Detailed narrative
Market Outlook
The market sentiments are weak, and recovery is expected to take time. While RBI and government measures (moratorium, targeted repo operations, SIDBI refinance) have largely addressed liquidity concerns for NBFCs, the major challenge remains restarting businesses and redefining lending policies. Normalcy, especially for activities like travel, dining, and leisure, is anticipated to take a longer time until an effective cure or vaccine for COVID-19 is found. The real estate sector is expected to face a difficult year, but affordable housing demand is seen as resilient. There is an anticipated increase in working capital requirements from SMEs due to lost cash flows.
Business Segments
MSME Lending
Key focus area, constituting 51% of the book. Severely impacted by lockdown, especially in red zone areas, leading to challenges in asset quality and repayment. Only 1% of total customers engaged in severely impacted industries (tourism, restaurant). Slowed pace of disbursals prior to COVID-19.
Outlook: Majority of branches fall in orange and green zones where businesses have resumed. Local teams will reassess demand and localized policies will be implemented for lending. Expects increased working capital requirements from businesses that lost cash flow.
Construction Finance
Constitutes 24% of the book. Average exposure is INR 7 crore per customer. Majority of projects are affordable housing.
Outlook: Does not pose much threat as demand for affordable housing projects is expected to remain undented post-COVID-19. Larger projects may face problems due to labor migration, making it a difficult year for the real estate side generally.
Housing Finance
Constitutes 22% of the book. Lends in affordable housing to small ticket size borrowers with an average ticket size of INR 10 lakh. Has a multilayer credit approach and average loan to value (LTV) of 59%.
Outlook: Demand from salaried customers may not be impacted much, but self-employment demand may slow down. Property prices may be offered lower by developers to push inventories. LTV provides a buffer against price falls.
Competitive Position
Capri Global maintains a strong competitive position due to its robust liquidity (INR 435 crore cash + INR 605 crore undrawn lines + INR 500 crore securitization lines) and high Capital Adequacy Ratio (38.7%). It has successfully maintained its credit ratings (A+ from CARE, AA- from Brickwork) amidst peer downgrades. The company's focus on Tier-3 and Tier-4 cities, where COVID-19 impact is less severe, provides a strategic advantage. Management sees an opportunity to carefully select and lend to good borrowers when other NBFCs may be unwilling or unable to lend.