Kumar Mangalam Birla on the strategic importance of the financial services business to the Aditya Birla Group
Q. You’ve not got the banking licence you’ve applied for. In that context, what are your plans for the financial services business?
The fact that we didn’t get a bank [licence] was hugely disappointing, but one has to move on. We’ve increased the thrust on the NBFC and our growth plans are more aggressive now than they were at the time of contemplating a bank.
I think it’s about the whole portfolio of financial services. It captures and is in sync with the major trends in the economy —whether it’s about increasing infrastructure, demography, societal trends, double incomes and more nuclear families, more consciousness about areas like life insurance. And slowly also getting into infrastructure financing. It’s becoming larger, and our ability to take larger bets, therefore, is going up. But at the same time, the operations in terms of the back end are robust. I find that the quality of the book in the case of the NBFC for example, or infra, is very sound.
So we’ve focussed as much—if not a little more—on quality, than on just growing the business. We’ve got a great platform now with the NBFC, life insurance, the mutual fund, private equity. This is a very interesting business to be in.
It’s been a good performance, we’ve come quite a long way and I’d give credit to Ajay and the team. But we have a long way to go. I think housing finance is a huge opportunity and now that we have the licence, we need to rev that up. There are established players and therefore, you can’t expect a market leadership position, but you can still be a very high quality, highly profitable player. Personally I’ve always been very fascinated by the financial services industry and have always believed there is huge scope for growth in this space. I am very happy because I can see that some of that is coming into fruition now. More importantly, we’re on a high growth trajectory.
It’s been quiet, but steady and solid. There are lots of options and all of those are coming home to roost in a good way. Some of those have been seeded at different points in time and I think being a financial services powerhouse is a game that’s very much linked to demography and societal trends, growth of infrastructure and therefore, the growth of the country.
Q. How strategic is the financial services piece to the group?
Very much. It’s a growth area. We’ve built a sizeable, high-quality book and it’s one of the fastest growing businesses in the group. I am not looking at it just from the point of view of its current size, but also its potential and what it could become in the future. This is a very significant business for the group. Even five years ago, I would have said that.
Q. There’s been a substantial bulking up of portfolio since 2007. There are far more business lines in ABFSG today. What were your initial thoughts when you put the new game plan together?
The idea was pretty much to have a full-fledged bouquet of services which is a high quality franchise on a high-growth trajectory. The team has achieved that over the last seven years and we are at an inflection point. I see future growth being at much higher rates than in the past.
There is an inextricable link between the economy and the financial services business. Growth in infrastructure, people’s lifestyles… all of these get reflected in these businesses in some way or other.
Q. One of the key elements of your financial services strategy is the integrated approach. Could you elaborate on that?
We are a conglomerate, but sometimes conglomerates run the risk that individual business get the short shrift. But in our conglomerate structure, there is a clear focus on each business. Our businesses should feel much more empowered in being a part of a much larger parentage as opposed to feeling restricted about being one of several businesses. ABFSG is a case in point. It’s important that individual businesses feel the power of one as opposed to feeling restricted. Oh my god, will we get capital allocation? Oh my god, will we get enough management bandwidth? So our attempt is that each one of them feels stronger.
It’d be very fair to say that being a part of the Aditya Birla Group parentage has been an immense support to the financial services business. The name itself inspires trust and trust is the most important factor. Also, the way the team has conducted its operations has been quite a combination. The common HR or marketing which they have was pretty much thought through. They’re pretty self-contained, but they also have the advantage of being a part of a larger, progressive, high-growth group.
Having said that, other than on policies regarding human resources or the portfolio or large strategic decisions, they aren’t constrained in any way because they’re part of a conglomerate. And I hope they will vouch for that.