Have restrained ourselves from taking SFB route: CreditAccess Grameen MD

Hebbar tells that it is diversifying its loan portfolio by increasing the share of non-micro loans and the liability book by raising funds internationally

CreditAccess Grameen is the largest microfinance institution (MFI) in the country with a loan book of around Rs 25,000 crore. Udaya Kumar Hebbar, managing director (MD), in a telephonic interview, tells Manojit Saha that it is diversifying its loan portfolio by increasing the share of non-micro loans and the liability book by raising funds internationally. Edited excerpts:

There was an increase in gross non-performing assets (gross NPAs) sequentially that went up to 1.18 per cent in January-March from 0.97 per cent in the previous quarter. What was the reason?

It is not too big an increase. The increase is about 20 basis points (bps). In the third quarter, we had a serious flood in Tamil Nadu. Some parts of the state have not recovered fully. A 10 bps increase comes from that area. The other 10 bps is a normal increase, not a significant one. If you see our days past due (DPD) for 90 days, it went up by 17-18 bps. About 50 per cent of that is coming from flood situations. They are paying but are unable to pay all three instalments. Some of that may eventually end up with 5 bps of loss.

Why is the credit cost higher for CA Grameen?

If you see our business model, the cost of credit is going up by 35 bps. That means our provisions are going up a bit. Credit loss (write-off) increase is just about 20 bps. But credit cost has gone up by 35 bps because we provide according to the risk of the geography. We estimate the losses district wise…high risk, low risk. If it is high risk, we provide more. In the process, the 35 bps increase is because of the granular evaluation. Across India, everybody classifies NPAs after 90 days of non-payment. We classify NPAs after 60 days, and provide for it. Therefore, our credit cost is little higher, because our provision is always high as compared to the industry. For FY25, we estimate credit cost between 2.2 and 2.4 per cent.

Do you feel the uptick in bad loans may be arrested in FY25?

We estimate that our credit loss will be between 1.5 and 1.75 per cent. Last year, it was 1.52 per cent. At most, it may go up by another 25 bps.

The loan book is at Rs 25,000 crore. What is the loan growth projection for FY25?

We estimate 23-24 per cent growth, so that we can reach around Rs 33,000-crore of loan portfolio. The non-micro finance portfolio will grow faster because of the low base. This started two years back. The non-MFI book is at 3 per cent of the total book now. We estimate it to cross 5 per cent by March 2025. Micro finance growth may come down to 22-24 per cent. Customer growth will be around 12-13 per cent or 5.4-5.5 million by March 2025. We have around 4.92 million customers now.

When can you achieve a Rs 50,000-crore loan book target?

Our estimate is to cross the Rs 50,000-crore milestone by 2027-28. The whole industry may also cross Rs 8 trillion by then, considering 20-25 per cent growth. We would continue to remain around 6 per cent by market share. Retail finance, which is the non-MFI book, will grow to 10-15 per cent. MFI will be 85 per cent and non-MFI 15 per cent. That is the trajectory we are looking at.

How challenging is the rise in cost of funds?

I think the cost of funds will remain stable. We are one of the early innovators in diversifying our funds. Today, almost 20 per cent of our funds are raised internationally. We are not anticipating the international cost of funds to go up. For domestic funds, we believe the cost will come down over a period of time. Cost of funds will be stable for the next 2-3 quarters. Then, it will start coming down.

How much is the dependence on bank funding?

Our bank funding is 50-55 per cent currently. We want to reduce it to 45 per cent in the next 2-3 years. We plan to increase the international funding and non-bank funding by around 10 per cent. Foreign funding will also rise to 30 per cent in the next 2-3 years from 20 per cent now. Today we have lenders from Taiwan to the Philippines to Singapore, the Middle East, Europe and the US. There is enough money available internationally. We are looking at India as an important place to lend. This year, we would be raising around $400 million internationally. We will execute this based on the pricing in the second half of the financial year.

How much non-convertible debentures (NCDs) are you planning to raise this year?

We have approval to raise Rs 2,000 crore. Last year, we raised Rs 1,500 crore. About 8 per cent of our borrowing is from public NCDs and we plan to increase it to 12 per cent by this financial year.

Recently, the Reserve Bank of India (RBI) pointed out the higher margins of MFIs and said some of them are misusing the flexibility given to them on margins. How do you see this?

It is right from the point of view of the regulator because it wanted to give the industry a free hand and be a responsible lender. It also means the lenders have the ability to absorb the risk. If you look at the earlier rule, they had mandated a margin of 10 per cent. There was no scope to take additional risk. Owing to the 2-3 years of Covid, there is a small increase in the cost. We always believe our customers are priced very reasonably. With the new regulations, we have only increased the price by 1 per cent and the margin is only 11 per cent. This means we are the lowest-price MFI or a lender in this segment in the country — including banks, small finance banks (SFBs) and non-banking financial companies (NBFCs). We firmly believe pricing has to be responsible and transparent, which is one of our strengths.

Do you have any plans to convert into an SFB?

We have restrained ourselves from taking the SFB route. We believe that there is enough opportunity in rural India to grow. Banking is a very good business and SFB is also a very good business. During the time to establish, one needs to manage the business (SFB). It takes at least 5 years to make it successful. In the meantime, we have a lot of opportunities in existing businesses. We have invested in technology, efficiency and manpower management. We have proven that we can grow well and also deliver well. We will continue to remain relevant to our customers in the current format. The advantage of converting to a bank is it will help raise deposits. Through our concrete efforts, we are diversifying liabilities beyond borders and various instruments are helping us navigate the next growth phase.