Moneyboxx Finance Ltd Management Discussions.

MANAGEMENT DISCUSSION

Moneyboxx Finance Limited (‘MFL, ‘Moneyboxx or ‘the Company) is a Non-Deposit-taking Non-Banking Financial Company (NBFC-ND) registered with the Reserve Bank of India (RBI). It is a subsidiary of Moneyboxx Capital Private Limited and is engaged in the business of lending. MFL focuses on lending to Micro businesses in urban and rural India.

The COVID-19 pandemic & The Economy

Union Budget 2020 has focused on education sector , health care services , financial Services , agricultural sector & improving ease of doing business & better tax governance which gives a strong message towards gaining people trust about the banking system stability by making proposals like increasing the deposit insurance & creating a taxpayers charter in the statue to prevent harassment.

In March 2020, Covid-19 pandemic has struck & spread across the world. We are now amidst unprecedented times – leading to millions of infections & deaths all over the world. Even India has been affected apparently leading to millions of confirmed cases. The World Bank expects Indias economy to contract by 9.6% in 2020-21. Shutting down of businesses, factories, small shops etc. have put extreme stress on the global economy & equally on the Indian Economy.

It is expected that Indias gross domestic product growth to strengthen to 6.2% in FY22, boosted by government reforms & various measures have been taken by government to boost the demand. However, it is anticipated that domestic demand will rebound strongly once the lock downs are completely lifted and full economic activity resumes.

Government of India has taken several measures to handle the situation. Mrs. Nirmala Sitharaman, Honble finance Minister of India has announced relief package of Rs. 20 Lakhs crore, almost 10% of nominal GDP which covers :

i. Enhancement of Systematic liquidity by RBI

ii. Collateral Free Loans to Farmers

iii. Food Security to vulnerable sections of society

iv. Debt & equity Support to MSME

v. 100% credit Guarantees schemes of Rs. 3 Lakhs Crore to Banks & NBFCs for their MSME Borrowers

vi. Few other measures are also initiated like reduction in monetary transmission & credit flows to the economy

Given the pandemic, the management of the company took a conscious call in mid-March 2020 to stop the further disbursement & focus completely on customer collections & portfolio quality.

Union Budget 2020 has focused on education sector, health care services, financial Services, agricultural sector & improving ease of doing business & better tax governance which gives a strong message towards gaining people trust about the banking system stability by making proposals like increasing the deposit insurance & creating a taxpayers charter in the statue to prevent harassment.

During Lockdown, MoneyBoxx Finance took immediate steps to manage this situation by keeping employee safety as the topmost priority, and so ensuring that all employees moved immediately to ‘Work-from-Home (WFH) & IT team moved in swiftly to ensure availability of sufficient bandwidth, setting up virtual private networks and making available multiple platforms for collaboration using digital media.

Directors Report

MFL is centered to the informal and self-employed borrower segment who are involved in Manufacturing, Trading, Livestock, Kirana & Services and thus would face a higher impact due to income volatility at the customers end arising by the lock down and disruption caused by Covid-19.

On March 27, 2020, RBI announced various measures to address the stress in financial conditions caused by COVID-19. RBI permitted all lending institutions to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020 & later on, Moratorium 2.0 has been announced for 3 Months again beginning from 01st June 2020 till 31st August 2020.

In line with this regulatory package, the company has offered moratorium to its customers. In respect of such borrowers to whom the benefit of asset classification was extended consequent to the moratorium, the company has made provisions on conservative basis for Expected Credit Loss. Accordingly, the company has increased the Probability of Default from 1% to 2% & accordingly ECL is calculated.

Operations

The company is having 11 branches in Rajasthan, Punjab, Haryana & Madhya Pradesh. & loan disbursements during the year were INR 33.90 crore with 100% of collections efficiency & zero delinquency. The current portfolio consists of unsecured Business Loans & the Assets under Management (AUM) of the Company as on March 31, 2020 stood at INR 29.29 Crore. In FY 2021, Company is planning to expand its operations in existing states by opening 11 branches.

NBFC Industry

The Economic Survey 2019-20 highlighted the current NBFC crisis as a key challenge that could choke credit growth and impede Indias economic growth targets. NBFCs have been a useful complement to commercial banks, helping to meet the nations financing needs in infrastructure, and among retail and business class. The sector has recently experienced a downturn, leading to liquidity issues among some NBFCs. Many of these non-banks face asset-liability mismatches, having borrowed the short term to lend long term. They largely depend on commercial banks and market funds for financing. Thus, some banks have exposure to weakness among NBFCs.

To address such concerns, the Reserve Bank introduced the liquidity coverage ratio (LCR) requirement for all deposit-taking NBFCs and non-deposit taking NBFCs with an asset size of 5,000 crore and above (constituting 87 per cent of the total assets of the NBFC sector). The new regulation mandates NBFCs to maintain a minimum level of high-quality liquid assets to cover expected net cash outflows in a stressed scenario. NBFCs are required to reach a LCR of 100 per cent over a period of 4 years commencing from December 2020.

Lending in MSME sector overview

MSME sector remains underserved and more than 40% of Indias MSME funding happens through informal financing. There is an unmet demand of more than INR 20 lakhs crore which provides significant opportunity to NBFC like Moneyboxx.

Business Review for FY 2019-20

FY 2019-20 was a challenging & an excellent year in terms of Successful Expansion, Strong Capitalization & Asset Quality with leveraging Technology & Analytics with Capable Management team.

Successful Expansion

MFL is committed to providing easy access to financing to the deserving micro enterprises in the tier 2 and tier 3 cities of India with ticket sizes ranging from Rs. 50,000 to Rs. 5 Lacs. MBFL started its lending operations in February 2019 by opening its first branch in Bharatpur, Rajasthan and successfully expanded its presence in one year to 11 branches across 4 states: Rajasthan, Haryana, Punjab, and Madhya Pradesh. Drawing comfort from its strong financial position, robust asset quality and improving staff productivity, MBFL is looking to expand its presence by opening 10 new branches in high-potential markets in FY21.

Strong Capitalization & Asset Quality Metrics:

MoneyBoxx Finance Ltd. is strongly capitalized with an Equity base of Rs. 27 crores and Net Debt to Equity ratio of 0.23 as of 31-Mar-2020. Its loan book remains quite resilient and strong amidst the pandemic with zero NPAs as of 30-Jun-2020 and high collection of over 90% in Q1 FY21 and over 98% in Q2 FY21. Strong collection during pandemic is testimony to strong unwriting and collection processes. Adequate capital base, robust asset quality and improving profitability metrics provide comfort on the ability of the Company to tide over the pandemic and cautiously grow its loan book.

Capable Management

MoneyBoxx Finance Ltd. is promoted by professionals with multi-decades of collective experience in the financial services industry. The operational management team has worked at senior positions in HSBC Bank, Bank of America, J.P. Morgan, Deutsche Bank and KPMG. It has a professional board with industry veterans as independent directors (including Ex-Director of RBI and Ex-IAS Officer) and a strong professional team from the industry which has navigated the Company successfully through the crisis and is well poised to capitalize on the growth opportunities in the micro and small finance sector.

Attractive Branch Profitability Metrics

With high Net Interest Margins (NIMs) of over 12%, efficient branch cost structure, an average branch of MBFL is able to achieve break-even within six months of its operations. With such strong branch unit economics, improving staff productivity with maturity of the branch portfolio, and benefits of operating leverage, MFL is targeting to achieve profitability at corporate level in FY22 despite significant growth in number of branches.

Information Technology

The Company has begun a transformation of the technology landscape. Technology has been deployed to support the implementation of partnerships for business generation and collections, operational efficiencies, and compliance with regulations. The Company has implemented enterprise platforms such as Microsoft NAV and Tableau BI tool hosted on a cloud platform with industry standard BCP framework. A state of the art SDWAN solution has been deployed to manage our corporate network across all locations.

Internal Control

The Company has put in place an adequate internal control system to safeguard all its assets and ensure operational excellence. The Company also has a team of internal auditors to conduct an internal audit which provides that all transactions are correctly authorized and reported. The Audit Committee of the Board reviews the reports & wherever necessary, strengthening of internal control systems and corrective actions initiated.

MSME Industry

1. MSME Lending market share:

Public Sector Banks have traditionally been the dominant lenders to the MSME sector. In the last few quarters, Private Banks and NBFCs have strongly competed with Public Sector Banks in clawing a larger share of the MSME sector. However, that trend has started to change in Dec 19 quarter with Public sector banks having regained market share from 48.2% in Sept 19 to 49.8% in Dec 2019.

2. Share of lenders across segments

PSBs continue to be the dominant contributors in providing credit to Micro segment borrowers, holding almost 60% share in this segment. PSBs are playing a critical role in enabling financial inclusion of Micro Enterprises. The share of PSBs and Private Banks in the Small segment of borrowers is the same, with each having a market share of about 44. Medium segment, which has the larger ticket size MSME loans, is again dominated largely by PSBs.