Paisalo Digital Ltd Management Discussions

Economic Overview

The global economic environment in FY 2024 25 faced significant challenges, primarily due to monetary policies, and geo-political uncertainties. The Organisation for Economic Co-operation and Development (OECD) projected global GDP growth to slow from 3.3% in 2024 to 2.9% in 2025, marking a notable deceleration from previous years.

A key factor contributing to this slowdown was the trade war initiated by the United States under President Donald Trumps administration. The imposition of tariffs on various countries, including China, Mexico, and Canada, led to retaliatory measures and disrupted global supply chains. The International Monetary Fund (IMF) highlighted that these trade conflicts were a significant drag on global growth, and the Eurozone.

Inflationary pressures remained a concern globally, with the IMF forecasting a slight increase in global inflation due to higher trade costs and supply chain disruptions. However, the easing of commodity prices provided some relief.

Central banks in major economies adopted a cautious approach, balancing the need to support growth with the necessity to control inflation. Interest rates were adjusted accordingly, with some central banks opting for rate cuts to stimulate economic activity, while others maintained a neutral stance to assess.

India, the worlds fourth-largest economy, has emerged as the fastest-growing major economy recorded 6.5% growth rate (as per estimate) in FY 2024-25 and is on track to become the worlds third-largest economy with a projected GDP of $7.3 trillion by 2030. India is projected to be worlds fastest growing major economy (6.3% to 6.8% in 2025-26). This transformation is the result of a decade of decisive governance, visionary reforms, and global engagement. Driven by robust domestic demand, a dynamic demographic profile, and sustained economic reforms, India is asserting its rising influence in global trade, investment, and innovation.

At the Kautilya Economic Conclave, renowned economist Mr. Jagdish Bhagwati remarked: “In the old days, the World Bank used to tell India what to do, but now, India tells the World Bank what to do.” This statement powerfully reflects Indias shift from a dependent economy to a self-reliant, globally competitive powerhouse.

At the core of this transformation is the vision of Aatmanirbhar Bharat, a movement that promotes innovation, entrepreneurship and technological sovereignty. Indian Governments strategic initiatives like the Production Linked Incentive (PLI) schemes, revitalisation of MSMEs, and the expansion of digital infrastructure have laid the foundation for a high-growth, high-opportunity economy.

The Economic Survey 2024 25 highlighted several key sectors contributing to this performance:

• Agriculture: The sector grew by 3.8%, driven by record Kharif production and strong rural demand. High-value sectors like horticulture, livestock, and fisheries emerged as key drivers of agricultural growth.

• Industry & Manufacturing: The industrial sector expanded by 6.2%, with manufacturing facing challenges due to weak global demand. However, sectors like electricity and construction showed robust performance.

• Services: The services sector remained the fastest-growing, expanding by 7.2%. Information technology, finance, and hospitality led this growth, with services exports surging by 12.8% during April November FY25.

• External Sector: Overall exports (merchandise and services) grew by 6%, with services exports rising by 11.6%. The current account deficit (CAD) was contained at 1.2% of GDP, supported by rising net services receipts and increased private transfer receipts.

Inflation moderated during the year, with retail inflation declining from 5.4% in driven by reduced input prices and easing food inflation.

In its monetary policy review on June 6, 2025, the Reserve Bank of India (RBI) implemented a significant reduction in the repo rate, bringing it down to 5.50%. This move marks the steepest rate cut since the emergency easing during the COVID-19 pandemic in March 2020. The central bank also reduced the cash reserve ratio (CRR) for banks by 100 basis points to 3%, aiming to inject 2.5 trillion (approximately $29 billion) in liquidity into the banking system by December 2025.

Implications of the Rate Cut

The reduction in the repo rate is expected to have several effects on the Indian economy:

• Lower Borrowing Costs: Banks are likely to pass on the rate cut to consumers, leading to reduced interest rates on loans, including home and vehicle loans, making borrowing more affordable for individuals and businesses.

Enhanced Bank Profitability: The rate cut, along with the CRR reduction, is anticipated to improve banks net interest margins (NIMs), accelerating their earnings recovery.

• Stimulus for Economic Activity: Cheaper credit is expected to boost consumer spending and investment, providing a stimulus to the economy.

• Stock Market Response: Indian equity markets reacted positively to the RBIs policy measures, with benchmarks like the Nifty 50 and BSE Sensex rising on June 9, 2025, as investor sentiment improved amid the supportive monetary policy.

Today, India is a nation that is digital,green,aspirational,andfuture-ready,firmlyadvancing towards its goal of becoming a global leader.

The RBI adopted a calibrated monetary stance during the year, aiming to balance inflation control and growth revival. Key policy rates remained stable for most of the year, supporting liquidity in the financial system. particular, continued to play a pivotal role in financial inclusion and credit delivery across underserved sectors.

Industry Structure and Developments

Indias financial sector exhibited strength and stability in FY2024 25:

• Banking Sector: The gross non-performing assets (GNPAs) of scheduled commercial banks fell to a 12-year low of 2.6% by September 2024, with improved asset quality and strong capital buffers. Credit growth outpaced nominal GDP growth for two consecutive years, indicating a sustainable lending environment.

• Capital Markets: The primary market mobilized 11.1 lakh crore in equity and debt funds, marking a 5% increase from FY24. The Bombay Stock Exchange (BSE) market capitalization to GDP ratio stood at 136%, surpassing that of China and Brazil, reflecting investor confidence.

• Insurance & Pension: The insurance sector saw a 7.7% growth in premiums, while pension subscriptions increased by 16% year-on-year, indicating a growing focus on long-term financial security.

• Digital Finance: The fintech ecosystem continued to expand, with digital transactions witnessing exponential growth across urban and rural areas, enhancing financial inclusion.

NBFCs form an essential component of the Indian financialsystembyofferingcreditandfinancialservices to segments under-served by traditional banks. The year witnessed increased regulatory convergence between banks and NBFCs under RBIs scale-based regulatory framework. The sector also saw:

• Emphasis on asset quality and capital adequacy.

• Continued digital transformation.

• Enhanced governance norms and risk management protocols.

Overall, NBFC credit stood at about 50 trillion in December 2024 and it is set to exceed 60 trillion by FY 2026. Growth in retail credit, microfinance, and vehicle finance segments remained strong. However, caution around unsecured lending and rising delinquencies in select portfolios warranted increased prudence.

to 4.9% in FY25 (April December),

Asset segments like microfinance, personal loans, credit cards and unsecured business loans are witnessing higher stress in FY25, leading to elevated delinquencies and write-offs. Unsecured business loans account for nearly 28 per cent of retail NBFC credit in December 2024. However, performance of secured loans availed by borrowers, namely small-50 basis point ticket vehicle loans and micro and small-ticket mortgage loans, etc., shall remain a key monitorable.

Despite of various challenges, the credit growth of the NBFCs is expected to ease to 13-15 per cent in Financial Year 25 (FY25) and FY26 from the 17 per cent in the previous two fiscals. (Source ICRA report).

To navigate challenges, NBFCs are increasingly adopting digital transformation strategies, leveraging technologies like Artificial Intelligence (AI), Machine Learning (ML), and Big Data to enhance operational efficiency and customer experience. Additionally, strategic partnerships with FinTech firms are reshaping the sector, enabling NBFCs to offer innovative financial solutions and expand their reach.

Looking ahead, NBFCs are expected to continue their growth trajectory, albeit at a moderated pace. The focus is likely to shift towards sustainable growth models, emphasizing prudent risk management, regulatory compliance, and diversificationof funding sources. The evolving financial ecosystem, characterized changing regulatory landscapes, presents both opportunities and challenges for NBFCs in their quest for growth and stability.

The evolution of NBFCs in India reflects their adaptability and resilience in the face of changing economic and regulatory environments. As they continue to play a crucial role in financial inclusion and economic development, their ability to innovate and align with emerging trends will determine their sustained growth and impact on the Indian economy.

Recent Sources of Financing for Non-Banking Financial Companies (NBFCs) in FY 2024–25

In FY 2024 25, Non-Banking Financial Companies (NBFCs) in India have increasingly diversified their funding sources due to regulatory changes and evolving market conditions. This strategic shift aims to mitigate risks associated with over-reliance on traditional bank loans and to optimize borrowing costs.

• External Commercial Borrowings (ECBs)

NBFCs have turned to international markets to raise capital through External Commercial Borrowings (ECBs). In 2024, NBFCs raised 3.64 lakh crore via ECBs, marking the highest amount in five years. This surge is attributed to a slowdown in domestic bank lending and favorable global liquidity conditions.

• Commercial Papers (CPs)

Commercial Papers have become a significant short-term funding instrument for NBFCs. In FY25, CP issuances surged to 8.70 lakh crore, up from 7.84 lakh crore in the previous year. This increase reflects NBFCs efforts to diversify their funding profiles amid tighter bank credit. Mutual funds have emerged as key investors in these instruments, providing essential liquidity.

• Co-Lending Partnerships

NBFCs are engaging in co-lending arrangements with banks to expand their lending capabilities. These partnerships allow NBFCs to source loans while banks handle underwriting and funding, thereby sharing risks and resources. Co-lending assets under management for NBFCs are nearing 1 trillion, highlighting the growing collaboration between the two sectors.

• Securitization

Securitization has gained prominence as a funding avenue for NBFCs, particularly those with lower credit ratings. In FY24, securitization volumes rose to 1.9 lakh crore, a four-year high. This mechanism allows NBFCs to convert their loan portfolios into tradable securities, thereby improving liquidity and capital efficiency.

• Mutual Funds Debt Exposure

Mutual funds have increased their exposure to NBFCs, providing a stable source of funding. As of October 2024, mutual funds debt exposure to NBFCs exceeded 2.33 lakh crore, a 47% year-on-year increase. This shift is due to banks cautious lending practices following regulatory changes, prompting NBFCs to seek alternative funding sources.

• Alternative Investment Funds (AIFs)

Smaller NBFCs are tapping into the nascent private credit market through Alternative Investment Funds (AIFs). AIFs have grown significantly, with annual credit rising from 15,000 crore in FY2019 to 66,600 crore in FY24, reflecting a 37% compounded annual growth rate. This trend provides smaller NBFCs with access to capital that might be otherwise unavailable through traditional channels.

• Public Market Instruments

NBFCs have also raised funds through public market instruments. This development indicates growing investor interest and a potentially active period ahead in the Indian capital markets.

In FY24 25, NBFCs have proactively diversified their funding sources to dynamics. By leveraging ECBs, CPs, securitization, mutual funds, co-lending partnerships, AIFs, and public market instruments, NBFCs are enhancing their financial resilience andcapacity to support economic growth.

Opportunities and Threats

NBFCs provide credit to the local borrowers, the corporate sector, and other sectors. Supporting the role of the banking sector, there is a great difference between an NBFC and a bank. Forming a crucial part of the financial India, a Non-Banking Financial Company helps the masses fulfill their financialneeds through its Tailored products, deep demographic and addressable market understanding. Non-Banking Financial Companies have played a critical role in the economic development of India. They have been extensively devoting their time to generate employment and transportation. Moreover, they provide credit to the people living in rural areas and benefit the weaker sections with much-needed financial support.

Opportunities:

Credit Penetration in Underserved Markets

NBFCs operates in the unorganised and underdeveloped segment of the economy and understand the requirements of the unserved/underserved borrowers, this deep demographic and addressable market understanding provide edge them over the banks to create opportunities for themselves.

Customized Products and Faster Turnaround Time

NBFCs designs its products as per needs of customer groups by carefully analysing this target segment and customising pricing models. Flexibility in product design and quicker approvals provide a competitive edge over banks.

Digital Transformation

The use of technology is helping NBFCs customise credit assessment. The COVID 19 pandemic and consequent acceleration in both adoption of technology and change in consumer habits, as well as increasing availability of data for credit decision making, has made it possible to build an NBFC lending business without investing large sums to have brick and mortar presence on the ground.

Co-lending Partnerships with Banks

RBI, in November 2020, issued co lending norms that enable banks and NBFCs to collaborate for priority sector lending (PSL). This co-lending framework allows NBFCs to partner with banks, combining their reach with banks low-cost capital.

Government Push for Financial Inclusion

The Government of India has also taken several initiatives aimed at addressing some of the structural issues stressing the small business lending segment. These include granting licenses to account aggregators, initiating the Pradhan Mantri Mudra Yojana (PMMY).

Emergence of New Asset Classes

Growth in consumer durables financing, green financing(EVs, solar), and affordable housing offers new lending avenues.

Threats:

Credit risk due to borrower stress in unsecured segments

Economic slowdowns, over-leveraging, and unsecured lending growth can lead to higher NPAs.

Tightening Regulatory Norms

Increasing RBI oversight (e.g., Scale-Based Regulation, harmonized NPA norms and evolving norms around provisioning, capital, and governance may increase compliance costs and operational complexity)

Intense Competition from Fintechs & Banks

Fintechs with lower cost structures and banks with cheaper capital pose threats to margins.

Liquidity Crunch & ALM Mismatches

Reliance on short-term funding for long-tenure assets remains a systemic risk. regulatory challenges and market Cybersecurity & Tech Risks

Greater digital adoption increases exposure to data breaches, frauds, and system downtime.

Reputation Risk & Governance Concerns

Failures or frauds in a few NBFCs can affect the sectors credibility and investor confidence. ecosystem of

Interest Rate Volatility

A rise in interest rates, inflation, or any slowdown in rural demand could impact borrower repayment capacity and increase credit costs.

Company Overview

Paisalo Digital Limited is a Non-Deposit Taking Middle Layer NBFC, the securities of the Company are listed on BSE Ltd. (BSE) and/or National Stock Exchange of India Limited (NSE). The Company operates primarily in the segments of corporate loan, small Income generation loan, vehicle finance, entrepreneurial loans, priority sector lending etc. Over the years, the Company has built a strong loan book and a growing digital footprint.

Key highlights for FY 2024–25:

A good year on volume, AUM, Opex and credit cost. PAT was up by 11%. Delivered AUM growth of 14% and added highest ever 1.52 million customers to its franchise. Total Customer franchise stood at 9.45 million. Business transformation has entered Phase 3 and AI transformation is progressing well.

FY25 was a mixed year, but overall a good year on volumes, customer acquisition and operating efficiencies.

Highest ever AUM as at FY25 was up 14.10% at 52,328 million as against FY24 at 45,860 million.

The company has added highest ever record 5.16 million customers to its customer franchise. Total Customer franchise stood at 9.45 million.

GNPA and NNPA stood at 0.99% and 0.76% as at FY25 compared to 0.21% and 0.02% as at FY24. The company is continuing to augment its debt management infrastructure as a mitigation measure. The company is proactively pruning as required.

The company delivered annualized RoE of 12.96% as against 13.4% in previous financial year.

The company delivered annualized RoA of 3.89% as against 4.53% in previous financial year.

Capital Adequacy Ratio remained strong at 39.16%.

Financial Performance Overview

• Revenue

Total standalone income increased by 21.45% to 7,348.32 million, driven by higher disbursements.

Profitability

Standalone Profit after Tax (PAT) stood at 1,976.87 million, up by 11.68 % compared to the previous year. Cost-to-income ratio improved and stood at 60.70 % against the previous year ratio of 59.70%.

• Asset Quality:

Gross NPA and Net NPA were 0.99 % and 0.76 %, respectively, as of March 31, 2025. The Company made adequate provisioning in line with ECL norms.

• Capital Adequacy:

Capital Adequacy Ratio (CAR) stood at 39.16 %, well above the regulatory requirement.

• Issue of Foreign Currency Convertible Bonds:

The company successfully issued its First Foreign Currency Convertible Bonds (FCCBs) amount to US $50million approximately INR 4,233 million) in FY25, out of which US $2 million has been converted into share capital.

Lower Risk Profile & Competitive Advantage

Under Co-Lending Paisalo maintain a lower risk profile, setting it apart from peers in the market. This differentiation is attributed to our strategic partnership with banks, which enables us to access lower cost funding white leveraging Paisalos high tech, high-touch underwriting and recovery capabilities.

Through our digital underwriting platform, we combine the advantages of bank capital with our specialized risk management expertise, creating a position in the small ticket size co-lending segment within the Indian market.

This collaboration empowers us to capture market share, capitalizing on the vast and largely untapped opportunities in the lending sector.

Asset Liability Management

The company is continuously following a prudent policy for matching funding of assets, which transforms into a robust Asset Liability Stability.

Asset Liability Management Maturity pattern of certain items of Assets and Liabilities as on March 31, 2025.

	Upto 14 days	Over 14 days to 1 month	Over 1 month & Upto 2 months	Over 2 months & Upto 3 months	Over 3 months & Upto 6 months	Over 6 month & upto 1 year	Over 1 year & Upto 3 years	Over 3 years & upto 5 years	Over 5 Years	Total
Deposits	-	-	-	-	-	-	-	-	-	-
Advances	845.20	1,026.60	1,562.00	1,910.90	5,663.70	9,821.80	22,068.50	4,607.50	212.60	47,718.80
Investments (Bank FDR)	-	-	-	-	-	-	32.00	-	-	32.00
Borrowings	-	303.00	342.90	1,696.10	1,630.90	5,037.90	13,403.00	4,821.60	2,776.10	30,011.50
Foreign Currency	-	-	-	-	-	-	-	-	-	-
Assets
Foreign Currency	-	-	-	-	-	-	-	4,107.90	-	4,107.90
Liabilities

Asset Quality

Asset quality is the criteria where the Company stands far ahead from its peers as for last several years. Company has a policy of writing off its overdue advances. However, recovery efforts in such accounts are continued. The Standard Assets as on the date of Balance Sheet stood at 47,248.76 million and Sub Standard Assets stood at 470.03 million.

Movement of NPAs (_in Million)

Category	2024-25	2023-24
(i) Net NPAs to Net Advance (%)	0.76%	0.02%
(ii) Movement of NPAs (Gross)
(a) Opening balance	76.53	69.63
(b) Additions during the year	395.77	6.90
(c) Reductions during the year	2.27	-
(d) Closing balance	470.03	76.53
(iii) Movement of Net NPAs
(a) Opening balance	6.18	N=RIGHT>5.55
(b) Additions during the year	355.48	6.18
(c) Reductions during the year	0.05	5.55
(d) Closing balance	361.61	6.18
(iv) Movement of provisions for NPAs (excluding provisions on standard assets)
(a) Opening balance	70.35	64.08
(b) Provisions made during the year	40.34	6.27
(c) Write -back of excess provisions	2.27	-
(d) Write off	-	-
(e) Closing Balance	108.42	70.35

Issue of Foreign Currency Convertible Bonds

Company is changing its borrowing strategies to reduce reliance on traditional bank loans and during the year, raised US$ 50 million by issuance of 5000 (Five Thousand) 7.5 per cent Secured Foreign Currency Convertible Bonds due 2029 (FCCBs) of US $1000 each to fuelled the Companys working capital requirements. Company is also exploring other cheap source of fund for its long term and short-term fund requirement. This diversification is crucial for maintaining growth and optimizing borrowing costs in the evolving financiallandscape.

Allotment of Equity Shares under Employee Paisalo Employee Share Purchase Scheme 2024

On February 28, 2025 Company has allotted 3,72,517 Equity Shares of 1/- (Rupee One) each at a premium of 33.69 per equity shares (at discount rate of 18% of Market Price) towards the Employee Stock Purchase granted under Paisalo Employee Share Purchase Scheme 2024 (“PDL ESPS 2024"/“Scheme") to Eligible Employees of the Company and its Wholly Owned subsidiary. These shares shall be under lock in for 18 months from the date of allotment pursuant to PDL ESPS Scheme.

Share Capital

The Authorized Share Capital of the Company stood at 1,80,00,00,000.00 consisting of 1,75,00,00,000 Equity Shares of 1/- (Rupee One only) each and 50,00,000 Preference Shares of 10/- (Rupees Ten only) each. Consequent to allotment of 3,72,517 Equity Shares under PDL ESPS Scheme and Conversion of 2000 FCCBs of US$ 2 million in to 37,01,792 Equity shares, the Issued Share Capital, Subscribed Share Capital and Paid-up Share Capital of the Company has been increased and accordingly as on March 31, 2025, the same stood as under:

1. Issued Share Capital	_90,22,43,289 .00
	Consisting of 90,22,43,289 Equity Shares of face value of _1/– each
2. Subscribed Share Capital	_90,22,43,289.00
	Consisting of 90,22,43,289.00 Equity Shares of face value of _1/– each
	_90,21,80,789.00
3. Paid–up Share Capital	Consisting of 90,21,18,289 Equity Shares of face value of _1/– each fully paid–up and _62,500 for 1,25,000 forfeited equity shares of face value of _1/– each (amount originally paid–up @ _0.50 each)

Shareholders Funds

As on March 31, 2025, Company has only one class of outstanding issued share capital i.e. Equity Shares of face value 1/ each and on March 31, 2025, total fully paid capital was stood at 902.18 million and other equity stood at 14,274.36 million.

The Book value of per equity share of the Company stood at 16.61/ as on March 31, 2025.

Credit Rating

M/s Infomerics Valuation and Rating Pvt. Ltd. assigned following rating to Companys instruments:

Implementation of control measures to manage and mitigate these risks;

A detailed Business Continuity Plan (BCP) to ensure resilience in adverse scenarios;

Periodic monitoring and review of risk exposures and mitigation strategies.

The Company follows a disciplined approach to risk management, aligning business decisions with a well-balanced risk-reward strategy, thereby safeguarding stakeholder interests and supporting long-term value creation.

The risks that could have significant influence on the Company d Companys strategy to mitigate such risks are:

Credit Risk
Associate risk	The risk of loss to the Company from the failure of customers or counterparties to fully honour their obligations to the Company, including the whole and timely payment of principal, interest and other receivables. It is measured as the amount at risk due to repayment default by customers or counterparties to the Company. Various metrics such as instalment default rate, overdue position, instalment moratorium, restructuring, onetime resolution plan, debt management efficiency, credit bureau information etc. are used as leading indicators to assess credit risk.
Strategy to mitigate such risk	Company has a strong governance framework in place for identifying, assessing, measuring, monitoring, controlling and reporting credit risks in a timely and efficient manner. Fixing up the responsibility of business units for effective credit risk governance. Continuously aligning credit and debt management policies and resourcing, obtaining external data from credit bureaus and reviews of portfolios and delinquencies by senior and middle management team observe early warning signs of delinquency and ensuring proactive measures to maintain asset quality. Customize risk measurement approaches for various portfolio segments/sub–segments.
Liquidity Risk
Associate risk	The risk that the Company is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets. Funding risk arises from:
	• Inability to raise incremental borrowings and deposits to fund business requirement or repayment obligations
	• When long term assets cannot be funded at the expected term resulting in cash flow mismatches
Strategy to mitigate such risk	• Amidst volatile market conditions impacting sourcing of funds from banks and money markets Liquidity Risk measure, monitored and managed by the Company as under It is measured by:
	• Identification of gaps in the structural and dynamic liquidity statements.
	• Assessment of incremental borrowings required for meeting the repayment obligation, the
	Companys business plan and prevailing market conditions.
	• Liquidity Coverage Ratio (LCR) in accordance with guidelines.
	It is monitored by:
	• Assessment of the gap between visibility of funds and the near term liabilities given current assessment, and mitigation liquidity conditions and evolving regulatory framework for NBFCs.
	• A constant calibration of sources of funds in line with emerging market conditions in banking and money markets.
	• Periodic reviews of liquidity position, LCR and stress tests assuming varied ‘what if scenarios and comparing probable gaps with the liquidity buffers maintained by the Company.
	It is managed by:
	• Constitution of Assets and Liability Management Committee (ALCO) in line with the guidelines issued by the RBI, for looking after the liquidity position of the Company against the Companys financial obligations.
	• Holding optimum levels of liquidity to manage business requirements and maturing debt obligations.
	• Projected cashflow planning in discussion with business to have adequate flow of funds.
	• Obtain longer maturity debt to manage the asset–liability mismatch.
	• Diversified and sustainable funding mix.
Technology Risk
Associate risk	The risk that comes from lack of up–to–date systems, system failure and continuously changing cyber threat landscape.
Strategy to mitigate such risk	To mitigate technology risk Company has taken following steps:
	• In–house dedicated team of experienced IT professionals responsible to robust the IT infrastructure of the Company.
	• Constantly monitoring systems for uptime and health.
	• Continuously upgrading in technology and security system.
	• Creation of disaster recovery system for seamless operations.
	• Reviewing and monitoring data and systems for security.
	• IT System Audit from independent IT Auditor to check the IT and Security system.
	• Real Time back of data in back–up server(s) located at different place from main server. Effective monitoring & controls
	• Tested disaster management system.
Operational Risk
Associate risk	Operational risk is the risk arising from inadequate or failed internal processes, people or systems, or from external events.
Strategy to mitigate such risk	The Company manages operational risks through comprehensive internal control systems and procedures laid down around various key activities in the Company viz. loan acquisition, customer service, IT operations, finance function etc. Internal Audit also conducts a detailed review of all the functions from time to time, this helps to identify process gaps on timely basis. Further IT and Operations have a dedicated compliance and control units within the function who on continuous basis review internal processes. This enables the Management to evaluate key areas of operational risks and the process to adequately mitigate them on an ongoing basis. Further, the Company has put in place a robust Disaster Recovery (DR) plan and Business Continuity Plan (BCP) to ensure continuity of operations including services to customers.

Internal Control Systems and Audit

Companys internal control system is designedtoensureoperationalefficiency,compliance with laws and regulations and accuracy and promptness in financial reporting. The Company has proper and adequate internal controls systems to ensure that all activities are monitored and controlled against any unauthorized use or disposition of assets, misappropriation of funds and to ensure that all the transactions are authorized, recorded, reported and monitored correctly. For correctness and accuracy, the process of job rotation is followed in different departments. The Company has adequate working infrastructure having computerization in all its operations including accounts and MIS. The internal control system is supported by an internal audit process for reviewing the design, adequacy and effectiveness of the Companys internal controls, including its systems, processes and procedures to ensure compliance with regulatory directives. Internal Audit Reports are discussed with the Management and are reviewed by the Audit Committee of the Board, which also reviews the adequacy and effectiveness of the internal controls in the Company. The Company has various committee including Risk Management Committee and the Asset and Liabilities Management Committee to review and oversee critical aspects of the Companys operations. Further, to strengthen the internal control system, Chief Compliance Officer has been appointed, under whose be responsible for identification and assessment of compliance risk, provide guidance on related matters and monitor and test compliance across the Company. The Company has implemented controls through systems and processes ensuring a robust control framework.

The Internal Audit department and compliance function review the business units adherence to internal processes and procedures as well as to regulatory and legal requirements providing timely feedback to management for corrective action, including minimising the design risk, if any. The Audit Committee of the Board also reviews the performance of the audit and compliance functions and reviews the effectiveness of controls and compliance with regulatory guidelines. In the opinion of Board and the Senior Management, Internal Control System of the Company is commensurate with its size and the nature of its operations.

Fraud Monitoring and Control

The Company has put in place a Whistle Blower Policy and Fraud Detection and Prevention Policy that fixes the responsibility of various officials inside the organization to oversees implementation of fraud prevention measures. Frauds are investigated to identify the root cause and relevant corrective steps are taken to prevent recurrence. For fraud monitoring and controlling, a Fraud Monitoring Committee has also been constituted in accordance with RBI guidelines.

Human Resource Development

The Human Resource (HR) function in the Company remains focused on improving organizational effectiveness, developing frontline leaders, promoting employee empowerment and maintaining stability and sustainability amidst growth and a rapidly changing business environment. As at Paisalo we believe that “happy employees are the key for Companys success”. The Company has a work environment that inspires people to do their best and encourages an ecosystem of teamwork, continuous learning and work life balance. In an increasingly competitive market for talent, the Company continues to focus on attracting and retaining the right talent. The Company fosters work life balance and condemns any kind of unfair treatment in the workplace. Regulation and compliance have remained as the major focus area for the Management of the Company. The Company enforces a strict compliant and ethical culture with adequate channels for raising concerns supported by a grievance handling mechanism. As on March 31, 2025, Employees head count stood at 3178.

		Age Group			Gender
Employee Hierarchy	<30	30-50	>50	Male	Female	Total
Senior Management	1	3	4	8	0	8
Middle Management	2	4	6	10	2	12
Junior Management	96	123	29	145	8	153
Non-Management	1,740	1,145	25	2,932	73	3,005
Total Permanent Employees	1,839	1,275	64	3,095	83	3,178

Opportunities

Forming a crucial part of the financial ecosystem of India, NBFCs in India, helps the masses fulfill their needs for financial services. The Indian economy continues to show robust growth, with the projecting 6.51 per cent GDP growth rate. NBFCs have been extensively devoting their time to generating employment and transportation. Moreover, they provide credit to the people living in rural areas and benefit the weaker sections with much-needed financial support. Millions individuals in the country dont have access to formal credit. NFBCs can bridge this gap by providing them with an instant financial support, requiring minimal documentation. SMEs (short for Small and Medium-Sized Enterprises) require fast working capital. That is where the role of an NBFCs in India comes in, as they can step in with their bespoke plans. They help entrepreneurs take their business up a notch while leveraging a great market opportunity. The NBFC sector is expected to experience robust growth driven by high credit demand across these segments.

Market Opportunity

Types of Touch Points	Number
Branches	351
Business Coresspondent	1314
Distribution Point	1900
Total	3565

Challenges

Funding challenges: NBFCs in India actively seek diverse funding avenues to meet their financial needs. Availability of fund a major challenge that NBFCs face in its smooth functioning, Banks and Capital Market are the major source of fund for NBFCs. There are no other economically efficient options for NBFCs for its funding requirements.

Credit Risk: Credit risk for NBFCs is the potential for financial loss due to borrowers failing to repay their loans or meet other debt obligations. This risk is inherent in lending activities and can significantly impact an NBFCs profitability, stability, and overall financial health. Effective credit risk management is crucial for NBFCs to mitigate potential losses and ensure sustainable operations.

Regulatory Pressure: Fluctuating guidelines of the RBI and the urge for stringent compliance increase operational complexity.

Due Diligence: The due diligence is important to optimize the default risk. Since the customers who avail borrowings from NBFCs do not have any credit history, it becomes quite difficult to verify their financialcredentials. Therefore, NBFCs have to deploy additional resources for on ground visits, psychoanalytic tests, reference checks and so on.

Cybersecurity Threats: Although digitization has proven beneficial, it information leaks, and fraud.

Customer Trust: The most of population in India is uneducated and unaware with the norms and processing of NBFCs. This can be challenge to NBFC sector at various levels. People hesitate at first to take loan from NBFCs and even after taking loan from NBFCs people not familiar with the processing of NBFCs that may cause NBFCs to indulge extra manpower and fund to make people educate about the NBFCs.

Cost of Capital: NBFCs often end up borrowing at rates supposedly higher than banks. That makes it difficult for them to offer various products at a low interest rate.

Business risk management: NPAs have been a challenge not only for Indian banks but also for NBFCs. With new to credit customers, despite all the possible measures, the risk remains higher compared with those customers who have a strong credit history. Therefore, NBFCs have to continuously work on checks and balances to make sure that the EMIs are on time, customer records remain up to date and any red alerts are notified immediately.

Threats

Threats refer to components that have the potential to damage an organization. For example, unfavourable government policies, drastic decline in revenue. Other common threats include things like rising costs for fundings, increasing competitions and so on.

Competition: Aggressive digital lending by banks and fintechs puts pressure on NBFCs to innovate and reduce costs.

Price undercutting: Competitors offering lower interest rates or flexible repayment terms can erode market share.

Lack of Proper Cyber Security Systems: The rapid adoption of automation, digitalization and emerging technologies such as AI has raised concerns about the cyber security and privacy. Whether it is data storage, monetary transactions, or personal information, everything is stored digitally. This makes the finance sector a primary for hackers who are seeking to benefit financially create a robust system to address these treats.

Government Policies: Government regulations can directly affect the finance sector of a country, these government policies might be unfavourable for the Company.

Global Uncertainty in the Financial Ecosystem: The world is going through difficult economic times at the moment. The international banking sector has all been affected by trade wars, protectionist policies and economic downturns. If the worlds economic conditions do not change, the financialservice industry will face a bleak future.

Outlook

The future outlook for Non-Banking Financial Companies in India is broadly positive, underpinned by rising demand for credit in underserved segments, ongoing digital transformation, and government initiatives supporting financial inclusion. NBFCs play a critical role in extending credit to sectors and geographies that are often overlooked by traditional banks-such as MSMEs, small traders, rural borrowers, and self-employed individuals. As the Indian economy continues to grow, and with increasing urbanization and consumption, NBFCs are expected to benefit from sustained credit demand across retail, housing, vehicle finance, and microfinance sectors.

Technology is poised to be a key enabler in the NBFC growth story. Many players are adopting digital platforms, AI-driven credit assessments, and automated loan disbursals to improve customer reach and operational efficiency. rise of co-lending arrangements with banks are helping NBFCs expand their footprint and access more cost-effective funding. These innovations are also improving customer experience and reducing turnaround time, making NBFCs more competitive in a rapidly evolving financial landscape.

However, the sector also faces significant challenges. Regulatory tightening by under the scale-based regulatory framework, is bringing NBFCs closer to bank-like oversight. While this is aimed at improving transparency and systemic stability, it may increase compliance costs and reduce operational flexibility smaller NBFCs. Moreover, asset quality remains a concern, especially for NBFCs with high exposure to unsecured lending or cyclical sectors like real estate and construction. Rising interest rates and increasing competition from banks and digital lenders could also pressure margins and slow growth for some players.

Despite these headwinds, well-managed NBFCs with strong governance, diversified capabilities are expected to thrive. The sector is likely to undergo consolidation, with stronger players gaining market share and weaker ones either exiting or being acquired. Overall, NBFCs will continue to be a vital component of Indias financial ecosystem, provided they adapt swiftly to regulatory changes, adopt prudent risk practices, and leverage technology to enhance efficiency and scale.

Cautionary Statement

Certain statements in this report are forward-looking and are based on managements current expectations. Actual results may vary materially due to various external factors beyond the Companys control.