We will double our businesses in less than three years: Nirmal Jain of IIFL

At a time when the IIFL is planning to reorganise and restructure its businesses, Jain shares vision, challenges and opportunities

Over the years, IIFL (formerly India Infoline Limited), founded by NIRMAL JAIN, has spread its wings to include diverse businesses, such as wealth and asset management, broking, institutional equities etc. At a time when the group is planning to reorganise and restructure its businesses, Jain shares vision, challenges and opportunities with Puneet Wadhwa and Vishal Chhabria. Edited excerpts:

IIFL group is reorganising its businesses. What is your business plan? How will you manage this business growth and strategy?

We have three verticals – IIFL Wealth, IIFL Securities and IIFL Finance. They all have distinct set of customers and different set of cultures to manage. We plan to give stock options to employees to keep them motivated. The businesses need to be segregated as each vertical has a separate team managing it. This was the main thought behind segregating and listing each business.

Across the world regulators and investors are favouring corporate structures to change from control-oriented close- knit conglomerates to innovation and idea-driven independent enterprises. Incumbent players are being challenged by new entrants like never before. The reorganisation will prepare IIFL group companies for the growth opportunities amidst intensifying competition in coming decade. Also, a clean corporate structure with no cross holdings will ensure transparency, highest governance standards and compliance. By separating them, we will allow them to grow to their full potential.

What are the current margins in each segment? Do you see them expanding over the next three – five years?

The finance segment has a current net interest margin (NIM) of six – seven per cent. Our aim is to improve the cost to income ratio by increasing scale, changing the product mix and improving financial leverage. We have been successful in doing so historically and we plan to do it in the future and bring our return on equity (RoE) close to 20 per cent.

The number of bankers in our wealth business has increased 2.5x in the past four years. We will continue doing so as there is a tremendous growth opportunity and will be able to leverage the fruits over the next three – five years by bringing down the cost to income ratio. Also, with the growth of the economy and entrepreneurs, the wealth management business has enough opportunities.

The securities business is a volatile segment. It has been affected immensely by foreign portfolio investor (FPI) flows and other global factors in the past. However, with the advent of multiple products, technological advancement, online platforms and geometric growth of systematic investment plans (SIPs) and mutual funds the scenario has completely changed. We aim to leverage the above along with our strongly placed branch network to gain a competitive edge in the market.

Don’t you think the housing finance segment is getting overcrowded?

The housing segment is the heart and soul of our economy. Plus, with the government putting its weight behind schemes like Pradhan Mantri Awas Yojna (PMAY) in order to realise the ‘Housing for All’ vision by 2022, it has become all the more lucrative. Undoubtedly, the sector may get overcrowded by the number of players, there is huge demand for loan products. Large players should be able to increase their market share by taking advantage of scale and their distribution network. Unless there are too many players who get over ambitious and make a mistake, there is ample room for the segment to grow.

 

Please elaborate on the likely industry growth rate for the next three – five years and how IIFL plans to stand out?

India’s Real GDP (gross domestic product) is 7.5 per cent while the nominal GDP is 12-13 per cent. Financial services is a leveraged play on the economy; if the economy does well, the financial services sector does even better. The estimated growth rate should be 17-18 per cent. If the markets remain buoyant, we expect to grow at 25 – 30 per cent. At this pace, we will double our businesses in less than three years. In a bad market, however, this growth rate can be around 15 – 20 per cent.

There is a long runway ahead for the financial services industry overall and particularly the three major business – NBFC, Wealth Management and Capital Markets -- we are in. I believe this is still the early stages of growth for the industry. Look at the size of the Indian economy and the low level of penetration of financial products and services. Therefore, there is a long way ahead for the industry and there is enough tailwind for the right kind of push.

How do you plan to mitigate risk in all these business segments?

We have built solid processes for risk management, credit underwriting and credit selection. We continue to invest in these processes. We have already invested a lot in technology to mitigate risk. That apart, we are continuously strengthening the risk management system. That’s in the core DNA of the Group – to understand the source of risk and mitigate it.

How do you take care of your funding side? You have been competing with banks as well. How do you maintain your profitability?

We have been in these segments for quite a while now and have a proven track record. Money / funding should not be an issue.