Sahara Housing Fina Corporation Ltd Management Discussions

MANAGEMENT DISCUSSION & ANALYSIS REPORT

• Global Economy Overview

The global economy is yet again at a highly uncertain moment, with the cumulative effects of the past three years of adverse shocks-most notably, the COVID-19 pandemic and Russias invasion of Ukraine manifesting in unforeseen ways. Spurred by pent-up demand, lingering supply disruptions, and commodity price spikes, inflation reached multi decade highs last year in many economies, leading central banks to tighten aggressively to bring it back toward their targets and keep inflation expectations anchored.

Although telegraphed by central banks, the rapid rise in interest rates and anticipated slowing of economic activity to put inflation on a downward path have, together with supervisory and regulatory gaps and the materialization of bank-specific risks, contributed to stresses in parts of the financial system, raising financial stability concerns. Banks generally strong liquidity and capital positions suggested that they would be able to absorb the effects of monetary policy tightening and adapt smoothly. However, some financial institutions with business models that relied heavily on a continuation of the extremely low nominal interest rates of the past years have come under acute stress, as they have proved either unprepared or unable to adjust to the fast pace of rate rises.

The unexpected failures of two specialized regional banks in the United States in mid-March 2023 and the collapse of confidence in Credit Suisse - a globally significant bank have roiled financial markets, with bank depositors and investors reevaluating the safety of their holdings and shifting away from institutions and investments perceived as vulnerable. The loss of confidence in Credit Suisse resulted in a brokered takeover. Broad equity indices across major markets have fallen below their levels prior to the turmoil, but bank equities have come under extreme pressure. Despite strong policy actions to support the banking sector and reassure markets, some depositors and investors have become highly sensitive to any news, as they struggle to discern the breadth of vulnerabilities across banks and nonbank financial institutions and their implications for the likely near-term path of the economy. Financial conditions have tightened, which is likely to entail lower lending and activity if they persist.

Prior to recent financial sector ructions, activity in the world economy had shown nascent signs of stabilizing in early 2023 after the adverse shocks of last year. Russias invasion of Ukraine and the ongoing war caused severe commodity and energy price shocks and trade disruptions, provoking the beginning of a significant reorientation and adjustment across many economies. More contagious COVID-19 strains emerged and spread widely. Outbreaks particularly affected activity in economies in which populations had lower levels of immunity and in which strict lockdowns were implemented, such as in China. Although these developments imperiled the recovery, activity in many economies turned out better than expected in the second half of 2022, typically reflecting stronger-than-anticipated domestic conditions. Labor markets in advanced economies most notably, the United States have stayed very strong, with unemployment rates historically low. Even so, confidence remains depressed across all regions compared with where it was at the beginning of 2022, before Russia invaded Ukraine and the resurgence of COVID-19 in the second quarter.

With the recent increase in financial market volatility and multiple indicators pointing in different directions, the fog around the world economic outlook has thickened. Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled. The major forces that affected the world in 2022 - central banks tight monetary stances to allay inflation, limited fiscal buffers to absorb shocks amid historically high debt levels, commodity price spikes and geo economic fragmentation with Russias war in Ukraine, and Chinas economic reopening seem likely to continue into 2023. But these forces are now overlaid by and interacting with new financial stability concerns. A hard landing particularly for advanced economies has become a much larger risk. Policymakers may face difficult tradeoffs to bring sticky inflation down and maintain growth while also preserving financial stability.

Inflation is declining with Rapid Rate Rises but remains elevated amid Financial Sector Stress

Global headline inflation has been declining since mid- 2022 at a three-month seasonally adjusted annualized rate. A fall in fuel and energy commodity prices, particularly for the United States, euro area, and Latin America, has contributed to this decline. To dampen demand and reduce underlying (core) inflation, the lions share of central banks around the world have been raising interest rates since 2021, both at a faster pace and in a more synchronous manner than in the previous global monetary tightening episode just before the global financial crisis. This more restrictive monetary policy has started to show up in a slowdown in new home construction in many countries. Inflation excluding volatile food and energy prices has been declining at a three-month rate although at a slower pace than headline inflation in most (though not all) major economies since mid-2022.

Even so, both headline and core inflation rates remain at about double their pre-2021 levels on average and far above target among almost all inflation-targeting countries. Moreover, differences across economies reflect their varying exposure to underlying shocks. For example, headline inflation is running at nearly 7 percent (year over year) in the euro area with some member states seeing rates near 15 percent and above 10 percent in the United Kingdom, leaving household budgets stretched. The effects of earlier cost shocks and historically tight labor markets are also translating into more persistent underlying price pressures and stickier inflation. The labor market tightness in part reflects a slow postpandemic recovery in labor supply, within particular, fewer older workers participating in the labor force (Duval and others 2022). The ratios of job openings to the number of people unemployed in the United States and the euro area at the end of 2022 were at their highest levels in decades. At the same time, the cost pressures from wages have so far remained contained despite the tightness of labor markets, with no signs of a wage-price spiral dynamic in which both wages and prices accelerate in tandem for a sustained period taking hold. In fact, real wage growth in advanced economies has been lower than it was at the end of 2021, unlike what took place in most of the earlier historical episodes with circumstances similar to those prevailing in 2021, when prices were accelerating and real wage growth was declining, on average.

Inflation expectations have so far remained anchored, with professional forecasters maintaining their five-year- ahead projected inflation rates near their pre-pandemic levels. To ensure this remains the case, major central banks have generally stayed firm in their communications about the need for a restrictive monetary policy stance, signaling that interest rates will stay higher for longer than previously expected to address sticky inflation.

As of early 2023, however, financial markets anticipated that less policy tightening would be needed than central banks suggested, leading to a divergence that raised the risks for a significant market re-pricing. This is most clearly evident in the case of the United States. A repricing materialized in early March, with the market implied policy path shifting up to close much of the gap with the Federal Reserves announced expected policy path as markets responded to news about inflation. But recent financial sector turbulence and the associated tightening of credit conditions have pushed the market- implied policy rate path back down, reopening the gap in the United States. This may reflect in part the emergence of liquidity and safety premiums in response to financial market volatility rather than pure policy expectations. Nevertheless, the risks to financial markets from sudden re-pricing due to policy rate expectation changes also highlighted in the January 2023 World Economic Outlook (WEO) Update remain highly relevant.

Indebtedness Staying High

As a result of the pandemic and economic upheaval over the past three years, private and public debt have reached levels not seen in decades in most economies and remain high, despite their fall in 2021-22 on the back of the economic rebound from COVID-19 and the rise in inflation. Monetary policy tightening particularly by major advanced economies has led to sharp increases in borrowing costs, raising concerns about the sustainability of some economies debts. Among the group of emerging market and developing economies, the average level and distribution of sovereign spreads increased markedly in the summer of 2022, before coming down in early 2023. The effects of the latest financial market turmoil on emerging market and developing economy sovereign spreads have been limited so far, but there is a tangible risk of a surprise increase in coming months should global financial conditions tighten further. The share of economies at high risk of debt distress remains high in historical context, leaving many of them susceptible to unfavorable fiscal shocks in the absence of policy actions.

Commodity Shocks Unwinding Even as Russias War in Ukraine Persists

The shock of Russias invasion of Ukraine in February 2022 continues to reverberate around the world. Economic activity in Europe in 2022 was more resilient than expected given the large negative terms-of-trade fallout from the war and associated economic sanctions. Large budgetary support measures for households and firms on the order of about 1.3 percent of GDP (net budgetary cost) in the case of the European Union were deployed to help them weather the energy crisis. The stinging hike in prices galvanized a reorientation of gas flows, with marked increases in non-Russian pipeline and liquefied natural gas deliveries to Europe, alongside demand compression in the context of a mild winter and adjustments by industries to substitute for gas and to change production processes where feasible. Oil and gas prices also began trending downward from their peaks in mid 2022. Together, these actions and channels have dampened the negative effects of the energy crisis in Europe, with better than expected levels of consumption and investment in the third quarter of 2022. Beyond Europe, a broad decline in food and energy prices in the fourth quarter of 2022 although prices are still high has brought some relief to consumers and commodity importers, contributing to the fall in headline inflation. Sustaining lower prices this year will depend on the absence of further negative supply shocks.

Source:https://www.imf.org/en/Publications/WEO/Issues/2023/04/

11/world-economic-outlook-april-2023

• Real Estate Industry

• Indian Real Estate Market continues to thrive despite global slump: Experts

Even as the global housing market faces a slump, 2023 is likely to be a year of expansion and growth for the Indian market claim real estate experts driven primarily with the economy showing stability and a strong end- user residential demand.

• International Realty

In USA, interest rate hikes have resulted in cancellation of projects. In the UK, property investment returns fell 10.4 per cent in 2022, in a sharp turnaround from gains of 20 per cent in 2021, claimed reports. However, the real estate markets of Asia have shown resilience in recent months. Research analysts, Credit Suisse have stated that Singapore property will be a "beacon of light" despite global housing slump.

• Indian Real Estate: Sustained urbanisation will drive growth

"The Indian real estate sector is pretty much mirroring the resilience shown by the Indian economy despite global headwinds. Real estate is expected to contribute a larger share of Indias GDP and expand its market size in the coming years. Growth levellers are even, and momentum is only likely to ramp up in magnitude. While the global real estate industry has seen a slump and sales plummet, the Indian real estate sector serves as a fitting example of tiding over tumultuous times and show signs of growth consistency in the years to come as well," told by President Credai NCR and CMD Gaurs Group. In India, the market is likely to thrive, claim realtors, despite headwinds. MD Migsun Group says, "The Indian real estate industry is currently thriving, despite headwinds faced by the global real estate market. A number of factors are driving this success, including strong economic growth, favourable demographics, and an increase in foreign investment. Economic growth in India has been strong in recent years, averaging around seven per cent per year. This has led to rising incomes and increased demand for housing, both from first-time buyers and those looking to upgrade their homes."

• Favourable Demographics

Favourable demographics are also playing a role, with a young population that is increasingly urbanising and seeking better quality housing. Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE said, "In India the house ownership as a percentage of the population is low and with increasing urbanisation the demand of housing in India has maintained its buoyancy. This is expected to touch new heights in 2023. This can be seen from the fact that ready to move inventory is almost over and now customers are getting options in under construction projects only hence there is a robust demand for housing properties. India has the unique advantage of a large and youthful labour market and has risen in the global business environment ranking and continues to be an attractive market for investors globally.

• Infrastructure spending is key to the realty success of India

Infrastructure spending on the roads, metro-railway and other amenities have sustained realty growth in India. Magazine adds, "A sizeable capital spending on infrastructure and asset-building projects has been a key factor that has boosted growth multipliers in the real estate ecosystem. During challenging times, businesses have looked at India as an attractive, resilient, and cost- effective investment destination to contain costs."

• Foreign Investments

Foreign investment has also been a key driver of the Indian real estate market. A number of large overseas investors have pumped money into the countrys real estate sector in recent years, attracted by its potential for long-term growth. This has helped to offset any slowdown in domestic demand and keep the market buoyant.

• Sales Projections for 2023

Chairman, Anarock Group told, "In 2023, residential supply is likely to lag sales as developers may focus on execution and calibrate launches. However, sales are likely to be in similar range as of 2022. Consolidation may continue for a while with the share of large and listed developers being 33 per cent to 35 per cent of the overall residential area sold in 2023. A word of caution - buyer sentiment might be impacted if inflation remains unchecked. Commercial office demand may shrink by 10 per cent to12 per cent in 2023 amidst the looming recession. Office supply may exceed demand leading to a rise in vacancy levels from the current 16 per cent to around 18-20 per cent. A possible recovery in the commercial office sector is likely by Q4 CY 2023.

Source: https://www.businesstoday.in/industry/infra/story/indian-real- estate-market-will-continues-to-thrive-despite-global-slump-experts- 360869-2023-01-18

* The 7 trends that are shaping Indian Real Estate Market

The Indian Real Estate Market is an attractive option for investors. This market has not only credible investment opportunities but also guarantees rewarding returns. Know about shaping Indian Real Estate Market when compared to other investment options like gold, mutual funds, or cryptocurrency, experts agree that the stock market is the best place to put your money. However, before spending money, its wise to do independent research on the Indian Real Estate Market.

It is anticipated that new developments will enter the real estate market in the coming years despite the markets recent difficulties. The demand for homes is rising, so investing and doing Registration of Land is a safe bet to pay off handsomely in the future.

1. Consumer tastes in housing have been shifting

People who can do their jobs from home are increasingly drawn to the suburbs, where they can find larger homes and higher quality of life at lower prices. WFH has supplanted the ‘walk-to-work concept as the primary factor in determining where to settle down.

The latest Consumer Sentiment Survey results back this up, showing that 43% of people would instead move to the suburbs in search of larger homes.

Only 28% of people currently seek housing within the city proper, close to their place of employment. Because of this increased demand, manufacturers are scrambling to produce new inventory.

2. Generation is in charge now

As a result of the current uncertainties, stock market volatility, and recent-past incidents in the financial sector, millennial have emerged as the key demand drivers of today. Many of them opt to buy houses instead of renting. Many people have been inspired to think about purchasing a home after the release of Covid-19 because of the safety they would feel in owning one.

As a result, despite their challenges, millennial continue to view homeownership as a top priority. Over half of the survey respondents were under the age of 35, but nearly half were between the ages of 25 and 35, making real estate the most popular Property Investment choice overall.

3. Expected Cost Increase

Cement, steel, and labor cost are all experiencing double-digit percentage increases, making a price increase of even five to ten percent seem like a safe bet.

A few developers have already raised prices, and the rest wont be far behind. However, many developers have increased operating costs over the past few months by providing safety protocols to their on-site workers, including covering the costs of vaccinations and other medical needs.

4. The need for health and fitness centers

Seventy-two percent of respondents to the recently released Consumer Sentiment Survey ranked a designated walking trail as either very important or somewhat influential. In comparison, sixty-five percent favored open green spaces. Since most swimming pools are closed during lockdowns out of preventive measures, they receive low priority.

5. The integration of shared office and living spaces

In light of the new WFH realities, many Indian Real Estate Market developers are considering whether or not to include co-working spaces in their residential projects.

Existing clubhouses can be converted into co-working spaces, and new developments can include this amenity in their plans from the start. Significant adjustments are usually necessary for retrofitting, especially in buildings designed for community gatherings.

6. Demand for workplaces rises as a result of Indian Real Estate Market

The expanding vaccination drive and low infection rates have boosted business activity in the country, and the adoption of digital technologies has dramatically changed how customers are served. The real estate industry, in particular, has embraced these innovations to boost productivity, improve stability, and guarantee business continuity.

7. Renting is making a comeback

The Model Tenancy Act: It is a crucial factor that will likely increase the demand for rental housing. The Act is meant to standardize and formalize the industry, drawing in investments to help turn empty rental units into cash. The Act will also provide a specialized, expedited dispute adjudication mechanism, which will help repair the trust deficit in landlord-tenant relationships.

Source: https://vakilsearch.com/blog/trends-about-real-estate-market/

* Future of Real Estate Market in India

The residential real estate market in India had astounding progress in 2022, setting new sales records of 68% Year on Year basis, further demonstrating the industrys prominence as one of Indias fastest-growing industries. After two years affected by COVID, Tier 2 and Tier 3 cities have arisen as fresh major real estate trends in 2022, and the real estate market has set unprecedented benchmarks which continued its growth momentum from 2021 amid the global slowdown.

Real Estate Market in India 2022

The Senior Vice President, SILA said despite the faltering economy we are currently experiencing, the real estate sector lived up to its best in 2022. According to an industry report, the top 7 prime residential markets in India recorded the highest sales during the first half of the financial year 2022-23 as compared to the last 10 years. The growing awareness of home ownership and the governments favourable affordable housing schemes has led to significant growth in the affordable housing segment. With people realising the long-term potential of owning a house, v/s renting led to sustainable growth in the segment. An increase in earning potential, a need for a better standard of living and the growing base of aspirational consumers and their lifestyle changes have led to substantial growth in the sector. With suited economic growth, the premium housing segment will also witness higher demand in the years to come. Reforms in stamp duty, the introduction of affordable rental housing complexes and government-aided schemes will boost this asset class while providing relief to the many who do not have access to it.

Real Estate Market in India in 2023

The Founder and CEO of Dextrus Workspace said "Y2023 should be an exciting year; though we anticipate further downward trends in the global economy, this, however, should be an opportunity for the Indian economy to become world leaders. The real estate sector is going to continue on its journey of long term growth as we see a continuous rise in GDP per capita, larger disposable incomes, growing urbanization and most of all a larger focus of the world on us as the next big economy."

"Indias strong growth potential shall lead to high demand in offices and commercial space in Tier 1 and Tier 2 cities. We are seeing this materialize in the rapid commercial growth in Pune, Hyderabad etc. The rising star, the co-working industry, has successfully adapted to changing work requirements and will continue to service the needs of young growing India. The co-working sector in India is expected to cross 50 million sq ft by the end of the year 2023 which would be a Year on Year 15% increase. Managed Office spaces shall continue growing at 10% in 2023. According to a recent JLL report, the net absorption of office space in 2022 across the top seven cities (Mumbai, Delhi-NCR, Bengaluru, Hyderabad, Chennai, Kolkata and Pune) has been 38.25 million sq ft," said by Founder and CEO of Dextrus Workspace.

The Senior Vice President, SILA said "We are bullish on the scope of real estate in 2023, we expect the momentum on the residential side to be steady in most markets, office providers to have a similar year, while Retail, Hospitality and Industrial Real Estate will continue having strong momentum. Due to the new RBI regulations, where NBFCs are disallowed for early stage Real Estate investing, we expect there to be a significant amount of capital required to fuel the supply, especially on the residential side. AIFs and HNI investors are two pockets that could fund this growth."

"The RBIs monetary policy is a testament to the countrys commitment to financial stability and economic growth. The focus on maintaining inflation in check while supporting the growth of the sector is commendable. The increased repo rate could impact residential sales to some extent, particularly in the affordable segment but in mid-term, it will have no impact. The increase in cost of borrowing will have a direct impact on home buyers, leading to higher EMIs and decreased affordability. It is important to understand the impact of this policy on the market and advise clients accordingly. While the hike may increase the cost of borrowing, it also reflects the central banks efforts to control inflation and maintain stability in the economy. The real estate market will continue to be driven by various other factors such as supply and demand, regulatory framework, and overall economic conditions." said by Founder & Director of Inframantra.

The Chief Operations Officer - IMGC said "As we have another 25 bps hiked repo rate marking an end to the current rate hike cycle Lenders have done their utmost to mitigate this impact and keep EMIs at the same level by lengthening loan duration whenever possible. However, with the rise in repo rate by 25 bps banks ability to assist is limited (as loan term extensions have already been exhausted), and the increase would eventually be passed on to borrowers, increasing the monthly payments. RBI monetary policy statement might have far reaching consequences for the home finance and real estate sectors. With the rise in the repo rate again in response to an inflation goal, the cost of borrowing for housing finance businesses would rise, resulting in higher home loan interest rates for borrowers. It will raise the cost of taking out mortgages and purchasing properties. This may result in a decline in home demand. Furthermore, an increase in interest rates will make it more difficult for consumers to qualify for mortgages, lowering demand even further. To help control inflation, the repo rate has been raised six times in the current financial year (the current repo rate is at 6.5% vs 4% a year ago). With the last push of 35 basis points in December 2022, which was subsequently passed on to end users in total, retail consumers began to feel the heat as their EMIs on current loans began to rise."

The CEO & Founder, Nesca Homes said "The Union Budget 2023-24 is remarkable in many ways, especially in terms of the real estate sector. The Finance Minister has announced "Green Growth" as one of the priorities of the budget. Organisations already working on the concept of green, sustainable living in India are already moving towards sustainability and this move will help to achieve their goals more efficiently. We welcome this move and hope to see a brighter future in terms of sustainable infrastructure which is a need of an hour keeping in mind the environmental challenges of the country. PMAY allocation of Rs 79,000 crore is also a good approach for affordable housing. Additionally, this budget is also helping MSMEs and Budget allocation f or skill India development is also appreciated."

"Considering the prevalent domestic and international scenarios and keeping up with the growth achieved so far, the budget is holistic and growth oriented. Increased tax rebates will definitely pump in more liquidity in the markets which will provide more disposable income to the lower end of the income spectrum. It may motivate individuals to purchase homes which would further enhance the growth of the real estate sector," said by Director, UK Realty.

Source: https://www.livemint.com/money/personal-finance/future-of- real-estate-market-in-india-in-2023-11676368024008.html

v Housing Loan Sector Overview and Outlook

Indias Home Loan (HL) market (Rs 29.6 lakh crore; 16% of overall credit at end March 2023) is still low on penetration (estimated to be @ 10.9%) even when compared to the countries with similar per capita income.

Improving affordability, increasing penetration beyond Tier-I locations, rising pace of urbanisation, push from the Government of India, improving quality of land records, and concentration of existing loans within the top 10 States present a long growth path, although some affordability gains reversed during Financial Year 2023 on the back of a 250 bps rate hike and sticky inflation, the fundamental need for housing and the lack of it will help sustain with longer-term expansionary stage of the cycle. Motivated by the combination of a sustained liability cost advantage, a structural shift in sourcing models, a renewed focus on retail HL, and transient rate cycle tailwinds, banks (@ 67% of HL market) are likely to continue dominating the prime HL segment. A large unmet demand and superior economics would ensure affordable Housing Finance Companies (HFCs) have a multi decadal opportunity and a long growth runway. Structural demand and the existing infrastructure are needed to ensure Indias housing demand (largely end- use) witnesses >15% CAGR growth over the next five years. Affordable HFCs have the opportunity to grow much faster, with the ability to double their market share and penetration over the next five to ten years. Going forward, the market microstructure is also likely to reflect newer collaborative models, which are still evolving.

Sector Growth Drivers

• Population Expansion: India has surpassed China as the worlds most populous country. A rising population implies an increase in households rendering enhanced lending opportunity.

• Favourable Demographic Shift: India has a young and rising population. The nuclearizsation of families and the resultant change in family structures open up demand for housing. People under the age of 25 years account for more than 40% of Indias population, and the average age of homebuyers is reducing to 25 years, reflecting a large scope for housing finance companies especially affordable housing companies.

• Mortgage Penetration: The mortgage penetration in India as at-end March 2023 from formal lending sources stands at approximately 10.9%, ensuring growth longevity.

• Urbanisation: The growth of urban areas has led to increased demand for housing. As more people move to cities for better job opportunities, the demand for housing has kept pace. Indias urban population is projected to be 67.5 crore in 2035, growing from 48.3 crore in 2020 to 54.3 crore in 2025 and 60.7 crore in 2030, as per World Cities Report 2022. By 2035, the percentage of population in India at midyear residing in urban areas will be 43.2%, from 34.9% in 2020.

• Government support: Government initiatives such as subsidies, tax incentives, and various regulatory measures and schemes, encourage developers to build affordable housing.

• Health and Wellness: The Covid-19 pandemic has highlighted the importance of safe and healthy housing. This, in turn, has had greater emphasis on affordable housing projects.

Source: Vastu_Annual-Report-22-23.pdf

Pradhan Mantri Awas Yojana Urban

Encouraging demand to pull more suppliers: The governments focus on ‘Housing for All by 2022 has been undeterred in the last few years despite several headwinds. This has made the housing finance space a center for traction with many new players entering the market. The affordable housing space has seen a special traction mainly on account of robust demand, absence of big players and large untapped market. Pradhan Mantri Awas Yojana Urban (PMAY) which was launched

in 2015 targeted the creation of 50 million houses by 2022. Under the same, ‘Credit Linked Subsidy Scheme (CLSS) for economically weaker sections and lower income groups, opened the doors for customers who remained away from owning a house. Resultantly, there have been large numbers of new entrants in the market. The Banks too have increased their focus in the retail housing finance space which has increased the competition in Rs.25-75 lakh home loan segment of the market. Compared to this, HFCs operating in affordable housing space (sub Rs.25 lakh loan category) have been growing well and are expected to outpace the industry.

* Risk Management

Risk Management is an important and integral part of the Companys business activities and it is critical to its success. As a financial intermediary, the Company is exposed to the risks that are unique to its activities, environment of operation, and economy as a whole. The company has created and implemented comprehensive policies and procedures to analyse, monitor, and manage risks throughout the organisation. The risk management process is constantly improved and adapted to new risk scenarios from time to time, and its adaptability is assessed for its suitability in the changing risk landscape. Risk Management at SHCL has well-defined policies and practices that have been approved by the Board. An overview of key risks and mitigants are as follows;

Credit Risk

• The Companys credit risk is governed by a board-approved credit policy that details the approval process and guidelines for monitoring and mitigating risk;

• The Companys Credit appraisal process is a structured and standardised credit approval process, including customer selection criteria, comprehensive credit risk assessment, and income analysis to ascertain the creditworthiness of a potential customer

• The Company also has a dedicated in-house collections team that actively engages with customers to ensure the mutual resolution of stressed accounts.

* Collateral Risk

• To limit property risk, the Company has put in place a dedicated in-house technical team in addition to enrolled local service providers and credit bureaus;

• The assets financed by the Company have LTVs in the range of 40-50%, ensuring availability of adequate asset cover.

• Market Risk

• A slew of rigorous board-approved policies that are benchmarked to best industry standards lead the Companys market risk management;

• The company undergoes sample stress tests to assess the sensitivity to external threats and implements relevant corrective & preventive measures / steps to safeguard business resilience;

• Operational Risk

• Continuous oversight examines these operations on regular basis. As a risk mitigant, this method has enabled transaction preventability;

• Since all loan originations are from different locations, scanned copies of loan documents for easy retrieval are readily available.

• Liquidity Risk

• Company at all point in times, maintains adequate liquidity in line;

• Reputation Risk

• Customer service is given priority which includes prompt resolution of customer grievances, ensuring customers are treated fairly and ethically;

• Regulatory Risks

As HFCs transit to the new regulatory framework, there could be risks arising from varying interpretations of the regulatory framework and accounting standards.

• Interest Rate Risk-Variable

In view of the financial nature of the assets and liabilities of the company, changes in market interest rates can adversely affect its financial condition. The fluctuations in interest rates can be due to internal and external factors. Internal factors include the composition of assets and liabilities across maturities, existing rates and repricing of various sources of borrowings.

Risk Management Committee

The Company has formed an Asset Liability Committee (ALCO) which meets at periodic interval to review its approvals and controls to the various risks faced. The ALCO reviews the process of implementation of various risk management techniques, system policies, procedure and evaluates as well as advises for changes required in relation to the business environment.

Asset Liability Management (ALM)

Assets and liabilities are classified on the basis of their contracted maturities. However, the estimates based on past trends in respect of prepayment of loans and renewal of liabilities which are in accordance with the ALM guidelines issued by the regulator have not been taken into consideration while classifying the assets and liabilities under the Schedule III to the Companies Act, 2013.

The ALM position of the company is based on the maturity buckets as per the regulatory guidelines. In computing the information, certain estimates, assumptions and adjustments have been made by the management. The ALM is mentioned in Notes to Accounts in this Annual Report.

• Segment Reporting

The Company is exclusively engaged in the Housing Finance business and revenues are mainly derived from this activity prescribed under Section 139 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) rules, 2015 as amended does not apply to your Company since revenues are derived from only one segment i.e. housing finance activity.

The Company has its operation within India, and all revenues are generated within India.

• Marketing and Selling Arrangements

The Companys marketing team has taken steps to serve the customers at their door step which includes appointing Home Loan Channel Partner wherever deemed necessary. The Company also caters to walk-in customers among others.

• Loan Products

SHCLs major focus has been to provide home loans to individuals and families for purchase, construction, extension, repair and renovation of houses. The Company has also developed loan products for the families in the self-employed category where formal income proofs are not easily available and the repayment capacity of such families are appraised based on their cash flows.

• Credit Evaluation

The Company has in place an effective credit appraisal mechanisms matching with regulatory norms and

Product Portfolio

Individual Housing Loans (HL)	This is the primary home loan product available to all Indian nationals / NRIs (selectively), to acquire / construct a house anywhere in India within the jurisdiction of SHCLs Branches.
Home Improvement Loans (HIL)	This loan is extended to help the borrower meet his requirement of improvement / renovation of the existing house.
Home Extension Loan (HEL)	This loan is given to enable the individual to expand the home / construct additional space to meet the growing requirements of the family.
Land Loans (LL)	Strictly for non-agriculture land situated within approved layouts of Municipal / Development Authority limits. In other words Land Loans can be sanctioned only in case of Plots for construction purpose and plots allotted by Development Authorities and Housing Board specifically for the construction of houses/flats (residential purpose) within Municipal limits.
Home Loan Plus (HLP)	Existing Borrowers with good repayment track record are eligible to apply for this loan. Seasoning period of 6 months from the last/full disbursement of the existing loan.
Mortgage Loans (ML)	This loan is extended to those who own residential property with fixed sources of income and are looking for finances to meet immediate requirements like childrens education, marriage, medical treatment etc.
Non Residential Property Loans (NRPL)	All professionals like practising Medicos, CA/ICWA/CS, Architect, Consulting Engineer, Solicitors may be considered for this loan for acquiring / constructing their Office premises, clinic etc.
Home Loan Enhancement (HLE)	In the case of existing good borrowers whose repayment track record is consistent and regular, can enhance existing loan for extension or renovation or repairs of the property.
Loan Take Over / Balance	Existing home loan takeover from HFCs / Banks.
Transfer (BT)	Existing mortgage loan takeover from HFCs / Banks.
	Existing non residential premises loan takeover from HFCs / Banks.

guidance, aimed at providing your Company a significant competitive advantage. Through a combination of financial documents based assessment and personal interview, the assessment system is customised to capture the credit worthiness of applicants from different segments - the salaried class, self employed, practicing professionals or those engaged in the informal sector.

• Spread on Loans

The weighted average rate of lending during the year was 10.90 per cent p.a. as compared to 11.49 per cent p.a. in the previous year. The average all-inclusive cost of funds was 6.05 per cent p.a. as on March, 31, 2023. The spread on loans over the cost of borrowings for the year was 4.85 per cent p.a. as against 5.10 per cent p.a. in the previous year.

The NIM is under tremendous pressure and consequently the profitability will come under pressure too. The NPA resolution is neither going helped in any way by the legal system which still drags the cases for years.

• New Segments

The Company has been continuously analysing the housing needs and credit profile of underserved market segments. Method of gaining a deeper understanding of these market segments are under review and would enable us to enlarge our customer base.

• Business Strategy

To be a prominent Corporate Citizen in promoting housing activities through customer friendly home finance schemes within a service oriented atmosphere. To consolidate and grow in a competitive environment reflecting the ethical standard of a good corporate citizen.

• Financial and Operational Performance

The same has been covered in the section Directors Report forming part of this Annual Report.

• Human Resources

The Company has a dedicated team of 32 Employees as on March 31, 2023, who have been contributing to the progress and growth of the Company. The manpower requirement at Offices of the Company is assessed continuously and recruitment is conducted accordingly.

Loan asset per employee of the Company as at March 31, 2023 was Rs.245.83 lacs.

V Key Ratios

Sl. No.	Particulars	2022-23	2021-22
1	CRAR (%)	106.22	91.10
2	Net Owned Fund (Rs in Lakh)	4824.05	4641.65
3	Operating Profit Margin (%) #	18.55	15.08
4	Net Profit Margin (%)	12.64	14.09
5	Return on Equity (%)	2.94	3.85
6	Leveraging of NOF (Times)	0.98	1.29

# Operating Profit= Profit before tax - Other Income

• Business Outlook

Company is constantly reassessing the current scenario and is adopting increased caution while funding projects and is considering the existing borrowers with credible repayment track record and cash flows before taking new exposure on them. More emphasis is being placed on the security value and manner of valuation in order to ensure that there is no dilution of security.

Company has also laid increased emphasis in strengthening its recovery mechanism and is having a focused approach to ensure its existing portfolio is intact. The Company is focusing on sourcing retail loans of moderate ticket size with large volumes in order to mitigate the risks and is constantly modifying its product mix.

• Indian Accounting Standards (IND AS)

The Company has prepared these financials to comply in all material respect with the Indian Accounting Standards (IND AS) notified under section 133 of the Companies Act, 2013, as amended, relevant provisions of the Companies Act 2013, various regulatory guidelines to the extent relevant and applicable to the Company and in accordance with the generally accepted accounting principles in India.

The financial statements are presented in Indian Rupees (Rs) and all values are rounded to the nearest Crore except when otherwise stated.

• Cautionary Statement

This document contains statements pertaining to the companys objectives, projections, estimates and expectations, which include forward looking statements, within the scope of applicable laws & regulations. The forward looking statements are based on certain assumptions and expectations of future events and which are subject to inherent risks and uncertainties. Company cannot guarantee the accuracy and fulfillment of these assumptions and expectations mentioned in the document. The actual outcome may significantly deviate from the expectations that have been expressed in the statement due to external factors which are beyond our control. The company assumes no responsibility to publicly amend, modify or revise any forward looking statements based on any subsequent developments.