Passion and patience are the bedrock of growth

Muthoot Fincorp (Pappachan group) is a leading specialised NBFC, with a group turnover of roughly ₹30,000 crore. Besides providing loans against gold, which is the primary income stream, the group has, over the last few years, diversified into several related activities, including affordable housing finance, auto finance, car finance and micro-finance. The group also has interests in hospitality and real estate. Thomas George Muthoot, director, Muthoot group, has been at the forefront, driving the growth of the group. After securing a leadership position in South India, Muthoot is now spreading its footprint across India. He talks to Daksesh Parikh on the issues in these sectors and what the government can do to further growth in this sector.

Post-demonetisation, are specialised NBFCs back to normal?

Demonetisation did temporarily disrupt work for a week or so. It has recovered soon after, with normalcy having been restored. Demonetisation was good for NBFCs as specialised gold loan NBFCs demonstrated that customers were now embracing digital and technology options.

With banks becoming more aggressive in loans against gold, how do you see your business shaping up?

Unlike specialised NBFCs, lending against gold is not the core business of banks. Since it is not their main focus, they are unable to give customers the kind of service which NBFCs offer. The time taken to deliver the loan, the kind of experience offered, and flexibility in service are all critical to the customers. NBFCs offer a totally different experience from what the banks are offering.

Will the entry of payment banks and small banks hinder the medium-size business of NBFCs?

It is too early to gauge the impact. In case of small borrowers, hand-holding is required. Normally, banks or their correspondents go to the field to make payment while many specialised NBFCs bring the customers to their offices. Bespoke service is what differentiates these NBFCs. These people are trained and educated there to enable them to offer better and quicker services. Also, most of the people working in NBFCs come from the same towns and villages and hence understand local conditions better. The group also has a strong skill set of different kind. Micro-finance is a different kind of operation. It needs very high levels of integrity and attention to detail. With an average loan size of ₹15,000-20,000 and customer base running into lakhs, it is not easy for new players to enter this space, which is why differentiation will be key.

Is fund raising the problem for affordable housing?

I do not see the real problem as funds. The real problem is in transferring land titles and delay in approvals. Affordable housing is the need of the hour. It is very much a part of the government’s agenda. With urbanisation happening, housing demand is going up rapidly in the newer growing towns and cities to meet the aspirations of the people in these places.

Do you foresee some of the bigger NBFCs migrating to banks, going forward?

I don’t think many NBFCs are looking to migrate into banks. Banks run a totally different business. Whenever a bank is set up by an NBFC, a different set of skills, mindset, capital and network are required. A totally new strategy and team has to be put in place. NBFCs would be better off exploring various opportunities in their niche segment. At the same time, it makes sense to explore potential tie-ups with banks so that customers are not inconvenienced and can continue to benefit from the NBFC’s services.

What can the specialised and micro-finance companies expect from the government?

I feel the specialised NBFC sector still lacks recognition. NBFCs and micro-finance companies must be recognised for the service they are rendering to the economy. In the sense, they must be given the same kind of support banks are given — indirectly and directly. These companies serve the under-served and the unbanked. They need to be treated as “bank-like” by the regulators. This will help support growth, increase access and also ensure income tax relief