Unifinz Capital India Ltd Management Discussions

GLOBAL ECONOMY

The global economic landscape continues to face significant headwinds, prompting a downward revision of growth projections. The International Monetary Fund (IMF) has lowered its global GDP growth forecast for 2025 to 2.8%, from an earlier estimate of 3.3% on account of persistent geopolitical tensions, tightening financial conditions, supply chain disruptions and tariff imposition leading to price wars. Rising trade tensions are expected to significantly dampen global trade activity. As per IMFs World Economic Outlook, global trade growth is projected to slow sharply from 3.8% in 2024 to just 1.7% in 2025. This decline reflects heightened trade policy uncertainty, which is affecting all countries by prompting businesses to scale back procurement and investment decisions, while financial institutions re-evaluate credit exposures.

Although inflationary trends have begun to ease, headline inflation remains elevated averaging around 4.5% with underlying pressures from rising services costs and wage growth. These factors are collectively weighing on consumption, investment, and overall economic momentum, reinforcing a cautious and fragmented global landscape. The U.S. economy is forecasted to grow at 1.8% in 2025, impacted by renewed trade tensions and tariff measures, while Chinas projected slowdown to 4% reflects continued challenges in export-led growth and its real estate sectorndia remains on a strong footing, with GDP growth projected at 6.5% in 2025, underpinned by resilient domestic consumption and sustained infrastructure investment. This favorable macroeconomic environment supports continued expansion in credit demand and fosters growth across key sectors including housing, MSMEs, renewable energy, logistics, and manufacturing.

To sum up the global economic scenario, the growth trajectory is expected to be moderate in 2025, with advanced economies projected to expand at a slower pace. Advanced economies are projected to grow at a subdued pace of 1.4% in 2025, down from 1.8% in 2024. Emerging Markets and Developing Economies (EMDEs) are expected to grow at 3.7% in 2025, compared to 4.3% in 2024. The outlook through 2025 indicates that central banks will adopt measured monetary policy decisions that will steer interest rates and investment patterns. The heightened uncertainty and tightening of financial conditions are expected to weigh on economic activity in the near term. On the flip side, it is that estimated the global growth prospects could strengthen significantly if economies adopt a more constructive and stable trade policy approach, restoring confidence among investors that would stimulate global economic expansion.

INDIAN ECONOMY

India has demonstrated remarkable resilience amid global headwinds in FY 2024-25, firmly retaining its position as the worlds fifth-largest economy and continuing on a path of robust and inclusive growth. While advanced economies continued to face macroeconomic headwinds ranging from persistent inflation and tight monetary policies to geopolitical tensions and supply chain vulnerabilities, India remained resilient, charting a strong and steady growth trajectory. India recorded GDP growth of 6.5% for FY 202425. From an aggregate demand perspective, private final consumption expenditure grew 7.2% in FY 2024-25, driven

by a revival in rural demand. On the supply side, real gross value added (GVA) grew by 6.4% in FY 2024-25. The services sector is expected to remain resilient, growing at 7.2%, driven by robust activity in financial services, real estate, professional services, public administration, defence, and other related sectors. The agriculture sector grew 4.6% in FY 2024-25, while the industrial sector grew by 5.9%, supported by strong performance in construction, electricity, gas, water supply, and other utility services

India on the global trade front:

> Indias total exports grew by 6.3% to reach a record US$ 824.9 Billion in FY 2024-25, up from US$ 778.1 Billion in FY 2023-24, as per data released by the RBI for March 2025.

> As of March 2025, Indias gross Foreign Direct Investment (FDI) inflows for FY 2024-25 reached US$81 Billion, marking a 13.7% increase from the previous fiscal year.

> Indias current account deficit (CAD) in Q3 FY2024- 25 inched up to US$ 11.5 Billion from US$ 10.4 Billion in Q3 FY2023-24, remaining steady at 1.1% of GDP in both quarters. Notably, the deficit was lower than ICRAs projection of 1.4% of GDP for the period.

> As of April 4, 2025, Indias foreign exchange reserves stood at US$ 676.3 Billion, offering an import cover of nearly 11 months and reflecting the strength of the external sector.

Indias resilience: Navigating growth amid global uncertainty

Despite a global economic slowdown amid high interest rates and geopolitical tension, India demonstrated resilience and stands strong as the worlds fifth-largest economy. What cushions India against a moderated global growth outlook and a delayed synchronized recovery in industrial economies amid evolving trade and policy regulations, is the countrys robust domestic consumption-led growth model. Unlike several major global economies that are more dependent on external demand, Indias relatively self-reliant economic structure offers a shield against global headwinds. While economies such as China continue to face pressure from subdued export demand and domestic sectoral imbalances, Indias internal demand dynamics provide greater stability and supports sustained growth momentum. The surge in capital flows from DIIs have helped to reduce the sensitivity of Indian capital markets to foreign capital volatility.

The long-term objective under "Viksit Bharat 2047" to transform India into a self-reliant and prosperous economy by 2047 and the focus on de-regulation and adapting to global shifts from the model of Globalization to "GeoEconomic Fragmentation" entails that India invigorates its domestic manufacturing and strengthens its SME sector. Structural reforms through initiatives such as Smart Advanced Manufacturing and Rapid Transformation Hub (SAMARTH) Udyog centers, Make in India and Digital India have further fortified domestic manufacturing, making it an attractive arena for foreign investment. The ease of doing business in India got fresh impetus by rationalizing regulatory burdens and promoting a more businessfriendly environment. Boosting consumption through higher income tax exemption limit and implementing many structural reforms as presented in the Budget FY 2024-25, is expected to augment investments in critical sectors and maintain a stable macroeconomic environment conducive to robust and sustainable growth. According to the Ministry of Statistics and Programme Implementation (MoSPI), the combined (rural and urban) headline inflation stood at 3.16% in April 2025, down from 3.34% in March 2025. In response to the sustained moderation in inflation, the Reserve Bank of India (RBI) implemented three consecutive repo rate cuts in 2025, totaling 100 basis points. The latest reduction occurred on June 6, bringing the repo rate down to 5.50%.

Real GDP growth

Indias economy maintained strong momentum in FY 2024 -25, with Real GDP growing by 6.5% and Nominal GDP growing by 9.8%. This growth has been supported by structural policy initiatives such as the Make in India campaign, Production-Linked Incentive (PLI) schemes, and targeted measures for MSMEs. Ongoing enhancements in logistics infrastructure and a more efficient tax regime have further catalyzed industrial activity and manufacturing competitiveness. Together, these factors are driving economic resilience and positioning India for sustained long-term growth despite external headwinds.

GDP Growth (in %)

FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24	FY 2024-25
(6.6)	8.7	7.0	7.2	6.5

Inflation

Inflation plays a pivotal role in shaping the economic environment and directly impacts consumer spending behavior, lending monetary policy decisions. In FY 2024-25, India witnessed a significant easing in inflationary pressures, providing a favorable backdrop for economic activities and growth in financial services. Indias inflation trajectory has shown a consistent downward trend, with the Consumer Price Index (CPI) inflation rate decreasing to 3.16% in April 2025 from 3.34% in March, marking the first time in six months that it has fallen below 4%. This decline is largely attributed to easing food prices, particularly vegetables.

INDUSTRY OVERVIEW The NBFC industry Non-Banking Financial Companies (NBFCs) have emerged as vital pillars of Indias financial ecosystem, enabling credit access for a wide spectrum of borrowers · particularly Small and Medium Enterprises (SMEs) and financially underserved segments such as women and first-time home buyers. By facilitating the transition from informal borrowing channels to formal financial systems, NBFCs contribute meaningfully to financial inclusion. Over the years, the sector has witnessed remarkable growth, evolving into a dynamic force across segments like housing finance, consumer finance, and microfinance. Their extensive geographical reach, deep understanding of diverse financial needs, agile underwriting, and swift turnaround times position them as responsive and efficient lenders. Fueled by a growing middle class, expanding financial awareness, and supportive policy frameworks, NBFCs continue to play a pivotal role in advancing financial inclusion, driving MSME growth, and fostering self-employment across the country.

Over the past decade, the NBFC sector has recorded a healthy growth of approximately 14%, driven by its expanding role in bridging credit gaps across underserved segments. NBFCs have emerged as a key pillar of Indias financial ecosystem, offering a diverse portfolio of products·including housing, vehicle, personal, and microfinance loans · tailored to the needs of rural populations and lower-income groups. The rapid adoption of digital technologies has further strengthened the sector, streamlining operations, enhancing customer experience, and widening access. Intuitive apps and online platforms have made financial services more convenient, inclusive, and accessible than ever before. NBFCs have emerged as key drivers in enhancing credit penetration across India, particularly in regions and customer segments that remain beyond the extensive reach of traditional banks. By leveraging digital innovation, simplified underwriting processes, and customized financial products, NBFCs continue to bridge the credit gap, enabling inclusive growth and financial empowerment for underserved communities across the country.

According to CRISIL Ratings, the NBFC sector is expected to register an AUM growth of 15-17% in FY 2024-25, surpassing the decadal average of ~14% and underscoring the sectors resilience. While this marks a moderation from the robust 23% growth seen in the previous fiscal, the outlook remains optimistic. The tempered pace is primarily attributed to three key factors: heightened concerns around household indebtedness and asset quality, particularly in segments like microfinance and unsecured loans; increased regulatory scrutiny focusing on customer protection, pricing transparency, and compliance; and varied access to diversified funding sources, especially amid a slowdown in bank lending. Despite these dynamics, the sector continues to demonstrate adaptability, with NBFCs recalibrating strategies to sustain growth and strengthen their operating frameworks.

As per the Reserve Bank of India sectoral deployment of credit data, bank credit growth to NBFCs moderated to 6.4% in October 2024, down from 18.3% Y-o-Y. Outstanding bank credit to NBFCs stood at 15.36 Trillion in October 2024, compared to 14.44 Trillion in the same month last year, at 15.29 Trillion in September 2024, and 15.48 Trillion in May 2024. RBI observed that NBFCs have diversified funding sources and reduced bank borrowings following the increase in risk weights. In November 2023, RBI hiked risk weights on NBFC exposures by 25% points to curb potential systemic risks. On a positive note, NBFCs earnings remained robust, supported by healthy interest margins of 5.1% and a return on assets (RoA) of 2.9% as of September 2024.

Liquidity and Borrowing updates

In FY 2024-25, Indias NBFCs experienced significant shifts in their funding strategies due to regulatory adjustments and market dynamics. In November 2023, RBI raised risk weights on bank lending to NBFCs by 25 percentage points, citing rising inter-linkages as a potential systemic risk. This move led to a notable slowdown in credit growth to NBFCs, which dropped to 6.7% in December 2024 from 15% a year earlier. As a result, credit growth further moderated to 5.7% YoY in March 2025, down from 17.6% in October 2023. To counter this, RBI reversed its decision in February 2025, restoring the earlier risk weights effective April 1, 2025, to revive bank funding to NBFCs. The adjustment is expected to improve the attractiveness of bank loans, encouraging NBFCs to gradually shift back from commercial papers over the next six to nine months.

Concurrently, NBFCs increasingly turned to the corporate bond market for funding, with corporate bond issuances reaching a record high of over 10.66 Lakh Crores in 2024, driven significantly by NBFC participation. In FY 202425, Indias securitization market reached a record high of approximately 2.35 Lakh Crores, marking a 24% year- on-year growth. This surge was propelled by significant deals from private sector banks and consistent fund-raising efforts by NBFCs. The industry played a pivotal role, not only maintaining steady issuance volumes but also diversifying into newer asset classes and re-entering the market after periods of inactivity. Vehicle loans dominated the securitized assets, comprising 47% of the total volume, followed by mortgage-backed loans at around 22%. The market also witnessed increased participation, with 175 originators in FY 2024-25 compared to 165 in the previous year.

Outlook for NBFCs

NBFCs are set to become key enablers of Indias economic progress by extending access to formal credit in traditionally underserved segments, aligning with the countrys goals. In a landscape where customer demands are evolving and digital-first models are gaining ground, incumbent NBFCs must reimagine their operational frameworks, while new players need to carefully evaluate their entry strategies. As lending activities scale, it becomes imperative for these institutions to strengthen their risk management practices and governance structures.

Asset growth of NBFCs is projected at 15-17% year-onyear for FY 2024-25 and FY 2025-26, according to CRISIL Ratings. Moreover, RBI is also taking measures to uplift the sector through reduction of risk weights on bank lending to NBFCs, which is expected to enhance funding access. Additionally, the sector is likely to benefit from easing liquidity conditions and potential interest rate cuts, which could support net interest margins and return on assets of NBFCs. However, challenges such as asset quality concerns in microfinance and unsecured lending segments remain monitorable. Overall, NBFCs are anticipated to experience stable asset quality and sustained earnings growth, positioning them favorably in Indias evolving financial landscape.

The Management has taken up detailed discussion of the risk factors related to our Company in specific and industry in general and attempts to lay down the impact of the same on the companys performance. Please find reproduced hereunder a summary of Managements Discussion

INTERNAL RISK FACTORS

• Brand Positioning Risk As a fintech NBFC, establishing a strong digital brand is essential for market differentiation. Promotional efforts may not guarantee proportionate revenue gains. Inadequate brand recognition may adversely affect business growth and competitiveness.

• Interest Rate Volatility Our operations are sensitive to fluctuations in interest rates. An imbalance between lending rates and the cost of funds could compress net interest margins, adversely impacting profitability. •

• Human Resource Dependence The success of our operations is deeply reliant on the talent and commitment of our people. The inability to attract or retain skilled professionals may affect service delivery and innovation. However, UCIL maintains a low attrition rate and a robust HR culture promoting employee well-being and engagement.

• Regulatory Risk As a Reserve Bank of India (RBI)- regulated NBFC, any adverse change in regulatory norms or compliance frameworks may affect business continuity, capital adequacy, or profitability.

• Capital and Liquidity Risk The Company may require additional funding to scale operations or meet capital adequacy norms. Inability to raise funds on favorable terms could impact growth plans and operational sustainability.

• Marketing & Distribution Constraints Being a professionally-run organization, UCIL focuses more on service efficiency than aggressive marketing. However, this may limit outreach compared to larger players unless mitigated through digital brand efforts.

EXTERNAL RISK FACTORS

A slowdown in economic growth in India could cause business to suffer

The performance and growth of the company and the industry are dependent on the health of the Indian economy as well the secondary industries. The economy could be adversely affected by various factorssuch as political or regulatory action, including adverse changes in liberalization policies, socialdisturbances, terrorist attacks and other acts of violence or war, natural calamities, interest rates,commodity and energy prices and various other factors. Any slowdown in the Indian economy mayadversely impact business and financial performance and the price of Equity Shares.

Political instability or changes in the government could delay the further liberalization of the Indian economy and adversely affect economic conditions in India generally, which could impact financial results and prospects.

Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central andstate governments in the Indian economy as producers, consumers and regulators has remainedsignificant. The leadership of India has changed many times since 1996. The current central governmentis headed by the Indian National Congress and is a coalition of several political parties. Although the current government has announced policies and taken initiatives that support the economic liberalization policies that have been pursued by previous governments, the rate of economic liberalization couldchange, and specific laws and policies affecting industry, foreign investment and other matters affectinginvestment in securities could change as well.

Any downgrading of Indias debt rating by an independent agency may harm ability to raise debt financing.

Any adverse revisions to Indias credit ratings for domestic and international debt by international rating agencies may adversely affect ability to raise additional financing and the interest rates and othercommercial terms at which such additional financing is available. This could have a material adverseeffect on capital expenditure plans, business and financial performance.

Terrorist attacks, civil unrest and other acts of violence or war involving India and other countries could adversely affect the financial markets and our business.

Terrorist attacks and other acts of violence or war may negatively affect the Indian financial markets and also adversely affect the worldwide financial markets. In addition, any deterioration in relations between India and its neighboring countries might result in investor concern about stability in the region, whichcould adversely affect the business. India has witnessed civil disturbances in the past and it is possiblethat future civil unrest as well as other adverse social, economic and political events in India could have anegative impact. Such incidents could also create perception in the minds of investors that, investment inIndian Companies involve a higher degree of risk.

Natural calamities could have a negative impact on the Indian economy and cause our business to suffer.

India has experienced natural calamities such as earthquake, tsunami, floods and drought in the past.The extent and severity of these natural disasters determines their impact on the Indian economy, whichhave an adverse impact on our business.

Factors affecting Indian economy in general

Like any other entity, our financial results are also affected by the macro economic factors determining the growth of the Indian economy in general and continued growth of the securities market. The Growth of ourbusiness and ability to maintain the growth is influenced by the growth rate of the securities marketindicators. Any slowdown in Indian economy or slowdown in securities market or any changes ingovernment regulation could have an impact on our financial performance.

Risk Relating to our Industry:

• Risk of Bad Debts (Non-Performing Assets)

The risk of NPAs always a pertinent part of the lending business. There is always a chance that accounts become bad due to fall or collapse in the value of the asset against which funds have been advanced dueto a variety of reasons. However, in our case, the Company has put in place a strong asset verification and valuation processes.

• Interest Rates

The RBI had resorted to increasing the interest rates many times over the last eighteen months in order to control Inflation. The volatility in interest rate and high interest rate leads to default in re-payment and thusincrease of interest rates would certainly affect the business of the Company.

• Risk of Competition

With globalization and continuous flow of private as well as international institution in the finance market the risk of competition in any business, and the finance business is no different. We believe that competition spurs our team to innovate without losing sight of the customer needs, the need for safety of funds deployed and the need to ensure commensurate returns.

• Global Economic Uncertainties

The international events affect all financial markets of the world, and India is also affected. The affect was clearly felt in the previous year as the Indian Rupee continued to remain weak due to the crisis in Eurozone. This may results into to stay-away attitude by foreign investors, volatility in crude price, inflationwhich may turned into further stress on finance market. Company there for focusing on investing its funds in assets that are fully secured and that will have least impact of global uncertainty.

Key regulatory updates for FY 2024-25 On April 15, 2024, RBI issued a circular introducing the Key Facts Statement (KFS) for Loans & Advances to improve transparency and help borrowers make informed decisions. This applies to all retail and MSME term loans sanctioned on or after October 01, 2024. The KFS, which includes details like the annual percentage rate (APR), amortization schedule, and third-party charges, must be provided in a clear and understandable format. It will have a unique proposal number and be valid for a minimum of three working days for loans of seven days or more, and one working day for loans under seven days. Any fees not listed in the KFS cannot be charged without borrower consent.

On April 29, 2024, RBI issued a communication on the "Fair Practices Code for Lenders · Charging of Interest," reiterating that the guidelines on Fair Practices Code issued to various Regulated Entities (REs) since 2003, inter-alia, advocate fairness and transparency in charging of interest by the lenders, while providing adequate freedom to REs as regards their loan pricing policy. The communication states that during the course of the onsite examination of REs for the period ended March 31, 2023, the Reserve Bank came across instances of lenders resorting to certain unfair practices in charging of interest and exhorts REs to review and update their loan disbursal methods, interest application, and charges to ensure fair practices. REs are also encouraged to use online account transfers instead of cheques for loan disbursals to improve efficiency and security.

On April 30, 2024, RBI issued a "Guidance Note on Operational Risk Management and Operational Resilience," building on the 2005 guidance. The note outlines a comprehensive framework to strengthen operational risk management, addressing risks from human factors, technology, geopolitical conflicts, fraud, business interruptions, and natural disasters. The circular mandates that regulated entities (REs) adopt a holistic risk assessment strategy, implement robust internal controls, monitor operational risks, and enforce effective risk mitigation measures.

On July 15, 2024, RBI issued "Master Directions on Fraud Risk Management in Non-Banking Financial Companies (including Housing Finance Companies)" with a view to providing framework to applicable NBFCs for prevention, early detection and timely reporting of incidents of fraud to Law Enforcement Agencies (LEAs), Reserve Bank of India and National Housing Bank and matters connected therewith or incidental thereto. Accordingly, the NBFCs shall frame a Board approved Policy on fraud risk management delineating roles and responsibilities of Board / Board Committees and Senior Management. The Policy shall also incorporate measures for ensuring compliance with principles of natural justice in a timebound manner. Additionally, Early Warning Signals (EWS) Framework implementation should be in place within six months from the date of issuance of these directions.

On August 8, 2024, RBI issued a direction on the "Frequency of Reporting of Credit Information by

Credit Institutions to Credit Information Companies," effective from January 1, 2025. The direction requires all NonBanking Financial Companies (including Housing Finance Companies) to report credit information to Credit Information Companies (CICs) on a fortnightly basis, either on the 15th or last day of each month, or more frequently if decided. Credit Institutions (CIs) must submit this information within seven days of the reporting date, and CICs must process it within five days, as per the revised timeline from the October 26, 2023 circular. Additionally, CICs must report defaulting CIs to RBIs Department of Supervision every six months, on March 31 and September 30.

On August 12, 2024, the RBI issued a directive to all Housing Finance Companies and Non-Banking Finance Companies regarding the "Review of the Regulatory Framework for HFCs and Harmonization of Regulations." Following the transfer of HFC regulation from the National Housing Bank to RBI in August 2019, RBI has been harmonizing regulations for HFCs and NBFCs. As part of this process, regulations applicable to NBFCs have also been reviewed and revised regulations are detailed in Part B of the Annex, will take effect from January 1, 2025.

On September 30, 2024, RBI issued advisory highlighting the deficiencies observed during review of gold loans in the select Supervised Entities (SEs) "Gold Loans - Irregular practices observed in grant of loans against pledge of gold loan ornaments and jewellery". All SEs were advised to comprehensively review their policies, processes, and practices on gold loans to identify gaps, including those highlighted in this advice and initiate appropriate remedial measures in a timebound manner. Further, the gold loan portfolio was advised to be closely monitored, especially in the light of significant growth in the portfolio in certain SEs, to ensure that adequate controls are in place over outsourced activities and thirdparty service providers.

On October 10, 2024, RBI issued a circular addressing the credit information reporting mechanism after the cancellation of licenses or Certificates of Registration (CoR). As per the Credit Information Companies (Regulation) Act, 2005 (CICRA), entities whose licenses or CoRs are cancelled by RBI are no longer classified as Credit Institutions (CIs) and their credit information cannot be accepted by Credit Information Companies

(CICs). To address the issue of borrowers whose repayment history is not updated, the RBI directed CICs and CIs to establish a mechanism for reporting credit information following the cancellation of licenses or CoRs for banks and Non-Banking Finance Companies.

On January 17, 2025, RBI issued notification on "Prevention of financial frauds perpetrated using voice calls and SMS - Regulatory prescriptions and Institutional Safeguards" with a view to mitigate the potential misuse of mobile numbers. As per notification, Regulated Entities (REs) are advised to: Utilize the Mobile Number Revocation List (MNRL) available on the Digital Intelligence Platform (DIP) developed by Department of Telecommunications (DoT), Ministry of Communications, Government of India to monitor and clean their customer database, to enhance fraud risk monitoring and prevention, the REs are advised to develop Standard Operating Procedures (SOP) incorporating the required action to be taken including, inter alia, updating the registered mobile number(RMN) after due verification; enhanced monitoring of accounts linked to these revoked mobile numbers for preventing the linked accounts from being operated as Money Mules and/or being involved in cyber frauds, etc., Undertake transactional/service calls only using 1600xx numbering series, when operationalized; undertake promotional voice calls only through phone numbers using 140xx numbering series; follow the "Important Guidelines for sending commercial communication using telecom resources through Voice Calls or SMS" issued by Telecom Regulatory Authority of India (TRAI) and annexed to this circular.

On March 21, 2025, a circular was released by RBI on "Treatment of Right-of-Use (ROU) Asset for Regulatory Capital Purposes." Regulated entities will not be required to deduct an ROU asset (arising as per Ind AS 116-Leases) from Owned Fund/CET 1 capital/ Tier 1 capital (as may be applicable), provided that the underlying asset being leased is a tangible asset. The ROU asset will have a risk weight of 100%, as per the risk weight previously applicable for owned tangible assets. This circular will come into force with immediate effect for all NBFCs (including HFCs) and Asset Reconstruction Companies implementing Companies (Indian Accounting Standards) Rules, 2015.