The banking ecosystem in India has expanded fast ever since the Reserve Bank of India (RBI) gave approval to set up 10 small finance banks in the country. There is a huge opportunity lying in this segment, says Priyam Alok, Senior Vice President & Joint Head-Bank Project, Au Financiers (India) Ltd, in an interview with Kartik Sharma and Manishika Miglani of Elets News Network (ENN)
Can you brief us about Au Financiers (India) Ltd and its operations?
Our company was born in 2003 and was started with commercial vehicle finance in Rajasthan with Jaipur as our head office. Then we moved to various states in the North, West and Central India, and right now we have our presence in 10 states, namely Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Chhattisgarh, Punjab, Haryana, Himachal Pradesh, Delhi and Goa. Over the period, we have grown exponentially in the Assets Under Management (AUM). For the last five to six years, our CAGR has been around 60 to 63 per cent consistently. We got our first set of funding in 2008 and a host of other organisations joined us as investors, with IFC (International Finance Corporation), a World Bank arm, being one of them. That has been our journey so far.
Our product of commercial vehicles accounts for 40 per cent of our portfolio, followed by our AU housing finance companies, which we recently sold off. Some of our major segments include housing loans, and loans to SMEs, MSME and commercial vehicles. We have a diversified assets portfolio as well and this makes us well-poised to become a bank. MFIs typically are into micro-lending and that’s unsecure but our loan is all secure.
What challenges did you face in getting a small bank licence?
There are a few things, out of which processes were very strong from compliance, technical and technology points of view. We made investments in the right direction and ensured that the processes were completely seamless. We expanded in the right way and therefore our delinquency levels were low. We operate in a field where delinquency up to a certain percentage is very common, but we maintained a very good book. This was noticed by the regulators. Over 90 per cent of our book is into rural and lending.
We were a company with a good mix of product suite, processes and priority-sector lending. All this put together makes us what we currently are.
What are your major verticals and annual turnover of your company?
Our biggest vertical is commercial vehicle finance followed by separate housing finance companies. Then we are into structured finance and small and medium enterprise lending, which is growing at a fast pace. We also have an insurance broking company. This year, disbursement has been strong and we have crossed the magical figure of 10,000.
MSME is a very interesting vertical in the midst of the “Start Up India, Stand Up India,” wave. Considering this, do you see any growth in this segment?
A lot of start-ups are happening in the urban space. But when I talk about MSME, I am essentially going to the not-so-privileged sections of the society where banks are wary of lending and where there are not enough income documents from the bank’s viewpoint.
As an MSME, our judging of people for their paying capability is very different from banks. For example, we don’t go for something called a Personal Discussion (PD). We take the requisite collaterals and fund the people. And this segment is growing at an exponential rate of over 80 percent.
Do you look forward to technology intervention for growing your business?
Technology is becoming increasingly important as the world is moving towards digital age. Therefore, we are also investing in technology and figuring out the right clients for the bank. We are not shying away in getting the best like any other bank would do. Even now, we have multiple ways of generating leads and also have an app in place for it. One software that we are using shows the entire portfolio and I can safely say that nobody in the MSME sector would have invested in something like this. We have two people who dedicatedly work on the portfolio analytics part with the help of a software and the reports are generated on a daily basis.
The way Digital India is panning out, one has to think in terms of digitisation. It’s a myth that Digital India is only an urban phenomenon; rural India is going digital, too. And in no time, there would be complete transformation that we need to keep pace with.
What differences do see on becoming a small bank and how it takes you to another level?
There are two differences – one is one on the subjective side of it and another is on the objective side. The subjective side is how our customers perceive us now, which is quite different now. The trust of the customers goes up drastically the moment one becomes a bank. It is also easier to get talent if you become a bank. Our HR Department is getting resumes from a lot of senior people of all the private sector banks which otherwise was not the case. Talking objectively, my cost of funds would go down because we will get low-cost deposits, which leads to better margins.
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How do you see yourself as a bank in the next five years?
We would be slowly and steadily growing in the next five years and the growth rate might not be 60-65 per cent which we are used to, but it would be healthy enough. As much as 25 percent of our banks are in unbanked areas and we really need to work on this. We will also be launching a few products like consumer durables, gold loans, personal loans and business banking.