After restructuring the Edelweiss group into ten independent business units, Rashesh Shah is looking to grow these companies at 12 per cent to 15 per cent a year for the next five years. In an interview with BusinessLine , Rashesh Shah, Chairman and Managing Director, Edelweiss Financial Services shared his vision to become a technology-driven, niche player.

Post the two waves of the pandemic, what is your strategy for the company?

Edelweiss has got multiple businesses now. In the last two years, during the pandemic, we have made every company a standalone business. We have spun off the wealth management business, which has its own investor PAG. It made sense to keep the businesses together when they were small five years ago, but they have grown enough to require their own independence. Second, in terms of credit, we have started disbursements from August.

There will be two kinds of NBFCs in India - some that will compete with banks while others, like ours, will partner with banks for co-lending. Going forward, our strategy is to keep 50 per cent of the disbursements on our books, and 50 per cent will be sold down.

Our HFC book is ₹5,000 crore, and SME book is ₹2,000 crore. Of the ₹7,000 crore book, we will originate about ₹3,000 crore a year. About ₹1,500 crore will be on our books, and ₹1,500 crore will be sold down. This will keep us asset-light. We have capital adequacy of over 25 per cent in most of our core credit businesses. For us, this is a much better model, as we don’t take ALM risk, ROE is better, there is higher fee income, and it's easier to cross-sell. We will be a technology-driven, niche player.

What is your target for your businesses for the next couple of years?

There’s not an overall target because all companies are at different stages of growth and a different size. Our rule of thumb for every business we have is to grow at twice the industry growth rate. Most of our businesses should grow at 12 per cent to 15 per cent a year for the next five years.

Are you looking at more dilution of stake or listing of businesses?

This is one of our intentions in the long term. In a model like ours, one can create value and needs to unlock that value. De-mergers, spin-offs, IPOs are the various ways. We don’t intend to sell any more businesses. What we did in the wealth management business is one way of unlocking value. We sold insurance broking as part of the wealth management business but in partnership with Arthur Gallagher. When we were de-merging the businesses, we had kept it out. It was like a standalone business, but we couldn’t list it. So it was a good idea for Gallagher to buy it.

Is the acquisition of a fintech on the cards to broadenyour reach?

We are already partnering with quite a few fintechs. Many of them are doing great work in analytics, customer servicing, and collections. We are also open to acquisitions, but we want to maintain the culture. Partnering is a better option, but we are open to buying stakes. We already have small stakes in a few of them. Fintechs are not disrupting, they are not replacing traditional banks, NBFCs, insurance companies. In India, expansion of the financial services market is needed as many underserved and unserved segments are required. MFIs cater to an unserved segment; they do not replace the banks.

Would you be interested in getting a bank license?

We are in 10 businesses, and maybe our NBFC business can explore converting into a bank. It is one credit opportunity for us. But even without bank, with all these partnerships with the banks and co-lending, we see enough growth opportunities for the next five to 10 years. There are pros and cons to becoming a bank. It's not that all the new banks are doing very well. They have to build a CASA deposit base, which is a long haul. As an NBFC, we are very small. We are very far away from being a bank. We are growing our asset management and insurance business, for which we want to keep our firepower and bandwidth free. Converting into a bank is not a magic bullet; it is an expensive proposition. We have a very good path on NBFC growth.

How is your ARC doing? Do you see recoveries improving?

All through the pandemic, recoveries have been reasonably good. In the last four years, we have recovered almost ₹25,000 crore from over 140 accounts. IBC is only one of the tools. More than half of our recoveries are outside the IBC. Our ARC is very good at restructuring, and we have about 35 per cent to 40 per cent of the market share. We see that as a steady business. The first ten years of our ARC was corporate credit. Last three years, we have bought a lot of retail assets such as home loans, where ARCs can play a huge role. In fact, in the last two years, we have bought more retail assets than wholesale assets. In the next ten years, we see more opportunities more on the retail side.

What is your view on NARCL? Will it speed up your roadmap for retail?

Currently, NARCL is taking care of accounts that banks have fully written off. It will not change the landscape of the market. NARCL is a positive move as banks will get indirect capitalisation when they sell fully written-off accounts. But NPAs will happen though large corporate NPAs of the past may not be there. Part of these will be retail and part will be wholesale. ARC is a permanent business model. Our ARC aims to be about 50 per cent retail and 50 per cent wholesale. It gives us about ₹250 crore to ₹300 crore of profits after tax.

Is fresh capital infusion required for any of the companies?

We may have to invest a bit in the insurance business – around ₹100 crore or so every year for the next three years. But that is already allocated. All our other businesses are adequately capitalised.

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