Capital India Finance, led by CEO Pinank Shah, has transitioned into an MSME-focused retail lender with 80% of its loan book in secured loans. The company now targets scaling its reach through branch expansion and digital integration.
Mubina Kapasi: Hello and welcome to SmallCap Spotlight. I’m Mubina Kapasi. Today we’ll be speaking with the CEO of Capital India Finance, Mr. Pinank Shah.
Capital India Finance is primarily into the business of lending with a special focus on SMEs. So let’s understand a bit more from Mr. Shah on how the business is going to scale up from here on. Thanks so much for joining us today, Mr. Shah.
And to begin with, let’s understand this illustrious journey of Capital India Finance. I think you’ll have been in existence for almost about 30 years. Could you tell us on how the company has grown and some of the key milestones?
Pinank Shah: Thank you for the opportunity and having me here on your channel. We’re talking about Capital India’s journey. As you touched upon, we are a three-decade-old company, but for the first almost about 20-25 years, we didn’t have any meaningful operations until 2017-18, when the current promoters acquired this company, Infused Capital, to set up a lending business under Capital India Finance.
So we rebranded the company and started the lending business. So at that point in time, we kind of set up this business with the thought to build a wholesale stroke real estate lending kind of portfolio. So we built that business and started off a little further a couple of years into it.
And that’s when the IL&FS crisis happened. And we went back to the drawing board to see how is it that we would want to build the company for the future. And that’s when it dawned that we would want to build it out as a retail lending franchise.
And so that really is the core. But where we stand today, we are an MSME-focused lender trying to be a partner with millions and billions of MSMEs across our country.
Mubina Kapasi: Mr. Shah, could you explain your core business model and also what’s the mix between your SME lending, your individual lending, and also some of the other business segments?
Pinank Shah: So we’ve undergone a change.
So if you look at our numbers in terms of our assets under management through the course of the last three-four years, they’ve been largely plattish aside of March of 25. And we are now back to growth. So the whole journey, as I was touching upon, started way back with the wholesale and retail lending business.
Wholesale lending business way back in 2017-18. And as we started doing the retail business, we had multiple products in our fray, which included loans against properties, you know, the prime loan against property, micro-stock, affordable loans against properties, education loans, equipment, finance, and the works. Having said that, we have over the last couple of years consolidated and found our sweet spot where we would want to pursue growth, and which is around secured loans against properties to MSMEs.
So that really is the mainstay in terms of our product that we are trying to build out on. Just to give you a flavor, you know, as of March of 20, we had all of about 50 customer accounts. You know, until date now, as we speak, we financed almost about 88,000 customers.
So the underlying nature of our loan book has undergone a change dramatically through the course of last few years. Coming back to where we are today, 80% of our loan book is secured loans, and only about 20% of our loan book is unsecured. If I was to split this further in terms of our, you know, SME and a non-SME kind of an exposure, our SME portfolio would be about 83 odd percent, only about 17% would be non-SME.
Mubina Kapasi: You know, in the last couple of years, we’ve seen this pivot of sorts from commercial real estate to SME business. What drove that?
Pinank Shah: Yeah, so like I was saying earlier, this is pretty much driven by obviously market forces, and the accident of IL&FS, which kind of shook the entire lending industry in our country, eventually led into, you know, consolidation across the space where people then wanted to build up a retail lending franchise, and pretty much similar for us. Knowing fully well that if we had to scale further, if we needed to get leverage into business, then we would want to need to build a retail lending franchise.
Wholesale would have to be practically financed out of equity. So with that thought in mind, we started building the retail lending franchise, and we’ve turned that around over the course of the last so many years. And we are now a 90% retail company, so almost about, and over the next year or two, we will have almost about 100% of our loans in retail.
Mubina Kapasi: Okay, 100% book in retail, interesting. Now, tell me, how do you manage credit risk in SME lending? Because it’s a big risk for most lending to this industry.
Pinank Shah: Yeah, so listen, as we talk about credit risk, I think a lot of time when we tag SMEs as a higher risk associated segment, what we do not really value in here is the fact that SMEs is a very wide spectrum.
First and foremost, there is a segregation between secured and unsecured SME. Even within secured, there is a spectrum which is, you know, they’re at a prime side of the product, which is a very low-ending kind of an asset class versus a high-ending micro-lap or even a higher, extremely low ticket size kind of a product. So, but if you were to just compare the sheer yield dynamics compared to say a mortgage loan like a home loan, yes, the delinquencies under LAP as well are higher than home loan, that’s correct.
But I think the higher yields in the LAP business more than compensate for the higher risk which is associated. But going back to your question on underwriting and association of how is it that one is actually evaluating risk in the portfolio, it’s a, to be honest, it’s a function of one being able to understand businesses and not just rely on possibly some financial documents which the customers are applying to you, but actually doing a thorough assessment in terms of what kind of income and cash flows is that business generating. So, our very strong underlying focus is on our assessment and understanding of how and what the customers are earning in their business and that repayment capability along with the intent to repay is the underlying theme of how we do our risk assessment.
Whilst, obviously, we do use a lot of technology as well to see how we can, you know, kind of improve our turnaround times, etc. But we are completely entrenched into a digital world, if I may say so, where we are not going away and taking away the human element of judgment whilst we are underwriting loans. You know, you had a recent sale of Capital India home loans for around 267 crores.
Mubina Kapasi: So, I just want to understand what’s the plan to utilize these proceeds? How will this divestment affect overall revenue profitability? And also, you know, what exactly is the larger goal behind this?
Pinank Shah: Yeah, so this was a strategic move for us to consolidate and focus on one particular segment, which we are very, very confident of. That’s the MSM intending space and the MDFC business, which we would want to further. So, that strategic sale is more aligned to ensure that we further up our core MDFC lending business.
That’s where the monies and proceeds are likely to be used for continuing and pursuing our growth in the MDFC business. Having said that, it also augurs well for our balance sheet because it kind of frees up a significant amount of capital for us. Our net worth kind of crosses almost about 700 crores with the sale.
And also, more importantly, allows us the liberty and luxury to be able to build a strong franchise for the future growth. So, it’s actually a backbone for us to be able to pursue growth in our goals for the years to come. You know, the SME lending market is very competitive.
Mubina Kapasi: So, how do you plan to strengthen your position?
Pinank Shah: You’re spot on. I think competition is very, very high across the SME lending space, especially in the secure lending space, because the last 18 months, the commentary from the regulator also had been that one needs to slow down on unsecured lending and stuff. So, all, practically everybody in the system, be it banks and MDFCs, want to do secure loans against properties.
But I think what element one misses here is this is also a core expertise which certain players bring to the table. And that is the deeper connect with the customer and understanding of these businesses. It’s also based on the fact that this is an industry which is expanding very well.
You know, there is a strong buoyancy which is there in terms of how businesses are building out. Even if you were to look at the most recent prediction around quarter one GDP growth numbers for our country, I think there’s a clear direction that despite all the geopolitical issues, there is enough and more, you know, opportunity there for core businesses to continue to grow. And what’s actually more important and interesting is the fact that, you know, with the advent of technology, digital payments, and so on and so forth, I think even, you know, every segment of the MSME system has now improved in terms of being able to demonstrate the kind of cash flows one generates.
And that deeper understanding of cash flows is the core for someone to be able to compete in this market. And, of course, goes without saying, one needs to be nimble-footed, adapting to regulations pretty fast, because that’s a fast-changing regulatory environment. And the core focus should be to use technology for improvement in productivity.
That is the mainstay for us to be able to deliver, you know, the customer requirements which are there. So, we are deeply rooted to connect with our employees and our customers. And we would, you know, we’d like our employees to be able to find the need of the customer and being able to support the customer.
And that to us gets more business.
Mubina Kapasi: You have a fintech business, you also have a forex business segment. What’s the plan for these two business segments?
Pinank Shah: So, we have two of the strategic business verticals which are there.
Rementex, which is our forex vertical, which is a part of our NBFC itself. We have an AD2 license from RBI to conduct that business. So, it’s an interesting business, not a business which absorbs too much of capital, but gives us a steady source of free income.
Last year, we did have a dip in that business in terms of profitability, but that was largely due to change in regulations which had come around sometime in early start of last fiscal year. But we expect this business to turn around sometime during this year. And it’s an interesting business to have us, give us a steady source of fee income, which kind of can give a fillip to our overall lending business.
On the other side, the fintech business is more strategic in nature. We have a 52% investment in a company called RapiPay Fintech, which is a neobank kind of a concept where there are customers who are transacting on our platform and RapiPay is offering them merchant loans also. So, it’s a lending payments platform which is there and that business also has continued to improve through the course of last couple of years.
So, these are interesting businesses and strategic investments that we have, and we believe that they fit into our overall core strategy of being technology enabled, but a fidgety player, which is here to pursue growth in a very interesting space.
Mubina Kapasi: All right. So, you spoke a little bit about the entire RapiPay Remitex partnership. So, how do you plan to leverage all these different strategic partnerships that you enter into to propel these businesses?
Pinank Shah: So, look, we have in the past have had associations and alliances with multiple companies, but we’ve consolidated and built a very strong foundation for us to pursue our business directly. So, that’s the core mainstay. Our partnerships will continue.
For example, what we try and do with RapiPay, that’s something which will sustain. Having said that, these are going to be more strategic and opportunistic in nature, but we are at our core itself, you know, setting up our distribution framework, expanding our branch network, et cetera, to pursue measured growth in times to come. So, I think we would be more focused around building our own organic loan book and look at partnerships in an opportunistic way.
Mubina Kapasi: You know, we at Small Cap Spotlight love to hear the personal journey of the leadership of different listed companies. So, tell us a bit about your personal journey in the financial services space and what eventually led you to Capital India.
Pinank Shah: Sure. So, I started my career at the premier lending institution of India, which is HDFC Limited. Straight out of my MBA school, I joined HDFC Limited. And interestingly, though I majored in finance, I joined HDFC in its retail lending business to begin with.
And that’s where I believe my foundations and grassroots have got built for me being able to have a deeper understanding of the customer’s persona, customer’s need. And at the front end, actually dealing with the customers is what brings the most amount of learning for you to be able to adapt to. As I built my career at HDFC, I also moved in from retail to corporate lending there and a pretty large portfolio for HDFC, almost spent almost 710 years at HDFC Limited.
And from there, I kind of took a completely different pivot, moved on to head the treasury for India Bulls Financial Services, as it was known at that point in time. Carried that along and learned the tricks of the trade around complex structuring of transactions, fundraising across equity and debt instruments and stuff like that. But the real game changer came around, you know, my role at Dhani, which was in 2017, where I took over as the CEO to set up a FinTech enabled consumer lending business.
That to me has been the biggest learning curve. There have been dramatic, you know, adaptations to technology during the course of my tenure at Dhani, including great amount of competition, you know, managing regulatory challenges, etc. But I think that brought the greatest amount of learning for me.
And to me, bringing that entire experience along, right from building a retail business and understanding the foundations of a retail business at HDFC to driving a corporate lending business there, to run the treasury at India Bulls Financial Services, and then set up a FinTech enabled lending business, you know, with a very large team at work, almost about 20,000 people at one point in time. I think that combination brought me here to Capital India to be able to set up something right from scratch and build an institution in itself, which can, you know, cater to the funding requirements of millions of MSMEs in our country. So that really was the core driving force for me to join in Capital India.
Mubina Kapasi: All right, so you clearly have a wide variety of experience in the BFSI space. What’s been the most challenging phase in your leadership tenure, according to you?
Pinank Shah: Well, if I was to talk about the challenging phases in my career, I think the most challenging phase definitely was whilst at Dhani, as the CEO of Dhani and in fact, trying to run a business with fast paced change in technology, with heavy competition, with continuous regulatory checks, which we need to be abiding by, etc. And in that environment, looking through the uncertainty of markets, you know, that’s when COVID kind of hit the world and to adapt to that, and taking that entire ethos of absorbing the stress, which kind of comes to you at a leadership role.
But ensuring that you don’t kind of download that difficult difficulties to your team, to me, that’s the biggest learning curve and the biggest challenge as well. However, I think these are beautiful learning experiences, which allows you to adapt to and get into a much better human being.
Mubina Kapasi: All right, let’s talk a little bit about numbers, if you could share your recent TTM top line and bottom line.
And also, I understand that in the last couple of years, while the company has had stellar top line growth, there’s been a bit of challenge on the bottom line. Could you share the strategy to turn that around?
Pinank Shah: Yeah, so you know, if you’re looking at standalone numbers for Capital India Finance for last fiscal year, I think we had a revenue of almost 185 crores, and we did make profits of 313 crores for FY25. The number which you are pointing to is a consolidated revenue and loss which you are referring to, we had a consolidated revenue of about 600 crores for Capital India Finance as a consolidated entity and a loss of about a shade under 9 crores.
That loss was largely driven by our investment in RapiPay, which is the technology led business. Having said that, if you actually look through our numbers for the last three years, you will observe that RapiPay actually has reduced its losses significantly through the course of last three years. In fact, it had a negative EBITDA of about 80 odd crores in FY23.
That was down to a negative EBITDA of only about 1.8 crores in FY25, and it was EBITDA positive in Q1 of this fiscal year. So clearly, directionally, we are, you know, even on a consolidated basis, driving towards improvement in our overall numbers, but the core and the mainstay of the business, which is our lending business, continues to be proud.
Mubina Kapasi: What’s your pricing strategy like for the different loan segments that you have, like SME, or even for that matter, equipment, finance, etc.?
Pinank Shah: So look, our core product areas are the SME secured loans only.
Equipment, finance, and other products is something which we’ve done in the past. We no longer pursue them. But under the core loan against property product, we are operating in two segments.
One is the prime loan against property market, and second is the affordable loan against property market. In the prime loan against property market, our book yields are in the about 14.25%. And for the affordable loan against property business, which we do, that’s almost about 20%. On a blended basis, our blended yield for all products put together, we earn close to about 15.4%. You know, for an NBFC, liquidity, funding, all of these are very important.
Mubina Kapasi: So tell us your strategy for managing these two segments.
Pinank Shah: So interesting question. Thanks for asking that.
You know, I think as an NBFC, our raw materials money, and money is the most difficult bit of challenge one faces in, especially in our country in India. And that’s where we are extremely conservative. I come with a huge amount of experience in fundraising, handling liquidity, and challenging times.
So I am ultra conservative when it comes to our ALM. We are absolutely matched in every bucket of our asset liability schedules for the next 20 years. Whilst we have a very strong capitalization and a very low gearing number, but aside of that, even on our ALM, we are very, very well matched.
So we don’t take any liquidity mismatch in any of our ALM buckets, and at the same time, continue with enough and more amount of cash on our balance sheet from time to time. In terms of our overall debt, it’s shared under 700 crores as we speak. But more importantly, we continue to diversify.
So over the course of last couple of years, we’ve actually added almost about seven to eight new lenders in our borrowing profile. And also more importantly, we’ve just did our inaugural issue of non-convertible debentures on a private placement basis last month, which was a 50 crore number, which we raised for the first time. And so the whole idea is continue to diversify sources of financing, not just from the point of view that, you know, over reliance on one particular source of financing is always challenging if there’s some change in regulation at some point in time, but more importantly, building a currency for ourselves across different instruments over the next few years, allowing us to be able to pursue growth in times to come.
Mubina Kapasi: Could you tell us a bit about what your target loan book mix could be across the different categories?
Pinank Shah: So as I explained, we are close to about 80 percent secured and 20 percent unsecured in our AUM. We are pursuing a stronger focus on our secured lending business. But big picture, our AUM split will be hovering around between 80 to 85 percent unsecured and the rest will be unsecured, but pretty much in the MSME domain.
But as growth kicks along over the next few years, we may look to add new products in our kitty as time comes by.
Mubina Kapasi: All right. Let’s talk a bit more long term if we had to, let’s say, have this conversation five to 10 years later.
What’s the vision that you have for Capital India Finance? Any revenue or AUM growth targets?
Pinank Shah: So, look, we are like building the institution here at Capital India and the whole ethos in terms of what we believe across all our colleagues in the company. We are very clear that we want to become a formidable institution who will be able to support the MSME financing requirements in our country. With that perspective in mind, you know, we are pursuing a growth strategy where distribution will continue to expand.
We are having almost 29 branches today. Over the next one and a half to two years, we believe we will reach about 100 odd branches for us to be able to pursue a wider growth and cover a wider spectrum of our country. Having said that, that’s the initial level of growth we’re talking about.
But big picture, we are building ourselves to be able to cater to our 10,000 crore kind of AUM target. That’s the way in which we are building our foundation blocks, be it around processes, be it around compliance, be it around our entire distribution framework, be it around the ethos and the culture of the company for being able to pursue this kind of a target. All right.
Mubina Kapasi: And to finally sum it up as our last question, I’m sure with no leadership team can survive without a great team. So if you can tell us a bit about your strength at Capital India Finance, a little bit about who comprises your team.
Pinank Shah: Well, I’m actually glad you asked this question.
And, you know, what I’d like to add here is we are a very strong people centric organization. Whilst the entire senior management and the leadership team comes in with great amount of experience in the entire NVFC domain. But what is more important is the ethos and the culture which we are building in the company.
We deeply value and care for our employees. Just to give you an example, you know, we and I’m sure all corporates actually do that, that one would, you know, solicit performers across branches, across regions, etc., across departments and stuff. We’ve just taken it to another step where we reward these performers, but we actually, the senior leadership team visits the residences of our performing employees and in front of their families, their parents, their children, their spouses, and the extended families, we actually award them there.
The whole idea and the ethos is every individual in the company needs to feel valued. And we are in a lending business, we are in a business where integrity is very, very critical. And that’s where I strongly believe that loyalty kind of will come when you value your people, irrespective of the advent of technology, what happens in terms of one adapting to technology and redundancy kind of built up in certain roles, etc.
People will remain central and core to all MDFCs in our country. And that’s where we kind of build a culture of meritocracy and value which every person in the company kind of feels. So that’s the kind of ethos with which we are building the foundation of the company.
And most important is the belief in every individual that I’m adding value to the company, and I would want to build a business which is fueling customer requirements and it’s compliant in terms of all possible regulations which are there. So that’s the ethos with which people in the company are being ingrained. And every hiring which we do is linked into LinkedIn to bring in these particular traits which we deeply value and appreciate.
So the HR actually runs over time to be able to map these specific values of individuals who would want to join our company. So that’s how we are building the company. And I think we are, you know, driven largely by people for people.
Mubina Kapasi: All right, Mr. Shah, thanks very much for joining us today on Small Cap Spotlight. And thank you viewers for tuning in. Do remember this platform serves merely as a tool to tell you a corporate story.
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