Capital India Finance Ltd Management Discussions.

Your Company is a NBFC focused on providing bespoke financing solutions to its customers and has been in existence for more than two decades. At present, the Company falls within the category of "Non-Banking Finance Company - Systemically Important Non-Deposit taking Company". Your Company is registered with the Reserve Bank of India ("RBI" ) as a NBFC without accepting public deposits under section 45 IA of the RBI Act, 1934. Capital India is a professionally managed finance company with registered office at Delhi and Corporate office at Mumbai. Main objects of the Company are as under:

• To provide financial services of all kinds, including fund based financial services

• To carry on business, profession or vocation of acting as consultants, advisors for all matters

The Company focuses on being a partner credit institution and provides customised financial solutions to Indian Corporates and Enterprises for their growth and working capital requirements. Capital India has an in-house team of experts to evaluate, value and estimate marketability of all kinds of assets. Also, the enterprise-wide loan management system, OmniFin (developed by AS Software Services Private Limited), which provides single platform operational support such as risk management, documentation management and customer service and consequently enabling your Company to focus its resources on delivering quality services to the customers.

The Company primarily focuses on two business segments - Mid Corporate and Emerging Corporate / Small and Medium Enterprises (SME) for its financing activities. The Product portfolio of the Company primarily consists of Working Capital Loan, Project Finance, Loan Against Property, Project Finance - Real Estate and Structured Finance.

The Companys product suite is as follows:

Working Capital Loan

• Short-term financial support for hassle-free management of day-to-day operations.

 

• Easy option to cover recurring expenses like inventory management, accounts payable and payroll.

 

• Flexible options to cater to seasonal fluctuations in business.

Project Finance

• Capital funding to mid-range and emerging corporates, based on projected cash flows and sufficient collateral.

 

• Financial assistance for expansion, diversification, funding for capital expenditure and other growth-oriented strategies of businesses.

 

• Well-defined processes backed by credit appraisal and secured by project assets.

Loan Against Property

• Easy loans against property collateral for various corporate requirements, ranging from debt consolidation to take over of existing facilities.

 

• Equitable or registered mortgage over the financed property, with personal guarantee and corporate guarantee.

 

• Enhanced focus on collateral valuation and loan serviceability.

Project Finance - Real Estate

• Project-specific funding to facilitate the acquisition, construction and development of residential, commercial, retail, township and industrial real estate projects.

 

• Long-term loans for re-development projects and property development ventures.

Structured Finance

• Customized term loans, inter-corporate deposits, subscription to debt instruments and convertible preference shares.

 

• Tailor made structured financial services to support acquisitions, expansions, buyouts and diversifications.

 

• Promoter funding secured against property, pledge of marketable securities or fixed deposits, guarantee of corporate entity, owner or promoter, debt service reserve account, etc.

Vendor Finance

• Vendor Finance is a form of post-sale funding designed to finance genuine trade book debts for sale of goods / services with the comfort that the payment for the receivables financed will be received from the buyer of such goods / services at the end of the credit period

• Vendor Financing involves provision of credit to a supplier of a large corporate / Original Equipment Manufacturer (Anchor) against an accepted bill / invoice. Under this arrangement, the lender finances the existing receivable of a supplier for supplies already made to a large corporate / Anchor

 

• Vendor Financing is a generally revolving credit line and is liquidated by virtue of collection / repayment of the underlying receivables so financed

Our Strengths

We believe the following are our principal strengths:

Experienced, highly motivated and dedicated management team

We have an experienced, highly motivated and dedicated senior management team, with significant experience in the banking, financial services, consultancy and infrastructure sectors. Keshav Porwal, our Managing Director has approximately two decades of experience in the financing and real estate industry. Amit Sahai Kulshreshtha, our Executive Director and CEO has prior experience in investment banking, consulting and infrastructure sectors. Vineet Kumar Saxena, CEO of Capital India Home Loans, our subsidiary, has prior experience in the financial services sector, having been associated with Barclays Bank PLC, ICICI Personal Financial Services Limited and ICICI Bank Limited, among others. Our new and dynamic senior management team has already implemented a number of changes in the Company for steady growth of the business. One of the changes was to diversify our lending focus to become sector agnostic and lend with a focus on good quality collateral asset.

Institutional philosophy of prudent risk management controls through streamlined procedures

We maintain healthy and high-quality loan asset portfolio in synchronization with our institutional philosophy of lending against security and cash flows. We have instituted prudent and comprehensive risk management controls, policies, and procedures that are critical for the long-term sustainable development of our organization. Our risk management committee which is a Board level committee oversees and monitors the overall credit risk management framework. Our credit risk governance framework comprises of primarily three-units,

(i) our business teams, that generates lead;

(ii) the credit risk unit, that independently manages the risk, provides policy guidance, performs credit analysis, risk reporting and credit monitoring. Our credit risk unit comprises of various sub-units, such as credit underwriting, policy unit and portfolio monitoring unit, which are responsible for management of credit risks; and

(iii) the internal audit unit, which independently assesses the design and operational effectiveness of the entire credit risk management framework. Our credit risk governance framework incorporates the requirement of senior management and credit committee approval, with built-in escalation matrices at pre-defined credit thresholds, which enables us to ensure that high-ticket advances are sanctioned by our senior management.

We have implemented enterprise-wide loan management system, Omni Fin, which provides single platform operational support such as risk management, documentation management and customer service and consequently aids our decision making. We have integrated Omni Fin with services of third-party credit assessment service products, Periods - Insight to increase the operational efficiency of loan disbursement and risk assessment processes. We believe that our streamlined credit risk governance framework and loan management system have contributed to our operational efficiency and enhances our ability to take prudent credit decisions.

Our Strategies

Focus on Emerging Corporate / SME segment borrower category: Emerging corporate and SME players add to the growth story of India. As part of Portfolio diversification strategy, your company intends to lend to this segment which is fast growing and provides a healthy Portfolio on Companys balance sheet. Your Companys management has decade long experience in Financial services and understands this segment so as to lend judiciously.

Further strengthening credit assessment and risk management procedures: In line with our institutional philosophy of implementing prudent risk management controls, we continuously endeavor to strengthen various aspects of our credit and risk management, including credit assessment and due diligence procedures for appraisal of the borrowers credit worthiness and mitigation of the credit risk. We are committed to efficiently maintain healthy and high-quality loan asset portfolio.

In relation to origination and appraisal of our advances, we propose to continuously review and upgrade our credit risk governance framework, including enhancing our resources. In addition, we have integrated our loan management system, Omni Fin with services of third party credit assessment service products, such as Periods - Insight, which we believe would increase the operational efficiency of loan disbursement and risk assessment processes.

Leverage on the relationship and experience of our senior management for business growth: We intend to continue growth at a stable but steady pace. Therefore, instead of focusing on opening of new branches, we wish to leverage the experience and business relationships of our senior management to grow our business. Our new senior management has a diversified track record that can help us identify suitable customers across industries which meet our risk appetite. We also believe our senior managements acumen of the market trends, demands and industry developments, would enable us to adapt and take advantage of market opportunities.

RISK MANAGEMENT

Risk management forms an integral part of Companys business. As an NBFC, the Company is exposed to various risks related to its lending business and operating environment. The objective is to evaluate and monitor various risks that the Company is subject to and follow stringent policies and procedures to address these risks. Effective risk management forms the core of our business. Our credit risk management process encompasses astute underwriting, structuring & regulatory checks, coupled with appropriate credit & approval delegation & monitoring of the portfolio at regular interval. Our team of seasoned professionals continuously monitor risk and suggest early measures to control risk at minimum level. We have also established effective risk management systems, policies & internal controls to address various other types of risk viz operational risk, liquidity risk, market risk, compliance & regulatory risk. Our focus on developing sector expertise across our products segments help us in constantly monitoring event risks.

The Companys Risk Management Committee assists the Board in addressing various risks and discharges duties relating to corporate accountability. The Risk Management Committee reviews the effectiveness of risk management systems in place and ensure that they are effectively managed. It also provides an independent and objective oversight on corporate accountability and risks and considers reports of the Audit Committee on all categories of identified risks.

POSSIBLE THREATS

Our Industry has faced certain challenges in the period under review, related to Liquidity and defaults by Large Companies, therefore there may be significant roadblocks to the growth of the Company in shorter term. Default and delay by a number of large and small established financial companies is likely to cause certain short-term variances and may make it difficult for the Company to raise debt in near future. Even the fall in Interest rates have not boosted the Liquidity for NBFCs, and there has been instances of Rating downgrades of NBFC and certain Housing Finance Companies, of which Reliance Home Finance is the recent example.

Changes in interest rates are expected to have significant impact on the Companys business and operations. Finance costs are dependent on various external factors, including Indian and global credit markets and, in particular, interest rate movements and adequate liquidity in the debt markets. Changes in RBI reports could affect the interest charged on interest-earning assets and the interest rates paid on interest-bearing liabilities. Adverse conditions in the global and Indian economy resulting from economic dislocations or liquidity disruptions may adversely affect availability of credit, and decreased liquidity may lead to an increase in interest rates.

Despite recent push by the RBI, the resolution of stressed assets in the system is likely to take more time. Also, the effect of various loan waivers on credit culture in the rural areas is still to be seen.

Your Company acknowledges these possible negative factors and has a plan to mitigate them through its deep domain knowledge, strong risk framework and an efficient collection mechanism under the stewardship of the management team.

MOU with Union Bank of India for Loan Co-origination

Capital India Finance Limited, announced signing of Memorandum of Understanding with Union Bank of India ("Union Bank"), for Co-origination of loans under the Co-origination guidelines prescribed by Reserve Bank of India. This partnership enables the Company to cater to a large section of unserved customers in the small and emerging corporate segment through an efficient blend of economically priced and innovative financing solutions. This arrangement would entail joint contribution of credit at the facility level, by both lending partners, i.e. the Union Bank and the Company. It is envisaged that the benefit of low-cost funds from Banks and efficient operations of NBFC would be passed on to the borrower through adoption of blended products to suit the requirements of borrowers. The model envisages sharing of risks and reward between the Bank and the NBFC by ensuring appropriate alignment of respective business objectives. This arrangement will promote increase in the credit off-take in respective market and offer timely delivery of the credit at significantly lower cost.

The company is in discussion for similar partnerships with 2-3 other PSU banks as well.

Covid-19 - Pandemic of the Century

The SARS-Cov-2 virus responsible for COVID -19 continues to spread across the globe and India. It has contributed to a significant decline and volatility in global and Indian Financial Markets and a significant decrease in the economic activities. On 11th March 2020, the COVID-19 outbreak was declared as a global pandemic by the World Health Organization. On 24th March 2020, the Indian Government had announced a strict 21-day lockdown which kept on getting extended across the country with gradual and modest relaxations.

In accordance with the RBI guidelines relating to COVID-19 Regulatory Package, your Company granted a moratorium of three months on payments of installments and/or interest falling due between 1st March 2020 and 31st May 2020 to eligible borrowers. Till 31st March, 38.87 % of our loan book assets have been under moratorium. For such accounts where the moratorium is granted, the asset /Stage-wise classification shall remain stand still during the moratorium period. (i.e. the number of days past-due shall exclude the moratorium period for the purposes of asset classification).

The Company has recognized provisions as on 31st March 2020 towards its assets including loans based on the information available at the point of time including economic forecasts, in accordance with the Expected Credit Loss (ECL) method. The Company believes that it has considered all the possible impact of known events arising out of COVID 19 pandemic in the preparation of financial results. However, the impact assessment of COVID 19 is a continuing process given its nature and duration. We will continue to monitor for any material changes to future economic conditions and we keep performing stress testing of our books on a periodic basis implementing the updated economic scenario.

The breakout of the unexpected disease has brought us to a halt. However, these are the times when a robust business practice and preparedness is tested. We have ensured that our employees, customers, and businesses are least impacted in these extraordinary times.

Customers - We are proactively trying to service customers with every possible avenue. The team is actively in touch with customers via calls, emails, social media, and website. Our business team is reaching out to customers and educating them about the impact of moratorium and other policy decisions. Continuous discussions with customers has helped us in understanding their requirements better and keeping our Loan book free of any kind of stress in near future.

Businesses - The Covid-19 lockdown has not had any impact on our ability to render services to our customers or lenders. The Business and Credit teams are actively communicating with customers having high risk business profiles to jointly evaluate the best possible solution to mitigate the crises.

In our efforts for the health and well being of its employees, steps have been taken to ensure efficient workplace and have moved meetings and trainings to virtual formats. Frequent communication via emails and video calls to boost employee morale and create health awareness. After the Governments relaxation pertaining to financial services on 17th April 2020, we have opened our Registered Office at New Delhi with minimum employee strength. Our Mumbai office however remain closed till further notice from the Central and State Governments.

Government of India has announced a host of measures, as a part of its economic package "Atmanirbhar Bharat Abhiyan", to mitigate downside risks to macro risk due to COVID-19. These measures are a combination of short-term ones, directed to resolve immediate challenges and long-term measures directed at reforms in key end markets. While these measures are much needed to address the ongoing concerns of the economy, we are yet to see how soon they bring the pre-Covid normalcy in the economy. We, as a Group, would like to reiterate that we are committed to play our role in nation building and are prepared with our resources and expertise.