MC EXCLUSIVE For me, salary stops but work doesn’t, says SBFC Finance CEO Aseem Dhru

Aseem Dhru, SBFC Finance

• SBFC Finance stock dropped 11% after CEO Aseem Dhru resigned.
• Co-founder Mahesh Dayani will become MD & CEO from April 1, 2024.
• Dhru will stay on as vice chairman to ensure a smooth leadership transition.

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SBFC Finance’s stock plunged 11 percent on January 26 after the company announced that co-founder Aseem Dhru was stepping down as the managing director and chief executive officer.

Announcing the changes, which took investors by surprise, the company said on January 24 that co-founder Mahesh Dayani would take over as MD & CEO from April 1. Dhru would transition to a non-executive, non-independent director role designated as vice chairman.

Dhru, who co-founded SBFC Finance with Dayani in September 2017 after leaving HDFC Bank, told Moneycontrol in an interview that he would be around to ensure a smooth transition and time will bear out his decision to handover control to Dayani. Edited excerpts:

Stock market hasn’t taken your stepping down kindly. For an investor, it’s impossible to separate you from the company. What do you have to say?

Unlike a lot of other companies, SBFC has always been a professionally run company. We were not promoter run at any point of time and that is how it was built — professionals who came together to with a common objective to build an institution that can outlast us.

By definition, individuals have finite lives, energies and timeframes. The real test of what has been built is whether it outlasts you, because if you have to keep doing it all the time, then clearly it hasn’t been built right.

Normally what I've seen in financial services is that it has been a challenge to bring about a transition. (With SBFC) I thought that we can do it a little differently where I move away from the role of a player into that of a coach. I can be of help and contribute to the company to ensure that the transition is smooth. The company's fundamentals remain where they are and the numbers will do the talking.

But as much as we want to say that companies are larger than the persons running it, they are also a reflection of their CEOs …

There is no doubt that individuals have their stamps, especially in financial services. Unlike in manufacturing or other businesses, like organisations of the scale of Coca-Cola or cement or steel,  even if the CEO is not a very good, the company faces temporary challenges but manages to get by just fine. Somebody else comes and builds it up.

In financial services it is tricky. The impact of CEO on financial services is very direct and present. The comfort here (with SBFC) is that it is not a call that the organisation is taking because we (the founding team) built this organisation together from Day One. It is just that I had more visibility because of the nature of the designation.

What was that tipping point that convinced you that Mahesh Dayani should take over?

It’s a job which requires extreme amount of passion, focus and energy. You need to demonstrate it on a day-to-day basis. The minute you realise that you are not pulling your weight is when you realise that time has come to give it to the person who can take the organisation forward.

Genuinely, I believe that at this moment, he (Dayani) is better placed than me to take this company forward. I hope the numbers and history will wear me out. I have literally put my money on him! There are many interests in life one wants to pursue, not necessarily within the financial sector. Aur bhi gham hain zamane mein, mohabbat ke siwa. Also, once you get very good at something, it becomes second nature and we become comfortable but then growth stops. Growth only comes from the zone of discomfort, and to that extent, I'm putting myself in a zone of discomfort.

Your departure comes at a time when growth seems to be slowing and the industry is not in a comfortable position. Even larger players are under pressure.

In finance business, there is always demand. The challenge is to segregate between need and demand. It is just the ability of a customer to repay the loan which needs assessment.

If you read the RBI’s financial stability report, it very clearly states that the small Indian retail consumer is overleveraged. You need to be careful that you don't really tip him off, which is what happened with microfinance and unsecured lending. One has to be careful that in the chase for growth, you don't really give loan to a guy who struggle to repay.

Growth is a function of what the market is and what your size is. If you're small, then the market size doesn't really matter.  We can decide at what rate we want to grow. The challenge is in setting the culture of the company and what growth it can digest. Cancer also is ultimately growth! We need to be careful of that in all times.

SBFC has moved in the construct of 5–7 percent quarter-on-quarter growth, so that ultimately we build a boring compounding business and not something that is exciting and can deliver great results in good times, and then struggle in difficult ones.

In 2022, you were one of the first to flag the stress that was building in the retail space. Four years later, we are still talking about it.

If most of the debt is not going towards asset creation, which is what the RBI report says, that is not a good place to be. When growth has been above the pace that the system can take, it has led to accidents, whether it is credit costs going up or operating costs peaking.

Secondly, the end use of money has always defined the outcome of your loan. If the end use has been productive, the outcome has been better. When the end use is non-productive that’s where the problem starts for a lender.

It is also about the risk spectrum one is operating in. If I were a bank and operating at the best level of credit risk, the concern is lower because the borrower is a little more aware and has multiple means to repay the loan. When lending to small businesses and individuals at the bottom of the pyramid, they do not have the discipline or the savings. You have to be more careful than others because the customer segment is a vulnerable one. Most Indians are one hospitalisation away from bankruptcy and that’s the challenge.

From inception to where SBFC is now, is it a "mission accomplished"  for you?

We set out to build an institution that will create societal value over cycles. It's good where we have come, so far. We are very happy. God has been kind. We couldn't have hoped for a better outcome but the job isn't anywhere (near) done yet. For that satisfaction, I will have to wait a decade at least.

What is your next entrepreneurial bug?

Nothing at the moment. The focus is just to ensure that the transition is smooth and I keep giving all the support it needs. For me, the salary stops but the work doesn't.

You also wanted to see SBFC as a small finance bank. Does the idea still interest you?

It does but the current regulation doesn't allow it. Promoter ownership cannot be more than 40 percent and we are 51 percent foreign owned. Right now the focus is to just build a wonderful NBFC instead of building just one more bank.

A lot of large banks might start looking out for CEOs in the months to come. Would running a bank interest you?

As they say, never say never but that is not on the horizon or on my mind as of now. The focus is to ensure that SBFC has a smooth transition. Until I accomplish that, I wouldn't feel that I've done justice to either myself or to those who have trusted me.

Would your association continue for another year?

I've not put a timeframe to it but it will take its time.