Tag: nbfc

MFIN CEO, BFSI News, ET BFSI

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The microfinance sector is unlikely to face major challenges from the second wave of COVID-19 and is well prepared to face any disruption, Microfinance Institutions Network (MFIN) CEO Alok Misra said.

Over the past year, microfinance institutions (MFIs) have streamlined their processes, trained field staff on COVID-appropriate behaviour and in dealing with lockdowns, and focussed on digitisation, and these steps will help them in managing any kind of situation, he added.

“In the last one year, training, involvement of senior-level people at the ground level and digital content have ensured that the (MFI) sector is far better prepared (now) than when it (COVID-19) hit us last year,” Misra noted.

Till the time the pandemic continues, there will be local level lockdowns that would create medium to minor level disruptions to livelihoods, but the industry has learned to live with it, he said.

“I can’t say that it would be normal to pre-COVID days. Some impact would be there, but it would be minimal, which will not be debilitating on the industry,” Misra added.

MFIN is an RBI-recognized self-regulatory organisation (SRO) for the microfinance industry. It has 58 NBFC-MFIs and 39 associates, including banks, small finance banks (SFBs) and NBFCs as its members.

Misra said the MFI industry is adopting innovative methods to reach out to their clients, keep the connect going on and survive.

Rating agency Icra Ratings in a recent report said the overall long-term growth outlook for the domestic microfinance industry, including microfinance institutions (MFI) and micro finance-focused small finance banks (SFB)s, remains robust, even though the near-term outlook is clouded given the COVID-19 induced disruptions.

It, however, said the asset quality pressures for the MFI industry will continue in the near term and the same may get accentuated with the recent increase in COVID-19 infections and localised restrictions/lockdowns.

“Nevertheless, improving collection efficiency, good on-balance sheet liquidity and capitalisation should help most entities to withstand the stress,” the agency added.

MFIN releases performance numbers of MFIs every quarter. The fourth-quarter numbers are yet to be declared.

Misra said during the third quarter of FY21, the sector disbursed around Rs 60,000 crore, similar to the corresponding quarter of FY20.

“If I extrapolate that (Q3 FY21 trend) then the disbursement pattern in January-March, when the COVID-19 situation was better than Q3, would have been normal,” he said.

The collection efficiency of MFIs in the fourth quarter stood at close to 92 per cent, he added.



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ICRA: Uncertainties with rising Covid cases could compound NBFCs woes

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The resurgence of the Covid-19 pandemic is likely to impact the performance of assets under management of retail NBFCs in 2021-22, rating agency ICRA said on Wednesday.

“Domestic Retail-NBFC AUM are facing asset quality headwinds which will moderate growth in 2020-21 and is also likely to affect their performance in 2021-22, following resurgence of the Covid-19 pandemic,” it said in a statement.

Higher loan losses seen

Asset quality pressures would play out fully in this fiscal as the level of economic activities are yet to substantially pick up over the pre-Covid levels, with risks further compounded by recent rise in infection rate, it further said.

While NBFCs can proceed with the overdue recoveries post lifting of the Supreme Court order on the NPA classification in March 2021, ICRA notes that performance of most of the key target asset and borrower segments continues to be sub-optimal, which would impact realisations leading to higher loan losses.

“Entities have augmented their provisions steadily since the fourth quarter of 2019-20 and are currently carrying provisions of more than 50 per cent of the pre-Covid levels, the same is expected to be maintained at least for a few more quarters in view of the current uncertainties,” it said.

AM Karthik, Vice President, Sector-Head Financial Sector Ratings, ICRA, said, “Restructuring expectation averages around 2.6 per cent (ICRA sample of large NBFCs) presently and we expect reported Gross Stage 3 to increase steadily by about 50-100 basis points (over December 2020 levels) by March 2022, as a base case; and could inch-up further if the impact of the pandemic continues for longer period leading to lockdowns or other tighter restrictions.”

Revival in growth

ICRA expects the Retail-NBFC AUM, which is estimated to be about ₹10-lakh crore as of December 2020, to have grown by three to five per cent in 2020-21 as pent-up demand, post the lockdown, led to some revival in segments such as namely gold, microfinance, two-wheelers, and tractors.

In 2021-22, growth is expected to revive to about eight per cent to 10 per cent driven by improvement in demand from all key target segments compared to last fiscal.

Growth, however, would be contingent upon access to adequate funding lines, it further said, adding that the capital structure is expected to remain adequate.

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CreditAccess Grameen’s collection improves to 94% in Jan-March quarter

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CreditAccess Grameen, a NBFC-MFI, said its collection efficiency (loan EMIs collected from women borrowers) as also its year-on-year (YoY) and quarter-on-quarter (QoQ) loan disbursement (microfinance loans given to women borrowers) has improved during the January to March 2021 quarter.

The company in a release said it YoY and also QoQ consolidated disbursement has risen by 42 per cent and 3 per cent to ₹4,726 crore, respectively in January to March 2021 quarter. The collection efficiency for CAGL, too, has risen from 91 per cent in December 2020 to 94 per cent in March 2021 and for its subsidiary Madura Microfinance, collection efficiency increased from 86 per cent in December 2020 to 90 per cent in March 2021.

The number of women customers fully paying their loan instalments, has risen to 92.4 per cent in March 2021 for the company, as compared to 88.1 per cent in December 2020. The percentage of women customers not paying their EMIs, for the company, has come down to 4.4 per cent in March 2021 compared to 5.1 per cent in December 2020.

Active borrowers

The performance is on the back of a number of active borrowers rising to 29.63 lakhs for the company and 10.98 lakhs for its subsidiary. The new borrower addition during the January to March 2021 quarter, too, has seen a healthy rise to 2.88 lakhs on a consolidated basis. The consolidated Gross Loan Portfolio, too, has increased YoY by 16 per cent and QoQ by 13 per cent to ₹13,878 crore.

Owing to improved performance, the overall portfolio at risk for 30 days, 60 days and 90 days, has seen gradual decline to 6.6 per cent, 5.9 per cent and 5.4 per cent, respectively for the company as on March 31, 2021.

Regarding its subsidiary Madura Microfinance, the overall portfolio at risk for 30 days, 60 days and 90 days, gradually declined to 9.7 per cent, 6.7 per cent and 4.7 per cent, respectively on March 31, 2021. The restructured book amounts to ₹75 crore (0.6 per cent of GLP) as on March 2021 for CreditAccess Grameen.

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Northern Arc Capital raises $25 million debt from FMO

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Northern Arc Capital, a Chennai-based non-banking finance company (NBFC), has raised $25 million in debt from Dutch impact investor FMO. The fundraising comes close on heels of $10 million debt raised by the company last month from US-based Calvert Impact Capital.

Besides Calvert Impact, Northern Arc has attracted debt financing from an array of global Development Finance Institutions (DFIs) and impact investors over the last 12 months including from US International Development Finance Corporation (DFC) and Asian Development Bank (ADB).

Microfinance borrowers in both urban and rural areas will be key beneficiaries of FMO’s investment, the debt financing platform said in a press release.

“A sizable part of the fund deployment will be towards MFIs whose loans are primarily targeted at women. The loans will play an important role in providing credit to the under-banked households and small businesses, who have been worst hit due to the crisis,” it added.

Commenting on the deal, Bama Balakrishnan, COO of Northern Arc said, “Northern Arc and FMO are natural partners in furthering the cause of financial inclusion in India. With a shared philosophy of catering to borrowers hard hit by Covid-19 pandemic, the facility from FMO is timely and would specifically be used for lending to women, micro-entrepreneurs and SMEs.”

As of March 31, 2021, Northern Arc has enabled significant debt financing of around Rs. 95,000 crore for its clients across microfinance, small business finance, affordable housing finance, vehicle finance, agriculture finance, consumer finance, fintech and mid-market corporates.

Over 140 investors including banks, asset managers, insurance companies, DFIs, private wealth have invested in transactions structured and arranged by Northern Arc Capital.

“The new transaction fits with FMO’s ambition to accelerate financial inclusion with a focus towards women-run businesses and (M)SMEs. With this transaction, FMO supports an excellent partner who continues to service its clients during these challenging COVID-19 times,” Huib-Jan de Ruijter, Chief Investment Officer (a.i), FMO was quoted in the release.

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Are IPOs making NBFC a risky financing business?, BFSI News, ET BFSI

Banking & Finance

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The choppy markets are making initial public offerings (IPOs) in India, which are considered sureshot winning bets for their huge listing gains, a risky bet.

During the pandemic, the IPO market has had a dream run with many issues doubling in value on debut trade. However, with the second wave of Covid, markets have turned volatile and IPOs with higher concerns have listed at a discount.

Kalyan Jewellers IPO listed with 15% discount on Friday while Craftsman Automation dropped 6% on debut trade against its issue price. Earlier, SBI Cards IPO has listed at a 13% discount to the issue price.

This has brought focus on the thousands of rupees of NBFC financing trade in them.

Riding on the primary market wave, NBFCs such as Bajaj Finance, Aditya Birla Finance, Motilal Oswal, IIFL Wealth, Inna Finance, JM Financial and Edelweiss among others have been funding high net worth individuals through short-term lending, sometimes for just five-seven days. From Burger King to Happiest Minds, Gland Pharma to Route Mobile or Indigo Paints, well-heeled investors are jumping at the opportunity

to rake it in within a short span. That debut bump is leading to artificial asset inflation and price distortions, according to some market participants.

IPO financing

The IPO financing market is very vibrant in 2020, supported by an increase in HNI investors’ interest in IPOs in the quest for listing gains, with average demand between Rs 40,000 crore to Rs 50,000 crore per IPO.

About Rs 35,200 crore was raised for the Mrs Bector Food IPO while around Rs 26,000 crore was raised for the Burger King IPO, according to data on ICRA rated commercial paper. The amount raised for Chemcon Speciality Chemicals and Computer Age Management Services was more than Rs 37,000 crore. Similarly, about Rs 24,700 crore was raised for Happiest Minds Technologies. This has pushed subscription to several hundred times.

Margin money

Currently, HNIs, with money borrowed from NBFCs, are allowed to pay just 1% margin money to bid for the entire portion reserved for this group of investors. In effect, in a Rs 1,000-crore IPO, 50% of which is reserved for HNIs, these investors can pay just Rs 5 crore to bid for shares worth Rs 500 crore offered in the IPO. Bidding with borrowed money can lead to a huge rise in the total subscription in the IPO and then to the listing prices of these offers. Often a high oversubscription number in an IPO may mislead investors into thinking that the company is doing exceptionally well, shares are highly valued and hence the mad rush for them. Post-listing, however, the shares slide and some of the investors incur losses.

NBFC Funding

Typically, to fund clients, NBFCs raise short-term money through commercial paper at 4-5% and then lend at 6.5-8%. In the last six months, the top 10 finance firms have raised nearly Rs 1.8 lakh crore through commercial paper in the primary market with a tenure of 7-10 days for IPO funding, apart from self-funding and other sources of funds. Funds are raised with a yield to maturity between 3.2% and 6.25% per annum. The HNIs make money from the listing premium, and the gains in the recent issuances have been mind-boggling.

The risk

Financiers insist the risk is limited since there is a margin for the lender in terms of shares. Normally, higher the funding cost, lower the chances of making money on the IPO after all costs are factored in. Investors need to pay interest on the entire amount borrowed and not on the amount actually allotted. That is why higher oversubscription works against borrowers as they have to have more interest on idle funds.

RBI proposal

Earlier the Reserve Bank of India had proposed to cap IPO financing by NBFCs to up to Rs 1 crore per person, a move which may lead to a sharp drop in bidding by high net worth individuals (HNIs) and a drastic reduction in subscriptions of offers.

Banks have a Rs 10-lakh limit on IPO financing and there is no such cap for NBFCs. “IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system,” the RBI said in a discussion paper. “Taking into account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC,” the RBI said. Market players said that RBI’s proposed rule would surely bring a break to highly subscribed IPOs.



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Chennai-based NBFC Five Star Business Finance Limited raises ₹1700 crore

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Five Star Business Finance Ltd, a Chennai-headquartered non-banking finance company, has raised ₹1,700 crore ($234 million) from a consortium of global and Indian investment firms. The investment values the company at ₹10,300 crore ($1.4 billion).

The round included investment by existing investors in the company led by Sequoia Capital India, with participation from Norwest Venture Partners, and new investors led by KKR with participation from TVS Capital.

Five Star plans to use the capital to expand its lending business, the company said in a statement.

“In our mission of ‘Funding the unfunded,’ we have created a niche for ourselves empowering small businesses and the self-employed across corners of India by providing them with reliable and responsible funding alternatives. We aim to achieve this social goal through grass-root efforts without compromising on the pillars of asset quality and profitability that are needed to build a sustainable institution of scale,” D Lakshmipathy, Five-Star Business Finance Chairman and Managing Director D Lakshmipathy said.

Mix of investments

The investment will be made through a combination of primary infusion and secondary shares sales by existing investor Morgan Stanley Private Equity. The company’s other existing investors – Martix Partners and TPG Capital – will continue to stay invested.

“The company is a true pioneer in the market having supported the growth MSMEs for decades, playing an important role in India’s economy. Five Star is a terrific example of the type of solutions-oriented business that KKR looks to support through its Global Impact strategy and in India, and we look forward to working with Lakshmipathy and his team to build on Five Star’s long-term success,” Gaurav Trehan, Partner at KKR, said.

KKR’s investment, which is a part of its global impact strategy, marks KKR Global Impact Fund’s second investment in India and fifth in Asia Pacific.

Five Star looks to bridge the funding gap in the industry, which has about 60 million MSMEs, employs about 125 million people and accounts for more than 30 per cent of India’s GDP.

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Banks may seek review of SC order; yet to get ex gratia from first round

Personal Finance

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According to Emkay, bankers believe that the interest waiver relief should be extended only to small retail and enterprise borrowers, who are most affected by the pandemic, and not to large borrowers, who have better repayment capacity and are also eligible for other relief measures such as restructuring.

Banks may ask the government or the Reserve Bank of India (RBI) to seek a review of Tuesday’s Supreme Court order, directing the government to pay the compound interest for all loans during the moratorium period. Executives from the non-banking financial company (NBFC) sector on Wednesday said lenders were yet to receive reimbursements for the claims they filed in the first round, when the compound interest was paid to borrowers with loans of up to Rs 2 crore.

In a note, analysts at Emkay Global Financial Services wrote that the banking industry may move to get the apex court order overturned. “As per our discussion with bankers, they suggest that IBA (Indian Banks’ Association)/RBI/Govt should file a writ petition challenging the court directive to waive interest on interest on loans of over Rs 2 crore (except for consolidated exposure),” the report said. According to Emkay, bankers believe that the interest waiver relief should be extended only to small retail and enterprise borrowers, who are most affected by the pandemic, and not to large borrowers, who have better repayment capacity and are also eligible for other relief measures such as restructuring.

Ramesh Iyer, vice-chairman and managing director, Mahindra & Mahindra Financial Services, said all NBFCs had applied for the reimbursement and were yet to get it back. Raman Agarwal, co-chairman, Finance Industry Development Council (FIDC), said this was the case for all lenders. “That is true for everyone, for banks also…Now we have filed our claims through SBI, which was the nodal agency, and all the claims are lying with the government. We haven’t heard of anybody yet being reimbursed. They are processing; it’s going to take some time.”

Lenders themselves have paid the ex gratia amounts to their respective borrowers, and the last date for doing so was November 5, 2020.

Analysts at Icra have estimated the total compound interest for six month of moratorium across all lenders at Rs 13,500-14,000 crore, of which about Rs 6,500 crore was towards the first round. “With the announcement of waiver for all borrowers, the additional relief of ~Rs 7,000-7,500 crore will need to be provided to borrowers,” the rating agency said on Tuesday.

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True Balance raises $10 million in debt funding for its NBFC True Credits

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Fintech app True Balance on Monday announced that it has raised $10 million in debt funding from a group of investors.

“The investment has come from Northern Arc, and other investors from India and Korea for its lending arm -True Credits (NBFC) to support the company’s growth,” it said in a statement.

The debt fund investment will largely help the NBFC subsidiary company achieve breakeven for its business and deliver profitability by the third quarter of the fiscal year 2021, it further said.

Eyes more funding

Vishal Bhatia, Chief Financial Officer, True Balance, said the company is expecting additional funding of $40 million this fiscal.

“As we raise funds, our efforts in stepping closer towards meeting the goal of being a successful organised lender, gets real,” he said.

The Seoul and Gurugram-headquartered fintech has disbursed loans over $30 million this fiscal to the underbanked through its licensed NBFC subsidiary True Credits Private Limited.

“The entity had previously raised series D funding of $28 million from SoftBank Ventures Asia, Line Ventures Corporation, D3 Jubilee Partners, and other global investors towards the end of last year,” it further said.

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Dvara KGFS raises €8 million via ECB

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Dvara KGFS, a Chennai-based non-banking finance company, on Monday announced that it had raised €8 Million from leading European social impact funds, Invest In Visions, Germany (IIV) and Darlehenskasse Muenster, Luxembourg (DKM) in the form of external commercial borrowings (ECBs).

The company intends to deploy the ECB proceeds for their onward lending program targeted to support their microfinance and small business customers in more than 9,000 deep rural villages with little or no access to formal means of credit.

“This helps us to diversify our fundraising effort to Foreign Institutional investors (FII) and DFIs. There are a variety of small businesses that we fund in rural India which include retail shops, small dairies, agri entrepreneurs and this would help customers to restart their businesses, post covid,” Joby C O, Chief Executive Officer, Dvara KGFS said in a statement.

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All you need to know about Suryoday SFB IPO, BFSI News, ET BFSI

Personal Finance

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The Suryoday Small Finance Bank IPO is now open and live till March 19, with a price band of ₹303-305. Each lot consists of 49 shares. A total of 1.9 crore shares are available for subscription in the IPO. 50% of the issue is reserved for qualified institutional buyers (QIB), 15% for non-institutional bidders and the remaining 35% for retail investors. Employees of the bank will have 5 lakh shares reserved for them, issued at a discount of Rs 30 per share.

The bank is among the leading SFBs in India in terms of Net Interest Margins, Return on Assets, Yields and deposit growth and had the lowest Cost-to-Income ratio among SFBs in India in Fiscal 2020.

Suryoday SFB‘s purpose against launching its IPO
The proceeds of the IPO are proposed to be used for boosting the bank’s Tier-1 capital base to meet future capital requirements. Tier-1 capital refers to the core capital of a bank that consists of equity shares and retained earnings.

According to the bank’s red herring prospectus, the fund-raising will help Suryoday Small Finance Bank to augment its capital base. As of December 31, the bank’s capital adequacy ratio stood at 41.17%, where Tier-1 capital constituted 34.3% reported by The Quint.

Further, small finance banks are required to list within three years of reaching a net worth of Rs 500 crore, as per the Reserve Bank of India (RBI) guidelines governing these lenders. The bank had crossed the milestone in November 2017, making it necessary to list by November 2020.

The bank had applied to the RBI for an extension of timeline for listing till May 31, 2021. However, the RBI rejected the request and asked it to complete its listing at the earliest, according to the prospectus.

Business of Suryoday Small Finance Bank
SSFB received the small finance bank licence from the RBI in 2016. Prior to that SSFB operated as a NBFC and offered small ticket-size loans to women from weaker sections of the society. SSFB serves customers in the unbanked and underbanked categories. It has been serving these segments for over a decade now

SSFB currently provides a wide range of products and services, including housing loans, commercial vehicle loans, micro business loans, unsecured micro and small enterprise loans, among others.

As of December 31, 2020, SSFB’s customer base was 1.44 million and its employee base comprised 4,770 employees and it operated 554 Banking Outlets including 153 Unbanked Rural Centres.



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