 "Praveen Kadle")
After Tata Sons withdrew its application for a banking license, what is the update on bringing various Tata group financial service businesses under Tata Capital?
Among the group's financial businesses, the insurance ventures cannot be brought under any other entity, according to the Insurance Regulatory and Development Authority (Irda) Act. It has to be under the ultimate holding company of the group. On the Tata Motors Finance front, the business necessitates a separate captive finance company. For the asset management company Tata Mutual Fund, there is no regulatory or business compulsion. So, the group will, before March-end, take a decision on how this has to be structured. But right now, there is no such plan for consolidation.
What is your current book size and how do you plan to increase it?
Currently, the balance sheet size is Rs 29,000 crore, according to the loan book in March 2014. The NBFC sector usually grows about 2.5 times the growth in gross domestic product. So, if an economy grows eight per cent, financial services businesses grow about 20 per cent.
New players usually try to take market share from old ones, so we need to grow at higher rate of 25 to 30 per cent. We would like to have at least 20 per cent growth for industry and 25 per cent for us.
What is your strategy for growth?
We are looking at rural finances as our key growth strategy. So, we have created a separate business vertical for that. Housing has also been identified as a key growth strategy and we continue to build on that.
What about the fund requirement for such growth?
Typically, we leverage six times. So, for 25 per cent growth in the loan book, our equity capital has to increase at least four-five per cent. Currently, our net worth is about Rs 4,200 crore. So, at least Rs 200-250 crore is needed every year, in terms of equity. A part of it will come from internal accruals.
How much fresh equity do you expect Tata Sons to infuse?
The last time Tata Sons put in money was August 2012. We do not have funding need for fresh capital from Tata Sons definitely till March 2015. We have been looking at alternative sources of funding. Also, we have our internal accruals; these are what helped us record growth. Also, in the past two years, the book growth has not been as significant as it was in the previous four years. So, capital requirement wasn't substantial during this period.
Do you have plans for an initial public offering (IPO)?
We are not planning to go for an IPO immediately.
How is your business from the Tata ecosystem growing?
According to March 2014 numbers, about 20 per cent of our corporate finance business comes from the Tata ecosystem. Basically, this includes very small business from Tata companies; the bulk of it is from customers, vendors, service providers and other business partners of various Tata group companies.
We believe our retail and corporate businesses offer huge potential to leverage the ecosystem, and we really want to take this forward in a big way. But we have huge market potential even outside the Tata ecosystem. We have not yet fully tapped both Tata ecosystem and the business outside it. Therefore, there is significant potential to grow in both directions.
Any plan for a new business? What about commodity broking or insurance broking?
We have decided not to get into commodity broking. Regarding insurance broking, a Tata Motors subsidiary in involved in this for general business. According to Irda, if you have a broking licence within a group, you cannot get another.
Your retail business is growing faster than the commercial one. Where do you see the break-up between the two in the next three-five years?
Now, it is just 50:50. If the economy improves, both will have equal places. Or, it might change to 55 for the consumer space and 45 for the commercial finance business.
What about the private equity (PE) business?
We have committed $1 billion and so far, we have invested about 30 per cent of that. Through the next 15-20 months, we have to invest our commitment fully, nurture existing investments and scout for the right kind of exits.
