 "Our growth is coming from all our businesses: Rashesh Shah")
Edelweiss Financial Services has announced 41 per cent growth in net profit in the April-June quarter. Rashesh Shah, chairman & chief executive officer, on the reasons; he also tells Manojit Saha they're evaluating the new niche bank licence norms. Edited excerpts:
What was the main driver of net profit growth in the April-June quarter?
Three to four sectors have contributed. First is the capital market activity which has expanded, particularly broking. We have seen 25-30 per cent growth here. Second, our credit book has grown (comprising retail and corporate finance) to Rs 8,829 crore at the end of June as compared to Rs 8,628 crore at the end of the previous quarter. Third, our distress asset book is also growing and that has started contributing to growth. Fourth is the commodity business, which has also grown after we expanded into agriculture. So, we have seen growth coming from all the lines of the businesses.
Which sectors in the lending businesses have contributed in the loan book growth?
We have seen significant growth coming from the housing sector, main engine of our growth. There was also growth in structured credit products. There has been a fair amount of growth in small and medium enterprises and small-ticket housing.
How big is the home loan portfolio? What is the average size?
The housing loan portfolio is roughly Rs 2,500 crore, which has shown a growth of 50 per cent on a year-on-year basis, and on a lower base. The average size is Rs 50 lakh but the fastest growth segment is small housing loans, where the average size is Rs 10 lakh. Demand for small-size home loans are coming from tier-II and tier-III cities.
You said the company is de-risking the business model.
By diversifying and having multiple business activities, we have de-risked from a growth point of view. Second, the balance sheet size, where we have strengthened our asset/liability profile; for example, with the bond issue we did recently. We have contained risk in the balance sheet from the asset/liability and liquidity point of view. The third area is on the organisation side; we have invested in process and people.
Have you been able to maintain your spreads in the first quarter?
The overall spread on the credit book is about four per cent, which has remained steady. On the retail book, it is 2-2.5 per cent, while the spread on the wholesale book is 5-5.5 per cent.
Edelweiss was not given a universal bank licence last year. The Reserve Bank of India (RBI) has now issued draft norms on niche bank licences, for a payment bank and a small bank. Would you be interested in applying for a licence this time?
The guidelines have just come in, and we have to evaluate it. This is a very good move by RBI, aimed at increasing the country's banking services. For us, the credit business is very important. Doing part of the credit business through a banking structure is an efficient way of doing it. We will evaluate the opportunity.
The cabinet has cleared a rise in the cap on foreign direct investment FDI to 49 per cent from the present 26 per cent in the insurance sector. You have a life insurance joint venture with Tokio Marine of Japan. Will your foreign partner now look to increase its stake?
They have been keen. We also have an agreement that the foreign partner will increase its stake when the law permits. We were waiting for the government clarification. Tokio Marine will be very happy to increase its stake to 49 per cent. The transaction will happen at the fair price for which a formula has been agreed upon.
What was the main driver of net profit growth in the April-June quarter?
Three to four sectors have contributed. First is the capital market activity which has expanded, particularly broking. We have seen 25-30 per cent growth here. Second, our credit book has grown (comprising retail and corporate finance) to Rs 8,829 crore at the end of June as compared to Rs 8,628 crore at the end of the previous quarter. Third, our distress asset book is also growing and that has started contributing to growth. Fourth is the commodity business, which has also grown after we expanded into agriculture. So, we have seen growth coming from all the lines of the businesses.
Which sectors in the lending businesses have contributed in the loan book growth?
We have seen significant growth coming from the housing sector, main engine of our growth. There was also growth in structured credit products. There has been a fair amount of growth in small and medium enterprises and small-ticket housing.
How big is the home loan portfolio? What is the average size?
The housing loan portfolio is roughly Rs 2,500 crore, which has shown a growth of 50 per cent on a year-on-year basis, and on a lower base. The average size is Rs 50 lakh but the fastest growth segment is small housing loans, where the average size is Rs 10 lakh. Demand for small-size home loans are coming from tier-II and tier-III cities.
You said the company is de-risking the business model.
By diversifying and having multiple business activities, we have de-risked from a growth point of view. Second, the balance sheet size, where we have strengthened our asset/liability profile; for example, with the bond issue we did recently. We have contained risk in the balance sheet from the asset/liability and liquidity point of view. The third area is on the organisation side; we have invested in process and people.
Have you been able to maintain your spreads in the first quarter?
The overall spread on the credit book is about four per cent, which has remained steady. On the retail book, it is 2-2.5 per cent, while the spread on the wholesale book is 5-5.5 per cent.
Edelweiss was not given a universal bank licence last year. The Reserve Bank of India (RBI) has now issued draft norms on niche bank licences, for a payment bank and a small bank. Would you be interested in applying for a licence this time?
The guidelines have just come in, and we have to evaluate it. This is a very good move by RBI, aimed at increasing the country's banking services. For us, the credit business is very important. Doing part of the credit business through a banking structure is an efficient way of doing it. We will evaluate the opportunity.
The cabinet has cleared a rise in the cap on foreign direct investment FDI to 49 per cent from the present 26 per cent in the insurance sector. You have a life insurance joint venture with Tokio Marine of Japan. Will your foreign partner now look to increase its stake?
They have been keen. We also have an agreement that the foreign partner will increase its stake when the law permits. We were waiting for the government clarification. Tokio Marine will be very happy to increase its stake to 49 per cent. The transaction will happen at the fair price for which a formula has been agreed upon.