INDIA INFOLINE FINANCE LIMITED - Securities and Exchange ...

India Infoline Finance Limited
We are also required to provide a credit enhancement for the securitization and assignment transactions by
way of either fixed deposits or corporate guarantees and the aggregate credit enhancement amount
outstanding as on March 31, 2012 on a consolidated basis was ` 692.36 million and on an unconsolidated
basis was ` 586.79 million. In the event a relevant bank or institution does not realize the receivables due
under such loan assets, such bank or institution would have recourse to such credit enhancement, which
could have a material adverse effect on our results of operations, financial condition and/or cash flows.
24. A decline in our capital adequacy ratio could restrict our future business growth.
As per RBI notification dated February 17, 2011, all non - deposit taking NBFCs have to maintain a
minimum capital ratio, consisting of Tier I and Tier II capital, which shall not be less than 15% of its
aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items w.e.f.
March 31, 2012. On an unconsolidated basis, our capital adequacy ratio computed on the basis of applicable
RBI requirements was 17.86% as of March 31, 2012, with Tier I capital comprising 15.46%. If we continue
to grow our loan portfolio and asset base, we will be required to raise additional Tier I and Tier II capital in
order to continue to meet applicable capital adequacy ratios with respect to our business. There can be no
assurance that we will be able to raise adequate additional capital in the future on terms favourable to us or
at all, and this may adversely affect the growth of our business
25. Our branches are vulnerable to theft which could adversely affect our reputation, business and results
of operation.
Storage of pledged gold jewellery as part of our business entails the risk of theft and resulting in loss to our
reputation and business. The short tenure of the loans advanced by us and our practice of processing loan
repayments within short timelines require us to store pledged gold jewellery in our premises at all points in
time. With regard to any theft, we may not be able to recover the entire amount of the loss suffered and may
receive only a partial payment of the insurance claim. There is no guarantee that thefts may or may not be
committed in the future, which could adversely affect our reputation, business and results of operations.
26. We may have to comply with stricter regulations and guidelines issued by regulatory authorities in India.
We are regulated principally by and have reporting obligations to the RBI. We are also subject to the
corporate, taxation and other laws in effect in India. In recent years, existing rules and regulations have
been modified, new rules and regulations have been enacted and reforms have been implemented which are
intended to provide tighter control and more transparency in India’s Gold Loan industry. Moreover new
regulations may be passed that restrict our ability to do business. For example, regulatory restrictions on
securitisation may be extended to bilateral assignment transactions, resulting in loss of arbitrage options.
We cannot assure you that we will not be subject to any adverse regulatory action in the future. Further,
these regulations are subject to frequent amendments and depend upon government policy. The costs of
compliance may be high, which may affect our profitability. If we are unable to comply with any such
regulatory requirements, our business and results of operations may be materially and adversely affected.
27. Our loan portfolio is not classified as priority sector advances by the RBI.
The RBI currently mandates domestic commercial banks operating in India to maintain an aggregate 40.0%
(32.0% for foreign banks) of their adjusted net bank credit or credit equivalent amount of off- balance sheet
exposure, whichever is higher as “priority sector advances”. These include advances to agriculture, small
enterprises, exports and similar sectors where the Government seeks to encourage flow of credit for
developmental reasons. Banks in India that have traditionally been constrained or unable to meet these
requirements organically, have relied on specialised institutions like our Company that are better positioned
to or focus on originating such assets through on-lending or purchase of assets or securitised pools to
comply with these targets.
Notification issued by the RBI in February 2011, has stipulated that loans sanctioned to NBFCs for on
lending to individuals or other entities against gold jewellery would not be eligible for classification as
agriculture sector advances in the context of priority sector lending guidelines. Further in term of the RBI
notification dated July 2012, investments made by banks in securitized assets originated by NBFC and
purchase/ assignment transaction by banks with NBFCs, where the underlying assets are loans against gold
jewellery, are not eligible for priority sector status. Accordingly, our ability to raise capital by selling down
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