Utkarsh Small F.

Sound understanding of microfinance segment and presence in rural and semi-urban areas;

Growing deposits with focus on retail deposits;

Diversified distribution network with significant cross-selling opportunities;

Focus on risk management and effective operations;

Stable growth with cost efficient operational performance;

Leadership complementing its strengths.

The Bank is subject to stringent regulatory requirements and prudential norms of RBI and its inability to comply with such laws, regulations and norms may have an adverse effect on its business, results of operations, financial condition and cash flows.

After the completion of the Issue, its Promoter will continue to hold substantial shareholding in the Bank.

The bank is currently significantly dependent on its microbanking segment, particularly joint liability group ("JLG") loans, and any adverse developments in this segment could adversely affect its business, results of operations, financial condition and cash flows.

The Bank business is vulnerable to interest rate risk, and any volatility in interest rates or inability to manage interest rate risk could adversely affect its Net Interest Margins, income from treasury operations, business, financial condition, results of operations and cash flows.

The Bank Statutory Auditors have been debarred by the Reserve Bank of India from undertaking audit assignments for entities regulated by RBI for a period of two years with effect from April 1, 2022.

A significant portion of its advances in the microbanking segment are towards customers located in the states of Bihar and Uttar Pradesh, and any adverse changes in the conditions affecting the region can adversely impact its business, financial condition, results of operations and cash flows.

The bank has filed compounding applications on account of alleged non-compliance of the provisions of the Companies Act, 2013 relating to a public offering of securities on account of down-selling of NCDs allotted to an investor by the Bank, which may subject the Bank to, among other things, further regulatory actions.

The extent to which the recent coronavirus (COVID-19) pandemic impacts the Bank`s business, cash flows, results of the operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

The bank has a limited operating history as an SFB and its future financial and operational performance cannot be evaluated on account of its evolving and growing scale of operations. Accordingly, the company future results may not be reflective of its past performance.

The Bank operations involve handling significant amounts of cash, making it susceptible to operational risks, including fraud, petty theft and embezzlement, which could harm the bank results of operations and financial position.

The bank has a continuous requirement of funds and its inability to access sources of funds in an acceptable and timely manner or any disruption in the access to funds would adversely impact its results of operations, financial condition and cash flows.

The bank is subject to inspections by regulatory authorities, including by the RBI. Non-compliance with RBI inspection/ observations or other regulatory requirements or any adverse observations from such regulators may have a material adverse effect on its business, financial condition, results of operation or cash flows.

The Banking companies in India, including it, will be required to report financial statements as per Ind AS in the future. However, its Promoter, Utkarsh CoreInvest Limited, currently reports its financial statements under Ind AS and as a result, the bank is required to prepare select Ind AS financial information for the limited purposes of consolidation by Utkarsh CoreInvest Limited. Differences exist between Ind AS and Indian GAAP, which may be material to the investors` assessment of its financial condition.

The bank is required to comply with certain restrictive covenants under its financing agreements. Any non-compliance may lead to, amongst others, accelerated repayment schedule and suspension of further drawdowns, which may adversely affect its business, results of operations, financial condition and cash flows.

The bank is undertake certain fee and commission-based activities and its financial performance may be adversely affected by an inability to generate income from such activities.

Its non-convertible debentures are listed on BSE, and the bank is subject to strict regulatory requirements with respect to such listed non-convertible debentures. Also, in the past, there were certain inadvertent delays by it in making certain disclosures and regulatory filings to BSE and its inability in the future to comply with or any delay in compliance with such laws and regulations may have an adverse effect on the bank business, results of operations, financial condition and cash flows. Additionally, the trading in its non-convertible debentures may be infrequent, limited or sporadic, which may affect its ability to raise debt financing in future.

The bank is dependent on its Key Managerial Personnel, and the loss of, or the company inability to attract or retain, such persons could adversely affect its business, financial condition, results of operations and cash flows.

The Bank operations could be adversely affected by strikes, work stoppages or increased wage demands by the bank employees or any other kind of disputes with its employees.

Certain of its Directors and Key Managerial Personnel are interested in the Bank in addition to the remuneration and reimbursement of expenses. Further, its Promoter is also interested in the Bank in addition to its shareholding.

The bank has not paid dividend in the past on its Equity Shares. Its ability to pay dividends in the future will depend on its earnings, financial condition, working capital requirements, capital expenditures, regulatory guidelines and restrictive covenants of its financing arrangements.

The bank experienced negative cash flow from operating activities in the past. If its do not maintain positive cash flow, the bank cannot assure you that its will be able to sustain the bank growth or achieve profitability in future periods.

The bank deposits depend on a limited number of customers and a loss of such customers could materially and adversely affect its deposit portfolio, funding sources, financial condition, results of operations and cash flows. Further, a significant portion of its deposits from such customers are from the states and union territory of Maharashtra, NCT of Delhi, Uttar Pradesh and Haryana and any adverse change in the economy of such states could have an adverse effect on its financial condition, results of operations and cash flows.

The value of its collateral may decrease or its may experience delays in enforcing collateral when borrowers default on their obligations, which may result in failure to recover the expected value of collateral security exposing it to potential loss.

A majority of its advances, including the bank microbanking loan portfolio, are unsecured and are not supported by any collateral that could help ensure repayment of the loan. If its unable to recover such advances in a timely manner or at all, its financial condition, results of operations and cash flows may be adversely affected.

The Bank business relies extensively on its information technology systems and any weakness, disruptions or failures in such systems, or breach of data, could adversely affect the Bank perations and reputation.

You will not, without prior RBI approval, be able to acquire Equity Shares if such acquisition would result in an individual or group holding 5% or more of its share capital or voting rights; you may not be able to exercise voting rights in excess of 26% of the total voting rights of its Bank.

The Bank inability to renew or maintain its statutory and regulatory permits and approvals required to operate the bank business may adversely impact its business, financial condition and results of operation.

The bank is exposed to operational and credit risks which may result in NPAs. If its unable to control the level of NPAs in the bank portfolio or if its unable to improve the bank provisioning coverage as a percentage of Gross NPAs, its business, financial conditions, results of operations and cash flows could be adversely affected.

The bank has recently introduced new products and services and its cannot assure you that such productsand services will be profitable in the future. Further, its may not be able to successfully diversify its product portfolio or enter into new lines of business, which may materially and adversely affect its business prospects and impact the bank future financial performance.

The Indian banking industry is very competitive and if its unable to compete effectively it would adversely affect its business, financial condition, results of operations and cash flows.

The RBI may remove any employee, managerial personnel or may supersede the Bank`s Board of Directors in certain circumstances, which may materially affect the Bank`s business, results of operations, and financial conditions.

An inability to effectively manage its growth and expansion may have a material adverse effect on its business prospects and future financial performance.

The bank has a high proportion of bulk deposits. A partial or complete withdrawal of such deposits by any of its customers could adversely affect the business, results of operations and financial condition.

The Bank and its Promoter are involved in certain legal proceedings, any adverse developments related to which could materially and adversely affect its business, reputation and cash flows.

The bank depends on its brand recognition. Negative publicity, failure to maintain and enhance awareness of its brand would adversely affect its ability to retain and expand its base of customers.

All the Banking Outlets are on leased premises and the bank may enter into new lease arrangements for additional Banking Outlets. Any inability on its part to identify suitable premises or enter into or renew lease agreements on terms acceptable to it, may have an adverse effect on its operations.

Weakness or failures of the Bank internal control system may cause significant operational errors, which may in turn materially and adversely affect its business.

The Bank business correspondents are responsible for, among other things, sourcing and servicing of customers for its loans on a non-exclusive basis. If these business correspondents prefer to promote the Bank competitors` microfinance loans or its agreements with them are terminated or not renewed it would adversely affect the Bank business, financial condition, results of operations and cash flows.

The Bank has in this Draft Red Herring Prospectus included certain non-GAAP financial measures and certain other selected statistical information related to its operations and financial performance. These non-GAAP measures and statistical information may vary from any standard methodology that is applicable across the financial services industry, and therefore may not be comparable with financial or statistical information of similar nomenclature computed and presented by other financial services companies.

If the Bank risk management policies are ineffective, it could adversely affect its business, financial condition, results of operations and cash flows.

Any adverse developments in the segments its operate in, such as retail, wholesale, and housing, could adversely affect its business and results of operations.

The bank has, in the past, failed to make timely regulatory filings and there have been irregularities in certain regulatory filings made with the RoC under applicable law. Further, certain of its regulatory records are not traceable.

Any non-compliance with mandatory AML, KYC and CFT laws and regulations could expose it to liability and harm its business and reputation.

The Bank intellectual property rights may be subject to infringement or its may breach third party intellectual property rights. If the bank fail to successfully enforce the Bank intellectual property rights, its business, results of operations and cash flows would be adversely affected.

The Bank inability to grow the bank CASA deposits and CASA ratio may result in higher cost of deposits and impact its financial condition and cash flows.

The Bank insurance coverage may be inadequate to cover claims. If the bank incur substantial uninsured loss or loss that exceeds its insurance coverage, it could have a material adverse effect on its business, cash flows, results of operations and financial condition.

The bank is required to reduce its Promoter`s shareholding in the Bank to 26% of its paid-up voting equity share capital in the long run. The bank cannot assure you that any required consent, approval, waiver or clarification will be received in a timely manner, or at all, to enable its Promoter to reduce its shareholding as required.

The Bank has issued Equity Shares during the preceding one year at a price that may be below the Issue Price.

The SFB model is relatively new to India, and such operations pose various business and financial challenges.

The bank may face cyber threats attempting to exploit its network to disrupt services to customers and/ or theft of sensitive internal data or customer information, which may cause damage to its reputation and adversely affect its business and financial performance.

The bank has certain contingent liabilities that have not been provided for in its financial statements, which, if they materialize, may adversely affect its results of operations, financial condition and cash flows.

The Bank Statutory Auditors have included emphasis of matters in the bank audited financial statements as of and for the years ended March 31, 2022, 2021 and 2020.

The bank failure to adapt to technological advancements that can potentially disrupt the banking industry could affect the performance and features of its products and services and reduce its attractiveness to customers. Further, the bank success depends on its ability to respond to new technological advances.

The Bank may face asset liability mismatches, which could affect the bank liquidity and consequently may adversely affect its operations and profitability.

Increasing regulatory focus on personal information protection could impact its business and expose it to increased liability.

Any downgrade of its credit ratings could adversely affect the bank business.

The bank has in the past entered into related party transactions and may continue to do so in the future, which may potentially involve conflicts of interest.

Certain Directors of the Bank may be associated with companies engaged in similar lines of business as the Bank. Any conflict of interest which may occur between its business and the activities undertaken by such companies, could adversely affect its business, prospects, results of operations and financial condition.

The bank utilize the services of certain third parties for its operations. Any deficiency or interruption in their services could adversely affect its business and reputation.

The bank operations depend on the accuracy and completeness of information about customers and counterparties which if inaccurate or materially misleading could adversely affect its business and results of operations. Further, high levels of customer defaults could adversely affect its business, results of operations, financial condition and cash flows.

The bank funding requirements and the proposed deployment of Net Proceeds have not been appraised and its management will have broad discretion over the use of the Net Proceeds.

The bank business activities are subject to seasonality, which may contribute to fluctuations in its results of operations and financial condition.

The Fresh Issue size may be reduced to the extent of the Pre-IPO Placement being considered by it.

The bank customers may engage in certain transactions in or with countries or persons that are subject to U.S. and other sanctions.

Industry information included in this Draft Red Herring Prospectus has been derived from an industry report prepared by CRISIL Limited which has been commissioned and paid for by it by the bank for such purpose.