Shachindra Nath, the Vice Chairman and Managing Director of UGro Capital believed that the digitization of banking, account aggregation, and maturity of bureau is now enabling a new way of credit for MSME lenders.
Sharing his views on the MSME lending space, he said there is a new generational shift happening in MSME. The younger generation, which are now taking over the small businesses, understand and realize the potential of being digital, formal, and adaptive to the new ecosystem.
Nath, who has recently joined the board member of FIDC – the Representative Body of NBFCs – also shared his views on the impact of RBI’s latest move on unsecured lending.
On any further fundraising, he said it is a function of how quickly we can make people more aware about U GRO.
Edited Excerpts:
Q: How was the calendar year for NBFCs and MSMEs?
Credit growth has largely been around consuming financing and personal loan, but for entities, which are mid-size/mid-tier, the credit growth of MSME has also been quite exemplary. The digitization of banking, account aggregation, and maturity of bureau is now enabling a new way of credit for MSME lenders.
U GRO Capital in this period of time actually has grown, as if you look at how we were set up in 2018, our first year was ‘19 to ‘20, which was just post-credit crisis or during the credit crisis of ILFS and DHFL, and as we ended year ‘20, the pandemic hit.
Pre-pandemic, we were at Rs 850 crore of total business and post-pandemic in ‘22, we were at Rs 3,000 crore while in ‘23, we were at Rs 6,000 crore. This year we should be at around Rs 9,500 crore.
The three fundamental factors which have changed are the high degree of digitization, the maturity of GST data, the maturity of the banking data and the bureau.
Q: How have NBFC’s flared this Festive season?
Indian economy is at a bright shining spot in the global economy. In Europe, there is war. We have war happening between Israel and Palestine, US economy has not done well. Amid all this, India has been able to not only dealing itself from the world, but has also shown a very resilient growth.
There is a very high degree of confidence that as a nation we will do well. Wherever there is a high degree of confidence, that leads to celebration, and festivals are the point where this gets converted finally.
If you look at the marriage season now, it is said that this marriage season in India would be the biggest one which we have ever seen. Whenever that economy starts doing well, obviously small businesses, which serve that economy also do well.
This buoyancy is a factor of overall buoyancy and level of confidence in India, per se.
Q: U GRO Capital’s ‘Vision for 2025’ and the approach towards realizing it.
For us, 2025 is the first stop – the pit stop when you evaluate, you have to put something in front of you which you aspire to.
MSMEs in India contribute almost 30% of our GDP, one of the largest employer in the country. It is a segment, which actually creates the social fabric intact because people can get jobs in their respective tier 2, tier 3 towns.
U GRO’s mission is to be that problem-solver of enabling credit for large MSME ecosystem of India, and we believe that it is possible because what we have seen for consumer financing in the era of 2008 to 2015 and onwards is what we would see going forward in the next 10 years.
The gap of the credit is 85 trillion rupees in India. Year 2025 is one such milestone where we think that we should be in the range of, at our current speed, around 18,000 to 19,000-odd crore or more. We look at this business to last and remain beyond our own life and become an institution and be the largest and most innovative data tech-driven MSME financing company of India.
Q: How small businesses can contribute towards India’s vision of USD 5 Trillion economy?
MSMEs are very large contributors to our entire GDP. It is very difficult, that economic progression only happens on the basis of large corporate or large manufacturing units because they are concentrated to only a few geographical areas.
GDP contribution of MSMEs should go up from 30% to 40% of GDP, so that people don’t have to come to big cities, and rather they can get employed in their local geographies, so that they remain much more stable in their own clusters.
That is why the credit becomes extremely important for MSME.
There is a new generational shift happening in MSME. The younger generation, which are now taking over the small businesses, understand and realize the potential of being digital, formal, and adaptive to the new ecosystem.
Geographical barriers are also to some extent now getting diluted.
If you are making a unique product or service, you can sell it to any part of the country as there are marketplaces, level of digitization, and social media.
Overall, I think the economic progression, and our mission of being USD 5 Trillion economy and being Atmanirbhar Bharat is to a large extent dependent on MSMEs, and that’s why the credit is very important for them.
Q: Your views on RBI’s move on rise in risk weights for unsecured loans
The regulators have been voicing concern for quite some period of time. The loan getting onto the balance sheet of some of the large NBFCs and bank is becoming very large sized and that growth should be curtailed so that in through the cycles, these balance sheets don’t start getting hard big time.
Large NBFCs were consuming more than 85% of the bank borrowing. In order to reduce that, they have the ability to raise from other sources like public deposit, public market, debt capital market, ECB financing among others.
The NBFCs which are largely doing consumer financing and personal loan, the industry has requested their risk rate should be increased. But the NBFCs, which are actually focused on priority sector loan, their risk rate should be reduced so that the bank money is deployed towards use of productive capital creation.
Q: What according to you is the idea behind FinTechs willing to enter into the NBFC businesses?
The answer in one word is – Compulsion. The way FinTech industry has evolved, not just in India but globally, riding on the power of technology, innovation, a large number of venture capital has invested into FinTechs.
As the regulations are evolving, FinTechs have the responsibility to be regulated and also to be participating in the real capital risk, and that’s why they are getting forced or compelled to have NBFC license and be a balance sheet and credit provider.
FinTechs are becoming NBFCs, NBFCs are becoming FinTech, and banks are becoming a combination of all three. It’s an evolving phase.
Q: Are you having any plans for future fundraise?
In April, we brought Denmark government, some of the long-running insurance companies on our cap table.
We have never done an IPO. We are gradually on the journey of making public market investor aware about U GRO. As we will come to the closure of this year, and based on what size and growth and profitability we get in order to augment our next year growth, we will target a capital raise. It is a function of how quickly we can make people more aware about U GRO.
