Around the time Kumar Mangalam Birla , Chairman, Aditya Birla Group , was preparing the blueprint for retail way back in 2007, the sagging financial services business, which today contributes the highest to Aditya Birla Nuvo's revenues (34 per cent), also needed a push.
At the height of the bull run in late 2000, Birla roped in Ajay Srinivasan, who at that time was managing the $60 billion assets of Prudential plc, an international financial services company, from Hong Kong, to build his financial services business and create capacity for future growth in terms of right people, organisational structure, and also systems and processes. The idea was to take financial services to the next level.
Srinivasan's mandate was to build momentum in the life insurance and mutual fund businesses, and also create new business lines, especially NBFC, broking, private equity, distribution, etc. Today, the financial services business alone has revenues of $1.4 billion and AUM of $20.5 billion.
With the RBI now opening the door for corporates to set up banks, Birla is also quick to point out that his great grandfather G.D. Birla actually started UCO Bank, which was nationalised in the 1970s. Banking is probably the missing link from the distribution perspective, but one must remember that it is not an easy industry. It is highly regulated in terms of the promoter's shareholding.
The bancassurance channel alone contributes over 50 per cent in the premium collection of many bank-led private insurers like HDFC Standard Life Insurance Company and ICICI Prudential Life Insurance. Birla Sun Life Insurance, a 74:26 joint venture between Aditya Birla and Canada's Sun Life, is amongst the top six in terms of new business premium. It reported its first-ever profit of Rs 305 crore in the last 10 years of its operations. "We will not require further capital," says Srinivasan, 47, Chief Executive (Financial Services), Aditya Birla Group. The company has a capital base of Rs 1,575 crore with accumulated losses of the same size, which will take another three to four years to wipe out from the books.
In the mutual fund space, Birla Sun Life Asset Management, a 50:50 JV, is also amongst the top six in terms of average AUM. It posted revenues of Rs 366 crore and a net profit of Rs 85 crore in 2010/11.
According to Srinivasan, who studied at Delhi's St. Stephen's College and did an MBA from IIM Ahmedabad, the challenge is to spread out beyond top cities. "The MFs are still getting money from the top eight to 10 cities," he says. A banking licence will be the right fit to expand distribution. But the licence also throws newer challenges for the group. The future banking play is going to be in the smaller cities and towns. There is, undoubtedly, higher risk in lending to non salaried class in such areas. The product requirement is also very different with smaller loan ticket sizes.
Aditya Birla Group has some elements of a bank and all the elements of a universal banking model. Aditya Birla Finance, an NBFC, focuses on loan against shares, IPO funding, SME financing, treasury and structured finance. The NBFC is already leveraging the group's dealers and suppliers for SME lending. Aditya Birla Money is a retail broking unit and Aditya Birla Money Mart focuses on wealth management. Srinivasan is also pushing the alternate asset platform in the last few years. It has raised a real estate fund of Rs 1,100 crore with a focus on mid-sized companies. Mobile banking is the next big bet in the banking space. Birla, with a large telecom arm, could play a big role in the future payment system.