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India Infoline Group (IIFL) is one of the 26 companies that have applied for a new banking licence. Nirmal Jain, chairman of IIFL, in an interview with Somasroy Chakraborty shares details on the company's plan to set up a bank. Edited excerpts:
The Reserve Bank of India (RBI) had initially said companies involved in broking activities will not be allowed to set up a bank. Given the central bank's initial hesitation are you confident of getting a banking licence?
Although we have been perceived as a broking entity, our business has become well diversified over the years. In 2012-13, the share of equity brokerage, which was once a core business, had reduced to only 13% of our consolidated income. Our NBFC (non-banking finance company) and lending business was 68% of our consolidated income for the same period. Having said this, if you read the final guidelines, the issue is more to do with the culture of the broking organisation.
There was a bit of anomaly in the draft guidelines, which was corrected in the final guidelines. If you look at the last 20 years of broking, there has been a sea change. Earlier, brokers were essentially family-run, focused on propriety trading. Now, thanks to efforts of SEBI (Securities and Exchange Board of India), brokerages are transparent, professionally managed with a pan-India presence. We have an impeccable track record with almost all the regulators in India. We are very confident that we will fulfill the eligibility criteria.
Why did you choose to apply for a banking licence?
We are a large, well-diversified NBFC with about Rs 10,000 crore balance sheet. We are focused on retail and have a track record of excellent asset quality built over the last 7-8 years. For us bank is a natural progression. Unlike mono-line NBFCs, we find it much easier to meet sectoral caps as well as priority sector lending targets. We are also fully prepared to meet CRR (cash reserve ratio) and SLR (statutory liquidity ratio) obligations from day one. As of 2012-13, 15% of our financial assets were in cash and liquid instruments.
The primary driver of a new bank licence is the need to enhance financial inclusion. We operate from over 4,000 business locations and have over two million customers for broking, mutual funds, life insurance and consumer finance products. Given our reach in almost 1,000 cities and towns, we are well placed to meet the targets of setting up 25% branches in tier 5 and 6 villages. We have gained experience of smaller places over the last 18 years. We believe that this is paramount to expand into such small areas where local nuances, cost structure, processes have to be adapted. Also, IIFL is a well-known brand across the country and in most of the smaller places.
But most of the existing private banks find it difficult to penetrate rural geographies. What will be your plan to drive financial inclusion?
Many of our locations are in non-tier 1 centres. IIFL has reached many unbanked locations through innovative channels like mobile vans. We have also set up small branches in such locations. Setting up branches in rural geographies is difficult because it entails a different business model and cost structure. We would be leveraging on our NBFC experience and also on our brand while setting up rural branches. Also, we have a track record of establishing a leading financial services company from scratch. We also propose to leverage technology to keep costs under control and service levels high.
Will you use the IIFL brand for the new bank?
As IIFL is already an established brand, logically, we would use the IIFL brand for the new bank. However, the IIFL board will have final say in this matter.
Did you hire senior bankers to chalk out your banking strategy? Have you decided on the leadership team for the new bank?
Our board of directors and advisory board have luminaries from banking industry such as AK Purwar (former chairman of State Bank of India), VK Chopra (former chairman and managing director of Corporation Bank), Ashok Jha and S Narayan, who have been the finance secretaries, and others. It is too premature to decide on the leadership team for the proposed bank as we are still seeking an in-principle approval for setting it up. Once we get the in-principle go ahead, we are confident of hiring a top quality leadership team to drive the business.
What are the challenges you see in setting up a bank?
Setting up a bank would be a totally different ball game. Some of the challenges while setting up a new bank will be to augment risk management framework, compliance to stringent guidelines on CRR, SLR and priority sector lending, getting retail deposits. However, the promoters of IIFL are fully committed to this project and would pay undivided attention to the bank, if given a banking licence.
