Capri Global Capital, a listed NBFC, focusses primarily on MSME lending with a presence in housing and construction finance. The company’s asset value is estimated at Rs. 37 billion. Having operations spread across eight states and with a manpower of 2000, the company is optimistic about its growth plans. Rajesh Sharma, Managing Director, Capri Global Capital in conversation with Pankaj Joshi.
iven the trepidation seen in NBFC segment about the asset-liability scenarios, how does Capri Global fare?
Our asset-liability ratios for both – a year and five years have been consistently greater than one. The only minor slippage we had was in the one-year asset-liability at the end of FY2018 mainly due to the commercial paper on our books then, which has been redressed.
Our December ratios are again back to normalcy. Today we have no commercial paper or mutual fund related borrowing on our books. Indeed we have totally freed ourselves of any reliance on volatile money. 95% of our borrowing is sourced from banks, with 5-8 year tenure, and that gives us lots of scope to plan our cash flow. The sanctioned line of credit from the banking sector to the company is almost Rs.32,000 million (as of December).
Can you elaborate on your focus areas in MSME lending and how you plan to grow the same?
Let us have some perspective on the MSME segment potential. Total formal credit in India stands at Rs.105 trillion, wherein the MSME sector got close to 25%. But this 25% figure covers only 10% of MSME units operational in the country.
Now you can see the under-penetration and the opportunity. This is in spite of NBFCs coming in, and the MSME credit growth in the past few years being around 18% annually. Today if you see our MSME assets of close to Rs. 18 billion the primary geographic concentration is in the Delhi NCR region (38%), Maharashtra (22%) and Gujarat (20%).
The other four places – Madhya Pradesh, Rajasthan, Punjab and Haryana – make up only 20%. However, we are very optimistic about these too along with a right mix. I see the book doubling over the next three years with an equitable share of 13-15% for these seven states.
In the MSME segment, our average ticket size is Rs.15 lakh and 80% of the cases range between Rs.10-20 lakh. Our focus area is the informal sector where our customers would be a bike repair shop, a supplier of hardware, or suppliers of building material, contractors and so on. It could be a street food stall owner trying to upgrade to a fixed establishment.
In terms of collateral we would ideally look at 2x the value of the loan proposal. We get repayment inflows of around Rs. 3,000 million on quarterly basis.
Our net NPAs stand at 0.23% of the housing finance book and 1.45% of the remainder book (which has construction finance and indirect retail lending, apart from the MSME book). While our gross NPAs in the MSME book lies around 3.50% indicating a strong level of scrutiny and post-disbursement monitoring.
How does this look in the context of your overall loan book?
In housing finance, we are a comparatively a new player, having entered (the market) in 2016 with total focus on affordable housing.
Part of the delay was that we were clear than we needed to absorb all the know-how and have systems and people in place as a pre-requisite to us starting. What is good for us is that our housing finance focus is in the same geographies as our MSME focus.
Also there is a synergy with our MSME operations, since we cater to a population segment which does not have income proof or similar documentation, yet for whom we have created an income assessment and loan eligibility system. Our focus is entirely on Tier-II and below urban clusters, with a ticket size of Rs.8-15 lakh.
The average loan size here stands at Rs.11 lakh and that is supported by Government schemes. Just the housing book, which is Rs.6 billion right now, should go to Rs.70 billion by 2023.
The other key segment of our lending business is construction finance. We have approached our operations in a bottom-up manner and largely again in small towns in the same geographies.
Typically our locations have many builders who build small buildings of 4-7 floors and ticket size would not exceed 60 lakh. These are less of a project risk, especially once the approvals are in place. Our approach efficiency is shown by 0.15 percent gross NPA figure.
With all this perspective, what are your growth plans?
If you look at the total AUM currently for FY19, we would be somewhere in the Rs. 38-40 billion range. That, I estimate, should go up to Rs. 250 billion by FY23, wherein housing finance would be Rs.70 billion and the other segments would combine to deliver Rs.180 billion.
For the MSME segment instead of large ticket size, what we expect is gigantic growth in the number of clients in the next three years, from 15,000 currently to around 2 lakh.
Within all this, the external environment also has to play a role. The Government must look at the MSME segment with greater clarity and greater priority.
It is not because they happen to be our customer base, but in general this segment is a great employment generator and the social impact of the MSME operations is immense. Policies aimed at boosting this segment are strongly needed, be in access to finance, or catalysing technology and marketing support.