`We Don’t Want To Be All Things To All Comers’

The New-Delhi based Religare Enterprises (REL) is to simplify its corporate structure and set up a management committee to evaluate the proposed reorganisation of its three operating businesses — Religare Finvest, Religare Health Insurance and Religare Securities — into separate listed entities. Sunil Godhwani, chairman and managing director, REL spoke to Raghu Mohan of BW Businessworld on the strategic thinking and the course correction behind the moves.

Excerpts:


Religare’s logo is the four-leafed clover; you get one in 10,000 that’s three-leafed. Is the firm still the rare clover?
I can’t comment on whether we are rare or not, but our endeavour has always been to deliver value to our stakeholders. We have always tried to innovate and differentiate ourselves, primarily because we have been a relatively late entrant.

We essentially operate across three pillars — lending, health insurance and capital markets. As a group and from a holding company (HoldCo: Religare Enterprises) standpoint we are diverse yet extremely focused; and entrenched in the segments we operate in. Our businesses range from retail, mass affluent, HNI’s, SME’s to large institutions. What we take pride in and sets us apart are our people and the management bandwidth we have been able to create and nurture; backed by an entrepreneurial, teamwork-led, co-ownership driven, agile operating philosophy and culture.

And an instance of `clover Religare’ in action in the real world will be…
Well, there are several examples from our distribution strategy, our innovative product offerings to our governance structure, hiring strategy and even our rewards and recognitions philosophy.

One of the early endorsements of our model was the IPO in 2007 wherein we were oversubscribed a record 160 times plus. I would also like to specifically share two very good examples of our unique abilities to effectively spot opportunities, stitch up partnerships to build businesses and eventually create enterprise value.

When we signed the life insurance JV with AEGON in 2006, we were relatively small in size and scale. They understood the domain well and wanted to establish themselves out here and we had a great distribution network and the reach to build a strong retail facing business. We had also structured the partnership in a manner that our entire capital was protected. We had a long and successful partnership with AEGON and diligently fulfilled our capital commitments over the years and helped the business scale a certain critical mass until we decided to take a strategic view and make a healthy exit last year.

Then you had a special situation in 2008 when we demonstrated our agility to acquire a fledgling asset management business in Lotus India Mutual Fund, which we used as an arrowhead to establish Religare MF. We quickly built a profitable business and inducted Invesco as a venture partner in 2012. Invesco’s decision to join us was not just an endorsement of the team, but Religare’s ability to nurture and build good profitable businesses. We again made a healthy exit in this business as part of a broader strategic decision to move out of the asset management businesses last year. Both instances clearly demonstrated our ability to attract and work cohesively with the best of breed global partners and build enterprise value for our stakeholders.

You invested in the US-based Northgate Capital, and Landmark Partners, the Hong Kong-based Aviate Asia, the South Africa-based Barnard Jacobs Mellet, and Bartleet Mellory Stock Brokers in Sri Lanka. And the investments didn’t turn out to be four-leafed clovers…
You know, there is a misconception we have basically bought and sold businesses and that we have been very acquisition-led as a business model. The reality is barring our foray in international markets, the entire India focused piece has been largely successfully built out organically and grounds up. On our international forays, the strategy and thinking was right; maybe the timing wasn’t and most importantly as we have experienced over the last year or so, it somehow didn’t align with external stakeholders. Last year as you know we ran a process for institutionalising our shareholding. We engaged with the “best of breed” who were evaluating our platform and had a certain view about our businesses and expected us to be structured and focused in a certain manner. Given the medium- to long-term strategic priorities of our operating businesses, we felt it prudent to align ourselves with market realities and course correct. We have decided to stay focused on our home market; it has great head and leg room for growth.

What’s behind the move to list the three operating businesses?
We have a listed HoldCo; over the last year or so, as part of the process to institutionalise our shareholding we have been engaging with various stakeholders externally which has given us some important learning’s. People who were keen to partner with us were clearly attracted to certain specific parts of our platform; they didn’t want to enter at the HoldCo level and be saddled with the worries of other business parts. To make our individual businesses effectively unlock value by making them more attractive to strategic partnership’s we decided to simplify our corporate structure and move away from the HoldCo model. Over the next 12-14 months the intent is to list all three operating entities separately.

Would it be correct to read into this (reorganisation) the emerging regulatory topography? And what happens to the HoldCo management team?
Our learning’s and what we see around tells us people are moving away from the HoldCo model and that’s what we intend to do; nothing more to it. But this doesn’t mean the governance layer and the strategic role the HoldCo management plays will be non-existent — they will continue to provide the strategic direction to the operating businesses. As to what form and shape it will take is something we are still working on; it will evolve.

How does the 90-day norm on NPAs and the way you raise funds pit you against banks when it comes to SMEs…
We have been recognising NPAs at 90 days since October 2011. From end-March 2016, it has moved to 150 days (from 180 days earlier) and the transition to 90 days will be complete only at end-March 2018. We have been ahead of the curve and on a par with banks for nearly five years now. It has led to greater discipline in credit selection and attuned us to spotting potential trouble ahead of time.

As for borrowings, they are a mix of bank loans, market borrowings and retail NCDs. We do not take retail deposits and cannot offer savings or current accounts like banks do — but this is inherent in the NBFC model and we don’t see it as a disadvantage. Our model has been built around this funding mix which gives us more bandwidth to focus on the assets side (borrowers).

I concede our funding costs are naturally higher than banks, but we also lend at higher rates. Our customers value speed, agility, customisation and availability of credit in the right quantum at the right time; and we do far better than what even most banks can. If an exporter gets a large, time-bound order from an overseas customer, we will be his first port of call since we will be able to turn his application around quickly and disburse funds in a matter of days. The time taken to get a sanction from possibly a bank might make it impossible to meet the delivery schedule and he will end up losing the order.

What kind of SMEs are you looking at — standalone or ancillary units of large corporates? A related issue is the less than adequate visibility in the case of a large number of SMEs when it comes to governance issues…
From a customer selection standpoint, the sweet-spot for us is businesses between Rs 10 crore and Rs 50 crore in annual revenues. We lend to profitable businesses and look for a track record of at least three years. We have by design diversified our customer base; we don’t want our fate to be linked to the fortunes of any one industry. Again one should not paint all SMEs with the same brush; not all are beset with governance problems. Our ability to assess businesses and triangulate our findings with on-the-ground checks helps us to weed out potential problem accounts. Businesses do go through challenging phases. We try to make sure that we get customers who have the right intent.

In the case of housing finance, other than HDFC and a couple of others, not many have made deep inroads; it’s also an area where banks have done pretty well… which part of this piece are you looking at?
HDFC, and for that matter banks, primarily target salaried corporate employee. It’s relatively straight-forward, extremely competitive and, therefore, crowded. We don’t want to compete in this space. Our housing finance business focuses on funding affordable housing. We have a shortage of nearly two crore affordable housing units in urban areas. The government has put out its vision of ensuring housing for all under the Pradhan Mantri Awas Yojana by 2022 — the 75th anniversary of our Independence. Achieving this vision requires enormous amounts of funding and this can only come from specialist financiers. This is a great opportunity for companies such as ours and is an attractive business that contributes to nation-building.

Our typical customer is either self-employed; a small trader, a shopkeeper or a skilled service-provider or employed in the unorganised sector. And our average loan size in this business is around Rs 11 lakh as on date. We have extended our SME credit assessment out here. We only fund the primary residence of the borrower; we don’t lend for second homes; and, therefore, have prized collateral that the borrower will not want to part with. As on end-March 2016, we had a book of over Rs 820 crore, but we have only scratched the surface.

Give us a sense and colour of your health insurance business given that this is one of your relatively more recent forays?
Health insurance as a business has shaped up very well and the whole effort has been to tap and effectively leverage synergies within Religare as an eco-system (the brand, distribution and group capabilities) and utilise capital efficiently with innovative, customised offerings for both the retail and corporate segment. Within a relatively short span, we have made a mark for ourselves in the market and are recognised for our innovative product offerings, technology capabilities and also the capabilities that we have developed to put together a robust backed end and claims process which is completely in house. Besides a strong omni-channel distribution presence, we have also brought to life some unique initiatives around wellness and living healthy. But most importantly, I think we are also fortunate to have two very strong and stable partners — Union Bank and Corporation Bank — with a five per cent each stake in the business.

Although you’ve built some successful businesses there is a certain perception about Religare that it is not what it possibly should be. What’s your view?
Historically and even otherwise, we have been largely very inward looking as a group. We have continued to keep our heads down and done what we believe is the right thing. But we have probably been typecast in a certain manner as some of the things we have done or tried to do were ahead of their times. But a closer and unbiased look will tell you that our vision and intent was always right and that we have been instrumental in initiating several industry “firsts” including our unique governance structure of segregating ownership and management. We have no regrets, going forward too we will stay focused on doing the right things and keep effectively driving our businesses in order to propel them to their next level of growth backed by our values while staying aligned with the fast changing market dynamics.

So Religare is still a four-leafed clover?
It’s a matter of perception and we would much rather have our numbers do the talking for us. We continue to diligently work towards creating a unique and differentiated model. I am sure if we keep putting our best foot forward and doing the right things, good outcomes will follow.