Being clever cannot be a business model: CASHe chairman V Raman Kumar

It's not that we are giving money to everybody. We have to make sure that there's a high propensity to repay, said Kumar

CASHe is a mobile-only credit platform that focuses on financial inclusion for millennials. It has registered over 20 million app downloads and disbursed more than Rs 4,000 crore to over 400,000 customers. It recently extended its business footprint into the wealth management space with the acquisition of Sqrrl, a wealth-tech platform. V RAMAN KUMAR, founder and chairman of CASHe, spoke with Raghu Mohan about his business model. Edited excerpts:

How do you view the credit market for millennials in India?

The overarching theme is financial inclusion, because they don’t have access to credit -- lenders are not keen on them nor do they have credit histories. This lot of new-to-credit can be near-prime, or subprime. We would like to cater to them at a much lower rate of interest, but then, we are not a bank. I can’t raise funds at banks’ price points (because they have access to deposits.) But, if my cost of borrowing comes down, I can pass on the benefit to customers. Right now, our lending rate band is between 1.75 per cent and 2.25 per cent a month.

Can you give us a sense of the enquiries-to-credit conversion rate?

Our app is downloaded 1.2 million times a month. Of this, about 400,000 apply for credit; the rest probably don’t have a salary background, or probably, are not those to whom we can lend, anyway. After sieving the 400,000 through our application process, we give loans to about 120,000, or 10 per cent of those who had downloaded the app.

It’s not that we are giving money to everybody. We have to make sure that there’s a high propensity to repay. We have a yardstick, a “business or goodness” measure, an algorithm, which actually scores these people. How has the cohort behaved? Their past behaviour, and how they are likely to behave in the future. There is a science attached to this. Otherwise, in no way can we do business and make money.

How do you ensure the stickiness of your customers, since banks and non-banking financial companies (NBFCs) can tap them with offerings based on credit bureau histories once they have been on-boarded by you?

Ours’ is not simply a personal loan offering. Of the Rs 250 crore I am lending, or of the 120,000 loans that I am giving every month, 70 per cent is in the form of a credit line. So, effectively, you are not being charged interest until you draw the money. Take the personal loan part, which goes into your bank account. You can use that for a buy-now-pay-later offering for which the merchant would charge you zero-interest for the first month -- and your interest would only start from the second or third month, depending on how many installments you want from us.

You can also use the credit line towards your rentals and bill payments, etc. The point is, the more transactions you do on our simple credit line, the more you interact with us. We have also forayed into the wealth manage­ment space with the acquisition of Sqrrl, a wealth-tech platform.

From a form-factor perspective, will you load a credit limit of, say, Rs 50,000, on a piece of plastic and let customers swipe it at outlets?

I can’t do that, because then it’s using a banking rail to issue a prepaid card and letting customers use it like a credit card. The Reserve Bank of India (RBI) recently said it’s a no-go area. And RBI has been very touchy about this aspect from the beginning. We are one of the few in the business which never did this — that is issuing a prepaid card, and allowing it to be used like a credit card. That’s why my firm hasn’t got the valuations that fintechs typically command.

And people were telling me that I was not clever enough! You see, I can’t be clever and get away with it, as I am a systemically-important NBFC. I simply can’t afford to do silly things of this sort. It’s all very clever to get valuations, but ultimately, the business is on somebody else’s banking rail when you issue a prepaid instrument, and allow it to be used as a credit card.

Don’t you think that as you grow, some portion of your book has to be in secured lending?

Absolutely. But at this point the problem is that there’s a big untapped market in unsecured lending. The problem here is very simple: I have to match the rates of other financial institutions, and I can’t do that at this point in time. For that, I would have to go public like a Bajaj Finserv, and would also need to bulk up before doing so. And our bulking up has to be somewhere in the Rs 5,000-8,000 crore in loan disbursals — at which point, I can list the company and have enough equity to be able to service the lower interest-bearing secured portfolio. 

But you will agree that a 100 per cent unsecured lending book until you reach Rs 5,000-8,000 crore in disbursals is also not a good place to be in.

When you say unsecured, the reality is that the non-performing assets we are dealing with are the same as in any secured lending book. It’s not as though my risks are extremely high. Typically, we have delinquencies at about 2.5-3 per cent on a loan cycle on a four-month book, because the RBI mandates that for loans due-past 90 days, I must do 100 per cent in provisioning. It doesn’t mean that the money doesn’t come back — just that it doesn’t come back in the same working cycle. I also have an e-mandate — an e-NACH on the borrower’s account — and can auto-debit it.