CSL Finance Ltd Management Discussions.


Year 2019 was tough year for the Indian economy. It started with good GDP growth of 8% in Q1 but in later part of the year Indian economy faced challenges and growth started to decline. In Q2, Q3 and Q4, Indian GDP growth remained lower at of the year 7%, 6.6% and 5.8% respectively. In second half of the year economic growth slowed down due to slow down in agriculture and manufacturing growth. Slowdown in economy was largely on account of crisis in financial sector which impacted credit flows to manufacturing industries. Reduced credit flows impacted the fixed investment and resulted in lower production. Indian GDP growth rate was declined to 6.8% in FY2019.

However, the financial crisis in 2019 was temporary and economy is likely to recover after hitting lowest growth of 5.8% in Q4 in last 20 quarters. The sustained rise in consumption and gradual revival of investment with primary focus on infrastructure development shall drive the growth of the economy. Investment in infrastructure has been focus area for NDA government. With the strong mandate to NDA government in 2019 elections, spending in infrastructure shall be continued. Furthermore, the benefits of the Insolvency and Bankruptcy Code, The Real Estate (Regulation and Development) Act and GST shall be visible to formal economy. Furthermore, moderate oil prices will keep inflation at lower level. Inflation rate in FY2019 remained at 2.9% giving room to RBI for reducing interest rate which will further increase the borrowing for capital investment.


Non-Banking finance companies are integral part of the Indian financial system. NBFCs have grown significantly over the last decade and have contributed to growth of the economy. The importance of NBFCs have grown over the years due to their innovative and customised products, quick turnaround time, lower costs and ability to reach under served places. Over the years, NBFCs have become sought after source of funding in automobile finance, home finance, consumer durable product finance, microfinance and loan to MSME sector. NBFCs have sought niche areas for growth, where typically banks did not lend. NBFCs have played significant role to promote financial inclusion agenda of the government. They have catered to the financial needs of people belonging to weaker and informal section of the society.

Over the years, NBFCs have captured the market share of banks in certain products, due to faster turnaround, flexibility in product terms, greater use of technology and efficient delivery. The combined loan book of NBFCs and housing finance companies has increased at 17% CAGR, from र11 lakh crore in FY2013 to र24 lakh crore in FY2018. NBFCs share in overall credit has increased from 17% in FY13 to 21% in FY18. In some of the products like gold loan, microfinance, small business loans, vehicle and consumer durable financing, NBFCs have captured about 50% market share.

NBFCs are largely dependent upon borrowing from other institutions like banks and mutual funds for their growth. They borrow funds from banks and financial institutions, through term loans, working capital loans and NCDs. They also borrow from Mutual Funds through NCDs and Commercial Papers (CPs) and some of them have also built retail deposit franchises.

In the current environment of tight liquidity and trust deficit post the default by IL&FS group, NBFCs are facing challenges in raising funds from mutual funds, banks and financial institutions. As the year passed the liquidity challenges have further aggravated, due to slowing economy and further stress emerging in some of the larger NBFCs. Public sector banks have stopped lending as they have hit sectoral exposures and want to avoid further build up of NPAs. Private sector banks see this an opportunity to take some market share back from the NBFCs, and Mutual Funds have come under regulatory glare for their lax lending standards. Most of NBFCs, except for some of larger NBFCs with strong parentage and high credit ratings, are unable to borrow, which has impacted their ability to grow.


MSME sector is backbone of Indian economy and account for 30% of GDP. It constitutes of over 63 million units and employs more than 111 million people. The MSME sector accounts for 40% of total exports from India and accounts for 45% of manufacturing output of the country. Inspite of being significantly important for employment generation and for economic growth, MSMEs face challenges to access timely and adequate finance. According to International Finance Corporation estimates, the potential demand for Indias MSME finance is about USD 370 billion as against the current credit supply of USD 139 billion. The major challenge MSME face while borrowing funds is credit appraisal largely in informal sector. NBFCs are gaining share in MSME lending space due to inability of banks to lend to them in absence of sufficient credit information. Share of NBFCs have increased from 13% in Dec 2013 to 21% in Dec 2018.


CSL Finance Limited (CSL) is a non deposit taking NBFC based in Delhi. It has two business segments -Wholesale Lending and SME Retail Lending. In Wholesale Lending, CSL is engaged in providing last mile funding solutions to small businesses engaged in real estate development. Under Wholesale Financing it has 3 products - Large Group Housing Projects, Small Builder Loans and LAP to Companies and businesses engaged in the education sector. Last year (FY2018) company forayed into SME Retail financing and has quickly scaled up its SME Retail operations and has opened 18 branches in 6 states.

Performance During the year

During the year, performance of the company was buffeted by the challenges in the NBFC sector, but given the circumstances, your company has done reasonably well.

Its revenue during the year grew by 44% to र59.70 Cr in FY2019 from र41.47 Cr in FY2018.

Profitability also improved substantially from PAT of र18.07 Cr in FY2018 to र25.15 Cr in FY2019 a growth of 39%.

AUM grew from र281.31 Cr in FY2018 to र323.51 Cr in FY2019 a growth of 15%.

Operationally, the company has implemented a lot of changes and has scaled up its operations. The following developments took place during the year:

In SME segment, it forayed in Gujarat and expanded its branch network from 12 to 18 branches

Successfully implemented loan origination package FinnOne Neo.

Successfully implemented HRMS Solution for managing its human resource functions

Shifted to bigger corporate office in Noida in UP from Karol Bagh in Delhi. The new office has a seating capacity of over 60 people

Hired Key personnel like Credit Head, Treasury Head and HR Head, and total employee strength increased to 143 on YoY growth of 56% NBFCs during the year struggled to raise funds due to liquidity crisis in the industry. CSL also faced issues in raising funds and has managed to grow its AUM by 15% only. In first half of the year, it raised about 30 cr but in second half of the financial year, after the IL&FS default, the interest rates spiked and it has been a challenge to raise funds at competitive rates. In such an environment, CSL is using the cash flows generated from the Wholesale Lending business to fund the growth of its SME Retail Lending.


CSL forayed in SME retail financing in FY2018. Under this segment, company disburses secured loans to Kiryana stores, Traders, Schools and other boutique small shops and merchants and ticket size is from र5 lakhs to र20 lakhs. Having started from Delhi NCR, our company has rapidly scaled up its operations across 6 states now. It has presence in Delhi, Haryana, Punjab, Uttrakhand, Rajasthan and Gujarat. The company has now 18 branches operational, as compared to 12 branches in FY2018. CSL is prudent in building its retail franchise and a matter of strategy, ensured that more than 92% of SME Retail loan book is secured. It currently disburses unsecured loans under र5 lakhs to K-12 schools located in Tier 3 & Tier 4 locations, in the tertiary area around its branches.

Performance of SME retail segment

AUM increased from र16.03 Cr in FY2018 to र55.26 Cr in FY2019 a growth of 244.72%

Opened six new branches

Forayed into new Market in Gujarat

Maintained its low delinquencies and NPA was at 0.58%

Hired Key personnel like Credit Head, Treasury Head and HR Head The SME Retail lending will lead the future growth of the company. The company following a hub-n-spoke model to increase its penetration, and has built its presence in Northern & Western India. In the current challenging environment, our company is consolidating its position and is focused on increasing productivity and cutting operational cost. Using the hub-n-spoke model the company aims to improve the branch throughput and drive sales productivity. With the implementation of Loan Origination System - FinnOne Neo, the processes has been standardised and all branch personnel have been trained to operate on the new platform.

Our company is also increasing its product offering by providing tailored products as per market requirements. The focus is to increase market penetration in Tier 3 and Tier 4 cities, and offer customised products with quick turnaround time. Its customised loan offering for K-12 schools has got a good response from the market, and company continues to build on this as this segment has huge market potential. Given the good response and high credit quality our company has started giving out smaller unsecured loans in this segment. We will monitor the credit behavior and scale this further, as these loans age and we have a better understanding of the quality of the portfolio.

Wholesale Lending

CSL started wholesale lending business in a small way in 2011. Over time it has grown and currently is the largest contributor to its sales. Under this segment, company provides loan for:

Construction finance to large group housing projects

Small builder floor financing

LAP to corporate and education sector

The wholesale book is primarily concentrated to Delhi-NCR region, which has been built over the time with good domain knowledge and in depth understanding of geographies. The Wholesale as on date is fully secured, with loan to value (LTV) of less than 50%. The company has developed robust underwriting parameters and have strong in house legal team as well as reputed outsourced legal vendors to conduct extensive due diligence. Regular monitoring of accounts and robust inbuilt EWS (early warning system) helps to closely monitor clients cashflows to detect any stress and helps to take early steps to secure its position. Despite economy is passing through bad phase and there are challenges in the real estate sector, the company is able to maintain Zero delinquencies in this segment.

Performance during the year

Overall growth of wholesale segment remained muted this year. AUM of the wholesale segment was up from र265 Cr to र268 Cr. Growth in this segment was flat during the year largely due to liquidity crisis in the industry. With limited debt availability, our company decided to use the cash flows from the wholesale segment to fund the growth of the SME Retail segment. Within wholesale finance, our company has reduced its exposure in construction finance to large group housing projects. AUM of large group housing projects declined from र180 Cr to र147 Cr. AUM of LAP to corporate and education sector remained at र40 Cr.

AUM under small builder segment grew by 79.70% to र80.42 Cr which is encouraging for the company. The exposure in this segment is concentrated to Delhi- NCR region, that too primarily in South Delhi and Gurugram (Gurgaon) market. The company disburses loan in this segment majorly as construction loan and the LTVs here are typically less than 40%. Promoters typically have more than 50% equity in these projects which is a very positive factor. Further, exposure being concentrated to marquee areas where the demand is always robust, the sale velocity of the projects are very high. Barring few exceptions, the project is mostly completed within 12-18 months after which revenue starts to flow in. The potential within Delhi NCR and Gurugram (Gurgaon) is huge for this product. Company has been focusing on this product and aim to scale up this book over time. Our companys asset liability aspect is very comfortable and it does not see any challenge in meeting its liabilities. CSL has low leverage in its books and the total repayment commitment over the next 1 year is र67 Cr., which includes CC limits and WCDL renewal every year. Furthermore, its wholesale lending segment has robust cash flows and it maintains 5-7% of cash reserves to meet any contingent demands. CSL is rated BBB from CARE and have 66% CAR ratio.


Over the longer term, our company remains optimistic about the growth opportunities and its ability to scale up its operations. It has very low leverage on its balance sheet with CAR of 66% as on 31 March, 2019. st There have been short term challenges with the NBFC sector, and raising debt at competitive rates has become a challenge. In such a scenario, it is difficult to grow the balance sheet. While we are actively looking for raising debt at reasonable rates, we are simultaneously working on broadening our product profile, optimising our processes and improving our productivity.

We are actively monitoring our wholesale loan portfolio and are proud of the fact that there are no NPAs in this segment. However, the current slowdown in real estate space, and restricted lending by housing finance companies, has aggravated the situation and we are working to ensure that our borrowers are paying back on time and are able to come out the tight liquidity situation.

We have been testing the grounds with our SME Retail lending operations and are satisfied with how the portfolio has performed. We aim to now focus on improving our cost of operations and productivity for the current year. The growth of the SME Retail book will be funded from the cash flows of the Wholesale book. Once the sectoral liquidity eases, we will aim to grow our overall book and leverage our strong balance sheet and quality of our portfolio.