 "Rashesh Shah")
Edelweiss Group chairman and chief executive Rashesh Shah talks to Vishal Chhabria and Hamsini Karthik about the group’s recent quarterly performance, market volatility and plans for its insurance joint venture. Edited excerpts:
With respect to Edelweiss’ third quarter results, fund-based income growth has been slow, while finance costs are up by a higher margin. What explains that?
Revenue growth in the quarter was mainly because of credit growth. Growth in the investment banking division, namely asset management and wealth management business, has also been strong in the quarter. Cost has risen slightly ahead of revenues, which is why profit for the company excluding insurance business grew at a slightly lower pace of 36 per cent. Revenues growth was about 45 per cent this quarter, while costs have risen 45 per cent.
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Profit growth has been slower as costs were a little higher than revenue this quarter. Costs may continue to rise as we’ll continue to invest in technology and people. However, the fund-based business is growing quite strong for us. Fund-based business, mainly constituted by structured credit by NBFCs (non-banking financial companies), housing finance companies and asset reconstruction companies has seen a 30 per cent growth this quarter and the non-credit business is also doing well. So, provisions and provision covers have come down a bit.
Given the distress in economy, what kind of stress are you seeing in the SME and agri sectors?
Though these segments are seeing some stress, we are not impacted by that, as much of our business is collateralised credit where the cost of default is not very high. Only non-collateralised businesses like project finance and businesses, which have exposure to the iron & steel industry, and infrastructure sectors are risky. We avoid exposure to these segments. We see a lot of opportunity in loan against property business.
How is the asset reconstruction business doing in light of the weak economic environment?
Around 25 per cent of companies in the asset reconstruction business only require financial restructuring and, hence, we are still able to generate cash flows from these businesses. For companies that require sale of assets to monetise the business, it is taking time to liquidate such assets. For the rest (around 45 per cent of assets under reconstruction), their operations need to be revived and, hence, it is a mixed bag for us.
Insurance has been a drag on overall numbers. What are the plans in insurance and approximate timeline for it to turn around?
Insurance business will continue to be a drag for another four years — till FY20. However, the quantum of losses that we currently book in the insurance business may be reduced, going forward. Currently, we book 74 per cent of losses in our consolidated financials for the insurance business in line with our stake of 74 per cent. This will come down to 49 per cent once the foreign investor (Japan-based Tokio Marine Insurance) increases the stake in insurance business. As we have all the required FIPB (Foreign Investment Promotion Board) approval in place for the foreign partner to increase their stake in the insurance JV to 49 per cent, we expect the same to happen by March 2016.
Markets have been in a turmoil following the Chinese slowdown, oil price crash and risk-off trade. What is your perception of the impact of these events and how do you see markets trending in the near- to medium-term?
The current fall in the equities market is not equal to what we saw in 2008. Now the US and European economies are strong. So what we are seeing now is only a strong market correction. It is not a financial slowdown as in the case of 2008.
What are the near-term downside/upside risks for markets?
There is no strong economic reason for the 20 per cent correction we are seeing now in the equities market.
Though the fall in oil and commodity prices is causing some near-term imbalance, it is good for India in the medium- to long-term as the country is largely an importer of oil and commodities. But, for now, I will not be surprised if the market corrects by 35 per cent from its peak.
How worse can the Chinese slowdown become and how will it impact India?
The slowdown in the Chinese economy is definitely impacting our exports. Also, India is a capital importer. With global trade and exports slowing down because of China, we are also seeing a slowdown in global investments coming into India. However, if oil and commodity prices come down, we will see a fall in inflation and current account deficit will also come narrow with the cost of commodities falling. However, global situation for this month will be volatile.
What is your key expectation from the Budget?
I expect the government to step up spending on this Budget. But, to do that, it may loosen up its fiscal consolidation target. I expect some cut in the tax rate in this Budget as it would increase the ability to spend for both the individual tax payers and corporate. The government is taking the right steps and on the whole, I am positive on the Budget this year.
