Ugro Capital Ltd Management Discussions

Global Economic Review

The global economy has, to date, withstood a series of shocks, yet another one - this time a military conflictengulfing the Middle East since the end of February and is testing this resilience. This is the latest culmination in a series of events that have been reshaping international relations and raising geopolitical tensions markedly across all regions in recent years. In FY26, the global economy operated within a ‘growth-moderation phase, with world GDP expanding at a relatively subdued pace at 3.4% growth rate in 2025 and remaining broadly stable in 2026, avoiding a broad-based recession. Growth was supported by resilient domestic demand across key economies and continued investment in technology and AI-led sectors, although momentum remained constrained by weaker global trade, elevated policy uncertainty, and fiscal pressures in several regions.

Macroeconomic conditions were further shaped by persistent geopolitical tensions and regional conflicts, which continued to disrupt global supply chains, contribute to energy price volatility, and increased overall market uncertainty. At the same time, a notable rise in protectionist measures, including tariff increases and trade restrictions, accelerated the shift toward supply chain diversificationand economic self-reliance. This has led to a more fragmented global trade environment, adversely impacting export-oriented sectors, particularly in emerging economies and MSME-driven economies.

Inflation moderates from post-pandemic highs across most advanced and emerging economies, allowing central banks to pause further monetary tightening, with gradual and uneven easing in select economies. However, core inflation remained sticky in several regions, and real interest rates stayed elevated, limiting the pace of recovery. Financial conditions continued to remain relatively tight, supported by a strong US dollar and high borrowing costs, which influencedcapital flows and contributed to currency volatility in emerging markets.

Global growth stood at 3.4% in 2025 and is expected to moderate to 3.1% in 2026, with a slight recovery to 3.2% in 2027, indicating a stable but below-trend expansion. Among major economies, the United States recorded growth of 2.1% in 2025 and is projected to remain resilient at 2.3% in 2026 before easing to 2.1% in 2027, supported by strong domestic demand and policy-led investments. Weak industrial activity, particularly in Germany, remains a key drag, although some stabilisation is anticipated. Chinas growth moderated to 5.0% in 2025 and is projected to decelerate further to 4.4% in 2026 and

4.0% in 2027, reflectingongoing structural challenges in the real estate sector and subdued household consumption. Emerging market and developing economies outperformed with 4.4% growth in 2025 and are expected to grow at 3.9% in 2026 and 4.2% in 2027. Within this, Emerging Asia remains the primary growth engine, led by India, which recorded strong growth of 7.6% in 2025 and is projected to sustain robust momentum at around 6.5% through 2026-27, driven by domestic demand and public investment. Overall, the global economy is transitioning into a phaseofmoderateandunevengrowth,withresilience in emerging markets offset by continued softness in advanced economies. Downside risks remain elevated, including geopolitical tensions, trade disruptions, fiscal pressures, and climate-related uncertainties, necessitating greater adaptability and strategic recalibration for businesses.

Indian Economic Review

Indias economy in FY2025-26 has emerged as one of the most dynamic in the global landscape, with real GDP growth estimated at around 7.6% in FY2025-26, making it the fastest growing major economy by a significant margin. This strong performance being driven by a combination of resilient domestic demand, especially in consumption and services and a sustained, policy anchored push on public infrastructure and capital expenditure, which has helped crowd in private investment rather than crowd it out. The governments front loaded infrastructure roadmap, including large scale investments in roads, railways, logistics, housing, and urban infrastructure, has not only lifted growth but also improved supply chain efficiency and regional connectivity, thereby supporting MSMEs and manufacturing clusters.

Behind the headline growth, sectoral patterns show a broadening recovery; services particularly IT, financial services, and business support activities have remained robust, while manufacturing and construction have also picked up, supported by policy thrusts such as the Production Linked Incentive (PLI) schemes and renewed industrial estate modernisation. The formalisation drive, digitisation of payments, and the expansion of digital public infrastructure such as Aadhaar, UPI, and e governance stacks has enhanced financial inclusion, reduced leakages, and improved the precision and speed of government spending, which in turn has strengthened multiplier effects in the real economy. At the same time, the labour intensity of Indias growth has remained relatively high, with improvements in youth employment led services and manufacturing, though the pace of formal job creation still lags demographic needs in certain segments.

On the macroprudential side, inflationhas moderated during FY2025-26, staying within the Reserve Bank of Indias 2-6% band, thanks to a combination of softer food price inflation, relatively stable energy costs, and effective monetary policy management. This has allowed the RBI to avoid aggressive tightening, keeping financial conditions broadly supportive for credit growth, especially in priority sectors and for sectors like MSMEs and affordable housing where policy driven credit channel measures have been prominent. The governments fiscal stance has combined consolidation with selective expansion: the fiscal deficit is projected to remain around 4.5-4.9% of GDP, reflecting a gradual glide path toward balance sheet discipline, while capital expenditure has been deliberately elevated to lock in long term growth and productivity gains.

Externally, Indias current account dynamics have stayed manageable, supported by resilient services exports especially IT and professional services-alongside moderating oil price volatility and a relatively stable rupee, which has helped contain imported inflation pressures. The countrys integration into global supply chain shifts, particularly in electronics, semiconductors, and select manufactured goods, has opened new export corridors and investment opportunities, even as geopolitical frictions elsewhere have prompted firms to diversify production bases. For the NBFC sector and MSME credit ecosystem, this macro environment translates into a high beta but fundamentally positive backdrop: credit demand remains strong, financial intermediation is deepening, and policy driven risk mitigation tools (such as co lending, guarantee schemes, and credit risk sharing frameworks) are helping to bridge the gap between formal credit supply and the informal credit dependent segments of the economy. Looking ahead, the key challenges will be sustaining this momentum while addressing structural bottlenecks skills mismatches, land and labour regulation complexities, and sub national disparities so that the high growth trajectory of 2025-26 can be converted into inclusive, productivity driven expansion over the rest of the decade.

Indian NBFCs

Indias NBFC sector in FY2025-26 is larger, more diversified, and better capitalised than ever, acting as a primary engine of financial inclusion and credit growth, especially in retail, MSME, and housing segments. Cumulative NBFC assets under management (AUM) crossed approximately INR 50 lakh crore (INR 50 trillion) by the end of FY2025 and are projected to reach around INR 70 lakh crore by FY2027, implying trend growth of about 15-17% per annum in AUM, significantly faster than the roughly

10-11% annual credit growth projected for banks over the same period. Incremental NBFC credit is estimated at INR 1.7-2.4 lakh crore in FY2026 alone, confirming that the sector is not just growing in size but also deepening its share of total system credit, particularly in consumption and MSME linked loans.

Within this universe, there is a clear stratification: large scale NBFCs (including many systemically important entities) focus on structured retail, MSME, and housing related portfolios, while mid tier and niche NBFCs specialise in micro enterprise credit, agri MSMEs, and semi urban consumer finance, often in partnership with fintechs and bank co lending platforms. Regulatory reforms over the past five six years tighter capital adequacy norms, governance standards, and enhanced risk management requirements have made the sector more resilient, even as competition from banks and fintechs has compressed spreads and pushed players toward higher productivity, analytics driven models. The rise of private credit players and foreign equity inflows into Indian NBFCs (about US$9 billion in the first half of 2025 alone) reflects growing confidence in the sectors ability to intermediate credit to under penetrated, high impact segments such as MSMEs and affordable housing.

The RBIs stricter regulatory framework-covering capital adequacy, liquidity coverage, governance, and concentration risk limits-has helped the sector consolidate and improve its risk management infrastructure, even as the NBFC lead credit boom continues. At the same time, policy driven demand for NBFCs remains high: the governments push for MSME credit, co lending, and priority sector linked lending has incentivised NBFC-bank partnerships, while digital public infrastructure (UPI, GSTN, Aadhaar, and open banking like data flows) more accurate underwriting and lower cost to serve. Foreign equity and private credit investors continue to view Indian NBFCs as an attractive channel to access high growth, high beta consumer and MSME credit, with global research notes suggesting that NBFC AUM could grow faster than banks over the coming decade.

In FY25-26, the NBFC sector remained a primary driver of credit growth, with AUM projected to expand at around 15-17% annually while banks moderate their pace to about 10-11%. The main upside comes from digital first lending, MSME and consumption linked products, and deeper integration with fintechs and co lending platforms, but this also brings concentration and data risk concerns. The key challenges include preventing over leveraging in unsecured retail and small ticket loans, managing interest rate and liquidity risk in an environment where rate cuts may help margins but also compress spreads, and ensuring that regulatory capacity keeps pace with has enabled the speed of innovation so that the sector can sustain growth without recurring asset quality shocks. For the NBFC ecosystem, FY25-26 was therefore a phase of structural consolidation and maturity: a larger, more regulated, and more data driven sector that is central to Indias financial inclusion and high growth narrative, but one that must navigate risk quality and policy uncertainty carefully.

Indian MSME Sector - Formalisation-Led Expansion and Structural Strengthening

The MSME sector remains the backbone of Indias industrial and employment base, contributing roughly 35-36% of manufacturing output, about 45-50% of merchandise exports, and close to 30-31% of GDP in 2025-26. Over the last few years, the single largest structural shift has been the aggressive formalisation of micro enterprises through the Udyam Registration Portal and the Udyam Assist Platform, which have brought a vast informal segment into the formal credit and scheme access orbit. By end 2025, the Udyam ecosystem records around 7.1-7.3 crore MSME units in total, with roughly 4.3-4.4 crore fully registered Udyam enterprises and an additional 2.7-2.9 crore informal micro units captured via Udyam Assist, effectively formalising a large fraction of Indias micro enterprise universe. This formal identity base enables MSMEs to access priority sector credit, government subsidised schemes (such as PMEGP, PM Vishwakarma, and cluster development schemes), and credit guarantee backed lending, while also generating a digital footprint (GST, UPI, bank statements) that can be used for credit scoring and automated underwriting. Policy driven tweaks in the Union Budget 2025-26 such as raising MSME investment and turnover thresholds-have helped prevent the "graduation penalty" by allowing scaling firms to retain MSME status and associated benefits for longer, thereby smoothing the transition from micro to small and medium enterprises.

Additionally, the sector is witnessing improved productivity and competitiveness driven by digital adoption, supply chain integration, and increased participation in domestic and global value chains. However, challenges such as access to timely credit, market expansion, and compliance complexity persist, particularly for micro enterprises. Overall,

FY26 reflected a phase of structural strengthening for the MSME sector, marked by deeper formalisation, enhanced policy support, and increasing integration into the formal financial system positioning it as a critical engine for Indias sustained economic growth.

Union Budget 2025-26: Strengthening MSME Ecosystem through

Structural Reforms and Credit Expansion

The Union Budget 2025-26 reinforced the Governments strategic focus on MSMEs as a key engine of economic growth, with targeted measures aimed at enhancing scalability, improving credit access, and accelerating formalisation. A central reform introduced in the Budget was the revision of

MSME classification thresholds, with investment limits increased by 2.5 times and turnover limits doubled. This structural change addresses the long-standing "graduation constraint", enabling enterprises to scale operations without prematurely losing MSME status and associated regulatory and financial benefits.

The Budget also emphasised improving credit flow to the sector through enhanced guaranteed mechanisms and policy support. The credit guarantee cover for MSMEs was expanded, facilitating greater access to collateral-free or low-collateral loans, particularly for micro and small enterprises. These measures are expected to incentivise lenders, both banks and NBFCs, to increase exposure to MSMEs while mitigating credit risk. From a macro perspective, MSMEs continue to hold significant economic importance, with over 7 crore registered enterprises employing ~33 crore people, contributing around 36% of manufacturing output and ~49% of exports. The Budget builds on this strong base by promoting technology upgradation, improving market access, and enabling better integration into global value chains.

Additionally, the Government has continued to focus on strengthening the broader MSME ecosystem through initiatives aimed at digitalisation, innovation, and . specificdevelopment sector-

Measures supporting manufacturing clusters, export-oriented industries, and traditional sectors such as footwear, leather, and toys are expected to enhance productivity and competitiveness. The Budget also aligns with the broader policy objective of formalisation by leveraging digital platforms such as Udyam Registration, GST systems, and digital payments infrastructure. These initiatives are helping create a comprehensive data ecosystem that improves credit underwriting, reduces information asymmetry, and enhances financial inclusion.

Overall, the Union Budget 2025-26 represents a structural push toward scale, formalisation, and credit deepening in the MSME sector, creating a more enabling environment for sustainable growth. The combined impact of regulatory reforms, enhanced credit support, and digital integration is expected to strengthen the MSME ecosystem while providing significant growth opportunities for lenders and financial intermediaries.

Indian MSME Credit Landscape

The MSME credit ecosystem in India has witnessed significant expansion, with total commercial MSME credit reaching approximately INR 34 lakh crore, reflecting a steady year-on-year growth of around 12-13%. This growth underscores the deepening integration of MSMEs into the formal financial system.

While banks continue to remain the dominant source of funding, NBFCs have emerged as critical enablers, particularly in the sub-INR 50 crore segment, where their strong presence in tier-2 and tier-3 markets and agile operating models allow them to effectively serve underserved and underbanked enterprises. The structural transformation of the MSME credit landscape has been significantly supported by policy driven interventions. Revisions in MSME definitions and enhancements in credit caps have encouraged both banks and NBFCs to expand their exposure to the segment, while retaining growing enterprises within the MSME classification framework. The Credit

Guarantee Trust for Micro and Small Enterprises (CGTMSE) has played a pivotal role in facilitating credit access by enabling higher guarantee coverage and introducing digital guarantee mechanisms, thereby supporting unsecured and asset-light lending. In parallel, the Self-Reliant India (SRI) Fund has provided approximately INR 15,400 crore in growth and quasi-equity capital to over 680 MSMEs, helping bridge the equity gap and improving their creditworthiness. A key structural evolution in FY26 has been the increasing adoption of co-lending and risk-sharing models, which have become central to MSME financing.These partnerships allow banks to leverage the origination strength, local reach, and digital capabilities of NBFCs, while maintaining balance sheet strength and regulatory oversight. Concurrently, lenders are increasingly adopting data-driven underwriting frameworks, utilising GST data, Udyam registrations, UPI cashflows,and banking analytics to move beyond traditional collateral-based lending. This shift has enabled formal credit access for a wider base of MSMEs that were previously excluded due to limited financial visibility.

The evolving NBFC-MSME credit ecosystem is playing a crucial role in sustaining Indias economic growth by enabling efficient credit flow to a fragmented yet high-potential sector. NBFCs are effectively functioning as the last-mile delivery channel, while banks provide scale and financial stability. However, certain structural and cyclical challenges persist. Working capital mismatches, driven by delayed payments from corporates and government entities, continue to strain MSME liquidity. Additionally, credit exposure remains concentrated in select sectors such as light manufacturing, retail trade, and services, indicating scope for further diversification.

From a regulatory perspective, the rapid expansion of digital lending and fintech partnerships necessitates continued strengthening of oversight mechanisms to mitigate risks related to over-leveraging, pricing transparency, and data security.

Overall, FY26 represents a phase of strong alignment between a rapidly formalising MSME base and an evolving NBFC-led credit architecture. This has created a high-growth, opportunity-rich ecosystem that is central to sustaining Indias economic momentum. Going forward, the focus will need to remain on maintaining asset quality, improving payment cycles, and ensuring inclusive and diversified credit expansion to fully realise the sectors long-term potential.

Business Overview

UGRO Capital Limited (UGRO), a middle layer NBFC as per the Scale Based Regulation framework issued by RBI, is committed to addressing Indias MSME addressable credit gap, estimated at INR 30 trillion, through a deepening branch presence at Pan India level and growing ecosystem of digitally transacting merchants in India. Over the past few years, UGRO has successfully built a branch network of 317 Emerging Market branches. UGRO has consistently pursued financial inclusion through efficient and scalable credit delivery.

This strategy has enabled the Company to scale its consolidated Assets Under Management (AUM) to INR 15,334 crore as of March 2026, with consolidated debt of INR 10,782 crore and an off-book portfolio comprising 38% of total AUM, reflecting a diversified funding profile with robust liquidity funnel and proven underwriting capabilities. As of March 31, 2026, UGRO Capital has a workforce of 2,095 employees.

Acquisitions

The Companys Board of Directors approved the acquisition of Profectus Capital Private Limited (PCPL), registered with Reserve Bank of India as a non-banking financial company, by way of purchase of 100% of the shares of PCPL for an aggregate purchase consideration of INR 1,399 Cr in December, 2025. Accordingly, PCPL has become wholly-Owned subsidiary of the Company with effect from December 08, 2025. The Board of Directors approved the Scheme of Amalgamation wherein PCPL would merge with the Company subject to regulatory approvals.

The Company also completed acquisition of Datasigns Technologies Private Limited (DTPL), which owns the ‘MyShubhLife platform and accordingly it became a wholly owned subsidiary of the Company with effect from March 18, 2026.

Strategic Realignment of UGRO

UGRO completed a significant phase of platform build-out, established a pan-India branch network of over 300 branches for Emerging Market business. The acquisition of MyShubhLife strengthened the embedded finance capabilities through digital integrations. During this scale-building phase, the Company grew its AUM from approximately INR 3,000 Crore in FY22 to INR 15,334 Crore by FY26 end, while maintaining stable portfolio quality and capital adequacy. With the core infrastructure now largely in place, the Companyhasshifteditsfocusfromscaletoimproving profitability and earnings quality. In February 2026, UGRO announced its strategic realignment to prioritise segments aligned with long-term value creation. This realignment involves a progressive shift in portfolio mix towards higher-yielding core segments, namely Emerging Market secured lending and Embedded Merchant finance, while reducing exposure to intermediated lower yield portfolios. The Company has also undertaken a structured cost rationalisation programme linked to the exit from non-core verticals to enhance operating efficiency.

In parallel, the intermediated portfolio is being run down in an orderly manner, while the share of recurring, annuity-led income is increasing. This transition is expected to strengthen capital adequacy and enable growth to be supported through internal accruals, resulting in a more sustainable and high-quality lending portfolio.

UGRO Core Businesses

Emerging Market (Small ticket LAP)

UGRO operates a network of 317 Emerging Market (EM) branches across Tier 2 and beyond geographies, catering primarily to MSMEs with annual turnover of up to INR 3 crore. These branches focus on secured loan against property (LAP), with ticket sizes typically ranging between INR 7.5 lakh and INR 50 lakh and an average yield of ~18%.

Over the past three years, UGRO has significantly expanded its EM branch network to 300+ branches as of March 2026, establishing a PAN India presence. The sourcing model is anchored in a ‘feet-on-the-street approach, enabling strong local engagement and on-ground underwriting. With the branch network now built out, the Companys focus has shifted to enhancing productivity and driving operating leverage by optimising the existing infrastructure. In Tier 2 and beyond markets, UGRO has strengthened its presence through targeted catchment-area marketing and local branding initiatives. The Company has also partnered with regional associations to deepen its reach, conducting seminars, workshops, and outreach programs focused on government schemes, digital credit adoption, and business development. Through these initiatives, UGROs EM franchise continues to support the growth of small and micro enterprises, while addressing their diverse and evolving credit needs across geographies.

Embedded Merchant Finance

Embedded Merchant finance represents a key pillar of

UGROs strategy to address the evolving credit needs of MSMEs through digital ecosystems. This is enabled through the MSL platform and involves integrating lending solutions directly into partner platforms such as payment gateways, enabling businesses to access credit seamlessly within their day-to-day operations. The loan products are structured with Equated Daily

Instalments (EDI) aligned with customer cash flows and are typically of short tenure ranging near ~1 year. Under this model, credit demand is driven by Gross Merchandise Value and business activity, with underwriting based on payment history, cash flows, and bureau records among others. The robust underwriting model enables faster decision-making and an improved customer experience compared to traditional lending approaches.

UGRO through Embedded Merchant finance aims to reach last-mile MSMEs, furthering its goal of inclusive financial support. The Company has partnered with several fintechs to fund their last-mile supply chain needs. This strategy is expected to enhance the granularity of UGROs portfolio.

Machinery Loan

UGROs Machinery Finance business continues to maintain focus across key segments, including metal cutting and CNC machines, printing and packaging equipment, woodworking machinery, and medical equipment financing. The business is anchored on strong partnerships with a focused set of original equipment manufacturers (OEMs), enabling direct sourcing and access to a relevant MSME customer base.

Other Products range of products catering UGROhadadiversified financial needs of MSMEs ranging from short term working capital loans to long term secured loans backed by property, receivables etc. As part of its strategic realignment, the company has undertaken a calibrated shift in focus towards its core businesses; Emerging Market LAP and Embedded Merchant financing.

Snapshot of AUM and disbursements across products

(INR in crore)

		AUM		Net Disbursements
Product Category	Collateral type (1)	FY26	FY25	FY26	FY25
EM Loans	Property	3,581	2,596	1,833	1,877
Embedded Merchant	-	2,280	743	3,607	973
Finance
Machinery Loans	Machinery	2,117	1,577	806	1,034
Secured Business Loans(4)	Property	3,334	2,479	619	1,341
Business Loans(4)	CGTMSE(2)	2,041	3,153	655	1,844
School Finance(4)	Property & Fees assignment	696	-	36	-
Partnership & Alliances(4)	FLDG	1,163	1,181	315	975
Supply Chain Financing(4)	Receivables	121	274	(129)	(392)
Total		15,334	12,003	7,742	7,651

1. EM Loans are secured by property, Secured Business Loans are secured by property, Machinery Loans are secured by machinery, Business Loans are covered under CGTMSE, School Finance is secured by Property & Fees assignment, Partnerships & Alliances is secured by FLDG and SCF is secured by receivables.

2. ~11% of AUM guaranteed by CGTMSE cover

3. AUM and Disbursements for FY26 are on consolidated basis and FY25 data on standalone basis

4. Post strategic realignment, no new sourcing for these products is planned

Liability Profile

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 securitisation to raise funding against asset pool During the year, the company mobilised debt of over INR 5,941 crore. Companys blended liability interest cost on all outstanding debt as of March 2026 stood at 10.16%. Total Consolidated Debt as of March 2026 stood at INR 10,782 Cr. The company has a vast lender base of 50+ lenders and aims to consolidate the count of lenders and increase ticket size per lenders with keen focus on lowering cost of borrowing. The Company has borrowed moneys through term loans from banks and financial institutions, cash credit lines from banks, issued non-convertible debentures, issued pass-through certificates as part of securitisation transactions and also availed non-rupee denominated borrowing through the ECB route.

Asset Liability Management

Asset Liability Management (ALM) is a critical component of the Companys overall risk management framework, aimed at ensuring adequate liquidity, managing funding risks, and maintaining a balanced maturity profile between assets and liabilities. The Company follows a prudent and conservative ALM policy, aligned with the long-term nature of its lending portfolio. It maintains a calibrated liquidity position to ensure the ability to meet its obligations under both normal and stressed conditions, while optimising the cost of carry. In line with this approach, the Company limits reliance on short-term borrowings and maintains a well-diversified liability profile with an appropriate tenor mix. This helps mitigate refinancing risks and supports stability in funding.

The Asset Liability Management Committee (ALCO) oversees the Companys liquidity and interest rate risk management. The Committee periodically reviews the funding position, asset-liability maturity profile, and variances between projected and actual cash flows. It also evaluates interest rate sensitivity across maturity buckets and undertakes scenario and stress testing to assess the impact of potential market developments. As at the reporting date, the Company maintained a positive cumulative mismatch across all maturity buckets, reflecting a comfortable structural liquidity position.

Credit Underwriting

UGRO has established a robust and comprehensive risk management framework, advanced data analytics, and a strong technology infrastructure. This framework underpins the Companys growth while maintaining high standards of governance and asset quality. In line with the evolving scale and complexity of the business, UGRO has strengthened its capabilities across three lines of defence, with enhanced team structures and increased investments in analytics, credit, fraud control, and collections strategy.

Data analytics forms the core of the Companys credit assessment approach, enabling a transition from traditional income document-based evaluation to a cash flow based underwriting framework. This approach leverages an integrated view of credit bureau data, banking transactions, and GST information to assess borrower risk more comprehensively. UGRO follows a data-driven and technology-enabled credit underwriting framework that combines proprietary analytics, automated decision engines, and on ground assessment. At the centre of this framework is the Companys internally developed GRO Score 3.0, an advanced cash flow based scoring model that builds upon earlier iterations. The model integrates multiple data sources, including GST filings, banking transactions, and bureau data, and analyses granular business indicators such as sales trends, purchase behaviour, margins, scale of operations, counterparty relationships, product mix, and filing discipline to assess repayment capacity.

For Embedded Merchant finance business, the

Company leverages a fully automated, end-to-end underwriting engine integrated with partner platforms. The underwriting framework is driven by data-led decisioning, utilising real-time transaction flows and platform insights to assess borrower behaviour and repayment capacity. These inputs are processed through proprietary LOS/LMS systems and machine learning–driven decision engines to generate dynamic credit limits, risk segmentation, and automated approval or rejection outcomes.

This enables scalable and efficient underwriting with minimal manual intervention, while maintaining strong credit discipline.

The underwriting framework is further strengthened by a predictive Early Warning Signals (EWS) system, which continuously monitors portfolio performance and generates trigger-based alerts for proactive risk management and collections intervention. At an enterprise level, UGRO maintains a robust risk governance structure, including a supervisory risk evaluation and capital adequacy framework. The Company has undertaken a comprehensive Internal Capital Adequacy Assessment Process

(ICAAP), encompassing identification of material risks, forward-looking business assessments, and evaluation of the impact of these risks on capital adequacy. Overall, this integrated approach enables UGRO to balance growth with risk discipline, while supporting scalable, data-driven lending across both branch-led and digital ecosystems.

Risk Management

Effective risk management is integral to UGROs strategy of enabling profitable and sustainable growth. The Company has established a comprehensive Enterprise Risk Management (ERM) framework embedded across all business functions, governed by the Risk Management Committee (RMC) and overseen by the Board of Directors. The framework is aligned with RBI Master Directions on

Scale Based Regulation, IT Governance and Fraud Risk Management. Risk management at UGRO is organised as three lines of defence model: business lines own day-to-day risk; the Risk Management function provides independent oversight; and Internal Audit provides assurance on the adequacy of controls.

Risk Category	Description	Potential Impact	Mitigation Strategy
Credit Risk	Credit risk represents the possibility that a borrower or	• Increased Non- Performing Assets (NPAs)	• Sector/sub-sector specific scorecard models for robust underwriting
	counterparty may fail to meet its obligations	• Higher provisioning requirements	• Monthly portfolio risk reviews across all sectors and sub-sectors
	in accordance with agreed terms. UGRO primarily serves small	• Adverse impact on risk- adjusted returns and profitability	• Loan Review Mechanism for proactive identification of credit weaknesses
	businesses across sectors and aims to maximise risk-adjusted		• PD, LGD and EAD estimation models developed for each material portfolio
	returns by maintaining credit exposure within acceptable parameters		• Comprehensive collateral management system and sample-based asset
			• Industry analysis used for policy framing and portfolio benchmarking
Liquidity Risk	Liquidity risk represents inability of the Company to meet its	• Constraints on loan disbursements impacting business	• Asset Liability Management (ALM) policy governs liquidity risk exposure
	cash and collateral obligations as they become due without	growth • Increased borrowing costs due to market	• ALM Committee monitors day-to- day, cyclical and long-term cash flow requirements
	adversely affecting its financial condition. As a non-deposit taking	volatility or funding disruption • Adverse impact on	• Stock of cash and marketable securities maintained as a liquidity buffer
	NBFC, UGRO relies on committed bank loans and debt market placements for funding	financial condition and lender confidence	• Continuous oversight on liquidity position and associated risk indicators
Operational Risk	Operational risk is the risk of direct or indirect losses or reputational damage	• Financial losses from internal or external fraud • Business disruption	• Enterprise-level loss event recording and Root Cause Analysis (RCA) for preventive controls
	due to failures in technology, people, processes or physical	due to system failures or process breakdowns • Reputational	• Fraud Control Unit conducting employee, vendor, loan documentation and collateral checks
	arrangements, including external events. Key	and regulatory consequences from operational failures	• Fraud Risk Management Policy documenting detailed mitigation procedures
	categories include internal fraud, external fraud, client- related practices and business disruption		• Internal Audit provides independent assessment of effectiveness of risk controls annually
Reputation Risk	Reputation risk arises from negative perceptions by customers,	• Loss of existing or prospective business relationships • Restricted access to	• Legal and compliance team conducts regular reviews of agreements, policies and practices
	counterparties, shareholders, lenders, analysts or	funding sources • Adverse impact on market standing and	• Periodic internal and external audits with recommendations for corrective action
	regulators that can adversely affect the Companys ability to maintain business relationships or access funding	investor confidence	• Summarised breach and finding reports presented periodically to the Board • Active monitoring of market news and external threats to the Companys reputation
Technology Risk	Technology risk refers to loss due to breach of confidentiality, failure of data or	• Loss or compromise of sensitive customer or financial data	• IT Governance framework with Board and senior management oversight on IT strategy and risk
	system integrity, unavailability of systems, or inability to adapt IT within a	• System downtime disrupting business continuity and service delivery	• Information Security and Cyber Security controls: access management, data protection, incident response
	reasonable time and cost. UGROs deeply technology-driven	• Cyber attacks, unauthorised access or data breaches	• IT Operations managed for system stability, availability and reliability
	model makes this a material risk area		• Business Continuity Plan (BCP) and Disaster Recovery (DR) arrangements periodically tested
			• Vendor due diligence, SLAs and ongoing monitoring for outsourced IT services
			• Periodic Information Systems Audit with time-bound remediation of observations
Legal Risk	Risk of legal sanctions, financial loss, or reputational damage	• Financial penalties and regulatory sanctions for non-compliance	• Legal and Compliance team maintains ongoing oversight of legal and compliance risk
	from failure to comply with laws, regulations, and RBI directives.	• Adverse legal outcomes from contractual disputes or	• Mitigation measures and potential impact tracked and updated regularly
		structural deficiencies • Reputational damage impacting stakeholder	• Board updated on legal and compliance risk at periodic intervals
		and investor confidence	• Compliance with RBI, SEBI, Companies Act and other applicable statutes ensured
Market Risk	Market risk is the risk of losses resulting from adverse changes in	• Reduced net interest margins due to adverse rate movements	• Asset Liability Management (ALM) policy governs market and interest rate risk
	the value of positions arising from movements in market prices -	• Mark-to-market losses on interest-rate sensitive positions	• ALM Committee assesses and monitors interest rate fluctuations at defined intervals
	including interest rates, credit spreads, equity values and foreign	• Increased cost of funds during periods of market stress	• Portfolio predominantly consists of variable interest rate instruments for flexibility
	exchange rates		• Comprehensive and adaptable approach to changing market conditions

Risk Governance Structure

The Board of Directors provides overall risk oversight and approves risk appetite, policies and frameworks. The Risk Management Committee (RMC) is the principal committee responsible for reviewing and approving risk processes and models. The Chief

Risk Officer (CRO) coordinates enterprise-wide risk management and provides the Board with an annual compliance certificate on risk practices. The Internal

Audit function provides an independent assessment of the effectiveness of the risk management framework and the adequacy of internal controls.

Internal Capital Adequacy Assessment Process

The Company conducts an Internal Capital Adequacy Assessment Process (ICAAP) as an integrated approach to risk and capital management. The

ICAAP includes identification and review of material risks, forward-looking business model assessment and evaluation of the impact of those risks on the level and quality of capital. The exercise is carried out periodically in line with regulatory guidance, ensuring the Company maintains adequate capital buffers commensurate with its risk profile.

Human Resources

At UGRO, people remain central to its ability to scale, execute, and deliver sustainable growth. As the Company continues to expand its footprint, the focus has been on building a high-quality, performance-oriented workforce that can support both growth ambitions and portfolio quality. During the year,

UGRO significantly strengthened its distribution network, with over 300 Emerging Market branches now operational and well-resourced. This expansion has been supported by a strong emphasis on talent readiness, ensuring that frontline teams are not only adequately staffed but also equipped with the right skills, tools, and support systems to deliver consistent outcomes.

A key area of focus has been the development of

Loan Officers and frontline teams, who are critical to both customer acquisition and credit quality. UGRO has invested meaningfully in structured training programs, on-ground capability building, and continuous performance enablement to ensure that teams are able to build and manage a high-quality asset book. In parallel, the Company has continued to strengthen its leadership pipeline.

Focused investments in leadership development and succession planning have helped build depth across key roles, enabling the organisation to scale in a calibrated and sustainable manner. The Companys approach integrates performance management, capability development, and targeted hiring to ensure alignment with business priorities.

Employee experience remains an important pillar as the Company scales. The Company has enhanced its focus on creating a work environment that balances performance with engagement, supported by productivity tools, performance-linked incentives, and ongoing feedback mechanisms. These efforts are aimed at driving both individual effectiveness and organisational outcomes. Governance and leadership oversight continue to be strong enablers of the Companys people strategy. UGROs senior management team, with deep domain expertise, remains actively engaged in shaping organisational capability and ensuring disciplined execution aligned to the Companys long-term vision. As of March 31, 2026, UGRO had 2,095 employees.

Credit Rating

The Companys credit rating is a key determinant of its funding profile, influencing both the availability and cost of borrowings. It serves as an independent assessment of UGROs financial position, asset quality, operating performance, and ability to service its obligations. Movements in credit ratings can have a direct impact on funding costs, liquidity access, and overall financial flexibility. Accordingly, the Company remains focused on strengthening its credit profile through prudent risk management, stable asset quality, and a focus on sustainable and predictable earnings.

Maintaining a robust credit standing enables UGRO to access diversified sources of capital and supports the long-term growth of its lending franchise. As of March 2026, Companys borrowings enjoy the following ratings:

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

Internal control systems and their adequacy

UGRO has established a robust internal financial control framework commensurate with the scale, complexity, and nature of its MSME lending operations. The framework is designed to provide reasonable assurance regarding the reliability of financial reporting, safeguarding of assets, and adherence to applicable laws and regulations. The Companys internal control environment is anchored in a well-defined governance structure comprising policies, standard operating procedures, and risk and control matrices across key business processes. These controls are embedded within UGROs technology-driven operating platform, enabling automated, rule-based execution and minimising manual intervention.

The internal financial controls framework covers operational, financial reporting, and compliance risks. Operational controls ensure adherence to defined processes across sourcing, underwriting, disbursement, and collections. Financial controls are designed to mitigate risks of material misstatements in financial reporting, while compliance controls ensure alignment with regulatory requirements and statutory obligations applicable to the Company.

The effectiveness of internal financial controls is periodically evaluated through internal audits and independent reviews. Internal auditors conduct risk-based audits and assess the adequacy and operating effectiveness of controls, with key findings and recommendations reported to the Audit Committee. In addition, external auditors provide assurance on the adequacy and effectiveness of internal financial controls over financial reporting. The

Audit Committee and the Board oversee the internal control framework and ensure that corrective actions are implemented in a timely manner. This structured and continuously evolving control environment supports operational efficiency, financial integrity, and sustainable business growth.

Equity Capital Raise

In June 2024, the Company successfully announced equity capital raise by way of allotment of Compulsory Convertible Debentures (CCDs) and warrants cumulatively amounting to INR 1,265 crore (CCDs amounting to INR 258 crore and warrants amounting to INR 1,007 crore). These instruments were convertible to equity shares within a period of 18 months from the allotment date. The warrants were subscribed by paying Rs 252 crore, representing 25% of the Issue price with the remaining 75% payable on conversion to equity.

The CCDs allotted were automatically converted to equity shares on expiry of tenure. Of the total warrants amounting to INR 1,007 crores, warrants of INR 5 crore were converted to equity shares and pending warrants lapsed on maturity. Further in FY26, the Company raised INR 915 crore of equity capital through preferential allotment of CCDs and rights issue of equity shares (CCDs amounting to INR 534 crore and rights issue amounting to INR 381 crore). The Company saw strong backing from its existing investors viz Samena Capital and Impact

Fund Denmark (IFU).

Key Financial Information

(INR in crore, except when mentioned otherwise)

Particulars	FY26 (Consolidated)
Total AUM	15,334
Total Net Disbursement	7,742
Total Income	2,021
Total Expenditure	1,680
Profit before tax	244
tax Profit after	175
Earnings per share
- Basic (INR)	14.08
- Diluted (INR)	13.18
Net worth	2,906
Book value per share (INR)	187
Ratios
Off-book AUM (%)	38%
Debt to Equity ratio	3.7x
CRAR (%) (Standalone)	21.2%
Net Total Income (% of Avg. On-Book AUM)	13.0%
Opex (% of Avg. AUM)	4.5%
ROA (%)	2.1%
ROE (%)	7.4%
GNPA (% of AUM)	2.5%
NNPA (% of AUM)	1.6%

Outlook for the company

FY26 marked a pivotal phase for UGRO, with the Company undertaking a strategic realignment to transition towards a granular MSME lending franchise. With the infrastructure now in place, the Company has shifted its focus from scale-building to improving productivity, operating leverage, and earnings quality.

The Company has set the following goals for FY27:

• UGRO aims to further increase share of higher yielding products in the overall AUM mix. This would be achieved through increasing contribution of Emerging Market business and Embedded Merchant finance loans in the total AUM. This would also result in a granular portfolio and increase in UGROs existing customer base.

• The Company will focus on improving the productivity of its Emerging Market branch network, particularly newer branch cohorts, with the objective of bringing them in line with mature branch performance, without requiring incremental investments, thereby driving operating leverage.

Key Opportunities

Expanding MSME Credit Market

The MSME sector continues to represent a large and structurally underpenetrated credit opportunity, particularly in Tier 2 and beyond markets. Despite improvements in formalisation, a significant portion of MSMEs remains underserved by traditional financial institutions due to limited documentation and credit history. UGROs focus on small-ticket secured lending and embedded merchant financing positions it well to address this gap through tailored credit solutions and deeper local and digital reach. investments

Embedded Merchant finance through

Platform-led distribution

The rapid growth of digital platforms, payment ecosystems, and fintech partnerships is creating new avenues for MSME credit delivery. Embedded merchant finance enables seamless, contextual lending at the point of need, driving higher customer engagement and repeat utilisation. UGROs embedded merchant financing platform allows it to access a large and granular customer base, supporting scalable and efficient portfolio expansion digitally.

Operating Leverage from Established Infrastructure

Withsignificant already made in branch network expansion and technology infrastructure, the Company is well positioned to improve productivity and efficiency. As branch cohorts mature and volumes scale, the business is expected to benefit from operating leverage, enabling growth without proportionate increases in operating costs.

Key Threats

Execution Risk in Strategic Realignment

The Company is in the process of transitioning its portfolio mix towards core segments. The pace of scaling Emerging Market business and Embedded

Merchant finance, along with the orderly run-down of non-core portfolios, may impact near term growth and profitability. Effective execution of this transition remains critical to achieving the desired outcomes

Funding Environment and Cost of Capital

The Companys borrowing costs and access to capital are influenced by macro-economic factors, market liquidity conditions, interest rate movements, and credit rating outlook. Any adverse changes in these factors may impact funding availability and cost efficiency, thereby affecting overall profitability.

Asset Quality and Credit Risk

The MSME segment is inherently sensitive to economic cycles, sector specific developments, and local market conditions. Any adverse changes in borrower cash flows may impact repayment behaviour, necessitating continued focus on underwriting discipline and portfolio monitoring.