← 返回

2026.10.05 | TB | Financials | Indian Supply Chain Finance Outlook

原标题：Indian Supply Chain Finance – Market Evolution, Competitive Dynamics & FY27 Outlook

#financials

Third Bridge · 2026-10-05

Analyst-led • 12 Sep 2026

Companies: 500570 IN, SBIN IN, ICICIBANK IN, HDFCBANK IN, ASHOKLEY IN, 532215 IN, SHREECEM IN, TKR US

Amit Kumar (KA) Senior Manager, Working Capital, CTG ( Commercial Trade Group) at HDFC Bank Ltd

Shahid Pathan (SP) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

SP [00:00:22]: Welcome to Third Bridge's Interview entitled Indian Supply Chain Finance – Market Evolution, Competitive Dynamics & FY27 Outlook. I'm Shahid Pathan, and I'll be facilitating today's Interview with Mr Kumar Amit, former Senior Manager Supply Chain Finance at Axis Bank Ltd.

Mr Kumar, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

KA [00:01:12]: I agree.

SP [00:01:13]: Could you begin with a brief introduction to your background?

KA [00:01:19]: I have two years' experience in the supply chain finance, started from the State Bank of India, where I was a pioneer of this sector, channel finance in the State Bank of India as a corporate. Now in Axis Bank, it's a dealer side. It's a retail part. I had a five years' experience. I am a person who have experience in channel finance, both the corporate side and retail side as well.

Questions

00:01:51] How do you see the Indian supply chain finance market evolving in the medium term? What growth rate do you expect? What key assumptions underpin that target?

KA [00:02:16]: Actually, I mentioned that I look after corporate side as well as retail side as well. Now the scenario is going to be changed. Previously, we used to provide the cash credit to the customer. Customer come to interact that they want to purchase some goods from the market and sell out, then we used to provide the cash credit. In 1994, what happened? Corporate come to the banks, and then they told us that we have such dealer, but they haven't any potential to go with the bank. I want to do business, our business will grow over the year. I will give you the guarantee on behalf of the corporate, and you will finance the customer. Now in general, we have a twice agreement between bank and customer based on the bank's rules, "Okay, you will provide that much collateral, that much debt, then I will provide you that much cash credit to you." Now the new performer come under the supply chain finance, dealer financing. Here is a tripartite agreement between corporates, banks and dealer. The basic difference between this cash credit and channel financing that dealer can make the direct payment to the corporate, nothing else. What is the benefit of the dealer as today? Bank can give him fund without any collateral or less collateral. Previously, they have to give the 100% collateral for the 100% loan.

Now currently up to a certain limit, where bank used to provide the nil limit with the nil collateral up to INR 10 crore or INR 5 crore. After that, it's the minimum collateral, up to 15-25%. What is the benefit of the bank? Bank easily got a very good customer over the market because what happened, corporate come to him that share the data that they are their dealer. If future, if dealer become NPA, it's a duty of the corporates to just provide us or help us to or just nullify the NPA from peer side. What is the benefit of the corporate? What happened? The corporate, they have to used to give the credit to the customer because dealer can pay after the sale of final product, then their cycle was getting stuck because till fund couldn't come from the market to him, they can't go and purchase the raw material from the market or produce the consignment. Now what happened here? Corporates got the fund from the bank side. They need not to give the credit to customer. They send the consignment to the dealer with their channel finance immediately.

Here, what happened? They are also getting solution to start their cash crunch or depend on the bank to give them the cash credit to rotate their business. It's a win-win situation of the corporate banks and ROI. Now currently, we are looking that it will be grown to 15-25% over the year. If you check the NPA side of the bank, you may be surprised without any collateral. It's a type of unsecured loan. Still, NPA side is below the 1%. Currently, it's near about 2-5%. Channel finance is below 1%. What happened here? How will this higher capital velocity impact ROI and growth? It's a question mentioned here. Look, what happened when I finance with the dealer, dealer in another loan, like cash credit, dealer have to pay only the interest. If a dealer use INR 100, they used to pay monthly interest only. In channel financing, what happened? We give you the payment date. You have mentioned here the 45 days, different for the different product.

For three-wheeler product 30 days, for the four-wheeler 60 days and commercial vehicle is the 90 days. What used by the bank is the usance. What happened? Say, in one month, you have to withdraw INR 100 from the bank loan. Then after 90 days or 45 days, you have to return this amount INR 100 to the bank as well. In general category, you have to pay only the interest part. You need not to return the principal part as well, but in channel finance the basic difference you have to return after the 45 days principal as well.

00:07:03] What shifts are you seeing in terms of anchor corporates adopting reverse factoring vs utilising traditional working capital limits today?

KA [00:07:16]: As I have mentioned it, now being the dealer, being the corporate. If a corporate getting the funds of bank without any hurdle, without any their involvement, they need not to give the credit to a customer. Now corporate is shifting from their own fund from the banks to the dealer finance. Check the growth rate, it's 15-25% over one year. Dealer is same. Corporate is same. It's not a growth of more than 3-4%, but growth is going to 15-25%. It's nothing. It's just what's happening. Now tradition is going for the previous type of model of the finance of the loan to new model of the finance, which is the channel finance. Channel finance is nothing. It's just discounting of the bills like that. If you go with the mode of the channel financing, it's a two type of mode of financing. Take the payment by the corporate from the banks. It's the push or pull method. What is the push and pull method? Now I'm the dealer of, say, Ashok Leyland. Now I raise the request over the system provided by the Ashok Leyland, say I need a tender here, INR 6 crore. What about the INR 6 crore?

Immediately Ashok Leyland debit the channel financing of the dealer, maintaining with the XYZ Bank and then the consignment. Now meter has started. It's nothing, it's a discounting of the bill. They send the consignment of the company after 90 days. What happened? What is the 90 days and what is the base of the 90 days and 45 days and 60 days? Company come to us that in any circumstance, either Corona will come or any disaster will come…

SP [00:09:07]: Any disaster or any drawback.

KA [00:09:10]: In maximum amount, after sending the consignment to the dealer, dealer sell this final product and send the money to the bank, it will be take maximum to maximum 90 days or 45 days, as you have mentioned in the question. What happens? There is very good control of the corporates as well as banks to monitor what is dealer is happening. What happened in cash credit? They can make the payment to anyone, and so that, boss, I make the payment to XYZ. Here, they can't make because it's direct host-to-host connectivity between bank, dealer and corporates.

00:09:53] How is the expansion of GST [Goods and Services Tax] invoicing to smaller turnover brackets translating into loan growth and new MSME customer acquisitions?

KA [00:10:07]: What is the GST? GST is nothing. It show the bank how much sales done by the particular dealer.

SP [00:10:15]: Particular dealer, yes. It's turnover that we are able to determine from it.

KA [00:10:25]: I'm coming to the loan portion. What happened? You are mentioning the MSME customer. MSME customer maximum is up to INR 50 crore turnover customer. Maximum dealer come, which is the smaller dealer of the electronic goods or two-wheeler and so on. Now, what happened? Based on the tier 3, tier 4, tier 5 city. They used to sell the product over the cash. Now when GST invoices come, now it go to the better picture to the corporates as well as the bank, how much they are selling the product? Now what happened at the bank? Corporate come that I'm selling the 100 bikes to the XY dealer. If be selling the 100 bike, it's for in the GST as well. If I'm going to get the GST selling, the GST data will be shared with us to give the clear picture how I can assess because if corporate come to us that this dealer is selling to INR 100 crore per annum, but his GST billing is showing only the INR 50 crore. How bank can assess? Bank can assess only the GST billing. That is a very good impact of the SME customer, they are just now moving to sell, can sell to the GST billing. Now I'm giving the clear picture of the bank, that's how much (audio distorts 11.56) of the customer.

We can't rely on the… Corporate come, they are giving the guarantee on behalf of the dealer, everything is doing, but what is happening, what is the base of the calculation of the bank? Now what we are doing, this is the amount of the purchase divided by usance, say like that 60%… 60 days, 100 turnover of the dealer, 100 divided by 60 minus any cash credit is available by the bank. It's a basic phenomena, find out the limit of the dealer. What happened? Corporate come to us, no, no, no. You are saying about that. That is a particular amount of the purchase, but they are purchasing 200 with us. How to validate being the bank, GST?

Now it's forcing to MSME customer to just sell or adopt the banking practice. I belong to Bihar, you come under the Bihar and you go through the tier 2 and tier 3 district. Still, I'm surprising to find out that I'm seeing, INR 10 crore inventory is there, but if we go to the balance sheet, it's under near about [INR 12 lakh or INR 14 lakh]. Now I'm not able… Now what happen? Corporate pressurising him, selling any product, any corporate product through GST to give the clear picture of the bank as well. GST invoicing make a huge impact to the increase that data flow the fund through the bank channel. You have seen that now GST collection is cracking every record, every month. This is happening. Major impact due to channel financing and financing by the bank. Now going to understand that if I will not put or not give the tax to the government, the bank will not help you out. If I want to expand my business, I want to grow, I have to move with the GST platform. Still, I'm surprising, but still 14-15% sell happening through GST apart from the…

00:14:26] What is the current composition of the supply chain finance book between vendor finance and dealer or channel finance? How do you expect the project mix to evolve by FY27? How is it different for banks vs NBFCs [non-banking financial companies] that are into supply chain financing?

KA [00:14:47]: First, you have to understand what is the vendor finance and what is the dealer finance. I am the corporate, say, Tata. To picture, Timken is the company who make the clutch for this Tata Motors. Now Timken need the fund to purchase the raw material from the market. Now it's come to bank. They tell that we have an agreement with the Tata Motors that supply for the clutch. I need the fund. This is the agreement between Tata Motors and Timken India Ltd. Either Timken can give the property and everything to the bank and take the 100% loan under cash credit based on the sale. Here, what happened, Timken come to us "Boss, we have to sell the clutch, the final product, to the Tata Motors." Tata Motors take the guarantee from the Timken say to the bank, "Boss, finance him, he will purchase the raw material, make the clutch and sell to us only."

After getting the clutch by the Tata Motors, Tata Motors will make the vehicle and send to the dealer. Here, what happened, Timken is the vendor of the Tata Motors, and one of the dealers, say, One Automobile, A Automobile which is the dealer. He send the final product. Corporate finance come in the large volume, INR 100 crore-110 crore, like that INR 100 crore-200 crore, like finance because they have to sell to the corporate. Their dealer have to pay the final in product and send the money to the corporate. I'm the corporate. I'm the Tata Motor. I purchase goods from the Timken, make products, sell to the dealer. I have to purchase goods from Timken, it's a vendor finance. I have to support dealer to send my final product is the dealer finance. Now current ratio, if you're talking about that dealer finance ratio is higher than vendor finance because dealer is scattered. Yes, their size is very small, but if we are talking about banking side, they are focusing mainly the dealer finance, the HDFC. If we are talking about the bigger player like the State Bank of India, completely the opposite.

00:17:14] What clients or segments are NBFCs focusing on today?

KA [00:17:21]: Today, if you're talking about NBFC's share, you may be surprised to know about the percentage, it's near 25-30%.

SP [00:17:28]: Yes, of the total share.

KA [00:17:29]: Why? That is higher than bank and their working is like that. Understand, I'm XYZ, I'm sitting at the two things. I'm sitting at the rural builders tier 2, like Motihari type, where bank is not present. Bank go there. They are doing nothing. Just take the agreement from the company and funding him at the higher rate. Now I am the person who is sitting at the remote area where bank is not present, I'm forced to take the loan at the highest cost. Secondly, that's a big reason of the expansion of the NBFC. Still, about that, I am the automobile person. What happen in automobile person or electronic goods dealer? Their limit judged by the bank because we are very orthodox in the find out the limit. I told you that total purchase divided by usance minus cash credit that you are using. Based on our assumption, say, I give him the INR 10 crore limit to the customer, but customer needs INR 15 crore. What happened, because they have another expenditure also, like what happened in automobile, they have to purchase spare. They have to purchase that we can give the supply chain, but they have to give the service, they have to purchase another thing just like lubricant.

They need the fund. Where they arrange the fund? What happened with NBFC? They have just given the selected dealer only for the SME one, SME two type of customer, like Tata, Birla dealer. They come to and approach the customer, "Sir, take the INR 5 crore. When you need, you can use it." It is everywhere. Now dealers see that, I have a INR 5 crore. Corporate just pull out because they have also target. They send the consignment and debit there. Now the basic reason why NBFC is growing faster than bank.

SP [00:19:50]: Why they are capturing or holding a 25-30% share today.

KA [00:19:58]: We are one with RBI rules. We can't cross that. The mode of the assessment, it just differ with the NBFC. NBFC is not looking at anything. "Sir, what you want?" I want INR 5 crore.

00:20:13] Where do you expect the share between banks and NBFCs to settle in the medium term? How much additional share do you think NBFCs can capture?

KA [00:20:26]: Now what happened, I have seen in ICICI has been started and HDFC also going to be a start. Now banks realised that we are losing our share. Now I have seen two months before ICICI has started same practice, go with the higher ROI and provide the loan to the customer with the same extent of the INR 5 crore. Now NBFC will grow, but not like that. Bank will change their mode because they are going to be changed. Now ICICI has started to line up with the NBFC to provide the loan as like the unsecured loan, at higher ROI. Bank will grow 25-35%, 40% market share will increase. NBFC also grow, but not like that the previous pace, if bank will adopt same practice, which they are doing. Now what happened was market teach you how to survive, just like Nokia. If you see the durability, you will out of the market. Sorry, you are talking with a corporate RM.

00:21:54] Where are you seeing incremental demand emerging in supply chain finance today, given that manufacturing is a huge part and with various government policy support happening, such as the China Plus One initiative? For large corporate vendors, distributors, dealers, MSMEs [micro, small and medium enterprises], mid-market companies or tier 3, tier 4 and tier 5 suppliers, how has the customer mix changed over the last 12-18 months?

KA [00:22:29]: What happened when you go from the start? If you're going talking about the State Bank of India, we were focusing only for the SME one, SME two, SME three customer to finance their dealer. If you're talking about the east, we were just financing for the SME one, like Shree Cement, Tata, Birlas like that. Now what happened? Now we are just going to be reducing to look after those companies also, which turnover is INR 200-250 to finance their dealer. Even you may be surprised in Tata, we were financing only the dealers, but now we are financing to their own customer who is providing the service only. Now what happened? It's a very easy. I told you what is the benefit of the bank, what is the benefit of the corporate and what is the benefit of the dealer. Now it's a win-win situation with the bank because liquidity is now going to be less for every bank. Even if you're talking about the State Bank of India, they have only 30% of the government business, where they were enjoying 100% of the government business. Now they are changing their attitude. Dealer is also changing their attitude. Now if I become a dealer of X, like Berger, I used to sell the product of the Berger.

What is getting benefit from my side, I'm getting the fund from the bank without any hurdle. Mind is going to be change. Previously, what dealer think, "Okay, Berger (foreign language 24.09), I will take the consignment of Indigo anywhere." Now I've become specific, enjoying everything from their side. If you go with the corporate finance, their corporate side is going to be decrease over the year. Let's check. Apart that new type of companies are coming, new type of product are introducing by the corporate, but corporate finance is not increasing at that pace as like previous because new type of technology dealer financing has been introduced. Now their sales manager first check the bank, "Boss, this new dealer is coming, I want to finance."

00:24:51] Are there any specific industries and regions you would like to highlight as emerging key growth drivers for the whole supply chain financing?

KA [00:25:03]: One thing. Previously, we have financed only for the motors (ph 25.08) because we can trace easily. You may be surprised a smaller manufacturer like in mobile Indian manufacturer also, which turnover is INR 200 crore-250 crore based on the Kolkata. State Bank made the agreement with him to finance their dealer. Now just what happened, this asset is called as the movable asset in banking term. Tracing of the movable asset is very difficult from the bank side. If you can monitor the trucks, you can monitor two-wheeler, but you can't monitor two mobiles. Now trend is just going for the handset as well. Have you find, we go and approach to any shop to purchase your mobile, then you find out that Bajaj Finance, HDFC and everybody is sitting there, "Boss, take this handset without any nil based on EMI at nil interest rate." What is this? This is the channel finance.

00:26:23] Do you expect further regulatory changes around TreDS [Trade Receivables Electronic Discounting System], digital lending, co-lending, guarantees or receivable financing to materially alter the competitive landscape or industry?

KA [00:26:43]: Changes will be happen always. Previously, what happened, if you go with the channel financing which I mentioned that we were providing only the higher corporate tier, total year, but mode of financing is also going to be changed. We verified the customer, everything, and based on the mutual agreement between customer and banks, we go with the total agreement copy, take the signature, take the letter from the bank and then give him the loan as normal thing. Here, what happened? You go with the mobiles, find out everything, make the agreement and everything is going with the mobile as well. Application form you can download. You can accept, because what happened, consent from the corporate is given by the bank, "Boss, he is my customer, letter has come. They mentioned there. This is the new dealer is coming." We know that Mr XYZ is the dealer, approach the customer, sent the document over there. They accepted everything. Just on NPCI. This is the Aadhaar-linked document.

They just accept it. Just we create everything. They need anything, just go with the mobile, prepare the invoice, sent to the corporate, corporate debit and getting the fund. Consignment has been sent to the customer. Everything is going to be smooth day by day. Even you can use your mobile and can make the transaction with the bank, because what happened here, three person is involved now. Only corporate banks and dealer. Dealer have to go to the central bank and got the consignment, bank have no any role in here. If corporate said (foreign language 28.38), I can't do anything.

00:28:47] Which regulatory change do you think would be the biggest catalyst for higher market penetration in supply chain finance? What regulatory support are you looking forwards to?

KA [00:28:56]: Regulatory will not change over the year because what happen if channel finance come in the picture. Channel financing is treated as like the working capital. 1994-2026, if you go with change anything, nothing. It's based on the Tandon Committee. Best is there. Technology will change. Regulatory, if we are talking about, I am not saying any changes will be there. RBI will govern everything. Based on the Tandon Committee, yes, something is going to be changed, like previously 25% share should be infused by the dealer or the person who is taking the loan. This is going to be changed. Now in channel financing, 100% loan we are giving by the bank. Rules is going to be changed. Regulatory will not change over there. RBI governed. If you think that corporate will introduce anything like insurance IRDAI is looking or for everything, another thing, IBA is looking. Channel finance is the bank product, will be bank product governed by the RBI. Rules is going to be changed like Tandon committee suggestion is going to be changed, 25% dealers should infuse in the business. In channel financing, there is no requirement. This is happening. Now dealer is getting much more benefit for the new type of product and new type of technology, but still regulatory is same. RBI govern everything, then RBI will govern.

00:30:44] Could you break down the key trends in how technology and data insights are changing the distribution models today? How important are embedded partnerships and AI or machine learning models proving in better origination and underwriting when it comes to supply chain finance?

KA [00:31:02]: I have already mentioned there what is happening previously. Now I got a list of the dealer, we visit your dealer, find out their balance sheet and everything, to make the proposal and find out their limit, how much we can give the limit to the dealer. Then we got a sanction, then we go with the physical document with the customer. Now customer will sign it, give the operation, operation will make the limit like that. Then what happened, dealer send us the requirement. Boss, I need the document. Corporate send us the message with us. We use to RTGS to their account or if their account with us, then we can transfer the particular amount to them. Evening, one message come to the dealer and one message goes to the corporate that that much fund has been transferred. This is previous way of working. Still is working. Now what happened today, it's everything is electronic. It's called host-to-host integration based on the one access, one format, which is called factor six. They just use the mobile, just send the invoice, corporate himself debit the fund from their account and send the consignment. There is no any say that paperwork is involving. System is data-driven.

Just go with the customer, customer, make the application through the mobile, just request go through mobile and the corporate himself debit the amount from the dealer amount and send the consignment. Where is the bank involvement? Where is the dealer involvement? This one pull side because what happened, there is two way of the… Take the payment by the corporate from the bank. It's a pull or push. Push is nowhere anywhere. Push is the dealer. We used to provide the maker and checker to the customer, customer used to send the fund to the corporate and inform that I have transferred that much fund to you, please send me the consignment. Nothing. Today, the pull method. Just send the requirement, corporate will do everything.

SP [00:33:33]: The corporates themselves are bringing in the customers.

KA [00:33:36]: Direct information, dealer got immediate information. Your fund has been debited particular amount and consignment is going to be ready. Now what happened in Tata, just we are looking in Tata, what happened? I'm the Tata dealer. I go with the phone and initiate, the app is there. Initiate my requirement. Immediately go to the requirement to the Tata operation team. Operation team debit the respective amount and information direct goes to the consignment department. There is no any manual work. Consignment department has found out that that much consignment, we have to send to particular department and, in evening, the consignment has been dispatched. There is no any paperwork. They reduce them, depend on the manual person. Now technology is that much higher at a time. Everything happening in the mobile as well. If I'm dealer, I need not to worry to go with the bank or open the laptop to open my account and send the invoice and anything. You can go with your mobile, send the invoice, invoice, go to the operation, operation, debit the bank account, send the message. Similarly, message updated to their system, message go to the consignment part, consignment division will look after to send the consignment. That much technology has been developed.

How manual reconcile was? Think about Shree Cement. When I left State Bank of India 2019, 20,000 dealer was there. Think about that 10,000 dealer send the request, what is the pain of the corporate and what is the pain of the banks? Here what happens, debit the amount, they set the MIS, MIS automatic update in the system of the bank or in their system. If you look at Oracle, now the system has been changed. A little bit I'm not aware, but I did for the Oracle.

00:35:45] Is the assessment of underwriting requests banks receive today being automated?

KA [00:35:54]: Now we got a request. We find out their already latest ABS is there. We found out how much they are using, and they providing everything over the line. Still, what happened, currently, they are doing by the foreign bank and the NBFC. If you're talking about the State Bank of India, HDFC and ICICI Bank, they are little bit conservative to adopt everything. After sanctioning the limit, they are doing same practice, but still they are just checking the previous history and what is the three years balance sheet of the customer. For the new customer, it's not possible to find out the three years transaction. Then they find out their CIBIL and everything. No any bad track record from the customer or dealer side. What happen, think about now, you are the lender. What happen, if you go with the balance sheet of the corporate, like Tata and everywhere, if you see the asset part of the balance sheet, it's the goodwill.

Think about that Tata or Birla and this reputed company will make dent in their image only for the one and two dealer. I give you the simple example, it's not a good for this one. One of the corporate, I find out the NPA. Now I just send the mail to the relative corporates. You may be not imagine 1-2% come from the Mumbai. Why you are using this fund for another purpose? Within one month, I got a fund. Corporate person bank have a very less interest in channel finance rather than another. NPA is below 1%.

00:38:10] Could you help me understand the changes being made to the product to expand the customer base and capture incremental market share? Could you outline the key changes that you are observing today vs 6-12 months ago?

KA [00:38:24]: The changes, what happened, which I would like to say, first, for a bank to adopt same practice which NBFC is doing. First, you have to understand the need. You can't say that I'm the dealer of Tata Motors, then I have to need only to purchase the vehicle. I have multiple things. I have to pay my dealer. What happen if I purchase some vehicle? I have to survive in the market and give the discounting to the customer as well. We have to just think about to give the margin there also. Today, where we are judging? What is the basic difference of the cash credit and this channel financing? Cash credit is based on the sale. Their channel financing is based on the purchase. We had to look at the need of the customer as well. Boss, they need not only the purchase the vehicle and sell out. They have to give the service to the customer as well. Now banking is going to be changed. They have to finance there also and come under the channel financing also.

If I purchase the car, I have to make the service and dealer is earning much more in service rather than sell the vehicle. You need to develop such type of product where they give him the total bucket of the product rather than just what being the corporate, my phenomena, how to sell my product, like my vehicle. What was Tata Motors? Sell only the cars. What is the benefit of the bank? I have to take the particular up to that much risk because corporate is giving me that much window. Think about the dealer. How they can arrange the fund from the market or from another bank to provide the end-to-end solution of the customer. We have to just elaborate to our range of our product. Secondly, technology should be little bit higher, but we have to see some benefit of the customer as well. What happened, I would like to say that in Corona, that's the power with the corporates, they debit the bank because tripartite agreement is there. Now what their target is there? They are doing the manufacturing, but some states like Chhattisgarh and MP, they were closed, entire closed. Now what they send the consignment and left upfront the dealership.

What happened? What is the problem of the bank? Bank can't say that no because Chhattisgarh is closed. How dealer will sell the product? It's the pain of the bank. If dealer will not sell, it will become the NPA. Some changes in products. We are going very fast, but we have to think some… Check where is the hurdle. What is the mode of operation? We have to check because what happened, the better or worst part of this product, they are totally controlled by the corporates. Who say that this is my horse, it will be run 10 times. You can't say that, no, it's just a method that a horse can be moved 1.5. No. Corporate sales, then say.

00:42:11] Many banks are now entering into partnerships with other fintech players as a distributor for originating new loans, but at the same time, also have their own captive digital platforms where MSME companies can get onboarded and directly apply for a loan. To what extent are fintech partnerships driving a high-margin origination engine vs a direct competitive threat to the existing captive platforms that banks and NBFCs have? How is the percentage mix between the two changing today?

KA [00:43:00]: I already mentioned here. Now what have been the previous mode of financing, the cash credit deal like that. Now they are going to be reduce their financing. What happened, this is increasing the attention of the bank as well. Although we are taking cash credit 100% collateral and their NPA is 55%. Here, cushion is there, you can just return your loans or amount after sell the asset, but in channel financing, there is some distribution because if you go with the letter which used to provide the corporate, we are providing the guarantee without forcing of the corporate, they have mentioned. They used to help you until that, but in future you can't say that. What happened and what bank have to do? You are getting the good customer from the corporates. Now I am the Amit Automobile, I'm taking the channel financing from the bank. We have to check there another also, and we have to offer cash credit and term loan as well to help out the dealer in the sub margin, because what happened, I told you that when we not provide the bucket of the product to any customer, they can't provide the end solution to the customer. Tell me about that. I am providing the channel financing. The purchase this consignment. How I make my shop dealership. We need a term loan.

We can't overlap that but I have to pay day-to-day expenses, either payment to our staff, payment for the smaller thing. We need a cash credit. We have to highlight the lineup between our normal product as well as the channel finance. They are growing, good one. You are in a good position because any NPA, corporate is there, but being the dealer, I need all product. I need the bucket of the product. You have to maintain that part as well.

00:45:34] How have lending economics changed across vendor finance, dealer finance, invoice discounting and other working capital products?

KA [00:45:48]: I give you one example of the transporter company. Jamshedpur is based on the Tata. Most of the transporter is based on the Jamshedpur. Now what happened previously, they took the loan because when vehicle take the lifting from the Tata Steel, sent the consignment, return back, then transporter used to upload the invoice in the system and they got the fund after 90 days. 90-100 days, they are taking from the lifting of the consignment to make the final product. Now what happened, NBFC and bank helping out from another product. They used to give him the CC for the general purpose of the transportation to purchase the vehicle, everything, but now it's going to waste because 90 days is okay. After 90-120 days, you know that after 90 days, if you're not serving your interest, account become NPA. Now what bank will do, NBFC will do to help him out the transporter, now they are going to be discounting. After 30 days, say, of average 30-35 days, now transporter used to upload the invoice.

Invoice is approved by Tata Motors within two days, and then sent to the payment, to the operation team, Tata operation team. Now what transporter should come to Tata Steel, "Boss, it will take 60 days further, 70 days further, I need the fund." Bank can help me up to 90 days, but after 20-25 days, we need a fund. Then I have to arrange from my pocket how much I can arrange where our turnover is more than INR 500-600 crore. INR 50-60 crore for any transporter is a big challenge. Now what they are doing, ICICI, Axis and NBFC, the invoice market, they are playing a major role. Now what they are looking, it's a Tata, it's a Birla, it's SME One. They used to discount this invoice with the minimum interest at 6-7% and give the fund to the customer. Now mode of loans is going to be changed. CC is there, but due to the stress and getting payment from the Tata Steel, new type of finance is also introduced.

Now they are getting the discounting from the invoice and getting fund and invoice discounting is make the huge impact in current market because what happened, customer need not to worry when I received the fund. Boss, we are the business person, either I make the business or I will follow to my corporate to give me the fund. Here, this bill discounting has made a huge impact. Now they are getting the fund. What happened in CC? They are getting the 8%. In bill discounting, they are just getting the fund within the 6-7%. Lifting the product up to raise the invoice, they need the fund where they cater their need by the cash credit, they are availing from the bank. After that, they are discounting. How can discount without invoice? They have to write the invoice. What happened, I use a cash credit for the general to invoice after lifting, everything. After getting that, we will be discounting it at 6%. I save my account from NPA as well. I am getting the immediate fund to rotate my transaction.

00:50:01] How have yields and spreads changed over the last 12-18 months, across top-tier anchor programmes? How are pricing dynamics expected to change?

KA [00:50:09]: If you're talking about the pricing, it's reducing over the year very drastic. If you're talking about that repo, if you look at a simple thing is present in your system as well, government policy is there. Why repo rate reduced from 650 to 525 because market is that much dynamic at that time. I'm the transporter. I'm offering to the customer that I will give you the service. I will give you my truck at INR 2,500. Immediately, a person comes that, I will providing INR 2,400. If you're not go with the good pricing, you lost your business. Where pricing you will offer because bank will provide fund in low interest rate. What I have mentioned, why there's a transporter? You are using the discounting, not only the fund. Now what happened, up to the rise the invoice, they are paying 8% for the cash credit. After discounting, it's 6%. Better to offer the market was 5% is available for the INR 2,500. I am giving the exact figure INR 2,500, which is offering by the transporter to the Tata Steel. It's roughly INR 3,000-3,100. Now this discounting is come and they are just offering the better rate to just snatch their share.

00:51:50] Given that private banks can price lower compared to NBFCs, how are NBFCs defending their NIMs [net interest margins]? Are they shifting the portfolio mix towards higher-yield dealer finance or tier 3 and 4 deeper-tier financing?

KA [00:52:12]: I give you one example, if you allow me, for the discounting which I am talking about are credit. You may be surprised. The discounting from the Axis and ICICI Bank rate vary from 7-7.50%. With the NBFC, they are providing 6.50-7%. What happened, here, there is no report from the bank side or NBFC side. ROI based on the risk. How much risks you are calculating? NBFC, they are taking the fund from the SBI and big public sector bank and lending in the market, but how much they are involving the fund? How much they are getting the NPA from the market? Why NBFC rate is higher than the bank? Because NPA side is higher. If you are talking about two-wheeler, our rate is 15% and NBFC rate is 21%, because NPA side of two-wheeler is very high, but if you are talking about the discounting, NPA is very less, almost nil.

NBFC is just providing such service only for Tata, Birla, nothing else. We are providing the bill discounting to any Tom and Jerry. If you're talking about the NBFC, they are just providing this service for the particular Tata and Birla and nothing else. Invoice rate, we go and check every transporter using Invoicemart rather than ICICI and Axis Bank is there. NBFC is not providing, but ICICI and Axis is a major player for the bill discounting in Jamshedpur for Tata and another place. They are using the invoice 0.50 margin is there. I told you that, being the customer you maybe purchase some online goods for the home things, you may be use Blinkit or this one. Their rate is higher than if you go and approach to the normal shop. Why you are using hurdle free? Boss, use the mobile, just drop this is a product you want, then person come and deliver to your home. What NBFC is doing, they are providing the loans without any hurdle, like banks…

I have mentioned that you are talking about that why NBFC is growing rather than ROI is higher than private bank. I have mentioned that two things. First one, it's not a clear concept that ROI of the NBFC is higher than bank. I have given some example of the investment for that particular thing. Secondly, I told you that if I am a customer, what we used to do to purchase the home grocery from the market. Now we got Blinkit, even their rate is higher, but for the convenience, we are paying higher rate. What happened in NBFC? Like me, when I'm doing my ICWA, a final question. Can balance sheet give the final picture of the any dealer? No. Sometimes what happened due to some litigation and due to some awareness, balance sheet not give the clear picture of the dealer. If you go and meet the dealer, you find out, boss, what is the dealer? I told you, I have seen INR 10 crore inventory in front of me and balance sheet is only INR 12 lakh. That the way of NBFC, NBFC direct to go and find out the dealer, they check. They are not going with the balance sheet and everything because we are governed by the RBI, they are not governed.

Now they realise that, my fund will come in the future. They can easily give to the fund to the customer. The customer find that, at the time of I need the fund of INR 10 crore, only bank is given INR 5 crore, then we will take the INR 5 crore from the NBFC. NBFC is growing.

00:56:51] How are players offsetting today's yield compression to make a higher return in the form of processing and structuring fees? How are they positioning those elements to have a higher yield?

KA [00:57:17]: First of all, here, involvement of corporate is very high. If you're talking about the return rate of interest, if I make the return rate of interest higher to the dealer, unsecured fund, it's not possible from the bank side, but in NBFC can do. What happened, the major player is the corporate. Corporate depend on their sales manager. Now what happened, we used to make the convince to our sales manager… The basic difference you need to understand why NBFC is growing. They are giving the hurdle-free loan. They are not abide any rules of the ROI. They are not going for the conservative way of the calculation. Most important, they haven't tie-up with the corporates. They provide the first type of system that they use to push method, not pull method. In NBFC limit, what happened in corporate, corporate sales manager asks how much another limit with you to send the consignment and then person used to send the money.

00:59:51] You noted how NBFCs are differentiating themselves in the product suite, but at the same time, banks also offer a higher range of services, such as corporate banking, FX and cash management, alongside trade credit. Is the flexibility that NBFCs offer a big advantage?

KA [01:00:17]: What happened, you are talking about the channel financing. Channel financing, the cash management service provided by that, and I am the pioneer of this in State Bank of India. I started for the railway. Cash management is separate for the channel financing. Say that I am the person, I am the corporate like Tata. I am providing the service, giving the solution to collection of their payment and collection in the single window. That separate things is there. Channel financing, we give you the single window where the separate column is there, separate channel finance and separate column icon is there the cash management, but both are different. Their technology are different. Cash management is helping him out to day-to-day their transaction. I'll give you a simple example. 20,000 dealer of Shree Cement is there. We can't provide the channel financing of 20,000 only on the 1,000 and 2,000 dealer. This dealer transaction routed through the channel financing. Rest of the 18,000, they routed through the cash management because we used to provide him, the one said the demo account number. What is demo account number? We used to make this demo account number, the account number of this Shree Cement, separated by six digit of the dealer code. This become a demo account number.

Whenever they make the payment, they use a particular account number. Our system understand that it's XYZ, dealer of the Shree Cement want to make the payment. Immediate payment goes to their account and MIS upload their in system. This is the cash management type. Same happen in the channel financing, but channel financing, I am the dealer, why I use two platform for a single transaction? If I have to make the transaction, I can make the transaction only to the Shree Cement. Shree Cement himself take the fund from my side and update the system. There is no transaction here. We have the pulling of the fund. When already information goes to the customer through the system of channel financing, you don't need the cash management.

01:02:49] Is there anything else you would like to highlight about the competitive landscape or anything important about the sector?

KA [01:03:11]: Two things I would add to that. First, you have to understand what is channel finance. Channel finance is the two vertical is there. First one is the dealer finance and second is the vendor finance. Being the corporate, I have to purchase the raw material from the market, which called vendor finance because I have to finance to the vendor to provide the raw material to the corporates. Vendor finance, I have to sell with the corporate to the final goods is the dealer through dealer, then dealer finance is there. Why NBFC is growing over the year is part of the higher ROI because of the comparability and reach of the tier 3, tier 4 cities like that. Being the banks, we have to follow the RBI rules. We have to tie-up with the corporates, but we have a limitation to provide the limit. NBFC haven't any tie-up, but they are growing because they are not abide the rule of the RBI. What happened, balance sheet never tell you that the real picture of the customer has.

Now I'm showing I have a INR 100 crore turnover. You also know that corporate showing the INR 100 crore loan, they are doing much more turnover than that. Rest of things, they are ranging from the NBFC. NBFC is growing faster than banks. Now bank is also changing their attitude. Now they are also adopting same platform as NBFC doing, but ROI higher than normal. Now trend is changing. Where before we are using the paperwork. Now we are going to… The best of the NPCI and most of the government providing the new technology of clearing and everything. Now paperwork is going to nullify at that time. One mobile is enough for you to make the transaction and everything, even not a laptop or any desktop for the main transaction.

SP [01:05:11]: Then I think I'll conclude the Interview right now. Thank you so much for taking the time out and discussing this particular topic with us. Very insightful conversation. Hopefully, we can connect again in future to speak on such more topics.

KA [01:05:27]: Thank you.

Transcription ends at 01:05:32 of the recorded material