In a significant development within India's non-banking financial company (NBFC) sector, Kinara Capital Pvt. Ltd is actively seeking a strategic investor to acquire a majority stake in the company. This move comes as the lender grapples with a severe liquidity crisis that has forced it to halt all fresh loan disbursements.
The Search for a Lifeline
Founder and Chief Executive Hardika Shah confirmed that the company is engaging with potential strategic investors, including fintech firms and other NBFCs. The objective is to secure an infusion of a few hundred crores of rupees in exchange for ceding majority control of the business.
Shah stated that preliminary discussions are underway, though she declined to name the interested parties. She explained that a strategic investor would likely want full control over the company's future direction. This capital is crucial for Kinara Capital to resume its lending operations, which have been completely stalled.
Understanding the Debt Crisis
The company's troubles escalated throughout the 2024-25 financial year. Backed by investors like Gaja Capital and British International Investment (BII), Kinara Capital, which provides secured and unsecured loans to small businesses, reported its first-ever losses, primarily driven by bad loans.
The situation worsened in late July when a private sector lender triggered a loan set-off against the company's bank balances. This action prompted other bankers to issue loan recall notices, leading to a series of credit rating downgrades to 'D', or default status.
As of August, Kinara's total debt stood at a substantial ₹1,400 crore, with nearly 70% of this amount owed to international lenders. The company has approximately 20 domestic and 11 international lenders.
Previous attempts to raise capital and sell portions of its loanbook to generate cash were unsuccessful. Shah attributed this to a challenging environment where it has become difficult for investors to unlock additional capital for NBFCs.
Current Standstill and Future Steps
With its liquidity completely depleted, Kinara Capital has entered a standstill. The NBFC is no longer disbursing new loans and is focusing its efforts on recovering existing ones. Its assets under management fell to ₹2,831 crore at the end of 2024-25, down from ₹3,142 crore the previous year.
On a positive note, Shah revealed that the company has reached a settlement with almost all of its domestic lenders, who will recover their principal and some interest. The foreign lenders had agreed to a temporary standstill on repayments, which the NBFC has now begun to honor.
Shah emphasized that portfolio sales will remain a key strategy to generate liquidity for recoveries owed to international lenders. The company is committed to finding the fastest ways to provide these recoveries.
The credit rating agency Care Ratings downgraded Kinara in August, citing delays in servicing debt and noting that delinquencies in certain segments had increased. Slippages remained high at 8%, and the agency highlighted increased stress in the company's liquidity and overall financial profile, particularly in loans with higher ticket sizes.
Kinara Capital is not alone in facing these challenges. The broader NBFC sector, especially those that experienced a boom in unsecured lending, is now scaling back operations and cleaning up their books in response to tighter regulatory scrutiny and funding constraints.
