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By V.P. Nandakumar
On November 6, 2016, Manappuram Finance Ltd. celebrated 20 years of listing on the BSE. Mr. V.P. Nandakumar, MD & CEO, looks back at the triumphs and tribulations of those early days in the history of the company.
On November 6, 2015, Manappuram Finance Ltd. celebrated 20 years of listing on the BSE with a function at the BSE in Mumbai where I had the honour of ringing the closing bell in the presence of BSE’s MD & CEO, Mr. Ashish Kumar Chauhan. The ringing of the closing bell is a symbolic gesture that brings trading for the day to a close.
Historically, Manappuram Finance Ltd. was incorporated in 1992 and our IPO took place in 1995 when we listed on the Cochin, Madras and Bombay stock exchanges. In my address to the audience gathered at the International Convention Centre of the BSE, I talked mostly about our early days, the circumstances in which I came to promote Manappuram Finance, and the troubles we faced in trying to push through its IPO. With twenty years having gone by, I presume it won’t be out of place if I use this opportunity to recall those days once again.
I came into gold loans because it was my family business which I took over from my father in 1986 after he passed away. Manappuram was then a one-branch gold loan outfit in Valapad, a coastal village in the Thrissur District of Kerala. My father was very conservative in approach and he believed in keeping things small and manageable.
I took over after a stint in the banking sector where I had been exposed to high value loans and advances. I was open to expansion and growth. Business grew rapidly and we established branches in other nearby areas. But then, there were limits to how much I could do with gold loans alone, that too in a proprietary concern. And so, in 1992, I promoted Manappuram General Finance and Leasing Ltd., which later became Manappuram Finance. Our intention was to enter what seemed to be the promising areas of leasing, hire-purchase and general finance.
Listing on the BSE
Having tasted success with gold loans, my ambitions were sky high. I had grand plans to scale up and expand outwards from our perch in Thrissur. But, it was not long before I ran into rough weather. To put my plans into action, I needed money. I went to the banks but the experience was not happy. Banks were willing to lend to me, but only up to the exact value of my residence that I had to pledge as security. That was when I first began to think of raising money from the stock market. My inspiration was the example of Reliance Industries and Dhirubhai Ambani, a legend even in those days. Manappuram, I decided, would have to list its shares not just at the regional stock exchanges in Cochin and Madras , but also at the biggest and most prestigious, the Bombay Stock Exchange (BSE).
It was, of course, easier said than done. The norms for listing on the BSE appeared stringent to a small town outfit like ours. The biggest hurdle was this minimum capital requirement. We had to increase our paid up equity capital from Rs. 50 lakhs to Rs. 1.25 crore to become eligible for a public issue of Rs. 1.75 crore. The first requirement therefore, before we could even think of knocking on BSE’s doors, was to raise Rs.75 lakhs in Thrissur itself.
As it happened, raising the capital turned out well in the end, easier than I had thought. Manappuram was by then a name with a history of four decades behind it. There was a reservoir of goodwill for the Manappuram name in the Valapad area that was my father’s legacy, and I was able to tap into it. People who had no idea of the workings of the stock market parted with their hard earned money to invest in our stock. The hurdle of capital was soon crossed and that was how we pushed through our IPO and got listed on the BSE in November, 1995. We became only the second NBFC from Kerala to list on the BSE.
Along with capital, we also worked on our governance, and on setting up transparent systems and procedures. Our Board of Directors was revamped with the induction of eminent people. It was headed, initially, by a former Chairman of Nedungadi Bank Mr. Seshadrinathan who was followed by another former Chairman of the same Bank. The then Managing Director of Mathrubhoomi newspaper, Mr. P.V. Chandran, also joined our Board, along with other eminent local businesspersons.
Another area of focus was technology and we were pioneers in this area. By the time we approached the BSE, our MIS was fully computerised. We had six branches back then and operations within the branch were also fully computerised. We put in motion the process of getting ourselves credit rated. When ICRA awarded a credit rating of MA to our public deposits in October 1995, just before the listing in November that year, we became the first NBFC in Kerala to be credit rated.
Today, in hindsight, I can say listing on the BSE was a beginning, a stepping stone to greater achievements later on. But things did not happen overnight. For over a decade after listing, we kept a low profile. Along the way, there were some troubles as well.
Entry into gold loans
The CRB scam in 1997 was a wake-up call. As the noose around NBFCs tightened, we were left with a funds crunch, a serious asset liability mismatch. Up until this point of time, Manappuram Finance, the listed company, had kept away from gold loans. That business was carried on, as before, in a proprietary concern. In this moment of crisis, we decided that the listed company too should get into gold loans. And so, Manappuram Finance Ltd. became the first private corporate entity to get into gold loans. That was a game changer.
We introduced scale, technology and innovation to an activity that was wholly the preserve of pawnbrokers and moneylenders till then. In technology, we were among the earliest to adopt the “core banking” platform. Unlike the banking sector, there were no ready-made software solutions for gold loans, we developed our own software.
In the matter of product innovations too, Manappuram led the way. Gold loans were for long sold as a “one-size-fits-all” product. The company was a pioneer in introducing variety to it, by offering progressively higher loan amounts at higher price points. We were also the first to come up with “one-day interest” where borrowers could settle a gold loan even within the day, at a time when the industry norm was to recover minimum interest for 15 days, or more.
Since banks were not comfortable with NBFCs, we had to devise unconventional ways to raise funds. Thanks to ICICI Bank, Manappuram became the first gold loan company to raise finance through the securitization and assignment route. This was in 2005. In December 2007, Manappuram became the first NBFC in Kerala to attract foreign institutional investment when the celebrated PE fund Sequoia Capital invested 70 crore rupees together with Hudson Equity Holdings. When they became convinced about the gold loan story, there was only one listed company in this space, and they did not look elsewhere. Once private equity came in, even the PSU banks were willing to lend to us, and we could shift gears and grow much faster than before.
Looking back, I can say with some pride, that in a short span of a decade plus, we were able to transform the face of gold loans, otherwise a very tradition-bound business. No doubt, the fact that gold prices went on an unprecedented bull run for over a decade beginning in 2002 was a heaven sent opportunity. But the larger point I’d like to convey is that Manappuram’s story is more than being at the right place at the right time. Importantly, we held the right tools too. That early listing on the BSE was a major element of this story. It proved its worth when private equity investment flowed into the company and altered the trajectory of its growth. And that was how 6 branches with an AUM of Rs.30 lakhs in 1995—a very humble beginning—has today become 3,500 branches with an AUM of over Rs.10,000 crore ranked among the top 20 NBFCs in India.
Looking ahead
I have talked at length about gold loans because that was our exclusive business until recently. However, in the days to come, our intention is to become a more diversified NBFC. An increasing share of future business will come from areas like microfinance, commercial vehicle and housing finance, and SME lending. We have already made a promising start and today our new businesses contribute 7 percent of the total business. Over the next three years, that contribution should go up to 25 percent. When we acquired Asirvad Microfinance (an existing MFI) in February this year, it had a portfolio of less than 300 crore. Today, in a little over six months, its business has grown to over Rs.500 crore.
And so, if the last two decades were about gold loans, the vision for the next decade sees Manappuram Finance as rooted in gold loans, but with a much broader horizon. Giving shape to this vision is the task we have taken up in earnest.
YouTube link : https://www.youtube.com/watch?v=DJiGrrACLGQ