Five-Star Business Finance Ltd

Your directors have the pleasure in presenting the 40^th Annual Report together with the audited financial statements of the Company for the financial year ended March 31, 2024. The summarised financial results of the Company are presented hereunder:

INR in crores

Your Company has adopted Indian Accounting Standards (IND AS) notified under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules 2015.

Company Overview

Your Company is a non-deposit taking Non-Banking Finance Company (NBFC) registered with the Reserve Bank of India and is a NBFC - Investment and Credit Company (NBFC-ICC). Your Company has been classified as a NBFC in Middle Layer under the Reserve Bank of India (Non- Banking Financial Company - Scale Based Regulation) Directions dated October 19, 2023, as amended from time to time.

Your Company has been listed on the National Stock Exchange of India Limited and BSE Limited since November 21, 2022.

Review of Operations

Your Company provides secured financial solutions to a vital yet often overlooked segment: micro-entrepreneurs, small business owners, and self-employed individuals. Most of these borrowers often lack access to formal financial institutions and rely on informal lenders, friends, or family for their business and personal needs.

Recognizing the challenges of evaluating income for these borrowers, your Company has developed a proprietary underwriting model. This model assesses cash flow backed by robust monitoring and strong recovery mechanisms, enabling the Company to meet the credit needs of the borrowers effectively.

By providing access to financial services, your Company empowers these borrowers to graduate into the formal financial ecosystem. This transition allows them to benefit from potentially lower interest rates and manage repayments over convenient loan terms.

Your Company is committed to fair and transparent lending and collection practices and focussing on long-term partnerships with the borrowers, enabling them to repay their loans successfully.

The operating and financial performance of your Company has been covered in detail in the Management Discussion and Analysis report, which forms a part of this report. This year, your Company has achieved impressive results across key metrics, which are laid down below.

Operational Metrics Disbursements

Your Company saw a strong growth in disbursements during the financial year ended March 31, 2024 marking a disbursement figure of INR 4,881.4 crores of loans as against INR 3,391.4 crores, registering a year-on-year (YoY) growth of 43.93%. The average ticket size as on March 31, 2024, stood at INR 3.42 lakhs as against average ticket size of INR 3.03 for the disbursals during year ended March 31, 2023. This growth is driven by branch expansion, increased demand, and a larger average ticket size.

Branch Metrics

Your Company follows a contiguous branch expansion strategy, which was continued in the current financial year as well. During the financial year ended March 31, 2024, your Company has added 147 new branches resulting in the branch network increasing to 520 from 373 during the previous financial year.

Your Company now operates in the states of Tamil Nadu, Andhra Pradesh, Karnataka, Telangana, Madhya Pradesh, Maharashtra, Chhattisgarh, Uttar Pradesh and Rajasthan.

The details of branch network as of March 31, 2024 and compared against the previous financial year are given below:

Financial Metrics

During the financial year, your Company has reported a total revenue from operations of INR 2,195.10 crores, as against INR 1,528.93 crores with a growth of 43.57% over previous financial year. Profit before tax was at INR 1,115.94 crores as against INR 804.73 crores with a growth of 38.67% over the previous financial year. Profit after Tax was at INR 835.92 crores as against INR 603.50 crores with a growth of 38.51% over the previous financial year. The Company's net worth stood at INR 5,196.15 crores as on March 31, 2024 (INR 4,339.53 crores as of March 31, 2023).

The total loan assets under management as at March 31, 2024, increased to INR 9,640.59 crores from INR 6,914.83 crores during the previous financial year registering a growth of 39.42%.

Asset Quality

Your Company has a strong collection and proactive recovery management system that led to robust asset quality for the financial year ended March 31, 2024, with Gross Stage 3 Assets of 1.38%, which is one of the best amongst companies operating in this customer segment. The strong asset quality is a testimony to your Company's business model, rigorous underwriting norms, strong execution capability and the never-say-no attitude of an amazing team. The Company is in compliance with daily DPD recognition and revised upgradation norms issued by RBI vide their circulars on Prudential Norms on Income recognition and Asset classification dated November 12, 2021 and February 15, 2022.

Your Company's assets have been classified into various stages based on expected performance, after taking all applicable regulatory guidelines into account. Exposure at Default (EAD) is the total amount outstanding including accrued interest as on the reporting date. For the year ended March 31, 2024, your Company reported Gross Stage 3 Assets and Net Stage 3 Assets (under the revised Income Recognition and Asset Classification norms) of 1.38% and 0.63% respectively as against 1.36% and

0.69% respectively in the previous financial year.

Prospects

The Indian credit market holds immense potential, particularly for lending to micro-entrepreneurs and self-employed individuals who lack access to formal financial channels. The CRISIL report on market potential, available as part of the Offer documents of your Company, pegs this demand at 22 trillion.

Your directors are confident that the knowledge/experience gained so far in this segment will augur well towards building a robust portfolio.

A more detailed industry and Company outlook, along with other operational aspects, can be found in the Management Discussion and Analysis report forming part of this Annual Report.

Resource Mobilization

Your Company's overall borrowing is guided by a policy duly approved by the Board of Directors. Your Company has vide special resolution passed on September 16, 2023, under Section 180 (1)(c) of the Act, authorized the Board of Directors to borrow money upon such terms and conditions as the Board may think fit in excess of the aggregate of paid up share capital and free reserves of the Company up to an amount of INR 8,000 crores.

Your Company manages its borrowings structure through a prudent Asset - Liability Management. This approach includes diversifying funding sources, optimising loan tenors and strategically planning borrowing timings to maintain optimal borrowing costs.

During the financial year, your Company continued to broaden its funding base by securing term loans from banks, carrying out Securitisation transactions and also issuing Secured Non- Convertible Debentures through private placement. Your Company has also successfully added four new lenders to our funding network. All these were done with the twin objectives of achieving diversification in funding sources and maintaining an optimal cost.

Your Company's approach towards borrowings (outlined above) has yielded positive results. The weighted average cost on the overall borrowing book (including securitization transactions) decreased to 9.71% as of March 31, 2024, compared to 10.12% in the previous financial year. As of the same date, your Company's funding sources consisted primarily of term loans from banks and financial institutions (77%), followed by Securitization (17%), Non-Convertible Debentures (5%) and External Commercial Borrowings (1%).

Term Loans: During the financial year, your Company has availed fresh borrowings aggregating to INR 3,929.12 crores, including fresh Term Loans from Banks and Financial Institutions of INR 3,139.95 crores. The outstanding total borrowings as at March 31, 2024 were INR 6,315.84 crores. The weighted average tenure of fresh loans raised during the financial year under review was around 62 months.

Securitization: Your Company has actively tapped the Securitization (PTC) market, which has enabled it to create liquidity, reduce cost of funds and minimize asset liability mismatches.

During the year, your Company has securitised receivables worth INR 656.49 crores for a sale consideration of INR 584.17 crores. These Securitisation transactions were carried out in line with RBI guidelines on Securitization of Standard Assets and accounted in line with Indian Accounting Standards.

Debentures: During the financial year, your Company has made fresh issuance of Debentures amounting to INR 205 crores. Further, Your Company has been very prompt in payment of its interest and principal obligations for the financial year ended March 31, 2024, and has complied with all the disclosure requirements stipulated under SEBI (LODR) Regulations, 2015.

Commercial Paper (CP): Your Company has not issued any Commercial Paper and Short-Term Instruments during the financial year ended March 31, 2024.

Statutory and Regulatory Compliances

Your Company is committed to adhering and complying with all applicable directions, regulations, provisions, guidelines and prudential norms set forth by the Reserve Bank of India, SEBI (LODR) Regulations, 2015, Companies Act, 2013, Foreign Exchange Management Act (FEMA), 1999, Income Tax Act, 1961 and the rules and regulations framed thereunder.

Your Company has complied with all the applicable provisions of Secretarial Standards issued by Institute of Company Secretaries of India in respect of meetings of the board of directors and general meetings held during the financial year ended March 31, 2024.

Credit Rating

During the financial year, credit rating of your Company has been upgraded to AA- (Double A Minus) with Stable outlook by CARE Ratings Limited. ICRA and India Ratings & Research Private Limited had already upgraded their credit ratings to AA- (Double A Minus) towards the end of the previous financial year.

As of March 31, 2024, your Company's borrowings enjoy the following ratings from ICRA, CARE, India Ratings & Research and CRISIL.

Change in Nature of Business

There was no change in the nature of business of your Company during the financial year ended March 31, 2024.

Dividend

Your Directors have decided not to recommend any dividend for the financial year ended March 31, 2024, and the profit for the year will be ploughed back into the business.

Dividend Distribution Policy

Your Company has adopted a Dividend Distribution Policy outlining the framework for considering dividend payouts to shareholders of the Company. This policy considers various internal and external factors evaluated by the Board. The policy is available on our website at https://fivestargroup.in/investors/.

Transfer to Reserves

Your Company transferred a sum of INR 167.18 crores to the statutory reserve as required under the Reserve Bank of India Act, 1934.

Deposits

Your Company is a non-deposit taking Company. The Company has not accepted any public deposits during the financial year ended March 31, 2024.

Capital Adequacy Ratio

Capital Adequacy Ratio of your Company as at March 31, 2024 stood at 50.50%, as against the minimum requirement of 15% stipulated by Reserve Bank of India.

Your Company has carried out an Internal Capital Adequacy and Assessment Process (ICAAP) and is adequately capitalized as per the assessment.

Share Capital

During the financial year, your Company has allotted 64,060 fully paid -up equity shares under Five-Star Associate Stock Option Scheme 2015 and 10,19,040 fully paid -up equity shares under Five-Star Associate Stock Option Scheme 2018.

The Company has only one class of equity shares and the authorised share capital of the Company as on March 31, 2024, was INR 55,00,00,000 divided into 55,00,00,000 equity shares of INR 1 each. The subscribed, issued and paid-up capital as on said date is 29,24,49,220 equity shares of INR 1 each.

Subsidiaries, Joint Ventures, Associate Companies

Your Company does not have any Subsidiary/Associate/ Joint Venture Company. Also, during the financial year, your Company has not formed/incorporated/become a Subsidiary/Associate/ Joint Venture Company.

Related Party Transactions

Your Company has in place a policy on related party transactions as approved by the board and the same is available on the website of the Company at https://fivestargroup.in/investors/.

All transactions with related parties that were entered into during the financial year were on arm's length basis and in ordinary course of business. There were no materially significant transactions made by the Company with promoters, directors, key managerial personnel or other designated persons which may have a potential conflict with the interest of the Company. There were no contracts or arrangements entered into with related parties during the year to be disclosed under sections 188(1) and 134(3)(h) of the Companies Act, 2013 in form AOC 2. All proposed transactions with related parties were placed before the audit committee for prior approval at the beginning of the financial year/quarter. The details of transactions so entered with related parties were placed before the audit committee for review on a quarterly basis.

Employee Stock Option Schemes

During the financial year, the Company has framed a new ASOP scheme viz. Five Star Associate Stock Option Scheme 2023 (ASOP 2023) pursuant to the approval of Shareholders at the Annual General Meeting held on September 16, 2023. Presently, Company has the following ASOP schemes:

1. Five-Star Associate Stock Option Scheme 2015 (ASOP 2015)

2. Five-Star Associate Stock Option Scheme 2018 (ASOP 2018) and

3. Five Star Associate Stock Option Scheme 2023 (ASOP 2023)

The Company has not made any material changes to the aforesaid schemes during the financial year ended March 31, 2024. Pursuant to Regulation 12(1) of Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, the ASOP 2015 and ASOP 2018 Schemes were ratified at the shareholders meeting of the Company held on September 16, 2023.

The ASOP schemes are in compliance with Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (SEBI (SBEB) Regulations) and the Companies Act, 2013.

A certificate from secretarial auditor M/s Sandeep & Associates, Practicing Company Secretaries confirming implementation of ASOP schemes in accordance with SEBI (SBEB) Regulations and shareholders resolutions obtained, will be placed before the shareholders at the Annual General Meeting.

In terms of Regulation 14 of SEBI (SBEB) Regulations, the disclosures with respect to ASOP 2015, ASOP 2018 and ASOP 2023 have been provided on the website of the Company at https://fivestargroup.in/investors/.

Annual Return

The Annual Return in form MGT 7 referred to in Section 134(3)(a) and Section 92(3) of the Companies Act, 2013 read with Companies (Management and Administration) Rules,

2014 and Regulation 62(1)(K) of the SEBI (LODR) Regulations,

2015 is available on the website of the Company at https://fivestargroup.in/investors/.

Particulars of Loans, Guarantees or Investments The Company being an NBFC, the disclosures regarding particulars of loans given, guarantees given and security provided is exempted under Section 186(11) of the Companies Act, 2013. With regard to Investments made by the Company, the details are provided in note no. 7 of the financial statements.

Material Changes Affecting the Financial Position of the Company

There are no material changes and commitments having an adverse bearing on the financial position of the Company between March 31, 2024, and the date of this report.

Information as per Section 134(3)(m) of the Companies Act, 2013

The provisions related to conservation of energy and technology absorption under Section 134(3)(m) of the Companies Act, 2013 do not apply to our Company as your Company is not a manufacturing entity. However, Your Company is committed to increasing the use of information technology and promoting resource conservation in its operations.

During the financial year ended March 31, 2024, the Company incurred foreign currency expenditure of INR 385.65 crores with no foreign currency earnings.

Information as per clauses (xi) and (xii) of Rule 8(5) of the Companies (Accounts) Rules, 2014

There was no application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 during the financial year ended March 31, 2024.

The Company has not entered into any one-time settlement with its lenders during the financial year ended March 31, 2024, and therefore the requirements of clause (xii) of Rule 8(5) of the Companies (Accounts) Rules, 2014 are not applicable.

Significant and Material Orders passed by the Regulators or Courts or Tribunals

There are no significant and material orders passed by the Regulators or Courts or Tribunals impacting the going concern status of your Company's and its future operations.

Agreements binding on listed entities

There are no agreements between shareholders, promoters, related parties, directors, or employees, either amongst themselves or with the Company, impacting management control, restrictions or liabilities that require disclosure to Stock Exchanges. This includes agreements with the listed entity, holding companies, subsidiaries, or associates.

Risk Management

Your Company understands the importance of effective risk management. Your Company has implemented robust risk management policies, systems, and processes to manage credit, operational, market (interest rate and liquidity), and reputational risks. This includes:

Underwriting Measures: Your Company utilizes various measures during the underwriting process to assess risk, such as requiring multiple applicants/co-applicants, credit bureau checks, field investigations using the "3 Cs" approach i.e. assessing the Character, Cashflow, Collateral, multiple verification layers, prudent loan-to-value ratios, conservative debt service capacity analysis, and thorough legal document reviews. All these processes help your Company assess both the intention and the ability of the borrower(s) to repay.

Risk Management Committee (RMC): The RMC oversees risk assessment and minimization procedures, ensuring that the executive management controls risk through a defined framework. The RMC also reviews credit and portfolio risk management and operational and process risk management. Your Company has a Chief Risk Officer responsible for identifying, measuring, and mitigating risks, as well as informing the Board, committees, and management of potential risks.

Asset Liability Committee (ALCO): The ALCO ensures liquidity and interest rate risks are managed within established limits.

Continuous Improvement: Your Company's risk management framework is dynamic and adapts to evolving risk perceptions.

Attracting and Retaining Top Performers: Your Company's success hinges on the quality and expertise of its workforce. Attracting, retaining, and fairly compensating talented professionals are core elements of your Company's business strategy. Your Company leverages a strong Management team with deep industry expertise, complemented by an enthusiastic execution team at the branch level who consistently deliver exceptional results.

Optimizing Staff Strength for Growth: Your Company meticulously studied customer acquisition, credit delivery, collection processes, and staff strength of similar NBFCs to optimize our staffing levels. This analysis considered differences in business models and resulted in streamlined regional and branch staffing, adding personnel in critical functional areas as needed.

Investing in People: Your Company invests heavily in employee development through training programs for frontline sales, marketing, credit, and other staff, including KYC and FPC certifications. Your Company also offer a mix of on-the-job and off-the-job training opportunities.

Competitive Compensation and Benefits: Your Company has benchmarked its compensation packages against market standards to attract and retain the talent needed to propel its future growth. This focus ensures securing high-calibre professionals for both middle and senior management positions, as well as branch personnel. As of March 31, 2024, your Company had 9,327 employees across branches, regional offices, and the head office.

Board of Directors

Your Company boasts a well-diversified Board in terms of experience and expertise. The Board members are accomplished individuals with a proven track record of competence and integrity. They are highly committed to your Company and dedicate ample time to Board meetings and preparation.

The Board of Directors comprises 8 (eight) directors, including 4 (four) Independent Directors (one of whom is a woman), 3 (three) Non-Executive Directors, and 1 (one) Executive Director (Chairman & Managing Director), as of March 31, 2024. Details on the Board composition are provided below:

Changes in Board during the Financial Year

During the financial year, Mr Thirulokchand Vasan, Non- Executive Director (DIN 07679930), retired by rotation and being eligible offered himself for reappointment in the last Annual General meeting of the Company held on September 16, 2023.

There were no appointment/resignation or change in designation of directorships during the financial year ended March 31, 2024.

Changes in Board after the Financial Year

Mr Vikram Vaidyanathan (DIN: 06764019), non-executive Director representing Matrix Partners India Investment Holdings II, LLC and Mr G V Ravishankar (DIN: 02604007), non-executive director representing Peak XV Partners Investments V stepped down from their Directorship w.e.f April 30, 2024. Details relating to their resignations are available on the website of the Company https://fivestargroup.in/investors/ and stock exchanges viz www.bseindia.com and www.nseindia.com.

Director Retiring by Rotation

In terms of Section 152(6) of the Act read with the Articles of Association of the Company, not less than one-third of the total number of retiring directors should retire by rotation, at every Annual General Meeting. For the purpose of this section, the total number of directors to retire by rotation shall not include Independent Directors.

As per provisions of Section 152(6) of the Companies Act 2013, Mr Thirulokchand Vasan (DIN: 07679930) would retire by rotation and being eligible offered himself for re-appointment at the 40th Annual General Meeting of the Company.

Key Managerial Personnel

Pursuant to the provisions of Section 203 of the Companies Act, 2013 read with the rules made there under, the following employees are the whole- time key managerial personnel of the Company as on March 31, 2024:

a. Mr Lakshmipathy Deenadayalan, Chairman and Managing Director (DIN: 01723269)

b. Mr Rangarajan Krishnan, Chief Executive Officer

c. Mr Srikanth Gopalakrishnan, Chief Financial Officer

d. Ms Shalini Baskaran, Company Secretary

There are no changes in the composition of Key Managerial Personnel between the financial year end date and the date of this report.

Declaration from Independent Directors

Pursuant to Section 149(7) of the Companies Act, 2013 read along with Rule 6 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 of the Companies Act, 2013 and Regulation 25(8) of the SEBI (LODR) Regulations, 2015, the Company has received necessary declarations/ disclosures from each of the Independent Directors of the Company stating that he/she meets the criteria of independence as required under Section 149(6) of the Companies Act, 2013 and that he/she has a valid certificate of registration for his/her enrollment into the data bank for Independent Directors.

In the opinion of the Board of Directors, the Independent Directors of your Company satisfy the necessary attributes as to integrity, experience (including proficiency) and high levels of skill and expertise.

Formal Annual Evaluation

As per the provisions of the Companies Act, 2013, SEBI (LODR) Regulations, 2015 and Directors Appointment, Remuneration and Evaluation Policy, the Board carried out an annual evaluation of its own performance, performance of all the directors individually including the Chairman and the performance of its committees.

A structured exercise was carried out based on the criteria for evaluation forming part of the Directors Appointment, Remuneration and Evaluation Policy. The said policy is available on the website of the Company at https://fivestargroup.in/investors/. The performance evaluation of the Independent Directors was carried out by the entire Board. The Independent Directors at their separate meeting held during the year have evaluated and reviewed the performance of the Non- Independent Directors as well as the Board's overall performance in terms of the quantity, quality, and timeliness of information exchanged between the Management and the Board. The board evaluation process was conducted in a secured digital mode.

Internal Financial Controls

Your Company has a robust internal financial control framework with clear policies and procedures to ensure the highest standards of integrity, transparency, and corporate governance. Internal Financial Controls of your Company are designed to:

• Ensure orderly and efficient business conduct, including adherence to policies.

• Safeguard assets.

• Prevent and detect fraud and errors.

• Maintain accurate and complete accounting records.

• Ensure timely preparation of reliable financial information.

The Company has established clear delegations of authority and standard operating procedures across all functions. These controls are reviewed periodically at all levels. Risk and control matrices are also regularly reviewed, and control measures are tested and documented. These practices ensure the adequacy of our internal financial controls in relation to the scale of operations of the Company.

An independent consulting firm assists the Company in developing and periodically updating risk control metrics, test plans and independent testing procedures to evaluate the effectiveness of the controls. The findings of the consulting firm are presented to the Audit Committee.

Your Company has also built a strong Internal Audit mechanism, where audits are done on regular basis by both in house Internal Audit team and External Internal Auditors of the Company.

The Audit Committee of the Company regularly reviews and monitors systems, internal controls, risk management measures, accounting procedures, financial management and operations of the Company and also the findings and recommendations presented by the Internal Audit team and External Internal Auditors as part of their periodic reports.

Auditors and Auditor's report Statutory Auditors

M/s S R Batliboi & Associates LLP, Chartered Accountants, were appointed as the Statutory Auditors of the Company for a period of three consecutive financial years at the Extraordinary General Meeting held on March 11, 2022 till the conclusion of the 40th Annual General Meeting. The term of M/s S R Batliboi & Associates LLP will expire in the forthcoming 40th Annual General Meeting.

Pursuant to Section 139 of the Companies Act, 2013 read with guidelines on appointment of Statutory Auditors issued by Reserve Bank of India dated April 27, 2021, the Board of Directors have proposed to appoint M/s Deloitte Haskins & Sells, Chartered Accountants, as the Statutory Auditors of the Company for a period of three consecutive financial years viz. 2024-25, 2025-26, and 2026-27 (i.e from the conclusion of the 40th AGM till the conclusion of the 43rd AGM) and recommended the same to the shareholders for approval. The Company has received a confirmation letter from the M/s Deloitte Haskins & Sells that they are not disqualified and are eligible to hold the office as Auditors of the Company, if appointed.

Statutory Auditors Report on Financial Statements

The statutory audit report is annexed with the financial statements and forms a part of this report. The report indicates a clean audit with no qualifications, reservations, adverse remarks, or disclaimers.

Fraud Reported by Auditors

There were no instances of frauds reported by the auditors during the financial year ended March 31, 2024 under Section 143(12) of the Companies Act, 2013.

Audit Trail Reporting

Effective April 1, 2023, Sections 128 and 143(3)(j) of the Companies Act, 2013 rule 3(1) of Companies (Accounts) Rules, 2014 and rule 11(g) of Companies (Audit and Auditors) Rules, 2011 require the auditor of a Company to report whether the accounting software used by the Company to maintain books of account has an audit trail feature. The auditors report shall report on 4 aspects:

1. Whether the accounting software used by a Company has a feature of recording audit trail (edit log) facility

2. Whether the same has been operated throughout the year for all transactions recorded in the software

3. Whether the audit trail feature has not been tampered with

4. Whether the audit trail has been preserved by the Company as per the statutory requirements for record retention (this is effective from April 1, 2024)

An audit trail is a chronological, date, and time-stamped record of a specific transaction from the time its entry is made in the accounting software through various changes to it.

Your Company has 2 software in respect of which audit trail reporting becomes applicable - the accounting software and the customer loan management software.

Your Company uses Oracle Fusion as its accounting software and Finnone Neo as its Customer Loan Management software. Both these are very well acclaimed software; Oracle Fusion is used by many players for their General Ledger requirements, both in the financial services industry and outside. Finnone Neo is an LMS that is used by large NBFCs and banks to manage their loan portfolios. These software come with lots of in- built controls to ensure that the transactions made reflect the financial and loan positions accurately.

This is the first year when we have implemented Oracle Fusion, and this is managed by a third-party software service provider. As stated in the Auditors Report, the accounting software used for maintaining books of account has a feature of recording audit trail (edit log) facility and this has operated throughout the year for all relevant transactions recorded in the software. The Auditors have also not noted any instances of the audit trail feature having been tampered with at the application level. Further, the accounting software is operated on a SaaS (Software as a Service) model and hence it is completely managed by a third-party vendor. The database for this application is managed by Oracle and any change to the database can be done only using a service request to third party vendor support team, and no such requests were made by your Company employees during the year. So, neither do they have any option to edit the database in any manner nor have they raised any request for editing the same; however, the Service Organisation Controls report provided by the third-party service provider did not comment specifically on the audit trail feature being enabled at a database level. Due to this, the auditors have stated that they are unable to comment on the enablement and non-tampering of audit trail feature at a database level. The Management is in discussion with the third-party service provider to clearly report on the audit trail feature for the database in their Service Organisation Controls report going forward.

In respect of the customer loan management software, while the software currently does not support the audit trail feature, the software contains the trail data of all the transactions carried out by individual users. Moreover, alternate controls such as no access to edit the database in any manner, restricted access to application masters, specific role-based access, maker-checker mechanism etc are also available to ensure no tampering of the system or data. Your Company shall ensure that we get the necessary features built into the loan management system so as to make it compliant from an audit trail perspective.

Notwithstanding the above, the Auditors Report does not contain any qualifications and they have also confirmed adequacy of Internal Financial Controls in your Company. As stated above, in line with maintaining high standards of compliance, your Company shall take steps to ensure that all the software used would meet the requirements of the guidelines in the forthcoming financial year.

Internal Auditor

To ensure the effectiveness of internal control systems, your Company maintains a robust internal audit system, combining an external audit firm viz. M/s Sundaram & Srinivasan, Chartered Accountants with an in-house team. This comprehensive approach ensures thorough review of all operations of the Company regularly. The audit teams regularly assess the adequacy of control measures and recommend improvements as needed.

The Audit Committee oversees the internal audit functions, scope of internal audit and reviews its effectiveness.

Secretarial Auditor

M/s S Sandeep & Associates, Practicing Company Secretaries were appointed to conduct the secretarial audit of the Company for the financial year 2023-24, as required under Section 204 of the Companies Act, 2013 and rules made thereunder and Regulation 24A of SEBI (LODR) Regulations, 2015.

The secretarial audit report for the financial year ended March 31, 2024, forms part of this report as Annexure A and does not contain any qualification, reservation or adverse remarks.

Cost Records and Cost Audit

The provisions for maintaining cost records and undergoing a cost audit, as per Section 148(1) of the Companies Act, 2013 are not applicable to your Company's business activities.

Information Technology

Technology plays a vital role in every Company's business strategy and operations. In line with this, your Company has implemented a robust IT framework that supports seamless business processes across all functions—from sourcing, underwriting, loan approvals, disbursements, collections and back-office operations, providing a unique experience to all stakeholders along with high levels of security and privacy.

Your Company has made significant investments in technology and is committed to ongoing investments in technology, enabling higher levels of efficiency, effectiveness, regulatory compliance, competitive advantage and innovation. This includes deploying world-class software for all core operations of the Company and for frictionless scaling, leveraging third- party API infrastructure for digitization and interoperability, using data analytics and machine learning for underwriting and portfolio analysis in addition to building a robust credit scoring model, and investing in tools for appropriate business continuity and security. These initiatives have enabled us in making faster and more effective decisions, improved our customer engagement and shortened turnaround times.

Further, during the financial year ended March 31, 2024, your Company has implemented newer systems for Loan Origination and Underwriting, Accounting and General Ledger, Human Resources, Treasury and Compliance. These systems would help bring in enhanced operational efficiency, much more sophisticated financial reporting framework, automate the compliance structure, strengthen the HR Management systems, and bring in system-based controls & efficiencies to treasury operations.

As stated above, your Company would continue to make necessary investments in technology towards the following areas:

a. Deploying the most appropriate software and applications to drive higher automation and operational efficiencies, digitization of the value chain and enhanced user experience.

b. Leveraging data of high quality and integrity for analysing patterns and aiding strategic and operational decision making

c. Using newer digital technologies, including Machine Learning, AI and language models for customer scoring which will all aid in better risk management.

On the infrastructure part, the IT Strategy Committee of the Company has established comprehensive policies related to IT governance, asset management, business continuity, outsourcing, information security and cybersecurity, and incident management, among others. Given the heterogenous footprint of technologies and IT systems as well as integration of systems with external partners, the IT Strategy Committee periodically reviews the enterprise architecture for dependencies and interoperability and conducts regular vulnerability assessments and penetration testing to identify and minimize any internal or external threats. An independent information systems audit was also conducted during the year, the findings of which are elaborately discussed, and actions are taken within defined timelines.

Corporate Social Responsibility (CSR)

Your Company is committed to fulfilling its social responsibility obligations. Your Company has adopted a CSR Policy as mandated by the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014. The policy is available on the on the 'website of the Company at https://fivestargroup.in/investors/.

As per aforesaid provisions of the Companies Act, 2013, your Company was required to spend INR 12.71 crores towards CSR initiatives, representing 2% of the average net profits of the Company from the past three financial years. Your Company has exceeded this requirement by contributing INR 12.74 crores towards CSR during the financial year ended March 31, 2024.

The Annual Report on CSR activities for the financial year ended March 31, 2024, is attached as Annexure B to this Report.

Whistle Blower Policy and Vigil Mechanism

As per the provisions of Section 177(9) of the Companies Act, 2013, and Regulation 22 of the SEBI (LODR) Regulations, 2015, your Company has established a Vigil Mechanism and has adopted a Whistle Blower Policy for directors and employees to report their genuine concerns. The Whistle Blower Policy has been formulated with a view to provide a mechanism for employees and directors to approach the Audit Committee of the Company. The said policy is available on the website of the Company at https://fivestargroup.in/investors/.

The Vigil mechanism of the Company is overseen by the Audit Committee and provides adequate safeguard against victimization of employees and directors and also provides direct access to the Chairperson of the Audit Committee in exceptional circumstances.

During the financial year, no complaints were received by the Company and no complaints are outstanding as on March 31, 2024.

Board and its Committees

During the financial year ended March 31, 2024, 8 (Eight) Board Meetings were held on April 19, 2023, May 09, 2023, July 29, 2023, August 16, 2023, October 31, 2023, February 01, 2024, February 29, 2024 and March 16, 2024, and not more than 120 days elapsed between any two meetings.

The details of composition of the Board and its Committees, terms of reference of the Committees and the details of meetings held during the financial year are furnished in the Corporate Governance Report.

Management Discussion and Analysis

A report on the Management Discussion and Analysis (MDA), highlighting the business-wise details is attached and forms part of this report as Annexure C.

Corporate Governance

Your Company is committed to upholding the highest standards of Corporate Governance, adhering to all relevant regulations. A report on Corporate Governance is enclosed and forms part of this report as Annexure D.

The Chief Executive Officer and the Chief Financial Officer have submitted a compliance certificate to the board regarding the financial statements and other matters as required under regulation 17(8) of the SEBI (LODR) Regulations, 2015.

A Certificate from a Practicing Company Secretary affirming the compliance of Corporate Governance norms as required under SEBI (LODR) Regulations, 2015 is annexed to the Corporate Governance report.

Business Responsibility and Sustainability Reporting

As per Regulation 34(2)(f) of SEBI (LODR) Regulations, 2015, the top 1,000 (one thousand) listed entities based on market capitalization shall attach a Business Responsibility and Sustainability Report (BRSR) with the Annual Report, describing the environmental, social and governance initiatives undertaken by the listed entities.

In line with this regulation, your Company has put together a BRSR report (along with an Environmental, Social and Governance (ESG) report) which outline the initiatives undertaken by your Company across these 3 parameters. The BRSR report also forms part of this report as Annexure E.

Disclosures under POSH 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 the Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Act) and the same is available on the website of the Company at https://fivestargroup.in/investors/. Your Company has complied with the provisions relating to the constitution of Internal Complaints Committees (ICC) under POSH Act. ICC has been set up to redress complaints received regarding sexual harassment.

During the financial year, no complaints were received. None was pending unresolved as on March 31, 2024.

Particulars of Employees and Related Disclosures

In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the disclosures with respect to the remuneration of Directors, Key Managerial Personnel and employees of the Company forms part of this report as Annexure F.

The statement containing details of employees as required in terms of Section 197 of the Act read with Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is available for inspection at the Registered Office of the Company during working hours for a period of 21 days before the date of the ensuing Annual General Meeting. In terms of the provisions of Section 136 of the Act read with the said Rule, the Directors' Report is being sent to the shareholders excluding the said statement. If any member is interested in obtaining a copy, such member may send an e-mail to the Company secretary in this regard.

Investor Relations

Your Company prioritizes open communication and engagement with all investors, both current and potential, as well as analysts. Your Company is focused on ensuring transparency and providing timely information through periodic earnings calls, video conferences, active conference participation and one-on-one meetings.

The intent is seen as a benchmark in terms of investor outreach by fostering a culture of transparency and accessibility.

Your Company believes that informed investors are essential for a healthy market and intent achieving this by:

• Website Disclosure: Critical information is readily available on the Company's website, ensuring easy access for all investors.

• Stock Exchange Notifications: Proactively notifying stock exchanges on upcoming events like earnings calls, quarterly and annual results announcements and any other information that might impact the share price of the Company.

• Meeting Disclosures: Disclosure to stock exchanges of any potential meetings with investors and analysts who express interest in connecting with the management team of the Company.

Through these efforts, your Company aims to equip investors with the information they need to make informed investment decisions.

Directors' Responsibility Statement

The Board of Directors have instituted / put in place a framework of internal financial controls and compliance systems, which is reviewed by the management and the relevant board committees, including the audit committee and independently reviewed by the auditors.

Pursuant to Section 134(5) of the Companies Act, 2013, the Board of Directors, 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 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 this Act 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, which are adequate and 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.

Acknowledgement

Your Directors wish to thank the shareholders, customers, employees, bankers, non-bank lenders, mutual funds, financial institutions, debenture trustees, R&T agent, credit rating agencies and auditors for their co-operation and continued support to the Company. The directors also thank the employees for their contribution during the financial year ended March 31, 2024.