India needs to invest about US $10.1 trillion from 2020 through 2070 to achieve its net-zero target but conventional sources of capital are expected to provide only US $6.6 trillion, implying a huge investment gap which needs bridging. This is due to inadequate and skewed capital allocation across sectors, which is lesser-known, shared Ajit K Menon, Group Chief Operating Officer, Vivriti Capital, in an exclusive interaction with Srajan Agarwal of Elets News Network (ENN).
Vivriti Asset Management has carved a niche in private capital and structured finance solutions. How does your approach to private capital and lending differ from traditional players, especially with products like term loans, supply chain finance, and asset leasing?
From lead qualification to origination and credit approval to administration, enabling credit revolves around structured and unstructured data. This, coupled with a sound risk management framework (applied across a whole host of products we offer) provides us with the vantage point to underwrite assets efficiently. The ability to take calculated risks is the key to ensuring efficient and meaningful growth. Our specialisation lies in the mid-market space with the added advantage and flexibility of providing bespoke and structured deals with technology-led distribution.
Securitization has been a focal point at Vivriti. What do you see as the biggest advantages of securitization in India’s lending landscape, and how do you address the challenges of transparency and liquidity in the current market?
Securitised debt instruments are transforming the financial landscape in India. With the recent changes in risk weights by RBI, decoupling and reducing an over-reliance on bank funding is the need of the hour. Hence, securitization is playing a significant role in this transformation. Securitization means converting assets into securities. In this process, securities are backed by various assets, such as debt instruments. Loans or receivables are securitized to establish financial securities, commonly known as securitized debt instruments. While securitization is growing at healthy rate, the security issuers and rating agencies will need to work together to ensure the risks are called out and investors are not merely looking at a rating to arrive upon a purchase consideration of the underlying security. Hence, clear disclosures are the need of the hour. This is a gradual process and will be more transparent as the securitization market matures and evolves in the financial system.
Supply chain finance is often underutilized in India. How is Vivriti working to fill gaps in the market for supplier credit, buyer finance, and other supply chain solutions?
Deep-tier financing is often not an area that all banks specialise in due to its lack of scale, its fragmentation across the supplier ecosystem, and the inherent underwriting risks associated with multiple layers in the supply chain. While banks want to focus on large engagements across their mainstream products, a super specialisation in short-tail and/or long-tail businesses depends on the risk appetite of the financing entity. Vivriti’s ability to provide a technology-based digital distribution of credit and deep integrations across the supplier, dealer, and distributor credit ecosystem coupled with just-in-time financing upon a billable event has always helped us differentiate our offerings.
Mid-market enterprises and corporates often have unique financing needs. What strategies does Vivriti employ to tailor its products like working capital loans and non-convertible debentures (NCDs) to meet these requirements?
Vivriti specialises in the mid-market space and provides services in structured financing needs for corporates. The ability to build a high-quality granular book across ~50 sectors and 415 mid-market clients and enable INR 33,000 crore in finance has been possible through our ability to originate, onboard, service, and structure deals with a technology layer facilitating a faster turnaround. Vivriti’s highly specialised teams, consisting of product specialists and business RMs, work in assessing the needs of the customer and then structure the deal.
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Vivriti recently raised $25 million for climate finance initiatives in India. Could you share more about your vision for climate finance, the types of projects you aim to support, and the impact you hope to create with this new funding?
The transaction involves debt financing through the subscription of senior secured non-convertible debentures (NCDs). The project entails the Asian Development Bank (ADB) providing debt financing for activities that qualify as climate mitigation finance. ADB proceeds will be used for lending to enterprise and retail borrowers in the electric vehicle, solar energy generation, wind energy generation, and waste management segments. At least 30% of the debt proceeds will be onlent for electric vehicle ecosystem financing, including financing of charging stations, battery swapping stations, and the purchase of new electric vehicles. As India aims to achieve net-zero emissions by 2070, it also aims to generate half of its power from renewable sources by 2030 and increase its renewable energy capacity to 500 gigawatts. We are at a pivotal point to help accelerate this transition and this capital raise couldn’t have come at a better time.
What do you see as the main challenges and opportunities for climate finance in India? How does Vivriti plan to overcome these challenges, and what partnerships are you exploring to scale these initiatives?
India needs to invest about US $10.1 trillion from 2020 through 2070 to achieve its net-zero target but conventional sources of capital are expected to provide only US $6.6 trillion, implying a huge investment gap which needs bridging. This is due to inadequate and skewed capital allocation across sectors, which is lesser known. While energy and mobility sectors receive 80% of allocated funds, sectors like agriculture, food systems, industry, steel, and cement receive inadequate funding. Social enterprises in India often struggle to access capital due to limited collateral and intricate regulatory requirements. The risks revolve around investors’ inability to commit to large sums of capital to low-carbon projects, particularly in emerging economies. Some opportunities for climate finance in India include fostering a sustainable finance ecosystem, diversifying funding sources, introducing innovative financing mechanisms and instruments, and transforming the economy to a low carbon one.
Vivriti is known for bringing innovative financial products to market. Could you tell us about any new products or models you are working on, especially in areas like securitized assets, sustainable finance, or digital lending?
Vivriti continues to focus on its existing products as part of its growth strategy. We continue to take strides in climate financing via our capital raise of US $25 million from ADB impacting key sectors as mentioned above. We continue to grow impressively across our co-lending businesses, which comprise digital and non-digital lending engagements with other regulated entities across five different asset classes.
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