“When you pursue growth at the expense of prudence, you are going to get a knock on the nose. The nose will start bleeding, and it is not a good sight.” That, in a nutshell, is how a veteran value investor, known for his deep understanding of India’s credit market, summarises the journey of KKR India Financial Services (KIFS).
A string of bad loans, top-level exits, and rating downgrades, have left KIFS—the non-banking finance (NBFC) arm of global private equity giant Kohlberg Kravis Roberts & Co (KKR)—in a perilous position.
Between March 2019 and December 2019, it had to write off loans worth around Rs 1,045 crore (US$141.5 million) for its stressed accounts. Consequently, its loan book shrank to Rs 4,754 crore (US$643.8 million) from Rs 5,694 crore (US$771 million) in the same period. In January 2020, parent company KKR committed to infusing US$150 million infusing US$150 million Business Wire KKR increases commitment to KKR India Financial Services Read more (about Rs 1,063 crore) to provide liquidity and a cushion against further slippages. But the damage was already done.
Fortunately for KIFS, Mumbai-based NBFC InCred Finance has come forward to nurse its bleeding nose.
Talks are underway for a merger between the two companies; the combined entity will operate under the InCred brand. KKR, which holds a 51% stake in KIFS, will settle for a minority stake in the merged company along with other investors Abu Dhabi Investment Authority (ADIA) and Texas Teacher Retirement System (TTRS). The latter two jointly hold the remaining 49% in KIFS.
While talk of the merger between the two entities was reported reported VC Circle KKR may merge troubled India NBFC with InCred, take minority stake Read more in July 2020, InCred CEO Bhupinder Singh confirmed the news to The Ken on the phone.
Welcome as the merger may be for KKR, though, the deal stands out for the radically different DNA of the two firms. Four-year-old InCred lends to individuals and micro, small, and medium enterprises (MSMEs) which traditionally struggled for access to credit. In contrast, when KIFS launched in 2009, the idea was to deliver flexible financing or structured credit (customised lending products) for large Indian businesses. It was a novel offering at the time, unlike what most Indian NBFCs offered.
InCred “stuck to doing its due diligence and giving loans purely based on eligibility,” according to a former executive from InCred’s sales team.
