Interestingly, India is at an inflection point in this pursuit of prosperity. Even as the country is the fastest-growing economy, it is extensively under-borrowed. India''s debt AUM-GDP ratio at 8% compares weakly with 21% for the world. Interestingly, the once-conservative Indian has begun to borrow a larger quantum of money to finance the acquisition of properties and vehicles or set up and manage businesses.
The one thing that modern India is not borrowing for (relatively) is the purchase of financial assets (shares or mutual funds).
At Ashika Credit Capital Limited, we believe that time has come for India to start capitalising on the financing wave sweeping through the country. In 1984, the GDPs of China and India were virtually identical but three decades later, China''s GDP is ~5x that of India''s (US$11 trillion vis-a-vis US$2.6 trillion). The rapid outperformance can be narrowed down to the fact that India''s credit-GDP proportion for private nonfinance entities is 57%, while in China this is a staggering 211%. For years, as Indian savings were largely allocated towards gold and cash, China invested in financial assets and bank deposits.
The silver lining is that this trend might have begun to correct. The digitisation of the Indian economy, creation of Jan Dhan accounts, issuance of gold bonds and demonetisation are converging to do something remarkable: transferring assets from the physical to demat at a speed few have seen before. The result: following the demonetisation, currency as a percentage of the GDP declined from 12% to 10%, signalling the start of a course correction.
Besides, the demonetisation made something else happen: it moved India''s mutual fund industry into the next gear. As investors deposited more cash in their bank accounts, banks were flooded with funds. As banks reduced their rates on fixed deposits, investor money flowed into mutual funds. SIPs became immensely popular and the Indian mutual fund industry surged 30% to RS.21.45 lakh crore in September 2017 from RS.16.51 lakh crore, a year earlier.
A product that was preferred more in urban centres saw its reach spread beyond the top-15 cities. Investments from these locations rose to RS.3.79 lakh crore in September 2017 from RS.2.74 lakh crore a year earlier, a 38.5% rise.
What makes this reality compelling is that until now most NBFCs have focused on financing hard assets but not financial assets. If the speed of financing in India is to accelerate, it will need a larger number of people putting down their savings to buy into them. Similarly, it will need a larger number of people who will be encouraged to borrow to do the same. Although the former is somewhat a prevalent trend, the second is relatively nascent.
This is where a forward-looking company like Ashika Credit Capital comes into the picture. There are a number of reasons why the management believes that the financial products intermediation sector in India is at a sweet spot.
One, this is the phase during which awareness regarding financial products has reached a climactic point and the time has come to make the most of this opportunity by getting people to actually invest in them.
Two, although incomes have increased consistently during the past few years, there is still a large part of the Indian population that is wary of investing in financial instruments.
Three, in modern India, financial inclusion is not just about getting citizens to open bank accounts; it is about providing them with a diverse choice of financial instruments that enhances returns, improves liquidity and provides security.
Four, the attractiveness of this space comes largely from the growth of the country itself. India''s annual GDP growth rate makes it an attractive consumption-driven economy, which, in turn, creates a case for investing in all those sectors and companies that can capitalise on this phenomenon.
At Ashika Credit Capital, we take the case of secondary financial inclusion ahead by providing loans to investors to buy shares and create income-enhancing assets for the future.
This model has been woven around an attractive proposition in the sense that this business is synergistic with the Group''s brokerage business.
When investors seek to buy shares from our broking arm, Ashika Credit Capital provides loans, creating an effective Group synergy. The result is that the Ashika Credit Capital has helped in cementing the Group''s identity as a one-stop-solution provider.
Ashika Credit Capital mobilises funds at single-digit cost and lends in the mid-double-digits, generating an attractive net interest margin. Ashika Credit Capital addresses a large captive family of customers; the lending is against securities held as collateral with an adequate buffer that eliminates the scope of nonperforming assets. Ashika Credit Capital''s net worth of RS.410 million speaks for the credibility of the Company whereas there is no disequilibrium in the inflow and outflow of funds.
In view of these realities, the management perceives that Ashika Credit Capital is at the bottom-end of a long J-curve. Even though it earned RS.110 million in revenues during the year, it is optimistic of growing the loan book to RS.5000 million over the next two years, enhancing value for stakeholders. Ashika Credit Capital is at a dynamic phase in its existence that will generate incremental returns for stakeholders.