Synopsis
Manappuram Finance aims to reduce its microfinance portfolio to below 15% of its consolidated AUM to mitigate risks associated with unsecured lending. The company will focus on secured lending such as mortgage-based MSME loans and vehicle finance while maintaining controlled growth in the microfinance sector.
Manappuram Finance has decided to bring down the share of the microfinance portfolio to below 15% of its consolidated assets under management since it is looking to cut risks associated with unsecured lending.
The Kerala-based non-bank lender provides micro loans through its subsidiary Asirvad Micro Finance, in which it owns 98%.
The share of the microfinance book stood at 21% of the group’s consolidated AUM of Rs 44,217 crore at the end of December.
“We plan to contain the MFI book within around 10%-15% of our total AUM going forward,” Manappuram promoter and managing director VP Nandakumar told analysts in a post earnings call.
“What we plan to have is to contain the growth (in microfinance business) and gradually we plan to increase our secured lending business in the overall consolidated book for gold and other non-gold secured business,” he said.
The Manappuram management has given a guidance of 10-12% growth for Asirvad to ring fence it from the stress built in the microfinance sector.
Lending to the bottom of the pyramid segment has turned trickier with rising default risks as borrowers become overleveraged reducing their capacity to repay. The gross non-performing assets ratio of the total gross microfinance loans surged to about 13% at the end of November, credit bureau data showed.
Nandakumar said the group would prioritise growing other secured businesses like mortgage-based MSME loans and vehicle finance. The group already exited unsecured business like digital personal loan and unsecured MSME lending.
“We have completely moved to secured lending in the standalone entity,” the MD said.
Asirvad’s AUM stood at Rs 10,013 crore at the end of December, as compared with Rs 10,041 crore a year ago. Sequentially, the AUM shrank about 18% from Rs 12,149 crore following the regulatory restriction on business expansion imposed from October 21 last year. The Reserve Bank of India lifted the curb on January 8.
The AUM consists of Rs 9,133 crore of micro loans, Rs 818 crore of gold loans and Rs 62 crore of MSME loans.
Asirvad suffered a loss of Rs 189 crore in the December quarter, leading to a 52% year-on-year fall in the group’s consolidated net profit at Rs 278 crore.
“In Asirvad, we have tightened the underwriting process, we have capped the maximum number of lenders, we have reduced the loan size also,” Nandakumar said.
“We are giving loans only to our good customers now, who have a good track record all these years, through branches which are seen as safer. So this way, we expect the growth segment of Asirvad will come down to around 10%-12% annually,” he added.
