SRG Housing Finance Ltd Management Discussions

GLOBAL ECONOMY

The global economy demonstrated remarkable resilience in calandar year 2023, achieving significant growth due to declining inflation and steady increases in employment and income, highlighting its capacity to recover and thrive amidst recent challenges. The global inflation is further expected to decrease gradually, from 6.8% in 2023 to 5.9% in 2024, with a further decline to 4.5% in 2025. The global economic growth was propelled by extensive government spending, rising household consumption, and increased labor force participation. Major advanced economies saw households tapping into substantial pandemic-era savings, which unexpectedly contributed to economic strength, even during aggressive interest rate hikes by central banks. The global economy has been estimated to have grown by 3.2% in 2023, with projections indicating that the same growth rate will be sustained through 2024 and 2025.

Advanced economies are expected to reach their inflation targets sooner than emerging market and developing economies. In 2024, advanced economies are forecasted to grow by 1.7%, with a slight increase to 1.8% in 2025, compared to the 1.6% growth recorded in 2023. While headline inflation is predicted to decrease gradually, several structural challenges persist. These challenges include inadequate infrastructure, limited access to quality education and healthcare, and insufficient investment in technological innovation. These factors affect the movement of capital and labor, hindering progress towards higher standard of living, especially in middle- and lower-income countries.

Emerging markets and developing economies are expected to expand by 4.2% in both 2024 and 2025, slightly down from the 4.3% growth observed in 2023. The global economic outlook is anticipated to remain stable, although concerns persist about potential input costs due to geopolitical tensions, slowing inflation rates in major economies, and high government debt. The global economy is poised to navigate uncertainties and strive for sustained growth and prosperity for all by addressing these challenges through strategic and collaborative measures.

INDIAN ECONOMY

The Indian economy is forecasted to achieve a faster growth rate in FY24, estimated at 7.6%, surpassing the previous years growth of 7.0%, according to the second advanced estimates released by the National Statistics Organization (NSO) in India. The growth is propelled by significant expansions in key sectors, including industrial, construction, and financial sectors. The industrial sector is expected to grow driven by notable expansions in manufacturing, mining, and construction activities. The robust performance of the manufacturing sector has been instrumental in driving GDP growth for FY 2023-24. The manufacturing sector is projected to grow by 8.5%, a significant recovery from the 2.2% contraction experienced in the previous year. In addition, the growth has been driven by vital sectors such as financial services, real estate, and professional services, which registered an 8.9% growth in FY24 compared to 7.1% in FY23. In FY25, the government aims to raise capital expenditure to Rs 11.1 lakhs crore, a notable increase from Rs 10 lakhs crore in FY24. This substantial rise underscores the governments dedication to promoting economic growth and augmenting the countrys infrastructure framework.

Source: NSO estimates dated February 29, 2024,RBI (Reserve Bank of India) MPC (Monetary Policy Committee) report dated April 5, 2024

In India, inflation is influenced by various factors, including food prices, fuel prices, and global economic conditions. An increase in the repo rate leads to higher borrowing costs, reducing the money supply and helping control inflation. In FY24, the MPC committee maintained its stance by keeping the policy repo rate at 6.5% and projected inflation rate steady at 5.4%, aiming to gradually bring it in line with the target of 4.0%.

Government policies and actions by the RBI are pivotal in shaping the relationship between inflation and financial inclusion. Initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY) have significantly enhanced financial inclusion by extending banking services to the unbanked and underprivileged. As of January 31, 2024, around 51.66 crore beneficiaries have deposited Rs 2.18 lakhs crore under the PMJDY scheme. The Indian economys resilience, reinforced by recent reforms, provides a strong foundation for sustaining strong growth in the future. High-frequency indicators like auto sales and GST collections continue to show robust performance, strengthening the overall positive economic outlook. The expected increase in government spending is poised to generate a strong effect throughout the economy, resulting in heightened demand, improved supply chains, and broader market prospects.

INDUSTRY OVERVIEW

Housing Finance Sector

Housing Finance Companies (HFCs) play a pivotal role in the real estate sector, providing vital financial services that enable homeownership and infrastructure development, thereby driving economic growth and improving living standards across communities. The crucial role of Housing Finance Companies (HFCs) is evident from the rise in individual housing loans and disbursements by Primary Lending Institutions (PLIs), indicating a strong recovery in housing credit. HFCs have driven this growth by adapting to market changes and continuing to meet the housing finance needs of a growing population. Their ongoing support has helped create a more stable and accessible housing market, reflecting their significance within the broader financial landscape.

With strong residential sales, fewer distressed developers, and ongoing resolutions/recoveries in developer financing, the share of developer financing is expected to gradually increase in the medium term. Home loans form a significant part of HFCs business portfolio. According to a CareEdge report, home loans made up about 75.4% of the overall portfolio for HFCs in FY 2023-24. The share has been estimated to slightly decrease to 75.2% in FY 2023-24 and to 74.5% in FY 2024-25. The share of Loans Against Property (LAP) is estimated to reach 17.5% in both FY 2023-24 and FY 2024-25, up from 16.7% in FY 2022-23. Additionally, the Assets Under Management (AUM) size is expected to grow by 12.3% in FY 2023-24 and by 13.5% in FY 2024-25, compared to 8.9% growth in FY 2022-23.

During FY 2023-24, most HFCs specializing in prime housing loans responded to the rising cost of borrowing by increasing their interest rates. This rate hike was passed on to customers, leading to higher mortgage rates or loan costs for home financing. Strong margin growth and lower borrowing costs have significantly enhanced profitability for Housing Finance Companies (HFCs) in FY 2023-24 and FY 2024-25. Moving forward, lenders are expected to take a balanced approach, focusing on both growth and asset quality. The Return on Total Assets (ROTA) for HFCs is projected to be near or slightly above pre-COVID levels, increasing to 1.8% in FY 2023-24 and further to 1.9% in FY 2024-25, compared to 1.4% in FY 2021-22 and 1.7% in FY 2022-23.

With FY 2022-23 marking the first full year of economic recovery and an uptick in demand, Non-Performing Asset (NPA) levels have shown improvement, and such trend has been also expected to continue in future as well. The Gross Non-Performing Assets (GNPA) has been anticipated to decline to 2.9% in FY 2023-24 and to 2.6% in FY 2024-25 from 4.1% in FY 2021-22 and 3.3% in FY 2022-23. The provision coverage ratio for HFCs, which was 42% as of March 31, 2023, has been expected to stay strong, ranging between 44% and 46% during FY 2023-24 and FY 2024-25. This indicates that HFCs are maintaining sufficient provisions to mitigate credit risks.

Real Estate and Housing Sector

The Indian real estate sector has been a key pillar of the nations economy, driving growth and development through its expansive residential, commercial, and industrial projects, while continuously evolving to meet the demands of an expanding population and a dynamic market landscape. The residential real estate sales in 2023 reached their highest level in the last 15 years, despite concerns about inflation, high interest rates, and slowing economic growth. Sales across the top seven cities increased by 31% year-over-year (YoY), rising from 3.64 lakhs units in 2022 to 4.76 lakhs units in 2023. The growth was driven by policy reforms, increased consumer confidence, higher disposable incomes, and growing demand for larger living spaces. Additionally, increased investment activity boosted growth in all asset classes, including commercial, retail, warehousing, and residential properties.

In 2023, the top seven cities experienced a 25% increase in new housing supply compared to the previous year. About 4.45 lakhs new units were launched, up from over 3.57 lakhs units in 2022. However, this number remained below the record high of 2014, when over 5 lakhs units were introduced. The Mumbai Metropolitan Region (MMR) and Pune accounted for nearly 54% of these new launches, leading overall residential market growth. Hyderabad followed closely with a 17% share of the newly launched units. Chennai, with only a 5% share of the total new supply, recorded over 100% YoY growth in new unit launches, while the National Capital Region (NCR) saw a 45% YoY increase.

In 2023, most new residential launches were in the budget range of Rs 40 lakhs - Rs 80 lakhs, constituting about 31% of the total new supply across the top seven cities, a decrease from 35% in the previous year. The high-end segment, priced between Rs 80 lakhs and Rs 1.5 crore, accounted for 28% of all new supply in 2023. Responding to growing demand for luxury projects, real estate developers significantly increased launches in the luxury and ultra-luxury segments, which comprized almost 23% of new launches, up from 17% in 2022. In contrast, affordable housing saw a moderate decline, making up about 18% of total new launches in 2023, down from 20% in 2022.

The Mumbai Metropolitan Region (MMR) and Pune led in sales, accounting for half of the sales across the top seven cities in 2023. MMR recorded the highest sales with approximately 1,53,870 units sold, followed by Pune with around 86,680 units. The National Capital Region (NCR) saw sales exceeding 65,600 units, contributing 14% of the total, despite fewer new launches during the year. Residential property prices across the top seven cities experienced significant growth due to rising demand, with prices appreciating between 10% and 24%, driven by increased construction costs and strong buyer interest.

Hyderabad experienced the most substantial price hike, with a 24% increase from Rs 4,620 per square feet (Sq.Ft) in 2022 to Rs 5,750 per Sq.Ft at the end of 2023. Bengaluru saw an 18% YoY increase in property prices, while both the MMR and the NCR recorded a 15% rise. Other cities also reported price hikes, with Pune up by 13%, Chennai by 12%, and Kolkata by 10% during the year.

In 2023, housing sales continued to outpace new supply for the second consecutive year, reducing available inventory by 5%. About 6 lakhs housing units were available across the top seven cities, down from 6.30 lakhs units at the end of 2022. The mid-end and affordable segments held the largest share of available inventory, followed by the high-end segment. These trends indicate a more balanced real estate market, with improved inventory management and a positive outlook for sustained growth in the coming years.

The real estate sector being interconnected with many supporting industries, stands as one of the largest job generators after agriculture, contributing to 18% of total employment. With a market size estimated at USD 0.5 lakhs crore, it contributes 7.3% to Indias economic output. It is expected that by 2047, the sector could reach USD 5.8 lakhs crore, constituting 15.5% of the countrys total economic output. Foreign Direct Investment (FDI) and government initiatives such as the Pradhan Mantri Awas Yojana (PMAY) are instrumental in driving growth and bridging the housing gap. As of June 17, 2024, the total target for the PMAY (Rural) scheme stood at 2,95,00,000 houses. There were 3,24,17,440 registered beneficiaries, and 3,17,83,359 sites have been geo-tagged to ensure accurate location tracking. Out of the targeted houses, 2,94,65,743 have been sanctioned, and 2,62,41,069 houses have been completed. These figures highlight the schemes significant strides towards its goal of providing housing, demonstrating substantial progress in beneficiary registration, site verification, sanctioning, and house completion. By achieving these milestones, the scheme is making a considerable impact on improving living conditions and infrastructure in rural areas.

Government policies allowing up to 100% FDI in specific segments could attract substantial foreign capital, aiding in industry expansion and positioning India favorably for global real estate investment. However, challenges such as high vacancy rates in certain areas and fluctuations in interest rates necessitate careful planning and adaptive strategies to ensure stability and sustained growth.

Affordable Housing

Affordable housing and affordable housing finance are anticipated to be pivotal drivers of sustained growth in the real estate sector, aligning with broader socio-economic goals and promoting sustainability in the housing market. With over 3.8 crore houses sanctioned under PMAY-Urban as of December 2023, there has been a substantial contribution to housing supply, reflecting the governments commitment to narrowing the housing gap. The ambitious target of completing 1 crore houses under PMAY-Urban by 2024 further reflects the governments dedication to promoting growth in the real estate sector and addressing the housing needs of the urban population.

Affordable Housing Finance Companies (AHFCs) witnessed a resurgence in FY 2022-23, registering a remarkable 27% year-on-year growth in their overall Assets Under Management (AUM) size. The CareEdge report indicated a continued upward trajectory, with estimated AUM growth rates of 29% for FY 2023-24 and 30% for FY 2024-25. Moreover, amid heightened competition and the imperative to safeguard margins, the share of the non-housing portfolio among AHFCs has expanded from 17% on March 31, 2019, to 26% on March 31, 2023. This share is expected to further increase to 27% by March 31, 2024, signaling diversification and resilience within the sector.

Going forward, as both disbursements and branch networks continue to grow, the ratio of operating expenses to average total assets has reverted to pre-COVID levels. Strong asset quality metrics had effectively managed credit costs. However, with an expected decline in interest rates in the latter half of FY 2024-25, AHFCs may encounter increased risk of customers transferring their loan balances to other lenders. Coupled with the projected narrowing of Net Interest Margins (NIM) and the higher operating expenses ratio, the Return on Total Assets (ROTA) is forecasted to moderate to 3.23% in FY 2023-24 and further to 3.04% in FY 2024-25, compared to 3.8% in FY 2022-23.

On November 16, 2023, the RBI issued directives aimed at managing the rapid expansion in specific consumer credit segments. These guidelines mandate banks and NBFCs to mitigate risks by increasing the risk weights for NBFCs rated A and above on consumer credit exposures, excluding certain categories such as housing loans, education loans, vehicle loans, and loans secured by gold and gold jewellery. While housing loans remained exempt, this exemption serves to diminish sectoral vulnerability. However, the tightening liquidity conditions are anticipated to uphold the cost of funds at elevated levels in the short to medium term.

Key Government Initiatives

In the fiscal year 2023-24, several key government initiatives were implemented to support housing finance. Some of these initiatives include:

1. Affordable Housing Programs: The government continued its focus on affordable housing schemes aimed at providing housing finance options to low and middle-income families. These programs typically offer subsidies, reduced interest rates, or other incentives to make homeownership more accessible.

2. Credit Guarantee Schemes: To encourage lending by financial institutions, the government may have introduced or expanded credit guarantee schemes. These schemes provide a guarantee to lenders against defaults by borrowers, thereby reducing their risk and encouraging them to extend housing finance to a broader segment of the population.

3. Interest Rate Subsidies: The government may have offered interest rate subsidies on housing loans to make them more affordable for borrowers. These subsidies can take various forms, such as direct interest rate reductions or reimbursement of a portion of the interest paid by the borrower.

4. Tax Incentives: Tax incentives such as deductions on home loan interest payments or principal repayment may have been introduced or modified to stimulate housing finance activity. These incentives reduce the cost of borrowing for homebuyers and encourage investment in the housing sector.

5. Regulatory Reforms: The government may have introduced regulatory reforms aimed at promoting transparency, efficiency, and stability in the housing finance market. These reforms could include changes to lending norms, foreclosure procedures, or regulations governing housing finance companies.

Overall, these initiatives are designed to facilitate greater access to housing finance, promote homeownership, and stimulate growth in the housing sector, thereby contributing to overall economic development.

COMPANY OVERVIEW

SRG Housing Finance Limited (hereafter referred to as SRG Housing or the Company), is a well-known retail and affordable housing finance Company registered under National Housing Bank (NHB) Act. With a strong presence in central and western India, the Company has been serving the housing finance industry for over two decades, primarily catering to underprivileged rural and semi-urban populations. A significant achievement for SRG Housing is being the first Company in India to transition from the BSE (Bombay Stock Exchange) SME (Small and Medium Enterprises) platform to the BSE main board. SRG Housing achieved dual listing status by being listed on BSE since 2012 and NSE of August 21, 2023, enhancing its visibility and market presence.

SRG Housing provides financial assistance to low- and middle-income individuals, including self-employed individuals and small to medium-sized business owners, who have limited access to formal banking channels. Its primary services include Individual Home Loans for home construction, purchase, renovation, and extension, as well as Loans against Property/ Mortgage Loans for residential/commercial property for business or other purposes.

The Company has been a significant contributor to the Housing for All initiative of the Central Government, playing a vital role in the financial inclusion of Indias underprivileged population into the mainstream financial system. SRG Housing achieves this through its focus on providing small-ticket loans with low Loan to Value (LTV) ratios. Many of the Companys clients are new to credit, and they gain access to the formal financial system through housing loans obtained from SRG Housing.

Operational Highlights

Assets under Management (AUM), Approvals, and Disbursements: The Companys AUM have surpassed Rs 500 crore in FY24. By March 31, 2024, the total loan portfolio saw significant growth, increasing by 37.24% to Rs 601.59 crore from Rs 438.36 crore in the previous year

In FY24, the Company focused on expanding its branch network, resulting in strong growth in AUM primarily driven by disbursements from new and existing branches.

The housing loan portfolio amounted to Rs 420.18 crore, constituting 69.84% of the total loan book, compared to Rs 289.93 crore, which made up 66.14% of the total loan book in FY23.

Loan against Property accounted for 30.16% of the loan book, a slight decrease from 33.86% in FY23.

Total Income increased by 34.99% to Rs 126.66 crore in FY24 compared to Rs 93.83 crore in FY23.

Loan sanctions reached Rs 312.07 crore in FY24 from Rs 201.94 crore in FY23.

Total loan disbursements in FY24, reaching Rs 283.62 crore compared to Rs 190.73 crore in FY23.

The Companys average loan tenure was 6.92 years, with stringent credit underwriting protecting against credit and collateral risks, resulting in a 41.26% AUM LTV ratio.

The average lending rate was 22.12% against a borrowing cost of 11.13%, leading to a robust loan spread of 10.99%.

Geographic Presence

As of March 2024, SRG operates across 4 states and 1 Union Territory, with its registered and head office in Udaipur, Rajasthan, and its corporate office in Mumbai, Maharashtra. The Company expanded its branch network from 37 to 67 branches during the past three years, broadening its reach and accessibility to customers. These branches are located in Rajasthan (32), Madhya Pradesh (16), Gujarat (17), Maharashtra (1), and Delhi (1).

In FY24, Rajasthan contributed 54.35% of the total loans, followed by Gujarat at 35.01%, Madhya Pradesh at 10.39%, and Maharashtra at 0.25%. In FY23, the state of Rajasthan accounted for 57.48% of the total loans, followed by Gujarat with 28.81%, Madhya Pradesh with 13.32%, and Maharashtra with 0.39%.

Marketing and Distribution

The Company caters to the financial needs of the Low and Middle Income (LMI) market segment, building substantial brand recognition in Tier II and Tier III regions with a robust business network. The Company has established significant brand equity in Tier II and Tier III regions, supported by a well-established business network. SRG Housing operates via both Direct Selling Agents (DSA) and sales executives (employees of the Company). The Company offers door-to-door services tailored to client demographics and requirements for customer convenience.

The Company has been actively enhancing its marketing and distribution through its presence in local consumer touchpoints, digital media, and social media. The Company prioritizes engaging consumers through a variety of cost-effective means, which are mentioned as follows:

• Social Media Marketing

• WhatsApp Marketing

• Telesales Marketing

• SRG Mitra Application

• Offline Marketing Campaigns - Wall painting, dealer boards

• Ads has also been placed in prominent locations such as cinema halls, bus terminals, and railway stations

• Advertising is also done on hoardings and canopies

• In addition, pamphlets and banners are distributed periodically

• Various loan programs are being hosted every month

SRG Housing has been utilizing the SRG Sales Application for 4 consecutive years, streamlining the approval process and minimizing errors with the Lead Management System (LMS) and Sales Login File. Funds are directly deposited into the clients bank account after thorough document verification, with no cash transactions involved. The collection and recovery process has been digitized and supported by a robust collection application, enhancing efficiency and convenience.

Today, 100% of our prospective customers pay their Login Fees through online mode.

Collection Reviews at Head Office

• At each scheduled due date, the Companys central team meticulously receives and thoroughly reviews the list of customers who are delinquent, meaning they have missed their payment deadlines. This centralized team is responsible for coordinating and conducting follow-up actions with these customers to ensure timely payment and resolution of any outstanding issues

• The collection team initiates follow-up for collections through SMS, telephone calls, and personal visits after receiving the delinquent customer list

Review of Collection Performance

• The teams collection performance is evaluated daily

• Monthly incentive-based bonuses are provided in line with the Collection policy

Collection Executives

• Collection executives are assigned Tehsil-wise cases along with the delinquent customer list

• Collection amounts are transferred, and receipts are generated using the Collection App

COLLECTIONS PROCESS CARRIED OUT AT THE CALL CENTER

Ensure daily funds are deposited via receipts from the collection app by End of day.

Tele-callers categorically make calls based on buckets.

Calling of delinquent customers is completed within 2 days of receiving the list.

Centralized robo-calling, voice SMS, and reminder calls are conducted by the Collection HO.

Verify all payment modes and reconcile them with the head office accounts.

SRG Housing issues possession notices to defaulting parties in compliance with the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act). Since most of the Companys loans are housing loans, customers make effort to repay to avoid losing their homes, which they and their families usually occupy. Additionally, because most loans are small in size, customers often get financial help from friends and family during cash shortages. Loans delinquent for over seven years, with collateral insufficient to cover the debt, are written off by the Company . No accounts were written off in FY24.

SRG Housing sets aside adequate provisions for unexpected contingencies. As of March 31, 2024, the gross non-performing assets (NPA) were Rs 13.76 crore. The Company has made provisions of Rs 9.65 crore in FY24, exceeding the regulatory requirement of Rs 6.64 crore, as a precaution.

The loans are classified as non-performing assets (NPAs) when borrowers miss a 90-day payment deadline. As of March 31, 2024, the Companys NNPA (Net NPA) stood at 0.69%, compared to 0.51% in the previous year. Asset quality is maintained through efficient customer screening and collateral loans with security approximately double the asset size, resulting in a stable LTV of 41.26%. Due to societal norms in rural and semi-urban areas, customers make efforts to avoid default to maintain their social standing. SRG Housing employs stringent recovery procedures at all collection levels to minimize loan write-offs and maintain low NPAs.

Funding Sources

In FY24, SRG Housing raised Rs 262.80 crore from which 39.51% from banks, rest from Financial Institutions and NHB. The Companys total borrowings increased from Rs 357.24 crore in FY23 to Rs 491.26 crore in FY24. About 32% of the Companys loans have a fixed interest rate, balance are at a variable interest rate. Before providing refinance, the NHB conducts thorough on-site and off-site inspections.

Borrowing Mix:

Borrowing Profile (%)	FY24	FY23
Banks(%)	49.41%	38.10%
NCD (%)	0%	11.50%
FI (%)	39.17%	39.54%
NHB (%)	11.42%	10.86%

Asset-Liability Management (ALM)

The Companys robust Asset-Liability Management (ALM) Policy, approved by the Board of Directors, ensures efficient management of assets and liabilities in line with regulatory criteria. This policy serves as a comprehensive guide, helping the experienced team effectively manage ALM risks. The Asset-Liability Management Committee (ALCO), which includes the Managing Director and Senior Management members, regularly reviews the ALM position. Owing to a strong policy and the expertise of the management team, the Company has avoided significant cash flow mismatches in its operations.

SRG Housing maintains its ALM position based on maturity buckets, ensuring adequate credit availability when needed and avoiding challenges related to asset-liability mismatches. The Company has a strong ALM stance, achieved through a strict policy that guarantees a consistent surplus across all buckets. During the year under review, SRG Housing maintained a cumulative surplus of Rs 140.39 crore.

FINANCIAL REVIEW

• The Financial Results for FY24 were prepared in accordance with Indian Accounting Standards (Ind AS)

• SRG Housing saw a 34.99% increase in total revenue from all operations, rising from Rs 93.83 crore in FY23 to Rs 126.66 crore in FY24

• Profit Before Tax (PBT) amounted to Rs 26.10 crore in FY24, as compared to Rs 21.08 crore in FY23

• Profit After Tax (PAT) for FY24 was Rs 21.06 crore compared to Rs 17.06 crore in FY23

• Net Interest Income (NII) rose by 33.05%, reaching Rs 58.69 crore in FY24 from Rs 44.11 crore in FY23. However, the Net Interest Margin (NIM) on aggregate Assets Under Management (AUM) decreased to 11.29% in FY24 from 11.33% in FY23

• However, the Companys loan spread remained robust at 10.99% for FY24

Management Outlook

In FY24, SRG Housing has opened four new branches in Rajasthan, underscoring its dedication to expansion.

The Company is concurrently developing a PAN-India model to extend its footprint across the country. As part of its strategic priorities, SRG Housing has also been focusing on strengthening its manpower, technology, and operational processes to drive efficiency and encourage innovation.

Going forward, the Company intends to further expand its presence by establishing branches in Andhra Pradesh, Telangana, Karnataka, Tamilnadu and Maharashtra. Furthermore, In FY25, SRG Housings treasury and PAN India business team will be based in Mumbai, aligning with its broader expansion strategy, and enhancing operational synergy.

With a commitment to sustainable growth and a keen eye on market opportunities, SRG Housing is poised to capitalize on its strengths and strengthen its position as a leading player in the housing finance sector.

RISK MANAGEMENT

At SRG Housing, risk is seen as an essential aspect of corporate governance and operation. The Company has a clear process for identifying, analyzing, and resolving risks to prevent them from hindering its goals. The Companys Risk Management Committee has identified and classified the major risks and thoroughly examined the activities and locations where resources are at risk to ensure effective risk management. All departmental activities are listed in a Risk Measurement Template for clarity.

The Company comprehensively analyzes risks following the identification of risk parameters to effectively identify and manage potential issues that could undermine important business initiatives or projects. A Risk Impact Matrix is constructed to analyze the impact and likelihood of each activity. The Company lists preventive and corrective actions, the first person responsible, and the monitoring frequency for each process, and then rates all listed activities accordingly. After assessment, risks are continuously monitored, and the necessary steps are taken to mitigate, reduce, and avoid any potential threats to the organization.

Liquidity Risk: Short-term borrowing can lead to asset-liability mismatch risk and liquidity risk, resulting in:

• Impacted earnings

• Liquidity crisis

• Loss of income that could harm the Companys reputation

Credit Risk: Customer defaults can lead to credit risk. Other causes and impacts of credit risk include:

• Inadequate credit

• Liquidity crunch

• Impact on AUM

• Increase in NPA

• Lower earnings

Operational Risk: Failures or mismanagement in areas such as law, human resources, technology, or customer relations can negatively impact the Companys operations, leading to:

• Adverse impact on brand equity

• Loss of earnings

• Business closure

Mitigation

Mitigation: The ALCO team monitors and manages the asset-liability position based on maturity timelines. The Company reduces asset-liability mismatch through efficient management of asset maturities, funding liabilities, and repayment schedules.

Mitigation: Loans are disbursed only after thoroughly verifying all borrowers credit profiles and recovery procedures through a well-designed credit evaluation process. Additionally, a low LTV ratio further reduces the likelihood of default.

Mitigation: We have a comprehensive system of internal controls, systems and procedures to monitor transactions, contingency planning, insurance cover, document storage and retrieval arrangements as well as maintenance of backup procedures to minimize operational risks.

In addition, we have Internal Auditor to conduct internal and process audits to assess the adequacy of and compliance with our internal controls, procedures and processes, as well as all applicable statutory and regulatory guidelines.

Competition Risk: The highly fragmented housing finance markets significant growth potential attracts competition, which may lead to:

• Decreased revenue growth

• Loss of market share

Interest Rate Risk: Unanticipated fluctuations in interest rates and repo rates may adversely affect the loan spread, resulting in:

• Decreased income

• Decreased profitability

Attrition Risk: Human resources are crucial to the success of any HFC. Thus, the Company must maintain a high rate of employee retention. Loss of personnel can adversely impact:

• Business growth

• Brand equity

• Operations

Technology Risk: Failure to update processes to reflect the latest technological developments in the industry can lead to:

• Increased cyber-attacks

• Information and cyber security threats

• Data breaches

• Reputational damage

• Operational failures

Regulatory Risk: As part of the housing finance sector, the Company must comply with various applicable laws and regulations. Any deviation in interpretation or failure to comply may impact:

• Brand equity

• Penal consequences

• Legal non-compliance

Mitigation

Mitigation: SRG Housings strong brand equity in its operating market, combined with a history of positive asset-liability management (ALM), low non-performing assets (NPAs), prompt turnaround time (TAT), effective financial assistance, localised approach, and straightforward documentation process, creates a significant competitive advantage.

Mitigation: The Company adopts a strategy of borrowing at both variable and fixed rates, while only lending at fixed rates, creating a natural hedge. With a Net Interest Margin (NIM) of 11.29%, there is sufficient flexibility to manage any unexpected interest rate fluctuations.

Mitigation: The Company minimizes employee attrition through efficient senior management, long-tenured employees, and employee-friendly HR policies. A highly motivated work environment, coupled with rewards, recognition, and a safe and productive culture, employee engagement activities significantly boosts employee loyalty within the Company.

Mitigation: The Company continuously upgrades its IT systems to ensure compliance with standard safety protocols. SRG Housing utilizes monitoring tools, an Information Security and Management framework, the latest software, an integrated operations system, and an effective ERP to mitigate the risk of unauthorized access, privacy breaches, misuse of sensitive information, and operational disruption.

Mitigation: SRG Housing has a qualified in-house legal team that closely monitors regulatory changes and ensures the implementation of necessary amendments. We have also started implementation of Compliance Software to monitor all compliances.

Internal Control System and their Adequacy

Internal controls help promptly identify and rectify operational irregularities, providing an accurate overview of the organizations status. SRG Housing strictly follows procedures, systems, policies, and processes to ensure financial information is recorded accurately, assets are safeguarded from unauthorized use, frauds and errors are prevented and detected, accounting records are complete, financial information is prepared timely, and regulations and laws are complied with.

The Companys robust internal control system safeguards its assets and maximizes productivity at all levels. The internal control framework has been tailored according to the organizations size and industry and have been automated using the advanced SRG SRAJAN program. It ensures compliance with stringent credit underwriting parameters, laws, and regulations, enhancing financial and transaction reporting processes. In addition, the documented processes and records streamline the internal control system.

An independent firm of chartered accountants verifies all internal reports and recommends necessary adjustments to processes and systems. The Audit Committee implements corrective actions as required to maintain the integrity of the internal control framework. A team from corporate headquarters conducts quarterly audits of all branches, evaluating random cases for property inspection and customer verification.

Human Resources

SRG Housing places paramount importance on its workforce as the cornerstone of the companys advancement. The human resources department stands as a crucial support in effectively managing resources and fostering the development of ongoing and new endeavors. The company is dedicated to attracting, retaining, nurturing, and honoring talent, understanding the pivotal role of human capital in sustained growth. Creating a secure, encouraging, cooperative, and wellness-oriented work environment, SRG Housing implements HR policies that prioritize both personal and professional growth, emphasizing opportunities for career progression.

Regular training and development programs are conducted to help employees enhance their skills and knowledge. The Company maintains high retention rates through various motivational programs and timely rewards and recognition. Various initiatives are in place to instill strong business ethics and social responsibility among employees. The HR policy aligns employee objectives with those of the Company to promote a productive work culture.

As of March 31, 2024, SRG Housing employed a total of 636 people.

Segment Reporting

The Companys main business is providing loans for the purchase, construction, repair, and renovation of residential houses, flats, and colonies. All other activities of the Company are centered around this core business of financing against properties. Therefore, there are no separate reportable segments, as per IND AS 108 on Operating Segments specified under Section 133 of the Companies Act, 2013.

Related Party Transactions

The Audit Committee, Board, or Shareholders, as applicable, have approved the Companys transactions with related parties. The Companys policy on related party transactions is posted on its website for the benefit of all parties involved. The Companys interests remained fully protected and were not at risk during these transactions. The notes to the accounts contain all necessary information and specifics about transactions with the Company and its related entities.

Key Financial Ratios, along with explanation

Ratios	FY24	FY23
Net Interest Income to average loans	11.29%	11.33%
Average Return on Equity	14.38%	13.81%
CRAR	35.67%	36.44%
Tier-I	35.19%	36.00%
Tier-II	0.48%	0.44%
Gross NPA	2.29%	2.50%
Net NPA	0.69%	0.51%
Provision Coverage Ratio	84.74%	93.62%
EPS (in Rs)	16.18	13.12
Interest Coverage Ratio	1.51	1.57
Debt Equity Ratio	3.08	2.68
Net Profit Margin %	16.63%	18.18%
Cost to Income	63.74%	59.03%
Opex to Avg Asset	8.17%	7.19%
Profit to Avg Asset	3.56%	3.67%
Operating Profit Margin (%)	61.25%	63.40%

Return on Net Worth

Ratios	Amount (Rs In Cr.)	% Growth
FY24	159.67	19.82%
FY23	133.26	17.16%

Cautionary Statement

Basis the managements current outlook and views concerning future developments and their potential impact upon the Company, the report contains "forward-looking statements" describing the Companys objectives, estimations, projections, and expectations. Various dynamics may have a potentially significant impact on the operations of the Company. The Company does not have any control over many such incidences like macroeconomic factors impacting demand and supply, Government regulations and taxation, natural calamities, etc. Due to changes in internal or external factors, in case the actual results differ materially, the Company assumes no responsibility.