27.

28.

further actions to comply with their observations or that RBI will not make similar or other observations in the future. In
the event we are unable to resolve such deficiencies and other matters to RBI’s satisfaction, or are otherwise in non-
compliance with RBI’s directions, RBI may take regulatory and supervisory action which many include charging penalties,
penalizing our management, restricting our banking activities or otherwise enforcing increased scrutiny and control over
our banking operations, including by way of withholding approvals, or issuing conditional approvals. For instance, in the
event it is determined by RBI that classification of PSL done by us during a particular year is incorrect and as a result of
declassification, we do not meet any PSL sub-targets for that year, RBI may impose penalties including requiring us to
purchase PSLCs to make good the shortfall in that sub-target which would entail additional expense not currently provided
for. Imposition of any penalty or adverse findings by the RBI during ongoing or any future inspections may therefore have
an adverse effect on our business, results of operations, financial condition and reputation.

Our operations involve handling significant amounts of cash, making us susceptible to operational risks, including
fraud, petty theft and embezzlement, which could harm our results of operations and financial position.

While we seek to increasingly transform our operations to a cashless model, a portion of our business, particularly with
respect to collections, continues to be cash based. Our employees at our Banking Outlets are responsible for the collection
and deposit of cash, thereby exposing us to the risks of loss, fraud, misappropriation, theft, assault and unauthorized
transactions by our employees. While we seek to prevent fraud or misappropriation by our employees through internal
control measures, we may be unable to adequately prevent or deter such activities in all cases. In the past, we have
experienced acts of fraud (as defined under the applicable RBI guidelines), theft, forgery and misappropriation committed
by or involving our customers/ employees. In most cases, the frauds by employees are attributed to misappropriation of
funds in respect of collection of dues from borrowers by the employees of the Bank and such collection amount not being
deposited by the relevant employees. For instance, during Fiscal 2020, 2019 and 2018 and in the nine months ended
December 31, 2020, the number such cases of frauds reported by the Bank were, 83, 71, 84 and 98, respectively and the
amount involved in such matters aggregated to = 2.22 million, = 1.50 million, = 3.60 million and % 2.71 million,
respectively. These acts involved breach in processes, monetary malpractice and violation of codes of conduct followed
by disciplinary issues. Further, in the past there have been instances where customers have filed complaints alleging unfair
trade practices while doing business in micro finance. For further information, see “Outstanding Litigation and Material
Developments” beginning on page 337.

Although we have systems in place to identify fraud relating to misappropriation of funds, there could be instances of
fraud and misconduct by our employees which may go unnoticed for certain periods of time before corrective action is
taken. In addition, we may be subject to regulatory or other proceedings in connection with any such unauthorized
transaction, fraud or misappropriation by our employees, which could adversely affect our goodwill, business prospects
and future financial performance. Even when we identify instances of fraud and other misconduct and pursue legal recourse
or file claims with our insurance carriers, we cannot assure you that we will recover any amounts lost through such fraud
or other misconduct. In addition, our dependence upon automated systems to record and process transactions may further
increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses
that are difficult to detect.

If we are unable to implement our growth strategies, our business may be adversely affected.

We have witnessed growth in our business. Our Gross Advances were 2 15,960.19 million, = 27,406.29 million, =
36,263.92 million and % 38,531.04 million as of March 31, 2018, 2019 and 2020 and as of December 31, 2020, respectively.
Our total deposits were 2 7,495.22 million, = 15,943.25 million, = 28,487.15 million and 2 33,438.40 million as of March
31, 2018, 2019 and 2020 and as of December 31, 2020, respectively. We have also witnessed growth in our network of
Banking Outlets, and as of December 31, 2020, we operated 554 Banking Outlets spread across 13 states and union
territories in India. We intend to strategically grow our network of Banking Outlets in new markets in India in order to
attract new customers. Any new Banking Outlets that we establish may not be profitable immediately upon their opening
or may take time to break even, and failure to do so within a reasonable period may adversely affect our profitability. We
will need to enhance and improve our financial, accounting, information technology, administrative and operational
infrastructure and internal capabilities in order to manage the future growth of our business. We cannot assure you that we
will succeed in doing so, as it is subject to many factors beyond our control. In addition, we are likely to compete with
other banks and financial institutions, and local unorganized or semi-organized private financiers, who are more familiar
with local business practices and customs, and have stronger relationships with the target customers. Factors such as
competition and customer requirements in these new markets may differ from those in our existing markets.

As we plan to expand our geographic footprint in India, our business may be exposed to additional challenges, including
obtaining additional governmental or regulatory approvals, identifying and collaborating with local business partners with
whom we may have no existing relationship, successfully marketing our products in markets in which we have no
familiarity, attracting customers in a market in which we do not have significant experience or visibility, maintaining
standardized systems and procedures, adapting our marketing strategy and operations to new markets in India in which
different languages are spoken, higher technology costs, upgrading, expanding and securing our technology platform in

37,
