"Our com­pany's vi­sion is to ful­fill fund­ing needs of the Miss­ing Mid­dle"

Yo­gen Khosla Chair­man & Man­ag­ing Di­rec­tor, Cap­i­tal Trust Lim­ited

Dalal Street Investment Journal - - COMMUNICATION FEATURE -

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.

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