Dear All,
It brings me joy to present the inaugural annual report for your
company following its public offering. This comprehensive document captures our journey,
marked by significant milestones including a successful IPO launch and surpassing Rs
12,000 Crores in AUM. We remain true to our commitment to empower emerging self-employed
individuals, thereby contributing to the betterment of their lives. Together, we will
continue to drive and empower emerging India.
Economy
In recent times, the global economy has encountered increasing
challenges arising from various geopolitical crises. These challenges span across various
domains, including inflation, conflicts in Europe, and supply chain disruptions. While
economic activity has decelerated across some major economies, it has not halted.
Despite such instances of global instability, IndiaRss economy remains
politically stable and holds significant growth potential, putting it in a goldilocks
phase. According to the provisional estimates by the National Statistical Office (NSO),
IndiaRss real GDP is estimated to have grown by 8.2% in FY 2023-24, up from 7.0% in FY
2022-23. Driven by the GovernmentRss proactive measures towards economic expansion, the
country is currently positioned among the fastest-growing major economies.
As per the RBI, the average Consumer Price Index (CPI) inflation is
projected at 4.5% in FY 2024-25, decreasing considerably from 5.4% in FY 2023-24. This
development could spur consumer spending and investments. Moving forward, the trajectory
of inflation will depend significantly on the evolving dynamics of food inflation.
For October 2023, the bank credit to Non-Banking Financial Companies
(NBFCs) saw a notable 22% growth year- on-year as per CareEdge Ratings. The banking
sectorRss exposure to the NBFC reached Rs 14.8 Trillion, indicating a credit demand surge
in the economy. Looking ahead, the demand for credit, particularly among Micro, Small, and
Medium Enterprises (MSMEs) and retail sectors, is expected to remain robust, with a
projected growth rate of 13.5-14.0%. Consequently, these sectors would play a significant
role in fostering the growth of the NBFC industry and building its resilience.
Speaking of gold prices for 2024, a surge was witnessed in March-April
as financial markets were anticipating more pronounced policy rate reductions for the
year. This expectation was evident in declining bond yields and a depreciating US dollar.
The upward trend in gold prices persisted, with the figures reaching record highs in
March. Notably, the rise was fuelled by mounting expectations of interest rate cuts by the
US Federal Reserve, coupled with demand from central banks and Chinese investors.
The projected credit expansion for FY 2024-25, estimated between Rs
19.0 to 20.5 Trillion, is anticipated to be moderated by challenges in deposit
mobilisation and regulatory measures. This growth, expected to range between 11.7% to
12.5% year-on-year, would follow the record-high credit expansion of over Rs 22.2 Trillion
(16.3%) witnessed in FY 2023-24. It is estimated that credit costs will hold steady at
0.8% of advances throughout FY 2024-25, consistent with FY 2023-24 figures. This stability
is expected to provide banks with resilience against a potential compression in interest
margins.
Harnessing IndiaRss growth engine, we are committed to introducing
innovative financial products and focussing on local market penetration. Our product suite
matches customer needs, primarily MSMEs with broad offerings like Mortgage Loans, Gold
Loans and Business Loans.
Performance
To begin with, our CompanyRss performance has been marked by improved
disbursements, which has led to higher AUM growth, increased revenues and rise in
profitability. We have experienced favourable outcomes from heightened yields. Our
operating expenses growth has remained lower than the business growth, indicating higher
efficiency. The operating expenses to average assets under management (AUM) has decreased.
This has ultimately resulted in the enhancement of operating profits. Alongside, our
credit costs have remained minimal, contributing to improved Return on Assets (RoA) and
Return on Equity (RoE).
Another noteworthy trend was a marked increase in our Profit after Tax,
which stood at Rs 2,447 Million as of 31st March, 2024, indicating the success
of our strategic endeavours and operational efficiencies. Our AUM also experienced growth,
expanding by 34% year-on-year
(Y-o-Y) to Rs 121.9 Billion in FY 2023-24. These figures reflect our
effectiveness in managing business operations effectively, signifying its operational
efficiency and commendable financial performance. For our way forward, we are diligently
improving our growth, asset quality and profitability. As of 31st March, 2024,
approximately 85% of our assets were backed by gold or property, consistent with our goal
of maintaining a secured granular portfolio. These accomplishments showcase our
adaptability and robustness in seizing opportunities within the dynamic NBFC sector.
Growth Pivots
One of our strong competitive advantages over our peers is that we
boast a formidable lineage as a subsidiary of the Federal Bank, which endows us with
several distinct advantages. Firstly, our association with a bank brand instils trust
among investors, regulators, and customers alike. Secondly, we adhere to rigorous
governance standards akin to those of a private bank, ensuring transparency and
accountability in all our operations. Lastly, we benefit from lower borrowing costs
resulting in a reduced risk profile and improved margins compared to our peers.
Not just strong pedigree, but our twin- engine model also helps us keep
our loan book stable. Our twin-engine model revolves around two core components:
installment loans and Gold Loans. Our model capitalises on secured retail products,
focussed on the MSME segment, which thrive during economic upturns. Conversely, Gold Loans
flourish during downturns, providing a hedge against economic fluctuations in our
portfolio. This twin-engine strategy ensures growth in diverse conditions and strengthens
our companyRss position in the market.
Additionally, our off-book strategy underpins our commitment to
diversification and risk mitigation. This strategic approach encompasses colending
agreements with other banks for our Gold Loan portfolio, coupled with direct assignment,
primarily focussed on retail installment loans.
These attributes further help minimise our risks considerably.
Moreover, we have expanded our borrowing sources to lessen reliance on specific channels,
manage liquidity, reduce costs, and counter risks linked to market fluctuations.
We integrate digital and physical strategies to deliver tailored
customer services across all products, ensuring optimal use of technology. This innovative
approach combines digital efficiency with personalised interactions, ensuring a seamless
experience for our customers. Our technology platforms also support diverse functions,
including loan origination, underwriting, optimising branch operations, risk management,
and increasing customer satisfaction through tailored services and enhanced relationships.
Beyond Business
For our Company, the environment we operate in and the communities we
serve are vital cornerstones that propel us forward. As such, we duly recognise the impact
that our employees, customers, third-party providers and partners can have on these
crucial elements. Our Environment, Social and Governance policy supports us in achieving
our core commitment towards responsible lending. Thus, we focus on maximising development
impact and minimising ESG risks (like climate hazard, insensitivity to customers or
employees, wastage of natural resources) in a responsible, inclusive and sustainable
manner. We ensure that our organisation is both safe and enjoyable to work in. Our fifth
consecutive year of receiving the Great Place to Work award underscores our commitment to
making it a place where people feel at home.
Way Forward
At Fedfina, we recognise that India continues to present favourable
economic conditions amid the global turbulence, offering us several opportunities for
enhanced growth.
Some of these include higher consumer credit and lucrative interest
rates.
Notably, our developmental strategy focuses on granular secured retail
loans. These products are specifically designed to meet the needs of the emerging
selfemployed segment. Our goal is to bridge a significant credit gap, offering a tailored
suite of products that meet the unique needs of these customer segments.
Our operational efficiency will be driven by increasing the
productivity of our workforce and expanding our branch network, consequently facilitating
higher disbursements. With a robust risk management framework as our backbone, we are
well-prepared to
leverage future growth opportunities. Together, we remain committed to our
vision. I extend my heartfelt gratitude to our stakeholders, employees, and valued
customers for their persistent support. Thank you for being an integral part of our story,
and hereRss to a future brimming with prosperity and excellence.
Best Wishes,
Mr. Balakrishnan Krishnamurthy
Chairman