MAS Financial Services Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

ECONOMIC OVERVIEW

Global Economy

Titled A Rocky Recovery, the IMFs World Economic Outlook - April 2023 reported that on the surface, the global economy appears poised for a gradual recovery from the devastation caused by the pandemic and, later, the conflict between Russia and Ukraine. The reopening of the Chinese economy has also contributed to the rebound and supply-chain disruptions have been unwinding, while the dislocations to energy and food markets caused by the war are receding. However, it also observed that below the surface turbulence is building, and the situation is quite fragile, as evidenced by the recent bout of banking instability.

At the same time, the report pointed out that the large scale and synchronised tightening of monetary policy by most central banks should start to bear fruit, with inflation moving back toward its targets.

The IMF forecast that global growth will bottom out at 2.8% in 2023 before rising modestly to 3.0% in 2024. It also expects global inflation to decrease, although more slowly than initially anticipated, from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024.

The growth is expected to come from emerging market and developing economies, which are already powering ahead with growth rates that are nearer 4%. The advanced economies, especially the Euro area and the United Kingdom, are creating the drag with growth expected to fall to 0.7% and -0.4%, respectively, in 2023 before rebounding to 1.8% and 2.0% in the two regions in 2024.

The IMF cautioned that policymakers across the globe have a narrow path to walk to improve prospects and minimise risks. It suggested that fiscal policymakers should buttress monetary and financial policymakers actions in getting inflation back to target while maintaining financial stability. Overall, it advised that governments should aim for a tight stance while providing targeted support to those struggling most with the cost-of-living crisis.

Indian Economy

Despite the distressed global economic landscape, the Indian economy is expected to grow at a robust 7% (in real terms) during the year ending March 2023, after posting a growth of 8.7% in FY 2021-22 according to the Economic Survey - 2023.

Some of the growth drivers were the credit growth to the MSME sector, which was remarkably high, at over 30.5% on average, during Jan-Nov 2022. The capex of the central government, which increased by 63.4% in the first eight months of FY 2022-23, was another growth driver of the Indian economy. The optimistic growth forecasts also stem from a number of positives like the rebound of private consumption, which led to a boost in production activity.

Another factor that contributed to growth was the nearuniversal vaccination coverage, which enabled people to spend on contact-based services, such as restaurants, hotels, shopping malls, and cinemas. Private consumption as a percentage of GDP stood at 58.4% in Q2 of FY 2022-23, the highest among the second quarters of all the years since FY 2013-14, supported by a rebound in contact-intensive services.

The return of migrant workers to cities, to work in construction sites, led to a significant decline in housing market inventory. This was also supported by a strengthening of the balance sheets of corporates and the robust capitalisation of public sector banks, which were ready to increase their credit supply.

While several advanced economies struggling with banking sector turmoil, bank failures, and contagion risks, the Indian banking and non-banking financial service sectors remained healthy, and financial markets evolved in an orderly manner, according to the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI).

Outlook

The Indian economy is expected to witness GDP growth of 6.0% to 6.8% in FY 2023-24, depending on the trajectory of economic and political developments globally, according to the Economic Survey 2023. The survey also projects a baseline GDP growth of 6.5% in real terms in FY 2023-24. The RBI projects headline inflation at 6.8% in FY 2022-23, which is outside its target range. A surge in the growth of exports in FY 2021-22 and the first half of FY 2022-23 resulted in acceleration in production.

Looking ahead, the RBI MPC expects that higher rabi production will improve the prospects for the agriculture sector and rural demand, while steady growth in contact-intensive services is likely to drive urban demand. If these impulses play out, the consumption story will continue to power growth. Moderating commodity prices are also providing tailwinds.

Manufacturing and investment activity are expected to provide a strong thrust to growth, with the governments focus on capital expenditure and capacity utilisation reaching above its long-period average. The only concern is that despite the positive outlook, the global headwinds could impact the Indian economy through a drag from net external demand.

To monitor these positive and negative risks, the RBI assured that it will continue to balance financial conditions in line with the productive requirements of the economy, even as monetary policy moves decisively to withdraw accommodation. The MPC predicts real GDP growth of 6.5% for 2023-24, with the overall outlook remaining dynamic and fast-evolving.

INDUSTRY OVERVIEW

Financial Services Industry

The Indian financial services industry is a dynamic and evolving sector, poised for further growth and innovation. It is a vital component of the countrys economy, providing a range of financial products and services to individuals and businesses alike. The sector has seen significant growth in recent years, expanding into segments that were previously underserved or overlooked in a bid to promote financial inclusion. The industry is diverse, with a mix of traditional players such as commercial banks, insurance companies, and NBFCs, along with newer entities such as payment banks and small finance banks. The sector is well-regulated by the RBI, which has also allowed fintech companies to enter the fray, bringing innovation and efficiency to the industry. The adoption of digital technology has been a game-changer, enabling organisations to enhance customer engagement and deliver services with speed and transparency.

According to IBEF, rising incomes in India are driving the demand for financial services across income brackets. Further, there are over 2,100 fintechs operating currently, positioning India to become one of the largest digital markets, aided by the rapid expansion of mobile and internet.

NBFCs in India

The Non-Banking Financial Companies (NBFCs) sector plays a significant role in the Indian economy, providing credit to individuals, small and medium-sized enterprises, and rural areas, among others. NBFCs have emerged as a key segment in the financial sector, bridging the gap between banks and borrowers who are underserved or excluded from traditional banking services. In recent years, the sector has witnessed significant growth, fuelled by a rise in demand for credit and the emergence of new players. The sectors resilience and ability to innovate have been tested during times of economic turmoil, such as the COVID-19 pandemic.

As the economy has moved past the impact of the pandemic, the NBFCs sector is anticipated to experience a substantial growth in both FY2023 and FY2024, following the rebound of the economy. ICRA Ratings predicts that during these fiscal years, the sector will witness a loan growth of 10-12% and a rise in profitability by 50 basis points. The PCA framework implemented by RBI has created a level playing field for NBFCs with banks, thus enhancing corporate governance and leading to sustainable growth in the sector.

Retail-focussed NBFCs are expected to grow by 12-14%, whereas housing finance companies are expected to grow at 10-12%, primarily due to an improvement in asset quality and an increase in overall credit demand. Microfinance and personal loans are likely to continue growing at a high pace and lead the growth chart.

The report reveals that the NBFC sector has witnessed an improvement in asset quality, with higher collections and a lower-than-anticipated share of restructured portfolio. ICRA envisages that the majority of stress from the restructured book is likely to be absorbed in FY 2022-23 and slippages are expected to remain range-bound.

The rising interest rates may put some pressure on net interest margins, but this impact has been offset by the limited rate hikes passed on to borrowers. With stable margins and moderation in credit cost, NBFCs are expected to report a return of 2.6-2.9% on managed assets in FY2023.

MSME Sector

Micro, Small and Medium Enterprises (MSMEs) are a crucial contributor to the Indian economy, accounting for around 30% of the countrys GDP, 48% of its exports, 95% of industrial units, and 40% of employment in India. There are approximately 633.9 lakh MSME units in the country. Despite facing unprecedented challenges due to the pandemic, the MSMEs in India have evolved, grown, and emerged stronger. Forward-looking businesses in the segment have adopted new technologies, digitisation, and branding via online channels, breaking out of traditional ways of doing business.

A recent survey titled MSME Digital Readiness Survey 2022 by PayPal revealed that 52% of small businesses saw a favourable influence of digitalisation on their business once economies reopened after two years of the pandemic. To enable smaller companies to raise capital through the stock markets, both the BSE and the NSE have established separate trading platforms called SME exchanges. The founder of MSME, a micro-advisory platform, expects over 10,000 companies to list on the SME Exchange in the next five to ten years. Moreover, the Union Budget 2023 has announced several proposals to promote inclusive development and faster growth in the entrepreneurship ecosystem of the nation.

Key proposals for the MSME sector include budget allocation of around Rs.22,140 crore, tax incentives, subsidies, Rs.10,000 crore fund for technology and infrastructure development, a national-level mentorship programme, easier access to credit, and reforms to reduce the credit cost. Furthermore, the budget has established funds for promoting entrepreneurship and enterprise development in traditional sectors like agriculture and handicrafts along with skill building, creating a more enabling environment for MSMEs.

Housing Finance

The housing finance market in India is evolving, with various players offering finance for homebuyers. However, HFCs continue to dominate the market, and government initiatives and incentives for affordable housing could further increase the demand for housing finance.

Over the years, the government has initiated various reforms that have led to a rise in incomes and standards of living across the country. This, and other trends, such as a budding preference for nuclear families, job mobility, etc., have resulted in an increase in housing, over and above the existing demand-supply gap. Banks and housing finance companies (HFCs) are the two financial players that predominantly cater to the financing needs of the Indian housing market. While public and private sector banks, along with foreign banks, provide loans to prospective home buyers, the home mortgage finance market in India is largely dominated by HFCs.

The demand for housing is not limited to urban areas, and there is a need for affordable housing in rural regions as well. To address this demand-supply mismatch, there may be special incentives for customers and builders in this segment. Government initiatives such as Housing for All have also created demand for housing finance, especially in the low-income segment.

According to ANAROCK data, 2022 witnessed record high housing sales and new launches across the top 7 cities in India. The Union Budget - 2023 has further increased the outlay for PM Awas Yojana by 66% to Rs.79,000 crore. This increase in allocation could trigger acceleration in the demand for housing loans, especially in the lower-income segment.

Automobiles

Indias strong engineering talent base and low-cost manufacturing expertise has made the country an attractive global manufacturing and export hub. According to the Society of Indian Automobile Manufacturers (SIAM), a leading automobile industry body, the automobile sector produced a total of 2.59 crore vehicles, including Passenger Vehicles,

Commercial Vehicles, Three-Wheelers, Two-Wheelers, and Quadricycles in April 2022 to March 2023, as against 2.3 crore units in April 2021 to March 2022.

In India, two segments dominate the domestic auto market in India - Two-wheelers and passenger vehicles. Total Passenger Vehicle Sales increased from 30.69 lakh to 38.9 lakh units with the sales of Passenger Cars also increasing from 14.67 lakh to 17.47 lakh, Utility Vehicles from 14.89 lakh to 20.03 lakh and Vans from 1.13 lakh to 1.39 lakh units, in FY 2022-23, compared to the previous year.

Automobile Domestic Sales Trends

						(in numbers)
Category	2017-18	2018-19	2019-20	2020-21	2021-22 :
Passenger Vehicles	32,88,581	33,77,389	27,73,519	27,11,457	30,69,499	38,90,114
Commercial Vehicles	8,56,916	10,07,311	7,17,593	5,68,559	7,16,566	9,62,468
Three-Wheelers	6,35,698	7,01,005	6,37,065	2,19,446	2,60,995	4,88,768
Two-Wheelers	2,02,00,117	2,11,79,847	1,74,16,432	1,51,20,783	1,34,66,412	1,58,62,087
Quadricycles	0	627	942	-12	124	725
Grand Total	2,49,81,312	2,62,66,179	2,15,45,551	1,86,20,233	1,75,13,596	2,12,04,162

Source: SIAM

According to a report by Technova, amidst the global energy crisis and continued supply-chain disruptions, the automotive industry players are exploring options to reintroduce the sector. By implementing cloud computing and electric vehicles technology, the industry is entering fast into a revolutionised age with the primary aim of offering the consumer a value-added experience.

Automobile Export Trends

Category	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
Passenger Vehicles	7,48,366	6,76,192	6,62,118	4,04,397	5,77,875	6,62,891
Commercial Vehicles	96,865	99,933	60,379	50,334	92,297	78,645
Three-Wheelers	3,81,002	5,67,683	5,01,651	3,93,001	4,99,730	3,65,549
Two-Wheelers	28,15,003	32,80,841	35,19,405	32,82,786	44,43,018	36,52,122
Quadricycles	1,605	4,400	5,185	3,529	4,326	2,280
Grand Total	40,42,841	46,29,049	47,48,738	41,34,047	56,17,246	47,61,487

According to IBEF, India is a major exporter of automobiles worldwide, exporting 24% of total vehicles produced as of FY2022. Indian automobile exports comprise two-wheelers, three-wheelers, commercial vehicles, and passenger cars. Various initiatives from the government for instance, Make in India, strong connectivity, availability of infrastructure and relations with key trade partners have contributed to an increase in exports over the years. Strong demand for vehicles owing to the recovery of the economy and alleviation of supply chain-related issues helped increase exports.

COMPANY OVERVIEW

MAS Financial Services Limited was founded in 1995 and is a registered Non-Banking Finance Company (NBFC) regulated by the Reserve Bank of India (RBI). The Company operates out of Ahmedabad and specialises in providing retail financing services to the lower and middle-income groups of society. Over the past two and a half decades, MAS has been dedicated to serving the financially underserved masses across urban, semi-urban, and rural areas, both in the formal and informal sectors of the economy.

MAS offers a diverse range of retail finance products to cater to the varied needs of its customers. These include Micro Enterprise Loans, SME Loans, Two-Wheeler Loans, Commercial Vehicle Loans, Salaried Personal Loans, and Home Loans. The Companys operations are built on the foundation of a highly experienced management team, a huge borrower base, a diverse product mix, efficient liability management, and a well-spread branch network.

Distribution Network

The Company has established a strong distribution network to provide its customers with top-quality services at their convenience. Its operations span across 149 branches, strategically located in Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Chhattisgarh, Tamil Nadu, Karnataka, and Delhi NCR. This widespread network enables the Company to serve the underserved and capture a significant share of the untapped demand in the hinterlands by providing last-mile delivery of credit.

The Companys in-depth market knowledge has helped it establish strong and time-tested connections with MFIs, HFCs, and other NBFCs that offer similar products. By forging robust value chains, MAS has been able to extend its financial services to the underpenetrated regions and the Bottom of the Pyramid (BOP) segment. Its mission is to penetrate the informal financial sector and promote inclusivity by leveraging its distribution network and channel partners.

As of March 31, 2023, MAS had catered to over 7,58,000+ active loan accounts across more than 9,250+ customer locations through its robust branch network.

Partnerships with Various NBFCs

MAS has adopted a strategic partnership model to ensure mutual success for all stakeholders - the Company, its partners, and customers. In this model, MAS collaborates with various NBFCs, offering its domain expertise and lines of credit, while partners undertake last-mile credit delivery more effectively. This approach helps build stronger networks and fosters customer trust. Additionally, leveraging the operational efficiency and customer relationships of its partners in relatively remote areas of India allows MAS to improve its customer base without excessive investments in physical infrastructure.

The model aims to help target clients approach the informal financial sector to meet their financing needs. Furthermore, MAS has established commercial arrangements with various sourcing partners, providing a guarantee for a part of a loan default. These revenue-sharing arrangements offer a relatively stable revenue source for the sourcing partners, making them attractive.

As of March 31, 2023, MAS had 268 sourcing intermediates for its Commercial Vehicle Loans and 242 for its Two-Wheeler Loans.

The Companys business expansion can be attributed to its strong and innovative partnership with NBFCs and NBFC-MFIs, which has resulted in the development of a unique and robust distribution network. This has not only strengthened the Companys pan-India presence but also mitigated the risk of overdependence on any one partner. Furthermore, this partnership model helps to control operating expenses and maintain credit quality, as the

NBFC partner is responsible for both sourcing the end- customer and managing the risk of default.

As of March 31, 2023, the Company had 148 strategic partner NBFCs. Out of the 148 partners in FY 2022-23, around 47.97% fall within the AUM range of Rs.50 - Rs.500 crore allowing the Company to reach a larger customer base in remote geographies and considerably reducing the turnaround time for extending credit to customers. Moreover, majority of its partners maintained a healthy Capital Adequacy Ratio (CAR) of more than 20%, which is well above the threshold limit.

BUSINESS PERFORMANCE

MAS offers a diverse range of financial products and services and is in a strong position to meet the financial needs of customers in the low and middle-income segments.

Performance of various Product Offerings MSME Loans

Micro-Enterprise Loan (MEL)

MAS offers loans to small enterprises spread across 190 business categories, including retailers, traders, small manufacturers, and service providers. The ticket size of these loans ranges from Rs.0.5 lakh to Rs.10 lakhs.

Small & Medium Enterprises (SME) Loan

The Company offers loans to SMEs engaged in manufacturing, trading, or services, for the purchase of fixed assets, like machinery or industrial property, and for their working capital requirements such as purchase of stock, replacing trade credit, etc. The ticket size of these loans ranges from Rs.10 lakhs to Rs.3 crore.

In FY 2022-23, MAS provided loans amounting to Rs.4,766.39 crore as MEL loans and Rs.3,117.80 crore as SME loans. The AUM for MEL loans stood at Rs.3,874.16 crore and SME loans stood at Rs.2,986.66 crore as on March 31, 2023 as compared to Rs.3,249.38 crore and Rs.2,274.80 crore respectively as on March 31,2022.

Two-Wheeler and Commercial Vehicle Loans

Two-Wheeler Loans

MAS offers two-wheeler loans to farmers, self-employed, businessmen, professionals, and salaried customers in urban, semi-urban, and rural areas. The ticket size of these loans ranges from Rs.25,000 to Rs.1.50 lakhs.

Commercial Vehicle Loans

The Company provides for the purchase of commercial vehicles. The ticket size of loans for the purchase of old/new commercial vehicle ranges from Rs.1 lakh to Rs.15 lakhs.

MAS also assists individuals and businesses in buying bikes for personal use or to expand their transport/distribution business. In FY 2022-23, MAS provided loans amounting to Rs.912.69 crore.

AUM for Commercial Vehicles and Two-Wheeler Loans stood at Rs.926.84 crore as on March 31, 2023 in comparison to Rs.722.62 crore as on March 31, 2022.

Salaried Personal Loans

MAS entered a new product segment of Salaried Personal Loans during Q2 of FY 2022-23. It provides loans of up to Rs.5 lakhs to the salaried individuals of the approved companies to satisfy their needs. In FY 2022-23, MAS provided loans amounting to Rs.331.97 crore as Salaried Person Loans. AUM for Salaried Personal Loans stood at Rs.304.90 crore as on March 31, 2023.

Housing Loans

MAS Rural Housing & Mortgage Finance Ltd. (MRHMFL) is a subsidiary of MAS. It was set up as a Housing Finance Company (HFC) in 2008, to provide affordable housing loans to customers in the low and middle-income group, especially in semi-urban and rural areas. MRHMFL offers housing loans to customers for the purchase, construction, or renovation of their homes. It also extends loans to developers for the construction of affordable housing projects. In FY 2022-23, MRHMFL provided housing loans amounting to Rs.175.14 crore.

As on March 31,2023, the AUM for MRHMFLs business stood at Rs.413.34 crore as compared to Rs.314.15 crore as on March 31,2022.

				(Amount in Rs.Crore)
Particulars	Standalone		Consolidated
	Year Ended on March 31, 2023	Year Ended on March 31, 2022	Year Ended on March 31, 2023	Year Ended on March 31, 2022
		(Restated)		(Restated)
Revenue from Operations	946.09	655.57	987.83	690.24
Other Income	3.00	1.51	2.43	0.93
Total Income	949.09	657.08	990.26	691.17
Total Expenditure	684.39	445.78	718.61	474.62
Profit Before Tax	264.70	211.30	271.65	216.55
Provision for Taxation (Including Current Tax, Deferred Tax & Income Tax of earlier Years)	63.74	53.75	65.83	55.35
Net Profit	200.96	157.55	205.82	161.20
Profit Brought Forward	533.21	422.28	537.08	425.33
Net Profit after profit attributable to minority shareholders	-	-	(2.56)	(1.97)
Item of other comprehensive income recognised directly in retained earnings - on defined benefit plan	0.04	(0.08)	0.05	(0.07)
Profit Available for Appropriation	734.21	579.75	740.39	584.49
APPROPRIATIONS:
Transfer to reserve u/s 45-IC of RBI Act, 1934	(40.19)	(31.51)	(40.19)	(31.51)
Transfer to reserve u/s 29-C of NHB Act, 1987	-	-	(1.16)	(0.87)
Final Dividend on Equity Shares	(9.57)	(8.20)	(9.57)	(8.20)
Interim Dividend on Equity Shares	(9.84)	(6.83)	(9.84)	(6.83)
Dividend distribution tax on Equity Shares	-	-	-	-
Surplus Balance carried to Balance Sheet	674.61	533.21	679.63	537.08

Note: Till the quarter ended 31st December, 2022, the Company opted a prudent practice of amortising the income over the tenure of loans assigned instead of booking it upfront. This practice in managements view ensures true and fair financial position of the Company. The same is a deviation from the Ind AS 109 Financial Instruments. However, during the quarter ended March 31, 2023, the Company has received a directive from the Reserve Bank of India to book such gain upfront in the statement of profit and loss in accordance with Ind AS 109 instead of amortising it over the period of the underlying residual tenure of the assigned loan portfolio. Please refer note 32 of the standalone financial statements for detailed explanation on changes in accounting policy.

Details of significant changes in Key Financial Ratios

During FY 2022-23, Operating Expense Ratio (OE Ratio) witnessed a change exceeding 25% or more as compared to the immediately previous financial year. For FY 2022-23 on a standalone basis, the Companys Operating Expense Ratio was 2.18% as compared to 1.59% for FY 2021-22. The cognizable change in the Operating Ratio on a comparable basis can be contributed to the expenses incurred on strengthening and expansion of branches, centers, employees, and partnerships including Fintech.

Details of changes in Ratios

On a standalone basis, during FY 2022-23, the Net Interest Margin (%) stood at 6.92% as compared to 6.53% in FY 202122. The Debt Equity Ratio was 3.92 times as compared to 3.39 times for FY 2021-22. The Interest Coverage Ratio was 1.56 times in FY 2022-23 as compared to 1.66 times for FY 2021-22. The Companys return on net worth improved to 15.25% as compared to 13.64% for FY 2021-22 due to operational efficiency and increase in profitability.

LIABILITY MANAGEMENT

MAS considers liability management as a critical function. Prudent liability management has enabled the Company to tide over challenges within the industry, as well as raise adequate liability as per regulatory requirements.

Over the years, the Company has established strong bonds and long-standing relationship with leading banks and various financial institutions. It intends to leverage its strong reputation, fund management experience and expertise to deliver benefits for its clients and value for its stakeholders. The Company continued to efficiently manage its Asset Liability Management (ALM) with a strategy of a judicious mix of borrowings between term loans, debentures, direct assignment, and cash credit.

As on March 31, 2023, the total borrowings of the Company stood at Rs.5,908.21 crore. Around 85% of the asset portfolio comprises of MSME loans, which qualifies as Priority Sector Lending. The Company aims to maintain 20% to 25% of AUM as off book through direct assignment and co-lending transactions, which is with door-to-door maturity and without recourse to the Company. This further strengthens the liability management.

Following prudent practices, the total Cash credit limit available to the Company is Rs.1,690 crore spread across 14 banks. The utilisation level is maintained at 65% - 70% of the total Cash Credit Facility, ensuring sufficient liquidity on hand.

As on March 31, 2023, the Company had a liquidity buffer of around Rs.800 crore and an unutilised Cash Credit facility of around Rs.375 crore. In addition, the Company has a sanction on hand to the tune of Rs.1,250 crore in the form of Term Loan, NCD and Direct assignment.

MAS has also assessed its structural liquidity for the period ended March 31,2023 and concluded that there is no negative impact on liquidity and the cash flow.

The Company has also stress-tested its liquidity model and is comfortably placed to meet its repayment obligations for the entire year.

RESOURCE MOBILISATION

Share Capital: As on March 31, 2023, the issued and paid-up Equity Share Capital of the Company stood at Rs.54.66 crore consisting of 5.46 crore Equity Shares of Rs.10 each.

Term Loan: For FY 2022-23, the Company availed term loans amounting to Rs.2,563.50 crore with an average tenure around of 4 years.

Assignment of Loan Portfolio/Co-Lending: For FY 2022-23, the Company has done assignment of portfolio/co-lending to the tune of Rs.1,674.41 crore.

Non-Convertible Debentures (NCDs): For FY 2022-23, the Company has issued NCDs (Including Subordinated Debentures of Rs.160 crore) to the tune of Rs.510 crore.

CREDIT RATINGS

For FY 2022-23, the below credit rating was obtained from:

Acuite Ratings & Research

Acuite has reaffirmed its long-term rating of ACUITE AA- (read as ACUITE double A minus) on the Rs.4,500 crore bank facilities with Stable Outlook.

Acuite has assigned its long-term rating of ACUITE AA-(read as ACUITE double A minus) on the Rs.1,500 crore bank facilities with Stable Outlook.

Acuite has reaffirmed its short-term rating of ACUITE A1+ (read as ACUITE A one plus) on the Rs.300 crore Commercial Paper Programme.

CARE Ratings

CARE has reaffirmed its rating of CARE A+ (read as Single A Plus) on the Rs.6,000 crore Long Term Bank Facilities with Stable Outlook.

CARE has reaffirmed its rating of CARE A+ (read as Single A Plus) on the Rs.250 crore Non-Convertible Debenture (NCD) Issue with Stable Outlook.

CARE has reaffirmed its rating of CARE A1+ (read as A One Plus) on the Rs.250 crore Commercial Paper Issue.

CARE has reaffirmed its rating of CARE PP-MLD A+ (read as Principal Protected-Market Linked Debentures Single A Plus) on the Rs.475 crore Principal Protected Market Linked Debenture (MLD) Issue with Stable Outlook.

CARE has assigned its rating of CARE PP-MLD A+ (read as Principal Protected-Market Linked Debentures Single A Plus) on the Rs.300 crore Principal Protected Market Linked Debenture (MLD) Issue with Stable Outlook.

CARE has assigned its rating of CARE A+ (read as Single A Plus) on the Rs.200 crore Subordinated bonds Facilities with Stable Outlook.

CARE has reaffirmed its rating of CARE A+ (read as Single A Plus) on the Rs.200 crore Subordinated bonds Facilities with Stable Outlook.

CAPITAL MANAGEMENT

MAS is committed to maintaining a strong and stable financial position, with a focus on maximising returns on capital employed while adhering to RBI guidelines. The Company employs prudent capital management strategies to achieve this objective and continuously seeks to improve its practices in order to strengthen its balance sheet. By maintaining a healthy balance between risk and return, MAS can provide sustainable value to its stakeholders while maintaining a stable and robust financial position.

CREDIT AND RISK MANAGEMENT

MAS acknowledges that risk management is a crucial aspect of its operations. The Company recognises that risks can originate from both internal and external sources, and has instituted various measures to identify, evaluate, and mitigate these risks.

MAS defines its risk appetite, functional policies, and key risk indicators (KRIs) to explicitly determine the level and nature of risk that it is willing to take. The Companys risk management structure proactively identifies and addresses risks through risk assessment, a risk catalogue, a risk appetite framework, risk planning, risk culture, internal controls, and good governance.

To mitigate credit risk, MAS has developed customised credit analysis procedures for each product based on customer nature, loan purpose, and loan amount. The risk and collection department continuously align credit and collection policies, and resourcing, obtaining external data from credit bureaus, and regularly reviewing portfolios and delinquencies by senior and middle management teams. Additionally, MAS maintains sufficient spreads, offers relatively short tenure loans, and resets lending rates periodically to mitigate the risk of interest rate volatility.

At the end of FY 2022-23, the net NPAs of the Company stood at 1.52% of total AUM. During the year under consideration, it has extended loans with an average tenure of 22 months. Besides, MAS has a well-diversified portfolio of borrowers within its business segments. The inter-segment and intrasegment diversity applies to a very large market size, serves as a very potent protection against market risks that could occur due to various macro-economic developments. Moreover, the Company on a regular basis tracks the market developments and undertakes appropriate actions whenever required.

OPPORTUNITIES & THREATS

MAS constantly monitors the external environments and internal situation so that it is aware of the opportunities and threats that emerge. This enables the Company to tap into the positive prospects that come its way while overcoming or bypassing the challenge of threats.

Opportunities

• Diverse loan book and pan-India presence to accelerate growth

• Unique Business Model helps to minimise risk and operating cost

• Adequate capitalisation to support medium-term growth plans

• Brand recognition among lower income and middle- income groups of the society spread across urban, semi urban, and rural areas

• Operates in underpenetrated business segment with huge growth potential

• Successful track record of catering to the MSME sector

• Initiatives by the Government to further boost MSME sector

Threats

• Unpredictable policy changes by the Government

• Increasing competition from local and global players

• Higher exposure to semi-formal and informal sector customers

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

MAS has adequate internal controls and standardised operating processes that are envisaged to protect assets and business efficiency. The Company has established strong and well-entrenched internal control procedures commensurate with its size and operations and relevant to its broad domain of the lending business.

Internal financial controls have been developed for and implemented at every business process across the Company. This ensures strict adherence and compliance with statutes and laws. Checks and balances and control systems have been established to ensure that assets are safeguarded, utilised with proper authorisation, and recorded in the books of account. The Company takes a complete view of the credit assessment process by framing credit screens based on reliable demographic data and strict adherence of the same with an element of adaptability. At the same time, there is no compromise on the fundamentals of extending credit, where it is outstanding.

MAS is continuously strengthening its due diligence, audit process, evaluation, and the exposure matrix for all its NBFC partners. Internal controls also include regular monitoring of operational expenditure with an endeavour to bring it down through improved efficiencies. The efficacy and adequacy of internal controls and their execution are driven by the ethos of striving for constant improvement. The Companys Audit Committee reviews the internal control system and looks into the observations of the statutory and internal auditors. This includes review of policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business and fixing responsibility against all the controls. The management tests the controls across processes and redressal of any deviations in business operations is undertaken. The Audit function provide reasonable assurance regarding the effectiveness and efficiency of operations, safeguarding of assets, reliability of financial records and reports and compliance with applicable laws and regulations.

HUMAN RESOURCES

MAS recognises the crucial role played by its employees in driving its growth and success. To this end, the Company prioritises providing a supportive work environment that fosters employee satisfaction and motivation to achieve both personal and professional goals. MAS has cultivated an inclusive work culture that values responsibility and instils a sense of pride in its employees, resulting in a high retention rate.

The Company regularly reviews its business and people policies to identify opportunities for improvement. It has implemented strong talent management practices that include development programs, productivity initiatives, and reward mechanisms aimed at achieving organisational goals and retaining employees. Furthermore, MAS is committed to supporting the continuous growth and development of its workforce through Learning & Organisational Development initiatives.

MAS also upholds the highest standards of corporate governance, with its leaders and management team demonstrating proactive involvement in the Companys strategic direction. The senior management team consists of seasoned lending professionals with long-standing associations with MAS.

As on March 31,2023, the employee strength of the Company stood at 1,154.

OUTLOOK

NBFCs are becoming increasingly important players in the financial sector, as they cater to the needs of previously overlooked or underserved segments of the population. Their market share and product range are expected to expand as they target this vast and growing segment. Digital tools and technology are already being used by NBFCs to enhance their efficiency and customer outreach, and their clients will continue to use their services as they rise in economic status, provided they have positive experiences and are offered suitable products.

In this dynamic landscape, MAS has a clear path forward in terms of its approach to asset creation and liability management. It plans to continue serving the LIG and MIG class of customers in rural, semi-urban, and urban areas, focussing on SME and housing finance as key growth drivers. The Company intends to prioritise asset quality and profitability to enhance shareholder value, with growth expected to remain in the range of 20% to 25% over the next five years.

To achieve this growth and maintain healthy returns, MAS seeks to strengthen its distribution network in existing states and explore potential opportunities in new geographies. It plans to maintain an ideal debt resource mix and ensure continuous flow of funds while optimising the use of capital. The Company also prioritises operational excellence and is committed to learning and improving efficiency in all areas of operation.

DISCLOSURE OF ACCOUNTING TREATMENT

Till the quarter ended 31st December, 2022, the Company opted a prudent practice of amortising the income over the tenure of loans assigned instead of booking it upfront. This practice in managements view ensures true and fair financial position of the Company. The same is a deviation from the Ind AS 109 Financial Instruments. However, during the quarter ended March 31, 2023, the Company has received a directive from the Reserve Bank of India to book such gain upfront in the statement of profit and loss in accordance with Ind AS 109 instead of amortising it over the period of the underlying residual tenure of the assigned loan portfolio. Please refer note 32 of the standalone financial statements for detailed explanation on changes in accounting policy.

CAUTIONARY STATEMENT

This document contains statements about expected future events, financial and operating results of MAS, which are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the assumptions, predictions, and other forwardlooking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of the Companys Annual Report FY 2022-23.