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We Aim To Serve Niche Segment Within The SME & MSME Sector: KV Srinivasan, CEO, Profectus Capital

SME lending industry veteran and CEO of Profectus Capital, KV Srinivasan, in an interview with Businessworld’s Clifford Alvares, explains how building a strong foundation for the company is slow difficult process, “it is unromantic!”

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Actis backed Profectus Capital has adopted the “Hockey Stick” approach to achieving business growth and has set a target of achieving a loan book of Rs 3,000 crores in 3 years and Rs 10,000 crore in 5 years. SME lending industry veteran and CEO of Profectus Capital, KV Srinivasan, in an interview with Businessworld’s Clifford Alvares, explains how building a strong foundation for the company is slow difficult process, “it is unromantic!”. He also touched upon the effects of demonetisation and GST on the SME and MFI sector. 

Post demonetization is there stress on the SME sector, what are your observations?
Honestly asking, was there an impact of demontisations. Yes. The impact was more on the lower end, like the micro finance industry was hit much more than the SME sector. GST has hurt a certain category of people primarily in the trading segment who were able to avoid paying taxes. However, at the end of the day it is not a mortal blow, it is a question of you not paying taxes and now you are forced to be compliant and pay your taxes. So, while in the short run there would be issues, but that is the right way for the country to grow.

Has this led to rise in NPAs?
I don’t particularly see it that way, especially in the NBFC sector. Banks may have a different problem but that is also because of the bank’s own problems. Even now if you look at it, bank NPAs on account of MSMEs exposure is still lower than what they have with corporates. So relatively speaking, even for PSU banks it safer to lend to MSME segment than to corporates. The players who were into productive asset lending did not face as much as an issue as the MFI sector due to Demonetisation, at until so far.

In an already cluttered NBFC sector, you set up Profectus Capital less than a year ago, how has the journey been so far and what are the sectors you would targeting?
We set up with the primary aim of serving the niche segments within the SME and MSME sector. We lend to specific sectors such as health, education, food, pharmaceuticals, automobile components and chemicals and components. As we go along, we will add on other segments. We will not target the unbanked or new to credit segment. We would look at people who are having an exciting business and a decent track record but those which the existing banking system is not able to provide timely funding solutions to.

We want to go local, understand and address those local issues, rather than a Mumbai centric theoretical approach where everything is driven from the head office. The core team at Profectus Capital has worked together for more than 10 years in Reliance Commercial Finance and are experts in SME lending sector. Along with funding, we also advise clients on charting out a growth plan for the businesses.

What is your targeted ticket size per loan and your targeted book size?
Our targeted ticket size is Rs 40-50 lakhs per loan. It is not a huge amount but it is not small either. If you look at the average ticket size of some smaller players, it is between Rs 10-15 lakhs per loan and for the bigger players it will 150-200 crore plus. So, this is a sweet spot that we have chosen to target.

We have set a targeted book size of Rs 3,000 crores in 3 years and Rs 10,000 crore in 5 years. However, it is important to mention that we have adopted the “hockey stick” approach i.e our business graph after 5 years would resemble a hockey stick. Slow and steady in the first 2 years and then look to up the ante is the following years.

The NBFC sector has gone through a new phase I  the last few months with the focus back on asset liability mismatch. How should one manage this situation? 
People mistake the NBFC business to be an asset business, it is actually a liability business. If you can conservatively manage your liabilities, you will be a successful long-term player. You might not make huge profits in a boom year, but you will not suffer losses in a bust year.

Building a strong foundation is more important than rapid business growth. Hence, we are concentrating on foundation building in the first two years and then growth will automatically follow. That is why the Hockey Stick approach to business. It is no rocket science, but it is grandmother’s logic, as simple as that.


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