Northern ARC Capital Ltd

Dear Shareholders,

Your directors have pleasure in presenting this annual report along with the audited financial statements of the Company for the year ended March 31, 2023.

FINANCIAL HIGHLIGHTS

(Rs in Lakhs)

During the year ended March 31, 2023, on a consolidated basis, your company generated total income of INR 1,311.2 crores, a growth of 43.05% over the earlier year. Net Interest Income was INR 753.75 crores, representing year-on-year increase of 49%, which resulted in a profit after tax of INR 242.21 crores, 33.13% higher than the previous year.

DIVIDEND

Due to the need for deploying the funds back into the business for the growth of your Company, your directors have not proposed any dividend on equity shares for the year under review.

TRANSFER TO RESERVES

During financial year 2022-23, your Company has transferred an amount of INR 45.07 Crores to reserves in accordance with the requirements of s. 45-IC (1) of the Reserve Bank of India Act, 1934.

CREDIT RATING

The Credit ratings of the company as on March 31, 2023, are summarised below:

CAPITAL ADEQUACY

The company's capital adequacy ratio as of March 31, 2023, was 20.77% as against 22.79% as at March 31, 2022. The minimum capital adequacy ratio prescribed by Reserve Bank of India is 15%.

SHARE CAPITAL

During the financial year, your company had issued 1,23,750 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, 2023, was INR 1716777010/- comprising of 8,90,31,293 equity shares of INR 10 each and 4,13,23,204 compulsorily convertible preference shares of INR 20 each.

The shareholding pattern of the Company as of March 31, 2023, on a fully diluted basis was as follows:

DIRECTORS AND KEY MANAGERIAL PERSONNEL Directors

The composition of the Board of Directors of the Company is in accordance with the provisions of section 149 of the Companies Act, 2013 with an appropriate combination of Non-Executive Directors and Independent Directors.

During the year under review Mr. Amit Mehta (DIN: 07089427) resigned from the Board with effect from May 2, 2022. Further, Mr. Samir Shah (DIN: 00912693) resigned from the Board with effect from 28^th December 2022. The Board places on record its appreciation of the valuable services rendered by Mr. Amit Mehta and Mr. Samir Shah during their tenure with the Company.

Mr. T S Anantharaman (DIN: 00480136) was appointed as Nominee Director on the Board with effect from 9^th February 2023.

Key Managerial Personnel

Mr. Ashish Mehrotra, Managing Director and Chief Executive Officer, Ms. Bama Balakrishnan, Chief Operating Officer, Mr. Atul Tibrewal, Chief Financial Officer and Ms. R Srividhya, Company Secretary 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 below:

A. Economic Outlook

The fiscal year of FY23 unfolded against a backdrop of global economic challenges and uncertainties. The world faced ongoing repercussions from the COVID-19 pandemic, geopolitical conflicts, and inflationary pressures. Notably, events such as Russia's invasion of Ukraine and pandemic-related shutdowns in China added complexities to the global economic landscape.

Despite these challenges, the global economy displayed resilience. The International Monetary Fund (IMF) initially projected a slower pace of growth, revising down the 2022 forecast from 6.1 percent in 2021 to 3.6 percent. This adjustment reflected the lingering impact of the pandemic, rising inflation, and supply chain disruptions.

In response to these challenges, central banks worldwide implemented a range of measures to stabilize financial markets and support economic recovery. Governments, too, adopted fiscal policies to stimulate growth and address pandemic-induced vulnerabilities. These collective efforts aimed to mitigate the impact of global uncertainties on trade, investment, and employment.

As the year progressed, concerns about inflation gained prominence. A cost-of-living crisis materialized for many countries, prompting central banks to carefully navigate monetary policies to address inflationary pressures without stifling economic recovery.

In India, FY23 witnessed a dynamic economic environment. The country's GDP grew by a robust 7.2 percent, solidifying its position as the fastest-growing large economy globally. Despite external uncertainties, including a weakening rupee and geopolitical tensions, India's economic indicators, such as Forex reserves, and FDI flows, remained relatively favourable. The Reserve Bank of India (RBI) responded to rising inflation with off-cycle rate hikes, concluding with a repo rate of 6.5% in an effort to anchor inflation expectations.

The economic landscape was characterized by a delicate balance between domestic and global factors. The government's commitment to economic growth was evident in the increased allocation of 35% percent to INR 7.5 lakh crore for capital expenditure in the Union Budget. Measures such as the extension of credit guarantee schemes underscored efforts to support sectors affected by the pandemic. As the world navigated uncertainties, India showcased resilience and economic vibrancy.

The Economic Survey of India 2023 predicted the GDP growth to be in the range of 6 - 6.8% in FY24. The Union Budget for FY24 continued the push for fiscal prudence, green growth, export-oriented production, infrastructure advancement and modernization. The proposed fiscal deficit for FY24 is 5.9 percent of GDP, and is a pathway to the goal of achieving the 4.5 percent target by FY26. The budget provides INR 350 billion for priority capital investments towards energy transition and net zero objectives. It has an outlay of INR 197 billion for the National Green Hydrogen Mission, and will facilitate the transition of the Indian economy to low carbon intensity and reduce fossil fuel imports.

B. Sector outlook

NBFCs continue to gain importance in the Indian financial services industry carrying out the critical function of enabling access to financial products and services. Their proximity to customers and an ability to provide bespoke solutions has made them a vital cog in India's economic growth. NBFCs operate in a wide variety of asset classes ranging from granular retail loans (e.g., personal loans, vehicle loans, small business loans, gold loans, microfinance loans, etc.) to large-ticket wholesale loans (e.g., lending to corporates, infrastructure, real estate, and structured credit).

NBFCs have been responsible for many pioneering innovations that have revolutionized the financial services landscape in recent years. They have used differentiated business models and credit appraisal methods, helping the relatively under-banked borrower segments with niche domain expertise. They provide last mile credit delivery through rural branches or serve customers through seamless online models.

After subdued growth and portfolio quality during the Covid-affected years, NBFCs bounced back strongly in FY23. They witnessed their highest y-o-y growth in the last 5 years, at 17% as per a report by BCG. Credit costs also continued their downward trend, resulting in improving profitability for the industry.

The growth in the sector was led by diversified financial institutions and NBFC-MFIs. As per the BCG report, the sector witnessed an increase in absolute profit of 39%. Diversified financials (68%) and MFIs (220%) outperformed the overall sector. These institutions were also the primary drivers of growth, registering 28% and 33% annual growth compared to the aforementioned 17% for the industry.

The outlook for NBFCs is expected to remain strong owing to macroeconomic tailwinds, regulatory stability and a better operating environment. Companies that are adequately capitalized and with robust provisioning norms with adequate liquidity would be able to outperform the industry in the near term.

The sector is expected to observe a continuation of strong growth in disbursements. Asset classes including Microfinance, MSME Finance, Housing Loans and Vehicle Finance are expected to witness demand. Consumer loans like personal loans, BNPL and checkout financing are also expected to see strong traction mirroring growth in ecommerce.

C. Regulatory outlook

Some key regulations that were issued by the RBI during the year -

• In April 2022, RBI brough scale based regulations that required NBFCs to make additional disclosures in financial statements based on their size

• In May 2022, RBI allowed bank credit to NBFCs for on-lending 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

• In Aug 2022, the RBI issued digital lending guidelines that laid the comprehensive framework for online lending

II. NORTHERN ARC CAPITAL

A. Business overview

• Total income increased from INR 916 Crore (FY22) to INR 1311 Crore (FY23), an increase of 43%, primarily led by higher average loan book and higher yields

• The balance sheet of the company grew from INR 7974 crore (FY22) to INR 9372 crore(FY23), an increase of 18%

• Overall business volumes grew by 38% year-on-year from INR 19,871 Crores (FY22) to INR 27,410 Crores (FY23) , primarily backed by 24% increase in balance sheet volume from INR 9469 Crores (FY22) to INR 11,767 Crores (FY23) and 86% growth in Placement volumes from INR 7,079 Crores in FY 22 to INR 13,135 Crores in FY 23.

• Strong profitability indicators with profit after tax attributable to the owners increasing >34% year-on-year from INR 172 Crores (FY22) to INR 230 Crores (FY23) at consolidated level

• Strong Capital Adequacy at 20.77%, D:E ratio of 3.65x and maintained Liquidity buffer equivalent to 3 months requirement

• Maintained Stage 1 and Stage 2 provision of INR 85 Crores (1.04% of Stage 1 and Stage 2 exposure) resulting in a healthy overall Provision of 1.4%

• Our customer base currently stands at ~0.78 Million, with our employee base stood at ~580 employees as on Mar-23

B. 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 will also help us access debt capital markets through public issuances. It should 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.

C. Strategic Overview

Our strategic emphasis is to -

• Strengthen - Grow and strengthen our existing businesses where we are pioneers

• Grow - Grow our new business lines

• Reimagine - Reimagine our way of functioning in the new age; Make ubiquitous use of technology and data

Our key tactical strategies are -

• Enhance our ecosystem by growing and deepening relationships with our partners, while scaling up our technology products to further improve customer experience and enhance efficiency

• Expanding to adjacencies into newer forays of sectors such as Climate, Gold, etc.

• Expand our fund management business in terms of products, investors and jurisdictions

• Scale the Direct to Customer financing business to enhance risk adjusted returns

• Credit first principles with focus on managing credit cost efficiently

• Continue to diversify our source of funds and widen our lender base to scale our borrowing requirements while lowering costs

• Continue expanding our strategic focus on ESG, with a directional emphasis on Climate Smart Financing

D. Opportunity and Threat analysis

Opportunities

• Industry leadership with dominant position

• Serving the under-served retail markets

• Revival in rural consumption

• New pivots of growth: co-lending, direct retail lending, and wealth distribution

• Strong brand pedigree and successful track record

• Building a strong distribution network

• Digitalisation and data driven decision making Threats

• Regulatory challenges and credit availability

• Impact on demand in the backdrop of sustained inflation

• Fast changing interest rate environment

E. New initiatives

• We rapidly continue to build our digital infrastructure -

(i) AltiFi: AltiFi is a retail investment platform that democratizes the debt securities on the Northern Arc balance sheet for investment opportunities to retail individuals and corporates.

(ii) Nu Score: Nu is a tailored machine learning based analytical module designed to assist our originator partners in the loan underwriting process and help them take effective credit decisions

(iii) nPOS: nPOS is a fully integrated API based technology solution that seamlessly integrates with the systems of both Originator Partners and Investor Partners, facilitating co-lending processes

(iv) Nimbus: A curated debt platform that enables flow of credit to our Originator Partners either through our balance sheet or through our Investor Partners.

F. Subsidiaries

Your Company has five (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. The details of subsidiaries are as follows:

i. Northern Arc Investment Managers Private Limited (NAIM)

FY23 proved to be a year of resilience as NAIM successfully navigated significant external challenges such as reduced system liquidity, changes in MLD taxation structure and AIF and PMS regulatory changes. FY23 saw NAIM bolster its exit track record by delivering three fund exits taking the total to 5 out of 8 closed ended funds. NAIM closed FY23 with cumulative investor commitments of ~INR 5,000 crore and launched its tenth AIF with total investments of INR 6,680 crores across sectors and expanded its investor base to 700+ investors. We added 370+ 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.

During the year, NAIM completed the setup of its first ever offshore office based out of GIFT City, paving the way to increased dollar denominated AUM inflows from offshore investors and HNIs. In terms of new offerings, NAIM completed the first close of the Northern Arc Emerging Corporate Bond Fund in Nov-22, This marked the first fund to invest in mid and small-size corporates, thereby broadening NAIM's investment capabilities beyond financial institutions. We also received the in-principal approval for its first ever Separately Managed Accounts for a ticket size of INR 120 crore. The Northern Arc Money Market Alpha Fund continued to remain our flagship fund, providing a viable alternative for investors to park their short-term funds (3-6 months) with a target return of 9-10%. The Fund achieved a peak AUM of INR 1,395 crore in Jan-23 and maintained an Average AUM of INR 1250 crore in FY23.

Within the Portfolio Management Services platform, NAIM launched Northern Arc Income Builder - Series B, the Second Discretionary PMS portfolio of Listed Principal Protected MLDs with a target size of INR 175 crore. The Non-Discretionary PMS portfolio was also launched, providing investors with a curated set of investments, diversification benefits, easy exit options, superior risk adjusted returns and the advantage of Northern Arc's specialized asset management and high touch monitoring.

NAIM made it to the ImpactAssets50 list (an annual showcase featuring fifty fund managers from across the world who led their respective fields in creating positive social impact, while generating financial returns for investors) consecutively for the third year in FY23. NAIM was yet again featured in the 'Most Consistent Top Performing Private Debt Fund Manager' list by Preqin, while Asia Asset Management awarded us the "Best House for Alternatives-India". Further, NAIM won the prestigious 'Social Impact Award' at the IVCA Conclave 2023, marking another significant milestone in our journey.

ii. Pragati Finserv Private Limited

Pragati serves the diverse needs of customers belonging to low-income households of rural and semiurban areas. It aims to become a one stop lending shop for its borrowers covering small ticket personal and business loans, two-wheeler loans, business LAP loans, home improvement loans, commercial vehicle loans etc. Pragati aspires to have a national footprint and deliver its product nationally and be a dominant player in its area of operation.

The current product offering of Pragati is Krushi JLG loan for rural women customers with a ticket size of 30k to 75k. JLG graduate loan (Shakti) of Ticket Size - 75k to 125K) with various end uses like 2,3-wheelers, Commercial vehicles, Home Improvement & WASH, Agri, Education and Dairy is expected to be launched shortly. A product for Small Ticket Business Loans (Vyapar) with a Ticket Size 125k - 500k is being developed, which will be launched. The total portfolio of Pragati as of 31st March 2023 is INR 792 Cr with 2.60 Lakh active customers.

iii. Northern Arc Foundation:

At Northern Arc, our goal is to contribute to the well-being of the communities and society we cater to and on which we depend. At the same time, we also aim to align our company's social and environmental activities with its business purpose and values. This we believe will enhance our reputation and contribute to business results. Through our CSR programs, we are aiming to fulfill our true potential, and expect to spend across various community development programs across the sectors, communities, and geographies, where we create an impact. Northern Arc Foundation ("Foundation") acts as the CSR arm for Northern Arc Capital and focuses on skill building, employment development and education.

Your company supported the following initiatives during Financial Year 2022-23:

a) Providing free treatment to patients in Tamil Nadu through Ashwini Charitable Foundation.

b) Financial literacy training for MFI customers.

c) Providing need-based support for food supplies, healthcare and livelihood support and education through Punyatma Prabhakar Seva Mandal and Vama Trust.

d) Continued support to our education initiatives through the Doorstep School, Swadha Foundation and a collaboration with Ecosoft.

e) Providing Ambulatory Services for building of Sai Aashraya Super Speciality Hospital.

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. During FY23, the Company continued to offer transaction advisory services.

v. Northern Arc Securities Private Limited (NAS)

Northern Arc Securities has been established as a 100% subsidiary of Northern Arc Capital to register as a stockbroker in the debt segment. The company has filed an application with both the NSE and the BSE for the same. After the receipt of the broking registration, the company will register itself as an Online Bond Platform Provider in line with SEBI regulations. It will subsequently be responsible for the operations of the AltiFi platform.

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 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 - NonBanking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016.

RESPONSIBLE AND SUSTAINABLE FINANCE

We operate with the vision to be a trusted platform that enables the flow of finance from capital providers to users in a reliable and responsible manner. We operate with the mission to enable access to finance for the underbanked in an efficient, scalable and reliable manner. We seek to mitigate the risk of environmental and social adverse effects that may be posed to us on account of our financings by financing responsibly. We aim to finance businesses that take a responsible approach towards the environment, society and governance. Our offerings contribute towards meeting 8 of 17 targets of United National Sustainable Development Goals (UNSDG). We have made significant social impact over the years, since our inception, through our financing. In recent years we have focused on financing businesses that contributes in achieving net zero. We are committed to become a data-driven impact financier and have been advancing in setting frameworks and measures for impact measurement to demonstrate the impact created by Northern Arc to our investors.

Northern Arc over the years has developed a strong inclination towards improving its performance not only against the financial and governance parameters, but also against the elements of the environmental and Social risks. We are continuously calibrating our environmental and social management systems in accordance with the global framework on ESG. .

Our commitment towards ESG in our business practice is to deploy finance responsibly to support individuals and businesses for the betterment of their livelihood and wellbeing. Our ESG related policies and frameworks are positioned for a redefined purpose in our actions to create values for all the individuals we reach by being conscientious to our clients and suppliers, and being a responsible employer to our employees. We value adhering to standards and conditions that reflects us functioning as a responsible business in terms of conduct, employee safety & satisfaction, fair pay, improved client experience, and uphold human rights. Our ESG Policy form the foundation of our responsible financing practice as way of mitigating and managing the risk that would be incurred due to adverse environmental and social impact from the business we finance.

The organizations proclivity for a ESG driven purpose in its functioning is governed and monitored by our Board of Directors by forming an ESG Board Committee. The company's ESG strategy and the roadmap with priorities, targets and initiatives are formulated by this committee. The commitment towards the elements of ESG from the apex body of the company enables us to progress and align ourselves with the best management practices to improve our environmental and social performance. We're taking steps to disclose our ESG related measures and performances as an initiative to engage with our shareholders and stakeholders.

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 930.84 Lakhs (previous year: INR 831.51 Lakhs) under the heads listed below:

MEETING OF INDEPENDENT DIRECTORS

In terms of Para VII of the Code for Independent Directors, your Company conducted a meeting of its independent directors on March 13, 2023, without the presence of non-independent directors and members of the management. The Directors, inter alia, discussed the following:

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

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

c) assess 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 AND AUDITORS REPORT

The shareholders at the extraordinary general meeting held on January 05, 2022 had appointed S.R. Batliboi & Associates LLP, Chartered Accountants, having ICAI Firm Registration No: 101049W/E300004 as the 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. Baliboi & Associates LLP for being appointed as Statutory Auditors of the Company to fill the casual vacancy. Since the appointment of S.R. Baliboi & Associates LLP was to fill the casual vacancy, the appointment was made for one financial year, ie for the financial year ended on March 31, 2022.

The shareholders at the annual general meeting held on 30^th September 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 for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs) dated April 27, 2021.

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

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 applicable laws, rules, circulars and regulations and it does not carry on any other those specifically permitted by RBI for NBFCs.

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 financial year 2022-23 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. At present, only the Managing Director cum Chief Executive Officer receives remuneration from the Company.

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 MEETINGS

During financial year 2022-23, five meetings of the Board of Directors were held on the following dates:

10^th May 2022 27^th June 2022 28^th July 2022 4^th November 2022 9^th February 2023

COMMITTEES OF BOARD OF DIRECTORS

The Company has various Committees which have been constituted as a part of good corporate governance practices and the same are in compliance with the requirements of the relevant provisions of applicable laws and statutes.

Audit Committee

Pursuant to provisions of Section 177(8) of the Companies Act, 2013, the composition of Audit Committee of the Company as on March 31, 2023, was as follows:

The Composition of Nomination and Remuneration Committee of the Company as on March 31, 2023, was as follows:

f) recommend remuneration of executive directors and any increase therein from time to time within the limit approved by the members of the Company;

g) recommending remuneration to non-executive directors in the form of sitting fees for attending meetings of the Board and its committees, remuneration for other services, commission on profits;

h) recommend to the Board, all remuneration, in whatever form, payable to senior management;

i) performing such functions as are required to be performed by the compensation committee under the SEBI SBEB Regulations;

j) engaging the services of any consultant/professional or other agency for the purpose of recommending compensation structure/policy;

k) ensuring 'fit and proper' status of proposed and existing directors in terms of the Master Directions;

l) analysing, monitoring and reviewing various human resource and compensation matters;

m) reviewing and approving compensation strategy from time to time in the context of the then current Indian market in accordance with applicable laws;

n) framing suitable policies and systems to ensure that there is no violation, by an employee of any applicable laws in India or overseas, including:

- The SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended; or

- The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003, as amended; and

o) performing such other functions as may be delegated by the Board and/or prescribed under the SEBI Listing Regulations, the Master Directions, Companies Act, each as amended or other applicable law.

DIRECTORS' RESPONSIBILITY STATEMENT

The directors' responsibility statement as required under section 134(5) of the Companies Act, 2013, reporting the compliance with the Accounting Standards is attached and forms a part of the Board's Report.

The Directors accept the responsibility for the integrity and objectivity of the Profit & Loss Account for the year ended March 31, 2023 and the Balance Sheet and Cash Flow Statement as at that date ("financial statements") and confirm that:

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

b) the 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 non-executive 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 financial year 2022-23.

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, an extract of the Annual Return in prescribed form is available on the Company's website in the link as provided below: https://www.northernarc.com.

SECRETARIAL AUDIT REPORT

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board of Directors has appointed M/s. M Damodaran & Associates LLP, a firm of Company Secretaries in practice to undertake the Secretarial Audit

of the Company for FY 2022-23. The Secretarial Audit Report, in the prescribed Form No. MR-3, is annexed as Annexure 1.

M Damodaran & Associates LLP, Secretarial Auditor has mentioned a observation in the Secretarial Audit Report that The Company does not have server physically located in India for the daily backup of certain books of accounts and other books and paper maintained in electronic mode on a daily basis. Subsequent to the year end, the Company has taken steps to ensure backups for such applications maintained by third party are taken on a daily basis in a server physically located in India.

EMPLOYEE STOCK OPTION SCHEME

Your company introduced the Employee Stock Option Plan, providing grants to employees of your Company and its subsidiaries. The details of the Employee Stock Option Plan as required to be provided under Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014 are annexed to this Report as Annexure 2 and forms an integral part of the Report.

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 operations of your Company in future.

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. Related Party disclosures, as per IND-AS have been provided in Notes to the financial statement.

COMPANIES WHICH HAVE BECOME OR CEASED TO BE SUBSIDIARIES, JOINT VENTURES, OR ASSOCIATES OF THE COMPANY DURING THE YEAR.

During the year, the Company incorporated a new subsidiary in the name of Northern Arc Capital Limited, which is expected to apply for the stock broking license as applicable for online bond platforms as mandated under SEBI Circular SEBI/HO/DDHS/DDHS-RACPOD1/P/CIR/2022/154 dated November 14, 2022.

Further, with the infusion of further equity into Finreach Solutions Private Limited (Finreach), Finreach became an associate company of Northern Arc Capital Limited within the meaning of Section 2(6) of the Companies Act, 2013.

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.

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 3 of this report in the format prescribed in the Companies (Corporate Social Responsibility) Rules, 2014.

ADEQUACY OF INTERNAL FINANCIAL CONTROL WITH REFERENCE TO THE FINANCIAL STATEMENTS

The completeness and adequacy of internal financial controls of the Company was evaluated by an independent audit agency and report of the same has been shared with the Statutory Auditors of the Company. The same has also been presented to the Audit Committee, based on which the Board has certified that the internal financial controls are adequate and are operating effectively.

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:

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: -42 %

• Number of permanent employees on the rolls of the company: 582 (as of 31st March 2023)

• Average percentage increase in the salaries of employees other than the KMP in FY 2022-23: 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 4 forming part of this report. A copy of the Board's Report is being sent to all the members excluding Annexure 4. 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 genuine concerns is in place and the same have been disclosed on the website of the company, www.northernarc.com. No references under the whistle blower policy were received during the Financial Year 2022-23. 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.

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 cooperation 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.

For Northern Arc Capital Limited