The Indian economy continues to demonstrate resilience and its undiminished ability togrow which
Ibelieveispresenting opportunity to investors.
Able and determined political leadership has implemented a series of economic andstructural reforms across core sectors that would appear to be creating the foundation forlong-term sustainable economic development and growth.
Under Prime Minister Modi's stewardship India is perceived as "a right place todo business" which has helped attract foreign investment. Not surprisingly FDI intoIndia increased by 18% in 2016 to over $46 billion at a time when global flow of FDIfell 13%. Historically India has been synonymous with delay and bureaucracy; I wouldargue this is no longer the case.
India's growing economy will continue to drive demand for credit which has surged overthe last decade and delivered a healthy 12.5% growth in FY2017. We see significantopportunity for credit expansion to micro small and medium enterprises (MSMEs) andaffordable housing segments where the access to formal financial products is still quitelow thus leading to a large demand-supply gap. Formal lending to the MSME sector is at
Rs11 trillion ($176 billion) as per recent RBI estimates whereas total demand is inexcess of
Rs32.5 trillion ($520 billion) nearly three times as much. Similarly in affordablehousing the share of formal finance is less than
10% with demand in the low and middle-income segments exceeding supply by 3 to 4times. By pursuing a mission of financial inclusion NBFCs like CGCL can play an importantrole in nation building providing credit to underserved segments of society throughbetter risk management lower cost and customised service The NBFC sector is growingfaster than and gaining market share from the traditional banking sectorespecially insmall ticket and mortgage loans. NBFCs grew at an estimated 16% rate in FY2017 and areexpected to grow at 21% in FY2018. This compares to a 5% and 8% growth rate respectivelyfor traditional bank credit. Impressively NBFCs now account for a third of the totalincremental system credit. It is likely that this market share will grow from the present15% to 18% of total system credit by FY2019.
At CGCL to drive our own growth we have developed 3 strategic focus areas. First wewant to become a trusted and preferred lending partner to micro and small enterprises.We have been innovating to become a holistic lending institution with expertise inunderstanding the unique needs of our customers. Our goal is to offer credit solutions tothese important organisations assisting in moving them into the mainstream of the Indianeconomy. We are building a robust platform that entails a branch network in MSME hubs anda direct sales force to reach deeper into geographic regions all supported by technologyand training for our lending team for higher efficiency and compliance. second we aretargeting the affordable housing segment in a major way not just through ourconstruction finance activity but also through direct retail lending to home buyers.Adequate housing for all Indians is a priority of the government through 2022 andinitiatives such as the Real Estate Regulatory Act 2016 proposed infrastructure status toaffordable housing; tax benefits to developers; and lowering the risk weights forsmall-ticket housing loans REITs etc. are all expected to boost credit growth in theaffordable housing segment.
And last but perhaps the most exciting area is the formal launching of our third-partyasset management company under the strategic alliance with Capri Investment Group(CIG) USA. The combination of favourable demographics progressive government policiesand robust economic demand is attracting global capital to India. The AMC seeks tocapitalise on these conditions through CIG's time-tested investment processes and wellresearched market strategies. Our collective approach is slow and steady havingmeticulously researched and prepared for the launching of this significant initiative overmany years. Our aim is to build a solid track record in this area and in the processdiversify CGCL's revenue and income streams.
With these 3 areas of strategic focus and CGCL's priorities firmly aligned ourobjective then becomes to deliver long term sustainable value to all stakeholders. Wewill emphasise quality and profitability over hurried growth; have a strong culture ofcompliance and research; and be sensitive to the social and economic needs of our growingcountry. CGCL's balance sheet will always be a source of our strength and with it willenable us to build a portfolio of durable assets that we believe may withstand virtuallyany stress or challenge to the economy. How we source our customers; how we assess theircredit worthiness; how we safeguard the company with ample legal and marketablecollaterals; and how we proactively monitor our loans to prevent delinquencies all willhelp ensure that CGCL's growth is anchored in sound business principles and practices.Having processes that are well documented and personnel that are well trained will furtherhelp ensure the highest quality loan origination underwriting and servicing and strictadherence to legal and regulatory compliance. Nevertheless despite our excellentoperational performance we recognise that CGCL's return on equity has been suppressedprimarily due to the lack of leverage. During the year we took $112.28 million(Rs727.85crore) of funding from banks and other financiers to capitalise opportunitiesthat our expanded footprint affords us. Our gearing is still quite low as compared toindustry standards but we will be prudent in leveraging and increase this gradually overthe next 4 to 5 years.
I therefore remain excited about our growth prospects and continue to firmly believein our leadership team as well as our highly knowledgeable and effective Board which Ihave the great privilege to lead. We are uniform in our thinking that CGCL has unlimitedpotential to serve the needs of our market and deliver value to all our stakeholders.
On behalf of my colleagues on the Board of Directors I take pleasure in applauding theinfatigable efforts of the entire team of CGCL now over 500 people for theirexceptional performance in the last financial year. I would also like to express ourgratitude to the regulators bankers and our shareholders and customers for theircontinued support. It is your support that is allowing us to build CGCL into what webelieve will become one of India's leading financial institutions.
|Yours truly |
|Quintin e. primo iii |
|Non-executive Chairman |