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- Systematically Important Non-Deposit Taking Non-Banking Financial Company registered with the Reserve Bank of India (RBI). SFIL had to steer through a difficult year due to the COVID-19 pandemic.

Industry and Economy overview

The impositions of strict lockdown and social distancing measures taken to combat the spread of COVID19 have adversely affected the economy in 2020-21. As per the Second Advance Estimates released by the National Statistical Office (NSO), the growth rate of the gross domestic product (GDP) at constant market prices has been estimated to contract by 8.0 per cent in 2020-21, as compared to the growth of 4.0 percent (1st revised estimates) growth recorded in the previous year. The growth of the gross value added (GVA) at constant basic prices has been estimated to contract by 6.5 per cent in 2020-21, with agriculture and allied sectors, industrial sector and services sector growing at 3.0 percent, (-) 8.2 per cent and (-)8.1 per cent respectively. On the demand side, the growth in government final consumption expenditure at constant (2011-12) prices is estimated at 2.9 per cent in 2020-21 (2nd advance estimates), as compared to 7.9 per cent in 2019-20 (1st revised estimates). Exports and imports of goods and services are estimated to contract (at constant prices) by 8.1 per cent and 17.6 per cent in 2020-21. Information on saving and investment is available only till the year 2019-20. Gross saving as proportion of GDP at current market prices is estimated at 31.4 per cent in 2019-20 as compared to 30.6 percent in 2018-19. Gross capital formation, also known as investment, was estimated to be 32.2 per cent of the GDP at current market prices in 2019-20, as compared to 32.7 per cent in 2018- 19. Fixed investment (Gross Fixed Capital Formation) to GDP ratio (at current prices) is estimated to be 26.7 per cent in 2020-21 (2nd advance estimates), vis-a-vis 28.8 per cent in 2019-20 (1st revised estimates). Consumer Price Index Combined (CPI-C) inflation averaged 6.3 per cent in Apr-Jan., 2020-21, but the monthly price index declined in January 2021 to 4.1 per cent, mainly due to decline in the food inflation to 1.9 percent in January 2021 from 3.4 per cent in December, 2020. During April-Jan, 2020-21, Food inflation based on Consumer Food Price Index (CFPI) averaged 8.4 per cent. Inflation measured in terms of Wholesale Price Index (WPI) declined from 4.3 per cent in 2018-19 to 1.7 per cent in 2019-20.WPI inflation averaged 0.2 per cent during April-January, 2020-21 and stood at 2.0 per cent in January 2021. The performance of the industrial sectors based on the Index of Industrial Production (IIP) comprising mining, manufacturing and electricity showed negative growth in industrial production during 2019-20. According to the data on the IIP released by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MOSPI), the Index of Industrial Production (IIP) based industrial growth during 2019-20, was (-) 0.8 per cent as compared to 3.8 per cent growth achieved during the corresponding period of the previous year. Out of the three broad sectors, mining and electricity sectors recorded growth of 1.6 per cent and 1.0 per cent in 2019- 20 as against 2.9 per cent and 5.2 per cent growth achieved respectively during corresponding period of the previous year. Manufacturing sector fell by 1.4 per cent in 2019-20 as against a growth of 3.9 per cent in the corresponding period of the previous year. During April-November 2020-21, the IIP contracted by 15.5 per cent.

The COVID-19 Pandemic and Lockdown

The COVID-19 pandemic is a once in a lifetime occurrence that has brought with it unimaginable suffering to people and to almost all sections of the economy. When the pandemic struck and led to nationwide lockdowns to curtail the transmission of disease, it was natural to fear that the global economy would stay in extreme stress of the kind not seen since the Great Depression and would have a long-lasting economic impact. To counter the crippling impact of the lockdowns on economies, the worlds policymakers have resorted to fiscal and monetary measures never seen before in global economic history. Multiple vaccines were found with impressive efficacy levels in less than a year which will probably rank as among one of the most incredible achievements in science to save lives of the peoples. The announcement of successful development of vaccines seemed to lift spirits around the world. Unfortunately, the advent of winter saw several countries battle second waves of COVID-19 infections, including more virulent strains leading to partial lockdowns. The race between vaccines and variants is heating up as massive vaccination drives are underway. The only three preventives are masks, social distancing and vaccinations. Fortunately for India, which is home to some of the largest vaccine makers in the world, the supply constraints should be limited and temporary. Moreover, our experience in implementing large scale vaccination programmes should help in vaccinating our vulnerable population. Given the impact of the pandemic, FY2021 was expected to be an extremely demanding year. The consensus was that GDP growth in FY2021 would not only be negative but also would constitute the greatest fall in growth since 1979-80. In fact, the degrowth in GDP was much larger than expected. For April-June 2020, real GDP contracted by a massive 24.4%. India had never recorded a quarter of negative growth since it began issuing such data publicly in 1996. No other large economy shrank so much during the pandemic. In the second quarter, July-September 2020, GDP again contracted by 7.3%. The consensus was that growth in the second half of the fiscal year would be far less than what was needed to erase the effect of the deep recession in the first half. Thankfully, we began to witness early signs on resumption of economic activity in the second half of the year with several high frequency indicators suggesting that the economy was back on to positive growth. The third quarter (October-December 2020) recorded a GDP growth of 0.4%. And, as mentioned earlier, the second advance estimates of national income for FY2021 released by the CSO indicates a negative GDP growth of 8% for FY2021,

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, measured by the Consumer Price Index (CPI), which had moderated in March 2020 with food inflation easing from double digits in December 2019 - January 2020 again surged on account of supply disruptions in April 2020 to 8.6% from 7.8% in March 2020 despite agriculture being the bright spot. CPI breached the RBIs upper tolerance threshold of 6% for six consecutive months (June to November 2020) before falling to 4.6% in December 2020 on the back of easing food prices and favourable base effects. The RBI monetary policy dated 7 April 2021 estimates the CPI inflation for the fourth quarter at 5%. To alleviate the economic stress induced by the pandemic the Government of India announced a Rs.20.9 lakh crore economic package (or about 10% of GDP). The guarantee schemes and liquidity measures aided growth in bank credit, enabled abundant liquidity in the financial sector which was directed toward impacted segments like industrial and service sector. Non-food credit growth of the scheduled commercial banks in the aggregate was 6.7% as of 26 March 2021 over 27 March 2020. Credit growth to industrial sector over the same period was 0.4%. Having said that, credit growth within the industrial sector was the largest in the medium scale industry and the overall credit growth was brought down owing to a contraction of credit to large scale industry. The credit growth in personal loan segment witnessed decline in growth rates to 10.2% as of 26 March 2021 over 27 March 2020 compared to 15.0% as of 27 March 2020 over 29 March 2019. Various measures taken by RBI ensured sufficient liquidity at all times during FY2021, and thus calmed sentiments in bond markets which had seen volatile conditions in March and April 2020. The RBI reduced its policy rates only once during this fiscal on 22 May 2020 by 40 basis points (bps) to 4%. As an additional measure to increase credit intermediation, the RBI increased the margin between repo and reverse repo from 25 bps to 65 bps. The central banks unprecedented monetary easing and open market purchases kept interest rates at comfortable levels during the year despite a record growth in Government borrowings. It was only after the announcement of a growth-centric and expansionary Union Budget for 2021-22 that yields in bond markets rose on expectations of the increased borrowing programme of the Government of India. While the RBI has maintained an accommodative stance so far, multiple factors like sticky inflation levels, elevated crude oil prices, and risks of US treasury yields will play a part in its ultra-accommodative stance and may have a consequential impact on interest rates in FY2022. The Government is taking on the onus of heavy lifting to revive the investment cycle. A growth-centric and expansionary Union Budget for 2021-22 puts out hope that it will set the tone for infrastructure growth over the next few years. The fiscal deficit for 2021-22 is budgeted at 6.8% of Indias GDP though high but way below the revised estimate of 9.5% in 2020-21. Given the unprecedented economic havoc caused by the pandemic, such deficits are in line with actions taken globally. Indeed, most experts feel that FY2022 is a year when fiscal discipline will be kept in partial abeyance. Even so, implementation of the various budget measures is now all-crucial for the economic and fiscal health of the nation.

NBFC Companies:

NBFCs have become important constituents of the financial sector and have been recording higher credit growth than scheduled commercial banks (SCBs) over the past few years. NBFCs are continuously leveraging their superior understanding of regional dynamics, well-developed collection system and personalised services to expedite financial inclusion in India. Lower transaction costs, quick decision making, customer orientation and prompt provision of services have typically differentiated NBFCs from banks. Considering the reach and expanse of NBFCs, these are well-suited for bridging the financing gap. Systemically important NBFCs have demonstrated agility, innovation and frugality to provide formal financial services to millions of Indians. Over the last decade, NBFCs have witnessed phenomenal growth. From being around 12% of the balance sheet size of banks in 2010, these are now more than a quarter of the size of banks. NBFCs are the largest net borrowers of funds from the financial system with gross payables of Rs.9.37 lakh crore as of 30 September 2020. House Finance Companies (HFCs) are the second largest borrowers of funds from the financial system with gross payables of around Rs.6.20 lakh crore as at 30 September 2020. The RBI has been enhancing the regulatory oversight of large NBFCs. Keeping in mind potential systemic risks that NBFCs might pose to the financial system, the RBI in its ‘Discussion Paper on Revised Regulatory Framework for NBFCs: A Scale-Based Approach (12 January 2021) seeks to balance regulatory arbitrage in favour of NBFCs and the recent growth trajectory of NBFCs by adopting a new approach towards regulating NBFCs. To provide further relief to distressed customers, the RBI in its notification dated 6 August 2020, allowed banks, NBFCs and HFCs to undertake one-time restructuring of stressed loans on account of COVID-19 pandemic. NBFCs and HFCs were more impacted than banks as these entities had to provide moratorium to their customers, without getting similar relief on their liabilities. To provide additional relief, the Government of India announced ex-gratia payment to lenders for waiving off compound interest for loans up to Rs. 2 crore for some category of borrowers. Recently, the Honourable Supreme Court has directed all banks and financial institutions to refund compound interest, interest on interest or penal interest collected during the moratorium period irrespective of the loan amount and category of borrowers. The Supreme Court also lifted the ban it had imposed on declaring accounts of borrowers as non-performing assets. Customer servicing and debt recovery was already envisaged as a challenge during the pandemic induced stress. Individuals were losing their livelihoods and businesses were struggling to overcome disruptions while facing demand-supply constraints. To provide succor to customers, the authorities went all out to offer relief by announcing equated monthly interest (EMI) moratoriums, Emergency Credit Line Guarantee Scheme for the SME sector, relief on compound interest and a resolution framework for COVID-19 related stress. Debt recovery in the first half of the fiscal was severely disrupted. However, the second half saw some semblance of normalcy with the gradual opening up of the economy as customers and lenders came to terms with the emerging scenario. However, this pandemic induced disruption has impacted the portfolio quality of all lenders; and they will have to redefine customer service and debt recovery in the post-pandemic world. The first three challenges were common to banks, NBFCs and HFCs. The last, namely ‘continuing to service their own debt created severe stress for NBFCs and HFCs. The known structural arbitrage that NBFCs and HFCs enjoyed such as not maintaining a Cash Reserve Ratio (CRR) and a Statutory Liquidity Ratio (SLR) became a severe disadvantage during the pandemic. The unfolding of events after the lockdown resulted in creating a scenario of NBFCs having to provide adequate relief on debt servicing obligations to their customers while not being granted the same relief on their liabilities. NBFCs and HFCs who had adopted prudent practices of maintaining adequate liquidity were able to tide over this problem; others could not. Thus, the business model of the NBFC sector was severely tested in FY2021. This was the fourth large external stress that the sector has faced in the last few years, namely, (i) demonetisation, (ii) GST implementation, (iii) failure of a large NBFC, and (iv)the pandemic. The fact that many NBFCs have managed to overcome these severe stresses without significant impact is a testimony to their resilience. With superior capital adequacy, better margins, frugal cost management and lower non-performing assets (NPAs), the NBFC sector is well poised to seize the opportunity provided in the post-pandemic revival cycle. The revised regulatory framework proposed by the RBI intends to make the NBFC sector more resilient.

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 decreased to Rs.4,323.69 Lakhs during the current year as compared to Rs.4,417.78 Lakhs during the previous year.

iii) Total Income

During the year under review the total income of the Company was Rs.2,482.52 Lakhs as compared to Rs.3,409.29 Lakhs during the previous year.

iv) Other Income

During the year under review other income of the Company was Rs.403.89 Lakhs as compared to Rs.7.43 Lakhs during the previous year.

v) Interest and Finance Charges

During the year under review total interest and finance charges were Rs.1,683.94 Lakhs as compared to Rs.2,467.32 Lakhs during the previous year.

vi) Tax Expense

During the year under review current tax expenses were Rs.83.97 Lakhs and deferred tax expenses were Rs. (144.63) Lakhs as compared to Rs.210.76 Lakhs and Rs.10.02 Lakhs respectively 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 decremental.

x) Performance during the year

During the year under review, there was impairment of financial assets for Rs.834.53 Lakhs as compared to Rs.198.76 during the previous year. Consequently, during the year under review, the Company incurred loss (before tax) of Rs.156.84 Lakhs as compared to the Profit of Rs.627.04 Lakhs during the previous year.

By Order of the Board of Directors


Kuldeep Singh Solanki Rudra Sen Sindhu
Place: New Delhi Director Director
Dated: 13th August, 2021 DIN: 00009212 DIN:00006999