'Address the needs of middle India': Ajay Kanwal, MD and CEO of Jana Small Finance Bank, on scripting a new strategy

What was your first impression of Jana Financial Services?

I was studying India for a long time because it was the biggest market for us at Standard Chartered... and my view of India was very positive. After Standard Chartered, I took up an advisory role at Mastercard and TPG. That’s how Jana came under my fold as TPG’s investee company... The presence of a leading private equity firm, TPG, as an investor was proof that they must have done some due diligence. I was also looking to do something more entrepreneurial. The Jana assignment offered a good opportunity. Large institutions like Standard Chartered and Citibank teach you a lot about processes and governance. They learnt from their mistakes and followed a systematic approach to doing things. I saw a good opportunity in Jana to build a sustainable model at the bottom of the pyramid. There is a huge, addressable market for a bank like us. Middle India is so big. I believe that banking has to be a boring business. It needs to be a long-term business. We are happy to finance asset creation for businesses, but not consumption for individuals. 

What was the strategy when you started the bank?

Our strategy was clear: address the needs of middle India. Today, a micro-borrower approaches different institutions for housing, two-wheeler, or personal loans. These institutions generally look at the cash flow of a borrower rather than his or her net worth. Borrowers do not want to go to multiple places. They want all those services under one roof. In places like Singapore and Hong Kong, the housing loan institution becomes your anchor bank. Based on the net worth, the borrower gets new loans from the same bank because it knows the borrower and the value of the mortgaged property. Every time I visited smaller markets, the biggest gap I noticed was in asset building. Therefore, we launched affordable housing loans and loans against property (LAP). Our average ticket size is close to Rs 12 lakh... Today, affordable housing and LAP make up around 40% of our portfolio... If you look at credit cycles over the decades, property has been the most resilient asset class... We decided to become an anchor bank. We had 5.4 million active customers when we started the bank, and in total, there were 8 million customers available for future cross-selling. Today, we have 12 million customers. 

Your bank has a low CASA ratio. How do you plan to improve the ratio?

In six years, we have built a CASA ratio of 20%. We will increase this by 200–300 basis points every year. We will gradually increase it to 30% in the next three years. If we want to increase CASA, we will have to open more branches, hire more relationship managers, spend on branding, etc. Our cost-to-income ratio will shoot up. We need CASA, but there has to be a pace for the organisation. We have high-margin businesses, and the current cost of funds is comfortable.

You aspire to convert into a universal bank. Don’t you think it is too early?

The original RBI guidelines suggested a minimum of five years for converting into a universal bank. We have been operating as a scheduled commercial bank for six-and-a-half years. 

According to the guidelines, SFBs should have net NPAs of less than 1%, gross NPAs of less than 3%, and a track record of net profits in the last two financial years. It also emphasises a diversified asset book. We meet all these parameters. The licence will help us with liabilities, specifically CASA. 

As we move up the pyramid, we need a lower cost of funds. If we don’t reduce that, we won’t be able to underwrite better-quality assets.         @anandadhikari