Prospectus (Muthoot NCD) v3 220212 (with BSE in-principle ... - Karvy

(In ` million except for Net NPAs/Net Retail loans and Gross NPAs/Gross Retail Loans; as per our audited financial statements)As of March 31, As of September 30, 20112009 2010 2011Gross NPAs 161.1 343.6 460.1 1,233.2Provisions 16.1 37.1 69.6 174.3Net NPAs 145.0 306.4 390.5 1,058.9Net Retail loans 25,559.8 54,298.3 116,820.6 183,529.9Net NPAs/Net Retail loans (%) 0.57% 0.56% 0.33% 0.58%Gross Retail Loans 33,690.1 74,381.5 158,684.5 209,404.9Gross NPAs/Gross Retail Loans (%) 0.48% 0.46% 0.29% 0.59%Amounts Written-off - 6.2 18.3 26.2The Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms(Reserve Bank) Directions, 2007 prescribe the provisioning required in respect of our outstandingloan portfolio. Should the overall credit quality of our loan portfolio deteriorate, the current level ofour provisions may not be adequate to cover further increases in the amount of our non-performingassets. Furthermore, although we believe that our total provision will be adequate to cover all knownlosses in our asset portfolio, our current provisions may not be adequate when compared to the loanportfolios of other financial institutions. Moreover, there also can be no assurance that there will beno further deterioration in our provisioning coverage as a percentage of gross non-performing assetsor otherwise, or that the percentage of non-performing assets that we will be able to recover will besimilar to our past experience of recoveries of non-performing assets. In the event of any furtherincrease in our non-performing asset portfolio, there could be an even greater, adverse impact on ourresults of operations.16. We face difficulties in carrying out credit risk analyses on our customers, most of whom areindividual borrowersUnlike several developed economies, a nationwide credit bureau has only recently becomeoperational in India, so there is less financial information available about individuals, particularlyour focus customer segment from the low to middle income group who typically have limited accessto other financing sources. It is therefore difficult to carry out precise credit risk analyses on ourcustomers. Although we follow certain know-your-customer procedures at the time of sanctioning aloan, we generally rely on the quality of the gold jewellery provided as collateral rather than on astringent analysis of the credit profile of our customers. Although we believe that our riskmanagement controls are sufficient, we cannot be certain that they will continue to be sufficient orthat additional risk management policies for individual borrowers will not be required. Failure tomaintain sufficient credit assessment policies, particularly for individual borrowers, could adverselyaffect our credit portfolio which could have a material and adverse effect on our results of operationsand financial condition.17. Our customer base comprises mostly individual borrowers, who generally are more likely to beaffected by declining economic conditions than large corporate borrowers.Individual borrowers generally are less financially resilient than large corporate borrowers, and, as aresult, they can be more adversely affected by declining economic conditions. In addition, asignificant majority of our customer base belongs to the low to middle income group, who may bemore likely to be affected by declining economic conditions than large corporate borrowers.18. Because we handle high volume of cash and gold jewellery in a dispersed network of branches, weare exposed to operational risks, including employee negligence, fraud, petty theft, burglary andembezzlement, which could harm our results of operations and financial position.As per our audited financial statements, as of September 30, 2011, we held cash balance of ` 1,134.5million and gold jewellery of 129.5 tons. Our business involves carrying out cash and gold jewellerytransactions that expose us to the risk of fraud by employees, agents, customers or third parties, theft,burglary, and misappropriation or unauthorised transactions by our employees. Our insurancepolicies, security systems and measures undertaken to detect and prevent these risks may not besufficient to prevent or detect such activities in all cases, which may adversely affect our operationsPage | 17