Tata Capital, which recently announced raising at least Rs 500 crore through non-convertible debentures (NCDs), hopes to revive the debt market with the issue. The company’s Managing Director & CEO Praveen P Kadle tells Pradeep Gooptu and Namrata Acharya that Tata Capital will come out with a buyback option and also provide loans to retail investors against the NCDs. This apart, the company will focus on mid-size companies, “pre-dominantly in the Tata ecosystem”, for its $250 million private equity (PE) fund.
What is the rationale behind floating non-convertible debentures at this point of time?
There are not many fund-raising options for a non-banking finance company (NBFC). Banks are the most important source of funds, but they have limitations such as lending to a particular group. While the liquidity has improved in the last month, banks are still cautious of lending.
During the last 3-4 months, mutual funds’ participation in NBFCs has been impacted. We thought retail could be the right option. Retail investors have lost money in equities and mutual funds. The rate of interest for bank deposits is coming down. So, NCDs will provide a good opportunity for them, and also give us an alternative funding channel.
This is an unconventional product, as in the last 7-8 years, the private sector in India has not issued NCDs in the retail market. We will revive the debt market in the private sector. I don’t think any unlisted company has issued NCDs so far. It is the first of its kind.
The option associated with the instrument will provide liquidity to investors. The company will come out with a scheme of buyback. It has already announced a put option. The company will float a scheme to provide loan up to some value of the instrument. So, the instrument has got a lot of unconventional measures. This will create a new trend and revive the debt market.
What are your focus areas?
We are in the corporate finance areas for SMEs (small and medium enterprises), for short- and long-term capital requirement and infrastructure financing. We will start project advisory for infrastructure finance. In retail finance, we provide funding to consumers for personal loans, and it can include the issuance of credit cards.
We have a distribution and broking business. Going forward, we will also provide commodity broking through Tata Securities, which is present in 32 locations, and intend to open 100 branches in 6-9 months. We will have one identity of Tata Capital.
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What are your lending and borrowing plans?
At present, our book size is close to Rs 8,000 crore. We will close this financial year at Rs 8,500-9,000 crore in terms of asset base, against Rs 3,600 crore last April. Going forward, we will not see the same growth. We were a new company, and the market condition has changed dramatically.
We have gross non-performing assets (NPAs) of 0.5 per cent and 0.25 per cent at the net level. Our capital adequacy ratio is 21 per cent. We are growing cautiously. In general, there is a likelihood of higher NPAs, so we will be careful in lending.
Will you utilise the special liquidity support funds provided by the government for NBFCs?
When the scheme is fully announced, we will definitely utilise it. But, that scheme is for reducing more expensive loans with lesser ones and not for growth. We will reduce some of expensive debt through the facility. We need to wait till the scheme is announced. We hope to use Rs 500-1,000 crore from the fund. In the last three months, between October and December, the lending rate went up to 15-17 per cent.
Can you throw some light on your forthcoming private equity (PE) fund?
That will be a $250 million PE fund, with focus on mid-size companies, predominantly in the Tata ecosystem, mostly unlisted companies. It will be a sector-agnostic fund.
Will this create conflict in decision-making?
No, it will provide opportunities, and it will up to us where we want to invest.