Shriram Finance is focusing on increasing its gold loan mix and will be adding branches every quarter in a bid to increase volumes, says executive vice chairman Umesh Revankar. While the net interest margin fell on a sequential basis in the June quarter, Revankar tells Ajay Ramanathan that it will improve or remain at present levels. Excerpts:
You were exploring funding options for the housing finance subsidiary. Have you decided on a course of action?
No, nothing has been finalised. Business is doing well and it is growing. We are comfortable with the way the business is running. Nothing has been discussed or debated on the same at this point of time.
What is your borrowing and disbursement target for FY24?
Our borrowing target will depend on the growth rate. We need to borrow to the extent of the net increase in growth. Otherwise, we will be able to roll over the existing arrangement and keep continuity. The requirement will be 15% additional to what we borrowed last year. That will be around Rs 20,000 crore of additional funds.
We have guided for an assets under management growth of 15% for FY24. That will virtually be a disbursement of around Rs 1 trillion.
Your net interest margin (NIM) has compressed on a sequential basis. How do you see it shaping up?
I believe the compression is a temporary one. The NIM will either remain at the present level or improve. It may not compress as we are able to manage liability costs much better and we should be able to pass on any increase in liability costs to end customers. Our NIM is 8.32% now. We will look at around 8.5% by the end of the year.
How do you see your cost of funds moving?
On the balance sheet, our cost of funds is at around 8.8%. I think it will remain at that level. I do not see any increase. It may rise or decline by 10 bps from the current level.
Many of your peers are entering the MSME segment. What does Shriram Finance bring to the table as far as the segment is concerned?
We are focusing on small ticket. When I say small ticket, it ranges from Rs 5-10 lakh. If you look at other institutional NBFCs, they are looking at larger ticket. So, there is a difference between us and them. We have a large number of branches in the semi-urban and rural market. We will be targeting small ticket and large numbers. Since markets are different, everyone will have a role to play and I think everyone will be able to meet requirements. The credit gap estimated is Rs 32 trillion. Since the gap is more, everyone will have their own market in their respective niche segment.
What are your plans on gold loans?
We will be increasing the gold loan mix. We have added around 250 branches exclusively for gold loans. Every quarter, we will be adding a few more and increasing the gold loan proposition. Gold loans are more of a neighbourhood financing. People walk in and take loans. As we add more branches, the volume will automatically go up. We expect the gold loan business to continue to grow. Since it is a smaller tenure and the average is six months, it also gets closed faster. We need to keep increasing volume to grow the share in the overall business.
Our gold loan mix is at around 3.5%. We will be growing faster there, but I cannot give you a target now. The mix will improve by a few basis points every quarter.
The RBI has now allowed NBFCs to issue credit cards. Does that segment interest you?
Now, there are a lot of instruments. You need not be giving credit only through credit card. Since our lending is mostly for business and not for consumption, we may not be immediately interested in credit cards.