Changing the paradigms of lending biz
By Sunitha natti | Express News Service | Published: 17th July 2017 09:35 AM |
MUMBAI: When it comes to big fat weddings, Indians are second to none. Easy money is now taking this profligacy to the next level. For those fancying a destination-wedding, or a knock-out dress and makeup by celebrity designers, or gourmet food for visitors - Tata Capital offers a first-of-its-kind ‘Wedding Loans’ to make the D-day extraordinary.
One can borrow up to Rs 10 lakh at a steep interest and repay at convenience. These are no different from the regular personal loans, but Tata Capital simply re-packaged it targeting customers in late 20s and early 30s.
“Borrowers are people who can afford to get married, but are looking for a lifetime experience to make the wedding special,” reasons Govind Sankaranarayanan, chief operating officer, retail business & housing finance, Tata Capital.
The company’s internal study last year found that mindsets were changing and as the wedding experience lasts for a life time, customers were open to indulging a bit more, provided there’s liquidity.
These are unsecured loans and, hence, conventional banks are uncomfortable lending to customers who do not own a bank account with them. But for Tata Capital, neglected segments like these can bring in more business.
Started as an NBFC in 2007, it evolved as a full-service non-banking lender with an asset book in excess of Rs 52,000 crore in less than a decade. Within this, retail loans – home loans, loans against property, loans for used cars and consumer durables, two-wheeler loans and personal loans - comprise over 60 per cent.
The market is fragmented and being a late entrant, the company has decisively narrowed its approach to unique lending.
For instance, within personal loans, it doesn’t concentrate on customers working in formal sector like, say, employees of TCS, but focuses on the next category like security guards.
Similarly, traditional banks have limited presence in used cars lending, which Tata is capitalising its strength on. Within home loans, it caters to small builders and affordable housing, where banks are now shifting focus to.
It also lends to small businesses with a ticket-size of Rs 25-60 lakh, at reasonably high interest rates of over 17 per cent. Govind believes these are important for a reason. “If you want to create jobs, it’s not going to come from corporates, which have a limitation. Jobs will come from small firms and self employee businesses and, hence, a strong focus for us,” he explains. If banks take two to three months to lend, Tata Capital puts them on fast-track disbursing within 7-10 days.
But, are these loans high-risk? According to Govind, it’s an assumption that going into areas that banks stay away from implies more risk. “But the pricing (high interest rates) compensates adequately for the risk,” he says. Plus, in the past, customer information was opaque, but now there are enough tools giving insight into customers’ earning, spending and debt servicing pattern.
Sub-segments like home loans are a relatively safe asset category, while others like consumer durable or personal loans are priced premium interest to cover the risk. In all, retail loans have low-risk compared to large, corporate loans and delinquencies are not particularly devilish. This made large banks divert management attention to consciously build retail portfolios.
“Competition has always been there, be it from home loan finance companies or NBFCs,” says Govind, who has been with the Group for over 25 years. A CA by profession, he dabbled with other financial services roles until the opportunity to set up Tata Capital opened up. “At Tata, you rarely get a chance to establish a totally new, large business. It was an exciting chance,” he recalls adding, “The group also made its single largest one-time investment of Rs 2,500 crore when we began.”
Just as the company began operations, the 2008 economic crisis rocked the financial services industry, forcing Tata Capital to slow down lending. This was followed by the 2012-13 economic slowdown in India. Later, the Tata Group changed its strategic direction, withdrawing from the banking license. “Despite the tumultuous events, we have built a new business – an important one – for Tatas,” he beams.
With plenty of players making liquidity accessible, there’s a danger that household debt could grow to worrisome levels. It’s good for the economy if individuals borrow more, but it could lead to crazy lending as seen during the US subprime crisis. But Govind insist that confident borrowing is desirable. “Borrow, but prudently and many times in succession, rather than borrowing at the same time and leveraging yourself,” he advises.