Reliance Jio plan wrapping at AGM and (most) likely fallout

⏩ Government's September spectrum auction eying a revenue of Rs 5.66 trillion is set to be flopped as other operator would not participate. Government fiscal arithmetic can go for a toss.

⏩ Jio is offering such freebies based on zero legacy costs w.r.t. 2/3G and 1% spectrum User charges vs 3% for others. Government has created an asymmetric market. Telecom pleas are not heeded by Government time and again, but it should understand that all Telecom have foot the spectrum bill out of its own banks' loans.

⏩ Stress level from Bharti/Idea should rise. They would defer capex plan. 

⏩ Vodafone could drop IPO plan

⏩ Rcom if not taken over by elder brother,  would be another JP Associates in the making.

Collated by Surya Narayan Nayak

Capital Float looks to expand to over 100 cities

Capital Float plans expansion in over 100 cities as it bids to offer loans for small brick-and-mortar store owners for a bigger share of the growing financial lending market

SME lending platform Capital Float, run by Zen Lefin Pvt. Ltd, is looking to expand its reach to over 100 cities and venture into newer categories like loan for small brick-and-mortar store owners, as it eyes a bigger share of the growing financial lending market in the country.

“We are expecting a 10 times growth by the end of March 2017, adding 15,000-20,000 customers (borrowers) cumulatively across all the loan products segment,” said co-founder and managing director Sashank Rishyasringa.

The company has offered loans to 3,000 borrowers until now.

Founded in 2013 by Rishyasringa and Gaurav Hinduja, Capital Float has disbursed loans amounting to over Rs.400 crore.

A technology-led non-banking financial company (NBFC) underwrites unsecured loans online to start-ups, business-to-business (B2B) providers, manufacturers and e-commerce merchants through its own books.

It currently gets 33% of the business from online vendors.

With the aim of extending its focus to small mom-and-pop or kirana shops along with micro small and medium enterprises (SMEs), the company has already made a mobile application that approves loans in less than eight minutes.

Loans to kirana shops could be in the range of Rs.50,000-100,000.

India currently has minimal lending options for small businesses. These businesses are largely ineligible to receive any financing from banks or NBFCs.

Traditional banks ask for collateral, financial statements and bank statements and do not offer small ticket size loans.

Capital Float is trying to solve the problem by lending money to small businesses that might not have collateral, significant revenues or years of experience.

The company offers an alternative for these small traditional business houses that have largely banked on chit funds and local money lenders to borrow money from.

Identifying a need to extend credit to such under-served, Rata Tata, Vijay Kelkar (former finance secretary and chairman of the National Institute of Public Finance and Policy) and Nandan Nilekani (co-founder of Infosys Ltd and the architect of Aadhaar) will soon start a microfinance institution named Avanti Finance, Mint reported on Monday.

Capital Float, which is currently focused on offering loans to small and medium merchants in Tier 1 and metro cities, is now looking to concentrate more on tier 2 and tier 3 cities. “I expect a significant contribution of these cities (tier 2 and tier 3) to the company’s growth, which could be around 33% by next year,” Rishyasringa added.

The loan products currently include working capital finance to online sellers for 90-180 days, long-term finance to merchants for six months to three years, bill discounting and taxi financing (loans for cab drivers), among others.

Broadly, the company has partnered with e-commerce websites, payment gateways, cab services, amounting to 50 partnerships, including with Snapdeal, Shopclues, Paytm and Uber to offer loans to a large pool of small businesses and merchants who work with these partners.

The company is also eyeing profitability in the next 12 months on the back of a robust demand for loans by SMEs.

To enable faster disbursal of loans, the company launched its mobile application two to three months ago, which is privately available to businesses through partners.

While loan applications were initially accessible only through the website, Capital Float is now seeing that mobile application and mobile browsing has grown to contribute 50% of loan applications, said Rishyasringa.

The mobile application is built on four technology pillars of India Stack—Aadhaar-based authentication, an electronic process of know-your-customer (e-KYC), electronic signature (e-Sign) and unified payment interface (UPI).

India Stack is a set of publicly available application programming interface (API)—that enable companies to build applications and businesses based on these four pillars.

The fin-tech company receives a loan enquiry every three minutes, said Rishyasringa. An inquiry implies a prospective borrower initiating a loan application process.

While the company remains stringent in extending loans, by approving 20% of the applications, total loan disbursal amounts to an average of Rs.70 crore per month.

Additionally, the average loan amount extended to a merchant is Rs.10 lakh at an interest rate of 16-19%, for a tenure of between 60 days to 2-3 years. The company maintains and targets to continue to maintain a non-performing asset (NPA) proportion of less than 1% of its total loan amount.

NPA is the proportion of the amount of bad loans to the total amount of loan disbursed.

Backed by George Soros’s Aspada Investment Co., SAIF Partners and Sequoia Capital, the company has raised $42 million, including $25 million in series B round of funding in May.

Other players in this segment that Capital Float competes with are Capital First Ltd, NeoGrowth Credit Pvt. Ltd and SMEcorner.in (Amadeus Advisors Pvt. Ltd). In July, NeoGrowth raised $35 million from IIFL Asset Management, Accion Frontier Inclusion Fund managed by (Quona Capital) and Aspada Investments, along with other investors

Corporate borrowing costs see greater fall than home loans: RBI

With banks turning stingy in passing on RBI's rate cuts to consumers, rate of home loans has fallen by only 0.26 percentage point since 2015, but corporates have managed to bring down their borrowing cost by 1.44 percentage point by tapping bond markets, as per the central bank.

With banks turning stingy in passing on RBI's rate cuts to consumers, rate of home loans has fallen by only 0.26 percentage point since 2015, but corporates have managed to bring down their borrowing cost by 1.44 percentage point by tapping bond markets, as per the central bank. Between January 15, 2015 and April 5, 2016, Reserve Bank reduced the repo rate by 150 basis points, but in response to this, the banks have lowered their benchmark lending rates by only 60 basis points, according to Reserve Bank's annual report for 2015-16.

Between December 2014 and June 2016, home loans dropped by just 0.26 per cent to 10.76 per cent in June 2016 from 10.50 per cent in December 2014.

During the same period, corporates' borrowing became cheaper by 144 basis points.

Corporates' borrowing from shortest maturity commercial papers dipped to 6.54 per cent in June 2016 from 7.98 per cent during December 2014.

Corporates are borrowing at a cheaper rate through issuance of commercial papers, RBI said, while adding that there was a surge in public issuances of corporate bonds in the fiscal year 2015-16.

In the second half of the year, following the September reduction in the policy repo rate and again towards the close of the year, yields of top-rated AAA corporate bonds eased, following g-secs (government securities) yields.

The corporate bond yields also declined following easing of g-secs yields during 2016-17 so far (up to August 2016).

"Taking advantage of low yields vis-a-vis bank lending rates, corporates raised more resources from the bond market in recent period," RBI stated.

According to RBI, banks are not passing on the benefits of rate cuts to customers to protect their earnings.

So far in the financial year 2016-17, there has hardly been any transmission of a reduction in the policy rate to the actual lending rates charged to customers, stated the report.

RBI said banks might have been loading a higher credit risk premia on their new customers in order to attain their desired return on net worth in a rising NPA environment.

Lenders are also charging a higher strategic risk premia on their riskier loans as part of their business strategy to reorient their lending operations towards less risky activities, it said.

Increasing bad loans, fall in their recovery a problem for banks: RBI

The problem of bad loans for the Banking sector is significant when one looks at the increase in stressed assets and the falling recovery of bad loans, said a senior Reserve Bank Of India (RBI) official on Tuesday.

Any bank that does not have a strong risk management system will have a highly susceptible credit portfolio, said RBI Deputy Governor N.S.Vishwanathan at the inauguration of the national conference on 'Risk Management-Key to Asset Quality,' organised by The Associated Chambers of Commerce and Industry of India (Assocham).

"The total stressed assets of public sector banks have risen to 14.5 per cent as at the end March 2016. They still contain some element of restructured assets indicating potential for some more pain, albeit of lesser intensity.

"With the annual recovery in NPAs (non-performing assets) falling from 20 per cent in 2013-14 to nine per cent in 2015-16, the problem assumes greater significance," he added.

According to Vishwanathan, there may not be big addition to NPA in the coming period as it would moderate but the provisioning needs as the NPAs age will put pressure on a bank's profit and loss account.

Noting risk management is not static and evolves over a period of time, he said risk management sophistication grows with the growth in the complexities of a bank's functioning.

Vishwanathan said the government has notified the amendment to the Debt Recovery Tribunal Act and SARFAESI Act which will speed up the debt recovery process, while the RBI has issued guidelines to make large borrowers to go to capital market for part of their funding needs

Ujjivan Financial Services banks on housing, SME segments for coming years

MD and CEO Samit Ghosh explains the company’s road ahead in transforming into a small finance bank

SAMIT GHOSH

MD and CEO, Ujjivan Financial Services

Microfinance firm Ujjivan Financial Services has posted stellar Q1 numbers with profits doubling and income rising almost 50 per cent.

Speaking to BTVI, Ujjivan Financial Services Managing Director and CEO Samit Ghosh explains the company’s road ahead in transforming into a small finance bank. While group loans contribute about 87 per cent of the total business, individual loans, especially housing and SME, will contribute half of the loan book in the next five years, he said. Excerpts:

Your profits doubled in Q1, to ₹71 crore. The net income is up 77 per cent on a year-on-year basis. Can you take us through the key drivers in this quarter?

As far as the profits are concerned, the business is moving as per our plans and the momentum is there. We have had a reasonable growth in our business. However, on the cost side, there is a one-off impact — the funds we received from our IPO are still in this quarter, which helped us reduce the cost of funds. So that has very positively impacted our profit for this quarter.

Along with that, we have also been able to reduce our operating expenses. Our efficiency levels have also gone up. So those factors positively contributed to this quarter’s profit.

Your net interest margin has gone up almost 100 basis year-on-year. Do you see that tapering off going forward? Is it sustainable at 12.96 per cent? Will there be any moderations in the forthcoming quarter?

There will be slight moderation in a sense that it is also affected (has gone up) by the funds we received from the capital infusion. So there will be certain impact from that.

In terms of the asset quality, the gross NPAs are at 0.18 per cent and the net NPAs are at 0.08 per cent. Is this trend likely to continue or do you see some strain on asset quality going ahead?

No, in case of asset quality, we do not foresee a major problem at all. Whatever minor blips are there in some particular parts of the country, we are able to tackle it and resolve it. We do not see the asset quality as an issue. But what would impact our cost is that we are transforming into a small finance bank. A lot of cost — relating to the investments we are making in terms of technology, infrastructure and hiring additional people — will start impacting us the next quarter onwards.

So that will increase our cost, but that really relates not to the regular business, but to the transformation cost of becoming a small finance bank.

Is your operational expenditure likely to go up on the back of the transition?

Yes, it will.

Your provisions are quite moderate — ₹6 crore right now as against ₹8 crore in the previous quarter. Will more stringent provisions be required? How are you provisioning for NPAs right now? How will your provisioning requirements change as you align and transform towards a small finance bank?

In terms of credit provisioning, we already have a very conservative plan. So I do not see credit provision in itself having a major impact when we become a small finance bank because we are already aligned to the RBI requirements for a small finance bank.

Our operating expense ratio is down to about 7 per cent, which is extremely good. Our cost-to-income ratio during the transition period will definitely go up. And that’s what we plan when we start making investment in infrastructure.

What will be your average ticket-size for SME loans?

At present, group loans contribute about 87 per cent of our business while individual, education, housing and SME comprise the remaining 13 per cent. In five years, we expect almost an equal division between group and individual lendings. Largely, the growth will come from housing and micro SME business.

Ratan Tata, Nandan Nilekani and Vijay Kelkar team up for Avanti Finance to provide loans to poor

Ratan Tata, Vijay Kelkar and Nandan Nilekani have started a technology enabled financial inclusion vehicle, Avanti Finance, which will be focused on delivering affordable and timely credit to under-served and un-served segments in India. 

The aim is to leverage on the social sector presence of Tata Trusts and other like minded partners and the rapidly evolving India Stack (Jan Dhan - Aadhar - Mobile), UPI and payments bank ecosystem. Avanti would use this ecosystem and will innovate on product design in consonance with the indigenous needs, to deliver seamlessly for the end consumer, said the statement. 

According to the release, 'the promoters strongly believe that the institutional inequalities and information asymmetries are depriving the target customer segment of access to affordable credit'. The target customer segment over the last few years has displayed very low delinquency rates compared to any other customer segment, but still is charged the highest rate of interest. Avanti's primary objective is to make a difference in this sphere thereby enhancing the prosperity in these communities .. 

Ratan Tata, Chairman of Tata Trusts has been actively engaged in several initiatives of the Tata Trusts since his retirement. His endeavours in the last few years have been focussed on creating a sustainable model for interventions which have lasting impact on communities, especially the under-privileged and the deprived. 

Tata and Nilekani are bringing their investments from their respective philanthropic capital, and any gains will be reinvested in philanthropic causes. Avanti will apply for registration to the Reserve Bank of India in the coming days. 

The founding directors of Avanti are Ratan Tata, Dr. Vijay Kelkar, Nandan Nilekani and R Venkataramanan. A senior leadership team with experience Technology, Microfinance, Enterprise Risk Management, Credit Operations and Customer Service, Leadership and Strategy Consulting, Structured Finance and Investment Banking is in place. 

"Avanti will be a platform to impact the poor through credit at individual and community levels to create a lasting improvement in their livelihoods and standard of living, ushering prosperity. I am thankful to Dr. Kelkar and Nandan for agreeing to be part of this purpose driven initiative", said former chairman of Tata Trusts. 

Nandan Nilekani , co-founder of Infosys stated "I am humbled by Ratan's initiative and his inviting me to be a part of this venture. My participation in Avanti is more driven by social motivation rather than anything else - with a view to serve the underserved and unserved and make the Tata Trusts and other likeminded partners philanthropy more effective. Technology is an important differentiator and allows us to make a difference in many ways than one". 

Avanti will establish operations before the end of the financial year. 

Vijay Kelkar is currently the chairman of the National Institute of Public Finance and Policy (NIPFP), and India Development Foundation. R Venkataramanan is currently the Managing Trustee of Tata Trusts.

Finance ministry releases revised guidelines for public-funded projects

The government in the Union Budget 2016 had announced to do away with plan, non-plan distinction at the end of the 12th five-year plan

The finance ministry has come out with revised guidelines for public-funded projects under which schemes should be designed keeping in view economies of scale and the need to share implementation machinery.

The streamlining of the public-funded projects is aimed at expediting implementation and reducing time and cost overruns, an official said.

The government in the Union Budget 2016-17 had announced to do away with plan, non-plan distinction at the end of the 12th five-year plan.

After that announcement it was imperative that a plan, non-plan neutral appraisal and approval system is put into place, the official said.

The quality of scheme or project formulation is the key bottleneck which leads to poor execution at the implementation stage including time and cost overruns.

“While designing new schemes/sub-schemes, the core principles to be kept in mind are economies of scale, separability of outcomes and sharing of implementation machinery,” the officials said.

“Schemes which share outcomes and implementation machinery should not be posed as independent schemes, but within a unified umbrella programme with carefully designed convergence frameworks,” the official added.

Further, as per the revised guidelines, no new autonomous body, institution or other special purpose vehicle should be set up without the approval of the cabinet. The 12th five-year plan ends next year.