The microfinance industry is still reeling under the effects of demonetisation, with repayment collection taking a hit in many rural pockets. Delays in the collection is blocking valuable capital for the entities, many of which depend on redistribution of the same, for fresh disbursals. Stretching collection past due date results in loss of potential returns. Some of it is even turned into losses. While microfinance companies typically report non-performing assets of less than one per cent, many of them are staring at two to three times this value as potential NPAs. Not good news for them indeed!
Maintaining profitability in such a scenario is a task in itself. Branches turn conservative and lend only to a limited set of profiles they deem safer. Disbursements are even frozen at geographies which face repayment issues. All these lead to the Return On Investment (ROI) taking a hit in some particular locations.
And while some become over-cautious, weak demand and weaker numbers drive others to other directions. Temptations to lend to bigger ticket sizes to drive revenue risks; over-dependence on the selected portfolio; lending not being done keeping the loan profile in mind; becomes a sure recipe for disaster.
The picture often gets lost in the huge amount of data generated. It is therefore imperative for NBFCs to invest in Business Intelligence on priority. The 3 musts of your business, you should start monitoring today to propel your growth in 2018.
- Profitability: Analyse the profit after tax (PAT) for the organisation. Keeping a branch- wise tab on the profit, along with a zonal drill-down up to territories will help you point out who are the players lagging behind, or being overly cautious pulling back the whole entity in the process. Along with profitability, keep a check on your on your finances in general and cost centres in particular. Track branch-wise figures for all your costs, revenue, assets and liabilities for a holistic view and a sustainable growth.
- Collections: Keep an eye on outstanding collections for the various receivable buckets, and track down the proportion of collections cleared and those rolled forward to the next cycle. An analysis of principal outstanding, diving into whether it is a regular, substandard or non-performing asset, provides a comprehensive picture, giving potential areas for you to focus on.Apart from the dues, also analyse your efficiency, both with respect to the total cash due and the billing done. Keeping a check on the proportion collected and rolled back along with delinquencies in the form of late payment and bounced cheque charges – will keep you on top of your numbers and ahead of the curve.
- Risk: Track down your disbursements, average ticket size and your loan-to-value ratios. Are your officers becoming overly ambitious? Are they under undue pressure to achieve the numbers? Are they increasing the average ticket size while not taking care of Loan to Value (LTV) ratios, puts your eggs in fewer baskets, setting you down a hazardous journey.
Keep a track on the volume of loan applications coming in and those being-accepted-to- avoid-that and make sure things don’t get out of hand. A high acceptance rate should ring alarm bells. Around all of this, keep a check on the loans well past the due date and how they have been trending through various cycles.
And finally, know your borrowers inside out through a thorough analysis of the lending portfolio – based on various criteria, including and not limited to loan band, CIBIL score, property type and the borrower’s turnover.
The monitoring of these three areas is all you need to maintain the profitability of your NBFC and fuel growth into it.
Team Computers, in its twelve years of providing business intelligence and visualisation solutions, has worked with some of the largest NBFCs in India, including Magma Fincorp, L&T Finance and HDFC Ltd, to provide business intelligence solutions that track KPIs in these areas. Get in touch to know more.
(Disclaimer: This write-up is contributed by Team Computers’ Pvt Ltd.)