Financial leaders have to make strategic plans to maintain the asset quality of their firms. This is necessary for maintaining a firm’s financial stability. It also mirrors the management’s proficiency in recognizing and handling credit risk. This blog unveils how Abhay Bhutada, Aditya Puri, and more, have managed to maintain the asset quality of their financial institutions.
Understanding Asset Quality
Before delving into the perspectives of finance leaders, let’s unravel what asset quality is. In simple terms, it’s the measurement of the health and reliability of a financial institution’s assets. These assets include loans, investments, and other financial holdings. The quality of assets shows how much credit risk is associated with the institution’s current and future loans, investments, real estate, and other assets, as well as off-balance sheet transactions.
Here’s How Finance Leaders Maintain Their Institution’s Asset Quality
1. Abhay Bhutada
Abhay Bhutada, MD of Poonawalla Fincorp, emphasizes a dual focus on sustained growth and asset quality. He highlights that the AUM growth and disbursement of the firm have been performing consistently well in the last eight quarters. He asserts that maintaining the trajectory of 35-40% AUM growth remains a steadfast commitment for the future.
Abhay Bhutada underscores the significance of achieving superior asset quality alongside maintaining profitability. This strategic approach aligns with Poonawalla Fincorp’s guidance for FY 2025, ensuring the quality and stability of the company’s assets. His focus on a balanced approach to growth, profitability, and asset quality positions Poonawalla Fincorp as one of the pioneering NBFCs in the country.
2. Ramesh Iyer
Ramesh Iyer, the Vice Chairman and Managing Director of Mahindra Finance, is a prominent advocate when it comes to maintaining the asset quality of the firm. Under his leadership, Mahindra Finance has improved its asset quality at the rate of 4% for Q3 FY24 versus 4.3% quarter on quarter. At the time of writing this article, Iyer stated that their goal is to achieve a Net Interest Margin (NIM) of 7% by March of 2025.
Ramesh Iyer’s focus revolves around building a robust credit assessment framework. He always emphasizes proactive measures for risk identification and management. This is also one of the reasons why the assets under management (AUM) growth of Mahindra Finance remains strong at 25.5% Q3 FY2024. Keeping all these figures in mind, the NBFC is also expecting a 19% compound annual growth rate (FY23-26) when asset under management (AUM) is considered.
3. Aditya Puri
Another financial leader who made sure that the asset quality remained steady was Aditya Puri. He is the former Managing Director and CEO of HDFC who worked there for 26 years and was known for his strategic leadership. He always prioritized tight control over asset quality. Under his stewardship, HDFC Bank had a return on assets (ROA) of 1.72% in the year 2019-2020.
While Aditya Puri was leading, he made sure that they did not have an NPA problem. In fact, their NPA deteriorated to 1.36% in the Q1 of FY21 compared to 1.26% in Q4 FY20. His meticulous credit evaluation and risk management have been instrumental in preserving the bank’s asset quality. After his remarkable journey at HDFC, Aditya Puri is currently serving as the senior advisor at The Carlyle Group, an asset management company.
4. Arul Selvan
Arul Selvan, serving as the President and CFO of Cholamandalam Investment, is optimistic about the institution’s approach to asset quality. With an experience of 18 years at the organization, the chartered accountant turned President is consistently working hard to improve their asset quality. He addressed the challenges anticipated by the firm in Q1 of FY25 and expressed confidence in an overall positive trend in the subsequent quarters.
Selvan specifically highlighted his expectation for an improvement in Cholamandalam Investment’s asset quality in the upcoming quarter and the following year. Drawing a parallel with the pre-COVID era, he suggests a positive trajectory, indicating a commitment to maintaining and enhancing the quality of the company’s assets. This forward-looking perspective reflects a strategic focus on asset quality and a commitment to navigate challenges for sustained financial resilience.
Final Thoughts
For NBFCs, asset quality determines the lending and risk-taking capability of the firms. Leaders like Uday Kotak, Abhay Bhutada, and Arul Selvan, emphasize the critical role of asset quality, making it an important parameter to measure the success of the NBFCs. As NBFCs navigate the challenges of steady growth and non-performing assets, these leaders are committed to achieving commendable asset quality.