Sanjay Chamria, VC & MD, Magma Fincorp Ltd, heads Magma growth plans with strategic policy formulation and execution, driving new business initiatives and guidance on daily affairs of the company. Under his leadership, Magma has grown at a CAGR of 27% during the past five fiscals. Mr Chamria has held several positions in the BFSI (banking, financial services and insurance) industry in the past 20 years. He is a former Chairman of Hire Purchase & Lease Association of India. He has led many industry representations to the government, RBI and various standing committees. He is on the FICCI task force on NBFCs. He is also a managing committee member of Finance Industry Development Council (FIDC). Mr Chamria regularly presents his views on the BFSI industry forums, both in India and abroad.
Magma Fincorp Ltd is a non-deposit taking NBFC (non-banking financial company), registered with RBI as an asset finance company. Magma provides a bouquet of financial products including financing of utility vehicles & cars, commercial vehicles, construction equipment, tractors, SME loans and gold loans. Magma has a dedicated base of around 3 lakh ‘live’ customers and has assets under management of Rs. 137.5 billion. The company has 225 branches in 20 states and employs over 6,000 people. Magma focuses on semi-rural and rural markets where it provides equal opportunity to the economically disenfranchised thereby contributing to financial inclusion in a big way. In the past two decades, Magma has provided over one million loans.
Replying to Dolly Mirchandani of IIFL, Sanjay Chamria says, “Growth in the retail volume of car, commercial vehicles and construction equipment shall be in the range of 6%-10% for FY13”
Magma Fincorp has received the R3 approval from IRDA. When do you plan to start your operations and what will be the initial capital?
We plan to underwrite the first policy on 1 October 2012. Magma HDI General Insurance Company is a 74: 26 joint venture between Magma Fincorp, its promoters, and German insurance major HDI-Gerling. HDI-Gerling is part of the third largest insurance group in Germany, Talanx Group. The promoters have infused an initial paid-up equity capital of Rs. 2.08 billion into the new general insurance joint venture.
In case of general insurance, what kinds of products are you planning to launch and why?
We will offer insurance services for automotive, health, property and marine among others. Magma is a large asset financing company and there is a need to insure every asset that we finance. We provide finance to over 1.5 lakh customers every year. This gives us a unique opportunity to offer an additional value-added service to them.
We are also planning to offer our services to retail clients and institutions such as banks and NBFIs (non-bank financial institutions). We would also cater to large corporate accounts gradually. There is a huge potential for health and property insurance in rural and semi-rural markets—which Magma primarily caters to. We will make insurance services available to our one million customers where we already have built-up goodwill.
How do you plan to market your insurance products in the rural segment? What are the challenges faced?
Magma already has a significant presence in the rural and semi-urban areas where there is both—lack of awareness and push for insurance products. The basic challenge would be to conduct a detail study on needs of the people in these areas and design a low cost product for them. The key to this market would be cost both in terms of price and cost of distribution.
In terms of general insurance business, how do you plan to tackle existing players in the market?
The penetration of general insurance in the country is only around 1 % of the GDP (gross domestic product). In areas outside urban regions, the penetration is even lower and this opens up huge opportunities for new players like us (Magma HDI). We have a wide experience in customer handling in rural and semi-rural areas which are generally underserved markets for insurance products.
What is your assessment on the interest rate scenario? How would it affect your business?
During the first six months of FY12, the policy rates were consistently increased in the backdrop of ever rising inflation. The second half of the FY12 saw tight monetary conditions though policy rates stabilised. In Q4 FY12, liquidity dynamics prompted RBI (Reserve Bank of India) to lower cash reserve ratio (CRR) by about 25 bps (basis points) apart from intervening through regular open market operations.
Beginning of FY13 has been positive. However, the regulator has underlined that there are significant upside risks to inflation and unless the government takes credible steps to control subsidies, scope for further reduction in the key rates is limited.
It is expected that growth in the retail volume of car, commercial vehicles and construction equipment shall be in the range of 6%-10% for the current fiscal.
Most players speak about service and customer satisfaction as a differentiator. What are the key initiatives being taken by Magma Fincorp here?
At Magma, we have implemented several customer-centric initiatives resulting in qualitative and measurable improvement in our service levels. We have automated the collection function resulting in improved customer service levels and enhanced productivity.
Besides, we have now embarked on an ambitious customer centric two-year exercise to alter our technology platform. The platform being co-designed by six sigma experts—with the well-experienced in-house Magma team—will focus essentially at reducing turnaround times, direct credit delivery to 450 plus districts in the country. It will also improve employee productivity by eliminating duplicities and embedding seamlessly technology driven processes in each function of Magma. This will not only be cost-effective but will also make our customers happy.
How do you ensure robust collection mechanism?
Our collection efficiency has been 100% plus during the past three financial years. Our robust collections performance is the result of mastering risks associated with the retail lending business in India. Retail lending business involves ‘process risk’ and hence all our energies are focused at ensuring that we bring into existence the best processes—be it for sales, underwriting, operations or collections and implement the same consistently.
Specific to collections, we have automated the entire process starting from telecalling—which provides a gentle reminder to our customers of their payment due dates—and end up with an expert and practical legal solution offered by our highly skilled collection team.
All this is done without hampering the customer’s privacy. We ensure that our customers are satisfied while interacting with us.
In spite of a sluggish performance by the auto, equipment and tractors industries, Magma’s disbursements grew at a robust 37% at Rs. 74.04 billion in FY12 from Rs. 54.15 billion in FY11. How did you manage it?
Amongst NBFCs (non-banking financial companies), we offer a wide variety of products and have a large customer base. Around 80% of our customers are from rural and semi-rural parts of the country. Needless to say, these rural regions continued to grow buoyantly and most manufacturers have realised the potential of these regions. They have now started focusing on these regions. Magma essentially being focused on the rural and semi-rural segments is well-positioned to reap benefits in these regions.
Our growth has been consistently growing over the years and is led by our strong distribution network. We expect to witness high growth in future as well. This is very much reflected in our Q1 FY13 results as our disbursements grew by 45% to Rs. 20.57 billion.
Magma Fincorp has set out an ambitious target of 40% growth of topline in FY13. How do you plan to achieve it?
We will aggressively grow our market share in car finance, tractor finance, Suvidha and construction equipment financing. We already have a strong network and over a period of time will offer many products from all our branches and this will support our growth. We will also be opening 30 more branches during this fiscal which will further strengthen our market share in various products. Our strategy will be to reduce the turnaround time (TAT) thereby giving us a competitive advantage.
Where are you planning to open your new branches?
We plan to aggressively grow our existing business and improve the branch business throughout. We will be opening about 30 branches this year, majority of which will be in West and South India. These branches are targeted at semi-rural and rural markets of the country which continues to remain our focus area.