HP Singh, President and CEO of Satin Creditcare, talks about March quarter figures, disbursement growth, NPA figures and stress areas, government announcement and growth plans, among others, in a candid conversation with Swati Khandelwal, Zee Business. Edited excerpts:
Watch the Zee Business live stream below:
Q: We saw triple earnings growth in Q4FY21. What contributed to this growth and is it sustainable?
A: By the last quarter of the previous year, we were back to pre-COVID levels. Thus, when the situation began to improve, disbursements and receipts resumed. At the same time, the cost of credit, which immediately after the pandemic when the moratorium was announced, positive things began to happen there. So this quarter went better for those reasons and after that there was a second wave and let’s see how the second wave progresses.
Q: What has been the growth in disbursements this quarter and what impact have you seen on loan growth due to COVID?
A: Technically, there were lockdowns in all states of India in the first quarter of this year, which resulted in lower collection efficiency. If we look at disbursement virtually in May and most of June, disbursement is absolutely non-existent as lockdowns have been put in place almost everywhere. So if you look at the growth, the growth will not be there for this quarter. In terms of collection efficiency, there will be a slight drop from the March quarter of last year and April. But with the opening of the lockdown from mid-June, collection efficiency improved and disbursements also started to increase. If the lockdown is further eased as there are still restrictions in parts of a few states. If that happens we will revert back to where we were in the March quarter, if that stays I think we will probably bounce back the same way we did in the March quarter.
Q: Your collection jumped 105% in Q4FY21. What contributed to this growth and do you think the levels will be reached in a few months?
A: As I said earlier, with the opening of the lockdowns, our collection efficiency has improved. So if I look at the period of confinement and the period post-confinement, there is a difference of 10-15% in terms of the jump in collection efficiency. So the way we saw the collection efficiency in the March quarter was around 105%, which also included the old lag. Similarly, we are now seeing that as the lockdown opens, there is a jump of around 10-15% in collection efficiency between the lockdown period and the post-lockdown period. So to reach 105%, maybe 100%, I think we’re about 10-15 days away and we’ll reach there. In terms of growth, outflow was weak this quarter, but it has started to pick up now. As the lockdown has ended and we enter July disbursements have started to pick up and overall it looks like over the next year we will achieve decent growth of around 8-10% and that’s what we envision.
Q: In which sector(s) do you see stress? Also, your NPA numbers are still around 8.4%. By when do you expect an improvement on this front?
A: Typically, about 75-76% of our work is rural, so whatever we disburse is rural. Even within this, significant disbursements occur in agriculture and agriculture-related services. So if you look at agricultural and related services as a sector in the microfinance space, there is no stress because monsoon has been normal everywhere and production has also been normal everywhere. As a result, we do not see coming from stress because of the season. And, also if you consider it geographically, then due to geography, there is no particular area that can be called stressed. It’s just because the lockdown has been on for maybe a longer period of time and the containment areas have been on for a longer period of time, there may be a bit of stress, but as as such there are overall there are only pockets where a little stress can be seen otherwise no.
Q: How much can the NPA level drop from 8.4%?
A: I can’t give you a number, but certainly yes, the way we look at those numbers is going to go down. I’m looking at the first quarter and if we forget about it, over the next two quarters the GNPA numbers of 8.4% will start to drop a lot.
Q: The government has made various announcements for the MFI sector. What is your view and do you think this will improve the condition of the pitch and bring relief? Do you expect more relief from the government?
A: I think the steps that have been taken, including the first stage of restructuring-II, are also a very good decision. Technically, borrowers who were having difficulty repaying have a second avenue through which you can repay it. So, Restructuring-II is also a very big positive move, which was given by the government. The second move which has recently given in the form of liquidity through which medium and small NBFCs especially for MFIs an additional liquidity provision of around Rs 7,500 crore has been provided and this will really help us look at areas where the stress is visible and wherever we are technically unable to meet the credit of borrowers, these measures will also be taken care of, such as restructuring as well as the increase in liquidity, which has been given by the government.
Q: Do you have any merger or acquisition plans on the company’s charts?
A: Nothing on M&A. To be precise, I don’t think there’s much to talk about. But we’re there in about 23 states and if you look at them that way, we’re looking at maybe about 7-10% growth. We won’t be adding more geography, but the geography where we’re working – I think probably the largest in terms of our geographic presence in about 23 states – we’ll try to increase that in those states themselves and dive deep so that we are able to consider some additional borrowers rather than opening in another couple of states, which we can do next year and such, but not this year.
Q: You talked about 8-10% growth in FY22. So can you name the pocket where you are most bullish and you are getting opportunities and would like to increase it? Is there diversification in the pipeline and plans? Also, what growth opportunities do you see for the company in the next 4-5 years?
A: There is uniform growth across geographies. If you technically see that you work in 23 states and if you really look at it, then UP is a big state, but we have a 22-25% presence there. So everywhere there is room for growth and we will look at that by diving deep into our branches and our numbers there. In terms of how we’re going to diversify, I think the important message that we really want to convey to all of our stakeholders is that we have two subsidiaries, which are in the MSME space and the housing space and those two branches are working well. If I am going to talk about housing finance, it has an AUM of Rs 226 crore and technically the quality of the wallet, even during this pandemic the collection efficiency has been around 98-99%. There is absolutely no crime there. This is a large segment that is missing in micro-finance more more. A micro-finance borrower takes a small loan of around Rs 50,000-60,000 which is the maximum limit. But it is granting housing as well as an SME loan to a borrower who is a little above the micro and falls into the SME zone even in rural space. So the SME we have is around Rs 130 crore and the housing company is Rs 226 crore and both are a big segment that’s missing – we call it a missing middle segment – and caters to them and The quality of the portfolio in the space and the demand is going to be very healthy. All of this is secure. So our MSME company also provides secured loans and housing finance is also secured basically through housing finance. So we are diversifying into the secured space through which we also believe that maybe in the next few years the ratio that is 98% of microfinance and the rest of secured lending will start to change. So it will probably be 70% microfinance and 30% will be both MSMEs and housing finance.