Five Star Business Finance is looking to clock 30 per cent year-on-year growth in its assets under management (AUM) over the next 3-5 years, driven by a combination of branch expansion, employee addition and disbursements of loans with higher ticket size. 

The total assets of Chennai-based non-banking financial company (NBFC) grew by 37 per cent to ₹6,915 crore as of March 2023 from ₹5,067 crore in FY22.

“We should be able to maintain that momentum. Our aim is to grow our assets by 30 per cent in the next 3-5 years,” Rangarajan Krishnan, CEO, Five Star Business Finance told businessline.

Expansion

During the previous financial year, the company added 73 branches, taking its total branch network to 373. “We will be adding 50-60 new branches every year, which will add to new business and disbursements,” Krishnan said. 

He added that the company will focus on increasing the number of people per branch, so it can penetrate deeper into the existing geographies. Currently, Tamil Nadu accounts for 35 per cent of Five Star’s loan portfolio, followed by Andhra Pradesh (33 per cent), Telangana (20 per cent) and Karnataka (7 per cent). Non-south markets, largely central India, contribute 6 per cent of the lender’s current portfolio. 

Krishnan said the company will continue to be a south-focussed player with 80 per cent of its branch additions every year coming from south and the remaining in non-south geographies including Madhya Pradesh, Maharashtra, Chhattisgarh, Rajasthan and Gujarat. 

He said, the third layer of asset growth will be from increase in the average ticket size. Prior to Covid, the firm’s average ticket size was ₹3.5 lakh, which dipped to ₹2.5 lakh during the pandemic. “We have moved our average ticket size close to ₹3.3 lakh and expect it to touch pre-covid levels very soon,” he added.

Five Star primarily offers small loans for business purposes, asset creation, and other economic purposes to micro-entrepreneurs and self-employed individuals. Despite the riskier segment it operates, the lender was able to maintain its asset quality, thanks to its strong branch network and collection efficiency. 

NPA recovery strategy

Its gross stage-3 assets/non-performing assets (NPA) improved to 1.36 per cent of the total assets in March quarter from 1.45 per cent in December quarter. However, NPA was higher from 1.05 per cent recorded at the end of March 2022. The company said as per RBI’s revised guidelines, loans that have crossed 90 days past due any time on or after October 1, 2022 and not cleared their arrears fully are recognised as gross stage-3 assets as a percentage of total AUM.

In Q4 earnings call, Lakshmipathy Deenadayalan, CMD, Five Star Business Finance, said when an account becomes NPA or 90-plus, the company initiates legal proceedings and has all the right to take the property to the auction and move the customer and property to the arbitration. 

However, Deenadayalan, added that by taking the auction route, the value of the property can go down at least 50-60 per cent. He said, the strategy adopted for many years, which has resulted in a very good NPA recovery, both in principal and the IRR, is that the company keeps negotiating with the customer once the legal notice is sent to them. “We discuss with them about the inability of the repayment and taking the property to the market by the customer itself. That protects the market value of the property,” he added. 

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