March 29, 2019
Qisen Zhang
Chief Financial Officer
Hexindai Inc.
13th Floor, Block C, Shimao
No. 92 Jianguo Road
Chaoyang District, Beijing 100020
People's Republic of China
Re: Hexindai Inc.
Form 20-F for Fiscal Year Ended March 31, 2018
Filed July 30, 2018
Form 6-K filed December 3, 2018
File No. 001-38245
Dear Mr. Zhang:
We have limited our review of your filing to the financial statements
and related
disclosures and have the following comments. In some of our comments, we may
ask you to
provide us with information so we may better understand your disclosure.
Please respond to these comments within ten business days by providing
the requested
information or advise us as soon as possible when you will respond. If you do
not believe our
comments apply to your facts and circumstances, please tell us why in your
response.
After reviewing your response to these comments, we may have additional
comments.
Form 20-F for Fiscal Year Ended March 31, 2018
Item 4. Information on the Company
Our Technology and Risk Management System, page 58
1. We note your disclosure of your credit grading scores and system on pages
59 and 60,
which appears to show that approximately 76% of your loan transaction
volume is with
borrowers with a credit grade of A or B. Subsequently, we note from your
Form 6-K filed
on February 28, 2019 that your net revenue for the three months ended
December 31,
2018 decreased by 95.6% compared to the three months ended December 31,
2017 due to
implementation of stricter credit scoring standards, which downgraded the
number of
borrowers. In future filings, please revise your disclosures to address
the following:
Qisen Zhang
FirstName LastNameQisen Zhang
Hexindai Inc.
Comapany2019
March 29, NameHexindai Inc.
March 29, 2019 Page 2
Page 2
FirstName LastName
Provide a detailed discussion of all the reasons leading you to
implement stricter credit
scoring standards, including the exact date that the new standards
were implemented,
and why it was necessary, considering that you previously
disclosed 76% of your loan
transaction volume was with borrowers having a credit grade of A
or B. For example,
ensure that your disclosure discusses whether the need to enforce
stricter credit scoring
standards was as a result of a change in regulatory requirements,
communications of
non-compliance by a governing body, difficulties with assessing
credit grades under
your previous system, whether there was a notable increase in the
delinquency and
charge-off rates of your existing borrowers, among other possible
factors.
Provide detailed disclosure of the processes you are implementing,
including systems
used, milestone dates and data migration of information, for your
new credit scoring
standards and specifically how the new processes are an
enhancement to your previous
processes. As part of your disclosure, explain why your previous
credit scoring
system was insufficient.
Provide a reconciliation for how the previous credit grades will
fit into your new credit
scoring standards. For example, disclose how those borrowers that
previously had a
credit grade of A or B under your previous system would be
classified under your new
credit scoring standards.
Given the significant decline in revenues due to stricter credit
scoring standards,
disclose whether the borrowers under your previous credit scoring
system would be
permitted as borrowers under your new credit scoring standards at
all. In this regard,
quantify the amount of revenue associated with borrowers in
previous periods that
would not meet your stricter credit scoring criteria currently in
place.
Disclose the number of borrowers that you have denied from
participating on your
platform since implementing the new credit scoring standards.
Item 5. Operating and Financial Review and Prospects
B. Liquidity and Capital Resources
M3+ Net Charge-Off Rates, page 110
2. In your future filings, please revise your disclosures to discuss how
you use the M3+ Net
Charge-Off Rates and its use for investors, including a discussion of
the reasons driving
the change in the charge-off rates from period to period.
Notes to the Consolidated Financial Statements
Note 4 - Loan Receivable, page F-24
3. We note that you have begun initiating loans through your consolidated
VIE, Wusu,
Qisen Zhang
FirstName LastNameQisen Zhang
Hexindai Inc.
Comapany2019
March 29, NameHexindai Inc.
March 29, 2019 Page 3
Page 3
FirstName LastName
beginning on January 1, 2018 and had a loans receivable balance of
$28.7 million as of
March 31, 2018, which has subsequently increased through December 31,
2018. We also
note that you did not have an allowance for loan losses recognized on
these loans as of
March 31, 2018. In your future filings, please revise your disclosures
to address the
following:
Disclose all information required by ASC 310-10-50 and other
material information
about your loans, including an aging analysis of your loan
portfolio, specific terms of
the loans, whether any loans are to related parties, any
modifications of terms,
accounting policy for those modifications, your troubled debt
restructuring ("TDR")
policy, performance and non-performance characteristics of the
loan portfolio, your
policy for placing loans on non-accrual status, and credit quality
indicators.
Expand the disclosures in your Critical Accounting Policies,
Judgments and Estimates
to provide specific details of all the critical factors you
considered in your
determination of the allowance for loan losses, including a
specific discussion of each
of the various credit quality indicators noted in the bullet point
above, as well as your
consideration of historical delinquency, charge-off and loss
rates.
Disclose a rollforward of your allowance for loan losses.
Provide a similar level of disclosure on your receivables balance
and determination of
the allowance for doubtful accounts, which we note had a balance
of $20.3 million as
of September 30, 2018.
4. We note that there has been a shift in your business by operating a
microlending business
through Wusu, which has resulted in the significant increase in loans
receivable on your
balance sheet. Further, we note from your disclosure on page 54 that
the maximum loan
balance is RMB200 million and that the loans are to high quality
borrowers from your
previous borrower base. In your future filings, please revise your
disclosures to address
the following:
Disclose in your MD&A the number of borrowers and number of loans
outstanding
through the microlending business. In addition, explain why those
borrowers are no
longer part of the borrower base on your platform, how you track
them and whether
any are related parties.
Provide detailed disclosure in your MD&A explaining how this shift
in business
strategy is beneficial and in the best interest of your investors.
In this regard, we note
that the Company is earning 8% interest on the microlending loans
and you charge no
loan origination fees, whereas the loans on your platform have an
interest rate of 10%
- 13%, plus loan facilitation fees that you would also earn by
facilitating more loans on
Qisen Zhang
Hexindai Inc.
March 29, 2019
Page 4
your platform. Given the lower interest rate and fees on the loans
through
Wusu, disclose in your future filings why it is a better use of
the Company's capital
to lend to borrowers through Wusu rather than loans to borrowers
on your own
platform, especially considering it is the same borrowers that
were previously on your
platform.
Given that you have approximately USD $73.3 million of loans
outstanding on your
balance sheet as of December 31, 2018, explain how this reconciles
with your
statement of having a maximum loan balance of RMB200 million.
Form 6-K filed December 3, 2018
Exhibit 99.1, page 1
5. We note from your press release that you experienced a significant
decrease in your net
revenues (82.9% decrease) in the second quarter of fiscal year 2019
compared to the same
period in fiscal year 2018. We also note that you attribute the
decrease to the volume of
credit loans facilitated through your marketplace, which was driven by
a decrease in the
number of credit loan borrowers from 20,675 in the second quarter of
fiscal year 2018 to
2,183 in the same quarter of fiscal year 2019. Please address the
following items:
Explain to us and revise your future filings to provide a
sufficient and thorough
narrative of the factors that caused this decrease.
If the decreases were caused by changes in regulations promulgated
by regulatory
authorities, tell us which authority, regulation and specific
requirement were the cause
of such changes.
Tell us if it was determined that your business practices were in
violation of any
existing or new regulations and when, if any, such violations
became known.
In closing, we remind you that the company and its management are
responsible for the
accuracy and adequacy of their disclosures, notwithstanding any review,
comments, action or
absence of action by the staff.
You may contact Michael Henderson, Staff Accountant at 202-551-3364 or
Robert
Klein, Staff Accountant at 202-551-3847 with any questions.
FirstName LastNameQisen Zhang Sincerely,
Comapany NameHexindai Inc.
March 29, 2019 Page 4 Division of
Corporation Finance
FirstName LastName Office of
Financial Services