PNB Gilts Ltd Management Discussions

A) Domestic Economy

1. Domestic Growth

India?s real GDP grew by 6.5% in FY 2024-25, marking a moderation from the previous year?s 9.2% but remaining close to the country?s decadal average and reaffirming India?s position as one of the world?s fastest-growing major economies.

This growth was supported by strong performances in construction and public administration, defence, and financial services, with nominal GDP rising by 9.8% to Rs.330.7 lakh crore. While the pace of expansion slowed due to global headwinds and tighter domestic liquidity, robust domestic demand, increased government capital expenditure, and resilient services exports helped sustain momentum throughout the year.

1.1 Quarterly GDP Growth Trends

Q1 (Apr–Jun 2024): 7.0 %. Driven by strong momentum in services and sustained public investment.

Q2 (Jul–Sep 2024): 5.6%. Moderation in private consumption and subdued global trade influenced the slowdown.

Q3 (Oct–Dec 2024): 6.2%. The festive season lifted consumer spending; the services sector performed strongly.

Q4 (Jan–Mar 2025):7.4%. Significantly beating expectations.

2. Domestic Inflation

India?s retail inflation, measured by the Consumer Price Index (CPI), averaged 4.6% in FY25—the lowest since 2018-19 with quarterly figures showing a peak of 6.43% in Q2 before declining sharply to 3.85% in Q4, reflecting the combined impact of effective monetary policy, government interventions in food markets, and easing supply pressures; notably, the March 2025 inflation rate dropped to 3.34%, highlighting a period of sustained price stability and improved economic outlook.

3. Fiscal Deficit

India?s fiscal deficit has shown a steady improvement, falling to 4.8% of GDP in FY25 from the pandemic peak of over 9%, signaling the government?s commitment to restoring fiscal discipline while nurturing economic growth. This progress is underpinned by strong tax revenues, a historic RBI dividend, and careful expenditure management, even as the government continues to prioritize capital investment in infrastructure and development. Looking ahead, the government has set an ambitious target to further reduce the fiscal deficit to 4.4% of GDP in FY26 and plans to shift its fiscal anchor to the debt-to-GDP ratio, aiming for greater long-term stability. However, with economic growth expected to moderate and rising demands for social spending and tax relief, the challenge will be to sustain fiscal consolidation without compromising the momentum of economic recovery and inclusive development.

4. USD/INR

In FY25, the Indian rupee (INR) depreciated by about 2.4% against the US dollar (USD), after a relatively stable first half of the year. The rupee came under pressure following the US presidential election in November 2024, touching a record low of 87.58 per USD in February 2025 due to a stronger dollar and significant foreign portfolio outflows. India?s forex reserves also declined during this period. However,March 2025 saw a sharp turnaround, with the rupee appreciating by 2.4%, its best monthly performance in over six years, thanks to a weakening dollar and renewed foreign inflows. By the end of FY25, the rupee closed at around 85.46 per USD.

Looking ahead, the INR is expected to trade in the 85.5 87.5 range in FY26, influenced by global and domestic economic factors

5. Government Securities Market Primary Market

In FY25, the Government of India?s primary market for government securities (G-Secs) remained active and well-supported. The total gross market borrowing for the year was set at Rs.14.13 lakh crore, lower than the Rs.15.43 lakh crore in FY24, with Rs.half of the year. Auctions were generally well-subscribed, reflecting 7.5lakhcroreplannedforthefirst robust investor demand; for example, a Rs.27,000 crore auction in May 2025 was fully subscribed, with strong interest seen across maturities. During Q3 FY25 alone, the central government borrowed Rs.3.82 lakh crore, including eight new issuances spanning 3, 5, 7, 10, 15, and 50-year maturities, as well as Sovereign Green Bonds. The government also used the greenshoe option to retain up to Rs.2,000 crore of additional subscriptions per security in several auctions. Most auctions were conducted using the multiple price method, and cut-off yields for benchmark bonds remained stable, supported by healthy participation from banks, institutions, and foreign investors. The advance publication of auction calendars and the inclusion of green bonds contributed to transparency and diversification in the market. Overall, FY25 saw efficient debt management, stable yields, and continued strong interest in government securities.

Secondary market

The bond market?s performance in FY-2025 was marked by considerable volatility and influenced by a combination of global and domestic factors. Globally, U.S. Treasury yields experienced fluctuations driven by FOMC policy decisions, inflation concerns, and uncertainty surrounding the US President?s policies. These yields saw both increases and sharp declines throughout the year. Notably, both the US FOMC and the European Central Bank initiated policy rate cuts, signaling a broader trend of monetary policy easing. Domestically, the Indian bond market generally witnessed declining yields. This was attributed to factors such as the RBI?s transfer of surplus dividends to the government, increased foreign buying interest, and expectations of fiscal prudence. The RBI?s active role in monetary policy, including repo rate cuts and liquidity management through Open Market Operations and forex swaps, significantly impacted bond yields. Furthermore, concerns about domestic economic growth highlighted by lower-than-expected GDP figures contributed to expectations of policy easing and downward pressure on yields. Overall, the Indian 10-year benchmark bond yield demonstrated a general downward trajectory, albeit with intermittent volatility, moving from 7.09% initially and eventually stabilizing in the 6.65% to 6.72% range.

B. COMPANY PERFORMANCE 1. Primary Market

In the primary market, the Company continued to comply with all the regulatory requirements for bidding under Minimum Underwriting Commitments (MUC) and Additional Competitive Underwriting (ACU) for Primary Dealers.

During FY 2024-25, the Company earned an underwriting commission of Rs.1.11 crores, up from the previous year?s commission of Rs.1.99 crores.

In treasury bill auctions, during H1 of FY 2025, GOI raised Rs.4,78,213 crores as against Rs.7,25343 crores in the corresponding period of the last fiscal. In the second half, GOI raisedRs. 6,12,804 crores through T-bills as against Rs.7,02,140 crores raised in the corresponding period of the last fiscal. Against these issuances of T-bills, the Company submitted bids aggregating to Rs.1,11,914 crores against the commitment of Rs.54,551 crores (being 5 per cent of the notified amount). Out of this, bids amounting toRs.27,933 crore were accepted. Fulfillingits primary market commitment, the Company achieved a success ratio of 50.34 per cent and 51.88 per cent in H1 and H2, respectively, in FY 2024-25, as against the statutory requirement of 40 per cent.

2. Secondary Market

During FY 2024-25, total secondary market outright turnover registered by the Company stood at Rs.6,61,937 crore as against Rs.7,70,033 crore in FY 2023-24. The Central Government security segment recorded a turnover of Rs.5,68,592 crore, followed by SGSs, which registered a turnover of Rs.45,673 crore. Treasury bills recorded a turnover of Rs.23,004 crore. The company achieved an outright turnover of 6.67 per cent for FY 2024-25, as against the outright turnover target of 2.0 per cent prescribed by the RBI.

3. Portfolio Size and Composition

During FY 2024-25, dated securities (central and state government) holding level in face value terms under FVTPL portfolio averaged at Rs.14,315 crore (Rs.13,794 crore in FY 2024) with peak holding level of Rs.18,412 crore (Rs.17,709 crore in FY 2024). Daily average holding in T-bills during FY 2025 stood at Rs.563 crore (Rs.1,825 crore in FY 2024), whereas the peak holding in T-bills stood at Rs. 2,498 crore (Rs. 4,266 crore in FY 2023). The company?s holding under Amortized Cost portfolio as on March 31, 2025, stands at Rs.1051.51 crore.

4. Liability Mix

During the year, the Company judiciously utilized different sources of borrowing viz. Call Money, TREP, Repo, LAF, etc. for active fund management. The average gross borrowings from all sources during FY 2025 amounted to Rs.19,983 crore as against Rs.21,038 crore in FY 2024. During FY 2025, the Company did not raise any funds through the issuance of Commercial Paper. The average leverage during FY 2025 was 14.09 times against 15.89 times in FY 2024, while the maximum leverage for the year stood at 18.05 times the NOF.

The average cost of funds during FY 2025 stood at 6.55 per cent, higher than 6.69 per cent during FY 2024 as money market rates were under pressure due to persistent deficit of liquidity

5. Trading Stance & Financial Performance

From PNB Gilts? standpoint, FY25?s macroeconomic environment proved exceptionally favorable, laying the groundwork for strong business growth and record profitability. The government disciplined fiscal management, which brought the fiscal deficit down to 4.8% of GDP, investors and contributed to overall market stability. At the same time, inflation moderated to 4.8%, giving the Reserve Bank of India room to cut policy rates by 25 basis points and thereby reduce funding costs across the economy. A major catalyst was the inclusion of Indian government bonds in prominent global indices, which attracted significant foreign capital inflows and enhanced market liquidity. These developments boosting bond prices and creating lucrative trading opportunities. Together, these macroeconomic factors not only strengthened investor confidence but also directly supported robust growth and profitability for PNB Gilts in FY-25. FY 2024-25 The two-year trend in the main financial parameters is tabulated as below:

Particulars	FY 2023-24	FY 2024-25	per cent change
Net Owned Fund	1313.35	1517.41	15.54
Profit Before Tax (PBT)	98.81	310.95	214.69
Profit After Tax (PAT)	69.41	233.03	235.73
Capital Adequacy Ratio (%)	34.01	42.68	25.49
Return on avg NOF	5.44	16.46	202.57
Interest Coverage Ratio	1.07	1.24	15.89
PE Ratio	28.39	6.22	-78.09
Net Profit Margin (%)	4.42	13.93	215.16

Summary of Performance

Strong Profit Growth: Both Profit Before Tax and Profit After Tax saw 200% compared to the previous year.

Improved Capital Position: The increase in capital adequacy, as reflected in the improved CAR/CRAR, is primarily due to the significant rise in the Net Owned Fund (NOF). NOF increased from Rs. 1313.35 Cr to Rs. 1517.41 Cr y-o-y.

Higher Returns: Return on average Net Owned Fund (NOF) more than tripled, reflecting improved profitability.

The interest coverage ratio increased due to a significant increase in EBIT. In FY 25, EBIT and financing cost were 1623 Cr and 1312 Cr, respectively, and in FY 24, EBIT and financing Cr, respectively.

PE Ratio Decline: The PE Ratio decreased due to an increase in EPS and a decrease in the Market price in FY 25. In FY 25, EPS were 12.96 and the Market price was 80.49, respectively. In FY 24, EPS was 3.85 and the market price was 109.6, respectively.

Net Profit Margin: The margin nearly tripled due to a significant increase in PAT.

Overall, PNB Gilts demonstrated significant growth in profitability, capital strength, and operational efficiency in FY 25 over the previous year.

6. Risk Management

The company maintained a balanced composition of securities with an aim to enhance net interest income and facilitate better trading opportunities. Risk management is a critical element of the Companys trading business. The Companys mid-office is primarily responsible for formulating, reviewing, and implementing risk management policies. Value-at-Risk (Var). PVBP limits, sensitivity analysis, and cut-loss policies form the core of the market risk management system. The impact of interest rate movements on the business and earnings profile is mitigated by operating within a well-defined proactive stop-loss limit and value-at-risk (Van limit. The Company also conducts a sensitivity analysis of its portfolio to assess the impact of parallel and non-parallel shifts in the yield curve on its earnings profile. Counterparty exposure limits and instrument-wise exposure limits were the primary tools used for managing credit risk in business. Similarly, well-established systems and procedures provided adequate defence against operational risk. The company also conducts an internal assessment of risks under the ICAAP exercise to arrive at economic capital covering Pillar I and Pillar II risks.

7. Human Resource Development

Human resource development is given high weightage, and the Company employs the best HR practices to ensure a healthy and motivating work environment for its employees. Employee skills are constantly upgraded by providing training suitable for individual requirements. Besides, in-house lectures and workshops are also conducted on a regular basis to stimulate a healthy exchange of ideas. Apart from skill enhancement training, emphasis is laid on exercises that re-engage, rejuvenate the employees and develop better bonds between co-workers, translating into better team dynamics in the Company. Employees? morale is also boosted by recognizing and rewarding their consistent efforts and dedication to their work with the STAR Employee Award biannually.

The details regarding employees are given in the Board?s Report. The total number of employees of the Company as of March 31, 2025, was 54 (including 3 employees on deputation from the parent bank).

8. Internal Control Systems

The Company considers a robust internal control system to be a fundamental component of its Corporate Governance framework. At PNB Gilts Ltd., internal controls are designed to ensure the orderly and efficient conduct of business, safeguard assets, prevent and detect fraud and errors, and ensure compliance with regulatory requirements and internal policies.

The internal control systems are aligned with the nature, size, and complexity of the Company?s operations and are reviewed periodically for adequacy and effectiveness. The Company has implemented a well-defined delegation of authority, with appropriate checks and balances for financial, operational, and compliance-related transactions, including procurement and contract approvals.

For the financial year 2024-25, the Company has appointed Grant Thornton Bharat LLP as the Concurrent Auditor. The scope of the Concurrent Audit includes critical areas such as treasury operations, investment transactions, and adherence to internal risk parameters and regulatory limits. Grant Thornton will conduct audits on a regular basis and submit reports directly to the Audit Committee to ensure transparency and accountability.

Additionally, the Company continues to be audited by Batra Deepak & Associates, the Statutory Auditor, who also issues an annual report on internal financial controls. The Company also engages an Internal Auditor and maintains an independent Internal Audit Department, headed by a designated Internal Head of Audit. This multi-tiered approach reinforces the internal control environment, which is reviewed by the Audit Committee in line with regulatory guidelines, including those prescribed by the Reserve Bank of India.

By maintaining a comprehensive internal control framework, PNB Gilts Ltd. ensures business continuity, risk mitigation, and stakeholder confidence.

9. Corporate Social Responsibility

In FY 2024-25, the company allocated a total CSR budget of approximately Rs.1.92 crore across several impactful initiatives. Key projects included supporting adolescent health by facilitating access to cervical cancer vaccines in partnership with The Beautiful Tomorrow Trust (Rs.0.30 crore) and inclusive development that empowered people with disabilities through greater mobility and self-reliance with Shree Bhagwan Mahaveer Viklang Sahayata Samiti (Rs.1.44 crore). These efforts underscore our focus on inclusive development and preventive care through its CSR activities. These diverse projects reflect the company?s commitment to advancing healthcare, supporting critical medical infrastructure, and promoting environmental sustainability through its CSR activities.

10. Strengths, Weaknesses, Opportunities and Threat Analysis

PNB Gilts is the only listed Primary Dealer in the country and has consistently displayed healthy financial performance since its inception. The company benefits from a strong team with varied experience and expertise in risk management and portfolio strategies, supported by robust regulatory and Board-approved policies. Its efficient risk management department is responsible for monitoring and managing risk, setting risk limits, and analyzing the portfolio. A strong compliance culture and transparency across the organization further strengthens its position.

While the company?s core operations as a Primary Dealer in the fixed income segment provide stability, its earnings remain sensitive to interest rate movements, which dominate the revenue stream. This concentration poses a challenge during periods of rate volatility. However, the company is actively working towards broadening its revenue base by gradually expanding into non-core segments, which is expected to enhance income diversification and mitigate earnings volatility over time.

For FY26, PNB Gilts ‘opportunities include a likely supportive environment from falling interest rates, continued government fiscal discipline, and India?s inclusion in global bond indices, which should attract more foreign investment and boost trading volumes. Easing inflation and further RBI rate cuts could enhance profitability, while diversification into foreign exchange and equity markets offers new revenue streams.

The main threats are global uncertainties such as volatile US interest rates, geopolitical tensions, and potential FPI outflows if the yield spread narrows further. Currency domestic policy shocks could also disrupt bond markets and impact PNB Gilts? trading gains.

On behalf of Board of Directors

Date : July 23, 2025	(Kalyan Kumar)
Place: New Delhi	Chairman
	DIN: 09631251