Sakthi Finance Ltd Management Discussions

GLOBAL ECONOMY

According to International Monetary Fund ("IMF"), global growth rate is at 3.2% in the year 2023 and is projected to continue at the same rate in the year 2024 and 2025. The pace of expansion is low as compared to past owing to both nearterm factors like high borrowing costs, withdrawal of fiscal support, longer-term effects from the COVID-19 pandemic and Russias invasion of Ukraine, weak growth in productivity and increasing geoeconomic fragmentation. The global economy has been surprisingly resilient, despite significant central bank interest rate hikes to restore price stability. Though sharp price increases remain an obstacle across the world, the IMF foresees global inflation tumbling from 6.8% in the year 2023 to 5.9% in the year 2024 and 4.5% in 2025. Growth in Emerging and Developing Asia is expected to decline slightly from 5.6% in the year 2023 to 5.2% in the year 2024 and 4.9% in 2025. The IMF expects the Chinese economy to slow from 5.2% in the year 2023 to 4.6% in the year 2024 and 4.1% in 2025. INDIAN ECONOMY

The Indian economy is set to achieve nearly 7% growth in the FY 2024-2025. The positive outlook is attributed to the robust domestic demand that has propelled the country to a growth rate exceeding 7% over the past three years. The strength in domestic demand is driven by private consumption and investment, government reforms and initiatives implemented over the past decade. Investments in both physical and digital infrastructure, along with measures to boost manufacturing, have bolstered the supply side, providing a significant boost to economic activity in the country.

Increased Government investment activity has also resulted in the crowding-in of private investment. Capital Goods and Construction/Infrastructure Goods indices of the Index of Industrial Production ("IIP") were 6.2% and 9.6% higher during FY 2023-2024 compared to the previous year. Though imports of capital goods in FY 2023-2024 were marginally lower than that in the previous year, their share in overall imports increased from 11.8% in FY2022-2023 to 12.4% in FY 2023-2024, indicating a continued build-up of productive capacity in the economy.

Inflation, which was 6.7% in 2022-23, improved significantly and moderated to 5.4% in 2023-24, within the upper tolerance level of the RBIs inflation-targeting framework. The Governments efforts to curtail retail inflation, such as reduction in customs and excise duties, restricting exports in select commodities and products, coupled with the decisive and timely monetary policy actions of the Reserve Bank of India ("RBI") through appropriate policy rate and liquidity measures have played a crucial role in ensuring this recovery. The automotive sector, a key contributor to the countrys economic growth, recovered in 2022-23 to grow by 20%. On that base, the sector has posted a satisfactory performance in 2023-24 with domestic industry growing by 9-10%. While the first half of the financial year was uncharacteristically buoyant on economic activity and automotive sector growth, H2 was relatively more tepid with demand slowing down soon after the festival season. Overall, for the year, industry sales, while growing modestly over last year, came in well below expectations and inventory levels at dealerships continue to remain relatively high.

OPPORTUNITIES AND THREATS

In the Automotive sector, the Indian Commercial Vehicle ("cv") Industry is poised for a healthy growth and there will be adoption of alternate fuel usages also. The Medium & Heavy Commercial Vehicles ("M&HCV") Industry is the backbone of Indian Economy and is undergoing technological upgradation through the implementation of Real-Time Driving Emission ("RDE") Norms. With strong push for road infrastructure, the demand for trailers / multi-axle vehicles will increase. The strong e-commerce industry moving to Tier 1 and Tier 2 cities will increase the demand for Light Commercial Vehicles ("LCVs"). The demand for buses also improved as schools and offices have started in full swing after Covid shutdowns.

As our Company has principally been engaged in financing of pre-owned commercial vehicles only, there will not be much impact during the financial year 2024-25.

FORECAST ECONOMY IN FINANCIAL YEAR 2024-25 The Indias Gross Domestic Product ("GDP") growth for the financial year 2023-24 stood at has been 8.2 per cent. The International Monetary Fund ("IMF") has projected Indias GDP growth to 7 per cent for the financial year 2024-25 from the earlier projection of 6.8 per cent on the back of improving private consumption, particularly in rural India.

KEY REGULATORY CHANGES

This is an integrated framework with respect to capital requirements, governance standards, prudential regulation which comes into effect from 1st October 2022. Further as per RBI Master Directions on RBI (Non-Banking Financial Company- Scale Based Regulation) Directions, 2023 dated 19th October 2023, your company falls under the NBFC - Middle Layer.

RBI has, by its Circular No. RBI/2023-24/40 DOR. STR. REC.20/21.04.048/2023-24 dated 8 June 2023, issued a Framework for Compromise Settlements and Technical Write-offs. This circular provides framework for compromise settlement, Technical write-off and mandatory Board approved Policy, prudential treatment, Reporting Mechanism, oversight by Board, cooling period, treatment of accounts categorized as fraud and wilful defaulters. This circular comes into effect from 8th June 2023

RBI has, on 18th August 2023, issued guidelines on Fair Lending Practice - Penal Charges in Loan Accounts. This circular regulates and provides guidelines for charging penal interest. This circular has come into effect from 1st April 2024 in case of new loans and not later than 30th June 2024 in case of existing loans.

RBI, has issued notification dated 31st January 2024 for Streamlining of Internal Compliance monitoring function - leveraging use of technology. As per this notification, RBI advised to all Regulated Entities ("RE") to carry out a comprehensive review of the existing internal compliance tracking and monitoring processes and institute necessary changes to existing systems or implement new systems latest by June 30, 2024. The timeline has been further extended to 31st October 2024.

RBI has issued a Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices on 7th November 2023. This Master Direction covers IT Governance Framework, Role of the Board of Directors, IT Strategy Committee of the Board, IT Steering Committee, IT Service Management, Third-Party Agreements, Capacity Management, Project Management, Change and Patch Management, Data Migration Controls, Audit Trails, Various IT Controls and Reviews, Policies, IT Security Committee, Appointment of Chief Information Security Officer, Risk Assessment, Information Security Audit, etc., These Master Directions has come into effect from 1st April 2024.

RBI has issued Master Direction on Outsourcing of Information Technology Services on 10th April 2023. This Master Direction covers services considered for outsourcing, services not considered for outsourcing Vendors/ entities not considered as Third Party service providers, Contents of IT outsourcing policy and other Key points. The Master Direction has come into effect from 1st October 2023.

RBI has also issued various other circulars, in an effort to harmonize various regulations between banks and NBFCs and has also given various timelines for its compliance by NBFCs. PERFORMANCE AND FiNANCiAL REViEW During the financial year 2023-24, your company disbursed Hire Purchase Advances to the extent of Rs 79,167 lakhs.

As on 31st March 2024, the total deposits held by the company stood at Rs 8,390.85 lakhs as against at Rs 2,388.82 lakhs last year. The total income for the financial year 2023-24 stood at Rs 20,674.36 lakhs and the net profit after tax for the year at Rs 1,570.54 lakhs, being 25.71 per cent higher than the previous year, mainly due to increase in revenue from operations. The company accounted for depreciation, amortization and impairment of an amount of Rs 1,262.48 lakhs.

KEY FiNANCiAL RATiOS

The following are the Key Financial Ratios of the Company for the financial year 2023-24 as against the financial year 2022-23.

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 risk so that they are in conformity 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 adheres strictly 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 were 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 2023-24. 558 permanent employees were on the rolls of the company as on 31st March 2024. The human resources policy of the 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.