Fedbank Financial Services Sees Muted Listing

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#FedbankFinancialServices lists at a discount despite being subscribed over two times. In conversation with MD & CEO Anil Kothuri about lender's loan book and growth plans. #BQLive

Transcript

00:00 is Mr. Anil Kothuri who is the MD and CEO of the company. So thank you so much for

00:04 taking all the time and speaking to us. I would like to start this conversation

00:08 right from the business aspect. Given the recent flags by the RBI on

00:12 unsecured lending, first I would like to understand what portion of your book is

00:17 the unsecured part? Okay, thanks for having me over. About 86% of our loans

00:25 are secured, 14% is unsecured. But almost all the loans that we give are for

00:31 working capital. Now the recent circular issued by the Reserve Bank talks about

00:37 lending for consumption as opposed to working capital. So we've looked at

00:43 what percentage of our loans are for consumption and they are quite actually

00:47 marginal. And the impact on tier 1 capital should be between 15 and 20

00:52 basis points. So that's really how negligible the impact of the RBI

00:56 circular is for us as far as capital is concerned. Okay, so do you plan to

01:01 continue growing in this segment or will there be a change in strategy? So

01:06 unsecured lending is part of our bouquet of products. We are here to

01:13 empower emerging India with easy access to loans which means we do working

01:18 capital loans for the small self-employed customer. This he takes

01:22 against mortgage of property, pledge of gold or on an unsecured basis. So it will

01:26 continue to be a part of our product suite. But however because the unsecured

01:31 loans tend to be of a short tenor whereas mortgage loans tend to be about

01:35 eight years behaviorally, the portfolio will comprise of a greater and greater

01:39 proportion of mortgage loans. So those are the dynamics at work. Okay, fair

01:44 enough. Thanks for that. Since I have started the topic of the RBI, I would

01:48 also like to understand from you, so the credit risk weights have been increased

01:51 recently. Are you anticipating any impact on your borrowing cost at this point? So

01:58 we are a double A company which means the risk weight for us has gone up from

02:03 30 to 55 whereas for a triple A company it's gone up from 20 to 45. So in a

02:09 strange paradoxical way, the highest impact of the increased risk weight will

02:14 happen on the highest rated companies. But having said that, there is a

02:18 spreadsheet or a calculated cost of borrowing and there's a marketplace

02:21 reality. You look at a cost of borrowing, last year we were rated double A minus

02:26 but our cost of borrowing was a full percentage point lower than double A plus

02:30 companies. Okay, so it is our belief that the reality of the marketplace

02:35 will trump you know the computation and the calculation and we will endeavor to

02:41 make that happen. Okay, and do you have a timeline in place? Is it more near

02:46 term at this point? So what happens is that now we've raised 600 crore rupees

02:51 so our borrowings will be less for the next you know three to four months. But

02:56 after that the industry would have digested this circular and we will see

03:00 you know how banks are you know going to price their loans. There will be an

03:03 impact but my sense is it should be muted. All right, okay. Thanks for that.

03:09 Sir, coming to the asset quality now, I was seeing the RHP as well. Compared to

03:16 your peers like Five Star and Aptis, your NPAs are relatively higher. I would like

03:21 to understand why is that and how do you plan to keep that in check going forward?

03:27 So first up, it's a broad continuum of loans that people offer. The loans that

03:33 we offer are of a higher ticket size than the other two companies that you've

03:37 mentioned. You know and there is a continuum. Our customers were

03:43 impacted quite disproportionately during COVID, okay, and where the logistics of

03:48 keeping businesses open and they were not able to come back from. So that has

03:53 become, that is now behind us and the portfolio quality continues to improve

03:56 on a quarter-on-quarter basis and it's large and the environment is widely

04:01 expected to be benign for the next couple of years. So we should consolidate

04:04 our portfolio quality from here on. Okay, fair enough. Thanks so much for that.

04:08 Sir, just before I close this conversation, I would really like to

04:11 understand, do you have any inorganic growth plans perhaps via small regional

04:15 players? We've spent the past five years growing from a fledgling company with an

04:22 AUM of about 1400 crores to getting listed and having an AUM of about nine and a

04:27 half thousand crores as of June, okay. So it's been quite a ride for the past five

04:32 years. We will now pause, you know, let it soak it in and let the operating

04:38 efficiencies play out over the next year, year and a half, you know, to deliver

04:42 superior financial returns for our stakeholders. We are not actively looking

04:46 out for any inorganic opportunities. If something comes on the

04:50 plateau, we will react to it in a sensible fashion. Alright, sir. Thank

04:54 you so much for joining us for this conversation. It was a pleasure having

04:57 you with us. Thank you so much.

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