In an interaction with Santanu Agarwal, Deputy Managing Director of Paisalo Digital Limited

The stellar financial performance of the company can be attributed to astute bad debt management, a sturdy disbursement strategy, and operational excellence, affirms Santanu Agarwal, Deputy Managing Director of Paisalo Digital Limited

In Q1FY23, the net profit of the company zoomed more than 80 per cent on a YoY basis at Rs 38.4 crore. What were the contributing factors to the company’s stellar results?

The exceptional performance of the company can be attributed to several key factors that have influenced its financial performance. Firstly, the company has significantly reduced its bad debt figures. Through strategic planning and measured steps, the company has written off bad debts totalling 13 million. Reducing the exposure to non-performing assets has contributed to the decline in bad debt.

Furthermore, in Q1 FY24, the company competently recovered old written-off bad debts worth Rs 108 million. All in all, this has had a positive impact of Rs 95 million on the bottom line. Secondly, the company's top line has also been burgeoning. Thanks to a robust disbursement strategy and operational efficiency, Paisalo has witnessed a positive increase in monthly income.

Conclusively, the stellar financial performance of the company can be attributed to astute bad debt management, a sturdy disbursement strategy, and operational excellence.

During the first quarter of FY24, the company experienced a remarkable 34.11 per cent surge in its AUM. What were the contributing factors behind this impressive AUM growth? Additionally, could you share the target AUM growth for the upcoming years?

Paisalo's success can be attributed to its disciplined approach to investing in the future. By making strategic investments in its franchise, the company ensures sustainable growth and solidifies its market presence. Across each line of business, Paisalo has continued to set new records, establishing itself as a trailblazer within the industry.

Furthermore, Paisalo remains steadfast in maintaining its credit discipline and reinforcing its balance sheet. By striking a delicate balance between prudent risk management and strategic growth, the company upholds its commitment to providing reliable financial solutions to its customers.

The increase in the disbursement figure is due to the Business Transformation Strategy undertaken by the company over the past few quarters. At Paisalo, we believe that the purpose of any business transformation is to result in stronger growth momentum, a better customer experience, additional cross-sell opportunities, lower credit risk, lower ALM risk and improved liquidity. As a result of the activities undertaken as a part of the business transformation strategy, we are witnessing an increase in AUM by 34.11 per cent.

Looking ahead, Paisalo remains resolute in its mission to contribute to India's progress and prosperity. The company will continue to adapt to the ever-evolving business landscape, capitalize on emerging opportunities, and drive inclusive growth. By embracing innovation, nurturing talent and fostering collaboration, Paisalo aims to catalyze positive change and be a trusted partner in the nation's journey toward economic advancement and financial well-being for all. As Paisalo is a listed company, any forward-looking guidance not yet disclosed to the relevant authorities cannot be shared.

India’s retail inflation rose to 4.81 per cent in June, as against 4.31 per cent in May. How do you see its impact on NBFCs?

As we look toward the future, our vision remains clear. We will continue to uphold our financial discipline, invest in innovation, and develop our people, as these elements are the foundation of our unwavering dedication to helping customers and communities across the country. Together, we will forge ahead, empowering individuals, supporting businesses, and contributing to the prosperity and well-being of our society.

We adhere to specific foundational principles and strategies in building this company – from maintaining a robust balance sheet and investing in nurturing talent, to fully satisfying regulators, continually enhancing risk management, governance & controls and serving customers & clients while uplifting communities. By adhering to these fundamental principles and strategies, we drive organic growth and effectively manage our capital, including dividends, as we have consistently demonstrated.

To ensure Paisalo thrives in the present and future landscape, we have undertaken several actions:

Recognizing the evolving profitability dynamics, we acknowledge that holding certain types of credit, loans or similar assets has become less lucrative due to stringent capital requirements and market dynamics. Consequently, we are strategically allocating credit where it makes more sense while focusing on generating granular credit-related revenue to maximize profitability for our NBFC.

We are implementing more stringent management and execution of our business strategies. This entails repricing certain business segments, phasing out less profitable products, optimizing the business mix for individual clients and adopting a more rigorous approach to client selection and resource optimization.

We are actively exploring new strategies for capital optimization. This includes forging more co-lending partnerships and potentially expanding into cross-selling opportunities in the future, among other possibilities. By leveraging these avenues, we aim to enhance our capital efficiency and overall business performance.

If most NBFCs adhere to the above principles, the impact of inflation should be manageable in most cases. Regardless of your perspective on the world's complexity, the risks and the opportunities that lie ahead, having an exceptional team of individuals— with courage, intelligence, integrity and immense capabilities— to navigate personally challenging circumstances while upholding high standards of professional excellence is what secures our prosperity, both now and in the future.

Can you highlight the key growth triggers for the company over the next 3-5 years?

Properly regulated NBFCs, like Paisalo, play a crucial role in safeguarding and strengthening the financial system. They maintain transparency with regulators and diligently work to shield the system from terrorism financing and tax evasion through the implementation of know-your-customer (KYC) and anti-money laundering laws. Additionally, they assist customers in safeguarding their data, reducing fraud and cyber risks and offering financial education. These NBFCs are also required to adhere to social obligations such as Financial Inclusion of Micro Markets, which entails extending their services to lower-income communities.

NeoBanks and FinTech companies have it easier, as they are not bound by certain regulatory or social requirements. On the other hand, other startup companies that offer banking-type services manage hundreds of thousands of accounts that hold consumer funds, facilitate payments, access bank accounts and extensively utilize and sometimes distribute customer data. This trend is likely to persist until these companies are subject to regulatory scrutiny. I could delve deeper into the topic, but the key message is that we should brace ourselves for this trend to continue until these entities are brought under regulatory oversight.

The competition in the lending industry is intensifying, not only among traditional banks and NBFCs, but also with the emergence of fintech and large technology companies. This trend is significantly impacting the role of lending in the financial system. The rate at which this transformation is occurring, along with the scale of the competition, is extraordinary and rapidly increasing.

Despite these challenges, we maintain our confidence in our ability to thrive by remaining vigilant, driven, adaptable, agile, and disciplined. Embracing these qualities, we are poised to continue building our company's success amidst this rapidly evolving landscape.

We have established a set of guiding principles that govern our business operations, infused with our core values. These principles serve as a unifying force for our company, connecting 1377 touch-points across 18 states. In addition to these guidelines, we have recently crafted a clear and concise purpose statement- 'Bharat, Ab Rukna Nahi.' This statement combines our values with our daily business practices, elucidating how we have conducted ourselves for many years.

At the moment, what are your top 3 strategic priorities?

At Paisalo, we constantly strive to meet the credit needs of our customers, seeking improvements in three key domains as outlined below:

Disruption: Our goal is to revolutionize current credit disbursement methods in the ecosystem, enhancing convenience for our customers. Paisalo is committed to developing approaches and business segments that align closely with our customers' needs and preferences.

Innovation: Paisalo is an action-driven organization. Our guiding philosophy 'Ab Rukna Nahi' permeates all our business practices, including innovation. We maintain an unwavering commitment to identifying the next innovative breakthrough that streamlines processes and enhances accessibility for all stakeholders. We believe in taking consistent action to serve our investors, consumers and to create value within society through pioneering ideas and innovation in the lending landscape.

High Tech-High Touch Approach: Paisalo employs a high tech-high touch approach to connect with people across India, resulting in a scalable business model with risk mitigation. Utilizing proprietary algorithms we've developed, our operations have expanded, enabling us to successfully extend credit to over 19 lakh customers across 18 states through 1377 touchpoints. This strategy empowers us to fulfil our customers' credit needs personally and efficiently. Paisalo is dedicated to continuous improvement of this approach, making it a strategic priority to enhance customer experience.

In Q1FY24, the company added 325 new touchpoints, taking the total geographical footprint to 1377 touchpoints across 18 states. Can you elucidate the company’s plans to further expand its geographical reach?

Our vision remains simple and unaltered. At Paisalo, our commitment is to empower India's underbanked and unbanked population through accessible and inclusive financial solutions. To achieve this, it's imperative that we operate as a healthy, vibrant and responsible company. Beyond traditional lending, we contribute significantly to the communities where we operate. This, in turn, lays the foundation for increased opportunities and prosperity for all. Together, we are actively shaping a financially inclusive India, where every dream finds support and every endeavor is given the opportunity to thrive. With our unwavering dedication and relentless efforts, we drive positive change, enabling the underbanked and unbanked population to unlock their full potential and contribute to the progress of the nation.

I would like to emphasize two other critical points. Firstly, we are committed to building enduring businesses, and secondly, we are not a conglomerate. Our business relies on and benefits from each other, and both these factors contribute to generating our returns.

Our primary objective is to empower our employees, differentiate our company from competitors and inspire innovation within our organization for the benefit of our clients, colleagues and communities. We firmly believe that this clarity of purpose will propel us forward, enabling us to better serve our stakeholders and make meaningful contributions to their success. We must conscientiously consider the unique needs of communities across the country. Companies of all sizes need to engage thoughtfully, listen actively and make well-informed investments and decisions to earn the trust of each neighborhood. Impact is most potent when it's on a local scale.

A local bank branch, particularly in a low-income neighborhood, can succeed only if it aligns with the community's needs. This is why, over the past several years, we have shifted our approach to providing access to financial education, along with low-cost lending products and services. This shift helps us ensure that Paisalo is genuinely Available–Aware–Affordable, especially in Unbanked Rural Centers, to better serve our customers.

We are implementing this approach through our High Tech–High Touch Model, creating distinctive spaces in the heart of semi-urban and rural communities. In FY23, we expanded to a total of 1377 touchpoints across 18 states. These touchpoint operations host grassroots community events, small business mentoring sessions and financial health seminars. We have ambitious plans to add more touchpoints in the upcoming quarters.