Vedavaag Systems Ltd Management Discussions

Vedavaag Systems Limited - Business Correspondent Services Division

Financial Year 2026-27 Theme: Digital Transformation for Rural Economic Development and Rural Citizen Standard of Living Upliftment

1. Industry Structure and Company Overview

The Business Correspondent (BC) model, institutionalized by the Reserve Bank of India in 2006 and strengthened under Pradhan Mantri Jan Dhan Yojana (PMJDY), has become the backbone of last-mile financial inclusion in India. As per RBI and industry reports, the BC sector has grown from Rs.47 billion in FY18 to Rs.102 billion in FY23 and is projected to cross Rs.147 billion in FY25, registering a compound annual growth rate of 19%, driven by rising rural banking demand, government-led inclusion schemes and digital innovation.

Vedavaag Systems Limited operates one of the largest and most resilient BC networks in the country. As on March 2027, the Company operates over 5,000 Customer Service Points (CSPs) pan-India, with deep presence in Andhra Pradesh, Telangana, Karnataka, Maharashtra, Uttar Pradesh, Bihar, Odisha and North-East. Our network facilitates approximately 1.25 lakh transactions per day, translating to over 4.5 crore transactions annually, with an annual Gross Transaction Value (GTV) of about Rs.25,000 Crore.

Our CSPs function as assisted digital banking branches offering: AePS cash deposit/withdrawal, domestic money transfer, DBT disbursement for MGNREGA, PM-Kisan, old-age pensions, collection of micro-insurance premium (PMJJBY, PMSBY), Atal Pension Yojana enrolment, Kisan Credit Card facilitation, bill payments, UPI on-boarding, and e-governance services. In effect, Vedavaag is not merely a transaction facilitator but a rural economic infrastructure provider.

2. Importance of Financial Literacy

Financial Literacy (FL) is the ability to understand and effectively use financial services - savings, credit, insurance and pension - to make informed decisions. Raw material from field studies and academic literature clearly indicates that financial exclusion is driven not only by lack of access but also by social factors - lack of knowledge, communication

barriers and unfavourable attitudes towards formal finance.

NABARDs All India Rural Financial Inclusion Survey (NAFIS) 2021-22, based on 1 lakh rural households, provides compelling evidence: the percentage of respondents demonstrating good financial literacy increased from 33.9% in 2016-17 to 51.3% in 202122. This improvement correlates with increased usage of institutional credit and financial savings. Similarly, Ministry of Finance data shows PMJDY has opened 52.81 crore accounts with deposits of Rs.2,30,792 crore as on July 2024, of which 55.6% belong to women and 66.6% are in rural and semiurban areas.

Mere account opening does not automatically translate into economic empowerment. Individuals with higher FL utilize a greater variety of products, maintain higher average balances, and exhibit better repayment behaviour. Vedavaags CSPs bridge this gap through high-touch, vernacular assisted literacy:

a) Product Literacy Camps: Explaining difference between savings vs current, recurring deposit, insurance cover vs investment, pension needs.

b) Demonstration-led onboarding: Handholding for first 3-5 transactions to build confidence.

c) Women-centric literacy: With 55%+ PMJDY accounts held by women, focused literacy for SHG members.

This converts dormant accounts into active economic tools, reduces dependency on non-institutional money lenders, and improves household resilience. Financial literacy, therefore, is a revenue driver - literate customers generate 2.5x more fee income through cross-sell than non-literate cash-out only customers.

3. Digital Literacy - The Critical Enabler

If Financial Literacy is what to use, Digital Literacy (DL) is how to use securely in a digital economy. India today processes 99.7% of payment transactions digitally by volume in 2024 as per RBI, with UPI alone accounting for 83.9% of retail digital payment volume in FY24 with value of Rs.180.24 lakh crore. UPI has given India 48.5% share in global real-time payments by volume. RTGS volume grew from 14.8 crore in CY19 to 29.5 crore in CY24 with value rising to Rs.1,938 lakh crore.

However, the digital facility does not automatically reach rural citizens. Rural users face smartphone access issues, fear of fraud, and lack of confidence in navigating apps. The finance sectors dependence on online platforms, UPI and mobile applications has increased sharply - managing finances has become easy for urban users but remains daunting for many rural users.

Vedavaags proposition is Phygital - Physical + Digital. Our CSP is a human trust layer over digital infrastructure:

- Assisted UPI & Mobile Banking: CSP helps customer link account to UPI, set UPI PIN, do first QR transaction.

- Fraud Prevention Literacy: Training to recognize phishing, fake calls, OTP sharing risks. This is critical as digital payment frauds have surged alongside volumes.

- Digital budgeting tools: Simple SMS-based balance tracking, micro-statement printing.

NABARD data shows that better DL leads to better usage of digital finance services, which in turn encourages DL - a virtuous cycle. For Vedavaag, a digitally literate customer base means lower cashhandling cost, higher proportion of interoperable transactions (AePS, UPI), and eligibility for higher- value services like e-commerce enablement and credit sourcing. DL and FL together result in economic prosperity and personal financial security.

4. Rural Economic Development and Value of BC Services

Improving Rural Economic Development is key to building resilient communities, reducing poverty and ensuring balanced national growth. Rural economy traditionally contributes 25-30% of GDP. A concerning trend is youth preference for corporate jobs in MNCs over farming and artisanal occupations. While corporate employment ensures good standard of living for individuals, mass outmigration weakens rural production base and widens financial inequality, negatively impacting overall GDP.

Governments approach under Ministry of Rural Development emphasizes four pillars: community institutions of rural poor, financial inclusion, sustainable livelihoods, and social inclusion. BC services are integral to each:

1. Access Affordability: Government must ensure affordability and accessibility of financial services to millions. Setting up a brick-and-

mortar branch for every village is unviable. BC model delivers banking at 1/10th cost of a branch.

2. Livelihood Support: Disbursement of

MGNREGA wages within village, timely PM-Kisan instalments, KCC for crop loans - all ensure working capital for indigenous farmers and craftspeople. Easy access to savings, credit and insurance positively affects economic growth and drives investment, entrepreneurship and productivity.

3. Reduction of Exclusionary Dynamics: As

noted in our field research, absence of BCs and satellite branches, challenges with mobile banking alone, and social barriers cause exclusion. FI requires cooperative approach with government agencies, banks, development organizations and communities. Vedavaags CSP network, often run by local youth, creates rural employment itself - each CSP is a micro-entrepreneur.

4. Multiplier Effect: When a rural household

saves Rs.13,209 annually on average (NAFIS 2021-22) in formal system instead of informal, that saving is intermediated for rural credit, creating local growth loop.

Thus, BC is not a peripheral channel but central infrastructure for rural economic development. RBI itself has noted that most Jan Dhan accounts continue to be operated through BC model, underlining its effectiveness at grassroots.

5. Macro Indicators of Rural Development with Relevance to BC Activity

The macro environment for BC business remains highly favourable, supported by data from Ministry of Finance, Ministry of Rural Development, RBI and NABARD:

a) Income Growth in Rural India: NABARD NAFIS 2021-22 finds average monthly income of rural households increased by 57.6% in five years from Rs.8,059 in 2016-17 to Rs.12,698 in 2021-22, suggesting nominal CAGR of 9.5%. This rise in disposable income directly expands addressable market for savings, remittance and insurance at CSPs.

b) Financial Inclusion Deepening: RBI Financial Inclusion Index (FI-Index) comprises three parameters - Access (35%), Usage (45%), Quality (20%). Recent improvement is mainly

contributed by Usage dimension, reflecting deepening of financial inclusion beyond account opening - precisely where BCs earn fees.

c) Jan Dhan Saturation & DBT Scale: 52.81 crore PMJDY accounts, with 35.15 crore in rural/semi-urban, form the base. Annual DBT transfers under 300+ schemes exceed Rs.6 lakh crore, majority routed through BC- assisted withdrawals.

d) BC Sector Economics: Growth from Rs.47 Bn (FY18) to Rs.147 Bn+ (FY25E) at 19% CAGR shows improving monetization. Despite temporary drop in BC outlets from 6.35 lakh in 2020 to 3.06 lakh in 2024 in urban locations due to consolidation, rural BC network remains stable and is under review by RBI to strengthen viability and commission structure - a positive for organized players like Vedavaag.

e) Insurance & Pension Penetration: Coverage under PMJJBY, PMSBY and APY has risen significantly post-NAFIS, but penetration is still <30%7 in rural - large headroom for BC-led cross-sell with fee income.

f) Digital Public Infrastructure Tailwinds: UPI volume up 34.8% YoY in FY25, UPIs share in retail digital volume at 83.9%, and growth in credit card and RTGS transactions indicate overall formalization - BCs act as on-ramp to this ecosystem for rural citizens.

For Vedavaag, with 1.25 lakh daily transactions and Rs.25,000 Cr GTV, these indicators mean higher transaction density per CSP, higher average ticket size, and shift from low-margin cash withdrawal to high-margin value-added services.

6. Company Outlook, Opportunities and Risks

Outlook: We project robust growth for BC services

industry over FY28-FY32, with industry CAGR of 1820%, and organized players growing faster at 2225% due to consolidation. Vedavaag targets:

- GTV growth to Rs.35,000 Cr by FY29 through increase in per CSP transactions from Rs. 25/- per day (1.25 lakh / 5000) to Rs. 35/- per day and ticket size growth.

- Fee income diversification: From 85% cash-out dependent in FY23 to 60% by FY28 through insurance, pension, credit facilitation, and collection services.

- CSP Viability Enhancement: Focus on women and youth CSPs, financial literacy certification, and dual bank partnerships to avoid downtime.

Opportunities: CBDC pilot in rural, Account

Aggregator framework for cash-flow based lending via BCs, ONDC-enabled rural commerce at CSP, and convergence with DAY-NRLM SHG network (over 9 crore women).

Risks and Mitigation: Regulatory change in

commission (mitigated by multi-sponsor bank model and advocacy through BC Federation), technology and connectivity risks (mitigated by offline-capable micro-ATMs and multi-SIM devices), fraud and operational risk (mitigated by continuous training, biometric authentication, and insurance).

In conclusion, Financial Literacy and Digital Literacy are two sides of same coin leading to Financial Inclusion, which in turn drives Rural Economic Development. BC services are the critical link converting national DPI investments into improved standard of living for rural citizens. Vedavaag Systems Limited, with its scale of 5000+ CSPs, handling 1.25 lakh transactions daily and Rs.25,000 Cr annual GTV, is uniquely positioned to lead this Digital Transformation for Rural Economic Development and create sustainable value for all stakeholders aligned with Viksit Bharat 2047 vision.

Management remains confident of double-digit revenue growth and improving margins in BC division in FY 2027-28.