Karnavati Finance Ltd Management Discussions.


Kamavati Finance Limited (KFL) is a Non-Banking Finance Company ("NBFC"), holding a Certificate of Registration from the Reserve Bank of India ("RBI"). The KFL is non- deposit accepting NBFC engaged in financial services. The market for this activity offers high potential for growth. The company is giving loan including personal loan, business loan, vehicle loan and loan against property to individuals as well as non-individual customers and also providing services of money changing via. FFMC License and is operating from Mumbai having its corporate office in Jamnagar.

More than half of personal savings in India are invested in physical assets such as land, houses, cattle and gold.

The Indian money market is classified into:

a) The organized sector (comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks); and

b) The unorganized sector (compromising individual or family owned indigenous bankers or money lenders and nonbanking financial companies (NBFCs). The unorganized sector and microcredit are still preferred over traditional banks in rural and sub-urban areas, especially for non-productivity purposes, like ceremonies and short duration loans.

Since liberalization, the government has approved significant banking reforms. While some of these relate to nationalized banks (like encouraging mergers, reducing government interface and increasing profitability and competitiveness) other reforms have opened up the banking and insurance sectors to private and foreign players.

Non-Banking Financial Companies (NBFC) are an integral part of the Indian Financial system, augmenting competition and diversification in the financial sector and complementing the banking system. The Indian NBFC sector has been providing credit to customers in the underserved and unbanked areas. Their channeling the savings and investments of customers and the subsequent capital formation is necessary for Indias economic growth and development. Their ability to innovate products in conformity with the needs of their clients is well established.


The global economy is set to expand 5.6 percent in 2021—its strongest post-recession pace in 80 years. This recovery is uneven and largely reflects sharp rebounds in some major economies—most notably the United States, owing to substantial fiscal support—amid highly unequal vaccine access. In many emerging market and developing economies (EMDEs), elevated COVID-19 caseloads, obstacles to vaccination, and a partial withdrawal of macroeconomic support are offsetting some of the benefits of strengthening external demand and elevated commodity prices. By 2022, global output will remain about 2 percent below pre-pandemic projections, and per capita income losses incurred last year will not be fully unwound in about two-thirds of EMDEs. The global outlook remains subject to significant downside risks, which include the possibility of large COVID-19 waves in the context of new virus variants and financial stress amid high EMDE debt levels. Controlling the pandemic at the global level will require more equitable vaccine distribution, especially for lowincome countries. The legacies of the pandemic exacerbate the challenges facing policy makers as they balance the need to support the recovery while safeguarding price stability and fiscal sustainability. As the recovery becomes more entrenched, policy makers also need to continue efforts toward promoting growth-enhancing reforms and steering their economies onto a green, resilient, and inclusive development path

Uncertainly about the length and depth of this health crisis propelled economic and financial crisis. Very well respected studies have suggested that emerging market and developing economics could suffer output losses of 3-8 percent in the short term.


In India, the pandemic hit the economy at a time when growth was already decelerating. Indias economy is estimated to contract by 9.6 per cent in the fiscal year 2020-21, reflecting a sharp drop in household spending and private investment, and the growth is expected to recover to 5.4 per cent in 2021.

In its Global Economic Prospects report, the World Bank said that the informal sector, which accounts for four-fifths of employment, has been subject to severe income losses during the Covid-19 pandemic.

In India, growth is expected to recover to 5.4 per cent in 2021, as the rebound from a low base is offset by muted private investment growth given financial sector weaknesses.In the financial sector, non-performing loans were already high before the pandemic.

The informal sector, which accounts for four-fifths of employment, has also been subject to severe income losses during the pandemic. Recent high-frequency data indicate that the services and manufacturing recovery are gaining momentum.


Non-banking finance companies (NBFCs), an integral component of the Indian lending ecosystem, could see a major impact of COVID-19 on their liquidity position and asset liquidity in the financial year 2020-21 due to complete halt of economic activity due to massive lockdown. Before the coronavirus outbreak, RBI and the government took several measures to support NBFCs since August 2019, especially after credit crisis and confidence crisis in the NBFC sector, due to default by some major financial institutions in Infra sector. The COVID-19 pandemic clipped the recovery. Small and medium sized NBFCs are most at risk due to disruption caused by the COVID-19 pandemic. The central bank has sought to cushion borrowers and lenders against the coronavirus outbreak effect, allowing companies a six month grace period on loan repayments. In last 2 months, several measures have been taken by RBI and Finance Ministry to boost liquidity and economy as follows;

Measures taken by RBI

Repo Rate and Reverse Repo Rate: RBI keeps Repo Rate unchanged at 4.00%. Reverse repo rate also remains unchanged at 3.35%.

CRR: it has been decided to gradually restore the CRR in two phases in a non-disruptive manner. Accordingly, banks are required to maintain the CRR at 3.50 per cent of their NDTL effective from the reporting fortnight beginning March 27, 2021 and 4.00 per cent of their NDTL effective from fortnight beginning May 22, 2021.

The minimum daily CRR balance requirement was reduced from 90.0% to 80.0% effective from the fortnight beginning March 28, 2020. This was allowed up to September 25, 2020.

Banks and other lending institutions were allowed to provide a moratorium on all term loans (including agriculture term loans, retail and crop loans). Initially the moratorium was permitted for three months on payment of installments falling due between March 1, 2020 to May 31, 2020, which was subsequently extended by another three months to August 31, 2020. Interest would continue to accrue on the outstanding portion of the term loan during the moratorium period. Installments include principal and/or interest component, bullet repayments, equated monthly installments and credit card dues.

Loan Moratorium: In March, RBI Governor announced that lenders could give a moratorium of 3 months from March 2020 to May 2020 which was further extended by 3 months in May 2020 from June 2020 to August 2020 on repayment of all term loans. Those accounts that have availed the moratorium facility, the period of moratorium will be excluded from the 90 days NPA classification norms of RBI.

The Corporation offered the moratorium to eligible customers through the ‘opt-in mechanism during the moratorium period. Post the moratorium period, the movement of ageing has been at actuals. As at March 31, 2021, there are nil accounts where asset classification benefits are extended. The Corporation has made adequate provisions for impairment loss as per its Expected Credit Loss model. Disclosures are provided in the notes forming part of the standalone financial statement.

During the quarter ended September 30, 2020 and December 30, 2020, no additional borrower accounts under moratorium granted category were classified as NPA which was not declared as NPA till August 31, 2020. The Corporation, however, classified such accounts as stage 3 and provisioned accordingly in the Statement of Profit and Loss. Such accounts were also reported as proforma NPA numbers during the quarter ended September 30, 2020 and December 31, 2020. Further details on asset quality is provided elsewhere in this report.

As a COVID-19 relief scheme, the government announced a grant of ex-gratia payment of the difference between compound interest and simple interest for six months to eligible borrowers for the period March 1, 2020 up to August 31, 2020, irrespective of whether the moratorium was availed or not. The ex-gratia payment by the government was for certain categories of loans such as housing loans, consumer loans, MSME loans amongst others, which were standard as at February 29, 2020 and the aggregate facilities with all lending institutions did not exceed 2 crore.

In November 2020, the Corporation implemented the scheme and credited the accounts or remitted the amounts to eligible borrowers. Of the Corporations total claim of 278 crore, an amount of 213 crore was received from the government. Following the Honble SC judgement dated March 23, 2021, RBI in April 2021 instructed lenders to refund/ adjust interest on interest charged to all borrowers during the moratorium period i.e. March 1, 2020 to August 31, 2020, irrespective whether the moratorium had been availed or not. The methodology for determining the amount of interest on interest was issued by the Indian Banks Association

TLTRO 1.0 & 2.0: Overall, the total liquidity support announced by RBI since February 6, 2020 up to March 31, 2021, amounted to Rs. 13.6 lac crore. This entailed a combination of open market operations, variable rate repos, long-term repo operations, targeted long-term repo operations (TLTRO 1.0 and 2.0), reduction in the cash reserve ratio and statutory liquidity ratio of banks, special liquidity facility for mutual funds, refinance lines to NABARD, SIDBI, NHB and Exim Bank and simultaneous purchase and sale of securities under special open market operations to better manage the yield curve. The banking system remained in surplus throughout FY21 and the surplus ranged between Rs. 2.1 lac crore and Rs. 6.7 lac crore

SPECIAL RE-FINANCE FACILITY: National Housing Bank (NHB) has rolled out a ?10,000-crore ‘Special Refinance Facility-2021 (SRF-2021) to provide short term refinance support to housing finance companies (HFCs) and other eligible Primary Lending Institutions (PLIs).This facility is expected to meet the short-term liquidity requirements of the PLIs and will also support them for onward lending to individuals to maintain steady growth in the housing finance sector, according to NHB.This NHB initiative comes on the heels of the Reserve Bank of India (RBI) extending fresh support ( in the recent monetary policy review) under another Special Liquidity Facility-2 (SLF-2) of ? 10,000 crore to the NHB for one year to support the housing sector.

Post Covid -19, the housing finance sector has revived and showed steady improvement in sanctions and disbursements since the second quarter of FY2020- 21.


• Diversified portfolio products across personal finance, business finance and mortgage finance (Loan against property)

• Opening of financial sector in India along with Introduction of Innovative products

• Strong relationship with public, private as well as banks, institutions and investors

• Focus on MSME segments traditionally not served by banks

• Large untapped rural and urban markets.

• Enhanced digital solutions for business and collections THREATS:

• Slower economic activity and weak rural demand could lead to high credit costs due to COVID-19 pandemic

• Increased competition across the companys product segments from captive finance companies and small finance banks

• Inadequate availability of bank finance and upsurge in borrowing cost

• External risks associated with liquidity stress, political uncertainties, fiscal slippage concerns, etc.

• Growing number of Fintech companies.

• Attraction and retention of human capital

(Amount in Lakhs)
Particulars F.Y. 2020-21 F.Y. 2019-20
Revenue From Operations 100.30 276.36
Other operation Income 2.50 0.03
Impairment Profit 19.40 -
Total Revenue 122.20 276.38
Less: Total Expenses before Depreciation, Finance Cost & Tax 95.57 235.07
Operating Profits before Depreciation, Finance Cost & Tax 26.63 41.31
Less: Depreciation 1.24 1.26
Finance cost 4.91 26.10
Profit/(Loss) Before Tax 20.48 13.95
Less: Current Tax 5.25 3.28
Less: Deferred Tax Liability (Assets) 2.88 (0.07)
Profit/(Loss) after Tax 12.35 10.75

Financial Performance

During the financial year 2020-21, The Company has earned total income of Rs. 122.20 Lakhs from business activities as compared to Rs.276.38 Lakhs in previous year. The total revenue of the company is decreased by 55.79%. The Total income of the Company decreased mainly due to Interest on Loan received by company was decreased in comparison of previous year.

The total Profit before tax for the financial year 2020-21 stood at Rs. 20.48 Lakhs and the total net profit after tax for the financial year 2020-21 stood at Rs. 12.35 Lakhs.

The Directors of the Company are planning to expand the business of the Company in areas of providing loan against securities and opening of FFMC branches in various cities in the current year and thus confident of presenting the better figures in the coming years.


During the year under review, KFL has not raised any funds from the market by way of allotment of shares/bonds/ warrants/debentures, or by raising public deposits etc.


KFLs investment portfolio stood at Rs. 186,933,178/- as on March 31, 2021. KFLs strategy for its portfolio is to focus on asset quality and asset mix to achieve good returns.


Estimates of Indias GDP for fiscal 2022, by various agencies and analysts, indicate a strong growth in GDP. However, in March-April 2021, the second wave of the Covid-19 pandemic, where the number of new cases has increased significantly in India, has resulted in reimposition of localised/regional lock-down measures in various parts of the country. Going forward, economic activity will depend on the trajectory of the second wave of Covid-19, the progress of the vaccination programmeand the restrictions on activity and the period for which they continue A prolonged period of economic weakness caused by the second wave of the pandemic and uncertainty regarding normalisation could continue to impact banking sector loan growth, revenues, margins, asset quality and credit costs in fiscal 2022.


As in the case of any lending entity, the entire proposition of the Company - providing finance to various segments of the economy is on the fundamentals of managing the risk rather than avoiding it. With proper operational systems in place, the Company successfully manages these risks which also help in achieving the desired outcome, while fixing responsibility and accountability. The Board is responsible for monitoring and reviewing of the risk and taking steps to mitigate the same.


The Company has an internal control system to commensurate with the size, scale and complexity of its operations and nature to ensure smooth business operation to provide reasonable assurance that all assets are safeguarded and protected from any kind of loss or misuse, transactions are authorized, recorded and reported properly and that all applicable statutes and corporate policies are duly complied with.


As there are no subsidiaries of the company, investment made in subsidiaries is nil.


The Company takes pride in the commitment, competence and dedication of its employees in all areas of the business. The Company is committed to nurturing, enhancing and retaining its top talent through superior learning and organizational development. This is a critical pillar to support the organizations growth and its sustainability in the long run. The Company also has zero tolerance for harassment of women at workplace. The overall industrial relations atmosphere continued to be cordial.


The company operates in only single segment. Hence segment wise performance is not applicable.


This report describing the companys activities, projections about future estimates, assumptions with regard to global economic conditions, government policies, etc may contain "forward looking statements" based on the information available with the company. Forward-looking statements are based on certain assumptions and expectations of future events. These statements are subject to certain risks and uncertainties. The company cannot guarantee that these assumptions and expectations are accurate or will be realized. The actual results may be different from those expressed or implied since the companys operations are affected by the many external and internal factors, which are beyond the control of the management. Hence the company assumes no responsibility in respect of forward-looking statements that may be amended or modified in future on the basis of subsequent developments, information or events. Company follows all Mandatory Accounting Standards.