Piramal Enterprises Ltd seeks to tap underserved customers in smaller towns to drive growth in its financial services business, and double its assets under management within five years to ₹1.2-1.3 trillion. Ajay Piramal, chairman and executive director, Piramal Enterprises, said if the Reserve Bank of India (RBI) allows certain non-banking financial companies (NBFCs) to accept public deposits, it will lessen their dependence on bank funding. Edited excerpts:
Would you look at converting into a bank?
Earlier, NBFCs used to have some advantage; there was a little more loosening in terms of RBI control compared to banks. They are tightening up all the processes and, when I see the inspection which the RBI is doing today, it is quite detailed and the arbitrage which you had between NBFCs and banks in terms of regulations is reducing. We are also adapting to that situation by getting more and more of our compliance in line with what RBI wants. Not only that, but we are going one step ahead so that we are best prepared to meet the requirements. We are just making our systems processes and people ready. Let us see what happens.
The fact is that there are not enough banks in the country and if India has to grow, you will have to increase banking. You saw the governor’s statement when he met the CEOs a few days ago, saying NBFCs should not rely on funding from banks. Today, financing of NBFCs by banks is very skewed and over 50% is from banks. The RBI is also concerned that if there is a crisis, then both will come together. If that has to happen, then you have to open other avenues for NBFCs. On one side, you are saying that the regulations are becoming tighter and the arbitrage gap between banking and NBFCs is really coming down, and on the other, you are saying that NBFCs must shift from raising funds only from banks. The fact is growth is required, and NBFCs reach those areas which banks cannot. I think it is important that we need the RBI to allow certain NBFCs to raise public deposits, but it is not allowing.
Would you look at acquisitions to inorganically grow the book?
If it fits in with our strategy, and if there’s value, we will do the acquisition. Look at DHFL which in 2019 had the worst name in the world. Secondly, it was at the height of covid-19. In spite of that, we did the acquisition of DHFL because we could understand where the problem was and we could also use technology to understand what the real risks were. As and when there is a good opportunity which fits in strategically, we will do it. We are not in a hurry, but we have enough capital. Our wholesale book at the end of FY22 was ₹43,000 crore, which was brought down to ₹29,000 crore in FY23. There is a twin strategy going on in the wholesale side. We want to reduce the old book and are building a new book.
Therefore, if I look at the next four or five years, the old book will virtually come down to nothing. Of the ₹29,000 crore, the old book was almost ₹26,000 crore. In our five-year projection, wholesale will not grow much, but retail will grow faster. Therefore, the ratio would be almost 70% retail and 30% wholesale, from 55% retail, and 45% wholesale.
How would the new wholesale book be different from the old book?
There are two parts to wholesale. One is wholesale lending to real estate and the other is wholesale lending to other corporates. Both will be much more granular. For instance, in this new book, our wholesale average size of loan is about ₹165 crore which is much lower than the old book. We are not doing any structured loans and by and large it will be loans that are cashflow-backed and which will be for construction and after approval stage and so on. So, it’s more conservative lending.
There is also a new player (Jio Financial Services) in town and since there is a family alliance, will there be a business alliance as well?
Frankly, we are both two independent listed entities and I think both have different strategies so they will pursue their strategy and we will pursue our own strategy. There is so much opportunity in this business that both can coexist.
You have stakes in general insurance and life insurance of the Shriram group and also have a life insurance joint venture. How do you look at those two investments?
We are clear and even the regulator does not want us to have stakes in two life insurance companies. This (Shriram) is not a strategic investment, but this is only an investment and at the right time, we will exit it. We did look at a general insurance foray when Reliance Capital (insolvency) was going on, but we felt that the value was too high. If and when there is a good opportunity, we may look at it. It is not ruled out.
What’s your view on asset reconstruction?
We are not doing asset reconstruction, but we have a fund which is in distressed assets. There, we take over companies and we take a significant stake and get involved in management. This fund is called India Resurgence Fund. This has done well and we have got about $800 million in investments and have returned a lot of it now. We are out to raise funds now and will raise something between $750 million and $1 billion.
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Updated: 29 Aug 2023, 11:51 PM IST
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