Starting off as an equities brokerage, IIFL (India Infoline) is today a diversified financial services company. It has become a non-banking financial company and has also applied for banking licence.
In an interview to Business Line, Nirmal Jain, Chairman, IIFL, shares his thoughts on his business, and how broking, which was once the mainstay, is slowly losing its shine.
We are well-placed going by the objectives spelt out for new licencees. The Government wants the new entities to reach Tier 3/4 towns. As an NBFC we have the experience of financial services and risk management.
We have a Rs 2000-crore balance-sheet, an 18-year track record, and a wide network. We would have to incur Rs 100-200 crore as set-up costs if we become a bank.
From where will you source manpower?
All NBFC employees having the required experience will be absorbed into the bank. We are already talking to senior bankers to come on board and we will have a top quality team.
Is there enough scope for credit growth for the new entrants?
Credit penetration in India is poor (about 10 per cent) and there is a lot of scope. Advanced economies have a credit penetration of at least 70 per cent. There is enough scope for 15-20 per cent credit growth in the next 10 years. For instance, our bond issuances were always over-subscribed.
How is your NBFC faring?
Ours is a Rs 9,463-crore loan book consisting of 1,500 branches, in 900 cities and towns, with 21-lakh customers. We offer home loans, home equity, loans against property, gold jewellery, shares and margin funding, besides finance for medical equipment. In that sense, our loan book is well-diversified. We have also started to finance commercial vehicles.
How are the asset quality and net interest margins?
We had a gross NPA (non-performing asset) of 0.58 per cent and a net NPA of 0.24 per cent. Capital adequacy ratio was 21 per cent as against the regulatory requirement of 15 per cent.
Our net interest margin was 7.1 per cent for the NBFC business and our cost of funds has been high at 11.8 per cent on a weighted average basis.
Why has your brokerage income been flat?
In FY13, equity broking contributed 13 per cent of the top line. Slowly, it will go below 10 per cent. The NBFC business contributed 70 per cent of our income. We are steadily and systematically reducing broking. In addition, volumes in the stock market have declined and so has brokerage. We do not know when they will recover. The focus is slowly shifting from execution of trades to client advisory.
So, will brokerages cut their manpower to sustain?
The total income pie is reducing and it cannot sustain the same number of people. The gross yield on broking was four basis points. In addition, technology and do-it-yourself clients (those who use the Internet) have made it more difficult.
Back-office will see reduction in manpower. In financial services, brokers have used technology well in clearing. The size is shrinking. What was 60 per cent of our income once is now 13 per cent.
What about hiring this fiscal?
We already have 14,000 employees and plan to add 2,000 more this year, especially for wealth management and the NBFC, all over India.
A word on your third-party distribution?
All our businesses (commodities, wealth management and NBFCs) are in separate subsidiaries, having separate teams and separate profit and loss accounts.
Equity broking is also being shifted and ring-fenced to ensure that one does not impact the other.
We are the largest insurance and mutual fund distributor in India after banks. Last year, in the mutual fund space, we added Rs 5,000 crore in assets under management.