See 25-30% growth over next 2-3 years: Capital First

Anuj: Quite a bit of jump in your profit and income as well. If you could tell us what kind of run rate would be feasible from here on?

A: The results by themselves are quite easy to explain because the loan book of the company has grown by about 34 percent from about Rs 8,300 crore to Rs 11,000 crore while the operating expenses have gone up by about 20 percent, the income has grown by 58 percent. So that straight translates to profitability and that is what you have seen.

When you see this going forward we feel that this Micro, Small and Medium Enterprises (MSME) business which is where we are specialising in is really largely underpenetrated in India. So for us to grow about 25-30 percent continuously over next two or three years is really not a problem.

Latha: What is the breakup of this Rs 11,000 crore? You specifically referred to MSME. How much goes to the MSME and how much to the others?

A: Our lending to the MSME sector or the retail sector in 2010 which is 3-4 years ago was only 10 percent. Now we have consciously and continuously grown at over the last four years to 84 percent. So, in other words 84 percent of this Rs 11,000 is MSME and even going forwards over the next three or four years we intend to be a purely retail play Non-Banking Financial Banking Companies (NBFC) focussed on MSME.

So, if you take a 2-4 year view don’t be surprised to see the wholesale business down to maybe 5-8 percent and largely this being a retail MSME company.

Latha: While this is a gold mine in terms of returns the MSME business since they are so completely underserved it is also an area of landmines. A lot of finance companies have burnt their fingers because MSMEs get hit first when the economy is going through a downturn. Do you have the confidence that you will be able to sift the wheat from the chaff that you will not come a cropper in some of the numbers. You are still young, it is not showing in the numbers obviously now but will you have such a clean record three years down the line?

A: Yes, you are absolutely right and this is an area we should be very careful because as compared to lending to the salaried employee where the income is very easy to just see from the payslip for the MSME customer to evaluate the cash flow is always more difficult because you have got to preen into the cash flow statements and so on. But really as you see the opportunity is large because it is relatively difficult to do is why we are perusing it, because the business won;t get commoditised for us.

We have developed some really excellent credit tools to evaluate this segment and which is why if you see Non Performing Asset (NPA) for the last four years it has stretched. The gross NPAs have been at a zone of about 50-60 basis points, net NPAs in the zone of maybe 10-20 basis points, it is held. We will continue to invest in this space of credit screening but it is a unique space we should not forget that and that is why we love this business. Credit we are conscious of, we will continue to be conscious.

Anuj: What about your overall fee income growth. What kind of growth would you anticipate over the next few quarters?

A: Both the Net Interest Income (NII) plus fee put together, like I said, is growing upward of 50 percent. We expect that on a net basis for this financial year we should post a profit of at least double over what we posted last year and as I said it is coming directly through operating leverage. So in another we posted a profit of Rs 50 crore last year, this year to post a little over Rs 100 crore is definitely in the zone and the first half itself we posted about Rs 47 crore profit. So it is not out of the ordinary to post about Rs 100 crore profit here.

Q: What will the book value look like?

A: Right now the book value is about 148 for company.