L&T Finance Ltd

Investments in the thriving AI and technology sectors are expected to play a key role in the digitisation drive.

This Integrated Annual Report marks a significant milestone for your Company as it completes 30 glorious years of empowering aspirations. The financial arm of the Larsen & Toubro Group has successfully transitioned into a customer-centric retail finance company over the years, financially uplifting people across rural and urban India and helping them achieve their dreams. The Report captures the essence of your Company's 'Digital@ Core' philosophy and its unwavering commitment to deliver customer- oriented and technology driven innovative offerings in a responsible manner.

In 2024, the global economy has shown remarkable resilience in the face of an array of challenges such as geopolitical tensions, high inflation, climate events, and financial volatility. This adaptability has been instrumental in averting an economic downturn. The Indian economy has remained steady as well, duly supported by strong macroeconomic fundamentals, large domestic consumption, and consistent policy support to emerge as the fastest- growing major economy in the world.

In India, financial inclusion is pivotal to achieving the 'Viksit Bharat' goal by 2047 to ensure that growth is both broad-based and equitable. As the country progresses, demand for credit is expected to grow multifold, especially among the Micro, Small and Medium Enterprises (MSMEs) and the retail sector. Providing access to credit to cater to the diverse needs across geographies in the fastest and most efficient manner through transformational Artificial Intelligence (AI) and technology will be crucial in the financial inclusion of economically unserved and underserved people.

Thus, investments in the thriving AI and technology sectors are expected to play a key role in this digitisation drive. The finance minister in the Union Budget FY26 speech referred to sectors like Agriculture, MSME, Investment, and Exports as four powerful engines of the development journey. As these sectors drive India's growth story and more people gain access to formal lending systems, transforming the Indian financial services landscape, it gives me great pleasure to note that your Company is at the forefront of this transformation story.

Reflecting its commitment to 'Technology-Driven, Responsible Growth', this year's Integrated Annual Report highlights your Company's performance and delivery during FY25. Driven by the adoption of futuristic digital architecture and sustaining a responsible expansion trajectory in line with Lakshya 2026 goals even during cycles, it underlines the growth philosophy of your Company.

Before we move to FY25 performance, it is important for me to take a pause and reflect on the progress of our Lakshya 2026 goals and strategic initiatives undertaken by your Company.

Your Company, with a view to effectuate the transformation from a wholesale dominated franchise to a technology-driven retail finance company, carried out a reorganisation of its business verticals and exited non-lending businesses like wealth management in the year 2020 and mutual fund business in 2022, coupled with a systematic accelerated reduction of the wholesale (infrastructure and real estate) business.

To make this transformation seamless, another strategic initiative taken was the creation of a 'Single Lending Entity' by consolidating all lending businesses under one operating NBFC in FY24. This led to the creation of a simplified corporate structure which helped build robust execution structures.

As part of its succession planning, your Company also witnessed a smooth transition of leadership in FY24, with Mr. Sudipta Roy, having extensive experience in retail and digital lending, taking over as the Managing Director and Chief Executive Officer of your Company in January 2024. This aimed at accelerating your Company on the path of becoming a cutting-edge digital retail finance company.

Further, with an aim to quicken the decision-making process, localising problem-solving at the origin and significantly enhancing customer experience, a new structure of Regional Business Head was created within your Company. This role is entrusted with the ownership of regional P&L spanning across businesses and shouldering the responsibilities of delivery and growth, compliance and quality improvement, product promotion and marketing, and capability building.

As a move towards enhancing its high-yield secured book exposure, both in rural and urban regions, your Company announced its entry into the gold loan business. This also aligns with your Company's Lakshya 2026 strategy, which focuses on tapping new geographies and growing its customer base while delivering value to its stakeholders.

Additionally, the gold loan business undertaking complements your Company's existing portfolio and allows it to capitalise on the significant overlap with its current customer base of Rural Group Loan and Micro Finance operations. I am confident that this will be a key driver of future profitability.

In FY24, your Company achieved 'Lakshya 2026' goals at a retail level as per the plan and reoriented itself to converge at a consolidated level by FY26, with the goals being:

Today, as we reflect on the milestones achieved against Lakshya 2026, your Company has achieved 97% retailisation at the end of FY25, while rapidly reducing the wholesale book. The retail book grew at 19% Y-o-Y (28% CAGR growth -

Q4 FY22 - Q4 FY25), and the wholesale book was reduced to Rs. 2,582 Cr at the end of FY25, a reduction of 53% Y-o-Y. On the asset quality side, our portfolio has shown resilience in a difficult credit environment, with consolidated GS3 and NS3 remaining stable at 3.29% and 0.97%, respectively, while achieving the highest-ever annual consolidated RoA of 2.44% in FY25.

The aforesaid performance was achieved by your Company despite a challenging operating environment and credit quality challenges in the microfinance sector during the year. Your Company has a robust business model, strengthened credit and risk guardrails, proactive on-ground measures and a relentless focus on restoring collection efficiency.

The focus has been on enhancing your Company's new customer acquisition funnel while harvesting its existing customer database of ~2.6 Cr customers and increasing up-sell and cross-sell of products to its good customers. Your Company's rural franchise is among one of the highest in the NBFC sector, with ~1.7 Cr rural customers and 90 lakh customers from urban areas.

The deep PAN India retail franchise is led by its distribution capabilities covering ~2 lakh villages from 2,000 + rural meeting centres/ branches and over 200 branches across urban centres. This extensive geographic presence is also supported by 13,000+ distribution touchpoints built over a decade.

Your Company remains committed to becoming one of the preeminent technology driven lenders in the country, with building technology infrastructure to drive variety, volume, velocity, and veracity. Towards this, the next-gen initiatives undertaken during the year were:

Launched Project Cyclops, an in-house-developed Al-driven, next-gen digital credit engine determining the repayment capability and credit quality of potential customers using ML- based ensemble scorecards. With this, your Company is on the path to make its underwriting capabilities even more comprehensive and accurate, enabling it to make faster and more informed decisions at scale. This will result in improving the quality of customers being onboarded, thereby improving overall asset quality.

o Sealed partnerships with key fintechs like CRED and market leaders like Amazon Pay and PhonePe. Partnered with leading industry players to offer credit products to its members, enhancing product diversification strategy and improving credit availability for consumers.

o Our customer-facing application - PLANET App, which was soft launched in March 2022 has emerged as a powerful digital channel for our customers. The app has already crossed 17 Mn downloads, which also comprises ~16 lakh downloads by our rural customers. As of this date, this channel has done collections of more than Rs. 3,800 Cr while servicing more than 6.80 Cr requests and sourcing loans of more than Rs. 12,700 Cr (including web).

The certification reflects our dedication towards our employees and on creating a workplace culture that is built on credibility, respect, fairness, pride, and camaraderie.

Your Company has also introduced a series of employee-friendly policies for better employee engagement.

Your Company successfully conducted integrated marketing campaigns for its products, leading to a ramp-up of brand LTF in both urban and rural geographies and onboarded Jasprit Bumrah, the ace Indian cricketer, as the Brand Ambassador of your Company, as a part of the multichannel brand building efforts.

Your Company also conducted R.AI.SE, India's premier BFSI-focused Artificial Intelligence conference showcasing practical use cases of AI in the financial services domain to BFSI industry and fintech participants.

Your Company's ESG journey started in 2018-19, and currently it has the best-in-class ESG ratings in the BFSI sector. Your Company has adopted the goal of achieving carbon neutrality by 2035 and is well on track to achieve the same. In FY25, your Company also maintained the status of being water surplus.

Your Company is among the 1^st in the Indian NBFC sector to conduct a Double Materiality Assessment as well as becoming a signatory to the Partnership for Carbon Accounting Financials for measuring its environmental footprint.

Recognising the importance of diversity, the Company has also rolled out various programmes specifically designed to empower women, alongside significant policy changes that support a more inclusive environment. The efforts taken during the year have led to an uptick of women hirings by 4x in the field-level positions in the Rural Business Finance, with the overall women representation standing at 5.4% against 4.6% last year.

On the social front, your Company's flagship CSR programme, the 'Digital Sakhi' project, has created a cadre of 2,000+ Digital Sakhis who have benefitted 54 lakh+ individuals and helped upskill 17,000+ women entrepreneurs since its inception in 2017.

I am confident that by embracing innovation, we will continue to redefine the boundaries for growth while driving efficiency and productivity across all aspects of our businesses. Our ambitious goal is to emerge as a 'Bigger, Leaner, and Stronger' organisation. Our 'Can Do, Will Do, Will Get It Done' mindset encapsulates our unshakeable determination to deliver results and exceed expectations.

Finally, I wish to express our sincere appreciation to all our stakeholders and board members for their steadfast support and belief in LTF. Your trust is fundamental to our success and inspires us every day. As we move forward, we remain deeply committed to generating value and achieving sustainable growth.

Thanks,

Chairman.