Sainik Finance & Industries Ltd Management Discussions

As of 2025, Indias GDP is projected to grow between 6.8% and 7.2%, primarily driven by strong domestic consumption, a buoyant services sector, and steady industrial growth. Inflation is stabilizing within the Reserve Bank of Indias target range of 4–6%, though fluctuations in food prices remain a concern. While urban employment is showing signs of recovery, underemployment in rural areas persists. On the external front, a manageable current account deficit of about 2% of GDP, coupled with robust remittances and rising services exports, has helped maintain economic stability despite a high oil import bill.

India is also making significant strides toward building a green economy. With a target to achieve net-zero emissions by 2070, the country is rapidly scaling up its renewable energy capacity, aiming to reach 500 GW by 2030. Investments in electric vehicles, green hydrogen, and sustainable farming are contributing to both economic and environmental resilience.

Despite enduring three turbulent years marked by a global pandemic, supply chain disruptions, ongoing conflict in Ukraine, and elevated interest rates aimed at curbing high inflation, India emerged as by far the worlds fastest-growing major economy. Calendar Year (CY) 2024 began with optimism, as inflation seemed largely under control and major economies were expected to avoid recession. These expectations proved accurate. However, as the year ended, it became clear that global inflation was more persistent than anticipated. And while the United States of America experienced robust growth, most other advanced economies did not. Additionally, many economies faced currency depreciation, posing potential disruptions, particularly for developing nations.

According to the IMFs World Economic Outlook (April 2025), global growth has been projected at 2.8% in 2025 and 3.0% in 2026, which is below the historical average of 3.7% for the period 2000-2019. It is worth noting that at 6.5% for FY2025 and FY2026, the IMF pegs Indias real GDP growth as the highest among all major nations including that of China. IMF also forecasts global headline inflation to decline to 4.3% in CY2025 and further to 3.6% in CY2026.

Regrettably, CY2025 has witnessed considerable uncertainty thanks to US announcing reciprocal tariffs on several nations, including India, and punitively high tariffs on China. This action, if it continues, would lead to reduced exports, along with unfavourable trade balances, export rates and forex rates; and for most nations, especially large trading ones, to a reduction in GDP growth. While the US has paused the imposition of higher tariffs for 90 days for most nations except China with the assumption that this will induce many countries to sit at the negotiating table, it is still too early to tell what the final outcome will be with several countries considering retaliatory tariffs on US exports. It remains to be seen how long this tariff war will last; and how it can significantly impact the economies of nations.

The second advance estimate of national income for FY2025, released by the National Statistics Office (NSO) on 28 February 2025, has pegged real GDP growth at be 6.5% versus 9.2% (1^st revised estimate) in FY2024.

Real GDP and GVA and growth, India

Source: Government of India, Central Statistics Office (CSO). AE denotes Advance estimate, FE denotes final estimate and RE denotes revised estimate.

Real GDP growth experienced a significant downward trend after Q3 FY2024. However, according to the second estimates for Q3 FY2025, it appears to be gaining momentum and is projected to reach 6.5% for FY2025. Quarterly GDP growth for Q1 FY2025 was 6.5%, followed by 5.6% in Q2 and 6.2% in Q3. As before, private final consumption expenditure (PFCE) has been the major contributor to GDP, with an estimated share of 56.7% in FY2025.

Indias current account deficit (CAD) for Q3 FY2025 stood at US$ 11.5 billion or 1.1% of GDP versus US$ 10.4 billion (1.1% of GDP) in Q3 FY2024. For the first three quarters of FY2025, the CAD aggregated US$ 37 billion, or 1.3% of GDP — compared to US$ 30.6 billion, or 1.1% of GDP over same period of FY2024. Robust growth in services exports and remittance receipts cushioned the effect of a widening merchandise trade deficit on CAD during Q2 FY2025.

After peaking at 6.21% in October 2024, the consumer price index, or CPI (General), steadily declined to 3.34% by March 2025. Following an assessment of evolving macroeconomic and financial developments, the Monetary Policy Committee (MPC) of the RBI decided to cut the repo rate from 6.50% to 6.25% in February 2025, maintaining a ‘neutral stance. With inflation coming down to the RBIs target of 4%, the central bank shifted its monetary policy stance from ‘neutral to ‘accommodative in April 2025 and announced a further repo rate cut from 6.25% to 6%.

Supported by healthy rabi crop prospects and an expected recovery in industrial activity in FY2026, the RBI in its communication on 9 April 2025 forecast real GDP growth at 6.5% for FY2026. Among the key drivers on the demand side, household consumption is expected to remain robust aided by the tax relief in the Union Budget 2025-26. Fixed investment is expected to recover, supported by higher capacity utilisation levels, healthy balance sheets of financial institutions and corporates, buttressed by the central governments continued emphasis on capital expenditure.

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, 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, expanding their Assets Under Management (AUM) from less than H2 trillion at the turn of the century to approximately H43 trillion by 30 September 2024. Between FY2019 and FY2024, NBFC credit is estimated to have grown at a Compound Annual Growth Rate (CAGR) of around 12%, primarily driven by the retail segment, which is estimated to have grown at a CAGR of some 18%. In contrast, NBFC non-retail credit is estimated to have grown at a CAGR of about 9% during the same period. 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 of September 2024, the overall GNPA ratio was 3.4%, down from 4.6% in September 2023, while the NNPA ratio decreased to 1.1% from 1.5% over the same period. Equally, the capital adequacy ratio fell to 26.1% from 27.6%, primarily due to higher risk weights and business growth.

Post-COVID, both banks and NBFCs have experienced rapid and sustained growth in overall credit and retail loans. Between FY2021 and FY2024, banks overall credit and retail loans grew at a CAGR of 15% and 21%, respectively. Analogously, NBFCs CAGRs were 14% and 20%, respectively. Higher growth rate in retail credit for both banks and NBFCs underscores that credit growth is predominantly driven by consumption credit. This growth in retail loans is due to increased leverage among retail customers. The good news is that both the banks and the NBFCs have demonstrated financial robustness while maintaining this growth.

In recent years, NBFCs were severely tested by four major external events: demonetisation, GST implementation, the collapse of some large NBFCs and the pandemic. Despite these challenges, many NBFCs have maintained a commendable track record. Their ability to navigate these stresses without substantial impact on their financial positions highlights their resilience and agility.

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.

On 9 April 2025, the RBI announced additional measures related to banking regulation, fintech and payment systems. It has proposed: i) Enabling securitisation of stressed assets through market-based mechanism. This is in addition to the existing ARC route under the securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. ii) Extending co-lending guidelines to all regulated entities and all type of loans, which were earlier applicable to banks and NBFCs for priority sector loans.

iii) Harmonising guidelines for lending against gold jewellery across all regulated entities. iv) Evaluating and revising limits for Unified Payments Interface (UPI) transactions, with appropriate safeguards to mitigate risks associated with higher limits.

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. 4,419.26 Lakhs as compared to Rs. 3,742.44 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.1,672.82 Lakhs as compared to Rs.1,532.59 Lakhs during the previous year. iv) Other Income

During the financial year under review, other income of the Company was decreased to Rs.5.73 Lakhs as compared to Rs. 7.71 Lakhs during the previous year. v) Interest and Finance Charges

During the financial year under review, total interest and finance charges was decreased to Rs. 937.16 Lakhs as compared to Rs.1000.56 Lakhs during the previous year. vi) Tax Expense

During the financial year under review, total tax expenses (current taxes and deferred taxes) were decreased to Rs.5.68 Lakhs as compared to Rs. 67.40 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 networth as compared to the immediately previous financial year is incremental due to decrease in financial cost. x) Operational and Financial Performance

During the financial year under review, the Companys total income was increased to Rs.1,672.82 Lakhs as compared to Rs.1,532.59 Lakhs in the previous year During the financial year under review, the Company earned total comprehensive income of Rs. 612.21 Lakhs as compared to total comprehensive income of Rs. 201.85 Lakhs in the previous year.

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 programme, 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.

As we get into an environment which is likely to be largely positive over medium to long term, there may be significant roadblocks in the shorter term due to funding difficulties which are facing by NBFC. Despite recent push by the RBI, the resolution of stressed assets in the system is likely to take more time. Also the effect of various loan waivers on credit culture in the rural areas is still to be seen. Your Company acknowledges these possible negative factors and has a plan to mitigate them through its deep domain knowledge, strong risk framework and an efficient collection mechanism.

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

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.

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.