Bandhan endeavours to be a holistic financial services group: Karni S Arha

KARNI S ARHA, managing director, Bandhan Financial Holdings, talks about the reason behind the acquisition of IDFC Asset Management Company (AMC) — the largest deal in the segment so far — in conversation with Manojit Saha. Edited excerpts:

What is the reason behind the acquisition of IDFC AMC?

Within financial services, asset management is one segment which is growing at a healthy pace. Even if you look at the trend of the past decade, it has a normal run rate between 15 per cent and 17 per cent.  It is likely to continue in the same range for the next 10 years. India is a good market for the growth of the asset management industry.

As a business, we like this segment. Size and scale are a big requirement in this segment to be able to get an opportunity to buy an asset of this size and of this pedigree. IDFC has been around for a long time. It is among the top 10 largest mutual fund (MF) companies. It is a well-entrenched brand. The management is brilliant. We are going to continue with the management.

We like the future of the asset management industry. We wanted some size and scale and a good management. It made a very strong case for an acquisition like this.

IDFC AMC has lost market share in the past year. How do you plan to address that?
 

The market-share drop is temporary in nature. It is a reflection of the interest rate, equity market, and the overall business environment. We are confident that this franchise will continue to grow and improve its position in the industry.

How do you plan to retain the existing assets under management (AUM) and increase the asset base since Bandhan has no prior MF experience? Won’t investors be wary of investing in your schemes?

Bandhan Bank is a distinct entity. It is not that Bandhan Bank is not distributing MFs. It is already distributing eight to 10 different MFs, very successfully. Within Bandhan Group, we will have an associate company which is also an MF company that is able to put the product out there and deliver on the performance of the product. That is an added advantage.

The acquisition cost looks high, considering the bulk of the IDFC MF AUM is on the debt side, which is typically not sticky.

We don’t think it is very high. The valuation of all listed AMCs range between 5 per cent and 10 per cent of the average AUM. If you look at the price consideration for this particular transaction, it is slightly below 4 per cent of AUM. When you compare it to some of the listed players, this is not a high price. You have to see all these in a holistic manner.

Bandhan Group endeavours to be a holistic financial services company. It wants to offer all the products to customers. Asset management being one. There are other businesses that are likely to be and can be in the future. That is the way we wish to approach and the message we wish to send out.

With many bank-backed fund houses occupying top positions, where do you see IDFC MF five years hence?

We see this company only growing. There is no reason for it to not get top billing. Whether you want to be among the top three/five/six, it is only a question of when. We are building a franchise for the long haul. We want to ensure we build it the right way. We have all the ingredients in place. We also bring a lot of value add¬i-tions from the consortium partners. These are key ingredients to ensure the firm continues to grow and perform well. We would definitely want it to improve its position and continue to be among the top companies in the industry.