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Despite a challenging operating environment, Srei has emerged as one of the few non-banking finance companies (NBFCs) that appears to have weathered the storm and steered ahead. The company recently secured international funding from Germany's KfW IPEX-Bank and demonstrated its ability to raise resources from reputed international institutions. In an exclusive interview with Business Economics, Sunil Kanoria, Vice Chairman, Srei, explains how the company has been able to survive this period of pandemic and shares insights on the way forward.

Q. Srei has secured an EUR 10 million funding from the KfW IPEX-Bank of Germany. How difficult was it to convince a global institution to lend money to an Indian NBFC in this environment of uncertainty?

A. Over the last three decades Srei has emerged as a preferred partner for global institutional investors and international development finance institutions who have been exploring opportunities to participate in the 'India Growth Story'. Our track record in infrastructure equipment financing, wide distribution network and strong client relationships make us an ideal partner for these institutions. It is encouraging to see KfW's continued support despite the current market situation. This partnership will help our German and European manufacturing partners to benefit from our agile risk understanding in credit buying.

Q. Do you expect that this would encourage Indian banks to resume lending to Indian NBFCs? 

A: Ideally it should. It appears that international institutions have more confidence in the business models of Indian NBFCs than domestic lenders. Indian banks have been wary of lending to NBFCs over the last few months, which has created a liquidity conundrum in the sector. Most NBFCs largely depend on banks for their source of funding and hence it has been a struggle for survival for many of them. NBFCs service MSMEs, millions of entrepreneurs and self-employed individuals. Hence, it is critical that banks offer funding support to NBFCs and keep the spirit of financial inclusion alive in this period of pandemic.

Q. What has kept Srei going in this environment?

A: The pandemic has demanded a re-invention of processes and business models. Some of the pre-Covid methods of doing business are no longer relevant. At Srei, one of our key strengths is to adapt ourselves to the changing environment while staying focused on our core businesses. Our focus is now on growing the equipment finance business using different platforms and marketplaces. We have also partnered with several banks to expand this business through the co-lending model. The company's timely decision to exit the infrastructure project financing space has also helped. Srei has switched to an asset-light model which has kept us going.

Q. With the 'unlocking' of the economy is there any pick-up in demand for loans?

A: We had witnessed a bit of pick-up in June because of pent-up demand, but since July the demand has remained muted due to the intermittent lockdown of economic activities in various states. While activities in the central government sponsored infrastructure projects have started to a certain extent, at the state government levels the activities have been subdued.

Q. So, the greenshoots of recovery are still not visible?

A: In my opinion, it is still early to discuss recovery since we are still in the middle of the pandemic. We are not sure when the situation will become normal and hence, I expect a sharp contraction in the sale of construction and mining equipment in the current financial year. It can fall by as much as 30-40% compared to a year earlier.

Q. The Reserve Bank of India (RBI) has recently proposed a loan restructuring programme to cushion the impact of Covid-19 on businesses. What are your thoughts on the programme?

A: I'm not sure how effective the programme will be in its current form. Given the fact that the pandemic situation is far from over and there is no clarity on when things may return to normalcy, RBI should have ideally left the restructuring exercise to the lenders and borrowers, as is done in most developed nations. However, the regulator in its wisdom decided to lay down the specifics like eligibility criteria for the scheme and set deadlines for the various phases of the restructuring plan. I hope it offers solutions and brings respite to hundreds of businesses which have suffered heavily in this period of pandemic. I am surprised that the NBFCs have not been allowed to restructure the loans that they take from the banks while NBFCs are to provide this restructuring window to their customers. This can cause a severe asset-liability mismatch for the NBFCs and the government and RBI must appreciate that it would be the MSMEs and entrepreneurs who will suffer the most if the NBFCs go out of business.