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Manappuram Finance, which has a market share of around 12% in the gold loan business, is looking to foray into small banks. It is likely to hire PwC to weigh the pros and cons of conversion. VP Nandakumar, MD & CEO of the company shares his plans with Neelasri Barman. Excerpts:
Are you planning to apply for a small bank licence?
We are likely to engage PwC as consultants for our banking foray. We plan to apply for the license through Asirvad Microfinance, which we propose to take over as our subsidiary.
Once the regulatory approvals are in place, Manappuram will hold 85% stake in Asirvad Microfinance, and for the remaining 15% we have signed an MoU with the promoters. They will be transferring this 15% stake to us in the next 18 months from now.
As the RBI will not allow the bank and NBFC to co-exist, the Non-Banking Finance Company (NBFC) will have to be amalgamated with the bank. That poses certain challenges like reducing the branch network etc.
Over a period of time converting into a bank will definitely be better. We need to see how the transition will be for us. That is what PwC is evaluating. Our board is meeting on 23 December to take stock of the situation and based on that we will take a call. January 16 is the deadline to submit an application for the license. We will submit our application before that.
Once the regulatory approvals are in place, Manappuram will hold 85% stake in Asirvad Microfinance, and for the remaining 15% we have signed an MoU with the promoters. They will be transferring this 15% stake to us in the next 18 months from now.
As the RBI will not allow the bank and NBFC to co-exist, the Non-Banking Finance Company (NBFC) will have to be amalgamated with the bank. That poses certain challenges like reducing the branch network etc.
Over a period of time converting into a bank will definitely be better. We need to see how the transition will be for us. That is what PwC is evaluating. Our board is meeting on 23 December to take stock of the situation and based on that we will take a call. January 16 is the deadline to submit an application for the license. We will submit our application before that.
What are the challenges you may face?
A bank is a more stable model than an NBFC, but there will be challenges in transition. Our customer base is currently 30 lakh and we have 3,200 branches. We may face challenges in getting people to run the bank. Besides, the RBI may not allow all our branches to be converted into bank branches so we may have to rationalise them. Branches may have to be merged for rationalisation. Even technology may be a challenge.
Do you see a lot of other players looking for a small bank licence?
RBI has put a condition that the promoter's minimum initial contribution to the paid-up equity capital of such banks should be at least be 40%. Considering this, the possibility of other players coming up is very minimal. But if RBI can relax this condition, more players can come. In most companies, the promoter’s stake is less than 10%.
Gold prices have been falling. What steps have you taken to minimise your losses?
We have started following the practice of monthly interest payments. Earlier it was bullet payment where both principal and interest were paid together at the end of the loan period. With monthly interest payment, chances of losses are mitigated. We have been following this model for the last one year and in the past six month we have intensified it.
What impact will the new norms for NBFCs have on your financials?
We welcome the new norms for NBFCs. From the tier-I capital point of view, we currently have 12%. RBI has indicated some uniformity so the tier-I capital will come down to 10%. The other thing is for provisions to be brought down from 180 days to 90 days in a phased manner. For gold loans companies that will not be difficult. Now we will be making it 120 days. The standard assets provisioning will go up from 0.25% to 0.4%. That will slightly reduce the profitability. In absolute terms, it may hit the profitability by around Rs 10 crore every year.
Do you have any plans to come up with another retail Non-Convertible Debentures (NCD) issue this fiscal?
We will be coming up with a retail NCD issue for Rs 200 crore, with a greenshoe option of another Rs 200 crore, in January. This will be for working capital purposes and our third NCD issue this fiscal. The tenures of the NCDs will be between 36-75 months. The coupon rate may be in the range of 10.5-11%. The lead managers for the issue are ICICI Securities, AK Capital and Edelweiss. The ratio of bank funding and funding through NCDs is 80:20.
Your executive director I Unnikrishnan quit recently. Who will be replacing him?
Unnikrishnan had indicated that he wanted to do something on his own around a year ago. At that time, we appointed a CFO based out of Mumbai. Unnikrishnan’s assignment was primarily to take care of investor relations and treasury. That is being handled by the CFO now. We also have another executive director, so we won't be bringing in anybody else.
