It would be great for NBFCs to have stable funding sources: Jairam Sridharan, MD, Piramal Finance

Piramal Finance is aiming to double its AUM to ₹1.5 lakh crore by 2028 besides having the headroom to raise up to ₹2,500 crore by divesting stakes in Shriram Group's life and general insurance businesses, and fintech firm Fibe, said Jairam Sridharan, managing director.Speaking to ET's Joel Rebello and Sangita Mehta, Sridharan detailed the company's plan to offer gold loans, bolster MFI business, and timeline for onboarding new equity investors. He also spoke about the need for a stable liability structure and foreign investors' interest in finance companies. Piramal Finance, which recently merged with Piramal Enterprises, will be listed on November 7. Edited excerpts:

What are the challenges NBFCs could face from banks?

As far as the upper-layer NBFCs are concerned, there is almost no arbitrage between banks and NBFCs. NBFCs are better placed to tackle customers from the informal sector where the electronic footprint is lower. Those things banks are neither good at nor do they have a desire to do. So, product innovation and that last mile is what NBFCs have always been good at. And that they will continue to do.

RBI now seems more open to taking a lot more suggestions. What are the asks from NBFCs?

NBFCs have got much of what they wanted. The one area which remains open is what can be done to get a stable and sustainable liability structure. Whether it is in the form of more access to deposits for upper layer NBFCs or in the form of the RBI creating some liquidity windows for NBFCs. Some things which can actually allow us to access stable deposits.

Would NBFCs now aspire for a banking licence for having a stable liability structure?

I doubt it. Few NBFCs have the skills to do deposit management. It's a very different ball game than giving customers your money. Asking customers for their money requires trust and a certain level of fiduciary abilities internally in governance architectures. Maybe there are 10 or 12 NBFCs which have anything close to that kind of ability, the remaining 9,500 probably don't have it.

Does having a banking licence enable this structure?

The banking licence comes with its pluses and minuses. It does have the pluses of very stable deposit mobilisation ability. But it also comes with responsibilities such as SLR, CRR, and priority sector lending which are very onerous. Those are things that the NBFC sector hasn't done before and is not good at. It is not surprising and accidental that NBFCs have always had higher ROA than banks over the years. It is because banks have certain burdens on them, which NBFCs don't have. So, conversion to a banking licence is going to mean downshifting on your profitability profile for five years at the minimum. It does probably lead to a sustainable liability platform, but it requires very serious sacrifices in the short to medium term.

So NBFCs want a platform to raise deposits without having the onerous responsibility like banks?

It's like this...there are some things which you might kind of desire, but you know visibility is very low. So, you teach yourself to not desire it too much.

Foreign investors seem bullish on India's BFSI sector. Do you expect this trend to continue?

Long-term interest in the India story is extremely high among players in Asian markets. The government and the regulator have expressed an openness to some of these transactions. So, the question is, the next time somebody plans to raise capital, and they want to dilute 8% to 10%, at that time, would they think of doing a generic QIP and get a lot of money from a dispersed investor base? Or would they want to actually get concentrated money from one major strategic investor, who can also help you from a governance standpoint, who can also help you from a strategy formulation standpoint. Different people might make different choices.

Would you need to raise fresh capital to grow your AUM to ₹1.5 lakh crore by 2028?

For the next 12 months, we are good from a capital perspective, but there are also pockets of value in our balance sheet which we can unlock to raise capital. So, we feel that for the next one year, we are fine. But we are constantly getting interest. The Indian market is attractive. Piramal Finance is in an attractive position. We have a promoter family with 46%. And it's a very stable ownership structure.

You mentioned pockets in the balance sheet to unlock?

Yes. We have investment stakes in the Shriram group's life insurance and general insurance. We have a 10% stake in a fintech company (Fibe) which is considering going public soon. We could unlock ₹2,000 crore to 2,500 crore, which is enough to leverage for a ₹10,000 crore of growth in loan book. Onboarding any equity investor has to be at the right valuation. We are currently valued at one time's book, which we believe undervalues our stock. So, it would not be an appropriate time for our current shareholders to dilute at this price and get in new investors.

Piramal Finance has yet not started gold loans though you spoke about it in the past?

It's a business we are quite interested in. Even though it's kind of at a little bit of a cyclical high right now. We looked at acquiring a gold loan company but that did not work out because valuations continue to be very high. We are still open to acquisitions but values and valuation need to match for us to do transactions.

What about MFI business?

We still have to grow our MFI business. It's still a very small business compared to where we want it to be. But it will be part of that 17% to 24% journey of growing the unsecured loan book.