eligible borrowers up to August 31, 2020, resulting in a decline in our collections during such period.

The RBI guidelines also require us to make provisions of up to 10% on loans that are in default but were standard as on February
29, 2020. In the nine months ended December 31, 2020, these COVID-19 related provisions amounted to = 108.69 million. In
the nine months ended December 31, 2020, we have additionally made specific provisions for the potential impact of the
pandemic on our operations, amounting to = 747.20 million, and have increased the floating provision of micro-finance loans
from 1.5% to 2%, amounting to an additional provision of to = 5.55 million.

The Supreme Court in Gajendra Sharma v. Union of India and Another by its interim order dated September 3, 2020 has directed
banks in India that accounts that were not declared NPA till August 31, 2020 shall not be declared NPA till further orders,
pending disposal of the case by Supreme Court. Pursuant to the order, our Bank has not classified any borrower's account which
has not been declared as NPA as at August 31, 2020 as per the RBI Prudential Norms on Income Recognition, Asset
Classification, Provisioning and Other Related Matters as NPAs after August 31, 2020. However, if we had classified borrower
accounts as NPA after August 31, 2020, our Bank’s gross NPA ratio as on December 31, 2020 would have been 9.28%, on a
proforma basis, of this 8.49% pertains to new proforma GNPA (i.e., excluding the pre-COVID GNPA). After considering, the
specific NPA provisions and floating provisions, net NPAs would have been 5.38%, on a proforma basis.

The global health and economic implications of this pandemic could continue to have significant impact on our business,
operations and future financial performance. As a result of the scale of the pandemic and the speed at which the global
community has been impacted, and the uncertainty related to the same, our quarterly and annual revenue growth rates and
expenses as a percentage of our revenues may differ significantly from our historical rates, and our future operating results may
fall below expectations. We are still assessing our business operations and system supports and the impact COVID-19 may
have on our results and financial condition, but there can be no assurance that this analysis will enable us to avoid part or all of
any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our
sector in particular. The extent to which the COVID-19 impacts our results will depend on future developments, which are
highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the
coronavirus and the actions taken globally to contain the coronavirus or treat its impact, among others. Existing insurance
coverage may not provide protection for all costs that may arise from all such possible events.

Regulatory Developments

Our results of operations and continued growth depend on stable government policies and regulation. The banking industry in
India is subject to extensive regulation by governmental organizations and regulatory bodies such as the RBI. These regulations
govern various aspects of our business including loans and advances, investments, deposits, risk management, foreign
investment, corporate governance and market conduct, customer protection, foreign exchange management, capital adequacy,
margin requirements, know-your customer and anti-money laundering, and provisioning for NPAs. In recent years, existing
rules and regulations have been modified, new rules and regulations have been enacted and reforms have been implemented,
with an objective to provide tighter control and more transparency in India’s banking sector. As an SFB, we are required to
comply with such rules and regulations, which affect our business, operations, cash flows, profitability and financial condition.

Under the Operating Guidelines for Small Finance Bank dated October 6, 2016 issued by the RBI (“SFB Operating
Guidelines”), we are required to maintain a minimum capital adequacy ratio of 15% of the risk weighted assets (“RWAs”) on
a continuous basis, to be computed as per the Basel II norms prescribed by RBI, including a minimum Tier I capital of at least
7.5% of the RWAs, and the Tier II capital should be limited to a maximum of 100% of total Tier I capital. However, under the
SFB Operating Guidelines, we are not required to maintain any capital conservation buffer or any counter-cyclical capital
buffer. Our total capital to risk weighted asset ratio (CRAR) (as a percentage of RWA) was 43.40%, 40.22%, 35.44%, 40.63%
and 41.17% as of March 31, 2018, March 31, 2019 and March 31, 2020 as of December 31, 2019 and 2020, respectively.
Further, currently, we are required to maintain a cash reserve ratio (“CRR”) of 3% of our net demand and time liabilities
(“NDTL”) with the RBI until March 31, 2020 and RBI will issue separate guidelines for CRR to be maintained with effect
from 1 April 2020, on which no interest is paid. In addition, we are also required to maintain, under the current requirements,
a SLR equivalent to 18% of our NDTL, to be invested in state or central Government or other RBI-approved securities. We are
also required to extend 75% of our ANBC to the sectors eligible for classification as priority sector lending by the RBI. In
addition, under the SFB Operating Guidelines, at least 25% of our total Banking Outlets have to be located in unbanked rural
centres (“URCs”) and at least 50% of our loan portfolio is required to constitute loans and advances of up to 22.5 million.

Further, certain requirements that are applicable to SFBs in terms of the SFB Licensing Guidelines, SFB Operating Guidelines,
and other banking laws and regulations, are more stringent in comparison to scheduled commercial banks and non-banking
financial companies, and have and will continue to limit our ability to carry out certain businesses and improve our prospects,
in order to ensure compliance. In addition, the SFB model is relatively new to India, and uncertainty in the applicability,
interpretation or implementation of the governing law, specifically due to the absence of administrative or judicial precedent
may be time consuming as well as costly for us to resolve. Our inability to comply with laws and regulations applicable to an
SFB may have an adverse effect on our business, results of operations, financial condition and cash flows.

Strengthening our Retail Liability Franchise to contain Cost of Funds

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