Focus on core business, entering banking space on hold: Satin Creditcare MD

Disbursement figures rising, pain of pandemic over for microfinance sector: H P Singh

Satin Creditcare, one of India’s largest microfinance institutions, plans to have an equal share of secured and unsecured loan portfolio. H P Singh, chairman and managing director of Satin Creditcare, told Manojit Saha in an interview that pandemic-related issues are over in the sector.

Here are edited excerpts from the interview.

The microfinance industry has seen ups and downs, the last one being Covid-19. Do you think the sector has come out of it?

 It was a long haul, in terms of collection efficiency, gross NPA, economic activity as well as the income generating ability of the borrowers which was hurt because of lockdown as well as the pandemic. I can say now that this is clearly out of the woods. Look at the industry as a whole; the disbursement figures are rising, collection efficiencies are starting to get better, the provisions and the write offs are already done. So I can say, for the microfinance sector the pain of the pandemic is over now.

 In Q2, Satin wrote off Rs 209 crore of restructured loans. Where do you see the numbers in the next two quarters?

 That won’t happen, as I said whatever write-offs and provision had to be done—a major hit has been taken. The restructured book which was Rs 1,151 crore, down to about Rs 300 odd crore. So the worst is completely behind us. If you see the positive side, out of that Rs 1,151 crore, Rs 500 crore came back as selections only from the restructured book—which shows there is a lot of resilience among our borrowers, that once the economic activity comes back, once the income generations starts, they are able to pay their installments.

 Loan growth remained muted for Satin Creditcare till the second quarter? What is your loan growth target for FY23?

We had this loan growth kept muted for the last two years or so because of the pandemic. Because we were not very sure when the income generating activity started taking place. It was a conscious decision to keep growth flat.

Now that is over, from the last quarter onwards, we have started disbursing back to the pre-covid levels. Now that we are looking at a complete revival of the rural economy, the growth is coming back and getting better than the pre-covid levels. Our sense is that the last quarter, which is always the heaviest quarter, we will see the signs of the growth revival. We have kept the loan growth target between 15-20% for the current financial year.

After the revised guidelines came into effect from April 1, 2022, it was expected that the loan application rejection rate would go up to 50 per cent from 30 per cent. What was your experience?

Rejection rates are rising, that is for sure. But the depth of the state level penetration – for all states across – that has increased to a large extent. Rejection rates may have gone up, but our sense is that for the entire industry, penetration has grown three fold from what it was earlier. We are getting more quality borrowers, delinquencies have been taken care of because of rejection rates – I think it augurs well for the portfolio quality in the long run. Our rejection rate is close to 50%.

Some years back Satin was planning to apply for a small finance bank licence before the on-tap guidelines were announced. What is holding you back?

For us the question is what do we intend to do as an organisation. Post demonetisation, our first thought was that if we are able to grow more in housing finance and MSME, which are our subsidiaries—then move away from unsecured lending to secured lending. Our subsidiaries are shaping up very well. We want to grow our MSME finance and housing finance business. Once these subsidiaries start taking shape – for us it is very important that we at a certain point in time, are able to monetise these assets. Till that time we are very clear that we want to focus on our core business of micro finance, and subsidiary business of MSME and housing finance. For us entering into the banking space is right now on hold.

What is the share of the non-MFI portfolio now and where do you see it at the end of say FY24?

Today it constitutes about 12% of our portfolio with 88% being microfinance. At some point in time, let’s say 5-6 years from now, we 50% from microfinance and 50% from non-microfinance.