Industry Overview
NBFCs have become important constituents of the financial sector and have been
recording higher credit growth than scheduled commercial banks (SCBs) over the past few
years. NBFCs are leveraging their superior understanding of regional dynamics and
customized products and services to expedite financial inclusion in India. Lower
transaction costs, quick decision making, customer orientation and prompt service
standards have typically differentiated NBFCs from banks. Considering the reach and
expanse of NBFCs, they are well-suited to bridge the financing gap in a large country like
India. This is an enviable track record despite the business models of the NBFCs being
severely tested by four large external events in the last few years, namely, (iy
Demonetization, (ii) GST implementation, (iii) Dailure of few large NBFCs, and (iv) The
pandemic.
Given the systemic risks that the sector poses, the RBI issued ‘Scale Based
Regulation (SBR): A Revised Regulatory Frameworkfor NBFCson 22 October 2021 to make the
financial sector sound and resilient while allowing a majority of NBFCs to continue under
the regulation-light structure. The objective behind this scalebased approach is the
principle of proportionality for regulating the non-banking financial companies. The
purpose is to calibrate the degree of regulatory prescriptions based on the systemic
importance of NBFCs and the contagion risk they pose to other entities in the financial
system. The regulatory vigil over the NBFCs continues with focus on four key cornerstones
of: (i} Responsible financial innovation, (ii} accountable conduct, (iii) responsible
governance, and (iv) Centrality of the customer.
We believe that NBFCs with superior capital adequacy, better margins, frugal cost
management, prudent risk management and those incorporating above four key cornerstones in
their business models will continue to deliver sustainable growth in the foreseeable
future.
Global Economy Scenario
IMF Financial Counsellor and Director of the Monetary and Capital Markets Department
outlines the new updates in the latest release of the Global Financial Stability Report
(GFSR). The heightened inflation and ongoing spillovers from Russias conflict in Ukraine
are contributing to increased financial stability risks. These risks are further
exacerbated by poor market liquidity, raising concerns of a sudden and disorderly
tightening of financial conditions that could interact with existing vulnerabilities.
Emerging markets, in particular, are facing challenges, with rising interest rates, weak
fundamentals, and significant capital outflows leading to higher borrowing costs. Frontier
economies are particularly susceptible to these pressures, and the risk of additional
defaults is heightened. In China, the property market downturn has worsened due to
significant declines in home sales. This has put immense pressure on developers and raised
the risk of spillovers to the financial sector. Overall, these factors highlight the
importance of closely monitoring and addressing financial stability risks in the face of
inflation, geopolitical tensions, liquidity concerns, and vulnerabilities within emerging
markets and Chinas property market.
Indian Economic Overview
The Indian economy, however, appears to have moved on after its encounter with the
pandemic, staging a full recovery in FY22 ahead of many nations and positioning itself to
ascend to the pre-pandemic growth path in FY23. Yet in the current year, India has also
faced the challenge of reining in inflation that the European strife accentuated. Measures
taken by the government and RBI, along with the easing of global commodity prices, have
finally managed to bring retail inflation below the RBI upper tolerance target in November
2022.
The introduction and piloting of Central Bank Digital Currency (CBDC) will also provide
a significant boost to digital financial services. They may lay the framework for another
generation of financial innovation. The Covid-19 pandemic hurt most sectors of the
economy, with the effect particularly profound for contact-intensive services sectors like
tourism, retail trade, hotel, entertainment, and recreation. On the other hand,
non-contact services such as information, communication, financial, professional, and
business services remained resilient.
BH MARKET OUTLOOK
Growth and Competition
RBIs financial stability report highlighted that loan to the services and personal
loans sector recorded a healthy growth rate, whereas the industry sector saw marginal
decline. Data from the RBI showed that on a year-on-year (y-o-y) basis, the services
sector saw 14.5 percent growth from 12.5 percent last year. And the personal loan sector
saw 29.5 percent growth from 28.6 percent last year. Experts highlighted that competition
among NBFCs will intensify as sector players are working on bringing new technological
amendments in operations and services. Experts said 2023 could be a mixed bag for NBFCs as
regulations from RBI could be tightened and brought under a wider ambit. With this,
competition and the race to provide quicker and advanced services could lead to a market
situation where one could either see immense growth or introduction of newer challenges in
the sector. The year 2022 saw major developments in the NBFC sector like the merger and
sales of many reputed NBFC.
Information Technology
We continue to make substantial investments in technology, in line with our
‘Digital First approach. As part of this initiative, we launched the Selfie
platform, allowing customers to quickly onboard digitally from the comfort of their homes.
During FY23, we successfully opened numerous accounts through our digital channel.
Additionally, we have expanded our reach by integrating with various payment gateways,
such as Paytm, Razorpay, and Cashfree, offering customers the convenience to pay as per
their preferences. To enhance our data management and reporting capabilities, we have
established our own centralized Data Mart for LMS reporting and analytics. Thanks to our
robust technology infrastructure, we were able to promptly transition most of our staff to
flexible working hours when necessary. Looking ahead, our focus is on elevating the
customer experience through digitally enabled customer life cycle management, which
includes Video KYC fulfillment and virtual interactions. Furthermore, we introduced a
tab-based onboarding facility for company executive personnel, enabling them to meet
prospective customers and complete the onboarding process digitally within minutes. Threat
and Opportunities Threats:
1. Economic Slowdown: A global economic slowdown or recession can pose a significant
threat to NBFCs sector. During periods of economic contraction, credit demand tends to
decrease, leading to higher defaults and lower profitability for NBFCs.
2. Regulatory Changes: Frequent changes in regulations, both domestically and globally,
can pose challenges for NBFCs Sector. Compliance costs may increase, and new regulations
may require adjustments to business models and opera tions, potentially impacting
profitability and growth.
3. Liquidity Risk: The company is exposed to liquidity risk, representing the
possibility of facing challenges in meeting its financial liabilities settled in cash or
other financial assets. The primary liquidity requirements involve disbursing loans to
customers, repaying borrowings/credit lines, and covering operational expenses. To fulfill
these requirements, the company relies primarily on borrowings and profits. Accordingly,
they maintain surplus funds in cash equivalents, bank balances, term deposits, and
investment securities with active and liquid markets, ensuring these assets can be easily
sold to meet liquidity needs. This comprehensive monetary mechanism is believed to
adequately address liquidity risk.
4. Credit Risk: The company is exposed to credit risk arising from its lending
activities. Economic downturns and fluctua tions in borrower creditworthiness can result
in elevated default rates and a rise in non-performing assets, which could potentially
place significant pressure on the companys financial well-being.
R OPPORTUNITIES:
1. Expanding Credit Demand: With Indias growing middle class and increasing consumer
aspirations, there is a significant opportunity for your company to cater to the expanding
credit deman By providing innovative and tailored financia products and services, your
company can tap into new market segments and fuel their growth.
2. Digital Transformation: Moving from physical availability to digital available
across the India will help to cater the wide customer base. The rapid digitalization of
financial services presents opportunities to enhance operational efficiencies reach a
wider customer base, and reduce costs. Embracing technology-driven solutions, such as
online lending platforms, and online EMI calculator can help us to improve customer
experiences and gain a competitive edge.
3. Inclusive Finance: Our Company aims to provide financial assistance to every
individual, ensuring that the needs of underserved and unbanked populations are fully met.
Through an expansion of our services to rural and semi-urban areas and the introduction of
micro-level finance options for any reasons, we are committed to supporting economic
development and tapping into untapped market segments. By doing so, we can foster greater
financial inclusion and create opportunities for those who have previously been left
behind.
Financial Performance:
A. Revenue Growth: Our company witnessed significant revenue growth in 2023, mainly due
to a substantial increase in loan disbursements and an extensive customer reach. This
positive trend indicates our capacity to capitalize on market opportunities and expand our
customer base, with recorded revenue of \914.95 lakh compared to 49.91 lakh. B.
Profitability: Despite incurring a record loss of 55.04 lac, our company achieved a high
turnover due to strategic expansion, research and development investments, and aggressive
marketing campaigns. The reported loss might be influenced by one-time events and external
economic factors. Strategic investments in technology and talent were made, impacting
short-term financials but setting the stage for enhanced competitiveness and long-term
value creation. Profit before Tax decreased by 39.54 lac to 84.02 lakh. After providing
for Income Tax of 328.98 lakh, Net Loss shown of 355.04 lakh in this year. As on March 31,
2023, our total balance sheet size increased to 1667.21 lakh from 3619.15 lakh, as on
March 31, 2023. C. The provisioning for Expected Credit Loss (ECL) during the year
increased significantly to 127.42 Lakh, compared to 4.49 lakh in the previous year,
reflecting the higher levels of non-performing assets (NPAs) and the companys cautious
approach towards credit risk management. This substantial increase in provisioning
underscores the companys commitment to prudently address potential credit losses and
maintain the stability of its financial position. Despite the challenges posed by the
economic conditions and borrower creditworthiness, the company remains dedicated to imple
menting effective risk mitigation strategies and ensuring the overall health and
resilience of its lending portfolio.
D. Operating Income and Expenses In FY22-23, we delivered robust all-round performance,
emerging strong from the crisis. Interest Income rose to \914.95 lakh from 49.907 lakh in
FY23 on account of higher no. of disbursement of loans and having growth in interest
income from loans. Operating expenses rose to I817.48 lakh from 381.23 lakh a year ago as
a witness of growing business. We increased our employee strength during the year, which
resulted in higher staff expenses. E.. AssetQuality Non-Performing Assets &
Provisioning Under Ind AS, asset classification and provisioning moves from the rule
based, incurred loss model to the Expected Credit Loss (ECL) model of providing for
expected future credit losses. Thus, loan loss provisions are made on the basis of the
Corporations historical loss experience and future expected credit loss, after factoring
in various other parameters. As our Company is growing company and trying to reach
customer at large scale to satisfy their financial needs, its very tough task to maintain
low % of NPA.
Standard Assets; Sub-standard and Doubtful Assets
In FY23, our company reported a Gross Credit exposure of \ 1170.79 lakh, which was
further categorized into standard assets amounting to \1029.23 lakh. However, we also
recorded Gross Non-Performing Assets (GNPA}* at 12.09% during the same period. On the net
credit exposure front, we had 1076.28 lakh, with Non-Performing Assets (NPA) amounting to
141.56 lakh. This resulted in a Net NPA ratio of 4.37% in FY23. As per the guidelines and
directions of the Reserve Bank of India (RBI), our company will diligently formulate and
apply the required provisions to manage and address the NPA situation. By adhering to
these regulatory measures, we aim to maintain a healthy financial position and safeguard
the interests of our stakeholders while ensuring sustainable growth in the financial
sector.
Note:
This is a general outline for the "Financial and Operational Performance
Overview" section of a Management Discussion and Analysis report. The actual content
and depth of analysis should be presented in the Financial Reports.
IIl. OPERATIONAL PERFORMANCE
Lending Operations
Despite the challenges posed by global crisis of Ukraine and Russia fight which had an
impact on the whole economy and unemployment due to by recurring waves of COVID-19
infections during the year, lending operations of the Corporation continued seamlessly.
Much of this was attributed to the ability to stay connected with customers by leveraging
on the Corporations digital platforms. The demand for credit i.e. financial assistance
continued to be strong for any kind of segments.
The average ticket size of individual loans stood at 21,000.
Product Wise Loan Performance
As at March 31, 2023, The total loan portfolio of the company is 10.4321 cr.
Customers Complaints Dispute Redressal
As of today, our company maintains an impressive track record in handling complaints.
Our average Turnaround Time (TAT) for resolving issues stands at just 3 working days,
while our maximum resolution time, as per the Fair Practices Code (FPC), is set at 21
working days. We take pride in the fact that to date, there have been no recorded
complaints pending or unresolved. We remain committed to delivering prompt and efficient
service to all our customers. The disclosure of complaints was elaborated following the
format prescribed by the RBI in Circular no. DOR.ACC.REC.N0.20/21.04.018/2022-23, dated
April 19, 2022. This circular pertains to disclosures in the financial statements Notes
to Accounts of NBFCs and tabled as Annexure-IV.
Physical and Digital Reach Geographic Reach
The Corporation has expanded its physical distribution network to cover 3 office
centers. Throughout the year, significant efforts were dedicated to extending this network
into remote and underserved geographies, with the aim of broadening the Corporations
overall reach. In the digital realm, our company has strived to reach every corner and
fulfill the financial needs of individuals. Presently, our services are available in 224
approved areas across India, and we remain committed to expanding our presence to cover
the remaining regions. We are excited to announce that our company has recently become a
registered member of the Digital Lending Association of India. This registration marks a
significant milestone for us, as it reflects our commitment to adhering to industry best
practices and upholding high standards in the digital lending space. Being a part of this
esteemed association will enable us to better serve our customers, stay updated with the
latest trends and regulations, and contribute to the growth and development of the digital
lending ecosystem in India. We look forward to forging valuable partnerships and fostering
trust among our stakeholders as a registered member of the Digital Lending Association of
India.
Strategies for Further Improvement:
A. Continuous Process Optimization: We remain committed to optimizing our business
processes through the adoption of industry best practices and leveraging cutting-edge
technologies. This approach will lead to increased productivity, reduced costs, and
heightened customer satisfaction. B. Innovation and Product Development: To maintain our
competitive edge, we prioritize innovation and invest in research and development. By
introducing new products and services, we aim to expand our market reach and create
additional revenue streams. C. Talent Development and Employee Engagement: Our commitment
to talent development and employee engagement drives operational excellence. Our employees
are a key asset in driving operational excellence. We invest in continuous learning and
foster an innovative, collaborative culture. Material developments include an increased
work force to meet growing demands. A motivated, skilled, and engaged workforce is vital
to our sustained success.
Internal Control System and Their Adequacy
Being a Non-Banking Financial Company (NBFC), maintaining a robust internal control
system is paramount to ensure the integrity of our financial operations and compliance
with regulatory guidelines. This section provides an overview of our internal control
framework, assesses its adequacy, and highlights measures taken to enhance control
effectiveness.
To facilitate the internal control in the Company, the Company constitute a Audit
Committee in this regard to perform following functions:
Risk Management:
Assessing the financial performance is crucial for evaluating its profitability, asset
quality, and overall financial health. It provides stakeholders with valuable insights
into the companys ability to generate sustainable earnings, manage risks, and achieve
long-term growth. Key aspects to consider when analyzing the financial performance include
revenue generation, profitability, asset quality, liquidity and funding, capital adequacy,
key financial ratios, and growth prospects. To ensure effective monitoring and evaluation
of financial performance, our company specifically constitute Audit Committee (AC). AC are
responsible for overseeing financial matters, providing guidance, and ensuring compliance
with regulatory requirements. The Audit Committee typically consists of independent
directors with financial expertise and knowledge of regulatory norms. Their
responsibilities include:
Financial Reporting and Disclosure:
Ensuring the accuracy and reliability of financial statements, footnotes, and other
disclosures. Overseeing compliance with accounting standards and regulatory requirements.
Reviewing the adequacy and effectiveness of internal controls and risk management systems.
Risk Management:
• Assessing the adequacy of risk management frameworks and policies.
• Reviewing the effectiveness of measures taken to identify, measure, and mitigate
various risks.
• Monitoring compliance with prudential norms and regulatory guidelines related to
risk management.
Internal and External Audit:
• Overseeing the work of internal and external auditors. J Reviewing audit plans,
reports, and findings, if any.
• Ensuring the independence and effectiveness of the audit function.
Financial Performance Evaluation:
• Reviewing financial performance, including revenue generation, profitability,
and asset quality.
• Analyzing key financial ratios and performance indicators. J Providing guidance
and recommendations to improve financial performance and mitigate risks.
Compliance and Regulatory Matters:
• Monitoring compliance with regulatory requirements, including capital adequacy
norms and reporting obligations. J Assessing the impact of regulatory changes on the
Companys financial operations. J Reviewing the effectiveness of the Compliances
compliance function.
In addition to the Audit Committee, Company also has other specific committees to
oversee specific areas such as Credit, risk management and governance. These committees
ensure robust oversight and governance, strengthen the transparency and integrity of
financial reporting, and provide valuable guidance to the management team.
INTERNAL CONTROL FRAMEWORK:
Our company has established a comprehensive internal control framework that adheres to
the principles of sound governance and risk management. Our company has adopted a
well-organized approach to identify, assess, and manage risks, aiming to achieve
organizational objectives effectively and efficiently.
KEY COMPONENTS OF INTERNAL CONTROL:
A. Control Environment: We foster a strong control environment by promoting a culture
of ethical behavior, accountability, and transparency. Clearly defined roles and
responsibilities are maintained to prevent conflicts of interest and ensure the
segregation of duties. B. Risk Assessment: Regular risk assessments are conducted to
identify, assess, and mitigate potential risks that could impact our financial stability
and reputation. These assessments help us prioritize risk management efforts and allocate
resources effectively. C. Control Activities: Our control activities encompass a range of
policies, procedures, and internal checks designed to ensure the accuracy and reliability
of financial transactions, credit evaluations, and lending practices. These controls are
continuously monitored and updated to adapt to changing business dynamics. D. Monitoring
Activities: We have a well-defined process for ongoing monitoring and evaluation of our
internal controls. Internal audits and periodic reviews are conducted to identify control
weaknesses and opportunities for improvement.
IV. ADEQUACY OF INTERNAL CONTROL SYSTEM:
Our company has consistently placed significant emphasis on the effectiveness of our
internal control system. Regular internal and external audits are conducted to evaluate
the adequacy and efficiency of our controls. The outcomes of these assessments affirm the
overall soundness of our internal control environment.
Regulatory and Policy Changes
To mitigate these risks and concerns, your company need to prioritize risk management,
invest in robust technology infrastructure, maintain compliance with regulations, and
continuously monitor market conditions. Additionally, establishing strong risk governance
and adhering to industry best practices can help build resilience and sustainability in
this rapidly evolving sector.
Looking ahead, we recognize the importance of staying proactive in adapting our
internal control system to evolving regulatory requirements and industry best practices.
We will continue to embrace emerging technologies and data analytics to optimize risk
management and decision-making processes.
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