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    NBFC lending as consumer durable loan or personal loans have grown last quarter: Satish Pillai, TransUnion CIBIL

    Synopsis

    Largest lenders look at us for information on the same customer month on month, says Pillai

    Satish-Pillai-Transunion CBIL-1200
    NBFCs loan growth hinges on how they are replacing cash. It is not necessarily about more sales, Satish Pillai, MD & CEO, TransUnion CIBIL, tells ET Now.

    Edited excerpts:

    You analyse data with artificial intelligence. What is it telling you? When we are talking about a slowdown on visible liquidity concern on part of NBFCs, what has been your assessment for the quarter gone by?

    When you look at the quarter, it is important that it comes with the full context of the year. The growth from the NBFC standpoint for 2019 has been massive. We have seen some slowdown around the HFCs (housing finance companies) and financing on the SME side. But, there are still large amounts of NBFC lending that is done for consumption as consumer durable loan or personal loans and those things have grown in last quarter.

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    Last quarter included the Diwali and Dhanteras months. Those are very big months where auto or consumer durable financing have been massive. These things are a little transient in some ways. When we talk to lenders, they talk about external shocks and say maybe a month more is needed before they are able to open up again. The question is does this have any impact on delinquencies? That will play itself out in the next six months.

    This time, the share growth from the NBFC and credit standpoint has been that they have been able to get to the last mile customer as promised over the last year or two, three years.

    Why is the data not adding up? I am looking at auto despatch numbers, the feelers we are getting for LGs and the Samsungs of the world. They are saying it has been a dull Diwali and dull Christmas for them.

    Correct. One has to see how much of it is self financed and how much is financed by lenders. If you look at the people buying Samsung, if that number went from 100 to 105, if these lenders are replacing cash, that has been the big trend in the last two, three years.

    As borrowers, we are seeing that this is probably cheaper than cash for us to be able to get a loan, eight months’ EMI at 0% interest. When you see Bajaj and many of the others, Capital First, Home Credit, HDFC Bank, Kotak, everybody else came out with consumer durable loans. Their loan growth hinges on how they are replacing cash. It is not necessarily about more sales and that is important. It is a lot more financing that is growing and that is quite critical.

    Let us pick it segment by segment. Let us talk about the LAP book because clearly one would assume a slowdown in this so-called NBFC crisis. What are the trends that you have picked up?

    It has been covered a lot. Even two three years ago, there was a lot of conversations around LAP where bankers were not lending to small businesses. It is this working capital finance that people are financing and mortgaging their house or any property to be able to do it. It is a risky segment. We have seen the risk going up but connected to that is also the fact that home loan delinquencies are actually going up, not materially but if you start looking at a secular trend, it is slowly rising,

    There is a glut of supply from a builder standpoint, there are issues from the regulations -- including the RERA and many other things. Those things are all connected in terms of how it plays out. We look at that segment but it also depends on which player and who is exposed to that segment.

    I do not think it is a sectoral problem that has impact in terms of slowing down retail credit. It is contained at some level but we are monitoring to see if that is actually going up. We do see a slight amount of reduction in terms of the average sanctioned amount in terms of LAP to make sure that bankers are correcting for it. But like I said before, 10 years after the 2008 retail crisis, the risk managers adapted very well in terms of how they see these pressures and what to stop and what not to do.

    That slowdown is evident in autos as well, as one can see from their sales despatch numbers.

    Absolutely. It is there and if you look at the auto book, it is saying that they are still holding strong. They have the ability to manage that piece and the biggest challenge for them is that a lot of the process of underwriting for autos and two-wheelers because that is a point of sale delivery they adopt a lot of the eKYC, Aadhaar and with that change, it requires them to change a lot.

    You will start seeing the banks and NBFCs in the auto space adapting to a very different way of acquiring customers that has ramifications down the road. It does not show up in delinquencies because of the cost of acquisitions on the balance sheet of banks.

    What about the corporate side -- the MSMEs and SMEs?

    We talk about MSMEs, the micro and the small as the next big retail but underwriting the banks’ policies are going to be a lot closer to it. I am underwriting to you as a proprietor as well as the company and there is a blending of both.

    The micro where you are talking about 10 to 50 lakh type of exposure is actually growing at about 20% year-on-year. The SME side which is slightly above that, is probably growing 11-15%. The performance and NPA rates in micro is about 8% and you start thinking that is great relative to the large corporate books.

    It stays steady at 8% but any book that grows at a high clip tends to be set. So, there are opportunities for growth on the micro and the SME side and we see a lot of lenders wondering how to do it faster.

    There is no way that you can survive in a market where it takes 15 days to get a micro loan when the same amount of loan on the retail side to an individual you might actually give in a minute. That is the transformation that we are seeing but yes, the delinquencies are flat. It is an encouraging signs on the MSME side that there is a solid consistent pattern from an NPA perspective and the growth rates are pretty strong.

    The MSME segment is not growing. There is a reason to believe that the segment will make a comeback in next 6 or 12 months in a very powerful manner. Ground activity is not going to change, demand is not going to come back. This problem is only going to extend, delinquencies will only go higher and the segment will slow down further. Is it a safe assumption?

    Not necessarily. Let me clarify. You are right that there is a structural economic aspect to their ability to pay. But are they getting serviced enough? If you look at the penetration rate in SMEs -- be it proprietors, partners or partnerships, are they actually getting enough funding? The answer is no because it takes a whole lot of time.

    The source of funds for small business continue to be family. There is a still a source for organised capital to come in, in a cheaper and more effective way. The biggest things the banks are doing right now is convenient they make to borrow. If 15 to 40 days to service a loan is a bad idea and the other interesting thing that we found is nothing to do with cost, the longer a bank takes to give a loan, the worst it performs. You justify making a bad decision. I know within a day whether you are good or bad and how you underwrite those things and we are promoting a whole lot of objective information based underwriting. That does not mean you forget institutional knowledge. But that evolution has to happen in the SME side.

    How do a lot of big corporates get loan so easily?

    The answer is in the question that you asked. You ask any risk manager who has been there, they will understand instinctively. You run after a bad deal for a much longer time and then you justify and figure out how it gets done. That is the extreme part of the pendulum. I just want to make sure that people understand there are ability to take decisions. It is not only about saying yes faster but also saying no faster.

    So if all these segments are slowing down, how is it that credit cards and personal loan segment is actually seeing an uptick and stable delinquencies?

    Ability for a bank to be able to do this in real time means they are actually able to scale up the business a whole lot faster. They are able to give more loans in a shorter period of time. I will give you a context in terms of time. Actually every quarter, we add about 5 lakh crores of outstanding in retail. The number of people, actually about 20 million people get loans every quarter. It is actually close to 30 million, new people. That number in 2008, ten years ago, was dramatically different.

    There used to be about one million people applying for loans every month beginning of 2008. Right now we are doing one million in a day.

    One million loans are processed in a day?

    Within a day. We are not too far away from that. It might be in minutes where you have really small tenure loans. What has happened is that in the supply side, the ability for banks to be able to service a whole lot more is easier. Earlier, it was not possible. There could be lot of people walking into a branch for loan. You could not give loans to all of them.

    Three days you would get loan, now you get in three minutes. Some loans are also…

    Asolutely. Car and personal loans and consumer durable loans has actually become automatic. The second big thing is a lot of them are preapproved. A lot of the large banks and personal loans are not waiting for you to apply. They know when you need it and they already know you are good.

    But that is one side of the argument which is that you have made the access to loan very easy whether it is technology, whether it is big data or understanding of the consumer behaviour. But giving money is very easy. How about getting money back? Today credit card companies charge loan rate anywhere between 24% and 36%. Indians do not have a very smooth credit culture. We default on loans. Why is that despite such high growth, the delinquencies are not happening?

    You are not just looking at delinquencies. Sometimes, NPA rates are three cycles down. Too many things have happened. First part of the story is there is a joke on prior risk managers. A risk manager might work once a month when they talk about numbers, the collection managers work the entire month. The efficiency of any bank and lender or NBFCs is a function of how well that they collect and manage.

    One thing that is not known is every time you are among the top 20 lenders in India, when they give a loan for the first time, they actually pull our information but every month they ask for the information of all the customers all the time. The answer of the question is how effectively they will manage them even before they stop paying. They know they were not going to pay. How do you effectively work with them on a first present on ECS, be very specific about technicals.

    Largest lenders look at us for information on the same customer month on month, to actually know how they are changing. That is effectively how they are able to manage early delinquencies and the collection piece. Transformation happens in acquisition. Today and for the next two-three years, for me the pick focus is how collection managers are effectively using data to figure out who can be deliquent.

    Do you think retail NPA will not happen for next two or three years?

    In terms of systematic risk, the only risk that I see is the speed of individuals getting loans. The downside of ease of getting credit is that it is really easy to get credits. 8% of individuals take another loan within 30 days of getting one. It is up from about 4% three years ago. So, that number is rising.

    The amount of leverage might not matter. You make a lot of money, somebody will say you can service this loan but the fact that you took another loan from a different lender in 30 days means there is a risk that you got to look at.

    When you actually start seeing the speed of leverage, any payment hierarchies can actually fall apart and then you start seeing delays and then the collection cost of lot of the lenders may really rise.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

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    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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