CA Grameen expects NCLT approval for Madura merger in couple of quarters

Mumbai: Microfinance institution CreditAccess Grameen (CA Grameen) expects to receive NCLT approval for its acquisition of Chennai-based Madura Microfinance Ltd in another couple of quarters, its managing director and chief executive Udaya Kumar Hebbar told Mint.

The lender has already applied in Bengaluru and Chennai National Company Law Tribunals (NCLTs) for approval and has taken a one-time provision in the September quarter to align both their loan books. In 2019, CreditAccess had announced the acquisition of Madura Microfinance and said will eventually merge it into its business.

“Legally we have to keep it as two separate entities till the merger is approved by NCLT. We have already applied from both sides – Chennai and Bangalore – and it is a question of maybe a couple of quarters to get that completed. Otherwise, we are working as one company but keeping two legal entities because the final merger approval is yet to come,” said Hebbar.

The lender made additional provisions of ₹13.4 crore in the September quarter to align Madura Microfinance Ltd’s provisioning policy with its own. With the revival in the rural economy, CreditAccess is looking to grow its loan book between 17-19% in the current financial year. Its gross loan portfolio grew 19% year-on-year (y-o-y) to ₹13,333 crore in Q2.

“The 17-19% growth is for the consolidated loan book. See, while we are expecting higher growth from Madura, their overall book is only 16% of the gross loan portfolio and therefore the impact of that growth would not make too much variations in our estimates,” said Hebbar.

Meanwhile, in the past one year, it has also written off 200,000 customers for non-payment of dues following covid-19.

“Normally if the delinquency is more than 270 days and recovery prospects are bleak, we write them off. We have a policy of writing off delinquent portfolio if delay is more than 270 days and therefore, we wrote off 200,000 customers in the last one year. Majority of them are covid-19 affected but some are pre-covid delinquent as well,” he said.

Moreover, addition of fresh customers has also been slow in the three months to September. Hebbar said that from April 2020, except for four-five months in the last financial year (FY21), the lender has not acquired new customers. Again, this year, in the first four months it did not acquire new clients but hopes to add more customers from the next quarter.

“We have been providing credit lines to customers and increasing them based on their vintage with the bank. Last two years, we have been able to retain our customers. Customers with over three-year vintage used to be about 33% of the total base and now stands at 48%,” he said.

He added that while this surge in share of existing customers is an aberration, having vintage customers keeps a lid on operating cost because 60-70% of the growth comes from within the existing customer base, without additional customer acquisition cost.

Collection efficiency has also improved in the September quarter and in the month of October.

“If you see as of October, collection efficiency is as of 94.3% and you have over 4% non-paying customers. Therefore, the repayment of the remaining customers is actually near to 98-99%. We are near-normal in terms of collection and absolutely normal in terms of disbursements and expansion,” said Hebbar.

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