Visagar Financial Services Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION & ANALYSIS REPORT </dhhead>

Pursuant to Schedule V of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Management Discussion and Analysis Report is as under: In this Management Discussion and Analysis Report (MDAR), we provide an insightful overview of Visagar Financial Services Limiteds performance, operations, and key developments during the reporting period. This section serves as an essential part of our annual report, offering stakeholders valuable insights into your Companys strategic direction and performance.

Visagar Financial Services Limited (‘VFSL’OR ‘the Company’) is a non-deposit taking Non-Banking Financial Company (NBFC ND). VFSL is engaged in the business of lending money. The Company has diversified lending portfolio across individuals, proprietors and Corporates etc. Visagar Financial Services Limited originally incorporated as Inca Finlease Private Limited on March, 1994 thereafter changed its name to Inca Finlease Limited after passing requisite resolution Company has further changed its name to Visagar Financial Services Limited dated February, 2011.

FORWARD

The NBFC sector in India has witnessed remarkable transformations since its emergence, with segments such as housing finance, microfinance and consumer finance contributing to its expansion. This growth is driven by various factors, such as a rising middle class, enhanced financial inclusion and positive policy interventions. Additionally, the sector has benefited from a favorable regulatory framework and a stable macroeconomic scenario. As of 2023, the NBFC sector has reached an impressive size of USD326 billion, underscoring its expanding influence in the financial domain. The sector has also shown resilience in terms of sound capital position, improved asset quality, adequate provisioning and higher profitability. Furthermore, the sector has leveraged digitisation to offer alternative financing options, especially to the MSMEs, which face challenges in obtaining loans from traditional banks. With the growth witnessed in the NBFC sector and India reaching an estimate of USD7 trillion GDP by 2030, India’s financial need will rise, creating ample opportunities for NBFCs.

Digitisation has been a game-changer for the Non-Banking Financial Company (NBFC) sector, enabling faster and more efficient processes, as well as a superior customer experience. NBFCs are increasingly focusing on digitisation as a key differentiator, with a particular emphasis on the use of super apps to source and partner with customers. This trend is set to continue, as the demand for digital services continues to grow. The role of technology, data and analytics across the value chain is also set to increase, with a particular emphasis on credit and underwriting, collections, fraud management and cyber and data security/privacy. The use of scorecards powered by traditional and new age data sources is becoming increasingly popular, as NBFCs seek to improve their credit assessment capabilities. Digital collections and the role of data and analytics are also set to increase, as NBFCs seek to improve their collections efficiency.

EVOLUTION IN NBFC CATEGORISATION

As of 30 September 2023, there were a total of 9,356 NBFCs registered with the Reserve Bank of India (RBI). Based on liability structure, NBFCs have been traditionally categorised into deposit-taking NBFCs (NBFCs-D), which are allowed to raise term deposits and non-deposit-taking NBFCs (NBFCs-ND). In October 2021, the RBI introduced a scale-based regulation for NBFCs to align its regulatory framework and further classify these financial institutions based on their evolving risk profile, considering the evolution of NBFCs with regard to size, complexity and interconnection within the financial sector1. This framework categorises:

NBFCs in the base layer (NBFC-BL) with assets less than INR1,000 crore

Middle layer (NBFC-ML) with assets more than INR1,000 crore

Upper layer (NBFC-UL) and top layer (NBFC-TL) which are specifically identified by the RBI based on a set of parameters and scoring methodology. A list of 16 NBFCs-UL, identified as per the methodology specified in scale-based regulation for NBFCs, was released on 30 September 2022.

KEY REASON FOR GROWTH

Deep demographic and addressable market understanding: With their operations in the unorganised and underdeveloped segments of the economy, NBFCs have created a niche for themselves by understanding what customers want from them and guaranteeing last-mile delivery of goods and services Tailored product offerings: NBFCs have adapted their product offering to meet the specific characteristics of a customer group and are focused on meeting appropriate needs by carefully analysing this target segment and customising pricing models. Wider and effective reach: NBFCs are now reaching out to Tier 2, Tier 3 and Tier 4 markets, distributing the loan across several customer touchpoints. In addition, they are building a connected channel experience that provides an omnichannel, seamless experience of sales and service 24 hours a day, seven days a week. Technology advancements and growing fintech ecosystem for improved efficiency and enhanced experience: The use of technology is helping NBFCs customise credit assessment.

Co-lending: RBI, in November 2020, issued co-lending norms that enable banks and NBFCs to collaborate for priority sector lending (PSL). Government and central bank Initiatives: The Government of India also unveiled several initiatives aimed at addressing some of the structural issues stressing the small business lending segment. These include granting licenses to account aggregators, initiating the Pradhan Mantri Mudra Yojana (PMMY), launching UPI platforms, unveiling platforms such as TReDS, GeM and Open Network for Digital Commerce (ONDC) and implementing GST.

DIGITISATION

NBFCs are embracing digitisation to achieve better operational efficiency, provide better customer experience, reduce costs and be complaint to the regulatory guidelines. Although the NBFCs have been facing a tough competition from the public and private sector banks and MFIs in areas such as market share, customer acquisition, asset quality and technology enhancements, they have been initiators of frugal innovation with respect to digital initiatives and innovations. NBFCs today have proved that they have both the appetite and talent to compete with larger institutions for customer attention. And the tools used to compete are cutting-edge popular technologies including cloud, low-code/no-code, data lakes and GenAI to evolve concepts such as application modernisation, super apps, data transparency and robust information security to provide seamless customer and employee experience.

Data democratisation With the advent of India Stack and the account aggregator framework, the financial services sector is expected to surpass through seamless Know Your Customer (KYC) and data-driven credit decisioning processes. These government sources of data will ensure greater accessibility and reduced opacity. With the addition of more data sources, the India Stack and Account Aggregator are expected to drive the digital revolution. Credit enablement frameworks RBIs push for digital credit enablement through its frictionless platform and the advent and adoption of ONDC and Open Credit Enablement Network (OCEN) are expected to improve credit penetration, with NBFCs playing a significant role. Frictionless journeys Digitisation has led to the development of digital-first STP journeys for disbursement as well as transformed more complex journeys. The underlying systems such as loan origination system and lead management system, have transformed to enable these journeys. Data-enabled underwriting and portfolio monitoring With data democratisation, advent of credit enablement frameworks and advancement in the field of analytics, underwriting has evolved with the use of new-age lending models, which power instant credit decisioning. Portfolio monitoring is expected to evolve with access to richer and recent data sets, which will be crucial for developing robust EWS. Advent of AI and large language models (LLM) The advent of Gen AI and LLMs will revolutionise NBFC operations with adoption for sourcing, servicing, collections etc. Evolving regulatory landscape The regulatory landscape is expected to evolve with the focus being on adopting digital, customer service and customer interest protection, data privacy and protection. These themes will drive regulations as financiers will need to align with consent, data storage, data privacy and other norms with the adoption of digital ways of working.

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 Company’s 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 Company’s 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.

It is essential for stakeholders to be informed about the challenges and uncertainties that may impact the companys operations and financial performance. Your Company recognizes the importance of managing and mitigating these risks effectively to sustain its growth and profitability.

1. Economic and Market Risk: a. Macroeconomic Factors: Your Company’s operations are influenced by the broader economic environment. Economic downturns, inflation, changes in interest rates, and global economic uncertainties can impact the companys financial performance and asset quality. b. Market Volatility: The financial markets, in which your Company actively participates, can be subject to significant fluctuations. These fluctuations may affect the valuation of securities in the companys investment portfolio and trading activities. 2. Regulatory and Compliance Risks: a. Regulatory Changes: As a registered NBFC under the RBI, your Company is subject to regulatory changes and updates. Non-compliance with regulatory requirements or changes in regulations can have adverse effects on the companys operations and reputation. b. Legal and Compliance Issues: Legal disputes, litigation, or non-compliance with legal and regulatory requirements can result in financial liabilities, reputational damage, and operational disruptions. 3. Credit and Portfolio Risks: a. Credit Risk: Your Company’s core business involves lending and investment activities.

Credit risk is inherent in these activities, and defaults by borrowers or deterioration in the creditworthiness of investments can impact the companys financial health. b. Portfolio Diversification: The success of your Company’s investment strategy depends on the diversification of its portfolio. Concentration in certain sectors or industries may expose the company to sector-specific risks. 4. Liquidity and Funding Risks: a. Funding Dependency: Your Company’s ability to meet its financial obligations relies on its access to funding sources. A sudden disruption in funding sources or liquidity constraints can pose significant challenges. b. Interest Rate Risk: Fluctuations in interest rates can affect your Company’s borrowing costs and the profitability of its interest-sensitive assets. 5. Market Competitiveness: a. Competitive Landscape: The financial services industry is highly competitive. Intense competition can put pressure on pricing, market share, and profitability. b. Technological Advances: Rapid technological advancements in the financial sector require ongoing investments in technology and digital capabilities to remain competitive. 6. Operational and Cyber security Risks: a. Operational Risks: Operational disruptions, errors, or breakdowns in internal processes and systems can impact your Company’s ability to conduct business efficiently. b. Cyber security: In an increasingly digital world, cyber security threats are a growing concern. Data breaches or cyber-attacks can result in financial losses and reputational damage

OPPORTUNITIES AND THREATS

Visagar Financial Services Limited recognizes the importance of evaluating both opportunities and threats that may impact the companys performance and strategic direction. We enumerate the key opportunities for growth and development, as well as potential threats and challenges that require careful consideration:

Opportunities:

Growth in Financial Services Sector in India

Diversification of Investment Portfolio across sectors and asset classes.

Embracing Digital Transformation for enhanced customer engagement and operational efficiency. Regulatory Support & favorable policy changes.

Rising Financial Inclusion & Accessibility

Potential in largerly underserved market for financial services/products.

Brand Strength and Distribution

Explore opportunities for cross-selling various financial services.

Increasing Per-Capita GDP driving financial aspirations

Changing Demographic profile favouring rising finance savvy & aspiring young population

Threats:

Economic uncertainties, including inflation and policy slowdown, impacting asset quality and profitability.

Frequent regulatory changes posing compliance challenges and operational disruptions.

Credit Risks: Default by borrowers or credit deterioration leading to losses.

Intense competition from local and multinational players affecting market share.

Force Majeure Events or Acts of God, Lockdowns affecting the businesses and overall economy

Risk associated with successful execution of strategic initiatives.

Inflationary pressures impacting financial stability.

Attraction and Retention of Talent

SEGMENT-WISE PERFORMANCE

The Company’s 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. Therefore, there are no separate reportable segments within the organization.

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 Management’s Discussion and Analysis Report describing the Company’s 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.

KEY FINANCIAL RATIOS

1. Current Ratio 0.24 2. Debt-Equity Ratio 0.72 3. Net Profit Ratio 0.00% 4. Return on Equity 0.00% 5. Trade Receivable - 38.67

6. Trade Payable 2,824.41 7. EPS (Rs) - 0.00