Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
December 2018
The SME Lending Market
A large yet untapped market opportunity
2
India represents a large, significantly underpenetrated market
One of the largest and fastest growing However, the credit to GDP ratio is still Significant government impetus and for
economies in the world much lower than other markets the growth of credit
GDP PPP – US$ Tn, Real GDP Growth Total credit to non-financial
corporations as a % of GDP ▪ Grant of universal banking, payment banking and
25.1 small finance banking licenses
20.2 160.0%
▪ Focus on financial inclusion – Jan Dhan Yojna,
99.9%
10.3 73.6% Pradhan Mantri Awas Yojana
5.5 44.8% 54.3% 49.1%
4.2 4.0 ▪ India Stack – Cashless, Paperless, Presence-less
China US India Japan Germany Russia China US India Japan Germany Russia
6.9% 2.3% 6.7% 1.3% 2.2% 0.19%
Leading to high credit growth in the country led by the NBFC sector
Bank NBFC
3
The lending market can be broadly divided into three segments…
Corporate,
-• Structural issues
Infra,
-• Higher NPA
Real Estate
-• Low Rating and Leverage
-• Long term sustainable ROE is challenged
-• No Equity Value Creation.
+• Favorable demographics
+• Increasing income
Consumer +• Increasing debt appetite
-• Faced with heavy price competition
-• Need strong capital base and long gestation period.
PSU Banks PVT. Banks NBFC
▪ ¾ of total credit ▪ Increasing NPA ▪ Diversified geographical
▪ Limited by high NPA ▪ Limited Geo. reach presence
▪ Low CAAR (Basel-III) ▪ Limited assessment ▪ Higher assessment Current Scenario Future Projection
▪ Systematic issues ability ability
▪ Limited by cost of funds
and capital investment
4
.. of which the SME segment is the most under-served
India lags behind other emerging markets when With most SMEs depending on either self
it comes to credit access for MSMEs financing or informal channels
120%
% of MSMEs that have access to credit Source of SME financing
30% 31% 100%
NBFC NBFC
PSU Category 1
Private
banks
banks
?
Difficult to understand Fragmented set of High cost of customer High dependence on Lack of
businesses/cash flows customers acquisition the ecosystem data
▪ Create broader, more customer centric ▪ Build proprietary, differentiated and ▪ Greater homogeneity leading to better
product offerings customized distribution channel understanding of risk
▪ Ability to design products that have EMIs, ▪ Better selection/appraisal of the ▪ Deep understanding of the ecosystem and
tenors, collateral customized to the distribution channel due to the dedicated hence cash flows, funding needs and risks
customer business and cash flows focus
▪ Ability to leverage data from public sources
▪ Ability to build and sell customized third ▪ Understanding of customer needs which
▪ Ability to assess macro-environment to
party products like insurance helps in ecosystem based lending strategies
build early warning systems
6
… leading to the emergence of niche, focused SME lenders in India
Product Focussed
Online Community
Focus: Loans against machinery Focus: POS Lending
AUM: INR 400+ crores AUM: ~INR 1,000 crores
Capital Raised: INR 100+ crores Capital Raised: INR 400+ crores
7
The U GRO Incarnation
The Assimilation of Aspirations
8
Reputed founder backed by marquee private equity funds
▪ After 26 years of working with large corporates, Mr. Nath decided to embark on his entrepreneurship journey by acquiring
control of a listed NBFC - Chokhani Securities Limited
▪ As the Group CEO of Religare from 2010, he had led the entire integrated financial services business of the group - SME
focused lending, Retail Broking, Life Insurance, Health Insurance, Mutual Funds, Capital Markets, Investment Banking and
Asset Management
▪ Some of his marquee achievements include successfully leading the IPO process for Religare in 2007, establishing new
businesses as well as stitching together successful joint ventures and partnerships together with global financial services
firms
▪ Mr. Nath is a qualified lawyer and a University Rank holder from the Banaras Hindu University (India)
Key Investors
9
Management team with a strong track record of execution…
Abhijit Ghosh - Chief Executive Officer Kalpesh Ojha - Chief Financial Officer
▪ Over 25 years of experience across BFSI, Consumer, Telecom, ▪ Over 20 years of experience in treasury, corporate finance, fund
healthcare raising
▪ Was the President & CBO of Religare Finvest where he managed ▪ Was the ED and CFO of Aspire Home Finance
an AUM of INR 18,000 crores and 1,500+ employees ▪ Chartered Accountant from ICAI and Masters in Financial
▪ Alumnus of Kellogg, XLRI, HAYS Group Management from JBIMS
▪ Previously worked with ▪ Previously worked with
Anuj Pandey - Chief Operating Officer Rajni Khurana - Chief Human Res. Officer
▪ Over 19 years of experience in product & strategy, P&L management, ▪ Over 18 years of experience in human resources management,
business planning, and portfolio management performance and talent development, employee engagement
▪ Over INR 12,000 crores of AUM handled ▪ Masters Degree in Human Resource Management
▪ BE from Thapar Institute and PGDM from IIM Lucknow ▪ Previously worked with
▪ Previously worked with
10
… and guided by an independent board comprising of industry stalwarts
Name Designation Description
Shachindra Nath ▪ Over 26 years of experience across lending, insurance and asset management
Executive Chairman & MD
▪ Qualified lawyer and a University Rank holder from the Banaras Hindu University (India)
Abhijit Ghosh ▪ Over 25 years of experience across BFSI, Consumer, Telecom and healthcare
Chief Executive Officer & Director
▪ Alumnus of Kellogg, XLRI and HAYS Group
Satyananda Mishra Independent Director, Head of the CSR ▪ Ex –Chairman of MCX and the Chief Information Commissioner of India
Committee ▪ Over 40 years with the Indian Administrative Services (Batch of 1973)
Rajeev K. Agarwal Independent Director, Head of the ▪ Ex-Whole time member of the SEBI
Stakeholders Committee ▪ Over 30 years of with experience with SEBI, FMC and Indian Revenue Service (Batch of 1983)
NK Maini Independent Director, Head of the Risk ▪ Ex-Deputy Managing Director of SIDBI
Management Committee ▪ Over 38 years with experience in prestigious organizations like SIDBI, UCO Bank and IDBI
Abhijit Sen Independent Director, Head of the Audit ▪ Ex-CFO of Citi, Indian sub-continent
Committee ▪ Over 20 years of experience in corporate treasury, financial planning, product control and tax
S. Karuppasamy Independent Director, Head of the ▪ Ex-Executive Director of Reserve Bank of India
Compliance Committee ▪ Over 40 years of experience with the RBI across various departments
ED & CEO
Abhijit Ghosh
Head – Policy Head - Marketing Head Treasury Regional HR (2) Corporate Channel Sector Heads (8) Company Secretary
Head - Cross-sell
12
The U Gro ethos | High levels of corporate governance
❶ Choice of a listed vehicle: High degree of regulatory oversight, transparency and the ability to create an institution for perpetuity
❷ Corporate Governance Code: The U Gro Corporate governance code that captures best practices is enshrined into the Articles of Association
▪ A Strong Board:
▪ Independent directors to comprise more than half of the Board (Currently 6 of 11 members are independent)
▪ Any shareholder holding more than 10% in the company to qualify for a board seat
▪ Key committees like NRC, Audit, Risk Management to be headed by an independent member with required credentials
▪ Auditors: Mandatory requirement for a Big 4 firm to be appointed as the statutory and internal auditors
▪ Deloitte appointed as the statutory auditor and PWC appointed as the internal auditor
❸ Organization Structure:
▪ Strategy driving structure → Unlike other NBFC start-ups, all key positions have been filled with senior individuals with more than 20 years of
relevant experience
▪ Collections head, collateral specialist, policy head appointed on day one
▪ Clear line of separation between risk/credit and the business teams to ensure independence of the risk/credit function
❹ Processes and policies: Systems and processes in place to ensure checks and balances
▪ Any loan disbursed by the Company exceeding 1% of the net worth or to a related party to require the unanimous approval of the Asset –
Liability Committee and be subject to the approval of the Board
▪ SOPs for all critical processes, board approved credit authority delegation matrix and deviations from policy to need C-level approval
13
Our journey so far | Capital raise through multiple modes…
Allotment
Dec, 2017
Aug, 2018
1994: Formation of Chokhani Raised INR 435 Cr of capital from Raised INR 112 Cr of capital from
Securities global private equity firms - ADV public market funds, insurance
1995: Listing of Chokhani Securities Partners, NewQuest and IndGrowth companies and private equity funds
2004-Present: 14 year track-record of
profitability
May, 2018
(later renamed as UGro Capital) by
Dec, 2017
| One of the only companies in the lending space to start with INR 950+ Cr of capital | The listed company structure provides access
to permanent source of capital |
14
…leading to a highly diverse shareholding structure
Calculation of Shares Outstanding Shareholding Pattern (Fully Diluted Basis, Post the demerger)
15
Our Mission
16
Our Mission
17
Our Approach
Deep sector specialization Leverage the best practices of Create an organization that
to understand, reach, and traditional NBFCs and the pro-actively address the
service the customer better modern fin-tech providers to ‘needs’ of rating agencies and
create a technology and data liability providers
centric organization
18
Know More, Grow More
Sector based approach to specialization
19
Deep analysis of macro and micro economic factors…
180+ Sectors
Demand
Working Impact of Sector specific
supply gap & Input Environmental
Capital change in government
cyclicality in risk issues
Cycle technology policy
demand
Criteria
20 Sectors
Relative
Future business Size of lending Criteria Impact of regulatory
competition
prospects opportunity developments
lending
Top 8 Sectors
An 18 month process involving extensive study of macro and micro economic parameters carried out in conjunction with market
experts like CRISIL
20
… to arrive at a set of eight sectors…
Healthcare
▪ Unlike most NBFCs that have a negative sector list, U Gro
Light
will have a positive list of sectors that we will lend to Education
engineering
Relatively lesser
Large lending Lower impact of Secular consumption Low geographical
competition from
opportunity regulatory changes driven growth concentration
banks
21
…and sub-sectors and key clusters to focus on
Key Sub-sectors: General nursing Key Sub-sectors: K-12 Schools, Play Key Sub-sectors: Dyes and pigments,
homes, eye clinics, dental clinics, Schools bulk and polymers, agro-chemicals,
diagnostic labs, radiology/pathology Key clusters: NCR, Mumbai, other chemicals (except specialty
labs, pharma retailers Coimbatore, Chennai, Hyderabad and chemicals)
Key clusters: NCR, Mumbai, Bengaluru, Pune Key clusters: Mumbai, NCR,
Hyderabad and Chennai Ahmedabad, Vadodara and Surat
Electrical equipment
Hospitality and components
Key Sub-sectors: Engine parts, drive Key Sub-sectors: Dairy and dairy Key Sub-sectors: Casting and forging,
transmission and steering parts, body products, non-alcoholic beverages, medical equipment and devices, pipes,
and chassis, suspension and breaking consumer foods, poultry, sea food, process control instruments, traders
parts, electrical parts, other food and beverage traders Key clusters: NCR, Chennai, Pune,
equipment, traders Key clusters: NCR, Mumbai, Chennai, Ludhiana, Bengaluru, Ahmedabad and
Key clusters: NCR, Mumbai, Kolkata, Hyderabad and Pune Rajkot
Hyderabad and Bengaluru
Auto components Food processing/FMCG Light engineering
22
Product Approach
23
Product Offerings
Moving beyond conventional products…
Ticket Size: INR 50 lakhs to 5 Cr Ticket Size: INR 10 to 50 lakhs Ticket Size: INR 3 to 30 lakhs
Interest rate: 10.5% to 12% Interest rate: 16% to 19% Interest rate: 13% to 15%
To create sub-sector specific products by modulating the following attributes to meet customer requirements…
24
Deep sectoral understanding leading to finely tailored solutions
Scenario: Hospitality/restaurants; franchise set up
Loan structuring ▪ 1st disbursal – Rs 50 lac security transferred to master
franchisee account – repayment to start post 6M
Ability to offer structured disbursement ▪ 2nd disbursal – Rs 1 crore to borrower for infrastructure
and repayment solutions development – repayment post 6M
▪ 3rd Disbursal – Rs 3.5 crores after 3 months of first disbursal
as a line of credit, valid for 12M, quarterly bullet repayments
Tenor
Pricing
Rate of Interest / Processing Fee
3 Repayment Frequency/
Repayment Period
Scenario: Type of collateral available in a sector
▪ ROI to vary basis the collateral available Scenario: Education
▪ Self occupied residential property to have lower ROI as ▪ Repayment frequency to match the frequency of fee receipt
compared to a vacant residential property ▪ If the fee is received once in a quarter, the EMI frequency can
▪ Education institute building/ Hospital buildings to have also be structured accordingly.
higher ROIs.
25
Illustrative Examples
Based on our sectoral capabilities, we would deliver customized solutions, faster TAT, better yields through a combination of higher loan to value and
exposure limits, vis-à-vis being a pure play LAP focused lender
Education Term loan for capacity expansion, working Promoter's experience, Number of
Schools - K12 existing branches, Type of locality
capital loan Combination of property,
Number of branches, premises owned or fees receivable
Vocational Institutes Primarily working capital loan
leased, Increase in salaries
Receivable discounting, supply chain finance, Ability to pass on price hikes, Average
Auto components
Auto term loan, working capital credit period, Discounts offered
Primarily work capital loan, working capital Location of the entity, type of dealer Combination of property,
Auto dealers
term loan (distributor, stockiest) inventory, cash flows
Auto shop traders Primarily working capital Area covered, turnaround time,
proportion of slow moving inventory
26
Distribution Approach
27
Client Acquisition Strategy
Channels Role
Direct Sales Agents
Traditional Channels
▪ Develop strong relationships with DSAs and DSA aggregators operating in target segments / geographies
▪ Driven by competitive commissions/ sales contests, faster processing, better experience, etc.
Branch Sales Team ▪ Leverage branch sales teams for customer acquisition through outreach/ walk-ins; support with technology
▪ Build targeted sales force with sector / segment experience and community understanding to ensure deep knowledge of
customers
Channels Role
Evolution of
Digital Channels ▪ Leverage third party digital origination platforms for lead sourcing, if available in specific segments the U Gro
▪ Create own digital channels – to acquire directly and as a support to own sales force distribution
▪ E.g. Partnerships with loan aggregation platforms network
New Channels
Industry Partnerships
▪ Develop partnerships in prioritized segments with key participants e.g. sector specific lenders, industry bodies
▪ E.g. Anchor led supply chain financing, partnerships with equipment suppliers
28
Distribution Network
Bangalore Chennai ▪ Analytics led pre qualification basis data available from partner platform
▪ Upfront application of underwriting rules using data-driven indicators
▪ Partner-led customer campaign with pre-populated eligibility amount/
rates
▪ Personal discussion by credit manager to be done before disbursal
Phase I - Locations
29
Credit Appraisal and Portfolio Approach
30
Credit Appraisal Process | A Three Pronged Approach
▪ Legal verification
▪ Fraud Control Unit Check
▪ Field Investigation
Final approval in ▪ Valuation
48 to 72 hours
Physical Verification/Visit Led
31
Credit Scoring Model – Currently being used by NBFCs / banks
Generic template for all companies within the SME space | Focus only on financial parameters
32
Data based decision making
Ability to front-load the entire credit assessment cycle
‘’Destination state” data infrastructure
▪ Universal data environment storing data from all source systems, such Credit evaluation
as LOS, LMS, Accounting, HRMS ▪ Borrowing and repayment history
▪ 360 degree view of financial assessment through credit bureau, ▪ Sales transaction data from
financials, banking data all coming into one platform partner platform
▪ Digitization of traditionally unstructured information such as
Personal Credit Appraisals, FI data, collateral valuation data, policy
parameters
▪ API integrations making it possible to bring a fast evolving data Verification of authenticity
ecosystem into the fold ▪ Negative database de-dups
▪ Comprehensive litigation search
▪ Other entity linkage
Collateral valuation
▪ Using places data, base property
price index & borrower profile in
the neighborhood
33
Proprietary Statistical Scorecards For Assessment At The Application Stage
Illustration of scorecard benefit: Default rate across score ranges Visible reduction in residual default rates after removing bottom 20%
Chemicals 0.90%
0.16%
Education 0.85%
0.34%
Hospitality 1.23%
0.60%
1.23%
Electrical equipments 0.49%
0.15%
0.75%
0.56% Food processing 1.20%
0.40% 0.45% 0.44%
0.26%
0.12% 0.08% Light engineering 0.74%
0.00% 0.24%
718 751 798 823 846 871 907 980 1341 1500
▪ Scorecards developed in consultation with CRIF basis 80,00,000 loans in the bureau database basis borrowing behavior
▪ Loan base selected on ‘look-alike’ basis to resemble target segments after filtering out known negative segments with high default rates
▪ Analyzed ~ 1.43L loans and more than 850 parameters
▪ Prediction of default using logistic regression method, validated statistically – GINI coefficient: 60%+, KS statistic score: 45%+
▪ Score able to eliminate ~70% of ‘bads’ by rejecting 20% of population
34
Expert Scorecards
Case A: Less than 20 bedded nursing home Case B: 20-50 bedded nursing home Case C: 50-100 bedded nursing home
Financial Facility
20% Facility 20%
Facility Financial 30%
40% 40%
Financial Operational
60% 20%
Operational
40% Operational
30%
End-to-end automation of FI initiation and completion Standard operating procedures defined for all processes
Early warning systems
End to end automation of processes to limit manual
Automated, analytics led, early warning systems basis intervention
proprietary rules framework incorporating social, sector,
macro-economic feeds
36
Fin-touch + Fin-tech
Building a Technology enabled organization
37
Hybrid Lending Model
38
The U GRO business model is backed by a “best in class” technology design…
System driven workflows at every Customized user interfaces for Cloud based architecture and
stage of the customer journey internal and external stakeholders customization-oriented design
▪ 15 different eligibility assessment ▪ 12 user categories to participate/view ▪ All rules put in configurable box – easily
templates ▪ Customized screens for collateral customizable
In place ▪ 10 product specific onboarding modules assessment, FI, FCU ▪ End-to-end workflows on system
▪ 100+ policy rules digitized ▪ Lead Management System ▪ Integration friendly design
▪ 40 APIs integrated ▪ Dedicated DSA screens ▪ Cloud based architecture
▪ 30+ credit scorecards configured
39
..to complement traditional “touch and feel” across the value chain
Client interfaces
for internal and
Customer portal and
Sales hierarchy Operations portal Reporting
external front end mobile apps Notification Engine
users
Advanced analytics/
DSA and partner apps Sales assistant Chatbots
Machine learning Web sockets
41
Liability First
The Missing Link
42
Liability Strategy
| Build loan book starting from high equity/low leverage to higher leverage over a period of time | Achieve low cost of borrowing basis high credit rating
over a period of time |
43