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NBFC’s in the new normal - post-pandemic world
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Recently, Natarajan R., Chairman and Managing Director of South India Finvest (SIF) shared with Ruby Dobriyal of VCCEdge, his views on the growth of India’s NBFCs in the new normal. After spending 21 years abroad as an NRI, Mr. Natarajan returned to India last year to scale up Indian businesses. He is an accomplished professional and a business leader with rich experience across multiple sectors in different geographies. Among the numerous recognitions received by Mr. Natarajan, Hind Ratan award that’s given to outstanding contribution by an NRI, is a notable one.  In this article, he highlights the growth opportunity and potential in India’s secular economy. 

Focus on the secular growth curve

According to Natarajan R., looking at India’s secular consumption profile compared to other countries of similar size or smaller size, the country will grow from a 3 trillion-dollar economy to as much as a 10 trillion-dollar economy–making it one of the top 3 economies in the future. At present, Covid is causing the temporary de-growth. However, in the long term, growth story is intact and very robust. India’s Economic growth story will be supported by the two pillars, First - an active and robust debt market ecosystem and second - a healthy capital market system enabled by high savings to GDP%.   Amongst many other sectors, financial services is a secular growth story in India ably supported by the Digital Eco system. South India Finvest is uniquely positioned to capture this market opportunity. 

Journey of South India Finvest 

In 2014, financial services venture was started and to scale up the business in a structured manner, in 2017, the promoters took over South India Finvest Pvt Ltd. and changed it from a NBFC to NBFC-MFI and started off on a successful journey. Today, South India Finvest has over 21 branches covering 2000 villages with an operating base of 55,000+ customers covering 14 districts across Tamil Nadu and Karnataka.
“We have doubled our Branch Network and Portfolio Outstanding last year compared to previous year. For a company of our size, and given the country’s potential, we will be doubling our loan book with high quality every year for the next many years,” quoted Natarajan R.
SIF has one of the high-quality books in the industry, thanks to its focus on Process orientation, Employee centricity, enabling culture and right technological platform and it helped even to weather the storm of an event like the pandemic.

Drawing a parallel of NBFCs in India with industry growth in other geographies

NBFCs are playing a key role in inclusion, both financial as well as social, and it has gone under a significant transformation in the last decade. Anticipating the new changes that will surface in the future, Mr. Natarajan threw light on some of the things that India can learn from other geographies.

In India, a country of 1.3 billion people, the debt-to-GDP ratio is the lowest compared to in the developing /developed worlds. Across different segments, debt-to-GDP is very low, varying from 20% to 85% with 60-65% at an aggregate level. We are still not adequately banked. NBFCs have done well but not enough, access to debt is still a challenge in India. We still have huge gap to fill.  

India has done well in the last 10 years but we have only scratched the surface of the opportunity when it comes to the potential that we need to deliver on as a country. The things that have happened in the last 10 years have been really outstanding in terms of the convergence of technology, regulatory innovations and government initiatives. All these factors pushing India towards a digital economy. Every other country is looking at India’s Digital Ecosystem. The JAM trinity (JANDHAN-AADHAR-MOBILE), followed by regulatory innovation in creating multiple categories of NBFCs, small finance banks and even making bank license on Tap have paved the way for accelerated innovation in delayering and disaggregating the financial services. Most of the financial services that we see today were earlier the domain of banks. 

According to Mr. Natarajan, on top of the rapidly evolving technological platform, NBFCs have enabled the 3Ds in India – Disintermediation (removed intermediates), Disaggregation (disaggregated bundle of services), Democratising the financial services. We have just started scratching the surface of the demand opportunity. The NBFC-MFI industry grows about only 30 to 40% every year and it will continue to grow for the foreseeable future, likewise there are opportunities for other segments too. 

Using technology as a differentiator for driving growth

SIF is a well-differentiated financial services company. The ecosystem partners of SIF relate to differentiators introduced by the company. Technology is always an enabler and crucial in eliminating the discretion and subjectivity in decision-making. The leaders at SIF identified this early and therefore, technology adoption has been one of SIF’s key differentiators. 

Unlike other businesses, “NBFC-MFI Ecosystem is regulatory-scrutiny-transaction intensive,” and thus pivoting the company around right fundamentals is very crucial, emphasises Mr. Natarajan. All the ecosystem players scrutinise the company on a day-to-day basis, the business has to get every transaction right and every customer touch point right. So, unless there is a robust system in place, it is very difficult to really replicate and scale the business. 

For Mr. Natarajan, employee is the first pillar of any business building. SIF follows an employee-first principle and demonstrates it in many different ways. The result, the company enjoys one of the lowest attritions in the industry.  Through the survey conducted by Great Place to Work Institute, the trust level between the employees and its management is among the highest in the industry.

SIF’s Differentiators

1.    Employee-first principle – focus on employee-centricity.
2.    Customer Centricity – earning customer respect in every touch point is very important and it is the social equity every company has to achieve first. Natarajan believes, it is more important than the shareholder’s equity and SIF works diligently to achieve this.  When the pandemic happened, SIF was one of the first companies to reach out to all the customers, create awareness about Covid and it provided many relief measures to its customers.
3.    Robustness of systems and processes – Foundational to scale the transactions between the Employees and Customers is to have Robust systems. Right from sourcing to onboarding of customers, credit assessments, disbursements, collection process, and then, continuing the customer engagement, SIF has been rated as one of the best in the industry. 
4.    Building business with compassion – SIF strongly believes in building business with compassion and practices win-win mindset on all transactions. 

With these key differentiators, SIF’s portfolio quality and collection efficiency continues to be high compared to its peers in the marketplace during the pandemic.

Impact of Covid-19 on demand and liquidity for the NBFC sector

Temporary demand and liquidity squeeze affected the industry during the early part of the pandemic. There was demand contraction between April 2020 to June 2020. India had one of the longest lockdowns than anywhere else in the world. Mr. Natarajan feels that the regulators intervened at the right time with measures to support the industry to tackle the pandemic. Be it the moratorium and timely intervention with multiple tranches of liquidity have all helped the industry get over the liquidity squeeze. 

NBFC-MFI sector in the new normal

The one thing that this pandemic has done not only to the financial services but also to the general industry is, it has accelerated the technological adoption by various industries. MFI is a transaction-intensive industry. The question is how to really bring in the technology and processes to remove some of the subjectivity and discretionary elements in decision-making is crucial element moving forward in a post pandemic world. 

Mr. Natarajan says, “I think as an industry we should really learn and ensure that the process is digitised – end to end. The platform-based models are going to be the successful models of the future. And any company which hasn’t been digitised fully has to digitise and SIF is on already on the journey.  We should resist our temptation in chasing growth at the cost of Quality. All the business leaders need to make sure that, companies have the process bandwidth, people bandwidth and technology bandwidth to handle the transaction-intensive areas of the financial services businesses, especially in MFI.”

Alliances, capability building and the way forward

Adding unique capabilities through alliances is a continuous process and technology partnership is first in the list.  The equity and debt partnership is one of the other things that’s needed. SIF has BC partnerships and will explore more such partnerships because these partners have access to capital and we have the network and execution capabilities both of these can be leveraged for the benefit of the stake holders. 
Finally, Natarajan warns, not to be in a rush to chase demand without right process framework in the post pandemic and changed scenario. There was a temporary halt of demand but it won’t go away. India announced a new fiscal package amounting to INR 2.7 trillion (1.4% of 2020 GDP Forecast) and there is enough market to go after. For SIF, process orientation with continuous technology upgradation is going to be the key factor to ensure portfolio quality. 

In the NBFC industry, during the pandemic, although the MFI segment was the first to be impacted, it was also the first to come bounce back rapidly. For SIF, the collection efficiency is one of the highest now around 90-95%. Mr. Natarajan is optimistic that “It is going to be back to its pre-Covid levels maybe in the next couple of months.” 

During the tough times, businesses have learned valuable lessons. Ecosystem with regulators, credit bureaus, SROs, Industry players and the broader society worked diligently to weather Pandemic shock. The future looks promising and process orientation, putting quality over growth and continuous innovation as critical success factors for NBFCs and financial services.

To know more South India Finvest, visit www.southindiafinvest.com. 

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