Institutions must learn to outgrow their founders: Equitas MD & CEO

There is no conflict of interest in my daughter running an NBFC while I head Equitas. She is only a financial investor in the NBFC and is not involved in its operations. However, the perception was that there was a conflict.

Every time investors asked the same questions, I had the same answers. Banks of a similar size had much higher daily trading volumes than us. Feedback from several investors was also that this was an overhang. Only when the overhang goes away will the bank’s performance be reflected in its valuation. I have been fighting this perception for the past two to three years. So, we have been thinking about this for some time now.

We were doing well on all fronts — growth, portfolio quality, credit costs, and profitability, among others. Besides, we had brought down the microfinance portfolio from 53 per cent when we became a bank to 11 per cent now. We then thought that if the transition had to happen, this was the right time, when the next person would not have to do any firefighting and could simply take charge and grow the bank from here.

For the NGO’s dream project of providing doorstep daily services to special children through 500 buses, we needed a corpus of around ₹1,000 crore so that the project could be sustained through the interest earned on it. There were people who advised me to sell off my daughter’s stake in the NBFC so that I could continue. Had I done that, it would have derailed the entire social service initiative.

Last time, I wanted to step down because I wanted to leave the bank, start an NBFC, get my daughter to invest in it and create value through that for the trust. So, that decision was driven by our own purpose. It was actually a more difficult decision.

This decision is for the benefit of Equitas. The overhang has to go for the bank. If it does, feedback from investors suggests there will be greater interest among shareholders in looking at the stock, which should improve its valuation. Hence, the decision was easier this time. Institutions will have to outgrow their founders.

The Nomination and Remuneration Committee has already started the process of identifying a successor. After that, the appointment will also require Reserve Bank of India (RBI) approval. So, I think a new person will take charge in anywhere between four and six months. 

We have set out a five-year plan through to 2031, which envisages average annual growth of 20 per cent in both advances and deposits over the next five years. Return on assets should average about 1.5 per cent.

A large part of the business will continue to focus on the informal and semi-formal segments of borrowers because that is where there is still substantial unmet credit demand in the market.

We are already in compliance with the RBI guidelines for an SFB converting into a universal bank. We have been in dialogue with the RBI and are also discussing the matter internally.

We are gauging the right time to apply to the RBI for the licence. Now that we are going through a transition, we will probably apply as soon as it is completed.

We have already reduced it to 11 per cent from 53 per cent and are targeting a share of 10 per cent. The margin dilution resulting from the reduction in the MFI business is behind us now.

Small businesses will be our focus. I don’t think any of that is likely to change because that is the bank’s strength. It is the bank’s core strength, built over 20 years. A new person will want to settle down quickly and deliver good results. He can do that by continuing with what the bank does very well and what it has built over the past two decades.