#1BCG 25 YEARS IN INDIA LEADING WITH IMPACT INNOVATION INTEGRITY India NBFC Sector Update FY22 JUNE 2022#2Glossary: Classification of 30 NBFCs used in this document HFCs (10 NBFCs) HDFC WITH YOU, RIGHT THROUGH Repco Home Finance -We value your Dream SLICHFL LIC HOUSING FINANCE LTD A HOME A CAN FIN HE Can Fin Homes Ltd (Sponsor: CANARA BANK) HOME LOANS DEPOSITS Translating Dreams into Reality Microfinance(3 NBFCs) CreditAccess™ SATIN SATIN CREDITCARE NETWORK LTD. Grameen Reaching out WASIRVAD MICROFINANCE LIMITED Subsidiary of MANAPPURAM FINANCE LTD. Gold (2 NBFCs) +1 Muthoot Finance MANAPPURAM FINANCE LIMITED Make Life Easy Indiabulls HOUSING FINANCE @pnb Housing Finance Limited Ghar Ki Baat IIFL HOME LOAN YAY गृहे सख्यम् विराजते GIC HOUSING FINANCE LTD. YOUR ROAD TO A DREAM HOME TATA CAPITAL HOUSING FINANCE LIMITED BAJAJ HOUSING FINANCE LIMITED B BAJAJ FINANCE LIMITED SHRIRAM Trensport Finance Company Limited A WINNING RELATIONSHIP Chola Enter a better life Diversified (15 NBFCs) TATA CAPITAL FINANCIAL SERVICES LIMITED SUNDARAM FINANCE Enduring values. New age thinking. sf H HeroFinCorp. Finance Made Easy Mahindra FINANCE ADITYA BIRLA FINANCE HDB FINANCIAL SERVICES From the trusted family of HDFC Bank Ltd. L&T Finance P Fullerton India IIFL POONAWALLA FINCORP SHRIRAM City MONEY WHEN YOU NEED IT MOST CAPRI GLOBAL CAPITAL LIMITED 1 Copyright 2020 by Boston Consulting Group. All rights reserved.#3Summary snapshot % Key Performance Indicators J NPA and Risk Management Advances Deep-dive Other trends NBFC credit growth has recovered post pandemic to 10.3%; major revival observed in Diversified NBFC, MFI Profitability boost due to reduction in credit costs; MFI ROA increased by 100 bps, Gold NBFCs most hit while HFCS maintained RoA of 1.8% Higher NIMs at 5.1% on account of higher yields; CIR for NBFCs inching up to pre-pandemic levels Bank financing continues to support NBFCs; MFs gradually starting to increase NBFC exposure post liquidity crises; Securitization deals picked up to Rs 560 Bn in Q4FY22 Improved collection efficiency to lower GNPAS gradually going forward Stressed assets for MSME, MFI and Auto segment expected to be at elevated levels (8-11%); Gold best placed IRAC norms put into effect - daily recognition of NPAs and upgrading NPA only after payment of all dues Auto Loan: New PVs and CVs continue to dominate the book; tractors benefited from healthy crop harvest Gold Loan: Demand driven by sharp increase in gold prices; rising share of online loans Personal Loans: Uptick witnessed in FY22 with economy normalizing Home, MSME and MFI Loans: Economic revival, government support to boost credit growth NBFC bond yields inching up, but G-spread at historical lows Digital adoption increasing focus on digital acquisition and on-boarding, partnerships with Fintechs and chat bots leveraged to improve customer service Recent RBI norms on provisioning to bridge the gap between Banks and NBFCs 2 Copyright 2020 by Boston Consulting Group. All rights reserved.#4India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 3 Copyright 2020 by Boston Consulting Group. All rights reserved.#5Macro Indicators India's FY23 GDP forecasted to grow between 7% to 8.2% YoY; most projections revised downwards during Apr-May '22 India GDP growth forecast for FY23 (YOY,%) Dec'21-Jan'22 ADB Feb-Mar'22 Apr-May'22 7.5 ICRA 7.2 UBS 7.0 India Ratings 7.6 India Ratings 7.2 RBI 7.2 Citibank 7.5 UBS 8.2 ICRA 7.2 Crisil 7.8 Citibank 8.3 Nomura 7.4 RBI 7.8 World Bank 8.7 ADB 7.5 Nomura 7.8 ICRA 9.0 Morgan Stanley 7.6 Morgan Stanley 7.9 IMF 9.0 World Bank 8.0 Moody's 8.4 Fitch 10.3 Fitch 8.5 IMF 8.2 7.5% to 10.3% 7.2% to 8.5% 7.0% to 8.2% Data as of 18th May'22; Estimates likely to be revised further No change Downward revision Upward revision Note: Upper-limit has been included where agencies reported forecast range. Latest forecasts considered in case of revision by agency within same month Source: Analyst reports, BCG analysis 4 Copyright 2020 by Boston Consulting Group. All rights reserved.#6Most high frequency indicators improved vs. pre-COVID levels Growth Macro Indicators Vs. Pre-covid Vs. Last year Vs. Last month Apr❜22 Apr'19 CAGR1 Apr❜21 YOY Mar' 22 MOM UPI Value (INR Tn) 10.0 1.4 91% 5.0 99% 9.6 2% + Total Deposits (INR Tn)* 164.7 125.7 9% 151.1 9% 162.2 2% Banking, Financial Total Credit (INR Tn)* 119.0 97.7 7% 109.5 9% 116.4 2% Services & Insurance NSE+BSE Txs. (INR K Cr) 1370.0 696.0 25% 1413.6 -3% 1491.3 -8% Insurance Prem. (INR K Cr) 39.5 26.0 15% 27.0 46% 81.2 -51% GST Collections (INR Tn) 1.7 1.1 14% 1.4 18% 1.4 18% WPI (%) 15% CPI (%) 7% Jan Dhan Deposits (INR Tn) 1.7 1.0 19% 1.4 16% 1.7 0% Macroeconomic MGNREGA Emp. (HH) 17.1 17.0 0% 21.3 -20% 19.2 -11% Manufacturing PMI (Index) 54.7 51.8 2% 55.5 -1% 54.0 1% Services PMI (Index) 57.9 51.0 4% 54.0 7% 53.6 8% Current Situation Index * 71.7 104.6 -12% 53.1 35% 64.4 11% Sentiment Future Expectations Index 115.2 133.4 -5% 108.8 6% 103.0 12% * Data available only upto Mar'22 as on 30-May - hence growth comparisons are for March and not April. Mar'22 data has been compared with Mar'19, Mar'21 & Feb'22 data for the pre-COVID CAGR, YoY & MOM growth comparisons. 1. CAGR calculated by taking 2022 month-wise data vs. 2019 levels (for respective month) 5 Copyright 2020 by Boston Consulting Group. All rights reserved.#7BFSI indicators exhibited mixed trends in Mar-Apr '22 UPI transaction value & volumes continue to scale | MF investment continues to grow at slow pace 0 UPI UPI continued to break record highs MoM Value in (INR Tn) - Volumes (INR Bn) 9.6 9.8 Macro Indicators Mutual Funds AUM (INR Tn) Mutual funds AUM growth remained subdued in Apr 22 38 38 4.9 6 5.6 32 3 5.4 2.6. 0 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Feb- 21 Apr- 21 Jun- Aug- 21 21 Oct- 21 Dec- 21 Feb- Apr- 22 22 Aggregate deposits & credit (INR Tn) Aggregate deposits & credit grew at a consistent pace Aggregate Deposits Aggregate Credit 151 162 165 116-119 109 Jan- Mar- May- Jul- 21 21 21 21 Sep- 21 Nov- 21 Jan- 22 Mar- 22 Insurance Premium (INR '000 Cr) Life insurance premium fell sharply vs. Mar'22 Life Insurance Premium Non Life Insurance Premium 81 40 Feb- Apr- 21 21 Jun- 21 Aug- Oct- Dec- Feb- Apr- 21 21 21 22 22 1.Mutual funds Assets Under Management (AUM) represented as recorded at end of every month shown. Mutual Funds AUM include investments from individuals (50.5%) & institutions (49.5%); institutions include domestic and foreign institutions and banks 2.Non-Life Insurance includes Fire, Marine, Motor, Engineering, Health, Cop Insurance, Credit Guarantee, Aviation, Personnel accident and Miscellaneous Source: DBIE, NPCI, IRDAI, AMFI, BCG analysis 6 Copyright 2020 by Boston Consulting Group. All rights reserved.#8Macro Indicators Select macroeconomic indicators witnessed moderate growth Jan dhan deposits stabilized; GST collections recorded an all time high; RBI hiked repo rate for the 1st time since 2018 Govt. Receipts & Expenditures (INR Tn) Fiscal deficit spiked sharply in Feb'22 vs. Jan'22 GST Collections¹ (INR Tn) GST collections surged to all time high Dec'21 Jan'22 Feb'22 2 Govt. Expenditure (INR Tn) 4.4 2.8 3.3 Govt. Receipts (INR Tn) 3.8 1.0 Fiscal Deficit (INR Tn) 0.6 1.7 Q00 1.40 1.68 1.42 -0.4 3.7 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Jan Dhan Deposits (INR Tn) Jan Dhan deposits exceeded Apr 21 levels III 1.4 IIII RBI's policy rates (%) Repo rate increased for first time since 2018 Repo rate Reverse Repo rate Base Rate 1.7 1.7 10 8.3 8.2 8.2 4.4 4.0 3.4 · 4.0' 3.4 3.4 Feb- 21 Apr- 21 Jun- 21 Aug- 21 Oct- 21 Dec- Feb- Apr- Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 21 22 22 1.GST Collections include all components: CGST, SGST, IGST, Cess Source: Ministry of Finance, GST Council, GST Network, RBI, Jan Dhan Yojana BCG analysis 7 Copyright 2020 by Boston Consulting Group. All rights reserved.#9Auto sales exhibited mixed monthly growth trends Tractor sales increased, 2W declined, whereas PV and 3W remained at similar levels 400 200 Passenger vehicles sales ('000 units) PVs witnessed degrowth for the first time in 5 months 304 Macro Indicators Two-wheeler sales ('0000 units) 2W recorded an uptick for the second consecutive month 341 298 400 193 200 154 155 0 0 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Tractor sales ('000 units) Tractor sales continued on an upward trajectory in Apr'22 Three-wheeler sales ('0000 units) 3W witnessed degrowth for the first time in 3 months 100 72 100 100 84 60 50 71 57 50 0 0 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Figures represent wholesale numbers (including exports) 1.BMW, Mercedes and Volvo Auto data is not available; Source: SIAM, CMIE, TMA, Press search, BCG analysis 8 Copyright 2020 by Boston Consulting Group. All rights reserved.#10India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 9 Copyright 2020 by Boston Consulting Group. All rights reserved.#11Key Performance Indicators Industry NBFCs loan growth reviving post pandemic; remains lower than Banks (%) 14.3% 15 Player-group wise y-o-y growth in advances 10 7.6% 10.6% 5.4% 5 6.3% 4.6% 0 FY19 FY20 Banks NBFCs FY21 13.0% 10.3% FY22 Note: Analysis has been made based on 30 NBFCs (10 HFCs, 2 Gold, 3 MFI and 15 Diversified NBFCs) and 35 Banks (12 PSU, 10 Private-New, 9 Private-old banks and 4 Small Finance Banks) Source: Capitaline, Quarterly Results, Investor Presentation, Annual Report, BCG Analysis 10 10 % Copyright 2020 by Boston Consulting Group. All rights reserved.#12NBFCs market share remained stable across segments Change in share of player groups across asset class Key Performance Indicators Industry % (%) 100.0 Housing MSME¹ Auto² Gold Loan Microfinance³ 53% 53% 65% 66% 59% 60% 80% 78% 76% 75% 50.0 Banks NBFCs 47% 47% 41% 40% 35% 34% 20% 22% 24% 25% 0.0 FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 Credit O/s (FY22) 24.5 20.2 9 5.1 2.4 INR lakh crore 1. MSME includes Loan against property, secured non-LAP MSME loans and unsecured MSME loans; 2. Auto includes PVs new and used, CVs new and used, tractors, 2and 3 wheelers; 3. Share of NBFCs in MFI include NBFC-MFI, NBFCs and Non-Profit MFIs; Numbers for H1FY22 Source: CRISIL research; BCG Analysis 11 Copyright © 2020 by Boston Consulting Group. All rights reserved.#13Key Performance Indicators Industry Profitability increased on account of declining credit costs for Banks and NBFCs (%) 3 Return on Assets¹ (%) Return on Equity² 20 20 16%. 2.4% 2 2.4% .2.1% 16% 12% 11% 1.7% 10 10% 1 0.8% 7% 0% 0.0% 0.6% 0-0.3% 0 -3% -1 FY19 FY20 FY21 FY22 -10 FY19 FY20 FY21 FY22 Banks NBFCs 1. Return on Assets is calculated as net profit/average assets 2. Return on Equity is calculated as net profit/average shareholders' fund. Note: Analysis has been made based on 30 NBFCs (10 HFCs, 2 Gold, 3 MFI and 15 Diversified NBFCs) and 35 Banks (12 PSU Banks, 10 Private-New, 9 Private-Old and 4 Small Finance Banks) Source: Capitaline, Quarterly Results, Investor Presentation, Annual Report, BCG Analysis 12 % Copyright 2020 by Boston Consulting Group. All rights reserved.#14Key Performance Indicators Industry Higher NIMs for NBFCs on account of higher yields; CIR for NBFCs almost at pre- pandemic levels Net Interest Margin¹ (%) $ Cost to Income Ratio² (%) (%) (%) 50% 49% 6 50 48% 47% 4.9% 4.9% 5.0% 5.1% 5 4 40 40 3 2.7% 2.8% 2.9% 2.9% 2 32% 29% 29% .31% 30 1 0 FY19 FY20 FY21 FY22 20 FY19 FY20 FY21 FY22 Banks NBFCs 1. NIM is calculated as (Interest Income - Interest Expense)/Average Assets 2 Cost to Income is calculated as Operation expense/(net interest income + other income) Operation Expense excludes "Net loss on fair value changes", "Net loss on derecognition of financial instruments under amortized cost category", "Net Transaction Exchange Loss" and/or "Loss/write-off on Repossessed Assets and Assets acquired in satisfaction of debt" Note: Analysis has been made based on 30 NBFCs (10 HFCs, 2 Gold, 3 MFI and 15 Diversified NBFCs) and 35 Banks (12 PSU Banks, 10 Private-New, 9 Private-Old and 4 Small Finance Banks) Source: Capitaline, Quarterly Results, Investor Presentation, Annual Report, BCG Analysis 13 Copyright 2020 by Boston Consulting Group. All rights reserved. %#15Key Performance Indicators Industry Reduction in credit costs for both Banks and NBFCs basis economic recovery Credit Cost (%) GNPA² (%) (%) 3 (%) 10 Potential to go up again basis 9.2% the recent RBI base hikes 8.5% 2.1% 1.9% 2 1.8% 7.4% 1.5% 1.4% 6.8% 1.3% 0.9% 8 6.4% 6.1% 5.9% 1 0.6%' 0 FY19 FY20 FY21 FY22 Banks NBFCs 0 FY19 FY20 FY21 FY22 1. Credit Cost is calculated as provision and contingencies/average assets 2. NBFC GNPA % yet to be released in RBI FSR report Note: Analysis has been made based on 30 NBFCs (10 HFCs, 2 Gold, 3 MFI and 15 Diversified NBFCs) and 35 Banks (12 PSU Banks, 10 Private-New, 9 Private-Old and Small Finance Banks) Source: Quarterly Results, Investor Presentation, Annual Report, RBI, BCG Analysis 14 Copyright 2020 by Boston Consulting Group. All rights reserved. %#16Most NBFCs at a higher valuation as compared to PVBS and PSBs Price to book ratio (As on 31st May 2022) Key Performance Indicators Industry Select Banks and NBFCs PSU banks Private New banks NBFCs 35 IOB 1.7 Kotak 5.1 367 Bajaj Finance 8.8 368 418 SBI 1.6 HDFC 3.2 771 Capri Global 6.6 12 Chola 4.8 56 12 BOM 0.9 ICICI 3.1 523 CreditAccess 4.2 17 11 PSB 0.8 Bandhan 3.0 53 Poonawalla Fin 3.5 20 16 Central 0.7 Axis 1.8 210 HDFC 3.5 418 UCO 0.7 14 IndusInd 1.5 72 Sundaram Fin 2.7 18 37 Canara 0.6 Muthoot Fin 2.5 46 IDBI 1.1 39 52 BOB 0.6 Can Fin Homes 2.1 6 IDFC First 1.1 23 21 Shriram Trans 1.2 32 Indian 0.6 Yes 1.0 33 20 Manappuram Fin 1.0 BOI 0.4 26 Union 0.4 26 RBL 0.5 7 PNB HF 0.6 8 5 Satin Credit 0.5 1 35 PNB 0.4 Indiabulls HF 0.4 5 Market Cap (INR in '000 crores) (as on 31st May 2022) 15 Source: Capitaline; BCG analysis Copyright 2020 by Boston Consulting Group. All rights reserved. %#17India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 16 Copyright 2020 by Boston Consulting Group. All rights reserved.#18Key Performance Indicators NBFC Sector Industry ROA increased by ~30 bps; MFIs recovering, Gold NBFCs reported declines HFCs Diversified Gold Loan MFIS Industry Particulars¹ UOM FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 FY22 FY21 Net interest Margin (%) 2.7 2.7 7.5 7.2 11.0 12.3 9.1 8.5 5.1 5.0 + Fee + Other Income (%) 0.6 0.6 1.4 1.2 0.2 0.4 1.7 1.7 0.9 0.9 Operating expenses (%) 0.5 0.4 3.4 3.0 3.4 3.5 5.0 4.5 1.9 1.7 Pre-Provision Profit² (%) 2.8 2.9 5.5 5.4 7.8 9.2 5.8 5.7 4.1 4.2 000 Credit costs (%) 0.5 0.6 2.3 3.5 0.3 0.3 3.7 4.8 1.3 1.8 Tax (%) 0.5 0.5 0.8 0.5 1.9 2.3 0.5 0.3 0.6 0.5 Other Expenses³ (%) 0.0 0.0 0.2 0.1 0 0 0 0 0.1 0.1 Return on Assets (%) 1.8 1.8 ↑ 2.2 1.3 ↓5.6 6.6 ↑ 1.6 0.6 ↑2.1 1.8 1. All the above #s are as a % of Average Assets, 2. Pre-provision profit may not tally due to rounding off error 3. Other Expenses include "Net loss on fair value changes", "Net loss on derecognition of financial instruments under amortized cost category", "Net Transaction Exchange Loss" and/or "Loss/write-off on Repossessed Assets and Assets acquired in satisfaction of debt" Note: Analysis has been made based on 30 NBFCs: 10 HFCs, 2 Gold, 3 MFI and 15 Diversified NBFCs Source: Capitaline, Quarterly Results, Investor Presentation, Annual Report, BCG Analysis Copyright 2020 by Boston Consulting Group. All rights reserved. %#19Rebound in credit growth for industry in FY22 Weaker growth for Gold NBFCs; MFIs yet to reach pre-pandemic level 40 44660 (%) 30 20 20 ↑ 12 10 10 7 5 20 20 Category-wise y-o-y growth in loan book (%) 24 ↑ 21 18 11 10 36 Key Performance Indicators NBFC Sector ↑ 14 15 12 9 10 10 10 8 5 1 0 FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22 HFCs Diversified FY19 FY20 FY21 FY22 Gold Loan FY19 FY20 FY21 FY22 MFIS FY19 FY20 FY21 FY22 NBFC Industry Loan book as on 10.4 7.7 0.8 0.2 19.2 FY22 (INR lakh Cr) Note: Analysis has been made based on 30 NBFCs: 10 HFCS, 2 Gold, 3 MFI and 15 Diversified NBFCs Source: Capitaline, Quarterly Results, Investor Presentation, Annual Report, BCG Analysis 18 Copyright © 2020 by Boston Consulting Group. All rights reserved. %#20Large NBFCs to outpace the industry in credit growth Change in credit outstanding (YoY, %) Increases market expansion and aggressive lending by smaller NBFC's Key Performance Indicators NBFC Sector NBFC/liquidity crisis hit small NBFCs hard Large players continue to drive the market due to strong asset quality and liquidity support 28% 22% 21% 21% 19% 17% 15% 19% 13% 11% 16% 12-14% 10-12% 9% 7% 7% 6-8% 2-4% 3% 1% FY14 FY15 50% FY16 46% FY17 FY18 FY19 FY20 FY21 FY22E FY23P 46% 53% 55% XX% Share of large players with strong parental support in overall NBFC Note: E-Estimate; P-Projected, Strong + parental support players include top 11 NBFCS/HFCs with strong parental support Source: RBI, NHB, MFIN, CRISIL Research Others Strong + parent support players 19 Copyright 2020 by Boston Consulting Group. All rights reserved. %#21Key Performance Indicators - NBFC Sector % Disbursements for most NBFCs on revival path after dipping in FY21 Select NBFCs 80 60 60 47 55 62 Disbursement trend (INR '000 Cr) Disbursals yet to reach pre-pandemic levels 24 20 14 15 54 8 35 32 30 29 29 28 26 26 25 23 19 17 15 13 10 10 12 13 19 10 11 8 4 4 0 Aditya Birla Fin. Can Fin Homes LIC HFC CreditAcc. Gram. Shri.City Union. Chola HDB Fin. M & M Fin. Sundaram Fin. PNB HFC Satin Creditcare FY20 FY21 FY22 Source: Investor Presentation, Analyst Report, BCG Analysis 20 20 Copyright 2020 by Boston Consulting Group. All rights reserved.#22Profitability ratios inching up for the NBFC Industry Key Performance Indicators NBFC Sector (%) 8 Return on Assets¹ by NBFC category (%) 30 Return on Equity2 by NBFC category 6 5.5%, 4.2%, 2.6% 2.4% 2 2.0% 0 FY19 FY20 21% 5.6% 20 20 -19% 17% 16% 2.2% 15% 2.1% 10 1.8% 1.6% FY21 FY22 0 FY19 HFCS Diversified MFIS 22% 12% 12% 11% 7% FY20 FY21 FY22 Gold Loan NBFC Industry 1. Return on Assets is calculated as net profit/average assets 2. Return on Equity is calculated as net profit/average shareholders' fund Note: Analysis has been made based on 30 NBFCs: 10 HFCs, 2 Gold, 3 MFI and 15 Diversified NBFCs Source: Capitaline, Quarterly Results, Investor Presentation, Annual Report, BCG Analysis 21 21 % Copyright 2020 by Boston Consulting Group. All rights reserved.#23NIM and CIR remained broadly stable for the overall industry $ Key Performance Indicators NBFC Sector % Cost to Income Ratio² by NBFC category (%) Net Interest Margin¹ by NBFC category (%) (%) (%) 13.6% 14 50 43% 12 11.0% -10.8% 10 8 -7.4%- 6 4.9% 4 2.6% 2 0 FY19 FY20 FY21 FY22 .9.1% .7.5% 30 32% 5.1% 2.7% 20 15% 10 FY19 40 -40% 38% HFCs - Diversified - MFIS Gold Loan 46% 38% 31% 31% .15% FY20 FY21 FY22 NBFC Industry 1 NIM is calculated as (Interest Income - Interest Expense)/Average Assets 2 Cost to Income is calculated as Operation expense/(net interest income + other income) Operation Expense excludes "Net loss on fair value changes", "Net loss on derecognition of financial instruments under amortized cost category", "Net Transaction Exchange Loss" and/or "Loss/write-off on Repossessed Assets and Assets acquired in satisfaction of debt" Note: Analysis has been made based on 30 NBFCs: 10 HFCs, 2 Gold, 3 MFI and 15 Diversified NBFCs Source: Capitaline, Quarterly Results, Investor Presentation, Annual Report, BCG Analysis 22 22 Copyright 2020 by Boston Consulting Group. All rights reserved.#24India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector > Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 23 Copyright 2020 by Boston Consulting Group. All rights reserved.#25Bajaj HF HDFC Can Fin Homes 20 20 23 PNB HF Indiabulls HF 23 23 23 Repco HF Source: Capitaline, Investor presentation, Press release, RBI, CARE Ratings, BCG Analysis 33 34 Many large NBFCs raised capital post the pandemic to absorb stress and on account of favorable rate cycle Capital to Risk-weighted assets ratio of NBFC players (%) Select NBFCs Chola HDB Fin Services 20 20 20 21 21 L&T Fin Credit Growth FY22 over FY21 (%) 39 14 20 -9 -7 -5 13 -2 -1 10 13 8 -17 -3 HFCs Diversified Fullerton Aditya Birla Fin Shriram Trans Fin IIFL Fin 22 22 Sundaram Fin 23 24 Shri. City Union. Bajaj Fin 13 28 1 30 27 27 28 24 M & M Fin Capri Global Poonawalla Fin 28 25 10 00 8 Gold Loan MFIS Muthoot Fin Manappuram Fin 26 -11 24 CreditAccess Satin Creditcare 50 50 30 31 30 27 28 27 Copyright 2020 by Boston Consulting Group. All rights reserved. Key Performance Indicators NBFC Sector - %#26NBFCs share stable in bank's credit exposure, lower in Mutual funds' Funding - NBFC Sector Bank's credit exposure to NBFCs remained constant 7% 6% 6% 6% 9% 9% 9% MFs turned risk averse towards NBFCs post liquidity crisis 18% 17% 16% 15% 11% 10% 9% 2,236 10.54 2,166 9.36 9.37 1,804 1,700 7.35 1,382 1,488 5.69 1,202 4.00 4.48 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY16 FY17 FY18 FY19 FY20 FY21 FY22 Share of lending to NBFCs in overall bank exposure Banks lending to NBFCs (Rs Trn) Source: RBI, SEBI, CRISIL Research Share of lending to NBFCs in overall MFs exposure MF's exposure to NBFCs (Rs Bn) 25 25 Copyright © 2020 by Boston Consulting Group. All rights reserved.#27Funding - NBFC Sector NCD issuances expected to pick up for NBFCs; improving credit growth and resolution of stressed assets to provide boost NCD issuances saw a sharp drop in volume in FY22 NCD issuances (Rs Bn) HFCs, Auto and Infra drive issuances Segment-wise issuances (Rs Bn) Education 3 913 855 FY20 FY21 FY22 695 645 574 437 572 567 Microfinance 455 450 15 390 351 Gold 25 Affordable HFCs 29 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Diversified FY20 FY21 FY22 121 NCD Coupon rates Wholesale 126 9.29 9.17 9.38 8.85 8.94 8.95 8.43 8.23 Infra 7.39 7.61 7.40 7.66 151 Auto Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY20 FY21 FY22 Note: Top 100 companies in terms of AUM (Asset Under Management) considered for issuances Source: BSE, CRISIL Research HFCs | 460 715 26 Copyright © 2020 by Boston Consulting Group. All rights reserved.#28Securitization volume up by 50% YoY in FY22 Vehicle and Mortgage gained traction in FY21 Segments-wise securitization transaction 4% 2% 2% 2% 4% 11% 12% 16% 15% 12% 10% 0% 0% 17% 11% 11% 12% 0% 0% 7% 44% 45% 42% 35% 49% 35% 170 39% 42% 37% 30% 30% 24% FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 Tractor Others Gold Vehicle Small business loans Microfinance Mortgage Source: Company reports, CRISIL Research 200 220 Q1FY18 Q2FY18 Q3FY18 Funding - NBFC Sector Securitization deals gained traction in Q4FY22 Securitisation volume (Rs billion) 300 300 260 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 800 554 560 526 500 456 444 372 300 290 260 200 134 52 62 Q1 FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Copyright 2020 by Boston Consulting Group. All rights reserved. Q3FY22 Q4FY22 27#29India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 28 Copyright 2020 by Boston Consulting Group. All rights reserved.#30Wholesale Retail Asset quality to see gradual improvement (FY23P) NPA and Risk Management GNPA FY21 Stressed Assets¹ FY22E Stressed Assets¹ FY23P Housing 1.7% 3.5-3.6% 2.6-2.7% Auto² 6.3% 10-11% 8-9% Gold 1.2% 2.8-3.0% 2.3-2.5% Micro Finance 5.4% 14-15% 10-11% MSME Infrastructure³ 7-9% 8-10% 8-10% 5.1% 5-6% Note: P- Projected, E- Estimates. 1. Stressed assets refer to both GNPA and estimated segmental restructuring amounts put together 2. All segments 3. Including PFC and REC Source: CRISIL research; BCG Analysis 4-5% 29 Copyright 2020 by Boston Consulting Group. All rights reserved.#31NPA and Risk Management Asset quality: Many NBFCs across categories continue to witness deterioration Improvement in asset quality 8.4 8.0 4.3 3.3 3.3 3.0 2.4 2.2 7.7 7.4 0.9 0.6 Gross Non-Performing assets (%) Deterioration in asset quality 4.0 3.2 3.0 2.22.0 2.0 1.9 1.8 1.7 5.4 2.7 Select NBFCs 7.6 7.0 6.8 4.4 4.1 4.0 3.7 3.0 0.9 Poonawalla Capri Fin Global Tata Satin GIC Capital Creditcare Housing Fin Ser. Finance Can Fin Homes Bajaj Finance Asirvad Micro Finance Manappuram IIFL Fin. Finance LIC Indiabulls Muthoot Cholaman Housing Housing Finance Inv.&Fn Finance Finance PNB Repco Housing Home Finance 61% 115% 79% NA 43% 52% 58% NA 8% 123% 43% NA 11% 40% 41% 32% XX% PCR % (FY22) FY21 FY22 Note: Source: Investor Presentation, Analyst Report BCG Analysis 30 30 Copyright 2020 by Boston Consulting Group. All rights reserved.#32India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 31 Copyright 2020 by Boston Consulting Group. All rights reserved.#33Valuations Majority HFCs with <1x P/B whereas most diversified NBFCs trading at premium Price to book ratio (as of May 31, 2021) Select NBFCs Housing Finances Diversified MFIS HDFC 3.5 418 Bajaj Finance 368 8.8 CreditAccess 4.2 17 Capri Global 6.6 12 Can Fin Homes 2.1 6 Satin Credit 0.5 1 Chola 4.8 56 LIC HF 0.8 21 Poonawalla Fin 3.5 20 PNB HF 0.6 5 IIFL Fin 2.8 12 Gold Loan Sundaram Fin 2.7 18 GIC HF 0.5 1 L&T Fin Hold. 1.7 19 Repco HF 0.4 M & M FS 1.4 22 Muthoot Fin 2.5 46 Indiabulls HF 0.4 5 SCUF 1.3 11 Manappuram Fin 1.0 8 Shriram Trans 1.2 32 Source: Capitaline; BCG analysis Market Cap (INR in '000 crores) (as of May 31, 2022) <1x P/B 32 Copyright 2020 by Boston Consulting Group. All rights reserved. $#34Valuations NBFC sector has under-performed broader market led down by HFCS Gap in the overall industry's performance vs broader index widened in last one year TSR Index: May 2017 = 100 350 Over period May 2017 May 2022 5 Yr. average annual TSR % 1 Yr. average annual TSR % 300 250 200 150 100 50 Gold4 16% -25% S&P BSE 200 13% 8% MFI³ 6% 53% Diversified² 1% -4% Overall industry -6% -14% HFC's¹ -19% -31% May 2022 0 May 2017 May 2018 May 2019 May 2020 May 2021 1. Median monthly TSR rebalanced for following: Can Fin Homes, GIC HF, HDFC, Indiabulls HF, LIC HF, PNB HF and Repco Home; 2. Median monthly TSR rebalanced for following: Bajaj Finance, Capri Global, Chola, IIFL Fin, IndoStar Capital, M & M Fin, Poonawalla Fin, SCUF, Shriram Trans and Sundaram Fin; 3. Median monthly TSR rebalanced for following: CrediAccess and Satin Credit; 4. Median monthly TSR rebalanced for following: Manappuram Fin and Muthoot Fin. Note: TSR is calculated between 31st May 2017 through 31st May 2022 in the companies reporting currency. Please refer to annexure page for detailed list of constituents within each tier. Source: S&P Capital IQ; BCG ValueScience® Center 33 Copyright 2020 by Boston Consulting Group. All rights reserved. $#35Valuations Value creation in industry primarily driven by diversified NBFC's over time 5-year Total Shareholder Return 3-year Total Shareholder Return (TSR) 1-year Total Shareholder Return (TSR) (TSR) Companies Ranked by TSR (200 companies in background curve) Chola 28% Muthoot Fin 25% Capri Global 63% Bajaj Finance 36% = 1st qtr 24.2% Poonawalla Fin 16% Median Capri Global 52% Chola 31% Poonawalla Fin 26% Muthoot Fin 23% Bajaj Finance 21% CreditAccess 27% IIFL Fin 21% 1st qtr = 26.6% Median IIFL Fin 30% M & M Fin 10% Poonawalla Fin 91% CrediAccess 71% Capri Global 46% Satin Credit 32% Chola 24% Bajaj Finance 8% SCUF 5% -1st qtr 20.6% Median If f M & M FS (3%) Indiabulls HF (34%)* HDFC 9% Shriram Trans 5% = 12.0% = 15.5% Can Fin Homes 12% SCUF 6% HDFC (8%) GIC HF (4%) = 2.7% 3rd qtr Muthoot Fin (11%) Can Fin Homes (11%) = (10.5%) Shriram Trans (16%) LIC HF (17%) 3rd qtr 3rd qtr Mannapuram Fin 3% = 3.4% Shriram Trans 3% HDFC 3% = 4.0% Sundaram Fin 2% Sundaram Fin (1%) SCUF (4%) PNB HF (38%) Can Fin Homes (2%) IIFL Fin (7%) LIC LIC HFC (11%) M&M (Manappuram Fin (9%) PNB HF (25%) Indiabulls HF (47%) Satin Credit (16%) PNB HF (27%) GIC HF (19%). Repco HF (27%) Indiabulls HF (45%)- GIC HF (24%). Indostar Capital (27%). Repco Home (57%) Sundaram Fin (34%) Manappuram Fin (40%) -100-75 -50 -25 0 25 50 75 100 125 150 -100-75 -50/25 0 25 50 75 100 125 150 -100-75-50-25 0 25 50 75 100 125 150 Satin Credit (30%) IndoStar Capital (53%) Annualized TSR (31.May.2017 - 31.May.2022) Annualized TSR (31.May.2017 - 31.May.2022) Annualized TSR (31.May.2021 - 31.May.2022) HFC MFI Diversified Gold Note: Background Curve: S&P BSE 200, Based on data ending in May; TSRS use company reporting currency; Source: S&P Capital IQ; BCG ValueScience® Center REPCO HF (28%) 34 4 $ Copyright 2020 by Boston Consulting Group. All rights reserved.#36India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 35 Copyright 2020 by Boston Consulting Group. All rights reserved.#37Advances deep-dive (select products) Housing loan: With Income levels intact and home loan rates around historical lows, disbursements rebounded in the second half of FY22 Housing loans credit growth rebounded in FY22 NBFCs housing loan book Housing loan book : ~24.5 trillion Bank- 65% NBFC-35% 9,900 21% 20% 8,361 7,630 CAGR (FY18-21) FY21-22 (YoY %) FY22-23 (YoY %) 7,131 6,890 6,327 15% 13% 5,240 9% Book growth Industry 10% 12.4% 16% Continued support from the govt. and central bank An increase in demand for housing Penetration in tier II and III cities by affordable HFCs led to a • reversal of trend in the segment during FY22 E- Estimated, P- Projected Source: CRISIL Research; BCG analysis 7% 4% FY17 FY18 FY19 FY20 FY21 FY22E FY23P Credit outstanding (Rs billion) % y-o-y change 36 36 Copyright 2020 by Boston Consulting Group. All rights reserved.#38Advances deep-dive Housing Loan: Mid-ticket continues to hold highest share over the years Rs 25-75 lakh segment's share increased from 38% in FY18 to 46% in 9MFY22 Ticket size-wise disbursement trends at NBFCs (%) (select products) 23.0 23.0 21.0 22.0 38.0 41.0 44.0 46.0 46.0 26.0 29.0 28.0 28.0 26.0 23.0 10.0 9.0 8.0 6.0. 6.0 FY18 FY19 FY20 FY21 9M FY22 Rs>75lakh Rs 25-75 lakh Rs 10-25 lakh Rs<10lakh Mid ticket segment did comparatively better post covid; impact more severe on affordable housing Source: CRISIL Research; BCG analysis Timely interventions from the government position the housing finance segment to further grow 37 34 Copyright 2020 by Boston Consulting Group. All rights reserved.#39Advances deep-dive (select products) Personal Loan: The personal loan market saw an uptick in FY22 with the economy normalizing and overall positive market sentiment NBFC book to see a persistent growth in FY23 with an improving economy Personal loan book : ~8.1 trillion Bank- 81% NBFC-19% CAGR (FY18-21) FY 2022E (YoY %) FY22-23 (YoY %) Disbursement 19% 60-65% 40-45% growth Industry NBFC Personal Loan Book (INR billion) +32% +44% 2,197 1,568 Book growth - Industry 1,035 1,062 31% 20-25% 35-40% 686 465 E- Estimated, P- Projected Source: CRISIL Research; BCG analysis FY18 FY19 FY20 FY21 FY22 E FY23 P 38 Copyright 2020 by Boston Consulting Group. All rights reserved.#40Advances deep-dive (select products) Auto Finance: New PVs and CVs continue to dominate the Auto finance book Growth to continue in FY23, with retail segments continuing to perform and segments like CVs, 2- wheeler and 3-wheeler Auto finance outstanding -Rs 9 lakh crore (FY22) 41% 23% 8% 1% 6% 8% 14% PVs-new CVs-new Two Wheelers Three Wheelers Tractors PVS-used CV-used growing at a faster pace compared to FY22 Despite strong demand for Share of NBFCs 47% 47% 47% used cars, supply constraints are likely to NBFC book growth (%) 8 restrict growth in financing such cars in FY23 Bank book growth (%) 6 8 • Tractors benefitted from a healthy crop harvest Source: CRISIL Research; BCG analysis 32 FY21 FY22 FY23 39 Copyright 2020 by Boston Consulting Group. All rights reserved.#41Advances deep-dive (select products) MSME Loan: Lower interest rates & economic revival to aid future growth MSME segmental share of credit outstanding at NBFCs Credit growth of MSMEs (% y-o-y) NBFC Bank Overall 67 10 66 55 65 64 पु 65% 63% 61% 23% 21% 15% 12% 13% 15% 10% 11% 4% 7% 33 34 35 36 35 37 39 10% 6% 7% I 6% 10% -8%' 2% 3% 3% 8% 7% FY17 FY18 FY19 FY20 FY21 FY22E FY23P FY17 FY18 FY19 FY20 FY21 FY22E FY23P LAP Non LAP Non-banks MSME 19% 20% 22% 22% 22% 20% 20% Credit growth of LAP MSME (% y-o-y) NBFC Bank 21% 18% 16% 20% 14% 12% 11% 8% 8-10% 7-9% 3% 6-8% 4% -3-5%- FY17 FY18 FY19 FY20 FY21 FY22E FY23P 52% 52% 51% 49% 48% 48% 48% E- Estimated, P- Projected Source: CRISIL Research; BCG analysis XX% Share of NBFCs Credit growth of non-LAP MSME (% y-o-y) 28% 26% 21% NBFC Bank 13-14% 17% 11% 12-13% 8% 7% 8% 6% 1% 1% 0% 8% 9% 11% 11% 11% 10% 10% 40 40 Copyright © 2020 by Boston Consulting Group. All rights reserved.#42Advances deep-dive (select products) Gold loan: The demand was driven by a sharp increase in prices; gold prices to remain range bound in FY23 NBFC Gold loan AUM grew at -13% in FY22 Share Gold loan AUM of industry: ~ 5.1 trillion Bank- 76% NBFC-24% CAGR (FY18-21) FY21-22 (YoY %) FY22-23 (YoY %) Book growth Industry - 21% 17% 13% NBFC Gold Loan AUM (INR billion) +20%* +13% 1,386 1,238 1,095 861 734 NBFCs have lost market to banks in FY21; share expected to stabilize going forward 640 E- Estimated, P- Projected Source: CRISIL Research; BCG analysis FY18 FY19 FY20 FY21 FY22P FY23P 41 Copyright 2020 by Boston Consulting Group. All rights reserved.#43Advances deep-dive (select products) MFI Loan: Economic situation is expected to remain buoyant in FY23; leading to higher disbursement growth & surpassing pre-pandemic levels MFI Loan Book (H1 FY 22): 2.43 L Cr Bank-42% NBFC MFI- 34% SFBs, Non-Profit NBFC MFIs gaining market share MFIS-24% NBFC-MFI CAGR (FY18-21) H1 FY22 (YoY %) FY22 (YoY %) FY23 (YoY %) (% share) Disbursement Growth 24% -25% -10% 10-12% 40 42 44 Book Growth 32% 2% 10-12% 10-15% NBFC-MFIs loan book growth 32 31 34 (INR billion) 18 16 17 10 8 7 1 1 1 +47.0% +11.0% FY20 FY21 H1FY22 1,005 734 815 Banks NBFCs 564 355 231 NBFC-MFI Non-profit MFIS FY17 FY18 FY19 FY20 FY21E FY23P Small Finance Banks E- Estimated, P- Projected Source: CRISIL Research; BCG analysis 42 Copyright 2020 by Boston Consulting Group. All rights reserved.#44India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 43 43 Copyright 2020 by Boston Consulting Group. All rights reserved.#45NBFC bond yields rising YTD, but spread still low vs. G-sec Mid YTM bonds yields 10% 8.6 8.3 7.8 8% 7.5 7.5 6.8 7.2 6.6 6.6 7.3 5.9 6.1 6% 6.0 5.6 5.0 4% Jun2020 Dec2020 Jun2021 Dec2021 Jun2022 AAA NBFC - 5Yr AA NBFC 5Yr - -5 Yr Gov Bond Source: Bloomberg, Analyst report, BCG Analysis Recent Trends • Given the reliance on wholesale funding, rising interest rates adversely impact the NBFCs margins • With govt. bond yields rising 90-150 bps YTD, NBFCs AAA and AA-rated paper yields have also started inching up However, spread relative to G-sec declining and at historical lows, amid surplus system liquidity • Additionally, a few NBFCs have also raised deposits rates by 15-25 bps in May 44 Copyright © 2020 by Boston Consulting Group. All rights reserved.#46Digital adoption by NBFCs is on a steadfast rise (I/II) Recent Trends IIFL FINANCE HDB FINANCIAL SERVICES From the trusted family of HDFC Bank Ltd. • 100% home loans are on-boarded and decisioned through digital platforms 60x jump in digital loans disbursed in Q4FY22 vs. Q4 FY21 • Loans upto Rs 10 lacs via WhatsApp with 5-min approval • Customers to access their loan account in real-time using WhatsApp A/c Manager Customer Service Bot - #AskPriya to assist customers in real time, provide offers pnb Housing Finance Limited Ghar Ki Baat Digital sourcing contributed to 47% in FY22 vs. 19% in FY21 • Introduced Robotic Process Automation in Central Processing Center to reduce human dependencies GHDFC WITH YOU, RIGHT THROUGH 91% of loan customers and 67% deposits on-boarded digitally Focused on targeting and lead nurturing across multiple digital channels using SaaS marketing solution Source: Company Documents 45 55 Copyright 2020 by Boston Consulting Group. All rights reserved.#47Recent Trends Muthoot Finance • 34% of gold loans customer transacting online • 45.35 lakh downloads iMuthoot App and 8000+Cr worth of payments 10k+ downloads for loan at home app Digital adoption by NBFCs is on a steadfast rise (II/II) B BAJAJ FINANCE LIMITED ADITYA BIRLA FINANCE • • 19.1 million active users for its digital app; intends to have 33 million net active users in FY23 • • Digitally acquired 455k new EMI card customers in Q4 FY22; total stands at 1.8 million Added 1.7 million customers on its wallet in Q4; total 6.5 million customers as of March' 22 • 4.1 + million customers acquired via digital channels in FY22 3+ lacs customer calls made using audio visual voice bots (H2 FY22) 96% of customer onboarding and 98% EMI collection done digitally • Source: Company Documents 46 Copyright 2020 by Boston Consulting Group. All rights reserved.#4817 K Key Regulatory Measures (I/III) Recent Trends Apr 21 Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAS) May 21 PSL by SFBS to NBFC-MFIS May 21 May 21 Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBS) Restructuring existing individual, small business and MSME loans Jun 21 Risk based Internal Audit (RBIA) Jun 21 Declaration of Dividends Jun 21 Credit Guarantee Scheme for MFIS Limit of audit of four commercial banks, eight UCBs and eight NBFCs for an audit firm in a year made applicable to audit of NBFCs with asset size below Rs. 1,000 crore too Extension provided for SFBS permitted to reckon fresh lending to smaller MFIs for on- lending to individual borrowers as Priority Sector Lending (PSL) till FY22 Special three-year long-term repo operations (SLTRO) of 10,000 crore at repo rate for the SFBS, to be deployed for to NBFC-MFIs to be available till October 31, 2021 NBFC's permitted by the RBI to restructure loans of individual, small businesses and MSMEs having aggregate exposure of up to Rs.25 crore and who have not availed restructuring under any of the previous frameworks and who were classified as 'standard' as on 31 Mar 21; The restructuring has to be invoked by Sep 2021 Provisions of RBIA to be applicable to all deposit taking HFCs and non-deposit taking HFCs with asset size of Rs 5,000 crore and above RBI has set a relatively relaxed criteria for dividend payout, as compared with the draft guidelines effective for dividends from profit for FY22 and onwards Banks have fully utilized *7,500 crore under the Credit Guarantee Scheme for Micro Finance Institutions (MFIs); part of a *6.29 lakh crore package to provide relief to various sectors affected by the second wave of the COVID-19 pandemic Source: Reserve Bank of India 47 Copyright 2020 by Boston Consulting Group. All rights reserved.#49Key Regulatory Measures (II/III) Recent Trends Jun 21 Consultative document on regulation of Microfinance introduced Sep 21 Launch of Account Aggregator Framework $ Sep 21 NBFCs allowed to apply for Aadhaar e-KYC license 5 Oct 21 Scale Based Regulation (SBR) Oct 21 RBI caps IPO financing ☐ Nov 21 Appointment of Internal Ombudsman by NBFCs RBI discussion paper on borrower based regulatory regime and a movement away from lender based regulatory regime for MFIs introduced in the public domain for consultation with stakeholders Introduction of a financial data sharing system to ease the accessibility of financial data, allowing individual consent and went live with 8 banks and multiple fintech firms NBFCs and Payment System Operators allowed to seek Aadhaar Authentication License- KYC User Agency (KUA) or sub-KUA license to perform authentication An integrated regulatory framework for NBFCs providing a holistic view of the SBR structure, set of fresh regulations and timelines Under the SBR framework, there will be a ceiling of 1 crore per borrower for financing subscription to an initial public offering (IPO) Deposit-taking NBFCs with ten or more branches and non-deposit taking NBFCs with assets size of 5,000 crore must appoint an Internal Ombudsman (IO). Dec 21 PCA Framework for NBFCs Established a regulatory course of action in an event of a breach of certain parameters, thus acting as an early warning signal. Source: Reserve Bank of India 48 Copyright 2020 by Boston Consulting Group. All rights reserved.#50Key Regulatory Measures (III/III) Recent Trends ☐ Jan 22 Framework for Facilitating Small Value Digital Payments in Offline Mode Implementation of 'Core Financial Feb 22 Services Solution' by NBFCs Mar 22 An offline payment, transaction which does not require internet or telecom connectivity to take effect The CFSS, as adopted by banks shall provide for seamless customer interface in digital offerings and transactions relating to products and services with anywhere, enable integration of NBFCs Regulatory Framework for Microfinance All collateral-free loans, for households having annual income up to 3,00,000, shall be Loans considered as microfinance loans Apr 22 Disclosures in Financial Statements $ Apr 22 May 22 Jun 22 NBFCs are required to make disclosures in their financial statements in accordance with existing prudential guidelines, applicable accounting standards, laws, and regulations RBI tightens NBFC lending and disclosure Mid layer and Upper layer NBFCs shall not lend more than Rs. 5 crores to directors or their guidelines PSL by Commercial Banks to NBFCs and SFBS to NBFC-MFIS Provisioning for Standard assets by NBFC-UL related firms Bank credit to NBFCs for on-lending will be allowed up to an overall limit of 5% of an individual bank's total priority sector lending (PSL) in case of commercial banks and 10% for SFBs to lend to NBFC-MFIs and other MFIs NBFCs in the upper regulatory layer to maintain provisions for standard advances based on category of assets Source: Reserve Bank of India 49 Copyright 2020 by Boston Consulting Group. All rights reserved.#51• Recent Trends Scale based regulatory framework - to aid in better governance practices and structural strengthening of the sector Classification of NBFCs into various layers as per scale-based approach Top Layer This Layer will ideally remain empty Can get populated if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the Upper Layer Such NBFCs shall move to the Top Layer from the Upper Layer . Upper Layer Shall comprise of those NBFCs which are specifically identified by the Reserve Bank as warranting enhanced regulatory requirement based on a set of parameters and its scoring methodology. The top ten eligible NBFCs in terms of their asset size shall always reside in the upper layer, irrespective of another factor 0 Middle Layer All deposit taking NBFCs (NBFC-Ds) Non-deposit taking NBFCs with asset size of 1000 crore+ NBFCs undertaking the following activities (i) Standalone Primary Dealers (SPDs), (ii) Infrastructure Debt Fund―Non-Banking Financial Companies (IDF-NBFCs), (iii) Core Investment Companies (CICs), (iv) Housing Finance Companies (HFCs) and (v) Infrastructure Finance Companies (NBFC-IFCS) Base Layer Non-deposit taking NBFCs below the asset size of 1000 crore - NBFCs undertaking the following activities- • . • NBFC-Peer to Peer Lending Platform (NBFC-P2P) NBFC-Account Aggregator (NBFC-AA) Non-Operative Financial Holding Company (NOFHC) NBFCs not availing public funds and not having any customer interface Note: The guidelines to be effective from October 2022 Source: Reserve Bank of India 50 Copyright 2020 by Boston Consulting Group. All rights reserved.#52Regulations more closely aligned with banks and would impact metrics of NBFCs Recent Trends Net Owned Funds Regulatory minimum Net Owned Fund (NOF) for NBFC- ICC, NBFC-MFI and NBFC- Factors shall be increased to *10 crore by March 31, 2027 NPA Classification Extant NPA classification norm stands changed to the overdue period of more than 90 days for all categories of NBFCs by March 31, 2026 Experience of the Board At least one of the directors shall have relevant experience of having worked in a Bank/NBFC Capital Guidelines (For Middle and Upper Layer) Internal assessment by NBFCs for need of capital; shall be on similar lines as ICAAP prescribed for Commercial Banks under pillar 2 Note: The guidelines to be effective from October 2022 Source: Reserve Bank of India 51 Copyright © 2020 by Boston Consulting Group. All rights reserved.#53India NBFC Sector Update - FY22 Macro Indicators Key Performance Indicators- Industry (Banks + NBFCs) Key Performance Indicators- NBFC Sector Funding NPA & Risk Management Valuation Advances Deep-dive (select products) Recent Trends Player Performance 52 62 Copyright 2020 by Boston Consulting Group. All rights reserved.#54HFCs Player performance (I/IV) HDFC WITH YOU, RIGHT THROUGH LIC HFL LIC HOUSING FINANCE LTD Indiabulls HOUSING FINANCE pnb Housing Finance Limited Ghar Ki Baat BAJAJ HOUSING FINANCE LIMITED TATA CAPITAL HOUSING FINANCE LIMITED Can Fin Homes Ltd (Sponsor: CANARA BANK) NONE LOANS DEPOSITS IIFL HOME LOAN YAY GIC HOUSING FINANCE LTD. YOUR ROAD TO A DREAM HOME Repco Home Finance We value your Dream 000 00 000 00 Player Performance Standalone financials Select NBFCs Advances¹ Period NIM² (%) CIR³ (%) GNPA (%) ROA² (%) ROE4(%) Rs Cr FY22 5.5L 2.7 10 1.9 2.3 12.0 ▲ 14% ▲ 25 bps ▲ 56 bps ▼7 bps ▲ 7 bps ▼ 34 bps FY21 4.9L 2.5 9 2.0 2.2 12.3 FY22 2.5L 2.3 17 5.4 0.9 10.1 ▲ 8% ▲ 3 bps ▲ 423 bps ▲ 134 bps ▼ 28 bps ▼400 bps FY21 2.3L 2.2 13 4.0 1.2 14.1 FY22 0.5L 2.2 35 4.1 0.9 4.5 ▼ 7% ▼46 bps ▲ 1451 bps ▲ 144 bps ▼ 33 bps ▼ 249 bps FY21 0.5L 2.6 21 2.7 1.2 FY22 0.6L 2.5 21 7.6 1.2 ▼ 9% ▼41 bps ▲ 368 bps ▲ 317 bps FY21 0.6L 2.9 18 4.4 1.2 FY22 0.5L 3.1 29 0.3 1.6 2226 7.0 8.8 ▼ 3 bps ▼ 220 bps 11.0 11.1 ▲ 39% ▲ 66 bps ▲ 155 bps ▼4 bps ▲ 33 bps ▲ 331 bps FY21 0.3L 2.4 28 0.4 1.3 7.8 FY22 0.3L 4.1 ▲ 15% ▲ 27 bps FY21 0.2L 3.8 FY22 0.3L 3.3 ▲ 20% ▼35 bps FY21 0.2L 3.6 FY22 0.2L 4.8 ▲ 5% ▲ 25 bps FY21 0.1L 4.5 FY22 0.1L 3.5 ▼ 9% ▲ 40 bps FY21 0.1L 3.1 FY22 0.1L 4.7 ▼ 5% ▲ 27 bps FY21 0.1L 4.4 32222222220 1.6 2.0 17.1 ▲ 331 bps 54 bps ▲ 68 bps ▲ 497 bps 27 2.1 1.3 12.1 18 0.6 1.9 16.6 ▲ 302 bps 27 bps ▼ 23 bps ▼ 256 bps 15 0.9 2.1 19.2 2.1 3.4 24.0 ▼112 bps ▲ 13 bps ▲ 77 bps ▲ 362 bps 2.0 2.6 20.3 7.4 1.4 12.1 ▲ 4 bps ▼33 bps ▲ 59 bps ▲ 405 bps 7.7 0.8 8.1 7.0 1.6 8.9 ▲ 56 bps ▲ 330 bps ▼79 bps ▼604 bps 3.7 2.4 15.0 1. Advances are half yearly net Advances 2. RoA and NIM are calculated as % of average assets and are annualized 3. CIR is calculated as Opex by Total Income (NII + Other Income) and is annualised 4. RoE are calculated as % of average shareholder's funds and is annualised 5. NA: Not Available Source: RBI; Capitaline; Press releases; BCG analysis XXX Change vs. last year 53 Copyright 2020 by Boston Consulting Group. All rights reserved.#55Player performance (II/IV) Player Performance Standalone financials Select NBFCs Advances¹ Period NIM² (%) CIR³ (%) GNPA (%) ROA² (%) ROE4(%) Rs Cr B BAJAJ FINANCE LIMITED SHRIRAM Transport Finance Company Limited A WINNING RELATIONSHIP FY22 1.4L 10.5 35 2.0 4.1 16.3 L&T Financial Services Chola Enter a better life Diversified Mahindra FINANCE HDB FINANCIAL SERVICES From the trusted family of HDFC Bank Ltd. ADITYA BIRLA FINANCE TATA CAPITAL FINANCIAL SERVICES LIMITED 000 00 000 ▲ 28% ▲ 117 bps ▲ 377 bps ▼ 19 bps ▲ 128 bps ▲ 461 bps FY21 1.1L 9.4 31 2.2 2.9 11.7 FY22 1.2L 6.6 22 7.1 2.0 11.4 ▲ 8% ▲ 33 bps ▼ 136 bps ▲ 1 bps ▼ 5 bps ▼117 bps FY21 1.1L 6.2 24 7.1 2.0 12.6 FY22 0.8L 6.1 35 4.3 0.8 5.0 ▼ 1% ▲ 6 bps ▼ 258 bps NA ▲ 84 bps ▲ 502 bps FY21 0.8L 6.1 38 NA 0.0 0.0 FY22 0.7L 6.7 35 6.8 2.7 20.2 ▲ 13% 48 bps ▲ 375 bps ▲ 280 bps ▲ 55 bps ▲ 310 bps FY21 0.7L 6.2 32 4.0 2.2 17.1 FY22 0.6L 7.3 36 7.7 1.3 6.5 ▲ 1% ▲ 11 bps ▲ 753 bps 130 bps ▲ 85 bps ▲ 395 bps FY21 0.6L 7.2 28 9.0 0.4 2.6 FY22 0.6L 8.1 52 5.0 1.6 11.2 ▼ 2% ▲ 73 bps ▲ 276 bps 49 bps ▲ 99 bps ▲ 649 bps FY21 0.6L 7.4 49 4.5 0.6 4.8 FY22 0.5L 5.2 31 3.1 2.1 11.9 ▲ 13% ▲ 77 bps ▼102 bps ▲ 40 bps ▲ 56 bps ▲ 276 bps FY21 0.5L 4.5 32 2.7 1.5 9.1 FY22 0.5L 5.3 43 2.2 1.5 11.3 ▲ 26% ▲ 32 bps ▲ 235 bps ▼74 bps ▲ 9 bps ▲ 82 bps FY21 0.4L 5.0 41 3.0 1.4 10.5 FY22 0.3L 4.8 32 2.2 2.6 13.8 SSUNDARAM FINANCE ▼ 3% ▲ 70 bps ▲ 92 bps ▲ 35 bps ▲ 21 bps ▲ 2 bps Enduring values. New age thinking. FY21 0.3L 4.1 31 1.8 2.4 13.8 FY22 0.3L 9.9 63 6.3 2.9 12.7 SHRIRAM City ▲ 13% ▼14 bps ▲ 124 bps ▼6 bps 18 bps ▼48 bps MONEY WHEN YOU NEED IT MOST FY21 0.3L 10.0 61 6.4 3.1 13.2 FY22 0.3L H ▲ 20% HeroFinCorp. Finance Made Easy FY21 0.2L 8.3 7.6 47 7.9 (0.7) (3.9) ▲ 67 bps ▲ 566 bps 50 bps ▼92 bps 540 bps 41 7.4 0.3 1.5 1. Advances are half yearly net Advances 2.RoA and NIM are calculated as % of average assets and are annualized 3. CIR is calculated as Opex by Total Income (NII+ Other Income) and is annualised 4. RoE are calculated as % of average shareholder's funds and is annualised 5. NA: Not Available Source: RBI; Capitaline; Press releases; BCG analysis XXX Change vs. last year 54 Copyright 2020 by Boston Consulting Group. All rights reserved.#56Diversified Player performance (III/IV) Standalone financials Player Performance Advances1 Period NIM² (%) CIR³ (%) GNPA (%) ROA² (%) ROE4(%) Rs Cr Fullerton FY22 0.2L 8.8 ▲ 10% ▼ 288 bps India FY21 0.2L 11.7 554 57 ▲ 2075 6.9 ▼ 274 bps 36 bps 9.6 0.2 (4.4) ▲ 462 bps FY22 0.1L 8.6 41 3.2 3.3 1.3 (26.0) 18.1 ▲ 2735 bps P IIFL HOME LOAN POONAWALLA FINCORP CAPRI GLOBAL CAPITAL LIMITED 000 ▼ 17 % ▲ 177 bps ▼ 146 bps 117 bps ▲ 164 bps ▲ 885 bps FY21 0.2L 6.8 42 2.0 1.6 9.2 FY22 0.1L 8.2 57 3.3 2.5 7.7 ▲ 1163 ▲ 25% ▼33 bps ▼101 bps ▲ 750 bps bps ▲ 3361 bps FY21 0.1L 8.5 46 4.3 (5.0) (26.0) FY22 0.05L 8.3 44 ▲ 1060 2.4 3.3 9.5 ▲ 28% ▲ 105 bps 92 bps y 29 bps ▲ 25 bps FY21 0.04L 7.2 33 bps 3.3 3.5 9.2 1. Advances are half yearly net Advances 2.RoA and NIM are calculated as % of average assets and are annualized 3. CIR is calculated as Opex by Total Income (NII+ Other Income) and is annualised 4. RoE are calculated as % of average shareholder's funds and is annualised 5. NA: Not Available Source: RBI; Capitaline; Press releases; BCG analysis XXX Change vs. last year 55 Select NBFCs Copyright 2020 by Boston Consulting Group. All rights reserved.#57Gold Loan MFIS Player performance (IV/IV) Player Performance Standalone financials Select NBFCs Advances¹ Period NIM² (%) CIR³ (%) GNPA (%) ROA² (%) ROE4(%) Rs Cr FY22 0.1L 9.7 36 3.1 2.8 10.1 CreditAccess™ ▲ 26% ▲ 77 bps ▲ 115 bps ▼126 bps ▲ 156 bps ▲ 557 bps Grameen FY21 0.1L 9.0 35 4.4 1.2 4.5 FY22 0.05L 9.6 50 1.7 0.2 1.3 ASIRVAD MICROFINANCE LIMITED 0 ▲ 13% ▲ 106 bps ▲ 315 bps ▼ 10 bps ▼8 bps ▼ 35 bps Orgy Subsidiary of MANAPPURAM FINANCE LTD. FY21 0.05L 8.6 47 1.8 0.3 1.6 FY22 0.05L 7.5 64 8.0 0.5 2.6 SATIN CREDITCARE NETWORK LTD. Reaching out Muthoot Finance MANAPPURAM FINANCE LIMITED Make Life Easy 000 ▼ 11% ▲ 112 bps ▲ 495 bps ▼39 bps ▲ 71 bps ▲ 352 bps FY21 0.06L 6.3 60 8.4 (0.2) (0.9) FY22 0.6L 10.6 25 3.0 5.9 23.5 ▲ 10% ▲ 17 bps ▼73 bps ▲ 211 bps 63 bps 422 bps FY21 0.5L 10.5 26 0.9 6.5 27.8 FY22 0.2L 12.0 43 3.0 5.0 17.6 ▲ 8% ▼136 bps ▲ 1179 bps ▲ 110 bps ▼191 bps 1013 bps FY21 0.2L 13.3 31 1.9 6.9 27.7 1. Advances are half yearly net Advances 2.RoA and NIM are calculated as % of average assets and are annualized 3. CIR is calculated as Opex by Total Income (NII+ Other Income) and is annualised 4. RoE are calculated as % of average shareholder's funds and is annualised 5. NA: Not Available Source: RBI; Capitaline; Press releases; BCG analysis XXX Change vs. last year 56 Copyright 2020 by Boston Consulting Group. 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