Spandana Sphoorty Financial Ltd Management Discussions

Spandana Sphoorty Financial Limited (Spandana) is a rural-focused non-banking financial company and microfinance lender (NBFC-MFI) with a widespread presence across India. Our core mission revolves around providing income-generating loans through joint liability group (JLG) model, primarily targeted at empowering women from low-income rural households. As part of our growth strategy, we are diversifying our product offerings to include LAP and Nano loans through our subsidiary.

The microfinance landscape in India offers substantial opportunities for nationwide players, and as a prominent participant, we are cautiously optimistic about our trajectory. Our robust distribution network and liability franchise, complemented by technology and a skilled workforce, continue to develop positively. We are proactively taking strategic measures to fortify our sustainable journey.

Our renewed vision, mission, and values underscore our dedication to fostering financial inclusion and catalysing the socio-economic advancement of the nation.

1. MACRO-ECONOMIC OVERVIEW

The global economy has demonstrated resilience and adaptability, maintained steady growth while curbed inflation. This resilience highlights the worlds collective strength in overcoming post-pandemic supply chain issues, geopolitical tensions, and inflationary pressures.

In 2023, the global economy grew by 3.2%, indicating stability and future potential. Although slightly below the long-term average, this growth results from prudent monetary policies, reduced fiscal stimulus, and sustainable productivity improvements. Inflation is expected to moderate, with rates projected to decrease from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025, signalling a return to stable economic conditions. Advanced economies, especially in the Euro area, are set for recovery, while emerging markets continue to show strong growth, despite regional differences.

In this environment of gradual recovery, the global economy is confidently moving forward. With proactive policy interventions, there is a solid foundation for sustaining positive momentum and fostering inclusive growth worldwide. The future looks promising, and through continued collaboration and innovation, the global economy is well-equipped to prosper.

Global Economic Growth (in %)

	Year-on-Year
	Estimate	Projections
	2023	2024	2025
World	3.2%	3.2%	3.2%
Advanced Economies	1.6%	1.7%	1.8%
Emerging Market and Developing Economies	4.3%	4.2%	4.2%

Source: World Economic Outlook - April 2024, IMF Way forward

The global economic landscape is marked by a delicate balance of risks amidst lingering uncertainties. Geopolitical tensions, illustrated by conflicts in regions like Ukraine and Gaza, loom over the horizon, threatening to trigger price spikes and potentially unsettling interest rate expectations, thereby impacting asset values. Moreover, varying rates of disinflation across major economies could induce currency fluctuations, posing challenges to financial sectors worldwide. Additionally, the convergence of high interest rates, mounting household debt, and adjustments in fixed- rate mortgages poses risks to financial stability.

Central banks across the world assume a pivotal role as the global economy transitions towards a soft landing, demanding meticulous management of inflation. Additionally, theres a critical need to refocus on medium-term fiscal consolidation to create room for essential investments and ensure debt sustainability. Tailored policy responses, coupled with reforms aimed at boosting supply, are imperative to address inflation, reduce debt levels, promote higher growth rates, and narrow income disparities. Multilateral cooperation is essential to tackle challenges like geo-economic fragmentation, climate change, and debt restructuring, laying the groundwork for a sustainable and inclusive economic recovery and a brighter future.

Indian Economy

Indian economy maintains a healthy growth trajectory. Despite global economic headwinds, Indias GDP grew at 8.2% in FY 2023-24, marking the third consecutive year of over 7% growth. This robust performance is attributed to increased public sector investment, a resilient financial sector, and substantial expansion in non-food credit.

India has cemented its position as the worlds third largest fintech economy, trailing only the USA and the UK. Moreover, it has surpassed Hong Kong to claim the fourth spot in global stock markets. This achievement is owed to both domestic and international investor confidence, buoyed by sustained IPO activity. Initiatives such as the Skill India Mission, Start-Up India, and Stand-Up India have catalysed greater female participation in human capital development.

The governments economic policy agenda has been centred on revitalising Indias growth potential. This involves reinvigorating the financial sector, streamlining business conditions to spur economic activity, and significantly enhancing both physical and digital infrastructure to bolster connectivity and thereby boost the competitiveness of the manufacturing sector. Guided by this vision, the government has implemented a range of economic reforms aimed at fostering a business-friendly environment, enhancing ease of living, and fortifying governance systems and processes.

India has embarked on establishing digital infrastructure as a public good, leveraging it to enhance service delivery by private enterprises to citizens. This approach has facilitated efficient access to various services, spanning from financial system access to government subsidies and COVID vaccines, reaching even the most marginalised populations effectively. Central to this infrastructure is the Aadhar system, launched in 2009, providing a universal Biometric ID to 1.4 billion Indians. Aadhar authentication was pivotal in approximately 2.2 billion transactions in March 2023, including around 300 million Know Your Customer (KYC) verifications, reducing the cost of bank account openings and enabling 500 million new accounts in the past decade. Moreover, the Unified Payments Interface (UPI), introduced in 2016, has catalysed formalisation in the economy by making mobile payments seamless.

Indian Economy GDP Growth Rate

Way forward

India aspires to become a US$7 trillion economy by 2030. In the next three years, the country is expected to reach the milestone of a US$5 trillion economy, making it the third largest in the world. Additionally, the government has set an ambitious goal of transforming India into a developed country by 2047. India will sustain its upward growth trajectory, propelled by stable and robust domestic demand, expanding private consumption and investments, and ongoing structural reforms.

2. INDUSTRY OVERVIEW

Financial inclusion is a pivotal driver of economic growth, aiming to alleviate poverty across the nation. Banking services are becoming increasingly accessible to both privileged and disadvantaged individuals under favourable terms. However, a segment of society in developing economies remains excluded from financial services. Microfinance institutions play a crucial role in bridging this gap, thus becoming a vital priority for the countrys economic advancement and societal progress. By reducing the disparity between the rich and poor, financial inclusion contributes significantly to societal equilibrium.

The microfinance industry in India is a fast-growing sector that provides financial services to the unserved and underserved sections of society, especially in rural areas. Microfinance institutions (MFIs) in India provide small loans, savings, insurance, and other financial services to low-income individuals, microenterprises, and self-help groups. Here are some of the key roles played by MFIs in India:

Providing access to credit: MFIs provide small loans to low-income individuals, microenterprises, and selfhelp groups, who may not have access to traditional banking services. These loans help people start or grow small businesses, manage cash flow, and cope with emergencies.

Promoting financial inclusion MFIs promote financial inclusion by providing access to basic financial services such as micro-credit, small consumer durable loans and micro-insurance. This helps people build financial resilience and plan for the future.

Empowering women: Many MFIs in India focus on lending to women, who are often excluded from traditional banking services. By providing loans to women, MFIs can help promote gender equality and womens empowerment.

Supporting rural development: Since many MFIs operate in rural areas, they play an important role in supporting rural development by providing access to credit and other financial services. This can help create jobs, stimulate local economic growth, and reduce poverty.

Driving innovation: MFIs in India have been at the forefront of developing new business models, such as digital microfinance, that leverage technology to reach underserved communities more efficiently and effectively.

Overall, MFIs in India play a critical role in promoting financial inclusion and supporting economic development, especially in rural areas of India.

The Indian microfinance industry witnessed a substantial expansion in its loan portfolio during FY24. This growth underscores the sectors resilience and its pivotal role in providing financial access to underserved segments of the population. The sectors gross loan portfolio (GLP) or portfolio outstanding surged by 24.5% to Rs. 4.34 lakh crore as of 31 March, 2024, up from Rs. 3.48 lakh crore on 31 March, 2023. The total number of active loans accounts were 14.9 Crore with 7.8 Ci ore unique borrowers as on 31 March 2024.

NBFC-MFIs are the largest providers of micro-credit, with an outstanding loan amount of Rs. 1.7 lakh crore, accounting for 39.4% of the total industry portfolio. Fourteen barks hold the second-largest share of the portfolio in micro-credit, with a total outstanding loan of Rs. 1.4 lakh crore, which is 33.2% of the total microcredit universe.

Status of portfolio, unique borrowers and loan accounts

	31 March 2023			31 March 2024
Entity	Unique Borrowers (Cr)	Active loan accounts (Cr)	Portfolio O/s (Cr)	Unique Borrowers (Cr)	Active loan accounts (Cr)	Portfolio O/s (Cr)
NBFC-MFIs	2.9	5.1	1,38,310	3.9	6.0	1,70,903
Banks	3.2	4.7	1,19,133	3.4	5.2	1,44,022
SFBs	1.6	2.0	57,828	2.0	2.4	74,278
NBFCs	0.9	1.0	29,440	1.1	1.3	40,469
Others	0.1	0.2	3,629	0.1	0.1	4,026
Total	6.64	13.0	3,48,339	7.8	14.9	4,33,697

As of March 31, 2024, microfinance operations were present in 720 districts across 29 states and 7 union territories (UTs). The top 10 states, based on universe data, constitute 84.4% of the Gross Loan Portfolio (GLP). Bihar continues to be the largest state in terms of portfolio outstanding followed by Tamil Nadu and Uttar Pradesh.

Regional distribution of unique borrowers as on 31 March 2024

# Central	7%
# East and North East	32%
# South	27%
• West	17%
• North	17%

Regional distribution of AUM 31 March 2024

# Central	6%
# East and North East	32%
# South	31%
# West	16%
• North	15%

Overall health of portfolio (PAR 31-180 days) has slightly deteriorated to 2.0% as on March 31, 2024 in comparison to 1.5% as on March 31, 2023.

Since the RBI implemented the new harmonised MFI framework on April 1st, 2022, non-banking microfinance companies have seen a significant increase in market share. We anticipate this trend to continue going forward, driven by higher loan amounts for individual borrowers and the introduction of new products to meet evolving customer needs.

The shift from interest rate caps to risk-based pricing, the redefinition of household income, and the implementation of the 50% maximum financial- obligation-to-income ratio (FOIR) will support financial inclusion and limit borrower indebtedness. These measures will enhance the sector by improving yields, asset quality, and ultimately increasing profit margins.

Technology will play a crucial role in boosting efficiency within the microfinance sector. While not disruptive, technology will streamline processes. Many microfinance companies are leveraging technology to create seamless customer experiences and reduce service times for individual customers. Looking ahead, companies are exploring the use of AI and ML in customer profiling and credit decision-making.

The MFI sector is expected to maintain stable growth, supported by robust demand within the industry, increased economic activity, and a revival in consumer demand.

3. OPERATIONAL GROWTH Expanding our reach

During FY24, Spandana solidified its footprint by extending its reach to 1,559 branches spanning across 20 States and Union Territories, encompassing 408 districts. Our operations exhibit robust diversification at the branch, district, and state levels, fostering ample growth prospects for expanding our business in these regions and venturing into new territories. Throughout the year, we augmented our branch network by 35%, leveraging our extensive presence across India to connect with a broader customer base and extend our services to diverse communities. Notably, we operationalised 406 additional branches during this period, further enhancing our accessibility and outreach.

Growing customer base

With a consistent focus on customer acquisition- driven growth, we added approximately 13.12 lakh new borrowers during the year, taking our total customer base to 31.28 lakh as of March 31, 2024. We have been consolidating our presence in tier 3 - 5 geographies by taking our financial services to deep rural and semiurban locations where the presence of formal financing is sparse.

Improvement in disbursement

The total disbursement for the year amounted to Rs. 10,042 crore, an increase of 32% from the Rs. 7,624 crore disbursed in FY23. Over 50% of the total loans disbursed during FY24 was to borrowers new to Spandana. The market opportunity for microfinance remains strong and Spandana is well positioned to make the best of this opportunity by reaching out to many more unserved and underserved borrowers.

Strengthening our technology architecture

We are strengthening our cloud-native IT infrastructure to improve the user experience, facilitate insights- driven operations, fortify platform stability and security, embrace digital transformation, and enhance automation capabilities. Additionally, we are implementing advanced analytics to derive valuable insights and optimising our operations for efficiency. Security remains a top priority, ensuring that our systems operate in a secure environment.

Consistent Improvement in asset quality

We have reported a improvement in the quality of our portfolio over the quarters. Our Gross Non-Performing Assets (GNPA) decreased to 1.43% in March 2024 compared to 1.97% at the end of March 2023, while our Net Non-Performing Assets (NNPA) reduced to 0.29% in March 2024 from 0.59% at the end of March 2023. Our management of credit risks, coupled with our focus on enhancing the health of the loan portfolio, has yielded positive results. By the end of Q4FY24, our current book stood at 95.8%, decline from 96.9% reported at the end of Q4FY23. During the year, we launched Project Parivartan through which we intend to change a large portion of our microfinance business from monthly repayment model to a weekly repayment model. The projects footprint by the end of the year was in 750 branches covering about 17 Lakh borrowers (54% of borrower base) and 54% of AUM. Because of the scale of implementation of this project and the customer base impacted, there was a decline in Collection efficiency during the year which also resulted in flows into SMA buckets. We expect reduction in Spandanas delinquent books in the current fiscal year.

Bettering our Collection efficiency (CE)

We consistently promote timely repayments among our customers. The sustained improvement in our collection efficiency is attributed to our dedicated focus on staff training, incentive structures designed to incentivise adherence to processes and maintaining asset quality, as well as our regular client engagement initiatives. Our efficient processes and technology are further underscored by our gross collection efficiency reaching 100.1%, complemented by a net collection efficiency of 97.4% for FY24.

4. PORTFOLIO MIX

Managing portfolio risks is integral to the operations of a lending institution. To mitigate concentration risks, we have diversified across various ticket sizes and loan cycles. Our portfolio is carefully balanced, with a significant number of customers having advanced loan cycles, demonstrating our capacity to maintain longterm customer relationships. Additionally, our robust asset quality across different loan cycles underscores the effectiveness of our credit risk management practices.

Ticket size

In FY24, the average loan disbursal ticket size stood at Rs. 41,921 against Rs. 46,256 during FY23, reduction of 10% compared to the preceding year. We diligently strive to meet the needs of borrowers while upholding stringent controls on lending thresholds.

Loan outstanding

We ended the year with a new milestone in Assets Under Management (AUM), witnessing a 40% surge to Rs. 11,199 crore at the end of March 31, 2024, up from Rs. 7,980 crore recorded at the end of March 31, 2023. Moreover, the average loan outstanding per borrower decreased to Rs. 35,805 by the end of FY24, compared to Rs. 37,528 reported at the conclusion of FY23.

Increasing share of 6 Focus states

As part of Vision 2025, the management had identified states of Bihar, Uttar Pradesh, Rajasthan, West Bengal, Tamil Nadu and Gujarat as key states for the next phase of growth for the Organisation. The share of AUM of these focus states increased to 28% on a consolidated basis from 21% at the end of FY23. Disbursement and Customer addition share of these states was 30% and 39% respectively as against 21% disbursement and 29% customer addition during FY23.

Cycle-wise mix

We maintain a diversified loan portfolio spanning various loan cycles. Our loan offerings and procedures are meticulously crafted to facilitate easy borrowing and regular repayments for our customers. We remain dedicated to ensuring that our loan products consistently align with our customers needs. Approximately 51% of our borrowers are in their second cycle or beyond, underscoring the enduring value they find in our loan products and services. Through our customer-centric approach, we have cultivated sustainable relationships with our borrowers and laid a strong groundwork for new borrower connections.

Maintaining rural focus

Rural India presents significant opportunities for microfinance lending, particularly with the Governments heightened focus on rural development. Infrastructure projects tailored to rural areas and initiatives aimed at bolstering medium and small enterprises reflect growing confidence in microfinance lending within these underserved segments. At Spandana, our loan exposure is distributed as 85% in rural and 15% in urban areas, underscoring our active engagement in these regions. Our extensive experience with rural clients has demonstrated that the rural loan portfolio maintains healthy asset quality, characterised by timely repayments.

5. Product mix

At Spandana, our commitment lies in empowering women from low-income rural backgrounds through our diverse range of loan offerings. Among our flagship products is the Joint Liability Group (JLG) based micro-loans, tailored specifically to support Women Entrepreneurs. These small-scale loans, exclusively provided to women borrowers through Joint Liability Groups, serve as catalysts for envisioning a brighter future for themselves and their families. Beyond financial assistance, our loans cultivate trust, empowering these women to initiate or expand their entrepreneurial endeavours. We take immense pride in catalysing positive transformations in the lives of millions of our customers.

Furthermore, our Loan Against Property product (offered through subsidiary Criss Financial Limited) streamlines access to funds for small entrepreneurs as they embark on their next ventures. Whether it involves acquiring equipment, renovating or expanding office space, or investing in working capital, our loan facility allows entrepreneurs to leverage the value of their property and fulfil their business aspirations.

Our Nano Enterprises Loans (offered through subsidiary Criss Financial Limited) to micro and small business owners in mind, provides them with unsecured financing options. Our goal with these loans is to foster the growth and advancement of small-scale shopkeepers. Through these lending initiatives, we aspire to equip these entrepreneurs with the financial resources they need to scale and develop their businesses.

6. PORTFOLIO DIVERSIFICATION

Over the years, the microfinance industry has encountered numerous external events unfolding across various states, leading to transient periods of stress in industry portfolios. Risks include customer concentration, particularly when economic activities of customers overlap, as well as natural disasters like cyclones and floods. Industry participants, including Spandana, now appreciate the importance of diversification. Insights gleaned from experience and market knowledge have enabled major players to fortify themselves against external shocks by expanding their presence nationwide. At Spandana, weve implemented portfolio caps at branch, district, and state levels to shield the organisation from such high-impact events.

State level

Our loan portfolio spans across 20 states and union territories, ensuring a diversified exposure. At the end of FY24, none of these states held an exposure exceeding 14% of our Assets Under Management (AUM) at a consolidated level. To effectively manage concentration risk, we maintain internal benchmarks and limits to monitor our portfolio. The AUM concentration of top 4 states reduced from 57% at the end of FY22 to 51% at the end of FY24.

Additionally, we have implemented a cap on concentration risk relative to our total net worth. State- wise disbursements in FY24 also remained within the 15% limit.

District Level

In addition to managing risk concentration at the state level, we have established internal caps at the district level within each state to prevent any single district from exceeding 2% of the total Assets Under Management (AUM). 85.5% of our districts individually contribute less than 0.5% to the total AUM, signifying a minimised concentration risk. Our exposure to the top 10 districts accounts for just 12.7% of the AUM.

Exposure of Districts	As of March, 2024
% Contribution to Gross AUM	No. of Districts	% of Total Districts
< 0.5%	349	85.5%
0.5% - 1%	50	12.3%
1% - 2%	9	2.2%
>2%	-	-
Total	408
Exposure of Districts	As of March, 2024
Proportion of Total Disbursements	No. of Districts	% of Total Districts
< 0.5%	354	86.8%
0.5% - 1%	46	11.3%
1% - 2%	8	2.0%
>2%	-	-
Total	408	100%

 

Exposure of Districts	As of March, 2024
Buckets	AUM ( crore)	Proportion of Total AUM
Top 5 Districts	839	7.5%
Top 10 Districts	1,427	12.7%
Top 50 Districts	4,634	41.4%
Other Districts excluding top 50 districts	6,565	58.6%

Branch Level

Weve extended our risk management efforts down to the branch level, ensuring that no single branch surpasses 0.50% of the total Assets Under Management (AUM). With a proactive stance, weve remained vigilant in managing concentration risk and enhancing performance consistently. Our dynamic and ongoing risk management approach underscores the diversification of our loan portfolio. Notably, in FY24, 1,521 branches out of a total of 1,559 maintained exposure levels of less than 0.15% of the total AUM, showcasing our commitment to risk mitigation.

Exposure of Branch in FY24

Proportion of Gross AUM	No. of Branches	Proportion of Total Branches
<0.15%	1,521	97.6%
0.15%-0.25%	38	2.4%
>0.25%	-	-
Total	1,559	100%

7. PRODUCTIVITY METRICS

Enhancing productivity throughout our organisation remains one of the central pillar of our growth strategy. As of March 31, 2024, we maintain a strong presence in India with 1,559 branches, with an average AUM per branch of Rs. 7.18 crore. Average AUM for branches with a tenure of over 1 year was Rs. 9.2 crore at the end of FY24 vs. Rs. 8.0 crore at the end of FY23. Our opex to AUM ratio was flat at 6.76% in FY24 vs. 6.82% in FY23 on consolidated basis, attributed to various factors such as streamlined operations, standardised processes, increased technological integration, and enhanced productivity. All these efforts were partially offset by investments made in operationalising 460 new branches during the year and the manpower recruited for manning these branches.

Looking forward, we anticipate significant potential for improvement in our opex levels as we focus on augmenting AUM per branch and maximising employee productivity as the newly operationalised branches attain certain vintage. We remain focused in upholding a lean and efficient cost structure, enabling us to better serve our customers and generate sustainable longterm value for our stakeholders.

8. CONSOLIDATED FINANCIAL PERFORMANCE (IND-AS)

During FY24, we successfully raised a total of Rs. 10,441 crore from a diverse group of lenders, encompassing multiple new banks, NBFCs, other institutions, and even retail investors. We concluded the year with cash and bank balances totalling Rs. 1,894 crore. Our cost of borrowing for the year stood at 12.2% in FY24.

In our commitment to operational excellence, we concentrated on optimising the utilisation of our existing infrastructure. Our operating expense ratio, denoted as opex to AUM ratio, was 6.7% in FY24.

Credit ratings

Rating Instrument	Rating Agency	Rating
Bank Facilities / NCDs/ CPs	Care	A+/ Stable; A1+
Bank Facilities / NCDs / MLDs	ICRA	A/ Positive
Bank Facilities / NCDs/ MLDs	India-Ra	A+/ Stable*
Bank Facilities	CRISIL	A/ Positive

*rating is upgraded from A/Stable to A+/Stable w.e.f. June 24, 2024

Fund sources

We have been proactively diversifying our borrowing sources and fostering robust relationships with both our existing and new lenders. To fulfil our current funding needs, we have secured loans from a range of entities including public and private banks, financial institutions, and capital markets. As of the end of the year, we had a total of 58 lenders in our network.

9. Key Ratio (On a consolidated basis)

(Explanations where the change in the ratios is more than 25%) For explanation refer point no. 10.

a) Asset Under Management (AUM): Rs. 11,973 crore

b) Net Interest Income: Rs. 1,289 crore

c) Net Profit Margin: 19.8%

d) Cost to Income Ratio: 42.8%

e) Opex to AUM Ratio: 6.7%

f) Interest Coverage Ratio:1.7 times

g) Debt Equity Ratio: 2.6 times

h) Pre - Provision Operating Profit (PPOP) Margin: 37.6%

i) Pre - Provision Operating Profit (PPOP)/Average Total Assets: 8.4%

j) Return on Equity (ROE): 14.9%

k) Operating Profit Margin 74.2%

10. DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF.

Customer acquisition led growth was one of the main pillars of the organizations strategy that was announced as part of managements key priorities under Vision 2025. During FY24, SSFL added close to 13.9 lakh new borrowers (+59% over previous year) taking its total borrower base to 33.2 lakh which was a growth of 47% over the borrower base reported at the end of FY23. This along with continued engagement with our existing borrowers reflected in growth of AUM (+41%), NII (+59%), PPOP (70%), Net profit margin (+1,892 bps) & ROE (+1,445 bps). Improvement in Asset quality during the year led to lower credit costs which also helped Spandana report stronger profitability during the year as compared to FY23.

11. HUMAN RESOURCE MANAGEMENT

We are committed to cultivating and retaining diverse and talented teams, ensuring the long-term sustainability of our business.

Our consistent endeavour is to enhance the workplace experience for our employees and foster robust connections. We ensure that our employees are heard, valued, and treated equitably. Moreover, we strategically implement various training programmes to bolster the overall growth of our workforce. Ensuring a safe and healthy environment is paramount across all our business operations, underscoring our commitment to employee well-being.

Our HR practices are dedicated to nurturing an inclusive and performance-driven work environment, where cooperation and mutual respect thrive. We provide competitive remuneration packages coupled with an empowering culture that fosters personal and professional growth. Upholding principles of honesty, openness, responsibility, and accountability, we are committed to sustaining a culture of integrity within our organisation.

As of FY24, our workforce comprised a total of 13,097 employees, including our field staff. During the year, our workforce grew by 3,423 employees, building a robust team to propel our growth.

More details refer to page no. 30.

12. CORPORATE SOCIAL RESPONSIBILITY

As a responsible corporate enterprise, our primary commitment is to generate economic and social value for all our stakeholders. We are deeply focused on driving social transformation through targeted, consistent, and sustainable initiatives. To achieve this, we have devised a comprehensive strategy that embraces an integrated development approach for our community programs.

We firmly believe that the fundamental pillars for fostering stability and growth within communities encompass skill development, livelihood enhancement, healthcare, education, as well as fostering financial and digital literacy. Our endeavours have already yielded significant results, with over ~ 39,440 beneficiaries benefiting from our initiatives in FY24 alone, notably with 70% of them being women.

More details refer to page no. 38.

13. Outlook

SWOT analysis

Strengths

• Decades of industry experience

• Strong market presence across India

• Extensive customer base

• Quality loan portfolio

• Broad-based fund sources

• Technological integration

• Active risk management

Weaknesses

• Dependency on external funding

• Vulnerability to economic downturns

Opportunities

• Rural India offers immense potential for microfinance lending, with the government emphasising rural development.

• Newer synergic products

• Digital financial services

Threats

• Rising inflation

• Increasing geopolitical instability

• Competition from other MFIs & local financiers

• Increase in borrowing costs

Key priorities for FY25

Embarking on our journey into the future, we have cast our gaze towards the horizon, envisioning our path until 2028 with an audacious aim: to elevate our business to new heights, reaching an Assets Under Management (AUM) milestone of Rs. 28,000 crore. United under the banner of Spandana, our team is resolute in our commitment to manifesting the aspirations outlined in our Vision 2028.

Our journey forward is propelled by several key levers: Expanding our Footprint: We are consistent in our focus to deepen our presence across our focus states of Bihar, Rajasthan, Uttar Pradesh, West Bengal, Tamil Nadu, and Gujarat, forging stronger connections and extending our reach to every corner of these regions.

Diversifying our Portfolio: To fuel our growth, we are focused on consolidating our microfinance business while simultaneously nurturing the growth of our loan against property (LAP) and nano-enterprise loans portfolio through our subsidiary, broadening our offerings to meet the diverse life-cycle needs of our clientele.

Strengthening our Foundation: At the core of our strategy lies the fortification of our liability franchise, fostering robust relationships and instilling trust among them, ensuring a solid foundation for sustainable growth.

Driving Operational Excellence: Through strategic investments in cutting-edge technology across all facets of our operations, we are committed to enhancing customer convenience, optimising processes, and streamlining costs, thereby enhancing efficiency and maximising value for our customers.

Empowering our People: Central to our success is our dedicated team, empowered with a sense of purpose and driven by a collective vision. Together, we strive to make a meaningful impact not only in the business realm but also in the communities we serve, leaving an indelible imprint of positive change.

As we embark on this transformative journey, we are guided by a resolve to unlock new possibilities, overcome challenges, and realise our shared vision of a brighter future for Spandana and all those we touch along the way.

14. RISK AND MITIGATION

Risks are an inherent and unavoidable aspect of any business. Effective risk management is vital for safeguarding stakeholder interests, ensuring compliance with regulatory standards, and securing the long-term sustainability of the enterprise. At Spandana, Risk Management is a fundamental and integral component of our business model, aimed at mitigating adverse impacts on our business objectives and capitalising on market opportunities. Drawing on over two decades of market expertise, we strengthen viability and enhance growth prospects.

As a financial institution, we face risks unique to our lending activities and operating environment. We continually identify and implement comprehensive policies and procedures to assess, monitor, and mitigate these risks. Our risk management process comprises three key components: business risk assessment, operational controls assessment, and compliance processes. Our Risk Management Committee regularly reviews our risk management policy.

The key risks being assessed are as follows:

• Credit risk

• Operations risk,

• Market risk

• Financial risk

• Liquidity risk

• ALM risk

• IT risk

• People risk

• Reputation risk

• Regulatory risk

• Political risk

For each risk, we have corresponding mitigation plans that undergo regular review and refinement to ensure their effectiveness.

More details refer to page no. 44.

15. INTERNAL CONTROL SYSTEMS

Effective internal control is paramount in mitigating the risk of financial loss, ensuring the accuracy, completeness, and reliability of financial statements. At Spandana, our internal control measures are crafted to safeguard our assets, uphold regulatory compliance, and deter fraud and misconduct. Taking a comprehensive approach to information security, we prioritise maintaining the confidentiality, integrity, and availability of consumer data and our companys information assets.

In our commitment to fortify our internal control framework, we employ a multi-faceted approach that includes concurrent internal audits and frequent management reviews. Our internal audit department assumes a central role in sanctioning, documenting, overseeing, and ensuring adherence to processes across all branches, while also actively identifying any potential financial irregularities. Furthermore, our organisation upholds robust internal controls concerning both financial statements and operational procedures.

With a dedicated team of 186 auditors strategically stationed across branches, we ensure vigilant oversight of our portfolio. In addition to regular audits, we conduct specialised audits prompted by internal indicators, swiftly resolving any potential deficiencies. We meticulously audit branches with significant disbursements, ensuring adherence to operational standards. Our robust mechanism validates KYC documentation, with monthly audits across 550 branches. Findings are discussed for enhanced monitoring and compliance, highlighting our commitment to transparency and operational excellence.

We are currently in the process of implementing software that seamlessly integrates with our loan management system (LMS), enabling us to monitor and generate real-time triggers. This latest software will improve our operational efficiency by providing instant insights into loan performance, risk indicators, and compliance measures. By leveraging advanced technology, we aim to enhance our ability to identify potential issues promptly and proactively address them, thereby reducing the risk of fraud in the future.

16. DISCLOSURE OF ACCOUNTING TREATMENT:

The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as prescribed in the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and notified under section 133 of the Companies Act, 2013 (the Act), the circulars, guidelines and directions issued by the Reserve Bank of India (RBI) from time to time ("the RBI guidelines") and other accounting principles generally accepted in India.

Cautionary Statement

Statements in this report on Management Discussion and Analysis relating to the Companys objectives, projections, estimates, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of future events. Actual results might differ materially from those expressed or implied depending upon factors such as climatic conditions, global and domestic demand supply conditions, foreign exchange market movements, changes in Government regulations, tax structure, economic and political developments within India and other factors such as litigation and industrial relations. The Company has obtained all market data and other information from sources believed to be reliable or its internal estimates, although its accuracy or completeness cannot be guaranteed. The Company assumes no responsibility in respect of forward-looking statements herein which may undergo changes in future based on subsequent developments, information or events.