Behind the silent rise of Credit Saison India

Both Warburg Pincus and Credit Saison ultimately lost out to Carlyle but the Japanese company did not give up.

Many years ago, Credit Saison had realized that its future lay outside Japan. The company, therefore, set up a regional hub in Singapore. In south east Asia, it made equity investments or inked joint ventures. After the SBI Cards set back, it decided to set up a lending unit in India from scratch. That non-banking financial company (NBFC), Kisetsu Saison Finance India, made a profit before tax of nearly ₹100 crore in 2022-23. Its assets under management (AUM) jumped nearly three times to ₹5,000-6,000 crore from the year before. Its competitors grew, too, but not at this pace.

How did the company pull off such a feat?

Credit Saison still operates silently. You wouldn’t see the company’s name splashed across billboards in Indian cities. Its branch offices aren’t that visible either. In fact, very few outside the world of finance in India would have even heard of the firm. The name pops up during discussions with fintech founders, only when you nudge them to disclose their NBFC partners.

Fintechs without an NBFC licence can’t directly lend in India. Instead, they generate the demand, partnering with an NBFC to do the underwriting. Today, Credit Saison works with every major fintech, including the likes of Cred, Moneyview, EarlySalary, Krazybee, IndMoney, and Axio (Capital Float).

In four years, Credit Saison has diversified into multiple business verticals. It expects to hit an AUM of $1 billion within the next few months, and has big ambitions of climbing up the pecking order—in the coming years, it wants to be counted among the top 10-15 NBFCs in India.

Apart from the multi-product strategy, access to low-cost capital and strong local management can help the company win, believes Presha Paragash, chief executive of Credit Saison India.

The fact that the NBFC has a rich parent helps. Credit Saison, globally, has over 30 million credit card users and a balance sheet of $30 billion.

Play like Tata Capital

Credit Saison bagged its NBFC licence in September 2019. But it did not want to go the retail way right away.

“An MNC (multinational company) launching into retail would have been a bit immature because you have to first build out your full-throttle capabilities. And, that’s how we decided on a phased business plan," Paragash says.

The vision, however, was to build a “neo-lending conglomerate".

Note the word ‘conglomerate’. Compared to many other NBFCs that are one product-focused, Credit Saison sees itself as a multi-product company.

It started India operations with two key verticals – a wholesale lending unit (where it lends to other NBFCs) and the fintech/co-lending partnerships.

“The fintech partnerships model has scaled well for us; we work with close to 15 odd partners," the CEO says.

That growth was a function of Indian fintechs scaling over the last two-three years.

“When we started, pre-covid, some of these fintechs were doing one-fifth of what they have been disbursing post-covid. We are currently doing ₹1,000 crore of monthly disbursals across all our verticals. Fintech contributes quite nicely to this percentage," a senior employee, who didn’t want to be identified, says.

According to CRISIL Ratings, as on 31 December, 63% of the company’s total AUM constituted the co-lending/fintech partnerships. It was followed by the wholesale portfolio (26%) and direct lending (11%).

Credit Saison started building a direct-to-market strategy over the last 15 months. Here, it is betting big on consumer lending as well as loans to small and medium enterprises (SME). On the consumer lending side, it launched an app, ‘Privo’.

In direct consumer lending, the focus is on the ‘prime’ segment—borrowers with credit bureau score of 750 and above. In this segment, where its partner Cred also operates, an interest of 14%-15% is a major stretch, feels Paragash. A prime customer’s bank can offer the same loan at a cheaper rate. But it is not always the interest that matters. The prime group usually wants bigger size loans. “We are looking at a ticket size of ₹1.5 lakh for 18 months," Paragash informs.

For SME loans, the company has opened 22 branches.

“When the branch-led SME loan unit started, the monthly disbursement used to be about ₹5-10 crore. Now, it is clocking over ₹100 crore a month," a former employee who was with the SME unit, says. He didn’t want to be identified.

Some say that in SMEs, the company’s competitor is not a fintech; the likes of Tata Capital are the real rivals. The company has set a high benchmark—Tata Capital is one of India’s leading NBFCs; its financial products cater to individuals, SMEs and corporates.

Credit Saison can play like a Tata Capital because of its good credit rating and its access to low cost of funds. “Otherwise, it is a hard business and you are pushed to lend to a lower rung," the employee quoted above says.

CARE Ratings and CRISIL have rated Credit Saison ‘AAA’, which indicates the highest creditworthiness for an NBFC. With such a rating, an NBFC can raise debt at cheaper rates. For instance, if Credit Saison can raise the debt at 9% and lend at 18%, the spread it makes is 9%. NBFCs with a poorer rating may have to raise more expensive debt, impacting its margins.

Rich parent

For many NBFCs, the biggest challenge is capital. But then, like we pointed our earlier, Credit Saison has a rich parent. As of now, it has promised full support to the Indian subsidiary.

“They do have very ambitious plans and one of the reasons is that capital accessibility is very easy for them," says the founder of a Bengaluru-based NBFC, which works with Credit Saison in a co-lending arrangement. He didn’t want to be identified either. “Credit Saison has that edge because it is backed by the strong Japanese parent," the founder adds.

To date, the NBFC has received about $200 million in equity from its parent. It has raised debt from about 25 lenders. That list includes top Japanese banks like Mizuho, MUFC, and Sumitomo Mitsui Banking Corporation as well as top Indian lenders such as the State Bank of India, Punjab National Bank, and Bank of Baroda.

While the company did not disclose the cost of capital, it is expected to be sub-10% because of its ratings and the strong holding company.

“We believe that we are just getting started given that the parent is really bullish on India. We have a good liabilities base. While growing asset is very important, good liabilities are also important to support the growth," Paragash says.

The support from major lenders means an ability to further grow the loan book or lend more.

A free hand

Credit Saison India employs 500. These employees are spread across different teams, from technology to operations and collections.

Besides Paragash, the company’s senior founding members include former Capital Float executives Dev Pathi (chief technology officer) and Utham Reddy (chief product officer).

“They have built a very good team and hired several senior officials from NBFCs such as Fullerton and IIFL Finance," the NBFC founder quoted earlier says.

Nishant Jasapara, the company’s chief business officer, earlier worked with Fullerton and IIFL while Bhawani Jhanwar, the CFO, was earlier with Poonawalla Finance and IIFL. Anuj Gupta, the chief risk officer, joined from Capital One, a credit card company.

Credit Saison, meanwhile, built a strong collections business. “They always say that they are not a lending business; they are a collections business," the former employee quoted earlier says.

That’s a mantra not unique to Credit Saison though—many NBFCs say the same thing considering that without robust collections, the lending business would falter.

What is probably working for the company is that the local management feels empowered. The Japanese parent realizes that to succeed in tough markets such as India, the leadership needs a free hand, employees Mint spoke to say.

Will growth slow?

While Credit Saison’s growth has been impressive, thus far, the billion-dollar question is if the company can continue pacing. There are headwinds on the horizon.

In September 2022, the Reserve Bank of India (RBI), India’s central bank, issued guidelines to regulate digital lending activities. The first loss default guarantee (FLDG) model—the lifeline of fintech lending in India—was disallowed, particularly when it involved unregulated entities. In such an arrangement, the fintech compensated the regulated entity in case a borrower defaulted. This model, in turn, gave comfort to banks and NBFCs to work with new-age fintechs.

Like every other NBFC, Credit Saison also worked on the FLDG model where most of its losses were covered by venture capital-funded fintechs.

“With FLDG out of question post the RBI’s digital lending guidelines, many fintechs are scaling down. They are shifting focus from partnerships to investment-heavy direct-to-consumer and branch-led SME loan businesses. Credit Saison India’s growth, therefore, could slow down," a Mumbai-based NBFC head feels.

Second, there is a view that Credit Saison is trying two different things at the same time—both fintech partnerships and direct lending. While fintech partnerships are a tech-led model, direct lending is operations-heavy.

“When you do direct lending, you need people for collections, especially in the SME space. The bigger the book is, the bigger is the collections team," the NBFC head quoted above says. “In next 12-24 months, it is going to be clear what Credit Saison is good at."

In a January 2023 report, Crisil Ratings noted that Credit Saison India’s portfolio currently lacks ‘seasoning’ and how the company uses its risk mitigants to maintain the asset quality remains to be seen. A seasoned loan refers to a loan that has been paid on time regularly—in other words for long enough to give the lender reasonable comfort.

“Additionally, the company has started the direct lending book, which will now expand further in the near and medium term. Therefore, sustenance on the asset quality metrics while scaling up this portfolio also remains a key monitorable," the rating agency added.

The company’s net non-performing assets, as of now, are below 2%.

The NBFC more than doubled its profit (before tax) from ₹40.5 crore in 2021-22 to nearly ₹100 crore in 2022-23. One of the employees quoted above admits that the company’s profit growth might slow a bit this year because of its consumer foray.

At the same time, the NBFC’s direct lending model can threaten existing fintech partners. Both can go after the same customer. “Fintechs may be afraid to the scale their business with the company," the NBFC head says.

Paragash feels otherwise and says that fintechs have nothing to fear.

“You are only a competition if you reduce your exposure to them," she responds. “We are a growing company and we want to build a large business in India. But that does not mean we will cut you down."

Knowing the company’s ambitions, we can’t tell if this assurance is comforting enough for the fintechs.