MSME Businesses Are Our Natural Choice of Borrowers: Anirban Chakraborty, Managing Director & CEO, TFCI

A listed entity, the Tourism Finance Corporation of India (TFCI) is perhaps the only institution focused on funding the tourism projects. In fact, in its three decades TFCI has helped add more than 51,500 hotel rooms in the country amounting to 30 per cent of the total room capacity. Recently, TFCI reported healthy numbers for Q3 FY21, at a time when the tourism and hospitality sectors have been severely crippled by the pandemic. Anirban Chakraborty, Managing Director & CEO, TFCI tells Ashish Sinha of BW Businessworld how the company’s loan portfolio is growing every quarter and much more. Excerpts:

Please expand on the third-quarter business scenario and the main reasons for reporting an increase in net income.
With phase-wise easing of restrictions there has been a sequential improvement in occupancy levels across all the key markets since October 2020, driven by pent-up leisure demand and diversion of outbound leisure travel to domestic markets. As such, the Q3 of FY21, especially December, turned out to be better than expected for the hospitality sector. Inspite of a tough macroeconomic scenario, TFCI’s loan portfolio has been growing quarter on quarter. As such, the income from loans for the third quarter of FY21 increased by about 8.17per cent as compared to the corresponding period last year, which is attributed to accretion in the loan book and incremental loans carrying higher interest rates.

How has the shift/expansion in lending to the MSME and non-tourism sectors helped TFCI? How long will this continue?
Though the NBFC landscape continues to be challenging, NBFCs focusing on retail and MSMEs have fared better in terms of portfolio growth and fund raising during the last 2-3 years. TFCI has a moderately diversified loan book which is backed by high collateral security which has helped us in recovering our dues even after the asset has turned non-performing. Also, in order to have a better monitoring and control mechanism, TFCI prefers to be sole lender to a project/ borrower. Accordingly, in order to remain in our sweet spot that is ticket size of Rs 30-50 crore, we prefer to lend to entities with project cost of Rs 70-100 crore. Hence, MSME businesses become our natural choice of borrowers. We believe there exists a huge scope for lending to this segment and ensure more granular lending, thereby diversifying the risk profile of our portfolio.

Your statement said that of the Rs 1,989 crore loan book, 82 per cent is towards the MSME segment. And that there are 72 projects. Can you expand on the MSME segment (categories, companies, etc.) that is currently availing TFCI loans?
As per the revised definition of MSME, enterprises with investment in P&M worth <=Rs 1 crore to Rs 50 crore and having an annual turnover of <= Rs 5 to Rs 250 crore are categorised as micro, small and medium enterprises. If you closely see my book, around 90 per cent of our hospitality portfolio and 82 per cent of the overall book falls under this segment. Being in the MSME category has helped our borrowers avail various schemes announced by the government for the sector to tide over the temporary cashflow mismatches.

As on December 31, 2020, what was the active exposure to the tourism-related sector? How many hotel rooms/hotel projects are currently under construction, if any? How many of them are expected to become operational in calendar year 2021?
As on December 31, 2020, around 77 per cent of our asset under management was towards tourism and allied sectors. We have exposure in hotels, resorts, convention centres, restaurant chains, amusement park, etc. Around 13 hotels are currently under implementation, majority of which are likely to begin operations by the Q3 of FY22.

Can you please expand on the projects -- 11 in Uttar Pradesh, 9 in MP, 8 in Maharashtra and 6 in Delhi? Details on each city would help the readers get a better understanding.
TFCI’s exposure is geographically well spread out. However, the major exposure is in states like Uttar Pradesh (1 per cent), Maharashtra (15 per cent), MP (14 per cent), Rajasthan (12 per cent) and Gujarat (10 per cent). So, we have projects across sectors viz. hospitality, manufacturing, healthcare, education in Noida, Aligarh, Varanasi, Jaipur, Indore, Pune, Aurangabad, Mumbai, Pune, etc.

How has Covid-19 impacted loan disbursement in the current fiscal? TFCI disbursements were highest for FY18. For the nine months of FY21, disbursements stand at Rs 384 crore, nearly Rs 100 crore less compared to the previous fiscal. What were the challenges? In Q4, how do you see disbursements shaping?
Disbursements are a direct function of the market sentiment and general upswing in the economy, both global as well as domestic. Owing to the challenging and subdued business environment in 2019-20, including turmoil in the NBFC sector, slowdown in real estate and manufacturing sectors, TFCI adopted a cautious approach in sanctioning and disbursing loans to maintain the asset quality which resulted in lower disbursements. Also due to the onset of Covid-19 in Q4 FY20, planned sanctions and disbursements had to be deferred.

Before the lockdown, we had plans to clock about Rs 500-600 crore disbursements during the current fiscal.  However, Covid-19 made us rework our strategies and we shall end up disbursing Rs 450-500 crore like other lenders. The challenge now is to closely monitor each account to ensure healthy asset quality. We have created systems and processes which help the monitoring team to assess stress much earlier. We have since started stipulating maintaining escrow/TRA accounts so as to capture entire cashflows of our borrowers. Disbursements in Q4 shall be moderate and in the range of Rs 50-100 crore.

Your cost of borrowings is at an all-time low when compared to the previous five financial years (except FY18). But the return on loans and advances is second best for the nine months of FY21, after the last full fiscal. Can you please expand on this considering that the past nine months have been the toughest of any financial year in a long while? 
TFCI’s philosophy with respect to its liabilities has always been conservative (if I may say so). We are a term lender, with average maturities of our loans in the north of five years. Hence, we traditionally borrowed long term, albeit at relatively higher costs. Most of our peer NBFCs had resorted to borrowing from CP markets at much cheaper rates, while keeping the books exposed to ALM mismatches. In retrospect, I am glad that we did the right thing. We did not face any pressing need to repay our liabilities when the market sentiments for NBFCs suddenly turned negative after the IL&FS and DHFL events. This has helped us to gain the much-needed confidence amongst our lenders, which has translated into reduction in our cost of borrowings over the last few quarters.

On the asset side, we have a portfolio of long-standing relationships (often repeat borrowers). They value our association and the support we have provided them during this pandemic and other tough situations in the past. This allows us to command a better yield from our customers, which they aren’t averse to paying. Having said that, we do pass on the rate benefits to our customers from time to time. Also, being the only player in the hospitality sector does give us some edge at times.

What do think how early can the hospitality segment in India see its ARR touching the pre-Covid rates at least in the metros like Delhi and Mumbai? How can the sector be supported in a much better manner in FY22?
Based on our assessment of the hospitality sector, we believe that occupancies will bounce back to pre-Covid levels ahead of ARR recovery. We are already witnessing an improvement in occupancies as more and more people are resuming their travel plans. The reduction in active cases coupled with the vaccination drive is helping travellers regain the much-needed confidence.

Having said that, we believe ARRs might take a little longer to get back to pre-Covid levels. Also, a few sectorspecific initiatives like rationalisation of license fees, GST reduction / waiver, and interest support for 1-2 years by the government may give the necessary boost to speed up the recovery.

Given the tough and uncertain times we went through during March-April last year, how were you able to keep up the morale of your employees?
I strongly believe that your team is your biggest asset and greatest strength which can help tide through any adversity. Keeping their morale high, letting them know that the management is with them in such trying times, motivating them each day with newer challenges is what makes the difference at the end of the day. We are a small, close-knit team which is highly experienced and has hands-on experience in successfully handling tough situations in the past. A handful of our colleagues contracted Covid-19 and, unfortunately, we lost one of our senior board level members to this virus. That was a personal loss to me too. I, myself, was a bit dejected with this, so were many other colleagues who had worked with him closely. However, we had to gather ourselves back and start working towards the organisation’s objectives.

What do you do to relieve stress and spend your spare time? When was the last time you took a holiday?
Coming from a family of teachers, I have always been inclined towards books. So my way of de-stressing is to read up some non-fiction, autobiography, etc. Listening to music during my spare time also helps me re-energise.

Well, it is quite difficult to take time out of professional responsibilities and have a meaningful break. However, I do take small breaks to catch up with family, school/ college friends, pursue my spiritual inclination, etc. The last time I took a break was to visit Rameshwaram temple in December 2020.