NBFCs scooping up bankers

Non-banking financial companies (NBFCs) are recruiting in droves and scooping up talent from competitors long considered a notch or two above.

According to industry estimates, 60-70 per cent of the NBFC hires in the last year are from the banking industry. And there is good reason for that.

While banks are struggling to come out of the bad loan mess, NBFCs are in a sweet spot of rising consumer demand, strong rural cash flows and growth in commercial vehicles and housing finance. What is more, chucking a banking job for a domestic NBFC is not a taboo any more.

The financial rewards, too, are superior. Plus, bankers find the promise of faster growth, entrepreneurial culture, the ability to innovate and create wealth at NBFCs hard to resist.

“NBFCs are ramping up teams and the demandsupply gap is largely being met by tapping talent from the banking industry, mostly multinational and private sector banks,” says Reet Bhambhani, partner, EMA Partners Executive Search. According to her, NBFCs saw over 50 senior-level movements in the first quarter of 2018, a trend that is likely to continue over the next few quarters. "Moving from a bank to an NBFC is no longer seen as a step down or a sub-optimal career move," she adds.

In 2017-18, over a third of the senior-level hires, assistant vice-president and above, at IIFL, were from banks. “We have seen a 15-20 per cent rise in the hiring of experienced banking professionals from 2016-17 to 2017-18,” says Anand Mathur, president and head, human resources, IIFL Group.

Those joining as chief executive officers can look forward to annual packages of ~20-45 million.

CXOs can get anywhere between ~10 million and ~20 million depending on the size, complexity and evolution of the organisation. Start-up NBFCs are reserving 3-4 per cent sweat equity for chief executive officers and 6-8 per cent for the rest of their senior management. “Accounting for cash salaries and employee stock option plans (ESOPs), the opportunity for wealth creation over three to five years could be as high as ~100-200 million,” says Bhambhani. The ramp-up in hiring by NBFCs is also corroborated by long-term data. Banks’ total employee count is up 45.5 per cent since 2008, compared with a 174.1 per cent in the case of NBFCs, according to analysis done by Business Standard. Numbers have been considered for those entities where continuous data is available since 2008. “Bankers come with a diverse set of skills that can be channeled in businesses such as wealth management, lending, investment banking and insurance. They have good relations with key stakeholders such as regulators, and bring the rigour and discipline that comes with being part of a wellregulated and compliance-driven culture,” observes Jaspal Bindra, executive chairman at Centrum Group, which has hired around 50 executives from banks at the mid and senior levels in the last two years.

How the tide turned

Over the last decade, most multinational banks reduced their exposure to consumer finance, which helped NBFCs. Restrictions on banks on lending to the real estate sector and issuing loans against shares also benefited them. Around 2013-14, NBFCs started attracting the attention of private equity players, which brought growth capital, and also boosted their ability to poach highflying banking executives.

“The career growth in banks is becoming restrictive in a lot of areas even as NBFCs offer employees the opportunity to grow with the company,” says R Sridhar, executive vice-chairman and chief executive officer at IndoStar Capital Finance, which has hired bankers for functional, zonal and regional roles. “NBFCs can give senior banking executives opportunities to become CEOs and run businesses end to end,” adds Egon Zehnder’s Vineet Hemrajani, who leads the recruitment firm’s private equity and financial services practice in India. A senior executive at another recruiting firm observes that NBFCs have the advantage of fewer compensation restrictions. For instance, while senior bankers’ compensation requires the Reserve Bank of India’s approval, NBFCs have lesser scrutiny and a freer hand in how they pay their executives. "They are compensated through stock options and other means of wealth creation that are more performance-linked," points out Siddarth Raisurana, chief operation officer at recruitment firm ABC Consultants. Indeed, for career banker GL Kumar, the opportunity to take up a leadership role and directly participate in the company’s growth seemed hard to pass up. “IIFL offers attractive compensation with ESOPs as a tool for wealth creation,” says Kumar, who heads the MSME and equipment finance division at India Infoline Finance. Going forward, NBFCs focused on wholesale finance are likely to ramp up hiring. According to a recent report by Crisil Ratings, NBFCs have become aggressive in the real estate, infrastructure finance and structured credit space. The wholesale credit segment could grow at 21 per cent annually till 2020, according to Crisil.