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Interview: U GRO Capital MD Shachindra Nath says, “GDP of -23.9% should be looked at objectively and precise steps to be taken to create the demand”

In an interview with TechGraph, Shachindra Nath – Executive Chairman and Managing Director of U GRO Capital, said: “Negative growth of 23.9% of GDP for the June 2020 quarter should be looked at objectively and very well thought out, measured, and precise steps that need to be taken to create demand.”

Here’s an excerpt:

TechGraph: U GRO Capital recently launched digital products for the customer. Can we know more about it? 

Shachindra Nath: The MSME sector became capital-starved by May 2020 on account of the pandemic induced by the national lockdown. U GRO Capital since its inception was designed to be a digitally enabled FinTech platform. However keeping in mind the constraint due to the pandemic, we launched the mission of 100% Digital and embraced a new program named ‘Sanjeevani’.

Sanjeevani makes the whole borrowing experience easy and convenient in the ‘new normal’ environment i.e. without having to step out of your workplace or home. With Sanjeevani, we focused on digitizing all physical processes to offer a superior customer experience. 

The program is entirely digital involving video KYC, video Personal Discussion and digital signatures for loan disbursals, thus becoming the pioneer in the industry to go entirely contactless. The entire process can now be completed within 3-5 business days for a straight-through case.

Sanjeevani is also built on U GRO’s strong capabilities of data analytics coupled with our sector expertise and we did this by triangulating the customer turnover and cash flow of Pre & Post COVID by system analyzing customers Banking and GST and then creating a cash flow prediction depending upon the sub-sector the borrower belongs to and arriving at his ability to pay the loan in future post normalization curve.  

TechGraph: These newer segments still have room to grow. And considering your commitment towards building them, will it affect the U GRO Capital profitability runway?

Shachindra Nath: MSME as a segment of the market is not new – the credit gap in India continues to be large, however they are non-homogeneous and make it difficult for lenders to underwrite them with tolerable loss ratios. 

We are constantly evolving our digital adoption and predictability for the borrower of this segment, therefore we don’t see a challenge to our current state path.  

TechGraph: Talking about the core lending business, what is the AUM growth that you are targeting?

Shachindra Nath: As a listed company, we don’t give guidance to any future projections, however, our state mission is very clear. We would like to be among the largest small and micro-business financing platforms in the next 5 years and have at least a 1% market share. 

The current estimated outstanding MSME credit is approximately INR 10.9 Lakh Crore and is expected to grow at a rate of 12 – 15% by the end of 5 years. It should be around INR 22 lakh Crore and this should give you our vision for the next five years. 

TechGraph: NBFCs have been struggling – largely due to a lack of a stringent risk assessment model. How are you different and what are the measures undertaken by UGRO to avoid such risks? 

Shachindra Nath: At U GRO Capital, we combine deep domain expertise, data analytics, and technology to deliver a distinctive lending model that is scalable and effective in addressing risk evaluation.

To start with, after a thorough evaluation with industry experts, we identified eight sectors for the lending opportunity and the growth potential they offered based on macroeconomic credit demand and risk profiles and further zeroed in on around 38 sub-sectors. 

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After selecting the sectors and sub-sectors, we developed India’s first sector-specific digitized scorecard system called GRO Score based on commercial bureau data and analysis of the available SME loan records. 

Leveraging this data, our stout tech-based lending platform evaluates the potential SME borrowers’ cash flows, the capability to repay, and risk-return metrics to assess the loan exposure. Thanks to this technology and machine learning, we have developed our innovative risk-assessment approach, which we constantly keep evolving. 

Even during COVID times, we have tweaked our algorithms, from analyzing historical data to making predictive models to integrate the differential impact of the pandemic on the borrowers’ business. Additionally, considering and comparing customer’s repayment history and business’ cash flows will provide an ability to render effective credit assessment decisions. 

All these aspects will help us identify the requirements that need to be addressed to help MSMEs sustain their businesses during the short term and then grow once the effect of the pandemic is over. 

TechGraph: The past few months have been challenging for the businesses, how did you deal with collecting and disbursing of loans during this phase?

Shachindra Nath: The government was quick to assess the economic impact of rolling out the national lockdown and was nimble-footed in rolling out the moratorium package. 

We were the only company to extend the moratorium to 100% of our customers with an option left at the customers’ discretion to not avail it if they felt their cash-flows were stable. Hence, collections have not been a challenge. We used the period of lockdown-induced business inactivity as a tremendous opportunity to evaluate our existing systems and processes. 

We utilized this time to reflect and fill improvement gaps, which involved digitizing the operations and make all the improvements on the strategic fronts to be able to cater to the evolved needs of the MSMEs. This enabled us to bounce back strongly and help the affected businesses get back on their feet. Sanjeevani was one significant achievement of the strategic improvements with its highly evolved end-to-end digital capability.

TechGraph: What is your take on the revival of small businesses? What are the gaps that you see currently in bringing back MSMEs to growth? 

Shachindra Nath: Despite the COVID headwinds, small businesses are trying to hold their ground and sustain themselves. The government relief packages have helped some MSMEs with loans to keep them going. But, if the recovery is slow, many of them may not be able to repay and lose all the collaterals they have pledged.  

Negative growth of 23.9% of GDP for the June 2020 quarter should be looked at objectively and very well thought out, measured, and precise steps that need to be taken to create demand. 

Demand generation will go a long way to instill confidence among the MSME sector so that they can avail credit and get going with their businesses. A lot can be done to strengthen the ‘Vocal for Local’ initiative to drive demand. 

What are the suggestions that you want to give to the government on reviving MSMEs? 

Shachindra Nath: We believe that the Non-Bank Finance Sector has a big role to play in the revival and growth of MSMEs in India, as we have seen in the Micro-Finance Industry in the last few decades. The government and RBI must provide a framework wherein the liquidity flow to NBFCs focused on MSMEs should be removed. 

One way to remove this bottleneck is increasing the weightage of MSME loans in Priority Sector Loans and creating a segregated category of NBFC which are defined as NBFC – MSME, any loan from Banks to such NBFCs should qualify as Priority Sector Loan. This would create a whole new category of NBFCs catering only to MSMEs.  

TechGraph: What is your position when it comes to liquidity? 

Shachindra Nath: Given our strong balance sheet and net worth of more than INR 920 Crore, high capital adequacy of 90%, and low NPA of less than 0.5%, we have received liquidity from multiple sources and we have enough resources to service the needs of our existing and new borrowing for the entire FY21.