Kirloskar's NBFC turns focus to MSME loans to reduce risks

Kirloskar Group-owned non-banking financial company (NBFC), Arka Fincap, is looking to rebalance its portfolio toward medium- and small-scale industry loans as it looks to de-risk from wholesale credit.

"MSME is the growth engine for us. This year, the projection is that these loans will be almost 70% of the total loan book," said Navin Saini, business head-MSME at Arka Fincap, a non-banking entity. "We are now gravitating toward small ticket-size loans in tier-2 and tier-3 locations."

Saini added that while the non-bank lender has never leveraged its Kirloskar parentage, it is now looking to build its brand around the Kirloskar heritage. The NBFC is 100% owned by Kirloskar Group.

In the past one year, the NBFC has doubled its book from ₹2,500 crore to ₹5,300 crore. The MSME book has grown from ₹1,200 crore to more than ₹2,500 crore. The rest of the book is wholesale. It aims to grow its book to ₹7,500 crore for FY25 out of ₹5,000 crore will come from MSME lending. The non-bank lender wants MSME loans to hold 75% weightage in its books.

"We started as a typical NBFC but in the last five years we have realised that if we want to build a long term franchise which doesn't carry a lot of risk," Saini said. "We have been trying to rebalance our portfolio where a shift is happening from wholesale to retail, where 75% of the book will be MSME."

The NBFC is also looking to increase its branch presence to gain market share. The lender has 32 branches and will look to increase branches to 60 by the end of fiscal year.