Northern ARC Capital Ltd

Dear Shareholders,

Your directors have pleasure in presenting this board's report along with the audited financial statements of the Company for the year ended March 31, 2024.

Financial Highlights

(INR in lakh)

During the year ended March 31, 2024, on a consolidated basis, your company generated total income of INR 1,90,603.25 lakh, a growth of 45.37% over the earlier year. Net Interest Income was INR 1,17,964.75 lakh, representing year-on-year increase of 56.50%, which resulted in a profit after tax of INR 31,769.27 lakh, 31.16% higher than the previous year.

Dividend

Due to the requirement of deploying the funds back into the business for the growth of your Company, your directors have not recommended any dividend for the year under review.

Transfer To Reserves

During FY 2023-24, your Company has transferred an amount of INR 5,603.43 lakh to reserves in accordance with the requirements of Section 45-IC (1) of the Reserve Bank of India Act, 1934.

Credit Rating

The Credit ratings of the company as on March 31, 2024, are summarised below:

Capital Adequacy

The company's capital adequacy ratio as of March 31, 2024, was 18.26% as against 20.77% as at March 31, 2023. The minimum capital adequacy ratio prescribed by Reserve Bank of India is 15%.

Share Capital

During the financial year, your company had allotted 3,54,127 equity shares under the Employees Stock Option Schemes of the Company.

Consequent to the aforesaid allotments of equity shares, the total paid up capital of the Company as on March 31, 2024, was INR 1,72,03,18,280/- comprising of 8,93,85,420 equity shares of INR 10 each and 4,13,23,204 compulsorily convertible preference shares of INR 20 each.

On April 22, 2024, your company had allotted compulsorily convertible preference shares ("CCPS") to the following investors:

Your Company had allotted 5,26,16,624 fully paid-up Equity shares of INR 10/- each on August 09, 2024 upon conversion of all the existing CCPS issued by the Company. Further, your company had allotted 1,90,65,326 Equity shares on September 20, 2024 through the initial public offering of its Equity Shares.

During the period from April 01, 2024 till September 30, 2024 your company had allotted 3,11,966 equity shares under the Employee Stock Option Scheme of the Company.

Directors and Key Managerial Personnel

The composition of the Board of Directors of the Company is in accordance with the provisions of section 149 and 165 of the Companies Act, 2013 read with Regulation 17 of the SEBI Listing Regulations with an appropriate combination of Executive Director, Non-Executive Directors and Independent Directors.

Pursuant to the provisions of Section 152 of the Companies Act, 2013, Mr. T S Anantharaman (DIN: 00480136) and Mr. Vijay Chakravarthi (DIN: 08020248), retires by rotation and being eligible, offers themself for re-appointment. The resolutions seeking shareholders' approval for their appointment forms part of the Notice.

During the year under review Ms. Bama Balakrishnan, Executive Director and Chief Operating Officer (DIN: 06531188) resigned from the Board as Executive Director with effect from November 13, 2023 and continued as Chief Operating Officer of the Company till March 31, 2024. The Board places on record its appreciation of the valuable services rendered by Ms. Bama Balakrishnan during her tenure as Executive Director and Chief Operating Officer of the Company.

Ms. Srividhya was resigned from the Company as Company Secretary and Compliance Officer of the Company with effect from November 20, 2023.

Ms. Monika Gurung was appointed as Company Secretary and Compliance officer of the Company for an interim period and with effect from January 18, 2024.

Ms. Monika Gurung was ceased to be the Company Secretary and Compliance Officer and continuing as employee of the Company and Mr. Prakash Chandra Panda has been appointed as the Company Secretary and Compliance Officer of the Company with effect from April 22, 2024.

Dr. Kshama Fernandes, is a non-executive nonindependent director, who was initially appointed to the Board as Executive Director with effect from August 1, 2012, and was re-designated as Non-Executive Director, Non-Independent and Vice-Chairperson of the Company with effect from April 1, 2022. Pursuant to SEBI notification dated June 14 2023 read with regulation 17(1D) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended ('SEBI Listing Regulation') effective from July 15, 2023, the Board at its meeting held on August 06, 2024 had approved the continuation of Dr. Kshama Fernandes as a NonExecutive, Non-Independent Director and ViceChairperson of the Company for a further period of one year with effect from April 01, 2024. A resolution seeking your approval has been set forth in the notice convening of Annual General Meeting.

During the year, Mr. Ashish Mehrotra, Managing Director and Chief Executive Officer, Ms. Bama Balakrishnan, Executive Director (up to November 13, 2023) and Chief Operating Officer (up to March 31, 2024), Mr. Atul Tibrewal, Chief Financial Officer, Ms. R Srividhya, Company Secretary and Compliance Officer (upto November 20, 2023) and Ms. Monika Gurung, Company Secretary and Compliance Officer (effective January 18, 2024) of the Company have been designated as the Key Managerial Personnel of the Company (KMP) pursuant to the provisions of Sections 2(51) and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Declaration of independence under Section 149(6) of the Companies Act, 2013

The Independent Directors of the Company have submitted a declaration that each of them meets the criteria of independence as provided in Section 149(6) of the Companies Act, 2013 and there has been no change in the circumstances which may affect their status as independent director during the year.

Pecuniary Transactions with non-executive directors

Details of remuneration to non-executive directors are provided in the Corporate Governance Report.

(i) Economic Outlook

India is currently the fifth-largest economy in the world, trailing only the US, China, Germany, and Japan, with a GDP of INR 172 trillion and a strong growth rate of 6.8%. By FY 2028-29, projections indicate that India's GDP will surpass INR 230-240 trillion, with a consistent growth rate of 6.5%.

Over the past three years, the Indian economy registered an average growth rate of 8.3 %. India's real GDP growth has been pegged at 8.2 % for FY 2023-24 as per the provisional estimates released by the National Statistical Office (NSO). The GDP growth has been supported by a boost in capital expenditure particularly in infrastructure development including roads, highways, railways and housing with the Government doing the heavy lifting. Additionally, private sector investment also showed some signs of resurgence in sectors such as cement, steel, oil and gas.

On the other hand, private consumption growth slowed to 4.0% in FY 2023-24 from 6.8 % in FY 2022-23. To recall, post the pandemic, consumption had been driven by services along with high demand for premium products. However, as this pent-up demand effect waned, and interest rates started rising consumer demand slowed down in FY 2023-24. Moreover, high food inflation and an uneven monsoon weighed on rural demand recovery.

(ii) Key Drivers of Growth

1. Steady Inflow of Global Capital: India continues to attract significant foreign investments, with Foreign Direct Investments (FDIs) and Foreign Portfolio Investments (FPIs) showing a 44% increase in FY 2023-24 compared to FY 2022-23. This trend reflects growing investor confidence in India's economic potential.

2. Thriving Financial Markets Supported by a Stable Government: The Nifty50 index has demonstrated impressive performance, delivering returns of approximately 23% compounded annually from FY 2019-20 to FY 2023-24. This underscores the resilience and stability of India's financial markets.

3. Innovative India Tech Stack Initiatives: Programs such as the Goods and Services Tax (GST), Open Network for Digital Commerce (ONDC), Unified Payments Interface (UPI), and Open Credit Enablement Network (OCEN) are revolutionising the economic landscape. These initiatives are improving connectivity between small businesses and consumers, streamlining financial transactions, and driving economic growth.

4. China Plus One Policy: India's competitive labor costs, vast workforce, and supportive policy reforms are attracting companies looking to diversify their operations beyond China. This strategic shift is fueling India's economic expansion.

5. Expanding Middle-Class Population: The

number of middle-income households— those earning between INR 2 to INR 10 lakh annually—has been rising steadily and is projected to continue growing with increasing GDP and household incomes. According to CRISIL MI&A, there were 41 million households in this category at the end of FY 2011-12. By FY 2029-30, this figure is expected to reach 181 million, representing a compound annual growth rate (CAGR) of 9%. This surge in middle-income households will create substantial opportunities for retail, MSME financiers, and consumer goods marketers.

6. Rapid Credit Penetration: Credit penetration in India is expanding at a remarkable pace. Systematic credit growth has achieved a CAGR of approximately 11%, reaching INR 207 trillion in FY 2023-24. Projections suggest that systematic credit will grow at a CAGR of 13%-14%, reaching INR 264.6 trillion by FY 2025-26.

Emerging risks on the global front could pose challenges to India's growth trajectory and inflation outlook. Higher crude oil prices because of any escalation in Middle East tensions and tighter global oil supply pose a risk for domestic growth and inflation. Moreover, the impact of geopolitical tensions on global supply chains could hurt India's exports to major trading partners and escalate costs. However, while global challenges may pose some risks, the resilience and momentum shown by the domestic economy in recent years suggests it is well equipped to navigate any potential headwinds.

(iii) Retail Credit Growth

The retail credit (includes Housing finance, Vehicle Financing, Gold Loans, Education Loans, Consumer Durables, Personal loans, Credit cards and Microfinance) in India stood at INR 75.2 trillion, as of FY 2023-24 and has rapidly grown at a CAGR of 16.0% during FY 2019-20 and FY 2023-24 and is expected to further grow at CAGR of 15.83% between FY 2023-24 and FY 2025-26 to reach INR 100.9 trillion by FY 2025-26. The moderation of growth of retail credit is on account of normalisation in unsecured segment which had witnessed exuberant growth in the past and impact of RBI's risk weight circular. Moreover, the increasing demand and positive sentiments in the Indian retail credit market, presents an opportunity for both banks and NBFCs to broaden their investor base.

(iv) NBFC Industry Outlook

Over the years, the Non-Banking Financial Company (NBFC) sector has significantly evolved in terms of size, operations, technological sophistication, and diversification into new areas of financial services and products. The sector has witnessed substantial growth in both the number of NBFCs and their overall size, with numerous players adopting diverse business models. According to CRISIL, the share of NBFC credit in the overall systemic credit is projected to reach 21% by FY 2025-26, up from approximately 19% in FY 2023-24. The increasing penetration of neo-banking, digital authentication, mobile phone usage, and mobile internet has led to the modularisation of financial services, particularly in the credit segment.

From FY 2019-20 to FY 2023-24, NBFC credit experienced a CAGR of approximately 12%, primarily driven by the retail segment. The retail segment, which accounts for about 48% of overall NBFC credit, witnessed a CAGR of around 15%, whereas NBFC non-retail credit grew by approximately 9% during the same

period. Looking ahead, the NBFC retail segment is expected to grow at a CAGR of 16-18% between FY 2023-24 and FY 2025-26, supporting the overall NBFC credit growth. The retail segment's market share is projected to stabilise at around 48.5% in FY 2025-26.

With the growth observed in the NBFC industry, Asset quality also witnessed an improvement and witnessed a fall in Industry GNPA and NNPA.

(v) Business Overview

I n FY 2023-24, Northern Arc maintained its strategic focus on profitable growth in business within the guardrails of risk and compliance. The Company grew its credit portfolio with a focus on granularity and saw growth across segments, facilitating credit worth INR 29,324 Crore. With this we have been also able to achieve increase in our yields through our constant efforts to expand Direct-to-Customer (D2C) segment thereby resulting in expansion of spreads from 5.89% in FY 2022-23 to 7.53% in FY 2023-24 and achieving an ROE of 14.54% and an ROA of 2.97%. Even though we have expanded our business further in the D2C segment, through our robust risk management business, we have been able to lower our GNPA and NNPA in FY 202324 to 0.45% and 0.08% which are well below the industry standard.

Key Updates:

1. Northern Arc raised INR 382 Crore from International Finance Corporation, a member of the World Bank Group and others. The funding round was officially closed on April 22, 2024.

2. Northern Arc Capital Limited got listed on NSE and BSE on September 24, 2024.

3. Our credit rating was also upgraded to AA- (Stable) credit rating by India Ratings in September 2023 in addition to ICRA update earlier.

4. We were certified as Great Place to Work for the 4^th consecutive year.

(vi) Assets Under Management (AUM):

According to the CRISIL Report, we are among India's leading diversified NBFCs in terms of Assets Under Management (AUM) as of March 31, 2024.

Our AUM surpassed the INR 10,000 Crore milestone in September 2023, reaching INR 11,710 Crore in March 2024 across 671 districts, 28 states, and seven union territories in India. This represents a 3-year CAGR of 31%, primarily driven by the growth in our Direct-to-Customer (D2C) business. The D2C share of AUM increased from 38% in March 2023 to 50% in March 2024.

Intermediate Retail AUM: The intermediate retail AUM witnessed a y-o-y growth of 5%. In the FY 2023-24, we onboarded 30 new originator partners and worked with 116 repeat originators.

Direct-to-Customer (D2C) AUM: The D2C

segment has witnessed accelerated growth, driven by our expansion in MSME product suite to include MSME secured LAP, Supply chain finance (SCF), Rural Finance and growth in our Partnership Based Lending. The D2C AUM grew 72.30% YoY from FY 2022-23 to FY 2023-24. As of March,21 2024, we have 16 lakh + D2C Borrowers.

Gross Transaction Value:

The company's gross transaction value witnessed a y-o-y growth of 7% in FY 2023-24 with a growth of 26% observed in disbursements from INR 11,788 Crore in FY 2022-23 to INR 14,885 Crore in FY 2023-24.

Total Income:

Our consolidated total income increased from INR 1,311 Crore in FY 2022-23 to INR 1,906 Crore in FY 2023-24 (YoY growth of 45%). This growth was mainly due to rise in interest income from INR 1,102 Crore in FY 2022-23 to INR 1,588 Crore in FY 2023-24 a YoY growth of 44% primarily driven by:

• Higher yields in FY 2023-24 coming from increased proportion of D2C in the company's overall AUM in FY 2023-24. Interest yields stood at 16.4%, enhancing overall spreads to 7.5% in FY 2023-24 from 5.9% in FY 2022-23.

• Increase in earning assets: y-o-y growth in earning assets was 27.3%, increasing from INR 8,539.2 Crore in FY 2022-23 to INR 10,869 Crore in FY 2023-24.

Profitability:

The consolidated profit after tax to the company was INR 317.6 Crore resulting in a YoY increase of 31.16%, driven by improvement Net interest margins from 6.48% in FY 2022-23 to 8.33% resultantly achieving a ROA of 2.97% (24 bps higher than FY 2022-23) and ROE of 14.54% (199 bps higher than FY 2022-23).

Asset Quality and Risk Management:

Our risk management approach has enabled us to actively identify, monitor and manage risks towards creating strong and sustainable business operations. As a result of our approach to risk management, according to the CRISIL Report, we had one of the lowest GNPA of 0.45% and NNPA of 0.08%, as of FY 2023-24 with a healthy capital adequacy ratio of 18.26% and Debt to Equity ratio of 3.9x. Our credit cost for FY 202324 was 1.2%.

Credit Rating:

Our credit rating was upgraded from A+ to AA- during the year by ICRA. We believe that this will help us access a more diversified set of investors and open the doors to newer segments who have a minimum AA category threshold. It should help us bring down our cost of funding, which will boost our spreads and profitability. It will also aid growth as we will be able to lend to clients who were earlier not sufficiently profitable.

Strengthen Our Core and Mature Businesses

We are scaling our established businesses— Lending both Intermediate Retail and Direct to Consumer, Placements, and Fund Management— by bolstering our senior leadership and building a robust liability franchise with focus on robust Risk Management Culture.

Grow Our New Business Lines

We have significantly expanded in the D2C segment, diversifying our portfolio and increasing the mix to 50%. This has been achieved by developing a comprehensive MSME suite, serving over 400,000 rural finance borrowers through our subsidiary Pragati, expanding to more than 300 locations, and enhancing our supply chain proposition with multiple products.

Reimagine Our Business Through Technology and Data

We have reimagined our tech offerings (AltiFi, nuScore, nPos, and Nimbus), making them revenue accretive.

AltiFi

AltiFi is a retail investment platform that democratises access to debt securities on the Northern Arc balance sheet, offering investment opportunities to retail individuals and corporates. As of March 31, 2024, AltiFi had 31,272 registered users, facilitated by distributors, enabling investments totaling INR 152 Crore in FY 2023-24.

nuScore

nuScore is a machine learning-based analytical module tailored to assist our originator partners in the loan underwriting process, enhancing credit decision effectiveness. In FY 2023-24, we began generating revenue through nuScore with our first client, Pahal, conducting 17,052 assessments.

nPos

nPos is a fully integrated API-based technology solution that connects the systems of both Originator and Investor Partners, streamlining co-lending processes. As of March 31, 2024, we have 21 active nPos partners and have executed transactions worth INR 5,989 Crore in FY 2023-24.

Nimbus

Nimbus is a curated debt platform that facilitates credit flow to our Originator Partners through our balance sheet or Investor Partners, creating a network effect. By M arch 3 1 , 2024, N i m bus had 147 active originators and 72 active investor partners, enabling transactions worth INR 17,620 Crore in FY 2023-24.

Subsidiaries and Associates:

Your Company has 5 subsidiary companies,

i.e., Northern Arc Investment Managers Private Limited; Pragati Finserv Private Limited, Northern Arc Foundation (a company incorporated under section 8 of the Act), Northern Arc Investment Adviser Services Private Limited and Northern Arc Securities Private Limited and one (1) associate company, i.e., Finreach Solutions Private Limited.

I nformation on the performance and financial position of the subsidiaries and associate company are provided in form AOC 1 enclosed as Annexure- A.

The details of subsidiaries and associate are

as follows:

i. Northern Arc Investment Managers Private Limited (NAIM)

FY 2023-24 marks the completion of a decade of Northern Arc Investment Managers (NAIM). From our humble beginnings with the launch of a small INR 100 Crore microfinance fund to raising our largest fund ever of INR 1,000 Crore, NAIM has come a long way. Our underwriting skills have expanded from a complete microfinance focus to an ability to underwrite across our six focus sectors. We have explored a myriad of structures—including an Open-Ended CAT III Debt Fund, Unified Fund, MLD Fund, Separately Managed Account, Non-FI Fund, and leveraged fund—to provide diverse investment avenues for our extensive pool of investors, which comprises of retail investors, institutions, corporates, and Development Finance Institutions (DFIs). Notably, five of our ten funds have completed their fund cycles, each delivering higher-than- expected returns.

NAIM closed FY 2023-24 with cumulative investor commitments of INR 3,745 Crore with total investments of INR 6,600+ Crore across sectors and expanded its investor base to 800+ investors. We added 330+ new investors across corporates, family offices, high net worth individuals, global and domestic funds, and development finance institutions, highlighting the growing recognition and trust in our platform. We also have received Sebi approval for the launch of two new AIFs.

Fund raising maintained its momentum as we raised over INR 600 Crore in Northern Arc Emerging Corporates Bond Fund (ECB), thereby completing the final close of the fund in November 2023 as targeted. However, due to the extended start-up funding winter, the ECB commitments could not be completely drawn down. Northern Arc Money Market Alpha Fund (MMA) also saw an inflow of INR 600 Crore which helped it reach its highest ever AUM of INR 1,500 Crore in November, 2023. Unfortunately, the latest RBI circular related to the regulated entities (RE) exposure, the MMA fund saw a significant redemption in December 2023, leading to reduction in AUM.

We also added another esteemed offshore investor to our list from which we secured

INR 245 Crore of signed commitments, effectively doubling our offshore commitments. Additionally, offshore commitments worth INR 520 Crore are in pipeline from Development Finance Institutions for Northern Arc Climate fund, our first ever leveraged fund to be launched in GIFT City in FY 2024-25.

Within the Portfolio Management Services platform, our first ever Discretionary PMS Strategy, Northern Arc Income Builder Series A, matured in February, 2024, delivering a return of ~8.75% to all its investors. This achievement once again demonstrates our expertise across a new platform category and strengthens our position among our peers as one of the strongest contenders in the private credit market. Along with this, we launched our third Discretionary PMS Strategy, Northern Arc Credit Opportunities Strategy, which focusses on investing in securities rated A- and above and would finance companies that provide credit to financially underserved end-customers.

FY 2023-24 continued to be the year of accolades, as our accomplishments were recognised and celebrated across various platforms domestically as well as internationally. NAIM was featured in the Impact Assets 50 list for the fourth consecutive year, an annual showcase highlighting fifty fund managers worldwide who excel in creating positive social impact while generating financial returns for investors. Additionally, NAIM won the prestigious 'Best Investment Management Company' award at the CX Summit, marking another significant milestone in our journey.

The past decade has been an incredible journey for NAIM, filled with growth, learning, and milestones. With the unwavering support of our investors and the recognition we've received through numerous accolades, it has been a period of remarkable progress and transformation. Inspired by this success, we are excited to continue building on this momentum and achieving even greater heights in the coming decade.

ii. Pragati Finserv Private Limited

Pragati Finserv the rural Finance subsidiary of Northern Arc Capital was incorporated in FY 2020-21 to offer small ticket loans to under-served rural and semi-urban areas of the country through an efficient, agile and scalable combination of digital platform and

physical branches. Pragati serves the diverse needs of customers belonging to low-income households of rural and semi-urban areas. It aims to become a one stop lending shop for its borrowers covering income-generating micro loans and household loans.

The current product offering of Pragati is Krushi JLG loan for rural women customers with a ticket size of INR 30,000 to 75,000. JLG Graduate Loan (Shakti) with Ticket Sizes ranging from INR 75,000 to 1,25,000 in pilot testing phase, which will meet the various end uses of customers like 2-3 wheeler, commercial vehicles, Home Improvement and WASH, Agri, Education and Dairy is expected to be launched shortly.

As of March 31, 2024 the Portfolio Outstanding of Pragati is 1,29,147.75 lakh with 4.03 lakh Active Clients and 4.40 lakh Active Loans. The current collection efficiency for the FY 2023-24 is 99.2%. The DPD 30+ portfolio of Pragati is INR 1,444 lakh which is 1.11% of the total portfolio outstanding.

Pragati has 262 operational branches across 8 states and 1 UT. During the FY 2023-24, 76 New branches have been opened with green field expansion in UP and Bihar with 19 branches each, 7 branches in Jharkhand and 31 branches in Karnataka.

Technology is the backbone of Pragati and is the key differentiator for our organisation to grow. The technology would enable Pragati to provide best in class Customer services, right-sized loans and quick turnaround time and these three would be the key focus for its product delivery. During the FY 202324 we have launched Aryabhatta 2.0 our internally developed front-end application with the primary purpose of improving the efficiency of our field employees. The application is live with collections, field monitoring, attendance and collection modules. Our Quality Control application "Dhruva" has inbuilt sourcing risk controls including KYC authentications, Bank account validations, Credit Bureau checks and Income assessments among others to select the best of customers. All the decisions at Pragati are data led and our Data Analytics plays a crucial role in Portfolio Monitoring, Risk assessment and Early Warning Signals. Completed integration with nPOS for quicker decision making, application quality check and faster disbursements.

There are a total of 1,817 active employees in Pragati with 1,296 Loan Officers and 274 Branch Managers, who constitute majority of the workforce. The Average portfolio Outstanding per Loan Officer Increased from INR 90 lakh in FY 2022-23 to INR 100 lakh in FY 2023-24. The number of clients handled by each Loan Officer has also increased from 263 in FY 2022-23 to 312 in FY 202324. Branches which have completed 12 months vintage have an average Portfolio Outstanding of INR 700 lakh in line with the NBFC-MFI standards.

Pragati being the Multi-Lingual and MultiCultural company, people are at the centre of all the decision-making policies. Capability Building is the core of business, and we deliver trainings through a hybrid model via the 40 Training centres across the country. "SANKALP" is the flagship strategy and ideations workshop for Mid and Senior Managers conducted in April, 2023. "SAMPARK" is the CEO-Interface with the field team conducted across all the regions in the country in May and June, 2023. The Annual rewards and recognition program "SAMPARK'24" was conducted in January, 2024 at Hyderabad. Pragati has won the "Best Upcoming Microfinance" and "Best Data Driven Microfinance of the year awards at the prestigious LendTech X Awards.

iii. Northern Arc Foundation:

Northern Arc, beyond the regulatory compliance, believes in giving back to the community and has embraced Corporate Social Responsibility (CSR) to make a meaningful and significant contribution to promote sustainable community development. The company has a strong commitment towards long term value creation through its social investing; in recognition of which has established Northern Arc Foundation ("Foundation") to implement CSR interventions for the group companies. The Foundation has been dedicated to making social investment for sustainable outcomes across the nation where Northern Arc has its presence. The areas where the Foundation makes significant contribution in FY 2023-24 are Education, Skill Development, and Healthcare. The company supported the following initiatives through its CSR contribution in FY 2023-24:

(i) Supported government run nursery school by providing educational and

teaching material, school supplies to the students and supporting in extracurricular activities and teacher development programmes.

(ii) Provided monetary support for underprivileged students in the rural areas for their tuition, special coaching, and student in Mumbai Area.

(iii) Provided holistic nutritional support for children who are fighting cancer at St. John's Hospital Bangalore.

(iv) Supported students in rural areas of Tamil Nadu in the form of skill development, digital literacy, and training programs for students taking professional examination.

iv. Northern Arc Investment Adviser Services Private Limited (NAIA)

NAIA was established to provide high quality advice and products in asset classes that impact the financially excluded. NAIA is registered with the SEBI as an investment adviser in terms of the SEBI Investment Advisers Regulations.

v. Northern Arc Securities Private Limited (NAS)

NAS is a wholly owned subsidiary of the Company and registered as a stockbroker with SEBI. The Company has also obtained the Online Bond Platform Provider (OBPP) enablement in the debt segment from NSE to help democratise the debt offerings from corporate and government institutions which is offered through the platform of "Altifi".

Vi. Finreach Solutions Private Limited (Finreach)

Finreach is engaged in providing business consultancy and facilitation services to various entities including Companies, Body Corporates, Trusts, Special Purpose Vehicles, Banks, and Financial Institutions (whether incorporated in India or not) which are engaged in offering credit enhancement, credit default protection and guarantee (fund and non-fund based) solutions to lenders of Micro, Small & Medium Enterprises and similar unserved or underserved entities, and devising technological and non-technological solutions, systems and framework for undertaking such operations including identifying potential lenders, building the risk management framework including technology platforms required to

provide the facilitation services, enabling administration of credit enhancement, credit default protection and guarantees (fund and non-fund based), monitoring the performance of the loan portfolio, and performing such other actions or services which are included in the value chain of the product/services offered by the various entities.

Fixed Deposits

The Company being non-deposit taking Non-Banking Financial Company - Investment and Credit Company (NBFC-ICC), has not accepted any deposits during the year under review. Further, the Company had also passed a board resolution to the effect that the company has neither accepted public deposit nor would accept any public deposit during the year under review, as per the requirements of Master Direction - Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.

Foreign Exchange Earnings and Outgo

There were no foreign exchange earnings during the year or the previous year. Total foreign exchange outgo during the year under review was INR 4,601.97 lakh (previous year: INR 930.84 lakh) under the head listed below:

(INR in lakh)

Meeting of the Independent Directors

In terms of Para VII of Schedule IV of the Companies Act, 2013, your Company conducted a meeting of its independent directors during the financial year under review, without the presence of non-independent directors and members of the management. The Independent Directors inter alia,:

(a) reviewed the performance of non-independent directors and the Board as a whole.

(b) reviewed the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors.

(c) assessed the quality, quantity, and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.

Statutory Auditors

The shareholders at the annual general meeting held on September 30, 2022 approved the reappointment of S.R. Batliboi & Associates LLP, Chartered Accountants, having ICAI Firm Registration No: 101049W/E300004 as statutory auditors of the Company based on recommendation of audit committee, board of directors and after obtaining a confirmation on eligibility under Section 141 of the Act from S.R. Batliboi & Associates LLP and RBI's Guidelines dated April 27, 2021 for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs), for a period of 2 years till the conclusion of the 16^th Annual General Meeting to be held for the financial year ended on March 31, 2024. Your statutory auditors will be completing their current term of 2 years at the conclusion of the ensuing AGM.

In terms of Section 139 of the Companies Act, 2013 and the rules made thereunder, the Board had on the recommendations of the Audit Committee, recommended the appointment of M/s. Walker Chandiok & Co LLP, Chartered Accountants, having ICAI Firm Registration No. ICAI Firm Registration No.: 001076N/N500013 as statutory auditors of the Company for a period 3 (three) consecutive terms, to hold office from the conclusion of 16^th Annual General Meeting till the conclusion of 19^th Annual General Meeting, subject to shareholders approval at the ensuring AGM. The resolutions seeking shareholders' approval for their appointment forms part of the Notice.

There has been no qualification, reservation or adverse remark given by the Statutory Auditors in their Report for the year under review.

Secretarial Auditors

Pursuant to provisions of Section 204 of the Act and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company had appointed M Damodaran & Associates, Company Secretaries, to undertake the Secretarial Audit of the Company. The Report of the Secretarial Audit Report is annexed herewith as "Annexure B". The Secretarial Audit Report for the financial year ended March 31, 2024 does not contain any qualification, reservation or adverse remark in their report. However, there are certain observations which states that there is a delay in filing under SEBI LODR Regulations and SEBI Circular No. SEBI/HO/DDHS/PoD1/P/CIR/2023/119 dated August 10, 2021. The Secretarial observations are noted by the management and had taken necessary steps to ensure timely compliance under

applicable SEBI LODR Regulations and SEBI Circular No. SEBI/HO/DDHS/PoD1/P/CIR/2023/119 dated August 10, 2021.

Cost Records and Cost Auditors

The provisions of Cost Audit and Records as prescribed under Section 148 of the Act, are not applicable to the Company.

Reporting of Frauds by the Auditors to the Company

During the year, the Auditors have not reported any instance of fraud to the Audit Committee and Board as per Section 143 (12) of the Companies Act, 2013.

Compliance

Your Company is registered with Reserve Bank of India under Section 45IA of the Reserve Bank of India Act, 1934. Further, your Company has complied with and continues to comply with all the laws, rules, circulars and regulations applicable to the Company.

a. Memorandum of Association:

In order to apply for the registration as Corporate Agents under the Insurance and Development Authority of India, new clause no. 6 has been inserted under to the main object clause of the Memorandum of Association vide special resolution passed by the members at their ExtraOrdinary General Meeting held on June 30, 2023.

Considering the business plan and future requirements of the Company, the authorised capital of the Company has been reclassified by amending the capital clause of the Memorandum of Association of the Company vide ordinary resolution passed by the members at their Extra-ordinary General Meeting held on January 18, 2024.

b. Articles of Association:

A new set of Articles of Association has been adopted by the Company by amending Part II of the Articles of Association vide special resolution passed by the members at their Extra-ordinary general meeting held on June 30, 2023.

A new set of Articles of Association has been adopted by the Company by amending the existing clause 4.1.4 and insertion of Clause

108B of Part II of the Articles of Association vide special resolution passed by the members at their Extra-ordinary general meeting held on September 13, 2023.

To enable the listing of its equity shares, the articles of association of the Company has been amended by the Company to confirm the requirements and directions provided by the Securities and Exchange Board of India (SEBI) vide special resolution passed by the members at their Extra-ordinary general meeting held on January 18, 2024.

Particulars of Loans, Guarantees Or Investments in Securities

In terms of Rule 11(2) of the Companies (Meetings of Board and its Powers) Rules, 2014, NBFC Companies are excluded from the applicability of Section 186 of the Act, 2013, where the loans, guarantees and securities are provided in the ordinary course of its business.

Details of investments under Section 186 of the Act, 2013 for the FY 2023-24 are provided in the financial statements.

Policy on Appointment of Directors and Remuneration Policy of the Company

The policy on directors' appointment is based on the evaluation of fit and proper criteria for directors by the Nomination and Remuneration Committee prior to appointment of directors.

The Company's policy on directors' appointment and remuneration along with Terms of Reference and other matters provided in Section 178(3) of the Act is available on website of the Company and the weblink for the same is https://www.northernarc. com/governance.

Board and committee Meetings

During the FY 2023-24, Twelve meetings of the Board of Directors were held. The details of the composition of the Board and its committees and of the Meetings held and attendance of the Directors at such meetings are provided in the Corporate Governance Report.

Directors' Responsibility Statement

The directors' responsibility statement as required under section 134(5) of the Companies Act, 2013 are as follows:

The Directors accept the responsibility for the integrity and objectivity of the Profit & Loss Account for the year ended March 31, 2024 and the Balance

Sheet and Cash Flow Statement as at that date ("financial statements") and confirm that:

(a) i n the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

(b) t he directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

(c) the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.

(d) the directors have prepared the annual accounts on a going concern basis;

(e) the directors have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and

(f) the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Board Evaluation

The evaluation of all the Directors, the Board as a whole and each of the Committees of the Board was conducted based on the following criteria as recommended by the Nomination & Remuneration Committee adopted by the Board.

Evaluation criteria for independent directors and nonexecutive directors:

1. Understanding of the business of the company and contribution towards its strategic direction.

2. Attendance and participation in Board Meetings, whether in person, telephone or via video conferencing

3. Providing timely and effective inputs on minutes and other materials circulated to the Board

4. Inter-personal relations with the rest of the Board and management

5. Adherence to ethical standards and disclosure of non-independence, where it exists

Disclosure Under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Company has in place a Policy for prevention of Sexual Harassment, in line with the requirements of the "Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013." Internal Complaints Committee (ICC) has been set up to redress complaints, as and when received, regarding sexual harassment and all employees are covered under this Policy.

The Policy has been hosted on the Company's website: https://www.northernarc.com

There were no referrals received by the Committee, during the FY 2023-24.

Extract of Annual Return

Pursuant to the provisions of Section 134(3) (a) and Section 92(3) of the Act, 2013 read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, draft Annual return is uploaded on Company's website link https://www.northernarc. com and a copy of the Annual Return will be uploaded on the Company's website link.

Employee Stock Option Scheme

Your Company had introduced the Employee Stock Option Plan-2016, providing grants to employees of your Company and its subsidiaries. The details of the Employee Stock option schemes as required under Regulation 14 read with Part F of SEBI (Share based Employee Benefits and Sweat Equity) Regulations, 2021 is available on website of the Company and the weblink for the same is https://www.northernarc.com.

Corporate Agent

The Company has received a certificate of registration from the Insurance Regulatory and Development Authority of India ('IRDAI') to act as corporate agent (composite) with validity of three years from June 14, 2024 to June 13, 2027.

Approval for extension of time for convening of the Annual General Meeting

The Company was made an application to the Registrar of Companies (ROC), seeking approval for extension of time for convening of AGM for a further period of three months, i.e., up to December 31, 2024 for the financial year ended March 31, 2024. In this regard, the ROC, vide its letter dated September 24, 2024, had granted an extension of three (3) months, allowing the Company

to conduct its AGM on or before December 31, 2024, for the financial year ended March 31, 2024. Hence, the AGM is being convened as per the extension of time approved by the ROC.

Listing

During the financial year under review, your Company had filed its Draft Red Herring Prospectus dated February 02, 2024 and the equity shares of the Company have been listed on BSE Limited ("BSE") and the National Stock Exchange of India Limited ("NSE") w.e.f., September 24, 2024.

Information on material changes and commitments

There are no material changes or commitments affecting the financial position of the Company which have occurred between the end of the financial year and date of this report. We also hereby confirm that there has been no change in the nature of business of the Company.

Details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company's operation in future

No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and operations of your Company in future.

Application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016

Neither any application was made, nor any proceeding is pending under the Insolvency and Bankruptcy Code, 2016 against the Company.

Related Party Transactions

The Company has adopted a policy on related party transactions for the purpose of identification, monitoring and approving of such transactions. The Related party policy is available on website of the Company and the weblink for the same is https:// www.northernarc.com/ governance. During the year, your Company has not entered into any transactions with Related Parties which are not in the ordinary course of its business or not on an arm's length basis and which require disclosure in this Report in terms of the provisions of Section 188(1) of the Companies Act, 2013. Hence, no particulars are being provided

in Form AOC-2 as set out in Annexure C of this Annual Report.

Companies which have become or Ceased to be Subsidiaries, Joint Ventures, Or Associates of the Company during the year.

Nil

Risk Management Policy

In the opinion of the Board, the Company has, since inception developed and implemented Risk Management policies and procedures that are sufficient to combat risks that may threaten the existence of the Company.

Internal Control Systems

The Company maintains appropriate systems of internal controls, including monitoring procedures, to ensure that all assets and investments are safeguarded against loss from unauthorised use or disposition. Company policies, guidelines and procedures provide for adequate checks and balances and are meant to ensure that all transactions are authorised, recorded and reported correctly.

The Internal Auditor reviews the efficiency and effectiveness of these systems and procedures which included evaluating the reliability of financial and operational information and ensuring compliance with applicable laws and regulations. The Internal Auditors submit their Report periodically which is placed before and reviewed by the Audit Committee.

Corporate Governance:

The Corporate Governance report which forms a part of Board's Report which states that a detailed Company's corporate governance practices, together with the certificate from the secretarial auditors confirming compliance, as per the SEBI Listing Regulations.

A certificate from the Secretarial auditors of the Company regarding compliance of conditions of corporate governance is annexed to this report.

Corporate Social Responsibility (CSR)

The brief outline of the Corporate Social Responsibility (CSR) policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure D of this report in the format prescribed in the Companies (Corporate Social Responsibility) Rules, 2014.

Requirements under Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

Disclosure to be made under Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below:

Ratio of remuneration of each director to the median employee's remuneration for the financial year:

* Bama Balakrishnan was resigned from the Board as Executive Director with effect from November 13, 2023 and continued as Chief operating officer of the Company and resigned on March 31, 2024.

Percentage increase in remuneration of each director, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Company Secretary in the financial year vis-a-vis last financial year:

• Percentage increase in the median remuneration of employees in the financial year: 45%

• Number of permanent employees on the rolls of the company: 902 (as of March 31, 2024)

• Average percentage increase in the salaries of employees other than the KMP in FY 2023-24: 11%* and percentage increase in key managerial remuneration: 13%

• Affirmation that the remuneration is as per the remuneration policy of the company: The Company affirms that remuneration of directors and employees of the company is in accordance with the remuneration policy of the company.

• The average increase in salaries of employees based on performance appraisal during the last year.

Particulars of Employees under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

The statement containing particulars of employees as required under section 197(12) of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is in a separate Annexure E forming part of this report. A copy of the Board's Report is being sent to all the members excluding Annexure E. The said Annexure is available for inspection by the members at the Registered Office of the Company during business hours on working days. Any member interested in obtaining a copy of the same may write to the Company Secretary at the Registered Office of the Company.

Vigil Mechanism and Whistle Blower Policy

Adequate vigil mechanism for directors and employees to report their genuine concerns about unethical behaviour, actual or suspected fraud or violation of the Company's code of conduct is in place and the same have been disclosed on the website of the company, https://www.northernarc.com/. No references under the whistle blower policy were received during the FY 2023-24. The same has also been affirmed by the Audit Committee of the Board on a quarterly basis.

Secretarial Standards Compliances

The company has complied with the applicable Secretarial Standards issued by The Institute of Company Secretaries of India.

Conservation of energy, Technology and absorption

Being a Non-Banking Finance Company and not involved in any industrial or manufacturing activities, the Company's activities involve low energy consumption and has no particulars to report regarding conservation of energy, technology and absorption.

Acknowledgement

The Directors wish to thank the Reserve Bank of India and other statutory authorities for their continued support and guidance. The Directors also place on record their sincere thanks for the support and co-operation extended by the bankers and shareholders of the Company.

The Directors also thank the employees of the Company for their contribution toward the performance of the Company during the financial year.