We are planning to open 400-500 branches this year, said MR Rao, Managing Director and Chief Executive Officer, Bharat Financial Inclusion.
Talking on post demonetisation impact, Rao said all loans that company have given from January 1, 2017 are clocking a repayment rate of 99.8%.
Around 80% of our portfolio comes from rural areas and there is not much competition there, said Rao to CNBC-TV18.
Most of the fast-moving consumer goods (FMCG) companies we spoke to said that the rural areas are doing well, but there is this data that has come from the labour ministry, which clearly indicates that rural wages are rising at a falling pace, as low as 3%. Are you noticing any change at all in the rural landscape and in the demand landscape?
Basically, microfinance is a business, where there is a huge demand-supply gap; the demand is huge and the supply is limited. So, while there could be statistics showing that there has been a dip in rural wages, it is not reflecting in our offtake demand on the ground level.
We are getting a lot of applications, business is on track, we have guided for a 50% growth and the run rate of disbursals in the last two months is showing us that we will be on track to meet our growth forecast. So basically, since all our loans are for micro-enterprises, small kirana stores and so on, we have not seen any dip in demand on this front.
What could be the reason for this big surge that you are seeing in the rural market, I mean is it across the industry or is Bharat Financial getting into the gaps that have been left by say competitors like Bandhan, Ujjivan, Equitas, etc.?
It is not on account of the gap left by the competitors. They are still there in the places that we are operating. However, our unique feature has been that, we operate purely in the rural areas; 80% of our portfolio comes from rural areas and there is not much competition. Even if there is competition, one or two players, the demand-supply gap is so huge as I said, that the demand for loans continues to be very high even as we speak.
No question of any flagging of the ability to repay?
No, absolutely not. As we have stated in the past, all loans from January 1, 2017, basically, this question keeps getting asked because of the impact post demonetisation, but all loans that we have given from January 1, 2017 are clocking at a repayment rate of 99.8%. So we have been very confident that this repayment rate would come back, the demand is not going anywhere, and we have been proven right once again.
Our backdrop for asking was not demonetisation, I would assume that effect has played out by now. My reason for asking you this is, are you seeing any signs of strain if indeed rural wages are rising very slowly; I mean the number from the labour ministry is that it rose by 1.6% in January, which is really next to nothing. In real terms it would actually be lower.
That is not getting reflected on the ground because as I said, our borrowers borrow from us and run the business themselves. They do not employ people and so on and so forth. Essentially, what they trade is essentials for the day-to-day living of the population out there. So, we have not seen any dip in the demand.
How are you planning to grow the book, say over the next one to two years? Are you looking at more customer acquisitions or do you think the strategy would be to sort of have a higher ticket size?
We are consistently following the strategy for the last two years and we will continue to follow for the next two years. Bulk of our growth is going to come from fresh customer acquisition and increase in ticket, is going to be an incremental contributor, where when a customer repays one loan and goes on to the next cycle, typically he tends to take a 10-15% higher loan than the earlier loan. So, our growth is always based on fresh customer acquisition by penetrating deeper into rural areas. For example, this year, we are planning to open 400-500 branches and that will be more rural and a few new states that we are not present in.
To aid customer acquisition, will you also be looking to lower your lending rates, I mean you are still the cheapest micro loan provider in the system, I think just a couple of them are cheaper than you, but anytime in the future are you looking to lower lending rates?
Currently, there is a talk about interest rates going up. Today, we are at a 10% margin that is prescribed by the RBI. So, let us say, interest rates go up and we do not plan to increase the rates. We will continue to be at 19.75% because in the past, we have operated at 9.5% margin also. We will make up the profitability in terms of efficiencies. On the other hand, if interest rate goes down, there is a turnaround and so on, then we could potentially look at drop in interest rates.
There is no denying that you have returned to a ferocious pace of growth, your assets under management (AUM) are growing at 37%, when you last reported and disbursements at 47%. I mean it is really a huge furious growth. Will you need capital anytime soon, any plans at all?
Ideally, if the merger had, decision has not happened, it would have, probably we would have needed capital at the end of the year, because our capital adequacy would have gone down to 20%. However, we expect the merger to happen in the next few months or three or four months. So I don't think there is going to be any need to raise capital.