NCDsIndiabulls Consumer Finance has launched NCDs offering a mouthwatering 11% interest. Yes, it is true that you can get quite a high rate of interest at a time when bank fixed deposits from big banks are offering 7-8% and debt mutual funds are in news for all the wrong reasons. But, nothing in this world is free. The 11% interest rate comes with its own baggage of risks. At RupeeIQ, we help investors make informed decisions. Indiabulls Consumer Finance’s limited operational track-record and unseasoned portfolio are risks investors should be aware of. Read on to know more and don’t forget to read RupeeIQ take at the end.

The offering

Indiabulls Consumer Finance Limited (IBCFL), a 100% subsidiary of Indiabulls Ventures Limited (IBVL), has launched a public issue of Secured Non-Convertible Debentures (NCDs) with a base issue size of Rs 250 crore and an option to retain oversubscription of another Rs 2,750 crore. Allotment in the issue is on a first come first serve basis. The issue is slated for closure on March 4, but early closure can happen if the company so decides.

IBCFL is a non-deposit taking NBFC registered with the RBI. The NCDs under this issue have been rated AA+ by Brickwork Ratings and AA STABLE by CARE rating agencies.

The NCD details

The NCD issue will have options of 26 months, 38 months, and 60 months maturities with an attractive coupon rate of up to 11.00% p.a., the minimum application size will be Rs 10,000. These NCDs are proposed to be listed on both BSE and the NSE. For listed NCDs, there is no TDS applicable when investors subscribe to them in demat form.

Edelweiss Financial Services Limited, A. K. Capital Services Limited, Axis Bank Limited and Trust Investment Advisors Private Limited are the lead managers to the NCD issue.

IDBI Trusteeship Services Limited is the debenture trustee, while Karvy Fintech Private Limited is the registrar to the Issue.

Company and financials

Indiabulls Consumer Finance Limited (IBCFL) is a wholly owned subsidiary of Indiabulls Ventures Limited. Though Indiabulls Consumer Finance was incorporated on October 27, 1994, but it began commercial operations only recently. In fact, lending operations were started during FY17, making it very new. In September 2018, the name of the company was changed to ’Indiabulls Consumer Finance Limited’. Its primary focus is on personal loans, unsecured SME loans and secured SME loans. You may have seen its advertisements on electronic media: Dhani app ads. Yes, the Indiabulls Dhani app featuring cricketer M S Dhoni.

Even though the company started its focus on personal loan and SME lending business since April 2017, it has aggressively grown its loan book from Rs 92 crore in FY17 to over Rs 4,000 crore as on 31 March 2018. In fact as on 30 Sep 2018, the outstanding loan book stood at over Rs 10,000 crore, The company further expects the loan book to grow significantly over the next two years.

Indiabulls Consumer Finance gives out personal loans (PL) with ticket size ranging between Rs 50,000 to Rs 3 lakh. Its Business Instalment Loans (BIL) are on an average between Rs 10 lakh to Rs 25 lakh.

You have to relay on basically just two completed years of financial results. Naturally, the growth rates look incredibly good (FY17 profit – Rs 7 crore to FY18 profit of Rs 192 crore). The portfolio gross NPA is at 0.05% as of 31st Mar 2018. Do remember the portfolio is unseasoned, so take these numbers could change very swiftly with time.

Credit risks

When you are investing in NCDs, you are becoming a lender to the NBFC. Hence, credit risks are a big parameter for you to assess. We would like to highlight the main risks.

1. Loan portfolio – The company’s portfolio is unseasoned. This means it needs to be seen for a longer period of time. So, Indiabulls Consumer Finance is yet to go through business cycles to establish credit underwriting standards and also the collection efficiency.

Also, close to 48% of the portfolio comprising of personal loans and SME loans is unsecured in nature. Such loans can turn bad quickly if the economic situation of the borrower changes. Such a high exposure to PL and SME loans could mean bigger losses, compared to NBFCs with lower levels of exposure.

We also have come across recent media reports about high Non-Performing Assets (NPA) in SME loans given under the Indian government’s Mudra loan scheme. Loans worth over Rs 2.54 lakh crore were classified as Mudra loans in 2017-18 and the NPA in the portfolio currently stands at 5.38% as on March 31, 2018.

2. NBFC sector issues – Though Indiabulls Consumer Finance is into consumer credit, it is still an NBFC. This makes it prone to the sectoral issues. Currently, NBFC sector in India is growing through liquidity challenges. Institutional lenders/investors are not keen to take additional exposure. This has meant that even big NBFCs like Dewan Housing Finance have been facing some trouble.

Without proper funds, NBFCs, irrespective of their operational area, will face increased borrowing costs and potential asset-liability mismatches in the short term. So, maintaining those FY18 growth rates could be a challenge going forward.

3. Indiabulls Group – There is no sweet way of saying this – The Indiabulls Group is not exactly a Bajaj group, Tata group or Mahindra group. The group is founded by a first generation entrepreneur Sameer Gehlaut, who also has significant exposure in real estate and home financing. The management team of Indiabulls Consumer Finance has extensive experience in financial services industry and is headed by Pinank Shah (associated with the Indiabulls group for over six years).

Take a look below at the NCD issue investment details (interest rates, tenure etc.)

Indiabulls NCD 11%

RupeeIQ take – Don’t ignore limited track record, untested asset quality of Indiabulls Consumer Finance, even if it’s offering mouth-watering 10.40% to 11% interest on NCDs. Given the turmoil in the NBFC market, and continuous funding requirements needed to grow this business, investors should be cautious. If you can’t resist investing, do limit your exposure to these NCDs to a small portion of your portfolio. NCDs are not bank FDs. They have risk. You should invest in NCDs when you clearly understand the risks involved with instrument and also the issuing company.

Disclaimer – Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. He can be contacted on