There won't be any distinction between NBFCs, banks in 10 years: Vellayan Subbiah, Cholamandalam Investment and Finance

Vellayan Subbiah, MD of Murugappa group's Cholamandalam Investment and Finance, is alert to growth opportunities for his Rs 1,200-crore non-banking finance company. In 2010, Cholamandalam and Singapore-based DBS agreed to call off their five-year old JV. That was after they burnt their fingers in personal loans business. Cholamandalam bought out DBS and exited personal loans. The company is now focusing on its core asset finance business and has entered new segments - gold loan and tractor finance. In an interview to Sriram Srinivasan and Sanjay Vijayakumar, Subbiah explains how his company seeks to differentiate itself in an increasingly crowded market. Edited excerpts:


What's been the most challenging part of the recent transition?

The key part of the transition was driven by N Srinivasan, the group CFO. It came down to matching our asset-liability, which had gone for a ride in the transition. Then, stemming the losses in personal loans and ensuring that other businesses (vehicle finance and home equity) were left untouched.

You have forayed into new segments such as gold loan and tractor finance. Standalone gold loan players have made a lot of noise in recent years.

Yeah, Muthoot, Manappuram, they are all in the business for a long time and they timed it correctly. In commercial vehicles, Shriram was very smart with what it did eight or nine years ago. We are a little late in the game. But we aren't concerned about it, because we are taking a longer-term view.

How different are you going to be compared with others?

The difference is in execution. Everybody talks about a three-minute gold loan. I don't know what customer relationship you form in a three-minute interaction. So, does the guy really need to walk out in three minutes? And if he doesn't, is there an opportunity to build customer association.

Gold loan is a business where you will have a large number of repeat customers - like a banking relationship. You need lots of reasons to switch. So, it's about how we build the right relationships with the customers upfront.

How will your portfolio change now?

Tractors will come under vehicle finance. Vehicle finance is 70% and home equity 20% of the business. Next few years, it won't shift significantly. Gold will get to 10% of the portfolio but will take a few years. We might add one more line.

All Murugappa business heads look ahead at a 10-20 year timeline. What's the view for Chola?

One of the things we look at is where the financial services business is going to be 10 years from now. For example, I don't think there will be any distinction between large NBFCs, whether they get banking licences or not, and banks. Already, larger NBFCs are bigger than smaller banks. We need to understand the implications for us. We do have some inherent disadvantages - we cannot take retail deposits. So how do we compete differently? Those are the things I should be thinking about.

NBFCs tend to have a very product-centric view. Banks tend to have a customer-centric view. We need to think how we transform over time. If banking licence guidelines come out, many are going to rush in. So, it isn't only going to be about you picking the right space to compete, it's also going to be a question of how you are going to compete.