Star Housing Finance Ltd Management Discussions

GLOBAL ECONOMY

During the reported year, the global economy faced significant macroeconomic challenges. Despite this, certain emerging markets such as India, Mexico, and Vietnam exhibited strong growth trajectories, while advanced economies like the United States surpassed pre-pandemic growth levels. Conversely, Chinas economy experienced sluggish growth. Factors such as trade disruptions, persistent geopolitical conflicts, underinvestment, and uneven growth across various regions further compounded these challenges. Additionally, the accumulation of debt in both private and public sectors created tension between maintaining financial market stability and achieving macroeconomic objectives.

Nevertheless, the global economy demonstrated resilience, achieving a growth rate of 3.2% amidst these headwinds. Central banks in major economies implemented calibrated interest rate hikes, leading to a faster-than-expected decline in inflation across most regions.

This fostered gradual economic expansion and increased employment opportunities in emerging markets, the United States, and Europe. Several low-income and frontier economies also regained their market positions.

Looking ahead, the global economy is expected to gradually improve. With inflation rates nearing target levels, GDP growth is projected to sustain at 3.2% in CY 2024 and CY 2025. Despite significant imbalances in consumption and investment, there is cautious optimism. Private consumption is projected to grow by about 4% in CY 2024, while total income is expected to expand by 2.6%. Collective policy efforts by governments and the inherent resilience of global economies are anticipated to play a crucial role in facilitating sustainable and inclusive growth in the coming years.

INDIAN ECONOMIC REVIEW

Despite global economic headwinds, the Indian economy maintained a positive growth trajectory. Strong momentum, robust indirect tax collections, and lower subsidies were key drivers of economic growth. Data released by the National Statistical Office (NSO) in late February 2024 surpassed expectations, and current data for January-March 2024 suggests that the Indian economy could achieve a growth rate close to 8%. Purchasing Managers Indices (PMIs) reflect overall positive business sentiment, buoyed by rising demand, increased technology investments, improved efficiency gains, and favorable sales growth.

The reported year also saw a surge in investments, strong structural demand visibility, and healthier corporate and bank balance sheets.

Central public sectors achieved 92% of their combined FY 2023-24 capital expenditure target, reflecting the governments strong focus on infrastructure development. The manufacturing sector expanded at double digits, supported by high corporate profitability and falling input costs.

Projections from the Dynamic Stochastic General Equilibrium (DSGE) model indicate that GDP growth is likely to remain robust at 7.4% during 2024-25. CPI inflation is projected to average 4.4% during 2024-25, lower than the 5.4% projected for 2023-24, with most of the decline occurring in the first half of 2024-25.

INDUSTRY OVERVIEW

Housing Finance

The Indian housing finance industry has experienced significant growth in recent years, driven by rising income levels, improved affordability, and better fiscal support from the government. As the Indian real estate market develops and financial independence of key players increases, the demand for homes is expected to grow substantially. The market is poised to expand at a Compound Annual Growth Rate (CAGR) of 7% from FY 2024 to FY 2029.

Although the housing finance market was severely impacted by the global lockdown, effective policies from the Reserve Bank of India (RBI) have steadily revitalized the market. Measures such as slashing repo rates to a two-decade low of 4.4% made home loans more affordable. Persistent initiatives and a gradual economic recovery facilitated the revival of the housing finance sector.

However, the Indian housing finance market remains diverse and highly fragmented, with numerous regional and local players operating alongside major banks and housing finance companies (HFCs). While traditional banks currently dominate the market share, non-banking financial institutions and HFCs are expected to experience significant growth in the coming years.

Challenges Faced by HFCs

Lack of Long-Term Funding Sources: HFCs struggle to secure funds for housing loans with tenures ranging from 15 to 20 years. They rely heavily on market sources such as bank loans and debt securities, which provide medium to short-term funds, creating an asset-liability mismatch. This mismatch exposes HFCs to liquidity and refinancing risks, potentially affecting profitability and solvency if not managed effectively.

Rising Cost of Land Acquisition: High land prices in urban areas pose a significant hurdle for housing finance companies. Increased land prices make housing projects more expensive, challenging potential homebuyers affordability. Additionally, high stamp duties during property transactions contribute to the overall cost burden, dampening housing finance demand.

Regulatory Hurdles: The regulatory environment for HFCs is dynamic and constantly evolving. HFCs must adapt to changes in regulations related to capital adequacy norms, provisioning requirements, or lending practices. Failure to comply can result in penalties, restrictions, reputational damage, or even loss of operating licenses.

Competition from Banks: Traditional banks, with their established presence and lower cost of capital, dominate the housing finance market. This competitive advantage allows banks to offer attractive interest rates, making it difficult for HFCs to maintain market share and profitability. HFCs must continuously innovate and differentiate their products and services to stay competitive.

Risk Management: Effective risk management is crucial for HFCs to mitigate various risks associated with lending activities, including credit, operational, and market risks. Inadequate risk management can lead to financial losses, capital erosion, and reputational damage. HFCs must implement robust risk management frameworks and continuously monitor and adapt to the dynamic market landscape.

Positives for HFCs in the Near Future

Robust Growth Trajectory: The Indian housing finance industry is witnessing strong growth, driven by rising incomes, enhanced affordability, and substantial government support. With a projected 13% CAGR between FY 2023 and 2026, HFCs are poised to benefit from increasing demand for housing finance.

Expanding Market Reach: HFCs are expanding their presence in Tier 2 and Tier 3 cities, tapping into new customer segments, diversifying loan portfolios, and contributing to overall growth.

Technological Advancements: HFCs are leveraging technology to streamline operations, enhance underwriting processes, and provide seamless consumer experiences. Digital verification processes, artificial intelligence (AI), and machine learning (ML) are being adopted to improve loan approval processes, predict default risks, and detect fraud.

Collaborative Lending Arrangements: Partnerships between traditional banks and HFCs/NBFCs provide consumers with a broader range of home loan options. These co-lending partnerships combine the expertise of both entities to offer better loan products and enhance customer satisfaction.

Customized Loan Products: HFCs are focusing on delivering personalized loan products that cater to borrowers specific financial requirements, including flexible repayment options, diverse interest rate selections, and tailored loan terms. These initiatives collectively enhance the overall customer experience.

About Star Housing Finance Limited (Star HFL):

Star HFL operates in the affordable housing space, focusing on low-ticket loans across 50+ locations in its operational geographies. These areas are served by 35 physical branches and a staff of over 250 individuals with housing finance backgrounds. The loans disbursed qualify under the priority sector lending norms as per RBI guidelines and most units financed fall under the PMAY(G) guidelines. To date, Star HFL has impacted the lives of more than 5000 EWS/LIG families across Maharashtra, Madhya Pradesh, NCR, Gujarat, Rajasthan, and Tamil Nadu, helping them realize their dream of home ownership.

The Company targets the housing finance needs of low and middle-income customers in suburban and rural India, counter to the industrys focus on metro and urban areas. Most customers have limited access to formal banking credit, and Star HFL bridges this gap by providing affordable and reliable credit to these aspiring homeowners.

As of March 31, 2025, the companys Assets Under Management (AUM) stood at Rs. 52,069.78 Lakhs. The Gross Non-Performing Assets (GNPA) were at 1.84%, reflecting the companys conservative credit underwriting and robust risk framework, despite focusing on the affordable housing segment.

Star HFL remains committed to raising long-term borrowings at competitive rates. The companys borrowings are primarily long-term, sourced through NHB refinance facilities, non-convertible debentures (NCDs), and term loans.

Star HFL offers a variety of home loans, including loans for ready-to-move-in homes, home construction, home improvement, home extension, plot plus construction, balance transfer, and top-up loans. These services are provided across 35 locations in India, with an average loan value of Rs. 9.50 Lakh. As of March 31, 2025, the home loan verticals outstanding AUM was 42,297 Lakh.

The total assets of the Company stood at Rs. 55,500 Lakh as on March 31, 2025 as against Rs. 49,031 Lakh as on March 31, 2024. The gross income earned by the Company during the financial year under review stood at Rs. 9,496 Lakh as compared to Rs. 6,164 Lakh earned by it during the previous year. The Company reported the profit before tax of Rs. 1,419 Lakh as against profit before tax of Rs. 1,147 Lakh in the previous year. The profit after tax posted by the Company is Rs. 1,110 Lakh as against Rs. 888 Lakh in the previous financial year.

During the financial year 2024-25, the company met its funding requirements through a mix of short-term debt (revolving facility) and long-term debt (Term loans through banks and financial institutions). Total long-term borrowing as of March 31, 2025, amounted to Rs. 40,381 Lakh, with no outstanding short-term borrowings. The company has been regular in servicing its debt obligations.

As on March 31, 2025, Rs. 2,263 Lakhs remained outstanding by way of issuance of NCDs through private placementbasis. The issued NCDs are listed on the Wholesale Debt Market Segment of BSE Limited.

During the financial year under review, the interest and/ or principal obligation, as applicable, on Non-Convertible Debentures issued by way of private placement basis was paid by the Company on their respective due dates and there were no instances of any interest and/or principal amount being paid by the Company after the due date of payment.

During the financial year under review, the Company had outstanding term loan(s) from various banks and financial institutions for an amount aggregating to Rs. 38,118.23 Lakh.

Risk is an integral part of the business and almost every business decision requires the management to balance risk and reward. The ability to manage risks across geographies, products, asset classes, customer segments and functional departments is of paramount importance for the hindrance free growth of every organisation.

Due to increasing globalisation, integration of world markets, newer and more complex products & transactions and an increasingly stringent regulatory framework, the financial services industry is subject to continuously evolving legislative and regulatory environment.

The Company provides a wide range of financing under various verticals and is exposed to various risks. In order to ensure that the impact of risks is minimal, the Company lays utmost importance on scanning the external macroeconomic environment, market conditions and governmental policies regularly. The Company has built robust systems and processes to address the risks associated with its business.

The risk is managed through risk management framework approved by the Board of Directors, encompassing independent identification, measurement and management of risk across various businesses verticals of the Company. The Company has formulated comprehensive risk management policies and processes to identify, evaluate, manage and mitigate the risks that are encountered during conduct of business activities in an effective manner. The Company has established a system of risk management and internal controls consisting of an organizational risk management framework, policies, risk management system tools and procedures that we consider to be appropriate for our business operations.

The Company is exposed to a variety of risks, including liquidity risk, interest rate risk, market credit risk, operational risk, regulatory and compliance risk, reputation risk, business continuity risk, legal risk, competition risk and risks pertaining to cyber security.

Risk exposure is monitored and controlled through a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems. A team of experienced and competent professionals, identify and monitor these risks on an on-going basis and evolve processes/systems to monitor and control the same to keep the risks to minimum levels. On-going monitoring by the officials helps in identifying the risks at an early stage. There is a continuous focus on the maker-checker processes. Detailed regulatory as well as credit inspections also help test our processes and compliances.

The Risk Management Committee of the Board is formulated in compliance with RBIs Master Direction - Non-Banking Financial Company - Housing Finance Company (Reserve Bank) Directions, 2021. Further, the Company has adopted Risk Management Policy which ensures that risks is overseen and monitored at all the levels. The said Committee oversees the risk management policy including functions relating to cyber security, assess the risks, decide the measures to mitigate the risks. The Board reviews the effectiveness of risk management systems in place and ensures that the risks are effectively managed. The Audit Committee has additional oversight in the area of financial risks and controls.

Additionally, an independent Internal Audit firm has been appointed to review and report on the business processes and policies of the Company. The report of internal auditors on set processes is reviewed and discussed by the Audit Committee of the Company.

Various risks associated with the businesses of the Company are discussed in detail below:

Key Risk	Description / Impact of Risk	Risk Mitigation / Strategy
Credit Risk	Failure of borrowers to meet financial obligations, leading to financial loss.	Comprehensive credit approval process, proper documentation, extensive credit appraisal, periodic reviews, and proactive portfolio risk analysis
Market Risk	Adverse market movements or fluctuations affecting earnings, financial performance, and security value	Continuous monitoring of portfolios and collaterals / securities
Liquidity Risk	Unavailability of adequate funds, difficulty in selling assets, market disruptions affecting liquidity	Maintaining liquidity cushions, strong financial position, good credit ratings, diverse borrowing sources, and regular asset-liability mismatch assessments
Operational Risk	Risks from internal processes, systems, fraud, inadequate training, and employee errors	Well-defined policies, operational processes, regular internal and systems audits, and a maker/checker mechanism.
Reputation Risk	Adverse perception by stakeholders affecting business and revenue	Conducting business with diligence, stakeholder-centric approach, and employee training
Regulatory & Compliance Risk	Changes in laws and regulations, inadequate regulatory compliance, and unexpected demands from tax authorities.	Experienced compliance team, external advice, adherence to guidelines, and internal audits.
Competition Risk	High competition from new entrants and existing players in the housing finance sector.	Diversified and innovative product offerings, fair practices, and positive work environment to attract and retain talent.
Business Continuity Risk	Disruptions due to incidents like fire, natural calamities, and terrorism, leading to data and business loss.	Business Continuity Plan (BCP), secured systems, and continuous process reviews
Cyber Risk	Cyber threats like phishing, malware, and ransomware attacks, affecting data and operational control.	Cybersecurity measures, regular advisories, training, monitoring, and detection systems, and secured access to office infrastructure from remote locations

We have adequate internal control systems to commensurate with the nature of business and size of operations for ensuring:

? Orderly and efficient conduct of business;

? Adherence to companys policies and procedures;

? Safeguarding of all our assets against loss from unauthorised use or disposal;

? Prevention and detection of frauds and errors;

? Accuracy and completeness of accounting records;

? Timely preparation of reliable financial information; and

? Compliance with applicable laws and regulations.

Star HFL has adequate internal control systems to ensure orderly and efficient conduct of business, adherence to policies, safeguarding assets, prevention of frauds, accuracy of records, and compliance with laws. Policies and procedures are in place for transaction authorization, recording, and reporting. The internal audit function, supported by an independent firm, assesses risk management, controls, and processes. Findings and recommendations are reviewed by senior management and the Audit Committee, ensuring continuous improvement in internal controls.

In line with the requirement of RBI/NHB, the Board of Directors has set up Asset Liability Management Committee ("ALM Committee").

The terms of reference of ALM Committee include:

a. Reviewing the asset-liability profile of the Company with a view to manage the market exposure assumed by the Company;

b. Safeguarding the recovery positions at any point of time;

c. Monitoring the Base Prime Lending Rate(s)("BPLRs") of the Company and to decide/finalise any change in said BPLRs from time to time;

d. Reviewing the risk monitoring system, ensure payment of liability on its due dates, liquidity risk management, funding and capital planning, profit planning and growth projections, forecasting and analysing different scenarios and preparation of contingency plans; and

e. Performing any other act, duty as stipulated by the Reserve Bank of India, National Housing Bank and any other regulatory authority, as prescribed from time to time.

We at Star HFL, are driven by the success of our employees. The quality of our employees and their dedication to achieving the organisational goal are what we at Star HFL consider to be the firms ultimate identity and greatest assets.

In addition to supporting all of our companies by providing best-in-class human resources partnerships, the human resources function is in charge of developing the group human resources strategy.

Individual business divisions are under the control of human resources business partners, who also support talent management, data analysis, employee relations and advice, employee engagement, performance management, compensation and benefits, and learning & development.

The partners and important stakeholders who keep us competitive in the market are our staff. We believe in empowering our employees to improve the workplace by investing in their personal and professional development.

We believe that the credibility and reputation of the Firm is shaped by the collective conduct of individual employees and the tagline affirms these three beliefs at its foundation to supplement the Group values.

Pragmatic

The approach of HR is to make decisions and take actions based on the best interests of all stakeholders, guided by practical experience and observation.

Professional

We are committed to a work environment that promotes a professional atmosphere, in which all individuals are treated with dignity and respect.

Progressive

We keep up-to-date with emerging trends and work practices to ensure our HR practices remain relevant and exclusive and are able to meet the current and future needs of the organization and employees.

Talent Management

Building and developing our talent pool is our continuous and top priority and we have been successful in attracting diverse talent with sound expertise, new perspectives and experience.

Workforce Diversity

Regarding experience, culture, and heritage, the backgrounds of our employees are incredibly varied. This contributes significantly to the development of our inclusive culture since individuals from all origins bringing new perspectives, inventive ideas, and distinctive approaches.

Through this, we hope to create a workforce that is flexible, agile, high-performing, and most importantly, blended. We take pride in the diversity of our employees and work hard to treat everyone equally and with respect.

For annual assessments, we adhere to a thorough performance evaluation methodology. The systems development-oriented strategy benefits employees at all levels. This routine enables us to recognise and capitalise on employees strengths. It also helps us to suggest and plan development in the identified areas through training.

Star HFLs compensation framework is structured to align the interests of our employees with the long-term interests of the company and its other stakeholders.

Our compensation framework is designed to retain and motivate our human capital, reward them for their performance and attract superior talent from the industry. Star HFL also offers various benefits designed to meet the needs of our employees. These benefits are an integral part of our Company and provide employees and their families valuable support during employment with Star HFL.

At Star HFL, we promote an atmosphere of inclusion, by encouraging the next level of employees to take higher responsibilities.

Managers along with Human Resources formulate a customized grooming and orientation of high potentials, by carefully planning their work experiences. Their skills and capabilities are developed through further training and mentoring.

The total employee strength of the Company stood at 266 as on March 31, 2025.

A new joinee mailer is circulated amongst our employees, welcoming our new recruits in the Company. The objective of this initiative is to inform all our employees across locations about our new team member(s). We share the image of the employee, along with the department and function they have joined us in. This has helped us in introducing the new joinee with all our employees.

Star Housing Finance Limited (Star HFL) is dedicated to providing housing finance assistance to customers in the EWS/LIG segments, aiming to facilitate home purchases and construction in Tier II, III towns, semi-urban, and rural areas.

Star HFLs operational geographies have remained resilient, even amidst the disruptions caused by the Covid-19 pandemic. Demand has been robust, further bolstered by the reverse migration of populations from urban sectors to these areas.

The market segment in which Star HFL operates has traditionally outpaced overall mortgage market growth. With a continued focus on this segment, Star HFL is well-positioned for future growth. Despite government interventions, there remains latent demand in this space, creating opportunities for fair financing solutions. Star HFL stands to gain from these dynamics and can make substantial contributions to boosting Indias housing stock and overall economic growth.

The Management Discussion and Analysis section may contain forward-looking statements regarding future prospects. These statements are subject to various identified and unidentified risks and uncertainties that could lead to actual results deviating significantly from anticipated outcomes. In addition to macroeconomic changes, certain unprecedented challenges may pose unforeseen and evolving risks to the Company and its operating environment. The results, facts, and figures presented in this report are based on assumptions derived from available internal and external information. As these underlying factors are subject to change over time, the estimates based on them are also subject to change. These forward-looking statements represent the Companys current intentions, beliefs, or expectations and are valid only as of the date they were made. The Company assumes no obligation to revise or update any forward-looking statements, whether due to new information, future events, or other reasons.