Muthoottu Mini Financiers is looking to open about 100 branches this fiscal and increase its book size by ₹1,500 crore.
“This fiscal year, we have planned to open 100 branches as part of our expansion. We are predominantly a South India based company with presence throughout India. We are looking at opening further branches in Andhra Pradesh, Telangana along with a few more branches in Delhi- NCR, Mumbai and Gujarat,” said Mathew Muthoottu, Managing Director, Muthoottu Mini Financiers.
The company has also set a target to grow the book size by ₹1,500 crore by the end of this fiscal year, he said.
“We expect to hit ₹7,000 crore assets under management by 2024 and might even think of an IPO down the line,” Muthoottu told BusinessLine.
As of now, the Kerala based non deposit taking NBFC has 806 branches and a book size of about ₹2,000 crore.
PE Mathai, CEO, Muthoottu Mini Financiers said the company also wants to improve the business of existing branches. “At present, business per branch is about ₹2.5 crore. This can easily be increased to ₹4 crore to ₹4.5 crore within one year,” he said.
According to the company, demand for gold loans is still very strong with access to credit still an issue. Catering to the middle and lower middle income segments, the average ticket size of gold loans for the company is ₹35,000 to ₹40,000.
Mathai said the NBFC is also in talks with banks to lower the cost of funds by two per cent to three per cent from the current rate of 10.5 per cent to 12 per cent.
“Our rating has improved to BBB stable. We are expecting further improvement in our bottom line. We have approached our banks and are getting positive responses,” he said.
According to Mathai, Canara Bank has sanctioned ₹100 crore at 9.5 per cent rate to the company.
At a time when public sector companies are giving huge dividends to the government, the Reserve bank of India may transfer a lower surplus to the government.
The Reserve Bank earned less on the record reserve pile up and also stares at lower interest income as banks parked surplus liquidity with it.
A nearly 25 percent jump in forex reserves has led to a fall in returns by nearly a fifth. Returns on reserves deployment were lower at $4.3 billion during April-December’20 compared with $5.2 billion in the same period a year ago, according to the latest data from the RBI. Interest hit
The amount of interest it paid to keep the system in surplus liquidity could also hurt its returns as it paid interest for keeping funds with it.
Banks are estimated to have parked over Rs 5 lakh crore on an average during FY’21 on which the central bank has to pay them 3.35 per cent interest.
While RBI’s balance sheet has expanded since June 2020, yields on foreign currency investments have indeed reduced over the past year.
For the Accounting Year 2019-20 (July-June).the RBI transferred only 44 per cent of its surplus at Rs 57,128 crore to the government, which is the lowest in percentage terms in the last seven years.
How does RBI earn?
The RBI is a “full service” central bank, which is not only is it mandated to keep inflation or prices in check, but also has to manage the borrowings of the central and state governments supervise or regulate banks and non-banking finance companies and manage the currency and payment systems.
It makes profits while carrying out these operations. The central bank’s income comes from the returns it earns on its foreign currency assets, which could be in the form of bonds and treasury bills of other central banks or top-rated securities, and deposits with other central banks.
RBI also earns interest on its holdings of local rupee-denominated government bonds or securities, and on lending to banks for very short tenures, such as overnight. It makes a management commission on handling the government borrowings.
ts expenditure is mainly on the printing of currency notes and on staff, besides the commission it gives to banks for undertaking transactions on behalf of the government across the country, underwriting government borrowings.
Surplus transfer
The RBI isn’t a commercial organisation like the banks or other companies that are owned or controlled by the government and it does not, as such, pay a “dividend” out of the profits it generates.
The central bank transfer the “surplus” – that is, the excess of income over expenditure – to the government, in accordance with Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934.
Excessive transfer
In August 2019, RBI’s central board gave its nod for transferring to the government a sum of Rs 1,76,051 crore comprising Rs 1,23,414 crore of surplus for 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF).
The excess reserve transfer was in line with the recommendation of former RBI governor Bimal Jalan-led panel constituted to decide the size of capital reserves that the central bank should hold. The government was represented by the then Finance Secretary Rajiv Kumar in the panel which finalised its report on August 14, 2019 by consensus.
Since 2013-14, the RBI has been paying 99 per cent of its disposable income to the government, which is battling to rein in deficits.
The size of the Reserve Bank’s balance sheet, which is reflective of activities carried out by it in pursuance of currency issue function as well as monetary policy and reserve management objectives, has increased by 30.02 per cent in the year ended June 30, 2020,
The credit growth of banks ranged between 6.5% to 7.2% in April 2020.
Banks gave out credit at a faster rate during the fortnight ending February 12, as compared to the same period last year, helped by an increase in retail loans. The bank credit growth was recorded at 6.6%, marginally higher from the 6.4% recorded last year, a report by CARE Ratings showed. With this, the credit growth is back in the range that was last seen during the early months of the pandemic. The credit growth of banks ranged between 6.5% to 7.2% in April 2020.
Bank credit growth strong
Bank credit during the fortnight ended February 12 stood at Rs 107 lakh crore, up from Rs 105 lakh crore at the end of December 2021 but at par with the previous fortnight ending January 29. “The retail, agriculture and allied segment have driven overall credit growth in January 2021 growing by 6.7% and 9.5% respectively,” the report showed. The retail segment accounted for 29% of the total credit, against the 28.1% share recorded in the year-ago period. Industrial segment, however, had the largest piece of the pie accounting for 29.6% of the total credit. The services sector accounted for 28% of the total.
“Trade and tourism, hotels and restaurant segment registered a (credit) growth of 15.7% and 8.9% respectively,” the report said. The professional services segment registered a de-growth of 25%, computer software segment too registered de-growth, making them the only two segment to slip.
Mutual fund redemptions aid deposit growth
Deposits with banks have also increased during the period under review. “Deposit growth increased during the fortnight ended February 12, 2021, compared with 11.1% growth registered during the fortnight ended January 29, 2021, and also as compared with the previous year,” CARE Ratings said. The report further added that the outflows in debt mutual fund and equity mutual fund could support the rise in bank deposits. Of these deposits, time deposits grew at 89% while demand deposits account for the remaining 11%.
With deposit growth outpacing credit growth in the banking system, liquidity remained in a surplus position. “The outstanding liquidity in the banking system as of February 26 aggregated Rs 6 lakh crore, higher than a month ago level of Rs 5.76 lakh crore,” the report said.
More businesses have started using online banking, and the dependence on brick-and-mortar branches has diminished considerably.
Prashant Ganti
Over the years, technology has reshaped business functions and accounting is no different. The impact of rapid advances in automation technology, Artificial Intelligence (AI), integrated platforms, cloud-based software, and an explosion of data are felt in the finance world.
Here are a few trends to watch out:
1. Acceleration of cloud-based accounting
Cloud-based accounting solutions have played a major role in the successful transition to pandemic-induced remote working. We have seen several years of digital transformation in just a few months. Beyond enabling anywhere and anytime access, cloud accounting allows:
Systematization of remote collaboration, breaking the communication impasse between internal and external entities like accountants, CFOs and business owners.
Augmented productivity levels due to elimination of data entry and automation of day-to-day tasks.
Ability to glean cross-functional, real-time insights from multiple business sources and provide leading indicators into how a business is going to perform rather than having to pour over past historical information.
2. Technology-driven tax and reporting compliance
We will increasingly see adoption of GDPR model of compliance by design. The passage of GST and e-invoicing in India, VAT in the Middle East, and growing movement towards electronic invoicing in Europe and LATAM is a testimony to the fact that authorities across the globe are implementing technology-driven compliance with a threefold aim: reduce tax evasion, increase compliance, and retain flexibility to implement policy changes.
This means that internal business systems need to be future-oriented and not just address today’s compliance needs. This also has implications for other aspects of business and economy in general. For instance, the electronic authentication of invoices and tax returns done by revenue authorities can allow lenders to judge the potential of the borrower, which in turn could lead to a boom in lending easily.
3. Continuous accounting
In the past decade, we have seen two major technological changes—cloud and mobile. The cloud has ensured that the access to data is continuous, and mobile has allowed continuous transactions with the help of applications. Together, mobile and cloud have ensured that computing is continuous. Despite this advancement, accounting in many companies still works on a batch mode. Companies and accountants still set aside several days for period-close activities. However, today’s technology can help design financial processes that inheres within typical batch processing activities like financial close and continuous accounting, which ultimately results in operational efficiency.
4. AI will be well-entrenched in accounting
Today’s finance function is either uninitiated into AI or only uses limited AI. This is about to change. A pwc study says that a substantial number of financial decision-makers are investing in AI. AI has started playing a bigger role in accounts payable automation and spend management, primarily in the extraction of information from receipts and invoices, detecting fraud and duplicates, and automatic routing of invoices to the next stage of processing. This eliminates much of the data entry.
We can also see AI being increasingly used in AR functions like predicting the likelihood of a customer payment, and cash flow. Furthermore, AI will play a major role in the reconciliation process. All this will transfer a bulk of low-level tasks from the hands of accountants and other financial professionals to a computer, freeing them to contribute to more strategic initiatives.
5. Customer-driven finance and a new lexicon for accountants
Over the next few years, we will see the finance function step beyond its traditional focus areas of cost and compliance, and play a strategic role in the organization. This would mean that finance and accounting will have to be more customer-driven, designing all processes to keep the customer at the center.
This will require all back-office systems and finance to be deeply integrated with other business systems, arming every user, regardless of their role, with relevant information to serve the customer better. In addition to the traditional set of metrics, finance will need to adopt metrics that emphasize customer growth and experience.
6. Self-service finance-governed analytics
We will see the emergence of finance-governed analytics that brings operational, financial and transactional data together in a cohesive manner. With the aid of AI tools like natural language processing, CFOs, accountants and finance professionals can run queries on data spanning an entire organization, supporting operational and strategic decisions.
7. Emergence of the full-stack finance professional
With the evolution of no-code and low-code platforms, accountants and finance professionals cannot just suggest solutions, but also develop them using deep tech to help their organization, removing the over-dependence on IT. This, along with the emergence of self-service analytics, AI and other tools, have paved the way for a full-stack finance professional. A full-stack finance professional will be responsible for managing and minimizing risk and spending, adopting agile finance and maximizing effectiveness, supporting organization-wide decision-making, evangelizing financial shrewdness across the organization, apart from being tech-savvy.
8. Continued convergence of banking and accounting
Banking services have seen rapid development in the last decade. More businesses have started using online banking, and the dependence on brick-and-mortar branches has diminished considerably. Banking services are now being offered through mobile devices, and integrated banking technology is emerging. Accounting and banking are no longer separate entities.
Most modern accounting solutions offer bank integration, making account reconciliation simpler and faster. In the future, as more mobile accounting apps connect with mobile banking apps, business owners might no longer depend on their computers. They could accomplish their banking tasks right from their smartphones.
Prashant Ganti is Vice President at Zoho Corp. Views expressed are the author’s personal.
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