The Sundaram way

Written by Sushila Ravindranath | Sushila Ravindranath | Updated: Sep 2 2014, 06:36am hrs
Chennai-based Sundaram Finance is one of the oldest and largest non-banking companies in the country. When it celebrated its 60th anniversary a few weeks ago, one of its customers of long standing placed a R60 lakh FD with the company as a birthday gift. Its activities span savings products such as deposits and mutual funds, car and commercial vehicle finance, insurance, home loans, software solutions, BPO, tyre finance, and tractor finance. Sundaram Finance has a pan-India presence with 586 branches, with the farthest branch in the North being just 50 km off the Wagah border.

The companys disbursements during 2013-14 were lower by 3% at R9,719 crore, reflecting the prolonged downturn in the auto sector. Sales of M&HCVs, the backbone of its business, registered a fall of 25%, while LCV sales declined by 18%.

But Sundaram Finance was able to retain its market share in its key asset segments. The gross receivables managed by the company grew by 3% and stood at R18,158 crore as on March 2014. The companys asset quality remains one of the best in the industry in spite of the challenging macro environment. Gross and net NPAs were 1.23% and 0.45%, respectively, based on the stringent 120-day NPA classification norm adopted by the company, as against the regulatory norm of 180 days. The net profit from operations was R442.51 crore as against R410.11 crore in the previous yeara growth of 8%. The net accretion to public deposits during 2013-14 was R188.58 crore, the second highest ever in any financial year, taking the deposits outstanding at the year-end to R1,665.57 crore. The companys asset portfolio has been the best in the industry.

When founder TS Santhanam decided to set up Sundaram Finance, it was an answer to a felt need. He said he was pressurised by truck and bus operators to get into this business. He wanted to help small and medium scale operators; bank finance was not available to them. Santhanam was one of the sons of TV Sundaram Iyengar, the founder of the TVS Group, which was then a dealer of vehicles and components. He had taken the group into insurance in 1948 itself by starting Madras Motor Insurance, which after nationalisation became part of United India Insurance. Sundaram Finance came into existence in 1954 as a subsidiary of the insurance company.

The company welcomed deposits in the early years and gained the reputation of protecting the depositors interests. So much so that nothing has ever shaken investor confidence in it! Deposits alone were not sufficient to run a growing finance company. Santhanam felt that the company needed to have financing from SBI. The RBI rules forbade SBI from lending to hire purchase companies. Finally, the Hire Purchase Act was changed to give loans to these companies based on receivables. Sundaram Finance was the only company that enjoyed this facility with SBI for years. Gradually the way Sundaram Finance functioned became standard operating procedure. Says R Thyagarajan, chairman, Shriram Group, I have followed quite a few of their practices. They have showed a remarkable quantum of trust in their customers.

Almost the entire road transport continues to be governed by the Motor Vehicles Act of 1938. According to Santhanam, this legislation was meant to curtail road transport to prevent it from competing with the railways. It was due to his effort that changes were made to this Act and road transport started getting its due.

The company, started with a paid-up capital of R2 lakh, went public (its first and only public issue) in 1972, raising R28 lakh. TVS Group decided to exit from the finance business as Santhanams brothers were not comfortable with it. TVS and Sundaram Finance have continued to support each other but the management remained under Santhanam. The company expanded its operations to the four southern states in this decade.

In the 1980s, Sundaram Finance entered leasing in collaboration with International Financial Corp. At one point, one-third of its income came from leasing activities. True to its principles, it never used this activity as a tax shelter. Its rigid stand irritated many. In a span of two years, 14 companies jumped into leasing and raised funds through IPOs. They differed in the methods of funding, calculating depreciation and tax planning. They did not think Sundaram Finances approach would work in the leasing industry. As it happened, many of these companies fell by the wayside with malpractices creeping in and the government and RBI coming down heavily on them.

Sticking to its principles was to bring a lot of recognition to the company. In 1988, its FD programme was given the highest rating of FAAA by Crisil. It was the first NBFC to get this award. Two years later, it was again the first NBFC to issue Commercial Paper to the value of R10 crore. Crisil gave it the highest rating of P1+.

Also in the 1980s, the company started spreading its wings all over India. In the next decade, after India opened up, it went into various diversifications. These diversifications were also a response to a felt need. When we did a market survey in 1997, our customers wanted us to enter housing finance, insurance, auto finance and so on. Diversifications and JVs happened during this period, says TT Srinivasaraghavan, MD, Sundaram Finance. With global giants entering India, we had to take these steps, says S Viji, chairman. It was assumed that Sundaram Finance with its solid reputation will apply for a banking licence. But it didnt. We have done studies and have realised that banking is not going to work for us. There are no compelling reasons for us to enter banking, says Viji.

If one hears a criticism at all about Sundaram Finance, it is about its glacial pace of growth. After liberalisation, it should have really taken off. For a company of its stature, R16,000 crore assets under management is too low, is the view of many in the industry. We didnt celebrate when we were the largest NBFC in the country. Nor do we grieve if we are not number one, says Srinivasaraghavan. As he said in an earlier interview, We have not strayed from what we know best. We do not want to be all things to all people. Most important is our commitment to values. We follow the Sundaram way. It hasnt always been easy. In this business, being conservative is not a weakness. We work hard to enhance the value for customers, employees and shareholders.

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