Interview: We see a robust, very strong growth for MFI sector: Mr Nirmal Jain
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Interview: We see a robust, very strong growth for MFI sector: Mr Nirmal Jain

12 Jun, 2023, 10:55 IST | Mumbai, India
We see a robust, very strong growth for MFI sector: Mr Nirmal Jain

​Let me directly dive into the latest development and your planning on raising about Rs 300 crore with a greenshoe option of about Rs 1200 crore. If you tell us where would the capital be raised utilised? Also if you could tell us which segment would most of this capital be diverted to?

This is our working capital for normal loan growth so this year if you look at our loan assets under management, we had a Rs 64,000 crore last year in which we expect to grow by about maybe close to 25% or 22 to 25% this year and that needs to be funded. A significant part of it will be coal ending or basically the assets that we sell down to bank. But still there are loans that come for repayment and have to be replaced. And as some amount of debt in proportion to equity we also plan to increase. So if you are able to raise Rs 1500 crore that is what our target is. We will use this for growth in a gold loan, business loan as well as other products that we have.


What we also want to know is what is the rate at which you are raising this at and how do you expect the cost of the funds to move from here on? And also consecutively the impact that we could see in terms of the NIMS for the company as well. Do you see it contracting or remain at the same levels?

So interest rates are a little different for two year, three year and five year period bonds. So the coupon is 9% and the yield can be 9% to a little more than 9% for a longer maturity. Cost of funds because there has been a systemic interest raise all over and interest rates have gone up in India as well so there is impact of this.

But still on an incremental basis the 9% cost of fund is something which is in line with our plans. And if you even look at our last year's financial, our cost of fund has gone up very marginally.

Primarily because we have been able to repay the higher cost debt which were contracted before 2018 and the dollar bond which was raised in 2020 and also our credibility with the banks, our credit rating, all those factors are positive at this point in time. And we have been able to contain the interest rate hike impact on our cost of funds. So our cost of fund has gone up only marginally as compared to the rates that have gone up across the industry or across the economy.


Let us talk about the home loans as well as gold loans. Both of them put together actually account for approximately two third of your book. If you could tell us what is the outlook, especially on the competition in this space? And when I talk about competition, I am asking about especially coming in from the banking sector. And also, given the fact that there is competition, do you see your growth being curtailed? What sort of a growth are you envisaging going ahead for the home loan as well as gold loan portfolio?

Competition has been very intense. The private sector capex in India has not picked up the way probably one would have expected it to. And banks have deposit and also with say, you know, these 2000 rupees notes going back, the deposits are going up.

And they are looking to grow their retail asset book. And therefore, competition in affordable home as well as gold loan is fairly intense from banks.

But having said that, we have our niche, the geographic areas that we operate in, the service that we give to the customer and the kind of customer that we target.

So when the economy is doing well, I think there is enough demand and enough for banks as well as very specialised NBFCs like ours.

And in many products, we are partnering with banks so basically we source loans which 80% for banks and 20% for us. So in a way, it works for both of us. But the demand for credit is fairly strong when the economy is doing so well.


Also, what we see is that after a very long crisis, the outlook for MFI has actually improved. Now, do you foresee a long runway of growth ahead? And what is the kind of contribution you see coming in from this phase in the overall AUM mix? Currently, it is somewhere around 15%. So where do you see it moving now?

MFI has recovered very well and RBI's pragmatic policies as well as the recovery post-COVID and post the inflationary fear that we had now that we are getting out of it.

The economy is doing well. So MFI sector in general is doing well. And we see a robust, very strong growth there as well. So when we say that we plan to grow around 25%, MFI contribution may be slightly higher say 30%. The contribution in the overall portfolio might go up a little bit from 15 to 16. I do not have the precise estimate but it will be a marginal increase if at all there is an increase.


Okay, let us talk about the credit cost then. What would be the credit cost on your incremental book going ahead especially in the MFI space? Also, the asset quality guidance for FY24?

Asset quality in the last two quarters has improved considerably, including for MFI sector. So if you look at now, the GNP is less than 2%. And our credit cost guidance for the entire company is also less than 2%, maybe 150 to 150 bps credit loan losses and provisions on an annualised basis.

MFI on an incremental is doing very well. And so, till last year we were reeling under the problems of COVID and restructuring. And when these small borrowers, when they were coming out of the COVID and the restructuring period, some of them obviously could not meet their commitment in terms of the schedule of interest and principal repayment but now things have recovered and on incremental loans, we are seeing the losses are less than 1%.