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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
SKS MICROFINANCE LIMITED
(SKS Microfinance Limited (the “Issuer”) was incorporated as SKS Microfinance Private Limited on September 22, 2003 under the Companies Act, 1956 and deemed to exist within the
purview of the Companies Act, 2013. Pursuant to a resolution of its shareholders passed on May 2, 2009, the Issuer was converted into a public limited company and the word “private” was deleted from its name on May 20, 2009)
Registered Office: Unit No. 410, Madhava, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051
Head Office: Third Floor, My Home Tycoon, Block A, 6-3-1192, Kundanbagh, Begumpet, Hyderabad 500 016
Compliance Person: Mr. Rajendra Patil, Company Secretary Email of Compliance Person: [email protected];
Telephone: +91 40 4452 6000; Fax: +91 40 4452 6001;
Website: www.sksindia.com;
CIN: L65999MH2003PLC250504
INFORMATION MEMORANDUM AND PRIVATE PLACMENT OFFER LETTER FOR ISSUE BY WAY OF PRIVATE PLACEMENT (EACH AN “ISSUE”) BY THE
ISSUER OF 11.48% SERIES 1 SECURED, NON-CUMULATIVE, REDEEMABLE, TAXABLE, LISTED, RATED NON-CONVERTIBLE DEBENTURES OF A FACE VALUE
OF RS. 10,00,000 AGGREGATING TO RS. 100,00,00,000 DUE 2018 (“SERIES 1 DEBENTURES”) AND 11.48% SERIES 2 SECURED, NON-CUMULATIVE,
REDEEMABLE, TAXABLE, LISTED, RATED NON-CONVERTIBLE DEBENTURES OF A FACE VALUE OF RS. 10,00,000 EACH AGGREGATING TO RS. 100,00,00,000
DUE 2018 (“SERIES 2 DEBENTURES”, TOGETHER WITH THE SERIES 1 DEBENTURES, THE “DEBENTURES”) TOTAL AGGREGATING TO RS. 200,00,00,000
GENERAL RISKS
Investment in debt and debt related securities involves a degree of risk and Investors should not invest any funds in the debt instruments, unless they understand the terms and conditions and
can afford to take the risks attached to such investments. For taking an investment decision, potential Investors must rely on their own examination of the Issuer, the Issue of any Debentures,
this Information Memorandum including the risks involved. The Debentures have not been recommended or approved by Securities and Exchange Board of India (“SEBI”) nor does SEBI
guarantee the accuracy or adequacy of this document. Investors are advised to take an informed decision and consider with their advisers, of the suitability of the Debentures in the light of
their particular financial circumstances and investment objectives and risk profile, and of all information set forth in this Information Memorandum, including the section entitled “Risk
Factors”, before investing.
ISSUER’S ABSOLUTE RESPONSIBILITY
The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Information Memorandum contains all information with regard to the Issuer and the Issue,
which is material in the context of the Issue, that the information contained in this Information Memorandum is true and correct in all material respects and is not misleading in any material
respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Information Memorandum as a whole or any of
such information or the expression of any such opinions or intentions misleading in any material respect.
CREDIT RATING
Credit Analysis and Research Limited (“CARE”) has by way of its letter no. CARE/HO/RL/2014-15/3005 dated March 30, 2015 assigned a rating of “CARE A+” to the Debentures
proposed to be issued by the Issuer pursuant to this Information Memorandum. This rating of the Debentures by CARE indicates adequate degree of safety regarding timely servicing of
financial obligations. Such instruments carry low credit risk.
The above ratings are not a recommendation to buy, sell or hold securities and Investors should take their own decision. The ratings may be subject to revision or withdrawal at any time by
the assigning rating agency and should be evaluated independently of any other ratings. Please refer to the Annexure E to this Information Memorandum for rating letter by CARE.
LISTING
The Debentures offered through this Information Memorandum are initially proposed to be listed on the Wholesale Debt Market (“WDM”) Segment of BSE Limited (“BSE”). The Issuer,
with prior intimation to the Debenture Trustee, may get the Debentures listed on other recognized stock exchanges as it deems fit. The Issuer shall comply with the requirements of the listing
agreement to the extent applicable to it on a continuous basis.
Application for ‘in-principle’ listing approval was made to BSE through letter dated March 25, 2015. BSE has given its ‘in-principle’ listing approval for the Debentures proposed to be
offered through this Information Memorandum through the letter dated March 25, 2015.
ISSUE PROGRAMME
ISSUE OPENING DATE ISSUE CLOSING DATE PAY-IN DATE
March 30, 2015 March 30, 2015 March 30, 2015
ARRANGER DEBENTURE TRUSTEE REGISTRAR TO THE ISSUE
Derivium Tradition Securities (India) Private Limited
Eucharistic Congress III, 10 Flr,
5 Convent Road, Colaba,
Mumbai - 400 039, India
Tel No.: +91 22 6606 4600
Fax No.: +91 22 6606 4601
Email: [email protected]
Investor Grievance E-mail: [email protected]
Contact Person: Mr. Jagdish Udeshi
SEBI Reg. No.: INB231300535
IDBI Trusteeship Services Limited
Asian Building, Ground Floor,
17, R. Kamani Marg, Ballard Estate,
Mumbai 400 001, India
Tel No.: +91 22 4080 7000
Fax No.: +91 22 6631 1776
Email: [email protected]
Investor Grievance E-mail: [email protected]
Contact Person: Mr. Naresh Sachwani
SEBI Reg. No.: IND000000460
Karvy Computershare Private Limited
Karvy House, 46, Avenue 4,
Street No.1, Banjara Hills,
Hyderabad, 500 038, India
Tel No.: +91 40 4465 5000
Fax No.: +91 40 2343 1551
Email: [email protected]
Investor Grievance E-mail: [email protected]
Contact Person: M Murali Krishna
SEBI Reg. No.: INR000000221
Each Issue of Debentures shall be subject to the provisions of the Companies Act, 1956, (the “Old Companies Act”) (to the extent in force on the date of this Information Memorandum),
the Companies Act, 2013, (the “New Companies Act”), the rules notified pursuant to the New Companies Act, the Memorandum and Articles of Association of the Issuer, the terms and
conditions of this Information Memorandum filed with BSE and any other recognized stock exchanges, as applicable, the Application Form, and other terms and conditions as may be
incorporated in the Debenture Trust Deed and other documents in relation to each such Issue.
THIS INFORMATION MEMORANDUM ALSO CONSTITUTES A PRIVATE PLACEMENT OFFER LETTER AND INCORPORATES DISCLOSURES REQUIRED
UNDER FORM PAS-4 OF THE COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014
mailto:[email protected]://www.sksindia.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
TABLE OF CONTENTS
DISCLAIMERS ....................................................................................................................................................................... 1
DEFINITIONS AND ABBREVIATIONS ............................................................................................................................. 6
FORWARD LOOKING STATEMENTS ............................................................................................................................ 11
RISK FACTORS ................................................................................................................................................................... 13
SUMMARY TERM SHEET ................................................................................................................................................. 26
BUSINESS OF THE ISSUER ............................................................................................................................................... 36
KEY OPERATIONAL AND FINANCIAL PARAMETERS ............................................................................................ 41
MATERIAL AGREEMENTS/ DOCUMENTS .................................................................................................................. 42
FINANCIAL INFORMATION OF THE ISSUER ............................................................................................................. 43
RELATED PARTY TRANSACTIONS ............................................................................................................................... 55
OUTSTANDING LITIGATIONS AND DEFAULTS ........................................................................................................ 57
THE ISSUER’S MANAGEMENT ....................................................................................................................................... 58
OBJECTS OF THE ISSUE ................................................................................................................................................... 67
STATUTORY AND REGULATORY DISCLOSURES ..................................................................................................... 68
ISSUE PROCEDURE............................................................................................................................................................ 84
UNDERTAKINGS BY THE ISSUER .................................................................................................................................. 92
DECLARATION ................................................................................................................................................................... 93
ANNEXURE A APPLICATION FORM ........................................................................................................................... 94
ANNEXURE B BOARD RESOLUTION AUTHORSING THE ISSUE .......................................................................... 98
ANNEXURE C COMMITTEE OF DIRECTORS RESOLUTION ............................................................................... 100
ANNEXURE D SHAREHOLDERS RESOLUTION....................................................................................................... 102
ANNEXURE E RATING LETTER FROM CARE ......................................................................................................... 103
ANNEXURE F CONSENT OF DEBENTURE TRUSTEE ............................................................................................. 105
ANNEXURE G IN-PRINCIPLE APPROVAL OF THE BSE ........................................................................................ 107
ANNEXURE H ANNUAL FINANCIAL STATEMENTS FOR YEARS ENDED MARCH 31, 2012, 2013 AND 2014
............................................................................................................................................................................................... 108
ANNEXURE I LIMITED REVIEW FINANCIALS FOR HALF YEAR ENDED SEPTEMBER 30, 2014 ............... 114
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
1
DISCLAIMERS
ISSUER’S DISCLAIMER
The distribution of this Information Memorandum and each Issue of Debentures, to be initially listed on the
WDM segment of BSE and subsequently on any recognized stock exchange as the Issuer deems fit, after giving
prior intimation to the Debenture Trustee, is being made strictly on a private placement basis. This Information
Memorandum is not intended to be circulated to any person other than Eligible Investors. Multiple copies hereof
or of any Information Memorandum given to the same entity shall be deemed to be given to the same person
and shall be treated as such. It does not constitute and shall not be deemed to constitute an offer or an invitation
to subscribe to the Debentures to the public of India in general. This Information Memorandum should not be
construed to be a prospectus or a statement in lieu of prospectus under the New Companies Act. Apart from this
Information Memorandum, no offer document or prospectus has been or will be prepared in connection with the
offering of the Debentures or in relation to the Issuer nor is such a prospectus required to be registered under
applicable laws.
This Information Memorandum has been prepared in conformity with the SEBI Debt Regulations, Old
Companies Act (to the extent in force on the date of this Information Memorandum) and New Companies Act.
Pursuant to Section 42 of the New Companies Act and Rule 14(3) of the PAS Rules, the Issuer shall file a copy
of this Information Memorandum with the ROC and SEBI within a period of 30 (thirty) days of circulation of
this Information Memorandum.
This Information Memorandum has been and will be prepared to provide general information about the Issuer to
potential Investors to whom it is addressed and who are willing and eligible to subscribe to the Debentures. This
Information Memorandum does not purport to contain all the information that any potential Investor may
require. Neither this Information Memorandum nor any other information supplied in connection with the
Debentures is intended to provide the basis of any credit or other evaluation and any recipient of this
Information Memorandum should not consider such receipt a recommendation to purchase any Debentures.
Each Investor contemplating purchasing any Debentures should make its own independent investigation of the
financial condition and affairs of the Issuer, and its own appraisal of the creditworthiness of the Issuer as well as
the structure of the Issue. Potential Investors should consult their own financial, legal, tax and other professional
advisors as to the risks and investment considerations arising from an investment in the Debentures and should
possess the appropriate resources to analyze such investment and the suitability of such investment to such
Investor’s particular circumstances. It is the responsibility of potential Investors to also ensure that they will sell
these Debentures in strict accordance with this Information Memorandum and applicable laws, so that the sale
does not constitute an offer to the public, within the meaning of the New Companies Act. Neither the
intermediaries nor their agents nor advisors associated with the Issue of Debentures undertake to review the
financial condition nor affairs of the Issuer during the life of the arrangements contemplated by this Information
Memorandum or have any responsibility to advise any Investor or potential Investor in the Debentures of any
information coming to the attention of any other intermediary.
The Issuer confirms that, as of the date hereof, this Information Memorandum (including the documents
incorporated by reference herein, if any) contains all information that is material in the context of the Issue, is
accurate in all material respects and does not contain any untrue statement of a material fact or omit to state any
material fact as known to the Issuer on the date of the Information Memorandum necessary to make the
statements herein, in the light of the circumstances under which they are made, and are not misleading. No
person has been authorized to give any information or to make any representation not contained or incorporated
by reference in this Information Memorandum or in any material made available by the Issuer to any potential
Investor pursuant hereto and, if given or made, such information or representation must not be relied upon as
having been authorized by the Issuer. The legal advisors to the Issuer and any other intermediaries and their
agents or advisors associated with the Issue of Debentures have not separately verified the information
contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no
responsibility is accepted by the legal advisor to the Issuer or any such intermediary as to the accuracy or
completeness of the information contained in this Information Memorandum or any other information provided
by the Issuer. Accordingly, the legal advisors to the Issuer and other intermediaries associated with the Issue of
Debentures shall have no liability in relation to the information contained in this Information Memorandum or
any other information provided by the Issuer in connection with the Issue.
The Issuer does not undertake to update the Information Memorandum to reflect subsequent events after the
date of the Information Memorandum and thus it should not be relied upon with respect to such subsequent
events without first confirming its accuracy with the Issuer.
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
2
Neither the delivery of this Information Memorandum nor any Issue of Debentures made hereunder shall, under
any circumstances, constitute a representation or create any implication that there has been no change in the
affairs of the Issuer since the date hereof.
This Information Memorandum and the contents hereof and thereof are restricted only for the intended
recipient(s) who have been addressed directly and specifically through a communication by the Issuer
and/or the Arranger appointed for the Debentures and only such recipients are eligible to apply for the
Debentures. All Investors are required to comply with the relevant regulations/guidelines applicable to
them for investing in this Issue. The contents of this Information Memorandum are intended to be used
only by those potential Investors to whom it is distributed. It is not intended for distribution to any other
person and should not be reproduced by the recipient.
Each copy of this Information Memorandum will be serially numbered and the person, to whom a copy of the
Information Memorandum is sent, is alone entitled to apply for the Debentures. No invitation is being made to
any persons other than those to whom application forms along with this Information Memorandum being issued
have been sent. Any application by a person to whom the Information Memorandum has not been sent by the
Issuer shall be rejected without assigning any reason.
Invitations, offers and allotment of the Debentures shall only be made pursuant to this Information
Memorandum. You may not be and are not authorized to (1) deliver this Information Memorandum to any other
person; or (2) reproduce this Information Memorandum in any manner whatsoever. Any distribution or
reproduction of this Information Memorandum in whole or in part or any public announcement or any
announcement to third parties regarding the contents of this Information Memorandum is unauthorized. Failure
to comply with this instruction may result in a violation of the New Companies Act, the SEBI Debt Regulations
or other applicable laws of India and other jurisdictions. This Information Memorandum has been prepared by
the Issuer for providing information in connection with each proposed Issue of Debentures described in this
Information Memorandum.
Each person receiving this Information Memorandum acknowledges that such person has been afforded an
opportunity to request and to review and has received all additional information considered by it to be necessary
to verify the accuracy of or to supplement the information herein and such person has not relied on any
intermediary associated with the Issue of Debentures in connection with its investigation of the accuracy of such
information or its investment decision. Each person in possession of this Information Memorandum should
carefully read and retain this Information Memorandum. However, each such person in possession of this
Information Memorandum are not to construe the contents of this Information Memorandum as investment,
legal, accounting, regulatory or tax advice, and such persons in possession of this Information Memorandum
should consult with their own advisors as to all legal, accounting, regulatory, tax, financial and related matters
concerning an investment in the Debentures.
The Issue of Debentures will be a domestic issue restricted to India and no steps have been taken or will be
taken to facilitate the Issue of Debentures in any jurisdictions other than India. This Information Memorandum
is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where
distribution or use of such information would be contrary to law or regulation. This Information Memorandum
does not constitute, nor may it be used for or in connection with, an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make
such an offer or solicitation. Persons into whose possession this Information Memorandum comes are required
to inform themselves about and observe any such restrictions. This Information Memorandum is made available
to Investors in the Issue of Debentures on the strict understanding that it is confidential and may not be
transmitted to others, whether in electronic form or otherwise.
DISCLAIMER IN RESPECT OF JURISDICTION
The Issue of Debentures will be made in India to Investors as specified under “Eligible Investors” of this
Information Memorandum, who shall be specifically approached by the Issuer. This Information Memorandum
does not constitute an offer to sell or an invitation to subscribe to the Debentures offered hereby to any person to
whom it is not specifically addressed. Any disputes arising out of this Issue will be subject to the jurisdiction of
the courts of Mumbai. This Issue is made in India to persons resident in India. This Information Memorandum
does not constitute an offer to sell or an invitation to subscribe to the Debentures herein, in any other jurisdiction
and to any person to whom it is unlawful to make an offer or invitation in such jurisdiction.
DISCLAIMER CLAUSE OF BSE
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
3
As required, a copy of this Information Memorandum has been filed with BSE in terms of the SEBI Debt
Regulations for hosting the same on its website.
It is to be distinctly understood that submission of this Information Memorandum to BSE or hosting the same on
its website should not in any way be deemed or construed to mean that this Information Memorandum has been
reviewed, cleared or approved by BSE, nor does BSE in any manner warrant, certify or endorse the correctness
or completeness of any of the contents of this Information Memorandum, nor does BSE warrant that the Issuer’s
Debentures will be listed or will continue to be listed on BSE, nor does BSE take any responsibility for the
soundness of the financial and other conditions of the Issuer, its promoters, its management or any scheme or
project of the Issuer. Every person who desires to apply for or otherwise acquire any securities of this Issuer
may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against BSE
whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with
such subscription/ acquisition whether by reason of anything stated or omitted to be stated herein or any other
reason whatsoever.
DISCLAIMER CLAUSE OF THE RESERVE BANK OF INDIA (“RBI”)
The Issuer is having a valid certificate of registration dated August 06, 2014 issued by the RBI under Section 45
IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee
about the present position as to the financial soundness of the Issuer, or for the correctness of any of the
statements or representations made or opinions expressed by the Issuer, and for repayment of deposits/discharge
of liabilities by the Issuer.
Neither is there any provision in law to keep, nor does the Issuer keep any part of the deposits with the RBI and
by issuing the certificate of registration to the Issuer, the RBI neither accepts any responsibility nor guarantee
for the payment of the deposit amount to any depositor.
DISCLAIMER CLAUSE OF THE ARRANGER
The Issuer has authorized the Arranger to distribute this Information Memorandum in connection with the
proposed transaction outlined in it (the “Transaction”) and the Debentures proposed to be issued in the
Transaction.
Nothing in this Information Memorandum constitutes an offer of securities for sale in the United States or any
other jurisdiction where such offer or placement would be in violation of any law, rule or regulation.
The Issuer has prepared this Information Memorandum and the Issuer is solely responsible for its contents. The
Issuer will comply with all laws, rules and regulations and has obtained all regulatory, governmental and
corporate approvals for the issuance of the Debentures. All the information contained in this Information
Memorandum has been provided by the Issuer or is from publicly available information, and such information
has not been independently verified by the Arranger. No representation or warranty, expressed or implied, is or
will be made, and no responsibility or liability is or will be accepted, by the Arranger or their affiliates for the
accuracy, completeness, reliability, correctness or fairness of this Information Memorandum or any of the
information or opinions contained therein, and the Arranger hereby expressly disclaim, to the fullest extent
permitted by law, any responsibility for the contents of this Information Memorandum and any liability, whether
arising in tort or contract or otherwise, relating to or resulting from this Information Memorandum or any
information or errors contained therein or any omissions therefrom. By accepting this Information
Memorandum, the Investor agrees that the Arranger will not have any such liability.
It is hereby declared that the Issuer has exercised due diligence to ensure complete compliance of prescribed
disclosure norms in this Information Memorandum. Each person receiving this Information Memorandum
acknowledges that such person has not relied on the Arranger, nor any person affiliated with the Arranger, in
connection with its investigation of the accuracy of such information or its investment decision, and each such
person must rely on its own examination of the Issuer and the merits and risks involved in investing in the
Debentures. The Arranger: (a) has no obligations of any kind to any invited Investor under or in connection with
any Transaction Documents; (b) is not acting as trustee or fiduciary for the Investors or any other person; and (c)
is under no obligation to conduct any “know your customer” or other procedures in relation to any person on
behalf of any Investor. Neither the Arranger nor its affiliates or its respective officers, directors, partners,
employees, agents, advisors or representatives is responsible for: (a) the adequacy, accuracy, completeness and/
or use of any information (whether oral or written) supplied by the Issuer or any other person in or in connection
with any Transaction Document including this Information Memorandum; (b) the legality, validity,
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
4
effectiveness, adequacy or enforceability of any Transaction Document or any other agreement, arrangement or
document entered into, made or executed in anticipation of or in connection with any Transaction Document; or
(c) any determination as to whether any information provided or to be provided to any finance party is non-
public information the use of which may be regulated or prohibited by applicable law or regulation relating to
insider dealing or otherwise.
The role of the Arranger in the assignment is confined to marketing, distribution and placement of the
Debentures on the basis of this Information Memorandum as prepared by the Issuer. The Arranger has neither
scrutinized nor vetted nor has it done any due-diligence for verification of the contents of this Information
Memorandum. The Arranger is authorized to deliver copies of this Information Memorandum on behalf of the
Issuer to Eligible Investors which are considering participation in the Issue and shall use this Information
Memorandum for the purpose of soliciting subscriptions from Eligible Investors in the Debentures to be issued
by the Issuer on a private placement basis. It is to be distinctly understood that the aforesaid use of this
Information Memorandum by the Arranger should not in any way be deemed or construed to mean that the
Information Memorandum has been prepared, cleared, approved or vetted by the Arranger; nor does it in any
manner warrant, certify or endorse the correctness or completeness of any of the contents of this Information
Memorandum; nor does it take responsibility for the financial or other soundness of this Issuer, its promoters, its
management or any scheme or project of the Issuer. The Arranger or any of its directors, employees, affiliates or
representatives do not accept any responsibility and/or liability for any loss or damage arising of whatever
nature and extent in connection with the use of any of the information contained in this Information
Memorandum.
The Investors should carefully read and retain this Information Memorandum. However, the Investors are not to
construe the contents of this Information Memorandum as investment, legal, accounting, regulatory or tax
advice, and the Investors should consult with their own advisors as to all legal, accounting, regulatory, tax,
financial and related matters concerning an investment in the Debentures. This Information Memorandum is not
intended to be the basis of any credit analysis or other evaluation and should not be considered as a
recommendation by the Arranger or any other person that any recipient participates in the Issue or advice of any
sort. It is understood that each recipient of this Information Memorandum will perform its own independent
investigation and credit analysis of the proposed financing and the business, operations, financial condition,
prospects, creditworthiness, status and affairs of the Issuer, based on such information and independent
investigation as it deems relevant or appropriate and without reliance on Arranger or on this Information
Memorandum.
FORCE MAJEURE
The Issuer reserves the right to withdraw the Issue of Debentures prior to the Issue Closing Date in the event of
any unforeseen development adversely affecting the economic and regulatory environment or otherwise. In such
an event, the Issuer will refund the application money along with the interest payable on such application money
without giving any reason.
CONFIDENTIALITY
The information and data contained herein is submitted to each recipient of this Information Memorandum on a
strictly private and confidential basis. By accepting a copy of this Information Memorandum, each recipient
agrees that neither it nor any of its employees or advisors will use the information contained herein for any
purpose other than evaluating the specific transactions described herein or will divulge to any other party any
such information. This Information Memorandum must not be photocopied, reproduced, extracted or distributed
in full or in part to any person other than the recipient without the prior written consent of the Issuer.
CAUTIONARY NOTE
The Investors have agreed that they, (i) are knowledgeable and experienced in financial and business matters,
have expertise in assessing credit, market and all other relevant risk and are capable of evaluating, and have
evaluated, independently the merits, risks and suitability of purchasing the Debentures; (ii) understand that the
Issuer has not provided, and will not provide, any material or other information regarding the Debentures,
except as included in this Information Memorandum, (iii) have not requested the Issuer to provide it with any
such material or other information, (iv) have not relied on any investigation that any person acting on their
behalf may have conducted with respect to the Debentures, (v) have made their own investment decision
regarding the Debentures based on their own knowledge (and information they have or which is publicly
available) with respect to the Debentures or the Issuer (vi) have had access to such information as deemed
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
5
necessary or appropriate in connection with purchase of the Debentures, (vii) are not relying upon, and have not
relied upon, any statement, representation or warranty made by any person, including, without limitation, the
Issuer, and (viii) understand that, by purchase or holding of the Debentures, they are assuming and are capable
of bearing the risk of loss that may occur with respect to the Debentures, including the possibility that they may
lose all or a substantial portion of their investment in the Debentures, and they will not look to the Arranger
appointed for the Debentures for all or part of any such loss or losses that they may suffer.
Neither this Information Memorandum nor any other information supplied in connection with the Issue of
Debentures is intended to provide the basis of any credit or other evaluation and any recipient of this
Information Memorandum should not consider such receipt as a recommendation to purchase any Debentures.
Each Investor contemplating purchasing any Debentures should make its own independent investigation of the
financial condition and affairs of the Issuer, and its own appraisal of the creditworthiness of the Issuer. Potential
Investors should consult their own financial, legal, tax and other professional advisors as to the risks and
investment considerations arising from an investment in the Debentures and should possess the appropriate
resources to analyze such investment and the suitability of such investment to such Investor’s particular
circumstances. This Information Memorandum is made available to potential Investors on the strict
understanding that it is confidential. Recipients shall not be entitled to use any of the information otherwise than
for the purpose of deciding whether or not to invest in the Debentures.
No person, including any employee of the Issuer, has been authorised to give any information or to make any
representation not contained in this Information Memorandum. Any information or representation not contained
herein must not be relied upon as having being authorised by or on behalf of the Issuer. Neither the delivery of
this Information Memorandum at any time nor any statement made in connection with the offering of the
Debentures shall under the circumstances imply that any information/ representation contained herein is correct
at any time subsequent to the date of this Information Memorandum. The distribution of this Information
Memorandum or the Application Forms and the offer, sale, pledge or disposal of the Debentures may be
restricted by law in certain jurisdictions. This Information Memorandum does not constitute an offer to sell or
an invitation to subscribe to the Debentures in any other jurisdiction and to any person to whom it is unlawful to
make such offer or invitation in such jurisdiction. Persons into whose possession this Information Memorandum
comes are required by the Issuer to inform themselves about and observe any such restrictions. The sale or
transfer of the Debentures outside India may require regulatory approvals in India, including without limitation,
the approval of the RBI.
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
6
DEFINITIONS AND ABBREVIATIONS
In this Information Memorandum, unless the context otherwise requires, the terms defined and abbreviations
expanded below shall have the same meaning as stated in this section. References to statutes, rules, regulations,
guidelines and policies will be deemed to include all amendments and modifications notified thereto.
Further, unless otherwise indicated or the context otherwise requires, all references to “the Company”, “our
Company”, “SKS”, “Issuer”, “we”, “us” or “our” is to SKS Microfinance Limited and references to “you” are to
the prospective Investors in the Debentures.
Issuer Related Terms
Term Description
Our Company / the
Company / the
Issuer / SKS / SKS
Microfinance /
we / us / our
SKS Microfinance Limited CIN: L65999MH2003PLC250504, a public limited
company incorporated under the Companies Act, 1956 and deemed to exist within
the purview of the Companies Act, 2013 and having its registered office at Unit No.
410, Madhava, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051
A.P. The State of Andhra Pradesh
A.P. High Court
The High Court of Andhra Pradesh at Hyderabad
A.P.-MFI Act The Andhra Pradesh Micro Finance Institutions (Regulation of Money
Lending) Act, 2011
A.P.-MFI Ordinance The Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending)
Ordinance, 2010
Articles / Articles of
Association
Articles of association of our Company, as amended from time to time
Audit Committee The audit committee of the Board of Directors
Auditors S.R.Batliboi & Co. LLP, statutory auditors of our Company
Board of Directors /
Board
The board of directors of our Company or any duly constituted committee thereof
Borrowers Members (as defined below) to whom we have made loans that are outstanding
Directors The directors of our Company
JLG Joint Liability Group
Members Individuals in India who are primarily women and to whom we provide small value
loans and certain other basic financial services
Memorandum or
Memorandum of
Association
Memorandum of association of our Company, as amended from time to time
Promoters Promoters of our Company namely Westbridge Ventures II, LLC (formely Sequoia
Capital India II, LLC), Kismet Microfinance and Kumaon Investment Holdings (FII
sub-account with HSBC Bank (Mauritius Limited)
Registered Office The registered office of our Company is located at Unit No. 410, Madhava, Bandra-
Kurla Complex, Bandra (East), Mumbai – 400 051
Sangam A consolidated group of five Members within a village which forms a
center
Sangam Managers Our field level loan officers
Issue Related Terms
Term Description
Allot/ Allotment/
Allotted
Unless the context otherwise requires or implies, the allotment of the Debentures
pursuant to the Issue
Application Form The form in which an Investor can apply for subscription to the Debentures as
attached in Annexure A
Arranger Derivium Tradition Securities (India) Private Limited
Beneficial Owner(s) Holder(s) of the Debentures in dematerialized form as defined under section 2 of the
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Dated: March 30, 2015
7
Term Description
Depositories Act
Business Days All days except Saturday, Sunday and any public holiday in accordance with the
Negotiable Instruments Act, 1881
CARE Credit Analysis and Research Limited
Consolidated Debenture
Certificate
has the meaning set forth in the Section titled “Issue Procedure”
DRR Debenture Redemption Reserve required under Section 71 of the New Companies
Act
Debt Listing Agreement Simplified debt listing agreement, as amended from time to time, to be entered into
by the Issuer with BSE for the listing of the Debentures and any other recognized
stock exchange to which the Issuer may apply for the listing of the Debentures
subsequently after giving prior intimation to the Debenture Trustee
Debentures Means collectively the Series 1 Debentures and Series 2 Debentures
Debentureholder(s) Means collectively the Series 1 Debentureholders and Series 2 Debentureholders
Debenture
Trustee/Trustee
Trustee for the Debentureholders, in this case being IDBI Trusteeship Services
Limited
Debenture Trust Deed Means the trust deed to be entered into between the Debenture Trustee and the Issuer
in relation to the Issue
Debenture Trustee
Regulations
Securities and Exchange Board of India (Debenture Trustee) Regulations, 1993, as
amended
Deed of Hypothecation Deed of hypothecation to be executed by the Issuer for creating an exclusive first
ranking charge over the Hypothecated Assets in favour of the Debenture Trustee (for
the benefit of the Debenture Holders)
Deemed Date of
Allotment
March 30, 2015
Default Interest Means collectively the Series 1 Default Interest and Series 2 Default Interest
Depository A depository registered with the SEBI under the Securities and Exchange Board of
India (Depositories and Participant) Regulations, 1996, as amended from time to
time, in this case being NSDL and CDSL
Early Redemption Date Means collectively the Series 1 Early Redemption Date and Series 2 Early
Redemption Date
Eligible Investor Has the meaning set forth in Summary Term Sheet of this Information Memorandum
Event of Default Means collectively the Series 1 Event of Default and Series 2 Event of Default
Governmental Authority shall mean any:
a) government (central, state or otherwise) or sovereign state; b) any governmental agency, semi-governmental or judicial or quasi-judicial or
administrative entity, department or authority, or any political subdivision
thereof;
c) international organization, agency or authority, and d) including, without limitation, any stock exchange or any self-regulatory
organization, established under any applicable law
Hypothecated Assets Shall mean the loan receivables of the Issuer as set out in detail in the Deed of
Hypothecation
Information
Memorandum
This Information Memorandum dated March 30, 2015
Interest Payment Date Means collectively the Series 1 Interest Payment Date and Series 2 Interest Payment
Date
Interest Period Means collectively the Series 1 Interest Period and Series 2 Interest Period
Interest Rate Means collectively the Series 1 Interest Rate and Series 2 Interest Rate
Investor(s) Such person who subscribe to this Issue
Issue Issue by way of private placement of Debentures by the Issuer pursuant to the terms
of this Information Memorandum
Potential Event of
Default
Means collectively the Series 1 Potential Event of Default and Series 2 Potential
Event of Default
Rating Downgrade
Event
Means the occurrence of a downgrade in: (i) the long term credit ratings of the Issuer;
or (ii) in the rating of any Series of Debentures of the Issuer, by any credit rating
agency
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Term Description
Record Date Means collectively the Series 1 Record Date and Series 2 Record Date
Redemption Amount Means collectively the Series 1 Redemption Amount and Series 2 Redemption
Amount
Redemption Date Means collectively the Series 1 Redemption Date and Series 2 Redemption Date
Register of
Debentureholders
The register maintained by the Issuer at its Registered Office as per section 88 of the
New Companies Act, containing the names of the Debentureholders entitled to
receive interest in respect of the Debentures on the Record Date, and shall include the
register of Beneficial Owners maintained by the Depository under section 11 of the
Depositories Act
Registered Debenture
holder
The Debentureholder whose name appears in the Register of Debentureholders or in
the beneficial ownership record furnished by the Depository for this purpose
Registrar/Registrar to
the Issue
Registrar to this Issue, in this case being Karvy Computershare Private Limited
Series 1 Debentures 11.48% Secured, Non-Cumulative, Redeemable, Taxable, Listed, Rated Non-
Convertible Debentures of a face value of Rs. 10,00,000 each for cash at par due 2018
with Put Option at the end of the 24th
month and the 30th
month
Series 2 Debentures 11.48 % Secured, Non-Cumulative, Redeemable, Taxable, Listed, Rated Non-
Convertible Debentures of a face value of Rs. 10,00,000 each for cash at par due 2018
with Put Option at the end of the 25th
month and the 31st month
Series 1
Debentureholders
Persons who shall be holders of the Series 1 Debentures and whose names shall be
entered into the Register of Debentureholders and shall include the Beneficial Owners
Series 2
Debentureholders
Persons who shall be holders of the Series 2 Debentures and whose names shall be
into the Register of Debentureholders and shall include the Beneficial Owners
Series 1 Default Interest Additional interest at the rate of 2% per annum on the Series 1 Debentures in addition
to the payment of Interest and/or the Series 1 Redemption Amount, as the case may
be payable by the Issuer in case of default in (a) payment of any Interest on the Series
1 Interest Payment Date and/or Series 1 Redemption Amount on the Series 1
Redemption Date or (b) creation of Security
Series 2 Default Interest Additional interest at the rate of 2% per annum on the Series 2 Debentures in addition
to the payment of Interest and/or the Series 2 Redemption Amount, as the case may
be payable by the Issuer in case of default in (a) payment of any Interest on the Series
2 Interest Payment Date and/or Series 2 Redemption Amount on the Series 2
Redemption Date or (b) creation of Security
Series 1 Early
Redemption Date
The date on which the Debenture Trustee gives notice to the Issuer upon the
occurrence of Series 1 Event of Default
Series 2 Early
Redemption Date
The date on which the Debenture Trustee gives notice to the Issuer upon the
occurrence of Series 2 Event of Default
Series 1 Event of
Default
Events of default as set out in the Debenture Trust Deed, the occurrence of which will
lead to all amounts payable under the Series 1 Debentures becoming immediately due
and payable upon notification of the Debenture Trustee
Series 2 Event of
Default
Events of default as set out in the Debenture Trust Deed, the occurrence of which will
lead to all amounts payable under the Series 2 Debentures becoming immediately due
and payable upon notification of the Debenture Trustee
Series 1 Interest
Payment Date
Interest payable annually with respect to the Series 1 Debentures on the 30th
day of
March in each year (and if such day is not a Business Day, the day immediately next
to the 30th
day of March that is a Business Day) with the first interest payment date
falling on March 30, 2016
Series 2 Interest
Payment Date
Interest payable annually with respect to the Series 2 Debentures on the 30th
day of
March in each year (and if such day is not a Business Day, the day immediately next
to the 30th
day of March that is a Business Day) with the first interest payment date
falling on March 30, 2016
Series 1 Interest Period Each period from (and including) any Series 1 Interest Payment Date to (but
excluding) the next succeeding Series 1 Interest Payment Date
Series 2 Interest Period Each period from (and including) any Series 2 Interest Payment Date to (but
excluding) the next succeeding Series 2 Interest Payment Date
Series 1 Interest Rate Interest on the Series 1 Debentures at the fixed rate of approx.11.48% per annum
compounded on a monthly basis equating to effective interest rate of 12.10% per
annum payable on an annual basis on each Series 1 Interest Payment Date and shall
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Term Description
include the Step Up Interest on the occurrence of a Rating Downgrade Event
Series 2 Interest Rate Interest on the Series 2 Debentures at the fixed rate of approx.11.48% per annum
compounded on a monthly basis equating to effective interest rate of 12.10% per
annum payable on an annual basis on each Series 2 Interest Payment Date and shall
include the Step Up Interest on the occurrence of a Rating Downgrade Event
Series 1 Potential Event
of Default
An event or circumstance which would, with the expiry of the grace period, the
giving of notice or the making of any determination under the Debenture Trust Deed
result in a Series 1 Event of Default
Series 2 Potential Event
of Default
An event or circumstance which would, with the expiry of the grace period, the
giving of notice or the making of any determination under the Debenture Trust Deed
result in a Series 2 Event of Default
Series 1 Put Option The option which may be exercised by Series 1 Debentureholders pursuant to which
all principal amounts outstanding along with any accrued interest and other amounts
owed, as the case may be, of the Series 1 Debentures will be in payable in one bullet
installment by the Issuer
Series 2 Put Option The option which may be exercised by Series 2 Debentureholders pursuant to which
all principal amounts outstanding along with any accrued interest and other amounts
owed, as the case may be, of the Series 2 Debentures will be in payable in one bullet
installment by the Issuer
Series 1 Put Option Date The date falling 24 months and 30 months after the Deemed Date of Allotment
Series 2 Put Option Date The date falling 25 months and 31 months after the Deemed Date of Allotment
Series 1 Record Date The date which is 15 (fifteen) days prior to each Series 1 Interest Payment Date and
the Series 1 Redemption Date, as the case may be, for the purposes of actual payment
or as may be prescribed by SEBI. Registered Debentureholders on the Series 1
Record Date will be the recipients of actual payment of interest at the Series 1 Interest
Rate by the Issuer
Series 2 Record Date The date which is 15 (fifteen) days prior to each Series 2 Interest Payment Date and
the Series 2 Redemption Date, as the case may be, for the purposes of actual payment
or as may be prescribed by SEBI. Registered Debentureholders on the Series 2
Record Date will be the recipients of actual payment of interest at the Series 2 Interest
Rate by the Issuer.
Series 1 Redemption
Amount
All principal amounts outstanding shall be payable on the Series 1 Early Redemption
Date or the Series 1 Redemption Date, as the case may be, in one bullet installment.
On the Series 1 Early Redemption Date or the Series 1 Redemption Date, as the case
may be, the accrued interest and other amounts owed will also be payable
Series 2 Redemption
Amount
All principal amounts outstanding shall be payable on the Series 2 Early Redemption
Date or the Series 2 Redemption Date, as the case may be, in one bullet installment.
On the Series 2 Early Redemption Date or the Series 2 Redemption Date, as the case
may be, the accrued interest and other amounts owed will also be payable
Series 1 Redemption
Date
The date falling 3 years after the Deemed Date of Allotment, on which the
outstanding principal of the Series 1 Debentures will be repaid by the Issuer
Series 2 Redemption
Date
The date falling 3 years after the Deemed Date of Allotment, on which the
outstanding principal of the Series 2 Debentures will be repaid by the Issuer
Step Up Interest shall have the meaning ascribed to such term in clause 12 (Step Up Interest) of the
Summary Term Sheet;
Conventional and General Terms, Abbreviations and References to Other Business Entities
Abbreviation Full form
CDSL Central Depository Services (India) Limited
Depositories Act The Depositories Act, 1996, as amended from time to time
Depository Participant/
DP
A depository participant as defined under the Depositories Act
DP ID Depository Participant Identification Number
DTC Direct Tax Code Bill, 2010
Equity Shares Equity shares of the Issuer of Face Value of Rs. 10 each
FDI Foreign Direct Investment
FEMA Foreign Exchange Management Act, 1999, as amended, including the regulations
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Abbreviation Full form
framed thereunder
FII Foreign institutional investor,as defined under Regulation 2(1)(g) of the SEBI
(Foreign Portfolio Investors) Regulations, 2014, registered with SEBI under
applicable laws in India
FIPB Foreign Investment Promotion Board
Financial Year/ Fiscal/
FY
Period of 12 months ended on March 31 of that particular year
FPI Foreign portfolio investor, as defined under Regulation 2(1)(h) of the SEBI (Foreign
Portfolio Investors) Regulations, 2014
Government / GoI Government of the Republic of India
GAAP Generally Accepted Accounting Principles
GAAR General Anti Avoidance Rule
IT Act The Indian Income Tax Act, 1961, as amended from time to time
ICAI Institute of Chartered Accountants of India
IFRS International Financial Reporting Standards
IRDA Insurance Regulatory and Development Authority
MFI Microfinance Institution
NBFC Non-Banking financial company
NBFC-MFI Non-Banking Financial Company – Micro Finance Institution
NBFC-MFI Directions Non-Banking Financial Company – Micro Finance Institutions (Reserve Bank) –
Directions 2011, issued by the RBI through its circular dated December 2, 2011
NECS National Electronic Clearing Services
NEFT National Electronic Funds Transfer
New Companies Act The Companies Act, 2013, as amended from time to time
NRI Non-resident Indian
NSDL National Securities Depository Limited
OCB Overseas Corporate Body
Old Companies Act The Companies Act, 1956, as amended from time to time
PAS Rules Companies (Prospectus and Allotment of Securities) Rules, 2014, as amended from
time to time
Pension Fund Established under the Employee’s Pension Scheme, 1995
Provident Fund Established under the Employees’ Provident Funds Scheme, 1952
p.a. Per annum
PAN Permanent Account Number
Qualified Foreign
Investors / QFIs
Qualified foreign investors, as defined under Regulation 2(1)(l) of the SEBI (Foreign
Portfolio Investors) Regulations, 2014
QIBs / Qualified
Institutional Buyers
Qualified institutional buyers, as defined under Regulation 2(1)(zd) of the SEBI
(ICDR) Regulations
RBI The Reserve Bank of India constituted under the RBI Act
RBI Act Reserve Bank of India Act, 1934, as amended from time to time
RNBC Residuary non-banking companies
RoC / ROC The Registrar of Companies, Maharashtra
RTGS Real Time Gross Settlement
Rs./INR/` Indian Rupees
SCRA Securities Contract (Regulations) Act, 1956, as amended from time to time
SEBI The Securities and Exchange Board of India constituted under the SEBI Act, 1992
SEBI Act The Securities and Exchange Board of India Act, 1992, as amended from time to time
SEBI Debt Regulations SEBI (Issue and Listing of Debt Securities) Regulations, 2008 issued by SEBI, as
amended from time to time
SEBI (ICDR)
Regulations
Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009, as amended
WDM Wholesale Debt Market
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FORWARD LOOKING STATEMENTS
Certain statements in this Information Memorandum are not historical facts but are “forward-looking” in nature.
Forward-looking statements appear throughout this Information Memorandum, including, without limitation,
under the section titled “Risk Factors”. Forward-looking statements include statements concerning the Issuer’s
plans, objectives, goals, strategies, future events, future revenues or financial performance, capital expenditure,
financing needs, plans or intentions relating to acquisitions, the Issuer’s competitive strengths and weaknesses,
the Issuer’s business strategy and the trends the Issuer anticipates in the industry, along with the political and
legal environment, and geographical locations, in which the Issuer operates, and other information that is not
historical information.
Words such as “aims”, “anticipate”, “believe”, “could”, “continue”, “estimate”, “expect”, “future”, “goal”,
“intend”, “is likely to”, “may”, “plan”, “predict”, “project”, “seek”, “should”, “targets”, “would” and similar
expressions, or variations of such expressions, are intended to identify and may be deemed to be forward-
looking statements but are not the exclusive means of identifying such statements.
By their nature, forward-looking statements involve inherent risks and uncertainties, both general and specific,
and assumptions about the Issuer, and risks exist that the predictions, forecasts, projections and other forward-
looking statements will not be achieved.
These risks, uncertainties and other factors include, among other things, those listed under the section titled
“Risk Factors” of this Information Memorandum, as well as those included elsewhere in this Information
Memorandum. Prospective Investors should be aware that a number of important factors could cause actual
results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements. These factors include, but are not limited, to:
Compliance with recently introduced laws and regulations, and any further changes in laws and regulations applicable to the MFI industry in India;
Availability of adequate debt and equity financing at reasonable terms;
Our ability to effectively manage financial expenses and fluctuations in interest rates;
Our ability to control the level of our non-performing assets;
Our ability to successfully implement our business strategy;
Our ability to manage operating expenses;
Performance of the Indian debt and equity markets;
Competition from other MFIs, banks and financial institutions; and
General, political, economic, social and business conditions in Indian and other global markets.
For a further discussion of factors that could cause the Issuer’s actual results to differ, please refer to the section
titled “Risk Factors” of this Information Memorandum. By their nature, certain market risk disclosures are only
estimates and could be materially different from what actually occurs in the future. Although the Issuer believes
that the expectations reflected in such forward-looking statements are reasonable at this time, the Issuer cannot
assure Investors that such expectations will prove to be correct. Given these uncertainties, Investors are
cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties
materialize, or if any of the Issuer’s underlying assumptions prove to be incorrect, the Issuer’s actual results of
operations or financial condition could differ materially from that described herein as anticipated, believed,
estimated or expected. All subsequent forward-looking statements attributable to the Issuer are expressly
qualified in their entirety by reference to these cautionary statements. As a result, actual future gains or losses
could materially differ from those that have been estimated. The Issuer undertakes no obligation to update
forward-looking statements to reflect events or circumstances after the date hereof.
Forward looking statements speak only as of the date of this Information Memorandum. None of the Issuer, its
Directors, its officers or any of their respective affiliates or associates has any obligation to update or otherwise
revise any statement reflecting circumstances arising after the date hereof or to reflect the occurrence of
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underlying events, even if the underlying assumptions do not come to fruition.
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RISK FACTORS
The Issuer believes that the following factors may affect its ability to fulfill its obligations under the Debentures.
All of these factors are contingencies which may or may not occur and the Issuer is not in a position to express
a view on the likelihood of any such contingency occurring. These risks may include, among others, business
aspects, equity market, bond market, interest rate, market volatility and economic, political and regulatory risks
and any combination of these and other risks. Prospective Investors should carefully consider all the
information in this Information Memorandum, including the risks and uncertainties described below, before
making an investment in the Debentures. To obtain a complete understanding, prospective Investors should read
this section in conjunction with the remaining sections of this Information Memorandum, as well as the other
financial and statistical information contained in this Information Memorandum. If any of the following risks, or
other risks that are not currently known or are now deemed immaterial, actually occur, the Issuer’s business,
results of operations and financial condition could suffer, the price of Debentures could decline, and the
Investor may lose all or part of their investment. More than one risk factor may have simultaneous effect with
regard to the Debentures such that the effect of a particular risk factor may not be predictable. In addition,
more than one risk factor may have a compounding effect which may not be predictable. No assurance can be
given as to the effect that any combination of risk factors may have on the value of the Debentures. The inability
of the Issuer to pay interest, principal or other amounts on or in connection with the Debentures may occur for
other reasons which may not be considered significant risks by the Issuer based on information currently
available to them or which they may not currently be able to anticipate. You must rely on your own examination
of the Issuer and this Issue, including the risks and uncertainties involved. The ordering of the risk factors is
intended to facilitate ease of reading and reference and does not in any manner indicate the importance of one
risk factor over another.
RISKS RELATED TO THE ISSUER AND THE MICROFINANCE INDUSTRY
Changes in laws and regulations governing the microfinance industry may adversely affect our business,
results of operations, financial condition and prospects.
Since 2010, the microfinance industry, particularly companies with operations in Andhra Pradesh faced the
enactment of new laws and regulations. The Government of Andhra Pradesh passed the A.P.-MFI Act in
January 2011, which replaced the earlier A.P.-MFI Ordinance passed in October 2010. The A.P.-MFI Act,
among other things, provides for the registration of MFIs, a prohibition on security for loans provided to SHGs
and prior governmental approval for the grant of further loans to SHGs or their members, where the SHG or one
of its members has an outstanding loan from a bank. Difficulty in compliance with these requirements reduced
new loan disbursements by MFIs in the state of Andhra Pradesh. This reduction in new loan disbursements, in
addition to other factors such as the requirement for all repayments to be made in monthly installments and at
offices designated by the Andhra Pradesh Government, prompted an increase in defaults by borrowers.
Increased defaults by borrowers resulted in significantly diminished average recovery rates (which we define as
the proportion of principal and interest amount due and recovered during a period to the total principal and
interest amount due for the period), a significant rise in NPAs and large-scale write offs of MFIs’ Andhra
Pradesh loan portfolios, including our portfolio. As a result of this substantial increase in our NPAs during
financial years 2012 and 2013, we wrote off substantial amounts and create substantial provisions in respect of
our entire residual outstanding Andhra Pradesh loan portfolio. In addition, we also reduced our operations in
Andhra Pradesh significantly.
As a result of the new requirements imposed by the AP-MFI Act, new loan disbursements decreased
significantly because the loans granted to MFIs by banks for financing reduced as banks sought greater
regulatory clarity and visibility on ability of MFIs to manage the adverse developments in Andhra Pradesh. As a
result, our interest income decreased significantly and our operational income was insufficient to meet our
finance and employee costs, and other operating expenditures. Slowdowns in disbursements, substantial write
offs and provisioning for our outstanding Andhra Pradesh loan portfolio resulted in significant losses for
financial years 2012 and 2013. Changes in laws and regulations governing the microfinance industry, including
by state Governments and the RBI, may have an adverse effect on our business, results of operations, financial
condition and prospects.
Certain provisions of the NBFC-MFI Directions impose requirements that restrict our business, results of
operations and growth.
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The NBFC-MFI Directions, which were introduced in December 2011, prescribe certain requirements for
NBFC-MFIs, including us, such as:
rates of interest chargeable, which is currently the lower of (i) the cost of funds plus margin of 10.0% for large MFIs with loan portfolios exceeding ` 1.0 billion and (ii) 2.75 times the average base rate of
the five largest commercial banks by assets, as determined by the RBI every quarter;
restrictions on lending so that not more than two NBFC-MFIs may lend to the same borrower; and
requiring at least 85% of net assets (i.e., total assets excluding cash, bank balances and money market instruments) to be qualifying assets (qualifying assets are loans to borrowers that satisfy the criteria
specified in the NBFC-MFI Directions).
The laws and regulations governing the banking and financial services industry in India have become
increasingly complex, with the regulations relating to MFIs still evolving. The requirement to comply with
increasing regulations may continue to adversely affect our business and the microfinance industry in general.
These laws and regulations require us to restructure our activities, and among other limitations, impose limits on
interest rates we can charge and as such limit our interest income, and require us to incur additional expenses,
which adversely affect our business, results of operations and growth.
We cannot predict the effect on our business of the proposed laws and regulations affecting NBFCs or the
microfinance industry in India.
Pursuant to the NBFC-MFI Directions, the RBI created a category of NBFCs termed as “NBFC-MFIs”.
Subsequently, we registered as an NBFC-MFI with the RBI in November 2013. Although the NBFC-MFI
Directions govern the operations of MFIs, there is uncertainty with respect to the enactment, implementation
and enforcement of new laws and regulations governing MFIs in India. In particular, the interplay between
certain provisions of the NBFC-MFI Directions and the A.P.-MFI Act in Andhra Pradesh is not entirely clear
and the validity of the A.P.-MFI Act and the A.P.-MFI Ordinance has been challenged by several MFIs,
including us before the Andhra Pradesh High Court and the Supreme Court of India. Based on interim orders
passed by the Andhra Pradesh High Court in October 2010 and an interim order of the Supreme Court of India
passed in March 2013, so long as we comply with Sections 9 and 16 of the A.P.-MFI Act, we may carry on our
business in ordinary course and no action shall be initiated against us under the A.P.-MFI Act. The Government
of India had presented the MFI Bill 2012 before the Parliament of India in May 2012. The MFI Bill 2012
provided for the development and regulation of microfinance institutions and envisaged empowering the RBI to
issue directions to MFIs including in connection with prudential norms, corporate governance norms and
operations of MFIs. The Indian Parliament had referred the MFI Bill 2012 to its Standing Committee on Finance
for their recommendations and the Standing Committee on Finance recommended on February 11, 2014 that the
MFI Bill 2012 be reviewed and reconsidered by the Indian Government and a new bill be introduced before the
Indian Parliament. The MFI Bill 2012 consequently did not pass in the Parliament of India. There is no certainty
that the MFI Bill 2012 will be introduced in similar form, or at all. There exists the possibility of Indian central
or state Governments enacting laws and regulations to regulate MFI operations in the country or their respective
states. If this happens, our operations may be subject to greater regulatory scrutiny and uncertainty, which may
affect our business, results of operations, financial condition and prospects. The RBI issued a notification on
March 21, 2012 amending the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007, (the “NBFC-ND Prudential Norms”) and introducing
certain regulations with respect to lending against security of gold jewellery (the “Gold Loan Regulations”).
The Gold Loan Regulations, among other things, require NBFCs lending against the collateral of gold jewellery
to maintain the prescribed loan-to value (“LTV”) ratio. In addition, the NBFCs lending against the collateral of
gold jewellery are required to disclose the percentage of such loans to their total assets in their balance sheet.
The RBI through recent circulars has issued detailed guidelines on appropriate infrastructure for storage of gold
ornaments, prior approval of the RBI for opening branches in excess of 1,000, standardisation in methods used
to determine the value of gold for computing the LTV ratio, verification of the ownership of gold and auction
process and procedures, and also increased the LTV ratio requirement from 60% to 75% for such loans.
Additional laws and regulations that may be enacted or existing laws or regulations that may be amended or
repealed and the costs of complying with a new regulatory framework could have an adverse effect on our
business, results of operations and financial condition.
Various state government laws regulating money-lending transactions may adversely affect our business,
operating results and financial position.
A number of states in India have enacted laws to regulate money-lending transactions. These state laws establish
maximum rates of interest that can be charged by a person lending money. There is a lack of clarity on whether
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
15
NBFCs are required to comply with the provisions of state money-lending laws that establish ceilings on interest
rates. In January 2010 and April 2011, the High Court of Gujarat in a matter not involving our Company, held
that the provisions of the RBI Act have an overriding effect over state money-lending laws. However, the matter
is pending before the Supreme Court of India in a different case and a final decision is awaited. Because of this
ambiguity, we have applied for exemptions from the relevant state money lending legislations, where necessary.
We are exempt from the provisions of laws governing moneylenders in the state of Himachal Pradesh. We are
also entitled to the benefit of a blanket exemption for all NBFCs in the state of Rajasthan. The state Government
of Karnataka has issued an order dated January 5, 2012 withdrawing the exemption granted to us from
compliance with the Karnataka Money-Lenders Act, 1961 on May 25, 2007. Subsequent to withdrawal of the
exemption by the state Government of Karnataka, the Office of the Deputy Registrar of Cooperative Societies,
Tumkur issued an order dated March 30, 2012 directing us to stop money lending activities in Tumkur district of
Karnataka. We have filed a writ petition dated April 13, 2012 before the High Court of Karnataka challenging
the validity of this withdrawal of exemption by the Government of Karnataka. The High Court of Karnataka by
way of interim order dated April 19, 2012 has issued directions, among others, to maintain status quo until the
next date of hearing. Further, we have received show cause notices from certain government authorities in
Andhra Pradesh regarding compliance with the relevant money-lending statutes in relation to our operations in
the Khammam district of Andhra Pradesh and from certain authorities in the Hingoli district of Maharashtra for
submission of certain documents under the money-lenders statutes applicable in Maharashtra. Additionally, we
have received notices from the relevant authorities in the state of Andhra Pradesh for certain instances of non-
compliance with the A.P.-MFI Ordinance and the A.P.-MFI Act. The DRDA, Mahbubnagar, Andhra Pradesh
had also issued a notice dated April 19, 2012 cancelling our registration in the Mahbubnagar district. The High
Court of Andhra Pradesh has suspended the application of this notice through an interim order dated June 20,
2012. In the event that the Government of any state in India requires us to comply with the provisions of their
respective state money-lending laws, or imposes any penalty against us, our Directors or our officers, including
for prior non-compliance, our business and results of operations may be adversely affected.
Interest rate volatility adversely affects our business, results of operations and financial condition.
Our business is dependent on interest income from the loans we disburse and the interest expense we pay on our
liabilities and is vulnerable to interest rate risk. Interest income constituted 72.1%, 62.4% and 76.0% of our total
income for the financial years 2014, 2013 and 2012, respectively. Interest rates are highly sensitive to many
factors beyond our control, including the monetary policies of the RBI, deregulation of the financial sector in
India, domestic and international economic and political conditions and other factors. Due to these factors,
interest rates in India have historically experienced a relatively high degree of volatility. The annual interest rate
applicable to loans we currently offer to our Members is 23.55% (effective October 1, 2014) for our micro-
credit income generation products. If our cost of funds and operating expenses increase to a level where
compliance with the NBFC-MFI Directions results in pressure on our operating margins, our business, results of
operations and financial condition may be adversely affected. An increase in interest rates applicable to our
liabilities, without a corresponding increase in interest rates applicable to our assets, will result in a decline in
our net interest income. Being a non-deposit taking NBFC, we are also exposed to greater interest rate risk
compared to banks or deposit taking NBFCs. Further, if interest rates rise:
we may have greater difficulty in maintaining a low effective cost of funds compared to our competitors, who may have access to low-cost deposit funds;
with respect to our borrowings that are linked to market rates, we may have to pay interest at a higher rate as compared to other lenders, which in turn may expose our operations to the risk of contracting
net interest margins; and
in the event we decide to increase the interest rates we charge on our loan products, our Borrowers may not be willing to pay correspondingly higher interest rates on their borrowings and may opt for more
competitively priced loans offered by other lenders, leading to a loss in our market share.
Our inability to effectively and efficiently manage interest rate variations may adversely affect our net interest
margins and operating margins, thereby affecting our business, results of operations and financial condition.
We have significant capital requirements and any disruption in availability of financing may adversely affect
the cost and availability of capital and in turn our business, results of operations and financial condition.
Our business requires significant capital and our financial condition is dependent on our timely access to and the
cost of capital. We have historically relied on equity issuances, secured and unsecured loans from banks and
financial and other institutions, the issuance of redeemable non-convertible debentures, commercial paper,
assignment and securitisation of loan receivables as well as cash flows from operations to fund our operations,
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Serial No. 1
Private & Confidential – For Private Circulation Only
Addressed to: HDFC Mutual Fund
(This Information Memorandum is neither a Prospectus nor a statement in Lieu of Prospectus)
Dated: March 30, 2015
16
capital expenditure and expansion.
The RBI requires domestic commercial banks operating in India to maintain a minimum of 40.0% of their
adjusted net bank credit, or a credit equivalent amount of off-balance sheet exposure, whichever is higher, as
lending to priority sectors such as agriculture, micro-credit, micro and small enterprises, education and housing
(“PSL”). PSL funds received as a result of these bank requirements are a significant source of funding for the
MFI industry in India but certain eligibility conditions are required to be satisfied by MFIs to avail such funds.
To the extent that changes in regulations impose any further conditions or requirements for PSL funds or in the
event that loans to MFIs are no longer classified as PSL, our access to, and the cost of, debt financing may be
adversely affected. Our ability to obtain additional equity and debt financing is also subject to uncertainties such
as our future financial position, the continued success of our loan products, our results of operations and cash
flows, necessary regulatory approvals, contractual consents, general market conditions and economic and
political conditions in India and elsewhere. In addition, adverse developments in the Indian and world credit
markets may significantly increase our debt service costs and the overall costs of our borrowings. We may not
be able to secure financing on favourable terms and in a timely manner, or at all. The terms of any additional
financing may place limits on our financial and operational flexibility. If we are unable to obtain adequate
financing or financing on terms satisfactory to us, our ability to grow or support our business and to respond to
business challenges could be limited and our business, results of operations and financial condition may be
adversely affected.
Our access to bank loans was also adversely affected in the past by the events in Andhra Pradesh and the
uncertainty surrounding legislative efforts by other Indian state Governments to enact laws similar to the A.P.-
MFI Act. These factors resulted in banks reducing their exposure to the MFI industry. Banks did not increase
their lending to us until greater clarity was available on the regulatory framework. Further, banks that currently
lend to us for the conduct of our business in states other than Andhra Pradesh may decrease or withdraw their
facilities in the event of any further regulatory uncertainty. Any disruption in our primary financing sources or
their associated costs may adversely affect our business, results of operations and financial condition.
Any downgrade of our credit ratings or our grading as an MFI would increase our cost of borrowing and
make our ability to raise new funds in the future or renew maturing debt more difficult.
CARE has provided us credit ratings and an MFI grading. In March 2011, our credit rating for short-term debt
facilities was downgraded from “CARE A1+” to “CARE A1”, which indicates a comparatively lower standing
from the rating previously provided. In July 2014, our credit rating was upgraded to “CARE A1+” for short-
term debt facilities and “CARE A+” for long-term facilities. However, we cannot assure you that any
downgrading of our credit ratings or grading will not take place in the future. Any downgrading of our credit
ratings or grading would further increase our cost of borrowings and impair our ability to renew maturing debt,
which may have an adverse effect on our business, results of operations and financial condition.
If we are unable to control the level of our NPAs, or if our loan loss reserves are insufficient to cover our
loan losses, our business, results of operations and financial condition may be adversely affected.
Events in Andhra Pradesh since October 15, 2010 led to an increase in defaults by borrowers, resulting in
significantl