Annapurna Finance: A Microlender With Universal Banking Aspirations

In the previous quarter, the Reserve Bank of India received only one application for a private-sector universal banking license. The application came from Annapurna Finance, a 14-year-old microlender based in Odisha.

Annapurna's application for a banking licence comes after the RBI turned down four applications for universal licences in May. One of those was from Chaitanya India Fin Credit, a microlender backed by Sachin Bansal. Bandhan Bank was the first microlender to receive a universal banking licence in August 2015.

Annapurna typically lends between Rs 1 lakh and Rs 8 lakh through group-based lending models--self-help groups (SHG) or joint liability groups (JLG), according to its annual report for FY22. Both of these are prominent micro-lending models based around a group of people helping each other maintain financial discipline and grow their respective income streams.

The microlender already holds a 'non-banking finance company-microfinance institution' licence from the RBI, which governs non-deposit-taking micro lenders.

Between FY21 and FY22, Annapurna grew its total assets under management by 37% year-on-year, from Rs 4,793 crore to Rs 6,553 crore, according to its annual report. This includes an off-book AUM of Rs 1,359 crore, according to a December 2022 credit rating note by Care Edge Ratings.

The lender has earned margins of 9–10% on its operations over the last two financial years, according to the note. But getting access to low-cost funds via deposits could help it scale even further, as cost of funds can often become a limiting factor for non-deposit taking lenders.

The microlender recorded a net profit of Rs 17 crore in FY22, up from Rs 2 crore in FY21. For the first half of FY23, Annapurna's unaudited net profit stood at Rs 30.6 crore.

Three states, Odisha, Madhya Pradesh, and Bihar, contributed 52% of Annapurna's AUM as of September 2022, according to Care Edge's credit rating note. While the lender's gross non-performing assets climbed to 10% in March 2022, they have since moderated to 8% in the first half of FY23, the note added. Its unaudited net NPA stood at 3.06% in the first half of FY23, compared with 2.86% in March 2022.

The microlender has banking relationships with over 60 lenders, and 67% of its funds come from term loans from banks or financial institutions, followed by secured and unsecured non-convertible debentures, which account for 21%, according to the note. The lender has a credit rating of 'A-.'

About 22% of Annapurna Finance's customers fall below the national poverty line, according to its FY22 annual report. In addition to microloans, Annapurna Finance also offers MSME loans, dairy development loans, consumer durable loans, and home improvement loans.