Mumbai: Fullerton India Credit Co. Ltd, the non-banking financial arm of Singapore-based $168 billion sovereign wealth fund Temasek Holdings (Pvt.) Ltd, is betting on an increase in revenue from its rural lending business, encouraged by demand for loans to start small enterprises and buy goods such as two-wheelers and small commercial vehicles.
The firm expects 25% of its loan book to originate from rural areas by 2017, up from around 15% today. This revenue contribution of this business is likely to go up to 35% by 2017 compared with 20% today, managing director and chief executive officer (CEO) Shantanu Mitra said in an interview on Wednesday.
“Rural portfolio grew by 80% this year, in which we have added 54 branches. We want to focus on rural mortgages because the growth will come from there. We are looking to grow (at) a minimum of 18% to 20%, led by rural,” Mitra said, adding that along with its lending operations, the company plans to sell small-ticket life and general insurance products in rural areas
Fullerton has 386 branches, 171 of which are in rural areas and 160 in small Tier II-IV towns. It plans to add 30 more branches in 2014-15.
The company has recovered after suffering a Rs.717 crore net loss in fiscal year 2010, as bad loans peaked at 11.25% of its loan book that year.
The company made a net profit of Rs.48 crore in the quarter ended December 2013, up 47% from Rs.33 crore in the same period last year. Disbursements during the quarter increased 25% year-on-year, according to its website.
Fullerton closed more than 400 branches in 2010-11 and shifted its focus towards secured loans. Unsecured personal loans now make up 60% of the portfolio compared with 90% in 2010-11.
Mitra said he wants to bring down the share of unsecured loans in the company’s portfolio to “the 50s”, which means increasing secured loans as it ramps up lending in rural areas.
“There is an opportunity in the rural areas which is easier to tap compared to urban India. We have a tried-and-tested model which has worked for us. Sixty percent of our loans in rural areas are verified by credit bureaus with a 99% collection efficiency so far,” he said.
However, Manish Ostwal, a senior analyst at Kisan Ratilal Choksey Shares and Securities Pvt. Ltd, doubted that borrowers in rural areas are verified by credit bureaus, even though rural demand for loans is high, driven by higher farming income.
“Sectors not linked to farming income like small-ticket personal loans and gold loans are more risky in rural areas because people do not have enough supporting documents. However, there is demand for loans there, which means borrowers are moving from money lenders to NBFCs (non-banking financial companies) to banks,” Ostwal said.
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