Sainik Finance & Industries Ltd Management Discussions

Sainik Finance & Industries Limited (SFIL), a listed Company is engaged in the business of investment, finance and lending. It is

Non- Systematically Important Non-Deposit Taking Non-Banking Financial Company registered with the Reserve Bank of India (RBI).

1. MACROECONOMIC OVERVIEW

Global macroeconomic conditions remain broadly resilient but uneven, amid elevated policy and geopolitical uncertainty. According to the International Monetary Funds (IMF) World Economic Outlook (April 2026), global growth is projected at 3.1% in 2026, improve marginally to 3.2% in 2027, under the assumption that the Middle East conflict remains limited in duration and scope. Global headline inflation is expected to increase to 4.4% in 2026 before declining to 3.7% in 2027, reflecting renewed commodity prices pressures, firmer inflation expectations and tighter financial conditions. However, the external environment remains fragile, with higher trade barriers, geopolitical fragmentation and renewed trade tensions continuing to shape risk sentiments, supply chains and capital flow. Geopolitical risks have intensified, particularly due to escalating tensions in the Middle East, including Iran related developments, which pose upside risks to energy prices and could reignite global inflationary pressures and may adversely affect trade flows as well as overall economic activity. Simultaneously, US-China trade relations remain uncertain, shaped by selective tariff adjustments, export controls in strategic sectors such as semiconductors and rare earths and evolving bilateral arrangements. India continues to demonstrate strong macroeconomic resilience. The IMF forecasts GDP growth of 6.5% in both 2026 and 2027, while the NSO estimates 7.6% real GDP growth in FY2026, supported by robust private consumption and investment. Inflation remained subdued, enabling the RBI to lower the repo rate to 5.25% by December 2025. Domestically, the Second Advance Estimates released by the National Statistical Office (NSO) in February 2026 place real Gross Domestic Product (GDP) growth at 7.6% in FY2026, up from 7.1% in FY2025, driven by the twin engines of private consumption and investment.

Real GDP expanded to C 322.6 trillion in FY2026, while real Gross Value Added (GVA) reached C 294.4 trillion, details are given below in table, supported by services led growth and a recovery in manufacturing. India remains the fastest growing major economy, underpinned by resilient domestic demand, with private final consumption expenditure accounting for nearly 55.7% of GDP. Inflation dynamics in India have been benign, which has created space for calibrated monetary easing. Consumer Price Index (CPI) declined sharply through 2025, reaching a trough of 0.25% in October 2025 before inching up to 1.33% in December 2025, well below the inflation target band, aided by food price deflation and favourable base effects. In response, the RBI reduced the repo rate cumulatively from 6.50% in December 2024 to 5.25% by December 2025, while maintaining a neutral stance, reflecting limited but targeted policy space. On the external front, the current account deficit narrowed to 0.8% of GDP in the first half of FY2026, supported by strong services exports, providing a buffer against global volatility. Key risks stem from geopolitical led commodity price shocks and renewed trade disruptions, while low inflation, a narrowing Current Account Deficit (CAD), and robust domestic demand remain critical macroeconomic buffers.

Table: India, Real Gross Domestic Product (GDP) and Gross Value Added (GVA) at constant prices

*The Ministry of Statistics and Programme Implementation (MoSPI) has released the New Series of Annual and Quarterly National Accounts Estimates with base year 2022-23, which replaces the previous series with base year of 2011-12. Therefore GDP and GVA growth are not populated for FY2023.

Source: Government of India, National Statistical Office (NSO). AE denotes advance estimate, FE denotes final estimate, FRE denotes first revised estimate and PE denotes provisional estimate

Constructed upon baseline assumptions, survey indicators and model forecasts, real GDP growth is projected at 6.9% in FY2027. This reflects a gradual strengthening in economic momentum over the year. While the baseline outlook is supported by resilient domestic demand, the balance of risks remains tilted to the downside, primarily due to global economic uncertainty and commodity price volatility. However, higher crude oil prices than that estimated for baseline scenario real GDP growth is estimated at 6.7%.

2. INDUSTRY OVERVIEW

NBFCs are key pillars of Indias financial intermediation ecosystem. They complement scheduled commercial banks (SCBs) by extending credit to customer segments and geographies where conventional channels are less penetrated. Non-Banking Financial Companies (NBFCs) have emerged as powerful engines of credit, significantly expanding access to financial services, especially for historically underserved or excluded segments. By complementing the traditional banking system, NBFCs have utilised innovative credit delivery models that leverage technology and local insights to create customised financial products tailored to diverse borrower needs. Their agility and close customer connections have enabled them to play a role that is not only complementary to traditional banks but also catalytic in building a financial ecosystem characterised by deeper intermediation and wider opportunities.

Over the past decade, in line with this expanding role, NBFC credit as a proportion of GDP has increased steadily from 8.9% in FY2015 to 14.6% in FY2025. The growth of NBFCs has consistently outpaced that of banks, a trend that has become even more pronounced in recent years. This rapid growth underscores the sectors relevance and resilience. As NBFCs continue to grow in importance, it is crucial to focus on governance, risk management, and customer treatment to ensure their sustainable development. Credit growth of NBFCs, which has historically outpaced Indias nominal GDP growth, is expected to continue accelerating. NBFCs have demonstrated remarkable resilience and have become increasingly significant in the financial sector. During the year under review, the Reserve Bank of India has undertaken a significant rationalisation of its regulatory framework, including the consolidation of over 9,000 regulatory instructions into 238 Master Directions out of which 35 Master Directions were issued for Non-Banking Finance Companies (NBFCs)

The NBFC sector performance indicators have remained supportive of GDP growth. Credit growth for NBFCs in the aggregate upper and middle layers reached 21.3% year-on-year as of September 2025. Asset quality has further improved, with the overall gross non-performing assets (GNPA) ratio declining to 2.9% as of September 2025 from 3.4% a year earlier — which reflects continued strengthening in portfolio performance, underwriting discipline and collection outcomes.

The latest edition of the RBIs Financial Stability Report highlights that credit growth of NBFCs slowed to 16% from 22.1% a year ago. This deceleration is attributed to the high base effect and the increased risk weight for consumer lending introduced by the RBI in November 2023. The Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) ratios of NBFCs have continued to decline.

As NBFCs have become more significant, the RBI has enhanced its regulation of the sector to address the industry specific issues such as contagion risk in the financial system, oversimplified underwriting processes, concentration of credit risk, exposure towards technology related risks, etc. Accordingly, the RBI, over last few years, has issued various guidelines on (i) vigil over asset-liability management practices, (ii) maintaining liquidity ratios, (iii) increased reporting requirements, and (iv) scale- based regulations. These have led to NBFCs adopting practices in line with banks. The regulatory vigil is based on four key cornerstones of: (i) responsible financial innovation, (ii) accountable conduct, (iii) responsible governance, and (iv) centrality of the customer.

3. OUTLOOK

The credit demand is expected to grow with reducing uncertainty and investment traction going forward. Credit growth of NBFCs is expected to be driven by rising retail consumerism, formalisation of MSMEs, increasing financial penetration and investment focus on Indias manufacturing sector.

i) Share Capital

The Authorised share capital of the Company is Rs.1100.00 Lakhs divided into 11000000 Equity shares of Rs.10/-each. Issued, Subscribed and Paid up Share Capital of the Company is Rs.1088.00 Lakhs divided into 10880000 Equity Shares of Rs.10/-each fully paid up.

ii) Net Worth

At the end of financial under review, the net worth of the Company has been increased to Rs.4,827.64 Lakhs as compared to Rs.4,419.26 Lakhs at ended of previous year.

iii) Total Income

During the financial year under review, the total income of the Company was increased to Rs.1695.11 Lakhs as compared to Rs.1,672.82 Lakhs during the previous year.

iv) Other Income

During the financial year under review, other income of the Company was increased to Rs.7.09 Lakhs as compared to Rs.5.73 Lakhs during the previous year.

v) Interest and Finance Charges

During the financial year under review, total interest and finance charges was increased to Rs.1049.54 Lakhs as compared to Rs.937.16 Lakhs during the previous year.

vi) Tax Expense

During the financial year under review, total tax expenses (current taxes and deferred taxes) were increased to Rs.25.44 Lakhs as compared to Rs.5.68 Lakhs during the previous year.

vii) RBI Guidelines

The Company has complied with all the applicable rules and regulations of the Reserve Bank of India.

viii) Human Resources / Industrial Relations

The Company has a dedicated team who has been contributing to the progress and growth of the Company. The manpower requirement at the office of the Company is assessed continuously and recruitment is conducted accordingly. Concerted efforts have been put in talent management and succession planning practices, strong performance management and learning and training initiatives to ensure that Company consistently develops inspiring, strong and credible leadership. Number of people employed is 4 only.

ix) Details of any change in return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof

During the financial year under review, the return on net worth as compared to the immediately previous financial year was decreased due to increase in Impairment of financial instrument and Finance Cost.

x) Operational and Financial Performance

During the financial year under review, the Companys total income was increased to Rs.1695.11 Lakhs as compared to Rs.1,672.82 Lakhs in the previous year

During the financial year under review, the Company earned total comprehensive income of Rs.408.36 Lakhs as compared to total comprehensive income of Rs.612.21 Lakhs in the previous year.

5. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The internal financial control of SFIL over financial reporting is a process that is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with the generally accepted accounting principles. The Companys internal financial control over financial reporting consists of the policies and procedures:

(1) Pertaining to maintenance of the records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company

(2) Providing reasonable assurance that transactions are being recorded as mandatory to permit the preparation of financial statements according to the generally accepted accounting principles and that the receipts and expenditures of the Company are prepared only in accordance with authorizations of management and directors of the Company, and

(3) Providing reasonable assurance to prevent or timely detect unauthorized acquisition, use or disposition of the Companys assets which may have a material effect on the financial statements. The Company has a robust internal audit program, where the internal auditors, an independent firm of Chartered Accountants, conduct a risk based audit to not only test the adherence to policies and procedures but to also suggest improvements in the processes and systems. The audit program is agreed upon by the Audit Committee. Internal audit observations and recommendations are reported to the Audit Committee, which monitors the implementation of such recommendations.

6. POSSIBLE THREATS

As the economic environment is expected to remain broadly favourable over the medium to long term, the Company anticipates certain short-term challenges, primarily arising from the funding constraints faced by Non-Banking Financial Companies (NBFCs). Although the Reserve Bank of India (RBI) has undertaken several measures to improve liquidity and support the financial sector, the resolution of stressed assets within the system is expected to remain a gradual process. Furthermore, the long-term impact of various loan waiver schemes on the credit culture in rural markets continues to be an area of concern.

The Company remains cognizant of these potential risks and has implemented appropriate mitigation measures. Leveraging its deep domain expertise, prudent underwriting practices, robust risk management framework, and efficient collection mechanisms, the Company is well positioned to navigate these challenges while continuing to pursue sustainable growth and create longterm value for its stakeholders.

7. FIXED DEPOSITS

The Company is a non-deposit accepting -NBFC. The Company did not accept any fixed deposit during the period under review.

8. RISK AND CONCERNS

As an NBFC, SFIL is exposed to credit, liquidity and interest rate risk. It has continued to invest in talent, processes and emerging technologies for building advanced risk and underwriting capabilities. The Company recognizes the importance of risk management and has accordingly invested in appropriate processes, people and a management structure. The Board of Directors of the Company reviews the asset quality at frequent intervals. The nature of business the Company is engaged in exposes it to a slew of complex and variable risks. The rapid and continuous changes in the business environment have ensured that the organization becomes increasingly risk focused to achieve its strategic objectives. SFILs policies ensure timely identification, management and mitigation of relevant risks, such as credit risk, liquidity risk, interest rate risk, operational risk, reputational and regulatory risks, which help the Company move forward with vigour.

9. DETAIL OF SIGNIFICANT CHANGE IN KEY FINANCIAL RATIOS

Except liquidity coverage ratio, there is no significant change in key financial ratios as compared to these ratios in the previous financial year.

10. CAUTIONARY STATEMENT

This statement describes the objectives, projections, expectation and estimations of the Company, which may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Forward - looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. The actual result may differ materially from those expressed in the statement or implied due to the influence of the external factors, which are beyond the Companys control. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments.