Spandana Sphoorty Financial Ltd Management Discussions

As a responsible participant in Indias microfinance ecosystem, we endeavour to expand access to formal credit for underserved communities that remain beyond the reach of conventional financial systems. Our approach is centred on supporting women-led households through structured, income-oriented lending that encourages financial discipline and entrepreneurial activity. By strengthening credit access at the grassroots level, we contribute to expanding financial inclusion, fostering livelihood creation, and supporting the gradual economic participation of rural and semi-urban communities. We recognise that sustainable progress is built through consistent efforts, and we remain committed to responsibly expanding access to finance while adapting to the

1. MACRO-ECONOMIC OVERVIEW

Global Economic Review

The global economy continues to demonstrate resilience, although the growth trajectory has moderated amid rising geopolitical uncertainties and evolving trade dynamics. According to the International Monetary Funds April 2026 World Economic Outlook, global real GDP growth is projected at 3.1% in 2026 and 3.2% in 2027, below both recent trends and the long-term historical average, indicating a phase of steady but slower expansion.

GDP growth trend

(in %)

	Estimated	Projected
Details	CY 2025	CY 2026	CY 2027
World Economy	3.4	3.1	3.2
Advanced Economies	1.9	1.8	1.7
Emerging & Developing Economies	4.4	3.9	4.2

Outlook

The near-term global outlook has been shaped by heightened geopolitical tensions in the Middle East, contributing to volatility in energy markets, disruptions in commodity supply, and renewed pressure on inflation expectations and financial conditions. These developments have created short-term uncertainties; however, they have also reinforced the strategic importance of energy security, resilient infrastructure, and stable supply chains for sustaining economic activity. Global headline inflation is projected to rise to 4.4% in 2026 before moderating to 3.7% in 2027, reflecting the temporary impact of supply-side disruptions, particularly in energy markets, followed by gradual normalisation.

Indian Economy

The Indian economy continues to exhibit strong resilience and steady growth, with real GDP projected to expand by 7.6% in 2025-26, according to the Second Advance Estimates of the National Statistics Office. This sustained momentum reflects robust underlying economic fundamentals and positions India among the fastest-growing major economies globally. The outlook remains supported by rising productivity, broad-based development, and policy emphasis on inclusiveness and stability, reinforcing the countrys long-term trajectory towards the vision of Viksit Bharat 2047.

Financial Year	Real GDP Growth Rate (%)
FY 2021–22	8.7
FY 2022–23	7.0
FY 2023–24	7.6
FY 2024–25	6.5
FY 2025–26 (E)	7.6

E: Estimated

(Source: https://www.pib.gov.in/PressReleasePage. aspx?PRID=2233792&reg=3&lang=1)

A continued emphasis on large-scale public investment has positioned infrastructure at the core of Indias growth momentum. The Government of India has maintained a strong capital expenditure focus across key sectors such as railways, waterways, logistics, and urban development, with allocations rising to <12.2 lakh crore from <11.2 lakh crore in 2025-26. This expanding investment footprint is set to enhance connectivity, streamline supply chains, and improve overall economic efficiency, while also creating strong multiplier effects across allied industries and supporting sustained long-term growth.

Outlook

Looking ahead, growth for 2026–27 is expected to moderate slightly to the range of 6.6%–6.9%, reflecting external pressures such as geopolitical tensions in West Asia and volatility in global energy markets. Despite these challenges, Indias macroeconomic fundamentals remain robust. Ongoing tax rationalization measures and expanding trade engagements with key trading partners, including the UK, EU, and US, are likely to support export competitiveness. At the same time, the expanding digital economy and a resilient services sector continue to provide important bu_ers against global shocks. With improving rural demand and steady urban consumption, India is well-positioned to sustain a medium-term growth trajectory of around 7% through 2028, balancing external uncertainties with strong domestic drivers.

2. INDUSTRY OVERVIEW

Microfinance in India plays a vital role in advancing financial inclusion and reducing poverty by extending small-ticket credit to low-income and unbanked segments, particularly in rural geographies. By empowering women-led Joint-Liability Groups (JLGs) and micro-entrepreneurs, it fosters grassroots enterprise, enhances household incomes, and contributes meaningfully to rural economic development.

Strengthening Financial Inclusion through Microfinance

• Expands Access to Formal Credit: Microfinance institutions (MFIs) provide small-ticket loans to individuals traditionally excluded from formal banking channels, enabling access to reliable, regulated financial services.

• Empowers Women and Strengthens Livelihoods: By supporting women-led Joint-Liability Groups (JLGs) and small entrepreneurs, microfinance enhances financial independence, encourages participation in economic activities, and promotes inclusive growth.

• Promotes Micro-Entrepreneurship and Income Generation: Access to credit facilitates the creation and expansion of small businesses across agriculture, trade, services, and cottage industries, fostering grassroots enterprise and employment.

• Encourages Savings and Financial Discipline: Microfinance programmes cultivate regular savings habits and responsible borrowing behaviour, strengthening financial resilience and improving money management practices.

• Supports Household Stability and Rural Economic Development: Structured access to finance reduces dependence on informal lenders, helps households manage contingencies, and stimulates economic activity across underserved and rural communities.

Microfinance sector progress

The microfinance sector is currently navigating a phase of near-term challenges shaped by evolving macroeconomic conditions, regulatory developments, and shifts in borrower behaviour. Elevated inflationary pressures in recent periods have impacted household cash flows, particularly within low-income segments, influencing repayment capacity and credit demand patterns across certain geographies.

The industry has also witnessed increased focus on responsible lending practices and borrower leverage levels, prompting lenders to adopt calibrated disbursement strategies and strengthen underwriting frameworks. Regulatory emphasis on customer protection, transparency, and fair practices continues to encourage disciplined growth, while requiring institutions to further enhance compliance, monitoring, and governance processes.

Competitive intensity within the sector, alongside the expanding presence of banks, small finance banks, and fintech-led models, is influencing pricing dynamics and customer acquisition strategies. At the same time, fluctuations in funding costs and liquidity conditions have required microfinance institutions to maintain prudent balance sheet management and diversify funding sources.

Regional concentration risks, climatic disruptions affecting rural incomes, and evolving customer credit behaviour are contributing to short-term portfolio stress in select pockets. In response, the sector is reinforcing risk management frameworks, leveraging data-led credit assessment, and strengthening collection mechanisms to sustain portfolio quality.

Despite these interim headwinds, the structural fundamentals of the microfinance industry remain strong, supported by continued demand for formal credit, increasing financial awareness, and policy support aimed at expanding financial inclusion. The sectors long-term growth trajectory continues to be underpinned by its role in enabling entrepreneurship, supporting livelihoods, and bridging the credit gap for underserved communities.

According to the Micrometer Report, as of 31 March 2026, the Indian microfinance industry had a gross loan portfolio (GLP) of <3,25,174 crore, including a DPD 180+ portfolio of <53,907 crore. The sector served 10.1 crore active loan accounts during the period. On a year-on-year basis, the industrys GLP declined by 13.3%, reflecting a phase of consolidation following a period of strong growth. A key factor contributing to this decline was the migration of approximately 8.3% of the portfolio from microfinance to retail lending, with banks accounting for the majority of this shift.

NBFC-MFIs remained the largest providers of micro-credit, with an outstanding portfolio of <1,43,586 crore, representing 44.2% of the industrys total portfolio. Banks held the second-largest share with outstanding loans of <86,033 crore, accounting for 26.5% of the micro-credit universe. Small Finance Banks (SFBs) followed with an outstanding portfolio of <51,238 crore and a 15.8% share. NBFCs contributed 12.3% of the portfolio, while other MFIs accounted for the remaining 1.3%. Together, NBFC-MFIs and banks represented over 70% of the total micro-credit universe.

Overall status of portfolio, unique borrowers and loan accounts

Type of Entity	No. of Entities (Mar-25)	Unique Borrowers (Cr) (Mar-25)	Active Loan Accounts (Cr) (Mar-25)	Portfolio O/S (< Cr) (Mar-25)	No. of Entities (Mar-26)	Unique Borrowers (Cr) (Mar-26)	Active Loan Accounts (Cr) (Mar-26)	Portfolio O/S (< Cr) (Mar-26)
NBFC-MFIs	93	3.7	5.3	1,47,566	86	3.2	4.3	1,43,586
Banks	17	3.2	4.5	1,22,826	17	2.3	3.1	86,033
SFBs	10	1.9	2.1	59,252	10	1.4	1.6	51,238
NBFCs	92	1.2	1.2	42,129	96	0.9	1.0	40,013
Others	–	0.1	0.1	3,256	–	0.2	0.2	4,304
Total	212	7.8	13.3	3,75,030	209	6.4	10.1	3,25,174
DPD 0–179	212	–	11.1	3,32,636	209	–	7.5	2,71,267

Source: Micrometer Report, May 2026 CRIF

As on 31 March 2026, microfinance operations spanned 721 districts across 28 states and 7 union territories (UTs). Top 5 states in terms of loan amount outstanding are Bihar, Uttar Pradesh, Tamil Nadu, Karnataka and Maharashtra. They account for 57.3% of AUM and the Top 10 states account for 84.0% of the total loan amount outstanding.

3. OPERATIONAL GROWTH

India presence

We concluded FY26 with a network of 1,297 branches spanning 20 states and 390 districts. Our operations are well diversified across branches, districts, and states, creating a strong base to drive growth within our existing footprint as well as in new markets. This wide reach enables us to adapt our products and services to local requirements, harness cross-selling opportunities, and strengthen customer acquisition through strong community connect and focused digital engagement.

Customer base

During the year under review, we added approximately 2.0 lakh new borrowers. As of March 2026, our customer base stood at 10.5 lakhs. As the sector comes out of the challenging phase of past two years, we are shifting our focus to acquiring more customers and bridging their financial needs. We will also continue to focus on strengthening relationships with existing customers across rural and semi-urban markets, particularly in tier 3–5 regions, while continuing to support their evolving credit needs.

Disbursement

Our total disbursements in FY26 stood at <3,584 crore, compared to <5,017 crore in FY25. Notably, about 28% of loans disbursed during the year were extended to customers new to Spandana. While we adopted a calibrated and measured approach to disbursements during the year, the sustained demand for microfinance underscores the presence of a large, underserved segment and continued relevance of formal credit access within the sector.

Technology framework

During the year, we continued to invest in strengthening our IT infrastructure, with a focus on enhancing platform stability, security, and operational efficiency. Key initiatives included upgrades to core systems and the implementation of a new Loan Origination System (LOS), enabling streamlined processing, faster turnaround times, and improved credit assessment capabilities. We also increased automation across processes and leveraged analytics to support more informed, data-driven decision-making. Cybersecurity and data privacy remained key priorities as we continued to enhance the reliability, resilience, and integrity of our digital platforms.

Asset quality

As a leading participant, Spandana witnessed a significant improvement in portfolio quality during the year, with GNPA and NNPA improving to 3.33% and 0.64%, respectively, as of March 31, 2026. Supported by disciplined credit underwriting and strengthened risk monitoring mechanisms, the Company expects further improvement in asset quality through FY27.

Disbursement trend (Quarter-wise)

Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26
188	820	1,106	1,470

Bettering our Collection efficiency (CE)

We actively encourage timely repayments and maintain continuous engagement with our customers to reinforce credit discipline. While industry challenges had an impact on collection efficiency, we continue to place strong emphasis on staff capability building, process-oriented incentive structures, and consistent borrower connect to protect portfolio quality. For FY26, our gross collection efficiency stood at 93.8% while net collection efficiency was 93.3%.

In parallel, we implemented a structured and multi-channel recovery strategy combining legal interventions, strengthened borrower engagement, and expanded digital payment enablement. Legal avenues such as demand notices, legal notices, and Lok Adalats were utilised to address overdue accounts, supported by dedicated in-house teams and external agencies focusing on higher delinquency buckets. At the same time, digital collection channels gained further traction through QR-code based payments, SMS-enabled payment links, and integration with BBPS platforms, improving convenience and collection efficiency. These initiatives contributed to recovery of approximately <222 crore over a 12-month period, reflecting measurable progress in portfolio resolution. Together, these efforts are positioned to sustain recovery momentum and support a gradual improvement in asset quality.

Gross CE - quarter-wise

(%)

Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26
91.6	93.6	95.8	95.8

Net CE - quarter-wise

(%)

Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26
91.1	93.0	95.2	95.1

4. PORTFOLIO MIX

Effective portfolio risk management remains integral to the operations of a lending institution. To mitigate concentration risks, we maintain a well diversified portfolio across geographies and borrower vocation. The portfolio reflects a balanced mix, with a meaningful share represented by advanced loan cycles, demonstrating our ability to nurture long-term customer relationships and support repeat credit requirements over time.

Ticket size

In FY26, the average loan Ticket size stood at <60,207. The movement in ticket size reflects our increased focus on serving existing borrowers with higher vintage, who are typically eligible for relatively larger loan amounts than new customers. We remain committed to addressing credit requirements of our borrowers with established healthy repayment behaviour thereby maintaining disciplined controls on lending thresholds.

Average Ticket Size

FY24	FY25	FY26
41,921	45,400	60,207

Loan outstanding

In FY26, our Assets Under Management (AUM) declined by 36% to <3,840 crore, compared to <6,029 crore as of the end of FY25, reflecting a calibrated and prudent disbursement approach adopted in response to industry-wide challenges and asset quality pressures. In line with this strategy, the average loan outstanding per borrower improved to <36,558 as of FY26, compared with <26,075 at the close of the previous year.

Growth in AUM

Quarter-wise

Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26
4,245	3,417	3,296	3,840

Year-wise

FY24	FY25	FY26
11,199	6,029	3,840

Average AUM per Borrower ()

FY24	FY25	FY26
35,805	26,075	36,558

Cycle-wise mix

We maintain a well-diversified loan portfolio across multiple loan cycles, supported by products and processes designed to make borrowing convenient and encourage disciplined repayment behaviour. Our offerings continue to evolve in line with the changing needs of our borrowers, enabling us to deliver relevant and responsible credit solutions. Approximately 40% of our borrowers are in their second loan cycle or beyond, reflecting the continued relevance of our products and the trust we have built over time. Through our customer-centric approach, we have developed enduring relationships with our borrowers, providing a strong foundation for expanding new customer connections.

Cycle-wise mix (%)

1st cycle	40%
2nd cycle	32%
3rd cycle and above loans	27%

Maintaining rural focus

Rural India continues to present significant potential for microfinance lending, supported by the Governments sustained focus on rural development, infrastructure creation, and initiatives aimed at strengthening micro and small enterprises. These measures reflect increasing confidence in expanding formal credit access across underserved segments and reinforce the long-term relevance of microfinance in enabling local economic participation.

At Spandana, our portfolio remains strongly aligned with this opportunity, with 83% of our loan exposure in rural areas and 17% in urban markets, underscoring our deep presence in rural geographies and our continued commitment to supporting credit access in these regions.

Region-wise mix (%)

AUM mix
Rural	83%
Urban	17%

5. PRODUCT MIX

We remain committed to empowering women in low-income rural communities by offering a range of loan products designed to address their evolving financial needs. A key offering is the Joint Liability Group (JLG) micro-loan, tailored specifically for women entrepreneurs. Extended through JLG structures, these loans support women in starting or expanding small businesses, strengthening household incomes and enhancing financial stability.

In addition, our Loan Against Property product, offered through our subsidiary Criss Financial Ltd., is focused on supporting small entrepreneurs by providing access to secured funding for business requirements such as equipment purchase, premises renovation, or working capital. By enabling borrowers to leverage the value of their property, this product creates an additional pathway for business growth and financial resilience.

Looking ahead, we plan to further expand our product suite to include affordable housing and home improvement loans. While each offering serves distinct customer needs, our overall approach remains centred on improving access to relevant financial solutions that promote entrepreneurship, income generation, and long-term economic participation across underserved segments.

6. PORTFOLIO DIVERSIFICATION

The microfinance industry has, at times, experienced stress arising from external events across certain regions, including natural calamities and concentration of borrower livelihoods in similar economic activities. Key risks include customer concentration in specific income segments and weather-related disruptions such as cyclones and _oods, which can affect repayment capacity in localized pockets. In response, the industry has strengthened its focus on geographic diversification and portfolio balancing to enhance resilience.

We have implemented defined portfolio exposure limits at the branch, district, and state levels as part of our risk management framework. These measures are aimed at mitigating concentration risks, reducing the potential impact of localised disruptions, and promoting greater stability and sustainability across our operations.

State level

Our loan portfolio is spread across 19 states and 1 union territory, ensuring diversified geographic exposure. As of the end of FY26, no single state accounted for more than 15% of our total standalone Assets Under Management (AUM). To manage concentration risk, we adhere to defined internal benchmarks and exposure limits that guide portfolio monitoring, including a cap on concentration relative to aggregate POS.

State-wise disbursements during FY26 remained within the 15% threshold established for each geography. Bihar accounted for the highest share of disbursements at 14%, followed by Madhya Pradesh at 14%, Odisha at 12%, Andhra Pradesh at 10%, and West Bengal at 9%, reflecting a balanced and diversified distribution across key operating regions.

District Level

In addition to managing concentration risk at the state level, we have implemented internal exposure caps at the district level, guided by the District Risk Index (DRI) published by the SROs. No single district accounts for more than 2.25% of our total Assets Under Management (AUM). As of FY26, 87% of our districts each contributed less than 0.5% to the overall AUM, reflecting a well-dispersed portfolio and low concentration risk.

Our exposure to the top 10 districts represented only 16% of the total AUM, which remains relatively lower compared with larger Microfinance Institutions (MFIs) and Small Finance Banks (SFBs). This granular diversification strengthens portfolio resilience and supports balanced risk distribution across geographies.

Exposure of Districts	As of March, 2026
% Contribution to Gross AUM	No. of Districts	% of Total Districts
< 0.5%	336	86%
0.5% - 1%	41	11%
1% - 2%	12	3%
>2%	1	0.3%
Total	390	100%

 

Exposure of Districts	As of March, 2026
Proportion of Total Disbursements	No. of Districts	% of Total Districts
< 0.5%	324	85%
0.5% - 1%	46	12%
1% - 2%	10	2%
>2%	2	1%
Total	382	100%

 

Exposure of Districts	As of March, 2026
Buckets	AUM	Proportion of Total
		AUM
Top 5 Districts	362	9%
Top 10 Districts	596	16%
Top 50 Districts	1,712	45%
Other Districts excluding top 50 districts	2,128	55%

Branch Level

We have extended our risk management framework to the branch level, ensuring that no single branch accounts for more than 1% of the total Portfolio Outstanding (POS) as part of our approach to managing concentration risk. Through a proactive and disciplined approach, we continue to closely monitor exposures while strengthening portfolio performance. Our ongoing risk management strategy places strong emphasis on diversification across geographies and customer segments. In FY26, all our branches remained within the prescribed exposure cap, ensuring that concentration levels were maintained well within our defined risk appetite.

Exposure of Branch in FY26

Proportion of Gross AUM	No. of Branches	Proportion of Total Branches
<0.15%	1,171	90%
0.15%-0.25%	122	9%
0.25%-0.35%	4	0.3%
Total	1,297	100%

7. PRODUCTIVITY METRICS

We remain committed to enhancing productivity across the organisation. As of March 31, 2026, we had a strong pan-India presence with 1,297 branches, with an average AUM of <3.0 crore per branch. Our opex-to-AUM ratio stood at 15.9% in FY26, compared with 8.2% in FY25, primarily reflecting increased bench strength and relatively lower disbursement levels during the year.

Looking ahead, we see meaningful scope for improving operating efficiency as we focus on increasing AUM per branch and enhancing employee productivity. Our approach will remain centred on building a lean and efficient cost structure, enabling us to serve customers more effectively while creating sustainable long-term value for all stakeholders.

8. CONSOLIDATED FINANCIAL PERFORMANCE (IND-AS)

During the fiscal year, we raised a total of <3,116 crore from a diversified set of lenders, including banks, NBFCs, financial institutions, and retail investors, aligned with our funding requirements. Despite operating in a challenging environment, we closed the year with adequate liquidity, supported by cash and bank balances of <1,438 crore. Our average cost of borrowing for the year stood at 12.6%, reflecting an increase compared with 12.0% in FY25.

Our operating expense ratio, measured as opex to AUM, stood at 15.9% in FY26 (FY25: 8.6%). We remain focused on operational excellence, with efforts directed towards optimising the utilisation of our existing infrastructure, improving productivity, and enhancing cost efficiency over time.

Credit ratings Rating	Rating Agency	Current Rating
Instrument
Bank Facilities	CRISIL	BBB+ / Stable
Bank Facilities /	CARE	BBB+ / Stable;
NCDs / CPs		A2
Bank Facilities / NCDs	ICRA	BBB+ / Negative*
Bank Facilities / NCDs	India Ratings	BBB+ / Negative

*rating revised to Stable from Negative on June 11, 2026.

Fund sources

We have continued to diversify our funding sources while strengthening relationships with both existing and new lenders. To support our funding requirements, we have accessed capital from a broad range of institutions, including public and private sector banks, financial institutions, and capital market participants. As of the end of the year, we had established relationships with a total of 47 lenders, reflecting the depth and diversity of our funding network.

9. KEY RATIO (Consolidated basis)

Particulars	FY26	FY25
Debtors turnover	NA	NA
Inventory turnover	NA	NA
Interest coverage ratio	(0.8)	(0.5)
Current ratio	NA	NA
Debt-equity ratio	1.9	2.1
Operating Profit Margin	28.5%	63.5%
Net Profit Margin *	-65.6%	-42.7%

 

Particulars	FY26	FY25
Others (on standalone basis)
a) Capital to risk-weighted assets ratio (CRAR)	29.8%	36.3%
b) Tier I CRAR	29.8%	36.3%
c) Tier II CRAR	0.0%	0.0%
d) Provision coverage ratio	80.6%	80.2%
e) Liquidity coverage ratio	285.0%	800.9%
f) Return on net worth	-25.9%	-31.0%

10. DETAILS OF ANY CHANGE IN RETURN ON NET

WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF.

In FY26, amid external headwinds, we adopted a calibrated and cautious disbursement approach, with a stronger emphasis on supporting the financing needs of our existing borrower base over new customer acquisition. Elevated delinquencies led to higher provisioning and write-o_s, resulting in a reported loss of <699 crore for the year. Our measured disbursement strategy contributed to a 35% moderation in AUM, a 67% decline in Net Interest Income, and a (-105%) reduction in Pre-Provision Operating Profit, culminating in a reported Return on Equity of (-30.8)%.

11. HUMAN RESOURCE MANAGEMENT

Our strong and capable workforce remained central to navigating business headwinds and sustaining organisational stability. During the year, we prioritised strengthening leadership depth, stabilising operations, and aligning talent initiatives with our long-term strategic direction. Focused hiring efforts, internal mobility, and campus engagements supported the creation of a responsive and scalable talent pipeline, while an expanded span of supervision enhanced managerial capability and operational oversight. These initiatives reinforced organisational continuity and strengthened leadership accountability across levels. We also continued to invest in capability building through structured learning interventions, supported by digital platforms and an enhanced competency framework spanning strategic, business, institutional, and people leadership dimensions. Performance management processes remained consistent despite challenging conditions, reinforcing a culture of recognition and continuity. Engagement initiatives, including long-service recognition, feedback surveys, and organisation-wide interactions, further strengthened employee connect. As of FY26, our workforce comprised 9,405 employees, including field staff, forming a strong foundation for sustained execution and future growth.

12. CORPORATE SOCIAL RESPONSIBILITY

As a responsible corporate organisation, we remain committed to creating meaningful economic and social value for all our stakeholders. Our approach focuses on enabling social transformation through impactful and sustainable initiatives that address the evolving needs of the communities we serve. Guided by an integrated community development framework, our CSR strategy seeks to deliver measurable outcomes across priority areas, ensuring that our interventions create long-term and inclusive value.

In FY26 our CSR initiatives extended across 2 states and 2 locations, focusing on geographies where support was most needed. During the year, we implemented two purpose-driven programmes designed to deliver locally relevant solutions to real challenges, positively impacting over 13,930 individuals. With 64% of the beneficiaries being women, our initiatives continued to emphasise inclusion, empowerment, and the creation of sustainable opportunities for underserved communities.

14. RISK AND MITIGATION

Effective risk management is essential to safeguarding stakeholder interests, ensuring regulatory compliance, and supporting the long-term sustainability of the organisation. At Spandana, risk management forms an integral part of our business strategy, with a structured approach focused on minimising the potential impact of adverse developments through clearly defined policies, controls, and risk appetite frameworks. Drawing on over two decades of domain experience, we continue to strengthen our resilience, enhance stability, and support sustainable growth.

Given the nature of our lending activities and operating environment, we remain vigilant in identifying, assessing, and managing both existing and emerging risks through robust policies and well-defined governance processes. The Risk Management Committee periodically reviews and updates our risk framework to ensure its continued relevance and effectiveness.

15. INTERNAL CONTROL SYSTEMS

Robust internal controls are fundamental to minimising financial risk and ensuring the accuracy, completeness, and reliability of financial reporting. At Spandana, our internal control framework is designed to safeguard assets, ensure regulatory compliance, and prevent fraud or misconduct. Through a comprehensive approach to information security, we prioritise the confidentiality, integrity, and availability of both customer and organisational data, reinforcing trust and operational discipline.

To strengthen oversight, we adopt a multi-layered control mechanism comprising concurrent internal audits, structured management reviews, and process-driven monitoring across our branch network. Our internal audit function plays a critical role in ensuring adherence to defined policies and procedures, while proactively identifying potential irregularities. We maintain strong internal controls across both financial reporting and operational activities, supported by a dedicated team of 171 auditors deployed across branches to ensure continuous vigilance over portfolio quality and process compliance.

Alongside regular audits, we undertake specialised reviews triggered by internal risk indicators, enabling timely identification and resolution of control gaps. Branches with higher disbursement volumes undergo enhanced scrutiny to ensure adherence to operational standards, while periodic KYC audits are conducted across all branches to strengthen compliance integrity. Audit observations are systematically reviewed to improve monitoring effectiveness and reinforce a culture of accountability and transparency.

We are also in the process of implementing advanced software integrated with our Loan Management System (LMS), which will enable real-time monitoring and automated trigger-based alerts. This technology enhancement is expected to strengthen risk detection capabilities, improve operational efficiency, and support proactive identification of potential control weaknesses, thereby further reducing the risk of fraud and enhancing overall governance effectiveness.

16. DISCLOSURE OF ACCOUNTING TREATMENT:

The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) prescribed under the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time and notified under Section 133 of the Companies Act, 2013. The statements also comply with the applicable circulars, guidelines, and directions issued by the Reserve Bank of India (RBI), as well as the presentation requirements of Division III of Schedule III to 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.