In balance lies power

In balance lies power

When Vellayan Subbiah assumed charge at Cholamandalam Investment and Finance Company it was reeling from a split with DBS. He brought the company back on its feet through a balanced approach, that led to the growth of all its stakeholders. Importantly, he made some tough calls on preserving the company’s south-Indian family business ethos while absorbing global best practices


“I have never been one for crystal ball gazing and I don’t believe anyone can predict how the markets are going to perform, so even in an underperforming market environment, you just stick to doing the basics right.” That’s the response I get from Vellayan Subbiah, MD, Cholamandalam Investment and Finance Company Ltd. (Cholamandalam), when asked how his company, the finance arm of Murugappa Group, faces up to the challenge of a prolonged slowdown in the market. Subbiah considers himself a safe keeper of his family’s business and rightly so. When he came onboard as its managing director in 2010, the company was finding its feet post exiting a joint venture with DBS. “When we got in with DBS, we tried to grow the personal loans business which by now is regarded as a fairly famous ‘disaster’. We grew that book too fast, in two years, we grew it to Rs. 3,000 crore and spent the next four years taking it back to zero,” he recalls. While recent history perhaps set a circumspect tone for the company with regards to growing new businesses, Subbiah tells me that he’s always interested in a new idea. “One of the things we are looking for is for good entrepreneurs to come join us as we want to start up companies in new spaces. We want to fund entrepreneurs and be the umbilical cord that supplies them with the resources and offer them the access that a mid-size company like us could,” he explains while adding that this is at the core of Cholamandalam’s long-term horizon.

“If anything is going a particular way at Cholamandalam it’s because of me; so, it is important for me to constantly question myself. My mandate to my team is to set audacious goals, create a belief in people that they can hit those goals and support them”

Even as Subbiah explains that for a family business, 10 years is “short-term”, he breaks this time period down into three phases; years zero to two where the company focuses on the execution of the existing businesses including cost management and hitting revenue targets, years three to five are more about what its business mix needs to look like, especially to avoid an overdependence on the current mainstay segments, vehicle finance and home equity. Years six to 10 are entrepreneurial in nature and Subbiah states that this thinking has to do with determining which new businesses are best fits.

Beating the odds of conservatism

At its core, Cholamandalam is a south-Indian company, anchored by its vision to create a better life for its customers. This strong sense of purpose has helped it connect with customers and this reflects in the company’s performance; even during a challenging FY 2013-14, the company’s overall disbursements grew by eight per cent and its total assets under management has seen a 22.4 per cent year-on-year growth. The company added 56 branches to expand its reach in the Tier-II to Tier-IV regions. Despite India’s vehicle finance industry facing significant challenges in FY14, with sales dropping by 20 per cent over the previous year, Cholamandalam’s disbursements in vehicle finance were at Rs. 10,128 crore as against Rs. 9,882 crore in the previous year, managing a growth of two per cent. This was primarily a result of the company’s diverse product portfolio, with used commercial vehicles, tractors, cars and multi-utility vehicles off-setting the impact of de-growth in the sales of commercial vehicles. In the next six months to a year, it plans to add two-wheelers to its product mix. Disbursements in home equity grew by 30 per cent at Rs. 2,810 crore as against Rs. 2,161 crore in the previous year. “Home equity is still in its nascent stages, today, nearly 70 per cent of the homes in India do not have a lien against them. So, by far, it is the largest asset class that is yet to be leveraged,” says Subbiah. He’s also clear in his thinking about building scale in newer businesses; “I don’t feel comfortable scaling out too much unless there is incredible confidence in all of the internal systems, be it technology, operations, credit or risk management.” In terms of growth horizons, Cholamandalam’s criteria are predominantly retail and SMEs and that’s where it is likely to stay in the near future.

Heralding a change

Subbiah is far from oblivious to changing times, in fact, in just the last three years, Cholamandalam has hired close to 7,000 people and the average age of its work force is a surprising 27. “With a young team, you can push the growth envelope a lot and I do think we are figuring out how to keep the balance going between who we are as a south-Indian company and what we can absorb from a more global banking culture,” says Subbiah. Now, balance, is by far the most important to Subbiah. He, for one, has mastered the art of balancing himself on a Swiss ball and that’s replaced the swivel chair. As for his company, he wants to set the right balance between breaking the shackles of conservatism, especially to attract top talent, but not at the cost of compromising its values. Another one of Subbiah’s strong convictions is lean management and he shares that lean management guru, Prof. Shoji Shiba, has been helping the company look at how lean can lead to transformation.

An important driver of change at Cholamandalam is technology and Subbiah’s quick to admit that those who don’t quickly adopt get left behind. Three years ago, the company rolled out mobile phones across its workforce and these became its data acquisition systems and sales funnel for collections. “There are two sides to it, one is to make data available instantaneously to people who need to use it and to use it intelligently. The other side is to create more knowledge workers as opposed to process workers. In India, 80 per cent is process work and 20 per cent is knowledge work and technology allows you to flip this ratio on its head,” explains Subbiah. Today, the company has a tablet enabled workforce and Subbiah emphasises on the push to use these for field sales automation, collection automation and other initiatives. While dealing with the challenge of connectivity in semi-urban and rural areas, Subbiah stresses that the solutions work both online and offline so nothing gets in the way of using smart technology.

Sensing a good opportunity

I check to see where Subbiah’s business radar points towards and he seems most enthusiastic about addressing the gap in payments, especially for this industry. “One significant area of opportunity that I see is in payments, from the data we get, 90 per cent of the country still operates on cash and transaction costs are very high. This is also where, systemically, we are the most inefficient,” he says while adding that even in exploring online finance, payments are going to be the pain point to address.

As for the company’s current business interests, in vehicle finance, Subbiah is confident that Cholamandalam will be able to meet its projected growth rate of five per cent to 10 per cent in the next fiscal. In the home equity segment, he expects to tap the market potential that exists in the Tier-III and Tier-IV regions of India. To fund these expansion plans and more, Cholamandalam opened its doors to Apax Partners in July 2014, with an eight per cent stake worth Rs. 500 crore. “We need to maintain capital adequacy to grow the business and that was the main reason for infusion. This has given us a good base and it should take us through the next three years,” says Subbiah.

As my interview with Subbiah draws to a close, I ask him about his own management style and for the slightest moment, he struggles to define it. A definition, in his own words, is too set in stone and a CEO needs fluidity to evolve continuously based on the environment, the state of the company and more. “If anything is going a particular way at Cholamandalam it’s because of me; so, it is important for me to constantly question myself. My mandate to my team is to set audacious goals, create a belief in people that they can hit those goals and support them,” he concludes.

In numbers 

Cholamandalam Investment and Finance Company Ltd. 

FY 2013-14 

Aggregate loan disbursements grew by 8 per cent 

Disbursements in vehicle finance grew by 2 per cent, y-o-y, at 10,128 crore 

Disbursements in home equity grew 30 per cent, y-o-y, at 2,810 crore 

Added 56 branches to further reach, especially in Tier-II, Tier-III and Tier-IV regions

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