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Liquidity position of NBFC sector is improving: JM Financial MD

There is significant appetite for digital technology-enabled high-growth businesses in the capital market and India will witness a number of IPOs in that segment in the next few years,
Vishal Kampani, managing director at JM Financial group, tells ET in an interview. He expects demand for credit to improve with the impact of the pandemic receding, and interest rates to remain low, aided by Reserve ’s accommodative policy stance.
Edited excerpts:

What lessons can NBFCs learn from the pandemic?

The biggest lesson from the pandemic is to have a strong balance sheet. A strong balance sheet with healthy debt-to-equity ratios can absorb higher provisioning and will allow access to liquidity even in challenging markets.

What is your assessment about industry credit demand?

With the pandemic impact receding gradually, the demand for credit is likely to improve from the current levels. With RBI’s accommodative policy stance, interest rates are likely to remain low. On the infrastructure development side, growth will majorly be driven by brownfield projects. We could see rising vaccinations and an overall improvement in the economy.

Do you have any plans for the lending?

Fintech companies have smartly leveraged technology for their lending business. We continue to evaluate opportunities such as collaborating with the fintech universe and in case we find it attractive, we should look to lend to this segment.

How will a third wave of coronavirus impact the economy, if at all?

We are better equipped to deal with the third pandemic wave. The infection rate may rise but won’t be as sinister as it was in the past. The economy is expected to grow at a faster pace due to higher capital spending by the central and state governments and more project announcements are likely by the private sector.

How is the deal street bracing up for more new-age initial public offers?

We are witnessing a paradigm shift in the breadth and depth of the capital markets. There is a significant appetite for digital technology-enabled high-growth businesses in the capital markets. We will witness a number of IPOs in that segment in the next few years.

NBFCs were mired in a liquidity crisis during the pandemic. What’s the scene now?

The liquidity position of the NBFC sector in general is improving. A host of factors including adequate systemic liquidity and low funding cost leading to stable margins have helped strong NBFCs emerge from the several crises over the last few years. However, this need not be the case with smaller and lower-rated NBFCs who may have liquidity challenges.

What’s the way out?

One of the suggestions would be to allow NBFCs/HFCs (housing finance companies) access to external commercial borrowing (ECB) for construction finance for residential and commercial projects. Such ECBs should have a minimum tenor of say three years to ensure asset lending duration is matched with the available hedge.

How do you plan to align with your reclassification of business segments?

We have aligned our business segments to further sharpen the focus on our clients. The segments are investment banking, mortgage lending, alternative and distressed credit, wealth management and securities business. These businesses work closely as they deal with corporate, government, institutional, wealthy clients.

Is the current level of profitability sustainable?

Our new realignment of business segments will facilitate seamless execution of our strategy and we should be able to sustain and hopefully improve on our current level of profitability. We are a suite of diversified businesses with a mix of high cash flow generating and profitable institutional businesses and fast-growing individual customers focused businesses.

Where do you see JM Financial three years down the line?

Three years down the line I feel a lot of the businesses which we have nurtured over the last few years shall achieve scale and the existing businesses shall emerge stronger. We are investing heavily across our businesses both in terms of people and technology to leverage from the multi-decade opportunities in the sectors we operate. We would see our businesses transform through use of technology and digital tools.

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