Tag: gold loans

Panels to scrutinize all cooperative gold loans in Tamil Nadu, BFSI News, ET BFSI

Banking & Finance

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MADURAI: Special teams constituted to scrutinize gold loans provided by cooperative societies across the state have to complete 100% scrutiny of all loans and submit their reports to the concerned regional registrar of cooperative societies by November 15.

The regional joint registrars would submit their compiled reports on the status of the loans in their regions to Registrar of Cooperative Societies, Chennai by November 20.

This was stated in a communication dated September 24 from the registrar to the managing director, Central Cooperative Bank, Chennai, regional registrars and other officials. It said the chief minister had announced under Rule 110 of the Assembly that all eligible gold loans up to five sovereigns obtained through cooperative societies would be waived. But it has been detected that misappropriations have taken place in providing these gold loans and hence it has been decided to scrutinize the loans provided through the societies.

According to the chief minister’s announcement in the Assembly, the state would incur an expenditure of Rs 6,000 crore due to the waiver. The registrar has said that all gold loans that had been obtained till March 31, 2021 and from April 1, 2021 to the date of scrutiny should be reviewed 100%.

Committees comprising joint registrars of the societies should decide on the number of gold appraisers needed for the scrutiny and form committees.

Cooperative societies in each region would be scrutinized by teams from the neighbouring region. For example, Trichy region would be reviewed by officials from Ariyalur, Karur by Dindigul, Theni region by officials from Madurai etc..



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Bank loans to NBFCs grow slower as credit to small lenders dries up

Banking & Finance

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Both banks and non-bank lenders reported a deterioration in asset quality during the April-June quarter in loan categories. (Representational image)

The growth in outstanding bank loans to non-banking financial companies (NBFCs) has slowed down significantly on a year-on-year (y-o-y) basis in 2021, according to data released by the Reserve Bank of India (RBI). Industry executives said that the phenomenon is a result of credit to smaller NBFCs drying up amid heightened caution on the part of banks.

Credit outstanding to non-bank lenders has been growing in the low single digits through much of the current year, with banks’ NBFC book actually shrinking 2.2% y-o-y in June 2021. The growth rate moved back into positive territory in July, though it remained at a muted 0.5%. This is in contrast to the 20-36% growth rates seen every month during the comparable period of 2020, when the pandemic first broke out in India.

NBFC industry executives said that liquidity is not a problem for the larger players, but smaller lenders have been finding it difficult to access bank loans. Ramesh Iyer, vice-chairman and managing director, Mahindra & Mahindra Financial Services, told FE that there is a need to look at the situation of smaller NBFCs to put things in perspective. “I’ve been hearing that small NBFCs are not able to get money from banks. That could be one reason (why credit growth is slower),” he said.

nbfc loan growth

Bankers admit in private conversations that they are being cautious while lending to some NBFCs, especially those who have faced difficulties with respect to collections during the pandemic. “Last year banks were being cautious because of Covid, but later we saw that NBFCs were able to manage well. The second wave has again made things difficult because collections were affected badly,” said a senior executive with a public-sector bank.

Both banks and non-bank lenders reported a deterioration in asset quality during the April-June quarter in loan categories where cash collections predominate. Gold loans, commercial vehicle (CV) loans and microfinance saw slippages rise in Q1FY22 as the second wave of Covid-19 hurt the collection effort. There was also no moratorium on repayments, unlike in 2020, which made the stress more evident on lenders’ books.

In a recent presentation, analysts at India Ratings and Research said that a trend of consolidation and polarisation is emerging in the NBFC segment, with AA+ and above-rated NBFCs growing their assets under management (AUMs) much faster than A+, A and A- rated non-banks. In terms of asset classes, NBFCs focused on real estate have seen their AUMs stagnating as a result of a funding crunch and other sector-specific challenges. In the first quarter of FY22, retail NBFCs also saw a drop in AUMs largely due to the second wave of Covid.

The rating agency also expects the funding environment for smaller microfinance institutions (MFIs) to remain challenging. “For most large MFIs (assets under management above Rs 5,000 crore or large sponsor backed), bank funding lines could continue and hence they may not face immediate liquidity stress. That being said, small and mid-size MFIs would need to conserve liquidity and hence their disbursements could be constrained, this could lead to lag in their performance,” India Ratings analysts said.

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How Oppo, Xiaomi are leveraging huge customer base to become a financial one-stop shop, BFSI News, ET BFSI

Personal Finance

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It’s not just telecom service providers and social media companies that are looking to leverage their huge data trove to offer credit to customers.

Handset vendors such as Xiaomi and Oppo have entered the financial services market.

They are looking to leverage on their huge customer base who they can offer bundled in credit apps in handsets and via their own app stores.

Xiaomi plans

Xiaomi is bringing in offerings like gold loans, credit line cards and insurance products as it looks to provide the full spectrum of financial services across payment, lending and insurance in India. These financial services will be offered in partnership with organisations like Axis Bank, IDFC Bank, Aditya Birla Finance Ltd, Stashfin, Money View, Early Salary and Credit Vidya.

Mi Credit, a curated marketplace for personal loans of up to Rs 1 lakh, in 2019 witnessed a lot of euphoria, and more than one lakh loans have already been disbursed, Manu Jain, Xiaomi India head said.

However, as the pandemic hit, its lending partners took a backseat.

“Many quarters went into re-thinking about the future of Mi Credit or Mi Financial Services should look like. We are now back to growing this particular platform. Q1 2021 versus Q4 2020, we grew 95 per cent, and Q1 2021 versus Q1 2020, we saw 35 per cent growth,” he said.

Jain highlighted that the company is working on building a full spectrum platform with respect to overall financial services as well as credit perspective.

He said Xiaomi is adding insurance vertical to its platform as well as expanding lending category with the addition of offerings like gold loans and credit line cards.

Mi Credit will now offer a higher pre-approved loan of Rs 25 lakh (against Rs 1 lakh previously) and tenure of up to 60 months.

Besides, the company has started offering SME Loans and credit line cards as well.

Mi Credit, in partnership with Stashfin, has launched Credit Line cards.

“It is a unique product that comes with a proposition of Buy Now Pay Later combined with personal loan in order to enable the customer to utilise the offering across channels without any limitations,” Xiaomi India Financial Services Head Ashish Khandelwal said.

Gold loans

Another service that will be launched in the next few weeks is gold loan, he added.

Jain said 40 per cent of the company’s credit product users are self-employed and the remaining 60 per cent are salaried employees.

“In 2021, we are planning to further diversify and provide 20 per cent of the loans to MSMEs (micro, small and medium enterprises). We have launched business loan to meet the emerging needs of entrepreneurs and MSMEs,” he added.

Xiaomi’s Mi Pay service, which was launched in 2018, had touched 20 million registered users in a year’s time. This number has now crossed 50 million users.

Xiaomi has partnered with ICICI Lombard to curate a health insurance product.

This was piloted in July, and will continue to be offered.

Xiaomi also has a cyber insurance offering, and more than 25,000 customers have been covered so far.

Oppo
How Oppo, Xiaomi are leveraging huge customer base to become a financial one-stop shop

Chinese mobile communications company Oppo launched its financial services arm Oppo Kash in 2020. Oppo Kash aims to six offerings including payments, lending, savings, insurance, financial education and for the first time in India a financial well being score.

The company was aiming to have 10 million customers in the next five years with Assets Under Management (AUM) of Rs 50,000 crore.

Users of Oppo Kash will also be entitled to free credit reports, personal loans upto Rs 2 lakh, business loans upto Rs 2 crore and screen insurance.

Oppo Kash comes in the form of a mobile app and is available in Google Play Store and Oppo App Store. It will come pre-installed in all Oppo smartphones. The mobile company has partnered with 20 financial companies to power this platform.

The mobile communications firm has also set up a customer service team that would help users invest in mutual funds, take loans or solve any other queries.

The customer servicing team has been trained in multiple Indian languages to cater to India’s regional customer segment.

The firm’s financial arm was launched along side its new smartphone Oppo Reno 3 at the event.



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Fast growing gold loans turn sour hit by lockdowns, BFSI News, ET BFSI

Banking & Finance

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High yielding advances against gold jewellery, once the hottest loan product for banks, have turned sour this year as collections are affected due to the lockdown in the first quarter. Kerala-based Federal Bank and CSB Bank, besides large private sector lenders such as ICICI Bank, have seen slippages increase from this portfolio.

Although lenders say the pain is transitory, the second quarter is crucial for this portfolio to not become a big source of NPAs.

Banks for which gold loans contribute substantial amount to their profits, were hit in the first quarter. Out of the Rs 640 crore slippages that Federal Bank saw during the quarter, Rs 86 crore was from gold loans or linked to the product as a result, the bank’s gross NPAs rose to 3.50% of advances, up from 2.96% a year.

Similarly, Federal Bank’s smaller peer CSB Bank’s gross NPAs rose to 4.88% in June 2021 from 3.51% a year earlier due to the rise in NPAs from the gold loan business. Out of the Rs 435 crore of new NPAs during the quarter, Rs 361 crore was from gold loans including reversal of interest for the bank where gold loan makes up 38% of its assets.

Gold loans were the pain point even for larger lenders like ICICI which reported fresh slippages of Rs 6773 crore from its retail book out of which Rs 1123 crore were from such loans.

Analysts said the rise in delinquencies reflects the challenges banks faced in loan collections and also the cash flows issues faced by gold loan borrowers most of whom are micro entrepreneurs.

“There is also the impact of the fall in gold prices since last year which has made lending a little more risky. The fall in gold prices means that the strong growth that we saw in this portfolio last fiscal may slow down this year as banks will be more cautious,” said Prakash Agarwal, head financial institutions at India Ratings & Research.

Gold prices have fallen from a peak of Rs 52,827 per 10 grams in August 2020 to Rs 47,640 per grams now, though it is higher than the Rs 44,739 per 10 grams reported in March 2021. The rise in gold prices had also prompted the Reserve Bank of India to increase the loan to value ratio (LTV) to 90% from 75% in August. The LTV has since been restored to 75% from April.

Bankers however said despite the recent hiccups gold loans continue to be a well performing portfolio which can be built over the long term.

“We still believe in this portfolio and will continue to build it. There is no need for any caution. We are confident that as things improve both demand for loans and recovery of will improve. Already we are seeing an increase in recovery and we continue to expect growth in this fiscal year,” said CVR Rajendran, CEO at CSB Bank.

The growth though is going to be slower than the 61% growth the bank recorded in the fiscal ended March 2021. The banking system itself had recorded a 82% growth in fiscal 2021.

Bankers said the high yields and low risk offered by gold loans make it a winning product. CSB Bank for got a 11.50% quarterly yield in March 2021.

“In good times or bad gold loans are always a good product to have. Out NPAs in the segment is 0.20% which is very low with average loan to value (LTV) of about 80%. The loans at LTV of 93% are in single digits; so it is a very small portion,” said Shyam Srinivasan, CEO at Federal Bank.



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Gold loans, best option amid the Covid pandemic

Banking & Finance

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The demand for gold loans surged in the last fiscal as lenders, in general, turned cautious in the wake of Covid-19 pandemic, which impacted lives and livelihoods. With the traditional funding avenues being clogged, borrowers found it convenient to secure credit for their personal and business needs by pledging their gold jewellery.

This was adequately supported by the spike in gold prices, especially between April 2020 and August 2020, when gold prices went up by about 25 per cent. The Reserve Bank of India (RBI) also relaxed the loan-to-value (LTV) of these loans (for non-agricultural purposes) from 75 per cent to 90 per cent for banks till March 31. While the prices came down from the peak witnessed in August 2020 as of March 2021, it was marginally higher than in the beginning of the year. Loans against gold jewellery are typically less rigorous vis-a-vis other types of loans, and are largely based on the assessment of the ornaments being pledged. The above, along with the counter-cyclical nature of this asset segment, bodes well for borrowers, especially for the non-prime borrower segments, whose income levels are more vulnerable to adverse economic cycles.

Bank credit grows

The bank credit to this segment, under the personal credit category, grew at about 81 per cent during the last fiscal to ₹605 billion in March 2021. Over the last two years, the overall bank credit to this segment grew at a compounded annual growth rate (CAGR) of 56 per cent, while overall bank credit and the banking personal credit segment grew at a CAGR of 6 per cent and 13 per cent, respectively.

The country’s largest bank, SBI, saw its personal gold loans grow by about 465 per cent on a year-on-year basis during the last fiscal. Banks also extend agricultural loans against gold jewellery for their rural borrowers.

Non-banking finance companies (NBFCs) also saw their asset under management (AUM) grow by about 27 per cent compared with the overall NBFC credit growth of about 4 per cent during the last fiscal. NBFCs’ credit to this segment stood at about ₹1.1 trillion as of March 2021 against the estimated gold security, weighing about 350-400 tonne.

Bank credit grew by about 34 per cent on a year-on-year basis in May 2021 and is expected to be moderate vis a vis the last fiscal, while NBFC credit is expected to grow at about 14-16 per cent in the current fiscal. Various estimates put India’ gold holdings at about 25,000 tonnes, which provides a large scope for this segment to grow going forward in the long term.

Limited documentation

Product delivery for the NBFCs is better vis a vis banks, as they offer quick loans with limited documentation. The interest rates offered by the NBFCs are higher and in the range of 12-26 per cent (average ~20-22 per cent) per annum depending on the tenor, repayment patterns etc, while banks charge an interest rate of 8-10 per cent per annum. The convenience offered by the NBFCs and their gold-loan focussed branches, however, help in keeping the turnaround time much lower than the banks.

The gold loan business has been branch-centric in the past and NBFCs have been taking initiatives to digitise the process, and some also offer door-step credit and gold collection facilities.

The pace of digitalisation, involving online transactions for securing credit and repayments, improved with the pandemic-induced business disruptions, and is currently estimated at 20-25 per cent of the overall NBFC gold loan AUM. Banks, on the other hand, have tied up with smaller NBFCs and fintechs to improve their penetration.

The gold price movement is a crucial factor and could have an impact on the segmental asset quality; entities, however, have adapted to this risk by either lowering their loan tenure (3/6/9 months vis a vis the typical tenor of 12 months) or by ensuring regular collections of interest (monthly or quarterly vis a vis bullet payments) while maintaining the 12-month tenure, thereby, securing themselves against any large swings in gold prices. Generally, loans with a 12-month tenure get repaid in 5-6 months or get renewed basis the prevailing gold price.

Maximum decline

Looking at the gold prices trends over the last 10 years, the maximum decline witnessed in gold prices in a quarter was about 10 per cent, while it saw a maximum of about 15 per cent decline over a six-month period. Lenders typically have an option to call for additional collateral if the LTVs increase beyond the regulatory stipulated levels of 75 per cent and could auction the gold jewellery offered for security.

Auctions have been as high as 21-22 per cent of the opening portfolio for some NBFCs in the past (FY13-FY14); while there have been instances of under-recovery in the interest accrued on the overdue loans, especially the loans originated before the imposition of LTV cap by the RBI, loan losses in these auctions have been quite negligible.

The average annual credit cost for the large NBFCs, over the last 10 years, is about 0.4 per cent, and maximum credit cost observed during this period was about 1 per cent. Short tenure, small ticket size, conservative LTV (65-70 per cent) and access to collateral make this a go-to asset class for lenders when the credit risk perception is unfavourable.

 

(The writer is Vice-President & Sector Head, ICRA)

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Gold loan defaults within permissible limits, says Thomas John Muthoot

Banking & Finance

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Gold auction notices by private lenders in regional dailies spread across more than one full page are becoming regular which, to the uninitiated, may point to the pandemic-induced financial stress among not just the economically weak sections but also the salaried class.

Leading NBFC Muthoot Fincorp recently ran a multi-page auction notice listing about 24,000 mortgage items for auctioning this July across its various branches since customers failed to pay up in time.

Statutory advertisements

But the lender would not attach significance to the advertisement and maintained that the “default cases continue to remain within acceptable limits”.

This is a statutory advertisement, he told BusinessLine. The actual auctions amount to just less than one per cent and is not a matter of concern since 99 per cent of customers redeem or renew their loans.

“We have to take these steps; otherwise, we would be breaching the NPA norms of the Reserve Bank which will not be seen good in the eyes of rating agencies, banks and the RBI as well.”

Extra time to pay up

On special request, the NBFC grants customers extra time to redeem their gold. “We would in fact want customers to save their gold. This is important for us, too. Because of Covid, we have a special scheme for customers to renew their loan at 11.99 per cent. Lot of these steps are being taken thoughtfully.”

In fact, John Muthoot noted that the gold loans portfolio witnessed healthy growth during FY 2020-21. Coupled with rescheduling of earlier auctions due to lockdowns, this had resulted in a higher number of loans going into auction.

Overall, this is a small percentage compared to the total disbursements of ₹39,500 crore during the period, he said. But John Muthoot did agree that the Covid-19 second wave and resultant lockdown did disrupt economic activities and compromised the financial position of customers.

Element of uncertainty

“But if we compare it with the first wave in March 2020, the element of uncertainty is evident. The community demonstrated resilience and preparedness to face the situation. The lockdown has been relaxed in most states. Normalcy will enable the common man to return to work and resume activities”.

According to him, gold loans continue to witness a healthy demand. “The common man is our customer and his financial needs continue to be our focal point. We are in constant touch with customers and our product research capabilities enable us to understand their needs. The demand for fresh loans is picking up post-relaxations in lockdown,” he added.

On business outlook for the next few quarters, Muthoot said: “We remain bullish on the growth story of Indian economy. The Centre as well as the Central bank has reiterated the commitment by announcing packages or capital investments to propel the growth. As businesses reopen and activities restart, we are sure that the economy will rebound. We expect to grow by 12-15 per cent as higher demand unfolds”.

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Gold loans — a win-win for banks, customers

Banking & Finance

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Loans against gold jewellery seem to have become a veritable gold mine for banks, going by the rapid growth in their portfolio in FY21.

This is underscored by the fact that the portfolio of banks swelled 81.6 per cent year-on-year (y-o-y) to ₹60,464 crore as on March 26, 2021, against ₹33,303 crore as on March 27, 2020, as per Reserve Bank of India (RBI) data.

One can liken the growth in banks’ loans against gold jewellery portfolio to gold rush.

The portfolio clocked 33.9 per cent y-o-y growth as on March 27, 2020, over the March 29, 2019, outstanding figure of ₹24,866 crore.

These numbers are based on the Reserve Bank of India’s data on bank credit collected from select 33 scheduled commercial banks (SCBs), which account for about 90 per cent of the total non-food credit deployed by all SCBs.

A Covid-positive

The demand for gold loans surged after the outbreak of the pandemic in March 2020 as the economy reeled under its impact, leading to job losses, salary cuts, and mounting emergency health expenses.

Small businesses used these loans, post the six-month Covid-related moratorium period, to either ensure continued operations or re-start operations that had to be shut down temporarily due to lockdowns.

These loans have helped individuals and small businesses keep their head above water during these stressful times.

Moreover, the RBI, too, played its part by liberalising rules, which saw banks double down on the gold loan portfolio.

To mitigate the economic impact of the pandemic on households, entrepreneurs and small businesses, the central bank, in August 2020, increased the Loan To Value (LTV: loan amount to asset value ratio) for loans against the pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent till March 31, 2021.

Elevated gold price

With a higher LTV and elevated gold price, borrowers could get more loan per gram of gold pledged.

Competitive interest rate was the icing on the cake, with public sector banks such as Bank of Maharashtra and State Bank of India charging 7.35 per cent and 7.50 per cent, respectively.

The aforementioned factors aided banks in making deeper inroads into a business segment, traditionally dominated by gold loan companies such as Muthoot Finance and Manappuram Finance.

For example, in FY21, State Bank of India’s portfolio of general purpose personal loan against pledge of gold ornaments soared 465 per cent year-to-date (y-t-d) to ₹20,987 crore as on March 31, 2021, from ₹3,715 crore in the beginning of the financial year.

Bank of Maharashtra’s retail gold loan portfolio grew about 11 times in FY21 to about ₹1,370 crore.

Bank of Baroda’s retail gold loan portfolio more than doubled from ₹436 crore as on March 31, 2020, to ₹1,101 crore as on March 31, 2021.

The overall gold loan advances of Federal Bank and CSB Bank shot up 70 per cent y-o-y (to ₹15,816 crore) and 61 per cent y-o-y (₹6,131 crore), respectively, in FY21. However, details of growth in retail gold loans were not readily available.

Immediate liquidity

AS Rajeev, MD and CEO, Bank of Maharashtra (BoM), observed that the full potential of gold loans was not explored by his bank in the past. So, the Bank revamped the gold loan scheme to make it more convenient, competitive and customer-friendly.

“Considering the testing times, when many of the individuals and small businesses were cash starved, gold loan was instrumental in providing immediate liquidity.

“Our (overall) gold loan portfolio rose (about 7 times in FY21) to ₹1,939 crore by March-end 2021, and it stands at more than ₹2,100 crore as on date,” he said. Rajeev added BoM’s portfolio is expected to grow to ₹5,000 crore by the end of this fiscal.

C VR Rajendran, MD and CEO, CSB Bank, in a recent earnings call, emphasised that a major chunk of his bank’s incremental advances in FY21 came from gold loans. About 76 per cent of the advance growth was contributed by growth in gold loans.

“Last time our gold loan growth was so good because NBFCs were not at all active in the field. Once the customer comes out of NBFC and comes to a bank, he will not go back to the NBFC because the value proposition in a bank is better, the rates are very good.

“So, whatever we gained during that period, we will retain. Probably this pandemic will also help us acquire more new clients from the higher interest segment which should be good for us. It is a good value proposition for the borrower; it’s a win-win situation,” said Rajendran.

Zero capital requirement

Given that gold loan is fully secured, has less default risk and zero capital charge, it is an attractive product for lenders.

Banking expert V Viswanathan noted that as gold is an eligible cash collateral, there is zero capital requirement for loans against gold ornaments and jewellery. Further, as these loans are fully secured, they can be recovered (without court intervention) through auction.

He suggested that banks should consider introducing a ‘simple cash flow statement’ for one year to determine the repayment period and affordable Equated Monthly Instalments (EMIs). If inflows are low, they should sanction gold loan with interest repayment only and renew principal annually.

Viswanathan said borrowers can overcome liquidity mismatches via gold loans at low interest rates. There is no need to follow-up for getting loans. Further, there is no pressure to find money to pay as gold covers the loan.

In FY22 so far, growth in loans against gold jewellery relatively slowed down to 33.8 per cent y-o-y as on May 21, 2021, against 86.3 per cent y-o-y as on May 22, 2020.

Given the spectacular growth in the loans against gold jewellery portfolio in FY21, it remains to be seen if bankers continue to have the Midas touch with the portfolio in FY22, too.

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Banks to see growth in FY22; ECLGS and gold loans drive City Union, says Kamakodi, BFSI News, ET BFSI

Banking & Finance

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Growth is not a priority

City Union Bank has not put growth as a priority this year, due to the impact of Covid-19.

“In February 2020, even before the onset of Covid, we said that we are taking our legs off the growth pedal because we are not entirely comfortable with how things were panning out at that moment. After the onset of Covid also we clearly communicated that growth is not going to be a priority until things get back to normal,” said N Kamakodi, MD & CEO, Citi Union Bank.

He added that they have seen the bulk of the growth from the Emergency Credit Line Guarantee Scheme (ECLGS) and gold loans.

Credit demand

According to Kamakodi FY22 will be a better year.

“We will start the investment for particularly building the capacity of businesses only after the current capacity is fully utilised, which we believe will happen around the half of FY 21-22,” he said.

He finds the current pick-up in the economy genuine and sustainable.

In a detailed interview, Kamakodi explained that his bank will take only those accounts to IBC which are already declared as NPA. He also said that SARFAESI is much better than IBC.

On privatisation, Kamakodi said that the government should think of privatising those banks which are unable to generate the cost of capital. He also believes that DFI is an appropriate move and helps solve the problem of infrastructure financing.



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CSB Bank strengthens senior leadership, aims for 30% growth, BFSI News, ET BFSI

Banking & Finance

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Canadian billionaire Prem Watsa-backed CSB Bank is targeting a 30% growth on its Rs 13,000-crore loan book. The bank is reworking a retail strategy after industry veteran Pralay Mondal joined the leadership team at the end of last year.

While continuing to bank on gold loans as primary growth driver, the bank is set to target opportunities in the SME, two wheeler and secured loan segments.

Retail head Mondal told ET in an interview that the bank is targeting to grow at 25-30% in the next few years to ramp up its assets and liabilities base.

“Gold loan is a high yielding business; so we will continue to focus on that segment along with strong push on SME loans, especially because of the Covid emergency guarantee loan scheme, two wheeler loans, education loans, loans against property, small business loans and some aspect of agriculture loans,” said Mondal, President – Retail, SME, Operations & IT, CSB Bank. “We also don’t have plans to offer higher rates of interest to attract deposits. I rather focus on getting a strong customer franchise with sticky customers.”

Mondal added that the private lender was targeting a loan mix of 70-30%, where 70% would be retail and SME loans while the remaining would be wholesale assets.

The lender wants to build a strong customer franchise and expand in markets such as Kerala, Tamil Nadu, Karnataka and Andhra Pradesh, Western India, Punjab and Rajasthan. Presently, half of its 454 branches are in Kerala.

“The idea is to build an asset base in the southern and western markets and a liability franchise in the northern markets. We will slowly expand the asset base in north India,” Mondal added.

The Thrissur-based lender saw a 60% rise in its gold loan portfolio which stood at Rs 5644 crore, followed by a 6% growth in SME loans which ended the December quarter at Rs 2131 crore. Corporate loans were flat on a year-on-year basis at Rs 3208 crore. The lender also reported stable asset quality metrics with gross bad loan ratio at 1.77% at the end of December quarter versus 3.22% a year ago.

CSB Bank has also strengthened its leadership team at its risk, technology, retail distribution, SME, NRI and digital business verticals.

Watsa’s Fairfax Holdings holds a majority 50% in the lender.



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‘In Q4, we are looking at growing the business, but methodically’

Banking & Finance

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The micro-finance sector is showing signs of improvement barring some lagging areas and customer sets. However, there is demand for credit, said Nitin Chugh, Managing Director and CEO, Ujjivan Small Finance Bank. In an interview with BusinessLine, he also spoke on the new products the bank is working on and discussed the third quarter results. Excerpts:

How is the micro-finance sector doing now?

In general things have improved, which is coming up in the collection efficiency of 94 per cent to 95 per cent. We had reported in our second quarter results that we have problems in Maharashtra, Punjab, and West Bengal, and haven’t come back to the pre-Covid level. In Assam, while things were improving, we have had a setback in January due to the loan waiver announcement by political parties, and (that) has resulted in 9 per cent drop in collection efficiency (during the month).

Even in customer segments, there is some divergence. Customers with general stores, and dairy were able to come back rather quickly. Those in small-scale manufacturing are taking longer to come back. Customers like housemaids, drivers, restaurant staff and mall workers were impacted for a much longer time.

Also read: Ujjivan SFB reports net loss of ₹279 cr in Q3

How has the restructuring process been?

You can’t expect or even plan for such things. The moratorium got over on August 31, 2020. September was the first month when customers started making payments. We had a collection efficiency of 83 per cent for payments, which improved to 88 per cent in October. But there are customers who are finding it difficult to pay after the moratorium got over. The whole estimation process started from October; we started talking to customers and did a full detailed survey. We spent December holding individual conversations and completing the whole process.

How is credit demand? You have reported strong disbursement in the third quarter.

Credit demand has started to come back as people started going back to their livelihoods.

Disbursement is even stronger in January. Demand is from all across. We did our highest ever in January in the affordable housing business. In MSME also, we did our ever highest in January. In micro-banking, we are back to pre-Covid level and exactly what we were in January 2020. In fact, in December 2020, we did even better than December 2019 in micro-finance. Likewise in vehicle finance. In the fourth quarter, we are looking at growing the business now but doing it methodically with the appetite for risk that we have.

You are working on gold loans…?

We are still learning the business. We are in pilot stage right now. We started in October with five branches, all of them in Bangalore. The first two months were not very remarkable as we were trying to do this more through word of mouth. We will launch it at scale in the next fiscal year. It is an unmet demand of our customers.

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Any other new areas of lending?

In vehicle finance, we are testing MMCV (micro and mini commercial vehicle) loans. We are likely to make an entry into that segment. We were also evaluating the used car segments but with the Budget announcements on voluntary scrapping policy, we need to do some rethink on that. The segment of customers we deal with, they usually buy five- to seven-year-old vehicles and they buy them for a long period of time.

We are also looking to introduce credit cards in the next financial year. We have a substantially large base of retail, non-micro-finance customers. We have a large base with close to a million customers and the demand for these products is coming from them. We will also look at any other relevant product. Also, maybe lockers in a few of our branches.

Are you worried about stress on your books?

Now, we are not. We have taken all provisions upfront in the third quarter. Stress is emerging right now, the NPAs are at a standstill. We already had a cover on our books of 4.1 per cent to 4.2 per cent in the last quarter. It wasn’t that we were not adequately covered, we had taken provisions in the last three quarters also. We took the decision to upfront everything. Let us not live with any uncertainty and not worry about future credit loss, so that we can focus on growth.

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