Capital India Finance Ltd Management Discussions

Management Discussion and Analysis Report

Global Economy

The global economy grew by an estimated 3.3% in calendar year 2025, supported by easing inflation, gradual monetary policy normalisation and steady business sentiment across major regions. Advanced economies expanded by 1.7%, while emerging and developing economies grew by 4.4%, reinforcing their role as the primary engines of global output growth.

Inflationary pressures moderated across most major economies during the year, enabling central banks to begin calibrated easing cycles. Capital flows to emerging markets remained constructive, supported by narrowing interest-rate differentials and improving risk appetite. Trade activity recovered gradually, although supply-chain reconfiguration and tariff-related adjustments continued to reshape global commerce patterns.

The outbreak of the conflict in West Asia has led to severe disruption of global supply chains. This poses an unprecedented challenge for the global economy - higher prices and lower global growth. Further intensification of the conflict, its prolongation and a widening geographical spread remain the key downside risks to the global outlook. For financial services companies in India, the global environment remained relevant through its influence on interest-rate expectations, liquidity conditions, currency movements and borrower confidence. A more accommodative global monetary stance improved funding conditions and supported credit demand across domestic markets.

Indian Economy

India remained one of the fastest- growing major economies during FY26, with real GDP growth estimated at 7.7%, supported by domestic consumption, public capital expenditure, manufacturing activity, rural demand and a resilient services sector.The broad- based nature of this expansion sustained credit demand across households, MSMEs, self-employed individuals and small business segments.

Manufacturing and Industrial Momentum: Industrial output grew by 7.8% in December 2025, the fastest expansion in over two years, with manufacturing growing by 8.1% during the period. The HSBC India Manufacturing PMI remained in expansion territory at 53.9 in March 2026, reflecting sustained business activity and investment sentiment. Agricultural output reached a record 376.56 million tonnes in FY26, an increase of approximately 18.8 million tonnes over the previous year, strengthening rural incomes and consumption across semi- urban and rural markets.

Stable Macroeconomic Environment:

Headline retail inflation stood at 3.93% in May 2026, within the Reserve Bank of Indias target corridor. In response, the RBI reduced the repo rate to 5.25% and introduced targeted trade-support measures to mitigate the impact of global trade disruptions. GST collections rose 7.1% to INR 19.35 Lakhs Crores in FY26, reflecting healthy business activity and continued formalisation of the economy.

Expanding Financial Participation:

Continued formalisation, digital adoption and rising economic participation across semi-urban and rural markets strengthened the opportunity for financial institutions focused on credit penetration and inclusion. For NBFCs serving MSME and secured retail segments, these conditions translated into a wider addressable market and sustained credit demand.

Outlook: The Indian economy is expected to maintain its growth trajectory in FY27, with real GDP projected to expand by 7.0%-7.4%.

Continued government investment in infrastructure, manufacturing capacity and digital infrastructure is expected to support economic activity and business sentiment. Rising credit penetration, increasing MSME activity, deeper digital adoption and expanding participation from semi-urban and underpenetrated markets are expected to sustain demand for formal finance. For NBFCs with established distribution networks and secured lending capabilities, these structural tailwinds represent durable growth opportunities.

Looking ahead, elevated energy and other commodity prices coupled with supply shock due to disruptions in the Strait of Hormuz would act as a drag on domestic production in 2026-27. Heightened volatility in global financial markets and with its spillover into domestic financial conditions would weigh on growth prospects.

(Sources: PIB, IBEF, PRS India, RBI, Global Economics Times, Reuters, Monetary Policy Statement, The Economic Times, Economic Survey 2025-26, IMF)

NBFC Sector: Evolving Role in Indias Credit Architecture

Non-Banking Financial Companies continued to play a vital complementary role within Indias financial ecosystem during FY26, extending credit to segments that remain underserved by traditional banking channels.

NBFCs accounted for approximately 18 to 19% of total credit in the economy, with assets under management projected to exceed INR 50 Lakhs Crores by March 2027. Total bank credit surpassed INR 200 Lakhs Crores as of January 2026 and within this expanding landscape, NBFCs continued to bridge financing gaps across retail, MSME, vehicle finance, housing and gold loan segments.

Sectoral Performance and Credit Expansion: Credit growth across the NBFC sector remained healthy, supported by macroeconomic resilience, domestic demand and increasing formalisation. Secured lending, MSME finance, vehicle finance and gold loans remained the principal growth segments.

Structural Growth Drivers: The sectors growth trajectory is underpinned by several structural factors: deepening digital infrastructure (Account Aggregator frameworks, Aadhaar- enabled eKYC, UPI integrations); regulatory strengthening through the RBIs Harmonised Regulatory Framework; expansion of co-lending models and priority sector lending- linked products; targeted policy support through the Partial Credit Guarantee Scheme, Special Liquidity Scheme and ECLGS; and the rising entrepreneurial ecosystem driven byAtmanirbharBharat and related government initiatives. For NBFCs with secured lending capabilities, diversified borrowing franchises and established branch networks, these structural enablers support long-term, risk-calibrated portfolio growth.

(Sources: Economic Times, Wright Research, RBI, ICRA, Care Edge)

MSME Sector: Credit Demand and Structural Opportunity

Micro, Small and Medium Enterprises remained central to Indias economic activity during FY26, contributing approximately 30% of GDP, 40% of total exports and employment for over 110 million individuals. The sectors growing formalisation, digital adoption and integration with domestic and global value chains continued to increase the requirement for timely, structured and formal credit.

Strengthening Credit Access: MSME lending continued to be the key driver of industrial credit growth during FY26, registering substantially higher growth than credit extended to large industries, as noted in the Economic Survey 2025- 26. The Self-Reliant India (SRI) Fund, established with a corpus of INR 50,000 Crores to provide equity support, had assisted 682 enterprises through investments worth INR 15,442 Crores as of November 2025. Revised MSME classification norms expanded the eligible borrower base, while enhanced credit guarantee coverage improved access to working capital for micro and small enterprises. The additional INR 10,000 Crores Fund of Funds strengthened funding availability for startups and innovation-led enterprises.

The NBFC Opportunity: Access to formal finance remains the most important enabler for MSME growth. Small businesses require credit for working capital, business expansion, equipment acquisition, inventory management and operational continuity. A large segment of MSMEs continues to be served inadequately by traditional banking channels. NBFCs are positioned to serve this gap through relationship-led sourcing, flexible underwriting, collateral- backed lending, faster turnaround and customised credit solutions. Secured MSME lending, particularly Loan Against Property and related products, provides a risk-managed route to support small businesses while maintaining portfolio discipline.

(Sources: Economic Survey 2025-26, Ministry of MSME, PIB, Union Budget 2025-26)

Digital Financial Services and Fintech Ecosystem

Indias digital financial ecosystem continued to expand rapidly during FY26, supported by digital public infrastructure, smartphone penetration, real-time payments, embedded finance and increasing consumer acceptance of digital financial services.

The digital lending market is projected to reach USD 515 billion by 2030, expanding at a CAGR of 33.5%, driven by rising digital adoption, availability of alternative data, advances in artificial intelligence and analytics and increasing demand for seamless borrowing experiences. The growth of digital payments has also created stronger data trails, improved transaction visibility and enabled new financial-service models across credit, merchant services, insurance distribution and compliance.

For financial-services companies, the opportunity extends beyond digital disbursement into customer acquisition, risk assessment, collections efficiency and cross-selling. Companies that combine physical distribution, technology-led delivery and prudent risk management are better positioned to serve MSMEs, merchants and underbanked customers across Indias expanding digital economy.

(Sources: IMARC, IMF, Worldline, RBI, Economic Times)

Opportunities and Threats

Capital India operates at the intersection of secured MSME lending and a broader technology-enabled financial-services ecosystem. Its growth opportunity lies in scaling the core lending franchise while selectively leveraging its capital base, distribution capabilities and financial-services adjacencies. The principal headwinds relate to credit quality, funding conditions, regulatory change, competitive intensity and execution discipline.

Secured MSME and LAP Growth

The continued formalisation of small businesses and the persistent MSME financing gap support demand for secured business credit. Capital Indias focus on Prime and Affordable Loan Against Property, together with its branch-led presence in Tier-2 and Tier-3 markets, provides scope for calibrated portfolio expansion.

Focused Capital Allocation

The strategic decision to divest the housing-finance subsidiary is intended to sharpen the Companys focus on MSME and retail lending and support more efficient allocation of capital towards priority growth areas.

Technology-enabled and Phygital Scale

Digital workflows, centralised loan-management systems and data-led underwriting can support faster sourcing, improved credit assessment, stronger collections and better operating productivity. The wider RapiPay and NYE ecosystem also creates potential to extend financial access through a broad phygital distribution network.

Funding and Partnership-led Scalability

Capital Indias diversified borrowing franchise, credit rating and strong capital position provide a foundation for balance-sheet growth and partnership-led lending models. As of March 2026, the Company had a CRAR of 40.99%, providing capital headroom for disciplined expansion.

Diversified and Capital-light Adjacencies

The Groups fintech ecosystem provides an opportunity to diversify beyond lending. RapiPay and NYE offer technology-enabled banking and financial-services capabilities.

Asset Quality and Portfolio Concentration

MSMEs and self-employed borrowers can be sensitive to cash-flow disruption, sector-specific stress and economic volatility. Rapid portfolio expansion or excessive concentration across particular geographies, industries or borrower categories could increase delinquencies and provisioning requirements.

Funding Cost and Margin Pressure

Changes in interest rates, liquidity conditions and lender risk appetite may affect the cost and availability of borrowings. Competitive pricing in secured MSME and LAP products may also place pressure on yields and lending spreads.

Regulatory and Compliance Complexity

The Company operates within an evolving regulatory environment covering scale-based NBFC regulations, digital lending, KYC and AML requirements, data governance. Increasing compliance expectations may raise operating complexity and require continued investment in systems, controls and governance.

Execution and Operating Scalability

Branch expansion and AUM growth require credit appraisal, collections, technology systems, talent and internal controls to scale at a corresponding pace. Weak execution or inadequate collection infrastructure in newly entered markets could affect customer experience and portfolio quality.

Competitive Intensity

Capital India competes with banks, NBFCs, HFCs and digital-first lending platforms for customers, funding and talent. This may increase customer-acquisition costs, compress pricing and require continued improvement in turnaround time, service quality and product differentiation.

Company Overview

Capital India Finance Limited (CIFL) is a middle-layer Non-Banking Financial Company registered with the Reserve Bank of India, listed on both the NSEand BSE (NSE Symbol: CIFL; BSE Scrip Code: 530879).The Company provides secured and customised financial solutions to MSMEs, self-employed individuals and small business owners, with a primary focus on Loan Against Property and related asset-backed credit products.

The Company is promoted by Capital India Corp Pvt Ltd, a Core Investment Company registered with the RBI, led by Mr. Sumit Kumar Narvar, a first- generation entrepreneur. The promoter group holds 72.59% of the Companys equity. The Board of Directors comprises 7 members, including 5 Independent Directors, bringing domain expertise spanning banking, financial services, audit, risk management and public administration.

The senior management team, led by Managing Director Keshav Porwal, CEO Pinank Shah, Executive Vice Chairman Surender Rana, CFO Vikas Srivastava and COO M.S. Walia, brings cumulative experience of over 150 years across retail and corporate lending, distribution,fund raising, risk, technology and compliance.

CIFL holds a dual credit rating with the the highest level of A, reflecting the Companys balance-sheet strength, governance standards and operational credibility.The Company was recognised as a Great Place to Work (certified October 2025 to October 2026),affirming the quality of its workplace culture and employee engagement practices.

From Opportunity to Platform: CIFLs Strategic Response

The sectoral tailwinds outlined above converge directly on CIFLs business model and strategic positioning. The Companys evolution over the past several years has been deliberate: a progressive transition from a wholesale and structured lending portfolio toward a granular, secured MSME credit franchise, complemented by fintech adjacencies that extend the platforms reach and revenue diversification.

MSME credit demand, driven by formalisation, policy support and entrepreneurial activity, aligns with CIFL core lending capability in Loan Against Property and secured business finance. The credit gap in semi-urban and Tier 2/ Tier3 markets, where traditional banking coverage remains limited, is addressed through the Companys expanding branch network, which grew from 29 to 46 branches across 9 states during FY26.

Digital adoption across the lending lifecycle, from onboarding and credit assessment to portfolio monitoring and collections, is embedded in the Companys technology architecture and supports scalable, cost-efficient credit delivery.

The Companys group ecosystem adds further strategic depth. RapiPay Fintech Pvt. Ltd. , CIFLs subsidiary operating in neo-banking, digital lending and Banking-as-a-Service, provide phygital distribution across more than 787,000 direct business outlets and 17,000 pin codes, reaching over 100 million unique customers. RemitX, operating under an AD II licence from the RBI, provides capital-light, fee-based income through forex and cross-border remittance services.

The strategic sale of the housing finance subsidiary during FY26, for a consideration of INR267 Crores, reflected the Companys focus on concentrating capital and management bandwidth into its core MSME lending and financial services platform.

For CIFL, the opportunity is defined by the convergence of MSME credit demand, geographic expansion, unit economics improvement and financial services diversification into a scalable, risk-managed platform.

Product Portfolio

CIFL offers a diversified suite of credit products centred on secured MSME lending. The portfolio is structured across two primary product categories, both designed for end-use-driven business-purpose financing.

Prime Loan Against Property (LAP):

Tailored financing for working capital needs, business expansion and acquisition of productive assets. The average ticket size ranges between INR 70 and 75 Lakhs, with yields ranging 13% to 15% per annum. Prime LAP is available against residential, commercial and industrial properties.

Affordable Loan Against Property (LAP): Micro and affordable asset- backed financing of up to INR 40 Lakhs, designed for smaller MSMEs and self- employed borrowers. The average ticket size ranges from INR 8 Lakhs to 10 Lakhs, with yields ranging from 17% to 24% per annum.

The product suite also includes Commercial Property Purchase financing and Lease Rental Discounting, providing funding against future rental receivables from leased commercial properties. MSME Unsecured Loans address working capital requirements through a streamlined physical underwriting process, enabling faster approvals and seamless disbursement.

FY26 Operating Review

FY26 was a year of deliberate investment and strategic repositioning for CIFL. The Company completed the transition of its loan book from a legacy wholesale and structured port folioto agranular. secured MSME credit franchise. Simultaneously, the Company accelerated distribution expansion, scaled its team, improved unit economics across yield and cost of funds and executed the strategic sale of its housing finance subsidiary to concentrate capital into the core MSME lending business.

Assets Under Management:

AUM grew 22% year-on-year from INR 1,004 Crores in FY25 to INR 1,227 Crores in FY26. MSME Secured accounted for 77% of the portfolio, with MSME Unsecured at 17%, Education loans at 4% and other products at 2%. The portfolio mix continued to shift toward secured, granular retail MSME credit, consistent with the Companys strategic direction.

Disbursements: Disbursements grew 62% year-on-year from INR 465 Crores in FY25 to INR 754 Crores in FY26, reflecting the combined impact of branch expansion, team scaling and stronger origination capability. The disbursement trajectory has accelerated from INR 366 Crores in FY21, demonstrating the scaling of the Companys lending franchise over a five-year period.

Yield, Cost of Funds and Spread:

Net portfolio yield improved by 19 basis points year-on-year to 15.28%, reflecting the growing share of higher- yielding Affordable LAP in the portfolio mix. The weighted average cost of funds improved by 62 basis points to 10.22% over the year, with incremental debt raised at below 10% during FY26, enabled by diversified borrowing and improved credit standing. As a result the net interest spread expanded by 81 basis points to 5.06%, the strongest spread performance in the Companys recent history and a clear validation of the MSME lending pivot at the unit- economics level.

Branch Network and Distribution:

The Company expanded its branch network from 29 to 46 branches across 9 states during FY26. The geographic footprint spans Delhi NCR, Flaryana, Punjab, Rajasthan, Gujarat, Maharashtra, Telangana, Karnataka and Tamil Nadu. This expansion positions the Company to deepen its presence in existing markets while entering new geographies selectively.

Borrowing Franchise: The Company raised total funds of INR 618 Crores during FY26, with outstanding debt at INR 938 Crores. The borrowing franchise now comprises 23 lenders, with 4 new lenders added during the year, spanning public sector banks, private banks, small finance banks and NBFCs. The Company successfully issued Non-Convertible Debentures during FY26, diversifying its funding base into the debt capital markets. Gearing remained conservative at 1.39 times, providing substantial headroom for future growth.

Team and Capability: The workforce scaled from 616 to 894 employees during FY26, an addition of 278 professionals across lending, credit, collections, risk, technology and support functions. This investment in human capital is integral to the Companys distribution- led growth model and supports the operational requirements of a rapidly expanding branch network.

Key Financial Indicators		(INR in Crores)
Particulars	Year ended March 31,2026	Year ended March 31,2025
Total Income	229.67	206.14
Gain on sale of Housing subsidiary	97.92	-
Total Expenditure	282.18	193.26
Profit Before Tax	45.41	12.88
Profit After Tax	40.36	11.78
Net Worth	669.32	621.54
Debt-to-Equity (times)	1.39	1.06
CRAR	40.99%	36.08%
Net NPA	1.32%	0.98%

Analytical Commentary

Total income for FY26 included a onetime gain of INR 97.92 Crores on the strategic sale of the housing finance subsidiary. Excluding this exceptional item, adjusted total income grew 11.4% year-on-year to INR 229.67 Crores, driven by a 14.9% increase in interest income (from INR 162.00 Crores to INR 186.09 Crores) on the back of a 25% expansion in the loan book and a 19 basis point improvement in portfolio yield.

The expense base expanded in line with the Companys deliberate investment in distribution and organisational capability. Employee costs rose 30.4% to INR 83.75 Crores, reflecting the scaling of the team from 616 to 894 professionals.

Other operating expenses increased 47.4% to INR 80.08 Crores, driven by the establishment and ramp-up of new branches. Finance costs rose 16.6% to INR 82.44 Crores, a more moderate increase than the 33.4% growth in borrowings, reflecting the 62 basis point improvement in cost of funds.

Credit costs increased from INR 4.04 Crores in FY25 to INR 35.91 Crores in FY26. Net NPA remained at 1.32%, reflecting the underlying health of the secured MSME portfolio.

The Companys reported PAT of INR 40.36 Crores (FY25: INR 11.78 Crores) included the benefit of the exceptional item. Adjusted for the one-time gain, the operating result reflected the front-loaded cost of building distribution capability and team capacity. The Companys strategic intent is to absorb these investment-phase costs through scale as the branch network matures and the portfolio grows. The improving trajectory in yield, spread and cost of funds provides the unit economics foundation for this transition.

Net worth strengthened to INR 669.32 Crores (FY25: INR 621.54 Crores), supported by profit retention and equity accretion. CRAR stood at 40.99%, well above regulatory requirements, providing substantial capital headroom for future growth. Gearing remained conservative at 1.39 times.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including:

(i) Debtors Turnover	: Not applicable, being an NBFC
(ii) Inventory Turnover	: Not applicable, being an NBFC
(iii) Interest Coverage Ratio	: Not applicable, being an NBFC
(iv) Current Ratio	: Not applicable, being an NBFC
(v) Debt Equity Ratio	: 1.39 times
(vi) Operating Profit Margin (%)	: Not applicable
(vii) Net Profit Margin (%)	: 17.57%

Debt Equity Ratio, as on March 31,2026 increased compared with the previous year, mainly on account of increased Debt as on date. The debt raise was in line with business requirements to support future disbursements.

Net Profit Margin increased during FY26, mainly due to exceptional gain from sale of home loan subsidiary. However, company observed higher overhead cost in FY26 due to expansion in branches and increased head count in FY 26.

Details of any change in Return on Net Worth as compared to the immediately previous financial year, along with a detailed explanation thereof

The return on Net Worth improved during the year mainly due to increase in net profit for FY26. Further, the Net Worth increased by INR 47.78 Crores.

Strategic Path to Expansion and Diversification

CIFLs strategic priorities are focused on accelerating secured MSME lending, scaling the distribution network, diversifying the borrowing franchise and enhancing technology-enabled credit delivery.

Accelerating Secured MSME Lending:

The Company will continue to deepen its MSME lending portfolio, focusing on increasing the share of granular retail credit through Affordable LAP and Prime LAP products. Portfolio diversification across product types, geographies and customer segments is expected to strengthen asset quality and reduce concentration risk.

Scaling Distribution: The expansion of the branch network from 29 to 46 branches during FY26 establishes the operational infrastructure for the next phase of growth. The Company plans to deepen its presence in existing markets

while selectively entering new states, with a focus on Tier 2 and Tier 3 towns where MSME credit demand remains significantly underserved.

Improving Profitability and Operating Leverage: As the branch network matures and the portfolio scales, the Company expects to absorb front-loaded expansion costs through operating leverage. Continued improvement in yield, cost of funds and spread is expected to support the transition from the current investment phase to sustainable profitability.

Harnessing Leadership Expertise:

The Companys experienced leadership team, with deep domain expertise across lending, distribution, risk management and financial services, enables swift adaptation to evolving market conditions and identification of emerging opportunities across MSME customer segments.

Technology and Credit Lifecycle

CIFL operates a technology supported lending lifecycle designed for scalability, risk control and operational efficiency.

The four-stage lending journey comprises:

01. Hybrid Appraisal, combining advanced scoring models with onground verifications;

02. Multi-Layered Verification, with parallel tracks for RCU checks, legal assessment and technical valuations;

03. Final Underwriting, consolidating field data and financial analysis for informed sanction decisions; and

04. Loan Management and Collection, driven by a centralised lending management platform.

Credit assessment combines human intelligence with data driven models. Personal discussions with customers assess business viability beyond the balance sheet. On-site field evidence verifies operational legitimacy. Robust Risk Containment Unit checks ensure document authenticity and fraud prevention. Custom scoring models, calibrated for the unique income patterns and cash-flow characteristics of small businesses, support informed and risk-aware credit decisions.

The collection architecture operates with 100% mandate coverage through NACH and PDCs, supported by dedicated enforcement teams, zonal recovery reach and shared accountability between sales and credit functions for portfolio quality. The technology stack is designed for cost efficiency, leveraging digital tools and automation across sourcing, underwriting, collections and customer servicing.

Internal Control Systems and Their Adequacy

CIFL has established internal control systems commensurate with the scale, nature and complexity of its NBFC operations. The framework encompasses loan origination, credit appraisal, sanctioning, disbursement, collections, KYC and AML compliance, regulatory reporting, financial reporting, data integrity and asset safeguarding.

The internal control environment is supported by independent internal audits, management review and oversight by the Audit Committee of the Board. Audit observations and recommendations are reviewed periodically and corrective actions are implemented to strengthen the control environment. A continuous assessment of processes and systems supports proactive identification and mitigation of operational risks, fraud prevention and regulatory adherence.

The Company continues to evaluate and enhance its digital controls, process workflows and reporting systems to support operational efficiency, compliance discipline, portfolio monitoring and business resilience.

Risk Management Framework

Risk management forms an integral part of CIFLs business strategy and governance framework. The Company follows a structured risk management approach supported by defined policies, delegated approval mechanisms, portfolio monitoring, internal controls and Board-level oversight through the Risk Management Committee.

Credit and Portfolio Discipline:

The credit risk framework is supported by prudent underwriting standards, borrower assessment, collateral evaluation, delegated approval mechanisms, portfolio monitoring and collection oversight. Regular portfolio reviews enable the identification of emerging risks and the timely implementation of corrective action.

Technology-Enabled Monitoring:

Technology-enabled systems across loan processing, customer onboarding, portfolio monitoring, reporting, fraud prevention and risk analytics support operating efficiency, data integrity and control across the credit lifecycle.

Governance and Oversight: The Risk Management Committee and the Board of Directors provide oversight of risk policies, control mechanisms, key exposures and mitigation actions. Risk frameworks are periodically reviewed to ensure alignment with business objectives and regulatory requirements.