As the gold business continues to evolve with new players, what sets its pioneer #ManappuramFinance apart?
In conversation with MD & CEO V.P. Nandakumar.
In conversation with MD & CEO V.P. Nandakumar.
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00:00 Hello and welcome to BQ Prime. You're joining us on Bankable, the show where we talk to
00:26 bankers as well as non-bank finance company CEOs to try and understand a little bit about
00:31 the board, the financial services businesses looking like, what are the challenges and
00:34 what are the future opportunities for the sector. Today we have another non-bank finance
00:39 company CEO joining us. I have with me Mr. V.P. Nanda Kumar, the MD and CEO of Manapuram
00:45 Finance. Mr. Nanda Kumar, welcome to this conversation. Firstly, I want to start with
00:50 your point of view on the gold loan business as it stands in 2023. What is so special about
00:55 the business today? So, India has around 9000 NBOCs. But if you take a top 50, 90% of the
01:10 portfolio AEM is managed by this company. The other is not that significant. Again,
01:17 if you look at the business models, many companies are doing gold loans. But hardly half a dozen
01:27 are known as gold loan companies. So, Manapuram is the pioneer as far as gold loan is concerned.
01:35 First gold loan NBOC in the country is Manapuram. So, we have brought several products, made
01:46 several innovations in this sector. About gold loan per se, the opportunities are very
01:53 high. The reason is, India though not a producer of gold, it is one of the biggest custodian
02:02 of family gold. And the first initiative to understand about the family gold, because
02:10 there is no clear trail about all these things. As we are the pioneer, we have undertaken
02:17 that journey, which is with WGC and all other policy makers, because this is the first document
02:26 we have created way back in 2007, when we thought of going for a capital raising. So,
02:35 at that point of time, we were the only NBOC as a gold loan. So, we engaged the Icra Management
02:43 Service or CIMAX to study about the family gold. Then they have come out with a disclosure
02:49 that, survey that, the family gold in the country can be anywhere between 18,000 to
02:56 25,000 tons. This is in 2007. And these are with families and majority of these gold are
03:07 with middle class and lower middle class, family gold. Because traditionally, they have
03:16 been investing their surplus money in gold when the banking facilities were lacking in
03:22 these areas. So, that is a traditional investment what they are holding. So, now, we see every
03:33 year and brought to the tune of around 1000 tons. So, today it can be estimated anywhere
03:39 between 35 to 50,000 tons. So, running into a couple of trillion dollars. So, when our
03:48 GDP is below for trillion, this is, this itself is valued around over 2 trillion. So, it is
03:58 very amazing. So, coming to the gold loan again, this was
04:04 the domain of not banks or not even non-bank financial services, but of unincorporated
04:12 bodies. Correct.
04:13 One brokerage in Maniland, whose number, it is very hard to estimate even, may be running
04:22 into millions. Because every nook and corner, everywhere in the state, you can see some
04:31 are within the control of state Maniland's activities, I would say, these are loosely
04:40 controlled and more than double of that is not coming to any controls, etc. So, many
04:50 of the small time jewelers, they are also selling, etc. The problem there is the usurious
04:56 rates, etc. Right.
04:58 And the practices are not transparent and so on. These are the problems. And in this
05:05 area, in this locations, if you go through the unsecured net, by the bond brokers, Manilanders,
05:16 etc., you can see usurious rates ranging around 200, 300 percent, even 900 percent. That is
05:23 the rate. Even when they have the gold, they don't use it because of religious factors,
05:34 some beliefs, etc., etc. And we have innovated and brought out a big ad campaign using film
05:43 celebrities. The message what we have brought out is, why keep gold idly? And monetize that
05:52 through loans, because of the sentiments, etc., they will not sell it. The Thali, Mangal
06:03 Sutra, or wedding ring, etc., these are the family gold. So, why you borrow when you need
06:09 money? You use this for security for borrowing and borrow at a lower rate from the formal
06:19 sector, organ sector. So, after that other players also have come. Till then, it was
06:27 seen as a distressed product. And using the celebrities, national as well as local celebrities,
06:36 from that distressed model, distressed product model, we have brought that, we have changed,
06:43 we could change to a great extent, as a lifestyle product. Then many players entered. Now, yeah,
06:51 but classified as gold loan companies still are very few in number compared to other FBOCs.
06:59 So, even with all the lending we have with the country, as per the data available, the
07:10 total jewelry used for mortgage of loan, in comparison with the family gold, is less than
07:20 5, 10 percent. So, that is the opportunity. So, now, the banks are there, corporate institutions
07:30 are there, the NBOCs are there. If you ask me whether it is going for a stiff competition,
07:39 it is, yeah, there is competition. But we need to compete using customer friendly, bring
07:49 out customer friendly products using digital innovations, etc., etc. This is how we compete.
07:58 Okay. I want to break this conversation up a little bit. First, you started with the
08:04 idea of a lot of gold stays with Indian families. I understand that you changed your pitch from
08:12 a distressed product to become a more lifestyle oriented product. But traditionally, Indians
08:19 are very attached to their gold. I mean, I know that it may work in your favor, because
08:25 chance of default therefore reduced. But just getting them to actually utilize the gold
08:31 that they have, which they are probably saving up for their children's wedding or some whatever
08:36 reason, whatever personal reasons that there might be driving this decision. Convincing
08:41 people to part with a precious item that they have holding very close. How difficult or
08:48 is easy is it when it comes to the broader Indian context? Because I know in Kerala and
08:53 certain parts of South India, this is common to use gold to access money. But it is not
09:00 the same across the country, right? Yeah, you are absolutely right. So one thing,
09:07 it is seen as a distressed product, which even the poorest of poor doesn't want to
09:14 appear before the society. Correct.
09:17 The second is, they are attaching some godly things to this. Some see this as Lakshmi's
09:30 ring, which they don't want to use it for pledging, etc. Now changing that was not that
09:39 easy. That is why in 2007, 8 etc. we came out with a very big branding about, not about,
09:53 the focus was not about Manipuram but as the product gold, as we want to make that as a
10:03 lifestyle product as I have mentioned earlier. So this has helped the other lenders also
10:09 who have subsequently entered. So the governments have come with many schemes to monetize this
10:17 gold because this is very important for the government, for the economy. But they failed
10:22 because when they announced gold deposit schemes, if you look at, hardly any family gold has
10:29 come. What has come to the deposit is the temple gold. Family gold, the reason is, this
10:40 will get melted and when it is returned, this is not in the same form.
10:46 So there is plenty of hesitation there. So for attractive family gold, this was the gold
10:56 deposit schemes were not an effective tools. But temple gold, the system would garner.
11:10 To that extent, we can say it was a good step.
11:15 So I want to pick the next question with regard to the competition aspect. Now you said that
11:19 there are banks, non-bank finance companies, we have also seen some fintechs enter the
11:24 gold loan space. What are they lacking that you already have?
11:31 See the ordinary customer, ordinary customer in the sense that our target audience which
11:39 are mostly in the lower end of the pyramid, they pledge for a shorter period and for meeting
11:49 some requirements. But it will not end there. Again the requirements will recur. Then again
11:58 come forward after a gap of 10 days, 20 days, 2 months, 3 months, etc. Seasonal requirements
12:04 like agriculture season, the children's academic reopening season, etc. So 80% of the customers
12:13 are repeat customers. So the non-banks, their borrowing cost is high, whereas banks borrowing
12:24 cost is like bigger banks. It is one-fourth of that of non-banks.
12:31 NBFCs. NBFCs.
12:33 So our rates will be naturally high compared to a bank. So the attraction as far as NBFC
12:43 is concerned, that turnaround time. As these are repeat customers, the KYC requirements,
12:51 regulatory requirements, all the requirements are already there in the system. So with the
12:55 use of technology and use of innovation in this field, particularly bringing products
13:02 like gold on can be transacted out the clock from anywhere, etc. online, we have to create
13:11 our own niche. Our niche is, our customer can, 80% of our repeat customers can leave
13:18 the counter for technology in 10 to 15 minutes time maximum. Because all the KYC, everything
13:25 is there, number is this, code is that, everything. And many of the customers send SMS.
13:32 Yeah, I am coming with 10 grams of atom and 20 grams of atom and 30 grams of atom. Yeah,
13:38 I want 30,000, 50,000, etc. He knows the rate. And our system will answer what will be available.
13:45 And if it is okay, immediately for a new pledge, etc., you can leave in 5 minutes, he comes.
13:52 So this is the thing. Going to a banking system, the challenge there is, they start late, whereas
13:59 we start at 8.30, they start at 10 o'clock. And their processes are very time consuming.
14:08 So these customers are mostly, I told about, many of them are at the bottom of the pyramid.
14:15 They are wage earners. So if the customer has to wait up to 11 o'clock, in most cases
14:21 he loses that day's wage. So taking into account of the day's wage for pledge as well as redemption,
14:29 his opportunity loss is higher going to a banking system because of the time.
14:38 And the other thing, these are all small ticket loans. See, for say, 1 month, 2 month, 3 month,
14:47 etc. So the time consumed by the bank employee, his cost, cost of the system as a whole. For
14:56 such a small loan for a shorter period, it does not work out the economics. So this is
15:05 where the operational difference between a bank and non-bank. So in order to your question
15:14 about competition, competition is there, opportunities are also there. But how do we overcome or survive
15:24 or come out successfully is through innovative products. And how to make the life of the
15:35 consumer easy. Okay. In terms of the existing ecosystem that you are working in, right,
15:46 there's a lot of focus on retail loans. And for the point that you're trying to make,
15:51 which is don't let your gold sit idle. If you need money, you can use that gold to.
15:58 Now banks and NBFCs are going after people to give them personal loans. So they don't
16:03 even need to keep the gold, they can just go to a bank and get their website or even
16:07 a mobile app today, fill in the details and they get the money into their bank account.
16:12 Does that pose a competition, the rise in unsecured assets?
16:17 In a society where the need is multifold. The requirement for cash is also increasing.
16:26 And it is gradually becoming a consumer economy. So in such a situation, the need cannot be
16:33 satisfied. So yes, personal loans are available, but these doesn't meet the actual family need.
16:45 So if they want 5 lakhs, the unsecured such loans for these people may be limited to around
16:55 1 lakh. Where do they get? So this is where the scope of gold loan. And again look at
17:06 how many people in the country has the required bureau score. Not even 10%. What about the
17:17 other 90% who have no bureau score or low bureau score? And they also have the necessity.
17:27 So this is where the service of a gold loan company, where there is no question on bureau
17:39 score, no question on cash flow. See when we assess the cash flow as a lender, many
17:48 a time we rely on documents. Even without documents also, through some assessment model
17:57 also we lend. But at least there should be something. But many of these customers would
18:05 have the cash flow, but unable to convince the lender. This is where the customer selection,
18:14 where the personal loan as well as gold loan differs.
18:19 One thing that we are seeing in the current economic setup is that there is a reduction
18:26 in the household savings. Recent data points out that we are at about a 47 year low on
18:32 financial household savings. I am not saying other, there will be other aspects of savings
18:36 as well. Financial household savings are down to about a 50 year low, 47-50 year low. Do
18:44 you feel as a lender who has been in the system for a long period of time, do you feel that
18:48 the leverage in the system has gone up significantly?
18:51 Yeah, yeah. The leverage in the system has gone up. There is an increase in the consumption.
19:03 The economy is coming out of that sort of conservative consumer economy as I mentioned
19:12 earlier. So, the earlier concept of saving and part of saving, part of that money is
19:23 used for consumption, etc. So, that culture is changing. So, EMI's have become popular.
19:31 But still what we could see, the asset quality of the BFSI sector has improved only. Even
19:40 post-COVID scenario is that. But there are signals about the asset quality going bad,
19:48 etc. in some of the sectors, etc. And regulators continuously cautioning. So, with more cautions
19:57 and controls coming in, regulators entering that scenario, etc., etc., this will be controlled.
20:06 So, even now there are many controls, but with the use of, even regulator using tools
20:14 like artificial intelligence, generate way, etc., etc., the controls would come. Because
20:22 now even though the asset quality remains high, there is a general concern about possible
20:31 decline in asset quality. So, I think the borrowing through multiple channels will be
20:41 controlled. Now, there is some control through bureaus, using bureaus. But the problem is
20:47 the data getting entered in the bureaus are not online. So, it takes time. By that time,
20:59 the credit decisions would have taken. Yeah. So, the speed is becoming a bit of a challenge
21:05 in maintaining quality. Right.
21:07 Okay. I also want to touch upon Manapuram itself. As a company, you have been through
21:14 the COVID period. After that, you know, like most other NBFCs, you had a bit of a misstep
21:19 on the asset quality front. It obviously has improved significantly now and now your portfolio
21:25 is looking very good. In fact, the last quarter numbers were also looking really strong for
21:29 you. But what was COVID those two, two and a half years like for you and how did you
21:35 sort of navigate your business through that? Our gold on business was not affected by COVID.
21:43 Our MFI also, it was also not affected. Vehicles in some of the segments were affected because
21:54 of the school buses, the transportation buses, etc. But the products like car loans, used
22:05 car, two-wheeler loans were not that affected. Now, we are coming out. Affordable housing
22:11 also that segment, some this thing was that, these assets which were part of the assets,
22:22 which was expected to turn toxic has come out.
22:27 Okay. Yeah. But one sector that was affected is microfinance.
22:33 So that sector also, we are not a reporter loss in any quarter that year also, but the
22:48 profitability has gone to, yeah. Now, the sector as a whole, the regulator also has
22:54 done several changes from the judiciary also. Some decisions of judiciary has become very
23:04 favorable for the industry. One, the net interest margin cap has been removed. That there was
23:12 a judiciary, a case was in the apex court about state's ability to control, regulate.
23:22 Yes, yes, yes. Remember this. Yeah, NBFCs as a whole, MFIs, etc. The states,
23:34 the contention has been crossed by the apex court. So in these sectors, it has come out.
23:41 So the sector has been, earlier it had a very big problem in pricing the NIMC cap at this
23:49 thing. The problem there is, it is very apex intensive business. More people are required,
23:56 going to people, etc., etc. So, and the cyclical nature of the risks involved. So, now the
24:06 industry feels like, yeah, NIMC should be improved to around 12-13 percentage. So that
24:14 we create some internal resource in order to meet up with the challenges because of
24:18 the cyclical risks involved. So it has come out. So, to the question I would answer like
24:26 this. Yeah, because of the demon, during demonetization as well as this pandemic, there was a hit
24:33 on that business, which was an unsecured business and the people who are hit the most were the
24:43 consumers there. So, the industry has come out and we have also come out very successfully.
24:50 When I asked you about how you navigate, I wanted to understand from you because a lot
24:54 of your business is actually dealing with the customer themselves, directly one on one.
24:58 So when during the pandemic for six to eight months, everything was shut. I understand
25:03 that in Kerala, the shutdown was even longer than a lot of other places. How do you deal
25:09 in a business that is so people centric during a pandemic?
25:15 So two, three risk mitigations we have. One in geographic presence, all our businesses
25:23 are spread across the country. You mentioned about Kerala, where we are headquartered.
25:30 So there our consolidated, a much consolidated business, the share of Kerala is only 5%.
25:38 The second thing, during this time, what helped us, what to, for the delivery of services
25:47 to the consumer is technology. Even before that, luckily we have introduced online gold
25:54 on schemes, etc. So during those days, when the branch counters were closed, bank counters
26:02 were closed, etc. So they could transact and one good thing which was very helpful to them,
26:11 those days the gold price has gone up because of the uncertainty, global gold price has
26:16 gone up. So in our online gold on scheme, the loan to value 75%, because the value has
26:23 increased, the 75% of that has also gone up. So this has really helped us, helped them,
26:31 the consumer. So for the company also, because of that growth then, the sustainability, even
26:43 the bottom line has not been affected.
26:47 So that uncertainty that was there during COVID is now sort of back. We have had geopolitical
26:53 tensions, now fresh geopolitical tensions are rising. Therefore, oil prices are also
26:59 shooting up. In general, there is a fear that things that were looking a little better are
27:06 now again going to go into trouble, tragedy. In these times with the volatility in gold
27:13 prices, how much of your business, I mean, I understand your business is not just gold,
27:19 you also have a sizable non-gold portfolio, but how much of that gold business gets impacted
27:24 because of these uncertainties and things basically which are out of your control. You
27:29 can't manage geopolitical tensions.
27:31 Yeah, you know, these geopolitical tensions are everybody. So this is very unfortunate,
27:40 one after another, this is impacting the society and this is also a concern for everybody.
27:49 But as far as gold loan is concerned, because of the gold price, when it increases, the
27:57 loan also is seen growing. Because naturally, the lenders in other sectors will become more
28:09 risk averse. So the products like personal loans, the lenders will be very unwary about
28:18 that. So this is an opportunity for gold.
28:23 When you're talking about the non-gold loan business, I want to touch upon that. You talked
28:27 about microfinance and what happened there during the pandemic. Now things are sort of
28:32 looking significantly better. You've also got your vehicle financing, affordable housing.
28:39 I want to understand, as a lender, is the current market a little more crowded because
28:45 of the push on retail amongst banks and NBFCs? Or do you feel that there's enough for you
28:50 to build a business as well?
28:53 Yeah, so our non-gold, non-MFI portfolio is also becoming very large. So this year, I
29:06 feel like judging from the growth over the past few months, and the trend continues,
29:15 it can cross more than 7,500 groups. So it's a sizable one. So where we rely for growth
29:27 is our own customer base. Even our diversification strategy is based on that. Why we entered
29:35 into affordable housing? Our gold loan customers are in need of home improvement or purchasing
29:42 a small house where the ticket size is around 5 to 15 lakhs. So he used to ask, even when
29:50 we were the pure gold, can you grant us a home loan? These are from the remote places
29:58 in the villages. That's why we thought, yeah, we should not drive him away. Similarly, he
30:06 started asking for two-wheeler loans or the small used car where the ticket size is average
30:14 3 lakhs, etc. Why should we drive him away? Even commercial vehicle where the average
30:20 ticket size is around 8 lakhs. So these are all, the diversification is rather need-based
30:28 as far as, based on the need of our customer to protect our customer and rather than the
30:37 product concept based on some product from the customer, value from the customer and
30:44 the service which are mutually beneficial. That is the reason for diversification. Then
30:50 we thought, yeah, we have many of our customers are from the bottom of the pyramid. They want
30:59 unsecured loans. Then we thought why can't we enter into microfinance also, where the
31:05 cross-selling opportunities are also good. This is how we diversified our business and
31:13 people look at your gold loan is safe. Why should you enter into other field? It's not
31:20 like that. Even gold loans have its own benefits and disadvantages. Disadvantages like if the,
31:29 after all it is against the metal. Metal are up for cyclical price changes. So when the
31:45 price goes down beyond a certain percentage, that risk is there. So always it is better
31:54 not to have all the eggs in one basket. Spread it and, but emphasis is more on secure business.
32:05 One question that I had was with regard to the way investors are currently seeing your
32:10 company and the stock that is there already trading in the market. About a month ago we
32:15 saw one large foreign investor sell about 10%, 9.9% stake in Manapuram. They of course
32:21 exited with a nice profit on their initial investment. But I want to understand in a
32:27 market where there, now there are a lot of financial services names where people can
32:31 bet their money on. Why should somebody come to Manapuram? So one, risk management through
32:38 diversified products. Risk management through diversification in geography, spreading across
32:45 geographies. Third, yes, if one business is muted for some time for growth because of
32:58 cyclical changes, etc., etc., the other business have some opportunity. So, cross-selling opportunity.
33:05 So what we intend to have? One, customer satisfaction. Retaining customers. With that what we intend
33:14 to achieve is a compounded growth rate, consolidated growth rate of 20% and ROE of 20%. So this
33:24 can be achieved with lesser risk because of the diversifications I have already told.
33:35 We are able to ensure a hiker of 20% with an ROE of 20%, over 20%.
33:42 Is there any other business that you want to diversify into apart from what you are
33:45 already in? Yeah, we are into insurance blocking. Gradually,
33:51 depending on the regulatory approvals, we may enter into insurance sector also.
33:59 Life? Is that something that you are looking at? You tied up with JCB recently, JVC, right?
34:09 So I am just keen on understanding this, this coal ending sort of approach. I mean, you
34:15 are, as you said, a middle layer NBFC, but a lot of smaller NBFCs are also tying up with
34:20 banks to do the coal ending sort of an agreement. Does that truly address the challenge of reaching
34:28 last mile? For the banks, not for NBFCs.
34:32 So here, this is the advantages and disadvantages of coal ending. For a player like us, where
34:45 our equity is not effectively leveraged, leverage is, compared to the industry, our leverage
34:56 is low. Yeah, there is good potential there to leverage that. Again, availability of debt.
35:03 Being a double A rated company, debt is also available as per the requirement. And we have
35:10 diversified the debt side also, liability also. In the past, we have raised debt through
35:18 overseas bonds and borrowing from mutual funds and insurance through NCDs, etc., etc. So
35:26 because of that availability of debt and equity adequately, there is no compulsion on that
35:36 front. But at the same time, going forward, the coal ending is a big opportunity. It is
35:44 good and banks are very keen to do that, to reach last mile because that helps them in
35:52 managing their cost. So we are in discussion with some of the largest
35:59 bankers and we are working out something so that at least some portion of our AEM should
36:10 be through coal ending because what we intend is, rather than any financial compulsions
36:16 now, it becomes a part of strategy in diversifying the liability.
36:24 Yeah, exactly. Because the cost of funds for you also works out to be lower that way. Makes
36:28 sense. Yeah, so last couple of questions, but I want to touch on the liability question
36:32 a little bit. So the system in general is dealing with a higher cost of fund at this
36:37 point in time, at least since last year, since the RBI started hiking rates. To your mind,
36:44 is it now done as far as the tightening cycle is concerned or are you still in the market
36:50 facing higher rates because in general there is a slight tightness in liquidity?
36:55 Yeah. Now, if you read between the lines of last AEM PC outcome, the RBI has not talked
37:09 about reversing that. The pause they said has been given with a wait and watch policy.
37:20 And after that only, the war in the West Asia has erupted. So because of the uncertainty
37:30 about the situation, there is a cloud of uncertainty. But I feel like the situation will not go
37:43 that worse, it will be controlled, etc, etc. But the chances of the policy rates going
37:56 down cannot be expected. And going up also cannot be expected in our country because
38:04 the coal inflation and even food inflation because we were worried, we had to worry about
38:11 the monsoon, etc, etc. But even though there is deficiency in some part. So I think the
38:21 agri production would meet our requirements, etc, etc. So I think the chances are, we can
38:31 expect the rates to be without much change.
38:36 Okay. Lastly, I want to tackle this question which is, there is a lot of, amongst the banks
38:43 and the NBFC segment in general, there is this hope of like a lot of growth is coming,
38:48 you know, we are entering the cycle. People will earn a better income and therefore their
38:53 financing needs will go up and that gives you an opportunity to grow your book as well.
38:58 But to your mind, what is the biggest opportunity that you're looking, that you're seeing at
39:01 this at this point in time? And what is the one challenge that you are definitely looking
39:05 out for? Just to be cautious.
39:09 Opportunity the biggest opportunity I see is the security of the business, where the
39:15 ticket size is up to 15 lakhs. There is a secured business. Then when the income level
39:28 of the poor people grows, this sector is positively impacted. It is where I see a lot of opportunities.
39:42 And where I want to have more risk management is in unsecured business, like microfinance.
39:54 So we are very cautious there also. Our maximum lending rate there is also, compared to the
40:01 industry is lower. We have kept it lower because we see increasing that, hiking that to the
40:10 market, what is seen in the market is little worrisome. So it is where we are very cautious.
40:17 We want to be very careful in lending in unsecured business.
40:22 Okay, so that's something that you will grow but not fast.
40:26 We will grow, but at the same time, it will be a very cautious growth.
40:31 All right, Mr. Nandakumar, thank you so much for your time. Pleasure talking to you, sir.
40:35 Thank you. Thank you so much.
40:36 Bye.
40:38 Bye.
40:39 Bye.
40:41 Bye.
40:42 (upbeat music)
40:44 you