Mumbai: Small and mid-sized non-banking financial companies (NBFCs) which lend to small and medium enterprises (SMEs) have begun moving away from third-party agencies to tap new customers on their own.
While a large part of new business still comes from direct selling agents (DSAs), NBFCs such as Bajaj Finserv, IndoStar Capital and Dewan Housing Finance Ltd are increasingly investing in hiring the right kind of sales talent and technology to find their own customers.
“The NBFC plans to hire young graduates from business schools and reputed colleges to deal with customers as the firm is focusing on increasing direct acquisition to complement the business contributed by DSAs”, Vimal Bhandari, managing director and chief executive officer at IndoStar Capital, said.
IndoStar Capital is promoted by private equity firms such as Everstone Capital, Ashmore, Goldman Sachs, Beacon India Private Equity Fund and ACPI Investment Managers.
“The firm has already started to build the teams across locations to canvas business directly for the company and the number of field officers and area managers will go up to 100 shortly,” Bhandari said.
Ashish Kohli, head of SME business at IndoStar Capital, said the company is targeting building at least 25% of its total revenue from this new stream. The company’s total asset base stands at around Rs.4,000 crore. IndoStar Capital did not confirm the share of SME lending in its loan book.
Companies offer loans against property, consumer durable loans and business loans, among other products, to SME customers.
Typically, NBFCs depend on third-party agents to get them customers since they do not have large distribution networks like banks. DSAs help them reach out to a larger number of customers in Tier II and Tier III cities, where the financing companies may not be present.
By slowly moving to their own resources, NBFCs can cut turnaround time on loan applications by 10-25%, according to Harshil Mehta, chief executive officer, Dewan Housing Finance Ltd (DHFL).
Since internal teams are able to do basic due diligence themselves, the quality of the leads are much better than those generated by DSAs, Mehta said. This helps the company identify the right kind of customers and approve loans faster.
The housing finance company started its SME business in December last year and currently has a loan book of about Rs.1,000 crore, Mehta said. While the company depended entirely on DSAs for sourcing customers when the SME lending business started, the share of leads generated by internal teams is at about 20-25% now. “We also save on cost when leads are generated by internal teams, since there is no third-party fee involved. This reflects in our operational expenditure, since the cost of generation of loans works out lower,” Mehta said.
Additionally, as companies come up with more products for SME borrowers, third-party agencies will charge higher for each product, affecting the NBFC’s profitability.
Moreover, as the intermediary cost goes away, customers stand to benefit from lower borrowing costs. Internal sales teams score over DSAs as they help in better customer experience, according to Deepak Bagati, senior vice-president, SME lending business at Bajaj Finserv.
“Intermediaries may affect the overall customer experience since they may not have the necessary training to understand the customer’s requirements and offer the right kind of advice,” he said.
The company has about 50 people in its internal sales team, which generates about 30-40% of its new business in SME lending. Bajaj Finserv plans on growing this share in the next couple of years.
Bajaj Finserv is also investing in developing its digital channel so that customers can directly access the firm’s lending services without having to come to a branch, Bagati said.
Lending to SMEs by NBFCs becomes significant in India as weak macroeconomic growth and large non-performing assets have resulted in banks slowing down. According to Reserve Bank of India (RBI) data, outstanding credit to medium-sized industrial companies stood at Rs.1.14 trillion as on 18 September.
In the same period, outstanding loans to micro and small companies has dropped by around 3% to Rs.3.7 trillion, RBI data showed.
“Typically, any change in procedure takes anywhere between six months to over a year to show any material business impact. While moving to internal sales teams will help financing firms in getting quality customers, how the macroeconomic impact plays out will be very important,” said a senior analyst from the Indian arm of an international rating agency on condition of anonymity.