While credit flow across the country appears to be in the pink of health, bank credit growth to Micro, Small and Medium Enterprises (MSMEs) has decelerated on a year-on-year basis in the first three months of the current fiscal. Against this backdrop, Managing Director and Chief Executive of MSME lender TruCap Finance Limited, Rohan Juneja, spoke to DH’s Shakshi Jain delving into the credit health of the sector seen as the backbone of the Indian economy. Edited excerpts from the interview:
How has credit supply and demand been, within the MSME sector this year?
Healthy. There’s ample liquidity in the system. Secondly, most banks have resolved the legacy issues. Stress from Covid-19 related events have also been put behind. The demand is very strong and it is being met, because there’s ample supply of credit.
Liquidity has tightened since early August, to some extent for sure, pursuant to the incremental CRR brought in by RBI. But it’s still fairly healthy. In the NBFC space, particularly, there has been a good amount of liquidity.
What is the share of loans backed by gold, in your overall portfolio?
Today, more than 63% of our portfolio is backed by gold, and the balance is unsecured business loans. But in the unsecured business loan category, as well, we do not lend to anyone who does not own a piece of property.
In the gold product category we have done cumulative disbursements of over Rs 1,700 crores in the last three fiscal years. The gross NPA on the product is zero. In the unsecured business loan, the gross NPA is about 2.46 per cent, which makes it 1.1 per cent on a consolidated basis.
In the current fiscal year, we’ve disbursed close to Rs 400 crore in the gold product category. In the collateral-free loan product, we’ve done less than Rs 100 crore.
What is the rate of interest charged currently in the two categories?
In the product that is backed by gold, we charge anywhere from 12-20 per cent, depending on the profile of the customer, the purity of the gold, etc. In the unsecured business loan category we charge anywhere between 16-21 per cent.
How much of your business comes via online channels?
So my entire business is enabled digitally, but everything also goes through a manual check. I do want to see the customer, especially where there’s gold. That personal discussion with the customer is a very critical step, it helps you identify a lot of frauds or potential frauds.
About 70% of our customers approach us through the offline model, about 30% is what we aggregate from the online model. Although, with the online model, you have to be a lot more selective. From the 30 per cent, what gets approved may be slightly lower.
Do you see the hybrid model continue to be predominant in the future?
Yes. The customer that we cater to, which is the retail cash and carry segment within the MSME ecosystem, they also really like to see who the lender is, especially if it’s a product that’s backed by gold. They also want to see where the gold is kept. Secondly, this customer needs some amount of hand holding. You have to assist them in getting the documentation to you.
List some trends dominating the MSME lending space in recent times.
In the last two years, more so post Covid-19, the MSME loan sector has picked up substantially. Small businesses are doing well, due to which there’s a requirement of credit. There’s also an expansion in the economy. There’s a lot more demand for credit, because a lot of these smaller businesses are trying to become bigger, they need working capital. The economy is also supporting that. There’s a lot more supply of credit coming in as well with financiers now catering towards this MSME sector credit.
It is also somewhat easier to underwrite the MSME customer relative to earlier times. Today, you have a lot more documents that are provided by the MSME, a lot of other data that is freely available that was not earlier.
Post Covid-19, borrowers have become a little more responsible for sure. But lenders have become a lot more cautious as well, before lending, considering if there’s a 10 per cent or 5 per cent probability that you have a black swan event like Covid in the future, whatever it may be.