Usha Financial Services Ltd Management Discussions

Performance, Opportunity, Risk and Outlook.

The Management Discussion and Analysis ("MDA") contains certain forward-looking statements reflecting the Companys current views with respect to future events, business plans, financial performance and industry outlook. These statements are based on assumptions and expectations considered reasonable by the Management at the time of preparation. Actual results may differ materially from those expressed or implied due to various factors including changes in economic conditions, regulatory policies, market developments, interest rates, credit environment, and other risks beyond the Companys control. The Company undertakes no obligation to publicly update any forward-looking statements except as required under applicable laws.

The Indian Non-Banking Financial Company (NBFC) sector continues to play a pivotal role in the countrys financial ecosystem by providing credit to underserved segments including retail borrowers, MSMEs, self-employed individuals and emerging businesses. NBFCs complement the banking sector by improving financial inclusion and supporting economic growth.

During FY 2025-26, the Indian economy remained resilient despite global geopolitical uncertainties, inflationary pressures and fluctuations in interest rates. Stable domestic demand, increasing digital adoption, infrastructure spending and government initiatives contributed positively to credit growth.

The Reserve Bank of India (RBI) continued to strengthen the regulatory framework applicable to NBFCs through enhanced governance standards, risk management practices, capital adequacy requirements, provisioning norms, cybersecurity measures and customer protection initiatives. The scale-based regulatory framework has further strengthened the resilience and transparency of the sector.

The Company continues to align its business strategy with evolving regulatory requirements while maintaining prudent lending practices, strong governance standards and customer-centric service delivery.

The Indian economy continued to demonstrate resilience during FY 2025-26, supported by sustained domestic demand, stable inflation, increasing formalisation of the economy, and continued emphasis on infrastructure development and digital financial inclusion.

The financial services sector, particularly NBFCs, remains well-positioned to complement the banking system by serving underserved customer segments and providing flexible credit solutions.

The Company expected to benefit from the following opportunities:

• Growing Credit Demand: Rising consumption, increasing urbanization, expanding MSME activities, and higher demand for retail credit continue to create opportunities for NBFCs to expand their lending portfolio.
• Digital Transformation: Increasing adoption of digital technologies, data analytics, artificial intelligence, and digital onboarding processes enables improved customer acquisition, enhanced credit assessment, operational efficiency, and better customer experience.
• Financial Inclusion: Government initiatives promoting financial inclusion, digital payments, and formalization of the economy provide opportunities to serve first-time borrowers and underpenetrated markets.
• Infrastructure and Economic Growth: Continued public investment in infrastructure and manufacturing is expected to support credit demand across various sectors, creating lending opportunities for well-managed NBFCs.
• Co-lending and Strategic Partnerships: Collaborations with banks, fintech companies, and digital platforms provide avenues to diversify customer acquisition channels, improve funding access, and expand product offerings.
• Regulatory Strengthening: A progressively strengthened regulatory framework enhances transparency, governance standards, and stakeholder confidence, benefiting financially sound and compliant NBFCs.

Despite favorable long-term prospects, the Company continues to operate in a dynamic business environment that presents certain risks and challenges.

Key threats include:

• Regulatory Changes: Continuous evolution of the regulatory framework by the Reserve Bank of India may require changes in business processes, governance practices, capital management, provisioning norms, and compliance systems.
• Asset Quality Risks: Adverse macroeconomic developments, sector-specific stress, or borrower-level financial challenges may impact repayment behaviour and increase credit costs.
• Interest Rate and Liquidity Risks: Changes in monetary policy, market interest rates, or liquidity conditions may affect borrowing costs, funding availability, net interest margins, and overall profitability.

• Intensifying Competition: Increasing competition from banks, large NBFCs, fintech companies, and digital lending platforms may exert pressure on pricing, customer acquisition costs, and market share.
• Cybersecurity and Technology Risks: Growing dependence on digital infrastructure increases exposure to cyber threats, data privacy risks, operational disruptions, and technology failures.
• Economic and Geopolitical Uncertainty: Global economic volatility, geopolitical developments, inflationary pressures, and fluctuations in financial markets may impact investor sentiment, funding costs, and overall credit demand.

The Company primarily operates in the financing business and derives its revenue from lending and related financial services.

Performance across major business segments remained satisfactory during the year.

Institutional Lending remained the largest contributor with 43,590.00 lakh disbursed during the year. This segment generated an Interest Income of 4,035.01 lakh and Processing Fee (PF) Income of 354.95 lakh, underscoring its significance in UFSLs overall business model.

Retail lending continued to contribute significantly to the overall loan portfolio with focus on quality asset creation and customer acquisition. The company disbursed Rs 171.31 crores under this segment along with interest income of Rs 10.36 crores and PF income of Rs 1.88 crores.

The Company maintained its focus on supporting micro, small and medium enterprises by providing timely credit solutions while ensuring prudent credit appraisal. Aggregate lending to MSMEs during the year amounting Rs. 171.31 crores comprising of 33.64% of the total lending.

The Company continued to explore diversified revenue streams through value-added financial products and services in line with its strategic objectives.

The Management regularly evaluates portfolio performance, asset quality, sectoral exposure and geographic diversification to maintain a balanced lending portfolio. With a focus on geographic diversification, the company has opened 15 (Fifteen) branches in the various cities of Uttar Pradesh.

The Company remains focused on prudent risk management, disciplined underwriting, robust governance practices, digital innovation, and customer-centric growth. With a strong emphasis on asset quality, adequate liquidity, regulatory compliance, and operational efficiency, the Company is well-positioned to leverage emerging opportunities while effectively managing the associated risks and uncertainties.

Usha Financial Services Limited (UFSL) operates in a dynamic environment where multiple financial, operational, and external risks can impact performance. The company has a comprehensive risk management framework, overseen by the Board and its Risk Management Committee, to identify, monitor, and mitigate risks effectively.

Nature of Risk: Credit risk remains the most significant risk, arising from potential default by borrowers, especially in MSME and retail segments. Impact: Rising delinquencies can increase provisioning requirements and impact profitability. Mitigation: UFSL employs risk-based pricing, conservative LTV ratios, and continuous monitoring, including stress testing of its loan book.

Nature of Risk: UFSL relies significantly on external borrowings. Volatility in funding markets or tightening of liquidity can raise costs. Impact: Higher funding costs compress margins; liquidity shortages may restrict disbursements. Mitigation: UFSL maintains liquidity coverage above regulatory requirements and holds a liquidity buffer (approx. 8-10% of assets).

Nature of Risk: Interest rate fluctuations affect funding cost and asset yields. Impact: Sudden rate increases can compress Net Interest Margins (NIMs). Mitigation: UFSL uses ALM (Asset-Liability Management) practices and periodically adjusts lending/borrowing mix.

Nature of Risk: Frequent regulatory changes under the RBI Scale-Based Regulatory (SBR) Framework increase compliance demands. Impact: Non-compliance could result in penalties or restrictions. Mitigation: UFSL has a dedicated compliance team, regular audits, and board-level oversight.

Nature of Risk: Risks from process failures, internal control lapses, or fraud. Impact: Financial losses and reputational damage. Mitigation: UFSL invests in process standardization, staff training, and robust internal controls.

Nature of Risk: Competition from large NBFCs, fintechs, and banks in MSME/retail lending segments. Impact: Could lead to margin compression and market share loss. Mitigation: UFSL focuses on niche lending, customer relationships, and risk-based pricing.

Nature of Risk: Economic slowdowns, inflation, and global disruptions may affect credit demand and repayment. Impact: Stress on asset quality and slower growth. Mitigation: UFSL adopts conservative provisioning policies and continuously reassesses exposure to sensitive sectors.

Cybersecurity Risk: Growing reliance on digital processes across the NBFC industry has increased cybersecurity threats. UFSL focuses on strengthening IT security and incident response frameworks. ESG and Reputational Risk: Rising stakeholder focus on Environmental, Social, and Governance (ESG) standards necessitates proactive integration of ESG considerations into business practices.

While risks are inherent to the NBFC business model, UFSLs risk management framework—supported by stress testing, strong provisioning, and board oversight—ensures resilience. The companys focus on capital adequacy, asset quality, and governance positions it to navigate uncertainties effectively.

UFSL has established a robust Internal Financial Control framework to ensure financial accuracy, safeguard assets, prevent fraud and maintain regulatory compliance. The framework includes risk assessment, control activities and monitoring mechanisms, with oversight from the Board of Directors through the Audit Committee. Regular internal audits and risk-based reviews help identify control weaknesses and enable timely corrective actions. The Company enforces stringent financial controls across all business processes, including revenue recognition, expense management, procurement and financial reporting. Technology-driven solutions enhance accuracy and efficiency, reinforcing transparency, accountability and long-term financial stability while ensuring compliance with regulatory standards.

The operational effectiveness of internal controls, risk management practices and governance systems are reflected in the measures implemented by management. These systems ensure compliance, mitigate risks and enhance overall organizational stability.

The internal audit function plays a crucial role in strengthening organizational resilience by identifying potential risks and evaluating mitigation strategies. The function also conducts audits across all business lines, including retail branch network audits, centralized audits, business audits, concurrent audits and special reviews. Insights gained from these audits have helped management enhance adherence to policies, processes and regulatory guidelines while strengthening the overall control environment. Additionally, audit findings are regularly shared with senior leadership, enabling proactive decision-making and continuous improvements in risk management and governance frameworks.

The Financial performance of the Company for the Financial Year ended on 31st March, 2026 and the corresponding figures for the last year is summarized below:

The financial performance reflects the combined impact of business growth, interest income, cost of funds, provisioning requirements and operating expenses as follows:

• Revenue of the company increased from Rs.60.96 Crores in FY 25 to Rs.71.13 Crores in FY 26 marking growth of 16.69%.
• Profit before Tax increased from Rs.17.66 Crores in FY 25 to Rs.30.54 Crores in FY 26.
• Profit after Tax increased from Rs.13.34 Crores in FY 25 to Rs.22.46 Crores in FY 26.
• The company has earned a net interest income of Rs. 4543.84.
• Net interest margin is 11.26%.
• Gross NPA of the company during the FY 2025-26 is 5.3% and Net NPA is 4.4%.

The Company recognizes its employees as one of its most valuable assets and continues to invest in talent development, employee engagement and organizational capability. Industrial relations remained cordial throughout the year.

The company had employed 60 people during the financial year under review. As on 31st March, 2026, the Company had 117 employees on its rolls.

Pursuant to Schedule V of the SEBI (LODR) Regulations, 2015, details of significant changes (change of 25% or more as compared to the previous financial year) in key financial ratios along with explanations are provided below:

*For NBFCs, this ratio may be interpreted based on loan receivable turnover or such sector-specific equivalent ratio, wherever applicable.

Where there is no change of 25% or more in any of the above ratios, it may be stated that none of the above key financial ratios witnessed a variation of 25% or more as compared to the previous financial year.

The movement in Return on Net Worth was primarily attributable to changes in profitability during the year coupled with movements in shareholders equity. The Management continues to focus on improving operational efficiency, optimizing capital utilization and enhancing long-term shareholder value.

During the year under review, the Company transitioned from the previous Indian GAAP to the Indian Accounting Standards (Ind AS) as notified under the Companies (Indian Accounting Standards) Rules, subject to the applicability provisions under the Companies (Indian Accounting Standards) Rules, 2015, as amended. Accordingly, the financial statements of the Company have been prepared in accordance with the applicable provisions of the Companies Act, 2013, the Indian Accounting Standards ("Ind AS") notified under Section 133 of the Companies Act, 2013, read with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time, and other applicable accounting principles generally accepted in India.

The adoption of Ind AS has primarily impacted the accounting for financial instruments, including classification, measurement, impairment based on the Expected Credit Loss (ECL) model, and related disclosures. Accordingly, the financial statements for the current year have been prepared in compliance with Ind AS, and comparative figures have been restated, wherever applicable. The transition has enhanced the transparency and comparability of the Companys financial reporting, while there has been no change in the underlying business operations.

The Company remains committed to maintaining high standards of corporate governance, prudent risk management, regulatory compliance and sustainable growth. With a strong capital base, disciplined lending approach, robust governance framework and customer-centric strategy, the Company is well positioned to capitalize on emerging opportunities while creating long-term value for all stakeholders.