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Arohan targets Rs 20,000 crore portfolio by 2027, to review capital raising plan


Arohan Financial Services took a cautious stance during the pandemic which made its gross loan portfolio stagnant around Rs 4,500 crore. Now, with the visibility of a strong economic rebound, the Kolkata-based lender is eager to back on a fast growth track. But before that, it needs to work on a capital raising plan afresh as the proposed share sell though initial public offer failed, Arohan Managing Director Manoj Kumar Nambiar told ET’s Atmadip Ray in an exclusive interview. Edited excerpts:


After deregulation of lending rates, NBFC-MFIs have started raising the rates. It was anticipated as NBFC-MFIs were facing rising credit costs and a squeeze in their margins in the last two years. But as the situation on ground improves, how is it going to shape the market?
Too much is talked about price deregulation and raising of interest rates as pricing of 70% of the microfinance sector was already deregulated. The most important aspect of the uniform microfinance regulation is credit harmonization. Borrowers monthly payout on loan repayments is being restricted to 50% of their monthly earnings. This will address the issue of over-indebtedness.

It is true that a few NBFC-MFI lenders have increased their rates, as we can now price for viability and sustainability. Accordingly, a new-to-credit customer would pay slightly higher rates, say 1% more than others. A 1% rise translates into less than Rs 10 rise (monthly) on a Rs 20,000 loan. But these new borrowers can enjoy the benefit of lower rates after a few credit cycles if they show good centre behaviour and repayment record.

Where does Arohan stand in this regard?

Arohan raised its lending rate on fresh loan disbursals to existing customers to 24% from 20.5% earlier. The issue the NBFC-MFI entities were facing was higher operating cost because of the doorstep service we provide and higher credit costs with the pandemic. Our pricing will be reviewed every quarter. Board approved policy and disclosure norms will be the key here. We at Arohan also have a center reward and loyalty program in which borrowers earn points for performance.

Please do remember that effective median rates of the deregulated entities (such as universal banks, small finance banks and non-banking finance companies) was around 24% even before the uniform regulations on microfinance was announced.

Another important aspect of the uniform regulation is that the RBI allowed lenders to sell “non-credit products”. What does “non-credit products” mean? Does it mean that RBI allowed all lenders to distribute consumer goods such as solar lamps or pressure cookers? Several NBFC-MFIs do such cross-selling against a fee. But reports from the ground show that many a time borrowers are forced to buy a product…
There is a standard advisory from self-regulatory organizations on this: lenders should not cross sell products before the loan disbursement to a new borrower. This way she is free to decide whether to buy or not without any pressure. A borrower always has the choice to go to another lender if she feels pressurized by any one lender. Ultimately competition will play out in the interests of the borrowers.

Let me shift the focus to micro issues from macro. After two years of struggle, where do you see your business going?

Well in our case, we have remained conservative during the pandemic focusing on serving our regular borrowers. Hence our gross loan portfolio has remained flat during the period. Our gross loan portfolio now stands at around Rs 4,500 crore.

Now, with the new regulations, tapering off of the pandemic and opening up of the economy, we are certainly looking to grow our book. Before the pandemic, we had a plan to cater to 20 million borrowers and grow our portfolio to Rs 20,000 crore by 2025. Now, we aim to chase the same target now by 2027. To achieve this, we need geographic expansion and add a few more products in the basket. We plan to expand in the north and west but not in the south which is already well served. There is no point looking at the southern market unless we go for inorganic expansion.

What are the new products likely in your bouquet?

On the product side, we need to add new products like home improvement loans, two-wheeler loans, loans against property etc to create a secured portion of the portfolio.

Given your business targets, you would need to raise capital. Your plan to go for an IPO did not work. Will you make a fresh application?
We will relook at the capital raising plan in our May 22 board meeting. Our current IPO ticket validity comes to an end in the last week of April. Refiling for the IPO certainly is an option as the market condition has improved. Even if we plan to seek fresh approval, the process cannot happen before mid-June. In the interim period, we may raise about Rs 150 crore. We are discussing this with our existing investors. The equity raising is likely to happen in the first quarter (April-June).

Are you planning any operational rejig or reorientation of business for a better future?

On the business architecture front, there has been a shift already to make loan disbursements cash less. We are also trying to make repayment cashless through partnerships with payments banks. About 75% of repayment is cashless with digital and business correspondents tie ups. We have set up a team of 650 people to focus on collection from the ground for customers who are 90dpd and not coming to the center.

In the guidelines for NBFCs, RBI said that after September 30, 2022 all NPA borrowers have to clear their dues fully to become regular and eligible for new loans. We have deployed our collection team to bring these overdue borrowers back into the mainstream.



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