Sakthi Finance Ltd Management Discussions

GLOBAL ECONOMY

During the Financial Year ("FY") 2024-25, the global economy experienced moderate growth only due to persistent major inflationary pressures, tight monetary policies in developed economies and geopolitical tensions. The major economies like U.S. and Europe experienced slower growth due to higher interest rates, weaker consumer spending and emerging markets especially, in Asia maintained better economic activity due to domestic demand and sectoral growth.

As per International Monetary Fund ("IMF"), the global growth is expected to be 2.8 per cent for 2025 and 3.0 per cent for 2026. Heightened geopolitical tensions pose risks to the international monetary system. Due to the series of new tariff measures announced by Trump administration in U.S., the outlook for global economy has weakened further. Further global inflation is expected to be in slower pace than anticipated earlier. The headline inflation has been forecast at 4.3 per cent in FY 2025 and 3.6 per cent in 2026. The global economy faces increasing headwinds in 2025 with growth expected to be at 2.8 per cent. Major economies are expected to experience slower growth due to muted consumption and fiscal constraints.

Policy uncertainties, trade tensions and structural challenges in major economies pose risks. Proactive fiscal measures and international collaborations are expected to mitigate these risks. By innovation, strategic investments and policy changes, the global economy can remain better to sustain growth and bring new opportunities.

INDIAN ECONOMY

With the aid of stronger performance in the manufacturing and construction sectors, the Indias Gross Domestic Product ("GDP") grew by 7.4 per cent in the January-March quarter ("04") of fiscal year 2024-25, up from 6.4 per cent in the previous quarter (October-December). While Q4 growth was the highest in four quarters, the full FY 2025s GDP of 6.5 per cent was a four-year low, down sharply from the 9.2 per cent growth recorded in FY 2024.

India also surpassed other large and contemporary economies, including China, which grew at 5.4 per cent in the previous year. Subdued urban demand and uncertainty surrounding Trump tariffs pose risks to the growth outlook for the current fiscal year (FY 2025-26). However, India is sustaining its growth and remains one of the fastest-growing economies in the world. On the inflation front, Consumer Price Index ("CPI") based inflation dropped to 2.1 per cent in June 2025, being a 76 months low, marking the lowest since July 2019. This decline was primarily driven by a reduction in food inflation. Further, food inflation turned negative during the month of June 2025, marking the lowest level since January 2019. This is mainly attributed to a favourable base effect and a decline in inflation of vegetables, pulses and products, cereals and products, sugar and confectionery, milk and products and spices etc.

The Whole-sale Price Index ("WPI") turned into a deflation after a gap of 19 months recording a negative 0.13 per cent during June 2025. It is primarily due to decrease in prices

in food articles, oils, manufacture of base metals, crude petroleum and natural gas etc. WPI based inflation was 0.39 per cent in May 2025 and 3.43 per cent in June last year.

The Indian automobile industrys performance was very much subdued in 2024-25. Indian Governments spending on infrastructure was lower than expected and the demand for commercial and passenger vehicles were weak. While the second half witnessed some improvement in sentiment, global events and geopolitical tensions had an effect on overall demand. As per Society of Indian Automobile Manufacturers ("SIAM"), wholesale despatches by the industry grew by 7.3 per cent in domestic sales and exports grew by 19.2 per cent. The Commercial Vehicle ("CV") industry, to which our Company has been associated, declined to 1.2 per cent in FY 2024-25, compared to the previous year. However, this segment posted a growth of 1.5 per cent in the last quarter of FY 2024-25. Though the overall trucks segment has witnessed a slight year-on-year decline, the requirement of freight movement has been suitably served with fleets migrating towards higher GVW vehicles. The performance of this segment has been supported effectively by the expanding highways and expressway network, which is playing a crucial role in reducing logistic costs and enhancing regional connectivity. OPPORTUNITIES AND THREATS

The Commercial Vehicle sectors future growth is one of positive, with Governments infrastructure investments, replacement demand of vehicle and depends on growth in industries such as coal, steel and cements.

However, challenges such as rising commodity costs, policy fluctuations and funding constraints may pose challenges to sustained expansion. Further, the push for sustainable mobility is driving a gradual shift towards electric commercial vehicles, supported by government incentives and environmental considerations. Though short-term volatility persists, the CV sector is well-positioned for long-term growth, driven by supportive policies and economic activities.

PROSPECTS FOR INDIAN ECONOMY DURING FINANCIAL YEAR 2025-26

World Bank ("WB") has predicted that Indias Financial Year 2026 growth will be at 6.3 per cent. International Monetary Fund has also projected Indias GDP Growth at 6.4 per cent. Asian Development Bank ("ADB") has forecast Indian GDP for the FY 2026 to 6.5 per cent citing the impact of baseline tariffs imposed by US and impact of policy uncertainty and Investment.

However, India continues to be one of the fastest growing major economies globally. Indias domestic economy remains resilient supported by strong consumption particularly from revival in rural demand. Further, services and agricultural growth, the later supported by a forecast of above normal monsoon rains.

KEY REGULATORY CHANGES

During the Financial Year, RBI had issued several Circulars / Guidance Notes / Amendment / Master Directions etc, the details of which are summarized below:

1. Circular on "Fair Practices Code for Lenders - charging of interest to all Regulated Entities" dated April 29, 2024:

RBI has advised the Regulated Entities ("REs") to review their lending practices when it comes to applying interest and other charges to borrowers along with their modes of loan disbursal. The aim of this circular is to ensure fairness and transparency in interest rates.

2. Guidance Note ("GN") on "Operational Risk and Operational Resilience" dated April 30, 2024: This GN has been issued with the intent of promoting and further improving the overall effectiveness of Operational Risk Management and Operational Risk Resilience of the REs.

3. Master Direction on Fraud Risk Management in NBFCs dated July 15, 2024: This Master Direction has been issued to adhere to the principles of natural justice in declaring an account as fraudulent as there are serious consequences of the borrower being declared fraudulent. The measures advised by RBI to REs include Governance Structure, Early Warning Signals, indication of fraudulent activities and reporting etc.

4. Master Direction on Treatment of Wilful Defaulters and Large Defaulters dated July 30, 2024: This Master Direction has been issued keeping in view the principles of natural justice. The identification of wilful defaulter shall be made keeping in view the track record of borrower. RBI has also advised the REs many internal measures to be adopted in this regard.

5. Notification on "Review of regulatory framework for HFCs and harmonization of regulations applicable to HFCs and NBFCs" dated August 12, 2024: This has been issued for the benefit of depositors and contain several measures to be adopted by the REs.

6. Guidance Note ("GN") on "Internal Risk Assessment Guidance for Money Laundering ("ML") / Terrorist Financing ("TF") Risk" dated October 10, 2024:

This Guidance Note outlines several measures / principles to be followed while conducting an internal risk assessment exercise. It also provides for methodology and quantification of ML/TF Risk Assessment and control measures and the follow-up actions to be undertaken by REs.

7. Amendment to master direction - know Your customer ("KYC") Direction 2016 dated November 6, 2024:

These amendments have been made to bring KYC Directions in line with the recent changes made in Prevention of Money Laundering (Maintenance of Records) Rules 2005 and the Unlawful Activities (Prevention) Act ("UApA") 1967. These amendments aim to simplify the KYC process for the REs and enhance the effectiveness of customer identification process measures, ensuring compliance with anti-money laundering and counter-terrorism financing Regulations.

8. Master Direction - Reserve Bank of India (Credit Information Reporting) Directions 2025 dated January 6, 2025: The objective of issuing this Master Direction is to establish a standardized framework for reporting and dissemination of credit information, safeguard the confidentiality and security of sensitive credit data, among others. RBI has also advised the REs to adhere to the other measures given in the MD.

PERFORMANCE AND FiNANCiAL REViEW

For the FY 2024-25, your Company disbursed Advances to the extent of 76,171 lakhs. As on March 31, 2025, the total deposits held by the company stood at 18,336.79 lakhs as compared to 8,390.85 lakhs as at the end of the last year. The total income for the FY 2024-25 stood at 21,520.41 lakhs and the net profit after tax for the year at 1,665.15 lakhs, being six (6) per cent higher than the previous year, mainly due to increase in revenue from operations. The company accounted for depreciation, amortization and impairment for an amount of 1,306.80 lakhs.

KEY FiNANCiAL RATiOS

The following are the Key Financial Ratios of the Company for the FY 2024-25 as compared to the FY 2023-24.

Note: There is no significant change in the above ratios (25 per cent or more) as compared to the previous financial year.

RiSKS AND CONCERNS

Your Company, like any other NBFC, has been subject to normal industry risks such as credit, market, interest and operational risks. Your company always takes pro-active and prudent risk management practices to mitigate these risks. Risk Management Committee and Audit Committee periodically reviews the policies in relation to risks so that they are in line with your Companys strategic needs.

iNTERNAL CONTROL SYSTEM AND iTS ADEQUACY

Your company has sound and adequate system of internal controls to monitor and regulate all the activities. Further, your company strictly adheres with all internal control policies and procedures and other regulatory requirements. The Companys external Internal Auditor submits his report to the Audit Committee on a periodical basis. Suitable action is promptly taken to rectify the deficiencies, if any.

pROSpECTS

The prospect for growth depends on various factors. Improvement in economic activities, revival of construction/ mining activities and rising consumer demand, which are aided by the Governments fiscal and monetary policies.

Further, by increasing presence in our operational areas with larger network of branches, your Company proposes to increase its business operations and profitability in the coming years.

HUMAN RESOURCES DEVELOPMENT

Your Company had a very harmonious and cordial relationship with all its employees during the financial year ended 2024-25. 675 permanent employees were on the rolls of the company as on March 31, 2025. The Human Resources policy of your Company aims to establish and build a strong

performance-oriented and competency-driven culture with higher sense of accountability and responsibility among all its employees. Your Company takes pro-active steps to strengthen the organizational competency through various training programmes at all levels on a regular basis to its employees.

Cautionary Statement

Certain statements made in the Management Discussion and Analysis Report describing the Companys objectives, predictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from forward-looking statements contained in this report due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, change in interest rates, new regulations and Government policies that may impact the Companys business as well as its ability to implement the strategy.