Richfield Financial Services Ltd Management Discussions

RICHFIELD FINANCIAL SERVICES LIMITED CIN: L65999WB1992PLC055224

The Company is a Base layer Non-Banking Finance Company and is presently engaged in the business of lending activity. In the multi-tier financial system of India, importance of NBFCs in the Indian financial system cannot be neglected.

The Indian financial system comprises banks and non-banking financial institutions. While the banking system continues to dominate, Non-Banking Financial Companies (NBFCs) have gained significant relevance by addressing financial needs in underpenetrated and unbanked regions.

NBFCs: A Vital Component of the Credit Ecosystem

Indias growing economy has led to a parallel rise in financing needs. NBFCs play a complementary role alongside banks and financial institutions by bridging gaps in financial access, both in terms of products and customer segments. With their grassroots-level connect, NBFCs serve the informal sector and unbanked population across rural and semi-urban regions. In doing so, they support the governments financial inclusion agenda.

Classification of NBFCs

NBFCs until now have been classified on the basis of the kind of liabilities they access, types of activities they pursue and their perceived systemic importance. RBI introduced additional classification of NBFCs along with the activity-based and liability-based classification vide Scale Based Regulation (SBR) framework into four categories i.e., Base Layer (NBFC - BL), Middle Layer (NBFC - ML), Upper Layer (NBFC - UL) and Top Layer (NBFC - TL).

Opportunities and Threats Opportunities:

• Vast untapped markets

• Acceleration in digital adoption

• Rising gold prices

• Increase in microfinance lending cap to 25% of total assets

• Strong gold loan demand in southern states

Threats:

• Intensifying competition from banks and fintechs

• Higher borrowing costs due to RBIs tight monetary policy

• Macroeconomic inflationary pressures

• Volatility in gold prices affecting collateral value

Segment-wise or product-wise performance

During the period our Company has derived its income from a mix of interest income from gold loans, microfinance loans and other loans. We see a significant opportunity for our Company to expand our base in other finance segment such as vehicle loan or home loans etc. We intend to focus on the industry opportunity and leverage our established presence to further grow our business.

Outlook

The pandemic tested the resilience of the NBFC sector. However, the Company grew at a slower pace following the pandemic and a dip in the economy. As the economic situation has improved significantly, the Company expects that with a stable and a reformed government at the center, there will be positive growth and further rationalization of capital market. It is expected that this will lead to more investment, value creation, capitalization and thus the additional wealth for investors and see better prospects in near future. Also, with the growing economy there will be more opportunities for investment and financing which will prove beneficial for our company.

Focus on expanding coverage and sustain growth momentum

Gold loan financiers are expanding fast to meet the expected demand in the years ahead. Our Company is expanding its reach and customer base to regain its share in the market lead by fierce competition by banks and new aged fintechs. We are trying to achieve this by focused market strategies, with increased advertising, etc.

Risks and Concerns Commodity Price Risk

Commodity price risk is simply the risk of a swing in commodity prices affecting the business. Companies that sell commodities benefit when prices go up, but suffer when they drop. Companies that use commodities as inputs see the opposite effect. However, even companies that have nothing to do with commodities, face commodities risk.

As commodity prices climb, consumers tend to rein in spending, and this affects the whole economy, including the service economy.

Headline Risk

Headline risk is the risk that stories in the media will hurt a companys business. With the endless torrent of news washing over the world, no company is safe from headline risk.

Interest rate risk

From loans to deposits, changes in interest rates by the government are based on the direction in which the economy is headed. So, if the interest rates increase, companies get loans at higher rates, which can thus cut into their profits and affect their stock price.

Credit Risk

Credit risk is the possibility of loss due to the failure of any counterparty abiding by the terms and conditions of any financial contract with us. We aim to reduce the aforesaid credit risk through a rigorous loan approval and collateral appraisal process, as well as a strong NPA monitoring and collection strategy.

Internal control systems and their adequacy

Effective risk management system including appraisal, internal audit and inspections.

Risk management forms an integral part of our business as we are exposed to various risks relating to our business. The objective of our risk management system is to measure and monitor the various risks we are subject to and to implement policies and procedures to address such risks. We have an internal audit system which consists of audit and inspection, for risk assessment and internal controls. The audit system comprises of accounts audit.

Internal Audit Department

Our internal audit department assists in the management of operational risk using our centralized monitoring systems. Separate divisions of our internal audit department are in place to handle the audit of the departments of the corporate office and those of the branch offices. The audits of our branches are divided into two categories:

(i) Audit and

(ii) Inspection