Does Aavas have the answer to India's banking crisis?

Aavas is turning heads in the country’s mortgage financing space because it selected to do business in a different way, says Mudar Patherya.

Illustration: Dominic Xavier/Rediff.com

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Let me report that my travels took me to a company that may well be the answer to the country’s banking crisis.

Aavas Financiers Ltd is a mortgage financing company with contrarian strains which are immediately visible: most would have assumed that an NBFC (non-banking finance company) of its kind would have been headquartered out of Mumbai; Aavas is based in Jaipur.

Most would have assumed that a company about half a decade old would still be climbing the learning curve; Aavas has already emerged as a micro case study.

Most would have assumed that Aavas would be barely matching the sectoral growth rate (low double-digit percentage); the company is reporting 5x that number.

Aavas is turning heads in the country’s mortgage financing space because it selected to do business in a different way.

The first discernible difference is that Aavas stopped the practice of announcing annual topline business targets.

Most would have dismissed this as culture-destroying (‘How will employees drive themselves?’); Aavas stated that such a target was divergent with its stated philosophy of enhancing customer value (‘Where is the customer’s priority in our corporate target?’).

Aavas replaced the conventional topline metric with a service metric instead: a turnaround time in completing a customer transaction -- query to disbursement -- within ‘x’ days at a time when the company was at 3x its enunciated target.

Aavas explained how this sequence would translate into a virtuous cycle: the faster it disbursed, the more delighted the customer would be, the better the reference to others, the stronger the customer accretion and quicker the revenue growth.

Aavas turned the screw tighter: it linked the achievement of this turnaround time with the performance of each employee including individual bonuses and promotions.

The organisation moved from ‘Saab, kaisey hoga?’ to ‘if we implement idea ‘A’ we may be able to save three hours.’

Now that it was aligned on the same strategic page (cause-driven as opposed to result-derived), the company articulated its next objective: generate 75 per cent of business in any month in the first three weeks compared with the existing 75 per cent in the last four days.

The disadvantages of the latter: there was a danger of volumes prevailing over book quality; there was the danger of the ‘chief credit officer’ evolving into the ‘chief marketing officer’ under pressure from colleagues.

What transpired was a conscious realignment initially slowed throughput, then revived with the desired spread-out.

The third dramatic Aavas transformation was something that most doubted would ever be effective: a conscious ‘switching off’ of the entire IT system at 7 pm each evening, which meant that all work would have to completed during business hours.

One would have feared work spillover; surprisingly, productivity spiked and work-life imbalance corrected.

One would have considered these changes to be academic but for two numbers: Aavas expects to grow its loan book more than 50 per cent this financial year and cap its non-performing assets at 0.5 per cent.

By combining both, Aavas has demonstrated that it is possible to grow rapidly without compromising asset quality.

Isn’t that what the country’s banking systems need anyway?

Mudar Patherya is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed

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