Get full access to one story every week, and to summaries of all other stories. Just create a free account

As a private non-bank, Five Star Finance has had an unbelievable run run The Ken Five Star Finance shows unsecured lending is overrated Read more .

The 38-year-old non-banking financial company (NBFC) has over the past seven years recorded numbers that any other non-bank would give its right arm for. Loan growth of 65% over the last five years (that was 15-16% compound annual growth rate for NBFCs), net-interest margins of over 14% (when other NBFCs clocked anywhere from 3-14% on the higher end) and bad loans of just about 1% (the best NBFCs pulled 1%, and for those worse-off 15%). These numbers, especially the bad loans, puts Five Star in league with those like India’s largest private bank, HDFC Bank.

Lenders live and die by bad loans; a high proportion of such loans can suck capital dry and send companies into a death spiral. A loan turns bad when a borrower has not paid their equated monthly installment (EMI) for more than 90 days, and has at least three installments pending. HDFC Bank has among the lowest gross non-performing assets (GNPA)—only 1.17% in the year ended March 2022. Barely different from the Chennai-based mid-sized Five Star, which was at 1.05% for the same period.

Except, HDFC Bank and Five Star are like chalk and cheese.

HDFC Bank mostly gives loans to the salaried, with a robust credit history, and at interest rates less than 10%. Five Star, on the other hand, focuses on self-employed, new-to-credit borrowers in tier-2 cities and beyond. It charges them interest rates of over 20%.

Its customers are mostly single-shop owners such as vegetable sellers or barber-shop owners. These borrowers are more prone to defaulting given the irregularity of their cash flow. Their earnings, while dependable, are not entirely predictable like a salary. Still, for Five Star they are the best of borrowers.

That’s why investors like Matrix Partners, Sequoia Capital, TPG Partners, Norwest Venture Partners, and Morgan Stanley flocked to invest nearly Rs 2,000 crore (US$242 million) in the company over the last eight years. Five Star went public late last month, but saw a lukewarm debut debut Moneycontrol Five Star Finance raises Rs 1,588.5 crore via IPO Read more . It raised about Rs 1,600 crore (US$194 million)—20% less than what it had intended.

Analysts and those in the industry say a bunch of factors were at play—from being an offer for sale to not being a consumer brand, and operating in a niche of small-business loans weighed it down. “High Networth Individuals and retail response was weak because Five Star was compared with housing finance companies like Aptus and Aavas, which have not performed well.

AUTHOR

Arundhati Ramanathan

Arundhati is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She writes the newsletter Ka-Ching! every Monday. She lives in Bengaluru and has spent over 12 years reporting and writing on various subjects.

View Full Profile

Read this story. Subscribe Now

This story is available across both editions. Subscribe to the one that’s most relevant for you. Questions?

 

Premium

  • 5 original and reported longform business stories every week
  • Access to ONLY India edition
  • Close to 250 exclusive stories every year
  • Full access to over 6 years of paywalled stories
  • Pick up to 5 premium subscriber newsletters
  • 4 original and reported longform business stories each week
  • Access to ONLY Southeast Asia edition
  • Close to 200 exclusive stories every year
  • Full access to all paywalled stories since March 2020
  • Pick up to 5 premium subscriber newsletters

Rs. 2,750 /year

$ 120 /year

India Edition
Subscribe Subscribe
Most Asked For

Borderless

  • 8 original and reported longform business stories each week
  • Access to both India and Southeast Asia editions
  • Close to 400 exclusive stories every year
  • Full access to over 6 years of paywalled stories across India and Southeast Asia
  • Unlimited access to all premium subscriber newsletters
  • Visual Stories

Rs. 4,200 /year

Subscribe
 

Echelon

  • 8 original and reported longform business stories each week
  • Access to both India and Southeast Asia editions
  • Close to 400 exclusive stories every year
  • Full access to over 6 years of paywalled stories across India and Southeast Asia
  • Unlimited access to all premium subscriber newsletters
  • Visual Stories
  • Bonus annual gift subscription
  • Priority access to all new products and features

Rs. 8,474 /year

Subscribe
Or

Questions?

What kind of subscription plans do you offer?

We have three types of subscriptions
- Premium which gives you access to either the India or the Southeast Asia edition.
- Borderless which gives you complete access to The Ken across both editions
- Echelon which gives you complete access to The Ken across both editions along with a bonus gift subscription

What do I get if I subscribe?

The Premium edition gives you access to stories in that edition along with any five subscriber-only newsletters of your choice.

The Borderless and Echelon subscription gives you complete access to The Ken across editions and unlimited access to as many newsletters as you like.

What topics do you usually write about?

We publish sharp, original and reported stories on technology, business and healthcare. Our stories are forward-looking, analytical and directional — supported by data, visualisations and infographics. We use language and narrative that is accessible to even lay readers. And we optimise for quality over quantity, every single time.

Our specialised subscriber-only newsletters are written by our expert, award-winning journalists and cover a range of topics across finance, retail, clean energy, cryptocurrency, ed-tech and many more.

How many newsletters do you have?

We are constantly adding specialised subscriber-only newsletters all the time. All of these are written by our team of award-winning journalists on a specialised topic.

You can see the list of newsletters that we publish over here.

Does a Premium subscription to your Indian edition get me access to the Southeast Asia edition? Or vice-versa?

Afraid not. Each edition is separate with its own subscription plan. The India edition publishes stories focused on India. The Southeast Asia edition is focused on Southeast Asia. We may occasionally cross-publish stories from one edition to the other.

We recommend the Borderless or the Echelon Plan which will give you access to stories across both editions.

Do you have a mobile app?

Yes! We have a top-rated mobile app on both iOS and Android which allows you to read on-the-go and has some amazing features like the ability to bookmark stories, save on your device, dark mode, and much more. It’s really the best way to read The Ken.

Is there a free trial?

You can sign up for a free account to experience The Ken and understand our products better. We’ll send you some free stories and newsletters occasionally, and you can access our archive of previously published free stories. You can stay on the free account as long as you’d like.

The vast majority of our stories, articles and newsletters can be accessed only by a paid subscription.

Do you offer any discounts?

Sorry, no. Our journalism is funded completely by our subscribers. We believe that quality journalism comes at a price, and readers trust and pay us so that we can remain independent.

Do you offer refunds?

No. We allow you to sample our journalism for free before signing up, and after you do, we stand by its quality. But we do not offer refunds.

I am facing some trouble purchasing a subscription. What can I do?

Just write to us at [email protected] with details. We’ll help you out.

I have a few more questions. How can I reach out to you?

Sure. Just email us at [email protected] or follow us on Twitter.