Having grown larger than some of the banks, he tells Hamsini Karthik shareholders’ value enhancement possibly through value unlocking would be something that ABCL would consider going ahead
Mr. Ajay Srinivasan, Chief Executive, Aditya Birla Capital Limited
Three years after carving out the financial services business post the Aditya Birla Nuvo restructuring, Ajay Srinivasan, MD & CEO, Aditya Birla Capital (ABCL), is happy with the progress made especially with respect to retailisation efforts. Having grown larger than some of the banks, he tells Hamsini Karthik shareholders’ value enhancement possibly through value unlocking would be something that ABCL would consider going ahead.
It’s been just over 3 years since the launch of Aditya Birla Capital as a listed entity. How has the journey been so far?
Over this period, we have enhanced our efforts on being customer centric and thereby becoming significant players across the protection, investing and financing spectrum. We have grown our lending book to Rs 57,522 crore from Rs 38,839 crore in FY17, which makes us bigger than some of the banks who operate in our country. While we remain diversified by design, our focus has been on growing our retail and small and medium enterprise (SME) loans mix which has increased from 41 per cent in FY17 to 60 per cent in December quarter of FY21 (Q3). The profitability of our NBFC and housing finance company (HFC) have improved significantly during this period. In our AMC, our assets under management (AUM) has grown to make us the largest non-bank AMC. We have 7.1 million portfolios, up from 3.9 million in FY17, and Rs 1.23 trillion, up from Rs 0.84 trillion in FY17, of retail and high networth individuals (HNI) AUM, making us a significant retail franchise operating in this sector. Our profitability has improved by almost 50 per cent between FY17 and Q3. The total gross premium of our insurance businesses has grown to Rs 8,008 crore in FY20 from Rs 5,778 crore in FY17 and will grow further in FY21. We have over 11 million lives covered through our health insurance business, making us a very significant retail player in our insurance businesses as well. This build-up of scale with profitability along with a strong retail franchise has been achieved in times that have been turbulent, whether due to the credit and liquidity crises or because of the pandemic.
A lot of efforts have gone into reducing the wholesale portfolio lending of the company. How much more is left?
Starting from 2018, we have not only resized our wholesale portfolio as a percentage of the total lending book, it’s come down from around 50 per cent of the lending book in FY18 to around 40 per cent of the lending book as on Dec ’20, but we have also significantly reduced our concentration ratios by which I mean we have gone more granular in this segment as well. We are looking for opportunities to grow across our portfolio and will focus on segments and transactions that deliver our desired risk-return tradeoff. We do however see greater growth opportunities in retail and SME over the coming years which would mean the proportion of the wholesale portfolio would further come down.
There is an anticipation of a revival in corporate credit. What is the preparedness of the company?
Industrial growth is back in positive territory and services growth has been picking up except for some segments related to travel, hospitality and small trade. We have also seen some decent amount of corporate fund raising from the market as opposed to the lending system. As things normalise, we are sure to see credit demand go back to earlier levels. We expect retail demand to continue to lead the growth in credit demand but do expect SME and corporate credit demand will also revive in the next 6-9 months. We have operated in different product segments within the corporate space and thus have the experience and learnings from this. We will focus on areas that meet our desired risk-return parameters.
What’s is the strategy for affordable housing, given growing competition and quality of assets?
Our housing finance business is largely a retail business with very little wholesale developer financing exposure i.e. 4 per cent as on Dec ‘20. Within that retail focus, our aim is on growing the affordable loan book. We are targeting to have 60-65 per cent of our total book in the affordable segment by FY24. Our growth strategy is to expand both our geographic footprint as well as our feet on street, even as we explore partnerships. On quality of assets, we focus on cash flows of our borrower and the quality of security.
Financial services players are tagging with e-commerce players and fintechs. At ABCL, how do you see the landscape changing?
It has become imperative for all businesses today to think tech-first. Our approach across ABCL is to leverage tech to grow revenues, enhance customer experience, optimise cost and build scalable processes which can support the growth that we are aiming for. We have made substantial progress on our tech agenda and have seen strong outcomes even during this last year due to our digital preparedness. We think there is a lot of opportunity to partner with fintechs and with other platforms with customer pools. We are currently partnering with more than 10 fintechs to leverage their expertise in specific areas identified by us. We are also partnering with fintechs to drive customer acquisition across our lending, insurance, and our asset management businesses. For instance, our health insurance business has recently partnered with Vi to offer Health Insurance coverage on mobile recharges, an industry-first initiative. We believe that a model of collaborating with fintechs to create a win-win is the most optimum way forward.
Aditya Birla group was a banking aspirant many years ago. With RBI expected to come up with norms for corporate participation in the banking space, would that opportunity interest you now?
We had applied for a banking license in 2012. As you know the RBI recently set up a working group to look at ownership in the banking sector including the possible entry of corporate houses into banking. The final guidelines are still to be announced. Our view has been that we need more capital in the banking industry to fund the growth of an economy that aspires to grow at 7-8 per cent. The question really is where this capital comes from. Since we have some large corporate owned NBFCs who have demonstrated their capabilities over a long period, this might be an option to allow those deemed fit and proper to convert into banks.
With multiple subsidiaries under AB Capital, can investors expect the theme of value unlocking to play out in the coming years?
ABCL is a unique financial conglomerate with a range of attractive and growing businesses under one listed holding company. This structure gives us several benefits. However, if our Board feels that the market value does not represent the true sum of parts value of our businesses, it would look for ways to enhance shareholder value. As I said after our Q3 results, our Board believes that there is an opportunity to unlock value given the scale of our businesses and is evaluating various opportunities in this regard. Recently our Board gave an in-principle approval to our material subsidiary Aditya Birla Sun Life AMC Limited, to explore an IPO subject to market conditions, receipt of applicable approvals and other considerations.