"Our company's vision is to fulfill funding needs of the Missing Middle"
Yogen Khosla Chairman & Managing Director, Capital Trust Limited
What is your growth outlook on MSME sector in India?
It’s been 25 years since the economic reforms in India…… and yet, the 48 million MSMES (micro, small and medium enterprises) who form the heart of Entrepreneurial India are still largely bypassed by traditional banking mechanisms.
These MSMES are the growth engines of the economy employing over 111.4 million people and contributing 37.5% to the country’s GDP. Not only is the Indian growth story fabricated around the triumphs of millions of MSMES, but it is these MSMES who will propel India’s progress and prosperity in the coming years.
MSMES not only play a crucial role in providing large employment opportunities but also help in industrialization of rural and backward areas, thereby reducing regional imbalances, assuring more equitable distribution of national income and wealth. As on date, 94% of India’s 2.65 crore MSMES are unregistered, hence don’t have access to traditional banking. However unfortunate this story seems, we see great growth potential in this sector. With the government focusing significantly on financial inclusion, we believe mainstream financial banking services to people in the semi-urban/rural areas is no longer a pipe dream.
Between microfinance loan, micro enterprise loan and secured enterprise loan, which product do you see will have maximum demand going forward? Historically, what has been the trend?
A country with an extremely diverse population, India has a huge credit demand in each of the sectors. There is immense potential in all the three loan products, however, our focus will be on micro enterprise and secured enterprise loans. This segment represents the 'Missing Middle' which remains underserved by microfinance institutions, banks and large NBFCS, who typically prefer to lend to the top or bottom end of the pyramid. Our company's vision is to fulfill the funding needs of the 'Missing Middle'. By offering a range of loan sizes from ₹15,000 to ₹10 lakh, we should be able to cover most of the clients which are excluded from mainstream banking.
Please share with us your nonperforming asset figures with an historical perspective and also how do you plan to keep NPAS at minimal level?
The net non-performing assets of the company for the quarter ending June 30, 2017 was 3.4% as compared to 1.3% for the same quarter last year. The increase in NPA ratio was primarily due to demonetisation, where 86% of the currency notes were removed from the system. Our clients were predominantly dealing in cash.
For all disbursements made to new clients post January 1, 2017, we have collection percentage of more than 99%.
We believe that we would be able to keep our NPAS at a minimal level in times to come. Our aim is to take our collection values as close to pre-demonetisation values as early as possible.
Is demonetisation effect still seen in your sector? How has GST impacted your business operations and sales?
The demonetisation certainly had an impact on Capital Trust and the industry alike. While our collection efficiencies in Uttar Pradesh, Uttarakhand and Delhi were impacted, we have been able to maintain 100% collection efficiency in Madhya Pradesh, Punjab and Rajasthan. As of June 2017, the company-wide collection efficiency has increased to 92%. The collection efficiency values have been increasing month-on-month and with added focus on collections, we aim to take this to pre-demonetisation levels in the near future.
While a large number of our clients do not fall under GST umbrella, their businesses have been impacted indirectly. As for company operations, GST has increased the operational work as the company has had to get registration for each state where it operates. Separate books are required to be maintained for each state. However, we feel that this step will ultimately be very good for economy going forward.
What are your growth targets for coming years?
Capital Trust has been growing at a 77% CAGR for the last four years and there is no reason for us to believe that we would not be able to continue this growth in the years to come. We have expanded our geographical network and are now operating in eight states (Delhi, Uttar Pradesh, Punjab, Uttarakhand, Madhya Pradesh, Rajasthan, Bihar, Odisha). The company is planning to enter Jharkhand, Chhattisgarh and Gujarat in the next few months. Apart from geographical expansion, the company is also focusing on product expansion and is venturing into more secured products. These are housing loans and vehicle loans.
The company is financially sound and its capital adequacy ratio is 39%, which gives the company a leverage to raise funds for its future growth. From here on, we expect growth to be the only constant as our current infrastructure and capital structure is capable of supporting business growth multifold from the current level.