DHFL is a significant acquisition and it changes our financial services business: Ajay Piramal

The overall plan is first to diversify our book. We were mainly a wholesale real estate book. We felt that we needed to diversify and get into a consumer facing retail business. The first initiative we made was when invested in the Shriram Group. But we realised that both Shriram and Piramal had different cultures, and it would have been very difficult to merge them. Both were also doing well. When the DHFL opportunity came, we were looking at how we can grow organically, as well as through an acquisition. With this acquisition, in the near term, our ratio between wholesale and retail book will be 50:50. In fact, housing finance and the wholesale will be 50:50. Gradually, we want to take it two-third in terms of the retail and one third in terms of wholesale.

Yes, it’s a very significant acquisition and changes the Piramal financial services business. We had been preparing for such an event for the last two years, during which time we have increased equity into Piramal Enterprises Ltd (PEL) by ₹18,000 crore and made it a low debt to equity ratio. In a financial services business, if you have such a low ratio, you can't get the ROEs that shareholders want, but we had deliberately done it so that we will be ready for an opportunity. We have always said that in this environment, it is only the stronger companies that will become stronger, and the marginal ones will become weaker. This is an opportunity to build strength so that we can take advantage of the opportunities.

It was a long and very challenging process. This was the fifth time we had to bid. We had intense competition from international firms and domestic firms. Our track record of successful M&As has also helped us to a great extent. This was the first of its type in the IBC, thanks to the RBI changing pushing for change in the IBC laws. It has taken more new space and mind space than other acquisitions that we have done.

There are always moments where you may feel it is difficult, but in my own experience, I found that you just keep on going, doing your task at it, and then ultimately, the result will come. But we always thought we had a good chance. It is also good for the country.

Also read: Piramal pays lenders for DHFL acquisition

DHFL has been giving loans to the Tier 2 and 3 cities, for people who are more non salaried than salaried. We have about 4,500 people who are working through 301 branches. Our average loan even for housing loan is only ₹17 lakh and you can imagine what is the average income of the person. It was very important that we continue, especially with the government's thrust towards affordable housing, towards Bharat — Tier 2 and 3 cities.

One has to keep looking at the environment. Besides getting the equity, we had also got a team which was ready for retail finance and we were building our own finance book as well. But we realised that we need to make an acquisition to grow faster. It would take eight to 10 years to build the book of a housing finance company and we wanted to just catch up. If it was not this, we would have looked at something else. The last two years have been challenging for everybody particularly in the NBFC space. There are many good companies, which could need finance.

First, Piramal Capital and Housing Finance Ltd (PCHFL) will merge with DHFL and then the name of DHFL will be changed into PCHFL. We believe that our brand will have a greater value and loyalty of our customers. Our retail book grows by almost five five times of what it is today. The infrastructure of DHFL will be used by us. There are 301 branches today. Piramal has 14 branches. We will add these two and it will be a synergistic effect.

The new debentures have been issued by us today and the repayment made to the banks. The older ones have been repaid. Banks have got about 46 per cent of the total value of their loans. We are getting long term debentures of ₹19,550 and the balance will be in cash, which will be given to the banks. We had been planning for such an acquisition for a while so we had raised enough equity. In PEL, today we have adequate equity to do this. Our debt to equity ratio on PEL with PCHFL as a whole is only 0.9 times debt to equity. So there's enough equity. The merger will be done now in the next few weeks.

That's a little while in the future. Let's see how the RBI is looking at it. They have given the working paper, but I have not seen any conversions yet. We will keep improving our systems and processes to ensure that we are within the regulator’s remit and then let's see what happens.

Yes, we are using fintech. Our aim is to be phygital with DHFL. We need some physical presence, but we also need to be digital at the core. We are investing in that technology. We have also got some partnerships in fintech in areas like used car loans. We have got a team of people in Bengaluru who are looking at the latest cutting-edge technology. We believe that we can do a combination of really high-quality talent in the fintech space and also add on to them the financial muscle that we bring.

Yes, we will still need the branches and over a period of time, we are going to increase the number of branches. It is just that the assessment of the credit risk, the ease of doing business for the customer and customer servicing are some of the areas for the digital and fintech services.

We have acquired it. Today it is a good name, it is established. So, we are going to examine it. I think it will take some time for us to come to a firm conclusion what we want to do with it.

There are some appeals, which is more for the committee of creditors. In our view, the law is pretty clear on it. It is between the COC and the people who have actually filed the appeals. We will see what happens. The deal is now complete, and the payments have been done.

It will be very soon in the near future.

Yes, the worst is behind us. From what I can see in terms of credit offtake is that for the first time capex is increasing. People are making plans to see how they can increase capacity. More than demand, supply is becoming a constraint in the economy. That means there is requirement for funding going on. I am very optimistic that even in the retail segment, offtake will be there in terms of loans. It is a bit slow but you can see the changes happening in the housing finance. Affordable housing sector, for instance, is growing well. I am positive about India’s economic growth. It is one of the fastest growing economies.

The IBC has seen a lot of progress in the last five years and is one of the most significant steps by the government as far as the liberalisation process is concerned. Overall, we have done well. Since IBC was passed, we find that the scales have been tilted in favour of the lender, otherwise, it was always the borrower. They also knew that the legal process was so long and winding that if they never paid they would still be fine. It takes time for such laws to evolve and we could do better.

We need to increase the number of people on the NCLT and NCLAT batches. Since this is such a new law, we need to get the members to be more trained and informed. The government has been very responsive in changing it and making amendments to the law. So for instance, before DHFL there was nothing for financial services companies. That's when RBI moved into and the IBC was changed. Also errant promoters could earlier bid but they have now been excluded.

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