TruCap Finance Ltd Management Discussions

We are delighted to share the Management Discussion and Analysis (MD&A) Report for the financial year ended March 31, 2025. This section provides an overview of the macroeconomic context, the performance of our Company, and our strategic outlook. It outlines TruCap Finances operational and financial highlights, industry trends, and the key risks and opportunities that shape our future direction.

Economic Review

Global Economic Landscape

The global economy is transitioning from a phase of monetary tightening to one of cautious and uneven growth, shaped by persistent geopolitical tensions, evolving trade dynamics, and shifting monetary policy stances.

Growth Moderation:

• As per the International Monetary Fund (the "IMF") (World Economic Outlook - April 2025 update), global growth is projected to drop to 2.8% in 2025 and 3% in 2026, reflecting a sustained but below-average recovery compared to the pre-pandemic average of 3.7% (FY 2000-19).

• Advanced economies are expected to grow at a moderate pace of 1.4% annually, with the US economy outperforming its peers, supported by resilient domestic demand. In contrast, growth in the Eurozone and UK remains subdued amid persistent structural challenges and weak manufacturing activity.

• Emerging markets and developing economies, led by India (7.0% in CY 2024) and China (4.8% in CY 2024), are projected to grow at 4.2%, supported by domestic demand and policy measures, although momentum in China has softened due to ongoing real estate sector stress. The IMF projects growth of approximately 3.3% in 2025 and 2026, below the FY 2000-2019 average of 3.7%, with risks skewed downward.

Trade & Protectionism:

• Rising global trade tensions and protectionist measures are curbing international trade flows. The IMF projects trade growth to slow sharply to 1.7% in 2025, nearly half of prior expectations.

• Global inflation, which peaked at 6.6% in 2023, is expected to ease to approximately 5.7% in 2024, and further to 4.2% in 2025 and 3.5% in 2026.

• Advanced economies continue to struggle with persistent services inflation, requiring cautious monetary policy responses.

• Despite signs of disinflation, uneven policy normalization and lingering uncertainty are likely to weigh on medium- term global growth. Trade growth is significantly weaker, projected at just 1.7% in 2025, barely half the prior forecast.

Key Risks:

The global growth outlook remains vulnerable to multiple downside risks:

• Rising trade protectionism and heightened policy uncertainty.

• Potential central bank policy missteps, which could derail disinflation progress.

• External shocks such as commodity price volatility, climate-related disruptions, and geopolitical escalations.

Regional Outlook:

• Advanced Economies: Growth is expected to remain modest - US (1.8%), Euro Area (approximately 1%), and Japan (approximately 0.6%) in 2025.

• Emerging Markets & Developing Economies (EMDEs): Projected to grow at approximately 3.7% in 2025-26, still below pre-pandemic norms.

• Low-Income Countries: Growth is expected to accelerate from 5.3% in 2025 to 6.1% by 2026-27.

Resetting the Global Trade Order

The global economic framework that has governed international trade for the past eight decades is undergoing a fundamental shift. Traditional rules are being challenged, while a new system is yet to take shape. Since late January 2024, the United States has rolled out a series of tariff hikes—initially targeting Canada, China, Mexico, and key sectors—which culminated in near-universal tariffs by April 02, 2025. As a result, the US effective tariff rate has surpassed levels seen during the Great Depression. Retaliatory measures from major trading partners have further elevated global tariff rates, signalling a decisive departure from the post-war free trade era.

The resulting epistemic uncertainty and unpredictable policies are key factors affecting the economic outlook. If this sudden rise in tariffs and the uncertainty around it continue, it could seriously reduce global economic growth.

These macroeconomic trends—particularly the moderated global growth, elevated inflationary pressures, and evolving trade dynamics—formed the backdrop for TruCap Finances performance in Fiscal Year 2024-25. The Company navigated these shifts with a focus on maintaining portfolio quality, ensuring prudent growth, and building operational resilience.

Indian Economy: Sustaining Growth Momentum

India has continued to position itself as one of the fastest-growing major economies globally, demonstrating resilience despite global economic uncertainties and geopolitical headwinds. According to the National Statistical Office (NSO), Indias real GDP grew by 8.2% in FY2024, significantly surpassing earlier estimates, with Q4 FY2024 growth recorded at 7.8%. This strong performance was underpinned by robust domestic consumption and improved rural demand, even amidst tightening global financial conditions.

Looking ahead, CRISIL MI&A expects growth to moderate to 6.8% in FY2025, driven by the Governments fiscal consolidation efforts, elevated interest rates, and a reduced fiscal impulse-all of which may weigh on investment momentum. Nevertheless, India remains a key outlier among emerging markets, having consistently outperformed global peers over the past three fiscals (FY2022-FY2024).

The IMF (World Economic Outlook - October 2024 update) continues to project India as a growth leader, supported by strong fundamentals, rising consumption, and expanding digital and infrastructure ecosystems. In nominal GDP terms, India retained its position as the fifth-largest economy globally and ranks third in terms of purchasing power parity (PPP).

With rising integration into global value chains and resilient domestic demand, India is well-positioned to maintain its trajectory as a leading growth engine in the global economy.

India Industry Overview

Indias lending sector continues to demonstrate strong growth potential, while remaining underpenetrated compared to global benchmarks. As of 2023, Indias credit- to-GDP ratio stood at approximately 101%, significantly lower than that of developed economies such as the United Kingdom (144%), the United States (150%), and China (200%). This disparity highlights the substantial headroom available for credit expansion, particularly in tier II, tier III cities, and rural geographies. (Source: Bank for International Settlements, CRISIL MI&A)

NBFCs have played a pivotal role in driving credit growth in these underserved and unbanked areas. Compared to traditional banks, NBFCs operate with greater flexibility and agility, allowing them to cater to borrower segments that may lack formal income documentation or established credit histories. The NBFC sector has witnessed remarkable growth, with total assets expanding from Rs. 2 trillion to Rs. 43 trillion by the end of FY2024. Between FY2019 and FY2024, NBFCs recorded a compound annual credit growth rate of 12%. (Source: RBI, CRISIL MI&A, Company Reports)

NBFCs have also maintained a strong focus on retail lending, with approximately 48% of their credit portfolio directed towards retail loans—compared to 34% for banks. With the adoption of digital technologies and mobile platforms, NBFCs have enhanced their ability to reach customers in remote regions, thereby contributing significantly to Indias financial inclusion agenda.

A key area of opportunity lies in lending to MSMEs. India is home to 6.3 crore MSMEs, which collectively employ over 24 crore individuals and account for 46% of the countrys exports. As of March 2024, the total addressable MSME lending market was valued at approximately Rs. 35 trillion. This segment has witnessed robust credit growth—25% in FY2023 and 22% in FY2024. Successful NBFCs in this space typically adopt a local-first approach, with customized loan products, alternative credit evaluation models (e.g., cash flow-based assessments), and strong collection infrastructure.

Lending remains a critical enabler of economic development, supporting access to education, housing, and entrepreneurial finance. It facilitates working capital, job creation, consumer spending, and technology adoption. Consequently, a wellfunctioning credit ecosystem is instrumental in advancing both GDP growth and financial deepening.

As the sector matures, so does the emphasis on responsible lending practices. Regulatory bodies are increasingly focusing on transparency, customer protection, and ethical conduct. It is imperative for NBFCs to not only pursue growth, but to also foster trust, ensure governance standards, and contribute to the resilience and stability of Indias financial system.

Several key factors are driving the robust growth trajectory of Indias NBFCs, particularly in the gold loan segment, even as global economic headwinds persist:

1. Rising Gold Prices and Increased Loan Demand

A significant surge in gold prices—rising by over 30% year-on-year has directly boosted the average ticket size of gold loans, as the same quantity of gold now fetches more credit. This has made gold loans an attractive, quick-access credit option, especially in times of economic uncertainty. In FY25, gold loans by commercial banks more than doubled, growing by 119.6% year-on-year, and became the fastest- growing loan category despite a broader slowdown in bank credit growth.

2. Financial Inclusion and Rural Penetration

NBFCs have played a pivotal role in advancing financial inclusion, particularly in rural and semi-urban areas where banks have limited reach. Their ability to assess risk at the grassroots level and offer flexible, small-ticket loans—even to those without formal income documentation—has enabled them to serve underserved segments effectively.

3. Digital Transformation and Technological Advancements

The adoption of digital technologies has enhanced NBFCs operational efficiency, risk management, and customer experience. Digital lending platforms, data analytics, and fintech partnerships have enabled NBFCs to streamline loan disbursal and collections, making gold loans more accessible and attractive to a broader customer base.

4. Policy and Regulatory Support

Supportive policy interventions and relatively flexible regulatory frameworks have historically aided NBFC growth. The Reserve Bank of Indias 2023 directive to reclassify certain agricultural loans as gold loans provided a statistical boost to gold loan portfolios. However, new RBI guidelines introduced in April 2025 aim to ensure responsible lending and greater transparency, even as they prompt NBFCs to adapt their business models.

5. Demand for Small-Ticket and Emergency Credit

The demand for small-ticket, short-term loans - often for personal, business, or emergency needs— remains high. Gold loans, which are quick to process and require minimal documentation, have become a preferred choice for individuals and small businesses facing liquidity constraints, especially amid broader economic uncertainties.

6. Competitive Edge Over Traditional Banks

NBFCs flexibility, customer-centric approach, and ability to customize products for niche needs have allowed them to fill gaps left by traditional banks, particularly in segments like gold loans, microfinance, and consumer finance.

7. Continued Economic Momentum and Consumer Spending

Indias resilient economic growth and rising consumer spending have further fueled credit demand, benefiting NBFCs across sectors. As the economy rebounds, NBFCs are expected to maintain their growth momentum, leveraging their strong rural presence and digital capabilities.

In summary, the interplay of rising gold prices, financial inclusion initiatives, digital innovation, supportive regulations, and resilient credit demand has propelled NBFC growth—especially in gold loans—even as global economic conditions remain challenging.

Business Overview

Amid a volatile macroeconomic backdrop, TruCap Finance remained committed to serving underserved and unserved MSMEs through a diversified product suite that includes Gold-backed MSME Loans, Green Energy Finance, and collateral-free MSME Business Loans. TruCap focused on prudent growth, portfolio quality, and operational efficiency.

For the Financial year ended 31^st March 2025, TruCap reported standalone disbursements of Rs. 1,855 crores, compared to Rs. 2,100 crores in FY2023-24. The disbursements remained modest amid cautious MSME lending environment and tighter liquidity. The Companys focus remained on maintaining portfolio quality.

The managed Assets under management (AUM) stood at Rs. 834 crores in FY2024-25 compared to Rs. 1,031 crores in FY2023-24. The AUM declined due to portfolio run-off and cautious lending environment.

The Company effectively leveraged the Lending-as- a Service or L-a-a-S model to make last mile credit accessible through our robust distribution network by partnering with marquee financial institutions and gained significant vintage in our portfolio while pursuing this model. This focused approach enabled us to increase our L-a-a-S Assets Under Management (AUM) proportion to 44% in FY2024-25, up from 42% in FY2023-24, showcasing our robust liquidity funnel and our capability as a reliable credit originator, underwriter and servicing partner for larger financial institutions.

The Companys total revenue for FY2024-25 stood at Rs. 199 crore, up from Rs. 183 crore in FY2023-24. Net interest income rose 103% year-over-year to Rs. 75 crore, supported by improved net interest margins (7.0% in FY2024-25 vs. 3.9% in FY2023-24). Profitability for the year was impacted by prudent additional provisioning and the impairment of a technology investment in the subsidiary, DFL Technologies Private Limited.

The Company boasts of a wide distribution network of 122 locations spread across eight Indian states, namely Maharashtra, Gujarat, Rajasthan, Madhya Pradesh, Goa, Delhi- NCR, Punjab, and Haryana. This branch network is strategically located in regions with a strong presence of MSME, aligning with TruCaps core focus on the MSME segment.

Notably:

• Approximately 67% of the branches are situated in Maharashtra, Gujarat, Madhya Pradesh, Delhi-NCR, and Haryana, which together account for nearly 35% of Indias total MSME units.

• Over 85% of branches are located in Tier II, Tier III, and Tier IV cities and towns, ensuring last-mile delivery of credit in underserved and semi-urban geographies.

This distribution reflects TruCaps commitment to inclusive lending, enabling it to serve small borrowers with limited access to formal financial institutions.

Building a Robust Cluster-based Distribution Network with an increasing focus on sectoral performance across geographies.

TruCap adopts a multi-channel, product-specific acquisition strategy, tailored to suit the characteristics and behaviours of its target customer segments across product lines. The approach focuses on leveraging branch presence, strategic partnerships, and digital enablement to ensure efficient and compliant customer onboarding.

TruCap employs a comprehensive risk management strategy to address potential threats across credit, liquidity, market, operational, and regulatory domains. The framework is aligned with RBIs prudential norms and internal risk tolerance thresholds to ensure long-term sustainability and stakeholder confidence.

Outlook of the Company

In its initial years, our Company has made substantial investments in headcount, technology, and infrastructure to develop a robust multi-channel distribution network and a proprietary underwriting model. This foundation positions our experienced management team to significantly scale our current AUM.

We have established the following objectives for FY26:

• Expand Higher Yielding Products: We aim to

increase the proportion of higher-yielding products in our AUM mix, focusing on MSME Gold-backed loans. We plan to leverage the scale of operations and introduce new products to maximize output from our branch network.

• Enhance L-a-a-S Strategies: This will remain a central component of our AUM expansion strategy. We plan to further develop our model and increase the share of off-book AUM with special focus on maintaining a pristine asset quality.

• Boost Profitability: Improving profitability is a key goal. By increasing the share of higher-yielding products and leveraging operational efficiencies, we aim to enhance our return on asset & equity.

SWOT Analysis - TruCap Finance Limited

Strengths

• Focused Product Strategy: Specialized in MSME Business Loans, Gold Loans, and Green energy Finance / 3-Wheeler Electric Vehicle (3EV) financing, addressing credit needs of underserved customer segments.

• Deep Geographic Penetration: Operates a robust branch- led model with 122 branches across Tier 2, 3, and 4 towns, providing significant access to semi-urban and rural markets.

• Alignment with National Development Goals: Lending strategy dovetails with Indias financial inclusion, MSME growth, and clean energy transition objectives.

Weaknesses

• Low Brand Recall: Compared to larger NBFCs and banks, TruCaps brand visibility at a national level remains limited.

• Higher Cost of Borrowing: Lower credit rating relative to peers results in higher cost of funds, impacting spreads.

• Delayed Rating Upgrade: Despite AUM growth and strategic partnerships, external credit rating improvement has lagged expectations.

Opportunities

• MSME Credit Gap: Significant unmet credit demand from micro and small enterprises offers scalable growth potential.

• Policy Tailwinds for MSMEs: Ongoing government and regulatory focus on MSMEs is likely to fuel demand for customized financing solutions.

• Lending-as-a-Service (L-a-a-S): Platform-based partnerships enable risk-sharing and asset-light growth via co-lending with banks.

• EV & Green Energy Lending Growth: Rapid policy-driven adoption of electric vehicles (EVs) and green energy finance offers new lending verticals.

• Digital Expansion Potential: Leverage fintech tie-ups, data-driven credit models, and lean acquisition channels for scale.

• Supportive Regulatory Environment: RBIs focus on formal credit penetration, digital lending norms, and inclusive finance complements TruCaps positioning.

Threats

• Elevated Credit Risk: Target borrower segments often lack formal documentation or credit history, raising delinquency risk.

• Gold Price Volatility: Adverse movement in gold prices can impact collateral coverage and recovery efficiency.

• Heightened Competition: Established NBFCs, aggressive fintechs, and traditional banks pose margin and market share pressure.

• Regulatory Uncertainty: Sudden shifts in RBI norms or compliance requirements can affect business models or cost structures.

• Macroeconomic Headwinds: Global or domestic economic slowdown may suppress credit uptake and impair borrower repayment capacity.

• Digital Disruption: Accelerating pace of fintech innovation may outpace internal tech upgrade cycles.

• Compliance & Reputational Risk: Any governance lapses, AML/KYC breaches, or regulatory non-compliance could impair investor and stakeholder trust.

Financial Summary

As of FY2024-25, the Companys managed Assets Under Management (AUM) stood at T 834 crores, compared to T 1,031 crores as of FY2023-24. The total income increased by 9% in FY2024-25. This growth is attributed to a rising mix of higher-yielding products and a focus on scaling the L-a-a-S model. Consequently, improved the net interest income by 103% in FY2024-25. Profitability for FY2024- 25 was impacted by an additional provisioning made in this fiscal as a prudent measure and an impairment of technology related investment made in the subsidiary company, DFL technologies Private Limited.

Particulars (all amounts in Rs. crores)	FY24	FY25	Y-o-Y
Interest Income	116	173.8	50%
Less: Finance Cost	78.7	98.7	25%
Net Interest Income	37.1	75.1	103%
Total Income	182	199.3	9%
Operating Expenses	91.1	179.1	97%
Profit Before Tax	12.2	-78.5	-744%
Less: Tax	0.5	-11.9	-2,562%
Profit for the Period	11.7	-66.6	-669%

Material Financial & Commercial Transactions Involving Senior Management

In line with the Companys Code of Corporate Governance, senior management personnel have made requisite disclosures to the Board regarding any material financial or commercial transactions that may involve potential conflicts of interest.

Cautionary Statement

The statements made in Management Discussion and Analysis describing TruCaps expectations and estimations may be forward looking within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectation of future events. The actual results may differ from those expressed or implied in this report due to the influence of factors beyond the control of TruCap. TruCap assumes no responsibility in respect of forward-looking statements herein which may undergo changes in future on the basis of subsequent developments, information or events. Readers are cautioned not to place undue reliance on the forward looking statements.