Salem Erode Investments Ltd Management Discussions

Macroeconomic Overview

India has consolidated its standing as the worlds fastest-growing major economy, successfully navigating three turbulent years defined by a global pandemic, disruptive supply chains, the Ukraine conflict, and a worldwide cycle of elevated interest rates implemented to curb high inflation.

While geopolitical risks persist—including ongoing conflicts in Europe and Gaza and rising tensions in West Asia—the widely anticipated global recession has not materialized. Instead, several key macroeconomic indicators have turned positive: Global inflation is declining across most major economies, Unemployment has remained lower than expected, defying earlier projections, and Monetary tightening cycles by major central banks have paused, though rate cuts have yet to begin.

These developments signal a cautiously optimistic global economic environment, within which India continues to demonstrate resilience and strong growth momentum.

According to the IMFs World Economic Outlook (April 2024), global inflation is forecast to decline steadily, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies.

In a global context where the IMF projects world real GDP growth at 3.2% in both 2024 and 2025, its forecasts for India remain impressive: The IMF revised its growth projection for Indias economy in the 2024-25 financial year to 6.8% (subsequently raised to 7.0% in July 2024, showing continued strength), followed by 6.5% in 2025-26. Indeed, the IMF continues to place India as the fastest growing major economy in the world.

With a fair degree of control over retail inflation—despite high and growing domestic demand and significant government-led capital expenditure—India has recorded robust growth in financial year 2023-24. The Second Advance Estimate (SAE) of national income released by the National Statistics Office (NSO) on February 28, 2025, pegged real GDP growth in FY2024-25 at 6.5%, compared to 9.2% (First Revised Estimate) in financial year 2023-24.

I. Industry structure and developments a) Economic review Global economic review & Outlook

The global economy is beginning to stabilize in 2025 after enduring several years of successive negative shocks, including the COVID-19 pandemic, supply chain disruptions, inflationary pressures, and geopolitical conflicts. Global growth is projected to remain steady at 2.6% in 2025, and edge up slightly to 2.7% in

2026–27, supported by modest gains in trade and investment. However, the overall outlook remains subdued and uneven.

Global inflation is expected to moderate more slowly than previously anticipated, averaging 3.5% in 2025. Although price pressures are easing, central banks in both advanced and emerging market economies are likely to maintain a cautious stance, keeping interest rates elevated well above pre-pandemic levels for an extended period. This reflects concerns about underlying inflation persistence and global financial market volatility.

Amid this challenging global backdrop, India has cemented its position as a key economic outlier. In the 2024-25 fiscal year, the countrys real GDP grew by a robust 6.5%, defying global headwinds. This impressive performance was supported by strong domestic demand, a resilient services sector, and significant public investment. As a result, India has now surpassed Japan to become the worlds fourth-largest economy. The countrys inflation has also shown a clear downward trend, with retail inflation falling to 4.6% in 2024–25, the lowest since 2018-19, providing the central bank with more policy flexibility.

Despite these signs of resilience, the global growth trajectory remains below historical norms. Projections over the forecast horizon lag nearly half a percentage point behind the 2010–2019 average, with slower expansion particularly evident in countries that account for over 80% of the global population.

In emerging market and developing economies (EMDEs), growth is projected to moderate from 4.2% in 2023 to 4.0% in 2025. Fragile and conflict-affected states remain especially vulnerable, with more than half still poorer in 2025 than before the pandemic, highlighting deep structural challenges and development setbacks. For many EMDEs, the policy focus must remain on price stability, especially amid ongoing inflation risks. At the same time, high debt levels and elevated debt-servicing costs demand a careful balancing act between investment in development priorities and fiscal sustainability.

Small states face a unique and particularly constrained economic landscape. Their structural vulnerabilities include high trade openness, limited economic diversification, narrow tax bases, and a high susceptibility to external shocks, especially from climate change and natural disasters. The pandemic and subsequent global disruptions have intensified these existing fiscal weaknesses, with government revenues collapsing and public debt-to-GDP ratios rising from already high levels.

Addressing these challenges requires a dual approach: domestic policy measures to boost resilience and continued international support. Small states have considerable scope to raise domestic revenues by broadening tax bases and strengthening administration, and to enhance spending efficiency by improving fiscal governance. With improved fiscal frameworks and targeted international assistance, they can strengthen their economic resilience and better manage external shocks.

Indian economic review & Outlook

According to a report by the Ministry of Finance, the Indian economy is projected to achieve nearly 7% growth in the fiscal year 2024-25. This optimistic outlook is a continuation of a remarkable trend, as the economy has sustained growth rates above 7% for three consecutive years.

Recent performance highlights include:

• 8.7% growth in FY 2021-22

• 7.2% growth in FY 2022-23

• 7.3% growth in FY 2023-24, solidifying Indias position as the fastest-growing major economy globally

This robust performance is a testament to strong private consumption and investment, government-led reforms, and significant investments in both physical and digital infrastructure. Measures to boost manufacturing and supply capacity have also played a crucial role.

Looking ahead, the report forecasts that real GDP growth will likely remain close to 7% in FY25, with the potential to surpass that mark by 2030. This trajectory is expected to be fueled by the ongoing expansion of digital infrastructure, improvements in institutional efficiency, and an increasingly favorable investment climate.

With these firm growth forecasts and manageable inflation, India is poised to become the third-largest global economy within the next three years, reaching a GDP of USD 5 trillion. The long-term aspiration is to grow into a USD 7 trillion economy by 2030, a significant milestone in improving the quality of life and living standards for the Indian population. These ambitions are supported by a backdrop of political stability and indications that the Reserve Bank of India has concluded its monetary tightening cycle. b) Industry review

Indias diversified financial services sector is undergoing rapid expansion and transformation, serving as a key engine of the countrys economic narrative in fiscal year 2024-25. This growth is driven by rising incomes, government reforms, and a surge in technological innovation. A major highlight is the remarkable progress in digital payments and lending. The Unified Payments Interface (UPI) continues its exponential growth, with monthly transaction volumes exceeding 18 billion and a value of over Rs24 lakh crore as of June 2025. This momentum has cemented UPIs position as a global leader, powering nearly half of all real-time digital payments worldwide.

This digital-first approach is rapidly expanding financial access. The Reserve Bank of Indias Financial Inclusion Index (FI-Index) rose to 67 in March 2025, up from 64.2 a year earlier. This improvement is primarily driven by increased usage and quality of financial services, which includes sustained financial literacy initiatives and consumer protection measures.

Beyond digital payments, other segments of the financial sector are also thriving. Bank credit to the services sector has shown robust growth, reaching Rs48.5 lakh crore by November 2024, with an annual growth rate of 13%. Specific areas like computer software and professional services have seen even higher credit growth, at 22.5% and 19.4% respectively.

Despite these positive trends, challenges persist, particularly in ensuring truly inclusive growth. While access to formal financial services is improving, issues such as low financial literacy and the need for better integration of small businesses (MSMEs) into the digital credit ecosystem remain critical areas for continued focus. Continued progress will require a collaborative approach between regulators, banks, and fintech companies to serve underserved regions and promote deeper market penetration.

Role and Growth of NBFCs

Non-Banking Financial Companies (NBFCs) have emerged as a crucial source of finance for a broad segment of the population, including Small and Medium Enterprises (SMEs) and the economically underserved. Their wide geographical reach, nuanced understanding of local financial needs, and quick turnaround times enable NBFCs to efficiently serve diverse borrower requirements.

NBFCs play a pivotal role in credit intermediation, delivering last-mile credit via technological innovations. The sectors total credit grew by a significant 20% in fiscal year 2025, outperforming traditional banks and reaching an outstanding balance of Rs48 trillion. This growth was notably fueled by a surge in demand for gold loans and other retail credit products.

The sectors credit-to-GDP ratio, a key measure of its "credit intensity," has risen steadily, reflecting NBFCs growing importance in credit provisioning. According to a report by Ionic Wealth, this ratio reached 26% in FY25, a substantial increase from 16% in FY19. Furthermore, NBFCs are playing a critical role in financial inclusion by supporting millions of MSMEs. Loans to the MSME sector are expected to grow by 27-29% in the coming period, significantly outpacing the growth rate of banks in this segment and highlighting the NBFCs focus on this underserved market.

Recent Performance and Trends

The NBFC sector continued to demonstrate strong credit momentum in FY 2024–25, with overall credit growth reaching approximately 20%, maintaining the high pace seen in the previous year. This expansion outpaced the 12% growth registered by commercial banks, reinforcing the NBFCs role as key credit providers. Growth was primarily driven by a sharp rise in retail lending, which constituted 58% of total NBFC credit as of December 2024, and the ongoing surge in digital personal loans, with over 10.9 crore personal loans worth Rs1.06 lakh crore disbursed by FinTech NBFCs during the year.

Despite macroeconomic headwinds, credit disbursements (excluding Infra-NBFCs) remained above pre-pandemic levels through FY 2024–25, underpinned by resilient consumption demand and increased credit penetration in underserved segments. The rise of digital lenders and tech-driven underwriting models further boosted sectoral growth, enabling faster, more inclusive access to credit.

Asset Quality and Capital Adequacy

While full-year asset quality metrics for FY 2024–25 are yet to be officially published, early estimates and rating agency assessments suggest that asset quality remained largely stable, although delinquencies in unsecured retail segments—particularly microfinance and personal loans—showed signs of stress. Despite this, overall GNPA levels are expected to remain below pre-pandemic averages.

Capital buffers remained strong, supported by improved profitability and regulatory oversight. While updated figures for Capital to Risk (Weighted) Assets Ratio (CRAR) and Net Interest Margin (NIM) are awaited, the sector is expected to have retained its CRAR well above the 15% minimum, continuing the trend from September 2023 when it stood at 27.6%.

Profitability and Financial Ratios

Although complete profitability metrics for FY 2024–25 have not been released, the previous year (FY 2023–24) witnessed robust earnings performance:

• Return on Assets (ROA) improved to 2.6% in March 2023, up from 1.8% the year prior.

• Return on Equity (ROE) saw a 320 basis point rise, reflecting better leverage and margin expansion.

• Net Interest Margin (NIM) also improved to 4.3% in FY 2024, suggesting improved pricing power and lower funding costs.

Going forward, profitability may moderate slightly as unsecured loan portfolios mature and credit costs inch upward, particularly in riskier retail segments. However, strong capitalisation and diversified lending portfolios should support overall sector stability.

II. Opportunities and Threats

Analysis of Indian NBFC sector are as follows:

Opportunity

1. Credit Accessibility Beyond Traditional Banks

Non-Banking Financial Companies (NBFCs) play a crucial role in serving borrowers who may not meet the strict lending criteria of traditional banks. Unlike banks, NBFCs have more flexible credit assessment methods and lighter documentation requirements. For instance, micro, small, and medium enterprises (MSMEs) can access loans based on pending invoices, helping them manage working capital efficiently.

With banks becoming increasingly cautious in loan disbursal due to rising Non-Performing Assets (NPAs), NBFCs have experienced a surge in loan applications. Many customers, seeking to avoid the complex and time-consuming procedures imposed by banks, are willing to pay higher interest rates to NBFCs in exchange for easier and faster loan processing.

2. Unlocking the Potential of New Credit Customers

A significant opportunity for NBFCs lies in the growing segment of new-to-credit customers—individuals, particularly in rural areas, who have never previously borrowed from any formal financial institution. Limited banking infrastructure and regulatory restrictions often prevent traditional banks from lending to these individuals, especially in the absence of a credit history.

NBFCs, with their flexible credit models and innovative risk assessment techniques, are better positioned to serve this demographic. Their outreach and agility make them vital financial partners in rural credit expansion, turning new credit customers into a high-growth segment.

3. Regulatory Flexibility and Government Support

The Government of India (GOI) has extended various regulatory relaxations to NBFCs, recognizing their importance in enhancing financial inclusion. Compared to traditional banks, NBFCs operate under relatively less stringent regulations, allowing them to adapt quickly to customer needs and market changes.

Notably:

NBFCs are permitted 100% foreign direct investment (FDI), making them attractive to global investors.

Under the SARFAESI Act, NBFCs can repossess and sell hypothecated assets in case of default, ensuring better recovery mechanisms.

Government initiatives have also created a supportive ecosystem for NBFC formation and growth, encouraging entrepreneurial interest in the sector.

4. Contribution to Economic Growth

NBFCs are significant contributors to Indias economic development. By extending credit to underserved sectors—such as MSMEs, agriculture, housing, and infrastructure—they support capital formation and boost domestic consumption. Their diverse offerings, from personal loans and equipment finance to microfinance and vehicle loans, make them essential to the financial services landscape.

The Governments efforts to safeguard the interests of NBFCs reflect their growing importance. As profit-driven enterprises, NBFCs are not only sustaining their business models but also strengthening Indias financial ecosystem by bridging critical credit gaps.

Threats

While Non-Banking Financial Companies (NBFCs) have emerged as a lucrative and impactful business model in Indias financial ecosystem, setting up and operating an NBFC is far from simple. Despite numerous opportunities and policy support, NBFCs face a range of operational, regulatory, and structural challenges that can hinder their growth and stability.

Key Challenges Faced by NBFCs

1. Refinancing Constraints

Refinancing remains one of the most pressing concerns for NBFCs. Sustainable growth for these institutions depends heavily on the ability to refinance their lending books. However, banks and capital markets—major sources of such refinancing—are often hesitant to provide funds.

Banks fear that these funds may be used to repay existing debts rather than expand lending, especially given the heightened credit risk perceptions around NBFCs. This cautious approach significantly limits the refinancing avenues available to NBFCs.

2. Complex Licensing Process

Obtaining an NBFC license from the Reserve Bank of India (RBI) is a highly regulated and document-intensive process. The required paperwork and compliance standards vary depending on the type of NBFC, and involve strict scrutiny under various regulations.

Some key regulatory requirements include:

• A minimum owned fund of Rs10 crore, which must not be borrowed capital.

• A Board of Directors comprising experienced professionals from a financial background, with a clean legal record.

• Adherence to RBIs fit-and-proper criteria and background checks.

Despite the Government of Indias stated support, the licensing process remains complex due to the sensitive role NBFCs play in managing public funds and impacting financial inclusion.

3. Risks with New-to-Credit Customers

While first-time borrowers—especially in rural and semi-urban regions—offer a promising market, they also pose significant credit and operational risks.

NBFCs must invest in financial literacy, risk assessment tools, and manpower to manage and guide these customers, many of whom lack formal credit histories. Serving this segment profitably requires strong customer onboarding mechanisms and risk mitigation strategies.

4. Absence of Statutory Recovery Tools

Unlike banks, NBFCs lack direct access to statutory recovery mechanisms such as Debt Recovery Tribunals (DRTs) or effective enforcement provisions under SARFAESI for all loan categories.

This limitation weakens their ability to recover dues, especially in cases involving unsecured or small-ticket loans, and affects overall financial performance.

5. Leverage Ratio Restrictions

While small NBFCs are exempt from maintaining a formal Capital to Risk (Weighted) Assets Ratio (CRAR), they must still adhere to a leverage cap of 7 times their net owned funds.

This restriction forces many NBFCs to rely on borrowings from banks and financial institutions to meet growing credit demand. However, such borrowings come with stringent due diligence requirements, which can be resource-intensive and time-consuming.

6. Fragmented Representation in the Sector

Currently, the NBFC sector is represented by multiple industry bodies, which leads to fragmentation and lack of unified advocacy.

Given that the NBFC ecosystem includes a diverse range of players—from microfinance institutions and asset finance companies to infrastructure NBFCs—a harmonized approach to regulation and representation is essential.

Establishing a single apex representative body could help ensure all segments are equally heard, promote cohesive policy-making, and support balanced sectoral growth.

III. Segment–wise or product-wise performance

The detailed information on gold loan segment of the Company is detailed in the Para II (a) of the Directors Report.

IV. Outlook

Your Company is confident that its existing capacities and investments would serve well to expand its businesses throughout India in coming years.

V. Risks and concerns

All material risks and mitigation measures are described in para XVI of the Directors Report.

VI. Internal control systems and their adequacy

Internal control systems and adequacy are detailed in para X (k) of the Directors Report as above.

VII. Financial performance with respect to operational performance a) Operational review

With an established network of 38 branches across key markets in Tamil Nadu and Odisha, the company is pursuing a strategy of steady, sustainable growth. This measured expansion plan prioritizes long-term stability, and the company is now preparing to open additional branches in the coming months to further strengthen its regional presence.

As business operations continue to grow on a daily basis, the company is also taking strategic steps toward greater autonomy. It is actively working to build its own distinct identity, moving beyond its current positioning under the umbrella of its holding company, ICL Fincorp Limited.

The commercial operations during the year under report were progressive. The Company has earned an income of Rs 39,077.47 thousand as compared to Rs 41,395.01 thousand during the previous year. The total expenditure of the Company for the year was Rs 88,589.50 thousand as compared to Rs 59,104.84 thousand. The Company incurred net loss of Rs 47,192.77 thousand as against net loss of Rs 18,225.21 thousand (during the previous financial year. Despite continuing a financial loss this year due to higher operational costs, your Directors believe these expenses were necessary for the companys future growth and expansion. We are committed to making these unavoidable investments now to ensure a more successful and profitable tomorrow.

The Gold Loan Business which is the core portfolio of the Company has seen a nominal growth compared to the previous year as result of new branch additions and increased operational activities.

The operational revenue decreased by 5.60% y.o.y. and the expenses have also increased due to additional Manpower, Finance costs due to debenture allotment and higher depreciation due to new fixed assets addition. The expenses increased 49.89% y.o.y compared to the previous year.

During this financial year also the Company continued the private placement of Secured Non-Convertible Debentures for fund sourcing.

Financial review

Gross Loans under management

The Company has a gross loan asset under management of Rs 13.54 crores in financial year 2024-25 compared to Rs 16.78 crores in the previous year.

Gold Loan Assets under management

The Company achieved a gold loan asset under management of Rs 13.59 crores during the financial year compared to Rs 8.80 crores in the previous year.

Revenue

The total income declined by 5.60% to reach Rs 3.91 Crores during the financial year compared to Rs 4.14 crores in the previous year.

Profit/Loss after tax ("PAT")

There is a Net Loss of Rs 4.72 Crores during the year compared to Net Loss after Tax of Rs 1.82 Crores in the previous year.

Earnings per Share ("EPS")

As it is a Net loss there were no EPS during the year.

VIII.Human Resources

Your Company treats its "Human Resources" as one of its most important assets. Your Company continuously invest in attraction, retention and development of talent on an ongoing basis. A number of programs that provide focused people attention are currently underway. Your Company thrust is on the promotion of talent internally through job rotation and job enlargement. Number of permanent employees as on March 31, 2025 is 145 employees.

IX. Details of significant changes in key financial ratios

Ratios	As at 31.03.25	As at 31.03.24	% change	Reason for variance
Debtors Turnover	0.26	0.18	0.08	Variation due to decrease in debtors
Inventory Turnover	N.A	N.A.		-
Interest Coverage Ratio	-1.27	-0.43	-0.84	Loss during the year 24-25 has resulted in the variance
Current Ratio	6.12	3.50	2.62	Increase in Current Liabilities
Debt Equity Ratio	0.65	0.76	-0.11	Decrease on the Total Debt
Operating Profit Margin (%)		-0.04		Reduced profit (loss) during the year
Net Profit Margin (%)	-1.27	-0.43	0.84	Loss reported during the year
Leverage Ratio		1.06		Increase in financial liabilities
Capital Adequacy Ratio	63.97	49.04	14.93	Increase in Tier I capital
Tier I Capital	17,21,75,992.09	16,36,08,555.53	85,67,436.56	Increase in Tier I capital/Decrease in Loans to Companies in same group

X. Details of any change in Return on Net Worth

The net worth of the Company as on March 31, 2025 is

Rs 17.22 Crores when compared to Rs 22.15 Crores in the previous year and the percentage of change is (22.25)%, the reason for the same being Net loss made during the year & increase in the Liabilities (Trade Payables, Debt Securities, Other Financial Liabilities etc.)

XI. Cautionary Statement

This Management Discussion and Analysis Report may contain certain forward-looking statements, which reflect the Companys current views and expectations based on various assumptions regarding its present and future business strategies, operating environment, and other relevant factors. These statements are subject to inherent risks and uncertainties, and actual results may differ materially from those expressed or implied.

Factors that may cause such differences include, but are not limited to, economic and political developments in India and globally, fluctuations in interest rates and capital markets, and the introduction of new regulations or government policies that may affect the Companys operations and strategic plans.

The information presented herein is based on circumstances as of the date of this report. The Company undertakes no obligation to update or revise any forward-looking statements in light of new information, future events, or otherwise.

Market data and industry information included in this report have been obtained from sources the Company believes to be reliable or have been developed internally. However, no assurance is given as to the accuracy or completeness of such data.

	By order of Board of Directors,
	For Salem Erode Investments Limited
	Sd/-	Sd/-
	K. G. Anilkumar	Umadevi Anilkumar
Place: Chennai	Managing Director	Director
Date: 02.09.2025	(DIN: 00766739)	(DIN: 06434467)