2020 has been an extraordinary year by any measure. It brought in its wake a globalpandemic that manifested a global recession hitherto unknown to mankind. It inducedgovernments the world over to take decisions and actions that have no global precedence.It presented tribulations for which there were no answers. It felled millions with thescythe of the Grim Reaper foisting everlasting grief on family members friends andcolleagues. It was a year which wreaked havoc on those of us lesser privileged by forcingjoblessness and unwanted impoverishment. And it was a time where corporations discoveredwhat they very were and sometimes what they could become.
Watching events unfold throughout the year we keenly targeted on what we as anorganization might do to serve our communities. We at PaisaLo aLso recognise the need toevolve and adapt to the new normal and it gives me great pleasure to teLL you that ourCompany and its numerous employees all over the country performed exceedingly well as ateam and on an individual level.
Since inception we have supported the crucial role that the banking sector plays in thecommunity through its potential for empowering people economically for enablingcorporations in realizing their vision and mission and for being a monetary bulwarkduring tough times. It was great to see that during these debilitating times the bankingsector stepped up to meet the financial challenges and it pleases me to inform you thatPaisalo in consonance with the banking sector stepped up to this chaLLenge.
As I look back on the previous year and the last almost three decades - starting from asmall office in 1992 - Paisalo has faced survived and grown despite some unexampleddistinctive and unknown challenges; not solely in terms of economic performance but alsohas grown conjointly in our dedication to assist clients and communities. FY 2020-21 wasanother strong year for Paisalo. We earned INR 3315 million in revenue and Profit afterTax (PAT) of INR 609 million reflecting strong underlying performance across ourbusiness. We saw a growth in our market share in the Co-Origination of Small PrioritySector Loan (known as Co-Lending of Loans w.e.f. 5 November 2020); and continued to makesignificant investments in our lending products people and technology while maintainingcredit discipline and our balance sheet. In total we extended credit of INR 14238million to businesses and individuals including significant number of women borrowers.
Paisalo was listed on Delhi Kanpur and Ahmedabad Stock Exchange in 1996. Our stocksare owned by DIIs FIIs Institutional Funds and directly by individual investors.However it's necessary to recollect that in the
majority of cases the final beneficiaries are the people in our communities. Severalof these are veterans teachers health-care staff retirees or those saving for a home orretirement. Your management team goes to work every day recognising and understanding theresponsibilities that we have taken on so as to maximise returns for our sharehoLders.
While we do not run Paisalo worrying about the stock price in the short run in thelong run our stock price is a measure of progress that we have made over the years. Thisprogress is a function of continual investments in our people systems and products ingood and bad times to build our capabilities. These necessary investments drive ourcompany's future prospects and position it to grow and prosper.
We have over the years represented to youour shareholdersthe essentialprinciples and techniques we use to make this companyfrom maintaining a strongCapital Adequacy Ratio (CAR) constantly investing nurturing talent fufly satisfyingregulators and continuafly improving risk to governance and controls serving customerswhile lifting up communities across India.
Adhering to these principles permits us to drive sensible organic growth and properlymanage our capital (including dividends) which we have consistently demonstrated over thepast decade.
If you look deeper you will observe that our successes and accomplishments are afunction supported on our foundational commitment to our shareholders. Shareholder valuecan be built only by maintaining a healthy and vibrant company which is an outcome ofgood job done well and constantly caring for our customers workers and communities. As wehave learnt in 2020 there are many ways an establishment can demonstrate its compassionfor its workers and its communities while still upholding stockholder value.
Ultimately the premise of our success is our people. They serve our customers andcommunities bolster technology make strategic choices manage risks verify investmentsand drive innovation. Having an excellent team of individuals - with determination domainknowledge and proven capabilities and an insatiable desire to dedicate themselves todifficult circumstances with skilled excellence - is what ensures our prosperitycurrently and in the future.
Within this letter I discuss the following:
A. Aim of a company
B. Lessons of Leadership
C. Paisalo's Competitive advantage
We need to make and maintain a heaLthy and vivacious company over the Long hauL to beabLe to contend with the uncertainties of life to invest to initiate and to grow.
To be healthy and vivacious an organisation should do several things well; it shoulddo an excellent job for customers; attract develop and retain taLented employees; andserve its communities
It is very important that all these virtues are observed with dedication because thefailure to perform any one of them with excellence may lead to the failure of all. Overthe years we have practised these efforts extensively in order to care for our customersand our workers.
To be healthy and vibrant - and to create long term shareholder value - a company mustbe financially successful over the long run.
The day for every member of Team Paisalo begins with these principles that ensures aprospering company. An organisation is as good as its team. It is imperative for us to doseveral things well to succeed and ultimately that results in making long-termshareholder value.
The problem with the people at large is the impression that too many of them interpretit to mean short quick profit taking - which ironically is the last thing that leads tobuilding real long-term shareholder value.
Businesses should earn the trust of their customers and communities by acting ethicallyand virtuously. To a company its name is everything. That name is earned day in and dayout with each interaction with customers and communities.
While all businesses differ from each other there are some fundamentals which shouldbe kept in mind like smart and easy to use products clear evaluation and pricingresponsive service and continuous innovation. Successful corporations perpetually set highstandards acknowledge their mistakes and discipline themselves.
Great companies are strict about having fair dealings with their customers. I want toremind customers clients and institutions that Paisalo is currently offering one of thecheapest and easy Loan product in the market to the bottom of pyramid of population in thecountry.
NBFCs especially have to be compelled to be rigorous regarding standards. Unlikeseveral other corporations which will merely sell you a product NBFCs should essentiallyturn down clients or enforce rules that a customer may not like (for example covenants toensure recovery amongst others). This makes open and clear dealings even a lot morenecessary.
We should always try to earn the trust of our customers and communities. Businessesshould earn the trust of their customers and communities by acting ethically andvirtuously.
When Paisalo now enters a community we take great pride in being a responsibleinstitution at the local level. We lend to and support local businesses by offering oneof the cheapest lending product in the market. Now with Paisalo becoming National BusinessCorrespondent of State Bank of India we will be able to help customers with bankinglending insurance and saving. All these initiatives will help Paisalo make thesecommunities stronger.
Most people consider corporate social responsibility to be merely enhancedphilanthropy. But it is far harder to understand what being a responsible communitycitizen means in terms of macro corporate responsibility. While we are devoted toCorporate Social Reponsibilty we have spent INR 114.73 million in the past yearsand INR 32.80 million in FY 2020-21 but corporate responsibility is far more thanthat.
We can now help not just with funding but with developing stronger and seamless bankingservice offering to the bottom of pyramid population communities and clients which canhave a greater impact on society.
a. Almost 42000 of our borrowers from amongst almost 450000 received credit at 12.4%p.a. which is one of the cheapest offerings in the market
b. We have encouraged over 30000 borrowers open Basic Savings Bank Deposit Accountby explaining through our financial literacy program about the importance and advantagesof joining mainstream banking.
c. We have encouraged 45 borrowers complete and/ or refresh their KYC details on theirKYC documents by explaining to them about the errors and omissions.
d. We have designed branches products services and digital solutions to help clientsand borrowers manage their financial lives with particular focus on bottom of pyramidpopulation.
b. Great management is crucial for the long run success of any organisation. Robustmanagement is disciplined and rigorous. Facts analysis detaiL.repeat. Complicatedactivity needs exertions and analysed ideas.
Effective business models must be developed albeit with the rider that such modelscannot be perceived as the only solution. Dynamic judgement must be considered andexcersied in matters associated with individuals and extraordinary events. You need tohave good decision-making processes. Force urgency and kill complacency. Recognise thatthere is competition in everyplace at all the time.
A good deciding process involves having the correct individuals within the area withall information shared amongst the group. There is additionally the requirement forconstant feedback and follow-up. A bad decision-making process is the path to failure. Ifnecessary review the knowledge over and over. Typically the solution is just waiting tobe foundand if you don't have to don't rush. Intuition matters and it may be theultimate deciding issue as intuition is not estimation - it is usually based on years ofexperience hard work and practice; something which can be demonstrated by Paisalo's Boardof Directors having a combined experience over 100 years.
It is useful to separate and examine actual information versus calculated numbers. Youalways learn a great deal after you dig deep into the numbersinvestigation of totalautomobile sales employment data asset quality numbers across various portfolios assetquality numbers across various postal codes the actual price of goods compared withcalculated data like gross domestic product (GDP) inflation productivity etc. Beingfaithful to this principle needs relentless disciplinewhich you can expect ofPaisalo.
Sometimes a new product or an investment should simply be considered without muchanalysis at all. Think about Paisalo adding the National Business Correspondent Service toits basket of easy financial product offering maintaining a strong technologyinfrastructure and our constant adoption of new technology like cloud servicesartificial intelligence and machine learning for credit decision making. These could belife-or-death decisions for a company. So the emphasis should be on getting the work doneproperly efficiently and quickly.
I often see individuals attempting to solve or tackle complex issues in an superficialmanner without delving into all the factors concerned. It is necessary to put out all thevariables before you begin forming an assessment to confirm that they are all rigorouslyreviewed and one's judgment isn't clouded by over-specialising. In business this kind ofassessment ought to be applied even to your competitors and to those you consider to befuture competitors similarly on your own strengths and weaknesses.
In business as in life we have a to deal with certainty and uncertainty. Astraightforward investigation in history and our economic past illustrates the ratherunpredictable nature of things. As a result at Paisalo we have developed a propensity forinvestigating all possible variables and scenarios that can possibly occur. We minutelyexamine a broad array of potentialities and possibilities to confirm all of the attainableoutcomes. Sometimes the action you take may not be the one that gives you the bestoutcome but one that resuLts in a fairLy decent outcome mitigating the possibilities of abad outcome. It also is often very difficult to capture the inflection points in theeconomy. Most people imagine the future as being roughly equivalent to the past give ortake a bit. However we know there are significant inflection points which are sometimeseasy to see in hindsight but almost impossible to predict.
In addition to the above thoughts on analysis assessment and good decision makingsome leadership lessons are equally necessary. As corporations get larger and a lot morecomplicated leaders have to be a lot of like coaches and conductors rather than pLayers.If MDs and CEOs are running a small business they will virtually be able to be concernedin just about everything and do most of the selections - they typically follow the commandand manage approach. This approach does not work as corporations get larger. Command andconstant feedback are better than command and manage approach. Here leaders provide deardirection letting people do their job including making mistakes along the way.
Leaders need to frequently learn from individuals. They need to attend sales conferenceand raise a lot of queries from their CSPs. Gather technology people in the room withbranch managers and ask about things.
In business some selections need to be done rigorously. But others such as addressingclient issues repetitional problems should be done quickly for these issues do not agewell.
It is crystal clear that progressively several banking services and product-offerings are moving out of the banking industry. Additionally lending in manyforms including joint lending group small income generations loans mortgagesstudent loans consumer loansis moving out of the banking system. Non-Banks likePaisalo are adding these to their product portfolio.
We believe that lending and financial service products combining the infrastructure ofNon-Banks like Paisalo and the Banking System is the future as proven by the State Bankof India and Paisalo Co-Origination of Small Ticket Size Priority Sector Loans as well inthe pipeline is the National Business Correspondent Service; these product tie-ups do aterrific job in easing consumer pain points and making a product or service extremelysimple and easy to use.
We cannot hyperbolise the extraordinary importance of latest technology within the newworld. Today all technology is made cloud enabled' which implies that theseapplications and their associated knowledge will run on the cloud. This brings severalextraordinary benefits. However the one that I wish to highlight is the immediate abilityto access knowledge and associate machine learning with just about unlimited reckoningcomputing power. Primarily within the cloud you have access to numerous databases andyou can deploy machine learning in secondsone thing legacy systems and databasescannot do. To travel from the legacy world to the cloud applications need to berefurbished but a lot more necessary data and knowledge should be refurbished so that itis accessible. All of this work takes time and resources but it is essential that we doit.
Paisalo already extensively uses Artificial Intelligence and Machine Learning in itscredit method and is quite successful in mitigating fraud risk management postal codeanalysis for opening new branches and efficiency improvement to great effect. We are stillin the journey to optimise and improve. All of this has helped us develop simple to useintuitive quick smart and sensible loaning products.
While we have a tendency to ceaselessly get ready for multiple business situations wewere never prepared for a worldwide pandemic that created a gargantuan blockage of theworld economy. Whereas several of our staff significantly within the branches continuedto work on our premises daily we quickly and seamlessly adapted our systems andtechnologies to allow our staff to work from home safely and securely.
In conclusion I would like to express my deepest feeling and appreciation for the staffof Paisalo. From this Letter
I hope shareholders and every reader is able to appreciate the tremendous character andcapabilities of our team members. They have faced these times of adversity head-on withgrace and courage.
I hope you are as proud of them as I am.
We sincerely hope that the global community will be able to move beyond thisunprecedented pandemic and look forward to a brighter future.
|Sunil Agarwal |
|Managing Director & Chief Executive Officer |