The recovery in our business has been led by the rural market: Sundaram Home Finance MD Lakshminarayanan

The recovery in our business has been led by the rural market: Sundaram Home Finance MD Lakshminarayanan

 

Riding a growth wave in Tier-2 and -3 towns, Sundaram Home Finance has ventured into the small business loans segment, targeting chaiwalas, grocery shop owners, tailors and other small entrepreneurs.

Lakshminarayanan Duraiswamy took over as the Managing Director of Sundaram Home Finance in April 2020, when Covid-19 was spreading around the world. Lots has changed since then. Riding a growth wave in Tier-2 and -3 towns, Sundaram Home Finance, a wholly-owned subsidiary of Sundaram Finance Ltd., has boldly ventured into the small business loans segment, targeting chaiwalas, grocery shop owners, tailors and similar small entrepreneurs. In an interview with Moneycontrol, he provides insights into the conservative non-banking finance company’s diversification and what that holds for the future.

 

You were bullish on disbursements growth from Tier-2 and -3 towns when I met you. Has that translated into results?

We adopted a conscious strategy to open more offices in remote locations, targeting the self-employed segment in Tier- 2 and -3 towns. As a direct outcome of this strategy, we doubled our disbursements to the self-employed segment. We disbursed Rs 972 crore to the self-employed in the first-half of this year as compared to Rs 446 crore in the same period last year. We have had 65 percent of our incremental business coming in from Tier-2 and -3 towns. Our plan is to increase this further. Clearly, we have tapped the opportunity in remote locations in the last 12 months

 

What led you to diversify into the small business loans segment?

Post wave 2, the recovery in our business has been led by the rural market. The Government’s focus on driving an organised SME/MSME segment meant that Tier-2 and -3 locations witnessed good economic growth and smaller ancillary businesses began mushrooming there.

In light of the revival in businesses after the pandemic, self-employed businesses such as grocery shops, pharmacies, hardware shops and tea shops began looking to expand their business. For almost a year, we did test marketing in Madurai, Tirunelveli and Salem trying to understand the requirements of this segment. We received interesting feedback. Small entrepreneurs planning to expand their business were looking for working capital financing from credible players. We found that there was a need for organised financing to the small business segment in the rural market. That led us to this strategic diversification, and to the launch of an exclusive loan product for this segment.

Our focus will be to lend up to Rs 20 lakh to small business owners and traders against residential property. The Sundaram Experience will come in handy in lending to this segment as the group’s focus has always been on understanding customer needs and providing the best customer service.

 

What are your immediate plans for this new segment?

We opened three exclusive small business loans branches in Madurai, Tenkasi and Theni in Tamil Nadu last month. We are looking for further expansion in Tier-3 and -4 towns in the state in the next four months. Our immediate plan is to have a presence in 10 remote locations, including in Rasipuram, Aruppukottai and Rajapalayam by March 2023. We have set up an exclusive team to tap this new opportunity and will be hiring 50 people specifically for this segment by March 2023. We expect to achieve disbursements of around Rs 15 crore from this segment by the financial year end.

 

How do you see this segment panning out for you in the long term?

Currently, we see ourselves as being in a start-up phase in the small business loans segment, and will be measured in our approach. We will review the customer feedback from these new branches by March and then decide on future expansion both within Tamil Nadu and outside. We see this initial phase as being a building block for the long term. I do think that this segment has potential to grow well for us in the coming years.

 

When we met last, you had expressed confidence about a revival in the real estate sector after Wave 2. How do you see the overall recovery in this space?

The recovery and the rebound in the real estate sector have been swift and positive in the last 12 months. The sector has been very resilient after Wave 2. The growth story is broad based and the momentum is being driven by a real secular recovery. Demand has been quite strong. This was reflected in our disbursement growth in the first half of FY23. We achieved disbursements of Rs 1,736 crore as compared to Rs 892 crore in the first-half of the previous year. Assets under management crossed the Rs 10,000-crore milestone in the first half of this year. All the segments have grown and we are happy with the pace of recovery.

 

What impact have the repo rate hikes had on housing demand?

Though there was initial apprehension that this could have a negative impact on housing demand, we have not seen that on the ground. The real estate market has remained resilient, and we have seen steady demand in recent months. We have had a good number of enquiries in all segments and the indications are that the housing sector will continue to remain strong.

 

What are your hiring and expansion plans for the rest of the year?

We have hired 150 people so far this year. On the back of the disbursal growth, we will be hiring another 100 people in the second half of this year, a majority of which will be in tier-2 and -3 towns. Our plan is to open around 20 branches this year in remote locations in South India by March 2023.

 

What kind of response have you seen following the FD interest rate hikes?

Since June, we have effected three upward revisions in our FD interest rates. We have seen a significant spike in the inflow in deposits after these three hikes, driven by deposits from senior citizens and trusts. FD will continue to be a constant source of funding for us.

 

What is your outlook for the sector?

The long-term trajectory looks solid. We are clearly focused on Tier-2 and -3 towns and that is the direction we are consciously taking. Our branch expansion and hiring is also in line. We feel remote towns will continue to drive our growth in the near term.

 

 

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