U Gro Capital | An Overview December 2018 The SME Lending Market A - - PowerPoint PPT Presentation

U Gro Capital | An Overview

December 2018

The SME Lending Market A large yet untapped market opportunity

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India represents a large, significantly underpenetrated market

One of the largest and fastest growing economies in the world However, the credit to GDP ratio is still much lower than other markets Leading to high credit growth in the country led by the NBFC sector Significant government impetus and for the growth of credit

14.1 13.9 9.0 10.9 8.2 10.0 17.9 15.6 18.8 16.6 14.6 21.2

FY13 FY14 FY15 FY16 FY17 FY18

Credit Growth rate (%)

Bank NBFC

▪ Grant of universal banking, payment banking and small finance banking licenses ▪ Focus on financial inclusion – Jan Dhan Yojna, Pradhan Mantri Awas Yojana ▪ India Stack – Cashless, Paperless, Presence-less

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25.1 20.2 10.3 5.5 4.2 4.0

China US India Japan Germany Russia

6.9% 2.3% 6.7% 1.3% 2.2% 0.19%

GDP PPP – US$ Tn, Real GDP Growth

160.0% 73.6% 44.8% 99.9% 54.3% 49.1%

China US India Japan Germany Russia

Total credit to non-financial corporations as a % of GDP

1,080 1,155 1,219 1,236 1,426

2013 2014 2015 2016 2017

Total credit to the private non-financial sector, US$ Bn

The overall lending market in India is expected to grow at 10-11% with NBFCs growing at 15-17% over the next 5 years

PSU Banks ▪ ¾ of total credit ▪ Limited by high NPA ▪ Low CAAR (Basel-III) ▪ Systematic issues NBFC ▪ Diversified geographical presence ▪ Higher assessment ability ▪ Limited by cost of funds and capital investment

• PVT. Banks

▪ Increasing NPA ▪ Limited Geo. reach ▪ Limited assessment ability

• Constrained credit growth
• Structural issues
• Higher NPA
• Low Rating and Leverage
• Long term sustainable ROE is challenged
• No Equity Value Creation.
• Healthy credit growth
• Current players are limited by credit availability, lower

assessment ability & distribution reach.

• Pricing Advantage & Structural support available.
• Favorable demographics
• Increasing income
• Increasing debt appetite
• Faced with heavy price competition
• Need strong capital base and long gestation period.

The lending market can be broadly divided into three segments…

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Consumer SME Corporate, Infra, Real Estate

Current Scenario Future Projection

• +

+ + + +

.. of which the SME segment is the most under-served

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With most SMEs depending on either self financing or informal channels India lags behind other emerging markets when it comes to credit access for MSMEs

237 616 FY17 FY23P

Expected to become a USD 600+ Bn market

US$ Bn

The SME financing opportunity is large

CAGR 17% 14% 14% 16% 16% 18% 30% 31%

India Mexico Malaysia Russia Argentina Brazil Poland

% of MSMEs that have access to credit

NBFCs have been stepping in to fill the need gap in the market Fragmented market with very few specialised players

Although MSMEs account for 45% of the Indian Industrial output – the segment has been starved for capital from formal sources Private banks PSU banks NBFC Diversified geographical presence and more specialized assessment ability provide NBFCs the competitive advantage Private banks PSU banks NBFC

FY18 FY16

Category 1 SME lending market share

IndiaBulls LIC HF DHFL Shriram City Union HDFC Cholamandalam Bajaj Finance Capital First PNB HF Others

Market dominated by large LAP providers and diversified NBFCs – Absence of players with specialized focus on the SME segment

Debt - Formal Sources Self - Equity Own Savings Family Business Family Savings 0% 20% 40% 60% 80% 100% 120% Category 1

Source of SME financing 70% of the market still funded through the equity of the

• wner/family

Specialization is key to success in the SME lending space…

Credit & Portfolio

▪ Greater homogeneity leading to better understanding of risk ▪ Deep understanding of the ecosystem and hence cash flows, funding needs and risks ▪ Ability to leverage data from public sources ▪ Ability to assess macro-environment to build early warning systems

Distribution

▪ Build proprietary, differentiated and customized distribution channel ▪ Better selection/appraisal of the distribution channel due to the dedicated focus ▪ Understanding of customer needs which helps in ecosystem based lending strategies

How specialization helps Difficult to understand businesses/cash flows Fragmented set of customers High dependence on the ecosystem Lack of data

Challenges in lending to the SME segment

High cost of customer acquisition

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? Products

▪ Create broader, more customer centric product offerings ▪ Ability to design products that have EMIs, tenors, collateral customized to the customer business and cash flows ▪ Ability to build and sell customized third party products like insurance

… leading to the emergence of niche, focused SME lenders in India

…

Product Focussed Sector Focused Geography/Segment Focused

Online Community

Specialized NBFCs

Focus: Travel, Hospitality AUM: NA Capital Raised: INR 100 crores Focus: Loans against machinery AUM: INR 400+ crores Capital Raised: INR 100+ crores Focus: POS Lending AUM: ~INR 1,000 crores Capital Raised: INR 400+ crores Focus: K12 Segment AUM: INR 1,000+ crores Capital Raised: INR 300+ crores Focus: Tamil Nadu/sub-prime AUM: INR 1,000+ crores Capital Raised: INR 1,000+ crores Focus: Rajasthan/sub-prime AUM: NA Capital Raised: INR 100+ crores 7

The U GRO Incarnation The Assimilation of Aspirations

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Reputed founder backed by marquee private equity funds

▪ After 26 years of working with large corporates, Mr. Nath decided to embark on his entrepreneurship journey by acquiring control of a listed NBFC - Chokhani Securities Limited ▪ As the Group CEO of Religare from 2010, he had led the entire integrated financial services business of the group - SME focused lending, Retail Broking, Life Insurance, Health Insurance, Mutual Funds, Capital Markets, Investment Banking and Asset Management ▪ Some of his marquee achievements include successfully leading the IPO process for Religare in 2007, establishing new businesses as well as stitching together successful joint ventures and partnerships together with global financial services firms ▪

• Mr. Nath is a qualified lawyer and a University Rank holder from the Banaras Hindu University (India)
• Mr. Shachindra Nath

Executive Chairman and Managing Director

Key Investors

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▪ Over 25 years of experience across BFSI, Consumer, Telecom, healthcare ▪ Was the President & CBO of Religare Finvest where he managed an AUM of INR 18,000 crores and 1,500+ employees ▪ Alumnus of Kellogg, XLRI, HAYS Group ▪ Previously worked with ▪ Over 20 years of experience in underwriting, credit policy review, business risk management and portfolio management ▪ Over INR 1,20,000 crores of portfolio managed ▪ Chartered Accountant from ICAI, ICWA ▪ Previously worked with ▪ Over 19 years of experience in product & strategy, P&L management, business planning, and portfolio management ▪ Over INR 12,000 crores of AUM handled ▪ BE from Thapar Institute and PGDM from IIM Lucknow ▪ Previously worked with

Manish Agarwal - Chief Risk Officer Abhijit Ghosh - Chief Executive Officer Anuj Pandey - Chief Operating Officer Kalpesh Ojha - Chief Financial Officer

▪ Over 20 years of experience in treasury, corporate finance, fund raising ▪ Was the ED and CFO of Aspire Home Finance ▪ Chartered Accountant from ICAI and Masters in Financial Management from JBIMS ▪ Previously worked with ▪ Over 25 years of experience in managing large sales & distribution setups, portfolio review and collection management ▪ Over INR 8,000 crores of AUM handled ▪ BE from Sastra University ▪ Previously worked with

Rajni Khurana - Chief Human Res. Officer

▪ Over 18 years of experience in human resources management, performance and talent development, employee engagement ▪ Masters Degree in Human Resource Management ▪ Previously worked with

J Sathiayan - Chief Business Officer

Management team with a strong track record of execution…

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… and guided by an independent board comprising of industry stalwarts

Name Designation Description

Shachindra Nath Executive Chairman & MD ▪ Over 26 years of experience across lending, insurance and asset management ▪ Qualified lawyer and a University Rank holder from the Banaras Hindu University (India) Abhijit Ghosh Chief Executive Officer & Director ▪ Over 25 years of experience across BFSI, Consumer, Telecom and healthcare ▪ Alumnus of Kellogg, XLRI and HAYS Group Satyananda Mishra Independent Director, Head of the CSR Committee ▪ Ex –Chairman of MCX and the Chief Information Commissioner of India ▪ Over 40 years with the Indian Administrative Services (Batch of 1973) Rajeev K. Agarwal Independent Director, Head of the Stakeholders Committee ▪ Ex-Whole time member of the SEBI ▪ Over 30 years of with experience with SEBI, FMC and Indian Revenue Service (Batch of 1983) NK Maini Independent Director, Head of the Risk Management Committee ▪ Ex-Deputy Managing Director of SIDBI ▪ Over 38 years with experience in prestigious organizations like SIDBI, UCO Bank and IDBI Abhijit Sen Independent Director, Head of the Audit Committee ▪ Ex-CFO of Citi, Indian sub-continent ▪ Over 20 years of experience in corporate treasury, financial planning, product control and tax Ranjana Agarwal Independent Director, Head of the Nomination & Remunerations Committee ▪ Ex-Senior Partner, Deloitte ▪ Over 30 years of experience in audit, tax, risk assurance and due diligence

• S. Karuppasamy

Independent Director, Head of the Compliance Committee ▪ Ex-Executive Director of Reserve Bank of India ▪ Over 40 years of experience with the RBI across various departments Chetan Gupta Non-executive Director ▪ Managing Director, Samena Capital ▪ Over 15 years of experience in private equity and equity research Amit Gupta Non-executive Director ▪ Founding Partner, NewQuest Capital Partners ▪ Over 20 years of industry experience across investment banking and PE Manoj Sehrawat Non-executive Director ▪ Founding Partner, ADV Partners ▪ Over 22 years of experience in PE, distress debt acquisition and resolution, and restructurings

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Represents an independent director

…supported by a strong, “fully formed” second layer team…

ED & CEO Abhijit Ghosh CRO Manish Agarwal CFO Kalpesh Ojha

Head - Marketing

COO Anuj Pandey CHRO Rajni Khurana CBO J Sathiayan Head Legal/ Compliance Rajiv Kumar

Head – Policy Head – Collateral Head- Underwriting (2) Fraud control & Audit Head Collections & Litigation CTO Head -Product & Strategy Head- Analytics Head - Operations Head - Cross-sell Head Treasury Finance Controller Investor Relations Regional HR (2) Compensation & Benefits Learning & Development HR operations Corporate Channel Regional Heads (5) Branch Heads (3) Sector Heads (8) Company Secretary Corporate Legal

CGO ETJ

Business Head – BFSI Business Head – Co-lending

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▪ Policy of hiring only 4/5 rated employees ▪ A deep and large ESOP pool to ensure the long term alignment

• f incentives

The U Gro ethos | High levels of corporate governance

❶ Choice of a listed vehicle: High degree of regulatory oversight, transparency and the ability to create an institution for perpetuity ❷ Corporate Governance Code: The U Gro Corporate governance code that captures best practices is enshrined into the Articles of Association ▪ A Strong Board: ▪ Independent directors to comprise more than half of the Board (Currently 6 of 11 members are independent) ▪ Any shareholder holding more than 10% in the company to qualify for a board seat ▪ Key committees like NRC, Audit, Risk Management to be headed by an independent member with required credentials ▪ Auditors: Mandatory requirement for a Big 4 firm to be appointed as the statutory and internal auditors ▪ Deloitte appointed as the statutory auditor and PWC appointed as the internal auditor ❸ Organization Structure: ▪ Strategy driving structure → Unlike other NBFC start-ups, all key positions have been filled with senior individuals with more than 20 years of relevant experience ▪ Collections head, collateral specialist, policy head appointed on day one ▪ Clear line of separation between risk/credit and the business teams to ensure independence of the risk/credit function ❹ Processes and policies: Systems and processes in place to ensure checks and balances ▪ Any loan disbursed by the Company exceeding 1% of the net worth or to a related party to require the unanimous approval of the Asset – Liability Committee and be subject to the approval of the Board ▪ SOPs for all critical processes, board approved credit authority delegation matrix and deviations from policy to need C-level approval

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Our journey so far | Capital raise through multiple modes…

| One of the only companies in the lending space to start with INR 950+ Cr of capital | The listed company structure provides access to permanent source of capital |

Formation of Chokhani Securities First Round of Preferential Allotment Qualified Institutional Placement Reinvigoration of Chokhani Securities Second Round of Preferential Allotment

1994: Formation of Chokhani Securities 1995: Listing of Chokhani Securities 2004-Present: 14 year track-record of profitability Raised INR 435 Cr of capital from global private equity firms - ADV Partners, NewQuest and IndGrowth Raised INR 112 Cr of capital from public market funds, insurance companies and private equity funds Acquisition of Chokhani Securities (later renamed as UGro Capital) by Shachindra Nath followed by a revamp of the management team Approval for the demerger of the lending business of Asia Pragati – INR 175 Cr Raised INR 192 Cr of capital from large family offices / HNIs through a preferential allotment of shares

1994 - 2017 Dec, 2017 Dec, 2017 Aug, 2018

Disbursements to begin in January

May, 2018

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…leading to a highly diverse shareholding structure

# Shares Issued & Outstanding (as on November 30, 2018) 1,98,43,110 Add: Dilutive Instruments Compulsorily Convertible Instruments 3,11,62,792 Warrants 87,83,785 Total Shares Issued & Outstanding (Fully Diluted Basis) 5,97,89,687 Add: Total number of shares to be issued post demerger 1,35,65,892 Total Shares (Fully Diluted Basis) 7,33,55,579

Calculation of Shares Outstanding Shareholding Pattern (Fully Diluted Basis, Post the demerger)

INR 37 Cr

Initial Capital in the acquired company

INR 611 Cr

Capital raised through shares/CCPS/CCDs

INR 175 Cr

Capital to be raised through the demerger

INR 953 Cr

Overall Capital Infused

INR 130 Cr

Capital raised through issuance of warrants

Promoters 4% NewQuest 21% ADV Partners 21% PAG 18% Samena 16% IndGrowth 5% Others 15%

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Initial fund raise from large PE funds, public market, insurance firms, family offices and HNIs

Our Mission

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Our Mission

To Solve the Unsolved India’s US$ 600Bn SME Credit Availability Problem

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Our Approach

Know More, Grow More Fin-touch + Fin-tech Liability First

Deep sector specialization to understand, reach, and service the customer better Leverage the best practices of traditional NBFCs and the modern fin-tech providers to create a technology and data centric organization Create an organization that pro-actively address the ‘needs’ of rating agencies and liability providers

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Know More, Grow More Sector based approach to specialization

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Deep analysis of macro and micro economic factors…

Top 8 Sectors

Future business prospects Size of lending

• pportunity

Relative competition lending Impact of regulatory developments

180+ Sectors 20 Sectors

Interest coverage Asset Turnover ratio Demand supply gap & cyclicality in demand Impact of change in technology Working Capital Cycle Revenue Growth EBITDA Margins Upgrade & downgrade ratio Median rating Gearing Sector specific government policy Environmental issues Input risk Criteria

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Criteria

An 18 month process involving extensive study of macro and micro economic parameters carried out in conjunction with market experts like CRISIL

… to arrive at a set of eight sectors…

▪ Unlike most NBFCs that have a negative sector list, U Gro will have a positive list of sectors that we will lend to ▪ Even within these sectors, U Gro has selected 38 sub- sectors on which to focus ▪ Ratified by ▪ These 8 sectors constitute ~50% of the overall lending market — Validated independently by CRIF, CRISIL and the company distribution team

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Large lending

• pportunity

Lower impact of regulatory changes Secular consumption driven growth Low geographical concentration Relatively lesser competition from banks

Top 8 Sectors

Healthcare Education Chemicals Food processing/ FMCG Hospitality Electrical equipment and components Auto components Light engineering

…and sub-sectors and key clusters to focus on

Healthcare Education Chemicals Food processing/FMCG Hospitality Electrical equipment and components Auto components Light engineering

Key Sub-sectors: General nursing homes, eye clinics, dental clinics, diagnostic labs, radiology/pathology labs, pharma retailers Key clusters: NCR, Mumbai, Bengaluru, Hyderabad and Chennai Key Sub-sectors: Fine dining (standalone), QSRs, fine dining chains, manpower agencies, boutique hotels, guest houses Key clusters: NA Key Sub-sectors: K-12 Schools, Play Schools Key clusters: NCR, Mumbai, Coimbatore, Chennai, Hyderabad and Pune Key Sub-sectors: Dyes and pigments, bulk and polymers, agro-chemicals,

• ther chemicals (except specialty

chemicals) Key clusters: Mumbai, NCR, Ahmedabad, Vadodara and Surat Key Sub-sectors: B2B, B2C Key clusters: NCR, Pune, Bengaluru, Chennai, Aurangabad and Rajkot Key Sub-sectors: Engine parts, drive transmission and steering parts, body and chassis, suspension and breaking parts, electrical parts, other equipment, traders Key clusters: NCR, Mumbai, Kolkata, Hyderabad and Bengaluru Key Sub-sectors: Dairy and dairy products, non-alcoholic beverages, consumer foods, poultry, sea food, food and beverage traders Key clusters: NCR, Mumbai, Chennai, Hyderabad and Pune Key Sub-sectors: Casting and forging, medical equipment and devices, pipes, process control instruments, traders Key clusters: NCR, Chennai, Pune, Ludhiana, Bengaluru, Ahmedabad and Rajkot 22

Product Approach

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Product Offerings

Secured Loans

Ticket Size: INR 50 lakhs to 5 Cr Interest rate: 10.5% to 12% LTV: Up to 80%

Unsecured Loans

Ticket Size: INR 10 to 50 lakhs Interest rate: 16% to 19% LTV: NA

Supply chain financing

Ticket Size: INR 3 to 30 lakhs Interest rate: 13% to 15% LTV: NA

To create sub-sector specific products by modulating the following attributes to meet customer requirements…

Loan Structuring Collateral Tenor Assessment Parameters Pricing

Moving beyond conventional products…

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Deep sectoral understanding leading to finely tailored solutions

Pricing

Rate of Interest / Processing Fee

Methods of assessment

| Financial |Banking|Turnover |

Collateral

Movable/ Immovable Property

Tenor

Repayment Frequency/ Repayment Period

3 Sector based product parameters

Loan structuring

Ability to offer structured disbursement and repayment solutions

Scenario: Hospitality/restaurants; franchise set up ▪ 1st disbursal – Rs 50 lac security transferred to master franchisee account – repayment to start post 6M ▪ 2nd disbursal – Rs 1 crore to borrower for infrastructure development – repayment post 6M ▪ 3rd Disbursal – Rs 3.5 crores after 3 months of first disbursal as a line of credit, valid for 12M, quarterly bullet repayments Scenario: Healthcare ▪ Super distributor supplying to retailers; data on prospective borrower is provided by super distributor ▪ Data includes monthly / yearly procurement and payment pattern which is used to create customized products ▪ Sales and recovery report from the supplier / super distributor are taken as document proofs Scenario: Education ▪ Repayment frequency to match the frequency of fee receipt ▪ If the fee is received once in a quarter, the EMI frequency can also be structured accordingly.

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Scenario: Education Industry ▪ Future fee receivables of an educational institute to be taken as primary collateral along with the institution building as a secondary collateral for a secured loan Scenario: Type of collateral available in a sector ▪ ROI to vary basis the collateral available ▪ Self occupied residential property to have lower ROI as compared to a vacant residential property ▪ Education institute building/ Hospital buildings to have higher ROIs.

Illustrative Examples

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Combination of property, fees receivable

Based on our sectoral capabilities, we would deliver customized solutions, faster TAT, better yields through a combination of higher loan to value and exposure limits, vis-à-vis being a pure play LAP focused lender Sector Sub-sector Products (basis cash flow) Collateral

Hospitals General Practitioners/ Diagnostic labs Medical Devices Term loan for capacity expansion/upgradation. Medical equipment financing Working capital term loans Receivables discounting, supplier chain finance, working capital loan Equipment financing, working capital loan Combination of property (business + personal), inventory, receivables

Healthcare Education Auto

Schools - K12 Vocational Institutes Primarily working capital loan Term loan for capacity expansion, working capital loan Auto components Auto dealers Auto shop traders Receivable discounting, supply chain finance, term loan, working capital Primarily working capital Primarily work capital loan, working capital term loan Combination of property, inventory, cash flows Number of patients per day, Doctor’s experience, Bed capacity, Share of IPD revenues Area covered, Client concentration, Length of relationships with customers Vintage of practice, Quality of equipment, Degree of practitioner Number of branches, premises owned or leased, Increase in salaries Promoter's experience, Number of existing branches, Type of locality Ability to pass on price hikes, Average credit period, Discounts offered Location of the entity, type of dealer (distributor, stockiest)

Assessment Parameters

Area covered, turnaround time, proportion of slow moving inventory

Distribution Approach

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Client Acquisition Strategy

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Co-lending with NBFCs Industry Partnerships Digital Channels Branch Sales Team

▪ Leverage branch sales teams for customer acquisition through outreach/ walk-ins; support with technology ▪ Build targeted sales force with sector / segment experience and community understanding to ensure deep knowledge of customers ▪ Develop partnerships in prioritized segments with key participants e.g. sector specific lenders, industry bodies ▪ E.g. Anchor led supply chain financing, partnerships with equipment suppliers ▪ Develop strong relationships with DSAs and DSA aggregators operating in target segments / geographies ▪ Driven by competitive commissions/ sales contests, faster processing, better experience, etc. ▪ Partner with specialized NBFCs in order to co-lend with the partner ▪ E.g. Partnerships with NBFC specializing in K12 lending ▪ Leverage third party digital origination platforms for lead sourcing, if available in specific segments ▪ Create own digital channels – to acquire directly and as a support to own sales force ▪ E.g. Partnerships with loan aggregation platforms

Channels Role Direct Sales Agents Channels Role Traditional Channels New Channels Evolution of the U Gro distribution network

Distribution Network

Locations identified through extensive analysis of portfolio and SME cluster performance

Delhi Jaipur Hyderabad Bangalore Ahmedabad Kolkata Mumbai Chennai Head Office Branch Office

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▪ Analytics led pre qualification basis data available from partner platform ▪ Upfront application of underwriting rules using data-driven indicators ▪ Partner-led customer campaign with pre-populated eligibility amount/ rates ▪ Personal discussion by credit manager to be done before disbursal

Rigorous DSA Selection Criteria

▪ An initial list of 130+ channel partners arrived at post rigorous vetting of 1,200+ DSAs ▪ Selection criteria ‐ Minimum three year track-record ‐ Infrastructure Readiness ‐ Portfolio performance: Bounce rate, NPAs ▪ DSAs selected have a track-record of acquiring INR 5,000+ Cr on a monthly basis ▪ An onboarding fee charged from each channel partner – A first in the industry

Partnerships to boost productivity of sales team

Phase I - Locations

Credit Appraisal and Portfolio Approach

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Credit Appraisal Process | A Three Pronged Approach

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~8 segment specific statistical scorecards Sourcing Channel ▪ Sourcing through a mix

• f channel partners

and own staff ▪ AI based OCR software ▪ Channel partners with direct LOS integration Pre-defined Criteria Met? Onward processing towards disbursal Loan Approved Pre-approval checks Quarterly Monitoring Feedback Loop ▪ Defined ticket size, sectors, turn-over ▪ Geographical location ▪ Borrowing history ~30 sub-segment specific scorecards ▪ Legal verification ▪ Fraud Control Unit Check ▪ Field Investigation ▪ Valuation Criteria

1,000+ Parameters evaluated 20+ Data Sources

Data Enrichment ~Sub-sector specific PD templates Statistical Score-cards Expert Scorecards

In principal approval in 60 mins Final approval in 48 to 72 hours

File Flow For A Secured Loan

Sub-sector Policies

Data and Analytics Led Physical Verification/Visit Led Experience Led

Parameters Factors Factor weightage Financial Risk Increase In ATNW in last 2 years 2% EBITDA margin for the last audited year 4% Current Ratio 10% TOL/ATNW 5% Inventory + Debtor Turnover Period 3% Total Debt to NCA 3% Interest Coverage 3% Management Risk Promoter property profile / Net worth 12% Promoter Bureau 5% Business Vintage in the same line of business 3% Transaction History Number of business loans taken 10% Credit summation as percent of TO 6% Average limit utilization in last 6 months 6% Interest servicing for last 6 months 8% Overdrawing in OD/CC Account 5% Inward cheque return due to financial reasons 5% Business Risk Supplier concentration 6% Buyer concentration 4%

Credit Scoring Model – Currently being used by NBFCs / banks

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Financial Risk 30% Management Risk 20% Transaction History 40% Business Risk 10%

Parameter Weights

Generic template for all companies within the SME space | Focus only on financial parameters

Data based decision making

▪ Universal data environment storing data from all source systems, such

as LOS, LMS, Accounting, HRMS

▪ 360 degree view of financial assessment through credit bureau,

financials, banking data all coming into one platform

▪ Digitization of traditionally unstructured information such as

Personal Credit Appraisals, FI data, collateral valuation data, policy parameters

▪ API integrations making it possible to bring a fast evolving data

ecosystem into the fold

‘’Destination state” data infrastructure A fast evolving data ecosystem

Customer Verification Credit worthiness Business footprint Location/ Property

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Credit evaluation

▪ Borrowing and repayment history ▪ Sales transaction data from partner platform

Verification of authenticity

▪ Negative database de-dups ▪ Comprehensive litigation search ▪ Other entity linkage

Business prominence

▪ Presence in listing sites ▪ Promoter and company profile on social media

Collateral valuation

▪ Using places data, base property price index & borrower profile in the neighborhood

Ability to front-load the entire credit assessment cycle

Proprietary Statistical Scorecards For Assessment At The Application Stage

Illustration of scorecard benefit: Default rate across score ranges Visible reduction in residual default rates after removing bottom 20%

0.24% 0.44% 0.15% 0.60% 0.34% 0.28% 0.16% 0.18% 0.74% 1.20% 0.49% 1.23% 0.85% 0.76% 0.90% 0.56%

Light engineering Food processing Electrical equipments Hospitality Education Auto parts Chemicals Healthcare

Segment overall default rate Bad rate post removing bottom 20%

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3.45% 1.23% 0.75% 0.56% 0.40% 0.45% 0.26% 0.12% 0.08% 0.00%

718 751 798 823 846 871 907 980 1341 1500

▪ Scorecards developed in consultation with CRIF basis 80,00,000 loans in the bureau database basis borrowing behavior ▪ Loan base selected on ‘look-alike’ basis to resemble target segments after filtering out known negative segments with high default rates ▪ Analyzed ~ 1.43L loans and more than 850 parameters ▪ Prediction of default using logistic regression method, validated statistically – GINI coefficient: 60%+, KS statistic score: 45%+ ▪ Score able to eliminate ~70% of ‘bads’ by rejecting 20% of population

‘Bad rates’ across intervals

Expert Scorecards

Parameters Factors Case A Case B Case C Facility related Vintage of the entity 20% 15% 10% Doctor’s Experience 20% 15% 10% Arrangement with pharmacy unit 30% 30% 40% NAHB accreditation 30% 40% 40% Operational Share of IPD revenues in overall nursing home revenue 15% 20% 20% Share of insurances cases in overall IPD admissions 15% 20% 20% Share of government empanelled cases in overall insurance admissions 10% 10% 10% Occupancy rate 30% 20% 20% Revenue per occupied bed 30% 30% 30% Financial Operating margins 15% 15% 15% Return on Capital Employed 20% 20% 20% Interest coverage 30% 30% 30% Asset turnover ratio 20% 20% 20% Receivable days 15% 15% 15%

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Facility 40% Operational 40% Financial 20%

Case A: Less than 20 bedded nursing home

Facility 30% Operational 30% Financial 40%

Case B: 20-50 bedded nursing home

Facility 20% Operational 20% Financial 60%

Case C: 50-100 bedded nursing home

Sector: Healthcare Sub Sector: Nursing Homes

▪ Combination of operating parameters specific to the sector and financial parameters ▪ Scorecards developed in consultation with CRISIL market experts combining market research with CRISIL’s in-house rating knowledge ▪ Methodology — Scorecards based on 1,000+ personal interviews across 9 locations, collecting responses for over 50+ curated questions for each sub-sector

Strong Risk Management Framework

Asset Liability Management Liquidity equivalent to 6 months of liability and 2 months of advances to be maintained at all times The one year bucket mis-match will be positive or equivalent to zero Asset strategy influenced by liability strategy Fraud Risk Background/Fraud checks on all outsourcing partners, agencies and employees before onboarding Seeding checks conducted regularly Operational Risk Standard operating procedures defined for all processes End to end automation of processes to limit manual intervention

PORTFOLIO LEVEL RISK ENTERPRISE LEVEL RISK

Appraisal Policies and deviations are standardized Completely automated CAM to prevent manual errors and ensure quality/shorter TATs Data pulling from source through APIs mitigating fraud FCU Checks An independent team with deep market expertise Partnerships with multiple FCU agencies and Hunter Property appraisal Collateral specialist hired 2 valuation agencies appointed for loan disbursal > INR 1 crore FI verification Personal visits by employees Geo-tagging of customer location End-to-end automation of FI initiation and completion Early warning systems Automated, analytics led, early warning systems basis proprietary rules framework incorporating social, sector, macro-economic feeds

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Fin-touch + Fin-tech Building a Technology enabled organization

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Hybrid Lending Model

Traditional – Fin-Touch Alternative – Fin-Tech

Adopting a hybrid model comprising best practices of traditional lenders and modern fin-tech companies

Traditional credit assessment models like CIBIL scores Alternate credit assessment models leveraging analytics + publicly available data Physical processes such as visits to customers Leverage technology to automate processes thus reducing manual errors Focus on collateral driven lending Unsecured credit solutions Limited to term loans Variety in loan products

Fin-Touch + Fin-Tech

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The U GRO business model is backed by a “best in class” technology design…

System driven workflows at every stage of the customer journey Customized user interfaces for internal and external stakeholders Cloud based architecture and customization-oriented design

Process automation Transaction experience Rapid scalability

▪ 15 different eligibility assessment templates ▪ 10 product specific onboarding modules ▪ 100+ policy rules digitized ▪ 40 APIs integrated ▪ 30+ credit scorecards configured ▪ Partner integrations ▪ Portfolio monitoring systems ▪ 12 user categories to participate/view ▪ Customized screens for collateral assessment, FI, FCU ▪ Lead Management System ▪ Dedicated DSA screens ▪ Customer self service ▪ Chatbots ▪ Collection modules ▪ All rules put in configurable box – easily customizable ▪ End-to-end workflows on system ▪ Integration friendly design ▪ Cloud based architecture ▪ Integrate a large partner ecosystem, facilitating innovation in risk management & business acquisition

In place Planned

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..to complement traditional “touch and feel” across the value chain

40 40

Sourcing

▪ Partnerships with traditional/digital marketplaces to create customized offerings ▪ Intuitive client and partner UI to streamline onboarding ▪ DSA integration into U Gro’s LOS

Verification and Disbursal

▪ Online process to augment traditional fraud control process ▪ Collateral management team in place before start

• f business

Collection and Recovery

▪ Collection and litigation team already in place ▪ Analytics led predictive collection model to

• ptimize efficiency of field collection

▪ Bucket-wise collection strategy

Underwriting

▪ End to end paperless journey with touch and feel checks ▪ API integrations to pull credit bureau, financials, social, legal and other relevant data ▪ Statistically validated automated credit models through a bureau partnership ▪ Expert judgement based sub-sector specific score-cards

Portfolio Monitoring

▪ Automated, analytics led, early warning systems basis proprietary rules framework incorporating social, sector, macro-economic feeds ▪ Quarterly visits by team members for account review ▪ Yearly review of financials

In-principal Loan Approval API Integrations Parameters assessed

60 mins 40+ 1,000+

API Gateway Dedicated API server to secure data flow between internal/external sources and manage performance ▪ Authentication and authorization ▪ Traffic maintenance and throttling ▪ Loan balancing ▪ Circuit breaker

Orchestration layer to secure and

• ptimize data flow

LOS

Dedupe Credit Engine

LMS

Operations Business Integration

G L

Databases Workflow engine

HRMS

Partner management Rule Engine

Core systems and

sub - modules tuned to product customization

Enterprise Service Bus Enterprise level software solution to orchestrate and

• ptimize data flow within system

▪ Script execution ▪ Synchronous and asynchronous processing ▪ Database execution ▪ Integration gateway

Client interfaces

for internal and external front end users

Customer portal and mobile apps Sales hierarchy Operations portal Reporting DSA and partner apps Sales assistant Chatbots Advanced analytics/ Machine learning

Highly customized and flexible technology stack to meet business needs

Notification Engine Web sockets Identity Access Management Platform booting and runtime configuration Audit and reporting Monitoring, reporting, notification and escalation

Enterprise architecture design Service Oriented S/W

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Liability First The Missing Link

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Liability Strategy

Focus on building the “right” book

▪ Partner with ratings agencies from start to create the right quality of asset book ‐ Build a diversified granular book ‐ Start with a primarily secured book and slowly build the unsecured part. Unsecured book to not exceed 20% of the overall book.

Specialized source of funding

▪ Access funding from new sources of funding such as multilateral agencies (IFC), impact funds, development banks (SIDBI) etc.

• Engage & understand the specific needs/development agenda of such multilateral agencies. Identify & construct part of

loan portfolio which is attractive to such lenders

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Diversify Provider Base

▪ From Year 2, we will start leveraging our strong capital base and high quality, secured book to open credit lines from all forms

• f conventional liability sources

▪ Diverse liability mix to include – all major banks, debentures, capital market and insurance companies ▪ Over a time period, increase the credit line exposure from existing providers

Target to reach a D/E of 5x and cost of borrowing of 8.5% by FY23 | Build loan book starting from high equity/low leverage to higher leverage over a period of time | Achieve low cost of borrowing basis high credit rating

• ver a period of time |