Expect lending activity to return to normal by Diwali: Nirmal Jain

‘There is no reason to worry too much about the raw material side of business’

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I would think that the banks have a lot of money and that hesitancy or risk aversion with NBFC is going away selectively.
Banks are willing to buy retail assets and the liquidity scenario is improving for sure, says the CEO of IIFL Finance.

How is your financials lending business doing in this environment? What is the situation right now? Has there been any improvement in the operational matrix internally?
There is a definite improvement in the lending environment and in the collection efficiency of the earlier loans. We have four products or four lines of businesses in our lending space -- gold loan, home loan, business loan and micro finance.


In gold loan, we are seeing a significant uptick and almost all the branches have opened now and the footfall has increased. Customers are coming and they are repaying their older loans and new customers are taking new loans. The gold prices have gone up significantly in the last six months. In the Covid period itself, they have gone up by 25-30%. There was a correction yesterday but that is fine. But I think the loan value of gold has gone up. There are many people whose businesses are impacted. They may not have a credit history but they are quite comfortable taking temporary finance based on gold. So that business is where we have seen that historically, losses are not there. It is liquid and solid. So you do not have to worry about it.

The second is home loan and there, the business has come back to 50-60% level of about where it was at pre-Covid. Contrary to popular perception, people are buying property homes and we are seeing a good traction there. You would have seen many newspaper articles from large property developer companies to the luxury apartments in Hyderabad but what we are seeing at ground level is, the affordable homes people have started buying and taking loans. So I would say that business is at 50-60% of normal level but is improving every day. As people are getting out of lockdown completely, we are seeing good traction there also.

Microfinance also has improved; wherever things are good in terms of lockdown environment, we are seeing good traction and good activity. There are a few places where there is lockdown in some form or the other. There microfinance is not doing too well. But almost 70-80% of the country’s microfinance activity has picked up.

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Business loan is something which is a little tricky. Most of our loans are to small shopkeepers, traders and business people. So towns and cities where lockdown has completely lifted are seeing business activity taking up and the things are getting back to normal. All I would say is that lending activity is picking up much better than many people thought a month ago and may be by Diwali we will see that things are back to normal as they were earlier.

That is a pretty confident and positive commentary coming in from you. You are saying the demand environment is relatively improving. How is the raw material environment, which is the liquidity for an NBFC, doing? What kind of dialogues are you having with public sector banks regarding the availability of liquidity to you? We are picking up that things are incrementally better but ample liquidity is still not available. In fact, there are some amount of stringent conditions in many cases. Are you witnessing that? Do you see that improving going forward?
No. The liquidity scenario has improved significantly. Not only has the liquidity improved, we are seeing that interest rates are also softening and coming down. So the transmission was not happening in the NBFC sector earlier and there was a huge divergence in AAA borrowing cost and AA lower. But in the last couple of weeks, we are seeing even that narrowing down.

As far as liquidity is concerned, government has come out with a number of schemes. So one is short term financing, which is at a lower rate. Then they have a PCG in which the bonds are taken a PCG-2 and PCG-1. So there are number of schemes and banks are also very willing and keen to buy retail assets. So we are seeing good traction and a good demand by way of direct assignment or by way of what we call PTC. By way of assignment or securitisation, banks are willing to buy retail assets and if you look at it, banks have Rs 8.5 lakh crore or now about Rs 5-6 lakh crore surplus liquidity, which they have parked with the RBI with some 3.35% or 3.25% interest which is the reverse repo rate. Obviously, they have negative carry because their weighted average cost of deposits of borrowing is more. So they are also very keen to acquire retail assets where they are comfortable with credit quality and can have assets which are yielding 8-9-10% instead of parking money at 3-3.5%. So banks are willing to buy retail assets and so liquidity scenario is improving for sure.

Now system is awash with liquidity. Maybe I would think that the banks have a lot of money and that hesitancy or risk aversion with NBFC is going away selectively. So they are looking at NBFCs case by case and processing the applications. As far as we are concerned, the liquidity situation has improved very significantly. I would say it is comfortable and at least at this point in time, there is no reason to worry too much about the raw material side of business.
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There is absolutely no working capital shortage and banks are not asking NBFCs to pay previous loans before you get new ones; all of that is not there?
Like last quarter, our loan book on aggregate was flat. So our loan growth is picking up but is still not at the full normal level. So on net-net basis, we are not increasing our loan book in a very significant way. So the incremental requirement for working capital is also relatively lower. But whatever is there, I think we are fairly comfortable.

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