srg housing finance ltd Management discussions

GLOBAL ECONOMIC OVERVIEW

The global economy post recovery from COVID-19 pandemic was just beginning to show some green shoots of economic activity when an unexpected unanticipated crisis of Russia-Ukraine conflict took place. As a result of this pent-up demand, supply disruptions, and rising commodity prices, inflation reached multi-decade highs in a number of economies in CY22, prompting central banks to aggressively tighten monetary policy in order to return inflation to target levels. The global economy, which grew by 3.4% in CY22, is anticipated to grow by 2.8% in CY23 and by 3.0% in CY24. Recent bank failures in the United States serve as a reminder of

the difficulties posed by the interaction between tightened monetary and financial conditions and the accumulation of vulnerabilities. As a response to such a crisis, governments and authorities acted swiftly and have successfully contained the financial crisis. The advanced economies are anticipated to experience a GDP growth rate of 1.3% in CY23 and 1.4% in CY24, as compared to 2.7% in CY22. Chinas reopening in CY22 and stable global financial conditions have contributed to an effective start for emerging markets in CY23. The emerging markets and developing economies, which grew by 4.0% in CY22, are expected to witness growth of 3.9% in CY23 and then 4.2% in CY24.

OUTLOOK

Emerging markets are expected to outperform global markets in the future as a result of strong regional growth projections and market valuation expansion potential supported by robust economic development in India, China, and ASEAN nations. However, financial institutions with high debt, credit risk, or interest rate exposure, an overreliance on short-term finance, or regions with limited fiscal space may encounter difficulties in the future. An abrupt tightening of global financial conditions could have a significant impact on credit conditions and public finances, as well as significant declines in global activity as a result

of decreased confidence, household expenditure, and investment. Certain indicators suggest that the tightening of monetary policy is beginning to suppress inflation and demand, but its full effect will not be realized until CY24.

INDIAN ECONOMY

The recent outperformance of Indias economy, its vast and expanding population, and its rapid ascent as a manufacturing alternative to China have all attracted a significant amount of investor attention from all over the world. With its robust agriculture and services sectors, the Indian economy has

remained resilient in the face of global uncertainty. In the meantime, on the international front, exports of goods and services attained new heights, bolstered by robust demand for Indian services. Indias GDP grew by 7.2% in FY23 due to robust investment and private consumption, according to the Second Advance Estimates Report from the National Statistical Office.

Source: NSOs Second Advanced Estimates dated May 31, 2023 RBI SPF report as on April 6, 2023

The Reserve Bank of India (RBI) tightened its monetary policy to maintain a balance between inflation and growth as consumer inflation rose. Inflation reached 7.4% in the second quarter of FY23, prompting the RBI to increase the repo rate from 4.4% in May 2022 to 6.5% in February 2023 in five separate sessions. Later in April 2023, the Monetary Policy Committee (MPC) of the RBI halted the rate increase cycle and maintained its "withdrawal of accommodation" stance. By the end of the fourth quarter of FY23, inflation level was at 5.7%, which was within the target range of 4-6%. In 1QFY24, 2QFY24, 3QFY24, and 4QFY24, the RBI anticipates the inflation rate to reach 5.0%, 5.4%, 5.4%, and 5.6%, respectively. The RBI expects consumer inflation to decline to 5.3% in FY24, and its SPF (Survey of Professional Forecasters) report forecasts real GDP growth of 6.0% for FY24.

The government capital expenditures would be a crucial driver of Indias economic growth. It was announced that the capital expenditures budget for FY24 would be 10 lakh crores, or 3.3% of the gross domestic product. Improved infrastructure would increase connectivity and reduce logistical costs for businesses, while digital infrastructure would increase productivity by providing a platform for innovation and efficient payment systems. The emphasis on capital expenditure in the Union Budget FY24 is anticipated to stimulate private investment, increase job creation and overall consumer demand, and boost Indias growth potential. Several measures have been taken to facilitate the granting of credit to MSMEs and businesses. The Emergency Credit

Line Guarantee Scheme (ECLGS) is among the most significant government initiatives. As of the January 31, 2023, the ECLGS had issued guarantees worth a total of 3.61 lakh crores, to the benefit of 119 crore borrowers.

Digital India was launched in 2015 with the intention of transforming India into a digitally-empowered society and knowledge-based economy. Following the adoption of digital payment services in India, e-commerce has also experienced significant growth, particularly following the pandemic. According to ICRIERs (Indian Council for Research on International Economic Relations) State of Indias Digital Economy Report 2023, approximately 2,300 crores digital payment transactions were recorded in India during FY23. According to recent estimates, approximately 30 crore Indians use UPI, making India the second-largest digital payment system in the world after China.

INDUSTRY OVERVIEW Housing Finance Sector

The development of housing and the liberalization of home ownership have been two of the most crucial economic and social objectives for individuals in India. Multiple nations governments have developed complex procedures for obtaining financing; however, to meet the objectives of affordable housing in India, Housing Finance Companies (HFCs) have been providing an alternative financial channel to the real estate and housing sectors. They are a vital element of the Non-Banking Financial Company (NBFC) group and are governed by RBI and National Housing Bank (NHB) guidelines/directions.

According to the CRISIL ASSOCHAM September 2022 report, both HFC and NBFC balance sheets have strengthened over time. In the past three and a half years, NBFCs have raised a total of 70,000 crores; of which 25,000 crores were raised by HFCs, culminating in a significant improvement in their financing capabilities. The quality of assets, notably residential loans, has remained stable, with low levels of restructuring.

Similar to LAP (loan against property), construction finance, which had declined in recent years, is gathering momentum as some HFC participants are cautiously re-entering the market. As a consequence of increased demand and an ongoing preference for homeownership, AUM

on home loans is estimated to have increased by 10% to 12% by FY23. Even with the expansion of construction finance, LAP growth rates are anticipated to be resilient over the medium term. The main reason for resilience of housing loan industry during turbulent times in recent 5 years could be attributed to the increased affordability of Indians. This in turn has happened because of stagnant home prices vis-a-vis income levels. The projected range for the cost of borrowing for HFCs in FY23 is 7.4-7.6%, up from 6.4% in FY22. As the majority of loans provided by HFCs were on a floating basis, they were able to pass on a portion of the increase in borrowing costs.

Trend in AUM and AUM growth for HFCs

As a result of increase in availability of affordable housing, stable property prices, attractive tax incentives, and a rise in household income, it is anticipated that the housing finance market will grow by 13%-15% in FY24, reaching 18 lakh crores, up from 14.3 lakh crores in FY23.

HFCs are facing increasing competition from banks due to sectoral differences. In the highly competitive housing loans industry, banks are likely to increase their market share as a result of their lower cost of funds relative to housing finance companies. However, the demand for homeownership and continuation of home upscaling will continue to fuel growth for HFCs in FY24, despite facing competitive pressures from banks.

Real Estate and Housing Sector

Real estate has been one of the most distinguished asset classes for investment amid global inflationary trends. The real estate industry is the second largest industry to generate employment in India. The National Statistical Office forecasts

that the construction industry will grow by 10% in FY23, compared to 14.8% growth in FY22. Increased institutional investment and the rising number of real estate investment trusts (REITs) have aided in Indias real estate markets growth and contributed to the countrys improvement in real estate market transparency. According to property consultant JLL, Indias ranking on the Global Real Estate Transparency Index increased from 39 to 36 over the past eight years, from 2014 to 2022.

The expansion of the sector is attributable to the rising demand for residential properties, which is a result of accelerated urbanization and rising disposable incomes. Apart from this, various initiatives undertaken by the Indian government, such as investments in smart city projects and tax exemptions for housing loan interest have also contributed to the sectors growth.

The residential sector of the real estate industry had a remarkable year in CY22, due to strong housing demand. Early in CY22, relatively low mortgage interest rates and a steadily growing enthusiasm for homeownership drove growth in the residential real estate market. In CY22, housing sales surpassed the previous peak reached in 2014, with seven cities reaching all-time highs. Residential sales in the seven largest cities increased by 54% year-over-year, from 2,36,500 units in CY21 to 3,64,900 units in CY22, according to the Anarock report. Housing sales increased by 14% YoY in 1Q CY23, reaching to 1,13,770 units as compared to 99,550 units being sold in Q1 CY22.

Favorable market conditions, such as a reduction in registration duty, seasonal promotions, and flexible payment plans, have supported consumer demand. Under-construction properties are losing their markets to move-in ready properties. The number of new housing units introduced in CY22 increased by 51% year-over-year, from 2,36,700 in CY21 to 3,57,600 in CY22. MMR, Hyderabad, Pune, and Bengaluru were major contributors to the launch of new units in CY22, accounting for 86% of the total increase. Moreover, in 1Q CY23, approximately 1.09 lakh units were launched, compared to 89,100 units in 1Q CY22, representing an increase of 23% on an annual basis.

New Launches and Sales Trends in Real Estate Sector (Housing Units)

In CY22, Grade A developers focused predominantly on projects, which allowed them to increase their market share. Over 60% of all units launched during the year were by leading real estate developers, who also sold over 55% of all units during the year. Despite the fact that the global housing industry is contracting, it is expected that 2023 will be a year of expansion and growth for the Indian market driven by strong economic growth, favorable demographics, and an increase in foreign investments in the sector. The Indian real estate market is projected to reach USD 1 lakh crores by 2030 and will account for 13% of the countrys gross domestic product by 2025.

Affordable Housing

Affordable housing was the third most popular category among developers in India, accounting for 20% of all new launches. The desire of homebuyers to increase their standard of living and income by investing in upscale residential properties supports this trend.

To promote rural housing and EWS (Economically Weaker Section) housing in urban centers, the Affordable Housing Fund (AHF) offers full refinancing to EWS creditors (with annual incomes up to 3 lakh) in Rural and Urban Housing.

The Indian government allocates about 10,000 crores annually to the AHF. Scheduled commercial banks with deficiencies in fulfilling their priority sector lending obligations, as determined from time to time by the RBI, also contribute to the corpus of the fund. The purpose of the fund is to improve NHBs refinancing activities for the affordable housing market.

There has been a recent rise in the prevalence of high-growth, high-RoA (return on assets) HFCs that are focused on providing affordable housing finance to its clients. These HFCs have a market size of 1 lakh crores and account for around 4% of the housing finance market. As of December 31, 2022, the total loan book of Affordable Housing Finance Companies (AHFC) reached 83,052 crores, an increase of 25% year-over-year. The governments "housing for all" initiatives are expected to provide further boost to the affordable housing finance industry. The profitability indicators for AHFCs improved during the first half of FY23 as a result of an increase in NIMs (Net Interest Margins) and a drop in credit costs, resulting in an improvement in their overall returns.

Key Government Initiatives

The following initiatives have been proposed in the Union Budget for FY24:

• The government proposed a 10 lakh crores budget allocation for stimulating infrastructure development, boosting economic growth, and generating employment opportunities. This represents a 33% increase over the 7.3 lakh crores spent in FY23.

• The government proposed expenditures for the PM Awas Yojana that were 66% higher than the budgeted sum for the previous year, amounting to over 79,000 crores. This massive allocation will assist in increasing the number of affordable housing units.

• By implementing urban planning reforms, cities will be transformed into "sustainable cities of the future."

• About 100 vital transport infrastructure projects will be initiated in order to provide last- and first-mile connectivity for the ports, coal, steel, fertilizer, and food cereal industries. The initiatives will be prioritized with an investment of 75,000 crores, of which 15,000 crores will originate from private sources.

• It has been proposed that an Urban Infrastructure Development Fund (UIDF) be established under NHB with 10,000 crores fund to be used by public agencies to improve municipal infrastructure in tier II and tier III cities.

• The newly established Infrastructure Finance Secretariat has proposed assisting all stakeholders in increasing private investment in infrastructure, including railways, highways, urban infrastructure, and power, which rely primarily on public funding.

• The government proposed extending the 50-year interest-free loan to state governments for one more year in FY24 in order to stimulate infrastructure investment and encourage complementary policy actions. The expenditure has been increased to 1.3 lakh crores in FY24 from 1.05 lakh crores budgeted for FY23.

• A committee of experts will examine the Harmonised Master List of Infrastructure in order to recommend changes appropriate for Amrit Kaal.

Other government initiatives and macroeconomic

factors, such as robust growth in fixed investment,

a revival in private consumption, strong credit

growth in the banking system, better-than-expected government revenue, strong policy support to promote investment-led growth are anticipated to boost the housing finance industry.

COMPANY OVERVIEW

SRG Housing Finance Limited (hereafter referred to as SRG Housing or the Company), an NHB-registered Company, is a renowned retail and affordable housing finance Company with a strong presence in the central and western regions of India. The Company has been operating in the housing finance industry for more than two decades, with its primary customers consisting of underprivileged rural and semi-urban populations.

SRG Housing is the first Company in India to move from the BSE SME platform to the BSE main board. As of March 2023, the Company has 62 branches in Rajasthan, Madhya Pradesh, Gujarat, and Maharashtra, as well as in the union territory of New Delhi. SRG Housings registered and head office is located in Udaipur, Rajasthan, and its corporate head Office in Mumbai.

SRG Housing provides financial assistance to low- and middle-income individuals who are self-employed, operate small or medium-sized businesses, and have limited access to the formal banking channels. The Companys primary business is providing housing finance for home ownership by offering;

(i) Individual Home Loans for the construction or purchase of a new home, as well as for renovation and extension, and

(ii) Loans against Property/Mortgage Loans against 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. The Company has played a significant role in the financial inclusion of Indias underprivileged population into the mainstream financial system, through its unwavering focus on small-ticket loans and low Loan to Value (LTV). The majority of the Companys clients are generally new to credit and they get the chance to enter the formal financial system through housing loans obtained from SRG Housing.

Operational Highlights

• AUM, Approvals and Disbursements: As of March 31, 2023, the total loan portfolio or Assets under Management (AUM) recorded robust growth of 28.93% to 438 crores from 340.01 crores in the previous year.

• In FY23, the Company focused on extending its branch network, which led to robust disbursement-led AUM growth driven by new and old branch disbursements.

• SRG Housings number of branches increased by nearly 70% from 37 branches in FY22 to 62 branches in FY23.

• Total housing loan portfolio of 289.93 crores constituted 66.14% of the total loan book, as compared with 221.38 crores constituting 65.11% of total loan book in FY22.

• Total Loan against Property comprised 33.86% of the loan book as compared with 34.89% in FY22.

• Total Income was higher by 16.62% to 93.83 crores in FY23 as against 80.46 crores in FY22.

• During the year under review, total loans sanction stood at 201.94 crores from 88.79 crores in FY22.

• Total loan disbursements grew more than twofold times in FY23 and stood at 190.73 crores as compared with 84.89 in FY22.

• The Companys average tenure of loans stood at 6.71 years, and strong credit underwriting requirements protected the Company from credit and collateral risk, resulting in a 40% AUM LTV.

• Average lending rate stood at 23.02% against a borrowing cost of 10.82%, leading to a robust loan spread of 12%.

Geographic Presence

The Company added 25 new branches in FY23. The Company had a total of 62 branches across 4 states anc a union territory having 28 branches in Rajasthan, 17 in Madhya Pradesh, 15 in Gujarat, 1 in Delhi, and 1 in Maharashtra, as of March 31, 2023.

The state of Rajasthan contributed 57.48% of the total loans recorded in FY23, followed by Gujarat with 28.81%, Madhya Pradesh with 13.32%, and Maharashtra with 0.39% of the total loans outstanding for the year. While Rajasthan contributed 61.02% of the total loans recorded in FY22, followed by Gujarat at 21.01%, Madhya Pradesh at 17.30%, and Maharashtra at 0.67% of the total loans outstanding for the year.

Marketing and Distribution

The Company serves the financial needs of the Low and Middle Income (LMI) market segment. It has established significant brand equity in Tier II and Tier III regions, supported by a well-established business network. It operates via both Direct Selling Agents (DSA) and sales executives (employees of the Company). SRG Housing 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, and. The Company engages consumers through a variety of cost-effective means, including:

• Local media advertising comprises regional newspapers ads, magazines, and cable channels

• At cinema halls, bus terminals, and railway stations, in prominent locations

• Advertising on hoardings and canopies

• Distribution of pamphlets and banners on a periodic basis

• Carrying out loan programs every month

SRG Housings teams have been utilizing the SRG Sales Application for three years in a row, an efficient approval procedure that minimizes the frequency of error with the help of the Lead Management System (LMS) and Sales Login File. The funds are deposited directly into the clients bank account after proper verification of documents. The Company does not engage in cash transactions.

• Collection and Recovery Process: It is digitized and supported by a robust collection application, thereby enhancing efficiency and convenience.

• Asset Quality and NPA: According to RBI, a loan is classified as a non-performing asset (NPA) when the borrower misses a 90-day payment deadline without making a payment. A borrower is said to have defaulted when payment is late, missed, avoided, or completely ceased due to factors such as cash flow mismatches, lack of income, job loss, or medical emergencies, among others.

As of March 31, 2023, the Companys NNPA (Net NPA) stood at 0.51%, as compared to 0.42% as of March 31, 2022. Asset quality is maintained by leading an efficient and accurate customer screening process in addition to the policy of providing collateral loans with security of about 2 times the asset size. This has enabled the Companys LTV to remain stable at 39.7% during the

year under review. Due to the high level of societal disrespect in rural and semi-urban areas, the majority of customers make every effort to avoid default in order to maintain their high level of social standing and self-respect. Customers eventually repay the loan, resulting in minimum loan write-offs. This has resulted in an impressive history of low NPAs for the Company. Moreover, SRG Housing employs a stringent recovery procedure at all levels of collection process. The loan follow-up procedures incorporate the following:

Collection Reviews at Head Office

• At each due date, the delinquency list of customers is assigned to a centralized team for review and follow-up with customers.

• Following the assignment of delinquent customers, the collection team begins follow-up

for collections via SMS, telephone calls, and personal visits.

Review of Collection Performance

• Evaluation of the collection performance of the team on a daily basis.

• Providing incentive-based bonuses on a monthly basis in accordance with the Collection policy.

Collection Executives

• Tehsil-wise cases are assigned to Collection executives simultaneously with the assignment of the delinquent customer list.

• Collection amount is transferred and a receipt is generated using the Collection App.

Collection Process

SRG Housing provides defaulting tenants with a notice of possession in accordance with the provisions of the SARFAESI Act. Since the majority of the Companys loan portfolio consists of housing loans, the intent of repayment is high as the customers strive too hard to keep the house in possession as in most cases the borrower and his family reside in the property under consideration. Moreover, most loans are of small ticket size, help from friends and family is availed by the customer in case of a cash crunch. When a loan continues to be delinquent for more than seven years and the realizable value of the collateral is insufficient to repay the loan, the Company writes it off. During FY23, the Company had not written off any account in FY23.

SRG Housing makes adequate provisions for any possible unanticipated contingencies. As of March 31, 2023, the gross NPA stood at 10.97 crores. Moreover, in comparison to the required

regulatory provisions of 6.73 crores, the Company has made provisions of 8.49 crores in FY23. The Company has provided additional provisions over and above the regulatory requirements as a precautionary measure.

Funding Sources

In FY23, the Company received 177.40 crores in sanctions, 31% of which came from banks, 14.09% from the National Housing Bank, 46.45% from financial institutions (FIs) and 8.46% from private sources. The Companys total borrowings increased marginally from 286.63 crores in FY22 to 357.24 crores in FY23.

About 32% of loans of the Company have a fixed interest rate, while 68% have a variable interest rate. Before providing a refinance, NHB performs rigorous on-site and off-site inspections.

Borrowing Mix:
Borrowing Profile (%)	FY23	FY22
Banks (%)	33.59%	40.53%
NCD (%)	12.95%	18.04%
FI (%)	42.50%	32.36%
NHB (%)	10.96%	9.07%

Asset-Liability Management (ALM)

The Companys strong Asset-Liability Management Policy, adopted by the Board of Directors, provides efficient asset-liability management in accordance with ALM regulatory criteria. The policy functions as a blueprint and aids the experienced team to efficiently manage ALM risks. The Asset-Liability Management Committee (ALCO), comprises of the Managing Director and members of Senior

Management, examines the ALM position on a periodic basis. The Company has been able to prevent any substantial cash flow mismatch in its operations owing to its robust policy and management teams expert knowledge.

SRG Housing maintains an asset-liability mismatch (ALM) position based on the maturity buckets, allowing it to make adequate credit available when necessary and thereby avoid asset-liability mismatch-related challenges. The Company takes pride in having a strong ALM position as a result of its strict policy of guaranteeing a steady surplus record across all buckets. During the year under review, SRG Housing maintained a cumulative surplus of 116.47 crores.

FINANCIAL REVIEW

The Financial Results for FY23 were determined in accordance with Indian Accounting Standards (Ind AS).

• SRG Housings total revenue from all operations increased by 16.62%, from 80.46 crores in FY22 to 93.83 crores in FY23.

• Profit Before Tax (PBT) stood at 21.04 crores in FY23 as compared to 25.53 crores registered in FY22.

• In FY23, Profit After Tax (PAT) stood at 17.06 crores as compared to 20.32 crores recorded in FY22.

• Net Interest Income (NII) increased by 4.0%, from 42.40 crores in FY22 to 44.11 crores in FY23.

• The Net Interest Margin (NIM) on aggregate AUM stood at 11.33% in FY23 as compared to 12.74% in FY22.

• The Companys loan spread remained strong at 12.20% for FY23.

Management Outlook

The Company has determined to focus on expanding its branch network, which has resulted in robust AUM growth driven by higher disbursements. This growth was fueled by an increase in payments from both new and old branches. SRG Housings loan disbursements during FY23 contributed to the best year ever in terms of business metrics over the past decade. SRG Housing anticipates a standardizing of the Cost to Income ratio in future as a consequence of the aggressive branch expansion completed in FY23.

SRG Housing believes that its FY23 exit run rate (for disbursements) will continue throughout FY24,

enabling it to significantly increase its disbursements in FY24. In addition, the Company intends to increase its branch network by 10 to 15 branches annually over the next three to four years in both existing and new geographies with a similar borrower profile. The Company remains committed to constructing a sustainable and profitable business while enhancing the quality of its assets. The Company has set the target to reach 1,000 crores mark in AUM within the next three to four years while adhering to its core business principles. The Companys infrastructure, technologies, and management capabilities are well-positioned to aid in the accomplishment of this goal.

RISK MANAGEMENT

At SRG Housing, risk is viewed as an integral component of corporate governance and operation. The Company has a well-defined procedure for identifying, analyzing, and resolving risks to prevent obstacles to its goals. For an effective risk management strategy, the Risk Management Committee has identified and classified the Companys major risks and studied in depth the activities and locations where resources are placed at risk. In a Risk Measurement Template, all the departmental activities are listed. Following the identification of risk parameters, risks are comprehensively analyzed in order to effectively identify and manage potential issues that might undermine important business initiatives or projects. A Risk Impact Matrix is constructed to analyze the impact and likelihood of that activity.

For each process, the preventive and corrective actions, the first person responsible, and the frequency of monitoring are being listed, and then all listed activities are rated accordingly. Post-assessment, risks are constantly monitored, and the necessary steps are taken to mitigate, reduce, and avoid any potential threats to the organization.

Risks	Mitigation
Liquidity Risk: Short-term borrowing tenure can lead to asset-liability mismatch risk and liquidity risk, which can result in: • Impacted earnings • Liquidity crisis • Loss of income that could harm the reputation of the Company.	: The ALCO team is responsible for monitoring and managing the ALM position according to maturity buckets. Asset-liability mismatch is effectively minimized due to the Companys efficient management of asset maturities and liabilities for funds and borrowings & repayment schedules.
Credit Risk: If a customer defaults, it may lead to credit risk. Other reasons for / impacts of credit risk include:	Mitigation: Loans are disbursed only after a comprehensive verification of all borrowers credit profiles and recovery procedures using a well-designed credit evaluation process. A low LTV further decreases the likelihood of default.
• Inadequate credit • Liquidity crunch • Impact on AUM • Increase in NPA • Lower earnings
Operational Risk: Failure or mismanagement in the areas of law, human resources, technology, or customer relations may negatively affect the operational efficacy of the Company, resulting in: • adverse impact on brand equity • loss in earnings • business closure	Mitigation: All operations and services, including loan origination, document processing, marketing and research, loan supervision, data processing, and the back office, are governed by a strict code of conduct. The Company ensures legal governance of all outsourced services for effective control.
Competition Risk: The highly fragmented housing finance markets high growth potential attracts competition, which may result in:	Mitigation: Strong brand equity in a market where the Company operates, coupled with a history of positive ALM, low NPAs, prompt TAT (Turnaround Time), effective financial assistance, a localized approach, and a straightforward documentation process, has created a huge moat for SRG Housing.
• Decreased growth in revenue • Loss in market share
Interest Rate Risk: Unanticipated fluctuations in interest rates and/or repo rates may have an adverse effect on the loan spread, resulting in:	Mitigation: The Company borrows at variable and fixed rates while only lending at fixed rates, which provides a natural hedge. With a NIM of 11.3%, there is ample room to deal with any unanticipated interest rate fluctuations.
• Decreased income • Decreased profitability
Attrition Risk: Since human resources are essential to the success of any HFC, the Company must ensure a high rate of employee retention. Loss of personnel may adversely affect:	Mitigation: Efficient senior management, long-tenured employees, and employee-centric HR policies all contribute to a high retention rate and low employee attrition for the Company. A highly motivated work environment, rewards and recognition, as well as a safe and productive work culture, have substantially increased employee loyalty within the Company.
• Business growth • Brand equity • Operations
Risks	Mitigation
Technology Risk: If processes are not updated to reflect the most recent technological developments in the industry, it may result in:	Mitigation: Continuous upgrades to IT systems permits the Company compliance with standard safety protocols. SRG Housing employs monitoring tools, an Information Security and Management framework, the newest software, an integrated operations system, and an effective ERP in order to prevent the risk of unauthorized access, privacy breaches, and the misuse of sensitive information, as well as operational disruption.
• Proliferation of cyber-attacks • Information and cyber security threats • Data breaches • Reputational harm • Operation failure
Regulatory Risk: As part of the housing finance sector, the Company must comply with a variety of applicable laws and regulations. Any variation in interpretation or failure to comply may have an effect on:	Mitigation: A qualified in-house legal team closely monitors regulatory changes and the implementation of the necessary amendments for SRG Housing.
• Brand equity • Penal consequences • Legal non-compliances

Internal Control System and their Adequacy

Internal controls facilitate the prompt identification and correction of operational irregularities and supply a constant and accurate summary of the organizations position. SRG Housing adheres to stringent procedures, systems, policies, and processes to ensure the accuracy of recording financial information, the protection of assets from unauthorized use, the prevention and detection of frauds and errors, the completeness of accounting records, the preparation of accurate financial information in a timely manner, and compliance with regulations and laws.

The Companys robust internal control system enables the protection of its assets and the highest possible level of productivity at every level. The internal control framework is commensurate with the organizations scale and industry. Using the technologically sophisticated SRG SRAJAN program, the internal control system has been automated. The Company complies with the highest level of credit underwriting parameters, requisite laws, and regulations under the direction of a robust internal control framework, which also improves the financial reporting and transaction reporting processes. The internal control system is streamlined with the assistance of documentation and the recording of all process flows.

A firm of independent chartered accountants has been assigned the task of verifying all internal reports in accordance with established policies and procedures. It also suggests any necessary adjustments to processes and systems that it finds necessary. To preserve the integrity of the internal control framework, the Audit Committee implements the recommended corrective actions as deemed appropriate. All branches are audited quarterly by a team from the corporate headquarters. This team has the responsibility of evaluating random cases for property inspection and customer verification.

Information Technology

All business processes of the Company, including customer acquisition, credit evaluation, disbursement, and collection, have been automated to improve operational efficiency, productivity, and cost-effectiveness. The Company had adopted SRG "SRAJAN" for improving key activities and core functions and streamlining Standard Operating Procedures (SOPs). The technologically advanced program has significantly decreased redundancies and increased operational efficiencies and output.

The automation of operations enables employees across the organizational structure to better serve customers. With the aid of SRG SRAJANs program-led mobile lending solutions, HRMS (Human Resource Management System), and due diligence,

mobile-based processing of loan applications, lead capture, and accelerated loan processing have become a reality. Various applications, such as the sales app for users with LOS, the Go Collect application for real-time collection management, and efficient, remote real-time tracking of field agent activities, have enabled smooth functioning of business processes for the Company.

Due to digitalization, TAT has been significantly reduced. The IT service center has been effectively utilized for submitting requests, resolving them, and managing the performance of IT resources, assets, and Office 365. IT infrastructure TAT has been considerably reduced, and standard service level agreements (SLAs) have been enabled for IT services for interdepartmental communications within the organization as well as for employees across multiple branches.

SRG Housing has implemented the concept of OKR (Objectives and Key Results) for the Employees for the workings and overall function through target setting and planning and effective execution. To accelerate performance, the program will necessitate evaluation of co-workers such that everybody is focused on improvement and timely achievement of organizational goals.

Human Resources

SRG Housing believes that its human resources have the greatest influence on the organizations growth. The human resources division has been a pillar of strength in all respects, including efficient resource management and the rapid expansion of existing and new initiatives. Human capital is an essential resource for long-term growth, and the Company endeavors to attract, retain, foster, and recognize talent. The Company provides a secure, conducive, collaborative, and healthy workplace for its employees. SRG Housing follows human resource policies that seek to balance personal and professional development and place an emphasis on employee career development. Regular training and development programs are conducted to encourage employees throughout the Company to expand their knowledge and abilities. The Companys ability to maintain high retention rates is facilitated by a variety of motivational programs, as well as appropriate and expeditious rewards and recognition.

Various programs and initiatives are implemented to instill a robust sense of business ethics and social responsibility among its employees. In order to foster

a productive work culture, HR policy aims to align employee objectives with those of the Company. Effective server-based database management, data transition security, and adequate IT controls are the responsibility of a competent in-house legal team consisting of attorneys, chartered accountants, and Company clerks, as well as an independent IT team. As of March 31, 2023, there were a total of 523 employees working for the Company.

Corporate Social Responsibility

During FY23, the Companys CSR activities centered on promoting education, gender equality, healthcare, and other activities in accordance with Schedule VII of the Act and its CSR Policy. The total amount spent for various CSR activities in FY23 stood at 0.48 crore. Following initiatives were taken during FY23;

• Fostering education, particularly special education and employment; strengthening vocation skills, especially among children, women, elderly, and the disabled; and livelihood enhancement projects.

• Fostering gender equality, empowering women, setting up houses and hostels for women and orphans; setting up old age homes, day care centers, and other amenities for senior citizens; and minimizing inequities experienced by socially and economically deprived groups.

• Maintaining environmental sustainability, ecological balance, flora and fauna protection, animal welfare, agroforestry, conservation of natural resources, and soil, air, and water quality.

• Preservation of national heritage, art, and culture, including restoration of historical structures and pieces of art; public libraries; promotion and growth of traditional art and handicrafts.

Segment Reporting

The main business of the Company is to provide loans for purchase/construction/repairs and renovation of residential houses/flats/colonies, and all other activities of the Company revolve around the main business of Financing against properties. Hence, there are no separate reportable segments, as per IND AS 108 dealing with Operating Segments as specified under Sec. 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 were not at any kind of risk during transactions with any of the associated parties. The notes to accounts contain all of the necessary information and specifics of transactions with the Company and its related entities.

Key Financial Ratios, along with explanation
Ratios	FY23	FY22
Net Interest Income to average loans	11.33%	12.74%
Average Return on Equity	13.81%	19.60%
CRAR	36.44%	38.30%
Tier-I	36.00%	37.91%
Tier-II	0.44%	0.39%
Gross NPA	2.50%	2.47%
Net NPA	0.51%	0.42%
Provision Coverage Ratio	93.62%	96.31%
EPS (in )	13.12	15.63
Interest Coverage Ratio	1.57	1.84
Debt Equity Ratio	2.68	2.52
Net Profit Margin %	18.18%	25.26%
Cost to Income	59.05%	48.12%
Opex to Avg Asset	7.19%	5.92%
Profit to Avg Asset	3.67%	5.01%
Operating Profit Margin (%)	22.16%	30.62%

Net Worth
Ratios	Amount ( In Crores)	% Growth
FY23	133.26	17.16%
FY22	113.74	21.50%

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.