We need more modern banks to build an advanced economy: Sachin Bansal

In an interaction with ET, Bansal said he believes most people in the government and regulator would agree that there is a case for modern banks in India now.

Bansal’s comments come after the RBI rejected
Navi’s banking licence application, along with those of other applicants, in May this year. Navi Technologies had applied for the licence through group firm Chaitanya India Fin Credit.

According to people aware of the group’s thinking, the company will first assess if the regulator is open to having new entrants in the banking sector before reapplying for a licence.

Bansal, who had cofounded Flipkart, was speaking for the first time since the banking regulator denied him permission to start a bank.

“The US has thousands of banks and India has more people. We need more modern banks — there is a case for that and most people will agree with that. You can’t build an advanced economy just on the basis of a handful of banks, who are traditional,” he said.

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“You need modern thinking and institutions that have been there for decades can’t switch overnight. There definitely is the need (for more banks) and I hope the regulator sees that … they find a way to act on it … this will be good for India,” he said.

His non-banking and financial company (NBFC), Navi Finserv, reported a maiden profit of Rs 22.9 crore for the quarter ended in June, as per the company’s filings. It had posted a net loss of Rs 4.3 crore for the fiscal fourth quarter ended March 31, 2022. For the last fiscal year, it had recorded a net loss of roughly Rs 67 crore.

According to the 41-year-old entrepreneur, the bank licence remains a long-term ambition and he is keeping all options open.

“When we are close to reapplying again, we will of course re-evaluate the whole thing from scratch and it will be a fresh application,” Bansal said.

While the RBI did not disclose its reasons for rejecting Bansal’s application in May, the entrepreneur was served a notice by the Enforcement Directorate (ED) over alleged violation of Foreign Exchange Management Act guidelines during his stint in Flipkart. The case was related to a seller firm, WS Retail, on the Flipkart platform.

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Bansal and fellow Flipkart cofounder Binny Bansal had set up WS Retail in 2009 and held a stake in the firm but sold it in 2012. In September last year, Bansal moved the Madras High Court against the ED’s actions following the ED notice around August last year. ED’s probe is on WS Retail’s relations with Flipkart during the period 2009-2015.

IPO underway
Bansal’s Navi, which filed its
draft prospectus in March for a Rs 3,350 crore initial public offering, is keen to go public as soon as possible but will take its bankers’ advice before moving further on it amid changes in market sentiments towards IPOs. Market regulator Securities and Exchange Board of India has yet to clear Navi’s IPO proposal, but Bansal’s Navi is believed to be in active touch on the proposal with the regulator.

“…it’s just that when the market timing is right and advisers feel that, we will go public. The company would like to (go public) this financial year but it depends on the bankers and their confidence levels as well,” Bansal said, speaking to ET at his Bengaluru office.

On the NBFC arm recording a profit, Bansal said it demonstrated that consumer-first principles could be used to build a profitable business.

“Because I come from an Internet background, people think of Internet companies as cash-burning machines (laughs) and not generating profits – generally. That’s the mindset. I don’t think any consumer Internet firm tries to be profitable in the first couple of years,” he said.

Bullish on lending

Navi Finserv’s revenue from operations in the June quarter jumped to over Rs 184 crore from roughly Rs 141 crore in the preceding quarter, an increase of 31%. The microfinance business of Chaitanya India Fin Credit is a subsidiary of Navi Finserv, but the reported numbers do not include that.

“As more equated monthly instalment (EMI) payments are happening, our models are able to make better decisions and approve more customers. This is also helping in better conversion rates and also credit cost and provisioning is coming down for Navi Finserv,” Bansal said.

According to people in the know, one of its biggest avenues of spending for the company was marketing and that has gone down now with growing organic traffic to the platform.

“Navi has also made significant investments in collections capabilities, underwriting, loan sizing, and low-cost and organic customer acquisition channels which is a significant booster to Navi Finserv’s business,” Bansal said.

At present, Navi Finserv is witnessing close to 1 million EMIs being made by borrowers on the platform. The company is also witnessing 40% of customers availing of a loan on the Navi Finserv platform being repeat customers. It sees repeat customers to be the majority for its lending business, going forward.

Navi’s personal loans — recently renamed Cash Loan — can go from Rs 20,000 all the way up to Rs 20 lakh for eligible customers.

At present, Navi Finserv’s business which includes its cash, home and microfinance lending operations, contributes almost 80%-90% to the group’s quarterly revenue. It also represents almost 78% of the group’s overall assets under management.

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When asked about RBI’s recent guidelines on digital lending, Bansal said it was good that the regulator provided clarity on the regulatory framework.

“Of course, we have to be more careful of taking consent and storing that data. Overall, it’s all good for consumers. When we started in 2018, we made a conscious decision to operate as licensed entities and this is true for our lending, mutual fund and insurance businesses, so we have always wanted to operate within the regulatory framework,” he said.

Navi had faced criticism late last year on how it was offering loans to consumers by spamming messages on mobiles with details of PAN cards.