Demonetization, its Advantages & Points to Note
Everyone in India and abroad was surprised by the government's announcement to replace existing currency notes of Rs. 500 and Rs.1,000, which accounts for alm . . .
Welcome to a new series of conversations with Jt. MD & CEO of Hero FinCorp - Abhimanyu Munjal.
Mr. Munjal, thank you very much for speaking to us. Let us begin by asking you your views on India's Financial Services sector?
India has a population of 1.3Bn people, of which 900Mn people are yet to become a part of the formal financial sector, we have about 460 million unique savings account holders in the country (as of last year). As per World Bank data 43% of these accounts, or about 200 million are dormant and are not being used. This leaves us with about 260 million unique and active users of the formal banking system in India. This is where we as a country stand in terms of our financial sector. These numbers reflect the story of India. In these numbers lies the problem as well as the opportunity.
As with any story, there are two sides to this as well, so how can Financial Services providers in India access this opportunity?
Technology usually acts as a catalyst for significant changes and nation building, however, it has to be truly differentiated, and it requires significant time, effort and patience from the private sector to bring these changes to fruition. With Digital India swinging into action, we might be able to leap frog several generations of innovation and be at par with the developed world a lot sooner than we think. The government has taken several positive steps in the form of Aadhaar, Jan Dhan Yojana, Housing for All, Mudra, Payments Banks, etc. So the roads are being built, the vehicles are ready to go, it is up to us to work together and step on the accelerator.
The Hero Group enjoys dominance in the manufacturing sector, with presence in many allied fields except financial services. So I was wondering, what prompted you to get into Financial Services?
For a group that built its worth on the back of manufacturing, financial services was a completely different ball game. We took a big risk to get into this business, but we knew the returns were phenomenal. The risk we took was well planned, and that convinced the group to invest. There were many drivers, but I guess the most important one was the potential of this business, my personal passion for financial services, my deep desire to continue the legacy of my grandfather, my father, and to finally create something new and differentiated.
There was an added benefit as well, we were able to meet the group's objectives of diversification and leverage synergies. Over the past four years, my passion has grown but the drivers have changed. What drives me now are the people and teams that we have built. We now touch the lives of more than 10,000 people and these people are my key priority. Once we got the Private Equity stakeholders on board, taking care of all the stakeholders became a key driver and finally, seeing success and tasting it, drives me towards further ambitions. In my opinion Success is the most powerful driver.
We understand diversification was the intent, let me ask what were the guiding principles for the organization build?
Hero FinCorp was incorporated in 1991, but like many of the bank accounts that I spoke of earlier, it lay in dormancy till about 2012. We employed two people, sitting out of the finance department of Hero MotoCorp which had a loan book of vendors and dealers amounting to about 300 Cr., with zero NPAs. In late 2012, I took charge of this business with three clear hypotheses.
First, there is a supply constraint in the financial services space and therefore more the financiers, the larger the pie.
Second, as a Hero Group company, it had to provide social mobility to its customers. Therefore, we said that the individual on the street is our customer and we will exist to serve her/his needs and hence work towards financial inclusion.
And third, it would be built on technology so that we are able to run a lean operation and maximize value for our customers by passing on the savings to them.
And, how has Hero FinCorp's journey been so far?
When we went live with our first loan, we did not have a disbursement process in place. So when we faced our first consumer loan, we handed our dealer a giant cheque in a very large choreographed ceremony, but no actual money!!
We were new and naïve, but we learnt quickly. We are now present in about 3,000 touch points across 1,008 cities, towns and villages, with a team strength of 4,000 individuals and an asset book of INR 10,000 Crores. We have grown our book by over 33 times in the past four years.
We understood that customers valued transparency and fairness, so we deployed dual screen computers at our dealerships so that they could see what was being entered. This also had the fringe benefit of higher accuracy. We also learnt that our customers need flexibility so we now run many customized product schemes.
One of our key mandates early on was to diversify the financial services business, and by financing Hero MotoCorp Two Wheelers and our vendors and dealers, I realized that we were only financing within our parent's ecosystem. It is then, about three years ago that we decided to go out into the SME space with a clear focus on inclusion as well. We began targeting the 50 million SMEs of India, more than 80% of whom are under served by traditional financiers. We now have a combined SME and LAP based asset book of close to INR 3,000 Crores.
You have scaled at a very rapid pace; could you share some of the challenges faced?
When we started in 2013, I noticed that the channel was not satisfied by the service as there were delays in disbursement and reconciliation issues. And we came up with a breakthrough acquisition and appraisal process that was built entirely using technology.
Despite our disruptive technology, the channels became weary of cannibalization. Many of our competitors started threatening our work force and our channels by calling us fly by night operators and discouraging them to do business with us or work with us. I maintained that we will not cannibalize but instead, together, we will grow the pie. This turned out to be true, we currently do about 60,000 units a month and our competitors remain at their 2013 run rates. Over the years, we have helped grow the financing penetration at Hero MotoCorp dealerships from 17% to about 35%.
Going forward, what are the future plans for Hero FinCorp? What principles or objectives would guide your next steps?
A few months ago, we scrubbed our customer data base and learnt that about 70% were new to credit with no bank accounts and no credit history. We were surprised to learn that after taking their first loan with us, these folks subsequently went on to borrow over a billion dollars.
As our data is reflective of the Indian demographic, going forward our road map will be defined by them. Whether it is an auto loan, a personal loan, a home loan or a consumer durable loan, Hero FinCorp will be there to provide it.
Thanks again for speaking to us. We look forward to continuing this series of #Conversations through more insightful discussions.
The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.