Bringing in New Energy
Kapil Wadhawan has built a large financial services empire by serving people at the bottom of the pyramid.
When Kapil Wadhawan came to India after getting a management degree in finance from Australia, his father Rajesh Kumar Wadhawan, who had founded Dewan Housing Finance Ltd (DHFL) in the early 1980s, gave him the task of inspecting expense vouchers. The housing finance company, with focus on lending to people in lower- and middle-income groups, reported a marked drop in costs. Wadhawan, now the chairman and managing director, loves to share the cost management insights that he gained during that stint with his colleagues. "These are important things for people to look at," he says, sitting at his office in the Bandra Kurla complex.
Wadhawan took the company's reins from his father in early 2000. That time, sales revenue, loan book and profits were Rs103 crore, Rs1,033 crore and Rs16 crore, respectively. In 2016/17, the company reported a revenue of Rs10,826 crore, loan book of Rs1,31,415 crore and net profit of Rs2,896 crore. Reasons for such high growth have been aggressive organic growth as well as acquisitions that Wadhawan has been able to successfully execute. The journey has involved diversifying from a home loan company to a much broader financial services player offering education/SME loans and also entering life/general insurance and mutual fund businesses. More new businesses are on Wadhawan's radar.
It was in the early 1970s, when the Wadhawan family, led by grandfather Kuldeep Singh Wadhawan alongwith Kapil's father Rajesh Wadhawan and uncle Rakesh Wadhawan, entered the real estate business starting with the outskirts of Mumbai. In the '80s, Kapil Wadhawan's father saw potential in the bottom of the pyramid - housing, after all, was one of the items on the national agenda, part of the famous roti, kapda aur makaan - decades before affordable housing became the buzzword. He made frequent trips to the United States to understand the two big housing finance institutions there - Fannie Mae and Freddie Mac. DHFL was the second housing finance company to be set up in the country in 1984, the first being HDFC in 1977.
Over the next few years, DHFL adopted a hub-and-spoke model and went about opening branches in bigger places and service centres in semi-urban and rural areas. The young Wadhawan was first exposed to the company in the early '90s, while he was studying for his undergraduate degree. His father asked him to understand credit underwriting and deposit mobilisation. "I used to take interviews of potential homebuyers. There were also senior people guiding me," says Wadhawan, who joined the company as executive director in 1997. His father was not keeping well and died in 2000. The responsibility of managing the company fell on his shoulders.
"It was too early to make a change. It was more about settling down," says Wadhawan, who is all praise for the senior management for their support during those days. The policy of hiring young MBAs also helped him. Though the foundation of a business with focus on Tier-II and Tier-III cities had already been laid, Wadhawan brought in new energy. Insiders say he started engaging with big institutions, regulators, governments and banks. As a non-banking financial services player, the company was facing resource mobilisation challenges. Around the same time, banks were also entering the secured home loan space. The challenges included mobilising resources, building the asset side and taking on the might of the banks. One of the first things Wadhawan did was to connect with top consultants for business process engineering. The consultants suggested a new technological architecture involving things such as different scoring models for salaried and non-salaried people. "It was a good tightrope walk. We slowly started maturing in our approach," he says. True to its DNA, DHFL still caters to the middle-income group with average loan size of Rs14-15 lakh.
A major highlight of Wadhawan's journey over the last one and a half decades has been inorganic growth. Within a few years, he pounced on the home loan division of ING Vysya Bank. What upset him that time was the buzz in the market that DHFL would become an acquisition target. "We are an acquirer," he had thundered that time. The acquisition got DHFL a base in South India and accounts from the Vysya trading community. This business was later merged with Aadhar Housing Finance - an initiative to provide housing finance to economically weaker sections in UP, MP, Orissa, Jharkhand, Chhattisgarh and Bihar. Aadhar, with International Finance Corporation as a partner, has average loan size of Rs7.5 lakh. Wadhawan also acquired Deutsche Postbank Home Finance (renamed as First Blue Home Finance) in December 2010. This company, with focus on slightly more affluent sections, was later merged with DHFL. Acquisition is one area where Wadhawan still keeps his eyes and ears open.
Wadhawan is also betting on a larger financial services play. In the lending business, he has already expanded into SME loans, loan against property and education loan. He has also entered life insurance."We are going to see a lot of consolidation in the life insurance sector," says Wadhawan. "We will surely put our hat in the ring."
Wadhawan has also bagged a general insurance licence. The mutual fund business is also now fairly well established. Going forward, Wadhawan is closely watching the distressed assets space.
DHFL will face challenges from new finance banks that are setting shop in small town and cities. Then there are affordable housing finance NBFCs that are on an expansion spree. The banks are only growing bigger in mortgages. "It's been 33 years. We have a long journey ahead of us. We are set to grow and face competition," says Wadhawan. While DHFL is the flagship company, Wadhawan has created a holding company, Wadhawan Global, for housing financial services businesses.
A decade ago, the family started a process for an amicable settlement of cross-holdings. Wadhawan now independently manages DHFL, while his uncle Rakesh Kumar Wadhawan and cousin Sarang Wadhawan manage real estate firm HDIL.
When asked about his favourite leaders, he responds without blinking an eye: "I admire my entire management team. They have taken on the mantle of doing extraordinary things. They are my real heroes."