Assets Under Management AUM

The cost of funds has not reached its lowest level, it is still possible to fall: VP Nandakumar, MD & CEO Manappuram Finance

The resilience of the microfinance sector is evident despite the pandemic. (image file)

Manappuram Finance announced an 8.8% year-on-year drop in consolidated net income for the second quarter despite an increase in consolidated assets under management of 5.7% year-on-year to Rs 28,421.63 crore. Vice President Nandakumar, Managing Director and CEO, speaks with Rajesh Ravi on the performance and future prospects of the company. Excerpts:

Net profit declined year-over-year despite an increase in AUM?

The loan portfolio shrank in the first quarter and we only started growing after the first half of the second quarter. Second, we have lowered our prices when targeting large tickets. Previously, this was a uniform pricing for all loans. To ensure sustained growth, we have changed our strategy. Costs have also increased as employees are back and on the move. We have also increased our advertising spending and incentives.

Are you saying that there will be a squeeze on margins in the future due to competition?

Competition is only visible in the larger banknote sizes of Rs 5 lakh and above. We were losers in this segment because of the competition. With the new pricing strategy, we are gaining ground, but our return could drop by 2%.

This will be compensated by greater efficiency of the branch. We have an adequate CRAR of 32-34% and we believe we can exploit it further.

What is the outlook for the quarter and year?

We give indications of 20% in AUM and 20% in Return on Equity (ROE). The drop in profitability is a temporary phenomenon and our ROE may drop a little below 20% for a while before rebounding.

We aim not only for profitability but also for growth and this ensures the sustainability of the company. Profitability will improve within a quarter or two.

The NPA increased during the second quarter.

The NPA has progressed and we have anticipated it in advance.

There was no surprise. NPA will go down in the future.

How is the acquisition of new customers going? There is tight competition in the gold lending industry.

The demand is good and we are able to grow every day thanks to the new strategy. The collection is also improving, even in the non-gold sector. The acquisition of new customers has returned to pre-pandemic levels.

What about the cost of funds? Do you feel like he’s hit rock bottom?

No, he hasn’t hit rock bottom. Nevertheless, it is possible to reduce the cost of the fund. Our legacy NCD cost is around 10%, while our average cost of borrowing is less than 8%. For additional borrowing, our cost will drop further.

Average LTV of Your Gold Loan Portfolio?

The average LTV of our portfolio is 64% based on the current price of gold.

How are your non-gold businesses doing? Will the share of non-gold activities increase in the coming quarters?

In microfinance, collections improved and reached 93% in Q2. It could affect 96% in the third quarter.

The resilience of the microfinance sector is evident despite the pandemic. In a year or two, we may need to raise capital to grow. Some of the segments we want to develop are affordable home loans and commercial vehicle financing.

What about branch expansion?

We have submitted a request to open 100 new branches. We are strong in the south and there are many opportunities in the north, east and west parts of the country.

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