ANNEXURE - ‘B TO BOARDS REPORT - ITEM NO. 20
INDUSTRY STRUCTURE AND DEVELOPMENT
Non-Banking Financial Company (NBFC)
During economic crises, financial institutions play a crucial role in promoting
stability and implementing regulatory measures to support households and businesses.
Ongoing geopolitical conflicts have slowed countries post-pandemic recoveries and
hastened the normalization of monetary and fiscal policies after years of unprecedented
stimulus measures. In such situations, NBFCs have emerged as principal institutions
providing credit financing to the unorganized and underserved sectors, playing a
significant role in the Indian financial system.
NBFCs have revolutionized the lending system in India by providing financial inclusion
for those who lack easy access to credit. Leveraging digitalization and technology, NBFCs
offer a quick and convenient customer financing experience, especially for low-income and
untapped segments of the creditworthy population. They offer a range of services,
including MSME financing, home finance, EV finance, microfinance, gold loans, and other
retail segments. The NBFC segment has also strengthened its business proposition by
integrating fintech and developing newer products of the technological age. These
companies have unlocked industrial opportunities by leveraging a hybrid model of physical
and digital delivery. The Government is also focusing on developing NBFCs with high
emphasis on driving quality corporate governance across these entities.
NBFCs take an individualized approach to reach out to borrowers, utilizing
segment-definitive standards, leveraging different data sources, and making credit
decisions using scorecards. Following sluggish years amid liquidity stress, NBFCs have
bounced back strongly with higher capital levels, reasonable stability in delinquency
accounts, better asset quality and larger balance sheets. Stronger risk assessment
frameworks, Government support such as debt moratorium and liquidity enhancement measures,
and broader economic revival have helped them tide through these challenges and pursue
innovative strategies to meet evolving opportunities.
The MSME sector will play a pivotal role in the growth of NBFCs in the country. Despite
being one of the major contributors in the countrys economy, the MSME sector is facing
credit gap from the financial institutions. The total addressable market for MSME
financing is Rs. 46.4 Trillion with a CAGR of 13% in the MSME credit. Only 15% of total
addressable market is served by the formal institutions. NBFCs, under this scenario, can
utilize the opportunity and help in the growth of the sector with better financing through
customized products and digital solutions.
The rationalization and consolidation of the MSME industry in India is a much-needed
process that is expected to bring a host of benefits to the sector. The RBIs efforts to
strengthen the digital ecosystem in India are a critical part of this transition. The
Account Aggregator network, for instance, is expected to unlock significant value by
providing a secure and efficient platform for sharing financial data. This will make it
easier for MSMEs to access credit, and for lenders to assess creditworthiness. Similarly,
the OCEN network is expected to revolutionize the way credit flows in the economy by
providing a seamless platform for all stakeholders. Overall, the convergence of digital
technologies and the consolidation of the MSME industry in India are expected to create a
powerful combination that could unlock significant economic potential. The RBI has
implemented the co-lending mechanism to facilitate the provision of low-cost funds from
banks to NBFCs operating in underserved areas and catering to the needs of micro, small,
and medium enterprises (MSMEs), economically weaker sections (EWS), low-income groups
(LIG), and middle-income groups (MIG). This mechanism aims to address the reluctance of
banks to lend in these segments due to the associated higher operating costs and credit
risks.
According to the Reserve Bank of India (RBI) data, as of December 2022, outstanding
bank credit to NBFCs has significantly increased from Rs. 3.68 Trillion in 2017 to Rs.
13.20 Trillion, non-bank lenders surpassed banks in the micro lending category, with
NBFC-microfinance institutions (NBFC-MFIs) accounting for 35.1% of outstanding loans
compared to 34.8% for banks.
The steady momentum of NBFCs is heavily backed by robust demand for personal loans
which they need for their growth and working capital. According to ICRA Analysis, NBFCs
are expected to witness 8-10% growth in assets under management in FY 2022-23 compared to
5-7% growth in FY 2021-22. NBFCs are expected to play a crucial role in financing Indias
transition from the worlds fifth-largest to the third-largest economy by the end of this
decade.
Gold loan
Gold has always held a significant cultural and economic value in India, with Indians
accounting for the majority of gold consumption globally. Indian households own a vast
amount of gold 27,000 tons accounting for 14% of the global gold market. Gold has become a
popular instrument for borrowers to manage their working capital needs, with only 20% of
the total gold account being pledged till now. The market is yet to evolve to its full
potential and it witnessed an 8% CAGR growth over the last decade.
Indians typically do not sell but pledge their gold jewellery to lenders to obtain a
short-term loan. Gold continues to remain one of the most secure and flexible mediums to
meet short-term cash emergencies. The popularity of gold loans is high in Indian rural
areas, with unorganized players holding 65% of the total pledged chunk in the country.
However, organized players such as banks and NBFCs are constantly expediting their
processes to penetrate this sector, driven by the lower interest rate charged by organized
players, quick disbursement, and the perceived safety of the instrument.
India has a total gold loan market of Rs. 12.3 Trillion out of which 35% share is of
organized players (Source: Role of NBFCs and HFCs in driving sustainable GDP growth,
KPMG, November 2022).
The market is anticipated to grow by 12-14% in FY 2022-23. While banks have a larger
share in the organized gold loan sector due to lower interest rates and larger ticket
sizes, NBFCs play differently in this context with a greater focus on customer
convenience, quick disbursement, and flexibility. In FY 2020-21, NBFCs retained a 23%
stake in the Indian gold finance sector, with the total NBFC gold loan AUM increasing by
an astounding 44%, surpassing Rs. 4.7 Trillion. This demand was fuelled by a 30% YoY
uptick in gold prices in FY 2020-21.
The gold industry contributes 1.3% to Indian GDP. Further, the gold loan NBFCs are
expected to maintain their outstanding performance due to increasing digitization, a wider
physical branch network, minimum documentation, faster turnaround time, and increased
demand following the COVID-19 pandemic. (Source:
Gold Financing Sector Outlook, Sep21)
https://www.newindianexpress.com/business/2022/sep/29/financingremains-crucial-challenge-for-gold-je
wellery-industry-report-2503110.html (Source: Systematix Gold Finance Sector Report Nov.
22, BCG Analysis, CRISIL NBFC Report 2021)
Outlook
Gold is a popular asset class that offers security to borrowers in times of financial
need. This has contributed to the steady demand for gold as a source of financing.
Additionally, the gold loan sector is transforming, shifting from unorganized to organized
and from organized to digital means. This shift is expected to support the increased
demand for gold financing in the future. Specialized gold loan NBFCs are expected to play
a major role in driving AUM growth due to their focused approach and new technology
initiatives that enable customers to transact online with ease.
(Source: Gold.org, IBEF, CRISIL NBFC Report 2021, BCG analysis)
COMPANY OVERVIEW
Nalin Lease Finance Limited (‘our Company or ‘NLFL ‘We), is a
prominent and well-respected financial services institution in Gujarat. Founded in 1990
and registered as Non-Banking Finance Company (NBFC) regulated by the Reserve Bank of
India (RBI), we consistently innovated and reinvented ourselves to meet the evolving needs
of the financial services industry. Our Company offers a diverse range of financial
services, including Gold Loan, Vehicle Loan and Other Business loans.
We serve over 2,500 customers across Sabarkantha Jurisdiction of Gujarat. The Companys
operations are built on the foundation of a highly experienced management team, efficient
liability management and Honesty and transparency are core values of our Company, as we
aim to keep our loan products simple, ensure transparency and demonstrate unwavering
commitment to our customers. Our management team is committed to fostering a growth
culture, entrepreneurship, and innovation.
Two-Wheeler Loans
NLFL offers two-wheeler loans to farmers, self-employed, businessmen, professionals,
and salaried customers. The ticket size of these loans ranges from Rs. 50,000/- to Rs.
70,000/-.
CREDIT AND RISK MANAGEMENT
NLFL acknowledges that risk management is a crucial aspect of its operations. The
Company recognises that risks can originate from both internal and external sources, and
has instituted various measures to identify, evaluate, and mitigate these risks.
NLFL defines its risk appetite, functional policies, and key risk indicators to
explicitly determine the level and nature of risk that it is willing to take. The
Companys risk management structure proactively identifies and addresses risks through
risk assessment, a risk catalogue, a risk appetite framework, risk planning, risk culture,
internal controls, and good governance.
To mitigate credit risk, NLFL has developed customised credit analysis procedures for
each product based on customer nature, loan purpose, and loan amount. Additionally, NLFL
maintains sufficient spreads, offers relatively short tenure loans, and resets lending
rates periodically to mitigate the risk of interest rate volatility.
OPPORTUNITIES & THREATS
NLFL constantly monitors the external environments and internal situation so that it is
aware of the opportunities and threats that emerge. This enables the Company to tap into
the positive prospects that come its way while overcoming or bypassing the challenge of
threats.
Opportunities
Diverse loan book and pan-India presence to accelerate growth
Unique Business Model helps to minimise risk and operating cost Adequate capitalisation
to support medium-term growth plans
Operates in underpenetrated business segment with huge growth potential
Successful track record of catering to the MSME sector Initiatives by the Government to
further boost MSME sector
Threats
Unpredictable policy changes by the Government
Increasing competition from local and global players
Higher exposure to semi-formal and informal sector customers
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
NLFL has adequate internal controls and standardised operating processes that are
envisaged to protect assets and business efficiency. The Company has established strong
and well-entrenched internal control procedures commensurate with its size and operations
and relevant to its broad domain of the lending business.
Human Resources
Human Resources (HR) play a crucial role in developing, reinforcing, and enhancing the
culture of an organization. A strong management team at our Company has helped in building
a transparent, meritorious, and performance-driven culture in the organization. The
Company prioritises providing a supportive work environment that fosters employee
satisfaction and motivation to achieve both personal and professional goals.
The Company attaches utmost priority to human resource development with focus on
regular upgradations of the knowledge and skills of all employees and equipping them with
the necessary expertise to meet the challenges of change and growth successfully.
The company continuously monitors its manpower requirement to ensure that it has
adequate human skills commensurate with its needs. Industrial relations of the Company
continue to be cordial.
As on March 31, 2023, the employee strength of the Company stood at 18.
KEY FINANCIAL RATIOS
The Key Analytical Ratios along with detailed explanations are as follows:
Ratio |
Current year |
Previous year |
| Debt Equity Ratio |
0.10 |
0.06 |
| Capital to risk-weighted assets ratio (CRAR) |
1.24 |
1.34 |
| (times) |
|
|
| Tier I CRAR (times) |
1.24 |
1.34 |
| Tier II CRAR* |
NA |
NA |
| Liquidity Coverage Ratio (%) ** |
334.35% |
272.03% |
Variance in Liquidity Coverage Ratio (%) ** is more than 25% due to reason that in the
current year company has obtained additional overdraft facility from financial
institution.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFOR-MANCE AND
OUTLOOK
Sales & Other income for the year ended 31st March, 2023 were Rs.
5,94,64,677/- as compared to Rs. 5,67,76,649/- on 31st March, 2022. The net
profit stood at Rs. 2,99,25,592/- (previous year Rs. 2,60,04,837/-).
Most sectors of the economy are experiencing growth and expansion, which necessitates
financing. NBFCs are projected to register steady growth due to robust credit demand
throughout the country. These NBFCs are leveraging successful co-lending partnerships,
customer service expertise, and digital capabilities to meet the demand for financing.
Moreover, the NBFCs Assets Under Management (AUM) growth and collection efficiency have
already surpassed pre-pandemic levels, while asset quality is expected to register further
improvement in the next fiscal year.
NLFL is well-positioned to take advantage of upcoming opportunities and overcome
challenges by leveraging our digital infrastructure, healthy balance sheet, and
growth-oriented mindset.
The Company intends to prioritise asset quality and profitability to enhance
shareholder value. The Company also prioritises operational excellence and is committed to
learning and improving efficiency in all areas of operation.
DISCLOSURE OF ACCOUNTING TREATMENT
The Company recognises interest income using Effective Interest Rate (EIR) on all
financial assets subsequently measured at amortised cost or fair value through other
comprehensive income (FVOCI).
This practice in managements view ensures true and fair financial position of the
Company.
The Company recognises revenue from contracts with customers (other than financial
assets to which Ind AS
109 ‘Financial Instruments is applicable) based on a comprehensive assessment
model as set out in Ind AS 115 ‘Revenue from contracts with customers.
CAUTIONARY STATEMENT
Statements in this report on describing the Companys objectives, expectations or
predictions may be forward looking statements within the meaning of applicable security
laws or regulations. These statements are based on certain assumptions and expectations of
future events. Actual results could, however, differ materially from those expressed or
implied.
The Company assumes no responsibility in respect of forward-looking statements herein
which may undergo changes in future on the basis of subsequent developments, information
or events.
For and on behalf of the Board of Directors
Harsh Dilipkumar Gandhi |
Dilipkumar Nalinkant Gandhi |
Wholetime Director |
Managing Director |
DIN: 03120638 |
DIN: 00339595 |
Place: Himatnagar |
|
Date: 14-08-2023 |
|
+91-9892691696
