Poonawalla Fincorp does not see any impact on the growth of its short-term personal loan portfolio after the Reserve Bank of India’s (RBI’s) decision to increase risk weight on unsecured loans, says Managing Director Abhay Bhutada. He tells Sachin Kumar that the company has managed to keep its cost of borrowing at same levels amid hardening rates and will continue to follow a conservative lending approach. Excerpts:
What will be the impact of RBI decision to raise risk weight on unsecured loans on the growth of your short-term personal loan portfolio?
The impact of increase in risk weight on the capital adequacy has been approximately 150 basis points in current state. Even with the increase in risk weight, our debt equity ratio stands at 1.5x, while the capital adequacy is at 38% as on December 31, 2023 which is still significantly higher than the regulatory requirement of 15%.
Since we are well capitalised, we do not see any impact on the growth of our short-term personal loan portfolio. We follow a conservative and responsible lending approach and catering to only credit tested customers with bureau score of 700 and above in this segment with an average ticket size of more than 1 lakh.
The company enjoys the highest credit rating of “AAA” from CRISIL and CARE Ratings. We also have one of the lowest costs of borrowing. As per our long-term plans also, we do not expect our debt equity multiplier to go beyond 4.5x with overall AUM (Asset Under Management) CAGR of 35-40%.
What is the secured to unsecured ratio of your loan book and how does this impact risk management and overall lending strategy?
As of December 2023, our secured to unsecured mix stood at 52% to 48%, which we would like to maintain at 50% each in a steady state. We have a robust risk management framework in place across all the product lines, which has helped us in maintaining the industry leading asset quality along with a healthy growth rate. Our endeavour is to continue the same.
What would be your disbursement target for next quarter and year?
We are focused on an AUM growth 35-40% yearly as per the stated guidance.
MSME and consumer loans constitute half of your AUM, how do you plan to grow it further?
MSME (Micro, Small & Medium Enterprises) and consumer segments are both our chosen segments as per the stated vision. We are growing in both these segments through various differentiated product offerings. As of December 31, 2023 ourMSME portfolio is about 42% of our AUM, while personal and consumer finance stands at 16%. We have other focussed products of Loan Against Property (LAP) and Pre Owned Car (POC) with a share of 17% and 14% respectively. Depending on the environment and the opportunity available these products / segments will continue to grow. Further we wish to maintain healthy composition of 50:50 between secured to unsecured portfolio.
Do you expect your cost of borrowing increasing going forward?
On the liabilities side, we have seen a hardening of the rates over the last 2-3 quarters. Even then, we have been able to keep our cost of borrowings at almost the same levels as last quarter, at 7.99%, through an effective liability management strategy. If we look at our cost of borrowing movement over the last 3 quarters, the same has come down from 8.04% in Q1FY24 to sub 8% levels in Q2 & Q3FY24 despite tight liquidity conditions and higher interest rates in the system. At PFL, since approximately one third of our AUM is eligible for Priority Sector Lending, we will leverage this to minimise this impact and continue to be amongst the lowest cost fund raiser in the industry.