I hope everyone at Capri Global has a very happy and glorious Diwali. This has been a great quarter for you.
Rajesh Sharma: Yes, it was a good quarter in terms of growth, profitability and asset quality. What makes us happy is being able to serve customers that banks don’t serve. So that’s what we’re doing now. We have around 5,75,000 customers and that’s why we are happy.
And I was also looking at sectoral growth. Given that we primarily cater to the MSME segment, we wanted to know what the trends are on the ground and what the overall atmosphere is like with respect to small businesses and individuals.
Rajesh Sharma: MSME has always been a service sector that is in line with the overall economic growth and leans towards the smaller unit service sector, so when the economy is growing, you can clearly see the demand coming in. So, as orders percolate and work comes in, you need working capital. Therefore, we see that ample growth is coming from the MSME segment.So isn’t consumption slowing down?
Rajesh Sharma: There is no deceleration. But now, in addition to having to charge higher interest rates, when it comes to the availability of funds as a sector, it is clear that liquidity lines are going to be under pressure. So we don’t know what the next six months will be like, especially for MSMEs. As for our company, we have acquired a strong credit line of approximately 500 billion yen in the first half, so we fully believe that we can achieve our goals. But yes, it is clear that MSMEs, we need to see whether appropriate banking lines are available to NBFCs and whether NBFCs can cater to this segment. We all need to understand how we can do that. Yes, we are considering that too. We don’t want the liquidity squeeze to impact these borrowers.
The truth is, if we’re saying we need to charge higher interest rates, that’s obviously going to affect demand, so that’s what we were going to do.
Rajesh Sharma: So just because you have a higher interest rate doesn’t mean you’ll be charged 24%. However, this means that if the cost of funds increases by 50 to 75 basis points, that cost must be passed on to the borrower, as determined by the Arco Council, which takes into account the call cost parameters. So some of it is a cost to them. Another important part, beyond cost, is their availability of money. So I think we all have to wait and see what happens in the second half.
I want to talk specifically about MSME writing. This is because while MSMEs have continued to decline for the past two quarters, NPAs have also declined. What is your strategy in this area? Considering all the macro parameters that we talked about earlier, where is the MSME book in particular going?
Rajesh Sharma: So, what we did in the MSME subset, one MSME product is being lent to small and micro entrepreneurs, whereas what we did two quarters ago was to add another 500,000 products in the category of under 500,000. We have released another one in micro wrap. Last quarter, we started financing rooftop solar power in MSMEs. So, we can clearly see that with the addition of the two MSME products during this year, we are likely to see around 10% positive growth. From next year onwards, MSMEs should come back with a growth of around 20% or more.
I would also like to talk about the auto loan sector. Because the auto loan sector was locked in with a very high growth rate. However, its growth rate is only about 8%. Yes, we are seeing a slowdown in that area. We’re seeing that, and we’re seeing it in the monthly sales data that companies are reporting as well as all of their revenue, but how do you feel about whether festival demand can be sustained? Is it actually like that J-curve happening and there could be some kind of swing coming in?
Rajesh Sharma: This means that there will be a lot of demand even after this Shradh month ends, and the demand will come back in months like Diwali. However, competition is increasing and we are working on unit economics. So for every car, share your leads with your bank and ask them to confirm that you are making a profit.
What’s happening is that while ensuring competition, some places are offering more money than they’re making and burning through cash. However, our model is purely low-margin, and we only do business where we can make a profit. So we think there will be some pressure on the numbers because of that philosophy. However, overall, we should be able to achieve at least 10% to 15% growth without underperforming last year’s performance.
You said NIM will be in the 8.5% to 9% range. This time I ran 8.3. Is there a revision to the guidance or do you think you can somehow scale up and finish the fiscal year in the 8.5% to 9% range?
Rajesh Sharma: So, NIM, if I use more leverage, NIM will go down, but it won’t change my profit margin. Therefore, my spread will remain at 7% going forward. And I think the more microwrap share goes up and rooftop solar goes up, the more I think we’ll securitize some of our portfolio. You can clearly see that a 7% margin could be around 7.1 or 7.2, but this spread widens if possible. To maintain growth, I think this will push yields higher each quarter.
So what is your goal for assets under management at the end of the fiscal year?
Rajesh Sharma: At the financial end, we’re targeting about 23,000 billion to 24,000 billion, and our target guidance for the next 27 years is 30,000 billion, and I think we’re well within that range. Even with slow growth, that goal should be achievable. But now our focus is on how do we improve the efficiency of our products, how do we improve the efficiency of our branches? Over the past two years, we’ve deployed 125 engineers and 25 data scientists to increase the We’re focusing more on the technology and data science capabilities we’ve invested in, and how we can improve those processes. It gets better. Therefore, we are placing even more emphasis on increasing our profit margins.
I would like to return to the economic situation here. We are aware that there has been a slowdown in the local market, which is having a negative impact on inflation. As you have your eyes and ears close to the scene, please tell us how the situation is going and whether the economic slowdown will have ripple effects beyond consumption.
Rajesh Sharma: So so far we haven’t seen anything like that. Maybe our base is too small as it is still only an MSME base. We are talking about just 4,000 crores and around 35,000 customers, but we can see that overall credit demand, enough hunger for growth is happening and ideally in the second half of the banking sector, NBFC sector. is always at least 50% higher. first half. It is therefore clear that clear measures will be taken. Collection efficiency challenges and rising delinquency rates suggest growth will slow. If something like that happened, that would be more of a concern than anything else.
And don’t you see that happening now?
Rajesh Sharma: So far we haven’t seen anything like that. We’ve seen that happening on the microfinance side, so we’re a little wary. We are paying more attention to it and watching it closely.
Of course, the gold loan sector is doing very well. I saw a 225% increase. Given the regulatory hawkish eye on this segment, what are the future prospects?
Rajesh Sharma: So I think the regulators are making NBFCs more robust, more process-driven, more technology systems-driven. So I think it’s a good thing that everyone is paying attention to that, and I welcome that. Gold loan customers have two thought processes. One is that if we don’t fund that customer, that customer essentially goes back to a lender with a much higher interest rate. So I think we need to formalize credit more for small borrowers. Personally, I believe that gold loans are a very good product to bring its customers back into the formal economy where gold is not confiscated. You don’t have to pay the 36% price. So I think being able to provide financing in a very formal and very competitive way has a positive social impact. I think the idea should be to not delay competition, but to further strengthen it.
And are you looking to leverage the digital side of your business to spread that around?
Rajesh Sharma: Yes, because it is digital, we have not done any unsecured loans so far. The digitalization we’re doing is more focused on automating internal processes, and we’re doing it. We built Oracle LMS and then LOS in-house, built an in-house sales mobility app, built with a focus on collections, built our own collections app and collections system, and are now streamlining processes. is focused on. So we are paying attention and investing there.
And which segments do you think will be the key and bring significant growth in the future, such as housing, gold loans, auto loans, etc.?
Rajesh Sharma: So MSME, affordable housing, microwrap, solar rooftop finance are new of course, but we will expand on that. Construction finance is another area that provides funding to small developers for affordable housing. So all sectors will be on the move. It is now well diversified, with almost six financing products and two distribution products, but only the auto loan distribution has pure fee income.
So we’re currently building that distribution and by the end of this year we’ll have about 1,050 branches, about 10,000 employees and a very talented technology team. So I think it’s time to leverage efficiencies and focus on increasing profitability on a quarterly basis.
