Finding the Green: A Mid-Year Review for 2020

By Sashank Rishyasringa & Gaurav Hinduja

Last December, we wrote a post sharing our learnings coming out of a tough period for Capital Float. Six months later, we find ourselves stronger and healthier as a company, but also in the midst of Covid-19. Many of the principles we adopted have helped in navigating this environment. In other areas, the pandemic has been clarifying, pushing us to be more radical and take bolder bets.

Since lockdown, we have added 4 lakh new loan customers, and Walnut recently crossed 10 million app downloads. We have seen our cash position increase and debt pipeline expand. Equally, we have had our share of challenges and uncertainty. Our attempt in this post, as last time, is to transparently share our learnings and key metrics over this period, as we all try to feel our way towards a new normal.

#1 Protecting cash flow

We went in to Covid with ₹200 crores of cash in the bank. This cash balance was built by cutting our monthly cash burn by 40% over FY20, growing with better yields, and closing an equity round before lockdown. However, the wider shutdown of economic activity and confusion around moratorium had thrown our projections for the new fiscal into the wind. So, protecting this cash balance became an organizational mission. This required jump-starting a different set of muscles in the company. We built a more rigorous cash flow forecasting model, optimized ALM, and controlled costs by re-engineering our tech platforms and moving 17 out of 20 offices across the country to a long-term WFH model.

Come July, we had retained our cash balance of ₹200 crores, maintaining a leverage ratio of 1.1x and capital adequacy ratio of 45% on an AuM of ₹900 crores. We had also survived the worst of lockdown and moratorium with our team intact. As the economy begins to open up, we are now working to implement the expansion plans that were put on hold due to the lockdown.

#2 Moving collections in-house

For the past two years, we had been iterating on the right collections model for CF, finding the right mix of digital and physical, in-house vs. outsourced. Last year, after much trial and error, we took the decision to double-down on building an in-house collections capability. Investments were made into local and specialist teams across all key cities. As a tech-first company, this was new territory for us, and it often meant having to roll up our sleeves and learn from first principles and others. By January, repayment rates had started to significantly improve and we ended March ’20 with a 2.1% GNPA.

As a result, we were better prepared when Covid hit us. After the initial shock of lockdown, collection efficiencies reached 60% in April and May and crossed 80% in June. Loan book under moratorium dropped from 56% in March to 34% in June as the economy opened up across regions. Beyond the numbers, we were now able to understand our customers better. In-house collection teams, with more fluid collaboration from sales and credit teams working virtually, brought a deeper level of empathy and insight into on ground conditions.

#3 Communication in the time of Covid

Communicating more, especially in a turbulent environment, has been an important principle for us since the past year. However, Covid has made this hard. Like many others, we were an organization that thrived on in-person interactions. Weekly flights and days on the road were key aspects of how we connected with our partners, especially those in financial services.

Our attempt has been to mitigate some of this disruption through cadence and transparency — regular zoom townhalls, board catchups, happy hours, and frequent, granular sharing of key metrics with external partners. But in many areas, we have also found it productive to follow others’ lead. It’s been amazing to see a high level of dynamism shown by many of our large banking partners to interact, troubleshoot, and even start new partnerships virtually. Most of all, it's been inspiring to observe our teammates adapt and even embrace WFH, many using it as an opportunity to break down traditional team silos and find new ways to contribute across the business.

#4 Doubling-down on the customer

In April, we saw a curious phenomenon — increasing demand for a “pay later” service to buy essentials online. Although this offering was made available over a year ago with partners such as Amazon, we noticed that something was different post-March. As lockdowns extended, demand surged diversifying into more use cases such as buying electronics and paying bills. In the past three months alone, we have financed over 800,000 small-ticket purchases online and are now adding between 1.3–1.5 lakh new customers each month.

As we dug deeper into our customer base, new dimensions of need arose. Average bank balances of our Walnut users had increased by over 20% during Covid, and they were keen to find ways to budget and save through the app. Many customers also lacked adequate health cover going into the pandemic, so we launched an in-app digital Covid insurance product to meet this need.

#5 Looking ahead

Post-Covid, our goal now is to be a more well-rounded financial partner for our customers. It is an exciting challenge that is shaping our strategy for the next phase of growth. In this, we have been fortunate to find like-minded partners in the midst of the pandemic, enabling us to scale our co-lending marketplace, envision new products, and raise ₹100 crores of new debt.

Slowly but surely, there are opportunities emerging from the ashes. Tier 2 and 3 cities such as Vishakhapatnam, Nagpur, Coimbatore, Lucknow and Rajkot lead our portfolio in collections efficiency. Cities such as these are also front and centre as we start to rescale small-ticket loans to MSMEs and individuals. Many of our target industries such as pharma, grocery, consumer appliances, computers and peripherals are reviving. We are getting to “know our customers” even better now through video calls.

Perhaps it is too early to predict exactly what shape the overall recovery will take. But we’re excited to play our small part in figuring this out, growing and building on our strengths in these unprecedented times.

Thanks for reading, and as always, until next time.