‘We are looking to do an HDFC; scale up and list’

Edelweiss group has enlisted private equity player PAG to invest ~2,200 crore in its wealth management arm for 51 per cent stake. Earlier, it had inducted foreign partners in its life insurance and NBFC operations. RASHESH SHAH, chairman and CEO, tells

Samie Modak he seeks to emulate HDFC by scaling up and listing individual units. Edited excerpts:

How’s the Edelweiss group structured now, and what is the We have plan? got six businesses — wholesale credit, retail credit, asset management that includes asset reconstruction (ARC), wealth management, life insurance, and general insurance. We have operated as an integrated group but now want all units to scale up and get listed — through demergers or initial public offerings (IPOS) — the way HDFC has done with

HDFC Bank, HDFC Life, and HDFC MF.

Given that we are not a big business house, we want partners to provide capital and long-term support. We Marine have for Tokio life insurance, for ARC, and CDPQ now

PAG for wealth management — which will be the first to be hived off.

Even by regulations, all businesses need to be independent and having a partner provides an added layer of governance.

What were growth drivers for the private wealth management industry?

One has been the growth in domestic household savings. At present, it stands at $8 trillion, of which $3 trillion is in financial savings. Most of them are in physical assets. Financial assets, which

constituted $1 trillion a decade ago, have become $3 trillion today.

Therefore, household financial assets are growing fast. People preferred bank deposits earlier. Over the past few years, however, they have been looking for alternatives. Further, wealth is getting more democratised. Many in the salaried class have wealth, stock options, and good salaries. Consequently, there are various classes now; not just families and ultrahigh networth individuals. The universe of people having a few crores to invest has expanded.

Growth in this industry is directly co-related to growth in household financial savings. If you look at nonbank financial savings — investments in MFS, bonds and alternatives — these have been growing at 14-15 per cent annually over the last decade.

When do you expect the economy to return to normal?

Covid-19 will not go away, but the worst is over. People are now learning to live with it. Therefore, we are seeing clear improvement in business. Liquidity has improved. It will be slow, and a return to normalcy will be by March 2021.

How’s the scenario for the credit business?

Liquidity has improved, which was a pain point earlier. For banks and NBFCS, credit costs will rise and hurt earnings. However, mobilisation won’t be a problem for maintaining capital adequacy. It may lead to some amount of impairment, but not cause any crisis. FY21 will be a washout, and everyone is keeping an eye on FY22.

Why didn’t you wait for normalcy to return before selling the wealth business?

Our idea was to do what was right for the business, and not grapple with the valuation. During the life of a business you will raise money both in good and bad times. Trying to time the market or optimise is not our philosophy. Our approach has been to create value through growth, not by timing the market. If you had asked me three months ago how things would be now, I would have had no idea. But on a long-term basis, we have a clear view of opportunities.