PVSLN Murty is currently the Chairman and Managing Director of North Eastern Development Finance Corporation Limited (NEDFi) who formerly worked as Chief General Manager (CGM) and Chief Strategy Officer (CSO) of largest public sector bank - State Bank of India (SBI), Sidharth Bedi Varma got in a candid conversation with Murty for an episode of Guwahati Connection – a podcast by GPlus.
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Bedi: You head such a prestigious organisation and have been in the BFSI segment for so long. Tell us about yourself?
Murty: NEDFi is incidental and accidental. Basically, I'm a banker. I have a 40-years-relationship with State Bank of India. I joined in 80. Hence, I worked across the country, the entire country; almost around seven, eight states. But I have been head of Northeast from 2015 to 2018. It was a crucial period.
Bedi: Now you head a large organisation which deals in loans, businesses, CSRs and around finance. They say that with great power comes great responsibility. So how do you value money?
Murty: Nobody understands the value of money better than a banker. I have seen one rupee become crores of rupees and one rupee becoming a minus. Overall, it depends. The value is decided by where the money is going. If you are giving it to a good person or a good business, it will grow. I have seen this with my own eyes. A lorry driver with his commitment and intelligence became a crorepati in my hands. I supported him with three lakhs and it paid well in the end. So, a banker's life is always a risk. We call it a fair banking risk.
Bedi: People assume that bankers only have 9 to 5 jobs. Is that the case?
Murty: That is only what you see in the counters. But in reality, you see many people working behind the screen. Similarly, in State Bank, there are many people working outside of the counters, across several branches. And for the economy, banking is the backbone. Unless banks take calculated risks, it is not possible to achieve results. How best you can minimise the risk is the challenge.
Bedi: In layman language what is NEDFi’s role across the Northeast?
Murty: Actually way back in 1996 and 1997, there was unrest everywhere; so many problems. The banking industry was not growing, and banks like State Bank and UCO Bank were the only two who initially came to the Northeast. They opened branches in some remote areas but were mostly focusing on only deposits and serving the transactions. As for risk-taking industries there was little development during that time. Jayanta Madhav from Assam, who also worked in the ADB, thought that there should be a dedicated bank for the northeast. Then he impressed upon the then prime minister Manmohan Singh. So then, the Government of India took a decision to implement a dedicated development finance institution or a bank for the Northeast. Accordingly, NEDFi was established in 1996 with capital from government-owned organisations like SBI, LIC and CDB. They have all contributed to the capital of NEDFi. Right from the beginning it's been a development finance institution. True to the nature of the organisation and the mandate, these people have started funding steel, cement, and food processing industries. Later, the funding was extended to hospitality and healthcare. For this, the Government of India used to support with some kind of an interest-free loan. The risk had to be taken by us.
Bedi: Do you think NEDFi is an approachable institution?
Murty: It is the only organisation in the Northeast which is approachable. Because we have 21 office branches it is definitely customer friendly because of the way we have established the banking counsellors. Retired bankers have been appointed as counsellors. And that too, we give the government loans at 7%. So many small and medium microenterprises are getting at 7%.
Bedi: If it is as easy to walk into NEDFi’s office, seek an appointment and say that here is a business idea. Will that help me get a loan immediately?
Murty: One way it’s easy, but money will not come easily. Approach to the bank is, but in general whenever we sanction a loan, we look at who we are lending. There are people who come and say, “You give the money first, I will think about what type of business I want to do.” Obviously, a banker will not be confident in that person. There was an individual from Nagaland. He started collecting ginger and wanted to sell it. Due to the perishable nature of ginger, he was facing problems. He bought a drying machine and started doing it in a small way, but it was not sufficient. We immediately supported him and now he has an established company. Unless you prove that it is a commercially viable business, the money will be lent to you.
Bedi: Because you support businesses and like people who are aggressive about their businesses, how do you keep an entrepreneur accountable for his money? There could have been someone who may have shown problems.
Murty: Generally, there will be different kinds of entrepreneurs. There are people who want only one or two lakh rupees. We never bother about security or anything like that in such situations. We just see whether he’s doing what he had promised to do or not. We give these kinds of loans through the Banking Correspondent (BC) model. We appoint MFIs as banking correspondents. They will collect such applications, and we directly lend it to the borrower at a cheaper rate of interest; somewhere in between 7% to 12%.
The next category is 5 to 10 lakhs, where we see reasonable security. Somebody gives a personal guarantee, like someone’s brother-in-law is a government employee. In such situations, we calculate how to safeguard the funds.
Bedi: Is there a percentage? For example, a three lakh guarantee is taken for a 10 lakh loan?
Murty: Around 30 to 40%. If the person is a good borrower and he has also repaid his previous loans on time, then we don’t bother about security. That is a judgement you have to make about the borrower. A person who wants to establish a 40 crore hotel cannot provide 40 crore worth of collateral as well. So we have to see how the situation works. Security is secondary, personality is first.
Bedi: What is the largest value of loan that NEDFi has given?
Murty: There is a limit; around 40 to 50 crore. For any company, we don’t go beyond 40 crore. If they want more, they should bring in another institution. It is called consortium lending, where two or three banks come together to lend the money. In some situations, we have had some industrialists in 2003-2004 and they have been with us all the while. For them, we deviate from the rule of 40 crore. We may lend them up to 50 crore instead. It depends on a case-to-case basis.
Bedi: Does NEDFi have a holistic approach?
Murty: Yes, we have an advisory because that is an interest income we earn. There is a risk involved in it. We also have consultancy services; we advise the Government of India and all the eight state governments as well.
Before constructing the Bogibeel bridge, the Government of India asked us to make a study about its usefulness and viability. We did that. Recently, the Nagaland government asked us to survey four airstrips.
In consultancy, NE states are asking us for advice regarding the Jal Jeevan mission; whether it is being implemented as per the specifications or what-not. We verify that it is being done, so for the assignment, they pay us some money. For any government or state-sponsored project, we are the third party monitors, and we get commission for that. The government also gave us money for technoeconomic viability studies. We were the ones to give advice regarding the production of palm oil around feasible areas in the Northeast.
Bedi: Do you think Assam’s startup incubation centres have yielded results?
Murty: Fairly, yes. But the real question is how many people are coming to these incubator centres? How many are going out? That's the question now. Yes, it doesn’t matter much because everybody has to experiment. If the money becomes viable, will they use it for the purpose of commercial exploitation? But compared to earlier stages, today’s youth are aspiring to become job creators instead of job seekers. The percentage of success is different, but there are definitely some good incubation centres. For example, one professor from Kokrajhar University is making wood, biscuits, and soup out of mushrooms. People are coming and embracing the technology to turn it into a successful venture.
All in all, an incubation centre can be highly successful if proper venture capital is available. This is what I’m requesting through your channel to all the state governments; to establish more venture capital for aspiring entrepreneurs.
