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Shruti Aggarwal (Stashfin) on Building a ₹2000 Cr Profitable Lending Business
111 Plays6 days ago
"You have to be good at collections if you want to be a good lender."
This was just one of Shruti Aggarwal's amazing insights in this episode: lending profitability relies on responsible repayment, not just customer acquisition. Shruti Aggarwal is the Co-Founder of Stashfin, a digital lending platform in India. She has built a profitable fintech with a loan book of ₹2000 crores and monthly disbursements of ₹300-400 crores. Stashfin operates with remarkable efficiency, generating ₹800 crores in revenue with only 170 employees. Shruti is a CA, holds an MBA from Columbia Business School, and has experience at Merrill Lynch.
Key Insights from the Conversation:
✅Underserved Market: Stashfin focuses on the Indian middle class, often underserved by traditional banks, with small-ticket, unsecured personal loans.
✅RBI Regulations: The evolving regulatory landscape has impacted growth and capital requirements but ultimately promotes a more sustainable lending environment.
✅Technological Efficiency: Stashfin leverages technology for extreme operational efficiency, automating processes to minimize costs.
✅Customer Retention: 90% repeat business demonstrates the success of Stashfin's customer-centric approach and product convenience.
✅Leverage Control: Understanding and managing leverage is crucial for NBFCs, and recent RBI guidelines aim to limit risk.
Chapters:
0:00:00 - Introduction: Shruti Aggarwal's Entrepreneurial Journey
0:05:51 - Returning to India & Identifying the Credit Gap
0:11:18 - Choosing the NBFC Model: Control and Responsibility
0:17:01 - Stashfin's Profitability and Unit Economics
0:23:43 - Impact of RBI's PPI Guidelines on Credit Line Cards
0:28:58 - Overview of RBI's Fintech Regulations (2016-2024)
0:41:17 - The Chinese Loan Apps Issue and Regulatory Response
0:48:36 - The Importance of Leverage in Lending
0:53:54 - Stashfin's Funding Strategy: Diverse Sources
01:15:04 - Technology-Driven Efficiency at Stashfin
01:27:20 - Stashfin's Underwriting and Fraud Prevention
01:33:36 - Future Opportunities in Indian Fintech
#FintechIndia #DigitalLending #NBFC #RBI #PersonalLoans #IndianEconomy #StartupIndia #Entrepreneurship #FinancialLiteracy #LendingRegulations
Recommended
Transcript
Introduction to Personal Loans vs. Point of Sale Lending
00:00:00
Speaker
I started working at the age of 19. I come from a very traditional family, typical business family and highly conservative.
00:00:11
Speaker
So we were very clear from day one we'll go into personal loan. We will not do point of sale where consumer lending comes as point of sale. We didn't want to do point of sale because it can lead to impulse purchase.
00:00:23
Speaker
We were five
Origins of the Company
00:00:24
Speaker
of us so working together, just had a printer and internet connection. Electricity and the abandoned home, you know, we found all kinds of creatures crawling around and somehow get started. We spent two, two and a half months there and then moved to our first office in Kotla, Mubarakpur.
00:00:40
Speaker
If you're an investor in Paytm, you might be aware that the Paytm stock price crashed 20% in one day because of an RBI order which banned Paytm Bank from further operations.
00:00:52
Speaker
That is the impact of RBI and government policy on the fintech sector. In this
Meet Shruti Agarwal and Stashman
00:00:57
Speaker
episode of the Founder Thesis podcast, I'm speaking to Shruti Agarwal. She's a rare female founder of a fintech business and business is Stashman. Stashman is a lending fintech and they do somewhere like about 4000 crores of loans is the current book size which they have.
00:01:14
Speaker
ah So they are a massive business and Shruti goes deep into how to set up an NBFC in India, how to set up a lending business, what are the impact of regulations on the lending business and how government policy and private companies work together for consumer welfare and growth of the economy.
Shruti's Entrepreneurial Journey
00:01:33
Speaker
This is a masterclass if you want to understand policy and RBI impact on the financial services sector in India. I'm your host, Akshay Dat, and this is the
00:01:52
Speaker
Shruti, give me like a, you know, what's the story behind you becoming an entrepreneur? Like when you look back and you connect the dots, what made you an entrepreneur?
00:02:04
Speaker
So um I started working at the age of 19. One of the conditions for... I come from a very traditional family, typical, you know, business family and highly conservative.
00:02:20
Speaker
I'm probably one of the most educated people in my family. And we are a lot of us. We 17, 18 of us. Where did you grow? Which city? Delhi. Okay. ah So come from... um of large joint family where there were lots of kids and cousins all growing up together. And, you know, back in seventies, eighties, um, common schools were a big thing in Delhi.
00:02:47
Speaker
So going to all boys school, going to all girls school, common school for a very big thing. Irish, Irish, um, Irish schools and Italian schools with the convent.
00:02:58
Speaker
And I went to a very, Convin school that means all girls, small set up, highly conservative family. So when I wanted to go to college, I wanted a different experience.
00:03:10
Speaker
And I had got through LSR, which is Lady Sriram College, and I had gone ah got through Sriram College of Commerce with the condition, one being co-ed, one being girl all girls, the condition was that I have to do my chartered accountancy.
00:03:26
Speaker
So this was my father's way of making sure that I don't get distracted while in college. That means I don't have multiple boyfriends or get distracted, partying too hard.
00:03:38
Speaker
so i So that made me actually start studying and working very hard at the age of 19. In my third year of college, I went and did articleship with PricewaterhouseCoopers, continued to ah you know study for CA, got my...
00:03:54
Speaker
degree in 2002. And at that point, i was dating my now husband. oh
Ventures in the US and Return to India
00:04:03
Speaker
And he had moved to the US. I decided to follow him because we wanted to get married.
00:04:09
Speaker
The condition to move to America was that you have to study. You can't just go there and get married because we were all of 2324. and Did you meet your husband in college? No. video Funnily, my father did not know that we met in school.
00:04:25
Speaker
So he went to an all-boys school and I went to an all-girls school, which was divided between ah but was divided by a church in between. okay But we all for the longest time, we had a long-distance relationship because he was studying and I was studying.
00:04:42
Speaker
um That being said, ah so I started my career very early. By the time I decided that this is, you know, I've done my CA, I did my master's from Columbia University.
00:04:53
Speaker
I got a pretty good job at Merrill Lynch and the downturn happened. And You know, 2009 when Bank of America took over Merrill Lynch, ah I thought it was a perfect opportunity to actually do something of my own. You know, I had spent certain amount of time just being an employee.
00:05:14
Speaker
And at that point in time, I started the company called Secret
Founding of Stashman and Initial Challenges
00:05:18
Speaker
Cache, which was in two swimwear, which was very early on. And why swimwear? In the US?
00:05:25
Speaker
In the US. So what it was doing? um When you would go to go out or any places in India, you would get not a good, not a lot of variety and not good quality swimwear and India's big into one piece swimsuits or full coverage swimsuits, what we call the only thing that you would get is speedos, which were not fancy enough.
00:05:46
Speaker
However, the American market had figured it out. They had a variety, which you would not probably even get in a Thailand or a Vietnam or a Singapore. but American bodies are robed slightly bigger compared to Indian.
00:06:02
Speaker
So they had full coverage swimsuits. So I started in the US because I had the most variety available to me in the US. And I started.
00:06:13
Speaker
so This was a D2C brand in the US selling to US customers or you were sourcing from US. I was sourcing from US and it was, it was a B2B2C.
00:06:25
Speaker
So I was, I had a website, but I also was supplying to a lot of hotels, the Taj, the Park hotels, pretty much everywhere in Goa.
00:06:37
Speaker
I was supplying at that point in time. But it was still a very early market for India. This I'm talking about 2009. By 2012, when I had sold and sourced and became cash flow, even I decided to exit and I sold it to another company ah because I did not see scalability coming in that in a long time.
00:06:59
Speaker
And it was the same time that we had decided to move back to India. to india I had my first son in 2011, my first child in 2011. And as soon as i removed back to India, I had my second child in 2012.
00:07:17
Speaker
So I was very happy being home, know, working for a couple of hours, helping out my father. um You know, I tried couple of things with another friend. um It's then i decided to take a break.
00:07:31
Speaker
And oh so it really started with spending a lot more time in, you know, as an employer, why don't I try something myself? Because that would give me flexibility, as well as my passion in finance and retail. Let's let's try both of them out.
00:07:49
Speaker
In 2016, when Tushar decided to ah move away from private equity and start his own company, he needed... What kind of work was he doing? Just a quick background. quick background on Tushar. So ah the boyfriend I mentioned was my current husband, Tushar Ragharwal.
00:08:05
Speaker
oh Current or only husband, I would say. You you know, he he was, so you know, he's an engineer. He's... so CFA and a graduate from a Watton Business School MBA from Watton Business School. He had a long stint at Goldman and Lehman before he joined private equity with General Atlantic in New York.
00:08:32
Speaker
And then in India, he worked with private private equity company, Everstone Capital. During his ah work with Everstone Capital, he had invested in ah ah he had seen investments in NBFCs ah like Indostar and Kisan Dhan.
00:08:48
Speaker
And that's really how the idea of stashment came about.
Strategic Focus on Middle-Class Lending
00:08:53
Speaker
When he moved back to India, um he did not have a credit card because he did not have a work history in India, while I did.
00:09:01
Speaker
because I'd worked with PricewaterhouseCoopers. So opening a bank account, opening, ah getting a credit card, both was very hard for him. However, there was relatively simpler. For me, he was called new to credit, even though they come the economic bracket he came from or the salary he was drawing was on the higher side compared to what an average Indian would draw.
00:09:22
Speaker
um he would he did not get approved for a credit card. And in India, the belly of India is really the middle class who may or may not have access to credit because the penetration of credit in India is low and they may not be bankable enough for the banks because of the low ticket size.
00:09:45
Speaker
Um, so stashman came about with that thought process. It was a paper plan when we, when he went and raised, um, pre series round seats, a seed round of funding.
00:09:57
Speaker
Um, you know, our first investor was, uh, Chris Colinati of snow leopard. He actually, uh, snow leopard ventures, uh, the company started on, uh, in, in feb 2016, it got incorporated and our first check was in, uh,
00:10:14
Speaker
in a bank account on, I think, 10th or 12th April. So Chris Colonati has been supporting us from the beginning. And eventually the other ah early stage investors came in. So we bootstrapped everything, forming, applying for NBFC, everything ourselves.
00:10:33
Speaker
but really touched the investor money when we had the full full commitment for a pre-series A of
Transition to NBFC and Business Model Evolution
00:10:42
Speaker
$5 million. dollars We started the company with or five of us.
00:10:46
Speaker
We first started the company in a in the backyard or what we don't have many backyards in India, but the drawing room of my father's abandoned home.
00:10:57
Speaker
um So we were five of us working together, just had a printer and internet connection, electricity. And since it was abandoned home, you know, we found all kinds of creatures crawling around. You know, you would have lizards and you would have rats running around, but we knew that we had to move on and somehow get started.
00:11:18
Speaker
ah We spent two, two and a half months there and then moved to our first office ah in Kotla Mubarakpur, which is opposite defense colonies. So it's their fancy the is defense calling the fancy part of Delhi and Kotla being the a village around the village around defense colony.
00:11:39
Speaker
That's where we started. and we grew. we you know, 2017,
00:11:45
Speaker
We got our NBFC license. It was a very unpopular thing to do to be capital intensive business. NBFC is a very capital intensive business. Money is your raw material. Every ah dollar of equity you get, you have pressure to get four dollars in debt so that the business grows.
00:12:05
Speaker
At that point in time, there were a lot of our, ah ah you know, a lot of conversations about companies like MoneyTap, companies like Walnut and companies like Pesa Bazaar, India Lens, which were asset-light businesses and were doing the same job but ah deploying someone else's capital.
00:12:28
Speaker
However, at that point in time, we were very clear that we need to control our own destiny. you know, relying, you know, if you really believe in the business model, you will put whether will put money where your mouth is.
00:12:41
Speaker
So in BFC was the right criteria for us. We started small. We started, I think the first month when we did four lakhs of dispersal. Which month is this? When did you get the license?
00:12:54
Speaker
We got our license in June 2017. Okay. okay We got in the record time of two and a half months. Yeah. absolutely I think it's not easy to get an NVFC license, right? No, it's not an easy it's not an easy thing to get an NVFC license.
00:13:10
Speaker
And but we got, to I think because we were coming from completely professional services and great investor backing, we got so in record time of two and a half months.
00:13:24
Speaker
um We started our business. so So we started the pilot business at that point in time. There were enough NBFCs in 2016. There were enough NBFCs looking to grow their business.
00:13:37
Speaker
ah So they would, do lead sourcing to us. So we that in even though we got a license in Jan 2017, we were doing business through other NBFCs.
00:13:49
Speaker
ah So our first month of dispersal was actually September 2016. And that month we did for lack of dispersal. and you were so I just want to like clarify a few of these things for our audience. So essentially, there are two models of lending fintechs.
00:14:06
Speaker
One is where you are a marketplace connecting borrowers with lenders. And here, you don't need a license. The lender has a license and the capital, and you are connecting them to the borrower.
00:14:20
Speaker
And The arrangement could either be you have skin in the game through a first loss default guarantee or you're purely marketplace just doing the connection and that's it. It's like different levels of engagement you could have.
00:14:32
Speaker
Or the other is you actually become an NBFC where you are lending from your balance sheet. And so you started with the marketplace kind of a model, the connector. And then by the ah by September, you started lending in your own books, I guess. That's what you, by January of,
00:14:51
Speaker
2017. So we were testing out the waters. So what we did, we did at that point in time in 2016, the first loss demand guarantee ah guidelines were not there.
00:15:03
Speaker
So we would make them hold for any risk. They would get a guaranteed return and you would make them hold for any risk. So ah even though we could not, we didn't have a license, practically we were taking all the risk on our book, risk on our balance sheet.
00:15:19
Speaker
Right. ah So the idea. and What market did you want to tap into? Like consumer lending, SME lending, unsecured, secured, like there are many different loan categories.
00:15:32
Speaker
So we were very clear from the day one, we'll go into a personal loan. We will not do point of sale. ah So where consumer lending comes as point of sale, we didn't want to do point of sale because it can lead to imp impulse purchase.
00:15:47
Speaker
Point of sale is what, let's say a Bajaj is famous for. Yes, it's a point of sale. Like when you're buying a TV, buy it on EMI, that is a point of sale loan. Right. Or even if you are buying it at Tata Chroma, or if you go to an Apple store,
00:16:02
Speaker
You can do financing of your gadgets. Um, we did not want to do point of sale because we didn't want to encourage, uh, impulse purchases. We wanted people to be, so the idea about, uh, doing this was we wanted to people, people to make a sound decisions and not be large ticket size, i large ticket size borrower as well.
00:16:24
Speaker
Um, we started in so that's when we started to, you're saying personal loans is not large ticket size as compared to not ours, not ours. So what we were targeting was, uh, the, uh, you know, when I mentioned that we wanted to focus on the belly of India, where the 200 million households, they may, they have a bank account, but banks may not find them bankable enough because of the size you, know they,
00:16:53
Speaker
you know, banks make money because um the larger ticket size they give, oh you know, it has a higher return for them. For us, since we were always digital and we decided to always be digital, the ticket size really didn't matter.
00:17:09
Speaker
You could come and take a small ticket size loan and repay
Maintaining Profitability with Small Loans
00:17:15
Speaker
back without worrying that you have carrying negative carry if you want to for example, if you are, you know, your salary comes by fifth of the month, and you have to and, you know, for example, an aspirational individual in India finds a good deal to get his scooter repaired.
00:17:40
Speaker
Now, he can't do even though he may or may not have a credit card. There are only two options he has he can go to a bank to ah get a loan for which he has a minimum ticket size of say 2 lakhs 3 lakh rupees or he goes to a loan shark there is nobody servicing that criteria in the country where you can take a ticket size you may be approved for a 50,000 or a 1 lakh or a 2 lakh rupee loan but you are really needed say 5 to 10,000 rupees
00:18:10
Speaker
five to ten thousand lupe You don't want to pay interest on the two lakh rupees while your need is only for five to ten thousand rupees. And that's where we were coming in.
00:18:23
Speaker
OK, so is this profitable, such low ticket sizes? Because if you're giving a ten thousand rupee row, and you would be earning maybe five hundred rupees on that or something like that, I'm guessing.
00:18:35
Speaker
So um it is profitable. So unit economics, what we fall for is unit economics have to be um profitable. ah On day one, when you're building out a business. So um and what we've noticed if when you, you know, when you are taking a loan of say 10,000 rupees,
00:18:57
Speaker
If you're paying 100 rupees extra, the customer is not really thinking about it. They need, it's the timing that matters. It's the convenience that matters rather than paying the 100 rupees extra on that.
00:19:10
Speaker
So from that perspective, the convenience cost to a customer is very little compare, comparative to what you would take if you are taking a larger ticket size loan.
00:19:22
Speaker
That's why we've been profitable. Also, our operating cost is ah very low because we do not have branches. We can service a customer digitally within five to seven minutes for the first time customer and 90 seconds for a return customer.
00:19:39
Speaker
So it has been profitable for the last three years. The NBFC has always been profitable. But when we look at the company, so how we structured our investors are sitting at a Singapore entity and we have operating entities in India.
Financial Metrics and Stashfin Credit Line
00:19:55
Speaker
But we look at our entire company or we look at the station brand as a group of companies and as a group of companies, we've been profitable. Okay, interesting. What is the maths here? If you can explain like how much is the average interest you earn and how much is the average cost of capital and what is the margin?
00:20:15
Speaker
sure So, so the average interest rate we are charging our customer is 34%. Our cost of funds is half of that.
00:20:28
Speaker
ah Then what we charge the difference gets covered in the form of operating costs, which are um close to 5%. Then we have then we have you know, what you call credit cost. Credit cost comes in two formats. It comes as, uh, uh, ECL expected credit loss.
00:20:52
Speaker
Okay. Uh, and it is, uh, bad debts. What is the difference with ECL and bad debt? Yes. yeah So NPAs are non-performing assets, are assets which have crossed 90 plus.
00:21:07
Speaker
Okay. And, uh, since we are, uh, We are SEBI regulated the public when you're SEBI regulated and you're giving out when you ah have your bonds listed in the exchanges, you have to move to IND-AS, the two formats of accounting in India, IND-CAP and IND-AS.
00:21:31
Speaker
So we get covered by India. So any loan I give out today or the company gives out today, say a hundred rupees loan company gives out. What is the amount that will finally go to 90 plus has to be provisioned on the day of dispersive.
00:21:45
Speaker
So if I give you a hundred rupees, I think it's going to be five rupees that's going to go bad out of a cohort of thousand I have to provision it on day one and what finally moves away from the book that means you know whatever your write-off policies in our case is 180 plus that completely gets moved from the P&L and goes away from the balance sheet that so it's a combination of two ECA So credit cost is a combination of ECL and bad debts.
00:22:15
Speaker
For us, that number anywhere from 4% to 5%. So the average ROA which we get is close to 4% to 5% the Okay. Understood. Understood.
00:22:26
Speaker
Um, can you help me understand these numbers with context? So for example, 34% is what you charge. What would, out of the 34% it's very, other people will be charging other players. So it's very important to note, even though you're charging a customer 34%, in our case, what we provide a customer, what we call a free lookup period, free credit period, the customer can come in and, um,
00:22:54
Speaker
The customer can come in and pay the entire loan within 30 days without paying any interest. So there's no foreclosure charges. There's no processing fee.
00:23:07
Speaker
What the customer is paying is only a transaction fee, which is close to 24%. However, it does not have any ah NTAs because the amount comes back to us.
00:23:21
Speaker
So when we look at the balance sheet of the company with the yield on the company, because we are now attracting providing convenience and attracting better quality customers, the yield on the company is now below 20 percent.
00:23:35
Speaker
It's not 34 percent. However, we peg ourselves to a credit card where if you know, because we're providing the 30 we're providing the 30 day for free lookup period, no charges, no nothing ah processing fee, no interest.
00:23:49
Speaker
You know, ICICI charges close to 3.85% if you take a loan from them on card. HDFC charges close to 3.55% per month.
00:24:01
Speaker
So we've picked ourselves to a credit card because of the product we offer to the customer. Okay. Very interesting. Uh, yeah, this is exactly like a credit card, like in a credit card, you can spend for X number of days before you have to pay it back interest free. And if you don't pay back interest free, then you start paying interest on it. So there's very similar to that. You get the cash in your bank.
00:24:21
Speaker
yeah The only thing is you're getting cash in bank here instead of, uh, uh, an instrument which you can use. Uh, what is the reason to not do an instrument? You could have done an instrument, right? Like ah so, uh,
00:24:37
Speaker
So now i can probably talk about the guidelines that happened. So Stashfin really started with what we call the Stashfin credit line card. It was first sponsored by DCB, then came federal bank and then we started with s SPM bank.
00:24:54
Speaker
So we did launch that product. This a prepaid card. It's a prepaid card. So what would happen? The customer would come and say, want a thousand rupee loan. the money would go directly into the customer's PPI account.
00:25:08
Speaker
That's a, uh, a PPI, a card instrument, a prepaid instrument card. And then the customer could use that card, say at a restaurant or go to an ATM and withdraw money, or, uh, you know, could, uh, go buy a phone, for example, or an accessory of a phone, or even, uh, for someone to rep repair their, uh, a two wheeler.
00:25:32
Speaker
they would go withdraw the money from the ATM. So we did launch that. And the interest would be chargeable only when the money is used. No, so money, money, um my interest would be charged from the day you draw down the money into the PPI. So the PPI in itself is zero amount.
00:25:49
Speaker
It only gets money into its account when you do a active transfer. So all this was linked through our phone, ah their our app through their phone where they could control it.
00:26:00
Speaker
Okay. Got it. So you have a drawing limit on your app, like on your app, you can draw up to 10,000. And then from that drawing limit, you put 5,000 into your card and then you use the card for the 5,000. Multiple ways.
00:26:13
Speaker
And also what you do, if you could lose your card, you could go on to the app and block your card as well. So there's no misuse. Right. Okay. And you could set your pin. There were a lot of things you could do. ah You would get in your OTP to withdraw money from an ATM.
00:26:28
Speaker
So and all all these were free ah features of our PPI card. um You know, if you, you know, we always compare ourselves to a credit card. um If you have to draw cash from a credit card, you have to pay, I think 2%.
00:26:46
Speaker
In our case, you don't have to just pay the interest on what you've drawn down or if you don't decide not to pay in 30 days and or just pay the interest what you see on the app, what you've been underwritten for.
00:27:01
Speaker
So this, um you know, we've underwritten close to 30 lakh customers. And what we see an average customer interacts with us 10 times a year. So from that perspective, what does interact mean here? Like he comes and takes additional or he draws from the drawing limit or. So if you're approved for one lakh rupee limit, but your need is only for 5,000, you know, the balance 95,000, if your credit conditions don't change and you're paying our EMI on time, your, you will continue to get access to those 95,000 rupees. Okay. So that's what they could do.
00:27:35
Speaker
So they could do 20 transactions of 5,000 rupees. So when I say interact with us, that's what I mean. Got it. OK.
00:27:45
Speaker
Right. so So we were talking of why not prepaid instrument. You told me you started with a prepaid instrument. We started with prepaid instrument in, I think, in the year 20, June 2020, June, know, September 2023, RBI came with the um r bi team with the guidelines, or where an NBFC cannot ah use a prepaid instrument. Okay, only banks can only banks can.
00:28:17
Speaker
And that's when it changed. um The card went away. However, that didn't change much for us. Because we were we were so we would give the customer an option would do you want money in the bank account? Do you want money on the ah instrument?
00:28:32
Speaker
So for us, it was a simple thing to disable the PPI card option and at that point in time we also saw a lot of movement in UPI. People preferred taking money and doing transactions on UPI and UPI has grown tremendously compared to credit cards or even debit cards in the country.
00:28:53
Speaker
So the Stashman app has a UPI payment feature in built into it. So instead of ah putting money into prepared instrument, you can just scan and pay directly with the Stashman. No, we don't have that feature.
00:29:04
Speaker
We don't have that feature. What we have, that a person can transfer the money into the bank account. From the bank account, the customer moves with the penetration of UPI. Then you use any of the apps which you have on your phone to do the UPI transaction because UPI transactions happen to the bank.
00:29:23
Speaker
credit cards are also being limited okay okay ah there is credit on upi also right like through rupee or something but but then again and nbfc is not allowed so i guess there will be some it's um only open to banks okay okay okay if's not okay to it's not open to nbfc's or even small finance banks yet okay okay got it got so you know while we
Regulatory Impact during COVID
00:29:48
Speaker
are on regulations i want to go a little zoom in on this.
00:29:53
Speaker
So what has been the evolution of RBI stand with respect to credit over the last six, seven, eight years that you've been observing this industry? Can you take me through that? What was it like when you started and how has it changed and where is it today?
00:30:11
Speaker
So um when we started in 2017 with our NBFC license, um you know The India was still evolving at that point in 2016, end of 2016, we got the GST, there was demonetization followed into in 2017, there was GST adoption.
00:30:33
Speaker
So lot of changes were happening across the ecosystem, not just RBI. RBI really did become active in the NBF, in the FinTech space or the unsecured lending space ah during COVID, I would say.
00:30:49
Speaker
It started with moratorium, um you know, where, you know, the funny thing, there's no Hindi word for moratorium. When you say moratorium, you would, you know, people would say EMI MAF. We would say, no, no, no, this is not EMI MAF.
00:31:05
Speaker
And we had to make a whole, know, whole like a video series on it's not EMI math. It is basically delay your EMI, but you continue to pay interest. Since we were small ticket size loans, we encouraged all our moratorium videos were like, if you have extra cash, please pay us down because it's not worth paying interest on interest.
00:31:28
Speaker
And, you know, and that was that was that's how really it started at that point in time. Um, we saw RBI getting active. Uh, this is, uh, March, 2020 then came the Xgratia rules in November.
00:31:42
Speaker
what rules? Xgratia. So Xgratia is that any customer who had been paying through COVID you had to compute their, uh, interest on simple interest basis and pay them the difference back if they've paid any compounding interest.
00:32:03
Speaker
So it was very interesting how RBI was making sure that NBFCs continue to make money, but they put some money back into. um but So what we do is reducing interest calculation in our amortizing schedules and RBI wanted it to make it into simple interest.
00:32:24
Speaker
So what they want to do put the extra money back into the customer's hand. And whatever the difference was in between the reducing interest method and the simple interest method, they compensated the NBFC.
00:32:36
Speaker
So there's no loss to the NBFC. But the fastest way to do it was ask the NBFC itself to give the money back. So in November 30th, I remember we had to give close to 30,000 customers the difference because they were paying customers for us.
00:32:53
Speaker
So we did that we participated in this scheme and I think it was a very successful scheme by RBI to make sure there's money back in the economy. um And they used SBI and NBFCs to do that.
00:33:08
Speaker
All the banks also participated a lot of, I don't know if you ever noticed your credit card, if you were continuing to pay your credit card balance, you would have probably received X ratio as well.
00:33:20
Speaker
This happened across housing loans, ah home loans, credit cards, personal loans, pretty much all kinds of loans or credit in the country. um Then ah but I want to slightly dig a little deeper here.
00:33:35
Speaker
Can you explain with some numbers what is the difference between reducing interest and simple interest? No, I actually don't have those numbers. i can probably send you an Excel later. and Just as a hypothetical example, if ah if I took a loan of 100 rupees and interest was 10%, so I'd pay 10 rupees if it was a one-year loan.
00:33:53
Speaker
So generally speaking, a if I would say our interest rate is 34%, okay, ah I'll say largely speaking how it works, effectively the simple interest turns out to be 21%.
00:34:09
Speaker
The difference is almost 20% in that case between reducing balance and simple interest rates over a, uh, uh, say a tenor of one year.
00:34:21
Speaker
Okay. Two years. Okay. Okay. Okay. Got it. Okay. I guess reducing balance, you will add some of the interest back into it or something like that. And therefore it is that effective.
00:34:33
Speaker
So what happens in reducing balance, in reducing balance, the first ah first half tenor of the loan where interest payments are very high, the principal amortization is less.
00:34:46
Speaker
ah Got it. Okay. and in And in simple interest, your interest remains the same throughout. Got it. Okay. Okay. Understood. Okay. Got it. Got it. Okay. So yeah, ah we were talking of RBI's stand and how it has been evolving. So RBI did this to put money back into the economy.
00:35:07
Speaker
Back into the economy. And it was done through banks and NBFCs or anybody who was part. And it was it was optional. It wasn't something that RBI made sure that everyone's participating. But as as it it was a great...
00:35:22
Speaker
initiative at that point in time yeah to put the money back. There was ah the difference between and RBI really did pay or back us on on time so that our financial year closes very well as well.
00:35:35
Speaker
You know, you don't reverse your income. So by 31st of March, we had received all the money which we had given out to our borrowers. um And this was in the form of either checks going out, bank transfers happening.
00:35:50
Speaker
or reducing ah if they were current customers, reducing the ah out treatment burden outstanding through the SOAs. um it's It's only then in I think February 2021, RBI got active and it you know, there was a lot of noise about suicides and Chinese apps.
00:36:12
Speaker
Okay. that RBI became a harassment or recovery of loans. Yes. Harassment of recovery, crazy rates being charged, doing business in an unregulated manner.
00:36:24
Speaker
I think RBI's biggest concern was, you know, credit can only be given by regulated entities. What
Regulation of Lending Apps and Market Dynamics
00:36:32
Speaker
these so do you know what you spoke about?
00:36:35
Speaker
oh Two market models being one regulated one and unregulated. where you could, you know, get connect borrowers and ah lenders together.
00:36:45
Speaker
There were others who were also doing borrowing and lending without being regulated. And these apps came, I think they were close to 1500 apps. RBI published in February 2021 that so that got discontinued.
00:37:02
Speaker
And that's the time really saw engagement by RBI. It was our first few interactions with RBI at a different level oh where we would talk about KYC because the entire model had gone digital, even though we were doing digital, ah you know, defending our business model at that point in time.
00:37:25
Speaker
was slightly different because people were used to traditional way of working. I think over changed everything for everyone across the world and FinTech was no different.
00:37:38
Speaker
oh RBI wanted to learn. So we had multiple meetings with RBI on KYC norms. And that's that point in time when other OKC also became very, very prevalent and highly adopted. And it's all driven by RBI with the KYC regulations, et cetera.
00:37:56
Speaker
So, um you know, I think the biggest concern for RBI is you cannot do credit if you're not regulated. And that's what they really clamped down on.
00:38:09
Speaker
And as they started interacting with us, you know, the different rules came about about disclosures, um fair practices codes.
00:38:20
Speaker
ah Are they being followed? oh You know, why would disclo as a disclosure to borrowers before they take the money? Exactly. Exactly. So what eventually came out was the digital lending guidelines that came in ah June 2022. Digital lending guidelines, you said this is digital lending guidelines. And this is all oh to make sure fair practice code.
00:38:45
Speaker
ah There's no impulse purchase happening without the customer. refuting charges because they lost for both for the lender and the borrower.
00:38:55
Speaker
It impacts the borrower's credit history and it impacts the lender directly financially. So all those disclosures really came about in Jan 2022. September 22, the RBI came up with the PPI guidelines as september ah september in september twenty two the um rbi came up with the ppi guidelines as well which I touched upon where you could not. why why So you told me the reason for the previous guidelines, but why the PPI guidelines? What's the reason for that?
00:39:27
Speaker
Like, was it being misused that they wanted to clamp down?
00:39:32
Speaker
um I don't know the reason, honestly speaking. um But what we understand, credit cards are in the industry for a reason.
00:39:45
Speaker
And, uh, PPI cards, ah RBI saw very similar to credit cards, which NBFCs are not allowed to do only banks. And there's a special license you need for credit cards as well.
00:39:58
Speaker
It's not that all banks have credit cards. Okay. So the PPI card was great card in the garbage. Yeah. It was a workaround. Yeah. i was a hack. and Yeah, it was a hack to give a credit card to a customer without having a credit card license. Got it. Okay.
00:40:16
Speaker
Okay. understand credit And credit cards are also what they call regulated. Okay. So RBSC's credit cards as tools of payment, like convenience and payment rather than tools of lending.
00:40:32
Speaker
No, it looks at lending as well. So credit cards, the the three kinds of credit card customers, uh, one are, uh, transactors where you would put, pay the full, uh, full, uh, usage amount back on the date of, uh, the date it's due.
00:40:51
Speaker
Then they are revolvers, which will only pay the minimum due. And the third ones are who take loan on card.
00:41:01
Speaker
who know from day one that, you know, if they're making a large purchase, they need to take a loan on their card for it. And so it is a credit instrument. And surprisingly, the only 30, 40% of the customers who are transactors, even for the largest credit card companies.
00:41:19
Speaker
Okay. Credit card companies make money through revolvers and loan on card. Okay. Okay. Okay. okay Plus the MDR, but that is like pennies on the dollar.
00:41:30
Speaker
So those are MDRs, you know, um are also there, but it's also shared by, say, a Visa or a MasterCard, etc. so And MDR for our listeners is the merchant discount rate, which is about 1% to 2% that is charged to the the seller is bearing that amount. So the seller, instead of getting 100 rupees on a transaction, is getting 98, 99 rupees, something like that.
00:41:53
Speaker
so That's correct. And that also they have to share. It's not fully there. Right. Right. The banks and the network like Visa, MasterCard between them, just issuing bank, the card, the acquiring bank, all of these.
00:42:07
Speaker
Okay. Got it. Okay. Uh, What is, I wanted to understand a little bit on the Chinese loan apps. what What is the way in which they were lending? They had a tie up with an Indian lender, like ah an NBFC or something, or they just had money in their, like let's say a current account, which they were giving out to people or like.
00:42:29
Speaker
So we didn't know, we did not know this model existed. Okay. so we only learned about it in February, 2021, during our interactions with RBI. So what we understand what was happening, the money from um ah third party would come into an escrow account, which is jointly held bye which is jointly held by the NBFC and the provider of the funds.
00:42:58
Speaker
From there, the money would go to the borrower. Then the borrower would pay back into the escrow account and from the escrow account would go back outside the country.
00:43:11
Speaker
Because escrow accounts are not... The amount going out of the country is the interest amount only. We don't know. I wouldn't know the details. But what I understand, it could be the principal or the interest or it could be... I wouldn't know the details of what kind of amount was going. I'm talking about the mechanism, what we understood.
00:43:30
Speaker
right Sorry, I interrupted. You were talking of what escrow account. Yeah. Yeah. So escrow account does not show up and in the balance sheet of the NBFC because it's not the NBFCs money.
00:43:44
Speaker
Only their share of the money would get reported in the balance sheet, not the excess money, which is not there. So this was a mechanism what we understood was being used to route the money to the to the end borrows and recovered from the end borrows as well.
00:44:03
Speaker
Okay, okay, okay. and the harassment was happening largely through data scraping, like they would scrape the data of all your contacts and all of that from your device, you have to give a a lot of permissions and then that your contacts will start getting like messages saying he has not paid or stuff like that. I think that yeah i think that came up slightly later but the ah with the, you know,
00:44:30
Speaker
with Google becoming very, very active. So Google would not give permission. They would want to see whether you're regulated or not regulated. They would ask you for your NBSC license. They would ask for a lot of stuff. And then they would ask reasons why you want why would you want access to someone's photos? Why would you want access to someone's um a contact list? Why would you want access to someone's email, say, you know, different things. And that's why Google really came about, uh, helping the, uh, apps or restraining the apps.
00:45:06
Speaker
Okay. And I, and I think that was driven by RBI, but we wouldn't know directly because we were dealing directly with Google to get updates on our app. Hmm. Okay.
00:45:17
Speaker
Okay. Got it. Got it. end of 22, you said the digital lending rules came about and then 23, the PPI. Yes. Around the middle of the year, June, 2022, then came the PPI guidelines.
00:45:29
Speaker
And in June, 2023 came the FLDG guidelines, what we call first loss, demand guarantee loan ah um loss um guidelines for co-lendings.
00:45:45
Speaker
and you And that's when, no you know, there were stricter checks by RBI on who's doing the credit assessment, where is the money going from, how is the money getting accounted for, is there full disclosure, is the credit decisioning happening on one side or two sides.
00:46:06
Speaker
All that stuff came into picture in June 2023. ah in june twenty twenty three And are these marketplaces allowed to take credit decisions? So what is the... So the credit decisions can only be taken by ah certain certain certain things an NBFC can't outsource, like a KYC and the credit decisioning.
00:46:30
Speaker
Okay. We can't outsource. And what RBI also came about saying that the first loss demand guarantee, first loss demand guarantee cannot be greater than 5%.
00:46:43
Speaker
whether you are a platform or you are in BFC. So anyone you're giving ah loss guarantee cannot be more than 5%. Okay. okay what's the impact on fintechs of this uh because so you are an nbfc so for you it would probably be a positive thing because you have anyway been doing the decisioning in-house uh but there would be a lot of legacy nbfcs who would have ah worked with these fintech companies like say a money tap or whatever uh
00:47:19
Speaker
I think maybe MoneyTap also has an NVFC now, but similar companies. ah So what is the impact on them of these regulations? Would they have ah had to reduce their loan book or increase the time it takes to disburse a loan or like So ah i will I can talk about our business, how it got impacted.
00:47:37
Speaker
We did see that folks who are not so very, very ah oh technology savvy, you know for us, real-time decisioning was most important.
00:47:51
Speaker
um So for us, we did see a couple of our lenders say that we do not have the capability to do the credit decisioning real-time. okay know It will take us some time to world get the APIs in place.
00:48:06
Speaker
this is Do we think this business with 5% loss guarantee, is it sustainable? you know All those questions started coming in.
00:48:17
Speaker
ah So we did see couple of folks reducing the exposure at that point in time. okay And what we understand from the from the general market that this continues.
00:48:31
Speaker
it It's not that co-lending. I think it was the idea was to curtail that if you not got a like lending license, don't do lending. The idea was that.
00:48:42
Speaker
okay okay Okay. Okay. Okay. So in a way, the the free flow of personal loans is kind of getting restricted over time. but it So what RBI was looking at that, you know, if someone started, say they've got, say, $10 million dollars in funding.
00:49:00
Speaker
their leverage was 20x, basically. Ah, OK. Because 5%. Yeah. Yes, default. OK. ah While an NBFC, our leverage in highest go to is a 4x.
00:49:14
Speaker
So there was a lot more happening, which was unregulated. okay and Can you explain? Yeah, sorry. Please finish your. Yeah. Explain.
00:49:27
Speaker
Can you explain the concept of leverage? Leverage is super important in the lending business. you know For someone who is not from this ah back industry, like like what is the the power of leverage here?
00:49:41
Speaker
Power
Strategies in Lending and Borrowing
00:49:42
Speaker
of leverage. leverage i So you know India has moved away from being a savings economy to a bit of a credit economy.
00:49:52
Speaker
while America's has always been a credit economy. What this really means is if you're earning 100 rupees, you can buy something that's worth 1000 rupees.
00:50:04
Speaker
And the difference 900 is called leverage where you go to a bank and borrow that money. There are guidelines by RBI on leverage. Why is it important?
00:50:17
Speaker
Because you do not want people to be in a perpetual debt trap, where they earn all their money and pay to a lender, they need money for the household fences their their growth, you know, emergency funds.
00:50:34
Speaker
So RBI cares about it a lot. And so do we and the guidelines are there for a reason. So what and RBI controls leverage.
00:50:45
Speaker
This is how the growth in the economy happens. And when you have more money in the hands of folks which RBI did not, oh you know, did not know about.
00:50:57
Speaker
it can cause pressure in the economy and it can impact individuals and companies. For example, for example, I mean, I wanted to understand leverage from the point of view that as a business, if raw material is money for you, right?
00:51:16
Speaker
ah You need to acquire money to lend it out. ah One way to acquire money is raise funds from investors. And then you apply leverage on that to increase the return that you are giving to investors on the money that they have given you. How does that work?
00:51:33
Speaker
Right. So how does it work? So leverage is basically ah the idea is to earn money ah by providing to end borrowers.
00:51:46
Speaker
And what you're earning from the end borrowers should be more than what you're borrowing. The borrowing rate should be higher. And the so the return on equity, what you provide to an investors is a higher when, uh, you have higher leverage.
00:52:02
Speaker
right that Yeah, but, uh, uh, for, I don't think RBI can is concerned about the equity investors. They're more interested in their,
00:52:14
Speaker
ah good consumers general general public that they are not borrowing which they can't afford to pay okay okay okay i understand you said that uh there is a forex leverage which you do so if you raise i think till date you have raised uh about 150 million dollars uh so which means that you would be able to lend four times of this or five times of this, like another 4X amount you can get from the market.
00:52:47
Speaker
ah So this individual lending institutions ah will do an evaluation and decide how much money they should give you at what rate and things like that. Like how does that operate? Like how do you source your raw material here? That's what I'm trying to understand.
00:53:01
Speaker
Sure. So I'll just correct certain numbers. We've raised close to a hundred million dollars in equity and it's a, the hundred million dollars of equity has come at various points in time.
00:53:12
Speaker
ah to As of today, we have close to $100 million dollars of equity and whatever ah profitable ah profits we ah oh you know we've earned get added to the net worth.
00:53:24
Speaker
So together, the investor money plus profits and minus losses, what we've had in the past, ah get net off and that's what's called the net worth based on your net worth you go raise money so then the value really comes from the net and you know you want to earn for you would ideally know a very effective operating entity forex leverage is very very common however fintechs or ah you know new age companies are slightly find it slightly hard to reach
00:53:57
Speaker
ah four eggs for us. Our whole E-grail is 2.5x, which we reached in September 2023 before the guidelines became very, very active.
00:54:09
Speaker
I haven't finished the conversation about regulation, but I would like to talk about that at some point in time again. um So 2.5 is what we put in our business plans and would like to solve So what happens of every hundred rupees of ah investor money we raise, we want to get debt on it. So we show we'll go reach out to a bank like an SPI in public sector space.
00:54:36
Speaker
We'll reach out to a small finance bank, maybe like a Surya or an EU bank, or we would go reach out to an NBFC like a Herofin Corp or a Bajaj.
00:54:48
Speaker
And then we'll go to um H&I's private wealth space where we'll showcase through maybe a platform like ILFS or ah I saw the IIFL or an a vendors or GM financial will showcase a story and they'll do fund raise for us. They'll get a bunch of XG&Is together.
00:55:13
Speaker
They'll do it like that. ah What a ah NBFC does like a Bajaj, they would be borrowing from a PSU or a Chola would be borrowing from a PSU at a lower rate.
00:55:24
Speaker
and they would charge a premium and lend to us. Banks, similarly, um SFP bank would probably have access to CASA or other bank borrowings and they'll charge a premium and lend to us. And similarly, SBI would do the same thing.
00:55:43
Speaker
This is how it really works. And we will then charge a premium on what we are getting as cost of funds and charge the end borrower. And that's what we called net interest margin, the NIMS.
00:55:57
Speaker
So NIMS are a very important part of any lending business. And that's why unit economics have to always work just to capture a customer.
00:56:09
Speaker
ah If your NIMS are not priced correctly, you will never be able to make profits. Okay. Okay. Okay. Understood. ah What is the reason that fintechs are at two and a half X as the Holy Grail? Is it because they're new and they don't have the history?
00:56:26
Speaker
okay They're new. ah They are still, there's lot of regulatory changes happening. You know, what MSIs were back in 2008, 2009 is what fin text are today It will take a bit of time for the dust to settle and regulations to come in place.
00:56:48
Speaker
So, in fact, when I was talking about over leverage in November 2023, RBI came with risk weightage assets. What that meant that anyone who is doing unsecured lending, whether when you do a lending which is not backed by an asset,
00:57:08
Speaker
oh say it's not backed by a home loan or it's not backed by, oh you know, I wouldn't do business loans are also ones or maybe not backed by goods.
00:57:22
Speaker
For example, if you're doing you know, you're selling mattresses, your goods become mattresses, what did you call inventory back? All those were classified as unsecured.
00:57:37
Speaker
And the cost of borrowing for unsecured increased. What that meant, if a bank had to do a certain what we I spoke about provisioning, the Basel three norms where banks have to provision at a certain level,
00:57:54
Speaker
that level had to increase by 25% if you were doing any kind of unsecured lending. So
RBI Regulations and Their Effects on Fintech
00:58:03
Speaker
for folks like us in the unsecured space, the cost of borrowing increased.
00:58:10
Speaker
Just want to ask a little bit here. The Basin-Sree norms apply to you or to the bank who's giving you the bank to the bank. So we borrow from the banks. All the three, four, three, three. The bank see loans to you as unsecured loans.
00:58:23
Speaker
Yeah. So, if no, they, yeah, they lend to us also as unsecured because our end borrows are also unsecured, right? Okay. The end use is unsecured. Got it. Okay. Okay. Understood.
00:58:35
Speaker
Okay. Because we do not have inventory to give it to them. Yeah. There's no asset which you are doing to the bank for that. Okay. Okay. Okay. Understood. Understood. okay okay and so provisioning means that amount they have to set aside as possible loss and so therefore they have to charge you higher because there is a higher amount which they have to set aside as possible level profitability the profitability gets impacted okay this was to control leverage in the industry okay okay okay what are so okay let's let's finish the rbi journey first then i have a bunch of other questions i want to ask you uh
00:59:15
Speaker
so So, okay, so RBI came up with these guidelines on how to ah categorize and provision for unsecured loans. After this, any other major? Yeah, yeah so in again, in December 2023, this time around with RBI's directive, stricter regulations were put in place and Google was ah forced to remove another 2,500 fraudulent lending apps from the Play Store.
00:59:41
Speaker
So this journey really started in Feb 2021. And in December 2023, the direction was given to Google to remove these and a whole list was published by RBI of fraudulent apps.
00:59:56
Speaker
It was the first time that came up on the RBI portal. These are these have been banned. A few other regulations came into place in August 2024.
01:00:09
Speaker
we saw RBIs ban on tenor linked, uh, a short returns and liquidity options for P2P. So P2P was to P2P.
01:00:20
Speaker
Yeah. Peer to peer companies are also regulated by RBI. They are like platforms. Uh, they are like there. it It is a platform where they connect the borrower and the lender. However, the P2P companies were offering guaranteed returns to the, uh, to the lenders.
01:00:38
Speaker
So, um Regulations around that came up and in the most recent in October 2024, RBI put embargo on four NBFCs because of their lending rates and other other practices um oh which are related to interest rates and accounting, etc., of which one of them has already opened up, but it has had an impact on the industry.
01:01:09
Speaker
not just fintechs, but MFIs as well. So the entire NBFC industry has been impacted as well. Okay. Okay. Okay. but Like credit is not as free flowing now as it used to be couple of years back.
01:01:23
Speaker
no So we can see a difference. Okay. Okay. Okay. and Do you feel that this is a positive move or a negative move?
01:01:34
Speaker
Like, So ah for us, every RBI change has been very, very positive. um You know, talking about digital lending guidelines, you know, for us, we've always moved, you know, our business model was never to do impulse purchase from day one.
01:01:52
Speaker
So for us, it was like, you know, it's about kind consumer consumer education. It's not putting people into a debt trap and putting it down on paper, i think really helped. getting clarity what RBI wanted.
01:02:06
Speaker
Then when the FLDG guidelines came in for over leveraging and putting, you know, you know, it was very often when we were doing the business, we would say, you know, this person's, this app has become very, very popular to kids out of college, good start off in tech.
01:02:23
Speaker
ra yeah yeah many examples of that also yeah yes Now it's more about, ah you know, compliance comes first, leveraging comes, equally important, you need to have money in the bank account before you can actually start a FinTech.
01:02:38
Speaker
And then the PPI guidelines we knew UPI was anyway taking off. So from day one, and we had built out taking dispersal both in your bank on the PPI card.
01:02:49
Speaker
So for us, that was also while some people were still figuring out their business models, it was very easy for us to switch off and switch off and have all the dispersants go to the bank account.
01:03:04
Speaker
oh Have things become slightly tougher when you're underwriting a customer? Yes. But I think, you know, as so data privacy laws come into place, ah it's it had to happen.
01:03:18
Speaker
It is not allowed in the rest of the world. And in does I think in the forefront of digital lending in in terms of just fintech penetration. And I'm sure ah RBI is seeing a lot more data than we are to know why they put these in place.
01:03:34
Speaker
um The increase, increase weightage again, um you know, this is more to make sure that you're not over-levering an existing customer. um That's also helped because When we are giving money to ah borrower, if someone's not reporting it because they're a FinTech and they don't they're not required to report because they don't have a format to report, it becomes hard for us to collect as well.
01:04:02
Speaker
We did see a slight increase in risk in that period. And we can see things normalizing now as you know every 12 to 14 months is a cycle.
01:04:13
Speaker
So this is all settling down. ah You know, and, you know, regulations there for reason, regulated entities are there for a reason. And RBI putting this on paper that you are a fraud, you know, they're not a regulated entity and taking loans from them.
01:04:29
Speaker
I think it's just had to happen. you got it You can no more be doing business funny way. Have you seen any difference in your growth rates? Yes, we have.
01:04:41
Speaker
So, um, I think before risk weightage came in ah and before the FLDG guidelines, we were growing quite rapidly.
01:04:52
Speaker
We had access to capital a more easily. And since then, we've seen reduction. oh And I think these numbers are all there.
01:05:04
Speaker
ah bank funding to NBFCs went from 23% to 8%. These numbers are out there. ah So it's not just us who are feeling ah the pain, but I think it's just what ah RBI wanted to do.
01:05:18
Speaker
Okay. What are your, like some numbers you can share? Like how much do you disburse every month? And what is your loan book like? And like, what?
Managing Large Loan Books and Technology Integration
01:05:30
Speaker
So our loan book is close to 2,000 crores.
01:05:33
Speaker
We disperse close to 300, 400 crores per month. We underwrite close to 90,000 customers a month. And yes. And what is the average tenure?
01:05:46
Speaker
Average tenor. So and again, what we, what I said, the choice of customers make versus what is slightly different ah for us. so If we have to take that into place because of the convenience of the product, the average tenor on the book turns out to be nine to 10 months.
01:06:07
Speaker
However, contractually it is close to 16 months. Okay. Okay. And this 300 crores monthly dispersal, how has that number evolved? Like what was it earlier? Sure.
01:06:18
Speaker
and sure ah So close to December 300. twenty twenty two we were around this number three hundred 350 crores between May Sorry, me December were May we went to we went to five hundred kiros and when the risk rateage came in it reduced again to the three hundred four hundred koroma
01:06:49
Speaker
and we've been consistent but that number Okay, okay, okay. and Understood. Okay, okay. ah it's So a couple of like broad themes. Let me start with the ah on how you source money. So you said that it is tougher to source from banks.
01:07:09
Speaker
What are the other ways? like Like you told me that you have bonds and therefore you are sub-regulated. So bonds is sourcing from and like H&Is or what what are bonds for?
01:07:21
Speaker
Yeah, bonds are so RBI is new, SEBI new guidelines and RBI is new guidelines. 25% of the capital or the borrowings for an NBFC now have to be from the capital markets.
01:07:33
Speaker
So RBI encourages you to go to the market and get money in the form of say commercial paper, bonds from open, you know, public.
01:07:46
Speaker
Okay. Okay. So this is something that's again come up as a regulation. And what we do, we list our bonds. We go to SEBI. We say that we have a demand to raise, say, 10 crore of rupees from these five individuals.
01:08:03
Speaker
And SEBI has also become very, very active in the space where they've introduced what we call an investment banker. If you're doing denominations less than 10, denomination up to 10,000 rupees, you need to now get an investment banker.
01:08:20
Speaker
who certifies your numbers then you have a trustee who gets appointed on behalf of the public to make sure that the funds fund flow is easy then you have a lawyer on both sides who looks at all the documentation and the submission happens to SEBI it gets listed it will have an ICIN number which gets freely traded so you can buy purchase bonds through this format and you know, and then you do your quarterly filing with that SEBI.
01:08:54
Speaker
So this is now a norm. This for us, we chose to go this way. ah That we wanted it to be there borrowing from public.
01:09:05
Speaker
and There are enough competitors who still do unlisted bonds, but we wanted to go this because we want to have higher compliance. And it forces us to become better when we are forced to submit some something to SEBI.
01:09:20
Speaker
That means you need to have the entire mechanism at the back end working as well. Okay. Interesting. ah The bond market, is it liquid or is it largely relationship driven? Like you need ah an investment banker who has relationships with H&Is to sell the bonds or do people come and trade on bonds like say equity?
01:09:41
Speaker
I mean, equity is not at all relationship driven. You go on an app and you buy what you want. It depends on the denomination. For 10,000 rupee, you don't need relationships.
01:09:52
Speaker
You need a platform to be able to show. We have done bonds, uh, where the denomination was one crore and five crores as well. That's relationship driven. And what are the platforms where you do the 10,000 rupee bonds?
01:10:06
Speaker
So we've done it with grip. Okay. Okay. Got it. Okay. Okay. the the These kinds of fintechs. Okay. Understood. Okay. Okay. So, so, okay. So one way of raising money is through HNIs. What are the other ways in which you could increase your source of money? We have ECBs.
01:10:26
Speaker
We are the only, probably the only. ECBs, external commercial borrowings. External commercial borrowings where you ask, ah where you get funds from outside India.
01:10:38
Speaker
and you use them for lending in India. Okay. So, you know, there are two formats of getting money into India. One is through the FBI license.
01:10:50
Speaker
And, um you know, if you, if your lender has a presence in India, they have an FBI license, then they can lend in India. The other form,
01:11:01
Speaker
they can lend in India to a to an entity like ours. Or then if they don't have a presence in India, they come through the ECB route where they give you money into ECB, which has a tenor cap of three years, while an NCD has a tenor cap of 12 months.
01:11:20
Speaker
Okay. um Okay. And the cost of funds is same when you borrow from outside India? ah It turns out to be very similar because the hedging cost and the withholding tax matters.
01:11:35
Speaker
ah Withholding, as in you have to withhold tax when you're paying interest? Withholding TDA, because they don't have presence in India. It becomes a cost of borrowing then. Okay, okay, okay. You still need to pay the TDS for that to the government. Exactly. Okay, okay, okay, okay, understood, i understood. Got it, okay.
01:11:52
Speaker
ah Okay, so so these are the ways in which you can increase your capital supply, like going to individuals and going outside India. Yeah, the you know, ecbs ah ecbs turn out ECBs turn out to be slightly better because the average tenor has to be three years. So you land up paying in bullet format after three years.
01:12:15
Speaker
While borrowing in India, all the born of all the money that you pay back is in the EMI format. It is amortizing loans. So if today raise 100 crores, by the end of 12 months, the outstanding will be zero.
01:12:34
Speaker
Oh, okay. Because I have paid out the principal over the months. In ECB, you have more control because you now have to pay back after 36 months.
01:12:46
Speaker
So you start planning your fund flow only six months ahead of time. Okay, okay. So so borrowing from individuals is like a treadmill. You have to constantly.
01:12:56
Speaker
It's constantly, it runs out. So when you, so one of the things about leverage is to maintain a ratio, you have to constantly bridge that difference because every month you're paying the difference as principal.
01:13:13
Speaker
Yeah, essentially you have to make sure you have 300 crores every month with you to disburse. And that out of this 300 crores, besides this, you also need a additional money because you're paying back the bond holders. So you probably need something like five, 600 crores every month to.
01:13:28
Speaker
Yeah. And plus, of course, even though we are very operationally lean, so we are the leanest fintech in the country, which 170 people, ah you know, with the revenue base of close to 800 crores.
01:13:42
Speaker
um you know we don't think there's anyone who's reached the operational efficiency the way we have okay the hr is your revenue estimated revenue for this current year current i'm talking about last year the numbers are very similar yeah okay okay okay that is four numbers sorry ah march numbers That's incredibly efficient. Like your per employee revenue is something like a couple of crores. That's amazing. It's close to $3 million. dollars
01:14:13
Speaker
Wow. ah Amazing. Okay. So what are the levers of profitability? How do you run such a lean ship? how do you and Do you also need to spend on customer acquisition costs? Are they a big factor or not?
01:14:27
Speaker
What are the other ways in which you can reduce your costs to be as lean as you are? So, you know, it's, uh, it's efficiencies come off as refined as, as a company, we are all very introverted, which we find has had an impact in different ways without understanding and getting operation efficiencies being an impact of that because you're inward looking.
01:14:58
Speaker
oh It's not that we b decided that this is how we wanted. We thought everything a human can touch.
01:15:07
Speaker
Let's try if technology can do it or better. And just have someone because we used to see people get getting bored out of their jobs. How do you keep your life exciting? You can only keep life exciting when people keep trying new things.
01:15:21
Speaker
And if you have 2000 people doing the same thing over and over again, then you're on that constant. that high tre yeah Yes. Which we are all always are.
01:15:32
Speaker
It never ends because you out out kill a person as well, you know, oh that happens as well. And, oh but it's operation efficiencies come one because of technology, the idea that anything or technology, a human being can,
01:15:50
Speaker
do a technology should do as well. ah Second thing is interacting with our customers. Product convenience is something which we focus on a lot.
01:16:03
Speaker
So interacting with customers gives you more attention, more repeat business. Feedback as well. What is that they're looking for? but But the feedback, how does the feedback give profitability?
01:16:16
Speaker
You change your product needs construct accordingly. Okay. For example, we service the army army condonement areas, what we call internally a Sentinel program.
01:16:30
Speaker
it It really started with their feedback that you know, we are good quality customers, our salaries come on time. Why would you not provide us this product where you give us a 30 day free lookup period?
01:16:43
Speaker
And that really started from their feedback. Ah, okay. Because we knew we could not compete with the SPI's rate of interest. How do you come up with a product that they would use? Because we know they have need for money, but they're looking at the interest rate.
01:16:59
Speaker
So we came up with that product. We'll give you a free lookup period. And that constant interaction helps. And that's why we are able to So 90% of our business is repeat business.
01:17:13
Speaker
We don't. well Yeah, because if you're interacting 10 times year with us, we can service our repeat customers a lot more better. We anyway have a large base.
01:17:25
Speaker
But we do want to keep certain amount of money aside to onboard new customers because that leads to innovation. So your customer acquisition cost, therefore, must be really low because only 10% of your business is coming from customers. Absolutely. Okay, okay, okay.
01:17:41
Speaker
How do you institutionalize customer feedback, getting customer feedback, like keeping your ear to the ground, so to say? Um, so the, so we have a full customer support team.
01:17:54
Speaker
Again, the chat board does most of the work while, uh, so when chat board does most of the work, you get data and you analyze the data and you ask the questions, what is going wrong?
01:18:06
Speaker
Where is the customer feeling the pain? Is it the customer journey? Is it the repayment behavior? where, and, uh, we do spend a lot of time. So we have company wide meetings and in the company wide meeting, customer support has a large C as well.
01:18:25
Speaker
What they're hearing, what are the kinds of complaints they're getting? Okay. Every department collection, operations, credit, they speak to the customer to understand what is happening.
01:18:37
Speaker
Okay. Okay. Okay. at What has been the the evolution of technology within Stashfield? Like you told me you use a chatbot. So that must have been a more recent thing where you have all these AI chatbots. It's been there for two years, but chatbot also constantly needs an upgrade.
01:18:54
Speaker
Right. um You know, being now ISO certified has been a very big thing for us. ah You know, as we look at being an institution, you know, we have EY as auditors, stat auditors, and we have GTS internal auditors, Grant Thornton as internal auditors. We wanted to be ISO certified as well.
01:19:18
Speaker
So we we got a couple of vendors to do that for us. Now we are looking into getting cybersecurity certification as well with all that. So this there's always when you get feedback that this is the best practice, let's do that.
01:19:33
Speaker
You know, standardizing APIs, standardizing information, firewalls, moving to the cloud, which cloud to go to. It's like a constant conversation in the company. Okay.
01:19:44
Speaker
Okay. How is the customer journey evolved over the years when you initially were disbursing loans in 2017 to how you disbursed it today? What is the difference for a customer?
01:19:55
Speaker
So when we started back in 2016, we would ask the customer to upload the adhaar, upload their pan. You would then get on a call, ask him to click a picture, you know, a field or a field staff will go and collect the checks manually.
01:20:13
Speaker
All that was happening over a period of time now with digital, you know you would do you would not ask them to upload any documents. You would ask them to punch in the information and through API you're verifying through government APIs, you're verifying whether the PAN is valid, whether the Adhaar is valid, you know the Nash is valid, everything, the digital footprint in itself helps you capture a lot more information what a physical visit would.
01:20:41
Speaker
so okay like kyc now is entirely digital there is pure otp based uh like there is nothing beyond the ckyc you know uh then there's vkyc as well video kyc that's the next what is ckyc uh see why uh see kyc when you upload data i'll tell you you know i have to actually don't know the full form okay yeah yeah i can understand central kyc it's called central kyc uh where where nbfc's or anyone who's ever uh taken your kyc details are supposed to upload on the cell side uh website that they've
01:21:26
Speaker
ah taking the latest information, ah whether it is for bonds or it's for lending, for any reason, it becomes a central depository for KYC.
01:21:36
Speaker
You can upload and download. And it is mandatory to upload. Download is optional. Okay. Okay. Okay. Got it. Got it. You also use the term OKYC once in our conversation. What is that? Offline KYC, which or offline KYC.
01:21:53
Speaker
And then there's OTP based KYC as well. okay okay Okay. Okay. Offline KYC is in multiple ways where you take a printout and you certify that you've met the person. Okay. Which no longer is a requirement now, I think you, you, because the digital analytics. No, in our case it's not, it's not in our case, but a lot of banks still use it.
01:22:12
Speaker
Which is purely their choice. It's not like they have to use it. No, it's their choice. Okay. Okay. They have a branch. So they, I think it makes more sense for them. Ah, the comfort with, uh, active meeting.
01:22:25
Speaker
Okay. The comfort with India's paper and pen is very hard. Right, right, right. In Japan, it's even more. You will not believe the amount of paperwork they have here.
01:22:36
Speaker
Oh, really? Oh, yeah, yeah, yeah. I mean, Japan has great tech as far as hardware is concerned. But when it comes to digital, they're still like very, very comfortable with pen, paper, and a lot of those old traditions still continue.
01:22:52
Speaker
My God, I'm um i'm surprised. Yeah, yeah. So, ah okay. And there is this account aggregator framework. Is that a thing? Is that something which has adoption? Do you use it personally at Stashven? And what is the account aggregator framework about? How is it?
01:23:12
Speaker
like Like, when I first heard about it, I thought this is a game changer, but I don't hear as much about it as I would have expected to hear about it. So account aggregator is basically where you collect all the information on a customer of the bank accounts, the investments, the insurance, it all ah comes together.
01:23:33
Speaker
But this information has to be populated by someone. ah I don't think that has happened in a wide way. ah It is mandatory for folks to participate, but the information provided by various banks, insurance agencies, very, very limited.
01:23:50
Speaker
So it has had adoption with, I would say, with private banks, but with PSUs, it's slightly been harder. More what we understand, it is an infrastructure issue because various people call the same account multiple times, like maybe an account, insurance companies calling for it, bond providers calling for it, a lending companies provided, and it has impact on bank servers.
01:24:20
Speaker
And then please, that's why we understand it has not penetrated and no one and it is a it is at a very, ah I would say the cost of accessing account aggregator is maybe one fifth of what you would have if you were accessing someone's bank statement.
01:24:42
Speaker
Okay, so the cost to the banks for providing this information is not sufficient for them to maintain servers. And that's the reason it's not taken off the way you would expect it to take off.
01:24:58
Speaker
What we understand is RBI is working towards it to solve it. So it becomes economically beneficial for all. Okay.
01:25:09
Speaker
The monetization is not strong enough currently. like what you What's for the larger banks? Only large four or five banks in the country. For them, it's not. And if they are not there, then it's ah not going to be successful.
01:25:24
Speaker
Right, right, right. The account aggregator is paid for by companies like you, like you would access data of borrowers. So you would pay for that service of accessing the borrowers. What we understand a lot of people access is, as I said, insurance companies as guys, uh, banks, um, then there would be folks who are telling you investments pretty much everyone, because it is a history. It's a financial history of the, uh, uh, it allows.
01:25:52
Speaker
Personalization, like you can personalize the product, like an insurance company can give a more personalized policy if they can see your financial history. Absolutely. Okay. so So all these people who are accessing the information, they have to pay. But right now that payment is not enough. So the buy-in is not there yet. what That's what we understand.
01:26:11
Speaker
This is what our account aggregator has told us. ah Because there are certain big banks which are not there. Right, right, right, right. Okay, okay, okay.
01:26:23
Speaker
Understood. ah How do you underwrite? How do we underwrite? So, ah as I'd mentioned, you know, we have a journey where we take your fan details, we'll take your KYC details, we'll do a lot of matches digitally in the form of, so, you know,
01:26:41
Speaker
We ourselves have close to four and a half, five quarters of database. We'll check internally in our database. but What are you checking for? Like what signals are you looking for? So we think so our average ticket size is close to 24, 25,000 rupees for a 24, 25,000 rupees. We believe the customer will not default unless it's a fraud committed.
01:27:09
Speaker
He or she will come and pay back at some point in time because this is an aspirational customer who would want access to an auto loan, a home loan, an education loan for their children at some point in time.
01:27:22
Speaker
They'll come back and pay. So a lot of our checks are done towards fraud. So we would check if Akshay's Aadhaar number exists in our database with someone else's name.
01:27:35
Speaker
Ah, okay. really So we do a lot of these fraud checks. We would also check if you're using the same device and you're changing the SIM cards and applying.
01:27:47
Speaker
So what are you doing? You could, you know, you could be a, you could be a mobile shop company who has access to a lot of people's KYC.
01:27:59
Speaker
So a lot of those checks are put in place to make sure that, and what it does, it causes burden, as I said, both on the customer and on us. And this is what we want to be most careful about.
01:28:13
Speaker
okay okay so your underwriting is largely to weed out fraud but the interest rate is similar it's not like you can decide how much interest rate somebody qualifies it's risk based based so the sentinel program has uh interest rates close to 21 while a person like me who comes from private uh uh private company would have a rate of say 30 32 34
01:28:40
Speaker
So it depends on where you're coming from. And so these are like hard, hard coded rules. It's not like fuzzy logic where there are. No, there's fuzzy logic in the sense that it's rule based salary, salary company, your credit score, the kind of trade lines you have.
01:28:57
Speaker
Have you defaulted in the past? What are you know, who are your lenders?
Making Lending Decisions and Borrower Responsibilities
01:29:02
Speaker
What is your payment behavior? where Have you ever bounced a check before? All those things. So it's a it's a rule based.
01:29:09
Speaker
Okay. so we Take into consideration a lot of parameters. We, we like, I know last year we ah did 4.40 44.1 crore API calls and this is across various customer journeys to make a decision on giving money or not giving money.
01:29:31
Speaker
Okay. So sorry. No, go ahead. okay ah ah what advice do you have for borrowers you know you must have seen a lot of mistakes that people make which spoils their ability to get interest ah low interest rates or or get access to higher limits what are those typical mistakes people make you know is there any advice you'd like to share um yeah one thing uh don't forget your emi payment dates, you know, ah it's very, very important ah to make sure that you put money aside to pay your EMI, whether it's the form of auto pay, NASH or voluntary payment, but that's very, very important. This one way of ruining your credit history, because so it will only become stronger. It won't become weaker and it will never go away.
01:30:27
Speaker
So one, you know, one mistake, two mistakes can really impact your credit his history. So suggest be on top of it. If you think you are paying more interest than you can afford to, reach out to your lender.
01:30:43
Speaker
I'm sure they can work it out. But keeping quiet and hoping you'll get brushed under the carpet, it never happens. okay on time payment is very important for a good credit history good credit score okay okay okay any other advice like what kind of lender should you borrow for which purpose what use case and you know just advice on navigating loans um you know navigating loans you know you you should know what you're getting into read the fine print
01:31:19
Speaker
You know, you may think you're paying, uh, you know, 15% interest today, but it has has a 6% foreclosure fee. That's a debt trap forever. Okay. Foreclosure essentially is like if you pay back early, uh, pay back early.
01:31:33
Speaker
Yeah. effectively it becomes very high. ah So, uh, read the fine print, know all your charges upfront. You know, if someone's charging you daily interest, plus charging you daily, uh, uh, interest and then daily charges for delayed charges,
01:31:49
Speaker
you should know that you really have to get this right the first time around. So don't sign up anything without knowing. And there are enough RBI guidelines telling the lender to behave themselves. And if you think it's not correct, you of course have the RBI portal to go to and report to.
01:32:07
Speaker
okay And it's your right. It is a burden for the lender. So be it. Okay. Okay. Okay. okay Amazing.
Future Opportunities in Tech and FinTech
01:32:18
Speaker
ah Let me end with the asking you for advice for another type of audience. What is advice you have for people who want to build businesses today?
01:32:28
Speaker
Like, you know, what do you see as opportunities in India? ah You have a lot of data about consumer trends in India because you see people and what they're borrowing for and things like that. so So, you know, based on that, what advice would you like to share?
01:32:43
Speaker
Um, you know, for someone who wants to start their own thing, if that's really for, and are you asking for entrepreneurs? Yes. For entrepreneurs. um I think India is the place to be for next 10 years, for sure.
01:32:57
Speaker
ah There's enough happening, whether it's AI technology, data culling, data mining, all of those are skills one should have in terms of opportunities.
01:33:11
Speaker
um You know, EdTech, FinTech, FoodTech, they're all there. I think health tech will be the next one, whether it's in terms of pharmaceuticals, in terms of easy access, readable information, all that will become very, very access. I think the fungibility of the difference in education will go away with the technology.
01:33:38
Speaker
It's really how you can capitalize. and oh Staying true to yourself is very, very important. If you think it's working, then go for it. And if you think it's not working, cut your losses sooner than later.
01:33:52
Speaker
and there are enough opportunities. And I think there are enough companies that provide you this entrepreneur in residence oh program as well.
01:34:04
Speaker
Explore that if you're not completely ready to go for being an entrepreneur and raising funds yourself. Within the FinTech space, are there any opportunities which you think people could build for?
01:34:17
Speaker
Oh, yeah, I think there's lots of opportunities. For example, collection practices with RBI coming in and saying that you can only give money to with risk rate is that means you give to better quality customers.
01:34:31
Speaker
If there's going to be a rate cap coming in, again, the credit will become tighter. So how you interact with your customer, the product, So like personalization collecting. It becomes very important. The means of collecting money also has to be very, very subtle than being aggressive.
01:34:51
Speaker
And all that will be driven by data rather than standing outside someone's house and building the field on street stuff. Right, right, right. Okay.
01:35:03
Speaker
Okay. Thank you so much for time, Shruti. It was a real pleasure. quality customers uh if there's going to be a rate cap coming in again the credit will become tighter so how you interact with your customer the product like personalization becomes very important the means of collecting money also has to be very very uh subtle than being aggressive and all that will be driven by data rather than standing outside someone's house and building the field on state on street stuff.
01:35:40
Speaker
Right, right, right. Okay. Okay. Thank you so much for time, Sruti. It was a real pleasure.