Medium & small firms in crying need for capital: V Vaidyanathan

Interview with Vice-chairman and Managing Director, Future Capital Holdings

For the last several quarters, Mumbai-based Future Capital Holdings (FCH) has been in the news for a stake sale. The Kishore Biyani-promoted company’s Vice-Chairman and Manging Director V Vaidyanathan, in an interview with Malvika Joshi and Raghavendra Kamath, talks about the buzz around the stake sale, its strategy and plans. Edited excerpts:

Future Capital is in the news since last few quarters because of its stake sale. What is the update on that?
As of now, there is nothing substantial to talk about. We will inform you if there is any significant development on this matter.

Biyani said Future Capital contributes to one-third of the group’s Rs 7,800-crore debt. What kind of impact do you see if the deal is delayed further?
Nothing, it is business as usual. Our networth and capital adequacy is strong. We are independently listed, are profitable. Our return on equity (ROE) has already crossed 14 per cent from six per cent, last year. We operate totally on an arm’s length basis. These facts are borne out by the rating upgrade we received last year.

How has the loan growth been in the current high-interest rate regime?
Interest rates are high, and liquidity is tight too. But mortgage continues to grow. I think about 40 per cent of book will be driven by mortgages. We are targeting a loan book of Rs 4,700 crore by this month (the end of the 2011-12 financial year). We will get to somewhere near that ˜up from about Rs 2900 crore last year.

What is the composition of your loan book?
We have a diversified loan book with major focus on retail. Retail has now become 45 per cent of our book; this is a big change for us. It has diversified our risks, and further stabilised our income. Going forward, we would like about 10 per cent of our book in two-wheelers, 10 per cent in gold, 40 per cent in micro, small and medium enterprises (MSMEs), five to 10 per cent in durable financing, 10 per cent to manufacturing industry, and the rest in wholesale.

What will be the focus areas for Future Capital?
Lending to MSMEs is our core constituency. This segment enjoys the support of regulators, banks, and even the government. MSMEs are in crying need for capital; the sector is about 40 per cent of our business. Our collection efficiency for it is near 100 per cent.

There seems to be some delay in seting up financial stores offering FCH products. Why?
Since this is a new concept in India, we deliberately took some time to refine the model and make it viable. We now have a working model; we get great footfalls here. We offer all products from these stores. We have piloted 30 stores, and are now ready for a rollout of about 100 stores in five to six months.

You also offer debt syndication facility. How has the business been?
We specialise largely in syndicating infrastructure deals, where the cash flow and the repayments are customised. We have already syndicated four loans worth Rs 700 crore in the last six months.

How is the stock broking business doing?
We had acquired this business from Centrum. It has already turned around in one year. We launched a new online model. What is unique about this model is that customers of 20 different banks can seamlessly operate through the online models.

You are also into gold loan business. What is your take on the regulations announced by the RBI?
Gold loan is under five per cent of our book, and even after full scale up, we expect it not to cross 10 per cent of our book. An LTV (loan-to-value ratio) of 60 per cent is not a problem…in fact, it may be a good mitigant for many issues.

Do you think RBI will cut repo rate in April?
Looks less likely in April. Although the government declared a clear intent through the budget to bring fiscal consolidation, the task ahead needs specific follow-up action. I believe the RBI will be look out for action taken by the government, before cutting rates now.