Sainik Finance & Industries Ltd Management Discussions.

Sainik Finance & Industries Limited (SFIL), a listed Company is engaged in the business of investment, finance and lending. It is non-deposit taking Non-Banking Financial Company registered with the Reserve Bank of India (RBI)

Industry and Economy overview

Indias GDP growth had shown clear signs of slowing down, even without the terrible effects of the COVID-19 pandemic. Before the COVID-19 pandemic and lockdown, both the RBI and the Central Statistical Office (CSO) of the Government of India had revised the GDP growth rate downwards. The RBI changed its full year GDP growth estimate from an initial 7.2% to 5% in December 2019, and ascribed the tapering of growth to a tight credit market impacting fresh investments, weak capital expenditure and a slowdown in manufacturing. In a similar vein, the second advance estimates of national income for FY2020 released by the CSO on 28 February 2020 was substantially lower: GDP growth for FY2020 was pegged at 5% compared to 6.1% in FY2019; and growth in gross value added was estimated at 4.9% in FY2020 versus 6% in FY2019.

On 29 May 2020, the CSO released its estimates of GDP and GVA growth for FY2020 and the fourth quarter of FY2020. In this exercise, it also substantially revised downward its earlier estimates for the first three quarters of FY2020.

GDP growth was 5.7% in January-March 2019; fell to 5.2% in April-June 2019; then yet again to 4.4% in July-September 2019; followed by 4.1% growth in October-December 2019 and 3.1% growth in January-March 2020. GDP growth for FY2020 was 4.2%, the lowest in the last 11 years.

The COVID-19 Pandemic and Lockdown

The relatively slow GDP growth of around 4% in FY2020 now sounds like a miracle after being engulfed in the COVID- 19 pandemic. On 25 March 2020, The Government of India declared a nationwide lockdown to tackle the challenges posed by the COVID-19 pandemic which could have severe economic repercussions. Such lockdown are expected to bring down aggregate demand in rural and urban areas. The full lockdown lasted up to 3 May 2020. Around 40-days continuous lockdown across India has probably played a significant role in limiting the number of COVID-19 infections. To mitigate some of the negative effects, the Indian Finance Minister announced Rs.1.7 trillion relief package for the poor and migrant workers across the country. The Government announced a slew of measures like direct cash transfer to farmers, hiking wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme, and utilisation of welfare funds for construction workers to offset the adverse impact on rural demand. The third tranche of the stimulus package aimed at Indias rural economy (worth around Rs.1 lakh crore) is likely to uplift the rural economy, a substantial part of which will go into building a modern agricultural infrastructure. It also ushered new laws to promote contract farming. The changes in the Essential Commodities Act (ECA) and creating a ‘One Nation One Market will allow private sector investment. Besides, the focus on MGNREGA is expected to strengthen rural income.

What we do know with some certainty is that the economy will take a massive hit in FY2021. Estimates of economists who are recognised for their soundness and care with which they do empirical work suggest that Indias real GDP growth will fall from around 4% in FY2020 to around (-)5% in FY2021. If it were so, this will be the deepest contraction that India has seen since the downturn that occurred in 1979-80, when real GDP growth plummeted from 5.7% in the previous year to (-)5.2%. According to these economists, Q1 FY2021 will see a wasted first quarter (April-June 2020), a tortuously limping second quarter (July-September), followed by some recovery in the latter half of the fiscal year. Faced with COVID-19 and the lockdown, the Company took immediate steps to handle this force majeure situation. Some of the initiatives were:

1. Activating business continuity plans, with emergency response teams monitoring the situation and implementing actions in real time. As a result of this, the Company continued operating under a well-defined ‘Work-from-Home Protocol.

2. Keeping employee safety was the topmost priority, and the Company ensured that all employees immediately moved to work from home. Moreover, all employees were advised to strictly follow the lockdown guidelines of the central and state governments as well as local municipalities. A health support hotline was created for employees with a doctor on call to provide support for employees having COVID or COVID-like symptoms.

3. Swiftly moving the IT infrastructure to ensure availability of adequate bandwidth, setting up virtual private networks, making laptops available where needed and creating multiple platforms for collaboration and team meetings over digital media. All this was achieved while ensuring full security of each companys network.

4. Reaching out to customers to ensure that pending claims could be paid and they could get their servicing requirements met.

5. Getting all business partners to quickly get on to digital platforms for two-way communication.

The situation is still evolving and it is difficult to hazard a guess on how this pandemic will evolve. The Company will be focusing on profitability over growth, seeking to conserve cash, borrowing long - term, strengthening collections, reducing overheads and preserving capital adequacy

Monetary Policy and inflation rate

The Monetary Policy Committee (MPC) reduced the repo rate by 185 bps to 4.40% during the year ended March, 2020 to mitigate the economic risks arising amidst the deteriorating economic condition.

Retail inflation climbed to a six-year high of 7.59% in January, breaching the RBIs upper and of 6% while settling at 5.91% in March 2020. The Wholesale Price Index (WPI) inflation stood at 1% at the year end and the core inflation hardened in a sustained manner from a historic low of 3.4% in October 2019 to 4.3% in January 2020.

NBFCs continued to grow their share in the financial services industry. Data published by RBI in its Financial Stability Report dated 31st December, 2018 show that 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. However, NBFCs share could not be increased as it was expected due to several reasons.

Possible threats

As we get into an environment which is likely to be largely positive over medium to long term, there may be significant roadblocks in the shorter term due to funding difficulties which are facing by NBFC. 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.


The markets will continue to grow and mature leading to differentiation of products and services. Each financial intermediary will have to find its niche in order to add value to consumers. "Atmanirbhar Bharat Abhiyan" has been announcement of Government of India. Such Abhiyan may boost up the economy and NBFC business may increase in future. The Company is cautiously optimistic in its outlook for the financial year 2020-21. We believe that the growth momentum of NBFCs will result in their share in the financial services sector increasing in the near future.

Fixed Deposits

The Company is a non-deposit accepting -NBFC. The Company has not accepted any fixed deposit during the period under review.

Internal control systems and their adequacy

The Companys internal control system is designed to ensure operational efficiency, protection and conservation of resources, accuracy and promptness in financial reporting and compliance with laws and regulations. The internal control system is supported by an internal audit process for reviewing the design, adequacy and efficacy of the Companys internal controls, including its systems and processes and compliance with regulations and procedures. Internal Audit Reports are discussed with the Management and are reviewed by the Audit Committee of the Board which also reviews the adequacy and effectiveness of the internal controls in the Company. The Companys internal control system is commensurate with the size, nature and operations of the Company.

Risk management

As an NBFC, SFIL is exposed to credit, liquidity and interest rate risk. It has continued to invest in talent, processes and emerging technologies for building advanced risk and underwriting capabilities. The Company recognizes the importance of risk management and has accordingly invested in appropriate processes, people and a management structure. The Board of Directors of the Company reviews the asset quality at frequent intervals. The asset quality of the Company continues to remain healthy. The nature of business the Company is engaged in exposes it to a slew of complex and variable risks. The rapid and continuous changes in the business environment have ensured that the organization becomes increasingly risk focused to achieve its strategic objectives. SFILs policies ensure timely identification, management and mitigation of relevant risks, such as credit risk, liquidity risk, interest rate risk, operational risk, reputational and regulatory risks, which help the Company move forward with vigour.

Financial performance with respect to operational performance

i) Share Capital

The Authorised share capital of the Company is Rs.11,00,00,000/- (Rupees Eleven Crores Only) divided into 11000000 Equity shares of Rs.10/-each. Issued, Subscribed and Paid up share capital of the Company is Rs.10,88,00,000/- (Rupees Ten Crores Eighty Eight Lakhs Only) divided into 10880000 Equity Shares of Rs. 10/-each fully paid up.

ii) Net Worth

The Net worth of the Company has been increased to Rs. 4,417.78 Lakhs during the current year as compared to Rs.4,018.77 Lakhs during the previous year.

iii) Total Income

During the year under review the total income of the Company was Rs 3,409.29 Lakhs as compared to Rs.2,986.86 Lakhs during the previous year.

iv) Other Income

During the year under review other income of the Company was Rs.7.43 Lakhs as compared to Rs.26.56 Lakhs during the previous year.

v) Interest and Finance Charges

During the year under review total interest and finance charges were Rs.2,467.32 Lakhs as compared to Rs.2,105.56 Lakhs during the previous year.

vi) Tax Expense

During the year under review tax expenses were Rs.220.78 Lakhs as compared to Rs.180.87 Lakhs during the previous year.

vii) RBI Guidelines

The Company has complied with all the applicable rules and regulations of the Reserve Bank of India.

viii) Human Resources/ Industrial Relations

The Company has a dedicated team who has been contributing to the progress and growth of the Company. The manpower requirement at the offices of the Company is assessed continuously and recruitment is conducted accordingly.

ix) Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof

During the year under review, the return on networth as compared to the immediately previous financial year is incremental.

x) Performance During the year

During the year under review, the Company earned profit (before tax) of Rs.627.04 Lakhs as compared to Rs.686.41Lakhs during the previous year.

By Order of the Board of Directors


Place: New Delhi Kuldeep Singh Solanki Rudra Sen Sindhu
Dated: 17th August, 2020 Director Director
DIN:00009212 DIN:00006999