Capitalising on Kadle

At five feet two inches, it's easy to lose Praveen Kadle in a crowd. At Bombay House—the headquarters of the Tata Group—however, the 52-year-old's presence has been towering virtually ever since he joined Tata Motors (then Telco) in January 1997. When the commercial vehicle and car giant crashed into the red in 2001— notching up a record Rs 500 crore loss—Kadle was at the forefront of the two-year turnaround strategy.

The finance whiz-kid was also the pointman during the acquisition of Daewoo Motors' heavy truck business in 2004, efficiently raising funds and deploying them in the transaction. For many analysts, and those in Bombay House, Kadle is the man who brought Tata Motors back on track in the early part of the past decade, at a time when the survival of the auto major was being questioned.

Yesterday's CFO has slipped into a new role with consummate ease. From raising funds and structuring mergers and acquisitions, Kadle, today, is on the other side of the fence. At the helm of Tata Capital, a wholly-owned non-banking finance company (NBFC) that's a subsidiary of Tata Sons, Kadle is leading a team that lends to corporates (and individuals) and advises on buy-outs.

"Being a CFO, you can make critical comments about business without worrying about giving a return on equity. But running a financial services business is a whole new learning," says Kadle, who has won many awards for his achievements as a CFO, including Business Today's Best CFO in 2006.

Tata Capital is, of course, the Group's second wind in financial services, eight years after Tata Finance went under after one of its subsidiaries Nishkalp Investment and Trading Co. suffered huge losses in the stock market crash of 2000. Tata Finance, which was among the leading NBFCs dealing in hire-purchase, commercial auto loans, merchant banking, foreign exchange and broking, crashed into the red because of the loans it had extended to Nishkalp. The whole affair was messy with a few in the top management at Tata Finance and Nishkalp being accused of insider trading in Tata Finance shares.

So, if Tata Capital is moving cautiously this time around, it has ample reason to. "The speed at which we expand is not as important as having a solid foundation especially for the consumer finance business," asserts Kadle. At Tata Capital, he first wants to lay a strong foundation in terms of risk collection and credit processes, and processes for acquisition and retention of clients.

That, however, doesn't mean he isn't thinking big. Kadle is aiming to propel this two-year-old start-up amongst the top five NBFCs in the country. It's made fair progress so far. Set up during the peak of the stock market bull run in 2007, Tata Capital has amassed an asset size of Rs 8,000 crore— which parallels entrenched rivals such as Citifinancial, Indiabulls Financial Services and Reliance Consumer Finance, a division of Anil Dhirubhai Ambani owned-Reliance Capital. Armed with a capital infusion of Rs 670 crore from Tata Sons—the total capital base now stands at Rs 2,088 crore, the rest was raised via convertible preference shares—Tata Capital is currently focussed on scaling up the consumer and commercial finance divisions.

Both get a fair share of business from the Tata Group. Commercial finance is the largest division of the company. Till September end, it had disbursed loans worth Rs 5,135 crore, constituting 60 per cent of Tata Capital's total asset book. Credit Analysis and Research Ltd (CARE) Ratings' May 2009 report on Tata Capital says around half of the SME loans as on December 31, 2008, were estimated to be within the Tata ecosystem. In consumer finance, too, a major growth contributor has been the purchase of a pool of auto and commercial vehicle receivables from Tata Motors and its financing subsidiary Tata Motors Finance. As on September 30, the total receivables on its books was Rs 1,434 crore.

The September 2008 bankruptcy of Lehman Brothers and the subsequent credit crisis was a cue for Kadle to restructure the consumer finance -operations. Earlier, it had a productcentric model, with each product—like personal loans or home finance— being individual verticals with a separate sales team. The onset of the economic slowdown prodded Tata Capital to change its approach to a customer-centric one whereby one sales person could approach the customer for any of their loan or financial advice needs. Kadle observed that customers weren't exactly ecstatic about divulging their personal financial information every time they took a loan or bought a financial product.

Tata Capital also used the liquidity crisis in the third quarter of 2008-09 to its advantage. When most banks and NBFCs had clamped down on lending, Tata Capital was more liberal with its purse strings. According to CARE Ratings' report, Tata Capital saw net increase of Rs 778 crore in loan disbursals during that quarter. This was a time when there was a lot of overselling by NBFCs and banks in promising attractive loans to customers in the market. "Consumers have begun to understand the huge difference in what is promised to them and what is delivered," explains Jamshed Daboo, Head (Consumer Finance and Advisory Business), Tata Capital.

The company also did well to gain investor confidence by offering a debt instrument—non-convertible debentures (NCDs)—in February this year at a time when there was complete disillusionment with the stock markets among investors. Tata Capital raised Rs 500 crore from retail investors through the NCD issue by offering a 12 per cent rate of interest. "As banks strengthen their distribution and product reach, NBFCs will be challenged to offer something more to customers. In this pursuit, some may use their strong distribution network or their strong brand to differentiate themselves," says Ananda Bhowmik, Senior Director at Fitch Ratings. A worldrenowned brand, no dearth of capital and a seasoned campaigner like Kadle at the helm will go a long way in separating Tata Capital from the boys in the NBFC space.

TATA CAPITAL'S BUSINESS SPREAD

• CONSUMER FINANCE and ADVISORY: Has disbursed Rs 1,886 crore worth of loans, including home loans and personal loans.
• PRIVATE EQUITY: Plans to launch a PE fund with a size of $350-400 million in 2010.
• INVESTMENT BANKING: The 10-member team has done five deals so far, including three for the Tata Group's internal fundraising requirements.
• COMMERCIAL FINANCE: This is the largest division and has disbursed loans of Rs 5,135 crore towards construction equipment finance and SME and trade advances.
• TATA SECURITIES: Into retail and institutional broking, and third-party distribution of financial products.