On 18 September, Adar Poonawalla, chairperson of Poonawalla Fincorp, swung into damage control mode. Speaking on an investor call, Poonawalla was quick to assure assure Business Standard Abhay Bhutada hasn't done anything as per lawyers, says Adar Poonawalla Read more listeners that all was well with the company. Just two days prior, the company’s managing director, Abhay Bhutada, stepped down from his post after markets regulator Sebi barred him for alleged insider trading.

Even as Poonawalla announced that there would be an internal investigation into the matter, he insisted that business as usual would continue. “We will probably not reappoint him (Bhutada) just now… The company can very well run with the old and new team,” he told investors.

A scandal is something that Poonawalla can ill afford. Poonawalla Fincorp was meant to be his attempt to step out of the shadow of Serum Institute of India, the world’s largest vaccine manufacturer, which was founded by Poonawalla’s father, Cyrus Poonawalla, and is currently helmed by Adar.

It is only natural that Poonawalla would choose to build his own legacy legacy The Ken Adar Poonawalla’s bid to vaccinate Serum Institute against all threats Read more in the financial services space. Almost every industrialist worth their salt eventually ventures into the sector thanks to the fat margins on offer. Poonawalla has also had a ringside seat as his friends—the Bajaj family—built a financial services empire through Bajaj Finance Ltd.

Just how Poonawalla has gone about cracking the space, though, has raised eyebrows. Despite already owning a non-banking finance company, Poonawalla Finance, Poonawalla chose to go the acquisition route. In February, Poonawalla, through his company Rising Sun Holdings Pvt Ltd, bought a 60% stake in Magma Fincorp for Rs 3,456 crore ($468.9 million). It was rebranded to Poonawalla Fincorp to double down on the brand recall the Poonawallas currently enjoy thanks to Serum manufacturing Covid-19 vaccines.

The choice of Magma seemed an odd one. At one point, Kolkata-based Magma was among the top asset-backed finance companies in the country. In 2013, it had a loan book of Rs 18,000 crore ($2.4 billion). Its halcyon days, however, are firmly in the rearview mirror. As of March 2021, its loan book had shrunk to 14,000 crore ($1.9 billion).

More worryingly, Magma was riddled with bad loans. ​​Former employees told The Ken the company could never get a handle on the cost of funds—the raw material to lend. As a result, Magma could only lend to those who did not have a credit history since this was the only cohort with no choice but to accept its high interest rates—often upwards of 20%. As of March 2020, 6.4% of its loan book consisted of bad loans.

AUTHOR

Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

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