Seven months after Piramal Group acquired the beleaguered DHFL for a total consideration of Rs 34,250 crore, Piramal Group has been busy integrating and has hired 4,500 new employees over and above the existing 3,000-odd employees at DHFL.
Ajay Piramal, chairman, Piramal Group, told Sandeep Singh that Piramal Capital and Housing Finance will focus on affordable housing and even funding small and medium enterprises. Stating that India is underbanked and needs more banks, he also spoke of banking aspirations of the group going forward. Edited excerpts:
Why are investments not happening and what is hurting?
Investments were set to happen, but then the two years of Covid, and the uncertainty after that hit and everyone stopped. If you look at the capacities of most good companies, their capacity utilisations are good and they have done well inspite of Covid. I think, investments will happen now and I can see several large good groups are going to invest now.
There are several positives today. One is that the balance sheets of banks are the strongest that they have ever been in terms of capital adequacy and NPAs. Second is that, it is the first time in history that inflation in India is going to be lower than in developed countries and so the economy would do well. The third aspect is that if companies were looking to diversify out of China and come to India because of Covid, post the Ukraine war, people are getting more and more aware that they need to diversify their supply chains and in that sense India is well positioned.
Also on the front of talent and workforce, India is well positioned. I am pretty hopeful of the economy.
How has DHFL acquisition worked as of now?
I am happy with the acquisition and has met my expectations. Wholesale is one side of the story and our plan over time would be to get someone else to do it. We will not be focussing much on the wholesale part, that was the most savoury part of the whole transaction. By and large, the retail book was a reasonable and good one. Whatever we had to provide we did with adequate provisioning. So, what we have got today is a good book. The people are also good so they are contributing now. We have added around 4,500 more people over the last six to seven months and the total strength is over 7,000.
Obviously, some customers would move out because of the competition and rates going down, but, as of now, our disbursements are more than our repayments. So, the business is growing.
Where will the focus lie?
While we were more into mass affluent segment, we will get more into affordable housing. We are also getting into small business loans and also doing some unsecured personal loan and getting into partnerships.
There are many fintechs who know how to get customers but they don’t have the balance sheet to fund the customers. So, we are partnering with them. And we also have the experience of credit risk. So, these people help us get the customers but the credit appraisal and funding can be done by us. So, that is another big thing that we will do.
What were the key challenges to acquisition?
The first was in the acquisition itself as it was so hotly contested. The challenge has been from the legal side as it takes so long at various levels. Some of the cases are still going on. I think the challenge is also to revive people to start selling loans because, over the last two years they have not done any business. I have found in my experience that people want to do well and they are responding well. The challenge would also be to align culture as we have 3,000 existing employees and around 4,500 new joinees.
Would you like to make it a bank at some time?
It is something that we are studying. For any economy to grow, it has to grow with debt. The percentage of private debt to GDP in India is 54 per cent and that for China and South Korea is around 190 per cent. While India has a lot of government debt, the private debt is low. Then, for any economy to grow, financial services have tobe 1.5-2 times the nominal growth. If 8 per cent is the trend growth and inflation is five per cent, even 1.5 times would mean 18-20 per cent growth in credit. By comparison, the credit growth over the last few years has been only 9 per cent.
Another aspect to note is that even at 9 per cent credit growth, the top banks are growing at 15-20 per cent and they are giving to top (creamy) individuals and corporates. The top banks don’t need more business because today no bank would grow beyond 20 per cent as they become risky. On one hand, we are underbanked and, on the other side, the top banks are more than happy.
However, one can see that beside the creamy layer there is no funding available to mid-market company or a company below a credit rating. Even individuals who are not in the primary segment don’t get funding. So how will the economy grow? More banking has to come. NBFCs were meeting that demand from MSMEs, but there has been tightening.
We are also seeing that the NBFCs are reaching a saturation point because of their size and, in a few years, even we will reach that limit.
Therefore, as far as we are concerned, we are getting all our compliance and regulation as if we are a bank and then we will see what happens.