Kinara Capital suffers a loss of Rs 351 crore due to a bad loan transaction and credit shock, which raises audit concerns.

After making a profit of Rs 62.15 crore in FY24, Kinara Capital reported a sharp decline to a net loss of Rs 351.23 crore in FY25. The company, which specializes in lending to MSMEs, was under increased financial hardship as a result of rising credit charges, the sale of stressed assets to an asset reconstruction company (ARC) at a significant loss, and numerous violations of borrowing covenants. As a result, its auditors issued a "material uncertainty" warning about Kinara's capacity to operate as a going concern. It's Kinara's first full-year defeat in more than ten years. It occurs in the midst of macroeconomic challenges and a changing regulatory environment that have affected a number of non-banking financial institutions (NBFCs) that provide unsecured MSME loans. As of December 31, 2024, Kinara had violated financial covenants on Rs 1,772 crore in borrowings, according to an exclusive report published by Moneycontrol in February. The company was also considering selling stressed assets. The company responded in writing to confirm the transfer. In the face of rising interest rates and borrower distress, the company confirmed ongoing waiver conversations with lenders and ascribed the stress to increased gross non-performing assets (NPAs) and declining profits. "We encountered industry headwinds in FY25 that affected the entire sector. In a written answer to questions, the business spokesperson stated that all of this resulted in a loss for this year, our first annual deficit reported in ten years, but that preliminary indications of operational normalization are starting to appear. Established in 2011 by Hardika Shah, Kinara Capital mainly provides working capital loans, the majority of which are unsecured, to traders and small businesses. Investors such as Nuveen, Gaja Capital, British International Investment, Patamar Capital, Gawa Capital, Triple Jump, and the Michael & Susan Dell Foundation are among the company's largest owners. Kinara Capital, a fintech firm that primarily lends to micro, small, and medium enterprises (MSMEs), has reported a dramatic reversal in its financial performance, posting a net loss of ₹351.23 crore for FY25, compared to a profit of ₹62.15 crore in FY24. The company, which had been on a decade-long streak of profitability, struggled under rising credit costs, the sale of distressed assets to an Asset Reconstruction Company (ARC) at a loss, and breaches of borrowing covenants. This has led to concerns from its auditors, who issued a "material uncertainty" warning about the company’s ability to continue operating as a going concern. The causes behind this sudden downturn are multifaceted. A key factor has been Kinara's decision to sell stressed assets at a significant loss, which further strained its balance sheet. In addition, the company had violated financial covenants related to its borrowings, with a total of ₹1,772 crore in loans being affected. These financial struggles were exacerbated by rising interest rates and borrower distress, leading to an increase in non-performing assets (NPAs), which negatively impacted the company’s profitability. For a company that has been a significant player in the MSME lending space, this loss represents a major setback, especially as it comes amidst broader economic challenges and a changing regulatory landscape that has impacted many non-banking financial companies (NBFCs). Kinara Capital had previously been one of the leaders in providing unsecured loans to MSMEs, a vital sector for India's economic growth. However, the regulatory and economic pressures have taken a toll on its operations, forcing the company to consider selling more stressed assets to shore up its finances. Despite these challenges, Kinara Capital is not giving up. The company has indicated that it is in ongoing discussions with its lenders to secure waivers for the financial covenant breaches and is hopeful about normalizing its operations. Established in 2011 by Hardika Shah, Kinara continues to serve small businesses and remains backed by several notable investors, including Nuveen and the Michael & Susan Dell Foundation. The company has acknowledged the tough year but expressed optimism that, with the right corrective actions, it can return to a stable footing moving forward.