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00:00Rajesh Sharma, M.D. at Kepri Global Capital, joining us.
00:05Mr. Sharma, always good speaking with you, first off.
00:08Just give us trends on what is happening on ground with regard to especially SME.
00:14And I'm not talking Kepri Global specific, I'm talking about the industry as a whole.
00:19From a lending perspective, just give us a lens.
00:22How is asset quality shaping up?
00:24Are you seeing a collection problem in the industry as a whole, including peers, etc.?
00:31What you've got your ear on the ground, give us some perspective.
00:36I believe that MSME collection efficiency is relatively good, except those cases which
00:43are restructured during the COVID and some of the MSME units are affected.
00:48That is where we see some delinquency trends rising, but the demand of the new loan as
00:54well as the collection efficiency in the loans which are not restructured, I think they are
00:58doing pre-COVID levels.
01:02And in second half, as usual happens, we're clearly seeing a very good growth trend.
01:07So MSME, there's a huge gap, particularly in the segment where we operate on the non-income
01:12group and small customers.
01:14So I believe that with the growth of the economy, a lot of orders, a lot of business also flow
01:19down to MSME.
01:20And I see that MSME sector will continue to grow.
01:23Government have also the focus on that.
01:25There is a slight interest rate hike have happened.
01:29So that is where we feel that there is a pressure in terms of the interest rate on the MSME,
01:35but believe that they are small size, they should be able to cope with it.
01:40Right, and shouldn't that also reverse if at all the repo were to maybe be taken down
01:46by maybe 25 to 50 basis points?
01:48And how quickly will that pass through happen for you in particular?
01:51Because you spoke about it and hence I'm just quickly asking you that question and trying
01:55to cover it.
01:56So probably every agent may require a local meetings everywhere it takes place.
02:02They take into account their cost of fund and the market.
02:06So I think market is so competitive, the interest rate, cost goes down that immediately in the
02:11next month or so for the floating rate loans, it will start to pass down.
02:16And now the RBA has also suggested that no foreclosure should be charged.
02:20So I think the market will decide if anybody is charging more, the customer will move out.
02:24So that is a healthy trend that the rates will be competitive.
02:28And whenever the repo rates come down, I think the same benefit will be passed to the customer.
02:34In his latest address, the finance, the RBI governor suggested, of course, that NBFCs
02:43have a large role to play in the economy.
02:45He underlined how growth has been extremely strong.
02:48But he also said that certain practices need to be curtailed.
02:55Do you believe that on ground as well?
02:57And I'm again talking from an industry wide perspective.
03:01Do you believe that competition is heightened?
03:04Risk has been adjusted well or not adjusted well?
03:07What's your sense with regard to lending?
03:12I think there is more coming.
03:14My belief is there is more coming for the unsecured and digital lending where collections
03:19are not possible and all the losses essentially most of the time need to be written off.
03:28So I think there are more cautions towards lending and unsecured backed by a lot of growth.
03:34A lot of new players are coming there.
03:36As far as the secure lending piece is concerned, affordable housing, MSMEs or anything else,
03:41still the loan to value norms are quite robust to take good care of any kind of losses.
03:48So regulators see from the 360 degree view and I think they are well capable to assess
03:54all the data and caution.
03:57I think RBA over time working to strengthen this sector by bringing good practices and
04:02that will help us when anything goes wrong.
04:05These good practices are going to make the sector to face those adversities.
04:11So I think it's a good trend that now the compliance, the risk mechanism, the risk analytics,
04:16everything is now RBA is focusing, the MVFC also should come up.
04:21And that is happening over a period of time.
04:23So I think it's a good thing.
04:26And you know, gold loans is something you do.
04:29It's probably 30% of your portfolio.
04:31There's been plenty spoken about where gold loans is concerned.
04:36Now, let me talk from a Capri Global specific perspective.
04:40Any gaps that you believe or you are trying to address within your processes out of all
04:46the 7 or rather 6 deficiencies which the RBA has highlighted?
04:53So we have taken the note of that.
04:55The independent audit department decides that we also get audited by our co-learning partners
05:02or a statutory auditor and sometimes ASF auditors.
05:05We have multi-layer audit.
05:07We are making processes more robust.
05:10We have engaged with the outside firm, accounting firms to do their independent technology audits
05:17if there are any gaps.
05:19So we are all seeing that we are also able to plug the gaps.
05:24Having said that, I think the concern more comes when somebody places a gold letter.
05:29It is any kind of a situation in the economy overall.
05:34So I believe that small borrowers borrow these money for short-term requirements rather than
05:39they don't get that money from the formal banking system.
05:43And that is where we come in.
05:45If the gold loan and BFC will not land, then the customer will be forced to go to the money lender
05:51with a much higher rate of interest.
05:54In some way, we are helping customers to reduce their costs.
05:57There is enough competition in this segment.
05:59This is ensuring that the customer also gets a reasonable pricing.
06:03But everybody is enhancing their governance standards and assurance practices based on RBA's advice.
06:12Point taken.
06:13With regard to all of this, you have guided for FY27 AUM of 30,000 crore.
06:21You are roughly at 18,000 crore at the end of Q1.
06:24Do you believe a slowdown coming in likely due to all of these factors playing out?
06:31Asset quality, gold loans, some amount of regulatory overhang also?
06:38So I think we are a subset of the growth of the economy.
06:41If the economy will continue to grow, if the demand of the term loan working capital will
06:46continue to rise, the sector will continue to grow.
06:50It happens only when we see clearly either the liquidity is not available or the demand
06:55is not available.
06:56So I believe that demand is there and the way our government, every other state government
07:03and central government is targeting the growth and enabling visualization in the policy,
07:10I believe the growth will percolate to the MSME and hence the loan demand will be there
07:14and without credit being made available, even the growth can't be complimented.
07:20It is interlinked.
07:21So I believe the growth trend, it will continue, the demand will continue to rise and back
07:25of that demand, we hope to achieve that AUM growth.
07:29Of course, the caution is there.
07:33Our board is also now looking more into this.
07:37In fact, our board is following the policy of compliance first and business later.
07:41So with that, but I see that if there's no downturn in the economy, there's no reason
07:48that we will not commensurately grow the book and overall sector and the business will grow.
07:54But some competitors engaging in practices which the regulators are not happy about,
08:00give us that context.
08:03So I think the regulator when they take the conditions, he firstly warn them and I believe
08:08they are well capable to take the required guidance and action.
08:14So regulatory framework is strengthening the practices.
08:17And I believe that going forward, every NBFC is investing in technology processes,
08:25assurance practices, and that is going to make the sector very, very robust.
08:29So I think it is very healthy move.
08:32It might give the short term some pain and the cost, but in the long run, it makes the
08:38sector very, very robust.
08:40So we welcome that.
08:41Everybody is engaging nowadays, every quarterly basis to strengthen their internal audit,
08:46their compliance, their outside advisors to audit and to suggest how do we improve that.
08:53So I think that is a good thing that regulator is guiding, regulator is intervening,
08:59and that is going to result in improving the sector.