UGRO Capital founder and MD Shachindra Nath

Micro, small and medium enterprises (MSME) financing focused UGRO Capital is expecting all time high disbursements in Q2 FY25, after seeing a blip in Q1FY25, founder and MD Shachindra Nath said, speaking to businessline.

“While in Q1 FY25, bank liability to non-banking finance companies (NBFC) is always slower, this time it was much slower as there is a general pressure from the RBI (Reserve Bank of India) for banks to avoid lending (to non-bank lenders),” he said.

“In this particular quarter, banks especially have been able to differentiate between NBFCs focused on consumer and retail loans—the segments where RBI has concern—versus an MSME finance focused NBFC,” he added.

“Our gut feeling is that disbursement numbers would cross all time high in this quarter,” he added.

In Q1 FY25, the NBFC’s net disbursements fell 11 per cent year-on-year (YoY) to ₹1,146 crore, largely owing to moderation in supply chain finance book and slower bank funding.Its overall assets under management (AUM) stood at ₹9,218 crore as on June end, with off-book AUM accounting for 45 per cent of the overall share. The NBFC will increase its AUM by “at least” ₹3,000 crore in every financial year, Nath said.

RoA, co-lending

Apart from slower disbursements, UGRO Capital’s annualised return on asset (RoA) also declined by 33 basis points (bps) YoY in Q1 to 1.9 per cent.

However, in the next eight to ten quarters, the NBFC will increase its RoA to four per cent, largely by increasing the share of higher ticket micro enterprises loan book to 30 per cent from 10 per cent in Q1FY25.

Hiking micro enterprises loans share would lead to 150 bps rise in yield, whereas cost of funds are likely to moderate by 75 bps. Furthermore, enhanced operating leverage on the back of strong AUM growth would lead to higher RoA target going ahead, according to Q1FY25 investor presentation. In order to grow the micro enterprises loan book, the NBFC would increase its branch network from 170 to 250 by the end of current year and 400 by the end of next year, Nath said.

The NBFC is now looking to onboard more private sector lenders on its co-lending program, and has recently started such partnerships with Karur Vysya Bank and Karnataka Bank.

It recently formed a co-lending partnership with SIDBI for business loans to MSMEs with credit guarantee, and will start with machinery loan product too under the partnership going ahead.

Published on September 30, 2024