Visagar Financial Services Ltd Management Discussions.

THE COVID -19 PANDEMIC AND LOCK DOWN

The global economy is recovering steadily from the COVID-19 pandemic, marked by the rollout of vaccination programs across nations, announcement of additional fiscal support in various economies and an improving capability to contain the re-emergence of further virus outbreaks. The only three preventives are masks, social distancing and vaccinations. Unfortunately the second wave began in early March 2021. During the lockdown that continued throughout the FY2020-21, Indias GDP for June 2020 quarter contracted by a massive 24.4%. The fall in GDP continued in the second quarter as the GDP shrunk by 7.3 %.Thereafter, we have seen a rebound, - thanks to the resilience of our citizens, our entrepreneurs and of our economy. To counter the crippling impact of the lockdowns on economies, the worlds policymakers have resorted to fiscal and monetary measures never seen before in global economic history.

INDIAN ECONOMY OVERVIEW

The Indian economy contracted by 8.0% in FY 2020-21 as against 4.0% growth recorded in FY 2019-20, marking a recession for the first time since 1980 as per the IMF World Economic Outlook in April 2021. Overall economic slowdown, led by the COVID-19 onset followed by stringent lockdowns severely impacted economic activity, bringing manufacturing and trading activities to a halt. Prolonged lockdown exacerbated existing vulnerabilities of the country including the weakened financial sector, private investments, and consumption demand. The Government announced a special comprehensive package of Rs.20 trillion, equivalent to 10% of Indias GDP under the ‘Self-Reliant India movement to revive the countrys economic activity. To promote greater participation by FPIs (Foreign Portfolio Investment), the Government proposed to increase the investment limit for FPI to 15% (currently 9%) of the outstanding stock of corporate bonds. The Government also offered certain specified categories of investment in Government securities to be fully opened for NR (Non-Resident) investors. As per the FY 2020-21 Budget, fiscal deficit is expected to be 3.8% of GDP in FY 2019-20 and 3.5% in FY 2020-21. This is higher than the 3.3% and 3% envisaged for FY 2019-20 and FY 2020-21, respectively, in the FY 2020-21 Budget. The Reserve Bank of India (RBI) continued with the accommodative monetary stance by bringing the key repo rate and reverse repo rate to 4% and 3.35% respectively to provide monetary stimulus and trigger economic growth back to the earlier trajectory.

INDUSTRY OVERVIEW

Non-Banking Financial Companies (NBFC) are an integral part of the Indian Financial system, augmenting competition and diversification in the financial sector and complementing the banking system. The Indian NBFC sector has been providing credit to customers in the underserved and unbanked areas. Their channelling the savings and investments of customers and the subsequent capital formation is necessary for Indias economic growth and development. Their ability to innovate products in conformity with the needs of their clients is well established.

Classification of NBFCs based on activities undertaken

1. Asset Finance Company (NBFC-AFC) - Financing of physical assets supporting productive/economic activity, including automobiles, tractors and generators.

2. Loan Company- Providing finance by extending loans or otherwise for any activity other than its own but does not include an AFC.

3. Investment Company- Acquiring securities for the purposes of selling.

4. Infrastructure Finance Company (NBFC-IFC)- Providing infrastructure loans.

5. Systemically Important Core Investment Company (CIC-ND-SI) - Acquiring shares and securities for investment in mainly equity shares.

6. Infrastructure Debt Fund (NBFC-IDF)- For facilitating flow of long-term debt into infrastructure projects.

7. Micro Finance Institution (NBFC-MFI)- Extending credit to economically disadvantaged groups as well support Micro, Small and Medium Enterprises (MSMEs).

8. Factor (NBFC-Factor)- Undertaking the business of acquiring receivables of an assignor or extending loans against the security interest of the receivables at a discount.

9. NBFC Non-Operative Financial Holding Company (NOFHC)- For permitting promoter groups to set up a new bank. 10. Mortgage Guarantee Company (MGC)- Undertaking mortgage activities. 11. Account Aggregator (NBFC-AA)- Collecting and providing the information of customers financial assets in a consolidated, organised and retrievable manner to the customer or others as specified by the customer. 12. Non-Banking Financial Company - Peer to Peer Lending Platform (NBFC-P2P) providing an online platform to bring lenders and borrowers together to help mobilise unsecured finance.

NBFCs operate at higher yields mainly because they cater to underserved markets. Their operating cost as well as bad debt expenditure is lower compared to banks due to:

Better risk appreciation and management. Lower cost due to lean and focused business models. Better service through faster response and personalised approach.

Overview of Capital Markets

Capital markets play a crucial role in the economic development of a country. They provide the financial resources required for the long-term sustainable development of the economy. Capital markets are therefore considered an important element as it enables higher productivity growth, higher real-wage growth, greater employment opportunities and greater macroeconomic stability.

The current Budget is drawn with the focus to improve on the Government spending in the areas affected by COVID-19. Its guidelines on seamless and paperless customer onboarding procedures have played a big role in retail participation in the capital market.

BUSINESS & FINANCIAL PERFORMANCE

The Company was originally incorporated on March 01, 1994 as Inca Finlease Private Limited. The Company was further converted from private to public on July 08, 1994 after its name was Inca Finlease Limited. The name of the Company was later changed to Visagar Financial services Limited (VFSL) on February 11, 2011. VFSL being a registered NBFC with RBI has been primarily engaged in the business of investing in securities of listed and unlisted companies. The investment portfolio of your Company is diversified across various sectors such as Financial Services, Education, Real Estate, among others.

The management uses estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the state of affairs and profit / loss for the year.

During the year under review the Companys Turnover has decreased from Rs. 532.65 Lakhs in FY 2017-18 to Rs. 105.77 Lakhs in FY 18-19 and the expenses during the year has also been decreased from Rs. 529.24 Lakhs in FY 2017-18 to Rs. 100.51Lakhs in FY 18-19. However, there is increase in net profit in the Company of Rs. 4.49 Lakhs compared to net profit of Rs. 2.81 Lakhs in the previous year.

Your Company is optimistic about the coming year. Since the Company is trying to reduce cost and expand its business, your Directors are hopeful that the results will be more encouraging.

RISK & CONCERNS

As a non-deposit taking NBFC, the Company is subject to regulations by Indian governmental authorities, including the Reserve Bank of India. Also, as the Company operates in various lines of businesses, it is governed by different Indian regulators across these businesses. Their laws and regulations impose numerous requirements on the Company, including asset classifications and prescribed levels of capital adequacy, solvency requirements and liquid assets. There may be future changes in the regulatory system or in the enforcement of the laws and regulations that could adversely affect the Companys performance. Any slowdown in economic growth in India could cause the business of the Company to suffer. Recently, the growth in industrial production has been variable. Any slowdown in the Indian economy, and in particular in the demand for housing and infrastructure, could adversely affect the Companys business. Similarly, any sustained volatility in global commodity prices, including a significant increase in the prices of oil and petroleum products, could once again spark off a new inflationary cycle, thereby curtailing the purchasing power of the consumers. VFSL manages these risks by maintaining a conservative financial profile and following prudent business and risk management practices.

Opportunities

Low retail penetration of financial services / products in India Tremendous brand strength and extensive distribution reach Opening of the financial sector in India in near future Opportunity to cross sell services Increasing per-capita GDP

Changing demographic profile of the country in favour of the young

Threats

Inflationary pressures and slowdown in policy making Competition from local and multinational players Execution risk Regulatory changes Attraction and retention of human capital

SEGMENT-WISE PERFORMANCE

The Companys main business is giving loans, investment securities of listed and unlisted companies, etc. All the activities of the Company are related to its main business. As such there are no separate reportable segments.

INTERNAL CONTROL SYSTEM AND ADEQUACY

Internal Control measures and systems are established to ensure the correctness of the transactions and safe guarding of the assets. An effective system of internal control allows the NBFCs to assume additional risks in a calculated manner while minimizing financial surprises and protecting itself from significant financial loss. Thus, internal control is an integral component of risk management. The Internal control checks and internal audit programmes adopted by our Company plays an important role in the risk management feedback loop, in which the information generated in the internal control process is reported back to the Board and Management. The internal control systems are modified continuously to meet the dynamic change.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT

Relations remained cordial with employees at all levels during the year. During the year under review, industrial relations have generally remained healthy, cordial and harmonious.

CAUTIONARY STATEMENT

The Statements in this Managements Discussion and Analysis Report describing the Companys objectives, projections, estimates and expectations may be forward looking statements within the meaning of applicable laws and regulations. Actual Result might differ materially from those expressed or implied. The Company is not under any obligation to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events.