Satin CreditCare eyes FX debt to build liquidity


Cogencis, Monday, Sep 21, 2020

By T. Bijoy Idicheriah and Bhakti Tambe

MUMBAI – Satin CreditCare Network Ltd is in talks with potential investors for external commercial borrowings to help bolster liquidity as the microfinance institution charts its post COVID-19 future.


"There are a couple of transactions which are there in the pipeline for ECB (external commercial borrowings) and foreign funding," Satin Creditcare Network Chairman and Managing Director H.P. Singh told Cogencis.

Singh said it was too "premature" to give details about the overseas borrowing plans, but said these are new transactions and not unused part of existing lines of credit.

Satin Creditcare has previously raised foreign debt from Oesterreichische Entwicklungsbank, World Business Capital and responsAbilityInvestments.

Asked whether Satin CreditCare will look to refinance its higher cost debt with these borrowings, Singh said the current strategy is geared towards building up liquidity.

"For us right now, whatever liquidity you can get in as an inflow, that is more than welcome rather than to retire your high cost debt," he said.

"In uncertain times, you always should be fairly liquid."

Singh said the fundraising plan will be revised upwards if there was a substantial increase in disbursements.

On securitisation of loan portfolios, Singh said there was not much demand for it at the moment. As the economy stabilises and disbursements pick up, the demand for securitisation will re-emerge, he said.

Securitisation is a common method used by non-bank lenders to free up capital and generate immediate liquidity by selling loan portfolios to those looking to build their loan books.

Singh said the net interest margins of the microfinance institution was likely to stay "range bound". The company’s net interest margin fell to 7.44% in Apr-Jun from 14.12% a quarter ago and 11.29% a year ago.

In addition to raising debt, Satin CreditCare has also been looking to shore up its capital.

In August, the lender raised 1.2 bln rupees through rights issue despite having capital adequacy ratio of 31.09% at the end of June quarter.

According to Singh, it is better to be ready with capital raising plan instead of running around at a later stage when the need arises. Of the total capital raised through rights issue, Satin Creditcare has kept aside 250-300 mln rupees for its three subsidiaries, Taraashna Financial Services Ltd, Satin Housing Finance Ltd and Satin FinServ Ltd.

"So, it builds up confidence to all our stakeholders and also looks at how we have been able to channelise equity into our subsidiaries showing that growth doesn't stop over there. So, it's both confidence as well as growth capital," he said.

Satin CreditCare is taking a cautious approach by extending fresh credit only to existing customers for the next couple of months, and not looking at new customers, he said.

Singh said he didn't expect much growth in the loan book this year, with some pick-up happening in the later part of the year.

Disbursements, collections, and assets under management are slowly picking up as the economy is gradually reopening.

"We did close to about 50 odd crores (500 mln rupees) in the first month when we opened up in May. July and August we have done close to about 200 odd crores (2 bln rupees). Though it is less than what our pre-COVID of 600 crores (6 bln rupees) used to be, but we are getting back into shape."

An additional advantage is that the company's collection efficiency, which has improved to 85% in July and August from 3% in April and 17% in May.

Even on the moratorium front, the company has managed to contain the number of loans under the relief to 11% at the end of June, from about 30% on Mar 31. Singh said a lot hinges on whether Satin CreditCare manages to get repayments on loans which are under moratorium in September and October.

"If we are able to get these loans back into the system where they start repaying. I think then the worst of this crisis would probably be over," he said.

Singh said he expects slippages from the moratorium loans. He also said more clarity was needed to know whether microfinance institutions will be allowed to avail restructuring of loans they had taken, though Satin CreditCare does not need any debt recast for its own loans.

Singh said that the pandemic-related additional provisioning of 900 mln rupees by Satin CreditCare so far, was equivalent to 2% of the company's on-book portfolio.

"I think which is pretty decent enough as a provision for us to take care of any kind of COVID credit cost. I think we are adequately covered," Singh said.

As on Jun 30, the company’s gross non-performing asset ratio was at 2.4%, while net non-performing asset ratio stood at 0.2%, compared to 2.9% and 0.6% a quarter ago, respectively.

Singh said Satin CreditCare has "fully provided" for stress that may emerge, and sees better asset quality ratios going ahead.

At 1524 IST, shares of the company were down 6.4% at 58.95 rupees on the National Stock Exchange.  End

US$1 = 73.38 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Mainak Moitra

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