Financial services group Religare plans to increase lending to small and medium enterprises . The company also expects to show profits this fiscal. The Group Chief Executive Officer, Mr Shachindra Nath, talked to Business Line on the road ahead. Excerpts:

Will Religare turn in profits by this fiscal-end?

We were in the venture mode during the past three-four years and had been investing in all the businesses. Now, the platform required to capture sizeable business is ready. So, we will focus on profitability. That should be the mantra. Last year, we had a consolidated loss of Rs 250 crore. Going by the performance in the last quarter, we expect to end this fiscal with a profit of around Rs 300-350 crore.

You were talking about organic growth. What will your strategy be?

Our main portfolio company is retail brokerages, where margins have diminished, as the business has moved from cash to futures and options. So, the old model of large numbers of branches and people needs to change. We have a substantial footprint in 600-odd cities. But we won’t sacrifice the footprint. This is where consolidation is the key. If we have seven branches in a city, do we need all of them? So, we have been able to shrink about 150 branches in the past one year without sacrificing any footprint.

Now, we have announced a technological transformation programme. While most companies in the field are waiting for the market to perform, our belief is that even when markets perform, margins in this business will no longer be there. So, we have to make sure that there is enough headroom to generate profitability.

Shrinking the branches is physical consolidation. As an organisation, we have been very patient. We have an ability to invest over Rs 3,500 crore and during the last two years, we could absorb Rs 500 crore of losses. I do not think the market deters us. So, if it is just a phase, we won’t change the business model. We have the luxury of having promoters who have deep pockets and substantial faith in the financial services industry.

We still have 300 branches and 1,500-odd business partners in 2,200 locations.

Has your lending portfolio undergone a change?

Prior to 2008, our lending portfolio largely focused on the capital market. So, we lent to Religare Securities’ retail brokerages. That was a very profitable segment. Our books used to be roughly around Rs 4,000 crore. In 2008, when there was a crisis and non-banking finance companies had withdrawn from the market, we started the business.

Borrowing from the market was difficult. So, we cut down our entire capital market portfolio and went in for SME finance. Our view was that until you get to that kind of model, you won’t get the size, or the balance sheet power to drive profitable growth.

That has done well for us. In past three years, we have built books of around Rs 12,000 crore and we believe this can go up to Rs 25,000-30,000 crore. Today, we serve more than 9,000 SMEs, of which 3,500 are very active.

The SME segment has not been served well because their credit needs cannot be met by banks. For example, it is not easy for an automobile dealer in Varanasi to get a Rs 10-crore loan because he deals mostly in cash, and banks need all the financials. But, when we do the underwriting, we know his commercial properties are worth Rs 50 crore and he is ready to pledge it, but he won’t leave his residential property till the day he dies. So, we assess his daily cash register to find out his repayment capacity. We do underwriting at 30 locations, and only if the loan is securitised.

What timeline have you set to touch Rs 25,000-30,000 crore in retail loans?

We lend around Rs 500 crore a month, which means it will take another three-four years to reach Rs 25,000 crore. With our capacity and infrastructure, even today we can manage Rs 25,000 crore. But, lending is not a business where you wake up and say, ‘today I have to lend this much’. You have to be cautious. Also, we are in a wholesale borrowing market. We do not have access to public deposits or saving accounts. We are purely driven by liquidity. There is possibility of acceleration, but we are not in a hurry.

Will you hive off retail commodity broking into a separate vertical?

We treat this as part of broking. We used to run commodity, currency and equity brokerages separately. Now, we have combined all these, because we feel these are sub-segments of the same market. India is a country of the trading community. Commodity businesses have always been profitable. However, currency trading is different. We have to evolve that and are working on that.