Ugro Capital Ltd Management Discussions

Global Economic Review

Global economic growth remained steady during the year with several large economies showing resilience despite geopolitical tensions, high interest rate and the growing intensity of extreme weather events. Further tightening of financial has also challenged the global trade and industrial production in this financial inflationary pressure, central banks in both advanced emerging markets and developing economies remained cautious in easing monetary policy. The global outlook remains subdued, both advanced economies and emerging market and developing economies are set to grow upward marginally, reflecting upgrade for Asian countries mainly

China and India. India has witnessed strong growth momentum despite these geopolitical tensions and uncertainties in the global economic environment. A major push to economic growth has been fuelled by investments and key sectors such as information technology, services, agriculture, and manufacturing. Global trade is expected to be disrupted by new US tariffs and countermeasures from trading partners, leading to historically high tariff rates and negatively impacting economic growth projections. The global landscape is expected to change as countries rethink their priorities and policies in response to these new developments. Central banks priority will be to adjust policies, while smart fiscal planning and reforms are key to handling debt and reducing global inequalities.

As per IMF, global financial conditions remain largely accommodative, again with some differentiation across jurisdictions. Equities in advanced economies haveralliedonexpectationsofmorebusiness-friendly policies in the United States. In emerging market andconditions developing economies, equity valuations have been more subdued, and a broad-basedyear. Given strengtheningcontinued of the US dollar, driven primarily by expectations of new tariffs and higher interest rates in the United

States, has kept financial conditions tighter. The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity.

Global growth is projected to drop to 2.8% in 2025 and 3% in 2026.

In emerging market and developing economies, growth is expected to slow down to 3.7% in 2025 and 3.9% in 2026, with significant downgrades for countries affected most by recent trade measures, such as China. Global headline inflation is expected to decline at a pace that is slightly slower than what was expected, reaching 4.3% in 2025 and 3.6% in 2026, with notable upward revisions for advanced economies and slight downward revisions for emerging market and developing economies in 2025.

World Economic Outlook April 2024

Indian Economic Review

In the past 15 years, India has grown by more than 7% annually, excluding the pandemic years of FY20 and FY21, and is expected to grow by 6.6% in FY26. Despite the prevailing global economic challenges, strong growth in the manufacturing sector, higher-than-expected agricultural output, and robust government spending have made India the worlds fastest-growing major economy in CY2024. Along with being one of the fastest growing major economies in the world, India ranked fifth in the world in terms of nominal GDP for CY2023.

In 2024, foreign investment in developing economies declined by 2%, marking the second consecutive year of contraction. Factors such as Chinas stimulus measures, concerns over Indias elevated valuations, and capital repatriation contributed to the slowdown in foreign inflows, echoing similar trends observed in other emerging markets like Mexico, Vietnam, and Indonesia. Despite this deceleration, India has recorded net FII inflows in eight of the past thirteen years.

From Fiscal 2021 to Fiscal 2023, the Indian economy has outperformed its global counterparts by witnessing a faster growth.

Real GDP Growth

Source: MSME Sampark Report Third Edition

As per IMF, growth in India is estimated in the range of 6.5%·6.8%, supported by infrastructure spending, digitalization initiatives, and improved credit growth.

India is also benefiting from favorable demographic trends and a growing services sector. However, external risks such as global trade disruptions, crude oil price volatility, and tightening global financial conditions may pose intermittent challenges. Going forward, the Indian economys performance will hinge on its ability to sustain domestic demand, deepen manufacturing competitiveness, and leverage emerging technologies.

The Union Budget 2023-24s emphasis on bolstering public infrastructure through increased capital expenditure spurred growth and catalyzed private investment with substantial multiplier effects. As a result, the full-year FY24 real GDP reached around INR 172.9 trillion, marking a 7.6% year-on-year increase, buoyed by fixed investment and improved net exports.

The manufacturing sector maintained strong growth momentum, benefiting from favorable demand conditions and lower input prices. On the supply side, significant enhancements in manufacturing and construction activities contributed to overall growth. The agricultural sector has played a pivotal

Industry Overview

Indian NBFCs

The financial sector continues to play a critical role in fostering economic resilience for households and businesses in India. Within this framework, Non-Banking Financial Companies (NBFCs) act as vital drivers of inclusive and sustainable growth by extending credit to underbanked and remote regions, especially Micro, Small, and Medium Enterprises (MSMEs). Their agility, customer-centric models, and technological adoption have enabled effective last-mile delivery of financial services, complementing the role of traditional banks.

The transformative shift in Indias financial services landscape over recent years, driven by digital innovations such as neobanking, digital authentication, the proliferation of the Unified

Payments Interface (UPI), and rising mobile internet usage, has redefined the dynamics of financial services, particularly credit. This modularisation of financial services has empowered NBFCs to design and deliver specialised, accessible financial products to a broader customer base, improving both reach and relevance.

With a growing focus on digital ecosystems, NBFCs have invested heavily in technology platforms, enhancing service efficiency and accessibility. As of

September 2024, the Gross Credit Deployed by NBFCs reached INR 42.9 trillion, reflecting a robust year-on-year growth of 16.2%. This expansion is largely driven by increased demand for retail and working capital credit, and continued support to MSMEs amidst commodity price volatility.

role in Indias economic recovery and development, underpinning the nations resilience and potential. Over the past three years, investment rates have consistently exceeded FY16 levels relative to GDP, driven by all sectors of the economy, indicating confidence in Indias future economic prospects.

In terms of sectoral distribution, the industry segment remained the largest credit recipient, accounting for INR 15.9 trillion (~37%), followed by the services sector at INR 6.1 trillion (~14.2%), with growth seen in commercial real estate, transport, and trade segments. Looking ahead, NBFC credit is expected to grow in range of 12·14% Y-o-Y, driven by continued momentum in retail and MSME credit, along with rising demand for microfinance and consumption loans.

Despite regulatory adjustments such as increased risk weights, the sector remains well-positioned to benefit from strong public expenditure, a revival in private consumption, and favorable credit demand. On the regulatory front, the Reserve Bank of Indias (RBI) Scale-Based Regulation (SBR) framework has enhanced governance and capital discipline within the sector. Additionally, the repo rate cut of 50 basis points in June 2025 is anticipated to ease funding costs and improve liquidity, offering further impetus to the sectors growth.

Indian MSME Sector - The Foundation of a Resilient Economy

The MSME sector stands as a formidable force in the nations economic landscape, showcasing robust growth and significant contributions across various metrics. With over 6.4 crore MSMEs registered on the Udyam portal, the sector underscores its vibrancy and dynamism. Micro-enterprises dominate this landscape, representing approximately 99.13% of registered MSMEs, followed by small enterprises at 0.7% and medium-sized enterprises constituting the remaining portion. The MSME sector is poised for rapid growth, with India having the largest MSME base in the world after China. The governments push for a self-reliant economy or Atmanirbhar Bharat has led to significant policy support for the sector.

Source: MSME Sampark Report Third Edition

Geographically, the distribution of MSMEs across states reflects diverse regional contributions, with Uttar Pradesh, West Bengal and Tamil Nadu comprising the majority share of MSME activity, collectively contributing a approx. 35% to the sectors overall presence in the country.

Domestic business requires a strong financial stimulus with concessional working capital loans to ensure adequate liquidity is maintained in business operations from the government and financial institutes. The sectors access to credit has been pivotal in driving growth, particularly amidst economic uncertainties and the challenges posed by the COVID-19 pandemic. UDYAM registrations have nearly doubled each year since FY21, reflectingrapid formalisation among small businesses. Between 2020 and 2024, the number of small businesses transitioning to medium enterprises grew fivefold, while micro-enterprises scaling up to medium-sized businesses tripled, signaling strong upward mobility within the MSME ecosystem.

Union Budgets FY24·26: A Strong Two-Year Push for MSME Empowerment

Over the last two Union Budgets, the government has taken bold and comprehensive steps to strengthen Indias MSME ecosystem through enhanced credit access, digitalisation, global market integration, and inclusive entrepreneurship.

In FY24·25, the focus was on creating a favourable credit environment and improving market access.

Key measures included the shift toward digital footprint-based lending, abolition of the Angel Tax, and expansion of SIDBIs branch network. The introduction of Digital Public Infrastructure (DPI) aimed to boost MSME efficiency, profitability, and innovation. Increased support for artisans under the PM Vishwakarma Yojana with a fivefold jump in allocation to INR 48.2 billion·and planned e-commerce export hubs underscored the push toward formalisation and global reach for indigenous businesses.

Building on that foundation, the FY25·26 Budget raised the MSME Ministrys allocation by 33.8% to INR 231.7 billion, revised MSME classification norms to allow scaling without losing benefits and promoted tech adoption. The launch of the National Manufacturing Mission, clean tech initiatives, and a new Credit Card scheme for Udyam-registered micro enterprises (offering up to INR 5 lakh in credit) further encouraged formalisation and financial inclusion. Support for export credit, non-tariff barrier navigation, and platforms like BharatTradeNet aims to deepen global integration.

The innovation agenda was backed by a sixfold increase in allocation for New Technology Centres, a doubling of the RAMP initiative budget, and the introduction of INR 100 billion Fund of Funds, along with a Deep Tech Fund and extended start-up incorporation window. Labour-intensive sectors like leather, toys, and footwear were given a boost, along with targeted support for five SC, and ST first-time entrepreneurs, reinforcing the governments inclusive growth strategy centred on Garib, Mahilayen, Yuva, and Annadata.

Indian MSME Credit Landscape

India witnessed a sharp jump in MSME lending in FY21 and this increase has been supported by Atmanirbhar Bharat scheme of Emergency Credit Line Guarantee Scheme (ECLGS) which provided 100% credit guarantee to lenders. The scheme that was announced by the Government in May 2020 helped the firms to get access to more credit. NBFCs/ Fintechs/Banks cater to the underserved MSME pool on account of the higher availability of data on these entities. MSME loans grew at a fast pace, registering a CAGR of 17% between FY16-24. However, in FY19 and

FY20, the segment saw a relatively muted growth owing to the NBFC liquidity crisis and a cautious stance taken with respect to lending to MSMEs amid slower economic growth.

Improved credit quality and healthier balance sheets are emerging as key trends in the MSME lending space. As per the latest data, the Gross Non-Performing Asset (GNPA) ratio for MSMEs has dropped to a 12-year low of 2.2% as of September 2024, down sharply from 11% in early 2020. Similarly, GNPA for large borrowers declined from 12.8% to 2.4% over the same period, reflecting a broad-based improvement in asset quality. This decline has been supported by strong credit discipline, regulatory interventions, and improved underwriting standards. Credit growth to MSMEs has remained steady, with medium enterprises showing particularly strong traction, and the share of new-to-credit borrowers increasing consistently, signalling rising formalisation and access. At the lender level, both Scheduled Commercial Banks (SCBs) and NBFCs have witnessed a significant drop in NPAs, with NBFC GNPAs falling from 8.2% in March 2020 to 3.4% in September 2024, and SCBs from 6.8% to 2.4% in the same period. Together, these trends underline a structural shift in the MSME credit ecosystem, driven by policy support, improved borrower performance, and enhanced lakh women, credit risk management.

Source: CareEdge Research

The MSME sector is the driving force of the Indian economy and has major potential to spread industrialization across the economy. The sector faces number of challenges such as limited access to finance, inadequate availability of skilled labour, and insufficientinfrastructure.

MSMEs employ many people making the sector a key contributor to the economic development of the country. The sheer number of work force engaged also results in this sector receiving good

Government support and benefits. Apart from

Government initiatives, the improved use of digital

Business Overview

UGRO Capital Limited (UGRO), a founding partner of the Priority Sector Lenders Association of India (PSLAI) is committed to addressing Indias MSME credit gap, estimated at INR 103 trillion for FY24, through a diversified portfolio of financial products including Secured Business Loans, Business Loans, Machinery Loans, Supply Chain Financing and Embedded Finance. Over the past few years, we have successfully leveraged the Co-lending model through partnerships with 17 financial partners. This solutions adopted during the pandemic (such as easy payments and marketing through digital platforms) increased demand for finished products have strengthen the MSMEs and resulted in recovery of their business.

The MSME sector is expected to help India achieve its goal of becoming a USD 5 trillion economy. In addition to this, MSMEs are expected to contribute more than 40% of Indias nominal gross domestic product (GDP) by financial year 2025 for which it will require immense support from the Government, institutions, and banks.

strategy has allowed us to scale our off-book Assets Under Management (AUM) proportion to 42% in March 2025, demonstrating our robust liquidity funnel and our capability as a reliable credit underwriter. Our strong base of over 59 lenders and effective Co-lending partnerships have enabled us to expand all distribution channels and achieve significant overall AUM growth, surpassing the INR 10,000 crore AUM mark in FY25. As of March 31, 2025, UGRO had a workforce of 2,149 employees.

Multi-channel Architecture

At UGRO, our goal is to meet every financial need of every MSME, ranging from short-term working capital loans to long-term secured loans. Our offerings span from INR 25,000 working capital loans to INR 5 crore secured loans, backed by property, machinery, receivables, and other collateral types. Our data-tech models incorporate a broad spectrum of data, including banking, credit bureau, GST, and multiple alternative data sources, enabling us to deliver credit based on a cashflow-based lending method.

We have structured our customer asset origination into four specific channels. The first is our Emerging Market branches, which have seen significant growth, with the number of branches increasing from 150 by March 2024 to 235 by March 2025. Our Prime Intermediated Business channel is where customers engage through our intermediaries and GRO partners. Our Ecosystem and Green asset channel taps into business opportunities within various ecosystems, particularly with OEMs and Rooftop Solar manufacturers. Our Direct & Digital Alliances channel is dedicated to addressing every MSMEs financial needs through strategic partnerships & alliances with digital lenders and our embedded finance platform ‘MyShubhLife (MSL).

Through these diversified channels and innovative data-driven approaches, UGRO remains at the forefront of providing comprehensive financial solutions to Indias MSMEs.

Emerging Market (EM)

UGRO operates EM branches located in semi-urban and rural areas, serving businesses with a turnover of less than INR 3 crore. These branches primarily offer low-ticket, high-yielding loans with ticket size ranging from INR 5 lakhs to INR 25 lakhs and an average interest yield of 19%. However, our Company started offering mid to higher range ticket size of loans from this year onwards to cater the emerging market demands. During the year, we expanded our dedicated EM branch network from 127 branches in previous year to 212 branches in March 2025, adding

85 new branches across various states. Weve substantially expanded our branch network across Madhya Pradesh, Maharashtra, Tamil Nadu, and

Andhra Pradesh, reflecting our strategic focus shift this financial year.

Our sourcing model for EM branches relies on a ‘feet on the street approach, ensuring a strong local presence and engagement. This expansion has given us a nationwide presence for our EM branches, and future expansions will continue within these states during our next phase. Our EM branches operate with the philosophy of meeting every MSME need, providing credit for Secured, Machinery, Rooftop Solar, Supply Chain, and Business Loans, thus serving as a true multi-product channel for our customers. In tier-2 and tier-3 locations, our EM branches have established a strong presence through various activities such as catchment area marketing, local branding, and co-branding with existing customers. We have also partnered with associations that have a hyper-local presence. These partnerships have led to a series of seminars, workshops, and events in several Tier II and Tier III Emerging Market locations, focusing on government schemes, digital credit, and strategies for success in todays evolving business landscape. Through these efforts, UGROs EM branches effectively support the growth and success of small and micro enterprises, ensuring that we continue to meet the diverse needs of MSMEs across India.

Prime Intermediated Business

Our Prime Intermediated Business operates through prime branches in metro and tier-1 locations, serving businesses with turnovers ranging from INR 1 crore to INR 15 crore. As of March 2025, we operated 23 Prime Branches. These branches source Secured Business Loans, Business Loans, Machinery Finance, and Rooftop Solar Loans to meet every credit need of MSMEs in prime locations, thereby enhancing the productivity of our GRO Partners and the profitability of this business segment.

FY25 saw a robust engagement program for our intermediaries and GRO Partners. Various events were organized to acknowledge and celebrate their collaborative efforts in helping us achieve the remarkable milestone of surpassing INR 12,000 AUM. These events also encouraged our partners to join UGROs growth journey. The response was highly positive, with partners showing great enthusiasm for our multi-product offering and incorporating machinery finance and rooftop solar into their portfolio origination with UGRO.

Through these initiatives, our Prime Intermediated Business continues to strengthen its relationships with intermediaries and GRO Partners, driving growth and expanding our reach within the MSME sector.

Ecosystem Channel and Green Asset Financing

Our Machinery Finance business continues to thrive in key segments, including Metal Cutting and CNC Machines, Printing Machines, Packaging Machines, Woodworking, and Medical Equipment Finance. We have strengthened our relationships with over 70 focused Original Equipment Manufacturers (OEMs) across these sectors. Expanding our offerings from the initial 23 prime branches, we now provide Machinery Finance services through the entire UGRO branch network across India. In FY25, we actively participated in various industry exhibitions and expos to increase our visibility of machinery finance products amongst OEMs and their customers.

There has been a substantial push at the ground level for Rooftop Solar by extending rooftop solar financing solutions to micro and small enterprises. Through various initiatives, UGRO is making significant strides in both Machinery Finance and Green Asset Financing, ensuring comprehensive support and innovative solutions for MSMEs across India.

Direct & Digital Alliances

Our Digital Business and Alliances channel leverages partnerships to originate loans in locations beyond our direct geographical reach. Loans are sourced through five sub-channels: Fintech entities including MSL, NBFCs, Anchor partners for retailer finance, cross-selling to our existing customer base, and direct-to-customer through our GroX platform.

In FY25, we went live with our embedded finance platform ‘MSL, which holds significant potential and aligns with our vision to address the credit gap, particularly for small and micro enterprises. This initiative aims to reach last-mile MSMEs, furthering our goal of inclusive financial support. We have partnered with several fintech and digital lending companies to fund their last-mile supply chains, with a plan to onboard 1 lakh customers. This strategy will enhance the granularity of our portfolio.

Through these efforts, UGROs Direct and Digital Alliances channel continues to expand our reach and enhance our product offerings, ensuring we meet the diverse needs of MSMEs across India.

Snapshot of AUM and disbursements across products

		AUM		Net Disbursements
Product Category	Collateral type	FY25	FY24	FY25	FY24
Secured Business Loans	Property	2,479	2,084	1,341	1,175
Business Loans	CGTMSE (2)	3,153	2,914	1,844	2,170
EM Loans	Property	2,596	1,144	1,877	722
Supply Chain Financing	Receivables	274	632	(392)	65
Machinery Loans	Machinery	1,577	1,161	1,034	771
Partnership & Alliances	FLDG	1,181	1,112	975	964
Embedded Finance	-	743	-	973	-
Total		12,003	9,047	7,651	5,867

1. Secured Business Loan is secured by property, Business Loan is secured by CGTMSE, EM Loan is secured by property, SCF is secured by receivables, Machinery Loan is secured by machinery, Partnerships & Alliances is secured by FLDG.

2. ~12% of AUM guaranteed by CGTMSE cover

Operationalizing Co-lending Model

Over the last couple of years, the Company operationalized multiple Co-lending / Co-origination arrangements and emerged as one of the leaders in this business model. As of March, 2025, we have 17

Co-lending / Co-origination partnerships with large

Banks and NBFCs. During FY25, we entered into Co-lending partnerships with Bank of Maharashtra and Mahindra and Mahindra Finance, which reiterates the confidence of our lending partners in our

Liability Update

UGRO follows a 3-pronged approach to liability. These include balance sheet-based borrowings from

Banks & other financial institutions, co-origination partnerships with larger Banks and loan securitization to raise funding against our asset pool. During the year, we raised over 4,200 crore by way of borrowings in FY25. This is also a testimony to the fact that the larger lending ecosystem recognizes UGROs ability to churn out a higher quality portfolio. Our blended liability interest cost on all outstanding business model. Theres a strong demand for co-lending across our products, particularly for Secured Business Loans, EM loans and Machinery loans where the off-book share in AUM is close to 50%. Our off-book AUM as on March 2025, stood at INR 5,087 crore (42% of the total AUM), with an aim of achieving our long-term stated goal of 50% off book AUM through Co-lending and Direct Assignments.

debt as of March 2025 stood at 10.6%. Total Debt as of March 2025 stood at INR 6,904 crore. The company has a vast lender base of 59 lenders and looks to consolidate the count of lenders and increase ticket size per lenders with keen focus on lowering cost of borrowing. Our avg debt per lender has increased from approx. INR 83 crore as of March 2024 to INR 115 crore as of March 2025. We have very strong processes and policies to manage our ALM to enable us to better manage our assets and liability.

Credit Underwriting

Our Company has adopted robust and comprehensive risk management capabilities boosted by sectoral expertise, prowess in data analytics and superior technology infrastructure, and powers our journey of accelerated growth with best-in-class governance and asset quality. With the growing needs of the business, the company has strengthened the requisite areas across lines of defence by enhancing the team structures and headcount across analytics, credit, fraud control and collections strategy. Data analytics lies at the heart of credit assessment and has enabled a migration from traditional income document-based assessment to cashflow-based underwriting using the tripod of credit bureau, banking and GST information.

Our Company uses internally developed GRO score 3.0 - an enhanced version of its proprietary scoring model, GRO Score 2.0, thereby creating an industry first cashflow-based scoring model, which leverages data from GST in conjunction with credit bureau and banking information. GRO score 3.0, in addition to analyzing banking and bureau behavior, also extracts and analyses critical information from GST · like sales momentum, purchase behavior, margins, scales of business, counterparty relationships, product mix and filing discipline to calculate and predict the likelihood of the company repaying the loan. The company has also implemented a predictive modelling driven Early Warning Signals framework to generate trigger alerts for portfolio stage collections activity. The company has in place a supervisory risk evaluation and capital adequacy framework with comprehensive coverage of enterprise level risks. Our Company has undertaken a thorough ICAAP assessment, including identification and review of material risks, assessment of forward-looking business model and operationalization strategy to assess the impact of material risks on the level and quality of capital.

Use of Technology

Our Companys lending related aspects and process is supported by technology which spans across all stages of the customers journey including origination, distribution, credit, analytics, operations and collections. We have (a) 25+ API integrations (b) bank, CIBIL and GST statement analyzers (c) automated policy approvals (d) machine learning OCR technology (e) in house Business Rule Engine

(BRE) (f) customized sourcing modules and (g) data pool for 360-degree customer view all of which facilitate us to deliver a loan in-principle approval in 60 minutes to the customer.

We have developed proprietary technology platform for each distribution channel which are customized to support various business needs, such as:

Our centralized credit policy engine which offers flexibility of No-Code real-time policy changes. This powers automated loan application assessments across all platforms in UGRO.

Supports our branch-based business and is designed to support customers onboarded in metro cities through intermediaries. It has completely integrated every element of underwriting digitally (using all conventional parameters).

Specifically designed for catering to supply chain business and supports real time disbursement. Suppliers can upload invoice on this module which can be in turn approved by the anchor on the module itself, real time disbursement can be made available against the invoices approved by anchors.

Our Retailer Financing platform provides quick easy self or assisted onboarding for retailers for invoice discounting. This platform also provides easy disbursement of invoices through web and mobile application.

Platform built to allow non-intermediated loan applications from eligible MSMEs. Our GRO X app allows MSMEs to directly apply for loans through their mobile phones.

It is currently being used for onward co-lending with Banks and NBFCs. It is intended to evolve into a marketplace powered by our BRE, connecting asset originators with liability partners. It currently allows seamless API integration with our co-lenders, allowing the company to reduce turnaround time and bring in efficiencies in the entire process.

Segment wise/Product wise performance

Our AUM has increased from INR 9,047 crore in FY24 to INR 12,003 crore in FY25. Across our offered products, our average ticket size stood at ~ INR 9 Lakhs and our average lending rate stood at 17.3% as of Mar 25, which is broken down as follows for each business segment.

Product category	AUM (Cr)	ROI (%)	Ticket size (Lakh)
Secured Business Loans	2,479	14.1%	84
Business Loans	3,153	18.8%	19
EM Loans	2,596	19.0%	16
Supply Chain Financing	274	15.1%	18
Machinery Loans	1,577	14.6%	36
Partnerships & Alliances	1,181	15.4%	4
Embedded Finance	743	26.0%	1
Grand Total	12,003	17.3%	9

Secured Business Loan is secured by property, Business Loan is secured by CGTMSE, EM Loan is secured by property, SCF is secured by receivables, Machinery Loan is secured by machinery, Partnerships & Alliances is secured by FLDG.

Risk Management

The Company has put in place a Board approved Risk Management policy and the Board of Directors of the Company has formed a Risk Management Committee to frame, implement, and monitor the risk management plan for the Company. The Committee is responsible for reviewing the risk management

InternalCapitalAdequacyAssessment Process (ICAAP):

In accordance with paragraph 83 of the Reserve Bank of Indias Master Direction · Non-Banking Financial Company · Scale Based Regulation (SBR), 2023, read with the Scale Based Regulations dated October 22, 2021, the Company has put in place a Board-approved Internal Capital Adequacy Assessment Process (ICAAP) framework. This document outlines plan and ensuring its effectiveness. The Committee considers the risks that impact the mid-term to the long-term objectives of the business, including those reputational in nature.. The Audit Committee has additional oversight in the areas of financial risks and controls.

the guiding principles for assessing the Companys capital adequacy in relation to its risk profile.

Further as per the requirements, the Company undertakes an annual review and reassessment of the ICAAP to ensure continued alignment with its business strategy, risk environment, and regulatory expectations. The review forms an integral part of the Companys overall risk management and capital planning process.

Human Resources

At UGRO, our people are at the heart of everything we do. We firmly believe that our team is the driving force behind our sustained growth and continued success. With this in mind, we strive to create a work environment that not only supports but also motivates individuals to achieve their fullest potential·professionally and personally.

We are continuously evolving our approach to talent and organisational development. UGRO regularly revisits its policies and practices to identify new ways to enhance employee experience and performance.

From focused development programs to productivity tools and performance-linked rewards, we have embedded a comprehensive talent management approach that aligns individual goals with our strategic objectives.

Governance and leadership excellence form another cornerstone of UGRO. Our senior management team·comprising highly experienced professionals from the lending industry·plays an active role in shaping the Companys vision and steering its execution with integrity and foresight. As of March 31, 2025, UGRO had a workforce of 2,149 employees.

Internal control systems and their adequacy

The Company has put in place a Board approved Risk Management policy and the Board of Directors of the Company has formed a Risk Management Committee to frame, implement, and monitor the risk management plan for the Company. The Committee is responsible for reviewing the risk management plan and ensuring its effectiveness. The Committee considers the risks that impact the mid-term to the long-term objectives of the business, including those reputational in nature.. The Audit Committee has additional oversight in the areas of financial risks and controls.

Credit Rating

India Ratings and Research Private Limited upgraded the long-term rating of the company on bank loan facilities and non-convertible debentures to “IND A+/ Stable” from “IND A/Stable” in this financial year. As of March 2025, our Companys borrowings enjoy the following ratings:

Facility	Ratings
Bank Loan Facilities	IND A+ /Stable, CRISIL A / Stable
Commercial Paper	IND A1+
Non · Convertible debentures	IND A+ /Stable, CRISIL A / Stable, Acuite A /Stable
Sub-ordinated Debt	IND A+ /Stable

Key Financial Information

Particulars	FY25	FY24
Total AUM	12,003	9,047
Total Net Disbursement	7,651	5,867
Total Income	1,442	1,082
Total Expenditure	1,239	903
Profit before tax	203	179
Profit aftertax	144	119
Earnings per share
- Basic (INR)	15.68	13.39
- Diluted (INR)	14.71	13.20
Net worth	2,046	1,438
Book value per share (INR)	220	157
Ratios
Off-book AUM (%)	42%	45%
Debt to Equity ratio	3.4x	3.2x
CRAR (%)	19.4%	20.8%
Net Total Income (% of On-Book AUM)	13.7%	14.8%
Cost to Income Ratio (%)	54%	54%
ROA (%)	2.4%	2.8%
ROE (%)1	8.7%	9.9%
GNPA (% of AUM)	2.3%	2.0%
NNPA (% of AUM)	1.6%	1.1%

1. Key Financial Information table ‘(1) Excluding Equity component of CCDs and add superscript marking post

Outlook for the company

Our company has invested upfront in headcount, technology and infrastructure in its initial years to build a formidable multi-channel distribution network and proprietary underwriting model that our well-experienced management team can scale multi-fold of our current AUM. We have set the following goals for FY26:

1. We aim to increase our share of higher yielding products in the overall AUM mix. EM region, embedded financing and Solar rooftop will be our focus areas. We plan to launch new EM branches that will take the EM branch count to 400. We intend to go down the funnel and acquire retailers as part of our customer base through embedded financing and increase our customer base.

2. Co-lending continues to be a key part of our liability strategy. We will continue to expand our co-lending model and increase our off-book AUM mix, in line with our stated goal of 50%.

3. Improving profitability remains one of our key goals. Augmenting the share of higher yielding products coupled with operating leverage and reduced cost of borrowings will help us increase our return on equity.

Key Opportunities

1. Expanding MSME Credit Market - MSMEs contribute nearly 30% of Indias GDP, with the government aiming to increase this to 50% by 2030. Despite the sectors importance, a significant credit gap of approximately INR 103 trillion exists, primarily due to the lack of formal documentation and credit history. With only 25 million of 63 million MSMEs accessing formal credit, there is a substantial opportunity for NBFCs to fill this void by offering tailored credit solutions through innovative underwriting models.

2. Digital and Data-Tech Led Lending - The evolution of GST, increased formalization, and the availability of digital public infrastructure like the Account Aggregator (AA) framework, OCEN, and UPI are transforming the credit landscape. The integration of machine learning and data analytics is enabling NBFCs to adopt cash-flow-based lending models, especially for MSMEs, improving credit access and reducing risk through better assessment.

3. Co-Lending Framework - The RBIs co-lending framework allows NBFCs to partner with banks to jointly lend to priority sectors, enabling NBFCs to reach a wider customer base while sharing credit risk. This approach not only improves capital efficiency for NBFCs but also leverages the larger balance sheets of banks to offer more competitive lending rates.

4. Technology-Driven Efficiencyand Reach - NBFCs continue to lead in delivering last-mile financial services, especially in Tier 2, 3, and 4 cities. With a strong emphasis on digital infrastructure, including omnichannel platforms, AI-driven customer assessment, and seamless disbursals, NBFCs are well-positioned to scale operations and improve the customer experience.

5. Supportive Government Initiatives - Government programs such as Pradhan Mantri Mudra Yojana (PMMY), Udyam Registration, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme, ONDC, and GST have strengthened the financial ecosystem and enhanced credit access to the underserved. These programs provide NBFCs a strong base to expand reach and impact.

Key Threats

1. Funding Constraints and Cost of Capital - Our borrowing costs and our access to the debt capital markets depend significantly on the credit ratings of India and Company. Any adverse revisions to credit ratings for India and/ or the company by rating agencies may adversely impact our ability to raise additional financing.

2. Intensifying Competition - The MSME lending segment is attracting heightened competition from banks, fintechs, and new-age NBFCs.

While the market is large and underpenetrated, maintaining a competitive edge will require continuous investment in technology, speed of disbursal, and customer service excellence.

3. Macroeconomic and Market Volatility - Economic slowdowns, rising interest rates, or global uncertainties could dampen customer repayment capacity and affect investor sentiment. A downturn in the Indian economy could impact loan performance and increase delinquency levels, affecting the profitability and asset quality of NBFCs.

4. Regulatory and Policy Risks - NBFCs are subject to evolving regulatory frameworks. Recent changes, such as increased risk weights on bank exposures to NBFCs, have affected borrowing costs. Unexpected regulatory interventions or compliance requirements may also constrain growth strategies or raise operational costs.

5. Credit Rating Sensitivity - NBFCs ability to raise capital is closely tied to their credit ratings and the sovereign rating of India. Any downgrade in either could lead to reduced access to capital markets or higher borrowing costs, impacting liquidity and expansion plans.