Financial institution Kinara Capital grapples with worsening liquidity issues as creditors demand repayment of outstanding loans
Kinara Capital Faces Deepening Liquidity Crisis
Kinara Capital, a Bengaluru-based MSME lender, is grappling with a significant liquidity crisis. The company's total income for the financial year 2025 (FY25) decreased by 18% year-on-year, reaching ₹601 crore [1].
The liquidity crisis at Kinara Capital is primarily due to a sharp deterioration in asset quality, high debt levels, and aggressive lender actions. The company's standalone net loss for FY25 was ₹351 crore, a significant reversal from a profit of ₹62 crore in the previous fiscal [1].
Key factors contributing to the liquidity crisis include worsening asset quality, a heavy debt burden, breaches of loan agreements, lender actions, credit rating downgrades, and management changes.
The share of loans overdue by more than 90 days rose from 4.6% in March 2024 to 7.4% in March 2025, with overall delinquencies increasing to 15.9% [1]. As of June 2025, Kinara had Rs 1,853 crore debt spread across 46 lenders, with debt-to-equity ratios rising sharply to 5.7x reported and 8.4x adjusted as of March 2025, up from significantly lower levels the previous year [1].
Kinara violated terms on nearly 91% of total debt, restricting its financial flexibility [1]. Some lenders set off Rs 81 crore from Kinara’s bank balances and lien-marked fixed deposits, and issued loan recall notices amounting to Rs 66 crore, triggering a liquidity squeeze [2][3].
Credit rating agencies like ICRA, India Ratings, and Care Ratings downgraded Kinara’s bonds and loans citing financial instability, further pressuring its ability to raise funds [2][3]. Two directors resigned following these developments, likely reflecting internal governance strains [3].
The consequences of this liquidity crisis are far-reaching. Kinara Capital has ceased issuing new loans from April 2025 amid cash shortages. The company's free cash balances have declined sharply, from Rs 98 crore to Rs 70 crore. The reduced financial flexibility risks normal operations continuity, and there is a potential erosion of investor and lender confidence, potentially triggering further early redemptions and default risk [1][2][3].
In an effort to manage the crisis, Kinara Capital is contemplating several solutions, including asset sales coupled with the transfer of corresponding liabilities, optimizing collateral by pledging cash and bank balances, and possibly seeking equity infusion. However, these measures face challenges given the scale of losses, deteriorated asset quality, and high gearing ratios [1][2].
Over the years, Kinara Capital claims to have disbursed more than ₹4,000 crore to over 50,000 borrowers. The contraction in Assets Under Management (AUM) was partly due to Kinara adopting a more cautious lending stance amid rising delinquencies. As of March 2025, Kinara Capital's AUM stood at ₹2,841 crore, down from ₹3,142 crore the year before [1][4].
Kinara Capital, founded in 2011 by Hardika Shah, offers unsecured business loans to micro, small, and medium enterprises (MSMEs) primarily via its digital lending platform, myKinara. The company has a physical presence through 130 branches.
However, the liquidity crisis could have far-reaching consequences. ICRA has flagged that such actions could set off a chain reaction, potentially triggering early redemption clauses from other lenders and putting further pressure on Kinara Capital's liquidity in the near term [2].
References:
[1] Livemint.com, "Kinara Capital's liquidity crisis: Worsening asset quality, high debt levels, lender actions trigger crisis," 26 July 2025.
[2] Economic Times, "Kinara Capital's liquidity crisis: What led to the crisis and what are the possible solutions?," 27 July 2025.
[3] Business Standard, "Kinara Capital's liquidity crisis: Two directors resign amid crisis," 28 July 2025.
[4] Moneycontrol.com, "Kinara Capital's AUM falls 9.6% to ₹2,841 crore as of March 2025," 29 July 2025.
- Kinara Capital, an MSME lender based in Bengaluru, is facing a deepening liquidity crisis due to a decline in business income, worsening asset quality, high debt levels, and lender actions.
- The liquidity crisis has led to Kinara Capital recording a net loss of ₹351 crore for the financial year 2025, a significant reversal from a profit of ₹62 crore in the previous fiscal year.
- In an attempt to manage the crisis, Kinara Capital is considering solutions such as asset sales, optimizing collateral, and seeking equity infusion, but these measures face challenges due to the scale of losses, deteriorated asset quality, and high gearing ratios.
- The consequences of this liquidity crisis could impact normal operations continuity, potentially triggering further early redemptions and default risk, and further pressure on Kinara Capital's liquidity in the near term.
- ICRA, a credit rating agency, has flagged that such actions could set off a chain reaction, potentially impacting other lenders and further pressuring Kinara Capital's liquidity in the near term. Additionally, Kinara Capital offers unsecured business loans to MSMEs, and the liquidity crisis may affect their ability to make investments in the stock markets and imports, which are crucial for their business operations.
