Fedbank Financial Services, a retail-focused non-banking finance company (NBFC) promoted by Federal Bank, is set to launch its ₹1,092 crore IPO on November 22. The IPO came at a time when the Reserve Bank of India (RBI) increased the risk weights on unsecured consumer loans, including credit cards, by 25% for both banks and NBFCs.

In an exclusive interview with Fortune India, Anil Kothuri, the Managing Director and Chief Executive Officer of Fedbank Financial Services (Fedfina), talked about upcoming public offering, organised gold loan market, as well as the impact of the Reserve Bank of India’s (RBI) recent regulation to tighten consumer loan norms for NBFCs.

He says that Fedfina caters to small self-employed customers and provides them with working capital solutions through pledging of gold, mortgage of property, and unsecured loans. The company has been in business for 12 years and is present in 17 states and union territories across the country through 584 branches.

The Mumbai-based NBFC plans to use the IPO proceeds for augmenting its Tier 1 capital base to meet future capital requirements arising out of the growth of the business and assets.

“As of June 2023, the company had capital of ₹1,415 crore, and we seek to raise ₹600 crore in the issue that will significantly take up our levels of capital increase by around 30%. We believe the raised capital should be good enough to last us for the next maybe three years or so,” he says.

On RBI’s regulation, Anil Kothuri says, “The intent of the circular is to curb the exuberance and the huge growth that we're seeing in consumption-related loans, which are delivered unsecured. The RBI has sought to establish guardrails to ensure that this doesn't end badly either for the providers of loans or for those who take those loans.”

“Any form of regulation that is designed to ensure stability of the sector is welcome,” he adds.

Fedfina’s CEO further says that the company provides loans for working capital, and almost all its loans are for the priority sector. So, he believes that Fedbank Financial Services is outside the ambit of the circular as far as the loans are concerned.

However, he adds that the norms will have an impact on cost of borrowing as banks lending to NBFCs would require taking up their risk weights by 25 percentage points.

“The move will have an impact in terms of cost of borrowing, but exactly how much and how this will work, we are yet to gauge. But given that most of what we borrow is for onward lending for the priority sector, we expect that the impact will be muted, but then we need to see how this plays out in the future,” he says.

On gold loan, Anil Kothuri says, “India has the world's largest stock of privately held gold, and of this only 7% is pledged. Half of that is to the informal segment. So, the opportunities in lending against gold include formalising the informal as well as expanding the overall pie.”

“Historically, borrowing against gold has been part of the social fabric in South India, whereas the rest of India has just about recently begun to discover the benefits of pledging gold and borrowing for working capital. So the opportunities for lending against gold are largely outside South India, and that part of the country is significantly underserved,” he adds.

Anil Kothuri

Fedbank Financial’s Anil Kothuri on IPO, gold loan, RBI regulation on NBFCs