Spandana Sphoorty Financial Ltd Management Discussions

Spandana Sphoorty Financial Limited (Spandana) is a rural-focused non-banking financial company (NBFC) and microfinance institution (MFI) with an extensive footprint across India. Our primary objective is to provide income-generating loans through the joint liability group (JLG) model, focusing on supporting women from low-income rural and semi-urban households. In line with our evolving strategy, we have expanded our offerings to include Loan Against Property (LAP) and Nano loans through our subsidiary.

The microfinance sector in India continues to offer meaningful opportunities for pan-India players. As one of the established participants in this sector, we are approaching our future growth plans with measured optimism. We have maintained a broad distribution network, diversified funding sources, and are continuously investing in technology platforms, supported by a committed workforce. These strengths, alongside ongoing strategic initiatives, underpin our focus on building long-term sustainability and resilience in a dynamic market environment.

We recognise that incremental changes can collectively drive broader impact. Our micro-loans have played a role in supporting financial inclusion and income generation for rural households. Through these efforts, we aim to contribute to the financial well-being of underserved communities, while remaining mindful of the challenges and opportunities that lie ahead.

1. MACRO-ECONOMIC OVERVIEW

In 2024, the global economy grew at a moderate pace of 3.3%, according to the IMF, reflecting a period of relative stability, although growth remained subdued.

The global landscape is undergoing significant changes in 2025, driven by countries realigning their policy priorities in response to rising geopolitical tensions and growing economic challenges. The rapid and unpredictable nature of policy shifts has significantly increased economic uncertainty and makes the short-term outlook highly unstable.

As a result of this uncertainty, global headline inflation is expected to decline at a slower rate than previously anticipated. The IMF projects inflation to decrease to 4.3% in 2025 and further to 3.6% in 2026. This adjustment reflects higher inflation expectations for developed nations, somewhat offset by slight reductions in emerging markets and developing economies.

GDP growth trend (in %)

Details	2024	2025 (F)	2026 (F)
Global Economy	3.3	2.8	3.0
Advanced	1.8	1.4	1.5
Economies
Emerging Markets	4.3	3.7	3.9
and Developing
Economies

(Source: IMF, World Economic Outlook, April 2025)

Way forward

Despite the challenges that the world economy is currently facing, this time period offers a once-in-a-lifetime opportunity to strengthen resilience and devise a path forward that is more sustainable. Many economies experiencing strain have demonstrated that there is a potential of recovery if the necessary combination of coordinated policies and proactive change is applied.

It is possible for nations to contribute to a global recovery that is more equitable and inclusive if they work together to establish a trading environment that is stable and transparent, make progress towards timely debt resolution, and address structural imbalances. In order to properly traverse the road that lies ahead, international cooperation will be required. It is conceivable for the global economy to regain its momentum, rebuild its buffers, and open up new opportunities for prosperity across regions provided a coherent plan, strong leadership, and a commitment to shared progress are put into action.

Indian Economy

Indias gross domestic product (GDP) grew by 6.5% in the fiscal year 2024-25, positioning the country among the fastest-growing major economies despite global challenges. This achievement was driven by structural reforms, rapid digital transformation, and sustained infrastructure investments, all of which reinforced the countrys economic foundation. Additionally, strong domestic demand and ongoing private sector investments further fueled growth across various industries.

Towards the end of FY25, monetary policy became more accommodative. The Reserve Bank of India (RBI) reduced the repo rate by 25 basis points to 6.25% by March-2025 and further to 5.5% by June-2025, aiming to strike a balance between controlling inflation and boosting credit flow and investment. This supportive stance has enhanced liquidity, fostering corporate growth. Indias overall exports rose by approximately

6% year-on-year, reflecting resilience in the face of global challenges. Notably, service exports grew significantly, strengthening Indias position as a global leader in services exports.

However, the economy also faced notable headwinds. Both rural and urban unemployment rose over the year, while the Index of Industrial Production declined, signalling a temporary slowdown in manufacturing and mining activity. At the same time, tighter regulatory oversight, particularly on non-banking financial companies and microfinance institutions, constrained credit disbursements to some segments, weighing on lending growth and consumer finance.

Despite these challenges, the interwoven developments in consumption, employment, investment, policy, and trade ultimately created a solid foundation for long-term economic growth. Indias ability to navigate a volatile global environment, address emerging domestic vulnerabilities, and foster internal transformation highlighted its growing resilience and readiness to seize future opportunities and confront ongoing challenges.

Indian GDP trend (in %)

FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24	FY 2024-25
(6.6)	8.7	7.0	8.2	6.5

(Source: Government of India)

Way forward

The economic outlook for India in FY 2025-26 remains cautious yet resilient, shaped by the countrys inherent strengths amid continuing global uncertainties. Persistent volatility in commodity prices, trade disruptions, and geopolitical tensions present potential risks to growth. However, Indias structural stability and robust policy framework are expected to help mitigate these challenges.

Sustaining economic momentum will require continued investment in infrastructure, improvements in the ease of doing business, and policies aimed at strengthening consumer confidence. Additionally, higher private sector investment in strategically important sectors is critical. Rural demand is also expected to benefit from stable agricultural performance, easing food inflation, and overall macroeconomic stability. These factors are essential to support broad-based, inclusive growth.

Looking ahead, targeted structural reforms and deregulatory initiatives at the grassroots level can significantly enhance Indias global competitiveness and lay the groundwork for sustainable, long-term growth. However, their impact will depend critically on strong implementation, effective governance, and close coordination between central and state authorities to ensure that benefits reach all stakeholders.

2. INDUSTRY OVERVIEW

Microfinance has become a critical tool in promoting financial inclusion, especially for underserved populations in India. By providing access to credit, financial education, and entrepreneurial support, microfinance plays a significant role in poverty alleviation and economic development. The ongoing innovation and expansion of these services are essential to achieving comprehensive financial inclusion across the country.

Key contributions of microfinance to financial inclusion

1. Access to credit for the underserved: Microfinance institutions (MFIs) extend small, collateral-free loans to individuals from low income households who lack access to traditional banking services.

This is especially significant for rural populations, women, and low-income groups who often face barriers such as lack of collateral, credit history, or formal employment.

2. Empowerment of women: Microfinance has been a catalyst for womens economic empowerment. By providing women with access to financial resources, it enables them to start businesses, invest in education, and improve their familys well-being. This empowerment leads to greater participation in decision-making processes within households and communities.

3. Promotion of financial literacy: MFIs often incorporate financial literacy programs into their services, educating clients on budgeting, saving, and responsible borrowing. This education fosters better financial decision-making and long-term economic stability for borrowers and their families.

4. Suppor t for micro -e ntre pre neurship:

Microfinance facilitates the growth of micro-enterprises by providing the necessary capital for small-scale businesses. This support not only boosts local economies but also creates employment opportunities and encourages innovation at the grassroots level.

5. Integration of technology: The adoption of digital platforms has enhanced the reach and efficiency of microfinance services. Mobile banking, digital payments, and online loan applications have made financial services more accessible to remote and rural areas, bridging the digital divide.

Interim industry challenges

The microfinance industry is currently navigating a series of challenges that are impacting its operations and growth trajectory. These challenges are related to increasing borrower leverage, weakening borrower discipline, employee retention, and external factors that have influenced the lending environment over the past year. Addressing these issues requires strategic interventions to ensure long-term stability and sustainability.

Increasing borrower leverage: There is a growing trend of borrowers taking loans from multiple lenders owing to easy availability of credit, which has raised concerns about borrower overleverage. To address this, Spandana has adopted a conservative stance by halting new-to-credit customer acquisitions and refraining from issuing loans to borrowers with a history of delinquency. The Company has also implemented stricter checks including lending to borrowers who have only two other microfinance lending relationships apart from Spandana.

Borrower discipline: The industry is facing challenges in restoring discipline in the Joint Liability Group Lending (JLG) model, particularly after the disruptions caused by COVID. Borrowers are showing lower engagement at center meetings, which has resulted in difficulties with collections. Low attendance at center meetings and challenges in door-knock collections have compounded the situation, field stress for employees and increase in attrition.

Attrition: The microfinance industry is dealing with high attrition rates, especially among Loan Officers and

Branch Managers. This ongoing challenge highlights the need for people-focused initiatives to enhance employee retention. Spandana has taken multiple steps including increasing bench strength, increasing engagement with employees and roll out of wider employee benefits.

External influence: The industry is also affected by external factors such as local disturbances and debt waiver movements, which have contributed to increased uncertainty in the lending environment. We have been consistently engaging with customers and educating them about the virtues of timely payment of instalments and maintaining clean credit history. In response to these challenges, the industry is focusing on improving borrower discipline, addressing attrition, and implementing tighter industry level controls to manage borrower leverage and credit risk.

As per the Micrometer Report (May 2025), as of 31 March 2025 Indias microfinance sector reported a gross loan portfolio (GLP) of 3,75,030 crore, including a DPD 180+ portfolio of 42,394 crore. The sector served 13.3 crore active loan accounts, representing 7.8 crore unique borrowers. Compared to the previous year, the GLP declined by 13.5%, reflecting a period of consolidation after a strong growth phase.

NBFC-MFIs continued to lead the sector with an outstanding portfolio of 1,47,566 crore (39.3% of the industrys total), followed by banks at 1,22,826 crore (32.8%), Small Finance Banks at 59,252 crore (15.8%), NBFCs at 11.2%, and other MFIs at 0.9%. Together, NBFC-MFIs and banks comprised over 70% of the total micro-credit universe.

	31-Mar-24				31-Mar-25
Type of Entity	No. of Entities	Unique Borrowers	Active Loan	Portfolio O/s ( Cr)	No. of Entities	Unique Borrowers	Active Loan	Portfolio O/s ( Cr)
	(All)	(Cr) (All)	Accounts (Cr) (All)	(All)	(DPD)	(Cr) (DPD)	Accounts (Cr) (DPD)	(DPD)
NBFC-MFIs	87	3.9	6	1,70,903	93	3.7	5.3	1,47,566
Banks	14	3.4	5.2	1,44,022	17	3.2	4.5	1,22,826
SFBs	10	2	2.4	74,278	10	1.9	2.1	59,252
NBFCs	104	1.1	1.3	40,469	92	1.2	1.2	42,129
Others		0.1	0.1	4,026		0.1	0.1	3,256
Total	215	7.85	14.95	4,33,697	212	7.8	13.3	3,75,030
DPD 0 - 179			13.2	3,99,356			11.1	3,32,636

Note: The count of no. of entities are only for regulated entities (REs). The difference in the count of NBFCs is due to tagging which has been corrected by CRIF and March 2025 shows the accurate picture.

Source: Micrometer Report, May 2025

Source: Micrometer Report, May 2025

As on 31 March 2025, microfinance operations spanned 718 districts across 29 states and 7 union territories (UTs). The top five states by loan amount outstanding were Bihar, Tamil Nadu, Uttar Pradesh, West Bengal and Karnataka, together accounting for 57.9% of the total assets under management (AUM). The top 10 states cumulatively represented 83.4% of the total loan amount outstanding.

Source: Micrometer Report, May 2025

As on 31 March 2025, the AUM of NBFC-MFIs stood at 1,47,279 crore, covering 709 districts across 36 states and union territories. This reflects a 13.7% decline in the portfolio outstanding compared to the same quarter in the previous year. The portfolio health has also weakened, with PAR (31–180 days) rising to 6.6% as of 31 March 2025, up from 2.0% a year earlier

Key guardrails introduced: x Cap on indebtedness: A borrowers total outstanding loan amounts including microfinance and unsecured retail loans is limited to 2 lakh. x Lender limit: The number of microfinance lenders to a single borrower is restricted to three. x Exclusion of delinquent borrowers: Lending is prohibited to borrowers with outstanding dues exceeding 3,000 that are overdue for more than 60 days. x Transparent pricing: Emphasis on fair and transparent pricing mechanisms to foster borrower trust. Discontinuation of bundling third-party products along with loans and capping processing fees at 1.5% was introduced. x No fresh loan is to be given to the same borrower, whose existing loan is still continuing as outstanding, before 12 months of disbursement of the existing loan or has not completed 50% repayment of the same

These guardrails mark a significant step forward in promoting customer-centric, accountable, and risk-sensitive lending practices across the microfinance ecosystem.

3. OPERATIONAL GROWTH

Our India presence

We ended FY25 with a presence of 1,628 branches across 20 states and 414 districts. Our operations remain well-diversified at the branch, district, and state levels, providing a foundation for future growth both within our current footprint and in new markets. This extensive network enables us to tailor our products and services to local needs, leverage cross-selling opportunities, and accelerate customer acquisition through deep community engagement and digital outreach.

Customer base

During the year, we added approximately 3 lakh new borrowers. At the end of FY25, our customer base stood at 23 lakh as of March 2025. Given the external environment and the challenges impacting the industry, our efforts were primarily focused on serving existing customers in rural and semi-urban markets, particularly in tier 3-5 regions.

Disbursement

Our total disbursements in FY25 amounted to 5,017 crore, compared to 10,042 crore in FY24. Notably, over 27% of loans disbursed during the year were extended to individuals who were new to Spandana. While we calibrated and slowed down our disbursement during the year, the consistent demand for microfinance continues to reflect the presence of a sizable underserved market within the sector.

Strengthening our technology architecture

We continued to invest in IT infrastructure during the year, focusing on strengthening platform stability, security, and operational efficiency. Efforts included upgrades to core systems, increased automation, and the adoption of analytics to support more informed decision-making. Security and data privacy remained priorities as we worked to ensure the reliability and safety of our digital platforms.

Asset quality

In FY25, the microfinance industry confronted a series of headwinds, with rising delinquencies persisting for most of the year before easing modestly from December 2024 onward. Mid-year, certain state regulations introduced additional operational constraints that only abated towards the close of Q4FY25. As a leading participant, Spandana felt these pressures acutely: its GNPA rose to 4.85 percent as of March 31, 2025, up from 1.43 percent a year earlier. By tightening credit underwriting standards and enhancing risk monitoring, we anticipate a gradual restoration of asset quality through FY26.

Disbursement trend (Quarter-wise)

( Rs. in crore)

Q1 FY25	Q2 FY25	Q3 FY25	Q4 FY25
2,123	1,379	1,291	224

Bettering our Collection efficiency (CE)

We actively encourage timely repayments from our customers. While current industry challenges had an impact on the collection efficiency, we continue to lay strong emphasis on staff training, incentive structures that promote adherence to processes and maintain asset quality, as well as our regular client engagement initiatives. For FY25, our average gross collection efficiency was 94.1%, while average net collection efficiency was 91.8%.

Gross CE - quarter-wise (%)

Q1 FY25	Q2 FY25	Q3 FY25	Q4 FY25
97.5	93.8	92.5	92.0

Net CE - quarter-wise

Q1 FY25	Q2 FY25	Q3 FY25	Q4 FY25
94.1	90.9	90.9	91.4

4. PORTFOLIO MIX

Managing portfolio risks is central to the operations of a lending institution. To mitigate concentration risks, we have diversified our portfolio across various ticket sizes and loan cycles. Our portfolio is strategically balanced, with a substantial portion allocated to advanced loan cycles, reflecting our ability to build and sustain long-term customer relationships.

Ticket size

In FY25, the average loan disbursal size was 45,400, reflecting a +8% change compared to the previous year. The increase in ticket size was a function of increased focus on serving existing borrowers during the year who were of higher vintage and hence eligible for a relatively larger loan compared to new borrowers. We remain committed to meeting the needs of our borrowers while maintaining strict controls on lending thresholds.

Average Ticket Size
FY23	FY24	FY25
46,256	41,921	45,400

Loan outstanding

In FY25, our Assets Under Management (AUM) declined by 46.2% to 6,029 crore, down from 11,199 crore at the close of FY24, as we adopted a deliberately cautious disbursement approach in response to industry-wide challenges and deteriorating asset quality. Similarly, the average loan outstanding per borrower fell to

26,074 by the end of FY25, compared with 35,805 at the end of the previous year.

Growth in AUM

Quarter-wise ( in crore)

Q1 FY25	Q2 FY25	Q3 FY25	Q4 FY25
10,926	9,742	8,168	6,029

 

Year-wise		( in crore)
FY23	FY24	FY25
7,980	11,199	6,029
Average AUM per Borrower ()
FY23	FY24	FY25
37,527	35,805	26,074

Cycle-wise mix

We maintain a well-diversified loan portfolio that spans across various loan cycles. Our loan products and processes are carefully designed to make borrowing easy and ensure regular repayments for our customers. We are committed to ensuring that our loan offerings continue to meet the evolving needs of our borrowers. Approximately 45% of our borrowers are in their second loan cycle or beyond, highlighting the lasting value they find in our products and services. Through our customer-centric approach, we have built sustainable relationships with our borrowers, creating a strong foundation for new customer connections.

Cycle-wise mix (%)

1st cycle	55%
2nd cycle	18%
3rd cycle and above loans	27%

Maintaining rural focus

Rural India offers considerable potential for microfinance lending, especially with the Governments increased emphasis on rural development. Infrastructure projects designed for rural areas and initiatives supporting medium and small enterprises highlight the growing confidence in microfinance lending within these underserved segments. At Spandana, our loan exposure is split, with 88% in rural areas and 12% in urban areas, reflecting our strong presence in these regions.

Region-wise mix (%)

AUM mix
Rural	88%
Urban	12%

5. PRODUCT MIX

We remain focused on supporting women in low-income rural communities by offering a range of loan products tailored to their requirements. One of our core offerings is the Joint Liability Group (JLG) micro-loan, designed specifically for women entrepreneurs.

These loans are provided through JLGs to help women start or expand their small businesses, contributing to household income and financial stability.

Our Loan Against Property product, offered through our subsidiary Criss Financial Ltd, is also aimed at small entrepreneurs, offering access to funds that can be used for business needs such as equipment purchase, premises renovation, or working capital. By enabling borrowers to leverage the value of their property, this product provides an additional avenue for business development.

Looking ahead, we plan to broaden our product suite to include affordable housing and home improvement loans. While each offering serves distinct purposes, our overall approach remains focused on providing access to financial solutions that support entrepreneurship and income generation in underserved segments.

6. PORTFOLIO DIVERSIFICATION

The microfinance industry has periodically experienced stressduetoexternaleventsinvariousregions,including natural disasters and economic concentration among borrowers. Key risks include customer concentration, particularly where borrowers livelihoods depend on similar economic activities, and weather-related disruptions such as cyclones and floods. In response, industry participants have increased their focus on geographic and portfolio diversification.

At Spandana, we have adopted portfolio limits at the branch, district, and state levels as a risk mitigation measure. These steps are intended to reduce the potential impact of localised shocks and support greater stability across our operations.

State level

Our loan portfolio is distributed across 19 states and 1 union territory, providing diversified geographic exposure. As of the end of FY25, no single state accounted for more than 15% of our total Assets

Under Management (AUM) at the standalone level.

To manage concentration risk, we follow internal benchmarks and limits that guide portfolio monitoring, and we have also established a cap on concentration relative to total POS. State-wise disbursements in FY25 remained within the 15% threshold set for each state. Andhra Pradesh represented the largest share of disbursements at 14.3%, followed by Madhya Pradesh at 12.1%, Odisha at 10.1%, and Bihar at 10%.

District Level

In addition to managing risk concentration at the state level, we have established internal caps at the district level based on the District Risk Index (DRI) as published by the SROs. No single district exceeds 1.8% of the total

Assets Under Management (AUM). As of FY25, 87% of our districts each accounted for less than 0.5% of the overall AUM, indicating a low level of concentration risk. Our exposure to the top 10 districts constituted only 14% of the total AUM, which is comparatively lower than that of larger Microfinance Institutions (MFIs) and

Small Finance Banks (SFBs).

Exposure of Districts	As of March, 2025
% Contribution to Gross AUM	No. of Districts	% of Total Districts
< 0.5%	360	87.0%
0.5% - 1%	46	11.1%
1% - 2%	8	1.9%
>2%	-	-
Total	414	100%

 

Exposure of Districts	As of March, 2025
Proportion of Total Disbursements	No. of Districts	% of Total Districts
< 0.5%	358	87.3%
0.5% - 1%	45	11%
1% - 2%	6	1.5%
>2%	1	0.2%
Total	410	100%

 

	As of March, 2025
Exposure of Districts Buckets	AUM ( crore)	Proportion of Total AUM
Top 5 Districts	512	8.5%
Top 10 Districts	846	14.0%
Top 50 Districts	2,556	42.4%
Other Districts excluding	3,473	57.6%
top 50 districts

Branch Level

We have extended our risk management efforts to the branch level, ensuring that no single branch exceeds 1% of the total Portfolio Outstanding (POS) as part of managing concentration risks. With a proactive approach, we have remained vigilant in managing concentration risk while consistently enhancing performance. Our dynamic and ongoing risk management strategy emphasises the diversification of our loan portfolio. Notably, in FY25, all our branches maintained the exposure cap, thereby maintaining the concentration risk within appetite.

Exposure of Branch in FY25

Proportion of Gross AUM	No. of Branches	Proportion of Total Branches
<0.15%	1586	97.4%
0.15%-0.25%	41	2.5%
0.25%-0.35%	1	0.1%
>0.35%	-	-
Total	1,628	100%

7. PRODUCTIVITY METRICS

We are committed to enhancing productivity across our organisation. As of March 31, 2025, we have a wide presence in India with 1,628 branches, each having an average AUM per branch of 3.7 crore. Our opex to AUM ratio was higher at 8.2% in FY25, as against 6.8% in FY24, owing to increased bench strength and lower disbursements during the year.

Looking ahead, we see significant potential for improvements in our opex levels as we focus on increasing AUM per branch and maximising employee productivity. We will focus on building a lean and efficient cost structure, ensuring we can better serve our customers and create sustainable long-term value for our stakeholders.

8. CONSOLIDATED FINANCIAL PERFORMANCE (IND-AS)

During the fiscal year, we raised a total of 4,482 crore from a diverse group of lenders, including banks, NBFCs, other institutions, and retail investors in line with funding requirement. Despite navigating a challenging environment, we concluded the year with strong funding access and cash and bank balances totaling 1,844 crore. Our average cost of borrowing for the year was 12.0%, which was a marginal change compared to 12.2% in FY24.

Our operating expense ratio, represented by the opex to AUM ratio, was 8.6% in FY25. We are committed to operational excellence and our efforts going forward will be focused on optimising the use of our existing infrastructure.

Fund sources

We have been actively diversifying our borrowing sources and building strong relationships with both existing and new lenders. To meet our current funding needs, we have secured loans from various entities, including public and private banks, financial institutions, and capital markets. By the end of the year, our network included a total of 47 lenders.

9. Key Ratios (Consolidated Basis)

Particulars	FY 2024-25	FY 2023-24	Reason for significant change ( i.e more then 25%)
Debtors turnover	NA	NA	NA
Inventory turnover	NA	NA	NA
Interest coverage ratio	(0.5)	1.7	Reduction in Interest coverage ratio due to loss during FY24- 25 which results into negative EBIT
Current ratio	NA	NA	NA
Debt-equity ratio	2.1	2.6	NA
Operating Profit Margin	63.5%	74.2%	NA
Net Profit Margin	-42.7%	19.9%	Refer explanation given for change in Return on Net Worth
Others (on standalone basis)
a) Capital to risk-weighted assets ratio (CRAR)	36.3%	32.0%	NA
b) Tier I CRAR	36.3%	32.0%	NA
c) Tier II CRAR	0.0%	0.0%	NA
d) Provision coverage ratio	80.2%	80.0%	NA
e) Liquidity coverage ratio	800.9%	705.8%	NA
f) Return on networth	-33.0%	14.8%	Refer explanation given for change in Return on Net Worth

10. DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF.

During the financial year ended March 31, 2025, the microfinance industry faced unprecedented challenges due to a combination of external and structural headwinds. These included climatic disruptions, the weakening of the Joint Liability Group (JLG) lending model, deterioration in borrower discipline, elevated levels of borrower indebtedness, and external socio-political influences affecting customer behavior. These factors, which emerged in Q1 and persisted through the year, significantly impacted field operations, disrupted center meetings, and hindered the timely delivery of services to borrowers including timely collections. Our calibrated disbursement strategy resulted in a reduction of the

Asset Under Management (AUM) from 11,972.91 crore as of March 31, 2024, to 6,818.67 crore as of March

31, 2025. Operational stress was further intensified by increased field-level attrition, contributing to higher delinquencies, gross slippages, elevated credit costs, and a resulting in reported loss for the year ended March 31, 2025 and led to negative return on net worth for the year ended March 31, 2025.

11. HUMAN RESOURCE MANAGEMENT

We continue to focus on building diverse and skilled teams to support the long-term sustainability of our business. Our people strategy emphasises alignment with business objectives, agility in processes, and employee empowerment. During the year, we made steady progress across talent acquisition, employee engagement, policy development, digital enablement, and capability building.

Our recruitment approach prioritises targeted hiring through job portals, employee referrals, online professional networks and campus recruitment. This allows us to reduce reliance on external consultants while ensuring consistent and timely support for our field operations.

When it comes to filling in current openings within the organization, our first priority is always our existing employees. We actively encourage internal growth through Internal Job Postings, which helps us fill roles more quickly while also recognising and rewarding the potential within our organisation.

To address attrition, we launched the ICARE Meet, an initiative led by HR team to build employee confidence, provide a clear path forward, and offer meaningful support. These sessions created a safe space for open dialogue, where employees shared their feedback, helping us rebuild trust and retain key talent, particularly at the Branch Manager level and above.

As part of the broader ICARE Commitment, we also introduced important measures such as mandatory weekly offs, system downtime optimisation, and an enhanced rewards and recognition program all focused on improving the overall employee experience. We implemented a comprehensive Competency Framework to steer employee development and corporate training, placing a stronger emphasis on digital learning. The onboarding process for new field staff was strengthened, and we introduced a Learning

Management System at the head office to streamline training initiatives.

We also rolled out several initiatives focused on employee recognition and well-being. These included regular health check-up camps, long-service awards to honour our dedicated employees, and tax planning sessions. In collaboration with Apollo Health, we offered health awareness programs to promote overall well-being.

To a sense of connection among our diverse workforce, we celebrated major festivals in the office, enhancing cultural ties and bringing everyone together.

We also updated key HR policies to enhance transparency and operational clarity.

During the year, we advanced HR technology by integrating our HRMS with core business systems and launching Prarambh, a pre-onboarding application. We launched a Talent Management Program to identify high-potential employees (Hi-Pot) in partnership with a global human capital consultant. Through this initiative, we put in place a robust method to support both succession planning and talent development, ensuring we nurtured the right leaders for the future.

As on March 31, 2025, our workforce comprised 16,454 employees, including field staff. The team grew by 3,357 employees during the year, owing to challenging market conditions and the resultant business requirements.

12. CORPORATE SOCIAL RESPONSIBILITY

We are committed to creating meaningful economic and social value for all our stakeholders as a responsible corporate organisation. Our focus is on driving social transformation through impactful, sustainable initiatives that address the most pressing needs of the communities we serve. To achieve this, we have developed a comprehensive strategy that embraces an integrated approach to community development. In FY25, our CSR efforts reached 4 states and 12 locations, targeting areas where support was most needed. We rolled out six purpose-driven programs that provided local solutions to real challenges, benefiting over 95,000 individuals. With 82% of the beneficiaries being women, our initiatives were centered on inclusion, empowerment, and creating lasting value for underserved populations.

13. Outlook

SWOT analysis

Strengths x In-depth industry experience x Presence across India x Extensive customer base x Broad-based fund sources x Technological integration Weaknesses x Vulnerability to economic downturns x Customer base with modest economic background

Opportunities x Rural India offers immense potential for microfinance lending, with the government emphasising rural development. x Newer synergic products x Digital financial services

Threats x Weakening JLG discipline x Increasing migration among borrowers x Rising inflation x Increasing geopolitical instability x Competition from other MFIs & local financiers x Increase in borrowing costs

14. RISK AND MITIGATION

Effective risk management is crucial for protecting stakeholder interests, ensuring regulatory compliance, and securing the long-term sustainability of the organisation. At Spandana, risk management is a core element of our business strategy, focused on minimising the negative impact of adverse events on our objectives through defined risk policies and appetites. With over two decades of market expertise, such risk focussed processes held us to strengthen our viability and improve growth prospects.

We encounter risks specific to our lending activities and operating environment. We consistently identify, assess, and manage existing and emerging risks by implementing comprehensive policies and procedures. The Risk Management Committee regularly reviews and updates our risk management policies to ensure their effectiveness.

Our policies endeavour to encompass all types of risks that the Company is exposed to, notable among which are the following: x Credit risk x Operational risk x Information technology risk x Financial risk x ALM risk x Liquidity risk x People risk x Regulatory risk For each risk, we have corresponding mitigation plans that undergo regular reviews and refinements to ensure their effectiveness as our response to ever evolving business environment.

15. INTERNAL CONTROL SYSTEMS

Strong internal controls are essential in reducing the risk of financial loss and ensuring the accuracy, completeness, and reliability of financial statements.

At Spandana, we have implemented internal control measures that are focused on safeguarding our assets, ensuring regulatory compliance, and preventing fraud and misconduct. By adopting a comprehensive approach to information security, we prioritise the confidentiality, integrity, and availability of both consumer data and company information.

To strengthen our internal control framework, we adopt a multi-faceted approach that includes concurrent internal audits and regular management reviews. Our internal audit department plays a central role in authorising, documenting, overseeing, and ensuring adherence to processes across all branches, while actively identifying potential financial irregularities.

Additionally, we maintain robust internal controls related to both financial statements and operational procedures.

With a dedicated team of 171 auditors strategically positioned across branches, we ensure vigilant oversight of our portfolio. In addition to regular audits, we conduct specialised audits prompted by internal indicators, swiftly resolving any potential deficiencies.

We perform meticulous audits of branches with significant disbursements to ensure compliance with operational standards. Our robust mechanism validates KYC documentation through monthly audits across all branches. Findings are discussed to enhance monitoring and compliance, underscoring our commitment to transparency and operational excellence.

We are also in the process of implementing software that seamlessly integrates with our loan management system (LMS), enabling us to monitor and generate real-time triggers. This new software will enhance our operational efficiency by providing immediate insights into loan performance, risk indicators, and compliance measures. By leveraging advanced technology, we aim to strengthen our ability to identify and address potential issues promptly, thereby reducing the risk of fraud in the future.

16. DISCLOSURE OF ACCOUNTING TREATMENT

The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as prescribed in the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and notified under section 133 of the Companies Act,

2013 (the Act), the circulars, guidelines and directions issued by the Reserve Bank of India (RBI) from time to time ("the RBI guidelines") and presentation requirements of Division III of Schedule III of the Act (Ind AS compliant Schedule III), as applicable to the Company.

Cautionary Statement

Statements in this report on Management Discussion and Analysis relating to the Companys objectives, projections, estimates, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of

. future events. Actual results might differ materially from those expressed or implied depending upon factors such as climatic conditions, global and domestic demand supply conditions, raw materials cost, availability and prices of finished goods, foreign exchange market movements, changes in Government regulations, tax structure, economic and political developments within India and other factors such as litigation and industrial relations. The Company has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness cannot be guaranteed. The Company assumes no responsibility in respect of forward-looking statements herein which may undergo changes in future based on subsequent developments, information or events.