Volumes may be still low compared to metropolitan cities, but higher yields, especially in home and two-wheeler loans, is making business more profitable in these places
The prospects for corporate lenders in the retail sector are brighter today in tier-2 cities like Lucknow, Ludhiana, Indore, Visakhapatnam and Madurai, which are witnessing a surge in demand especially for auto and housing loans.
These cities may not have the kind of numbers that the metropolitan cities have, but higher yields on growing numbers has made business as profitable as in the big cities for these lenders recently, according to report by CRISIL Research on "Retail loan products: Opportunities and risks beyond the metros and mini-metros."
"Stronger growth prospects, lesser competition, higher yields and profitability comparable to the larger cities make tier-2 cities an extremely attractive proposition for financiers," says Prasad Koparkar, head of industry and customised research at CRISIL.
The yield to financiers is slightly higher in tier-2 cities, especially in the case of housing loans and two-wheeler loans. It is important however, that credit quality is tightly monitored. The report also considered car loans, gold loans and loans against property.
Of course, there would be a difference in the growth prospects and asset quality; so picking the right markets will be critical to profitability. The report covers ten other tier-2 cities— Kanpur, Bhopal, Jaipur, Rajkot, Nagpur, Nashik, Mysore, Kozhikode, Coimbatore and Thiruvananthapuram.
"Contrary to popular perception, not all tier-2 markets fare poorly in respect of asset quality. In eight out of the 15 cities studied, the level of non-performing assets compares favourably with the all-India average for all five retail loan products," says Ajay Srinivasan, head of industry research at CRISIL.
Car loan disbursements in 10 of the 15 markets are expected to grow at about 20% CAGR (compounded annual growth rate) over the next couple of years. This is higher than the 13% CAGR estimated for larger cities. In seven of these tier-2 cities, loan against property (LAP) disbursements are expected to grow faster than the rest of the country. Gold loans are expected to grow more than 50% annually in five non-southern cities, according to the report.
The deal will give RIL access to BP's expertise in deepwater drilling and accelerate development and production from its fields, particularly the under-performing KG-D6 block in the eastern offshore
New Delhi: Reliance Industries (RIL) today said it has received the government's approval for selling a 30% stake in 21 out of a proposed 23 oil and gas blocks to UK's BP Plc for $7.2 billion, reports PTI.
The Cabinet Committee on Economic Affairs (CCEA) had on 22nd July cleared the stake sale by RIL to BP in 21 blocks, including the showpiece eastern offshore KG-D6 gas producing area and discovery area NEC-25. However, it held back approval for two inconsequential blocks-one a deep sea area off the Orissa coast and the other an onland block in Assam-over technical issues.
"RIL has received the government of India's approval for its transformational deal with BP," the company said in a press statement. "RIL is grateful to the government of India for the approval, which will result in the largest foreign investment in the domestic hydrocarbon sector."
BP will have to furnish a bank guarantee and performance guarantee, as per the Production Sharing Contract.
The deal, which might increase in value to $20 billion on the basis of future performance payments and investment, will give Reliance access to BP's expertise in deepwater drilling and accelerate development and production from its fields, particularly the under-performing KG-D6 block in the eastern offshore.
For BP, which has been struggling to recover from the disastrous Gulf of Mexico oil spill disaster last year, the transaction is a chance to enter a market where energy demand is growing at 5%-8%.
"BP will take a 30% stake in 21 oil and gas Production Sharing Contracts (PSCs) that RIL operates in India, including the producing KG-D6 block. Following the approval, RIL and BP will work together to conclude the deal expeditiously," the statement added.
RIL holds potential gas resources of 9.5 trillion cubic feet (tcf) in the KG-D3 block. Hardy has 10% stake in the block and Reliance 90%.
It has also made oil discoveries in a Cambay onland block.
In the KG-D6 block, RIL has so far made 19 oil and gas discoveries, of which it has put two gas-Dhirubhai-1 and 3-and one oil find, MA, into production.
It had in 2008 submitted a development plan for nine satellite gas discoveries around Dhirubhai-1 and 3. In 2009, it withdrew this and submitted an optimised development plan for prioritising four satellite gas finds to oil regulator Directorate General of Hydrocarbons (DGH).
An integrated development plan for all the gas discoveries in the KG-D6 block is being conceptualised to maximise capital efficiency and accelerate monetisation.
Industry observers have said the BP deal is a clear breakthrough for Mukesh Ambani, in terms of getting access to BP's expertise as well as de-risking its exploration and production (E&P) portfolio.
RIL and BP will also form a 50:50 joint venture (JV) for the sourcing and marketing of gas in India. The JV will also work toward creation of infrastructure for receiving, transporting and marketing of natural gas in India, which could be in the form of an LNG terminal.
RIL has been awarded a total of 43 blocks till date from the pre-NELP and eight NELP rounds. 14 of these blocks have been relinquished. Out of the 29 blocks remaining, there have been discoveries in nine blocks.
RIL also has 30% interest in the producing pre-NELP blocks Panna, Mukta and Tapti. It also has 5 CBM (coal bed methane) blocks in India, including two with gas resources of 3.5 tcf.
RIL recently also formed three US shale gas joint ventures.
BP will not take interest in any of these E&P assets of Reliance.
For starters, here are some questions for SIDBI’s board and senior management so that they can initiate the task of learning from their past experience
Yesterday (8th August), Moneylife had raised the need for SIDBI to learn from the microfinance crisis, and assuming that SIDBI's senior management and board would like to do so, the question is where do they begin? (SIDBI must rework its microfinance strategy ). Accordingly, I start by sharing relevant data with regard to SIDBI's growth in Indian microfinance (See chart). A close look at this data suggests that SIDBI had abandoned its slow growth trajectory somewhere in 2007 and had, in fact, turbocharged the growth of the Indian microfinance industry by 2008. The data given below is self-explanatory.
At this juncture, let me again clarify that SIDBI's work in the Indian microfinance industry is phenomenal and I have the greatest regard for its contribution to the microfinance industry and the development sector prior to 2007. I would also rate it as one of the most responsible institutions prior to 2007. However, its role, especially from April 2008 onwards, raises a lot of discomfort and I hope that the management and board of SIDBI do a dispassionate and objective analysis of the same (in terms of what happened and why) with regard to the SIDBI Microfinance Saga. The idea is neither to blame nor penalise any of the officers, many of whom are very committed and have great talent and knowledge—however, the time is surely ripe for SIDBI, as an institution, to introspect with integrity and learn from its past experiences. This is something that I would like to reiterate again.
And accordingly, with all humility, I provide some starter questions (that are by no means exhaustive) for use by the SIDBI board and senior management, so that they can initiate the task of learning from past experiences:
These and other questions become very relevant as institutions like SIDBI intermediate public funds and, having seen the havoc that microfinance field agents have caused on the ground in the last nine months, I cannot help but ask the above questions. I hope SIDBI's board and management take these in the right spiritiv and introspect with integrity. And that alone should be able to provide practical guidance to the perfectly timed SIDBI-World Bank "Responsible Micro-Finance Project" and the DFID sponsored poorest states inclusive growth (PSIG) project where SIDBI is the consortium leader. Only time will tell whether SIDBI's board and management feel the responsibility to do this in an urgent manner…
iEmployees stock option plans
iiEmployees stock purchase scheme
iiiI am very sure that the concerned nominee directors can identify the context
ivThe idea is neither to blame anyone nor find fault with any institution. The objective solely is to learn from past experiences and ensure that similar things do not happen on the ground again in the future.
(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments.)