Interview| We need both NBFCs and banks to grow: Rashesh Shah, chairman and CEO, Edelweiss Group

December 22, 2020 9:39 AM

Non-banking financial players have hurtled from one crisis to another. Rashesh Shah, chairman and CEO of Edelweiss Group, in an interview with Malini Bhupta, says the NBFC model will come back. Excerpts:

Rashesh Shah, chairman and CEO, Edelweiss Group

Non-banking financial players have hurtled from one crisis to another. Rashesh Shah, chairman and CEO of Edelweiss Group, in an interview with Malini Bhupta, says the NBFC model will come back. Excerpts:

At a group level how do you see the pandemic impacting your liquidity and what about the balance-sheet strength to deal with the stress?

I think in the last five or six months, we have done a fair amount of balance-sheet strengthening. Our credit book took a big impairment and we took a markdown, which we front-loaded. We also beefed up liquidity and while it is hurting earnings, it is a source of comfort. Across our entities we are holding liquidity for two years. We have `7,000 crore of liquidity at group level. Our overall book is Rs 17,000 crore. We have improved equity in all businesses. We agreed to sell 50% of our wealth business. In our NBFC business, capital adequacy is 24%, in housing finance it is 28% and in ARC it is 38%. Our wealth business has grown at 94% a year and asset management business has doubled in two years. Our general insurance business has grown at 58% this year and the life insurance business has seen positive growth every month this year.

What about build up of stress in your lending businesses?

Our collection efficiency is back to 93-94% against 98% at pre-Covid levels. Out of our Rs 18,000-crore loan book, the share of retail and wholesale is equal. In retail, our collection efficiency is at 94% which is at par with the industry. We have taken a Rs 2000-crore markdown in the wholesale book. Wholesale housing has improved a lot and sales have been the best in 20 years.

NBFCs have been hurtling from one crisis to another. Your view.

IL&FS applied the brakes on the financial sector. It was a huge upheaval. If IL&FS had not happened, we would have been unprepared for Covid. IL&FS was a good break for the financial sector and because of that shock, banks and NBFCs are much stronger than they were two years ago.

Are NBFCs out of the woods?

There was a crisis five months ago and that is over, but the growth challenge remains. The government is doing its bit to increase the share of manufacturing through PLI scheme. We need 12-13% credit growth for the economy to return to growth. The good banks and good NBFCs have similar levels of profitability. The only difference is scale. While NBFCs account for 25% of the credit market, they account for 40% equity in the sector. We need both NBFCs and banks to grow, it is not an either-or situation.

What’s the road map for Edelweiss Group, which also has a non-banking finance company? Do you see Edelweiss becoming a bank?

We have an ambition to continue to build strength in the financial services space. There are three parts to that – one is insurance, then there is capital markets and credit. I do think digital disruption in banking is a big opportunity. At our size it would not make sense to become a bank with branches like it is in the old model because that model works at a scale. Our credit book is Rs 17,000-18,000 crore. We are not near the Rs 50,000-crore threshold. The RBI has also come out with norms for NBFCs to work with banks for origination and to sell loans. The NBFC model will come back. It will not be a balance-sheet model, but one where they occupy niches and specialise in select segments. It will have to be an asset-light model. The fact that the RBI feels NBFCs above a certain size should become a bank is a good thing because if you are Rs 50,000 crore in size, you have to roll over Rs 20,000 crore a year. At that stage, you become systematically important. Between Rs 25,000-50,000 crore, you can be both. But below Rs 25,000 crore, it might be beneficial to be an NBFC.

What’s in store for credit markets after all this turmoil of the last two years?

After the turmoil, there is a rethink on the entire credit ecosystem. Between 1995 and 2000 there were a lot of changes in equity markets. Credit markets will see similar changes. Credit markets will need to have multi-lane highway. We need to think of an infrastructure that is cohesive.

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