Dear Shareholders and Friends
It gives me great pleasure to share with you your Company's progress in the year underreview and thoughts on the path ahead. The Company continues to consolidate and build itsretail equity & broking and wealth management businesses supported by strongmacroeconomic drivers. The Company is now also poised to scale new frontiers in otherbusiness areas that the country's changing demographics economic landscape and thedigital ecosystem present. Two major new business initiatives your Company has launchedare consumer & MSME lending and asset reconstruction businesses.
Financial year 2016-17 was a momentous year dominated by the government's decision inNovember 2016 to demonetise high denomination currency notes. Belying initialapprehensions economic activity bounced back to pre-demonetisation levels within thesubsequent March 2017 quarter. Very importantly the positive aftereffects ofdemonetisation are proving to be transformational. Digital payments' ecosystem received atremendous fillip as industry participants increased focus and investments. End-customersand businesses too readily adopted and adapted to digital transactions. Today theatmosphere in digital payments industry is charged up and is ripe for a future wheredigital distribution and fulfilment models will come to be the mainstay of retail creditand banking sectors.
Another immensely beneficial outcome of demonetisation has been the acceleration indisintermediation of Indian retail savings and investments. In a matter of three monthsdemonetisation sucked nearly ' 15 trillion of currency in circulation into the bankingsystem leading to a surge in banks' current account and savings account (CASA) balances.Since then this enormous liquidity has moved into more lucrative investments such asequity markets and mutual funds and from there into bond markets especially as banks havecut CASA interest rates.
On the larger macroeconomic front India is on very sound financial footing. Thegovernment met its fiscal deficit target of 3.5% of GDP and current account deficitcontracted to 0.7% of GDP down from 1.1% in FY 2015-16. CPI inflation for the year endingMarch 2017 stood at 3.8% and slipped further to 2.2% in June 2017. GST implementation wassmoothly accomplished and the government has been expending considerable efforts inincreasing tax compliance. Early indicators point towards a very healthy expansion in taxbase and tax collections boosting the government's ability to keep fiscal deficit incheck.
The very positive outlook for fiscal deficit contracting current account deficitfalling inflation and vastly increased bond market liquidity will ensure interest ratesremain low and the outlook benign for an extended period of time. This represents a verymarked shift for equity markets and also the lending industry where the advantage thatbanks enjoyed for the longest time in the form of low-cost CASA and deposits is now movingto non-banks through the bond markets in a low interest rate environment.
Retail Equity and Broking Business
The year saw a strong resurgence in capital markets propelled by demonetisation driveninflux of liquidity into equity and debt markets. The capital markets brought cheer asthey reached close to breaking the 30000 barrier in March 2017; finally crossing thismark in April 2017. The resounding victory of the BJP in Uttar Pradesh state electionsthe most populous and politically crucial state and the passage of the GST bill in RajyaSabha also contributed to the scaling of this peak. India can look forward to a stablepolitical regime and a continuation of economic policy.
Indiabulls Distribution Services Limite
As I write this the Real Estate Regulation Act has been rolled out effective May 12017. With this the sector is expected to be more transparent credible and attractive.With home ownership always being a priority ambition these reforms should have a positiveimpact on the sector and boost buyer confidence. Demand is expected to go up as lendingrates are expected to drop owing to surplus liquidity and lower cost of funds. YourCompany is geared up to meet this change and reap the benefits in its wealth managementbusiness.
IVL Finance Limited
Digital Driven Consumer Lending: A Lucrative Business Opportunity
The consumer lending business is propelled by favourable demographics of an aspiringpopulation supported by steady economic growth. 65% of India's 1.32 billion population isbelow 35 years of age employment opportunities in burgeoning urban centres is drivingurbanisation which is expected to rise to 40% from the present 31%. Disposable income israpidly rising and per capita income grew by 9.7% in FY 2016-17 compared with 7.4% theyear before. As an indication of the depth of the opportunity India's household debt toGDP stands at 10.6% the lowest amongst BRICS countries compared with 44.4% for China and60%+ for developed countries.
Consumer lending ecosystem has also transformed over the last decade. Credit bureaushave truly come of age and provide access to customer credit behaviour going back severalyears across all types of credit facilities availed by the customer. Detailed bureau datapermits inference of repayment behaviour amounts of EMIs serviced through the yearstypes of credit products and assets purchased - a house a car etc. Advanced analyticaltools both provided by the bureau and customised solutions developed by lenders allowconstruction of credit and behavioural scorecards. Resultantly underwriting efficacy andefficiency have vastly improved: delinquencies in consumer lending products especially inunsecured products like personal loans are at an all-time low for the industry.
Another crucial business challenge in consumer lending has been operating expenses.Here again digital channels of fulfilment are proving to be transformational. The reachmultiplies manifold and the inherent low transaction costs of a low-manpower channel isfurther pared down by scale. The government is deserving of immense credit on this front.The adoption of Aadhar platform is driving digital credit and banking transformation byenabling crucial elements such as e-signature e-payments online EMI repayment mandatesand online customer verification. Demonetisation driven push towards digital payments hasensured that these crucial elements have not remained restricted to a few marginal earlyadopters but is now actively used by the mainstream.
To tie all of this together I am very enthused by the opportunity that digital drivenconsumer lending represents. Fortuitously Indiabulls group is a reservoir of deep lendingexpertise and enjoys immense support and goodwill amongst important stakeholders likebanks and debt market participants and our long standing shareholders like yourselves.Our strong IT expertise a crucial component in all of the group's businesses has provenexecution capabilities. We are in the process of building the digital platform to addressthis vast consumer lending opportunity and this vertical is expected to significantly addto the consolidated bottom line of the Company. This business will be conducted under 'IVLFinance Ltd' a wholly owned subsidiary of your Company which is an NBFC registered withRBI.
MSME Lending: A Vast Opportunity That Has Come of Age
IVL Finance Ltd will also cater to meet the funding requirements of small and mediumbusinesses (Business Loans). There are more than 51 million medium and small enterprises(MSME) in the country employing circa 117.1 million people. 95% of these are microenterprises and the remainder 5% are small and medium enterprises. In our country MSMEsaccount for 37.5% of GDP 45% industrial output and 40% of exports. As per an IFC reportthere is a capital shortfall of ' 32.5 trillion in the MSME sector of which the debtshortfall is ' 26 trillion. Bank funding to this sector is only ' 8 trillion. Hence thisrepresents a huge opportunity.
In the MSME sector also demonetisation and GST represent transformational steps.Sections of MSMEs dominated by cash transactions have to now move to dealing throughformal banking channels and bring their transactions on- books. Clients of MSME firms willinsist on GST compliance as otherwise they will not be able to avail of tax credits andwill have to bear the entire GST burden. This will pull the MSME sector business dealingsinto the formal sphere permitting proper credit assessment. This represents an immenseopportunity and one that we are fully prepared to address.
Over the last decade data sources data availability and data quality have tremendouslyimproved. Credit bureaus and start-ups that provide access to tax data bases and customerbank accounts permit comprehensive credit assessment at computing speeds. Data solutionsand advanced analytics tools have enabled predictive analytics to anticipate customerneeds and offer tailor-made credit solutions. Analytics backed by the top-of-the-linetechnology is going to be the backbone of our lending business. Business analyticscredit scoring and credit bureau data will be used to process loan applications inreal-time.
Indiabulls Asset Reconstruction Company Ltd.
Your Company is also entering the Asset Reconstruction Business (ARC) under its whollyowned subsidiary Indiabulls Asset Reconstruction Co. Ltd (ARC). IVL as a sponsor owns100% equity in the ARC and has already infused ' 100 Crs as equity in it. I am very happyto share that we have recently been granted the Certificate of Registration (CoR) by theReserve Bank of India and the core team is already on board. We are all set to commenceoperations shortly. This business offers a very attractive opportunity given the currentthrust and resolve of the Government and RBI to resolve the stressed assets situation inthe banking industry. Here again the depth of lending and real estate expertise within theIndiabulls Group will stand us in good stead.
Corporate Social Responsibility: Indiabulls Foundation
Your Company prides itself in being a responsible corporate citizen. CSR initiativesare close to my heart and we carry along all employees of the organisation seeking theiractive participation and keeping them abreast of our CSR efforts. Indiabulls' CSR armIndiabulls Foundation has focused on areas like healthcare education art and culturenutrition sanitation and rural development. In healthcare the foundation operates 20mobile vans. The Foundation's healthcare outreach has helped diagnose and treat 765000patients to date. The Foundation conducts free cleft and palate surgeries in impoverishedrural areas of the country and 600 such successful surgeries were performed this year.
An important area of focus for the Foundation is rural education. The Foundationcontributed 1000 computers to tribal ashram schools night schools and shelter homesacross Maharashtra state. Scholarships were offered to over 600 meritorious studentsenabling them to pursue higher studies.
I wish to assure you that the organisation is hard at work rising to the opportunitiespresented across our business lines. I have every confidence that your Company willachieve a new growth trajectory and emerge as an integrated financial services providerstraddling securities third party distribution/non-discretionary wealth managementproducts consumer lending and asset reconstruction businesses. I convey my deep gratitudeto all our stakeholders including our lenders and customers for their support and theirfaith in us. I am also grateful to our regulators for their wholehearted support andguidance. I especially thank our every shareholder for your continuing confidence andfaith in us.
|Divyesh B. Shah |
|Whole-time Director & CEO |