Almost three years of spearheading the retail finance arm at Piramal group, Jairam Sridharan, MD, Piramal Capital & Housing Finance says the job is well begun and half done. With the demerger of Piramal’s pharma and financial services business coming through, Jairam talks about what next for the company. He’s certain to play by Piramal group’s strength-M&As. And, once a banker always a banker- he believes a bank license is the ultimate holy grail. Edited excerpts below:

Q

You took charge at the start of the pandemic and did a huge transaction last year. How would you rate your journey so far? 

Piramal as a standalone financial services company is still in phase two or three of a big underlying transformation. It’d be premature to call it victory. But I’m very happy with the progress. On the retail side, we’ve grown from practically nothing to now about 37-38 per cent of the company’s book. We’ve done this big transaction (DHFL) and very seamlessly integrated it. We not only retained over 3,000 employees of the erstwhile DHFL Group, but also created around 4,000 new jobs in the merged entity. People in the industry say we have pulled off a copy book integration and that I feel great about. 

Q

Are the customers of erstwhile DHFL accepting you well? 

Very well. Collections efficiency has been exactly how we predicted and planned. We purchased the book at about 43 cents on the dollar. The idea was that the wholesale book is probably 5 – 6 cents on the dollar and retail 65 - 67 cents. On the retail side, we have identified a POCI book or a book that has been purchased and is credit impaired. Its value is about ₹9,500 crore and we hold it in our books at ₹3,344 crore.

You can think of it as a bad bank within the company. On the wholesale side, most of the book was already in Stage 3 and it’s going to take a lot of time to realize value. Collections efficiency in the retail book is 98-99 per cent. People integration is done. All 317 branches are active. We have added about 26 branches and shut down about 11 in the last three quarters. 

Q

You’re upping the tech capabilities and simultaneously adding branches. Are you taking the ‘phygital’ route? 

Totally. In India, the most important thing in a retail business is distribution. If you are not where the customer is when they are making the choice, your stuff will not sell. If it’s a low engagement product, like buying a phone on EMI and the buyer is not thinking of it as a loan, you can do it online. But building a sustainable business requires distribution, presence, and credibility.

Our experience is that based on the value of loans sold last year, 80 per cent comes from physical distribution, but in terms of volume, 60 per cent is digitally sourced from fintechs. So, small ticket purchases are sold digitally, but large values loans are sold physically. We are doing about ₹200 crores a month of disbursement with the various fintechs and may scale to about ₹500 crore a month by the end of FY23. 

Q

But you are still perceived as a lender doing small ticket loans with quick churn.

Today, 90 per cent of our book is secure – 70 per cent is mortgages, and the rest is secured MSME loans. 40 per cent of incremental originations last month were home loans and 25 per cent was MSME. The rest are through digitally unsecured partnerships. In terms of number of customers, about 97 per cent originate through these digital products, but it is only 23 per cent in terms of value. We will continue to have a strong digital acquisition engine to get customers in through small ticket products. But as we do this, we create the base where we can cross-sell our larger ticket products.

Meanwhile, we will continue to originate all our home loans, MSME lending and other businesses physically. On a net basis, I would want to add 100 branches this year and have 500 to 600 branches totally to cover about 1,000 cities across the country. We are betting big on Bharat. We are happy to open branches, employ local people, and churn these local markets with a product that works there. We want to be a multi-product lender.

We are also there in the used car financing business, which is as big as new cars in the Bharat markets. We are going live with salaried personal loans business. We launched our microfinance business in June and are working with two partners and opened 21 branches in Rajasthan and Bihar. I’m excited about this business. It has a strong social purpose and for Piramal, that’s a big deal. 

Q

You’ve just done a major transaction and now, you are looking at Reliance Capital. What’s the intent? 

If you see the history of Piramal, we have M&A in the DNA. It’s very unlikely that there’ll be some meaningful transaction in the financial services space where we are not present. But that doesn’t mean that we’ll necessarily go after everything that comes our way. While we cannot comment on the specifics, things are at an early stage in some of the transactions that you mentioned. We have a high level of equity in the group; our investors say we are overcapitalized. We need to deploy it.

You grow the lending book organically, which is what we’re trying to do. But beyond a point, you can’t do it yourself. There is capital available for non-lending M&As, including the one you mentioned. We like insurance (life and non-life), wealth management (distribution and manufacturing), microfinance, and gold finance. We are also interested in the tech/finetch space. And finally, there is banking. That’s the holy grail for everyone. 

Q

The market pulse is that you’re looking at multiple assets to channelize yourself towards a banking license. 

There are many steps to take to become fully ready from a structural and governance standpoint for a banking license. We are doing all the right things in that direction. Whatever is required to be done from a regulatory comfort perspective, you will see us do. We have ₹60,000 crore on our company’s balance sheet. It’s not as if a banking relationship or license is key requirement for us to scale up. But, it will be our desire to build a sustainable large scale lending business and as things stand today, for sustainability, banking seems to be the only real model. 

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