Disbursements Hit By 25%; See Normalcy Return By March 2017: Manappuram Finance
Will pass on rate cuts by the Reserve Bank of India to customers, says Manappuram Finance
The stellar run of gold-based lender Manappuram Finance Ltd. came to a screeching halt after the government’s crackdown on black money led to a cash crunch in the Indian economy, impacting the ability of the company to collect repayments from its borrowers.
About 40 percent of monthly repayments by the company’s borrowers are currently cash-based. Shares of Manappuram Finance had rallied 249 percent year-to-date till November 8, after which the stock corrected by over 30 percent, reflecting asset quality fears and a potential adverse impact on loan growth. This led the stock to underperform versus the Nifty 50, which lost 4.9 percent in the same period.
In the short term, companies may see sluggishness in disbursements and the likelihood of higher bad loans, said VP Nandakumar, the managing director and chief executive officer of Manappuram Finance. The return to normalcy may take another quarter, he added.
Here are edited excerpts from that interview.
How much of your business operations is back to normal post the demonetisation announcement, in percentage terms?
I think it is picking up. Although it is not completely normal, it is back to the extent of 80 percent. Now collections have reached around 80 percent.
What about disbursements, most of which occurs in cash for your company?
In our case, around 50 percent of the disbursement is in cash and rest through bank transfer because regulation says amounts exceeding Rs 1 lakh should be through bank account only. And there is 20-25 percent reduction in the disbursement. I think it will pick up another to 1-2 percent and be back to normal.
In case of gold lending and microfinance business?
In case of microfinance, it is almost similar because customers are from the bottom of the pyramid. So the repayment as well as the demand is more or less the same.
In case of microfinance, given that the ticket size will be lower and more cash-based, what are the dynamics like?
What we were saying even in the past was disburse through bank accounts because that reduces the scope for fraud. So we have been trying that for some time and now, we are disbursing in these ways. There is some sluggishness, a reduction of about 30 percent. Hopefully, it will catch up by February-March.
What does it mean for non-performing assets? Have any of your borrowers asked your representatives for some leniency towards repayments?
Some leniency is already given. I don’t think it is going to result in high NPAs. There would be some weakness, but overall as business catches up, everything will come back to normal.
The Reserve Bank of India has given NBFCs a leniency of 60 days wherein the borrower’s non-repayment would not qualify for classification as an NPA. Will that in any way offset any spike in bad loans that could be seen for the quarters-ended December and March? Is there a probability of seeing a jump in the NPAs in the short term?
I hope it is able to offset it. Yes, there is a likelihood of higher NPAs in the short term.
There is also increasing fear that that the government will next target unaccounted gold holdings. Will that deter gold loans in any way or push customers away from gold-based lending?
No, I don’t think so because our average customer holding is around 35 grams. So the customers who are from the bottom of the pyramid don’t hold large quantities of gold.
Would the increased efforts towards collections in this month lead to higher expenses in this quarter and hence impact margins negatively?
The cost would remain the same. Since several months we have been taking the steps to increment the fintech share. We have product called Online Gold Loan where some of them can avail around 365 days from anywhere in the world. That product has already been launched. There have been initiatives from our side to introduce that for the past 6-9 months because of which that product will get a boost.
What are the efforts that Mannappuram is taking to increase and promote digital and cashless transactions?
We have done fintech initiatives. We are moving to that platform for other products too. We have a plan to go completely digital in a phased manner over the next one or two years which will get accelerated now.
Do you expect the RBI to cut rates in this policy and what is the quantum of repo rate cut that you think will come in?
I hope there can be a reduction of 25 basis points.
If RBI does lower the repo rate and the banks do pass it on, what part of it would you pass on to your customers?
Yes, we will also follow the same path and cut our lending rates.
Given the falling interest rate trajectory, do you see any positive impact on your margins that it will be passed on?
I hope that our margins will be maintained.
As your company has faced regulatory challenges in 2012-13, how long did it take at that time for borrowers to clear overdues? How long do you think borrowers will take to clear the dues this time?
The situation back then was different. There was a company-specific governance issue, we did face some difficulty. We have weathered all that and come out of it successfully. Now this is a common scenario. What our company is trying to do is to take advantage of the situation by overcoming the fintech limitation and educating the customer. On the overdues, it may get completely regularised by the end of March 2017.