Time for lending institutions to grow: IIFL Chairman

Nirmal Jain, Founder and Chairman of IIFL Group, has an advice for lenders on post-Covid growth strategy. He said that this is a time to grow because the economy is bound to bounce back and there will be demand for credit. Edited excerpts:

I am looking at your earnings right now. The one segment that witnessed pain in credit clearly has been retail and you have a high exposure to this segment. How do things stand for the month of July? Is normalcy returning? Is reopening expected to play out for your business as well?
So, 95% of our book is retail and normalcy is definitely returning. We are seeing that collection efficiency in the month of July was better than June and June was much better than April and May. So, things are getting back to normal. The asset classes that we operate in gold loan and home loan–these are the two businesses– that basically account for dominant part of our asset loan, asset portfolio. They have been doing pretty well. There is a lot of talk about stress and there are some segments, geographies where lockdown is still there, but the bigger impact what you see there is in business loan segment. So, if you look at our portfolios in microfinance and unsecured business loan, they together account for 14% of our loan assets and that is where we have seen some stress but even there we are seeing healthy recoveries in last couple of months. Things are bouncing back to normal in most places, in most of the areas and locations that we operate from.

How soon can we expect collections to go back to pre-COVID levels and I want to talk about the home loan segment here? What about collections, where are they as opposed to the pre-COVID levels?
They are pretty close to pre-COVID level and the way things stand, even in the month of August and September unless the COVID wave three or something unforeseen happens. If things normalise, then we are seeing that this month and next month we used to be pretty much there, almost close to pre-COVID level in terms of our collection efficiency. Even the month of July was pretty good. At least in home loan segment we can say that the normalcy, if we can define as pre-COVID level, should not be far away.

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How are you preparing yourself for a third wave? I mean is there a thought in terms of putting a framework into plays if we have a third wave?
First of all, we have given free vaccination to all our employees and other than that, you have to play both sides. So, if you are very conservative for third wave, you do not expand and you do not let the business grow, you may lose out on the opportunity. As far as we are concerned, we think the third wave, even if it is there, it will be very mild and very quick. We saw that second wave was very brutal but from the economy or business point of view, it was very quick, the steeper the rise, steeper the fall and it got over. When it happened last year, we did not have a play book. People did not know what will happen, how to run businesses. But, now I think most of us have learnt to live with COVID.

We can work from home, things can work digitally. Even collection and all those things can work with much lesser physical or in person meetings than what it used to be. I am particularly not too worried about third wave. I think that vaccination has already covered almost about more than one-third of our population and if you take adult population, then more than 40% of it, at least the first dose. There are in reports that almost 65-70% of our population already have COVID antibodies, kind of herd immunity is already there. Even if there is a third wave, I would say that one should not be unduly perturbed or worried or concerned about it. Be prepared for it in terms of safety of employees, work place and doing things digitally as we have been doing.

Is it time to grow aggressively and use the market conditions to you advantage or it is time to protect, conserve and go easy?

This is a time to grow for lending institutions because the economy is bound to bounce back and there will be demand for credit where people get back to their businesses– they need working capital, loan, many people were deferred their home loan purchases they will need to buy. There will be a great opportunity– the good thing about the post crisis recovery is that liquidity is easy and the interest rates are low and there is a demand to rebuild and restart your business, credit demand is strong and liquidity is also good, so this is a very positive and a conducive environment to grow with reasonable attrition. I would not say that you have to go overboard, but this is a time to grow rather than be cautious, if I have to choose one, I will say we put our strategy on growth and not on caution.

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I just want to also talk about your broking business, I am sure you have seen a tremendous amount of acquisition on that front as well. Also how are you strengthening your own digital offerings to attract potential investors?

This strong wave that we are seeing in terms of new customers and is kind of unprecedented and there may be many factors that might have converged the rise of millennials—- people have free time so they are trading or there are more savings because they are not spending as they would have otherwise or people want to protect their investments or their savings against inflation and bank interest rates have fallen– all of these factors might have contributed in bits and pieces in different ways, but the business is growing, competition is there. I think that your question is very valid and important that how are we shaping up and how are we scaling up digitally.

We have been internet first company right from the day we started and we have invested a lot in technology in last couple of years. During the COVID period, we have accelerated our investment in digital technology, there are number of new ideas, thoughts and technologies that are coming and we believe that our platform which has got several million downloads and several hundred thousand reviews, its rating has been around 4.3-4.4, which I believe is very good and that also shows that we are at the forefront of cutting edge digital technology. The entire organisation right from CEO to everybody is thinking about how we can make our product and offerings more attractive digitally, how we can service our customers digitally better and how we can make the investments more rewarding in a digital way. As far as securities business is concerned, I think it is completely transforming, going towards 100% digital in the retail part of it at least.

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What is the mix for the IIFL Group? How do you see the different businesses contribute to the group today?

There are three core businesses that we have —-wealth, finance and securities– all three of them are doing well. They have a much higher reach out with the economic growth so our wealth business is where we are seeing very strong growth, as you would have seen our last quarter, the momentum in terms of new asset acquisition as well as profitability has been there and now we have over 2 lakh crore of assets under advice and management. We are seeing that as India grows and entrepreneurs are also exiting part of their businesses through either getting direct investor private equity of foreign investor or IPO. A lot of liquidity wealth is getting into their hands and therefore we see tremendous opportunity for this business to grow.

In our lending business, we are focussed on retail, we are expanding our branch network this year, we are planning to set up 700 new branches on top of 2600 that we already have. Here our focus is completely on small ticket retail, almost 94-95% of our business is already granular retail business to small customers so we will expand in the same way and again when you do small ticket loan– the digital technology helps you a lot in saving cost and improving your credit underwriting and also servicing the customer better. The third business is our securities business which has retail as well as institutional segment and investment banking too, these are doing pretty well now given very strong undercurrent in the capital market. All businesses at this point in time are growing well and we do not have any plans to diversify, so we will consolidate and we will remain focus on these three businesses.



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