Northern ARC Capital Ltd Management Discussions

<dhhead>Management Discussion & Analysis</dhhead>

Annual Report 2024-25

Statutory Reports

4.1 Market Overview

4.1.1 Economic Outlook

India is currently the fourth-largest economy in the world,
behind the US, China, and Germany, with a real GDP of INR
188 trillion and a strong growth rate of 6.5%. By FY 2029-30
projections indicate that Indias GDP will reach INR 235
trillion, sustaining a consistent growth rate of 6.0%-7.0%.

Key Drivers of Growth:

1. Demographic Dividend: India enjoys a significant
demographic advantage compared to other major global
economies. With a median age of just 28 years, Indias
population is significantly younger than the US the
UK, China, Russia, and Brazil. This youthful population
offers a strong workforce and also fuels long-term
consumption, innovation, and entrepreneurship.

2. Rising Urbanisation: Urbanisation is one of Indias
most important economic growth drivers. It is expected
to drive substantial investments in infrastructure
development, which in turn is expected to create jobs,
develop modern consumer services, and increase the
ability to mobilise savings. Indias urban population
has been rising consistently over the decades. As per
the 2018 revision of World Urbanisation Prospects,
the urban population was estimated at 36.0% of
Indias total population in 2023. According to the
World Urbanisation Prospects, the percentage of the
population residing in urban areas in India is expected
to increase to 40.1% by 2030.

3. Declining Unemployment Rate: Indias unemployment
rate has steadily declined over the past decade. As of
2024, it stood at 3.2%, down significantly from 8.3%
in 2010. This trend reflects growing job creation across
various sectors and an improvement in economic
participation among the working-age population.

4. Increasing Per Capita GDP: In FY 2024-25, Indias
per capita GDP is estimated to reach INR 1,33,500 from
INR 1,25,500 IN FY 2023-24, a YoY growth of 5.5%.
The upward trend in Indias GDP per capita indicates a
gradual increase in average income levels. As this trend
continues, a larger portion of the population, particularly
in the emerging middle class, is meeting and exceeding
the income threshold needed for necessities such as
food, shelter and essential services. This growing trend
is expected to lead to increased savings accumulation,
which will contribute to the deepening of the financial
sector and foster long-term economic stability.

5. Credit Penetration is Lower in India: In terms of the
credit to GDP ratio, India has a low credit penetration
compared with other developing countries, such as
China, indicating the potential that can be tapped.
Similarly, in terms of credit to households as a proportion
of GDP, India lags other markets, with retail credit
hovering at around 25.0% of GDP as of FY 2024-25.

6. Innovative India tech stack initiatives: Programmes
such as the Goods and Services Tax (GST), Open
Network for Digital Commerce (ONDC), Unified
Payments Interface (UPI), and Open Credit Enablement
Network (OCEN) are revolutionising Indias economic
landscape. These initiatives are improving connectivity
between businesses and consumers, streamlining
financial transactions, and unlocking new drivers of
economic growth.

4.1.2 NBFC Industry Outlook:

According to the CRISIL report published on 28 June 2025, the
NBFC sector has emerged as a key driver of financial inclusion
and credit growth in India, consistently outperforming GDP
growth. Between FY 2018-19 and FY 2024-25, NBFC credit
grew at a CAGR of 13.2% and is projected to grow further at
15.0%-17.0% CAGR, reaching INR 77 trillion by FY 2027-
28, outpacing the expected overall systematic credit growth
of 13.0%-15.0%.

Retail AUM is expected to lead this growth, rising 14.0%-
16.0% annually to reach INR 128 trillion by FY 2027-28.

Macroeconomic tailwinds are also supporting this outlook.
The RBI has already cut the repo rate from 6.5% in December
2024 to 5.5% in June 2025, creating a more favourable
borrowing environment.

Key growth drivers include:

1. Focus on underserved segments - Continues to
expand into rural, semi-urban, and MSME markets.

2. Deeper market penetration - Scaling outreach within
existing geographies.

3. Faster turnaround - Agile origination, underwriting,
and disbursals.

4. Tech-led efficiency - Use of AI, automation, and digital
tools to streamline processes.

5. Customer-first innovation - Customised products
aligned with borrower needs.

While the long-term outlook remains positive, the industry is
currently navigating a few key challenges that could impact
short-term momentum:

1. Rising household indebtedness: Growing concerns
over leverage and potential asset quality, especially
in microfinance and unsecured loan segments, are
prompting more cautious growth strategies.

2. Tightening regulatory landscape: Evolving

regulatory norms are increasing compliance
burdens, demanding greater agility and operational
sophistication from NBFCs.

3. Funding constraints: Access to diversified funding
sources remains a critical challenge. The recent decline
in bank lending to NBFCs highlights the need for
sustainable and diverse funding channels, which vary
significantly across players.

4.1.3 MSME Credit Landscape and Growth Opportunities

Indias MSME sector presents a significant lending
opportunity, with a credit gap of INR 117 trillion against
a total demand of INR 159 trillion - only INR 42 trillion is
currently served through formal channels. Despite this
gap, MSME credit has witnessed strong growth in recent
years, expanding at a 16.0% CAGR to reach INR 42 trillion
in FY 2024-25.

Secured MSME loans grew from INR 4.9 trillion in FY 2018-
19 to INR 12.8 trillion in FY 2024-25 (16.0% CAGR), and are
expected to reach INR 21.5 trillion by FY 2027-28 (19.0%
CAGR). A rising share of loans with Average Ticket Sizes
(ATS) below INR 25 lakh indicates deeper financial inclusion.

Unsecured MSME loans have also grown significantly,
expanding from INR 3.3 trillion in FY 2018-19 to INR 9.7
trillion in FY 2024-25 (20.0% CAGR). This segment is
expected to accelerate further to INR 16.9 trillion by FY 2027-
28 at a projected CAGR of 20.0%.

Unsecured business loans with ticket sizes below INR 50
lakh have grown at a CAGR of 25.7% from INR 0.3 trillion in
FY 2018-19 to INR 1.3 trillion in FY 2024-25. This segment
is estimated to surpass INR 2 trillion in FY 2027-28, with a
projected growth rate of 21.0%.

Key Growth Drivers

1. Data-driven lending: The adoption of digital

infrastructure, GST data, and alternative credit scoring
models is enhancing transparency and improving
risk assessment.

2. Reduced turnaround times: Fintech-NBFC

collaborations are enabling quicker loan approvals
through tech-enabled underwriting.

3. Wider lending networks: Expansion in physical
branches and digital platforms is improving credit
access across geographies.

4. Competitive ecosystem: The entry of new fintechs, co-
lending arrangements and innovative financing models
is intensifying innovation and outreach.

5. Policy and government support: Measures such as
revised MSME definitions, regulatory simplification are
boosting growth.

6. Expanded credit guarantee coverage: Broader
inclusion of NBFCs under guarantee schemes such
as CGTMSE is mitigating lender risk and facilitating
stronger credit flows.

4.1.4 Consumer finance

Indias consumer finance market—including consumer
durable, personal loans, and gold loans—currently stands
at INR 27.8 trillion, having grown at a 6-year CAGR of
26.0%. It is projected to reach INR 48 trillion by FY 2027-
28, representing a robust ~20.0% CAGR and offering a
substantial lending opportunity.

1. Personal loans: Outstanding personal loans grew from
INR 4.2 trillion in FY 2018-19 to INR 14.6 trillion in FY
2024-25, registering a CAGR of ~22.9%. This expansion
has been fuelled by the rise of fintech lenders, growing
presence in Tier 1 and beyond, and a broader shift to a
consumption-led economy. The market is projected to
reach INR 24-25 trillion by FY 2027-28.

Banks continue to dominate Tier 1 markets with
salaried borrowers, while NBFCs increasingly focus
on smaller-ticket loans in Tier 2 and below. The share
of NBFCs in outstanding personal loans has increased
from 16.0% in FY 2018-19 to 24.0% in FY 2024-25.

However, the segment faces heightened asset
quality risks due to its unsecured nature, borrower
overleveraging and rising NPAs—especially for non-
bank lenders. While demand remains strong due to easy
access and product innovation, prudent underwriting
is essential to manage repayment risk and prevent
credit deterioration.

2. Consumer durable finance: The consumer durables
loan book grew by a CAGR of 16.6%, rising from
INR 0.3 trillion in FY 2018-19 to INR 0.83 trillion in
FY 2024-25. This growth was supported by strong
consumer demand, rising aspirational spending, and
deeper financing penetration, particularly during
festive seasons.

NBFCs account for the majority share in this segment,
contributing 68.0% of outstanding consumer durable
loans in FY 2024-25. The market is projected to grow
at a CAGR of 18.0%-21.0% between FY 2024-25 and FY
2027-27, reaching INR 1.45 trillion.

3. Gold loans: The gold loan segment continues to be
dominated by unorganised lenders, creating significant
opportunity for formal players to capture market share.
Gold loans, typically small-ticket and short-term, are
disbursed instantly via branch-led models and are
widely used by both households and micro-businesses.

Demand is expected to rise, driven by increasing
awareness, borrower confidence and expansion beyond
southern India. The market stood at INR 12.4 trillion in
FY 2024-25, reflecting a CAGR of 32.7% from FY 2018-
19. The gold loan book is projected to grow at a CAGR
of 18.0%-20.0% between FY 2023-24 and FY 2027-
28, driven by formalisation, product innovation and
economic revival.

4.1.5 Rural Finance

The rural finance sector faced significant headwinds in
FY 2024-25, driven by borrower overleveraging, socio-
political disruptions, regional delinquencies, and operational
challenges. Despite these pressures, the overall MFI industry
grew at a CAGR of 12.0% from FY 2018-19 to FY 2024-25,
reaching a total portfolio of INR 3.8 trillion, with NBFC-MFIs
accounting for 39.0% of the outstanding book. According to
a CRISIL report dated 28 June 2025, the industry is expected
to witness muted growth of 8-10.0%, with the total portfolio
projected to reach INR 5 trillion by FY 2027-28.

Challenges in the MFI industry:

1. Low financial literacy hampers borrowers

understanding of loan terms.

2. Over-indebtedness resulting from poor debt
management, particularly in saturated regions.

3. High NPAs stemming from the unsecured nature of
microloans and borrower risk profiles.

4. Vulnerability to external shocks like socio-economic
and environmental disruptions.

5. High cost of outreach in rural areas due to small
ticket sizes and logistical challenges.

6. Limited tech adoption increases reliance on manual
processes, resulting in higher costs and inefficiencies.

4.2 Company Overview

Northern Arc Capital Limited is an RBI-registered NBFC
dedicated to addressing the diverse credit needs of
underserved households and businesses across India. Over
the past 16 years, the Company has built a differentiated and
comprehensive presence across the retail credit ecosystem,
with a strong focus on financial inclusion. Since entering the
space in 2009, Northern Arc has facilitated financing of over
INR 2.1 trillion, positively impacting more than 118 million
lives across 28 states, seven union territories, and 680
districts. Northern Arc’s robust risk management framework
has enabled it to remain resilient through multiple credit
cycles, cementing its position as a trusted and innovative
player in India’s credit ecosystem.

The Company has developed deep domain expertise in
MSME financing, consumer finance, and rural finance,
serving these sectors through a dual-channel model that
combines direct-to-customer offerings and credit solutions
for originator partners.

Direct-to-Customer (D2C) Lending

In the D2C segment, the Company has established a strong
distribution network to provide its customers with top-
quality services at their convenience. Its operations span
across 360 branches, strategically located across 12
states and 1 UT.

Presence:

Network	FY21	FY22	FY23	FY24	FY25
Corporate	4	4	4	4	4
Secured LAP	-	3	15	50	69
Rural finance	-	-	186	262	287
Total	4	7	205	316	360

During FY 2024-25, the Company added 57 branches in total with 19 added in Secured LAP and 38 added for its rural finance
offerings. The Company also consolidated 13 unproductive rural finance branches to enhance operational efficiency.

In addition to directly lending through its branch network, Northern Arc collaborates with retail lending partners across the MSME,
consumer finance, and rural finance segments. As of 31 March 2025, the Company has cumulatively partnered with 54 retail lenders
since inception, strengthening its reach and impact across the retail credit ecosystem.

Through this extensive direct-to-customer distribution network, Northern Arc is currently serving 19.9 lakh customers directly.

Credit Solutions to Originator Partners:

Beyond its retail lending operations, Northern Arc plays a pivotal
role as an ecosystem enabler, supporting originator partners by
facilitating the flow of credit through Performing credit funds,
structured debt placements, intermediate retail lending, and
SaaS offerings. Since inception, the Company has enabled credit
flow of over INR 1.7 trillion across these verticals. In doing so, it
has financed credit for 350 originator partners and collaborated
with more than 1,300 investor partners.

4.2 Business Overview

In FY 2024-25, the Company experienced strong growth
across all business segments, despite various headwinds,
which facilitated credit worth over INR 35,000 crore across
D2C and credit solution channels. The Company has also been
able to improve yields through expansion in D2C segment,
resulting in improvement of spreads from 7.5% in FY 2023-
24 to 7.9% in FY 2024-25, and a 45.7% increase in PPOP from
INR 543 crore in FY 2023-24 to INR 791 crore in FY 2024-25.

Key business highlights for FY 2024-25:

1. Equity infusion of INR 382 crore from IFC and other
investors, followed by INR 777 crore raised through an
initial public offering in September 2024, including INR
500 crore of primary capital.

2. Raised ~INR 1,200 crore in debt from FMO and IFC.

3. Added 57 new branches in FY 2024-25 to
accelerate D2C expansion.

4. Recognised as a Great Place to Work (GPTW) for the 5 th
consecutive year.

Assets Under Management (AUM):

Northern Arcs AUM grew by 16.4% year-on-year, rising from
INR 11,710 crore in March 2024 to INR 13,634 crore in March
2025 across 680 districts, 28 states and 7 union territories.
The D2C share of AUM increased from 18.9% in March 2021
to 51.8% in March 2025.

D2C AUM:

The D2C segment grew by 21.1% year-on-year, from INR
5,833 crore in March 2024 to INR 7,064 crore in March 2025.
The Company now serves over 19 lakh D2C borrowers across
MSME, consumer finance and rural finance.

Intermediate retail lending:

Northern Arcs Intermediate retail lending AUM recorded a
11.8 year-on-year growth. In the FY 2024-25, the Company
onboarded 22 new originator partners.

Gross Transaction Value:

33.3% from INR 14,885 crore in FY 2023-24 to INR 19,840
crore in FY 2024-25.

Financial Overview

Interest income:

Interest income grew by 24.0%, rising from INR 1,588
crore in FY 2023-24 to INR 1,969 crore in FY 2024-25.
This was driven by:

Growth in AUM from INR 11,710 crore in March2024 to
INR 13,634 crore in March2025.

? Increase in D2C mix from 49.8% in March2024 to
51.8% in March2025 leading to improvement in yields
by 14 bps as compared to FY 2023-24.

Spreads:

Spreads expanded by 40 bps, increasing from 7.5% in FY

2023- 24 to 7.9% in FY 2024-25, supported by:

? A 14-bps improvement in yields (16.9% in FY 2024-25
vs. 16.7% in FY 2023-24)

? A 24-bps reduction in cost of funds, declining from
9.2% in FY 2023-24 to 8.9% in FY 2024-25.

Operating Efficiency:

Operating expenses as a percentage of AUM improved by
39 bps, reducing from 4.0% in FY 2023-24 to 3.6% in FY

2024- 25, reflecting Northern Arcs continued focus on cost
discipline and frugal expansion.

Pre-provision operating profit (PPOP):

PPOP increased by 45.7%, from INR 543 crore in FY 2023-24 to
INR 791 crore in FY 2024-25, driven by higher disbursements,
improved spreads, and enhanced cost efficiency.

Credit cost:

Credit cost as a percentage of quarterly average total assets
rose to 3.2% in FY 2024-25, compared to 1.2% in FY 2023-24,
primarily due to:

? A one-time provision was made following the RBIs
directive to exclude credit enhancements in ECL
calculation under FLDG arrangements. Of the total
exclusion of INR 80 crore, the Company recorded INR
68 crore in Q4 FY2024-25.

? A management overlay of INR 51 crore in Q4 FY 2024-
25 on an intermediate retail exposure, increasing the
total overlay to INR 75 crore—a prudent measure to
reinforce balance sheet resilience and uphold strong
risk management practices.

Asset Quality:

Northern Arcs GNPA for FY 2024-25 stood at 0.9% and NNPA of 0.4%, with a healthy capital adequacy ratio of 24.7%.
The following is Northern Arcs sector-wise asset quality:

INR CRORES	AUM	GNPA(%)	Credit Cost (%)FY25	Credit Cost (%) FY25 (Excl. one-time provision)
Intermediate Retail	6,570	0.6%	1.5%	1.5%
MSME	2,574	2.8%	2.5%	1.7%
Consumer	3,390	0.4%	6.0%	4.2%
Rural	1,100	0.1%	6.8%	6.8%
Total	13,634	0.9%	3.2%	2.6%

Net Profit:

Reported net profit stood at INR 305 crore in FY 2024-25, compared to INR 308 crore in FY 2023-24.

Excluding the DLG-related provision, Northern Arcs net profit for the year would have been INR 356 crore, representing a 15.4%
year-on-year growth, a testament to the strength and momentum of the Companys underlying business.

Return on Assets and Return on Equity.

As a result, the Company generated an ROA of 2.4% and an ROE of 10.0% with a debt-to-equity ratio of 2.9x.

The following is a snapshot of the Companys performance:

INR crore/%		INR crore		DuPont
	FY24	FY25	YoY %	FY24	FY25
Interest Income	1,588	1,969	24.0%	15.3%	15.7%
Finance Cost	725	823	14.0%	7.0%	6.5%
Net Interest Income	864	1,147	33.0%	8.3%	9.1%
Fee & Other Income	97	102	5.2%	0.93%	0.8%
Net Revenue	961	1,248	30.0%	9.3%	9.9%
Credit Cost	122	405	231.0%	1.2%	3.2%
Risk Adjusted Net Revenue	838	844	1.0%	8.1%	6.7%
Employee Cost	242	285	18.0%	2.3%	2.3%
Other Operating Cost	176	173	-2.0%	1.7%	1.4%
Total Cost	418	458	9.0%	4.0%	3.6%
Profit Before Tax	420	386	-8.0%	4.1%	3.1%
Tax	103	85	-17.0%	1.0%	0.7%
Profit After Tax	318	301	-5.0%	3.1%	2.4%
Attributable to Owners	308	305	-1.0%	3.0%d>	2.4%
Attributable to NCI	9	-3	-	0.1%	-0.0%

INR crore

Ratios	FY24	FY25
Yield	16.8%	16.9%
Cost of Funds	9.2%	9.0%
Spread	7.5%	7.9%
Return on Assets	3.0%	2.4%
Return on Equity	14.5%	10.0%

4.3 Risk Management:

Northern Arcs differentiated credit underwriting approach and robust risk models have enabled it to maintain strong asset quality
and deliver consistent, risk-adjusted returns across market cycles and macroeconomic disruptions. Northern Arcs risk framework is
built on four pillars — data and analytics, proprietary models, domain expertise, and on-field surveillance — enabling strong portfolio
construction and effective early warning systems. Northern Arc actively monitors exposures and conducts partner benchmarking
through field audits, ensuring real-time insights and timely credit actions.

Historical GNPA and NNPA trajectory:

Portfolio quality:

INR crore/%

4.4 Strong Liability Franchise

Northern Arc has effectively navigated challenging market
dynamics by maintaining a resilient treasury framework,
reinforcing its financial stability and adaptability. This
approach has ensured continuity in lending operations and
enabled strategic diversification of funding sources, fostering
long-term growth and sustainability.

During FY 2024-25, Northern Arc raised fresh debt amounting
to INR 5,912 crore, including ~ INR 1,200 crore from FMO and
IFC. This fundraising demonstrates Northern Arcs robust
and time-tested relationships with its lenders and investors,
reflecting Companys ongoing efforts to expand and diversify
its lender base.

As of March 31 2025, Northern Arc had 49 lenders and
investors, with 67% of its total borrowings from the banking
system, 27% from domestic and offshore DFIs, and the
remainder from capital markets investors such as mutual
funds, insurance company and private wealth firms and other
lenders and investors.

Furthermore, Northern Arcs cost of funds decreased by 20
bps in FY 2024-25 to 9.0% from 9.2% in FY 2023-24, despite
the broader slowdown in bank funding to NBFCs.

INR crore/%/#	FY21	FY22	FY23	FY24	FY25
O/S Borrowings	3,932	5,983	7,035	9,048	9,860
Cost of funds	10.2%	8.6%	8.8%	9.2%	9.0%

By Staging	Assets under Management					Assets under Management (%)					ECL: Expected Credit Loss					ECL % : provision coverage for each stage
	Mar24	• Jun24	Sep24	Dec24	Mar25	Mar24	Jun24	Sep24	Dec24	Mar25	Mar24 Jun24 Sep24 Dec24				Mar25	Mar24 Jun24 Sep24 Dec24				Mar25
Stage I	10,758	11,054	11,480	11,247	12,529	98.4%	98.0%	97.8%	97.0%	97.2%	72	94	115	125	233	0.7%	0.8%	1.0%	1.1%	1.9%
Stage II	126	168	188	231	239	1.2%	1.5%	1.6%	2.0%	1.8%	33	40	35	44	59	25.8%	23.9%	18.6%	19.0%	24.8%
Stage III	49	53	68	110	126	0.4%	0.5%	0.6%	1.0%	’ 1.0%	40	39	49	66	77	81.7%	74.0%	71.8%	60.2%	61.1%
Total On-Book	10,933	11,274	11,736	11,588	12,894	100.0%	100.0%	100.0%	100.0%	100.0%	145	; 173	196	235	369	1.3%	1.5%	1.7%	2.0%	2.9%
Assigned Assets	777	595	573	662	740
Overall AUM	11,710	11,869	12,309	12,250	13,634

External Credit Rating

Northern Arcs credit rating continues to be a key enabler for
its diversified and cost-efficient funding profile. Since 2015,
Northern Arcs commercial paper programme has been
assigned the highest possible rating of A1+. The Companys
non-convertible debentures and long-term bank facilities
have been rated AA- by both ICRA and India Ratings.

These factors have supported healthy growth in the Companys
balance sheet and earning assets throughout the year.

4.5 Enterprise Risk Management:

Integrated Risk Architecture

Northern Arc has adopted a multi-dimensional Enterprise
Risk Management (ERM) framework, built on strong risk
governance, deep domain expertise, ground-level insights,
extensive data analytics and proprietary risk models. This
framework addresses a broad spectrum of risks, providing a
comprehensive approach to risk mitigation:

Financial risks: Credit risk, liquidity risk,

interest rate risk

? Non-financial risks: Operational risk, information
security risk, compliance risk, strategic risk,
reputational risk, conduct risk

Independent and Efficient Collections Ecosystem

The Company operates an end-to-end collections process
to manage delinquencies effectively, tailored to different
stages of default:

? Pre-Due: Pre-due reminders sent digitallyS

? 0-15 days past due (DPD): Follow up through tele-calling

? 15+ DPD: Initiate on-field collections along

with tele-calling and legal action through
Section 25/138 of payment and settlements atc

? 30+ DPD: Escalation to recovery mechanisms,
including legal action

? 90+ DPD: Initiation of physical possession and
liquidation of collateral

Advanced Analytics and Risk Modelling

Northern Arcs decision-making is underpinned by a
proprietary data repository developed over more than a
decade, comprising over 47.52 million data points. This
extensive database includes granular transaction data,
financial and operational insights on originator partners, and
qualitative assessments of these partners. Together, these
elements form a robust framework that enables Northern Arc
to effectively mitigate risk while maintaining a secure and
scalable growth model.

Cutting-edge Data Analytics and Tech-first Approach

Northern Arc leverages real-time analytics and advanced
technology to drive performance and informed decision-
making across its ecosystem. By optimising customer
management, strengthening investor partnerships, and
expanding its data capabilities, the company enables smarter,
scalable growth. Through predictive, data-driven insights
for real-time portfolio management, customised solutions
tailored from deep data intelligence, and machine learning
that continuously enriches its data ecosystem, Northern
Arc enhances speed, efficiency, and insights. This forward-
looking, technology-led approach ensures agility and
excellence in delivering financial solutions at scale.

Operational Risk Management

Northern Arc adopts a proactive and structured approach
to operational risk management, aimed at identifying,
mitigating, and monitoring potential disruptions across
business functions. The framework is overseen by the
Northern Arc Operational Risk Committee (NAORC), which
provides strategic direction and governance through:

? Setting clear risk reporting structures

? Regular process audits

? Risk assessments and corrective action plans

4.6 Technology Infrastructure:

Northern Arcs technology stack is built to deliver a seamless,
scalable, and secure lending journey, integrating digital
capabilities across the lifecycle—from lead generation
and onboarding to credit underwriting and servicing. The
platform comprises a fully customizable Loan Management
System (LMS), intelligent Business Rule Engines (BREs),
and personalized workflows, all supported by cloud-native
infrastructure on Microsoft Azure and Oracle Fusion.
Advanced analytics and ML-driven decisioning are enabled
through tools like Power BI, Tableau, Elastic, and Northern
Arcs proprietary Nu Score model. Real-time credit
assessment is facilitated through deep API integrations with
partners such as CIBIL, Experian, Karza, and Perfios.

Security is embedded through multi-layered defenses,
including Microsoft Defender, Fortinet, Intune, and
24/7 monitoring with SentinelOne and ELK Stack. The
platform also supports immersive customer engagement
via Salesforce, CleverTap, Ameyo, and WhatsApp, offering
multilingual and omnichannel touchpoints. Infrastructure-
as-Code practices and strong DevSecOps governance ensure
agility, automation, and cost efficiency. Across platforms such
as nPOS, Nimbus, Altifi, and Nu Score, Northern Arcs tech
stack serves as the backbone for its digital-first approach,
enabling robust risk management, operational efficiency, and
customer-centricity at scale.

4.7 Human Resource:

Governance and leadership

Empowering growth through people-centric excellence

Human capital lies at the heart of Northern Arcs strategic
vision and operational success. The Company firmly believes
that its employees are not just enablers but the very architects
of its enduring impact and sustained growth. The strength
of Northern Arcs workforce, combined with an inclusive
leadership philosophy and collaborative governance, forms
a resilient foundation upon which the Company builds value
for all stakeholders.

Northern Arcs organisational structure is strengthened
by a hands-on and forward-looking management team,
actively supported by discerning investors and steered by
the seasoned oversight of the Companys Nomination and
Remuneration Committee (NRC) and Board of Directors. This
collective stewardship ensures that Northern Arcs human
capital strategies are not only robust and agile but also deeply
aligned with its long-term vision and purpose.

As of March 31 2025, Northern Arc had a workforce of 3,118
employees across diverse levels, functions, and geographies.
Of these, 17.0% were women, and 8.5% of the Companys
hires came from focused diversity segments. This evolving
workforce reflects not only the Companys scale but also its
conscious commitment to inclusivity and representation.

Going forward, Northern Arc aims to continue placing
emphasis on diversity, capability building, and nurturing
leadership to maintain a resilient, agile, and future-
ready workforce.

4.8 Opportunities and Threats:

Opportunities

Driving Scalable Impact Through Experience and
Expertise

With over 16 years of experience, cumulative credit facilitation
of INR 2.1 trillion, deep domain expertise across MSME,
rural finance, and consumer finance, combined with strong
institutional credibility, Northern Arc is well-positioned to
lead the next phase of growth in financial inclusion.

Serving the underserved retail markets

Northern Arcs core strength lies in reaching underserved and
financially excluded segments. With an extensive on-ground
presence and robust underwriting capabilities, the Company
is well-placed to cater to the evolving credit needs of rural
households, informal MSMEs, and first-time borrowers.

Revival in rural consumption

Signs of recovery in rural income and consumption trends
offer a positive tailwind for Northern Arcs rural finance
business. The Companys dedicated subsidiary focused
on rural lending, supported by a growing branch network,
is primed to tap into this resurgence and deepen its
presence across Bharat.

New growth engines: Digital partnership based lending,
direct retail lending, and wealth distribution

Northern Arc is actively building out high-potential verticals
such as Digital partnership based lending, expanding its
direct retail lending through branches, and entering adjacent
areas like wealth and insurance distribution. These verticals
represent significant white space for growth and customer
cross-sell opportunities.

Strong brand pedigree and proven track record

The Company continues to enjoy the trust of marquee
investors, regulators, and ecosystem stakeholders due to
its consistent performance, governance standards, and
resilience through credit cycles. Northern Arcs strong brand
equity helps attract quality partnerships across borrowers
and capital providers.

Building a strong distribution network

Northern Arcs expanding branch infrastructure and growing
partnerships with originators and fintechs are helping it
build a wide and diversified distribution network. This
allows for better reach, faster scale-up of new products, and
reduced customer acquisition costs.

Digitisation and data-driven decision making

With significant investments in technology and analytics, the
Company has built a strong digital backbone. Northern Arcs
proprietary risk models, AI-driven customer engagement,
and data-rich underwriting capabilities enhance operational
efficiency, drive scale, and enable smarter credit decisions.

Threats

Regulatory challenges and credit availability

As a regulated NBFC, Northern Arc operates in a constantly
evolving policy environment. Regulatory shifts related to
capital adequacy, lending practices, and data privacy can
impact Northern Arcs business model and require swift
compliance adaptability. In addition, access to debt capital
markets can be cyclically influenced, affecting liquidity.

Impact on demand amid sustained inflation

Prolonged inflationary trends may reduce disposable income,
particularly in rural and low-income segments, thereby
dampening credit demand. This could also affect repayment
capacity and result in higher delinquencies with vulnerable
borrower profiles.

Fast-changing interest rate environment

Volatile interest rates can affect Northern Arcs cost
of borrowing and spreads, especially for fixed-income
portfolios. Northern Arcs ability to dynamically manage its
asset-liability profile and pricing strategy remains critical to
maintaining profitability and credit performance.

4.9 Internal Control Systems and their Adequacy:

As a part of Northern Arcs efforts to evaluate the effectiveness
of internal control systems, the Companys audit teams
periodically assess the adequacy of control measures
periodically and recommend improvements, wherever
appropriate. The Audit Committee reviews the internal
audit functions, including the scope of the internal audit,
as well as the adequacy and effectiveness of the internal
systems and controls.

Northern Arc has a well-established and adequate internal
financial control framework, with appropriate policies and
procedures, to ensure the highest standards of integrity
and transparency in its operations and to support a strong
corporate governance structure, while maintaining excellence
in service delivery to all stakeholders.

Appropriate controls are in place to ensure:

(a) the orderly and efficient conduct of business, including
adherence to policies,

(b) safeguarding of assets,

(c) prevention and detection of frauds/ errors,

(d) accuracy and completeness ofthe accounting records and

(e) timely preparation of reliable financial information.

Northern Arcs internal control framework includes clearly
defined delegation of authority and standard operating
procedures, which are implemented across all businesses
and functions. These are reviewed periodically at all levels.
The risk and control matrices are also reviewed periodically
at all levels of the organisation. The risk and control matrices
are also reviewed regularly, with control measures tested
and documented.

These mechanisms help ensure that internal financial
controls are commensurate with the scale of Northern
Arcs operations. The findings are presented to the Audit
Committee, enabling the Committee to evaluate the strength
of the controls and determine any enhancements required,
especially as the Company continues to ramp up operations.

4.10 Outlook

NBFCs are emerging as pivotal enablers in Indias financial
ecosystem, bridging the credit gap for underserved and
previously excluded segments. As these segments continue
to grow and formalise, NBFC market share and product
diversity are expected to expand significantly. Recent
regulatory tailwinds — including policy rate cuts, enhanced
risk coverage under schemes like CGTMSE and CGFMU, and
the restoration of standard risk weights on bank exposures
to NBFCs — provide further momentum for sectoral growth.

Northern Arc is well-positioned to capitalise on these trends,
anchored by its strong foundation in risk-first underwriting,
robust technology stack, and a pan-India distribution
network. In line with its long-term strategy, the Company
remains focused on scaling its Direct-to-Customer (D2C)
business across MSME, consumer finance, and rural finance —
with a target to increase the D2C portfolio in the next 3 years.

On the credit solutions front, Northern Arc continues to build
a comprehensive ecosystem through performing credit funds,
structured debt placements, balance sheet lending, and SaaS-
based offerings. These platforms not only enable capital flow
to originator partners but also contribute meaningfully to
fee-based income.

Looking ahead to FY2025-26, Northern Arc remains
cautiously optimistic. With a clear focus on profitable growth,
the Company is targeting 20.0%-25.0% AUM CAGR over the
next three years and expect to improve ROA to 3.7%-4.0%
and deliver ROEs in the range of 16.0%-18.0%.

4.11 Cautionary Statement

Certain statements in the Management Discussion
and Analysis section concerning the Companys goals,
expectations, projections, estimates, and outlook may
constitute forward-looking statements under applicable
laws and regulations. These statements are based on
currently available information, internal assumptions, and
forecasts, and are subject to inherent risks, uncertainties,
and other factors, many of which are beyond the Companys
control, that could cause actual results to differ materially
from those expressed or implied. Such factors include, but
are not limited to, changes in macroeconomic conditions,
competitive dynamics, regulatory and legal developments,
shifts in political or economic environments, tax policies,
technological changes, and market volatility.

Forward-looking statements do not guarantee future
performance and should not be relied upon as such. The
Company assumes no obligation to publicly revise or update
any forward-looking statements, whether as a result of new
information, future events, or otherwise, except as may be
required under applicable laws.

Business Responsibility & Sustainability
Report FY 2025