A lot has changed at SMFG IndiaCredit. Orange has become green. Promoters have changed hands — from Singapore’s Temasek to Japan’s Sumitomo Mitsui Financial Group (SMFG) and Fullerton — India Credit is now SMFG IndiaCredit.

Yet, there are a few things that haven’t changed — the old hands and the old ethos. Shantanu Mitra, the company’s MD & CEO, has come back to lead the business after exiting Fullerton in 2019. His team of trusted men are back, too. With the house in order, the once champions of small business loans are back with a renewed focus. This time the ambit has expanded.

Business plan

From ₹36,000 crore of assets in FY23, the company plans to touch ₹70,000 crore of loans in the next 2-3 years. That’s an annualised growth rate of around 25 per cent, which should fetch 15-18 per cent return on equity. Mitra is clear that growth and returns must go hand-in-hand, and to ensure this SMFG has added more layers to business.

Fullerton shot to fame was due to its sharp focus on small business loans and small ticket loans with deep penetration in Tier-2 cities. These regions account for nearly 65 per cent of its business, and SMFG wants to stay focussed on this space with its current product suite (see table).

One of the major changes that happened in the years when Fullerton had to take the backseat (FY21) owing to Covid and the change of guards is the adoption of technology. It was also the phase of rapid growth of two of its critical peers which it cannot ignore — Aditya Birla Capital and Piramal Enterprise. They not only compete head-to-head on each of its businesses, but are very popular on the digital front, especially partnership-led lending.

Therefore, while branches will remain a significant distribution channel for SMFG, with plans to add 100-150 branches in the next 2-3 years, digital distribution (which accounts for 15 per cent of loans) will equally be a focus point, including exploring models such as co-lending and drawing synergies with Japanese equipment manufactures operating in India.

What works in SMFG’s favour is the availability of capital is a relatively clean book, thanks to ₹4,440 crore of gross write off in FY22 and FY23, and the backing of strong global promoters who have entered the non-banking space for the long haul. SMFG is set to acquire the residual stake held by Fullerton in SMFG to take 100 per cent ownership of the business. With AAA (stable) credit rating and advantageous cost of capital position, these are the lender’s biggest advantage to combat competition.

Housing play

Fullerton’s housing finance arm was on the block around the pandemic. But with the new owner stepping in, the housing business has been retained in-house. Largely focussed on affordable housing, as it compliments small business lending, the plan is to grow the book in line with the overall growth strategy. With most of the pain in housing finance arm’s loan book taken care of and ₹225 crore of loans written off in FY23, it’s a rather clean slate for the new innings like its holding company.

Mitra is open to exploring inorganic options in this business, but is in no rush to seal a deal at unfavourable valuations. With a 65:35 mix of mortgages and loan against property, the challenges ahead of the HFC business is also very similar to SME lending. Unlike in its previous avatar, when affordable housing was just about gathering moss, today it’s a well-discovered business with numerous competitors.

In fact, as the lender readies for a massive comeback, competition will be the big thing to watch out. Much has changed, whether in terms of regulation or business and operations in the last two years — more so with the proliferation of fintechs and digital lenders.

SMFG may have got back its old hands. But it needs more than the old mojo to achieve the new aspirations.

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