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Reshaping India's Infrastructure | Hemant Kanoria @ SREI Infrastructure Finance Limited
118 Plays4 years ago
This week on Founder Thesis podcast host Akshay Datt is in conversation with Hemant Kanoria - Chairman at SREI Infrastructure Finance Limited.
A pioneer in the field of infrastructure finance, Hemant started SREI in 1989 and in the last two and half decades has scaled it to be India's largest integrated infrastructure institutions with an asset base of around USD 5.5 billion.
But that’s not all, Hemant Kanoria, is also known for his role in creating a wave of rural entrepreneurs through the IT-enabled Sahaj service centre initiative that has created over 50000 village-level entrepreneurs.
Tune in as this pioneer & thought leader shares his growth story, enjoying the roller coaster journey of managing businesses and about having a solution-oriented mindset.
Our key takeaways from this episode are:
* How to build an institution with an engaged & loyal workforce.
* Decision-making framework for investing & disinvesting.
* How to deal with large scale external set-backs, such as, the Covid-19 pandemic.
For more such inspiring & intriguing leadership stories visit our website at www.thepodium.in
We are also on Instagram at @thepodium.in and have a WhatsApp community of fellow entrepreneurs & start-up enthusiasts at www.podm.in/growwithpodium
Join us there to stay updated on the latest from The Podium.in
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Transcript
Introduction to the Founder Thesis Podcast
00:00:02
Speaker
H.T. Smartcast You are listening to an H.T. Smartcast original
00:00:24
Speaker
Hi, I'm Akshay. Hi, this is Aurob. And you are listening to the Founder Thesis Podcast. We meet some of the most celebrated sort of founders in the country. And we want to learn how to build a unicorn.
Early Challenges in Business
00:00:37
Speaker
I'm Hemant Kanoria. I'm the chairman of Shrei Infrastructure Finance Limited.
00:00:52
Speaker
Start them young to teach them better is the motto of most Indian Marwari business families. And that is exactly what Hemant Kanoria's father had in mind when he entrusted him with the responsibility of reviving two sick flower mills at the age of 18 when he was growing up in Kolkata. In today's episode of Founder Thesis, Akshay Dutt talks to Hemant Kanoria and they discuss how he took the business ahead and turned it into Shrei Infrastructure Finance Limited
00:01:22
Speaker
which has assets worth around US$6 billion today.
00:01:38
Speaker
So it was a very difficult time because turning around two, three units, we were successful in doing so. And but in the same time, the government policies changed. And because of the change of the government policies, all the flower mills and West Bengal came to almost a close down. And we had to also close down these two flower mills. We had our family had the largest flower mill in Asia, that particular time. So what happened? What changed the government policy?
00:02:08
Speaker
So the government decided that the flower mills, they were being allocated wheat, which was a raw material that they would not be allowed. They had to buy it in the open market and they would not be given any allocation. And at the same time, they introduced tax on the on the final finished products, which was flower and all the others. So because of that, the whole market changed because we had to bring in
00:02:33
Speaker
or a wheat growing area. So we had to bring wheat from Haryana and Punjab. And mint used to bring it in rakes because it was essential commodity. So on the way, any of the government departments could stall the rake at the trade and take over the wheat and then compensate. So therefore, it was like a chaotic kind of a condition because of the government policies. And then it was a discouragement for people to have a production plant in West Bengal.
00:03:00
Speaker
because there were taxes which were imposed on the finished product but there was no tax on the raw material. So, therefore, it made it, it created a huge non-competitive advantage. There was no advantage, it was a disadvantage for all the companies. And therefore, the smaller mid-sized mills had to close down immediately.
Birth of Shrei and Initial Ventures
00:03:21
Speaker
The larger ones also they struggled because they required huge quantity of raw material which they were not able to procure or get.
00:03:29
Speaker
So over a period of time, the entire face of the flower mills and this was changed and our family was having the largest flower mill which was set up by the British in 1830. So therefore, that also had to, it was a blue chip company, it was a listed company. But you know, everything had to come to a close down. And this happened by the time all the flower mills were closing down, it was 1878. So about six years of my life.
00:03:54
Speaker
I was engaged in the family business of the flower mills and all the animal feed plant, trading business, etc. So that's how I spent my time learning the art of the business. So how old were you when the mills had to be shut down? I was about 24-25. So then what did you decide to do next?
00:04:20
Speaker
Like this is obviously the genesis of Sree, but I just want to hear from you like how that actually happened.
00:04:26
Speaker
So then we tried our hands in a lot of things because Shrei also stands for, we floated this company which was known as Shri Radhakrishna Export Industries. So if you see the abbreviations, it stands for Shrei. But actually it was Shrei Radhakrishna Export Industries because we started dabbling in exports of leather goods, of handkerchiefs, of various things. And we also set up a cigarette filter plant for exporting.
00:04:56
Speaker
so we tried that unfortunately those did not work out well and so therefore you know there were a lot of failures in my early days in life so which was good because it taught me a lot of lessons what to do and what not to do and then my one of my younger brothers about the lessons that you use
00:05:15
Speaker
you know that served you well throughout like that you learned in that phase of experimentation.
Focus on Infrastructure Financing
00:05:20
Speaker
See one thing which was there that never give up because see the opportunities will always be there in adversity but because of some adversity has happened so that does not mean so it was a solution orientation which was there because when you take over two farmers one being close and one sick so you start thinking from the beginning
00:05:40
Speaker
on solutions and not on problems because problems are already there so you have to find our solutions and therefore the genesis of Shreya also happened because infrastructure in the late 80s and beginning of 90 infrastructure in India was in shambles whether we look at power plants because Calcutta especially had a lot of potholes it had a lot of load shedding and that is how we grew
00:06:05
Speaker
So, therefore, the infrastructure was in shambles and also the liquidity for the country that time was a problem. Of course, India had to pawn the gold to raise money, pledge the gold. So, therefore, you know, it was basically we had both these two crises. And that is why I thought that there would be an opportunity, me and my younger brother Sunil and my father. So, we thought about what we should be doing. He said, okay, finance is a problem for the country.
00:06:32
Speaker
Infrastructure is a problem. So, therefore, there would be definitely opportunities because in all both these two areas were problematic. So, we started financing infrastructure. So, as finance was a problem in infrastructure. So, we got into financing and infrastructure. So, that is how the Shre started the genesis of Shre and then we did our first IPO in 1990. So, before we reached the IPO. So, when you started I would
00:07:01
Speaker
understand more about that time. So you were financing infrastructure, where was the money coming from? Was it your own family money or was it like borrowed from banks to lend it out further? Yeah, so our first line of credit which we got from the bank was about 5 lakhs of rupees. So you can just imagine that, you know, in 89 when you start a company, you get a 5 lakh or rupees is the limit, you have your own capital of
00:07:28
Speaker
25% of that, so that is how it's very modest means the share was started because we didn't know how the business would be doing. We had no idea as a family about financing, we had no idea as a family about infrastructure. Infrastructure had not opened up that time, so therefore we started financing with construction equipments to contractors.
00:07:49
Speaker
And that is why how we got in touch with L and T, Larsen and Tubro was manufacturing construction equipment, the mining equipment, which they were not able to sell because the total sales of construction mining equipments in 89 used to be just about 100 crore per annum.
00:08:05
Speaker
which peaked to about 30,000 crore about four, five years back per annum. Therefore, that is where we have seen the journey. And we were a part of the journey that so with the manufacturer we used to go to also help them in the sales, go to the contractors and convince them that buying equipment will help them to improve their efficiency, cut down their construction time.
00:08:29
Speaker
And their payback used to be about a year. So if a contractor bought an equipment, he was able to pay back the interest and the installments and the principal within just one year. So that was the payback. That's how we introduced the mechanization into the construction and mining field along with the manufacturing. And then infrastructure started opening up subsequently. How did you get your very first deal, like the first financing that you did?
00:08:59
Speaker
How did that come about? So basically, the first financing was in collaboration with, as I mentioned, that Larsen and Toubro was the company that we tied up with the regional manager here. They were also trying to find out how to improve their sales. But how did Larsen and Toubro know about you? Because you were till then like an unknown. No, because I knew the person concerned here.
00:09:23
Speaker
through the contact sector with chambers of commerce and also therefore we had just met with each other and we became friends and he was trying to sort out a problem we were trying to find solutions to the problems therefore as I mentioned that you know the whole approach from life from the beginning of my career in business has been solution orientation that if there is a problem there is a solution which is embedded in that problem so always look at the solution and not the problem
00:09:57
Speaker
So how did the business grow from the five line of credit which you started by the time you reached the IPO stage? Like how much were you on your loan books, like the total amount? And if you can share that journey of building it up.
00:10:15
Speaker
So I think at that time what we were adding was in lakhs. It was not in crores because the times were also different. It is not, we are not talking about today's times where everything is in billions of dollars. It could be not even touching billions. So with your first million itself was a herculean task and billions were just unimaginable at that particular time.
00:10:40
Speaker
So there was nothing to lose because I was young. I was about 26 or so. So there was a lot to do in life. And because of the first few years of 78 years of being in the flood, meeting businesses and other businesses, which was initially started off with difficult times, then it became successful. Then again, it was a failure because of the circumstances and
00:11:08
Speaker
it was the up and down so the usual business roller coaster ride I was able to see it in a very short way you lost your fear of failure very early on because you saw it up close pretty early yes I would not say failure I would say that I had my first roller coaster ride quite early in life in business so therefore you know you never you when you go on the roller coaster ride you don't you enjoy both going up and coming down
00:11:37
Speaker
So the entire mindset changes and that's fortunately the mindset I had had a change in my mindset too. That's how you look at businesses and that's why we started off with Shreya and it was about you know first we got from the bank and again we were able to increase the business. Next year we got a line of 25 lakhs then again it increased so it was a gradual progress in the initial days.
00:12:06
Speaker
till the time that in 1990, 89.90, everyone was coming from for an IPO. So, he also thought that, you know, let's do an IPO. So, we got many of the investing bankers to get convinced on our idea. And we did a princely sum in 1990 of 1 crore, 80 lakhs for that IPO. And that was again quite a, you know,
00:12:27
Speaker
quite an experience because to raise one crore it lacks. I had to have all the usual broker meetings and press meetings, investment bankers, so we had the best of investment bankers with us and we did our roadshow starting from Surat to Baroda to Ahmedabad, Jaipur, Chennai, Calcutta, Mumbai,
00:12:50
Speaker
Delhi
Diversification and Innovation in Financing
00:12:51
Speaker
everywhere. So, therefore, you know, just to raise one crore, sometimes when I just took back and think about the journey which I am paid to raise that one crore, 80 lakhs, was quite an interesting journey. Now, people will just, you know, for one crore, 80 lakhs, they will just back their idly and the money will go away. So, that was the way that we went about
00:13:18
Speaker
and then we were in. What was your like size before the IPO like you know that what color it likes increased your asset size by how much like did you like double it with that? Yes, it's almost doubled it. Okay. And then we came out with the right sea shoe.
00:13:35
Speaker
again in 92 then again we had a follow on issue. So, you know then continuously we kept on because once we had gone into the market then we had got used to understanding how the market would behave and if we had a good proposition then the market would definitely contribute to that.
00:13:55
Speaker
And for the last 30 years, we have seen very, very many ups and downs. So it's not been just every time. But as I said that, you know, it's a roller coaster ride. So you enjoy while you are going up. You also enjoy the thrill when you are coming down. Because again, you have to go up. It's a roller coaster. So it's. So and the lending business also started getting diversified. Tell me about that journey also, like how you
00:14:23
Speaker
diversified beyond just lending for equipment.
00:14:27
Speaker
So what happened was that as we were growing in 95, we got the first development financial institution, the German government to come in and extend the line of credit to us because they thought us to be a unique platform where we were lending as a private sector company lending to the infrastructure. And even not only lending to the medium or large projects at that time, because we had not started lending to the medium and large projects, we had only been lending to the enablers.
00:14:56
Speaker
which were the construction companies in the contractor. The course if they did not if they were not enabled to execute the work properly then all the projects would not have happened.
00:15:10
Speaker
So we were absolutely at the ground level with these contractors and construction companies and we had devised ways of assessing their risks and working with them as a financial partner instead of just being a financial bank because that model would not have worked out because many of the companies they did not even have a balance sheet.
00:15:29
Speaker
I remember my first instance that because we hired a couple of bankers in our company because we wanted to do all the assessment etc. So we had one gentleman from a public sector bank, we had another gentleman from
00:15:43
Speaker
multinational bank would join in our team. And their evaluations would have resulted in doing no business. So we had to find out unique method of understanding because the first time when we wanted a contractor to bring his balance sheet, so show us a balance sheet. So he brought his chartered accountant. And so I was quite amazed that, you know, what would I be doing the chartered account with the chartered
00:16:08
Speaker
a balance sheet that you require and you will make it and give it to you. Because you know the concept for a contractor to have a balance sheet and everything should be structured because they used to hire a manual, usually the contractors that time were known as ticket asks.
00:16:27
Speaker
You can't take it out, right? You don't have the take it out coming with a balance sheet also. He thought that it was like an all cash business. Yeah, so he thought because he had to give all the workers everyday cash for every week cash, so therefore whatever money that he got from
00:16:43
Speaker
the principal, he had to convert it into cash because he could distribute it. He had to buy all the materials in cash and there were no machines that time. So, we were introducing him to machines which was at the end of the day improving his efficiency.
00:16:58
Speaker
and also the productivity. So therefore, from that particular perspective, it was a new world for him, it was a new world for us. So we had to invent that how do we make the assessment in a proper manner of the credit and the risks that we were taking. So therefore, it was a different world altogether. And then how were you different from a bank? Like what was your assessment methodology that was unique to you?
00:17:23
Speaker
So it was very simple. So what we used to look at was that the key elements for us were the track record of that person.
00:17:31
Speaker
that what he was doing, which area was he operating in, who was the principal, what was his capability to complete the project and also that if he bought these equipments, ABCD equipments, with those equipments, how his efficiency will improve and how much of more contribution that he would have that he can be increase his profit. At the same time, he would be in a position to pay back our interest and the installments which was there.
00:17:59
Speaker
So, these were very practical on the ground assessment which had to be done. And we had to even travel along with him to his sites to see it, whether it be a mining site or it be a site. So, whether we had to travel in buses or we had to travel because many of the places, the trains did not go. So, you go on a train journey, then you take a bus and you reach that particular site, you see how it was working.
00:18:23
Speaker
And if he puts in equipment that what is the augmentation of his cash flow. So, and who was the principal? So, whether the principal had the capability to pay or not and the intent to pay and the contractor also whether he had the capability to pay that was one which was done through an assessment, but his intent to pay because his intent was not there to pay. So, therefore, you know, whatever we may have done on the balance sheet assessment, it could have all be futile.
00:18:52
Speaker
So these were the practical kind of things that we were basically making an assessment on. And gradually, we put that into our system for assessment. So we institutionalize the entire organization by putting in whatever our learnings were there, we put it into
Expansion into Solar Energy and Risk Management
00:19:08
Speaker
documents. And then when the teams came in, the professionals when they joined in, they were all trained to make the assessment in that particular way.
00:19:18
Speaker
So you like first learned it first hand and then created a process around it which then you were able to hire people to follow the process and scale it up. So you were telling me about your diversification and how PEG funded you at a time when you were mostly working with contractors. So what happened at that stage?
00:19:39
Speaker
So in 1995, when DEG came in, after that in 1996, 1997, we got FMO, which was the Dutch government's organization. Then IFC Washington came in. And they also took equity in our company. And when they came in, so then they introduced us into financing of infrastructure. So how about assessing infrastructure, financing them. And because then both these two institutions
00:20:08
Speaker
would be all the three institutions, that is the EG, FMO, and IFC. They trained us and our teams to make assessment of infrastructure projects and to finance. And that's how we diversified into financing of infrastructure projects. India was also opening up 94, 95 onwards. A lot of private sector investments were encouraged by the government in infrastructure projects. So we did our first,
00:20:36
Speaker
power plant which was a barge mounted power plant and another power plant in Purisa then we did our first crude project which was in Andhra Pradesh and we did our first bridge project so therefore that's how we got and these were the first projects which was done under public private partnerships in India we did all the four air force financing
00:20:59
Speaker
So all of these projects, you were the financing partner for somebody who was executing it. Yes, yes, yes. So we came in as a financier, so as an institution. So besides the banks and all who were financing, but we were doing these financing as a private sector infrastructure company. So and then you further diversified into solar also, like
00:21:27
Speaker
from financing, I think you got into the solar energy business, like, why did you decide to go beyond just financing? Yeah, so we were the first company in 2000 to introduce the government, the International World Bank's program of PVMTI, which is known as a photovoltaic market transformation initiative.
00:21:51
Speaker
So we worked with the Global Environment Facility and the World Bank and we introduced this particular project in Sundarbang where we started financing solar systems, solar water systems, solar light, solar fans because in the villages there were no electricity.
00:22:09
Speaker
So, this is what was introduced by us into financing of that. So, basically we came in as a financial partner and we enabled various constituents to be in a position to develop a business model where they could take money and at the same time it would serve the need of the people and because they were able to the constituents were able to earn money. So, they were able to take the loans and repay us and that has been our model because you know when you develop certain areas
00:22:38
Speaker
and that particular time everyone is very new and our diversification also basically has primarily been it's not diversification because then we started also making equity investment because under IFC as an institution they were they also had put their chief credit officer on our board because when they were introducing us to financing then they said that you know you should not be only taking debt but you should also be putting in equity so you have better control
00:23:07
Speaker
on the company in case there is a problem and also you de-risk yourself because in debt your returns are limited. But therefore, in some of the companies things will not work out in the manner that you have wanted it to. So, therefore, it will be compensated through the equity investments and equity returns. So, therefore, we created funds and which then took equity.
Leadership and Organizational Culture
00:23:30
Speaker
and because again as I said that it was very new so we had to also in many of the cases put operational teams because if the operation teams were not working with the promoters then we would have had no knowledge about it. So in the last 30 years I think it's been a great learning journey there is nothing which should be done or should not be done because everything has to be evaluated at a particular moment of time and whatever is appropriate at that time needs to be done.
00:23:59
Speaker
So around this time, how big had you become? When IFC encouraged you to take equity ownership also in projects like what was like say the headcount of the company or some idea if you can give me? So I think that we were not very many that time, must have been about, we had some few branches, we were about 100 people.
00:24:21
Speaker
and the size of the company was also about 100-150 crore then gradually you see the company has also grown over a period of time and if you ask me that when we started our journey in 89 that the company would reach at this particular size we have not imagined so we will just embark on a journey like life so you are on a journey and you don't know where life is taking you just have an open mind
00:24:47
Speaker
you feel positive, you look at the opportunities which are coming in, evaluate the opportunities at that particular time, and see that whether it makes sense to capitalize on that opportunity, or you just let it pass by. And what many, many times you see that something is coming as an opportunity. But then after that, that opportunity may become a problem. So then you have to deal with that problem. Right, right, right. So I want to understand the journey from
00:25:16
Speaker
like a handful of employees to 100, 150 employees. And this is at a time when there were no digital tools. Today, entrepreneurs and founders have access to a lot of digital tools to manage teams and so on. But how did you build up this team of 150 people who were in different locations also? How was that journey?
00:25:44
Speaker
See, basically to recollect, it was, as I said, it was just a journey which was just happening. It was an unfolding of a book. So, as you keep on unfolding the book, the book becomes more interesting. So, then we had thousands of people joining in. We had almost, what, 100 branches now. Thousands of people working all over the country. If you look at
00:26:11
Speaker
there so from few numbers from double digit it becomes triple digit then it becomes four digits and five digits and it just keeps on happening you don't have to and it's all effortless because once you are building up an institution and if you're taking the right steps then it just keeps on growing and more and more people keep on joining in and more and more people so you just have to create an enabling environment
00:26:36
Speaker
And also, I want to understand, like you said, if you just keep taking the right steps, it keeps going. So what were those right steps you took to become from double digit to triple digit to four digits, five digits? What were your learnings on building an organization? So I think that one thing which was very important for us was to be doing the right things. Right thing means that you keep on reviewing what we do. So when we were in the infrastructure,
00:27:06
Speaker
which was for road construction. Then we did for irrigation projects. More and more road construction requirements came in. So therefore, we evaluated and saw that whether those would be required on the ground or not. We tied up with various manufacturers all over the world. We brought them into India. First, it was all import of the equipment which was taking place. Then we encouraged them to set up their plants in India. So now most of the manufacturers
00:27:33
Speaker
who are manufacturing, construction, mining equipment, self-care equipment. They have their manufacturing plants in India and they are not importing. Their import component has come down to maybe from anywhere from 0 to 15%. But earlier it used to be almost 100%. So, we have seen that entire journey.
00:27:52
Speaker
and we used to get lines of credit from overseas institutions and also export credit agencies to promote these kind of businesses also. So, therefore, when we were doing the financing. So, we have seen all these particular, you know, in our entire journey of 13 years we have seen all these particular elements that how the market has developed, how we have been able to contribute, how we have worked along with the
00:28:19
Speaker
along with the equipment manufacturers, with the customers and with the infrastructure players. You know some would be like where you took right decisions but eventually it would have been your people doing the right things and you know how did you create that kind of a
00:28:42
Speaker
institution where everyone takes the right decisions and everyone is contributing positively and you know I mean one of the biggest challenges for companies is I think this only like how to build how to manage people and build up that team of people who are your biggest assets possibly so you know that's something I wanted to understand from your
00:29:09
Speaker
I think that in any organization, people are the biggest assets. So, we have always focused on is that when we are getting people, getting good professional means that people who have the understanding of that particular, I'm not saying that we have not gone wrong. We have made, you know, millions of mistakes in the last 30 years of Shreya also, millions of mistakes. And in hindsight, if you look at it and see that if I had not done this, you know, I would have been better off.
00:29:36
Speaker
If I had not taken this person, I would have been better off. If I had not done this business, I would have been better off. If I had not been with investment or given this loan, I would have been better off. But in hindsight, everyone becomes wiser. At that particular time when you make mistakes, then how do you, what we have always tried to do is that whenever we have made mistakes, we have tried to see that how do we put it in the institutional memory.
00:30:00
Speaker
So therefore, the next person does not make the same mistake. The next person may make a new mistake which will again go to the institutional memory. But you know you have the luxury of that's what we keep on telling our people that you have the luxury of making mistakes. First quickly learn from there and see that whether that mistake was made in the past or not. If that mistake was made in the past that means that you have not tried to learn
00:30:24
Speaker
from what the mistake the institution has made in the past. And if you have made a mistake that you have not tried to learn from the mistake which has been made and corrected and move forward, the biggest advantage for an organization is when they are working as a team, then as the A to R is human.
00:30:41
Speaker
But if there are 10 people who are taking a decision together, then the chances of making mistakes reduces. Because then 10 people would have put in 5 persons, 10 persons, 20 persons, they would have put in their brains together. So therefore, 1% can err. But all the 20 would be making a mistake in the same thing that there is a catastrophe in store for the organization.
Impact of Government Policies on Infrastructure
00:31:08
Speaker
Okay. So if I can summarize some of the learnings, one, you are, I think, strongly in favor of collective decision making so that quality of decisions improves. And then you give freedom to people to make mistakes. And third thing is you try and build an institutional memory or an institutional learning from mistakes that were made so that the whole organization learns from it.
00:31:33
Speaker
Yeah, because the institutionalization of any of the processes and all is very important because as we keep on saying that humans are mortals. So, you know, all of us have to die. But an organization can live for 100 years, 200 years, 500 years, 1000 years. And why an organization can live because more and more people keep on coming in. But if you have created an institution, so an institution will last beyond the lives of an individual.
00:32:00
Speaker
So therefore, we do not believe that personally if I have done something that maybe that I may have started this particular idea, but that does not mean my brother and my family may have started. But today, Shreya is so large that just if we claim that we can do everything or we do everything, it will be foolhardy on our part because we are also part of the system now.
00:32:22
Speaker
So when you create a system, you have to become a part of that particular system. We trust people. So our trust with our clients, our trust with our people is 100%. We don't believe in 99.99% trust. So even 100% trust. And if someone makes a mistake because
00:32:40
Speaker
tolerable will make the correction and move forward. But if someone has tried to do something which is not correct for the organization, then we are also very strict in meeting out the necessary punishment. Because as I said that we believe in 100 percent trust because I think that it is very important to build up an organization.
00:32:59
Speaker
on the on a very strong fabric of trust and a country also. So, today if you look at it that what is the biggest problem in our country and many of the country is because the trust element is missing. So, the fabric has got weakened.
00:33:13
Speaker
So I think that it is important that an organization or a country builds up a very strong fabric of trust. When you build up a fabric of trust, you have to understand that 99% of the people will follow that, maybe 1%, maybe errant. But you don't make for that 99% people, you don't make the rule which is applicable to that 1% errant people. It will be the other way around.
00:33:41
Speaker
So that's what we have tried to inductor in our company. That's very interesting. So coming back to the journey, so early 2000s, you got into financing large projects, taking a cookie stake. So tell me about the journey from there on.
00:33:59
Speaker
So basically that was an interesting one because we had never taken equity stake and also when we started first of all taking equity stake we did not put in management things there. So we just thought that the client will be in a position. But the client we saw our mistake was we did not understand for the client also it was something which was new.
00:34:18
Speaker
because so they would also make mistakes and therefore and many times what happens is that the clients also make mistakes because they may have been caught up by their whims and fancies and not be going through a proper process of evaluation and so we made our mistakes also.
00:34:36
Speaker
Then we invested in a telecom tower business, which we were able to be on telecoms, which became the largest telecom tower company in the world in seven years time and we disinvested. And we also learned the art of investments and disinvestments at an appropriate time exiting. But I would not say that again. So the learning has been that many of the investments we have been able to exit at the right time, many of the investments we have not been.
00:35:02
Speaker
We have tried to exit at the right time in many of the loans which we have given, but we have not been successful. So therefore, I would say that it is a mixed bag. If I say and claim that in every 100% of the cases we have been successful, that would be wrong. And in the last 30 years, because the economy has gone through ups and downs, these challenges, so we have also been a witness, not only a witness to that challenge, but we have also
00:35:31
Speaker
go on the brunt of that challenge. So out of some challenges, we have been able to emerge without any bruises. Some there have been some bruises, some there have been some burns. In some cases, there would be small surgery also. But that's been a part of the journey. So what is your decision-making framework on when to invest and when to exit?
00:36:01
Speaker
think about it and make that decision. How do you reach to that decision that it's time to invest or it's time to exit? So basically, it's a process again. So therefore, let us suppose that we go sector wise, state wise, because India is not a country, it's a continent. So therefore, each state is different. It's almost like Europe.
00:36:22
Speaker
So when we are investing in one state, some state may be like Greece, another may be like Germany. So you don't have the same principles when you are investing in Germany, in Greece, because then someone will take everything away. When you invest in Greece, you invest with a different mindset. When you invest in Germany, then you invest in different mindset. So the different mindset.
00:36:45
Speaker
So, similarly, when we are investing or financing in any of the states or with the government policies, etc., we have to keep in mind that the government policies may change, state governments, political parties may change, they may have their viewpoints, which may be totally different.
00:37:02
Speaker
when the new government comes in. So, and being in infrastructure, we are exposed to all these vagaries, like the vagaries of nature. So, we are exposed to the vagaries of the political systems, to the government changes, to the various kind of people who come in. So, it is a very sensitive sector which people don't realize.
00:37:26
Speaker
Yeah, so that has been the learning for us. So, you know, there's nothing I would say today is so the as you are asking that what is the framework that we have for decision making. So the decision making framework is basically we do it through a collective mechanism. So therefore, there is one particular person who takes a decision, it may have been initiated by one person, definitely it has because initiation has to start somewhere.
00:37:53
Speaker
But then there are different levels where the decisions have to be, the people have to give their inputs and finally, it will go to our committees where the decision will be taken. So, there are people who have, who understand those businesses, some people may understand different other perspective of the business, someone may understand that infrastructure sector itself, someone may understand the financials in the infrastructure sector, someone may understand the risks of that particular sector of that particular business.
00:38:23
Speaker
So, it's a combined, it's a collective decision-making process. So, there everyone's inputs are taken into account and then a decision is finally made. Sure, sir. So, you have seen a lot of these, the term used as vagaries of nature, you know, like large external events which affect countries, economies, the entire world, you know, say 9-11, the Lehman crash, the current
00:38:51
Speaker
Covid pandemic, even liberalization in the 90s in India.
Navigating Financial Crises
00:38:58
Speaker
So, you know, what was your way of dealing with these large events? See, every time there has been some way or the other that, you know, we have been able to find out solutions to those particular problems with the either working along with the government or working along with the institutions, the bankers, our clients. And that is how we have been able to
00:39:22
Speaker
steered through all these storms in the past. Now also that we are going through the storm of the pandemic and especially last two years for infrastructure and seeing companies that has been very difficult because of the ILFS
00:39:36
Speaker
episode which took place in 2018. So, the confidence of the investor, the confidence of the bankers and the financial institutions and infrastructure financing companies have substantially reduced because we have seen the problem with IDFC, we have seen the problem with ILFS. So, therefore, the confidence level is very low at this particular juncture.
00:39:58
Speaker
And there has also been a mindset change in the government because earlier the government had... And I'm not sure that it is wrong or right because every government has the way of their own thinking which is always because they also have their own processes, they have their own collective wisdom which is there. So every government takes their own decisions that what should be there
00:40:22
Speaker
policies at that particular time. So, at this particular time the government policy is that the private sector should be in a position to fend for themselves and find out solutions. So, they should not be relying on the government. So, they should actually become
00:40:39
Speaker
Therefore, that is a policy, so it's fine. In this particular time, what happens is that many of the companies may take a little longer time to be in a position to steer through these issues because many are government-related issues only and especially in the infrastructure sector if there is a problem. It is usually related to the government because the counterparty in a public-private partnership in infrastructure, as they say, public-private partnership, the counterparty is always a government.
00:41:07
Speaker
So, by you know the government does not mean that government in the sense that it has to be a state or a central government, but if it is to do with the public it is the it is basically also becomes a responsibility of the government. To give you an example let us suppose that someone has a road.
00:41:25
Speaker
a road concession company has some problem with the government that they have either not got their payments or there has been a change in the policy. So who gets affected? The public at large because they are not able to maintain that road. Then people who are traveling on that road because the road concession company or the power generation company or the power distribution company, they are basically involved and engaged in public service.
00:41:51
Speaker
directly and not even indirectly because someone who is producing luxury goods, it is only limited to some people who may be buying those luxury goods. But if it is a road of power, if it is port, so it is to do with common man because everyone has to travel on these particular on the road or they need power, they need to travel, you know, maybe in a train, they need to travel
00:42:16
Speaker
in a plane and they need to use the airport. So, therefore, it is for public service. So, therefore, government gets involved. And that is where the collaboration on a public-private partnership is very, very important.
00:42:32
Speaker
But at this particular juncture, the government thinking has been that the private sector needs to fend for themselves and find out their own solutions. So therefore, many of the companies, many of the clients that we have financed, they are trying to struggle through these particular issues because suddenly
00:42:49
Speaker
if you tell someone that you have to find out all the solutions to your problem yourself and then you have another partner who is also along with you involved in it and the partner says that you have two friends so it becomes difficult. So many of the clients are finding this to be a difficult proposition.
00:43:08
Speaker
But I am sure that they will be in a position to find out solutions over a period of time. Sometimes the solution comes at the right time, sometimes the solution takes a little longer time. So, but the solutions always for any problem is inevitable. So, like 9-11 and Lehman crash, were these significant events for you? Did they have a significant impact?
00:43:37
Speaker
But you see that yesterday to the business it did have but in that particular time there was a difference because as I said that you know every government has a different policy that particular time during the Lehman crisis the government at that time had a policy that we are going to see that how we are in a position to support everyone in the financial sector when there was again because we have not these are the recent crisis but before that we have seen
00:44:03
Speaker
in early 90s the Harshad Mehta problem then we saw the Kritan Parekh one then we saw many of the scams in the NPFC sector in the mid 90s. So at that particular time the approach was a little different than it is now.
00:44:18
Speaker
So, every government will have a different approach. So, I am not saying that anything is right or wrong because it is basically the collective decision of the government at that particular time. So, at this particular time, the government's policies are that, you know, the private sector, they have to find out their own solution. The government cannot be coming in, you know,
00:44:38
Speaker
cannot be coming in holding hands every time. Can you tell me in the last decade, what has the journey been like? We've covered most of the 90s and the early 2000s. So, what has been the journey of stray in the last decade or so, in terms of diversification or in terms of how the institution grew?
00:45:00
Speaker
So what happened was that in 2008, before the Lehman crisis, we were fortunate, just about five, six months before that, we got into a joint venture with BNP Paribas and our equipment finance company was basically put into a separate vertical where BNP came in as a 50% partner. So that was a big support at that particular time because by the support of BNP, we were able to steer through
00:45:27
Speaker
the crisis of 2008 because BNP came in sometime in April 2008 and September 2008 the Lehman crisis took place and then after that the support also that the government was able to offer to all the financial sector constituents so therefore there was a liquidity support also which came in and we were able to steer through and grow
00:45:51
Speaker
And I think that from 2008 to 2018, it was almost like, you know, just a one-way growth. And that was, you know, every year we were growing by about, our disbursements were growing by first year from 2009 to 10, it was about 60%, then 50%, 35% from year to year has been the growth. It started slowing down from 2014-15.
00:46:19
Speaker
and for infrastructure because we took a conscious decision in 2014 to reduce our infrastructure financing portfolio and focus only on the equipment financing side. And after the, as I mentioned, the 2018 onwards after the ILFS crisis, then both the growth of the infrastructure financing and equipment financing has been slowed down.
00:46:43
Speaker
Because it has been more a period of consolidation, of exiting out of some of the sectors. As I said, because we are in an area which is very much related to the government. So we have to find difficulties in some of the areas. So it is also appropriate for us to exit out of those particular areas where the clients are finding it difficult. And because as an institution, we don't want to get into a problem because
00:47:14
Speaker
and complications. So that is why there has been a slowdown. And I think that this slowdown is going to continue for the next couple of years, where the business is here. So we are going through a consolidation phase, where we are looking at what businesses we should be in, what we should be exiting, which are the portfolios that we should downsell and exit out of. And that has been the exercise which has been going for the last two years, and which I think will continue for another couple of years.
00:47:44
Speaker
So this period will be more of bringing in stability to the consolidation to the entire organization in the areas which we should be there. I want to understand more about you as a person. Can you tell me what is your daily routine? How do you keep yourself at the top of your game? See, personally, I am
00:48:11
Speaker
I love sports so I have been almost in almost all the sports now over a period of time with age. I've stabilized on a couple of things I do on my daily routine. So, I do my yoga, I do my pranayam, that is my daily routine which brings in the calmness of mind and also with the body and then either I would be doing, I play squash.
00:48:37
Speaker
few days in a week I place course, some days I do running, some days I do gym. So you know I have my yoga plus this. So this is my daily routine which is there on the physical side of it. So physical side about one to one and a half hours in the morning I like to spend with myself in seeing that I am fit and healthy.
00:48:58
Speaker
Then after that, you know, I'm quite a relaxed kind of a person. So therefore, in the office, etc. Also, I like to look at things with a calm mind, because the position which I've come into, I have to also mentor a lot of employees within the organization, I have to interact with the various various constituents who are there. With that, we need to deal with them. So
00:49:28
Speaker
A lot of networking is required to know what is happening in the world and also in the local market in India with the various state governments because our clients are working almost all over the country, involved in infrastructure, interacting with them, knowing what is happening, where the policy changes will happen.
00:49:49
Speaker
giving the right kind of directions and thoughts to the organization. But as I said that we have a collective decision making process. So with our employees and with everyone, it is very clear that there is full empowerment and people are allowed to discuss and debate.
Personal Philosophy and Rural Impact
00:50:08
Speaker
So we don't encourage people to accept what the bosses tell them to accept, but we ask them to debate and discuss.
00:50:18
Speaker
And how do you, you know, when you're going through a tough phase, how do you cope with it mentally? Like if there is a crisis happening which may threaten the future of the organization or, you know, those like you may have made bad decisions and so on. So how do you cope with that?
00:50:40
Speaker
I think that that is something which is, you know, I have been tremendously fortunate that over a period of time I have been able to calm my mind that when these ups and downs keep on coming in, I'm able to take it in a stride and see through it with clear-cut solutions, try to find out some places we are able to find out solutions, some places we are not.
00:51:02
Speaker
So my mind, right from the beginning, has got trained into looking at solutions. So therefore, if a problem comes in, I don't find a problem to be insurmountable. And I find that a problem has a solution embedded inside it. So, you know, my mind will go to the solution. And that's the reason it doesn't get troubled. So you have played a role in building for entrepreneurs through Sahed. Could you tell me about that?
00:51:29
Speaker
So that has also been a very interesting experience because there was an opportunity which came up in 2008 where the government decided to have these common service centers. And only from the perspective that we thought that in the rural areas, we can add some value that we had embarked on that initiative, which has resulted in building up about 80, 90,000 of entrepreneurs in the villages. So it's a great satisfaction that, you know,
00:51:58
Speaker
Because infrastructure is something where you don't build things for yourself, because every road which is built by whoever, whether it be the contractor or the concessionaire who's running it, they do it for the public good. So the satisfaction is that if you have done something, which is if you've done a good job, then people are happy with it. If you've done a shoddy job, then it will cause inconvenience to the persons. And it's a choice with the persons who are involved in it, who are building it.
00:52:27
Speaker
or facilitating that whole thing to happen has to take place. So therefore, I think, you know, this is for the business where I have been a facilitator and then it is the teams which have done a great job of building up the whole organization. How exactly does it operate? Like, what all services does someone do? How do they sign up for it?
00:52:51
Speaker
Yeah, so basically at the ground level, what people do is that they are village level entrepreneurs who run these centers. So they are government services, they are financial services, they are many other services, e-learning services.
00:53:07
Speaker
the banking, insurance, e-learning services, which are offered to the villagers, then there is the railway ticket booking, which they do. So it is like a center for every 10,000 villagers, it is one center, which is run by an entrepreneur. And that entrepreneur may employ two, three people at his center. So it's both a brick and click model. And so through that model, they are facilitating almost about 55 crore people in the villages. So, you know, you are
00:53:37
Speaker
Like there's a lot of humility in you in terms of encouraging collective decision making, encouraging people to say no to you. Is that something which was like part of your nature or did you learn to be humble? Like, you know, how did this get developed? Because it seems to me like this is like a factor of the way that Shrei has scaled up, you know, the humility which you have seems to be the reason. So I mean, what do you think about
00:54:07
Speaker
I think that humility only comes from the fact that, you know, a person, when they know that they don't know anything, then you start becoming humble. So, you know, I always feel that there's so much to be known on this planet and we don't know. Are you like this when you were like 21? Like, you know, did you have that same level of humility or did it develop or did you like learn it over the years?
00:54:32
Speaker
I think both because it is also dependent upon that how you grew up so with my family also with it with my father my grandfather all of them they taught us to respect everyone so you know better people who are working with us the respect for them that's why in our family we have people working in the fourth generation with us
00:54:52
Speaker
So the respect for people is very very important because there is no menial work which is there. So the respect for people to learn from them because every small person and everything on this planet teaches you something. Like my grandfather used to tell me that you learn from a tree and it was a very simple learning that when the tree bears fruits then it bends down with humility that people can pick up the fruit.
00:55:22
Speaker
And when it has nothing, then it is standing straight. So if you know something, then you will be humble. If you don't know something, then you will be standing with pride. So it's a small, small learning which is very important in life, which has to be incorporated and put in practice in life. But do you find the current generation of entrepreneurs to have that same level of humility?
00:55:51
Speaker
No, I think it's a very personal thing. Some people, because the way that they grow up, they realize it. Some people, they realize it over a period of time. But you know, either some persons will realize that the age of 5, 10, 15, 20, 25, 30 or when they are getting into this symmetry, they realize that they have to be humble because they are getting gone. But life will have to bring in humility. So either you do it willingly or unwillingly.
00:56:24
Speaker
What is your personal quest as of now? What is something which you are personally driven to do, either inside tray or outside, or at a personal level? So at a personal level, I know myself. I think that's the journey which each one of us... It's a never ending journey. Yeah, so therefore the more that we know ourselves, it is better. And how we can contribute to whatever we do.
Closing Remarks and Future Directions
00:56:53
Speaker
in touching lives of people, whether it be an organization or otherwise. That was Mr. Hemant Kanoria telling us how Shrei was built.
00:57:17
Speaker
To know more about the SRE Infrastructure Finance Limited, log on to www.srei.com That's www.srei.com
00:57:37
Speaker
If you like the Founder Thesis Podcast, then do check out our other shows on subjects like Marketing, Technology, Career Advice, Books and Drama. Visit the podium.in that is t-h-e-p-o-d-i-u-n.i-n for a complete list of all our shows. This was an HD Smartcast Original.
00:58:09
Speaker
log on to hdsmartcast.com to listen to more such podcasts