In what ways is Suryoday pivoting with the changing realities brought in by covid-19?
Before April, we had not done a single digital transaction. In April, we saw 1,000 digital transactions. In May, 10%, or 100,000 of our customers, made payments through digital means without meeting us, either through UPI (Unified Payments Interface) or net banking or debit card. We have a tie-up with Razorpay. So, the customer had to click on the link without keying in the account number or loan number, and key in how much he wanted to pay.
We are now targeting 50% of customers. But hopefully, if we do 25%, it still gives us confidence that even a microfinance customer can go completely digital like you and me.
Based on what we did, we rolled out ₹5,000 overdraft (OD) facility for our customers. So, the issue earlier was these MFI customers could borrow term loans and borrow only if the group was borrowing. We were never able to solve their problems till now. So, we decided to roll out OD products at 15%, lower than our range of 9-24% MFI loans. This we decided to keep giving and pay interest for the amount they are using. It gives them comfort that there is a backup limit of ₹10,000-15,000 for business or emergency purposes. We combined digital and backstop funding. So, the behaviour of customers will change for good after this.
Demonetization did a similar thing. It damaged a piece of our portfolio. It converted all disbursements to banking channels through digital model. What covid is likely to do is, it’s going to convert a substantial segment of the customers to try digital and when both the pieces are done, what we are likely to see is a microfinance version emerging in the country. Earlier it was a group model, that is likely to pivot.
When do you see normalcy returning?
Credit will start picking up quite quickly. It will start as early as June with small-ticket loans of ₹5,000-10,000 given as emergency and working capital loans. Normalcy will start coming back in July.
One unknown variable at this point is what our collections are going to be. Is it going to be 80% or 30%? Apparently, some data shows that in all other countries, it starts with 30% and goes up to 90% in three months. That is likely to happen.
One critical thing is that we have to analyse a couple of scenarios—to come back to 95% or more, will it be August-September, or November-December? A look at how credit losses are going, at least 2-3 times of what it was pre-covid, it could be 4-5%. The average loss during demonetization was close to 10%. This time, it could be less than that. But it will take a toll.
How many of your customers have taken the first moratorium?
It was an opt-in. Everybody was given a moratorium. First three months, it was automatic because we couldn’t reach them. Only by the last week of May could we collect 10% from borrowers. By default, that means 90% have taken moratorium under phase 1. In phase 2, in June, 30-35% is likely to repay, so moratorium will be 60-65%. If the trend were to continue, another 30% will repay by the next month.
Where do you see the new lending opportunities?
The good news is that average loan outstanding is less than ₹16,000. They are fairly under-leveraged. The bad news is that all loans are short-term loans. So, even if the amount borrowed is low, the monthly obligation is as high as ₹6,000-7,000. So, if you want to calculate the leverage, outstanding is not high at all. But if you want to calculate leverage in terms of repayment, then that balancing is likely to happen along with other products. You can see micro loans becoming a truly end-use-driven product. I see a huge demand for overdraft facilities. People would have dismissed health insurance pre-covid. Covid has shaken everybody off-balance. I see a huge demand for health insurance products, even within our customer segment.
Do you see a paradigm shift in the way you do banking?
Big time. RBI has approved video Know Your Customer (KYC). The advantage of an incumbent bank in any customer is customer lethargy. Today, with video KYC, if I’m not happy with my bank, with the click of a button I can open an account without meeting the banker at the convenience of home or office. This will make the entire process of acquiring customers different. So, we have the best products to offer digitally at lower cost. So, you can acquire any segment of customer.