The non-banking finance company (NBFC) industry is rocking, says R Sridhar, Executive Vice-Chairman and CEO of IndoStar Capital Finance. The company began operations in 2011 as a venture promoted by Everstone Capital and supported by other investors including Goldman Sachs.

Sridhar, who spent the better part of his career with Shriram Transport Finance, and helped grow the business from a loan book of about ₹5,000 crore to over ₹40,000 crore, moved to IndoStar last year to pursue an entrepreneurial dream of creating another large institution that can tap into the market potential.

Looking back at his earlier stint, he said that imagination was the only constraint, and they had not visualised the scale of growth that was to follow. “Our approach was incremental,” he explains, and “we didn’t quite anticipate the large volumes that came in.”

Ideal conditions

Sridhar’s task in IndoStar is to replicate what he did in Shriram — build a team, scale up the business and develop a pan-India retail player. Conditions have never been better for the NBFC industry, he admits. The last decade has been one of consolidation for the industry, with a number of focussed and theme-based financiers emerging and doing well, according to him. Resources are not a constraint, with funds from both equity and debt from capital markets available comfortably, he says.

Ask him about the competition from other players — established NBFCs, public sector and private banks, and new players who have entered the segments that IndoStar has ventured into — vehicle finance, home finance, SME lending and corporate finance – and Sridhar’s answer is enigmatic: “Retail is an attitude.”

Asked to elaborate, Sridhar explains that while banks have the advantage of lower cost of funding because of their deposit base, it is the NBFCs that continue to provide the last-mile connectivity in consumer finance. NBFCs have better advantages on the assets side, while the disadvantage of higher cost of funds has to some extent been neutralised by the easy liquidity and relatively lower costs seen in the recent past.

More to explore

At the same time, he says the number of enterprises that can lend and collect is still inadequate for a country like India, and there are so many niches to be addressed, and so there is space for every one.

On doing ‘affordable home financing’, Sridhar says it was a natural diversification, given the company’s earlier lending to real estate developers and the building industry. Given the traditionally low margins in the housing finance industry, IndoStar will focus on the self-employed category of customers in order to improve its returns, he says.

Sridhar is now ramping up operations and adding personnel at various levels. The company has recruited 1,000 people in the past year and the number is expected to rise further as the retail focus increases. The company’s loan book was at ₹4,522 crore at the end of September 2017.