Edelweiss chairman Rashesh Shah, a long-distance runner in NBFC storm

Rashesh Shah tells Dev Chatterjee and Krishna Kant that his experience in running marathons helped him weather the NBFC storm

Rashesh Shah, chairman of Edelweiss Group, who had been shuttling between New Delhi and Mumbai for most of 2018 as president of industry lobby body, Ficci, is hard to pin down. After many emails, we are meeting him over coffee at Sofitel hotel at Mumbai’s Bandra-Kurla Complex, a five minute drive from Edelweiss’ swanky headquarters in Kalina. Shah, a well-known marathoner, is bang on time and orders a cappuccino and cookies while we order two masala chais for ourselves. 

A former ICICI Bank manager, Shah set up Edelweiss in 1995 and is considered a veteran in Mumbai’s financial circles. In his 30-year journey in finance, Shah has seen many ups and downs in the Indian financial world. We, therefore, start by asking about the liquidity crisis facing non-banking finance companies (NBFCs) that has led to a few of Edelweiss’ competitors to sell their assets. The share price crash in the NBFC sector has aggravated the crisis.

Edelweiss, like many others, is hit by the headwinds but Shah says the group can face any eventuality, thanks to the cash in its books. “I have not seen such a tight liquidity situation for a long, long time even though the industry has faced similar storms in the past because of the collapse of Lehman Brothers in 2008 and the 2013 rupee crisis,” Shah says.

The crisis in the NBFC sector has its genesis in the demonetisation of certain bank notes in 2016 and peaked with the collapse of IL&FS in August 2017. India Inc continues to feel the after-effects of the IL&FS crisis, says Shah. Despite the pessimism in the sector, he says he would give credit to the NBFCs for what they have achieved in the last 15 years by cornering 25 per cent of total credit disbursement market.

“NBFC debt is lower than equity which means they are bringing a lot of equity to the table. They have gone into segments such as commercial vehicles financing, micro-finance, two-wheeler loans, gold loans and equipment finance where banks did not have much of a presence. NBFCs also have a far better non-performing assets (NPA) management mechanism compared to traditional lenders (banks),” he adds.

The Edelweiss group, says Shah, is in a better place than many of its peers because it has a balance sheet size of Rs 54,000 crore and every year, the group raises Rs 18,000 crore in debt. In the December quarter itself, Edelweiss borrowed Rs 8,800 crore and can convert almost 40 per cent of its balance sheet into cash to meet any liquidity crisis. “Despite this, growth will be postponed by a year or so due to the current external environment,” warns Shah. “Let’s say if we were growing at the rate of 30 per cent per year earlier, this year, we may grow at 15 per cent,” he says, sipping his favourite coffee.

In the asset reconstruction business, where Edelweiss has emerged as the largest player, Shah says he would call stressed assets good assets because it is the promoter or the balance sheet of a company that is under stress and not the asset itself. Many assets are doing well like Essar Steel and Bhushan Steel plants, which are producing very good quality steel. “While India has a lot of good assets, it is either the balance sheet that is in trouble or the promoter who is stressed. So if the asset is good, then it will always have value. Ultimately, every good asset will have a buyer like the way banks found in the case of Binani Cement, Essar Steel and both the Bhushan assets. The Insolvency and Bankruptcy Code, the Real Estate Regulation Act (Rera) and the goods and services tax have been the game changers in the country and their effects would be visible only after 2020,” he says with confidence.

Shah says the IBC has helped the banks as well. While banks have taken a 50 per cent haircut on an average, the rest of their capital is unlocked and the NPAs on their books have gone away. “Due to the ARC process, the banks are realising 10-15 per cent more than what they would have realised otherwise in any other debt resolution process. The National Company Law Tribunal must not allow unnecessary delays as these are assets that belong to the country and can be put to use very quickly,” Shah points out.

Will the coming general elections in India and global events like Brexit  have any impact on India’s financial markets? Shah says while events like Brexit may impact a few, overall, the economy is in a safe zone. However, he warns that the equity markets will face some sell off given the looming elections. “Foreigners are holding back investments in India and for the first time they will become underweight on India. The MSCI has reduced its weightage on India and we will see at least $1.5 billion outflow from the country. This outflow, however, can be easily absorbed by local investors.”

Shah says though the Reserve Bank of India (RBI) has kept liquidity very tight, the underlying economy has come out of the slowdown brought upon by the roll-out of GST in 2017 and the demonetisation of Rs 500 and Rs 1,000 currency notes before that in 2016. Though the rupee's value has fallen, the good news is that exports will become more competitive.

We can’t resist a question on the job slowdown, which is threatening to become a big issue in the Lok Sabha election. Shah says we need two kinds of jobs in India. The first one to absorb the new people who are joining the labour force and the second, to shift people from agriculture to non-agriculture or related jobs. “In total, India needs around 20 million new jobs in a year but we are creating may be around 8 to 9 million jobs a year, according to our estimates. This job creation data is based on triangulation of data looking at car sales, home sales and other consumer products sales. Though nobody knows the exact numbers, I think we are doing a lot but not enough.”

Time is running out and we switch tracks, literally. Shah and Tata Sons Chairman N Chandrasekaran run marathons, including the 42-km long full marathons across the world. Shah, who took up the sport 10 years ago, says he plans to run the Boston Marathon in April and expects to break his own previous record. Being an asthama patient, Shah was restrained from playing many sports in his childhood. But as the years went by, Shah took up running marathons as a challenge. “It’s more about mental strength. The first few kilometers of a marathon might be easy but it’s the last few kilometres that are the worst and tests your mental strength. The same principle can be applied in the business world. If you can last long and build endurance, you will do well,” he says. And where sponsoring the Indian Olympic team and sports persons is concerned, it fits in well with his firm’s overall fitness ethos. “We are happy to contribute to creating awareness about these athletes and while they’re at the peak of the physical health, we aim to improve their financial health,” he says as we see him off.