A lot of institutions, the government and Reserve Bank of India (RBI) have been pushing us to go into areas which are less developed. We were predominantly in the South, and went to Assam nine years ago. Bandhan Bank has been there for 14 years. But we knew that the Assam market was very different, and grew that business slowly. Lower Assam is relatively easier from a business point of view. We have 13 branches there and only three in Upper Assam, a hilly area which is economically slightly depressed.
Now, unfortunately post-demonetisation, a lot of microfinance institutions (MFIs) from the north, decided to move to the Northeast and lent very aggressively there. Our total Assam portfolio after nine years is about Rs 450 crore. But a lot of the north-based MFIs have built portfolios of Rs 500–750 crore in two-and-a-half years. In these regions, you have to be very careful about hiring. When it is run by the local people, the connect with the community is much better. If you start bringing people from all over India and start doing business there, language will be an issue, and you don't have any connect with the community.
The first problem which came up in Upper Assam area was a demonstration against coercive collection practices. Somehow, the Microfinance Institutions Network or MFIN was able to quell it. But at the same time, MFIs have given out loans well beyond their capacity. So sooner or later, it was supposed to blow up. So, I think Assam has ingredients of the problems associated with over-lending and coercive collections.
Do you see a similarity between what's happening in Assam, and in Andhra Pradesh (undivided) almost a decade ago?
It is very similar unless it can be controlled. The big difference is the state government (in Assam) is quite supportive. MFIs have invested in Assam; Bandhan has made a huge investment which is laudable, but if they withdraw, there can be a problem. The government and the RBI are supportive though.
Popular demonstrations are happening in Assam and you can’t just write it off by saying that politicians are behind them. Both MFIN and our self-regulatory organisation have to take corrective action. If we are seen to be doing so, then the government and RBI will be more open. Otherwise, when there is a public outcry, they are not going to be able to support us. Hopefully, it will not reach the Andhra (crisis) level. But for now, we are seeing the early signs of stress — that is people not repaying on time; the 30-day past-dues have gone up in Upper Assam.
How has your experience of taking home, and vehicle loans to your MFI customers been?
We piloted affordable housing products four years ago and it is being scaled up. Thanks to the crisis in the housing sector, we have an opportunity. But we also have to figure out how to do that business as the needs of the rural, semi-urban and urban segments are completely different. We need to design products specifically for these segments. In affordable housing, the other complexity is that the legal environment changes from state to state. As far as electric-vehicle loans are concerned, this is in a very early stage. We feel that electric vehicles are going to be the next growth area for us. We are still trying to put systems in place, and have identified small businesses, traders, salaried employees, smaller institutions, etc., which are not being properly served by the banking system.
But this is also what some of the banks are doing…
This segment is not being served by banks. We are not getting into what HDFC Bank and others are doing; it's a different segment of customers. These customers were getting loans from non-banking financial companies and their financing needs are still largely met by the unorganised sector. We're not trying to compete with HDFC Bank, Axis Bank or a Kotak Bank – they are focused on the mass-affluent. To a certain extent, HDFC Bank is also trying to get into this segment, and we will compete with it as it doesn't have strength in this segment.
How long is it going to take for the businesses to mature and for us to talk about delinquencies and the like?
The retail lending business has a three-year cycle. As the segments we service increase and we move to individual loans, non-performing assets will rise. Group loans are very demanding — you have to meet customers on a weekly, fortnightly or monthly basis, take guarantees and do other such things. At a certain stage, people don't want all that. If we were to ask you to give guarantees for people, 'you’ll say, to hell with it. I'm not interested’. As customers’ economic well-being improves, they want to move to individual loans. To that extent, credit behaviour will mimic a lot of details. Our only advantage, at this point, is that we would have had a history with that customer.
Tell us about Ujjivan SFB’s aspirations of turning into a universal bank?
In two years, we (Ujjivan Financial Services) will have to bring our stake in the SFB down to 40 per cent. SFBs’ have a provision that at the end of five years of operations, the promoter can exit subject to RBI being comfortable with it. So, we have to figure out how we will reduce the stake to 40 per cent first. After we finish all this, we will apply for a universal banking licence.