ADVIK CAPITAL AT GLANCE
Advik Capital Limited, headquartered at New Delhi is one of the emerging non-deposit
taking Non-Banking Finance Company (NBFC) registered with the Reserve Bank of India
bearing Registration No. B-14.00724. Our Company is engaged primarily in the business of
providing financial loans and in providing ancillary services. In addition to this the
Company is a listed entity and its equity shares are frequently being traded at the Bombay
Stock Exchange Limited (BSE) with Scrip Code : 539773.
The Company is carrying on the business of investing funds, assisting the financial
accommodation by way of loans/advances to the industrial concerns and undertaking the
business of leasing and to finance lease operations of all kinds, purchasing, selling,
hiring or letting on hire or all kinds of plants and machinery, bridge loan to corporates,
investment in emerging businesses, their securities, interests and other rights. Very
recently the Company is exploring and evaluating various other business avenues in
personal and consumer finance space.
In our thirty-seven years of journey, we have transformed our operations by building a
diversified product portfolio, establishing a strong geographic presence, and serving a
large customer base.
SUBSIDIARIES OF ADVIK CAPITAL
1. In year 2013, the Company had formed a subsidiary in the name of Advik
Optoelectronics Limited (CIN : U31900DL2013PLC256393) to further diversify activities of
trading and manufacturing of electronic products which is an unlisted pubic company.
Advik Optoelectronics Limited is engaged in the business of manufacturing of various
kinds of emergency life safety signage, evacuation system made of phosphorescent effect,
photo luminescent, glow sign board, led board, led electronic board, life safety apparels,
road safety signage, lights, emergency lights and equipment.
2. Further, in year 2022, Our Company formed a wholly owned subsidiary in the name of
Advikca Finvest Limited (CIN : U65900DL2022PLC406590) to deal in the securities market and
investment consultants. Presently, our Company holds 100% of the total issued and paid-up
share capital of the Advikca Finvest Limited (6 Equity Shares held by the Nominee
Shareholders).
Advikca Finvest Limited is engaged in the business to deal in shares, securities, right
interests, obligation in movable and immovable assets of all kind, with infinite
technology, advanced techniques and to acquirer, buy, sell, hold, trade, dispose of or
otherwise deal in shares.
EFFECT OF COVID-19 PANDEMIC
The beginning of financial year 2022-23 (FY2023) was once again dominated by the
COVID-19 pandemic as new waves of infection swept across the world. The highly
transmissible variant Omicron (the third wave) spread rapidly across the world. During
this wave, Indias daily number of reported cases peaked. Faced with the prospect of yet
more lockdowns, there was fear that the world would face yet another year of slow economic
growth. Fortunately, while highly transmissible, Omicron was not as lethal as Delta. So,
while many got infected, fatality rate was fortunately low.
This pandemic has inflicted enormous pain and suffering to individuals and corporates
alike across the world. However, it gave the world an opportunity to reinvent itself to
adapt to new ways of life and business. COVID-19 was a real test of resilience and agility
for every business. Corporations that have successfully adapted the challenges thrown by
COVID-19 have become more resilient and prepared to weather future disruptions. It was not
just the corporate sector that has been forced to rapidly adapt. Public services
organisations, regulators, governments, and local administrations have demonstrated their
potential to adapt and overcome.
IMPACT OF COVID-19 ON NON-BANKING FINANCIAL SECTOR
COVID-19 pandemic led to a slowdown in the economic activity across the globe. To curb
the increasing infection, several countries-imposed lockdowns to a varying degree. Due to
these lockdowns and the subsequent restriction in mobility, business across the world got
impacted. One of the worst hit sectors the NBFC lending business.
The COVID-19 pandemic has deeply impacted the NBFC sector. As the impact on the real
sector spilled over to financial markets, NBFCs witnessed a sharp drop in collections and
disbursements and a substantial increase in the cost of their borrowings even as access to
market funding became restricted. The provision of moratorium also had an impact on their
cash inflows, resulting in reduction in collections. Timely measures on monetary, fiscal,
and regulatory fronts by the Reserve Bank and the government aided their revival, eased
financial conditions and bolstered market sentiments. From FY 2020-21 onwards, the
situation improved, aided by policy support. Many NBFCs also recalibrated their business
strategies, leveraging on digital technology with a strong emphasis on data analytics. The
NBFC sector faced headwinds again when the second wave hit the country by March 2021. With
the passing of the second wave, the outlook is brightening again; however, downside risks
remain significant.
NBFCs have a competitive edge in their superior understanding of regional dynamics,
well-developed collection systems and personalised services in the drive to expand
financial inclusion in India. Lower transaction costs, quick decision making, customer
orientation and prompt provision of services have typically differentiated NBFCs from
banks. The reach and last mile advantages of NBFCs have empowered them with agility,
innovation and a cutting edge in providing formal financial services to underbanked and
unserved sections of the society.
GLOBAL ECONOMY AT LARGE
The global economy is yet again at a highly uncertain moment, with the cumulative
effects of the past three years of adverse shocksmost notably, the COVID-19 pandemic and
Russias invasion of Ukrainemanifesting in unforeseen ways. Spurred by pent-up demand,
lingering supply disruptions, and commodity price spikes, inflation reached multidecade
highs last year in many economies, leading central banks to tighten aggressively to bring
it back toward their targets and keep inflation expectations anchored.
Although telegraphed by central banks, the rapid rise in interest rates and anticipated
slowing of economic activity to put inflation on a downward path have, together with
supervisory and regulatory gaps and the materialization of bank-specific risks,
contributed to stresses in parts of the financial system, raising financial stability
concerns. Banks generally strong liquidity and capital positions suggested that they
would be able to absorb the effects of monetary policy tightening and adapt smoothly.
However, some financial institutions with business models that relied heavily on a
continuation of the extremely low nominal interest rates of the past years have come under
acute stress, as they have proved either unprepared or unable to adjust to the fast pace
of rate rises.
The unexpected failures of two specialized regional banks in the United States in
mid-March 2023 and the collapse of confidence in Credit Suissea globally significant bank
have roiled financial markets, with bank depositors and investors re-evaluating the safety
of their holdings and shifting away from institutions and investments perceived as
vulnerable. The loss of confidence in Credit Suisse resulted in a brokered takeover.
Despite strong policy actions to support the banking sector and reassure markets, some
depositors and investors have become highly sensitive to any news, as they struggle to
discern the breadth of vulnerabilities across banks and nonbank financial institutions and
their implications for the likely near-term path of the economy. Financial conditions have
tightened, which is likely to entail lower lending and activity if they persist.
With the recent increase in financial market volatility and multiple indicators
pointing in different directions, the fog around the world economic outlook has thickened.
Uncertainty is high, and the balance of risks has shifted firmly to the downside so long
as the financial sector remains unsettled. The major forces that affected the world in
2022 central banks tight monetary stances to allay inflation, limited fiscal
Inflation Is Declining with Rapid Rate Rises but Remains Elevated amid Financial Sector
Stress
Global headline inflation has been declining since mid-2022 at a three-month seasonally
adjusted annualized rate (Figure 1.3). A fall in fuel and energy commodity prices,
particularly for the United States, euro area, and Latin America, has contributed to this
decline. To dampen demand and reduce underlying (core) inflation, the lions share of
central banks around the world have been raising interest rates since 2021, both at a
faster pace and in a more synchronous manner than in the previous global monetary
tightening episode just before the global financial crisis. This more restrictive monetary
policy has started to show up in a slowdown in new home construction in many countries.
Inflation excluding volatile food and energy prices has been declining at a three-month
rate although at a slower pace than headline inflation in most (though not all) major
economies since mid-2022.
The effects of earlier cost shocks and historically tight labor markets are also
translating into more persistent underlying price pressures and stickier inflation. The
labor market tightness in part reflects a slow post-pandemic recovery in labor supply,
with, in particular, fewer older workers participating in the labor force (Duval and
others 2022). The ratios of job openings to the number of people unemployed in the United
States and the euro area at the end of 2022 were at their highest levels in decades. At
the same time, the cost pressures from wages have so far remained contained despite the
tightness of labor markets, with no signs of a wage-price spiral dynamicin which both
wages and prices accelerate in tandem for a sustained period taking hold. In fact, real
wage growth in advanced economies has been lower than it was at the end of 2021, unlike
what took place in most of the earlier historical episodes with circumstances similar to
those prevailing in 2021, when prices were accelerating and real wage growth was
declining, on average.
Inflation expectations have so far remained anchored, with professional forecasters
maintaining their five-year ahead projected inflation rates near their pre-pandemic
levels. To ensure this remains the case, major central banks have generally stayed firm in
their communications about the need for a restrictive monetary policy stance, signaling
that interest rates will stay higher for longer than previously expected to address sticky
inflation.
TYPES OF NBFCS
Type of NBFC |
Nature of activity / Principal business |
| Investment and Credit Company (ICC) |
Lending and investments. |
| Infrastructure Finance Company (IFC) |
Providing loans for infrastructure development. |
| Infrastructure Debt Fund (IDF) |
Facilitate flow of long-term debt to infrastructure projects. |
Core Investment Company (CIC). |
Investment in equity shares, preference shares, debt, or loans of group
companies. |
NBFC - Micro Finance Institution (NBFC - MFI) |
Collateral free loans and advances to small borrowers. |
| NBFC Factor |
Factoring business i.e., financing of receivables. |
Non-Operative Financial Holding Company (NOFHC) |
For setting up new banks in private sector through its promoter/promoter
groups. |
| Mortgage Guarantee Company (MGC) |
Providing mortgage guarantees for loans. |
Asset Reconstruction Company (ARC) |
Acquiring and dealing in financial assets sold by banks and financial
institutions. |
Peer-to-Peer Lending platform (P2P) |
Providing an online platform to bring lenders and borrowers together to
help mobilise funds |
Account Aggregator (AA) |
Collecting and providing information about a customers financial assets
in a organised and retrievable manner to the customer or others as specified by the
customer. |
| Housing Finance Company (HFC) |
Financing for housing. |
In October 2021, RBI decided to classify NBFCs based on size and risk perception using
Scale Based Approach The Filtering Process by segregating NBFCs into four categories
namely NBFC Base Layer (BL), NBFC Middle Layer (ML), NBFC Upper Layer (UL), and NBFC Top
Layer (TL).
CLASSIFICATION OF NBFCS
NBFC BL |
NBFCs with asset size of not more than Rs. 10 billion, Type 1 NBFC, Peer
to Peer (P2P), Account Aggregator (AA), and Non-Operative Financial Holding Company
(NOFHC) |
NBFC ML |
NBFC-ND that are systematically important (SI) having an asset size of
less than Rs. 10 billion and also NBFC-HFCs, IFCs, IDFs, CICs, and Standalone Primary
Dealers irrespective of their asset size |
NBFC UL |
Top NBFCs to be filtered based on their size & leverage,
inter-connectedness, complexity, and superior inputs (including group structure, liability
mix, and segment penetration). |
| NBFC TL |
Top Layer will remain empty unless RBI takes a view on specific NBFCs in
the Upper Layer |
Additionally, Investment and Credit Companies (NBFC-ICC), Micro Finance Institution
(NBFC-MFI), NBFC-Factors and Mortgage Guarantee Companies (NBFC-MGC) that can be
classified under any layer of the regulatory structure depending on the parameters of the
scale based regulatory framework. Government owned NBFCs can only be classified under base
layer or middle layer.
Further, as per RBIs notification as on October 11, 2022 titled "Multiple NBFCs in
a Group: Classification in Middle Layer". NBFCs that are part of a common Group or
are floated by a common set of promoters are required to be viewed on a consolidated
basis. For the consolidation of assets of the NBFCs in a Group, the total assets of all
the NBFCs in a Group shall be consolidated to determine the threshold for their
classification in the Middle Layer.
INDIAS FINANCIAL SERVICES SECTOR
Wide-ranging financial sector reforms in India were introduced as an integral part of
the economic reforms initiated in the early 1990s. Financial sector reforms in India were
grounded in the belief that competitive efficiency in the real sectors of the economy will
not be realized to its full potential unless the financial sector was reformed as well.
Non-banking financial sector grew rapidly, but there was no regulation of their asset
side. Financial markets were characterized by control over pricing of financial assets,
barriers to entry, high transaction costs and restrictions on movement of
funds/participants between the market segments. Apart from inhibiting the development of
the markets, this also affected their efficiency.
Reforms in financial markets focused on removal of structural bottlenecks, introduction
of new players/instruments, free pricing of financial assets, relaxation of quantitative
restrictions, improvement in trading, clearing and settlement practices, more
transparency, etc. Reforms encompassed regulatory and legal changes, building of
institutional infrastructure, refinement of market microstructure and technological
upgradation. In the various financial market segments, reforms aimed at creating liquidity
and depth and an efficient price discovery process.
OVERVIEW OF THE NON-BANKING FINANCIAL INSTITUTIONS
Non-Banking Lenders have witnessed exponential growth in the last decade driven largely
by regulatory reforms and their ability to cater to unbanked areas through innovative
products and service delivery mechanisms. This was further supported by their effective
collection platforms. Today, non-bank lenders constitute about 25% (over INR 35.9 lakh
crore as on Sept-2019) of the systemic credit outstanding and have financed over 10 crore
customers drawing strength from their extensive footprint largely in rural and semi-urban
areas (70% of total branches).
Non-bank lenders form an integral part of the Indian financial ecosystem. They provide
underbanked / unbanked individuals and MSMEs an opportunity to be a part of the financial
mainstream. They have been successful in bridging the credit gap for the entire spectrum
of customers ranging from high ticket structured loans to corporates / HNIs to
microfinance customers, due to their higher risk underwriting capacity, superior credit
assessment skills and deep understanding of customers. They have emerged as a vehicle for
financing business activities that Banks neglected due to regulatory restrictions such as
credit exposure constraints and sector concentration norms.
Non-bank lenders collaborate with banks through various modes like securitization,
on-lending, and business correspondents to complement credit dissemination by underwriting
small ticket loans to the agriculture sector and MSMEs. Over the years, non-bank lenders
have also acquired a skill-based arbitrage over banks due to continuous innovation in
their business model and processes that rely on surrogate non-financial information, use
of third-party sales channels and collection processes.
Furthermore, non-bank lenders have gained market share from banks in key segments such
as retail consumer loans, lending to micro small enterprises, vehicle loans and housing
loans. They have been able to capture share by catering to underserved and unbanked
customer segments.
However, over the past two years, the non-banking finance sector came under stress due
to multiple adverse events which impacted growth and profitability. COVID-19 has further
amplified the stress in the system. Loan volumes for most of the non-bank lenders have
come down considerably, particularly for lenders who are directly competing with banks and
have limited pricing power.
Non-bank lenders play an important role in the economy by financing micro and
small-scale industries (informal sector) and provide employment and entrepreneurial
opportunities at a ground level. Banks prefer lending to entities with stronger balance
sheets or to lower risk segments such as the salaried class of people. Non-bank lenders
support financially weaker sections of society by channelizing financial resources to
capital formation. A large share of their assets (45%) is deployed into retail, MSME and
vehicle finance segments.
Vehicle loans credit, the largest segment in retail loans, witnessed reduction in share
during 2020-21 owing to disruption of activity while the share of lending against gold
doubled.
The standard process adopted by the company from sourcing to collection is summarised
as under:
1. Credit Appraisal Process The credit appraisals are based on;
Need for credit : the borrowers need for credit will be assessed, as per the
context of the product segment. The intent is to ensure that the credit is targeted for
use in a constructive way, to improvements to the borrowers earning or to improve the
quality of life.
Affordability : an assessment of the borrowers ability to service the loan will
be conducted in all cases. While the assessment methodology may vary across product, the
intent is always to set product features such as the disbursal amount and tenure such that
the loan is affordable (within the context of the product).
Credit rating : the borrowers credit history, and track record in managing
debt, will be considered in all applications.
2. Credit Pricing - Credit will be priced after considering our cost of funds,
expected credit cost and the operational cost. Pricing may be varied through the term of
the loan or credit facility, based on product needs. In addition to fixed rate loans,
interest rates may be floating and reset to reflect market conditions during the term of
the loan.
3. Security, insurance and charge We may require creation of enforceable charge over
the borrowers/ third party assets in favour of our Company, before the disbursement of a
loan.
4. Credit Administration and Monitoring - We have a credit administration and
monitoring framework which enables us to effectively identify and mitigate risks
associated with clients portfolios and mark such account as early stressed account and if
required limit the exposure and/or accelerate the repayment schedule of the loan of such
client.
5. Collections and Recoveries We except our clients to regularly serve the interest
portion and /or the Principal amount; failing which we are required to move legally
against such defaulting client.
OUR BUSINESS STRATEGY
Maintain and Expand Long-term Relationships with Clients
Our Company believes that business is a by-product of relationship. The business model
is based on client relationships that are established over period of time rather than a
project-based execution approach. Our Company believes that long-term client relationship
fetches better dividends. Long-term relations are built on trust and continuous
satisfaction of the customers. It helps understanding the basic approach of our Company,
its products and its market. It also forms basis of further expansion for our Company, as
we are able to monitor a potential product/ market closely.
Leveraging of our Marketing Skills and Relationships
We continue to enhance our business operations by ensuring that our network of
customers increases through our marketing efforts. Our core competency lies in our deep
understanding of our customers buying preferences and behavior, which has helped us in
achieving customer loyalty. We endeavor to continuously improve the product mix offered to
the customers as well as strive to understand and anticipate any change in the expectation
of our clients towards our products.
Diversified credit profile, strong credit evaluation and risk management systems
We seek to diversify our credit risk and ensure that no individual credit product
contributes a large portion to our overall credit book. We believe that this mitigates the
risk of concentration to any particular product or sector and helps us to manage our risk
exposure in a more effective manner.
Diversify our assets and liabilities
We intend to remain diversified in our loan book by strategically focusing on adjacent
high growth and profitable lending businesses and further expand our lending and other
businesses. We intend to continue to focus on developing a diversified funding model to
achieve optimal cost of funds while balancing liquidity and concentration risks. As our
cost of borrowings is determined by our financial discipline and business performance, we
intend to source funding at competitive rates. In particular, with respect to our credit
business, a decrease in cost of borrowings will enable us to price our products in a more
competitive manner. We intend to further diversify and strengthen our profile,
strategically adding additional funding resources.
Growth of the business through increasing geographical presence across India
We intend to continue to grow our loan portfolio by expanding our network through the
addition of new branches. A good reach to customers is very important in our business.
Increased revenue, profitability and visibility are the factors that drive the branch
network. Our strategy for branch expansion includes further strengthening our presence in
various parts of India by providing higher accessibility to customers.
RISK & Threats
Management of Advik Capital Limited contemplates the following as risk and threats to
its business, namely
1. Being a NBFC, we are subjected to supervision and regulation by the RBI, and any
changes in RBIs regulations governing us would affect our business.
2. We depend on the accuracy and completeness of information about customers and
counterparties for certain key elements of our credit assessment and risk management
process, any misrepresentation, errors in or incompleteness of such information could
adversely affect Companys business and financial performance.
3. Since we are evolving business and thus it makes difficult to evaluate our business
and future operating results on the basis of our past performance, and our future results
may exceed or may not meet our past performance.
4. Our financial performance is particularly vulnerable to interest rate volatility. We
need to continuously manage interest rate risk.
5. High levels of customer defaults or delays in repayment of loans. We may not be able
to recover, on a timely basis or at all, the full value of collateral or amounts which are
sufficient to cover the outstanding amounts due under defaulted loans. .
6. Our indebtedness and the conditions and restrictions imposed by our financing
agreements could restrict our ability to conduct our business and operations in the manner
we desire.
7. We face increasing competition in our business which may result in declining margins
if we are unable to compete effectively.
Our Strength
Experienced Leadership Team
Our company is managed by people who have a proven track record of delivering results
& they possess the right acumen necessary in the build out phase of any organisation.
Our senior management have diverse experience in various financial services and functions
related to our business. We believe that the knowledge and experience of our senior and
mid-level management team members provides us with a significant competitive advantage as
we seek to grow our business and expand to new geographies.
Strong Corporate Governance Standards
Creating an institution that is built to last requires strong corporate governance
standards. The governance standards are further strengthened by strong policies and
processes enshrined in the Articles of Association and strong human resource. We have
successfully placed process of credit evaluation, risk management, technology upliftment
and business development. Further, we believe in fair trade practices and follow high
standards of governance in managing the business of the Company.
Marketing
We have dedicated marketing teams who cater to the demands of the customers and ensure
that tailor made solutions are offered to attract and retain the customers.
Competition
We face competition from organized as well as unorganized players in the domestic
market. The financial services industry is highly competitive and we expect competition to
intensify in the future. We face competition in the lending business from domestic and
international banks as well as other NBFCs, fintech lending platforms and private
unorganized lenders. Banks are increasingly expanding into retail loans in the rural and
semi-urban areas of India. We are exposed to the risk that these banks continue to expand
their operations into the markets in which we operate, which would result in greater
competition and lower spreads on our loans. In particular, many of our competitors may
have operational advantages in terms of access to cost-effective sources of funding and in
implementing new technologies and rationalising related operational costs.
Employees
We believe our human capital is one of our most important strengths and a key driver of
growth, efficiency and productivity. We invest in developing our talent and leadership
through various initiatives aimed at strengthening the ability of our managers to bring
together people, strategies, and execution to drive business results.
Corporate Social Responsibility
The Companys CSR mission is to contribute to the social and economic development of
the community through a series of efforts. Companys strategy is to integrate its
activities in community development, social responsibility and environmental
responsibility and encourage each business unit or function to include these
considerations into its operations. The Company, for Corporate Social Responsibility
activities, endeavours to promote education and ensure environmental sustainability/
ecological balance etc.
HUMAN RESOURCES AND WORK CULTURE
Your Company is focussed on building a high-performance culture with a growth mindset
where employees are engaged and empowered to be the best they can be. Developing and
strengthening capabilities of all employees in your Company has remained an ongoing
priority.
INTERNAL CONTROL SYSTEMS
Your Company has in place adequate internal financial controls. Such controls have been
tested during the year and no reportable material weakness in the design or operation was
observed. Nonetheless your Company recognizes that any internal financial control
framework, no matter how well designed, has inherent limitations and accordingly, regular
audit and review processes ensure that such systems are reinforced on an ongoing basis.
Your Company has also put in place comprehensive systems and procedural guidelines
concerning other areas of business, which are adequate and necessary considering the size
and level of operations of the Company. The management has been making constant efforts to
review and upgrade existing systems and processes to gear up and meet the changing needs
of the business.
CAUTIONARY STATEMENT
This Statement contains forward-looking statements about the business, financial
performance, skills and prospects of the Company. Statements about the plans, intentions,
expectations, beliefs, estimates, predictions or similar expressions for future are
forward-looking statements. Forward-looking statements should be viewed in the context of
many risk issues and events that could cause actual performance to be different from that
contemplated in the Directors Report and Management Discussions and Analysis Report.
Actual results could differ materially from those expressed or implied.
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