Anil Kothuri, MD & CEO, Fedbank Financial Services, says RBI’s intent is to clamp down on unsecured lending which is used to fuel consumption and that is what they seek to moderate and put guardrails around. “The loans that we do are loans for working capital for self-employed customers. To the best of my understanding, that is outside the ambit of the circular that the RBI has recently issued. Almost all the loans that we do in Fedfina qualify for priority sector lending by banks.”
In terms of your loan book, I believe, 86% of the portfolio is backed by the assets for the company. Where do you see this target going up? Do you expect this to be at these levels in terms of the secured loan book or could this vary and maybe see a bit of a reduction?
We are in business to empower emerging India with easy access to loans. We serve the working capital requirements of the small self-employed customer. We do that against the pledge of gold, mortgage of property and we do unsecured loans too. Our unsecured book is about 14% of the overall portfolio. But it has the lowest behavioural tenor. Unsecured loans get repaid within 30 months as opposed to secured mortgage loans which get repaid in about eight years. Which is why with each passing month, the proportion of secured loans in the portfolio keeps increasing. So, this 14% that you see will keep coming down with the passage of time and we will move to a greater proportion of secured assets in our book.
But since you are talking about unsecured being almost 14% of your book, what would be your response to RBI’s latest circular and the latest commentary which has been raising red flags? What does it do to your cost of funding, to your ROEs?
First up, the Reserve Bank’s intent is to clamp down on unsecured lending which is used to fuel consumption and that is what they seek to moderate and put guardrails around. The loans that we do are loans for working capital for self-employed customers. To the best of my understanding, that is outside the ambit of the circular that the RBI has recently issued. Almost all the loans that we do in Fedfina qualify for priority sector lending by banks. Therefore, they are a preferred segment for banks. Banks purchase our portfolios. We have 12% of our AUM off book and whatever we borrow from banks is for onward lending for the priority sector. Given this, we expect a muted impact of the RBI circular on our operations, if any at all.
AUM growth is growing at around 30% and your NPA ratio is quite low, which is a positive. Are you confident about delivering low NPAs going forward as well?
We have gone through a lot over the past five years. We have had two years of Covid which has ravaged the country and the small self-employed customer has borne the brunt of it. Our customers are all part of what we call essential services which means it is part of the daily social fabric of the little cities or towns that they live in and during the two years of Covid, they were forced to keep their businesses shut and the logistics of that impaired free movement of people actually impaired their business.
So, the past that we have gone through has been very stressful for this segment and the future really should be a lot brighter is what I would think.
