Piramal Capital and Housing Finance (PCHFL) is looking at a bigger play in tier 2 and tier 3 cities following the completion of DHFL’s buyout for ₹34,250 crore, Anand Piramal, executive director, Piramal Group, tells Fortune India in an exclusive interaction.

Early this year, the Piramals had emerged as the winner for the country’s third-largest mortgage player when 94% of the beleaguered NBFC’s lenders voted for the group’s proposal. Of the ₹34,250 crores, Piramal will pay the lenders ₹14,700 crores in cash—while the balance ₹19,550 crores will comprise 10-year NCDs that will carry a coupon of 6.75% p.a, to be paid on a half-yearly basis.

Explaining the synergy behind the deal Piramal says, “What DHFL does for us is that it allows us to have a more even wholesale and retail portfolio of close to 50:50 mix , which over time will be at a two-third one-third mix in terms of retail and wholesale.”

But more importantly, Piramal believes DHFL will give it the edge in the affordable housing market. “On the retail side, our aspiration is to be the lender of choice for customers in tier 2, tier 3 cities in terms of affordable housing in the ₹15-lakh segment. After DHFL, we will be a dominant player in tier 2, tier 3 cities, where we feel there are a lot of opportunities,” says Piramal.

This deal will give Piramal Capital access to over one million customers, a network of 301 branches across 24 states and 2,338 employees besides scaling up its retail loan book five times. The share of the retail loan book is expected to improve from 50% to 67% over the medium-to-long term.

The merged entity will also be able to reduce the average borrowing cost— helping it improve the asset liability profile of the financial services business. “In any financial services company, liability is like your raw material, and through this deal we will reduce our overall cost of borrowing to 6.75% [130 bps lower],” tells Piramal.

While housing finance will remain the mainstay of the financial services business, the group is also looking to build a diversified financial services retail business. Explaining the rationale, Piramal says, “In certain times, you have certain products doing well. So, for instance, today gold loans are doing very well, but there are other products that might not do as well. So, there is a certain counter-cyclicality that you see in retail finance businesses. So, we want to be across diverse segments such as used cars, education loans and so forth. But the core business, where we will have a dominant position, will be housing finance.”

According to a report by Transcibil, retail loans have doubled since 2017 with overall housing loan segment at $290 billion. Though NBFCs post the IL&FS crisis have found the going tough, they now have to contend with increasing competition from banks, especially bigger public sector banks such as SBI—which are offering home loan rates as low as 6.7%. However, Piramal is confident of the group making its mark in the business. “Financial services is also a winner-takes-it-all game. So there will be competition but there will be a very good opportunity, considering that many housing finance players have struggled and there’s a very good opportunity for us to make a mark.”

Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from Fortune India. To buy a copy, visit Amazon.