D Lakshminarayanan, MD, Sundaram Home Finance
On a dusty lane in Thoothukudi, southern Tamil Nadu, a teashop owner-cum-contractor begins his day with renewed confidence. A ₹7.5-lakh loan he took last year helped him expand both his stall and his contracting work. Elsewhere, a tile contractor in Nava Tirupathi grew his business with a ₹7-lakh loan, while a fruit vendor in Salem used ₹9.5 lakh to boost inventory and streamline operations.
They’re among a rising class of informal entrepreneurs gaining access to formal finance — thanks to Sundaram Home Finance’s bet on small-town India through its ‘emerging business’ (EB) segment.
After the second wave of the pandemic, with the metro cities crowded and competition fierce, Sundaram Home began scouting for fresh growth avenues. By late-2022, the Chennai-based company zeroed in on small-ticket loans in Tier 3 and 4 towns.
“It felt like the right moment to rethink our approach,” says D Lakshminarayanan, Managing Director, Sundaram Home Finance.
A new playbook
Launched in October 2022, the EB segment is more than a product line — it’s a new playbook. It offers small business loans (against property) up to ₹20 lakh and affordable housing finance below ₹30 lakh, targeting self-employed individuals like masons, vendors, and milk suppliers — aspirational customers with informal income streams.
Taking the business to each town felt much like launching a startup. Hiring was a challenge — many applicants had job-hopping histories. “This job required more than numbers. It needed street-smart engagement and local empathy,” Lakshminarayanan says.
Even internally, transitioning staff from handling large urban loans to semi-urban informal customers created mismatches. “You have to speak the customer’s language — both literally and metaphorically.”
Sundaram Home took a cautious, research-led approach. Small teams fanned out across six to seven towns, conducting door-to-door studies over three to four months to understand local customers. “We didn’t want to set up branches unless we were confident in the segment,” he says.
That research yielded a 50 per cent strike rate — four to five viable borrowers per 10 — which encouraged a pilot in 20 towns.
Also, SHF’s analysis focused on three key factors: market size (credit penetration), customer credit quality, and sector-wise performance.
“We weren’t chasing growth for the sake of it — volume with rising NPAs (non-performing assets or loan defaults) is a red flag. On the flip side, low volume with low NPAs isn’t attractive either,” he states.
“The sweet spot lies in markets showing moderate growth with manageable risk. High growth and low NPAs is the dream, but rare. So, we focused on balanced segments offering stable returns without compromising on credit quality. The first 10 branches took nearly six months to launch, with disbursements totalling ₹15 crore. We weren’t in a rush. We wanted sustainable growth.”
Once hiring and local research were in place, the focus turned to business viability. Could each branch generate ₹1–2 crore monthly? “We mapped out cost structures and took a leap of faith — knowing upfront that investments were essential to unlock long-term value,” he says.
Starting in South Tamil Nadu and Madurai, Sundaram expanded into western regions like Coimbatore and, more recently, Central and North Tamil Nadu. Today, the EB segment has 53 branches, including five in Andhra Pradesh — its first step into another State.
Crucially, EB borrowers are almost entirely new customers — informal, underserved, but creditworthy. “These are people who just needed access. We’re giving them tools to grow,” notes Lakshminarayanan
Collections — often the real test in lending — have been solid. “We could’ve grown faster, but we chose to move block by block. The proof is in collections and, so far, we’re happy,” he says.
Sundaram also sees significant upside in affordable housing. There are two key demand pockets: on the outskirts of metros, where industrial workers seek compact homes; and in smaller towns, where people self-construct after buying land. Improved connectivity, economic activity, and technology are fuelling this trend. “Both markets are worth tapping,” he feels.
Expansion
Under Lakshminarayanan’s leadership, Sundaram Home’s disbursements have grown from ₹1,250 crore in FY21 to a ₹1,500-crore quarterly run rate in FY25. Assets under management (AUM) stood at ₹14,000 crore in FY24.
In the EB segment, the company plans to double disbursements to over ₹400 crore in the next 12 months. With 400 employees at present, the EB segment eyes launching the next 50 branches at a faster clip.
“This is a long-term play. We’ve invested in infrastructure, in people, and in understanding the customer. We’re not chasing quick wins — we’re building a ship to last,” asserts Lakshminarayanan.
From tea stalls to tiled rooftops, Sundaram Home’s emerging business story is one of cautious optimism and quiet transformation — driven by a deep belief in the power of small-town ambition.
More Like This
Published on April 27, 2025
About The Author
