Piramal Finance is looking at an 800-strong branch network as it expands to small-town India, managing director Jairam Sridharan tells Shritama Bose in an interview. Interest rates have remained unchanged for that customer segment so far, but they will rise over the next nine months, he adds. Excerpts:
Who is your target customer?
Our target customer is a small-wallet customer from either tier-II, tier-III towns or the outskirts of the tier-I towns. The customer usually would have a monthly income of Rs 15,000-16,000 to Rs 60,000-70,000. A little over half of our customers are self-employed. They could be small shop-owners or have a small factory or trading unit in a small town. They tend to be in their early thirties. Our average home loan ticket size tends to be Rs 15-16 lakh. In our home loans business, we look at purchase of homes or construction of homes. For home enhancement or improvement, we have other product categories, such as loans backed by the home as collateral and unsecured loans. Ours is a multi-product portfolio strategy. We also do small business financing. We do used-car financing and unsecured lending as well. We have recently started our microfinance business. Our objective and intent is to cater to the Bharat market with all core products that are important to the customer base there.
Are you looking at introducing new products?
We will. In the June quarter, we launched our microfinance business and we have gone live in Rajasthan and Bihar. We have applied some intelligence on where we think the best opportunity is in terms of the size of the untapped market, the historical delinquencies, competitive intensity and the size of the micro economies. Based on these, we have chosen six or seven states. Similarly, we are working on a set of products for education financing, loans against securities and some unsecured lending.
You have a high-touch model and that necessitates a strong branch presence.
The Dewan Housing acquisition helped us a lot in that regard. Before the acquisition, Piramal used to have just about 14 branches. Post-acquisition, we had about 301 branches. Since then, we have shut down a few branches and opened a few more. At the end of last quarter, we had 309 active branches. We will continue to invest in it and we would like to be present in 1,000 towns and cities in the country over the near term. If that means having a 700-800-strong branch network, we’d be quite comfortable growing to that size. In segments like affordable housing or SME lending, there are a lot of smaller players, but no major national player. We can be that national-scale player serving these customers across the length and breadth of the country.
How has the experience of transition been in the DHFL portfolio?
It has been quite smooth, to be honest. It is a very large acquisition in terms of the number of customers, employees, branches and lenders that we were taking out. The scale was quite transformational for us as an institution. Under ‘Project Sangam’, we successfully integrated over 3,000 employees of erstwhile DHFL group and created an unified workforce. We have now also integrated all the branches and changed all the products. Likewise, we have integrated the teams, the operational structures have been changed, salaries rationalised, and everybody is now trained on the same products and credit policies. We have been able to reactivate 99% of the branches for disbursements.
We did an employee engagement survey two months ago and the results were very positive. The team felt like they had been part of the organisation for a long time. What’s also helped is that the Dewan Housing portfolio has performed pretty much exactly as we had anticipated. In the last nine months, in terms of credit risk and collections, there have been no surprises. We have also hired people and the number of employees has risen to almost 8,800 people from 3,500 at the time of the transaction.
To what extent have your costs risen?
Our balance sheet is well-positioned for a rising-rate environment. Eighty per cent of our liabilities are fixed-rate and 70% of our assets are variable-rate assets. So our liabilities by and large stay at the same rate, but our assets have the ability to increase in yield as the environment shifts. Our cost of funds hasn’t moved much in the last few months. As for passing higher rates on to customers, while we have the ability, we haven’t passed on anything yet. Our average home loan rate is 11.2%. The sub-prime customer living in tier-II or tier-III locations hasn’t seen a rise yet. Having said that, over six to nine months, rates will rise for these customers as well.
