A year after entering into talks for a partnership, American private equity giant KKR’s non-bank lending business KKR India Financial Services (KIFS) and InCred Financial Services, the retail and MSME lending business of InCred, have inked a deal to merge the two.
Founded in 2016 by Bhupinder Singh, InCred Finance is a tech-enabled lending institution that spans online and offline models across consumer, small businesses, and education lending. KIFS, which was founded in 2009, provides Indian businesses with financing solutions.
“Their (KKR) long-term vision and commitment to the India story fits perfectly with InCred’s objective of creating a leading financial institution that will play a meaningful role in India’s credit ecosystem," said Bhupinder Singh, founder and CEO of InCred.
Under the terms of the agreement, InCred’s retail non-banking finance business and KIFS will be combined to form InCred Finance, which will be led by Singh.
A consortium consisting of Singh and existing InCred investors will own a majority stake in InCred Finance. A consortium led by KKR and comprising existing investors in KIFS will retain a significant minority stake. KKR will be the single largest investor in InCred Finance at the time of the transaction’s close and will remain a long-term strategic partner to the business.
InCred’s equity investors include former Deutsche Bank co-CEO Anshu Jain, Ranjan Pai of Manipal Group, OAKS Asset Management, Investcorp, FMO, Moore Capital and Elevar.
The transaction is not a monetisation event for investors of InCred, KIFS or KKR, the two companies said. InCred Finance will be a strategic investment for KKR and will not be a portfolio company in a KKR fund. It will operate independently of KKR.
InCred Finance will have an equity base of $300 million and a balance sheet of $750 million.
“This is a great milestone for KKR’s India business considering the market-leading retail lending company Bhupinder and his team have created in just a few short years. Bringing together InCred Finance and KIFS will create a larger enterprise with the enhanced resources and investment acumen," said Gaurav Trehan, partner and CEO of KKR India.
According to rating agency Crisil, Incred Financial Services had a diversified loan portfolio of Rs 2,634 crore as on 31 March, which in the aftermath of the second wave reduced marginally to Rs 2,553 crore as of 30 June. The AUM consists of personal loans (32%), secured school financing (22%), student loans (13%), lending to FIs and escrow backed lending (19%), anchor-backed business lines (11%), the rating agency noted.
“During fiscal 2021, GNPAs rose to 4.5% as of December 31 amidst a tepid economic environment. However, following the recovery in Q4 2021, GNPAs reduced to 3.4% as of March 31 which after the second wave have again elevated marginally to 3.95% as on June 30," Crisil said.
Before entering into discussions with InCred, KKR’s NBFC business KIFS had witnessed a deterioration in its asset quality due to the impact of the liquidity crunch that resulted from defaults at IL&FS group in late 2018.
In its last rating update on KIFS on 30 March 2020, Crisil noted that between 31 March 2019 and 31 December 2019, the company had proactively written off/provided adequately for the stressed accounts which resulted in the loan book degrowing to Rs 4,754 crore from Rs 5,694 crore as of March 31, 2019. “Consequently, while the gross NPA inched up to 6.0% as on December 31, 2019 compared to 2.1% as on March 31, 2019 the net NPA remained lower at 3.5%. CRISIL notes that some of the stress in a few accounts manifested due to unexpected events and challenges linked to fraud and governance," Crisil said.
Avendus Capital advised KKR on the transaction. InCred Finance was advised by Credit Suisse and InCred Capital.