Upsurge Investment & Finance Ltd Management Discussions

Upsurge Investment and Finance Ltd. (UIFL) is a fast-growing NBFC engaged in providing financial advisory, capital-growing and holistic managerial services to small and mid-size enterprises. We have more than two decades of successful financial operations to our name. Our team consists of a host of industry experts and registered chartered accountants with over 120 years of combined experience in financial conceptualization, management and advisory.

We offer a wide range of financial managerial and advisory services, specializing in growth and funding advisory for SMEs. Our services include structured financing and debt syndication, corporate and commercial loan services against equity and commodities, and corporate financial and capital-raising advisory from seed funding to IPOs. We pride ourselves over the ability to identify undervalued businesses and enable them with the financial resources to accelerate and realize their true growth potential.

In addition to our regular funding options, we work with the organization to advise them through their capitalraising processes. We assist their business from its initial seed stages right up till the capital-raising pre-IPO.

The Indian economy continued to demonstrate resilience during the year under review, with GDP growth estimated in the range of 6.5% to 7%, positioning India as one of the fastest-growing economies globally. Despite global headwinds, including inflationary pressures, geopolitical tensions, and supply chain disruptions, the Indian financial sector, particularly the Non-Banking Financial Company (NBFC) segment, maintained steady progress. Government initiatives such as infrastructure development, promotion of MSMEs, and digital financial inclusion have further fueled economic activity, creating favorable conditions for the growth of the NBFC sector.

The NBFC industry plays a crucial role in expanding financial access to underserved and unbanked sections of society, particularly in semi-urban and rural areas where formal banking penetration remains limited. Over the years, NBFCs have become an integral part of the financial services ecosystem by offering diverse products such as personal loans, MSME financing, vehicle loans, gold loans, and consumer durable financing. The introduction of the Reserve Bank of Indias Scale-Based Regulation (SBR) has brought a sharper focus on risk management, governance, and capital adequacy, thereby enhancing the stability of the sector.

The NBFC sector is poised for growth, supported by increasing demand for credit across retail, SME, and rural markets. Opportunities exist in expanding financial inclusion, leveraging fintech partnerships, and tapping into emerging sectors such as green finance. However, the sector also faces several challenges, including heightened regulatory scrutiny, interest rate volatility, competitive pressures from banks and fintechs, and cybersecurity risks arising from growing digitalization. The Company remains vigilant and proactive in managing these risks through its robust risk governance framework and by continuously strengthening internal control systems.

The Companys internal control systems are comprehensive, ensuring accuracy in financial reporting, regulatory compliance, and operational efficiency. Regular audits, both internal and external, ensure that controls remain effective and risks are adequately mitigated. The Companys Human Resources function also plays a critical role in supporting its growth, with continuous efforts towards talent acquisition, employee engagement, and leadership development. The Company values diversity, inclusion, and employee well-being, creating a culture that fosters innovation, accountability, and ethical conduct.

Industrial relations remained cordial throughout the year, with no disputes or disruptions to business operations. The Company maintained open communication channels with employees, ensuring alignment with organizational goals and a positive work environment. The outlook for the NBFC sector remains optimistic, with steady economic growth, rising credit demand, and increased financial penetration expected to drive future expansion. The Company is well-positioned to leverage these opportunities while remaining cautious of potential risks through its disciplined approach to governance, compliance, and risk management.

This report contains forward-looking statements based on current expectations, estimates, and projections, which involve inherent risks and uncertainties. Actual results could differ materially from those expressed or implied herein due to various factors beyond the Companys control. The Company undertakes no obligation to publicly update any forward-looking statements unless required by applicable law.

The global economy faced a challenging environment during the year under review, marked by heightened geopolitical tensions, elevated inflation levels, supply chain disruptions, and volatility in global commodity and energy markets. Several advanced and emerging economies witnessed slower growth amidst monetary tightening measures by central banks worldwide aimed at curbing inflationary pressures. The International Monetary Fund (IMF) has projected global growth to moderate, with key risks including geopolitical conflicts, financial market volatility, and uneven post-pandemic recovery.

Despite these challenges, certain regions, particularly in Asia, including India, remained relatively resilient due to strong domestic demand, robust consumption patterns, and structural reforms. Global trade and investment flows showed mixed trends, with some sectors such as technology, renewable energy, and infrastructure development continuing to drive growth, while others, such as manufacturing and exports, experienced headwinds.

Financial markets globally faced uncertainty with rising interest rates, currency fluctuations, and tightening liquidity conditions. Central banks, including the US Federal Reserve, the European Central Bank, and others, pursued aggressive rate hikes to tame inflation, which in turn impacted capital flows, investment sentiment, and borrowing costs across global markets. These developments had spillover effects on emerging economies, including India, through currency volatility and capital market pressures.

For the Indian NBFC sector, while direct exposure to global financial markets remains limited, indirect impacts such as increased borrowing costs, currency depreciation, and import price volatility can influence business performance. Moreover, global economic uncertainty could affect investor sentiment and funding availability, which are critical for the sustained growth of financial institutions.

Looking ahead, while global growth is expected to remain moderate, gradual stabilization of inflation, easing supply chain pressures, and advancements in technology and sustainability could pave the way for recovery. The Indian economy, driven by strong domestic fundamentals, is expected to remain one of the key engines of global growth, presenting continued opportunities for the NBFC sector to expand its reach and services.

The Indian economy has demonstrated remarkable resilience amidst global uncertainties, geopolitical tensions, and volatile commodity markets. As one of the fastest-growing major economies in the world, India continues to witness robust domestic demand, increasing private consumption, and a steady rise in investment activity. The governments ongoing focus on infrastructure development, digital transformation, and manufacturing under the ‘Make in India initiative has further strengthened the countrys growth trajectory.

Indias Gross Domestic Product (GDP) is estimated to grow at around 6.5% to 7% in FY 2024-25, maintaining its position as a key driver of global growth. Key sectors such as services, manufacturing, real estate, and construction are showing strong momentum, supported by increased capital expenditure, rising exports, and consumption recovery.

The governments emphasis on fiscal prudence, reforms in the taxation system, and increased infrastructure spending through initiatives such as PM Gati Shakti, National Infrastructure Pipeline (NIP), and Production-Linked Incentive (PLI) schemes is expected to drive medium to long-term economic expansion. The rural economy is also showing signs of improvement, aided by normal monsoons and increased agricultural output.

The Reserve Bank of India (RBI) has maintained a balanced approach towards controlling inflation while supporting growth. Despite global monetary tightening, the Indian financial system has remained stable, with adequate liquidity and a well-capitalized banking sector.

In this macroeconomic environment, the role of Non-Banking Financial Companies (NBFCs) has become even more significant. The demand for credit from retail consumers, micro, small and medium enterprises (MSMEs), and underserved markets is rising, and NBFCs continue to bridge the gap left by traditional banking institutions. Digital adoption and financial inclusion are further accelerating the penetration of formal financial services into rural and semi-urban India.

While global uncertainties, inflationary pressures, and market volatility remain potential headwinds, the outlook for the Indian economy remains broadly positive. The financial sector, including NBFCs, is well- positioned to leverage emerging opportunities and contribute to the countrys ongoing growth story.

The Non-Banking Financial Company (NBFC) sector in India continues to present significant growth opportunities, driven by structural shifts in the economy, evolving consumer behavior, and increased financial inclusion. The following key opportunities are likely to shape the growth trajectory of the Company in the coming years:

1. Expanding Credit Demand

Indias strong economic fundamentals, rising middle-class population, and increasing urbanization are driving sustained demand for credit across retail, small businesses, MSMEs, and rural markets. NBFCs are well- positioned to serve these segments, especially where traditional banks have limited reach.

2. Financial Inclusion and Rural Penetration

Government initiatives such as Jan Dhan Yojana, Digital India, and various subsidy-linked schemes have expanded the formal financial system into rural and semi-urban areas. This creates substantial opportunities for NBFCs to offer microfinance, two-wheeler loans, gold loans, and small-ticket personal and business loans in these underpenetrated markets.

3. Growth of MSME Sector

The MSME sector, which is a major contributor to Indias GDP and employment, has increasing credit needs that remain underserved by traditional lenders. NBFCs, with their flexibility and faster decision-making, can capture a significant share of this market by offering customized products and services.

4. Digital Transformation and Fintech Collaboration

The rapid adoption of digital technology, mobile payments, and data-driven lending models offers NBFCs the opportunity to enhance customer acquisition, improve operational efficiency, and reduce costs. Strategic collaborations with fintech companies, payment banks, and digital platforms can further accelerate growth and reach new customer segments.

5. Product Diversification

There is growing demand for a wider range of financial products including affordable housing finance, education loans, used vehicle finance, and consumer durable loans. NBFCs can capitalize on these emerging segments to diversify income streams and reduce portfolio concentration risk.

6. Policy and Infrastructure Push

The Governments focus on infrastructure development, renewable energy, and affordable housing under schemes like PMAY and Gati Shakti is likely to stimulate credit demand in related sectors, presenting financing opportunities for NBFCs.

7. Green Financing and ESG Focus

With increasing global and domestic focus on environmental, social, and governance (ESG) goals, NBFCs can explore opportunities in green financing, electric vehicle (EV) financing, and sustainable infrastructure funding, positioning themselves as responsible lenders in the evolving economy.

8. Rising Consumerism and Lifestyle Aspirations

With rising disposable incomes, evolving consumption patterns, and increasing demand for lifestyle and aspirational products, NBFCs have significant opportunities in the consumer finance and personal lending spaces.

While the NBFC sector in India presents significant growth opportunities, it also faces a range of challenges and threats that could impact its performance and sustainability. The key threats faced by the Company and the industry at large include:

1. Macroeconomic Volatility

Fluctuations in the domestic and global economic environment, including rising inflation, volatile commodity prices, currency fluctuations, and geopolitical tensions, can adversely impact consumer spending, credit

demand, and borrowers repayment capacities. Prolonged economic slowdown could result in higher delinquencies and pressure on profitability.

2. Rising Interest Rates and Inflation

The tightening of monetary policy and successive interest rate hikes by the Reserve Bank of India (RBI) to control inflation have led to increased borrowing costs for NBFCs. Higher cost of funds coupled with increased competition on lending rates may squeeze net interest margins and impact overall financial performance.

3. Regulatory Changes

The NBFC sector is witnessing increasing regulatory oversight, including the implementation of the Scale- Based Regulatory (SBR) Framework, stricter NPA recognition norms, and higher compliance requirements. While these regulations aim to strengthen the sector, they also pose operational challenges and may impact flexibility in business models.

4. Asset Quality Pressure

NBFCs are particularly vulnerable to asset quality risks due to their exposure to relatively high-risk segments such as MSMEs, unsecured lending, and rural markets. Any economic downturn, job losses, or sector-specific challenges can result in higher delinquencies and non-performing assets (NPAs).

5. Liquidity Risks

NBFCs rely heavily on market borrowings and bank funding for their operations. Any systemic liquidity tightening or market disruptions could affect the Companys ability to raise funds at competitive rates, potentially impacting growth and solvency.

6. Intense Competition

The NBFC sector faces increasing competition from commercial banks, small finance banks, microfinance institutions, and fintech lenders. The growing presence of digital-only players and aggressive pricing strategies could lead to pressure on margins and market share.

7. Technological Disruption and Cybersecurity Risks

The rapid pace of digital transformation in financial services brings increased exposure to cyber threats, data breaches, and technology failures. Any disruption or breach could lead to financial loss, regulatory penalties, and reputational damage.

8. Customer Credit Behavior

Changing customer behavior, over-indebtedness, and lower financial literacy in certain borrower segments could impact loan repayment discipline, leading to higher default rates, especially in unsecured and rural lending portfolios.

9. Reputational and Compliance Risks

As the regulatory and public scrutiny of financial institutions intensifies, any lapse in compliance, unethical practices, or service deficiencies could adversely affect the Companys reputation, brand value, and future business prospects.

The Non-Banking Financial Company (NBFC) sector in India continues to be a key enabler of financial inclusion and economic growth. However, the sector faces several challenges that may impact its performance, stability, and long-term sustainability. The major challenges faced by NBFCs, including the Company, are outlined below:

1. Evolving Regulatory Environment

NBFCs are operating in an environment of increasing regulatory scrutiny and compliance requirements. The introduction of the Scale-Based Regulatory (SBR) Framework by the Reserve Bank of India (RBI) has brought stricter guidelines on capital adequacy, governance, and risk management. Adapting to these regulatory changes while maintaining business agility poses an ongoing challenge.

2. Managing Asset Quality

NBFCs traditionally cater to underserved and higher-risk customer segments such as MSMEs, self-employed individuals, and rural borrowers. Economic slowdowns, sectoral stress, or localized disruptions can significantly affect repayment behavior, leading to higher delinquencies and non-performing assets (NPAs). Maintaining asset quality while expanding lending portfolios remains a constant challenge.

3. Funding and Liquidity Management

NBFCs rely heavily on market borrowings, banks, and securitization for funding. Tightening liquidity conditions, rising interest rates, and investor risk aversion can create funding challenges, increase the cost of capital, and constrain growth. Ensuring stable and diversified funding sources is crucial in mitigating this challenge.

4. Rising Competition

The NBFC sector faces intense competition not only from traditional banks and small finance banks but also from agile fintech players and digital lending platforms. Competitive pressure impacts pricing, customer retention, and market share, requiring constant innovation and customer engagement.

5. Interest Rate and Inflation Sensitivity

Volatility in interest rates and persistent inflation can affect both the cost of funds and credit demand. Higher borrowing costs may compress margins, while inflationary pressures can impact borrowers repayment capacity, especially in price-sensitive rural and MSME segments.

6. Technological Disruption and Cybersecurity

The growing adoption of digital lending and financial technology exposes NBFCs to cybersecurity threats, data breaches, and operational risks. Keeping pace with rapid technological changes, ensuring data security, and managing digital transformation without compromising service quality are significant challenges.

7. Customer Credit Behavior and Financial Literacy

In certain segments, especially in semi-urban and rural areas, lower financial literacy, over-indebtedness, and informal income sources pose challenges in credit assessment and recovery. Educating borrowers and developing robust underwriting models are necessary to address these risks.

8. Geopolitical and Macroeconomic Uncertainty

Global economic volatility, geopolitical tensions, and supply chain disruptions can indirectly affect the Indian economy, funding availability, and overall credit demand. NBFCs must remain resilient to such external shocks that can affect both lending and collections.

The Non-Banking Financial Company (NBFC) sector operates in a dynamic and competitive environment that is influenced by various external and internal factors. While the sector offers significant growth opportunities, it is also exposed to a wide range of risks that could potentially impact business performance, financial stability, and long-term sustainability. The Company recognizes these risks and continuously strengthens its risk management framework to mitigate them effectively.

1. Credit Risk

The risk of default by borrowers is a key concern for any lending institution. Economic slowdowns, sector- specific stress, or unforeseen events such as pandemics or natural disasters can impair borrowers repayment capacity, leading to higher delinquencies and non-performing assets (NPAs). The Company has put in place robust credit appraisal and monitoring systems to minimize this risk.

2. Liquidity Risk

NBFCs are heavily reliant on market borrowings, bank lines, and securitization for their funding needs. Any disruption in the financial markets or tightening of liquidity can affect the Companys ability to meet its obligations and fund future growth. Maintaining a diversified funding base and prudent asset-liability management (ALM) remains essential to mitigate this risk.

3. Interest Rate Risk

Fluctuations in interest rates directly impact the Companys cost of funds and lending rates, which can affect both margins and demand for credit. A rising interest rate environment may also impact the repayment capacity of borrowers. The Company actively monitors market conditions and adjusts its pricing strategies accordingly.

4. Regulatory and Compliance Risk

The NBFC sector is subject to continuous regulatory changes and increased oversight from the Reserve Bank of India (RBI) and other regulatory bodies. Compliance with the evolving regulatory landscape, including the implementation of the Scale-Based Regulatory (SBR) Framework, increased disclosure requirements, and asset classification norms, poses ongoing operational and compliance challenges.

5. Operational Risk

Operational risks arise from inadequate internal processes, system failures, human error, or external events. As the Company increasingly adopts digital platforms, it faces risks related to technology failures, cyber threats, fraud, and data breaches. The Company has implemented strong internal controls, IT security measures, and disaster recovery plans to address these risks.

6. Competition Risk

The financial services sector is witnessing heightened competition from banks, small finance banks, fintech companies, and digital lenders. Aggressive pricing, innovative technology-led offerings, and customer-centric models from new entrants may put pressure on traditional NBFCs to innovate, adapt, and retain market share.

7. Macroeconomic and Geopolitical Risk

Global economic uncertainty, geopolitical tensions, and volatility in international markets can indirectly impact the Indian economy, investor sentiment, and liquidity conditions. These factors may influence the cost of funds, demand for credit, and overall business growth.

8. Reputational Risk

The Companys reputation is critical to sustaining trust among customers, investors, and regulators. Any negative publicity, regulatory non-compliance, service failure, or ethical lapses can result in reputational damage and impact the Companys ability to attract and retain business.

The Non-Banking Financial Company (NBFC) sector in India has been undergoing a significant transformation driven by regulatory reforms, technological advancements, and evolving market dynamics. In recent times, the sector has witnessed an accelerated shift towards digitalization, with NBFCs increasingly adopting technology for loan processing, credit assessment, customer onboarding, and collections. Digital lending platforms, data analytics, and fintech collaborations have enabled NBFCs to enhance operational efficiency, improve customer experience, and expand into new markets. Another notable trend is the growing emphasis on financial inclusion, with NBFCs playing a crucial role in providing credit to underserved segments, including MSMEs, self-employed individuals, and rural borrowers who often remain outside the traditional banking fold.

The regulatory landscape has also evolved, with the Reserve Bank of India introducing the Scale-Based Regulatory Framework to strengthen governance, risk management, and capital adequacy in the sector. This has prompted NBFCs to invest more in compliance systems, credit quality monitoring, and internal controls. Furthermore, rising consumer demand, particularly in sectors such as MSME financing, affordable housing, and personal consumption, has continued to drive growth in retail and small business lending. At the same time, the sector has been cautious about asset quality, with increased focus on robust credit underwriting practices and early warning mechanisms to mitigate the risk of rising delinquencies.

Looking ahead, the future outlook for the NBFC sector remains positive, underpinned by Indias strong economic growth, expanding credit needs, and increasing digital adoption. The sector is expected to benefit from sustained demand for retail loans, MSME financing, and rural credit. Technology will continue to be a key enabler, with further investments in digital platforms, artificial intelligence, and automation expected to drive efficiency and customer engagement. Product diversification into emerging areas such as green finance, electric vehicle funding, education loans, and healthcare finance will open new avenues for growth. At the same time, NBFCs will need to carefully manage risks related to liquidity, asset quality, cybersecurity, and regulatory compliance to ensure long-term sustainability.

The Company remains well-positioned to capitalize on these emerging trends by strengthening its digital capabilities, expanding its customer base, diversifying its product offerings, and maintaining a sharp focus on governance, compliance, and risk management. With a disciplined approach to growth and a commitment to financial inclusion, the Company looks forward to contributing meaningfully to Indias evolving financial landscape while creating long-term value for its stakeholders.

The company operates only in one segment i.e. Financial Services.

Company recognizes the importance of Research and Development across all important areas and continues to maintain and update its functional facilities, in spite of its financial position in order to meet the changing product requirements of the customers, achieve cost efficiencies and meet compliance requirements of statutory agencies.

The Company has established a robust and comprehensive internal control framework commensurate with the nature, size, and complexity of its operations. The internal control systems are designed to ensure reliability of financial reporting, compliance with applicable laws and regulations, safeguarding of assets, and efficient conduct of business operations.

The Companys internal control environment is governed by clearly defined policies, processes, and standard operating procedures (SOPs) covering key business functions including credit appraisal, disbursement, collections, treasury management, and regulatory compliance. These controls are aligned with industry best practices, statutory requirements, and the guidelines issued by the Reserve Bank of India (RBI) from time to time.

Adequacy of Internal Controls:

The Board of Directors, through the Audit Committee, periodically reviews the adequacy and effectiveness of the internal control systems. Based on these reviews and the findings of internal and statutory auditors, the management is of the view that the existing internal control systems are adequate, operating effectively, and provide reasonable assurance regarding the integrity of financial and operational information, compliance with applicable regulations, and safeguarding of assets.

The Company remains committed to continuously strengthening its internal control framework to adapt to evolving business needs, regulatory changes, and emerging risks, particularly in the areas of digital operations and cybersecurity.

Statements made in this Management Discussion and Analysis Report relating to the Companys objectives, projections, estimates, expectations, or predictions may constitute "forward-looking statements" within the meaning of applicable laws and regulations. These statements are based on certain assumptions and expectations of future events over which the Company exercises limited or no control.

The actual results, performance, or achievements of the Company could differ materially from those expressed or implied in these forward-looking statements due to various risks and uncertainties. These include, but are not limited to, changes in macroeconomic conditions, regulatory changes, interest rate fluctuations, competitive pressures, political developments, and other factors that may affect the Companys business environment, operations, or financial results.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these statements, which are valid only as of the date of this report.

The Management Discussion and Analysis should be read in conjunction with the Companys audited financial statements and the notes thereto to gain a comprehensive understanding of the Companys financial position and performance.