It is early 2010. Google’s social-networking site Orkut is still around. Payment apps on mobile phones are a mere idea. Demonetisation is six years away. Bajaj Finance, India’s leading non-banking financial company (NBFC), is in the process of diversifying its portfolio and wants to acquire a larger customer base. The company executives are physically reaching out to electronics dealers across the country to forge partnerships.
Almost a decade later, in March 2020, Jairam Sridharan is the new managing director of Piramal Capital & Housing Finance Ltd (PCHFL), one of the largest non-banking lenders. His primary task: flip a struggling wholesale business into a retail-heavy portfolio. And so, the 10-year-old Bajaj Finance’s business model resurfaces on the whiteboards, but in Piramal’s meeting rooms this time.
“The idea was to implement a similar model from a digital perspective. We wanted to understand the best way to reach a large number of customers,” Sridharan told The Ken. After several rounds of discussions, it took the path of partnering with fintechs.
Now, non-banks partnering with fintechs is not entirely new. But what stands out is the number of fintechs Piramal has partnered with.
Since December 2020, the non-banking lender has been going with at least one partnership every month as it wants a digital, low-risk, high-customer acquisition proposition. By the beginning of 2023, Piramal Finance would have signed off on 25 fintech alliances— among the most number of partnerships any large NBFC has. Its partners include digital-payments company Paytm*, financial-services firm Navi, fintech company Cred. It is also in talks with payments app PhonePe.
While fintechs comprise only 5% of Piramal’s retail assets of Rs 25,000 crore (~US$3 billion), 95% of new customers added are via these channels, according to the MD.
Back in 2020, Piramal Finance was at a crossroads. Revenues from the real-estate sector were plummeting due to a series of blows from demonetisation, introduction of goods and services tax (GST) and real-estate regulatory authority (RERA), and Covid-19, according to two present and former employees of Piramal Finance. They did not want to be named as they were not authorised to comment.
The company could have either continued financing real-estate developers, shrunk its books and become irrelevant, or found a way to recoup.
It decided on pivoting from being a wholesale lender to one focused on consumer lending. However, overturning a portfolio mix with over 80% wholesale business wasn’t going to be easy. Meanwhile, Piramal set its eyes on the beleaguered housing-finance firm Dewan Housing Finance Ltd (DHFL). The non-bank spent Rs 34,250 crore (~US$4 billion) to acquire DHFL in September 2021 as part of India’s first successful resolution under the Insolvency and Bankruptcy Code (IBC).
The deal expanded Piramal Finance’s retail loan book by 5X, adding 1 million new customers and 300 branches across the country, according to the company.
However, this sudden expansion came infested with a set of bad-loan problems.
