Which are the lending verticals you want to grow?
We have identified three that we have initiated. We started microfinance in January 2018 and are already at Rs 250 crore in book-size. The other one is affordable housing, which we got into two-and-half-years; that is close to Rs 400 crore. We doubled this book-size last year and could have grown it to Rs 500 crore. If we had the fuel, we could have grown faster. The third vertical is a mix of two things. Of the supply chain, which we bought from L&T Finance
last year. And, our lending to micro, small and medium enterprises which we started three years ago; that book-size has grown to about Rs 1,200 crore. So, in total, we are at about Rs 2,000 crore in the second full year of our start-up.
From where will the liquidity to fund these businesses come? With reference to Centrum and for NBFCs as a class…
You have NBFCs, which have asset-side issues, and for them being able to get more liquidity is a challenge. The liability-side problem is two-fold. One is that, in the past, very generous leverage was available. And now, the suppliers of funds — even those who are comfortable lending to us — want to reduce it to 5-7 times on a case-by-case basis from the 8-10 times earlier. In the past, you had comfort because of the abundance of supply of borrowings — very short-term for long-term asset financing, and that the short-term market has kind of dried up now. Clearly, the repayment mismatch is there. And then, you have the smaller lending shops such as us, for whom basically fuel for growth has become limited or is in short supply.
To that extent, growth plans have to be curtailed or revisited.
Of these challenges, you can probably have three at most. Each NBFC is in a slightly different space and that's why this one-approach-to-all NBFCs or housing finance companies (HFCs) doesn’t really work.
How have you funded the lending businesses?
All of it is funded by term-loans from banks. We have not taken any commercial paper money or raised it through debentures. Our maximum leverage is two-and-a-half to one because the total book is less than Rs 2,000 crore, out of which Rs 650 crore is our equity. And because the book is new and not so large, the asset problem hasn’t crept in yet. We hope it will never creep in.
Will you look at an equity infusion?
We could do that. We can look at other ways of doing it. We will figure out a way. We’re going to have to continually grow. Eventually, people will see each NBFC for itself. And it's not like we’re not getting any credit lines. Every month, we get one or two banks to give us some lines, but it’s not as available as it was before. And we don’t know how long it will take for that to hasten. We just have to wait and then, like you said, if nothing else comes, we can bring in more equity possibly.
What is your view on portfolio buyouts?
There are enough portfolios on sale in the market, but you have to borrow for that too. We have done two, and might do another. You see, value is a one-time aberration, but the nature of the entity you acquire is something you have to live with for a long time.
Can you flesh out the plans of the structured credit fund?
It is called so because the source of funding is not from banks. That is more public debt. But, it’s no different from a bank’s working capital line or a line of credit, term-loan or whatever. We will do our first close of approximately Rs 125-150 crore next month which is to be raised from high net-worth individuals and some family offices. Instead of lending on our balance sheet, we wanted to do it through a fund. Because on our balance sheet, we only want to do retail.
What’s your pitch to bankers and potential investors when you meet them? And why should they view Centrum as being any different from other NBFCs?
Well, we don't have an asset-side or an asset-liability management problem. We are not even asking for excess leverage. We are at 2:1, and deserve to be 3 or 4 or 5:1. It’s pretty simple. Then, of course, they want to understand what businesses we are in. Are these good? And what kind of risk-profile are we creating among other things. The microfinance part is of ticket-size is between Rs 20,000 and Rs 50,000, and we have about almost two lakh customers. Our HFC business is about of Rs 8-9 lakh in ticket-size, and it's well spread out as well. So, I think that’s where some people are taking comfort and giving us finances.
Do you think the partial-guarantee scheme announced for NBFC’s in the Budget will help them?
Maybe marginally. It might help some of the bigger boys. To the extent that the sentiment eases, it’s going to be helpful. But I think broadly, it will have to come from policy decisions, and a change in sentiment — of banks feeling more comfortable to come back into this market. I think until then, the going will be slow.