[ad_1]
Chokhani Securities was renamed as U Gro Capital after Sachindra Nath – the former CEO of Religare Enterprises acquired the company in December 2017.In an interaction with Business Standard, Nath – the Vice Chairman and Managing Director of U Gro, tell Manojit Saha that the increase in interest rates are not going to impact loan demand for its customers who are mostly from micro, small and medium enterprises.
With RBI barring Mahindra Financial, do you see NBFC’s recovery getting impacted in general and U Gro in particular?
There is an unserved market and there is an underserved market. We are in the underserved market. All our customers have existing credit lines, they are credit tested. 99% of our collections are through the banking system. All our collection is in house and whatever we outsource is largely reminder systems. We don’t have to go and collect physical cheque or cash. The RBI action will impact some segments of the market but not to us. In our case most of the loans are secured against physical collaterals, immovable properties. Those are not done by agents. Recovery is mainly through the court process.
U Gro capital mainly extends loans to the small businesses, particularly to the MSME sector, and has been growing at a fast pace, though on a low base. Do you see growth momentum continuing in the second quarter also?
We have given the numbers of not just this year but all the way to 2025. Our targeted asset under management by the end of this year (FY) is slated to be Rs 7000 crore. We should be around Rs 4300 crore by September end.
Do you think rising interest rates could dampen demand for fresh loans?
The segment in which we operate, the premise is that data would be able transform the whole MSME credit in India. So that we could reach the level of consumer financing. Second, we operate in a customer segment having turnover between Rs 10 lakh to Rs 5 crore. All the 8 sectors we cater are consumption economy – healthcare, education, food processing, hospitality etc. Our view is that the transmission of interest rates is not as high as the need for credit demand for working capital and term loans. So we don’t see that as a challenge. Also a large portion of the cost implication of the interest rate hike is borne by the NBFC and not the end customers. We do not expect fresh loan rates to go up.
Your cost of funds must have increased. How much would that be compared to say May. You have recently raised funds via NCD at 10.5% interest rate. Are those cheaper than bank loans?
At the same band. As you know we are technically a three and half year old organisation. In the liability side in India, we have two parts. One you have the around 10 NBFCs who are a part of a big corporate group. Their cost of borrowing is linked to parentage. For companies like us who are standing on our own on the basis of quality of capital, governance, management team – our costs of capital would remain elevated in the first five years. It will come down gradually over a period of time. We are seeing a gradual decline in cost of funds even if interest rates are rising because our initial cost was higher.
Do you have any capital raising plan?
Given the rate of growth we have said we will raise capital. We will keep our leverage below 4 times. If we reach Rs 7000 crore of AUM of which 35% is off-balancesheet, then our incremental capital requirement would be Rs 300 crore to RS 400 crore. We will raise it in the third or fourth quarter.
Many lenders see stress in the accounts that were restructured during the Covid period from the MSME sector? What is the percentage of loans from the restructured portfolio that is stressed — where repayment is due?
We have allowed restructuring exercises for businesses where we felt revenue pick up would happen post Covid. Restructuring will not serve the purpose for the accounts which cannot survive. Our restructured portfolio is about three and half percent. Almost 90% of the portfolio is current. Within the hospitality portfolio, and a very small portion of restaurant which is unsecured – roughly around Rs 10 crore is under stress which we think would not come back.
[ad_2]
Source link
