Capital, the non-banking financial company (NBFC) of the oldest foreign bank in the country, is tapping India’s mass-affluent customer base to build a quality retail book, thus complementing its parent in its renewed retail push.
Even as both operate at an arm’s length distance, tapping cream customers is easier for the NBFC
than the bank. Standard Chartered
Bank has 100 branches in the country, but so is its obligation to open roughly 40 per cent of its branches in rural areas. An NBFC
has no such obligation as of now.
In the past NBFCs
of foreign banks have tried to penetrate India’s retail market, but some had to close the operations for a variety of reasons, primarily due to intense competition from local private sector banks.
Citibank is selling its consumer business; Royal Bank of Scotland exited its retail business in India in 2016. Swiss lender UBS surrendered its commercial banking license to the RBI in 2013. Barclays shut down its equity and broking business in India in early 2016, after having sold its retail business in 2011-12.
HSBC and BNP Paribas have their NBFC
arms now, but are not very aggressive in their retail push.
Standard Chartered, under India CEO Zarin Daruwala planned to bring the bank’s share in retail to at least 40 per cent, from 25 per cent now. The NBFC arm’s retail client acquisition is separate from that target, but in a way complement the effort.
Capital is a subsidiary of Standard Chartered Bank UK and was established in 2003. However, 2018-19 onwards, it focused more on the retail segment, expecting robust demand from entrepreneurs of India’s 4.5 crore micro-small and medium enterprises (MSME). The products offered to these entrepreneurs are loans against property, loans against shares, and business instalment loans.
“Given the number of MSMEs available in the country, we are just scratching the surface, so to say,” said StanC Capital’s managing director and chief executive officer Prashant Kumar in an interview with Business Standard.
The average ticket size works up between Rs 75 lakh to Rs 1 crore on the retail side. This does not include personal loans yet, which will be introduced sometime next year in a fully digital format.
And then, there is a corporate loan book, where the average tenure is about three years. “This is doing well too, except for one particular account which is seeing a bit of stress,” said Kumar, without elaborating.
The overall gross non-performing assets (NPA), at the end of FY 2020-21 was 0.50 per cent, while the net NPA was 0.20 per cent. The firm had earned a profit of Rs 64 crore in a revenue of Rs 254 crore at the end of FY 20-21.
StanC Capital is AAA-rated, one of about 10 such NBFCs
in India, and has enough capital and line of credits to fuel its expansion in the coming years.
It will now expand its branch network from 11 now to 15 next year and ramp up the headcount to about 200 from 120.
Considering such a relatively small footprint, the asset size has grown rapidly, even amid a raging pandemic.
With a capital of Rs 1,000 crore, the asset size grew from about Rs 1700-1800 crore in fiscal 2019-20 to Rs 2,981 crore in fiscal 2020-21 and now stands at a little more than Rs 3,700 crore, of which retail book is about 60 per cent. By next year, the total assets should grow to about Rs 5,000 crore. In about 4-5 years, this book is expected to stand at Rs 8,000 crore. And yet, Kumar doesn’t consider it aggressive lending.
“Our non-performing assets are just at around 0.5 per cent. Our leverage is roughly 3.9x, and we have capped it at 5x. If you look at other NBFCs, they lend some 6-7 times their capital,” Kumar said.
Rather, the reason for the low NPA and sharp rise in loan books is the relatively low-interest rate that the NBFC charges to its borrowers. This is because, being a top-rated NBFC, it has no dearth of cheap funds to borrow.
The parent bank is solidly behind the NBFC operation. It has already put in $100 million of capital, and would also put another $25 million in the next year. The NBFC has near about Rs 700-800 crore credit lines from all major banks, including the parent, and has also availed about Rs 200 crore targeted long-term repo operations (TLTRO) money of the RBI when it was announced for NBFC lending last year during the covid period. The TLTRO money, having a maturity of three years, falls due in 2023.
The NBFC doesn’t have a plan to hit the debt market as of now.
“Considering our rating, we have bank lines from all major banks, including Standard Chartered, and our parent itself is strongly behind us. Our cost of fund is sub-6 per cent, and we lend at not over 9.25-9.50 per cent,” Kumar said.
To be sure, given the strategy of targeting only mass-affluent clients, the credit ratings of its nearly 600 customers are also good, ensuring smooth servicing of loans.
Kumar also doesn’t believe that his NBFC would cannibalise on the parent’s effort to ramp up its retail presence in India, something that the bank’s India CEO Daruwalla has adopted as a conscious strategy to grow the book.
“Most of the banks in India have a subsidiary chasing similar kinds of business. There is no overlap. The opportunities are huge, but the presence is limited,” said Kumar.
He also denied that the NBFC idea could be to experiment with new kinds of customers and lending without affecting the asset quality of the parent. But he doesn’t deny that the NBFC would indeed capitalise on the brand name.
“Yes, our name borrows the brand of our parent, and yes, I am part of Standard Chartered,” Kumar said.
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