Rajkot Investment Trust Ltd Management Discussions

Rajkot Investment Trust Limited was incorporated as a public limited company under the Companies Act, 1956, on June 29, 1982. Company is also categorized as Non-Banking Financial Company (NBFC)-Loan Company and was registered with the Reserve Bank of India (RBI) on 05/08/1999 with certificate Registration 01.00308.

The Company is managed by qualified professionals having experience in the Finance sector. The Qualifications and Experiences of the people on board are key factors for the growth achieved by the company in recent period. The Management is strictly applying its internal control through optimization of funding costs, identification of potential business areas, cost efficiencies, strict credit monitoring and raising the level of customer service.

VISION:

To be the most trusted and preferred Investment and financing company, excelling in customer service delivery ^th™^{ghcomm,ttedandempoweredemployees}-

To be a dynamic and responsive organization catalyzing economic development by identifying and financing commercially viable industries, providing valued advisory & consultancy services, promoting entrepreneurship through effective mentoring, skill development and capacity building of the small and medium enterprises.

BUSINESS PROFILE OF THE COMPANY:

The Company is a Registered as Non-Banking Finance Company (NBFC) with Reserve Bank of India and presently carrying out the business activities relating to investment and loan Company under the prescribed guidelines of RBI.

INDIAN ECONOMY:

Indian economic Review:

Following a successful moon mission and hosting the G20 Summit, India is positioned to emerge from 2023 with increased stability and optimism for its growth and future prospects. The countrys attractiveness as an investment destination remains robust, given the size and scale of operations it has to offer to global companies, abundant skilled talent pool, and prowess in technology and innovation. Indias Nifty 50 index, hit a new high, up 16% this year. It surpassed Hong Kongs Hang Seng index, which fell 18% stock market is now the seventh largest with a market capitalization of US$3.989 trillion. High performing sectors predicted for 2024 include banking, healthcare, and energy. Indias ease of doing business reforms centered on streamlining and digitizing regulatory compliance processes throughout the entire business lifecycle, spanning from incorporation to the cessation of operations. Furthermore, the 2023 survey conducted by the United Nations Economic and Social Commission for Asia Pacific (UNESCAP) on digital and sustainable trade facilitation positioned India as a leader in global trade facilitation efforts, achieving an impressive score of 93.55% in 2023 compared to 90.32% in 2021. Indias combined exports of merchandise and services for April- October 2023 was estimated at US$437.54 billion.

The Asian Development Bank (ADB) upgrades Indias gross domestic product (GDP) growth forecast for fiscal year (FY) 2024 ending on 31 March 2025 from 6.7% to 7% and 7.2% in FY2025, driven by robust public and private investment and strong services sector. The triggers for growth in FY2024 will come from higher capital expenditure on infrastructure development both by central and state governments, rise in private corporate investment, strong service sector performance and improved consumer confidence.

The Government of Indias efforts to boost infrastructure development while undertaking fiscal consolidation and provide an enabling business environment will help in increased manufacturing competitiveness to augment exports and drive future growth

Outlook:

The governments focus on fiscal consolidation, with a targeted deficit of 5.1% of GDP for FY2024 and 4.5% for FY2025, will enable the government to reduce its gross marketing borrowing by 0.9% of GDP in FY2024 and create further room for private sector credit. Indias current account deficit will widen moderately to 1.7% of GDP on rising imports for meeting domestic demand. Foreign direct investment will be affected in the near term due to tight global financial conditions but will pick up in FY2025 with higher industry and infrastructure investment. Goods exports will also be affected by lower growth in advanced economies but pick up in FY2025 as global growth improves.

NBFC SEGMENT IN INDIA:

NBFCs have become a trusted and dependable source of financing for a diverse array of individuals and businesses, including small and medium-scale enterprises, as well as those who have been traditionally left out of the financial system. With their extensive reach, tailored approach to assessing financial needs, and quick processing times, NBFCs have been able to cater to a wide range of borrowers debt capital requirements in a highly efficient and seamless manner. In the FY 2023-24, NBFCs have prioritized technology-driven distribution and financial inclusion, setting the stage for continued technological advancement in FY 2024-25. As of 2023, the NBFC sector has reached an impressive size of USD326 billion, underscoring its expanding influence in the financial domain.

The sector has also shown resilience in terms of sound capital position, improved asset quality, adequate provisioning and higher profitability. Furthermore, the sector has leveraged digitisation to offer alternative financing options, especially to the MSMEs, which face challenges in obtaining loans for traditional banks. As of 30th September 2023, there were a total of 9,356 NBFCs registered with the Reserve Bank of India (RBI). Since the implementation of Scale Based Regulation (SBR), NBFCs have been segregated into four layers, namely, a Base Layer (NBFC-BL), a Middle Layer (NBFC-ML), an Upper Layer (NBFC-UL) and a Top Layer (NBFC-TL), based on size, activity, and the perceived level of riskiness. As of the end of March 2024, the aggregate credit extended by NonBanking Financial Companies (NBFCs) in India showed significant growth. The total credit extended by NBFCs reached Rs.30.8 lakh crore, marking a robust expansion driven by strong performances across various sectors, particularly personal loans and loans to the industrial sector. NBFCs co-lending AUM which is nearing Rs.1-lakh crore is also expected to grow by 35-40% in medium term. Co-lending AUM of NBFCs is estimated to be around Rs. 75,000 crore as of September 2023, up from Rs. 55,000 crore in March 2023. Personal loans account for a third of overall co-lending AUM across the industry, followed by housing loans at around 20% and unsecured MSME loans and gold loans at 13% each. Secured MSME (including loans against property) and vehicle loans comprise the remaining 20%. The total GNPA ratio of NBFCs improved to 4.6% in September 2023, down from 5.9% in September 2022. Notably, the personal loans segment which experienced rapid growth in recent years, reported the lowest GNPA ratio at 3.6% as of September 2023. The GNPA ratio for industrial advances made by private NBFCs stood at 12.5%, representing 21.6% of the overall GNPA of the NBFC sector. The borrowing cost or cost of funds for NBFCs increased sharply by 25-50 bps (basis points) over the last quarter of fiscal 2024. It is expected that the increased cost of funds should result in some compression in net interest margins (NIMs).

Overall NBFC credit during fiscals 2019 to 2023, witnessed a CAGR of ~10% which was majorly led by retail segment which accounts for ~47% of overall NBFC credit and witnessed a CAGR of ~13%, while NBFC non-retail credit witnessed a growth of ~8% during the same period. Going forward, growth in the NBFC retail segment is expected at 18-19% CAGR between fiscals 2023-25 which is expected to support overall NBFC credit growth, with continued focus on the retail segment and multiple players announcing plans to reduce wholesale exposure, the retail

segments market share is expected to rise further to 48% (vs the wholesales 52%) by end of FY24 and remain stable in FY25.

EMERGING TRENDS IN THE FINANCIAL SERVICES INDUSTRY:

• Simplifying digitalization - Business is becoming more about the user experience. Automated user interfaces can go a long way in aiding this transformation, and implementing digitalization is key to making it happen. The upcoming year will be about the simplification of processes and digitalization.

• Banking regulations - 2018 will be a turning point in financial regulation. Alongside General Data Protection Regulation (GDPR) and Markets in Financial Instruments Directive (MiFID II), the requirements for central clearing and the second Payments Services Directive (PSD2) will bring out significant changes to the banking environment, with the visionaries emerging as the winners.

• FinTech collaboration - One of the largest technology revolutions in banking in recent years has been the use of advanced data analytics techniques to nail rogue trading activities within banks. In 2018, banks will have to decide whether to service clients in-house or through a third party, to stay competitive.

SWOT ANALYSIS:

? Strengths

> Distinguished financial services provider, with local talent catering to local customers.

> Vast distribution network especially in rural areas and small towns, diversified product range and robust collection systems.

> Simplified and prompt loan request appraisal and disbursements.

> Product innovation and superior delivery.

> Ability to meet the expectations of a diverse group of investors and excellent credit ratings.

> Innovative resource mobilization techniques and prudent fund management practices.

? Weakness

> Regulatory restrictions /changes continuously evolving Government regulations may impact operations and which reduces their ability to be competitive and protect their margins..

> Uncertain economic and political environment.

OT

? Opportunities

> Demographic changes and under penetration.

> Tapping into the fast-growing e-commerce segment.

> Large untapped rural and urban markets.

> Growth in Commercial Vehicles, Passenger Vehicles and Tractors market.

> Use of digital solutions for business/ collections.

> Anew wave of entrepreneurship creating a new demand for capital and financial services from NBFCs.

• Threats

> High cost of funds.

> Rising NPAs.

> Restrictions on deposit taking NBFCs.

> Competition from other NBFCs and banks.

HUMAN RESOURCE:

• Your Company believes that people perform to the best of their capability in organizations to which they feel truly associated. Your Company focuses on widening organizational capabilities and improving organizational effectiveness by having a competent and engaged workforce. Our people are our partners in progress and employee empowerment has been critical in driving our organizations growth to the next level.

INTERNAL CONTROL:

• The Company has put in place an adequate internal control system to safeguard all its assets and ensure operational excellence. The system also meticulously records all transaction details and ensures regulatory compliance. The Company also has a team of internal auditors to conduct internal audit which ensure that all transactions are correctly authorized and reported. The reports are reviewed by the Audit Committee of the Board. Wherever necessary, internal control systems are strengthened, and corrective actions initiated.

CAUTIONARY STATEMENT:

• Certain statements in the Management Discussion and Analysis describing the Companys objectives, predictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and Government policies that may impact the Companys business as well as its ability to implement the strategy. The Company does not undertake to update these statements.

RISK MANAGEMENT:

Risk management is an integral part of the Company. Credit Risk, Interest Rate Risk, Market Risk, Liquidity Risk, and Operational Risk are the primary hazards. If these risks are not successfully managed, they could affect Companys financial stability and operations. Keeping this in mind, the Company consistently enhances and applies the risk management policies and procedures for the efficient execution of all its operations.

The primary purpose of risk management processes is to efficiently measure and monitor risks and contain them within acceptable limits.

Credit Risk:

Credit risk is the prospect of losses resulting from a decline in the creditworthiness of borrowers or other counterparties. Credit risk management frameworks, rules, processes, and systems are in place for the Company. The Companys loan/collateral evaluation system and procedures are highly organized. The process of evaluating

the creditworthiness of customers, a clear and fair assessment of the collateral, and prudential loan-to-value limitations, prudential individual and group exposure restrictions, industry limits, etc. are essential to the management of credit risk. The management of credit risk also involves exposure caps based on borrower group, region, and industry. Credit Risk Management also includes portfolio diversification, monthly post-disbursement monitoring, credit audits, borrower relationship management, and remedial action.

Operational Risk:

Operational risks are those that result from insufficient or failed internal procedures, people, and systems, or from external events. As a part of the Companys lending operations, the Company uses decentralized loan approval technologies to facilitate a quick loan approval procedure. The Company is under process to develop clearly defined loan approval processes and procedures to mitigate operational risks. The Company carries out Investment and major part of such investment activities are done in listed company and have a vision of short term as well as long term. Market volatility and sometime analysis to carry investment decision have its risk of financial loss. Generally, the management takes a very analyzed and informed investment decision to mitigate its operational risk. In addition, the Board of Directors has developed a "Whistleblower Policy.”

XV

Business Risk:

As an NBFC, the Company is exposed to numerous external risks that have a direct impact on its sustainability and profitability. Industry Risk and Competition Risk are the two most prevalent. The changeable macroeconomic conditions and fluctuating sector dynamics in many commercial segments may lead to loan asset impairment. The Company has a team whose responsibility is to regularly study economic and sector trends. Due to rising competition in the financial markets, the Companys business growth is contingent on its capacity to compete. In accordance with market trends and practices, the Company has designed customized loan products to increase market penetration.

Regulatory Risk:

The Company strictly adheres to and complies with all periodic regulations imposed by regulators such as the RBI and SEBI. The Company has zero tolerance for noncompliance with regard to the Capital Adequacy, Fair Practices Code, Asset Classification and Provisioning Norms, and filing of all mandatory returns to authorities.

The recent proposal of the RBI to close the regulatory gap between large, systemically significant NBFCs and banks may result in NBFC adopting regulations similar to those of banks.

External Risk:

Ukraine Conflict has had a global effect on the credit market, resulting in surging commodities prices and expansive financial sanctions that threaten the world economy that already weakened by the Covid-19 outbreak.

Human Resource:

The Companys success depends on the Companys employees. The Company believes that individuals achieve at their highest level in companies with which they sense a true connection. The personnel abilities, expertise, diversity, and productivity enables the Company to fulfil its obligations The Company focuses on expanding organizational abilities and enhancing organizational efficacy by employing competent and motivated workers. Employee empowerment has been essential to propelling the Company to the next level of development. Additionally, the Company defines and adopts best industry practices relating to Health, Safety, Security, and Environment, which define the core of its business and ensure the development of a culture in which its workers drive these standards.

Internal Control:

The Company has implemented a sufficient system of internal control to preserve all of its assets and guarantee operational excellence. Additionally; the system precisely documents every transaction detail and assures regulatory compliance. Further, the Company employs staff of internal auditors to ensure that all transactions are correctly authorized and reported. The Boards Audit Committee evaluates the reports. Where required, reinforce internal control systems and initiate corrective actions.

Cautionary Statement:

Certain statements in the Management Discussion and Analysis describing the Companys objectives, predictions may be forward looking statements within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and Government policies that may impact the Companys business as well as its ability to implement the strategy. The Company does not undertake to update these statements.