Repco Home Finance Ltd Management Discussions

1. MACROECONOMIC AND INDUSTRY STRUCTURE & DEVELOPMENTS:

A. Macroeconomic Outlook

The world economy is still incredibly strong; growth is steady and inflation is back to goal. While there are risks, such as potential price spikes from geopolitical tensions like the conflicts in Ukraine and Gaza, as well as persistent core inflation from tight labor markets, the overall global outlook is balanced.

Global GDP growth is projected at 3.1 percent in FY24 and 3.2 percent in FY25. Global headline inflation is expected to ease gradually from 6.9 percent in FY23 to 5 percent in FY24 and even lower at 3.4 percent in FY25.

Variations in disinflation rates among major economies could lead to currency fluctuations, affecting financial sectors. Additionally, high interest rates may have stronger cooling effects than anticipated, potentially causing financial stress, especially as fixed-rate mortgages reset and households face high debt levels.

Despite the global challenges in the last few years, India has sustained its position as one of the fastest-growing economies globally, with an estimated GDP growth rate of 8.2% for FY24 higher than the growth of 7 percent in the previous year. The IMF forecasts a growth rate of 6.8% for the current fiscal year (FY25), mainly driven by public investment and buoyant domestic demand.

Indicators such as high levels of capacity utilization in the manufacturing sector, government capital expenditure, FDI inflows and strong financial and corporate sector balance sheets are expected to support a positive financial cycle. Furthermore, reforms in digitalization are anticipated to enhance formalization, financial inclusion, and economic opportunities contributing to Indias continued rapid economic growth.

Additionally, Indias demographic dividend, with a large and young population, presents opportunities for innovation, entrepreneurship, and consumption-led growth. Investments in education and skill development will be vital for harnessing this potential and ensuring inclusive growth.

However, headwinds from geopolitical tensions, volatility in international financial markets, geo-economic fragmentations,

rising Red Sea disruptions and extreme weather events, pose risks to the outlook. Ensuring resilience through the diversification of trade partners and strengthening domestic capabilities will be essential for mitigating these risks.

Indias GDP growth is expected to slow in FY25 from an estimated 8.2% in FY24, while the countrys GVA growth is predicted to decline in FY25 from the level of 7.2% in FY24, primarily due to the countrys first half of the fiscal year seeing slower-than- expected growth. We expect that YoY GDP growth will be lower in H1 FY25 due to the following factors: the decline in rural consumption and sentiment caused by the unsatisfactory and uneven monsoon and crop output in FY24; the likely slowing down of the Gols capital expenditure pace in early FY25 due to the General Elections.

Indias headline inflation softened to 4.9 percent during March 2024 from 5.7 percent in December 2023. However, food inflation again went upto 8.5 percent in March 2024. Geopolitical tensions and volatility in the financial market pose risks to inflation outlook. Considering these factors and with the expectations of a normal monsoon, CPI inflation for FY25 is projected at 4.5 percent by Reserve Bank of India.

B. Real Estate & Housing Industry Outlook

After a lull during the pandemic, the real estate industry gained momentum during FY24. Despite higher loan interest rates, sales of new residential units remained robust and the industry is expected to grow by 13-15 percent. The average sale price is also growing due to a change in product mix with a higher share of housing units, a demand push price rise and a lower inventory overhang.

While the mid and high-range housing segments remain important in the real estate market, affordable housing is often seen as a crucial catalyst for overall housing development due to its societal impact.

Affordable housing represents a significant and dynamic segment within Indias real estate sector. Even while precise numbers can change over time and between geographical areas, its still an important part of the industry. This market has advanced thanks to government initiatives like PMAY, which provided incentives and subsidies to both developers and purchasers. As they work together to meet the housing needs of an expanding population, cooperation between the public and private sectors is anticipated to have an additional impact on the market.

The Interim Budget 2024 mentioned the following highlights with regards to Infrastructure and Housing -

- The Pradhan Mantri Awas Yojana (Grameen) is close to achieving the target of 3 crore houses, with an additional 2 crore targeted for the next 5 years.

- Housing for the middle class scheme to be launched to encourage the middle class to buy or build their own houses.

- The enhancement in infrastructure outlay by 11% will bode well for firming up the growth of residential, commercial and industrial real estate asset classes across geographies.

C. Housing Finance Industry Outlook

According to Industrys various reports, Housing Finance Companies (HFCs) Growth and earnings to remain stable

in FY25. Various macroeconomic factors coupled with Government schemes and interventions like interest subsidies, tax benefits, and initiatives to promote affordable housing have improved the demand for real estate, especially the residential housing. Also, introduction of Real Estate Investment Trusts (REITs) have also provided alternative funding options in the housing sector.

Growth in HFCs is expected to be about 12-14% in FY25, driven by housing loans, which account for about three-fourths of their AUM and grow at 13-15%. The non-housing AUM of HFCs is likely to grow at 11-13%.

Profitability of HFCs is expected to remain healthy in FY25, supported by their ability to pass through the incremental cost of funding to their customers to a significant extent, coupled with the steadily improving asset quality position that positively impacts the incremental credit costs.

2. REGULATORY CHANGES

The Reserve Bank of India (RBI) has introduced a variety of regulations applicable to Housing Finance Companies (HFCs) and other Non-Banking Financial Companies (NBFCs) in an effort to unify the laws that apply to HFCs/NBFCs and banks. The following are examples of these regulations:

a. Principal Business Criteria: NBFC-HFCs are expected to have atleast 60 percent of its total assets towards housing finance out of the total assets, not less than 50 percent should be towards housing finance for individuals. [As of March 31, 2024, approximately 76% of RHFLs total loan assets were allocated to housing finance for individuals. The Company does not have any non-individual exposure].

b. Liquidity Coverage Ratio (LCR): NBFC-HFCs are expected to maintain liquidity buffers to overcome any liquidity disruptions by ensuring that they have adequate High- Quality Liquid Assets (HQLA) to withstand any temporary liquidity stress situation lasting up to 30 days. The Companies have until December 1,2025, to achieve a 100% LCR criterion in a phased manner. [As of March 31, 2024, RHFLs LCR was 226.5%.]

c. Scale-based regulations: Applicable since October 2022, the regulations further align the rules applicable to NBFCs with those of banks regarding internal capital adequacy assessment processes, concentration of investments and credit, large exposure framework, role of compliance officer, senior management compensation, and the like. RBI has defined four layers - Base Layer, Middle Layer, Upper

Layer, and the Top Layer. [RHFL falls into the middle layer. In line with RHFLs compliance policy, a Chief Compliance Officer (CCO) was appointed during the year].

d. Fair Lending Practices:

Regulatory guidelines during FY24 were as under:-

• Responsible Lending Conduct - Release of Movable / Immovable Property Documents on Repayment/ Settlement of Personal Loans - Applicable since December 2023. The regulation directs all financial institutions to release movable/immovable property documents within 30 days after full repayment/ settlement of the loan account. The regulation also stipulates a compensation mechanism for delayed release of property documents. [RHFL has implemented the guidelines since December 2023].

• Display of information - Secured assets possessed under the SARFAESI Act, 2002 - Applicable since March 2024. As part of the move towards greater transparency, RBI has directed all Regulated Entities (REs) which are secured creditors as per the SARFAESI Act, 2002, to display information regarding borrowers whose secured assets have been taken into possession by the REs under the Act. [RHFL has displayed the requisite information on the Company website].

• Reset of Floating Interest Rate on Equated Monthly Installments (EMI) based Personal Loans - Applicable since December 31, 2023. RBI has directed all Regulated Entities (REs) to provide borrowers with the option to switch to a fixed rate as per their Board- approved policy at the time of interest rate reset. [RHFL has implemented the guidelines since December 31, 2023].

• Penal Charges in Loan Accounts - Applicable with effect from April 1, 2024. RBI has issued directions to all Regulated Entities on levying penal charges in loan accounts to bring uniformity and transparency to customers. [RHFL has implemented the guidelines since April 1, 2024].

e. Framework for Compromise Settlements and Technical Write-offs - Applicable since June 2023. RBI has directed Regulated Entities (REs) to establish Board-approved policies for undertaking compromise settlements with borrowers as well as for technical write-offs. [RHFL has formulated the policy in line with RBI directions].

f. Compensation Framework and Strengthening of Customer Service rendered by Credit Information Companies (CICs) and Credit Institutions (Cls) - Applicable with effect from April 26, 2024. The Regulation directs all CICs and Cls to compensate customers in case their dispute related to credit information report is not resolved within a period of 30 calendar days. [In line with RBI Directions, RHFL has further strengthened its dispute redressal mechanism and ensures all CIC disputes are redressed within the stipulated time frame].

3. SWOT ANALYSIS OF THE COMPANY

S STRENGTHS

• Adequate capitalisation profile.

• Strong profitability ratios.

• Strong presence in South India and a significant Brand in Tamil Nadu.

• Diversified products cater to all segments of customers.

• Loyal Customer base.

FWfl weaknesses^^^P

• Greater reliance on own sourcing and collection.

• Less digital transformation compared to peers.

• Finding and retaining exceptional talent can be challenging.

• Restricted borrowing profile.

OPPORTUNITIES

• Credit demand across the majority of customers to remain healthy.

• Healthy profitability, notwithstanding some margin and borrowing cost pressures.

• I ncrease in Housing demand due to continued initiatives by GoI for affordable housing.

• Underserved semi-urban and rural markets.

THREATS

• Competitive pressures to remain elevated, especially from banks.

• Rise in Borrowing costs and stress on margins.

• I nadequate access to commensurate funding at competitive rates.

• Challenging regulatory requirements.

4. OUTLOOK

Notwithstanding the rising interest rates, inflation and the possibilities of a mild recession, the Company has been able to kick-start growth trajectory in FY24 and expects the momentum built by the post Covid era to accelerate in FY25. The Company has set itself moderate performance targets across all major parameters and will put its best efforts to support them.

In addition,

• The Company will continue to maintain an optimal blend of non-salaried and salaried loans in the loan book.

• The Company will continue to maintain the non-housing book around 30%.

• The Company will try to deepen its penetration in the NonSouthern states to build on the brand value by opening new branches.

• The focus will be on both customer acquisition and ticket size growth, in line with the increase in input.

• The Company will focus on cross-selling value initiatives and earn fee-based income.

• The Company will strive to maintain the NIM and spread at consistent levels.

• The Company will endure to focus on improving the asset quality.

• The Company expects that the digitization process will help improve the TAT and bring in process efficiencies.

During the year, the Company initiated changes across departments. Some of the major changes are:

• The Company has implemented a verticalization of its activities, the sales and collections verticals are already in place. It is planned to add operations and underwriting verticals in the FY25.

• The Company has completely revamped its Loan Origination and Loan Management activities across branch and head office levels through new software. Additional modules to facilitate back office processes (HR, audit, etc.) are likely to be implemented in the FY25.

• The Company intensified its recovery efforts by systematically attending to all its NPA accounts and following the remedies available under the SARFAESI Act. More than 5,000 notices were issued during the year (FY24). This assisted in bringing the borrowers up for discussion and ultimately reducing the NPA numbers. The actions would continue.

• Employee morale was kept high. Achievers were incentivized. A pay revision was effected across cadres.

• Decentralization of sanctions to Regional offices, upto a certain limit, proved beneficial. Two more regional offices were created this year (FY24). It is also planned to decentralize a few more operations as well as create two more Regional offices.

• We have started engaging with our clients and others through social media interactions.

The Company is optimistic that these measures would assist

in improving the performance of the Company in the medium

to long term.

5. CORPORATE OVERVIEW

The Company operates in two business segments: Individual Home Loans and Home Equity. For individual borrowers in the salaried and non-salaried (self-employed professional and self-employed non-professional) segments, the Company offers a range of customized home loan products to meet their specific needs.

6. GEOGRAPHIC PRESENCE

The Company had 212 points of presence as of March 31, 2024, comprising 168 branches and 44 satellite centers. We are present in 12 states as well as a Union Territory. We also have two asset recovery branches.

In FY24, the Company established eighteen new satellite centers in Andhra Pradesh, Karnataka, Telangana, and Tamil Nadu in

addition to two new branches in Rajasthan and Tamil Nadu, respectively. Additionally, the Company upgraded seven satellite centers into branches during the year. The retail network of the Company includes the following states: Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Kerala, Maharashtra, Odisha, West Bengal, Gujarat, Madhya Pradesh, Jharkhand, Rajasthan and the Union Territory of Puducherry.

Branch network

State / UT	Network
Tamil Nadu	107
Karnataka	29
Maharashtra	18
Andhra Pradesh	18
Gujarat	09
Kerala	09
Telangana	08
Rajasthan	05
Madhya Pradesh	04
West Bengal	02
Jharkhand	01
Odisha	01
Puducherry	01
Total	212

Sourcing Mix (Disbursements)

The Companys sources of customer acquisition are customer walk-ins, referrals, Direct Selling Agents (DSA), and Direct Sales Trainees (DST). The share of DSA was about 33% of total disbursements done in FY24.

7. RISK MANAGEMENT

The Companys business activities expose it to various risks, including Credit risk, Operational risk, Interest Rate risk, Liquidity risk, Reputational risk, Compliance risk and Solvency risk. Risk management forms an integral part of the Companys business. The objective of the Companys risk management system is to identify, assess, measure, manage and suggest ways to quantify the risks and control/mitigate various types of risks involved in each area of activity.

The Company recognizes that the identification of risk is the most crucial function in managing and mitigating the risk. The Company identifies the risks in each function/activity by taking inputs from all the departments and by analyzing gaps in the existing processes and procedures. The overall responsibility of identifying, monitoring, and evaluating risks lies with departmental heads and executive management. The Company analyzes risks in terms of consequence and likelihood of its impact. The analysis considers a range of potential outcomes and the possibility of those consequences occurring.

The Companys risk management committee, comprising the Chief Risk Officer and other senior management team members, meets regularly to assess the adequacy of the existing risk management system and discuss emerging risks, operational or otherwise. The Company has constituted a Board Level Committee for Risk Management. The Board reviews the risk management practices of the Company and assists the Company in its efforts.

(I) Rigorous credit appraisal keeps credit risk in check

The Companys credit approval process is organized and defined and comprises a well-established protocol for complete credit evaluation. The process, which happens at the branch, Regional and Head Office levels, ensures a high level of checks. A preliminary appraisal is performed by the branch manager, branch-level valuers, and lawyers. The same is again revalidated at the Regional Office level up to a certain threshold before sanction and at Head Office level above the threshold limit. Each borrower is rated based on a dynamic credit scoring model comprising over 15 parameters, including credit bureau score, carrying different weights. Credit bureau scores are tracked and taken seriously, and proposals with scores below a threshold value without justifications are rejected. Apart from that, we are now capturing and analyzing granular characteristics of loan accounts, identifying patterns and behaviors, and making the credit underwriting process more effective. Pricing of a loan comprises of a minimum lending rate plus premium to loan specific characteristics like quantum, risk and deviations. All efforts are made to ensure that our pricing covers the risk we underwrite. Such pricing discipline, we believe, will generate consistent and superior return ratios. In order to limit the magnitude of credit risk, prudential limits are laid down on various aspects of credit such as individual borrower-wise limits for housing loans and loan against properties, etc. The Loan to Value (LTV) ratio is fixed for different category of loans taking into account the regulatory prescriptions.

The Company maintains a conservative LTV. The average LTV was 47.1% on the realizable value as on March 31, 2024.

(II) Operational risk is mitigated using various tools

Operational risk includes the risk of loss due to internal system, process, or people failures or external occurrences. The Company has put in place various controls to mitigate operational risks. An ongoing monitoring of loan accounts is ensured by the credit monitoring department at the head office that tracks, among other things, the repayment capacity of the borrower, cash flow adequacy and proper valuation for the security etc. and informs process owners immediately. Credit review team, checks at random, if the approval by the sanctioning authority is in line with the Credit Policy of the Company. Credit offsite team at HO checks loan documentation and ensures compliance to loan sanction conditions before giving disbursement clearance. Operational risk is also being monitored through introduction of specific Key Risk Indicators (KRIs) for each line of business activity. KRIs are objective measures used to track the current risk and control environment and can act as early warning signals to potential risk and control issues. They form part of annual Operational Risk Management Reporting to the Board level committees. Post sanction of the loan, our Customer Service Department takes a feedback from the customers on their onboarding experience.

I nspection of each branch based on Risk Based Internal Audit system is performed by the internal inspection team at regular intervals. Concurrent audit is done at key branches identified in terms of outstanding loans and NPAs by retired senior officials of banks entrusted with special duty. Senior Company officials also make surprise visits to branches to check if all processes and best practices are followed. Apart from that, we take the help of external Risk Containment Unit to perform KYC documents check and risk checks on all plot loans and other loans of ticket size higher than Rs. 50 lakhs for non-documented income profile. Our Recovery team starts following up with customers and takes action when an account defaults on payment.

To improve operational efficiency, quarterly board level discussions are held on reports shared by recovery officers, external audit firm, internal Inspection team and the Operations team, who oversee monitoring of the Companys offsite transactions and KYC-related compliance. New learning is put to use immediately.

Performance review of all branch personnel is undertaken twice a year by the senior management team.

(III) Interest rate risk is mitigated by matching maturity and repricing of assets and liabilities

The Company has formulated Asset-Liability Management (ALM) policy, which lays down mechanisms for assessing various types of risks and dynamically altering the asset- liability portfolio to manage such risks. The maturity profile of assets and liabilities are monitored on an ongoing basis by Asset Liability Management Committee (ALCO) - a strategic decision-making body constituted by the Board, to mitigate the risks arising from cash flow mismatches, comprising of the Managing Director, Chief Operating Officer, Chief Development Officer, Chief Business Officer, Chief Financial Officer, Chief Risk Officer and other senior members of the Company. In addition, the Company has put in place an efficient and transparent interest rate transmission policy in the form of Minimum Lending Rate (MLR), which is reviewed every month and applicable immediately on all new loans.

The frequency of pricing reset for the existing loans has been revised to three months from 6 months with effect from April 1,2023.

At any point in time, an optimal balance between short-term and long-term borrowings is maintained in sync with the extant asset and liability profile. Most long-term borrowings and on-lending happen at floating rates, which act as a hedge when interest rate volatility is high.

(IV) Liquidity Risk is mitigated by ensuring availability of regular funding sources to enable uninterrupted lending activity by the Company

Management of liquidity risk is the ability of a Company to meet debt obligations as they become due, without adversely affecting the Companys financial condition. This assumes significance on account of the fact that liquidity crisis, even at a single institution, can have systemic implications. The cost incurred in maintaining sufficient liquidity is adequately incorporated in the internal product pricing, performance measurement and new product approval process for all material business lines, products and activities. Therefore, management of liquidity involves optimization of cost of liquidity and profitability of the Company. Maturity based cash flow mismatches (traditional maturity gap) in the balance sheet positioning

are identified as a potential source of liquidity risk and they are being measured by following a flow approach on a regular basis. For measuring the net funding requirements under various time buckets, maturity profile as suggested by RBI/NHB is used and the cumulative deficits in each time bucket is monitored vis-a-vis. the pre-determined tolerance levels. The funding requirement and deployment of surplus funds are monitored regularly. In addition to the above, we adhere to the guidelines on Liquidity Coverage Ratio (LCR), which stood at 226.5% as on March 31,2024 as against the regulatory prescription of 70%.

(V) Solvency risk is mitigated by keeping liquid investments

To mitigate solvency risk, the Company has an investment policy in place. The idea is to create and maintain an emergency buffer to be used in the unlikely event that things go out of hand. During the year ending March 2024, the Company made multiple investments in short-term fixed deposits with Banks and G-sec. The value of shortterm investments at the end of the year was Rs. 259.78 crores. In addition, the Company had a bank balance to the tune of Rs.245.25 crores. The total liquidity was about 3.8% of the balance sheet size as of March 31, 2024.

8. BORROWING PROFILE

The Company has funding sources spread across three verticals viz. refinance from NHB, term loans and working capital loan facilities from Repco Bank and other banks. The Company did not issue any Non-Convertible Debentures (NCDs) and Commercial Papers (CPs) during the year.

As of March 31,2024, 79.2% of the Companys borrowings were by way of borrowings from Commercial Banks, 10.8% by way of refinancing from the National Housing Bank (NHB), 10.0% from Repco Bank.

As of March 31, 2024, 1.7% of overall borrowings were on a fixed rate basis and 98.3% on floating rate basis. The average tenor on borrowings was 8.5 years.

Borrowing source	Rs. crores
Repco Bank	1,069.3
National Housing Bank	1,160.6
Commercial Banks	8,468.8
Total	10,698.6

9. CREDIT RATING

The Companys short-term and long-term debt facilities are rated by two rating agencies - Care Edge Ratings & ICRA Limited.

The long-term facilities include both Companys term loan facilities with banks and other financial institutions.

The Companys Non-Convertible Debentures facility is rated AA- (Stable) rating by ICRA Limited.

During the year FY24, rating agencies ICRA Limited & Care Ratings Limited reaffirmed AA- (Stable) rating assigned to Companys term loan facilities and A1+ rating assigned to Companys Commercial Paper facility.

10. CAPITAL ADEQUACY

RHFLs Capital Adequacy Ratio (CAR) as of March 31, 2024, was 34% consisting of Tier-1 capital of 33.2% & Tier-2 capital of 0.8%.

11. ASSET QUALITY

Over the years, the Company has developed robust risk management systems & processes in all areas of operations like loan origination, credit appraisal, loan disbursement, and collection & recovery. The new LLMS software introduced during the year also facilitates in improving our monitoring mechanism.

The Company was successful in bringing down its GNPA numbers significantly. Delinquency of a few accounts is inevitable considering the Companys exposure to unorganized sector. Despite a slippage of Rs.106.6 crores to stage 3, the Company

was able to recover a sum of Rs.273.8 crores, as a result of intensive recovery efforts. To strengthen its provision coverage for any unexpected credit losses in its stage 3 accounts, the Company has retained most of the provisions released due to recoveries made during the year. NPAs (Stage-3) constituted 4.1% (Rs. 551.6 crores) of the overall loan book as of March 31,2024, as compared to 5.8% (Rs. 718.7 crores) in the previous year.

The Provision Coverage Ratio on Stage-3 assets stood at about 65.2% as of March 31, 2024. About 90.5% of the loans in Stage-3 were under various stages of SARFAESI as of March 31,2024.

12. INVESTMENTS

Repco Micro Finance Limited (RMFL) was incorporated in 2007 as Repco MSME Development & Finance Ltd. and registered as an NBFC with the Reserve Bank of India in 2010. Later, it was classified as an NBFC-MFI in December 2013. The Company is promoted by Repatriates Cooperative Finance & Development Bank Ltd. (Repco Bank), which is a Government of India enterprise. RMFL is engaged in the activity of extending loans to economically backward women through the Women Self-Help Group for income generation purposes. The main objective of the Company is to assist poor women in their upliftment by promoting entrepreneurship and providing microcredit and finance in different loan cycles at reasonable rates of interest. Upscaling the underprivileged through financial inclusion and the creation of first-generation entrepreneurs.

The Company held investments in the equity of this unlisted associate Company, RMFL, to the extent of Rs. 31.6 crores (3,16,00,000 equity shares of Rs.10/- each) as of March 31,2024.

13. OPERATIONAL HIGHLIGHTS & PERFORMANCE SUMMARY

The Company ended the year with a resilient balance sheet, higher provision cover, and strong capital levels. The Companys primary business is housing finance. All other activities of the Company revolve around the main business.

During the year, the Company remained focused on preserving the quality of the balance sheet. Business performance in the last quarter was meaningfully better as the consumer confidence of our target group started showing an improvement.

A Business Summary

FY24	Loan sanctions (Rs. crores)	Loan disbursements (Rs. crores)
Q1 FY24	726	684
Q2 FY24	860	797
Q3 FY24	777	759
Q4 FY24	978	895
Total	3,340	3,135

B. Return on Assets Tree

The ratio of income and expenses to average loan assets

Metric	FY22	FY23	FY24
Net interest margin	5.0%	4.8%	5.2%
Other income	0.1%	0.1%	0.1%
Non-interest expenses	1.0%	1.2%	1.3%
Credit cost	1.9%	0.4%	0.0%
Income Tax	0.6%	0.8%	1.0%
Return on assets	1.6%	2.5%	3.0%

D. Other ratios

ECL provisions made during the year were significantly lower than the provisions made during FY23. The present provisions available are in compliance with the RBI Master Circular dated October 1, 2021 on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances. The lower provisioning facilitated in increasing the profitability ratios like Net Profit Margin, Return on Equity and Return on Assets of the Company during the year.

Particulars	March 2023	March 2024	Y-o-Y Change
Interest Coverage Ratio	1.7	1.6	0.0
Debt Equity Ratio	4.3	4.0	-0.3
Operational Profit Margin	34.8%	34.0%	-2.2%
Net Profit Margin	22.8%	25.6%	12.3%
Return on Equity	13.5%	15.8%	17.0%
Return on Assets	2.5%	3.0%	21.6%

14. INTERNAL AUDIT & CONTROL

The Company has put in place organized and effective internal control systems in sync with nature of business and scale of operations. The Company has implemented "Risk based Internal Audit" methodology as per guidelines specified by Reserve Bank of India (RBI).

Risk Based Internal Audit (RBIA) is an internal audit methodology which is primarily focused on assessing the inherent risk involved in the activities or system and provide assurance to the management that risk is being managed within the defined risk appetite level.

RBIA team was further strengthened to intensify the thrust on evaluation of branches and department/process to ensure that the functioning is in consonance with carefully formulated and well documented policies of the Company, in order to plug loopholes and improve customer service.

Details of the audit report of Branch Audit, Concurrent Audit and Departmental Audit are placed before Audit Committee of the Board on a quarterly basis for review. The report of standalone Information Security (IS) audit of IT systems by external IT auditors and special audit for evaluating the efficiency and

effectiveness of existing internal control system are reviewed by Audit Committee as well as IT strategy committee periodically. The operation and performance of Audit department are reviewed by Audit Committee.

Evaluation of the effectiveness and appropriateness of Internal Control systems and their compliance, the robustness of internal processes, policies, accounting procedures, and compliance with laws and regulations are the goals of these efforts. Stringent policies are in place to ensure that the assets and properties of the Company are utilized in the best interest.

15. INFORMATION TECHNOLOGY

During FY24, IT has ensured the seamless functioning of the newly introduced Loan Lifecycle Management System (LLMS) and Enterprise General Ledger (EGL) in all the branches. Besides, it is the first time in the history of RHFL that a mobile application for Direct Selling Agents (DSAs) has been implemented upon integration with LLMS on a pilot basis in FY24, which in turn will be fully rolled out in FY25. By doing so, we offer better customer service by reducing unnecessary visits by our authorized channel partners and customers to branches.

As IT always focuses on data accuracy and reliability, an external agency has been appointed to conduct a data migration audit, which in turn certified the flawless migration of data from our legacy software to our new LLMS software. With the implementation of the new LLMS in FY23, the Disaster Recovery Centre has also now become fully operational in FY24 to handle any unforeseen events at our Data Centre.

As our Company is coming up with many interactive applications, VAPT has been performed on both our hardware and software to ascertain that there are no security gaps. This VAPT has also been performed on our website on account of many newly added features, so as to safeguard against any unwarranted security attacks. To further strengthen IT security owing to the forthcoming implementation of many applications, the Chief Information Security Officer (CISO) has been dedicatedly designated to monitor potential IT security threats to our Organization. The Company is also in the process of implementing a Security Operation Centre (SOC) in the near future. To preserve the legacy documents of the erstwhile software in an effective manner, all end-of-life hardware has been replaced with new ones.

As our main motto is to provide solutions with operational excellence to all our internal users, the implementation process for non-core business software such as HRMS, Audit, etc. was in full swing in FY24 to get rolled out along with all other

applications in FY25. Furthermore, user-specific reports shall also be efficiently generated by all the users with state-of-the- art visualisation models under the upcoming EDW application in FY25.

16. HUMAN RESOURCES

To achieve its long-term goals, the Company thinks that recruiting, developing, and keeping a quality team is essential. In order to do this, the Company gives staff members the internal and external training they need, to stay current on industry benchmark practices in the home finance sector. An average of 610 employees took part in at least one training program during the course of the year.

The Organization has created jobs that are efficient, meaningful, and engaging through the use of strategic job design (KRA and

KPI),extending career paths, manageable skill sets, and internal talent pools to establish long-term talent access. Because of the ever-changing nature of the sector, the Company actively responds to employee needs, embraces flexible work arrangements, and provides a professional work environment while upholding positive working relationships. Throughout the year, the Company hired 291 new staff members. As of March 31,2024, the Company had 1076 employees on its rolls.

For and on behalf of the Board of Directors
	Sd/-
	K Swaminathan
	Managing Director & CEO
Place : Chennai
Date : 14th May 2024