Leadership is Thinking Long Term
The Central Statistics Office (CSO) revised its estimate for 2017-18 indicating thatIndia's real Gross GDP growth rate was at 6.6% which is lower than the 7.1% growthachieved in 2016-17. The deceleration in the economy was mainly attributed to theafter-effects of demonetisation and implementation of the Goods and Services Tax (GST).The initial hiccups from the GST implementation have now been resolved and the economy isshowing signs of robust recovery. At the same time rising inflation poses a threat togrowth. Inflation had edged up to 4.87% in May 2018 from 4.58% in April 2018.Incidentally inflation was at a low of 1.46% as recently as in June 2017.
Rising inflation the risk of fiscal slippage in the run up to the general electionthe external pressure of rising global crude oil price trade protectionism and interestrate hikes by the US Federal Reserve resulted in a shift in India's monetary policy withrepo rates being hiked by 25 basis points (to 6.25%) in June 2018 the first increaseafter January 2014. With crude oil price continuing to rule firm and with emerging marketsgenerally seeing an outflow of funds given the lower risk appetite it is likely that theRBI may push through more interest rate hikes in the current fiscal year. Meanwhile thegovernment has adhered to the fiscal consolidation path so far. The fiscal deficitmarginally exceeded the target at 3.2% of GDP for 2017-18 while the target is 3.3% for2018-19. The long-term goal is to bring fiscal deficit down to 3% by 2020-21.
OUTLOOK FOR NON-BANKING FINANCIAL COMPANIES (NBFCS)
NBFCs have gained market share from the established banks as their portfolio of loansgrew at 14.9% during the first half of 2017-18 compared to 6.2% for banks. The share ofNBFCs in the total credit granted by NBFCs and banks put together rose from 9.5% in 2008to 15.5% as of March 2017 a pointer to the rising significance of NBFCs as a source offinance.
NBFCs have gained market share during the year despite the slowdown in the economyduring the first half and a sharper focus on retail loans by banks. Moreover there is nodoubt that the rise of NBFCs has helped bridge the credit gap in the country
Our OGL portfolio which is an important focus area for us now accounts for 32% of thetotal gold loan book compared to 11.9% last year. Our eKYC has been live in the branchesfor over a year now as we continue to work on developing an in-house eKYC solution. andreduced the dependence on banking institutions by providing an alternate source of financeto people and allowing lower credit rated individuals and entities access to finance.
OUTLOOK FOR GOLD LOANS
The organised gold loan market in India is expected to grow to over Rs. 3 lakh crore by2020 at a 3 year CAGR of 13.7% according to a recent KPMG report. The report mentions thatgold loan companies will increasingly address the risk of gold price volatility byoffering more variants of shorter tenure loan products of 3-6 months. Incidentally shorttenure gold loan products were first introduced by your Company in 2014. The advent of theSmall Finance Banks (SFBs) is likely to increase competition but gold loan NBFCs will beable to maintain their competitive edge by timely investments in technology andautomation. Also an analysis of the market share within the organised Indian gold loanindustry shows that gold loan NBFCs command a larger market share. Though banks offer goldloans at relatively lower interest rates NBFCs offer a better value proposition tocustomers with their exclusive focus on gold loans lower TAT flexible schemes widerbranch network and relatively longer working hours.
PERFORMANCE OF NEW BUSINESSES
Back in FY15 we took a decision to diversify our business by leveraging our vastcustomer base developed through our mainstay Gold Loans business over the years. Ourdiversification efforts are paying off as overall growth was ably supported by the robustgrowth witnessed in the new businesses. In fact the non-gold portfolio collectively grewby 59% during the year led by the commercial vehicles portfolio which more than doubledits AUM even as our microfinance subsidiary Asirvad Microfinance closed the year with a36% growth in AUM almost touching the Rs. 2500 crore mark. Put together non-goldbusinesses now contribute 25.5% of our consolidated AUM as against 18.5% last fiscal.
LEADING THE WAY DIGITALLY
In our uncertain world there is no doubt that the next phase of growth in thefinancial services sector will be driven by digitalisation. Already we have made goodprogress with some important initiatives in this direction even as other initiatives arework in process.
Our OGL portfolio which is an important focus area for us now accounts for 32% of thetotal gold loan book compared to 11.9% last year. Our eKYC has been live in the branchesfor over a year now as we continue to work on developing an in-house eKYC solution. Otherprojects under the digitalisation ambit include one where we are working with leadingsolution providers to digitise paper work in the Company. The focus is on customising ourexisting Enterprise Resource Planning (ERP) solution to achieve digitisation. We are alsogetting all our documents scanned from the Human Resources (HR) legal finance and admindepartments in a structured manner so as to achieve our goal of becoming 100% paperless.
We will shortly undertake a process rationalisation initiative wherein we willreengineer our existing processes to suit the Business Process Management (BPM) andDocument Management System (DMS) tools. On the branch operations side we are testing aRobotic Process Automation (RPA) solution for the customer on-boarding process. We areworking on image-processing software that will read off the details from standardgovernment documents such as the voter ID and PAN card so that filling up a loanapplication becomes easy. We have done work on creating secure self-serve vaults that willalmost eliminate losses due to theft and robbery. Moreover we are working on manyconsumer-facing tools that will help create digitisation of the loan processes right fromthe first step. For the customer it will mean shorter TAT and faster loan disbursal.
Simultaneously we are also increasing our digital marketing footprint. This isimportant as we diversify more into non-gold businesses. In these segments more oftenthan not the search for a product starts online and we want to be present to serve thoseneeds from the earliest stage. We are rapidly increasing our presence across varioussearch engines social media websites and display networks.
We have begun to apply analytics in all aspects of our businesses. For example in loansourcing we are consistently optimising our marketing budgets by looking at Return onInvestment (ROI) from various channels. This is an analytical exercise that requiresbenchmarking of response rates from each channel and then examining the incremental liftthat marketing spend is bringing. For cross-selling we work with bureaus to developsurrogate variables for the incomes and expenditures of our gold loan customers. Once wehave this data we should be able to apply advanced clustering techniques and affinitymodels. These methods will help us sell the right product to the right customer.
As we look to grow our non-gold portfolio we are increasingly going to underwriteloans using score cards. We are working on collecting surrogate data by analysing theirbank statements social media data etc. For portfolio risk monitoring we are furtheringour understanding of portfolio risk with early warning systems using default data andbounced cheques data. Once the system is in place it will give our risk managers a fullview of the future risk of our portfolio. Summing up if technology was hitherto seen asan enabler of business it is now set to become the driver of our business.
PERFORMANCE OF THE COMPANY
We have recorded good growth in consolidated AUM which at nearly Rs. 15800 crore isan increase of 15% over the year before. Along with the growth in AUM we have deliveredgood returns to our investors with RoA of 4.04% and RoE of 17.81%. Our net worth stands atover Rs. 3800 crore and our standalone capital adequacy is at a healthy 26.98%. Puttingit all together the picture is one of growth and profitability founded on a solidfooting of low gearing and we are well poised to further improve our performance in thecurrent fiscal year.
I am grateful to all our shareholders and all other stakeholders for the supportextended to the Company through all these many years. We are thankful to the RBI for thestability in the regulatory regime and for having done so much to bring about transparencyand improve risk management practices in the industry. I seek your continued support sothat we consistently improve our performance and fulfil our vision to emerge as a trulymulti-product NBFC meeting the very diverse financial needs of the less well-to-dosections of society.
With best wishes
MD & CEO