L&T Finance Ltd

Dear Stakeholders,

It gives me immense pleasure to present your Company's second Integrated Annual Report with the theme 'Empowering with Technology, Building Futures'. The theme rightly describes the organisation's successful journey towards becoming 'A Top-Class Digitally-Enabled Customer-Focussed Retail Fintech@Scale'. We need to take this opportunity to thank Mr. Dinanath Dubhashi for all his contributions in elevating LTF to the Retail powerhouse it has become today. Dinanath served LTF with dedication and has contributed significantly and under his leadership and guidance, LTF has truly transformed. Dinanath has played a stellar role in building a strong team. He has also played a key role in succession planning. I would also like to wish the very best to Mr. Sudipta Roy who took over as the Managing Director and Chief Executive Officer of LTF. I am confident that under the leadership of Sudipta, your Company will continue to thrive and remain at the forefront of the NBFC sector.

Coming back to business, FY24 was a year when the world grappled with geopolitical tensions, inflation, supply chain constraints, and various macroeconomic factors. The global economy continued to reel under elevated pressure on account of conflicts. Apart from geopolitical concerns, additional pressure on the global economy was driven by monetary tightening, especially by the US FED. Concerns continued with the downturn in the real estate markets, coupled with declining real estate prices and sluggish job markets in major economies.

Despite all these global factors, the Indian economy continued to show promise and demonstrated remarkable resilience. India's strong fundamentals, especially the GDP growth, moderating inflation and stable currency, prompted the Reserve Bank of India (RBI) to revise its GDP growth projections at 7% for FY25. Such unprecedented growth for the country was observed amid a period when global economies were struggling to grow by even 2 to 3%. The sustained growth of the Indian economy has been driven by policy measures not only at the macro level but also at the micro level. The focus on digitisation, digital economy, technology-driven developments, localisation efforts, energy transition and climate actions, coupled with investments and growth, augurs well for the country. Also, India's energy transition from the use of traditional energy to renewables along with the tightening of environmental pollution norms and the responsible use of thermal power are key pillars towards carbon neutrality. Initiatives like ‘Digital India' and ‘Make in India' have truly encouraged the creation of new opportunities, driven financial inclusion, and even accelerated economic activities with increased foreign investments, higher job creation, and enhanced domestic manufacturing. All this along with the investments towards boosting infrastructure over the past few years, has helped in improving the overall economy. Even the focus on social welfare initiatives and simplification of regulations has helped newer businesses come up and attract a slew of international investments. The confidence in the Indian economy has also been shown by the International Monetary Fund (IMF) where for FY25 and FY26, India's GDP is projected to remain strong.

India's robust and resilient growth story is remarkable and is also aiding the growth of your Company. To this effect, we have consistently played a part as an accelerator of India's growth story by providing access to funds and democratising credit. Today, your Company is not only providing credit access through traditional means, but also consistently deploying its digital capabilities to facilitate ease of financing. The digital initiatives deployed by your Company completely align with the Government's vision of ‘Digital India', and supports the underserved and unbanked communities by providing them access to organised credit. Furthermore, with the anticipated positive monsoon season in FY25, we expect improved rural income and spending, thus potentially benefitting business segments like Rural Business Finance, Farmer Finance, Vehicle Finance, and Personal Finance. In early 2023, Sudipta, the Leadership Team, and I undertook a journey to the rural areas of Madhubani (Bihar) and Gorakhpur (Uttar Pradesh), to immerse ourselves in Rural Business Finance and Farmer Finance. The purpose was to gain firsthand insights into the evolving needs of our customers and our people in Rural India. What we observed was a notable transformation driven by the widespread embrace of digital technology. These interactions served as our compass, guiding us to develop products and digital solutions that cater to the evolving needs of our customers and enhance their satisfaction.

Glancing at the performance of LTF, it has made a remarkable transformation from a predominant Wholesale Financier to a Retail Financer in a short time. This is a humongous achievement. Your

Company continued with its plans of accelerated reduction of its Wholesale Book, with a steep reduction from Rs. 19,512 Cr to Rs. 5,528 Cr in FY24 implying a reduction of 72% on Y-o-Y basis. As for the Rural and Urban Ecosystem, your Company has built a digital retail franchise with a book size of over Rs. 80,000 Cr, with Rural and Urban Book size standing tall at around Rs. 40,000 Cr each while maintaining pristine asset quality. FY24 has been a milestone year in your Company's journey, as your Company achieved ‘Lakshya 2026' goals at Retail level in Q3FY24 as highlighted below. Your Company has now reoriented to converge at consolidated level by FY26: Retailisation at 94% vs original target of >80% Retail Book growth at 31% Y-o-Y vs targeted growth rate of 25% Q4FY24 Consolidated Asset Quality - Gross Stage 3 at 3.15% and Net Stage 3 at 0.79%, as against the targeted GS3 of <3% and NS3 of <1%, respectively Apart from the stellar business performance for the year, your Company completed the merger of its subsidiaries with itself. The merger has led to the creation of a simplified ‘Single Lending Entity', consolidating all lending businesses under one operating NBFC. The merger has brought in many benefits for your Company, in the form of reduction of complexity in the corporate structure, enhanced liability management, ability to provide improved returns to its shareholders, seamless compliance and adherence to RBI Scale-based Regulations.

Your Company is investing heavily into being a Digital Financial Company. Analytics and Gen AI are being used to improve business functioning and operational efficiency. Going forward, your Company will continue to aim at delivering consistent, predictable, and sustainable growth, with a minimum of 25% CAGR of its book. Furthermore, to consistently achieve such growth, your Company will continue to progress with digital finance delivery as a customer value proposition, thus touching every part of the customer ecosystem through its digital offerings. Your Company's persistent focus on performance has made delivery of such numbers possible. This achievement wouldn't have been possible without the commitment to consistent performance by the people of your Company.

Your Company's competitive advantage lies in steadily building business strengths through carefully cultivated franchises with the help of digital and data analytics. The optimal mix of a strong physical presence and preferred channel partners, coupled with leveraging your Company's database of over 2.3 Cr customers (of which about 1.55 Cr are Rural and about 0.75 Cr are Urban), has put in place a superior retail franchise, adept at meeting the dynamic needs of the customers. Supported by digitisation, your Company has built a 100% paperless journey in Rural Business Finance, Farmer Finance, Two-Wheeler Finance, Personal Loans and SME Finance, thus boosting its digital collection capabilities. The work around digitisation is progressing on multiple fronts to create a digital fortress with a best-in-class infrastructure. Your Company is also partnering with various leading FinTech companies for better customer prospects and even upgrading the branch IT infrastructure with the aim of increasing operational efficiency. Besides the solid focus on digital, your Company over the last couple of years ensured higher emphasis on improved risk management, credit underwriting, and data analytics. Your Company has consistently invested in upgrading and strengthening its risk management tools. Towards this goal, it has put in place risk detection with enhanced and real-time data analytics, next-gen scorecards, risk monitoring dashboards, geo-agnostic underwriting, analytics-based multilayer controls, and early warning signals to minimise and mitigate risks. Furthermore, data analytics has enabled your Company to provide enhanced customer experience through lower turnaround time and improved market position. By analysing various data points like income, credit history, debt-to-income ratio, and financial metrics, risks are assessed, and lending decisions are taken. Utilising strengths like deeper risk management, credit underwriting, and data analytics, your Company has been able to curtail the GS3 from 4.74% in FY23 to 3.15% in FY24. Delving into marketing and communications initiatives, your Company has partnered with various industry-leading institutions and media houses, and deployed various campaigns to enhance its brand visibility and presence. These aspects have become crucial as they help in enhancing credibility and trust, drive differentiation, increase brand visibility, direct market expansion, and even build and foster strong customer loyalty. Visible results of our marketing and communication initiatives are being seen in the form of greater recognition at various industry-leading platforms, higher engagement and satisfaction among our existing and new customers, both Rural and Urban, showcasing overall improvement in business outcomes.

Coming to ESG, your Company has been an early adopter and has been successfully integrating ESG in business operations and processes to create an ESG conscious organisation. It is important to note that we have been making a positive impact through measures such as optimal resource utilisation, energy efficiency, and water conservation. Carbon footprint through reduced

GHG (Scope 1+2) emission have been brought down by ~18% from the previous year, while increasing reliance on Renewable Energy in operations to ~39%.

Additionally, while being steadfast towards its commitment of carbon neutrality by 2035, your Company has also taken various steps to replenish ~183 lakh kl water and built surplus through rain water harvesting structures.

On the flagship CSR programme - Digital Sakhi, our financial literacy and inclusion initiative is across 9 states and has impacted over 42 lakh community members comprising 80% women since its inception. The Digital Sakhis linked 1 lakh+ community members with social entitlement schemes worth Rs. 60 Cr+. Lastly, with respect to the completed Digital Sakhi projects, a study undertaken by CRISIL highlights that for every 1 rupee that your Company has invested, a social value of Rs. 123 has been generated. Under Project Prakruti, over 1.5 lakh saplings have been planted since inception.

For employees, your Company has taken various initiatives towards talent management, recognition, training, and development, by providing cross-functional opportunities to existing employees to job rotation internally. Your Company not only invests in its people but also helps facilitate wealth creation opportunities.

Further, as part of its diversity and equity initiative (DE&I) your Company has implemented several focussed interventions across roles within the organisation to improve gender diversity. The focus is reflected in the gender diversity ratio which we have achieved during FY24.

The results of the interventions, albeit on a smaller scale can be seen in the overall women representation in our workforce, which now stands at 4.6% vis-?-vis 4% last year. The outcome of the adoption of various sustainability-related practices, not only in operations, but also in business, is seen in your Company being recognised as the best ESG rated Company in the sector. In conclusion, we extend our heartfelt gratitude to each of our stakeholders and our Board for the unwavering confidence in LTF. It is your trust which is the driving force behind your Company's success, and we truly appreciate the support that each of you continues to provide. Our commitment to delivering value and sustainable growth remains steadfast. The confidence of our stakeholders and the Board motivates us to strive for excellence, and we are dedicated to upholding the trust placed in us. Best Regards,