Shriram Transport and Shriram City Union are our two large and listed entities and, therefore, we do not want them to be merged with the proposed bank. Our first preference will be to get a new licence under Shriram Capital, said GS Sundararajan, group director, Shriram Group.
The reason for this structure, Sundararajan says, is the high concentration of loans that Shriram Transport has in the truck financing business. Trucks form about 80% of the total commercial vehicles financed by the company. You can't have a bank which finances only trucks, he says.
Shriram Transport, which contributes nearly 70% of Shriram Capital's profits, finances mainly second-hand CVs and has assets under management (AUM) of about R44,000 crore as on September 30.
On the other hand, Shriram City Union, with an AUM of R15,929 crore, is more open to being converted into a bank owing to its diversified book.
Gold loans and small enterprises formed about 72% of its total assets. Sundararajan said that if it came to making a choice, Shriram City Union would be preferred. However, risks for conversion remain because this business caters to the lower strata of the economy and, therefore, we need to see how the regulator will view the risk, he added.
According to sources, the group has already written to the Reserve Bank of India (RBI) on this matter and has asked for some modifications when the final guidelines appear. The central bank had invited comments from stakeholders, regarding its draft guidelines on new banking licences, when they were announced in August last year.
The RBI had stated in its draft guidelines that in case an NBFC were to promote a new bank, the activities undertaken by it which banks are permitted to undertake departmentally, will have to be transferred to the new bank.