 "Edelweiss to compete with banks")
Edelweiss Financial Services, which was among the 25 applicants for a new banking licence last year, is gearing up to compete with banks through its diversified financial services (DFS) model.
“Diversified financial services model is similar to a bank model. In this also, we are seeing enough growth. If you do the same model in a bank structure, it is easier from a cost and efforts point of view. In a non-bank structure, it is a bit harder,” says Rashesh Shah (pictured), chairman and chief executive officer, Edelweiss Group.
According to Shah, the DFS structure should ideally be a bank structure. However, he believes it can be done even without one.
“We have tried to build a DFS model. We hope that the way we talk about all NBFCs (non-banking financial companies), we will also talk about DFS as another category of financial companies,” says Shah.
Shah, who holds a 28 per cent stake in Edelweiss, believes there is a lot of scope to cater to the DFS model, despite the presence of banks.
“Competition is not a big challenge because the growth is so much. Leaving aside government banks, there are only seven or eight private sector banks of that scale. I think a country like India needs about 40 banks for the size and scale that we have. There is a lot of demand for financial services. Even outside banks, there are not more than eight to 10 financial services companies,” he adds.
At the end of the current financial year, Shah expects Edelweiss Financial Services' balance sheet to be Rs 25,000 crore. It currently stands at Rs 23,000 crore. Of this, Rs 11,000 crore is the credit business, of corporate, retail, housing finance and commodity financing put together.
“By our estimates, the credit demand is close to $200 billion a year in India. But the actual credit getting supplied is $140-150 billion by banks and NBFCs put together. There is already a gap. The problem is not demand. The problem is how do you cater to that demand in a cost-effective way, so that you are profitable. Here, a diversified model helps bring down the cost because you can cross-sell and have the common client,” says Shah.
The five business groups of Edelweiss are credit, commodities, financial markets, asset management and life insurance. Currently, 50 per cent of the balance sheet is credit and, going forward, 75-80 per cent of the balance sheet will become credit-oriented, says Shah.
“As we are growing our credit business, a stronger balance sheet having diversified sources of funding will become a big advantage,” he notes.
Edelweiss Financial Services’ life insurance business was launched in 2011. “Life insurance takes seven-eight years to break even. By FY18, we expect to break-even,” Shah adds. Edelweiss has tied up with Catholic Syrian Bank as its bancassurance partner.
Its average assets under management (AUM) in the mutual funds business stood at Rs 580 crore in the September-December quarter of FY15. “We want to get to Rs 1,000 crore AUM in mutual funds as fast as possible. That is generally considered a good stepping stone in mutual funds business. But we do not have a clear target as in by when do we plan to achieve it, as it depends on the markets as well as environment. The focus area will be equity-oriented mutual fund,” explains Shah.
He is also open to acquisitions in various areas provided they are at a reasonable price. Besides, it shall also depend on the quality of the management team, customers and strength the business model, he says.
“Diversified financial services model is similar to a bank model. In this also, we are seeing enough growth. If you do the same model in a bank structure, it is easier from a cost and efforts point of view. In a non-bank structure, it is a bit harder,” says Rashesh Shah (pictured), chairman and chief executive officer, Edelweiss Group.
According to Shah, the DFS structure should ideally be a bank structure. However, he believes it can be done even without one.
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Last year, the Reserve Bank of India (RBI) had granted banking licences to IDFC and Bandhan.
“We have tried to build a DFS model. We hope that the way we talk about all NBFCs (non-banking financial companies), we will also talk about DFS as another category of financial companies,” says Shah.
Shah, who holds a 28 per cent stake in Edelweiss, believes there is a lot of scope to cater to the DFS model, despite the presence of banks.
“Competition is not a big challenge because the growth is so much. Leaving aside government banks, there are only seven or eight private sector banks of that scale. I think a country like India needs about 40 banks for the size and scale that we have. There is a lot of demand for financial services. Even outside banks, there are not more than eight to 10 financial services companies,” he adds.
At the end of the current financial year, Shah expects Edelweiss Financial Services' balance sheet to be Rs 25,000 crore. It currently stands at Rs 23,000 crore. Of this, Rs 11,000 crore is the credit business, of corporate, retail, housing finance and commodity financing put together.
“By our estimates, the credit demand is close to $200 billion a year in India. But the actual credit getting supplied is $140-150 billion by banks and NBFCs put together. There is already a gap. The problem is not demand. The problem is how do you cater to that demand in a cost-effective way, so that you are profitable. Here, a diversified model helps bring down the cost because you can cross-sell and have the common client,” says Shah.
The five business groups of Edelweiss are credit, commodities, financial markets, asset management and life insurance. Currently, 50 per cent of the balance sheet is credit and, going forward, 75-80 per cent of the balance sheet will become credit-oriented, says Shah.
“As we are growing our credit business, a stronger balance sheet having diversified sources of funding will become a big advantage,” he notes.
Edelweiss Financial Services’ life insurance business was launched in 2011. “Life insurance takes seven-eight years to break even. By FY18, we expect to break-even,” Shah adds. Edelweiss has tied up with Catholic Syrian Bank as its bancassurance partner.
Its average assets under management (AUM) in the mutual funds business stood at Rs 580 crore in the September-December quarter of FY15. “We want to get to Rs 1,000 crore AUM in mutual funds as fast as possible. That is generally considered a good stepping stone in mutual funds business. But we do not have a clear target as in by when do we plan to achieve it, as it depends on the markets as well as environment. The focus area will be equity-oriented mutual fund,” explains Shah.
He is also open to acquisitions in various areas provided they are at a reasonable price. Besides, it shall also depend on the quality of the management team, customers and strength the business model, he says.