Godrej Capital will be a significant part of the scale of the group in 5-10 years: Pirojsha Godrej, Chairman – Godrej Capital and Manish Shah, MD & CEO – Godrej Housing Finance

Godrej Group’s Rs 5,000 crore investment in financial services could be one of the largest it has made in a group company, said Pirojsha Godrej, Chairman of Godrej Capital, and Manish Shah, MD and CEO of Godrej Housing Finance, to Shritama Bose. The group is entering the lending space assuming a banking license is not an option at this point, and arriving late has its own advantages, they said. Edited excerpts:

Regulations for banks and NBFCs are converging. What does this mean for a player like you?

MS: It’s a big step towards formalization. To say that arbitration or any unintended advantage because they chose not to regulate it is gone is actually quite welcome. I don’t think the big opportunity was that there was this big arbitrage as a non-bank that allows you to compete with the banks. I think the opportunity remains that you have segments and markets that are not well enough served. You have a clear opportunity to enter it. One thing that does, at least for people like us, is that it becomes increasingly difficult for groups without strong balance sheets. The ability to provide long-term patient capital is a challenge that is becoming much more real. What you were allowed to do while you were still small, as we go through our first round of inspections, it is most welcome that we are governed as if we were already big or soon to be. They have come up with clear regulations based on scales and you know what to expect when you reach your next milestone.

Will you eventually consider a banking license?

PG: No, I don’t think so. First, let’s see how the regulatory environment around this evolves. Right now, I don’t even think that’s an option. While there is some convergence that is perhaps to the benefit of banks, we believe the benefits of an NBFC are also substantial. We went into this business assuming that a banking license is not an option. If at some point this becomes an option, we will obviously weigh the pros and cons at that time. We are absolutely convinced that in its current format it is a huge opportunity for the band, which is why we intend to go there. We’re quite behind in this industry, but it has its own benefits because you can see what works and what doesn’t. The market is big and growing enough that we feel it won’t be difficult for us to grow. Taking the right steps in terms of risk is much more important to us because the scale in this industry with our brand and the opportunities don’t seem too difficult.

Would you also consider an insurance or mutual fund within Godrej Capital?

PG: Not at the moment, but we will keep our eyes and ears open. As we establish initial success, we may venture into segments of other financial services. But, intentionally, we didn’t want to do it in a way where we’re launching five or six different products across the country, and the ability of any company to do that well then really deteriorates. We will strive to establish ourselves in each of these sub-verticals first, and then expand them a little more logically. Godrej Capital is our financial services entity and as we enter new products and lines of business, we may have different operating entities. The group has probably never invested as much as Rs 5,000 crore in a company. It has allowed businesses to self-finance their growth. We see it (financial services) as a very significant part of the Godrej Group scale in five or 10 years.

Will you be looking to increase retail deposits at some point?

PG: We are going to study what the regulations allow. We have done this in the past in different group companies. So we would be open to that, but access to capital at competitive costs is one of the main advantages that the group has had for all its businesses and it is certainly one of the things that gives us confidence to be competitive in this sector.

You are considering cash flow based SME loans. Would that possibly mean – CV or equipment funding as well?

MS: There are segments we want to get into. It could take more of a simple form of term finance or maybe go into bill discounting, supply chain finance and make it work in a given ecosystem. Right now we’ve lumped it under this one big umbrella, called cash flow-based unsecured, but it could have many shoots. One of the benefits of entering right now is that we will definitely be ready when an OCEN (Open Credit Enablement Network) comes along, and we would like to partner with various LSPs (loan service providers) and connect to those networks .

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