financial downfall of Kinara Capital: exploring factors leading to decline in profitability and momentum
In the ever-evolving world of Fintech, Kinara Capital, a Bengaluru-based lender operating in the sector, has faced a challenging year. The company reported a net loss of Rs 351.23 crore in FY25, marking a significant decline from a profit of Rs 62 crore in the previous fiscal year. This financial distress was primarily due to a contraction in Assets Under Management (AUM) and a series of factors that impacted the lender's profitability and asset quality.
The sale of stressed assets to an asset reconstruction company (ARC) at a steep loss significantly impacted Kinara Capital's profitability. Additionally, rising credit costs and elevated gross non-performing assets (NPAs) due to worsening borrower distress amid a challenging macroeconomic environment further exacerbated the situation.
One of the most significant challenges faced by Kinara Capital was widespread breaches of borrowing covenants on Rs 1,772 crore of debt. This financial strain triggered audit warnings about the company's ability to continue as a going concern. The company's cost on credit increased to 14.5% in FY25, from 7.1% in the previous year, due to mounting technical write-offs.
Industry headwinds impacting unsecured MSME lending NBFCs, including a shifting regulatory landscape and rising interest rates that squeezed margins and increased credit risk, also played a role in Kinara Capital's financial distress. The company faced financial covenant breaches on 91% of its debt across 25 parameters, including increased bad loans and reduced security cover, leading to potential lender actions such as accelerated repayment demands.
In response to these challenges, Kinara Capital has been actively seeking solutions. The company has engaged an investment banker to raise fresh funds in the range of INR 200-300 Crore. Additionally, Kinara Capital is exploring business correspondent (BC) partnerships to enable other institutions to drive MSME financial inclusion.
The lender has also been in ongoing discussions with lenders for covenant waivers and has made efforts to raise equity capital to strengthen the balance sheet and restore operational stability. Kinara Capital managed to raise INR 51 Crore in equity funding in Q3 FY25 and has already raised a total funding amount of $173.5 Mn.
As of March 31, 2025, Kinara Capital's total income dwindled by 18% to INR 601 Crore in FY25, from INR 734 Crore in the previous fiscal year. The rising bad loans led to an increase in Kinara Capital's credit cost, which impacted the lender's bottom line. The company's cash and bank balance stood at INR 493 Crore as of the same date.
Kinara Capital aims to raise new funds to expand its disbursement capacity through a balanced mix of secured and unsecured loans. The company has also faced challenges in recovering unsecured loans, which contributed to its financial distress.
In a notable move, India Ratings and Care Ratings downgraded their respective ratings for Kinara Capital, citing concerns over its financial stability. However, Kinara Capital remains resilient in its efforts to rebuild and stabilize operations, aiming to navigate the challenges and return to profitability in the coming fiscal years.
[1] Source: Business Standard [3] Source: Economic Times
- Kinara Capital's financial troubles in the fintech industry were attributed to a combination of factors, such as the sale of stressed assets at a loss, rising credit costs, and elevated gross non-performing assets, which were further compounded by industry headwinds impacting unsecured MSME lending NBFCs.
- In response to these challenges, Kinara Capital has been actively seeking solutions through tactics like engaging an investment banker to raise fresh funds, exploring BC partnerships for MSME financial inclusion, and seeking covenant waivers from lenders to strengthen the balance sheet and restore operational stability, alongside efforts to raise equity capital.
