Economic Review Global Economy
The Financial Year 2021-22 was fairly a year of recovery from the adverse impacts of
COVID-19 pandemic. The Indian economy successfully faced the challenges posed by the
second and third waves of the pandemic, thanks to successful implementation of vaccination
program, untiring services of the front line warriors, fiscal and monetary policies,
stimulus measures of Reserve Bank of India, central and state governments which gave a
much-needed cushion for the stability of the economy.
According to the second advance estimates of Indias Gross Domestic Product (GDP)
published by the National Statistical Office for the financial year 2021-22, GDP growth in
the first and second quarter was 20.1% and 8.4% respectively. In the third quarter, the
GDP growth slowed down to 5.4%. In the fourth quarter, India witnessed third wave of
infection but remained largely unaffected owing to vaccination of large proportion of
population. Indias GDP growth in Financial Year 202122 is estimated at 8.7%, compared to
a contraction of 6.6% in Financial Year 2020-21. The Index of Industrial Production grew
11.3% against an 8.4% contraction in Financial Year 2020-21. The consumer and business
confidence was resilient with improvement in general economic situation, household
incomes, and spending. The economic recovery continued its positive momentum throughout
the festive season.
The Economic Survey 2021-22 stated that the total consumption is estimated to have
increased by 7.0% in Financial Year 2021-22 with Government consumption contributing the
larger pie. Private consumption, on the other hand, is also expected to have improved
significantly to its prepandemic output levels. The macro-economic indicators suggest that
the Indian economy is well on its way to achieve its pre-pandemic growth levels in the
current Financial Year 2023.
By mid FY22, inflation started to rise across most countries. Major global central
banks initially deemed rising inflation as transitory, largely attributing it to temporary
supply chain disruptions. Global markets remained awash with liquidity, inflating most
asset classes. For most of FY22, major central banks continued with their accommodative
monetary policy stance in order to support growth. In addition, governments and financial
regulators provided a slew of measures to alleviate the impact of the pandemic and cushion
the shock to various sectors of the economy.
As a part of rehabilitation measure to reduce the stress caused by COVID-19 pandemic,
the government has extended the Emergency Credit Line Guarantee Scheme till March 31, 2023
to provide credit support to small and micro organizations with expansion of guarantee
cover by Rs. 50,000 crores to total cover of Rs. 5 lakh crores. It also provisioned
additional credit of Rs. 2 lakh crores for Micro and Small Enterprises to be facilitated
under the Credit Guarantee Trust for Micro and Small Enterprises. It further accelerated
the MSME performance with an outlay of Rs.6000 crores over five years.
The headline CPI inflation edged up to 6.0 per cent in January 2022 and 6.1 per cent in
February, 2022 breaching the upper tolerance threshold. Pick-up in food inflation
contributed the most in headline inflation. The geopolitical crisis of Russia-Ukraine war,
which started in the last week of February 2022, is casting uncertainty over the global
economy, with increased volatility in crude prices and inflationary trends across
commodities. The consequential financial sanctions and political pressure from the war are
causing unpredictable and undesired implications on the global financial system and our
economy due to rising crude oil and other commodity prices leading to higher inflation.
Impact of Covid-19
The IMF now expects the inflation rate to remain elevated for a longer period of time
than previously anticipated. Inflation has been anticipated to be 6.1% for developed
nations and 6.8% for emerging and developing economies in 2022.This has resulted in a
downward revision of the April WEO (World Economic Outlook) prediction to a growth rate of
3.6% in 2022 and 2023, with both Russia and Ukraine anticipated undergoing significant GDP
declines in 2022. The IMF has revised downward the medium-term outlooks for all groups,
with the exception of commodity exporters, who have benefited from the rise in oil and
food prices. It would take longer for the aggregate output of advanced economies to return
to pre-pandemic levels.
Moreover, the disparity between advanced countries and Emerging Markets and Developing
Economies (EMDEs) that arose in 2021 has been predicted to persist, revealing some
long-term scarring from the pandemic. As a result of the crisis, EMDEs may be able to
acquire vacated Russian and Ukrainian markets. In consequence, their GDP growth rate has
been anticipated to increase and stabilise at 4.4% in 2023, following a decline to 3.8% in
2022. In the near future, many governments would need to diversify their energy sources
and increase efficiency wherever possible in order to mitigate the impact of growing
energy prices. The countries most hurt by an interruption in supply from Russia and
Ukraine would profit from an increase in OECD output, the absence of protectionism, and
multilateral logistics help.
FINANCIAL SERVICES - NBFC SECTOR
Over the past few years, Non-Banking Financial Companies (NBFCs) have played a
prominent role in the Indian financial system. They provide financial inclusion to the
underserved section of the society that does not have easy access to credit. NBFCs have
revolutionized the Indian lending system and have efficiently leveraged digitization to
drive efficiency and provide customers with a quick and convenient financing experience.
The plethora of services include vehicle financing, MSME financing, home financing,
microfinance and other retail segments The Government has consistently worked on the
governance measures to strengthen the systemic importance of the NBFCs. As of January 31,
2022 there were approximately 9,495 NBFCs registered with Reserve Bank of India (RBI), of
which 49 deposit accepting NBFCs.
The pandemic impacted the NBFCs operations, leading to decline in disbursements across
the sectors. However, the support and focus of the Government through various liquidity
measures such as repo rate cut, targeted long-term repo operations, special liquidity
scheme and partial credit guarantee scheme, kept the sector afloat. The total credit
outstanding from the NBFCs for Financial Year 2020-21 stood at Rs.23.75 trillion and is
expected to grow more in the Financial Year 2021-22. This growth was mainly led by growth
in the housing, auto, gold and other retail segments which stood resilient even in the
previous fiscal year. While the disbursement and AUM trends improved in the second and
third quarters of Financial Year 2021-22 due to the limited impact of the third wave of
the pandemic. The disbursement growth would have to remain healthier for a sustained AUM
growth. Besides, bank credit growth to the NBFC sector improved significantly to 14.6% in
February 2022 from 7% a year ago.
Impact of Covid-19 on Housing Finance and Non-Bank Finance Companies
Housing Finance companies [HFCs] and Non-Bank Finance Companies [NBFCs] have been
impacted by COVID-19 by way of operational disruptions, subdued collections, and
requirement of creating additional provisions to meet the post-COVID uncertainties. The
financial year saw equity fund raise by all major players in the financial sector,
including private sector banks, to keep up the capital adequacy cushion in the post COVID
scenario. However, since opening up of the economy from August 2020 onwards, all major
players have seen their collection efficiencies gradually returning to pre-COVID levels.
Adapting to the restrictions of the imposed lockdowns, Banks, NBFCs and HFCs are ramping
up their digital initiatives in order to keep up the loan book growth and to attend to the
customer requirements.
INDIAN ECONOMIC OVERVIEW
The Indian economy consolidated its recovery, with the majority of its components
surpassing prepandemic activity levels. Imminent obstacles include heightened global risks
resulting from slowing growth, increased inflation, supply disruptions due to geopolitical
spill overs, and financial market volatility resulting from synchronised monetary
tightening. The Provisional Estimates of Annual National Income report predicted Indias
real GDP growth for FY 2022 at 8.7%. On the supply side, real gross value added (GVA) rose
by 8.3% in FY 2022, with its key components, notably services, exceeding pre-pandemic
levels.
With the fast ebbing of the third wave of the Covid-19 pandemic in Q4FY 2022, high
frequency indicators showed mixed signs of recovery. Urban demand reflected in domestic
air traffic rebounded, while passenger vehicle sales, rural demand for two-wheelers &
tractors slowed by the end of the year FY 2022. Merchandise exports grew double-digits for
the thirteenth consecutive month in March 2022 and reached US$ 417.8 billion in FY 2022,
surpassing the target of US$ 400 billion. All import categories have risen faster,
resulting in a goods trade deficit of US$ 192 billion in FY 2022, or 6.1% of GDP.
It is anticipated that the nation has produced a record 314.51 million tonnes of food
grains in FY 2022, which is 3.77 million tonnes more than the amount produced in FY 2021.
The production of food grains in FY 2022 has been 23.80 million tonnes greater than the
average of the preceding five years. This record output of so many crops is the
consequence of the farmer-friendly policies of the government as well as the tireless hard
work of the farmers and the dedication of the scientists.
In CY 2021, the Indian equity market outperformed not only its Asian peers but also the
developed market. In the fourth quarter of FY 2022, however, Indian stocks have remained
under pressure, echoing unfavourable global trends. In terms of increased volatility,
Indian equities followed global markets, but significantly outpaced their developing and
developed market peers. The Nifty 50 Index and the NIFTY 500 Index both increased by 18.9%
and 21% in FY 2022. In FY 2022, the Nifty Midcap 50 and Nifty Small cap 50 Indexes
increased by 20.9% and 18.4%, respectively. Inflation climbed up to 7% in March, hitting
the maximum tolerance threshold. The majority of the inflation was caused by a significant
increase in food and energy prices. The RBI increased the policy repo rate by 50 basis
points to 4.90% to combat inflation. The Reserve Bank of India anticipated that the
Consumer Price Index (CPI) inflation rate will be 5.7% in FY 2022 and 5.5% in FY 2023 (new
base 2012=100).
The average daily absorption (via fixed and variable rate reverse repos) under the LAF
(liquidity adjustment facility) was Rupees 7.5 lakh crore in March, down from Rupees 7.8
lakh crore in January-February 2022. Reserve money grew by 10.9% (y-o-y) on April 1, 2022
(adjusted for the cash reserve ratio adjustment). As of March 25, 2022, M3 and bank credit
by commercial banks climbed 8.7% and 9.6%, respectively. In FY 2022, Indias foreign
exchange reserves rose by US$ 30.3.
OUTLOOK
Elevated worldwide price pressures on important food commodities, such as edible oils,
and in animal and poultry feed as a result of global supply constraints create a
significant degree of uncertainty over the future of food prices, necessitating continual
monitoring. International hurdles have slowed Indias economic progress, yet the country
has remained resilient in the face of such obstacles. The Reserve Bank of India projected
that the headline Consumer Price Index (CPI) inflation rate has been expected to be 6.7%
in FY 2023. The majority of the inflation was attributable to a substantial increase in
food and energy prices. To combat inflation, the RBI lifted the policy repo rate under the
liquidity adjustment facility (LAF) by 50 basis points to 4.90% with immediate effect. The
future course of the pandemic and the uncertainties about the pace of monetary policy
normalisation in major advanced economies also weigh on the outlook. Taking all these
factors into consideration, RBI has been projecting the real GDP growth for FY 2023 at
7.2%, with Q1 at 16.2%; Q2 at 6.2%; Q3 at 4.1%; and Q4 at 4.0%, with risks broadly
balanced.
With the broad-based surge in prices of key industrial inputs and global supply chain
disruptions, input cost push pressures appear likely to persist for longer than expected
earlier. Manufacturing sector firms polled in the Reserve Banks industrial outlook survey
expect higher input and output price pressures going forward. With the waning effect of
the third wave and expanding vaccination coverage, the pick-up in contact-intensive
services and urban demand has been expected to be sustained.
The governments emphasis on capital expenditure coupled with initiatives such as the
production linked incentive (PLI) scheme would stimulate private investment activity in
the context of improving capacity utilisation, deleveraged corporate balance sheets,
increased bank credit consumption, and favourable financial conditions. Moreover, the
escalation of the geopolitical situation and the accompanying increase in international
crude oil and other commodity prices, the tightening of global financial conditions, the
continuation of supply-side disruptions and significantly weaker external demand pose
downside risks to the outlook.
Industry Structure and Developments
NBFC INDUSTRY
The Non-Banking Financial Companies (NBFCs) constitute a significant host of
institutions that offer almost all banking services except for issuing self-drawn checks
and demand drafts. As financial intermediaries, they are able to solicit funds from the
public, whether directly or indirectly, and execute loans to parties having repayment
capacity. This segment to which NBFCs provide services includes wholesale/retail
merchants, small and medium-sized businesses, and sole proprietors. NBFCs are considered
as an extension of banks, frequently offering financial help with a customercentric
focus., The pandemic has tested the resilience of NBFCs, but so far, the sector has
emerged stronger with reasonable balance sheet growth, increased credit intermediation,
higher capital, lower delinquency ratio and enlarged liquidity cushions. After the
pandemic, initiatives such as a moratorium and asset categorization pause improved
financial conditions and provided NBFCs time to weather the shock and channel loans to
productive sectors to recover growth. Many NBFCs uses strong credit risk assessment
frameworks to assure credit quality. The Reserve Bank of India (RBI) has introduced
scale-based regulation to enhance the regulatory oversight over the sector effective
October 2022. To further strengthen the supervisory tools applicable to NBFCs, the Reserve
Bank issued Prompt Corrective Action Framework for NBFCs effective October 2022. The PCA
Frameworks purpose is to allow Supervisory intervention at the appropriate time and to
require the Supervised Entity to initiate and implement corrective measures in a timely
manner in order to restore its financial health. This recent amendment of the Factoring
Regulation Act can incentivise all NBFCs to boost the MSME sector. Many NBFCs have used
the pandemic to reinvent their business models, realising the power of data analytics and
big data in business applications. In this regard, many have tied up with FinTech firms to
leverage on technological innovations. The recent action has been taken by the RBI to
supersede the boards of NBFCs that have failed to repay their debts. This action
demonstrates the vigilance with which RBI monitors the sector in order to safeguard the
interests of stakeholders and prevent negative consequences on the financial system. As
per RBI report NBFCs credit growth grew from 7.2% YoY in FY 2020 to 9.7% in FY 2021.
Moreover, NBFCs credit to GDP ratio also improved from 50.6% in FY 2020 to 54.8% in FY
2021.
NBFC balance sheet growth remained healthy in FY 2022 (up to September) due to
increased investments. NBFCs income growth slowed as both NBFCs-ND-SI (Systemically
important nondeposit taking non-banking financial company) and NBFCs-D (NBFCs accepting
public deposit) reported decreased incomes in FY 2021. The sector has used technology to
rationalise spending and mitigate pandemic concerns. Net profits of NBFCs-ND-SI improved
after the first wave of COVID-19, and their cost-to income ratios declined. NBFCs-D saw a
moderation in income due to minor growth in fund-based income. Increasing interest
payments, cost-to-income ratio, and other expenses led to a drop in profitability. Net
profits of NBFCs during H1FY 2022 fell due to lower fund- based income.
The NBFC sector has been anticipated to stay healthy due to the accelerated rate of
immunizations and the broader economic recovery. The financial system has been
transitioning from a realm dominated by banks to one in which non-bank intermediaries are
gaining significance. The sectors developments in FY 2022 indicate even higher potential
in the years to come.
Strong development potential exist for NBFC-IFCs as demand for infrastructure loans is
anticipated to increase in tandem with the governments determination to revitalise
economic growth by focusing on the infrastructure and rural sector. In the first nine
months of FY 2022, both nonbanking financing firms (NBFCs) and banks experienced moderate
annualised growth in infrastructure-focused loan books, according to ratings agency ICRA
Ltd. It further anticipates that the asset under management (AUM) of non-banking financial
companies (retail) would increase by 5% to 7% in FY 2022 and by 8% to 10% in FY 2023.
Personal credit, microfinance, and gold loans are projected to be the key growth drivers
within the NBFC-retail market, as other traditional asset segments, such as car finance
and commercial credit, continue to face challenges due to supply shortages and asset
quality concerns. While disbursement and AUM trends returned in Q2 and Q3 of FY 2022, the
trend has been projected to continue in Q4 of FY 2022, as the third pandemic wave had
little influence. In line with the trend observed over the past two years, the sectors
liquidity has remained adequate, with most businesses retaining a three-month repayment
buffer. ICRA further anticipates that the NBFC and HFC return on managed assets (RoMA)
would approach the COVID-19 levels of 2.7% to 2.9% and 1.8% to 2% in FY 2023.
Indias Ratings and Research (Ind-Ra) anticipates an increase in systemic interest
rates and asset quality difficulties in certain areas due to the lagging impact of the
pandemic, which would have a negative influence on the operating performance of NBFCs. The
secured asset business for NBFCs may experience resurgence in FY 2023, with loan growth of
14%, compared to 7-8% in FY 2022. In the meantime, it was stated that NBFCs would need to
reassess their funding options in light of imminent interest rate hikes. Even if the
headline asset quality numbers may appear to be excessive, it has been anticipated that
credit costs would normalise in FY 2023.
Industry Insights:
Non-banking financial companies (NBFCs) are used to enhance the mainstream banking
system in the financial intermediation process and financial inclusion. NBFCs play a
significant role in promoting inclusive growth by providing financial services to the
less-banked customers as well as unorganised sector such as the micro, small and medium
enterprises (MSMEs) through efficiency and diversity. Since a large chunk of Indias
population did not even have bank accounts a decade ago, the government has been
encouraging financial inclusion. And one of the vital components of financial inclusion is
adequate access to credit, which has created enormous prospects for the NBFC sector. This
is a key factor that many NBFCs have been constantly focusing on improving their services
through diversified offerings, technology adoption, strategic partnership, robust
operational model, and regulatory compliance.
Diversified offerings:
NBFCs offer a wide range of financial products and services including personal loans,
commercial vehicle finance, housing loans, infrastructure finance, gold loans,
microfinance, money transfer, insurance, education funding, and many more customized
finance solutions. Their strong focus on the unorganised and under-served population of
the economy, helped them to create a niche market for themselves by identifying the needs
of targeted customer segment.
Robust operational model and regulatory compliance:
Since NBFCs are focusing on lending to the unorganized segment, a robust risk
management strategy is critical for short-term as well as long-term business
sustainability. Even though technology has offered significant benefits in terms of
operational efficiency, customer experience and cost savings, its crucial to implement
strategies to manage various risks such as credit risk, liquidity risk, operational risk
and interest rate risk. Additionally, NBFCs need to comply with the regulatory policies
based on their targeted segment and geographical location of operation.
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 grew at a slower pace as the economy continued to weather the headwinds of
COVID-19 pandemic and muted credit demand. However, NBFCs continued to disburse credit
despite disruptions caused by the pandemic, albeit at a slower pace. Sequential easing of
spread of NBFCs debentures over the corresponding G-sec yield along with increased retail
participation in the NBFC debenture market augured well for the market and public
perception regarding the sector. The retail sector benefitted from incremental credit
disbursed by the sector, aided by their low GNPA ratios and by staying tuned to customer
preferences. The profitability of the NBFCs improved compared to the corresponding quarter
of the previous year on account of steeper fall in expenditure than in income. Given the
persistence of infections, the full effects of the lockdown and suspension of business on
the asset quality of NBFCs will be evident gradually.
SEEKING LONG-TERM GROWTH OPPORTUNITIES
NBFCs have played a vital role in bringing the economically underprivileged sections of
society to the nations financial lifeline. FY 2021-22 was a year of repair and
transition for all NBFCs.
Despite significant hardship in our macro environment owing to the COVID-19 impact, we
are confident of a faster rural rebound, which will augur well for our business, going
forward. The governments sector-specific support measures, strong fiscal stimulus by the
Reserve Bank of India (RBI), prospects of a good monsoon and harvest is expected to help
revive the rural economy.
Another landmark policy initiative by the Government of India that is the Atmanirbhar
Bharat mission, designed to strengthen our indigenous skills, reduce dependence on
imports and put more emphasis on local supply channels.
Capital Management
While adhering to the guidelines laid down by the RBI from time to time, the Company
works towards maximising the returns on capital employed through an efficient capital
management strategy.
SWOT ANALYSIS:- Strengths
• Simplified and prompt loan request appraisals and disbursements.
• Innovative resource mobilisation techniques and prudent fund management
practices.
Weakness
• Regulatory restrictions - continuously evolving government regulations may
impact operations.
• Uncertain economic and political environment.
Opportunities
• Use of digital solutions for business/collections.
Threats
• High cost of funds.
• Rising Non-Performing Assets (NPAs).
• Restrictions on deposit-taking NBFCs.
• Competition from other NBFCs and banks.
Risks and Concerns
The Company like any other Company is exposed to specific risks that are particular to
its business and the environment within which it operates. The Company is confident of
managing these risks by maintaining a conservative financial profile, and by following
prudent business and risk management practices.
Your Company has a well-defined risk governance structure which includes periodic
reviews and close monitoring to enable building a sustainable business that takes care of
the interests of all stakeholders.
ENVIRONMENT, HEALTH, AND SAFETY (EHS):
Your Company strives hard to maintain the highest standards to preserve and protect the
environment and Safety, with the able support of its suppliers, customers, and
stakeholders. The focus of the Company hinges around Environmental protection and
occupational health and safety, as it strives for continuous improvement in all these
parameters.
In recent times, The Company is going through COVID situation as witnessed globally.
Many actions have been taken within organisation to align with expectations of management
in following guidelines issued by Ministry of Home Affairs and Ministry of Health and
Family Welfare.
We are committed to follow all guidelines of government in letter and spirit.
Segment wise Performance
The companys major source of earning is dividend income which comes from investments
in shares and securities.
The highlights of the financial statement of your Company for the year ended 31st
March, 2022 along with the previous years figures are given as under:
| Particulars |
31st March, 2022 |
31st March, 2021 |
|
(Amount in Rs.) |
(Amount in Rs.) |
| Profit before depreciation and taxation |
3,36,57,356 |
3,02,57,130 |
| Less: Depreciation |
3,47,408 |
3,47,408 |
| Provision for Tax |
|
|
| a) Current Tax |
74,29,273 |
72,00,000 |
| b) Deferred Tax |
(27,400) |
(2,22,57,644) |
| c) prior period tax |
- |
- |
| Profit after depreciation and taxation |
2,59, 08,075 |
4,49,67,366 |
During the year under review your company achieved a profit of Rs. 2,59,08,075 as
against Rs. 4,49,67,366 for the same period last year, showing a decrease of 42.39%.
Operations
During the year under review the company had a total revenue of Rs 3,36,57,356/- and
earned a profit (after tax for the year) of Rs. 2,59, 08,075/-
Internal Control Systems
We have instituted the three lines of defence model, viz. (i) management and internal
control measures, (ii) financial controls, risk management practices, security measures
and compliance oversight, and (iii) a robust internal audit function providing the third
level of defence.
The Company has proper and adequate system of internal controls to ensure that all its
assets are safeguarded and protected against loss from unauthorized use or disposition of
assets and that the
transactions are recorded and reported. The Company ensures adherence to all internal
control policies and procedures as well as compliance with all regulatory guidelines.
The Company has an independent internal management assurance function which is
commensurate with its size and scale. It evaluates the adequacy of all internal controls
and processes; and ensures strict adherence to clearly laid down processes and procedures
as well as to the prescribed regulatory and legal framework
Human Resources Policies
The Company has a friendly HR policy and taking care and redressing their all concern.
For this Company the stakeholders are the biggest assets and for all-round development of
all at levels various initiatives are taken in regular interval.
Industrial Relations
The company has maintained healthy industrial relations which were cordial during the
period under review.
Acknowledgement
The Directors express their sincere thanks and gratitude for the guidance, support and
cooperation extended by Banks, government authorities/ departments, and other private
organizations.
Cautionary statements
Statements in this Management Discussion and Analysis describing the Companys
objectives, projections, estimates and expectations may be forward-looking statements
within the meaning of applicable laws and regulations. Important developments that could
affect the Companys operations include a downtrend in the financial services industry,
global or domestic or both, significant changes in the political and economic environment
in India or key markets abroad, tax laws, litigation, labour relations, exchange rate
fluctuations, interest and other factors. Actual results might differ substantially or
materially from those expressed or implied. This report should be read in conjunction with
the financial statements included herein and the notes thereto.
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