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Published on: June 17, 2020, 8:33 a.m.
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By Ritwik Sinha. Consulting Editor, Business India

We aim to become the Amazon of financial services in India.” Hearing a statement of this kind, when the global economy is probably suffering the crisis of the century, seems to be out of character with the sweeping sense of gloom prevailing in the market today. But then you can’t afford to take it lightly, coming from someone like Pramod Bhasin, who has been the face of GE in India and instrumental in setting up Genpact for them – a business process services unit for the group which was spun off as an independent entity in 2005.

To put things in perspective, the statement quoted above was made a few days prior to the lockdown in March when in a long conversation at the company’s plush 40,000 sq ft headquarter in Gurgaon, Bhasin and his key team explained the basic elements of Clix Capital’s journey (built on GE Capital’s base turf acquired in 2016) over the last three years.

A later conversation with Parth Gandhi, senior partner & managing director, AION India Investment Advisors (a joint venture between US private equity giant Apollo Global Management and ICICI Venture forged in 2011), which helped acquire GE Capital and holds over 80 per cent stake, reconfirms that the game has taken off on a high note – much on the lines of what you expect from impact players.

Incidentally, the partnership between Apollo and ICICI Venture in AION has come to an end though the parting firms have decided to continue with AION Fund 1 which had raised $850 million (and covers the funding of Clix Capital) till investments are recovered. “It will have no bearing on us,” Bhasin says succinctly.

With the financial support of AION India Investment Advisors, Bhasin (founder of Genpact and former CEO of GE Capital India for a long time) made the acquisition with his partner Anil Chawla (former head of GE Capital’s commercial business). And though he does not specify, industry insiders say that the former GE duo put in close to $21 million together in the deal with AION India extending a support line of over $140 million.

And three years into actual operations, Bhasin strongly claims that Clix Capital has some growing metrics to showcase in terms of meeting with preliminary success on its report card. “We are serving around 3.5 million customers today.” When Bhasin and his team had taken over the command of GE Capital, the company had a customer base of around 1.5 million customers, and is now aiming to reach around 15-20 million with superior technology deliverables to ordinary loan seekers – both retail and SMEs.

But March onwards, Covid-19-led disruptions has battered the basic structure of several businesses – financing is clearly in the forefront, badly bruised by falling incomes (or no income) across consumers and businesses. Exceptions notwithstanding, the economy has certainly slipped to a point where caution is the driving mantra of stakeholders across the value chain and there are serious question marks on how established as well as emerging firms will cope with this unprecedented challenge. “Our progress has been quite remarkable since our inception on every front. We were quite ahead of our plans till this crisis happened,” says Gandhi. So, does it mean the present environment significantly slackened Clix Capital’s pace? “I would rather say, it is a good opportunity to re-set and we have chalked a strategy to deal with this crisis,” Bhasin responds.
 
Building with differentiators

Despite the IL&FS fiasco resulting in drop of credit to the commercial sector by non-banking lenders and the perceptible slowdown in the economy even before the Covid spell, in an overall sense the Indian financial market in recent years on the non-banking side has seen the emergence of a new category of players called Fintechs (promising convenient technology-enabled financial services to the customers). But as the platform has seen the arrival of more players, attaining scale has popped up as a common challenge. Point it out to Gandhi, and he will tell you point blank that clubbing Clix Capital with regular fintechs is an unfair assessment.

“Most fintechs in India have small loan books and equity base. They do not receive high ratings from credit agencies.” The obvious reference is the AA rating which Brickwork Ratings has assigned to Clix Capital, while specifically mentioning that the company “recently prepaid its Rs200 crore NCD with ICICI Prudential”, a rarity among NBFCs in the current economic scenario.

“We have scale and we’ll further expand it by diversifying our product portfolio. Like most of the fintechs, we don’t just have a single product doing payday loans for small business,” Bhasin adds to the argument. The addition of nearly 2 million customers (over and above the 1.5 million customer base of GE Capital) is probably also indicative of scale building at a swift pace.

Meanwhile, the Clix Capital management also maintains that the base platform of GE Capital has been given a complete makeover. “Clix Capital is a radically different version of GE Capital. The latter was following the old-feet-on-the-street model, whereas ours is a completely digitalised platform. GE Capital used to focus more on corporate lending whereas our focus is retail and SMEs,” he explains. And much of this is driven by the basic philosophy of providing easy finance just at the click of the button even to ‘new to credit’ or completely unserved consumers.

Allowing access to easy credit to everyone who is eligible as per the assessment of the high-end technological algorithm used by the company to keep a tab on the risk factor is the driving mantra. “We are not handing over the loan to riskier customers. We’re trying to help customers who find it difficult to access credit for a variety of reasons – customers from the unorganised sector, small entrepreneurs running business for 10 years, etc. Because they don’t have formal records, accessing credit is too difficult for them.” Bhasin points out. The company claims that its ticket size for retail is broadly in the range of Rs2-7 lakh while the average for SME lending is close to R20 lakh.

There is clear evidence to suggest that in the last few years, the retail loan segment in India has grown at a brisk pace availed by individual consumers or small businesses. Late last year, ICICI Bank and Crisil Ratings had published a report saying that the retail loan book of Indian lenders is likely to double to Rs96 lakh crore by 2025 led by unsecured credit like personal loans, credit cards and consumer durable loans. Projecting over 20 per cent annual growth in retail credit, the report had clearly underlined that the growth momentum is supported by better assessment capabilities (of loan seekers) developed by lenders vis-à-vis a high end technological support system.

An earlier report released by CIBIL had pointed out, the presence of a staggering 22 crore credit eligible consumers in the country (20-60 year-olds) who have an annual income exceeding Rs2.5 lakh. From the perspective of an entity like Clix Capital, the good news is: only 30 per cent of them have been tapped by lending institutions (including banks). “The command over consumer lending is slipping in the hands of non-banking institutions because they are aggressively chasing them through superior technological tools vis-à-vis public sector banks. The nationalised banks, in regular times, are more comfortable lending to NBFCs who mostly have a retail orientation,” says a senior official of a private bank.

“It is quite baffling to understand why a customer of a bank has to approach afresh every time he needs to avail an additional product. Why can’t it happen seamlessly? Why is availing loan a process which could just be a click away for existing and also new customers?” But Bhasin is clearly not the first one to identify this gap and pitch in with a solution. There are several leading NBFCs like Bajaj Finance, India Bulls, Mahindra & Mahindra Financial Services, Aditya Birla Capital, etc, that have been maintaining the same selling pitch for quite long – offering consumers quality and friendly services vis-à-vis banks.

Some of them have impressive price/book value ratios which are reflective of their formidable financial health and positioning – Bajaj Finance (6.09), Aditya Birla Capital (1.86), Mahindra & Mahindra Financial Services (0.86), L&T Finance (1.58), etc. Point out to Bhavesh Gupta, CEO of Clix Capital, that there are players with better pedigree and better appeal in terms of brand positioning and recall value and he strongly responds that the market is nowhere close to its maturity mark and there is enough space for all quality players.
 
Technological strength

Those in the pure technology play testify that the use of high-end analytical systems for risk assessment has changed the scene significantly, diluting the pain points in readily availing loans for different purposes earlier and this is a major shot in the arm for the largely untapped ‘loan on demand’ segment. “NBFCs are using algorithms and data from social media to generate alternative scoring models to screen these borrowers and mitigate risk, which is further enabling them to design and launch tailored products in a quick and efficient manner.

The use of advanced solutions powered by the cloud is helping NBFCs offer on-the-spot loan approvals, extend credit to people with informal income and expand into new lines of business quickly,” points out R.P. Singh, CEO, Nucleus Software, a leading provider of lending and transaction software to banks and NBFCs. In the marketplace, well established NBFCs like Bajaj Finance and Tata Finance, with larger leanings to consumer lending are believed to have been in the forefront of technology adoption. Clix Capital is claiming to be an addition to this list.

While explaining the company’s USP, Gupta repeatedly emphasises the painstaking efforts in developing its own analysis algorithm. “Clix follows an automated scorecard-based proprietary underwriting platform ‘Delphi’ which consumes multiple variables like GST, banking, financials, demographics, management, sectoral risk, bureau, alternate data, etc, to underwrite a case,” adding that the company has invested heavily in building its own platform and is spending nearly one-fourth of its monthly opex in sustaining and improving its tech pool.

“In terms of technological base, what we inherited from GE Capital was a legacy platform. But instead of buying something upgraded from the market, we decided to build our own tech architecture. This is what successful companies in our space do it globally. It took some time and serious investment but we have built our own decision engine,” Gupta adds.

In micro-terms, this basic approach of leveraging AI and alternate data (social, tax, psychometric, ecommerce, etc) has enabled the firm to collect 500 different kinds of data, if required, on their customers under its Clix tracks programme. It has developed XCEED (AI-enabled segmentation and recommendation engine) that uses deep data and hidden behavioural patterns to recommend the best suited and most personalised products to consumers at appropriate risk as per their needs. Its loan on WhatsApp service helps customers check their bureau score, calculate EMI, check eligibility, apply for loans, etc.

The company is now also getting ready with Lending as a Service (LAAS) platform, a first of its kind in India that will enable any partner to onboard and begin lending in a few days if not a few hours. It has also been using an AI-enabled bot (Kyra) to provide 24x7 support to all its customers. “We have built a high end technological base because it ultimately offers two major advantages – it helps you assess customers’ profile and it lowers your operational costs. These factors lead to better margin business models for financial services,” says Gandhi.

The company also seems to have been agile in joining hands with some of the noted fast-growing names in consumer facing businesses like Paytm and Paisa Bazaar. In March 2019, it forged a strategic partnership with Paytm to offer instant, short-term loans to its vast pool of customers. Early this month, Paytm announced the expansion of its postpaid services to kirana stores and also at popular retail destinations such as Reliance Fresh, Haldiram, Apollo Pharmacy, Croma, Shoppers Stop, etc.

The service has also been extended to various bill payment facilities available on Paytm, shopping on Paytm Mall, and online payments at Internet apps such as Dominos, Tata Sky, Pepperfry, HungerBox, Patanjali, Spencer’s, etc. Paytm is offering this service in partnership with two leading NBFCs with an instant credit line – Clix Capital is one of them. The company has introduced three variants of its postpaid offerings: Lite, Delite and Elite, which will be offered based on the partner NBFC’s assessment.

Clix also has a close association with India’s leading platform for financial products PaisaBazaar and is currently its biggest lending partner. “Clix has brought tremendous agility and energy to the partnership that has enabled us to innovate through data and technology together. We are particularly proud of the ecosystem Clix and Paisabazaar have built around pre-approved personal loans, enabling customers to get almost instant access to credit conveniently and without any hassle,” says Naveen Kukreja, CEO and co-founder, Paisabazaar.com.
 
Post Covid-19

With Covid-19 destablising most of the businesses across the board, the critical question now is what kind of adjustments Clix Capital will have to make? Firstly, to deal with the crisis where volumes on all fronts could be very low; and secondly, staying in war footing mode to accelerate immediately as and when things get back to normal. Bhasin himself admits that a full-fledged recovery is unlikely to take place before 12-18 months.

But Clix’s top management is in no mood to waste time waiting for pandemic-led disruptive clouds to completely disappear. “We will utilise this period to work on a new range of products for segments like education. Our current lending profile is around 80 per cent for consumers and SMEs, and 20 per cent corporate. We want to further dilute corporate lending and this is the period we would utilise to further consolidate our retail profile.”

According to Gupta, the company has responded well to the pandemic crisis by adding more features to its consumer facing technological platform. “We recently launched our AI-enabled chatbot Maya which has received a very good response. Maya gives us the capability to service 500 million Indians on WhatsApp seamlessly.” He adds that the next big frontier for the company would be to ensure that every second Clix customer is acquired digitally through its own platforms and two out of three customers will have to be serviced digitally through self-serve channels. Clix Capital’s AI-enabled underwriting engine is also being upgraded to ensure that loan disbursal decisions are taken in just a few minutes, if not in seconds. “All our tech efforts are directed towards ensuring seamless experience for our customers, lockdown or otherwise!”

In the wake of Covid-19 and disruptions resulting from it, a common fear in the marketplace is the growing bleak scene for NBFCs to avail credit from banks. A recent report by credit rating agency ICRA maintains that the three-month moratorium extended by the RBI would have a bearing on collections by non-banks and this could pose a challenge to their liquidity, especially the mid and small sized entities.

“The extension would also negatively impact loan sell-down volumes, which emerged as the key funding avenue for non-banks since Q3FY19, with banks being the largest investor segment in this category. Loan sell-down volumes, which remained healthy at about Rs1.9-2.0 trillion over the last two fiscals, would be significantly impacted in the current fiscal.” And market men confirm that NBFCs are working under tremendous financial stress.

“Q1 has been a washout for NBFCs. Now with the unlocking process having been initiated, you can expect 40-50 per cent of business coming back, and a further 70-80 per cent in the remaining two quarters, provided there are no further disruptions,” observes Mahesh Thakkar, director general, Finance Industry Development Council. The stakeholders in the business are projecting some shakeout in the NBFC business over the next one year with banks showing reluctance to issue fresh credits to private lenders with weak balance sheets.
 
Both Gandhi and Bhasin, however, assert that capital is not an issue with Clix as it has a strong balance sheet and its capital base has been expanded recently with more infusion. Last September, Clix Capital raised another $40 million (Rs282 crore) in fresh funding from AION Capital. A source close to the company meanwhile maintains that as per an internal evaluation, the current net worth of Clix Capital is estimated close to Rs2,000 crore, which reflects a fair growth on the overall investment of around $200 million (about $160 million was infused at a lower exchange rate in 2016) by partners in different tranches. With its $180 million-plus investment in the venture, AION today has an equity share of over 80 per cent.

Bhasin admits that about 30-40 per cent of the loans doled out to SMEs are currently under moratorium and new loan volumes are not adding up, but financial worries are far from his mind. The larger issue is to ensure growth and try to reach some of the milestones set before Covid-19 when, in these difficult times, regular growth channels are blocked. And here growing inorganically would clearly be the right route. “This crisis changes something fundamentally for every business. In NBFCs, the ‘spending a lot of money to gain market share’ model may collapse.

Banks are recalibrating their risks for lending to NBFCs and some smaller firms will not have much of a choice. It could be a good opportunity for us to look at this route given our strong financial positioning.” Incidentally, late last week, a national daily reported Clix Capital talking to Laxmi Vilas Bank to grab a majority stake soon.

Bhasin confirmed to Business India that formal negotiations had begun. “But it is not only Laxmi Vilas Bank, we have begun talking to two-three more NBFCs. But no discussion has reached an advanced stage. The real acquisition will happen over the next 9-12 months,” he said, while refusing to divulge further details. The development, however, could well be counted as a serious sign that when Clix Capital talks of meeting adversity with aggression, it means business.

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