Sera Investments Management Discussions




Regulation 34(2)(e) read with Paragraph B of Schedule V of Securities and Exchange Board of India (Listing Obligations and Disclosures Requirements)

In terms of the provisions of Regulation 34(2) (e) of the Listing Regulations, the Managements discussion and analysis are as follows.


Global GDP growth rates stood at 3.4%, demonstrating a recovering trend from the powerful blows of the disruptions caused by the pandemic and the tensed Russia-Ukraine situation. Unwinding of the Supply chain disruption and receding dislocations to energy and food markets have impacted positively on the overall growth, which was shadowed by rising inflation which was, in turn, largely weakening household and business spending.

Emerging markets and developing economies are already powering ahead in many cases, with growth rates (fourth quarter over fourth quarter) jumping from 2.8% in Calendar Year (CY) 2022 to 4.5% this year.

With the cool down in commodity prices, global inflation in CY 2022 closed at an estimated 8.7%. However, the downward momentum in inflation is expected to spill over in CY 2023, with the projected inflation target being at 6.5% in CY 2023.

As a measure to counter inflation, central banks have been raising interest rates in quick succession. To bring this shift towards tighter monetary policy is exceptionally broad-based, as over 85% of central banks worldwide increased interest rates in CY 2022.

The Federal Reserve in the United States has taken an aggressive stance, raising its key policy rate six times from 0% - 0.25% in March 2022 to 4.25% - 4.50% in December 2022. The European Central Bank increased its key interest rates by a cumulative 250 basis points between July and December 2022, while also discontinuing its net asset purchases.

As inflation peaked in late CY 2022, central banks in the developed countries are expected to slow the pace of interest rate hikes in CY 2023.


The Indian economy has grown by 7.0% in FY23 and its growth was largely supported by agriculture (up by 3.3%) and services (up by 6.9%). Trade, hotels, transport and communication grew robustly by 14.2%. Manufacturing growth moderated yet remained positive at 0.6%, reflecting a slowdown in global growth and high input costs.

Despite global headwinds, expansion benefited from strong growth in private consumption (up by 7.3%) and in investment (up by 11.2%). The growth rate in India is stronger than in most peer economies, reflecting relatively robust domestic consumption and lesser dependence on global demand. Growth is expected to strengthen to 6.7% in FY25 as private investment improves and growth accelerates in industry.

The government and the Reserve Bank of India undertook several measures to control inflation and its impact. The government banned exports of wheat and broken rice in 2022 to tamp down domestic price fluctuation and ensure food security. The ban on exports of broken rice was lifted in November 2022 but the ban on wheat remains. The central bank has tightened monetary policy in a series of hikes since April 2022, raising its policy rate by 250 basis points to 6.50% in February 2023, which is higher than the pre-pandemic rate of 5.15%.

The budget targets to bring down fiscal deficit and current account deficit to 5.9% of GDP and 2.2% of GDP in FY23-24 and the central government is committed to bring down fiscal deficit below 4.5% of GDP by FY25.


Bank credit rose by 15.4% as compared to 9.7% a year ago, driven by large industries, especially metals, petroleum, and chemical industries. Credit growth to the infrastructure sector decelerated on the back of decline in credit to the telecom sector. The MSMEs credit growth remained buoyant, shored up by the Emergency Line Guarantee Scheme (ECLGS) that was extended till March 2023.

Retail loans remained the prime contributor to the overall credit increase in FY22-23. While credit to the housing sector recorded consistent expansion, vehicle loan growth strengthened further. Credit card loan growth was in high double digits throughout 2022-23 reflecting pent- up consumption demand.

NBFCs had steadily increased their market share till recent years, with AUM accounting for as much as 18% of the overall credit pie in March 2019, up from 12% in March 2008. Several challenges over the past three fiscals lowered their share to 16% in FY 2022, with banks making bigger growth strides. However, NBFC growth is expected to pick up from here on, which should help sustain their-16% AUM share.

Provisioning levels also increased in the past couple of years, as NBFCs created management overlays to provide for uncertainty pertaining to the pandemic. Overall, the NBFCs have stronger balance sheets. Rising interest rates will partially limit the competitiveness of NBFCs in some segments. The repo rate has already been increased by 250 basis points (bps) this fiscal year, which will impact the borrowing cost for NBFCs. The rising interest rate scenario is expected to increase the cost of borrowings of NBFCs by 100-120 bps in FY23. However, as NBFCs have the ability to pass on the higher borrowing cost for incremental disbursements in some of their asset segments, spreads are estimated to compress 40-60 bps.

Amid interest rate hikes and competition from banks, NBFCs are realigning portfolio strategies for better risk adjusted returns. The disbursement trends reflect the changing strategies of NBFCs towards non-traditional segments. The share of disbursements in unsecured loans and MSME finance, the non-traditional segments, has increased over the past 1.5 years.

In the first half of FY23, 35% of incremental disbursements were for unsecured loans. MSME finance has also posted strong growth. The traditional segments, too, have seen improvement in volumes, but remain range bound compared with previous years. This will result in a change in segmental growth going forward. Overall, the AUM growth of NBFCs is expected to double to 13%-14% in FY23 from 7% in FY22. Though a rise in borrowing cost will compress spreads, improvement in asset quality metrics should lead to better credit costs, which, in turn, should support earnings and growth prospects. Credit costs will also benefit from the substantial management overlays created by NBFCs, which will be dipped into.


Indian MSMEs are globally competitive, and their products and services are accepted overseas. The share of the MSME sector in manufacturing output is 33%. Around 50% of the total MSMEs operate in rural areas and provide 45% of the total employment. About 97% of the total employment in the MSME sector comes from the micro segment. Increasing digital footprint of MSMEs has not only helped in providing enhanced customer experience, operational efficiency, and workforce enhancement, but has also facilitated access to financial services. Demand for MSME loans has accelerated and has grown to about 1.7 times the demand of two years ago.

NBFCsaw credit demand crossing 2xfor the same period. This can be attributed to the efforts on the part of government and financial sector to develop and implement multiple support mechanisms, and an evolving digital public infrastructure for the MSME sector. MSME lending by banking and non-banking finance companies (NBFCs) is grown by 14% in FY23. Currently, banks continue to dominate 85% of MSME-lending. However, it is expected to reverse in the future.


Sera Investments & Finance India Limited (the Company), has emerged as a progressive and growth oriented Non-Banking Financial Company (NBFC) over the past few years. The Company is primarily engaged in providing retail loans. The Company is mainly engaged in the business of financing and investment in order to yield greater revenue for its stakeholders. The Company is planning to expand and diversify the operational activities in the coming years ahead in order to tap higher revenues.


Financial and operational performance forms part of the Annual Report and is presented elsewhere in the report.


Sera Investments & Finance India Limited believes that human resources are the foundation on which it can achieve its aspirations and objectives and people are the source of our competitive advantage. The Company believes in meritocracy and performance is rewarded. Accordingly, the Company selects its human resources very judiciously, ensuring that they conform to the Companys culture and follow its values and belief system. The promoters constantly ensure that good governance is a priority and are involved in the management of the company, with strategic inputs from a well-diversified and competent board.

The core management team at Sera Investments & Finance India Limited, which comprises an adept group of committed resources, is well- equipped to design strategies and execute them so that the Company achieves sustainable growth.

Sera Investments & Finance India Limited is constantly looking at strengthening its human resources at every level and ensures that its work ethic permeates to the every employee of the Company.


The Company has in place adequate internal control systems covering all its operations. Proper accounting records high light the economy and efficiency of operations, safeguarding of assets against unauthorised use or losses, and the reliability of financial and operational information. Some of the significant features of internal control system are:

• Financial and Commercial functions have been structured to provide adequate support and control of the business.

• Risk Management policy has been adopted by the Company.

• The Company has an Internal Audit System conducted by the Internal Auditor of the Company. Standard operating procedures and guidelines are reviewed periodically to ensure adequate control.

To safeguard all its assets and ensure operational efficiency, the Company has put in place a strong internal control mechanism. This ensures full compliance with laws and regulations, accuracy in financial reporting and management information. In view of the control deficiencies/ gaps noted, the Company has strengthened controls, reviewed policies and upgraded technology systems. The Company is committed to remain compliant with sound corporate governance and risk management practices.

Crucial areas based on audit plans are reviewed by the internal audit function, and then examined and approved by the Audit Committee. Audit plans are formulated based on risk assessment to determine the critical areas to be reviewed. The Management Committee and Audit Committee of the Board also review the internal audit findings. Thereafter, corrective actions are suggested and implemented by the process owner across relevant functional areas, with the aim of continuously strengthening the internal control framework.



• Technology is expected to play a pivotal role in taking the financial services to the next level of growth by helping surmount challenges stemming from Indias vast geography, which makes physical footprints in smaller locations commercially unviable. With increasing smartphone penetration and faster data speeds, consumers are now encouraging digitization as they find it more convenient. With the ability of the fintech to offer differentiated solutions to meet the requirement of target customers, the market share of NBFCs in overall systemic credit has increased from approximately 16% in FY 2017 to approximately 18% in FY 2022 and is expected to further grow at 11-12% CAGR between FY23-FY25.

• With NBFCs facing a challenge in raising debt from banks at competitive costs, co-lending framework allows NBFCs to cater to a large customer base by leveraging larger balance sheets of their partners. It also enables Banks and NBFC/HFC to share the risk and rewards throughout the lifecycle of the loans.

• Account Aggregator framework is a system for sharing financial data that has the potential to revolutionize lending and investing by granting millions of consumers greater access to and control over the financial records, as well as increasing potential market for lenders and fintech firms. Traditionally, if someone needs to apply for a loan, they would need to provide various documents such as bank statements, income tax returns and financial statements, etc. Flowever, with the evolution of AA framework, all the data from various financial information providers can be gathered and shared with financial information users within a fraction of time with the consent of users. It will help users to avail loans and get better and quicker deals on other financial products. It will also ease the integration of MSMEs in financial systems and bring a paradigm shift from asset-backed lending to cashflow-based lending to MSME, which will allow the underserved MSME sector to have greater access to credit.


• Access to funding in a timely manner and at competitive costs remains challenging, especially for smaller and mid-sized NBFCs due to increase in interest rates. Exposure to various industrial risks like - credit risk, interest rate volatility, economic cycle etc.

• Our borrowing costs and our access to the debt capital markets depend significantly on the credit ratings of India. Any adverse revisions to credit ratings for India and other jurisdictions we operate in by international rating agencies may adversely impact our ability to raise additional financing.

• Negative economic developments, such as rising fiscal or trade deficits, or a default on national debt, in other emerging market countries may also affect investor confidence and cause increased volatility in Indian securities markets and indirectly affect the Indian economy in general. Any slowdown or perceived slowdown in the Indian economy, or in specific sectors of the Indian economy, could adversely impact our business, results of operations and financial condition. Our performance and the growth of our business depend on the performance of the Indian economy and the economies of the regional markets we currently serve. These economies could be adversely affected by various factors, such as political and regulatory changes including adverse changes in liberalization policies, social disturbances, religious or communal tensions, terrorist attacks and other acts of violence or war, natural calamities, interest rates,

commodity and energy prices and various other factors. Any slowdown in these economies could adversely affect the ability of our customers to repay our debt which, in turn, would adversely impact our business and financial performance.

• With increasing availability of alternate data, ability to underwrite MSME customers through alternate data and changing landscape from asset-backed financing to cashflow-based financing, many Banks and NBFCs have started entering MSME financing.

• Unanticipated changes in laws, regulations and government policies may increase compliance costs and may impact the viability of our current businesses or restrict our ability to grow our businesses in the future.


Due to stiff competition in the finance field where the companys activities are centred in, the overall margins are always under pressure, but maintainable with the constant effort and good services rendered by the company. The process of risk identification is guided by the Companys objectives, external environment, stakeholders, among others. The process covers strategic, financial, and operational risks. Once the risks are identified, it devises plans outlining mitigation actions for the assigned risks.

a) Interest Rate Risk: This is the risk that implies the value of an investment will suffer as a result of change in interest rates. Interest rate risk can be reduced by ensuring diversification of investment maturities or can be hedged by using interest rate derivatives.

Mitigation: While deciding on interest rate revisions, Company considers key factors like customer profile, competitive landscape and growth objectives. It maintains close monitoring on interest rate fluctuations and takes appropriate measures to protect its business.

b) Asset Liability Management Risk: This is the risk faced due to a mismatch between the maturity profile of assets and liabilities on account of a difference in lending tenor between loans given to customers and debt raised.

Mitigation: This risk is reviewed by the Asset Liability Management Committee (ALCO) by monitoring market-related trends. In line with the Companys Risk Management Framework, the Committee adopts various strategies related to assets and liabilities. The ALM support group also meets frequently to review the liquidity position. The Company always maintains adequate liquidity assets and reserves to enable business growth and repayment of obligations. In addition, it ensures access to funds at all times to ensure liquidity is always available in case of unexpected events.

c) Credit Risk: This is the risk arising on account of non-repayment or loan default by the borrower due to liquidity crisis, economic downturns, bankruptcy or other reasons.

Mitigation: Companys comprehensive and well-defined credit policy encompasses credit approval process and guidelines for mitigating the associated risks. A robust post-sanction monitoring process helps identify the credit portfolio trends and early warning signals to mitigate such risks.

d) Operation Risk: This risk is about failure of processes and controls in operations, which can also have an adverse impact on business continuity, reputation and profitability of the Company.

Mitigation: A robust control and audit mechanism has been implemented to identify and mitigate operational risks. The Company has a strong operating model and well-documented Standard Operating Procedures and a good reporting framework. This ensures that operational risks are minimised at any given point of time.

e) Regulatory Risk: A complex regulatory framework exists in the financial sector. Any non-compliance with regulations could result in monetary losses and has the capability to damage the Companys reputation.

Mitigation: The Company ensures strict adherence to applicable rules and regulations owing to a strong internal control framework, robust IT systems and an expert team. It closely monitors actions and proactively responds to changes in government policies to keep a tab on regulatory risk.

f) Fraud Risk: We may face fraud risks such as loan fraud, identity theft, internal fraud, and cyber fraud. These risks pose the threat of financial loss and reputation loss, resulting from intentional deception or misrepresentation by individuals or entities, internally or externally.

Mitigation: We have implemented a control framework to prevent, detect, investigate and deal with fraud. A dedicated Risk Control Unit (RCU) monitors, investigates, detects, and prevents fraud. We maintain a zero-tolerance policy towards fraud, actively raising awareness and implementing robust controls to prevent any occurrence. Our Fraud Risk Management reports to the Chief Risk Officer and monitors all fraud risks, while our Audit Committee and Board of Directors monitor frauds specified by the regulator.

g) Information Security Risk: We may face data breaches, cyberattacks, and unauthorised access, leading to compromised sensitive information and potential reputational damage.

Mitigation: We implemented information classification and appropriate controls, utilising Data Leak Prevention (DLP) measures to prevent unauthorised data disclosures, maintaining a Security Operations Centre (SOC) to monitor and respond to security incidents, conducting