our deposits and associated interest rates. In Fiscal 2018, Fiscal 2019 and Fiscal 2020 and in the nine months ended December
31, 2019 and 2020, the total interest expended represented 38.62%, 37.45%, 37.12%, 40.44% and 42.73%, respectively, of our
total expenditure.

Accordingly, the magnitude and timing of interest rate changes in the asset and liability markets as well as the relative gradient
of the rate curves, have a significant impact on our Net Interest Margins and our profitability. Movements in short and long-
term interest rates affect our interest earned and interest expended.

Prior to operating as an SFB, as an NBFC we met our funding requirements through a combination of term loans from banks
and financial institutions, issuance of non-convertible debentures, refinancing arrangements, securitization/ assignment of
receivables, and issuance of commercial paper. On transitioning into an SFB, our borrowings are subject to inter-bank
borrowing limits, at par with scheduled commercial banks prescribed by RBI and thus our primary sources of funding have
been deposits and refinancing from refinance institutions such as SIDBI and NABARD. As of December 31, 2020 majority of
our funding consists of retail deposits accounting for 72.40% of our total deposits, with a CASA ratio of 13.32%. Considering
the growth of our business, we will have a continuous requirement of funds for expanding our outreach and enhance our loan
portfolio. Our ability to continue to meet customer demand for new loans will depend primarily on our ability to raise funds in
a timely manner by creating a stable deposit base which in turn is function of suitable interest rates and terms. Our Net Interest
Income is affected by debt service costs and costs of funds, which depend on external factors such as the status of bank lending
rates in India, in particular, interest rate movements, as well as internal factors such as changes in our credit rating based on our
growth, performance and profitability. Any change in our credit ratings may alter interest rates for refinancing our outstanding
debt, which would affect our financing costs, and impact our future issuances of debt and our ability to raise new capital on a
competitive basis.

We may also be affected by changes in RBI repo rates, which impact the interest rates charged on interest-earning assets and
the interest rates paid on interest-bearing liabilities. Interest rates have a substantial effect on our cost of funding, our business
volume and our profit margin. In addition, as there are varying maturity periods applicable to our interest-bearing assets and
interest-bearing liabilities, a change in interest rates may result in an increase in interest expense relative to interest income
leading to a reduction in our Net Interest Income.

Operating Expenses and Productivity Levels

We have the lowest cost to income ratio amongst SFBs in Fiscal 2020 (Source: CRISIL Report). Our cost to income ratio for
Fiscal 2018, 2019 and 2020 and in the nine months ended December 31, 2019 and 2020 was 64.44%, 46.83%, 47.05%, 44.40%
and 55.39%, respectively. Our ability to continue to improve our cost to income ratio largely depends on our ability on contain
our infrastructure costs and improve productivity levels.

We have incurred significant expenditure and will continue to incur further expenditure on our network of Banking Outlets,
human resources and information technology platforms for our operations. Our network of Banking Outlets has nearly doubled
from 240 Banking Outlets as of March 31, 2018 to 477 Banking Outlets as of March 31, 2020 and 554 Banking Outlets as of
December 31, 2020. Of the total Banking Outlets, 133 outlets are present in URCs as of March 31, 2020, and 153 URCs as of
December 31, 2020, in accordance with RBI guidelines to have at least 25% of outlets in unbanked regions. We intend to
gradually open additional Banking Outlets in the future in a cost effective manner based on our growth plan. We believe this
approach has resulted in our low operating costs. Through stringent monitoring and cost approval processes, we have made
efforts to minimize expenditure incurred towards our physical infrastructure. We have achieved relatively lower spend on
branch infrastructure with comparatively small-sized premises and quality amenities. The productivity levels of our Banking
Outlets network may vary according to the stage of operation of a Banking Outlet and the number of customers that the Banking
Outlet is able to serve. Our Gross Advances per banking outlet (excluding URCs) increased from % 66.50 million in Fiscal 2018
to % 76.02 million in Fiscal 2020 and were % 69.55 million in the nine months ended December 31, 2020.

From Fiscal 2018 to Fiscal 2020, we have invested = 462.38 million towards our technology infrastructure. We have partnered
with a technology service provider for our core banking system. Our expenses for these services, as well as for our hardware
including computers and other equipment are staggered over future periods, enabling us to better manage our expenses and
productivity levels. We measure our performance and operational efficiency through productivity levels, and seek to
consistently improve our productivity through rigorous monitoring and technology adoption. To this extent, we have carried
out digitization of our processes including carrying out electronic KYC checks. We also use analytics to regularly monitor and
measure our performance, and apply it to improve effectiveness of our business sourcing. Our analytics capabilities include
monitoring customer behavior over the customers’ loan cycle; analyzing location-wise portfolio trends at the pin code level in
terms of delinquency patterns, and volume of customers and competitors.

Similarly, we believe we are able to contain employee-onboarding costs due to long-term association with our employees. We
incentivize our employees through employee stock options (ESOP), and performance driven compensation, and believe this
contributes to our long-term association with our employees. We believe these measures have enabled us to improve our
employee-productivity levels, resulting in the growth of advances per sales employee from 210.44 million in Fiscal 2018 to =
14.63 million in Fiscal 2020 and were 2 14.84 million in the nine months ended December 31, 2020.

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