Dear Shareholders,
Another year has passed and it's that time of the year when I get to
share my thoughts and feelings about the year that has just passed, with all of you.
Another year, which had its crests and troughs for not just your company, but for the
entire financial services industry.
As you would all recall, your company was listed on the bourses in
November 2022 and we have successfully seen 6 quarters as a listed entity. And I can
proudly say that your company has delivered on its promises - across the three aspects of
Quality, Profitability, and Growth. We have one of the best asset quality across the
entire industry, we continue to remain very profitable and we have also clocked a robust
growth during this financial year.
This year has also seen a much larger regulatory involvement - RBI has
been extremely proactive, has been cautioning banks and financial institutions to have a
contained growth strategy, refrain from completely relying on algorithmic lending models,
have a robust risk management strategy in place and also remain well-capitalized to manage
the risks that may possibly arise in the future. They have issued Master Directions on
Scale Based Regulations, Master Directions on Information Technology for banks and NBFCs,
they have also enhanced the capital to be maintained on certain types of loans, and
thereby been quite active in providing a regulatory framework to maintain the health of
the sector. Being a compliance first company, I am very happy to say that your company has
already complied with the guidelines that have been stipulated by the regulator and we do
not see any major impact of these pronouncements on our operations.
Before I get into talking about the operational and financial metrics
that we were able to achieve during FY2023-24, I wanted to share few of my general
thoughts with all of you.
When I start ruminating on the year that just went by, 4 thoughts
dominate my thinking.
1. Fundamental strength of the business model - To achieve success in a
lending business, it is extremely important to have a fundamentally strong business model.
The business model should have been time-tested and thereby capable of withstanding even
the fiercest onslaughts that may get thrown at it. As you would all be aware, your company
started providing secured loans to small business customers and self- employed individuals
about 2 decades back. The first 10 years of operating in this product saw us grow our
portfolio from Nil to about 100 Cr, and this pace of growth on such small bases would be
unheard of in today's scenario. But I would say that this is probably the most important
phase for your company, for it is during this period that we implemented the basic tenets
of the business and underwriting models and got to see their success. It was during this
phase that the seeds were sown, well watered, well nourished with necessary minerals and
manure, and thereby grew to become a tall tree that it is today. It was also a phase of
intense learning for us - we learnt what to do and what not to do, how the borrowers would
behave at various points of time, and we fine-tuned the model based on all these
learnings. This has helped us achieve robust growth in the years thereafter.
2. Right people, in the right roles, at the right point of time
- What I have also learnt over the last many years is that right people
are needed in the right roles at the right time to achieve strong growth. However strong
the business model be, the right team is needed to translate the same into action. When we
decided that we had a strong business model, we embarked on getting the right people, both
at the execution level and at the management level, to frame appropriate strategies for
your company and also execute those strategies. Today, I can proudly say that we have one
of the best management team to frame strategies and one of the most efficient execution
team that can execute these strategies to perfection and the results are there for all to
see - one of the best asset quality coupled with strong growth and robust profitability
for the last many years.
3. Strong Governance / Compliance first culture - As I had already
stated above, your company follows a compliance- first culture. We give utmost importance
to right governance and compliance. Not just compliance with the letter of law, we also
strive to ensure compliance with the spirit of law. Compliance with regulations is very
important in my view because it ensures an ecosystem where everyone can operate and strive
to excel. Even if few institutions fail to comply with the regulations, it can cause a
contagion effect which will also have detrimental results to all other players within the
ecosystem. Hence, I am of the firm belief that every institution ought to put governance
and compliance as one of their topmost priorities.
4. Guardedly Optimistic approach - Despite having a near perfect
business model and one of the best teams, it would be catastrophic if we embark on a
strategy of extremely exuberant growth at all times. Different times demand different
strategies and it would only augur well if we keep the times in mind before drawing up our
strategies. If we had chosen to grow during Covid throwing caution to the winds, we
certainly would have landed up in a mess. Optimism is necessary but it should not be
unbridled optimism. We should forever be on our guard without giving up optimism in our
thoughts. Giving up optimism and turning markedly pessimistic is completely against
entrepreneurial spirit and we will never be able to achieve our objectives. When we can
have the right mix of safety and positivity, I am sure we will able to scale great
heights.
I am of the firm belief that your company had all these ingredients in
the right proportion and that is the reason for your company's success over the last many
years. We have had our highs and lows but neither did we give up our guard when success
embraced us nor did we lose our optimism when failures crossed our way.
On the operational and financial fronts, FY2024 has been a strong year,
akin to FY2023. During this year, your company continued to clock strong results across
the various operational and financial metrices.
• Disbursal of over 4,881 Crores along with the borrower base
quite close to 4 lakhs during the year.
• Your company also saw its portfolio growth registering an
increase of ~39% during the year i.e. growing from 6,915 Crores to 9,641 Crores.
• Growth in Profit after Tax (PAT) from 603 Crores to 836 Crores,
an increase of about 39%.
• NPA of 1.38% as against 1.36% in FY2023 - this is after
implementation of revised IRAC norms, which has not had any major impact on the quality of
your company's assets.
Every year, it is my practice to quote a verse from Thirukkural, a work
that has inspired me immensely. In this verse, the divine poet Thiruvalluvar, talks about
how we should go about our plans.
For those who, before they act, reflect well on their plan and its
consequences, thoroughly deliberate the matter on hand themselves and with their chosen
friends, there is nothing that is considered too difficult.
This is what I consider as a guardedly optimistic approach, which
incidentally is the theme of this year's annual report. Especially when we are going
through a time when there have been a number of regulatory pronouncements, both
prescriptive and advisory, it is better to stay on our guard than exhibit irrational
exuberance; at the same time, if we deliberate and consider the pros and cons of every
action that we are to embark on, nothing would prove to be too difficult for us.
I would also like to take this opportunity to thank all the
stakeholders of your company -
a. Employees, who are the backbone of your company;
b. Shareholders, who have been reposing their confidence in the
management day-in and day-out;
c. Lenders, who have been the providers of critical raw material for
your company;
d. Directors, who, through their experience and expertise, have been
providing timely guidance;
e. Auditors, who act as our conscience-keepers;
f. All other industry stakeholders like the rating agencies, regulatory
bodies, who have been of immense support.
I look forward to continued support from all of you. With a strong
business model, a great team and the right strategy in place, I am very confident that me
and my team will continue to keep the flag of Five Star flying high in the years to come.
Best Wishes Lakshmipathy Deenadayalan
Chairman & Managing Director