Mumbai: Private sector lender IndusInd Bank Ltd is preparing to open a new vertical to focus on so-called impact financing, said Roopa Satish, country head for corporate, institutions and investment banking at IndusInd Bank. The impact financing business will lend to social enterprises working in sectors such as healthcare, education, clean energy and affordable housing, said Satish, adding that the vertical will lend Rs2-15 crore to small and medium enterprises in these sectors.
According to Satish, the new vertical was a natural progression for IndusInd, which has been focusing heavily on sustainability and livelihood related financing in the recent past. “We have been betting in a big way on the sustainable banking and livelihood banking space. Recently, we have announced the Bharat Financial Inclusion Ltd merger and if you add up the numbers, today, close to 50% of our business is livelihood or sustainability promoting," she said.
These include the bank’s microfinance or inclusive banking portfolio, commercial vehicle financing portfolio focused on small road transport operators in tier II and tier III cities and rural areas as well as clean energy, where the bank has financed renewable projects totalling 2,250 megawatts (MW).
“So, it has always been something that we believe in but now, it is also becoming strongly embedded in the business that we are doing," said Satish.
IndusInd sees a big opportunity in impact financing as it feels it is an underserved area, given that most mainstream financial institutions are unable to underwrite such loans due to high risk perception. “The space has a lot of profitable companies that are doing good but not able to raise money. Banks have become risk-averse and traditional methods, risk assessment parameters are insufficient to underwrite loans to these industries. Thus, you have many enterprises in sectors such as healthcare, education and affordable housing that are not able to raise money and unable to scale," she said.
“While you have impact investment funds, they are few and the amount of capital available or the number of people working in these is small and so with a franchise like IndusInd, with the geographic reach and the people we have, the scale of impact we can make is phenomenal," she added.
IndusInd Bank, through partnerships, will leverage on various entities which are already working on impact investment for better risk mitigation.
“We have created a lending framework which mitigates the risk and also includes methods of scoring social impact. This framework is built on partnerships. Each partnership in a particular sector brings a specific skill to the table, which helps me as a bank to take that risk. Suppose there is an impact fund. They will bring in equity and I complement with the loan. They also have an in-depth understanding of particular sectors, which helps us underwrite loans better," said Satish.
The bank is also looking at various other partnerships such as risk sharing, co-lending or investing in funds, she added. The bank is working on at least 10 such partnerships, she said, with impact investment funds, development finance institutions and multilateral agencies.
IndusInd has earmarked a capital investment of around $50 million for starting this business, which it believes will be sufficient to build a loan book of up to Rs2,000 crore in the impact financing space over the next two years.
Satish said the bank plans to start rolling out loans from its branches from the start of the next quarter.
“Initially, we will focus in metros. We have picked some cities where these industries have a good presence, which include Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bengaluru, Pune and Ahmedabad," said Satish.