22 Aavas Fi­nanciers scales up tech­nol­ogy in­vest­ments

The com­pany is tar­get­ing ex­pan­sion of branches to 300 lo­ca­tions in 3 years

Banking Frontiers - - Highlights - me­hul@bank­ingfron­tiers.com

Aavas Fi­nanciers is a lead­ing hous­ing fi­nance com­pany set up in 2011 in Jaipur to pro­vide loans to low and mid­dle in­come cus­tomers for pur­chase / con­struc­tion of new homes and for home im­prove­ment. The com­pany’s CEO Sushil Ku­mar Agar­wal has been as­so­ci­ated with the com­pany since its in­cor­po­ra­tion in 2011.

CUS­TOMER COM­PO­SI­TION

Aavas Fi­nanciers fo­cuses on serv­ing the un­served and un­reached cus­tomers in ar­eas with low credit pen­e­tra­tion and huge mar­ket op­por­tu­nity. It is es­ti­mated that In­dia re­quired 62.5 mil­lion hous­ing units in 2017, out of which 70+% short­age was in semi-ur­ban and ru­ral ar­eas. The mar­ket op­por­tu­nity for home fi­nance com­pa­nies in ur­ban seg­ment alone in these cir­cum­stances is `5.6+ tril­lion. Agar­wal main­tains that 99% short­age in homes is in the low in­come group/eco­nom­i­cally weaker sec­tion seg­ments and Aavas is pre­dom­i­nantly cater­ing to the self-em­ployed cus­tomers. Its cus­tomer base con­sists of 39% of LIG, 22% of EWS, 26% of MIG and 13% of HIG, he adds.

CON­TIGU­OUS EX­PAN­SION

Since its in­cep­tion, Aavas Fi­nanciers has ex­panded its op­er­a­tions in Ra­jasthan, Gu­jarat, Ma­ha­rash­tra, Haryana, Mad­hya Pradesh, Ut­tarak­hand and NCR. It caters to the cus­tomer seg­ment built on semi-ur­ban and ru­ral dis­tri­bu­tion frame­work. Stud­ies in­di­cate that put of the to­tal hous­ing short­age in the coun­try, 70+% short­age is in semi-ur­ban and ru­ral mar­kets. The av­er­age mort­gage pen­e­tra­tion in In­dia is 10%. “With 186 branches in 95 dis­tricts across 8 states, we are aim­ing to ex­pand branches to 300 lo­ca­tions in the next 3 years,” says Agar­wal. “Our 134 branches are lo­cated in 750 tehsils in towns with pop­u­la­tion <1 mil­lion. We fol­low con­tigu­ous ex­pan­sion to achieve a tar­get pres­ence of 85% across ge­ogra­phies. Our branch-wise and tehsil-wise pres­ence is Ra­jasthan (72, 79%), Gu­jarat (27, 71%), Ma­ha­rash­tra (34,55%) and MP (24,48%),” he adds.

LOAN BOOK GROWTH

Aavas Fi­nanciers has a fully in-house sourc­ing model. It has fo­cused on di­rect sourc­ing ap­proach and on gran­u­lar, re­tail home loans, and has a pos­i­tive as­set-li­a­bil­ity match with no ex­po­sure to com­mer­cial pa­per.

“We have been able to achieve 10 times growth in our loan book over the last 4 years, across eco­nomic cy­cles,” says Agar­wal, adding, “This high growth is driven by cus­tomer ac­qui­si­tion. We have built a loan book of `43.6 bil­lion and 42% of our cus­tomers are new to credit. We gain from ro­bust un­der­writ­ing, ro­bust and com­pre­hen­sive credit as­sess­ment, risk man­age­ment and col­lec­tions frame­work.”

AS­SET QUAL­ITY, PROFIT

The com­pany has seen growth in vol­umes while main­tain­ing as­set qual­ity and prof­itabil­ity. It has de­liv­ered AUM CAGR (since FY14) of 75% while main­tain­ing as­set qual­ity (NPA < 1%). Agar­wal em­pha­sizes that the com­pany has been con­sis­tently oper­at­ing at healthy RoTAs (re­turn on to­tal as­sets) of 2.5-3% across last 16 quar­ters. It also has ac­cess to diver­si­fied and cost­ef­fec­tive long-term fi­nanc­ing, he adds.

Aavas has a loan ap­pli­ca­tion score­card to eval­u­ate risk pro­files. It has an in-house le­gal team over­see­ing ex­ter­nal le­gal ver­i­fi­ca­tion. Val­u­a­tion re­ports are gen­er­ated be­yond a cer­tain ticket size thresh­old. Risk­test­ing of files is done by in-house risk con­tain­ment unit. “We have a stream­lined ap­proval process and re­duced in­ci­dence of er­ror. Our credit in­fra in­cludes 464 credit man­agers and dis­burse­ment of­fi­cers; tieups with 160+ le­gal firms; 42 per­son­nel and tie-ups with 110+ tech­ni­cal agen­cies and 25 per­son­nel in risk con­tain­ment unit,” says Agar­wal.

The com­pany has a 4-tiered col­lec­tion ar­chi­tec­ture with a high fo­cus on early delin­quen­cies. It ini­ti­ates col­lec­tion process in a timely fash­ion and ex­e­cutes real-time track­ing of col­lec­tions. Agar­wal says risk of higher opex in the short term is off­set by ben­e­fits of bet­ter abil­ity to price risk ef­fec­tively re­sult­ing in yields of 13.5+% and the com­pany ex­er­cises strong con­trol over loan take-overs by other in­sti­tu­tions. “We en­joy high col­lec­tion ef­fi­ciency and low gross NPA,” says he.

TAT, PRO­DUC­TIV­ITY

Aavas Fi­nanciers has de­vel­oped a con­cept of ‘dig­i­tal in­clu­sion’. Agar­wal ex­plains that this means to lever­age the power of

tech­nol­ogy for the ben­e­fit of the un-banked and un­der­banked. “Our Dig­i­tal In­clu­sion has been dra­matic in terms of trans­lat­ing into ex­cel­lence and per­for­mance. It has helped del­e­gate de­ci­sion-mak­ing down the line with cor­re­spond­ing re­spon­si­bil­ity, in­creas­ing man­power pro­duc­tiv­ity, quicker loan turn­around time and re­duc­ing trans­ac­tion costs,” says Agar­wal.

Dig­i­ti­za­tion of dis­burse­ments has made it pos­si­ble for cus­tomers to get dis­bur­sals through wire trans­fers within hours of fil­ing.

IT IN­VEST­MENT

The com­pany has in­vested in cut­ting-edge data sci­ence with the ob­jec­tive to de­ci­pher a large vol­ume of data quan­ti­ties, ex­tend in­ter­pre­ta­tion to ex­e­cu­tion and gen­er­ate the high­est busi­ness re­turns. “Over the last year, we have strength­ened our data sci­ence func­tion through re­cruit­ment of pro­fes­sion­als (statis­ti­cians and econo­me­tri­cians), armed with new age tools (SAS, R and Python) for data min­ing. Be­tween fis­cals 2014 and 2018, we in­vested `150.5 mil­lion in in­for­ma­tion tech­nol­ogy sys­tems. As of 31 March 2018, our IT and data sci­ence teams com­prised 28 and 6 per­son­nel re­spec­tively,” says Agar­wal.

The com­pany uses an en­ter­prise-wide loan man­age­ment sys­tem, Om­niFin, to pro­vide an in­te­grated plat­form for credit pro­cess­ing, credit man­age­ment, gen­eral ledger and re­port­ing. Om­niFin helps au­to­ma­tion of loan orig­i­na­tion sys­tem, credit un­der­writ­ing process, un­der­writ­ing rule en­gine, de­vi­a­tion trig­gers to min­i­mize hu­man er­rors and main­tain­ing cus­tomer his­tory. Fol­low­ing dig­i­ti­za­tion, col­lec­tions via POS sys­tem and mo­bile app LOKTRA (geo-tracks col­lec­tion teams and helps map­ping) has helped ease work lives.

TECH­NOL­OGY & AN­A­LYT­ICS

Aavas Fi­nanciers had de­ployed tech­nol­ogy ex­ten­sively for an­a­lyt­ics in col­lec­tions. It uses mod­els for bounce pre­dic­tion and as­sess­ment of warn­ing sig­nals. Pre­dic­tive an­a­lyt­ics help it to as­sess pos­si­bil­ity of bounce and to place early in­ter­ven­tions. It iden­ti­fies cus­tomer re­pay­ment be­hav­ior. Im­pact of all these mea­sures are 54% of cases dis­bursed in <10 days, min­i­mal man­ual in­ter­ven­tion for re­port gen­er­a­tion and opex re­duc­tion over the next 3 years, im­proved cus­tomer re­ten­tion, high de­gree of con­trol over bal­ance trans­fer out­ward and bounce rate.

The com­pany pos­sessed a size­able pro­pri­etary base of more than 50,000 cus­tomers from across more than 150 branches at the close of FY18. An­a­lyt­ics has helped it to pro­file these cus­tomers in a tar­geted man­ner, of­fer tai­lor­made prod­ucts that suit the di­verse re­quire­ments and en­hance cus­tomer de­light and giv­ing the same ex­pe­ri­ence to ru­ral and semi ur­ban cus­tomer, what tier 1 & 2 cus­tomers used to have from large hous­ing fi­nance com­pa­nies. The com­pany has also de­vel­oped mod­els to pre­dict cus­tomer be­hav­ior, sci­en­tif­i­cally price prod­ucts, pro­tect cus­tomer at­tri­tion and proac­tively launch prod­ucts.

Sushil Ku­mar Agar­wal claims pre­dic­tive an­a­lyt­ics has helped Aavas Fi­nanciers to as­sess pos­si­bil­ity of bounce and to make early in­ter­ven­tions

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