Non-banking monetary players have hurtled from a single crisis to an additional. Rashesh Shah, chairman and CEO of Edelweiss Group, in an interview with Malini Bhupta, says the NBFC model will come back. Excerpts:
At a group level how do you see the pandemic impacting your liquidity and what about the balance-sheet strength to deal with the anxiety?
I feel in the final 5 or six months, we have carried out a fair quantity of balance-sheet strengthening. Our credit book took a significant impairment and we took a markdown, which we front-loaded. We also beefed up liquidity and although it is hurting earnings, it is a supply of comfort. Across our entities we are holding liquidity for two years. We have `7,000 crore of liquidity at group level. Our all round book is Rs 17,000 crore. We have enhanced equity in all enterprises. We agreed to sell 50% of our wealth company. In our NBFC company, capital adequacy is 24%, in housing finance it is 28% and in ARC it is 38%. Our wealth company has grown at 94% a year and asset management company has doubled in two years. Our basic insurance coverage company has grown at 58% this year and the life insurance coverage company has observed constructive development just about every month this year.
What about develop up of anxiety in your lending enterprises?
Our collection efficiency is back to 93-94% against 98% at pre-Covid levels. Out of our Rs 18,000-crore loan book, the share of retail and wholesale is equal. In retail, our collection efficiency is at 94% which is at par with the market. We have taken a Rs 2000-crore markdown in the wholesale book. Wholesale housing has enhanced a lot and sales have been the very best in 20 years.
NBFCs have been hurtling from a single crisis to an additional. Your view.
IL&FS applied the brakes on the monetary sector. It was a enormous upheaval. If IL&FS had not occurred, we would have been unprepared for Covid. IL&FS was a fantastic break for the monetary sector and simply because of that shock, banks and NBFCs are a lot stronger than they had been two years ago.
Are NBFCs out of the woods?
There was a crisis 5 months ago and that is more than, but the development challenge remains. The government is undertaking its bit to improve the share of manufacturing via PLI scheme. We want 12-13% credit development for the economy to return to development. The fantastic banks and fantastic NBFCs have related levels of profitability. The only distinction is scale. While NBFCs account for 25% of the credit market place, they account for 40% equity in the sector. We want each NBFCs and banks to develop, it is not an either-or scenario.
What’s the road map for Edelweiss Group, which also has a non-banking finance organization? Do you see Edelweiss becoming a bank?
We have an ambition to continue to develop strength in the monetary services space. There are 3 components to that – a single is insurance coverage, then there is capital markets and credit. I do feel digital disruption in banking is a significant chance. At our size it would not make sense to turn into a bank with branches like it is in the old model simply because that model operates at a scale. Our credit book is Rs 17,000-18,000 crore. We are not close to the Rs 50,000-crore threshold. The RBI has also come out with norms for NBFCs to work with banks for origination and to sell loans. The NBFC model will come back. It will not be a balance-sheet model, but a single exactly where they occupy niches and specialise in choose segments. It will have to be an asset-light model. The truth that the RBI feels NBFCs above a specific size ought to turn into a bank is a fantastic issue simply because if you are Rs 50,000 crore in size, you have to roll more than Rs 20,000 crore a year. At that stage, you turn into systematically essential. Between Rs 25,000-50,000 crore, you can be each. But beneath Rs 25,000 crore, it could be effective to be an NBFC.
What’s in shop for credit markets following all this turmoil of the final two years?
After the turmoil, there is a rethink on the complete credit ecosystem. Between 1995 and 2000 there had been a lot of adjustments in equity markets. Credit markets will see related adjustments. Credit markets will want to have multi-lane highway. We want to feel of an infrastructure that is cohesive.