In talks with Mr. Prateek Gupta

1. You are an alumnus of very premier higher education institutions. How has your alma mater helped you progress in your career?

I have studied at IIT Kanpur and IIM Bangalore, for my B Tech and MBA (PGDM) respectively. Beyond doubt, these institutions have had a very positive impact in shaping my professional journey. In my view, these premier educational institutions stand out – because of a combination of three core factors:

• Very distinguished, world-class faculty.
• Very strong systems and infrastructure (conducive to academic research, and imparting professional education).
• Very talented and hard-working students, selected through rigorous competitive examinations.

This allows for strong peer-to-peer learning, both professional and personal. These factors above help in strong all-round development of students. This also enables very good campus placements; as prospective recruiters actively seek out such candidates.

2. Moving to the macro-economy, how do you think Indian economy has been impacted by the pandemic?

The pandemic has adversely impacted the world economy, and of course India. The slowdown in India is somewhat deeper (than the global economy) – because of two factors:

• The lockdowns in India were relatively more stringent and long-lasting. This was due to a variety of reasons, many of them structural – like the population density, the relative inadequacy of healthcare infrastructure, etc.
• Indian economy was slowing down even pre-COVID. Even in Feb’20, the GDP for FY19-20 was revised to sub-5%. WPI Inflation had hit a 9-month high in Jan’20. Fiscal deficit was high (in Apr-Dec’20 it was more than 120% of annual target). Also – post the liquidity crisis that started in Sep’18, the credit offtake was very subdued. For both the banks and NBFCs, the FY19-20 credit growth was slowest in more than a decade.     

And then the pandemic started impacting India in a big way starting Mar’20. We had stringent lockdowns in Q1-FY20-21, very adversely impacting the economy. The real GDP fell down by more than 22% in Q1-FY20-21.

3. Do you see strong signs of an economic recovery cycle in India?

The lockdowns started easing from May-Jun’20, and the (positive) impact of the same was visible in Q2FY20-21. Good monsoons also helped in the economic revival in Q2. Passenger vehicles sales registered growth in Aug’20 after 9 straight months of decline. Sep’20 was even better for passenger vehicles, as the unit sales grew 35% year-on-year. Demand for petrol grew by 2% in Sep’20, year-on-year.

Multiple other economic indicators also signalled economic recovery in Sep’20. Electricity demand, steel consumption, freight traffic, toll collections volumes, GST e-way bills, all touched or crossed pre-COVID levels in Sep. India’s manufacturing PMI hit an over 8-year high in Sep. The merchandize exports registered more than 5% growth in Sep, year-on-year.

I would still want to balance the optimism from Sep indicators above, with some caution. The Sep growth in multiple categories, is also potentially due to pent-up demand. Next, while the manufacturing PMI is up, the Services PMI is still lagging the pre-COVID levels. Also – multiple sectors like malls and multiplexes, travel and hospitality, gems and jewellery, fashion retail etc. are still (significantly) behind their pre-COVID levels.

4. We hear about “no-cost EMI” schemes being offered by various NBFCs and Banks, particularly for Consumer Finance. What is the real ‘cost’ of the “no-cost” EMI schemes and what is the revenue model for such schemes?

This is a good question. Let me explain the economics to you. Consider a lending institution L and a consumer durables seller C. The lender L offers a “zero-cost” or “no-cost” EMI to the consumer buyer on purchase of consumer durables. The lender L has 3 potential revenue streams in such cases:

• The first and most easily visible revenue stream is the Processing Fees. While the purchase is “zero-cost” EMI i.e. zero interest is charged on the purchase (making it an interest-free loan); there is typically an upfront Processing Fees that the lender L charges from the consumer.
• Next revenue stream is subvention. The lender L also charges a subvention amount from the consumer durables Seller C. This is typically a share of the profit that C makes on the sale of the consumer durable to the consumer buyer.
• Lastly, the lender L has also acquired a customer. Later, the lender L can potentially cross-sell lending and other financial products (insurance, wealth, etc.) – and generate more revenues and profits from the same customer.

5. In the last 2 year, some banks and NBFCs have been in the news for wrong reasons. Even before the pandemic, we had the liquidity crisis, the IL&FS crisis, and the DHFL crises. We even saw multiple banks face crises, and their retail depositors were stranded. What lessons can lenders draw from these recent episodes?

The problems that lending institutions faced, can be broadly classified into three broad categories:

• Asset Liability mismatch: Having long-term assets (like loans against property or home loans) funded by short-term borrowings like Commercial Papers – is a very risky situation for a lender. In times of a liquidity crisis, the short-term borrowings may not roll-over, resulting in limited or no funds available for financing customers, or even take care of the short-term liabilities. In a worst-case scenario, even though a lender may have a strong low-risk asset portfolio, the asset-liability mismatch in a liquidity crisis could result in a default for the lender.
• Corporate governance issues: For some lenders, significant gaps in their Corporate governance were exposed, including fraudulent transactions, related party transactions, covering up of NPAs and losses, inflation of balance sheet and profits, etc. Such issues need to be arrested upfront of course, by having strong and robust governance structure and processes.
• Over-exposure to select risky sectors: Some lenders were over-indexed to select risky sectors, and faced significant losses when such respective sectors went through a downturn (e.g. real estate).

To summarize, lenders need to have a robust and rigorous asset liability match, should invest in strong Corporate governance and risk management, and should have a well-diversified assets base.

6. The direct competitors to NBFCs are banks. Why should a lay man or a small business prefer borrowing from an NBFC rather than a bank? What should NBFCs do to grow, even as they face tough price competition from banks?

The factors that inhibit availability of institutional credit are non-availability of adequate financial records, collateral, and credit history for determining eligibility for loans. This makes it difficult for traditional lending institutions to meet the lending needs of many customer segments, not having strong formal financial records. NBFCs have the potential to overcome these challenges, and play a larger role in formal lending to retail consumers and MSMEs.

NBFCs have selectively started to use alternate credit assessment models, to allow for more retail customers and MSMEs to avail formal loans. Also, select NBFCs offer structured loan products, customized to the specific need of MSME customers. For example, offering an SME customer higher loan eligibility or flexible repayment terms. NBFCs need to continue to innovate and evolve their product portfolio and credit assessment methodologies, to be able to provide loans to more financially underserved customer segments. NBFCs can compete with banks by catering to unique financing needs of such segments.

7. You spent 10 years with the Boston Consulting Group (BCG) and are now heading Strategy and Business Development for Aditya Birla Finance. How did your strategy consulting experience help in making the transition to Corporate?

Strategy consulting with a top-notch Consulting firm prepares one very well for Corporate roles. In strategy consulting, one typically gains significant experience across functions (Sales, Marketing, Operations, Organization structure, etc.) and across industries. There is also a very strong all-round development on various professional skill sets like diligent business problem solving, articulate written and verbal communication, strong program management, teamwork, etc. I worked with BCG for close to 10 years, and during that time, I also worked with many Financial Services clients. The all-round professional development (that strategy consulting ensures), and the work-experience with multiple financial services clients – both these factors helped me in making a seamless transition to my current role.

8. What advice would you like to give to the budding investors and future corporate professionals of St. Xavier’s College, Kolkata?

In the current macro-environment, the uncertainty is relatively high. Students may be relatively more concerned about the choice of career path, and securing professional success ahead. While the anxieties are not unwarranted, I would urge the students to invest strongly in their professional growth – in acquiring professional skill sets that will help you achieve your professional goals faster. You could undertake part-time or full-time internships, industry/academic projects, certification courses, or prepare well for any competitive examinations for your post-graduation aspirations.

Next, I would say – do invest in your physical and emotional well-being also. Be open and ready to face a lot more problems than solutions. In a crisis, especially in Corporate life, “bad news” is the new normal. In such times, one must recognize that one would need to face lot many more problems and will need to fire-fight lot more. Making up one’s mind for facing a tough situation – is the first step to solving one’s problems. Similarly, to the students also, I would say – while you should hope and work towards the best-case scenarios, but be mentally prepared for a few setbacks also. And continue to move on – I am positive your persistency will yield results!

To summarize, invest in yourself – and be “ready” to make full use of the opportunity, post the crisis. I would end with the following quote:

“As sure as the spring will follow the winter, prosperity and economic growth will follow recession.”

Wishing the very best to you all – the student community at SXC Kolkata!

The opinions expressed in this article are personal views of the interviewee.

~ Interview by Utsav Chirimar & Umang Gandhi