Amid consolidation, Godrej Group bets big on NBFC sector

At a time when the non-banking finance companies (NBFC) sector is seeing a consolidation mainly on account of reducing regulatory arbitrage between banks and non-banks, the Godrej Group is confident it can crack the financial services space with its established brand presence and deep pockets.

The Group on April 11 announced the launch of its financial services arm Godrej Capital Limited, which will also act as the holding company of Godrej Housing Finance and Godrej Finance.

“With the ultimate aim of building a world-class retail financial services business and a near-term aim of building a Rs 30,000 crore balance sheet by 2026, GIL (Godrej Industries) has committed to invest Rs 1,500 crore in capital in GCL (Godrej Capital),” the Group said.

In order to achieve the target of Rs 30,000 crore assets under management in four years, the Group is infusing Rs 1,500 crore into its financial services venture this month and expects further investment of Rs 3,500 crore into Godrej Capital mainly by the parent company by 2026, Pirojsha Godrej, chairman of Godrej Capital told reporters on the sidelines of the launch event.

Pirojsha Godrej exuded confidence that as the financial services arms grow bigger in size, the Group will look to foray into more diverse segments like mutual funds and insurance.

“We will keep our eyes and ears open, as we establish initial success we could venture into other segments of financial services,” he said.

Presently, Godrej Housing Finance has a loan book of Rs 1,800 crore of which 25 percent consists of loans against property and the rest in housing loans. Going ahead, the Group aims to achieve a portfolio mix where 35-40 percent of advances are loans against property, 35-40 percent consists of prime housing and the remaining is split between unsecured loans and the affordable housing segment.

“We started off only in prime housing, extended it into LAP (loans against property), later this year we want to start learning and growing in a bit of a sandbox manner in how we do affordable housing and afterwards start looking at cash flow-based business loans,” said Manish Shah, MD & CEO at Godrej Capital.

Shah said the NBFC will look towards co-lending and co-origination partnerships as informal channels of growth. When asked whether the exit of mortgage major Housing Development Finance Corp will give Godrej Capital more headroom for growth, Pirojsha Godrej said a Rs 30,000-crore balance sheet would not have dented HDFC’s market position in any manner.

“I think our opportunity is to create our own brand in this space. We have the advantage of coming in with a brand that would be equal to almost any other brand on day one. I think the challenge and opportunity are to translate that brand successfully into financial services. Show that we can deliver differentiated customer experience and use that advantage to continue to scale business,” he said.

On a question on whether the eventual goal of the NBFC would be to seek a banking licence, Pirojsha Godrej said that options remain untouched at this point.

“First of all, let us see how the regulatory environment around this proceeds, as of now I do not think that is even an option (getting a bank licence)…we think the NBFC advantages are considerable as well. We have gone into this business assuming banking licence is not an option, if at any stage that becomes an option, obviously we will evaluate the pros and cons then,” he said.