Avendus Finance, the NBFC arm of Avendus Capital, remains unscathed by the recent IL&FS crisis. This company, which provides customised capital solutions, closed last financial year with a loan book size of ₹700 crore. Sandeep Thapliyal, Managing Director and CEO of Avendus Finance, spoke with BusinessLine on the tight liquidity conditions of NBFCs and the way forward for this company. Excerpts:

What has been the main learning for NBFCs from the IL&FS crisis?

The major learning in the past few months has been the importance of effective asset-liability management for Non Banking Financial Companies (NBFCs). There has been increased understanding among all players to match their borrowing profile with their asset book. With nearly $34 billion of mutual fund debt in NBFCs and Housing Finance Companies (HFCs) maturing between October 2018 and March 2019, there is no getting away with old-fashioned Asset-Liability Management (ALM) policies which help build solid and sustainable businesses.

Needless to say, this assumes even more importance in infrastructure lending where, due to the high gestation period, there is a much higher need for long-term funds vis-a-vis requirements in corporate lending in conventional sectors.

How are the deals of Avendus Finance structured? How do you prevent asset-liability mismatch?

At Avendus Finance, all transactions go through a rigorous process of business and credit evaluation, which culminates in an appropriate solution for clients. The offering involves a lot of advisory, along with our ability to provide balance sheet support. Very recently we launched the Micro, Small & Medium Enterprise (MSME)/Small and Medium Enterprise (SME) business, where we work along with mid-market enterprises and partner with them to offer financing solutions to its domestic supply chain. Over the next three years, this business is expected to grow rapidly, given the opportunity size and lack of credible institutional capital providers in the segment.

What is the aspiration for the year?

We are looking to end the year with ₹1,500 crore of asset book largely across structured credit, with some part of it towards the MSME/SME business. Despite the recent turmoil in the market, Avendus Finance closed five high-quality transactions since the beginning of October, leading to over ₹300 crore of disbursements.

We extended financing solutions to companies such as Wow Momos, TexMex Cuisines India, Securens, Nephrocare Health Services and Laqshya Entertainment, which are led by high-quality financial sponsors and highly credible promoter founders.

What about asset-liability mismatch?

With regard to our liability profile, we were clear from the beginning that we don’t want any ALM mismatch on our books even if meant relatively slower growth. Our liabilities have average maturity of 2.5-3 years, which matches well with our asset profile.

The focussed strategy of the NBFC around client segment – mid-market, industry sectors such as healthcare, industrials, consumer, services, and logistics – and a sharp focus on ALM has been well received by rating agencies and debt providers, helping us scale up the business.

Are you staying away from infrastructure lending as part of your strategy? What kind of businesses would you be looking at in the near future?

We decided to stay away from infrastructure, given the sheer quantum of funding required in that segment and special expertise required to risk assess such businesses. We are looking to build an asset book of ₹10,000 crore over next five years, of which almost 55-60 per cent will come from the domestic trade finance business.

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