On Monday, Bengaluru-based Capital Float announced that it had raised $45 million (Rs 293 crore) in Series-C funding, in a round led by Silicon Valley-based Ribbit Capital, along with participation from existing investors SAIF Partners, Sequoia India and Creation Investments.
According to the company, the funds will be used to increase its geographic footprint, improve customer experience and launch a new set of innovative credit products for SMEs across India. It also plans to invest in scaling up its hybrid marketplace model and deepening technology integrations with partner financial institutions.
As a part of the funding announcement, the company has also added that it has raised more than $67 million (Rs 437 crore) over the course of last year, in new debt financing from leading banks (including RBL Bank, IDFC Bank, Kotak Mahindra Bank) and NBFCs (including IFMR, Reliance Capital).
This brings the total amount of fresh capital raised in the last 12 months to over $112 million (Rs 730 crore) for the company.
According to founders Sashank Rishyasringa and Gaurav Hinduja, their balance sheets is a combination of equity and debt. Further, the debt raised is used for financing their products and giving out credit in the form of term finance and other products.
Speaking on the investment, Sashank and Gaurav stated, “We are growing at an exciting pace, currently originating over Rs 200 crore in disbursals every month. Over the past year alone, we have disbursed loans of Rs 2,500 crore to 12,000 plus customers across 300 cities.” Further, the founders stated that despite the lending, the platform has been successful to keep their non-performing assets (NPAs) to two percent, with sight at reaching profitability by the end of this year.
For the platform, their product line includes kirana loans (quick disbursal and for low amounts upto Rs 25,000), online seller finance for e-commerce sellers, taxi finance for cab drivers, and invoice and term financing including merchant cash advance for PoS machine holders.
Over the past year, the lender has diversified its portfolio, lending to a wide range of sectors including manufacturing, services, e-commerce, transportation, hospitality, and retail.
Looking at the future, the firm plans to take its geographic footprint to 500 towns and cities across the country.
At present, the founders said that the firm has an active loan book of Rs 700 crore and plans to grow these assets under management to Rs 1,500 crore. The company also plans to invest this funding in scaling up its hybrid marketplace model and deepening technology integrations with partner financial institutions. A hybrid marketplace, Capital Float co-lends with banks and other financial marketplaces, contributing at least 10 percent of the loan size.
Contributing to 35 percent of the total loan book, the firm plans to take this number to 50 percent, meaning that loans from the hybrid marketplace will contribute to almost half of the company’s loan book.
Just last year, the firm claimed to have an active portfolio size of Rs 191 crore, with a monthly disbursal rate of Rs 23 crore in value.
Running at a run rate of disbursing close to 5,000 loans per month, the company plans to take this number to 10,000 loans by the end of this fiscal. That would mean giving out loans worth Rs 450 crore every month, as stated by the company.
The company gives out loans at interest range of 16 -18 percent. However, the founders don’t disclose their rate at which they raise this capital. Sashank claimed that it is at the lower slab of the industry average.
Speaking on the investment, Nick Shalek (Partner) from Ribbit Capital, said, “We’ve been impressed by the Capital Float team as the company has achieved remarkable growth by delivering innovative products to small businesses and providing attractive returns to investors on the platform. With this financing, Capital Float is further cementing its lead as the top technology-enabled NBFC in India, and we are thrilled to support the company’s journey.”
While Ravi Adusumalli (Managing Director), SAIF Partners, added, “We have been a part of Capital Float’s journey from their seed round of funding. Their experienced senior management team has strategically led the company’s growth via innovative products and partnerships with ecosystem leaders. Capital Float continues to disrupt lending at a granular level in India.” “We are delighted to re-invest in Capital Float. Their strong customer focus and continuous drive to diversify the product portfolio to discover and meet niche areas of industry demand gives us great confidence in the company’s future prospects,” added Gautam Mago (Managing Director), Sequoia Capital India.
Lending, the new poster boy
With investments flowing in, Lending seems to be the current poster boy for Indian fintech, overthrowing payments.
According to YourStory Research, in 2016, lending startups raised $343 million in funding.
While Capital Float is trying to diversify its portfolio, there are multiple players working in this segment to give out loans and credit. One of the big NBFCs giving Capital Float competition is InCred Finance, which has a loan book of more than Rs 100 crore, but plans to scale it up to Rs 1,500 crores this fiscal.
On the other hand, there are startups like Avail Finance giving loans to blue-collared workers, credit lines including PaySense and MoneyTap. Other SME lending startups include CoinTribe, LoanMeet, LoanAdda and LoanFrame, amongst others.
All that glitters is not gold
While there is much appreciation for the work NBFCs have done, concerns over their NPA remain. In fact, there has been no sign of improvement in their asset quality since 2012, according to RBIs financial stability report.
For non-deposit NBFCs, RBI report says, “Asset quality continued to remain stressed as their NPA ratios increased marginally vis-à-vis the previous year’s level.” Amongst them, loan company NBFCs (or NBFC LC) accounted for a major chunk of NPAs.
For deposit accepting NBFCs, the gross NPA further deteriorated by 4.9 percent.
With more and more NBFCs hitting the market, concerns over asset quality will always exist.