India’s largest microlender CreditAccess Grameen Ltd is seeking to diversify its asset base by increasing the share of its non-microfinance book through housing, unsecured business and gold loans. After being elevated as chief executive officer in August, Ganesh Narayanan is looking to raise the share of non-microfinance loans from the current 1% to 12-14% in 4-5 years. The lender will also look to increase its share in housing loans by adopting a co-lending model to tie up with banks. Edited excerpts:
Do you see specific pockets of stress among borrowers?
Given the nature of the business and history, this is something people ask us wherever we go. I think the sector is in an exciting phase. You are seeing large names enter this sector because of the consistent performance of the sector despite multiple events and regulatory changes. In the medium term, the sector will do extremely well but it is too early to take calls on how things are moving. There will always be small incidents, here and there, but we do not see any pockets of specific stress now. There was a temporary issue when there were rains in certain pockets last month but it has normalized now. Those things keep happening, and I do not see anything major coming up.
How do you plan to diversify the book?
CA Grameen always maintained that microfinance will be the key focus. With a penetration level of 35-38%, there is enough headroom to focus on microfinance and that is why, for the medium term, we will continue to be an NBFC-MFI. We have customers who now have higher income levels, but we are losing a certain percentage of customers to competitors for some products. For microfinance, we want to continue to introduce new products that customers need. Today, we do unsecured business loans, mortgages (loan against property), and will launch affordable home loans this financial year. We are already into gold loans and two-wheeler loans. In all these products, we want to do only mortgage products with non-customers because that is a large white space. This will help diversify our assets. You will see by 4-5 years, we will have ₹6,000-7,000 crore non-microfinance book, from ₹200 crore in the June quarter.
Are you looking at partnering banks under a co-lending scheme?
Not right now, but at an appropriate time we will look at home loans, though the co-lending policy with banks, maybe after a year. That will only be after a certain amount of seasoning and building of the book. We will look at a partner as home loans is a highly competitive space and at my cost of funds it will be difficult to run the business (independently). It will happen once we build a book, set our processes in order and season our underwriting.
What is your outlook on cost of funds and margin?
We are conscious of our cost of borrowing and are very selective. We focus a lot on cost at which we raise funds. While the markets have raised rates by about 250 basis points (bps) over the past few quarters, our cost of funds has gone up by around 70 bps to 9.6%. We see some hardening in near term because we are raising money from many foreign sources; we hit the public markets through non-convertible debentures that come at a higher cost but our margins should be protected because about 20% of the loan book is yet to be repriced.
What are the key focus areas for you as the CEO?
The goal is to ensure the company executes its vision while taking care of the target of reaching ₹50,000 crore in assets under management within 4-5 years. We will launch savings products via insurance vehicles, and customized insurance product allowing weekly-fortnightly premium payments.
