 2026, reinforcing its position as one of the fastest- growing major economies globally. As per data released by the National Statistical Office (NSO) and the Economic Survey 2025-26, real GDP growth for FY 2026 is estimated at approximately 7.4%-7.6%, with nominal GDP expanding by around 8.0%-8.6% during the year.

Quarterly performance remained robust, with GDP growth sustaining momentum across the year, supported by resilient domestic demand and investment activity. The Reserve Bank of India (RBI), in its latest assessments, maintained a positive outlook, with earlier projections in the range of 6.5%-6.8%, while actual outturns have exceeded these estimates, reflecting stronger-than-expected economic performance.

Indias macroeconomic fundamentals remained stable, supported by moderating inflation, which averaged at historically low levels during FY 2026 due to favorable supply conditions and policy interventions. Labour market indicators also showed improvement, with strengthening employment conditions and increasing labour force participation contributing to overall economic resilience.

Growth during the year continued to be driven by strong private consumption, sustained government capital expenditure-particularly in infrastructure sectors such as roads, railways, and logistics-robust investment activity, and ongoing digital transformation. Additionally, India benefitted from steady foreign investment inflows and a well- capitalized and resilient financial system, reinforcing the countrys medium-term growth outlook despite global uncertainties.

3. Reserve Bank of India (RBI) Insights

The Reserve Bank of India (RBI) maintained its focus on preserving macroeconomic and financial stability during FY 2026. The policy repo rate was largely maintained at around 6.50% for a significant part of the year, reflecting the central banks calibrated approach to balancing inflation control with growth support.

Monetary policy continued to be guided by a cautious and data-dependent stance, transitioning gradually from the earlier "withdrawal of accommodation" towards a more neutral posture as inflationary pressures eased. Headline CPI inflation moderated during the year and broadly remained within the RBIs tolerance band, averaging around 4.5%-5.0%, supported by favorable base effects and supply-side interventions.

The RBIs policy approach remained anchored on ensuring durable price stability while supporting economic momentum. Liquidity conditions were managed prudently to ensure adequate system liquidity without fuelling inflationary pressures. Overall, the central banks measured and forward-looking policy stance contributed to sustaining macroeconomic stability amid evolving global and domestic uncertainties.

Key highlights from the RBI Financial Stability Report (2026):

- The Indian banking sector continued to strengthen its balance sheet, with the Gross Non-Performing Asset (GNPA) ratio improving further to around ~2.0%-2.3% as of March 2026, remaining at multi-year lows and expected to stay broadly contained over the medium term.

- The Reserve Bank of India (RBI) continued to intensify regulatory oversight of Non-Banking Financial Companies (NBFCs), with a sharper focus on liquidity management, asset quality, governance standards, digital lending ecosystems, and consumer protection frameworks.

- Recent regulatory guidance has emphasized prudent and responsible credit growth, strengthened risk management practices, and accelerated adoption of technology, including enhanced supervisory frameworks for digital lending and fintech-driven business models.

4. Non-Banking Financial Companies (NBFCs)

The NBFC sector continued to play a pivotal role in Indias credit ecosystem in FY 2026, supported by strong demand from retail and MSME segments. Industry estimates indicate that total NBFC credit outstanding has crossed approximately Rs 60-62 trillion by FY 2026, reflecting steady expansion over the previous year. Credit growth moderated to around 12%-14% during FY 2026, compared to higher growth levels in earlier periods, as lenders adopted a more calibrated and risk-conscious approach amid evolving regulatory expectations.

Key sectoral trends during the year include:

• Digitalisation: NBFCs continued to accelerate digital adoption across the customer lifecycle, resulting in enhanced customer experience, faster onboarding, and improved transparency. Customer satisfaction levels remained high, with widespread acceptance of digital platforms.

• Asset Quality: Asset quality metrics remained stable, with GNPA ratios largely contained and significantly improved compared to historical cycles, supported by strengthened underwriting practices and better risk management frameworks.

• Growth Drivers: Retail segments—particularly vehicle finance, consumer loans and MSME lending-continued to drive asset growth, aided by NBFCs deep penetration in Tier 2 / Tier 3 markets and underbanked regions.

• Liability Profile: The sector maintained a well-diversified liability mix, supported by access to bank borrowings, capital markets, and securitisation, thereby ensuring adequate liquidity and funding resilience.

NBFCs also continued to drive innovation in credit assessment models, fintech partnerships, and data-driven lending, enabling deeper financial inclusion, especially in rural and semi-urban markets. This growth, however, was accompanied by enhanced regulatory oversight, particularly in areas such as digital lending practices, governance standards, and customer protection, reinforcing the sectors long-term sustainability and stability.

5. Auto Loan Industry in India: Segmented Overview

Segment	FY 2025-26 Estimated Market Size	Growth Trend	Key Data Points
Two-Wheeler Loans	USD 9.0-9.5 bn	6%-7% CAGR (medium term)	Retail sales growth remained moderate at 4%-5% YoY, supported by rural demand recovery
Used Car Loans	USD 9.5-10.5 bn	12%-14% CAGR	Financing penetration improved to 38%-40%, driven by organized players and digital platforms
Commercial Vehicle Loans	USD 28.5-79.5 bn	10%-12% YoY	CV demand remained stable, with growth supported by infrastructure activity and replacement demand

Key Industry Trends:

• Rising Financing Penetration: Increased acceptance of formal credit, particularly in the used vehicle segment, is driving sustained growth.

• Rural & Tier 2/3 Growth: Demand continues to be led by semi-urban and rural markets, supported by NBFC reach and improved affordability.

• Digital Transformation: Lenders are leveraging digital sourcing, underwriting, and collections to improve efficiency and customer experience.

• Asset Quality Stability: Asset quality remained broadly stable across segments, supported by better credit filters and portfolio monitoring.

Overall, the auto loan industry remains well-positioned for medium-term growth, underpinned by favourable demographics, increasing income levels, and ongoing formalization of the credit ecosystem, despite periodic demand fluctuations and regulatory tightening.

Companys Outlook

The Company remains optimistic about its growth prospects and is well-positioned to capitalize on emerging opportunities in the lending landscape. Backed by a focused business strategy, a diversified loan portfolio, strong risk management practices, and continuous investments in technology, the Company aims to strengthen its market presence while maintaining asset quality and operational efficiency.

With a strong emphasis on innovation, prudent underwriting, collection efficiency, and financial discipline, the Company is confident of delivering sustainable growth, creating long-term stakeholder value, and reinforcing its position as a trusted financial services provider.

Focused Business Strategy

The Company continues to pursue a focused and disciplined business strategy anchored on its core lending segments. By leveraging its established expertise and market presence, the Company remains committed to driving sustainable growth across its key product offerings, including consumer durable financing, two-wheeler loans, top-up loans, and corporate lending solutions.

During FY 2025-26, the Company adopted agile business strategies to respond effectively to evolving market conditions while maintaining a prudent approach to risk management. The Company continuously aligns its policies and operating framework to capitalize on emerging opportunities and address potential challenges. Its customer-centric approach, coupled with a deep understanding of local markets, has enabled it to identify areas of unmet demand and expand its reach across targeted customer segments.

The Company further strengthened its position in the two-wheeler financing segment by expanding its network of channel partners, increasing penetration across sub-dealers and multi-brand outlets, and enhancing customer accessibility. The loan portfolio remains geographically diversified, reducing concentration risks and supporting balanced growth. Going forward, the Company intends to maintain a well-diversified portfolio across retail, consumer, and commercial lending businesses while focusing on long-term profitability through cross-selling opportunities, customer retention initiatives, and the development of sustainable lending verticals. The Companys primary focus continues to be serving the financial needs of middle-income, self-employed individuals and customers from semi-urban and rural markets.

Technology and Digital Transformation

Technology continues to be a key enabler of growth, operational excellence, and customer satisfaction. During FY 2025-26, the Company further accelerated its digital transformation journey by strengthening technology infrastructure, enhancing process automation, and expanding digital capabilities across the lending value chain. The increasing adoption of digital platforms has transformed customer interactions, enabling seamless loan origination, approval, servicing, and repayment processes. The Companys technology-enabled ecosystem allows customers to access services through mobile and digital channels, improving convenience while reducing turnaround times. The widespread use of digital payment mechanisms, including NACH and other electronic collection platforms, has further enhanced operational efficiency and customer experience.

The Companys mobile-based loan processing capabilities have facilitated faster credit decisions and improved accessibility, particularly in semi-urban and rural markets. To support these initiatives, the Company continues to strengthen its information security framework, risk management practices, and compliance controls to ensure regulatory adherence and safeguard customer data.

The Company is increasingly leveraging advanced analytics, artificial intelligence, and machine learning models across various functions, including credit underwriting, customer acquisition, portfolio management, and collections. These technology-driven initiatives have contributed to improved decision-making, enhanced customer engagement, and stronger business performance while reinforcing the Companys competitive advantage.

Strengthening Collection Efficiency

The Company continued to focus on enhancing collection effectiveness through a combination of technology-led initiatives, analytics-driven insights, and disciplined execution. During the year, the collections framework was further strengthened through the deployment of advanced monitoring tools and data-driven collection strategies aimed at improving recovery performance and controlling delinquency levels.

Artificial intelligence and predictive analytics were utilized to identify potential stress accounts at an early stage, enabling timely intervention and proactive collection efforts. Customer segmentation and location-specific collection strategies helped optimize resource allocation and improve operational efficiency across collection channels.

The Company also witnessed increased customer adoption of digital repayment modes, supported by payment gateways, automated reminders, and electronic collection platforms. These initiatives have contributed to improved customer convenience, higher collection efficiency, and better recovery outcomes, while reducing operational complexities.

Strong Financial Discipline

Maintaining a strong financial foundation has remained a key priority for the Company. During FY 2025-26, the Company continued to demonstrate prudent financial management by preserving adequate liquidity, maintaining healthy relationships with lending partners, and ensuring diversified access to funding sources.

The confidence reposed by banks, financial institutions, investors, and other stakeholders reflects the Companys strong governance standards, sound business model, and disciplined risk management practices. The Company remains focused on optimizing operational efficiency, maintaining cost discipline, and strengthening internal controls across all business functions.

Continuous monitoring of credit exposures, enhanced fraud prevention measures, and robust portfolio surveillance mechanisms have further strengthened the Companys financial resilience. These initiatives have enabled the Company to effectively navigate market uncertainties while supporting sustainable growth objectives.

Quality-Focused Credit Underwriting

The Company remains committed to maintaining the quality of its loan portfolio through a prudent and disciplined underwriting framework. Credit assessment processes are continuously refined using data analytics, technology tools, and risk-based evaluation models to ensure that lending decisions are aligned with the Companys risk appetite and long-term business objectives.

During FY 2025-26, the Company continued to focus on originating quality assets by strengthening customer selection criteria, enhancing verification processes, and leveraging advanced analytics to improve credit risk assessment. The

Companys emphasis on responsible lending practices has contributed to maintaining portfolio quality and managing credit costs effectively.

Regular portfolio reviews, proactive monitoring mechanisms, and timely corrective actions are expected to contain asset quality risks and support stable portfolio performance. The Company remains focused on balancing growth with prudent risk management while continuing to build a high-quality and resilient loan book capable of delivering sustainable returns over the long term.

Financial Performance of The Company Financials for the last 5 years at a glance

(Rs in Lakhs)

Financial year ended March 31	2022	2023	2024	2025	2026
Operating Results
Disbursements	1,14,710	1,31,828	1,43,842	2,64,209	2,34,375
Total Revenue	41,130	44,310	40,141	47,650	63,252
Profit Before Tax (PBT)	-21,571	10,880	16,434	6,040	1,562
Profit After Tax (OCI)	-16,183	7,793	12,249	4,631	1,236
Assets
Fixed Assets (including assets taken on lease)	196	213	602	976	1,319
Investments	2,740	4,554	10,734	11,211	12,928
Deferred tax asset	9,978	9,240	5,538	3,979	3,495
Net stock on hypothecation	1,50,561	1,51,656	1,67,477	2,92,208	3,25,951
Other loans (including interest accrued)	9,140	16,414	18,027	5,297	1,644
Other assets	37,237	805	29,038	44,604	60,224
Total Assets	2,09,852	1,82,882	2,31,417	3,58,276	4,05,561
Liabilities
Equity	1,645	1,645	1,645	1,645	1,645
Reserves and Surplus	39,488	47,281	59,530	64,161	65,397
Borrowings (including interest accrued)	1,62,468	1,89,127	1,66,009	2,85,257	3,31,274
Other liabilities	6,251	5,481	4,233	7,213	7,244
Total Liabilities	2,09,852	2,43,534	2,31,417	3,58,276	4,05,561
Key Indicators
Earnings Per Share (in Rs)	-98.46	47.84	74.58	27.81	6.79
Book Value Per Share (in Rs)	250.10	297.46	371.94	400.10	407.61
CRAR(%)	19.73	27.92	31.30	22.25	22.02
GNPA (%)	25.93	20.55	10.17	4.88	6.96
NNPA (%)	5.81	2.58	3.40	2.30	4.12

Financial Performance

The table below presents the Companys financial performance for FY 2025-26, highlighting key parameters such as income, expenditure and profitability.

	Year Ended (Rs in Lakhs)		% of
Financial Snapshot	March 31, 2026	March 31, 2025	Change
Disbursement (all Loans) [1]	2,34,374.77	2,64,209.00	-11.29%
AUM at the end of the period (own book) [2]	3,35,050.00	3,05,268.41	9.76%
Average AUM (own-book excluding interest accrued) [3]	3,21,408.65	2,46,882.94	30.19%
Total Debt [4]	3,31,383.95	2,85,323.23	16.14%
Net worth [5]	67,042.08	65,806.36	1.88%
Total Interest and Fee Income [6]	63,252.15	47,649.53	32.74%
Finance Expenses [7]	31,521.42	22,356.03	41.00%
Net Interest Income (NII) [8] =[6]-[7]	31,730.73	25,293.50	25.45%
Operating Expenses [9]	22,443.46	17,315.78	29.61%
Loan Loss & Provisions [10]	7,557.03	1,937.95	289.95%
Profit Before Exceptional Items And Tax [11]=[8]-[9]-[10]	1,730.24	6,039.77	-71.35%
Exceptional Items [12]	168.42	-	0.00%
Profit/(Loss) Before Tax [13]=[11]+[12]	1,561.82	6,039.77	-74.14%
Tax Expense [14]	444.49	1,465.17	-69.66%
Profit/(Loss) After Tax [15]=[13]-[14]	1,117.33	4,574.60	-75.58%
Ratios
Total OPEX to NII [16] = [9] / [8]	70.73%	68.46%
Loan loss to average AUM [17] = [10] / [3]	2.35%	0.78%
Return on average AUM [18] = [15] / [3]	0.35%	1.85%
Interest Coverage Ratio [19] = ([11]+[7]) / [7]	1.05	1.27
Current Ratio	0.96	1.07
Debt-Equity Ratio [20] = [4] / [5]	4.94	4.34
Operating Profit Margin/ Net Interest Margin on loan book [21] = [8]/ [3]	9.87%	10.25%
Net Profit Margin [22] = [15] / [6]	1.77%	9.60%
Return on (Average) Net worth	1.86	7.29%
Earnings Per Share (in Rs)	6.79	27.81

The Companys Assets under Management (AUM) comprises of vehicle loans, of which two-wheelers constitute 86%, Used Car is 5% and Used Commercial Vehicle & Construction Equipment is 7%. Overall, AUM as on March 31, 2026 is Rs 3,44,337 lakhs (including assigned loan of Rs 9,287 lakhs), as against Rs 3,05,535 lakhs (including assigned loan of Rs 266 lakhs) at the end of the previous year (FY 25). The disbursements for the year ending March 31, 2026 is Rs 2,34,375 lakhs as against Rs 2,64,209 lakhs for the year ended March 31, 2025.

- The companys self-sourced loan portfolio (loans generated directly by the company) has grown strongly, particularly in the two-wheeler loan and used car loan segments.

- Although total loan disbursements (new loans given out) have decreased, this is mainly because the company intentionally reduced its co-lending portfolio (loans provided jointly with lending partners). As a result, the companys own loan portfolio has increased.

- The company reported a significant increase in loan losses and provisions. The main reason is higher impairment expenses, which were recognized due to stress and repayment issues in the loan portfolio during the first half of the financial year. However, conditions improved in the second half of the year after the company implemented policy changes.

- Operating expenses (Opex) have increased because the company is investing in new business lines. These investments are expected to provide benefits over several years, and the costs will be spread out over time through amortization.

- The companys Return on Assets (ROA) has been negatively affected by the factors mentioned above, particularly the higher provisions and increased operating expenses. Management expects this performance indicator to improve in the coming quarters as the benefits of the policy changes and new business investments start to materialize.

Capital Adequacy Ratio (CRAR)

As on March 31, 2026, the CRAR is 22.02% of the aggregate risk weighted assets on the Balance Sheet, which is comfortably above the regulatory minimum of 15%. Of the CRAR, 21.87% is from Tier-1 Capital and Tier-2 is 0.15%.

a) Borrowing Profile (excluding interest accrued)

	March 31, 2026		March 31, 2025
Particulars	Amount (Rs in Lakhs)	% of Total	Amount (Rs in Lakhs)	% of Total
Bank	1,14,689.18	34.51%	1,03,418.14	36.20%
Financial Institution	1,400.00	0.42%	18,597.20	6.51%
Subordinated Debts	2,619.64	0.79%	142.24	0.05%
Non-Convertible/Market Linked Debentures	1,22,328.37	36.81%	98,675.00	34.54%
Public Deposit	7,900.65	2.38%	4,045.11	1.42%
Securitization	66,018.09	19.86%	38,951.83	13.64%
Commercial Paper	17,389.64	5.23%	21,831.77	7.64%
Other Borrowings	.00	0.00%	.00	0.00%
Total	3,32,345.57	100.00%	2,85,661.28	100.00%

The Companys total external borrowings (excluding interest accrued) have increased to Rs 3,32,346 lakhs as of March 31, 2026, from Rs 2,85,661 lakhs as of March 31, 2025, an increase of 14% to support the business and to ensure adequate liquidity.

The Companys borrowing mix as at March 31, 2026, reflects a marginal reduction in the proportion of bank borrowings and a significant decrease in its reliance on borrowings from financial institutions. During the year, the Company diversified its funding sources through the issuance of Non-Convertible Debentures (NCDs), including Green Bonds guaranteed by GuarantCo. As a deposit-taking NBFC, the Company also successfully mobilised a substantial volume of funds through public deposits during FY 2025-26. In addition, the Company raised subordinated debt to strengthen its Capital to Risk-Weighted Assets Ratio (CRAR). The share of Commercial Paper in the overall borrowing mix witnessed a marginal decline during the year, in line with the Companys strategy to further strengthen its Asset Liability Management (ALM) position and maintain a well-balanced liability profile.

b) Assets under Management

The own-book AUM as on March 31, 2026 stood at Rs 3,44,337 lakhs (i.e., Rs 3,35,050 lakhs less assigned portfolio of Rs 9,287 lakhs) against own-book AUM of Rs 3,05,535 lakhs (i.e., Rs 3,05,268 lakhs less assigned portfolio of Rs 266 lakhs) as on March 31, 2025.

Today, the Company has presence for auto loan financing in 22 States. The geographical distribution of hypothecation loans (including securitized portfolio) is as given below:

lRs in Lakhs) ^*

Zone	Active clients	Regular (Rs)	NPA (Rs)	% of NPA	Zone wise %
EAST	67,272	40,043.10	4077.86	9.24%	13.27%
NORTH	1,33,580	69,239.63	8707.43	11.17%	23.45%
SOUTH	1,98,881	1,11,887.94	6778.95	5.71%	35.69%
WEST	38,299	29,967.63	2174.2	6.76%	9.67%
*CO LENDING	1,54,998	59,588.54	0.00	0.00%	17.92%
Grand Total	5,93,030	3,10,726.84	21,738.44	6.54%	100.00%

*We have classified total exposure to Up money as substandard and therefore not forming part of our co lending portfolio.

MCSL is using 5,600+ branches of flagship Company of the Group, Muthoot FinCorp Limited, which enabled it to service its 5 lakh+ live customer base with ease along with 5,000+ dealer points in all states. The Company has further diversified its portfolio of vehicle financing and also moved to the used car space and commercial vehicle space, aside from exploring other channels of distribution and maintaining a nominal proportion of corporate loan book.

The disbursements of hypothecation auto loans, along with number of loans, over the last 5 years is given in the chart below:

c) Cost and Profitability Analysis

The Companys profitability during the year was supported by improved collection efficiency and healthy business growth. Finance costs remained elevated as the Company maintained additional borrowings to comply with sanction requirements, preserve adequate liquidity, and support business operations. While the average cost of borrowings moderated from 9.9% to 9.6%, overall finance expenses continued to be significant due to the higher borrowing levels. Operating expenses increased during the year, primarily driven by higher sourcing and collection-related expenses associated with business expansion. Employee benefit expenses also witnessed an increase on account of manpower additions and performance-linked incentives introduced to strengthen collections and operational efficiency. Further, impairment expenses increased during the year owing to stress witnessed in certain portfolio segments, resulting in higher credit loss provisions. Despite these challenges, the Companys asset quality remained stable, with Net NonPerforming Assets (NNPA) maintained at 2.31%, supported by improved collection performance and portfolio management initiatives.

d) Spread Analysis

The Company has been able to maintain its gross and net spread at reasonable levels:

(Rs in Lakhs, excluding interest accrued)

Particulars	March, 2026		March, 2025
Daily Average Loan Book Size (Rs in Lakhs, excluding interest accrued)	3 21 409		2 46 883
Income from Operations	632 52	19.7%	476 50	19.3%
Direct expense (including interest, brokerage, dealer/ MFL incentive, field investigation charges)	406 99	12.7%	287 21	11.6%
Gross Spread	225 53	7.0%	189 28	7.7%
Personnel Expenses	116 06	3.6%	95 11	3.9%
OPEX (including depreciation etc.)	16 59	0.5%	14 40	0.6%
Total Expenses	132 65	4.1%	109 51	4.4%
Pre-Provision Profits	92 87	2.9%	79 78	3.2%
Loan Loss and provisions	75 57	2.4%	19 38	0.8%
Net Spread (before tax)	17 30	0.5%	60 40	2.4%

e) Opportunities & Threats

The overall economic recovery presents a notable chance to capitalize on the growth experienced by the Company in FY 26. We believe that demand for two-wheelers is poised to increase shortly, thus making way for financing companies. With diversified new products, the Company aims to build on its existing customer base while taking advantage of its MUTHOOT PAPPACHAN or MUTHOOT BLUE brand and dealer relationships. RBIs outlook of keeping an accommodative stance with regards to economic stimulation is likely to have a positive result on NBFCs growth prospects. There is immense potential for market expansion as NBFCs are often seen as single-stop financiers provided they have sufficient funds.

Nevertheless, there are a few risks including weaker financial status, tighter regulation due to incidents of mismanagement and liquidity crisis at certain times which can hinder their progress. Moreover, Banks and other NBFCs offer stiff competition to this industry with diminishing entry barriers offering customers more options. Nevertheless, the Company manages to differentiate itself through customer services, digitization, and product features and strives to maintain this throughout.

Risks & Concerns

a) Credit Risk:

Credit risk is basically the risk of loss due to the failure of a borrower/counterpart to meet the contractual obligation of repaying his debt. The risk could be on account of some erroneous sourcing done by the Company or because the customer might be facing some issues which do not permit him to make the repayment even if he wanted to.

Measures:

Before sanctioning loans, the Company performs a thorough background check of the potential customers, to avoid any chances of fraud and default. The checks include field investigation, credit checks and tele-verification. Implementation of multistep Customer verification, Hygiene Dashboard, Early Warning System, PD-LGD Models, Portfolio management etc. can be measures to mitigate credit risk.

b) Operational Risk:

Operational risks are those which arise as a result of incompetent or failed internal processes, people and systems or from external events.

Measures:

The constant skill development and training programs form the core of the employees training programmes. In line with the Companys objective to automate the processes thereby minimizing errors and strengthening the due- diligence mechanisms, the Company undertakes digitalization initiatives at par with best of industry standards. The Company has CRMC, ORMC, OVRMC, PPAC committees to have checks on policies and to correct loopholes.

Document Movement, Storage and Retrieval, Non-Compliance Reporting Policy, Internal audits, Technology Infrastructure etc. are other measures to control operational risk.

c) Compliance Risk:

Risk potential on account of changes in laws, regulations or interpretations that cause business losses.

Measures:

Compliance Risk mitigation is the process of developing and implementing controls such as standards, policies, procedures and guidelines to prevent or minimize compliance risks. The Companys operations would be affected by any changes in the regulatory environment. The process of mitigation includes Circulation of compliance checklist, Audit committee and Board reviews on status of compliance, proactively monitoring and identifying new and changes in relevant laws, regulations, circulars, notifications, etc. reviewing of compliance policies, resolution of conflicts between policies and statutory enactments and/or regulations from time to time.

d) Reputation Risk:

Reputation Risk is the risk to earnings and capital arising from adverse perception of the image of the company, on the part of customers, counterparties, shareholders, investors and regulators.

Measures:

Strict adherence to the Fair Practice Code, a well-defined Grievance Redressal Mechanism, good customer connects, and Delinquency Management helps to mitigate the reputational risk.

e) Strategic Risk:

Strategic Risk is the risk to earnings and capital arising from lack of responsiveness to changes in the business environment and/or adverse business decisions, besides adoption of wrong strategies and choices.

Measures:

Major Factors which cover in monitoring strategic risk are the changes in its competitive environment, Regulatory environment, Technology changes, Product profiling, Business planning and Strategic Planning. The factors mentioned above include how well the company is adapting to new technology, pace of product diversification, pace of adapting to regulatory changes, resilience to competitors changes, smooth budget allocation, governance, and involvement of the Board.

f) Liquidity Risk:

Liquidity Risk arises largely due to maturity mismatch associated with assets and liabilities of the Company. Liquidity risk stems from the inability of the Company to fund increase in assets, manage unplanned changes in funding sources and meet financial commitments when required.

Measures:

A well-defined contingency funding plan, maintaining a portfolio of high-quality liquid assets, employing rigorous cash flow forecasting, and ensuring diversified funding sources to mitigate liquidity risk

g) Capital and Leverage Risk:

A high degree of leverage can severely impact the liquidity profile of the Company and lead to default in meeting its liabilities. Compliance of covenants of lenders and any operational delays in repayment of loans may have an impact in the liquidity of the company.

Measures:

Strict adherence to sanction terms, prompt repayment of loans and monitoring of leverage ratio regularly mitigate the chances of capital and leverage risk.

h) Information Technology Risk:

IT risks include hardware and software failure, human error, spam, cyber security risk, viruses and malicious attacks, as well as natural disasters such as fires, cyclones or floods.

Measures:

A comprehensive risk assessment of IT systems is done on a half-yearly basis. The assessment makes an analysis of the threats and vulnerabilities to the information technology assets and their existing security controls and processes. The outcome of the exercise is done to find out the risks present and to determine the appropriate level of controls necessary for appropriate mitigation of risks. To counter the risks related to information technology, the Company is contemplating a major revamp of its Technology platform. Various IT policies are adhered to.

i) Securitization and Off-Balance sheet Risk

Securitization represents an alternative and diversified source of finance based on the transfer of credit risk (and possibly also interest rate and currency risk) from issuers to investors. Off-balance sheet Risk is a risk related to the excessive growth rate in contingencies.

Measures:

Thorough monitoring of Securitization and off-balance sheet portfolio mitigate the Securitization and Off-Balance sheet Risk to an extent possible.

j) Other Risks

Climate change risk, Political risk, Environment, Social and Governance Risk, Vendor Management Risk etc. are few other risks which affect a financial institution.

Measures:

Various risk assessments and stress testing forecast the effect that may occur during such adverse conditions, hence proper planning and implementation mitigate such risks to an extent.

Corporate Governance

The Company is committed to upholding the highest standards of corporate governance and believes that sound governance practices are fundamental to creating sustainable value for all stakeholders. As a responsible Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India (RBI), the Company has established a robust governance framework that promotes transparency, accountability, fairness, integrity, and ethical business conduct across all levels of the organization.

The Companys governance structure is guided by a competent and diverse Board of Directors comprising Executive and Independent Directors who bring extensive experience, expertise, and independent judgment to the decision-making process. The Board provides strategic direction and oversight while ensuring that the Companys affairs are conducted in a prudent and responsible manner. To facilitate effective governance and focused oversight, the Board is supported by various committees, including the Audit Committee, Risk Management Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, and other statutory committees, each operating within clearly defined terms of reference.

In compliance with the provisions of the Companies Act, 2013, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the Reserve Bank of Indias Scale Based Regulatory Framework, the Company has adopted comprehensive policies, procedures, and internal control mechanisms to ensure effective risk management, regulatory compliance, and operational efficiency. Regular Board and Committee evaluations, a strong internal audit framework, and periodic review mechanisms further reinforce the Companys governance standards.

The Company maintains a strong ethical culture through the implementation of its Code of Conduct, Whistle Blower Policy, Related Party Transactions Policy, and other governance policies designed to promote responsible business practices. These frameworks encourage transparency, ethical decision-making, accountability, and the reporting of concerns without fear of retaliation.

Corporate governance at the Company extends beyond regulatory compliance and is deeply embedded in its organizational culture. Through its unwavering commitment to responsible governance, the Company continues to strengthen stakeholder confidence, safeguard long-term interests, and create a sustainable foundation for future growth and value creation.

Investment Proposition

The organization is heading towards long-term sustainability prioritizing customer satisfaction and value addition for the stakeholders. Given the unhindered availability of inputs, the two-wheeler segment appears to be poised significant growth, despite an abysmally low performance this year.

The southern states still appear to possess enough space for market penetration. The Company is planning strategies to expand its presence across the country in a robust manner. The Groups Flagship Company, Muthoot Fincorp with its expanding infrastructure, is expected to lead to lower entry costs for the Company in new locations. The large network of branches of Muthoot Fincorp will aid in expanding rapidly with minimal operational costs. Ultimately, the decision will reap multiple benefits in medium to long-term basis.

The used four-wheeler segment is very different from the two-wheeler. In the used four-wheeler segment, the Company has been in operation in 20 centers and looks forward to increasing its penetration along with the 2W segment. With proper channels, better distribution networks and efficient teams in place, this segment would lead to higher growth and profitability in the longer term. Our digital technology and analytics would ensure quicker processing of accurate data to confirm the correctness in the sourcing and speedy completion of disbursement. This would ensure that the operational costs would be kept minimal.

The Company has diverse options for funding purposes and the confidence of the investors / lenders remains untethered. We are eager to build new partnerships with the lenders and preserve their trust under all circumstances. Raising funds at reasonable rates will not be a challenge, thanks to the Governments stimulus packages and RBI initiatives. The skilled workforce and proper sourcing and collection infrastructure will only improve our chances of growth and make our goals achievable.

Internal Control Systems & Adequacy

Secure and effective internal control helps in eliminating the risk of asset loss, protecting sensitive information, verifying the accuracy of important data within the stipulated time and conducting operations in a legal manner.

The Company has an in-house internal audit team which handles verification of all financial transactions / operations / security on a constant basis while ensuring accuracy of data and compliance with the regulations. The internal audit team conducts periodic Risk based audits of all processes and provide an independent assurance to the audit committee. In addition to this, regular transactions are verified by a concurrent audit team which is a separate in-house team actively works with the finance department. Any weaknesses in the system, non-compliance with the regulations and any suggestions for improved performance are reported by the Internal Auditors.

Statutory auditors review the Internal Audit Report while conducting audit functions to verify that there are no transactions which fall out of the regulatory stipulations, and which are against the interests of the Company. The Audit Committee reviews the Internal Audit Report and the quarterly Compliance Report and they also ensure that the observations in the report were addressed within the right time and manner by the Management.

The internal audit team is responsible for ensuring that overall internal controls are in place and adequately working. Inhouse team consolidates all open audit points and tracks with stakeholders till completion. To maintain its objectivity, effectiveness and independence, internal audit is being carried out on a quarterly basis and reports thereon, along with the remarks of the process owners on each of the observations of audit are placed before the Audit Committee of the Board. The Audit Committee reviews each of the Internal Audit reports as a separate agenda item along with the Internal/ Statutory Auditors wherein the Committee gives its advice/suggestions on the audit points. Based on the report of the internal audit as well as the observations of the Audit Committee, the process owners in the Company undertake requisite corrective action in their respective areas thereby further strengthening the control systems.The Audit Committee also reviews an Action Taken Report (ATR) which lists the points requiring correction and the relevant action needed.

Material Developments in Human Resource

The People & Culture function is one of the Companys most valuable assets, playing a pivotal role in shaping, strengthening, and evolving the organizational culture. A strong human capital foundation is essential for sustainable business success, and the Company remains committed to fostering a high-performance work environment that aligns employee aspirations with organizational objectives. Guided by experienced professionals, the People & Culture team continues to drive initiatives that enhance employee engagement, capability building, and overall workforce effectiveness.

Recognizing that employee productivity and engagement are key contributors to organizational growth and profitability, the Company has continued to invest in its workforce. During the year, the employee strength increased from 2,318 employees in FY 2024-25 to 2,442 employees in FY 2025-26, reflecting the Companys growth trajectory and expanding operational requirements. At the same time, the Company successfully maintained its cost-efficient manpower strategy while leveraging professional partnerships through variable-cost models to enhance operational flexibility and efficiency.

The Company remains focused on building employee capabilities through continuous learning and development initiatives. Various skill enhancement and upskilling programmes were conducted during the year to enable employees to realize their full potential and contribute effectively to the Companys objectives. Understanding that workforce motivation and competence are critical drivers of productivity, the Company continued its efforts to create a positive, engaging, and growth-oriented work environment across all its locations.

In line with its digital transformation agenda, the Company further strengthened its human resource processes through automation. During the year, key HR functions including Payroll Management, Full & Final Settlement (F&F) processes, and the Performance Management System (PMS) were automated, resulting in improved efficiency, accuracy, transparency, and employee experience.

The Company offers competitive compensation and incentive structures aligned with industry standards to appropriately recognize and reward employee contributions. In addition to providing attractive career opportunities, the Company remains committed to nurturing talent through learning, development, and internal growth opportunities. By recognizing achievements and fostering a culture of meritocracy, the Company continues to build a motivated workforce capable of driving long-term organizational success.

Employee Engagement

The Company remains steadfast in its commitment to fostering a positive, inclusive, and engaging workplace that empowers employees to achieve their full potential. We continue to invest in initiatives aimed at enhancing employee skills, encouraging collaboration, and strengthening team cohesion. By creating an environment where individuals feel valued, motivated, and recognized for their contributions, the Company strives to nurture a culture of excellence and continuous improvement.

The Company has consistently upheld its position as an equal opportunity employer, promoting diversity, equity, and inclusion across all levels of the organization. During the year, diversity at the Head of Department (HOD) level improved significantly from 35% to 44%, reflecting the sustained focus on building a more representative leadership team. Further, employee attrition reduced from 35% to 30%, demonstrating the effectiveness of the people-centric policies, enhanced employee experience, and ongoing efforts to create a supportive and rewarding work environment.

Cautionary Statement

Certain statements contained in this Annual Report may constitute "forward-looking statements" within the meaning of applicable laws and regulations. These statements are based on the Companys current expectations, estimates, assumptions, and projections regarding future events and are subject to a variety of risks and uncertainties.

Actual results, performance, or achievements may differ materially from those expressed or implied in such forwardlooking statements due to various factors, including, but not limited to, changes in economic conditions, industry trends, government regulations, taxation policies, political developments, market dynamics, labour relations, foreign exchange fluctuations, interest rate movements, competitive pressures, and other risks and uncertainties, whether domestic or global in nature.

Readers are advised to read these statements in conjunction with the financial statements and the notes thereto included in this Annual Report. The Company undertakes no obligation to publicly update, amend, revise, or otherwise clarify any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required under applicable laws and regulations.