See strong FY17 AUM growth; small bank launch in 2016: Equitas

Equitas Holding's net profit rose 28.2 percent at Rs 46.8 crore versus Rs 36.5 crore in the fourth quarter last foscal.In an interview to CNBC-TV18, PN Vasudevan, MD of the company, said he expects steady growth in FY17 to come across all segments. He is of the view that Equitas is likely to get converted into a small bank in calendar year 2016 and expects healthy assets under management (AUM) growth in the current fiscal. However, he believes the major challenge that remains is managing the risks involved in the business rather than its growth.The company, he added, has applied for final license recently and is working to get its infrastructure in place.Below is the verbatim transcript of PN Vasudevan’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: Tell us first about the disbursements which grew at a pace of 44 percent this time at Rs 5,200 crore. What is the expectation in the first half of FY17?A: We had a good year last year. As you know we are into three main lines of business, one is microfinance which is nearly half of our loans. The used commercial vehicle finance which is about 25 percent and then the micro SME which is about 20 percent, all three of them recorded a good growth last year. This year we expect them to continue to do well. We would be transitioning in to a bank this year, but we still expect that the existing lines of business should continue to do well going forward.Latha: When is the actual transition date?A: We have completed the IPO as you know and our foreign holding has come below 50 percent which is one of the requirements to apply for the final licence with the Reserve Bank of India (RBI). About a couple of weeks back we have applied for the final licence with RBI. We expect the licence and then host of other approvals and licenses we need we got to obtain that and get our IT system and our branch infrastructure in place. So, assuming that all the approvals come on time we hope to start sometime by during this calendar year.Reema: In case there is no anti dumping duty then should we expect FY17 volumes to be similar to FY16 volumes which are rather flat and underperforming the industry growth?A: I would think that the first half of FY17 would be muted because the industry is also making bureau of Indian standards mandatory on batteries which should get implemented by July-August and that also will help mitigate the dumping from China. So even if demand is strong, volumes maybe a bit flattish for the first quarter but if you have strong monsoon and these measures do get implemented, we are looking at a very strong second half of FY17.Nigel: You are talking about anti dumping duty that has to be levied. What is the percentage that you are looking at that will help you all in terms of these cheap imports. What is the percentage?A: Since the battery value itself is very low, we are not looking at a percentage. What has happened in the past is that they have seen the cost of production of Indian manufacturers and then they impose the difference between what has been imported and the cost of production in India.Nigel: It will be something like what has happened for the steel sector. It will be like minimum import price or something like that?A: We hope that that is what will happen.Latha: Will you be able to maintain these margins that you have reported? As you convert to a bank you will have a lot of your microfinance guys wanting to open savings accounts. That is typically difficult to service. I mean a Rs 100 saving account or a Rs 500 savings account is very expensive for bank to maintain. So, should we expect that in the first couple of years your margins will fall?A: When we start the bank all our customers will definitely be opening an account with us and we would we servicing their needs. The point that we keep talking about in the office when we discuss about our clients and the need to give them a banking service, what we say is that most of them are excluded from the banking system even on liabilities. Basically because they have very small amounts and they want to put it and then they want to withdraw small amount. So, it is very difficult for any bank to kind of facilitate such transactions. What we need to do is, somebody let us say there is a lady who has just finished her job or finished her business at 6:00 in the evening and she has got Rs 50 in hand which she doesn’t need for the day is there a way she can put that Rs 50 into an account. At 6:00 in the evening and say 7:00-7:30 there is a small medical requirement. She wants Rs 40 to buy some medicine can she take Rs 40 and go and buy medicine out of that. If that transaction is enabled then there is a lot of money which is there in the system which can actually come into the banking system. That is where our whole focus will be. There is the business correspondent (BC) network that we are looking at putting in place. Each branch typically covering about 25 to 30 kilometres and each branch having about 25 BC so effectively one BC per kilometre that is a the kind of reach that we are looking at. So, if there is a one BC outlet which is every in kilometre of the area the branch covers, so for a customer the distance can never be beyond 1 kilometre in terms of reaching some banking outlet of Equitas Holding. If they can do that and they can put that money into the bank then I think both from the customer and from our perspective it will be a win-win situation. Sonia: Can you just give us the numbers then for the both disbursements and for assets under management (AUMs)? What kind of growth are you looking at in FY17?A: Last year we ended at around Rs 6,100 crore of total AUM. Our profit was about Rs 167 crore. This year as I said earlier we should continue to look for a steady growth. Last year our growth was somewhere in the range of 50-55 percent, so we should continue to look for steady growth in the current year also; though I am not in a position to give you an exact number on that but we should continue to expect a good growth this year. We are operating in segments which are still typically not very well serviced by the formal financial sector. So, the demand out there is still continuing to be very large and it is our capability to manage the portfolio quality and risk which will determine our ability to grow. So, the whole challenge really is not so much on growth but on managing the risk part of it.