Godrej Capital To Focus On Loans To Small Businesses

The company will launch unsecured business loans for micro, small and medium enterprises within a couple of months as well as a supply-chain finance product in six months, Shah said. The company plans to end this financial year with assets under management of ₹6,000 crore, and will take it to ₹30,000 crore in FY26. Godrej Capital comprises non-banking financial company (NBFC) Godrej Finance and mortgage lender Godrej Housing Finance.

Most of its home loans are in the ₹40 lakh-1 crore range. The ticket size is reflective of the customer base of white-collared salaried professionals, said Shah. Small businesses loans are typically loans against property (LAP), with average ticket size of ₹1.5 crore.

“Our plan is to increase product range and offerings on LAP to MSMEs, and launch an unsecured business loan product by February-March," he said.

These unsecured business loans would be in the range of ₹10 lakh to ₹25 lakh, and for shorter tenures than LAP.

“Each time you need working capital, stock replenishment, festival readiness, business expansion; each time you want money you may neither have nor be willing to mortgage your property," he said, adding that when businesses look at borrowing against the property, they look at larger amounts and longer tenures with the end use much more capital expenditure focused.

Over the course of the next three years, Godrej Capital’s business would significantly shift in favour of small businesses. Shah said it was always the plan and one has to balance risk and reward. While home loan is a low-risk product, it offers relatively low yields and low rewards.

Godrej is betting on the growing credit needs of small businesses, which is the highest employment provider.

By focusing on small businesses, it will have to compete with a host of financiers, including banks, non-banks and fintechs, that want to use data and analytics to underwrite loans to SMEs.

With an estimated 110 million workers, small businesses account for 30% of India’s gross domestic product and 45% of exports, KPMG and CII said in a report in November.

Shah said that the Godrej group has so far committed capital of ₹2,700 crore in the financial services business and there might be more depending on how the business performs and how much it needs. Given this support from the parent, Godrej Capital would not need to raise capital at least till the end of FY24, he said.

On the liabilities side, the largest chunk of its borrowings is from banks at the moment but there is also some amount of short-term commercial papers and non-convertible debentures (NCDs). The company will also start looking at foreign borrowings or external commercial borrowings in the coming year.

“We enjoy both, availability and pretty advantageous cost of borrowing because of the kind of relationships we have with financial institutions. The group, in general, is not heavily leveraged, so as a financial services company where our raw material is our borrowings, that is an important part," said Shah.