One year since the re-branding and change in management, Poonawalla Fincorp is re-building its product suite for a more retail-oriented approach.
The non-bank lender which started with 2-3 products, today has an expanding suite of 12 products including recently launched categories such as personal loans, professional loans, small business loans, loans against property, medical equipment loans, machine loans, and supply chain finance.
The NBFC is now focussing on digital consumption loans, and plans to launch an EMI card, a credit card, consumer finance and merchant cash advance over the next 12-18 months, according to MD Abhay Bhutada.
“We are a young and tech-enabled NBFC, which re-booted in the most prime time of the pandemic. We are focussing on SME as well as consumer segments to build a retail franchise,” Bhutada told Business Line .
Organic Disbursements
When it took over Magma Fincorp in Jul 2021, Poonawalla Fincorp initially bought loan portfolios from some larger NBFCs, as it had discontinued some products offered earlier such as CV, tractor and rural finance; also “owing to excess system liquidity and market opportunity” available at the time.
“Now we are doing more than ₹1,000 crore of consolidated disbursements and no need to acquire any portfolio going forward,” Bhutada said.
The lender’s organic disbursements — incremental loans that are generated by Poonawalla Fincorp on its own, grew to ₹2,738 crore in Q1FY23 from ₹338 crore a year ago. Expecting this growth momentum to continue, Bhutada pegged AUM growth for FY23 at 25-30 per cent. The consolidated AUM stood at ₹17,660 crore as of Jun 30, up 22 per cent on year.
Digital lending
The ‘direct, digital and partnership models’ are key focus areas for the NBFC to drive loan growth, Bhutada said, adding that currently 40-50 per cent of the overall monthly disbursements are completely paperless.
The direct, digital and partnership channels accounted for 34.1 per cent of organic disbursements in Q1FY23 compared with 17.5 per cent in Q4FY22, and are seen growing at 30-40 per cent for the rest of the year, Bhutada said.
Poonawalla Fincorp has also tied up with e-commerce platform KrazyBee, through which the NBFC is disbursing loans of about ₹200 crore every month.
Quality of loan portfolio
As a “pure retail play”, Poonawalla Fincorp will focus on retail and MSME loans, with an eye on improving the asset quality over the next three quarters, Bhutada said adding that collections and asset quality have been improving for the last 5 quarters.
Poonawalla Fincorp aims to restrict the net NPA ratio below 1 per cent and the gross NPA ratio at below 2 per cent by the end of FY23. As of Jun 30, the gross stage 3 assets ratio was at 2.19 per cent, and the net stage 3 assets ratio was at 0.95 per cent.
The improvement is because the company has stopped riskier lending undertaken by erstwhile Magma Fincorp, and is instead targetting cash-flow and GST-based lending, and borrowers in the formalised income segments, Bhutada said.
Cost of Funds
Poonawalla Fincorp’s cost of borrowing declined in Q1FY23, attributed largely to repricing of the high cost funds raised by erstwhile Magma Fincorp through debt and asset sales; and the shift to other channels such as bank loans and capital market debt for raising funds.
While borrowing costs are expected to rise marginally over the rest of the fiscal year, Bhutada said the company will pass them on the customers as it is “still very competitive” in terms of lending rates. The non-bank lender has already increased rates on 3-4 loan products in Q1FY23.
Consolidated cost of funds for the NBFC reduced by over 50 bps on year to stand sub-7 per cent in Q1FY23. Bhutada said he expects this to stabilise around 7.25 per cent by the end of the year, adding, the 20-25 bps hike will not impact the lender’s NIM or profitability.