In many ways, 2005 was a breakthrough year for Satin Creditcare Network Ltd (SCNL), one of India's oldest microfinance companies. Following a 2004 Reserve Bank of India (RBI) guideline that altered its category for accepting deposits, it had to refund its 6,000 clients a total of Rs6 crore. It could no longer depend upon pygmy deposits from small traders and shopkeepers, as it had been doing since its inception in 1990, and had to find new ways to raise funds. It decided to approach the Small Industries Development Bank of India (SIDBI), for which it hired a consultant. "The consultant asked us what numbers should he put for the first three years. Our balance sheet was Rs6-7 crore, so we said let us put Rs6 crore this year, Rs7 crore the next year and Rs8 crore the following year," says H.P. Singh, Founder and Chairman and Managing Director. "The consultant was amused that we wanted to approach SIDBI with a business plan of Rs6 crore. I told him to do whatever he felt like. So, he put Rs25 crore for the first year, Rs50 crore for the second year and Rs100 crore for the third year. After that meeting, we burst out laughing, thinking he was out of his mind. We were not convinced that we would be able to reach that kind of scale." Singh received his first big cheque of Rs2 crore from SIDBI in 2005. This set the ball rolling. Soon, others such as ICICI Bank and HDFC Bank lined up to fund the company. Satin Creditcare did not meet the targets set by the consultant, but in 2008, its balance sheet had grown over six-fold to Rs40 crore.
"SIDBI was already looking for somebody doing microfinance in North India. Once it came on board, others followed," he says. "There was a herd mentality in microfinance. Wherever one bank went, the others followed. So, if you open one door, it leads to many more doors opening for you." Singh has been successful in opening several doors over the years.
A chartered accountant by vocation, he started out as an internal auditor for Shriram Honda, in the late 1980s. The company was struggling to sell gensets in Delhi's Trans-Yamuna area, where banks and financial institutions were reluctant to lend. Singh saw an opportunity. He borrowed Rs50,000 from his father, who had just retired, in 1990, and started financing shopkeepers under what is today known as the daily collection method.
"They used to technically buy or lease gensets from us and pay daily instalments. Our agent collected Rs50 from each shop every day. The genset cost Rs9,300. We would recover our money in 180 days," says Singh. "That was easy for traders too. Once they had gensets, they wanted loans for something else, as paying daily instalments had become a habit. So, we started giving loans for two-wheelers and later for working capital. That was microfinance, though we were not aware of it then."
The company is today among the biggest in the business with nearly 2.6 million clients, 701 branches in 16 states, 7,000 employees and assets under management - a key parameter for microfinance companies - of Rs3,736 crore. It is one of the few microfinance companies to be listed on the Bombay Stock Exchange (since August 2016); this gives it extra points for credibility in a sector hit by multiple scams. In the third quarter of 2016/17, when the industry went through severe stress due to demonetisation, Satin reported a 13 per cent rise in net profit and 52 per cent rise in revenues over the previous year.
"This is our biggest crisis. Cash is the raw material for our sector," he says. "People have lost their livelihood. Businesses are reporting lesser incomes. For them the first priority is survival. Business or repayment of loans come later. If there is no currency, what can anybody do? It was literally mayhem. We started with 15 per cent collection in November. Thankfully, we have reached 85-90 per cent overall now. It will take us another month-and-a-half to go back to normal, but the worst is behind us."
The company remains a favourite with the investor community with most brokerage houses having a "Buy" rating on it, though some analysts point at the concentration of business in three states - Uttar Pradesh, Bihar and Madhya Pradesh - as a potential risk. "It is exposed to regional concentration risk as its operations in the three states account for 69.79 per cent business; UP alone is 34.4 per cent of the portfolio," says Ankita Sehgal, Senior Manager, Care Ratings. "Although the company has been able to maintain good asset quality so far with gross NPA and net NPA ratios at 0.24 per cent and 0.12 per cent, respectively, it's collection efficiency has been hit by demonetisation. Against nearly 100 per cent earlier, collections were 65 per cent between November 8 and December 20, 2016.The biggest impact has been in Uttar Pradesh, where collections have been 45 per cent as against 80 per cent in other states."
The company received a minor jolt in 2015 when the Reserve Bank of India rejected its application for a small bank licence. Smaller players such as ESAF Microfinance and Investments Pvt. Ltd., RGVN (North East) Microfinance Ltd., Suryoday Micro Finance Pvt. Ltd. and Utkarsh Micro Finance Pvt. Ltd. got the licences. Singh is now gearing up for a universal banking licence. "In some ways I wished we do not get the licence. If you look at history, specific banking institutions such as cooperative banks and regional rural banks have not been able to take off because they have felt restricted in the domain they are operating in," he says. The company, in fact, wants to move beyond microfinance into other financial services. It has received an approval to float a subsidiary for micro and affordable housing. Last year, it acquired Taraashna Services Pvt Ltd, which acts as a business correspondent for banks and financial institutions. The company is bolstering its team by hiring executives in human resources, chief investment officer, internal audit and risk head roles to step up to the next level.
In the near term, Satin wants to expand its business to cover five million customers, have assets of $5 billion, and launch institutional lending and remittance services. In future, it wants to become a full-scale bank offering a range of credit, savings and insurance products. Singh's dream is to take the entire bouquet of financial services, including mutual funds, to people at the bottom of the pyramid.
"If we successfully diversify in financial services and do well in financial inclusion, we may pitch for a universal banking licence. But the specified domain knowledge of the bottom of the pyramid will be our mainstay," he says. "The potential is huge. We want to become a hybrid of everybody. We want to monetise rural assets, which has not been done so far. Why can't mutual funds or insurance be for rural markets?"
For a company that was scared to set steep targets for itself, Satin Creditcare is truly dreaming big now.