Trident Microfin Private Limited · a trust started by the Institute of Chartered Financial...

Trident Microfin Private Limited

(TMPL)

MFI Grading Report

July 2009

MFI Grading –Trident Microfin Private Limited (TMPL)

Page 2 of 16 July 2009

Disclaimer: CRISIL's MFI grading reflects CRISIL’s current opinion on the ability of an MFI to conduct its operations in a scalable and

sustainable manner. The MFI grading does not constitute an audit of the graded MFI by CRISIL. In the case of NGO-MFIs, CRISIL’s MFI

gradings apply only to their microfinance programmes. CRISIL MFI gradings are based on information provided by the graded MFI, or

obtained by CRISIL from sources it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any

information and is not responsible for any errors or omissions for the results / opinions obtained from the use of such information. CRISIL

especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this report

This grading does not opine on the MFI’s ability for timely payment of interest and principal. Nor is it a recommendation to purchase, sell,

or hold any financial instrument issued by the graded MFI, or to make loans / donations/ grants to the graded MFI. The MFI grading

assigned by CRISIL cannot be used by the MFI/NGO-MFI in any form for mobilizing deposits/savings/thrift from its members or general

public.

© 2009- CRISIL-All rights reserved

For any information of the MFI gradings assigned by CRISIL, please contact the Rating Desk on +91 22 6691 3047/64 or email to

[email protected]

Trident Microfin Private Limited (TMPL) ‘mfR4’

Year of incorporation : August 1996

Legal Status: NBFC

Type of Institution: MFI

Lending Model: Grameen bank model, joint

liability group (JLG) and individual loans

Mr. Kishore Kumar Puli Managing Director Trident Microfin Private Limited No.11-8-15,MIG 33, Shree Sai Arcade, 1st and 2nd floor, Saroor Nagar, Hyderabad-500035, Tel : 040-23443210 Email: [email protected]

MFI Grading

mfR1

mfR2

mfR3

mfR4

mfR5

mfR6

mfR7

mfR8

mfR1:highest

mfR8: lowest

CRISIL’s microfinance institution (MFI) grading is a current opinion on the

ability of an MFI to conduct its operations in a scalable and sustainable manner.

The grading is assigned on an eight-point scale, with ‘mfR1’ being the highest,

and ‘mfR8’ the lowest. The MFI grading is a measure of the overall performance

of an MFI on a broad range of parameters under CRISIL’s MICROS framework.

It includes a traditional creditworthiness analysis using the CRAMEL approach,

modified to be applicable to the microfinance sector. The acronym MICROS

stands for Management, Institutional arrangement, Capital adequacy and asset

quality, Resources and asset-liability management, Operational effectiveness,

and Scalability and sustainability.



1 Rationale

Profile

Trident, formerly Annapurna Financial Services Pvt Ltd (Annapurna), is a non-deposit taking

non-banking financial company (NBFC-ND) that has a registered office in Amritsar, Punjab.

Annapurna, which was incorporated in 1996, did not carry out any business activity at the time of

acquisition by Trident’s promoters. In January 2008, Trident acquired the microfinance loan

portfolio of Trident Seva Society, which started its operations in 2007. In September 2008, the

NBFC acquired the two-year-old microfinance programme of the Maxwealth Trust (Maxwealth),

a trust started by the Institute of Chartered Financial Analysts of India (ICFAI), Hyderabad. At

the time of acquisition, Maxwealth had a loan portfolio of Rs.192 million, with 23 branches in and

around Hyderabad while Trident had a loan portfolio of Rs.80 million and seven branches in the

Telangana region of Andhra Pradesh (AP) and Maharashtra’s Vidarbha region. Annapurna was

renamed as Trident in April 2009.

Although a start-up, Trident, following the acquisition of the loan portfolio of Rs.192 million, has

rapidly grown in the past nine months. As on June 30, 2009, it had more than 88,000 borrowers

and a loan outstanding of Rs.451 million (includes managed loans). As on the above date, the

The microfinance institution (MFI) grading of ‘mfR4’ assigned to Trident Microfin Pvt Ltd’s

(TMPL) reflects the MFI’s:

� Management’s experience in microfinance

� Strong shareholder support

� Acquisition of a well-managed microfinance programme

� Good asset quality

The abovementioned grading strengths are partially offset by:

� Modest resource profile

� High geographic concentration



company had 31 branches across six districts in Telangana (includes Hyderabad), and four

districts in Vidarbha. Trident offers seven loan products; the loan amounts range from Rs.6,000 to

Rs.100,000. The company follows three different lending models: the Grameen Bank model

(interest rate of 12.5 per cent on a flat rate basis in AP and 15 per cent on a flat rate basis in

Maharashtra), the joint liability group model (interest rate of 15 per cent on a flat rate basis) and

the individual lending model. Loans under the Grameen Bank model (amounts ranging from

Rs.6,000 to Rs.15,000) accounted for more than 90 per cent of the loan portfolio outstanding as on

March 31, 2009. It also offers life insurance to its members through a tie-up with Bajaj Allianz Life

Insurance Co Ltd. In June 2009, Trident also tied up with Kotak Mahindra Old Mutual Life

Insurance Ltd for offering group term insurance products to cover its borrowers.

Management

Trident has adequate monitoring and recovery practices, and internal controls. The company’s

client identification, group formation, approval, and loan-monitoring systems are comparable with

those of most other large Indian MFIs. Trident’s management has been successful in integrating

the microfinance operations of a much larger entity with itself during the past nine months. In

CRISIL’s opinion, the acquisition of Maxwealth’s operations have not only provided Trident a

sizeable client base and a branch network in Hyderabad, but also seasoned field staff with

experience in the Grameen Bank model of group lending, middle management and access to a

superior loan-tracking system. Most of Maxwealth’s field staff had prior work experience with

other leading MFIs and its management team comprised those with experience in rural banking

and marketing of fast-moving consumer goods in rural markets.

Institutional Arrangement

Trident’s board and top management have

adequate experience in microfinance. All the

board members are currently engaged in the

microfinance sector and three of the directors

(including the promoter) have worked earlier

with the BASIX group, one of early players in

the microfinance sector. Although the

promoter’s (who is also the managing director)

stake is very small, he (Mr. Kishore Kumar P)

Promoter

2%

Bellwether

Microfin. P.Ltd33%

Bellwether Microfin.

Trust15%

IFIF50%

Chart 1 : Share holding pattern as on March 31, 2009



enjoys the support of two principal investors-- microfinance investment vehicles (MIVs) (state

names)--both managed by the same fund manager, Caspian Advisors P Ltd (headed by the former

chief executive officer of Bhartiya Samrudhhi Finance Ltd). Although a relatively new company,

the principal investors’ interest in Trident is evident in the fact that they had played an active role

in Trident’s acquisition of Maxwealth’s microfinance operations. Both MIVs have a long

investment horizon of more than five years and CRISIL expects this to provide the company

flexibility to scale up and stabilise its operations over the next two to three years.

Capital Adequacy and Asset Quality

As on March 31, 2009, Trident had a tangible net worth of Rs.177 million, which is adequate to

support its business growth over the medium term. Trident, however, is expected to become a

systemically important non-deposit taking NBFC in 2009-10 (refers to financial year, April 1 to

March 31), when its assets cross Rs.1 billion. Therefore, it would need to maintain a capital

adequacy ratio above 15 per cent by March 2011. Moreover, the company’s projections assume

high double digit growth in advances during the next 3-4 years (refer annexure 2.3) which would

require regular capital infusion. Therefore, timely capital infusion to maintain adequate

capitalisation levels would remain a key grading sensitivity factor for future grading assessments

by CRISIL.

Trident has good asset quality with 100 per cent of its loan portfolio being current for March 2009;

the on-time repayment rate has been consistently high since the start of operations in January 2008.

The on-time repayment rate has similarly been high on Maxwealth’s loan portfolio. CRISIL,

however, believes that the credit risks remain very high on account of high concentration of the

loan portfolio in Hyderabad and adjoining areas (more than 60 per cent as on June 30, 2009). There

are several large MFIs operating in Hyderabad and adjoining districts and, therefore, the risk of

over-financing a borrower by multiple lenders is very high. CRISIL’s experience indicates that the

debt-servicing behaviour of microfinance borrowers is uncertain in times of adverse media and

government attention faced by MFIs. Such attention increases when borrowers are overleveraged

and face difficulty in repaying MFI loans.



Resources and Asset-Liability Management

The MFI had borrowings of Rs.319 million (includes direct assignment) from three private banks,

one foreign bank and a public sector bank as on June 30, 2009. Trident raised Rs.90 million during

the first quarter of 2009-10, and has approached several scheduled commercial banks and apex

MFIs to raise the remaining borrowing requirement of Rs.1.25 billion for 2009-10. A portion of this

is also expected to be met through direct assignments. Given the short operating track record,

however, CRISIL believes that raising incremental resources to meet its aggressive growth plans

will be a task. The manner in which the MFI is able to raise and diversify its borrowings will be a

key monitorable. The majority of assets are funded by longer maturity borrowings; therefore, it

faces no asset liability mismatches over the short to medium term.

Operational Effectiveness

The company achieved a net profit of Rs.4.94 million and operating self sufficiency (OSS) of 120

per cent (excluding standard loan loss provisioning) in 2008-09. CRISIL expects the OSS to remain

at current levels during 2009-10 despite increase in fund-based yields. The increase in fund-based

yields would be offset by higher cost of borrowings and operating expense levels. The ratio of

interest to average cost of borrowings was lower in 2008-09 as the bulk of Trident’s borrowings

were in the second half of the financial year and the full impact of the same would be visible in

2009-10. Moreover, the cost of incremental borrowings is expected to increase during the second

half of 2009-10. Similarly, operating expense levels during 2009-10 are expected to increase on

account of roll out of new branches.

Much of Trident’s non-acquired loan portfolio is in regions within Andhra Pradesh and

Maharashtra, where the MFI had limited competition as of now, providing opportunities for

growth. Given the senior management’s past experience in offering loans to joint liability groups

(JLG) and individual loans, Trident is keen to expand its non-Grameen-Bank-model loans. This

shift towards higher interest-yielding loans together with increase in exposure to Maharashtra

(where Trident charges a flat rate of 15 per cent under the Grameen Bank model as against 12.5

per cent it charges in AP) is expected to result in higher yields and consequently higher spreads.

CRISIL, however, believes that the high lending rates may not be sustainable over the long term

and, therefore, the MFI will need to attain high levels of branch and employee productivity if it is

to maintain adequate levels of profitability.



Scalability and Sustainability

Trident had three years of experience

(including Maxwealth) and a member base of

more than 99,000 spread across Hyderabad,

Telangana and Vidarbha as on June 30, 2009.

The grading largely draws comfort from

Trident’s acquisition of a well-run microfinance

programme and its ability to successfully

integrate Maxwealth’s operations with itself.

The key challenge for Trident would be its

ability to retain and provide growth

opportunities to experienced field staff, which have joined Trident following Maxwealth’s

acquisition.

The other key challenge would be Trident’s ability to reduce its geographic concentration and

expand its non-Grameen-Bank-model loan portfolio, which is very small as of March 2009. As

indicated above, much of the current business is driven by the erstwhile Maxwealth’s operations

and the management’s ability to diversify its loan portfolio (in terms of markets and products) to

minimise risks is yet to be demonstrated. Positive grading actions at the time of subsequent

assessments will depend on whether the company is able to maintain good asset quality, raise

adequate borrowings, diversify, improve earnings, and maintain healthy capitalisation levels. On

the other hand, a negative grading action would occur if high loan growth is not matched by

further capital increases and if there are high delinquencies.

Hyderabad & adj. areas

62%

Telangana

27%

Vidarbha

11%

Chart 2: Region wise loan distribution as on June 30, 2009



2 Annexures

2.1 BUSINESS .................................................................................................................................... 9 2.1.1 Outreach summary ..................................................................................................................... 9 2.1.2 Productivity indicators ............................................................................................................... 9 2.1.3 Loan product details ................................................................................................................. 10 2.1.4 Insurance product details ......................................................................................................... 10 2.1.5 Loan product wise distribution details ..................................................................................... 11 2.1.6 Borrowing details as on June 30, 2009 ..................................................................................... 11 2.2 FINANCIAL STATEMENTS OF TRIDENT MICROFIN PVT. LTD ................................................ 12 2.2.1 Income and Expenditure Statement ......................................................................................... 12 2.2.2 Balance Sheet ............................................................................................................................ 13 2.2.3 Key Financial Ratios ................................................................................................................. 14 2.3 PROJECTED FINANCIAL STATEMENTS AS PROVIDED BY TRIDENT ........................................ 15 2.3.1 Income and Expenditure Statement ......................................................................................... 15 2.3.2 Balance sheet ............................................................................................................................. 16 2.3.3 Key financial ratios based on projections .................................................................................. 16



2.1 Business

2.1.1 Outreach summary

For the period ending March 31, Unit 2009 2008

Members No. 89,525 8,200

Borrowers No. 81,042 8,200

Branches No. 31 7

Districts No. 9 2

Women borrowers % 100 100

Loans disbursed No. 119,557 8,260

Disbursements Rs.Mn 596.19 64.77

Loan outstanding(own) Rs.Mn 422.52 47.15

Loan outstanding(managed) Rs.Mn 28.63 -

Total loan outstanding Rs.Mn 451.15 47.15

2.1.2 Productivity indicators

For the period ending March 31, Unit 2009 2008

Total employees No. 227 29

Credit officers No. 130 29

Members / credit officer No. 689 283

Borrowers / credit officer No. 623 283

Members/branch No. 2,888 1,171

Loan accounts/ branch No. 2,614 1,171

Loan outstanding/ credit officer Rs.Mn 3.47 1.63

Loan outstanding/branch Rs.Mn 14.55 6.74



2.1.3 Loan product details

Loan type Group loan

Micro Enterp loan

Agri-allied loan

Crop loan

Housing/Infra ** Personal

Staff loan

Loan amount(Rs.) 6,000- 16,000

15,000- 1,00,000

15,000- 1,000,000 6,000-25,000

25,000-3,00,000

15,000-1,00,000

25,000-1,00,000

Interest rate(% @ flat rate) 12.5-15 15.00 15 21# 21# 15 12.5**

Loan processing fees (%) 3 3.00 3 3 3 3 -

Registration fee(Rs.) 100 100 100 100 100 100 -

Cash security(%) 10* - - 10* - - -

Repayment Weekly/ Monthly Monthly Monthly Half yearly

Monthly/half yearly Monthly Monthly

Tenure 50 W & 12-24 M 18-36 18-36 11 12'-36 18-36 12'-36^

Moratorium - 45 days 60 days

60 (int) & 180(Pri)

days 2-6

months 60 days 60 days

*for monthly repayments #declining rate **for vehicle loan charges at 15% declining rate, ^vehicle loan to staff with 60 months tenure ** yet to be launched as on July 2009

2.1.4 Insurance product details

in Rs.

Group loans weekly and monthly

Loan amount Sum assured Premium for weekly loans

Premium for monthly loans

4,000 5,000 50 100

6,000 10,000 100 200

8,000 10,000 100 200

10,000 15,000 150 300

12,000 15,000 150 300

14,000 15,000 150 300

16,000 20,000 200 400

JLG, Individual & crop loans

Sum assured Insurance

1.5 times of loan amount and Rs.500-1000 Rs.10 per Rs.1000

sum assured



2.1.5 Loan product wise distribution details

in per cent

Loan product Mar-09 Mar-08

Group loans 99.46 99.53

Micro Enterprise loan 0.10 0.30

Agri. allied group loans 0.20 -

Agri. allied loans 0.17 -

Crop loans 0.03 -

Personal loans 0.04 0.17

Total 100 100

2.1.6 Borrowing details as on June 30, 2009

Rs. million

Bank Name Sanctioned Outstanding Tenor

(in months)

Axis Bank Ltd 87.50 70.99 30

DCB Bank Ltd 30.00 16.28 18

ABN Amro Bank 107.52 62.07 36

HDFC Bank Ltd 119.50 89.81 18

Indian Overseas Bank 70.00 70.00 36

Bellwether Micro Finance Fund 40.00 10.00 12

Total 454.52 319.16



2.2 Financial Statements of Trident Microfin Pvt. Ltd

2.2.1 Income and Expenditure Statement

Rs. million

Trident Maxwealth

Combined (Trident+

Max wealth) #

For the year ended March 31, 2009 2008 2008 2008 Fund based income

Interest income from loans * 51.44 2.42 9.39 11.81

Income from investments /bank deposits 0.52 - - -

Total fund based income 51.96 2.42 9.39 11.81

Interest and finance charges

On borrowings * 19.55 0.30 - 0.30

Finance charges 0.98 0.05 0.23 0.28

Total interest and finance charges paid 20.53 0.35 0.23 0.58

Gross spread 31.43 2.07 9.16 11.24

Fee based income

Membership fee 3.30 0.39 1.48 1.86

Processing charges & insurance commission 18.25 1.21 2.63 3.84

Total fee based income 21.55 1.59 4.11 5.70 Total income 73.51 4.01 13.50 17.52

Gross surplus 52.98 3.67 13.27 16.94

Expenses

Personnel expenses 21.47 0.06 12.40 12.46

Administrative expenses 11.44 2.15 2.72 4.87

Loss on sale of asset 0.02 - - -

Amortization on intangible assets 5.65 - - -

Total expenses 38.58 2.21 15.12 17.34

Provision for standard assets 3.16 - - -

Depreciation 1.65 0.07 0.47 0.54

Profit before tax 9.59 1.39 -2.32 -0.93

Tax 4.65 0.49 0.00 0.49

Profit after tax 4.94 0.90 -2.32 -1.42

Notes:

# The combined Income and Expenditure (Trident and Maxwealth) for 2007-08 has presented here for ease of comparison with 2008-09 financials.

* Interest income includes interest income on loan portfolio assigned to a bank. The monthly payout to the bank has been factored as financial expense



2.2.2 Balance Sheet

Rs. million

Trident Max Wealth

Combined (Trident+ Max wealth)

Balance sheet as at March 31, 2009 2008 2008 2008

Liabilities

Paid-up capital 86.79 18.98 - 18.98

Corpus - - 0.10 0.10

Reserves and surplus 121.09 0.85 -2.43 -1.58

Intangibles -30.82 - - -

Tangible net worth 177.06 19.83 -2.33 17.50

Borrowings 296.96 31.61 155.01 # 186.62

Borrowings (managed) 28.63 - - -

Total borrowings 325.59 31.61 155.01 186.62

Security deposits 3.59 0.22 - 0.22

Provision for loan loss 3.16 - - -

Other liabilities 10.23 1.78 1.27 3.05

Total current liabilities 13.40 1.78 1.27 3.05

Total liabilities 519.64 53.45 153.94 207.39

Assets

Loans and advances 422.52 47.15 143.32 190.47

Loans and advances- managed portfolio 28.63 - - -

Loans outstanding 451.15 47.15 143.32 190.47

Cash & bank balances 39.84 2.78 6.20 8.97

Deposits with banks 19.04 - 0.92 0.92

Other current assets 2.12 2.10 0.80 2.90

Total current assets 60.99 4.88 7.91 12.79

Total funds deployed 512.14 52.02 151.24 203.26

Net fixed assets 7.50 1.42 2.71 4.13

Total assets 519.64 53.45 153.94 207.39

# Maxwealth had borrowed from ICFAI and a group entity



2.2.3 Key Financial Ratios

in per cent

Year ended March 31, 2009

Yield

Fund based yield 18.42

Portfolio yield 20.65

Total income / Avg. funds deployed 26.06

Cost of funds

Interest paid/Avg. funds deployed 7.28

Interest paid/Avg. borrowings 11.50

Interest spread

Gross spread/Avg. funds deployed 11.14

Spreads on lending 6.93

Overheads

Operating expenses / disbursements 59.56

Operating expense ratio 14.26

Personnel expense ratio 7.61

Administrative expense ratio 4.65

Profitability

Return on net worth 5.01

Return on funds deployed 1.75

Operational self sufficiency (adj. for std. loan loss provision) 120.99

Asset quality

Provisioning & write-off/Avg. loan outstanding 1.56

Capitalisation

Total debt/net worth (times) 1.84

Capital adequacy 40.14

Notes:

a) includes managed loans, where appropriate b) For capital adequacy computation:

I. 100% risk weight assumed on managed loans II. Upfront security deposit deducted from loans outstanding while arriving at risk

weighted assets



2.3 Projected Financial Statements as provided by Trident

2.3.1 Income and Expenditure Statement

Rs. million

For the year ended March 31, 2013 2012 2011 2010

Fund based income 1524 876 496 231 Interest paid on borrowings 838 494 283 125

Gross spread 686 383 213 105

Fee based income 451 258 147 84

Total income 1975 1134 643 314

Gross surplus 1137 641 360 189

Expenses

Personnel expenses 382 247 139 89

Administrative expenses 139 75 41 23

Total expenses 520 321 180 112

Provision for loan loss 15 9 5 2

Depreciation 18 15 12 10

Profit before Tax 584 296 164 65

Tax 204 103 57 23

Profit after tax 380 192 107 42



2.3.2 Balance sheet

Rs. million

Balance sheet as at 2013 2012 2011 2010

Liabilities

Share capital 704 404 254 204

Reserves and surplus 724 344 152 45

Net worth 1428 748 406 249

Long term borrowings 7014 4156 2425 1348 Other current liabilities 15 15 15 15

Total liabilities 8456 4919 2846 1612

Assets

Loans and advances 8101 4661 2669 1474

Cash & bank balances 25 67 67 75

Other current assets 293 153 71 24

Total current assets 317 220 139 100

Total funds deployed 8418 4881 2808 1574

Net fixed assets 38 38 38 38

Total assets 8456 4919 2846 1612

2.3.3 Key financial ratios based on projections

in per cent

Year ended 2013 2012 2011 2010

Yield

Fund based yield 22.91 22.79 22.64 22.12

Portfolio yield 23.88 23.90 23.95 23.97

Total income /Avg. funds deployed 30.14 29.37 29.50 29.70

Cost of funds

Interest paid/Avg. funds deployed 12.60 12.84 12.92 12.03

Interest paid/Avg. borrowings 15.00 15.00 15.00 15.00

Interest spread

Gross spread/Avg. funds deployed 10.32 9.95 9.73 10.09

Interest spread 7.91 7.79 7.64 7.12

Overheads

Operating expense ratio 8.10 8.75 8.75 11.67

Profitability

Return on net worth 34.89 33.29 32.57 18.55

Return on funds deployed 5.71 5.00 4.87 4.07

Operational self sufficiency 141.97 135.24 134.26 126.19

Asset quality

Provisioning / Avg. loan outstanding 0.23 0.24 0.22 0.19

Capitalization

Total debt/net worth (times) 4.91 5.56 5.97 5.41

Capital adequacy 16.93 15.42 14.61 16.22

Trident Microfin Private Limited · a trust started by the Institute of Chartered Financial...

Documents

Transcript of Trident Microfin Private Limited · a trust started by the Institute of Chartered Financial...