KIFS Financial Services Ltd Management Discussions.

I. Industry structure and developments

KIFS Financial Services Limited is a non deposit taking non banking financial company registered with the Reserve Bank of India under the category of loan company. The principle business of the company consists of loans against shares, IPO / FPO retail applications funding and margin trading. As a part of business expansion, the company is proposing to enter into the business of investment advisory and has got itself registered with the Securities and Exchange Board of India.

For a developing economy such as India, access to financial resources is critical to foster the development of the economy. Currently, in India, the banking outreach to certain segments is still lower. In such a situation, non-banking financial companies (NBFCs) have come to the rescue of unbanked areas to cater to the funding requirements.

NBFCs continued to grow their share in the financial services industry. Data published by the RBI in its financial stability reports dated June 30, 2017 and December 21, 2017 show that the NBFCs have outperformed scheduled commercial banks (SCBs) on growth in advances, asset quality and profitability. This growth momentum of NBFCs should result in their share in the financial services sector increasing in the near future. The following table briefs the growth in advances, asset quality and profitability of NBFCs and SCBs:

Comparison of growth in advances, asset quality and profitability of NBFCs and SCBs

Particulars March 31, 2017 September 30, 2017
Growth in advances 16.4% 4.4% 15.7% 6.2%
Gross non-performing assets 4.4% 9.6% 4.9% 10.2%
Net non-performing assets 2.2% 5.5% 2.4% 5.7%
Return on assets (ROA) 1.8% 0.4% 1.9% 0.4%
Return on equity (ROE) 6.8% 4.3% 7.6% 4.2%

(Source: RBIs financial stability report dated June 30, 2017 and December 21, 2017)

The financial sector landscape has changed materially over the past few years with non-banking financial companies, gaining share in the overall credit pie, even as banks have faced asset quality challenges. Fiscal 2018 is a pivotal year for NBFCs. NBFCs have gone through a period of regulatory transition, most significantly in the recognition of non-performing assets, which culminates this fiscal. The past 12 months have also been eventful as non-banks navigated demonetization and are now addressing the impact of goods and services tax on their customers and business model.

II. Opportunities and threats

To carry success story forward, the organization needs to evaluate the opportunities & threats and synchronize its plans with them.


Augmentation of capital and leveraging for growth

Large untapped market, both rural and urban and also geographically Demographic changes and under-penetration Blurring gap between banks in terms of costs of funds High on service aspect Easy and fast appraisal and disbursements Low retail penetration of financial services / products Comfort of clients with uniform high quality and quick services Strong managerial capabilities


The board determines does the company offer lower prices / interest rates, better service or a greater selection of products and also considers what the competitors do better? The board further determines which ones pose the greatest threat to the business of the company and finds ways to counteract them. It believes that when you grab the opportunities based on your strength, you are bound to be accompanied by the risks and threats attached with them. The Company is exposed to the following type of risks:

Market fluctuations

Execution risks and regulatory changes Competitions from banks and other NBFCs Volatility of business cycle High cost of funds

III. Segment–wise / product–wise performance

The company is engaged in a single segment of finance and thus separate segment wise performance details cant be given. As for the product wise performance, the board wishes to state that the margin funding income stands at Rs 4,90,01,447/- in compare to Rs 8,27,37,382/- for the previous financial year. Mutual fund distribution commission income has been increased from Rs 20,87,636/- to Rs 38,81,462/- registering year on year growth of 85.93%. Management advisory fees income stands at Rs 75,43,050/- whereas loan processing / syndicate fees income stands at Rs 71,100/- for the financial year ended on March 31, 2018. Other income for the financial year remains at Rs 40,161/- in compare to Rs 54,553/- for the previous financial year.

IV. Outlook

A big reason for the success that NBFCs have registered in India of late has been their unique value proposition. Most NBFCs, whether online or offline, leverage alternative and tech-driven credit appraisal methodologies to gauge the creditworthiness of prospective borrowers.

This differentiated approach allows them to meet loan requirements of individuals and businesses left traditionally underserved by banks. With the introduction of e-KYC and digital loan agreements making borrowing a hassle-free experience, NBFC lenders are already offering the right financial product to consumers and small businesses. The use of technology to optimise business processes also keeps cost overheads to a minimum, enabling credit to be availed at highly competitive interest rates. Moreover, NBFCs often have deep regional reach, which they leverage to build robust relationships with their target customer bases. Many new-age NBFCs have started investing in analytics and AI capabilities to connect to their customers in a hyper-personalised manner to serve their credit needs better.

The market share of non banking financial companies (NBFCs) would continue to expand. The expansion would be supported by NBFCs ability to customise products, price the risk and manage ultimate credit costs, especially related to small-ticket loans, viz., microfinance, light commercial vehicle (CV), used CV, small-ticket housing loans and loan against property. However, competition is likely to intensify in certain segments such as large-ticket housing, new heavy CV and large-ticket loan against property. Thus, risk-adjusted pricing may come under pressure. As the transition to the formalisation gains momentum, many NBFC borrowers may turn poachable and creditworthy for banks.

V. Risks and concerns

Your company faces risks with similar to those faced by the companies operating in the financial sector. The success or failure is linked on how effectively companies are able to manage themselves over these critical periods. KIFSs focus is on the risks that threaten the achievement of business objectives of the group over the short to medium term.

The company takes a very structured approach to the identification and quantification of each such risk and has a comprehensive risk management policy in vogue. The management team has set standards and policies for each of the identified risks and responsibility of management has also been defined to ensure that appropriate risk mitigating measures are implemented, if any. The risks are reviewed periodically and appropriate risk mitigating measures are implemented for the new risks identified. The company is primarily exposed to credit risk, liquidity risk, Interest rate risk etc. Although the board recognizes presence of these risks, but there are no risks which in the opinion of the board threaten the existence of the company.

KIFS recognizes that the risks need to be managed to protect its customers, employees, shareholders and other stakeholders, to achieve its business objectives and to enable the sustainable growth. An integrated system of risk management and internal controls framework has been deployed taking into account various factors such as size and nature of the inherent risk and the regulatory environment. The risk management framework undergoes continuous improvement to allow the management to optimize its management of risk exposures while taking advantage of business opportunities and it has developed a mechanism covering risk mapping & trend analysis, risk exposure, potential impact and risk mitigation process.

VI. Internal control systems and their adequacy

The company has proper and adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all the transactions are authorized, recorded and reported properly and the applicable statutes, code of conduct and corporate policies are duly complied with. The company has an internal audit mechanism which ensures audit in various functional areas as per the best standards. The internal audit mechanism ensures reporting of the observations, if any, to the audit committee to review the audit issues and to follow up implementation of corrective actions. The system also meticulously records all transaction details and ensures regulatory compliance. Apart from this, the company ensures all internal financial control parameters get evaluated by the auditors of the company. The adequacy and effectiveness of internal financial controls is also reported in the auditors report.

The main purposes of the internal control systems are:

assurance about the fact tha the transactions are recorded in proper manner and under proper heads; automatic and independent checking of transactions so as to ensure their validity; to check and assure the compliance of various enactments like corporate laws, tax laws etc; to prevent and early detection of frauds and malpractices, if any; and to ensure timely preparation of reliable financial information.

VII. Financial performance with respect to operational performance

The overall financial performance of the company during the financial year ended on March 31, 2018 is simplified in tabular form as under:

Particulars March 31, 2018 March 31, 2017
no. (Rs in lacs) (Rs in lacs)
1 Total revenue 605.37 848.80
2 Profit before interest, depreciation and tax 530.80 789.68
3 Depreciation 10.18 14.97
4 Finance cost 105.78 280.74
5 Tax 114.73 158.64
6 Profit after tax 300.11 335.34
7 Net profit margin (%) 49.58% 39.51%
8 EPS (basic and diluted) (amount in Rs) 2.77 3.10

VIII. Human resources / industrial relations

The company believes that the quality of its employees is the key to its success in the long run. The company continues to have cordial relations with its employees at all the levels & units. 6 employees were employed as on March 31, 2018 on payroll. The companys human resource policies and strategies seek to ensure a high level of motivation among employees so that they play a significant role in achieving the companys goals. The company has initiated various in-house training programs for skill advancement. It accords highest priority to ensure safety and protection of health of its employees which are essential to, and form an integral part of every HR development endeavour. There were no cases of sexual harassment of woman at work place. Also, there are no instances of child labour / forced labour / involuntary labour and discriminatory employment during the year. The company has made continuous focus on introducing new ideas and innovative services for client convenience and cost reduction.

The company has been investing in progressive employee relations practices to ensure that it invests in capability building at the grassroots level. The company recognizes people as the primary source of its competitiveness and continues to focus on people development by leveraging technology and developing a continuously learning human resource base to unleash their potential and fulfill their aspirations. Board of directors thanks all of the employees for their valuable contribution towards the growth of the company.

Cautionary statement

Certain statements in this annual report including the management discussion and analysis report describing the companys objectives, predictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and government policies that may impact the companys business as well as its ability to implement the strategies. The company does not undertake to update these statements.