Finance Industry Is At Pre-covid Levels: ET-ILC Members
Recently, a report issued by the International Monetary Fund stating about the progressive recovery of the Indian economy according to which the fiscal and monetary policy amendments are a contributory factor for the positive changes along with the measures for the financial industry. There are mainly four segments in the finance sector that are experiencing a great boost which include - Microfinance, Trade Finance, Housing Finance, and Private Equity(PE) while there are a few segments that have monthly base improvements. Other segments are expected to show their positive pre-COVID growth soon.
Many dominant industry experts see the overcoming of the microfinance sector from COVID-19 powerful than any other previous emergencies that mainly include - Krishna Crisis (2006), Kolar crisis (2009), Andhra Pradesh crisis (2010), and demonetization (2016). There can be multiple reasons behind them, the first of which includes serving those rural customers who were part of the strongest parts of the economic system. The second reason states that this crisis of global pandemic differs from the others since it lacks any third party engagement. Though the income sources of the customers have been affected by the COVID-19, they are committed to making repayments as they get financial sustainability. The third reason includes digital measurements and customer-focused lending initiatives as well as the improvement of industrial key players.
According to the Svatantra Microfin Pvt Ltd (SMPL), an Indian microfinance agency with complete cashless payments from the date of its establishment, reported its accumulated productivity is near to 91%. Vineet Chattree, Director, SMPL says, “SMPL has today close to 1 million deep rural-based active borrowers across 17 states, served through its 500 branches with a GLP close to Rs 2,700 crore. The company plans to diversify products, geography and its technology to achieve 2x – 3x growth over the next 2 to 3 years”.
Apart from this, Drip Capital, a trade finance enterprise has also reported a 30% development in client obtaining in the previous couple of months. In the present scenario where the banks are reluctant to take risks and MSMEs lack cash sufficiency, it has given rise to the higher demand for alternative lending products. The VC-backed fintech firm forms an opinion that deals with the easement of regulations by the policymakers to witness higher growth. The regulations are all about the shift of capital from the improved economy to the developing economy such as India where the MSMEs lack cash and in need of more liquidity. As per Pushkar Mukewar, Co-Founder and Co-CEO, Drip Capital, “Ease of access to such capital will have a direct and indirect impact on the economic growth of the country”.
The company has also crossed 85% of pre-COVID-19 level-specific home loans for PNB Housing Finance and since then, it is continuously increasing as per the company along with the digital initiatives. Hardayal Prasad, MD & CEO, PNB Housing says that “The company’s home loan segment has been further strengthened by our digital onboarding platform ACE, which has considerably eased the borrower's loan journey from application to disbursal.”
He further said, “In the housing sector, Tier II, III and IV cities are fuelling growth for home loans. Industry players expect an uptick in home loans going forward and reports suggest that the average age of homebuyers is expected to fall to 30 by 2023, from 35 in 2011”.
Talking about the private equity space, it is also expected to experience positive outcomes. Mohit Ralhan, Managing Partner and CIO, TIW Private Equity says, “Starting from Sep-quarter, we have seen a strong uptick in demand, and our businesses are geared up to take advantage of the same.” As per Vikram Gupta, Founder and Managing Partner, IvyCap Ventures Advisors, “The trend for digitization and deeper internet penetration is only going to encourage more investments in the Private Equity and Venture Capital space. The cumulative investment in this space has already crossed USD 100 bn. We have also seen over USD 36 bn of exits in the sector in the last four years. As of now, there are about 720 million internet subscribers in our country. This trend will continue and considering this, any business which will use this infrastructure for their business will benefit the most. Thus, investing in B2B SaaS companies, tech platforms like e-commerce, fintech, health tech, education would be the trends of the next year.”
Although these four segments of the finance sector - microfinance, trade finance, housing finance, and private equity are expecting positive changes, there is still a requirement of bringing current frameworks in more effectively for making the whole economy capable of restructuring. While the Insolvency and Bankruptcy Code (IBC) is a correct initiative allowing courts and licensed professionals to discard insolvent assets rapidly and appropriately, either by imposing closure or by setting apart bankrupt businesses and selling them, will incredibly improve the banking situation.
Apart from this, the strategy of the Finance Ministry to combine “healthy banks” with “Sick banks” is an appreciable initiative. However, it could result in an unwanted burden on healthy financial institutions as well as could reduce the competition rate in the market. The NPA crisis has compelled banks to review their risk appetite. Besides, banks also seem to have less interest in serving MSMEs and rural clients due to their higher overhead costs. As per Pushkar Mukewar, Co-Founder and Co-CEO, Drip Capital, the concerning law-parties should consider motivating as well as aiding fintechs to ensure the usage of the similar instrument of the financial framework for reimbursements, boosting funds, lending, and risk examination.
Since the finance sector is showing an impressive recovery to the pre-COVID levels, the key players believe that this is going-on as the global pandemic has not induced any structural problems. “Covid-19 is an event led disruption and as the impact of event subsides which is being seen now in higher recovery rates, declining caseloads of COVID and a high likelihood of vaccination, the economy has to recover back to its normal state,” as per Mohit Ralhan, Managing Partner and CIO, TIW Private Equity.
“In my view, the worst is behind us and we are now going to see a month-on-month growth. I think the next quarter (Jan-Feb-March) will see a much better revival. Gradually sectors like retail, real estate will also start picking up. The online segment has been the biggest beneficiary of the Covid situation. For digital payments, digital lending, there has been substantial growth. And hopefully, things will look much better going forward.” explains Vikram Gupta, Founder and Managing Partner, IvyCap Ventures Advisors.
The finance industry was one of the destructively affected industries because of the global health emergency. However several initiatives by the laws and Reserve Bank of India have resulted in the complete recovery of the economy such as the Covid-19 relief package, the emergency credit line, repo rate reduction, and moratorium extensions, etc. Now the big industrial key players are assured that the future coming months will have better results. But for making the whole economic system capable of becoming the third-largest by 2030, India is required to get back to the 8-10% annual development for which many sectors are in need to witness faster improvements.