Magma Fincorp Ltd, a Kolkata-based non-banking finance company (NBFC) with assets under management of Rs 10,907 crore, recently forayed into the general insurance market with a tie-up with German insurer HDI Gerling. Vice-Chairman and Managing Director Sanjay Chamria, in an interview with Niladri Bhattacharya, says the company would start with an initial capital base of over Rs 200 crore. Edited excerpts:
You plan to enter general insurance business at a time when the industry faces heavy underwriting losses. When do you expect to underwrite policies and would will be the initial capital?
The majority of insurance players are seeing underwriting losses, especially on account of high-third party claims. However, in the last six months, premiums rates have hardened and now, with the regulator increasing premiums for third-party motor insurance by up to 70 per cent, losses would be significantly reduced. We have a customer base of over 2,36,000 and a network of 172 branches across 20 states. So, we hope to leverage our large distribution network and target Tier-II and Tier-III cities. Though according to regulations, we need to have initial capital of Rs 110 crore, we would start with initial capital of over Rs 200 crore. We have received the R1 approval from the Insurance Regulatory and Development Authority (Irda) and would file for the R2 licence. So, we expect to start underwriting policies in the current financial year.
The Reserve bank of India (RBI) is expected to come out with guidelines on new banking licences. Will Magma be applying for a banking licence?
We would examine the final guidelines and the capital requirement norms. Before taking a decision, one needs to understand the objective of the regulator behind granting such licences. If we find ourselves eligible and the business viable, we would definitely look into it.
In 2010-11, Magma Fincorp reported net profit of Rs 122.1 crore and disbursed loans worth Rs 5415 crore. What, according to you, would be your business growth in the current financial year?
We would like to grow our disbursements by 50 per cent in the current financial year to about Rs 8,000 crore. The main focus area would be high yield segments like tractors, used commercial vehicles and the small and medium enterprises segment. This segment is expected to contribute 25 per cent to total disbursements and would take our net interest margin to 5.25 per cent in 2011-12, compared with 5 per cent in 2010-11.
Given the target of a 50 per cent rise in disbursements, what are your fund-raising plans for the current financial year?
Last year, we raised around Rs 4,300 crore as debt to support disbursements of Rs 5,415 crore. So, we would require Rs 6,000 crore as debt in the current financial year. Coming to equity, our capital adequacy ratio is at 18.2 per cent, which is well above RBI’s requirement of 15 per cent. However, depending on the need, we may raise some capital. We have headroom of Rs 200 crore in Tier-II capital. So, we may consider that option as well.
What is your assessment on the interest rate scenario?How would it effect your business?
Considering the high inflation numbers, we believe interest rates may go up by another 50 basis points. However, we have factored this into our projections. Despite the difficult market conditions, write-offs in 2010-11 came down to Rs 24 crore, compared with Rs 40 crore a year ago. Our non performing assets stand at zero, since we write off the entire asset, once it becomes non-standard.