Poonawalla Fincorp Ltd aims to double its headcount as the Indian shadow bank expands into new product lines to increase assets to 1.5 trillion rupees ($17.7 billion) in the next five years.
The non-bank finance company controlled by billionaire Adar Poonawalla, plans to add six retail-focused lending businesses in the next four to six quarters, on top of its existing portfolio, according to Chief Executive Officer Arvind Kapil.
The new businesses include loans for gold purchases, used cars, shopkeepers and education, according to Kapil, who took over the top job in June. The company plans to add nearly 400 branches by next year, up from roughly 100. It will tap into the demand for loans against gold, in smaller cities through a mix of digital offerings and physical branches, Kapil said.
Poonawalla Fincorp is expanding even as credit growth slows and the Reserve Bank of India steps up scrutiny of the shadow bank sector by raising provisions to reduce risk. Poonawalla’s stock tumbled in October after it reported higher provisions for bad loans and saw an increase in operating costs in the latest quarter.
Credit Growth has slowed sharply in India this year |
Kapil expects operating costs will come down by the end of the fiscal year, especially relative to assets, as the lender expands into new markets. The wider array of business lines will also reduce risk, he added.
“If you want to create a solid franchise with very strong foundation, I think it’s important to have nine to 10 retail-focused products which target diversified customer segments so you can actually lower the risk,” Kapil said. The firm will focus on lending to salaried employees at India’s top 300 companies.
Kapil, who most recently led the mortgages business at HDFC Bank Ltd., has spent the last six months setting up his core management team, which includes unit heads from his former bank, along with Yes Bank Ltd. and others.
“The seasoned team has experience of building out large businesses and running them,” Kapil said, adding that he expects headcount to double from 2,500 employees over the next three quarters as the lender implements the new strategy.
Shadow lender stocks have underperformed index this year
Poonawalla’s stock has largely recovered from the earnings hit, which Motilal Oswal Financial Services Ltd. called a “kitchen sink” quarter under the new management team.
The analysts called the pace of change “too fast and furious,” and the lender could see a compression in margins and elevated operating costs for the next few quarters. Still, the steps were “in the right direction to make the franchise stronger,” Motilal Oswal said, maintaining its buy rating on the stock.
The shadow lender is also evaluating setting up a wealth business, Kapil said. Poonawalla will first look at distributing third-party investment products through its network and then explore producing its own, Kapil added.
The firm, rebranded from Magma Fincorp Ltd. after Poonawalla bought it in 2021, is open to more acquisitions, he added. “In the short and medium term however, we plan to grow this business organically,” he said.
The Poonawalla group became a household name in India during the pandemic. Their company, Serum Institute of India, is the largest vaccine maker in the world and became one of the top manufacturers of the AstraZeneca Plc vaccine and a supplier to Covax, the World Health Organization-backed initiative to ensure an equitable global roll-out.
“The Poonawalla name is probably synonymous with trust in saving lives in almost every home today,” Kapil said. “As a finance company, we’ve got a great opportunity to build on that trust and capitalize on it on a granular scale, especially on the retail lending side.”
