Despite securing a massive Rs 39,618 crore investment from Mitsubishi UFJ Financial Group (MUFG), Shriram Finance has no plans to convert into a universal bank. On Friday, the company announced that the Japanese conglomerate would acquire 20% stake in the company post shareholder and regulatory approvals. Post the transaction, MUFG will hold 20% stake, the promoter and promoter group will hold 20.3% and the public will hold nearly 60% stake in the non-bank finance company.
“We believe we have enough scope and opportunities to grow in the existing line of business,” Umesh Revankar, executive vice chairman at Shriram Finance said at a press conference in Delhi. Elaborating on this, Revankar said India continues to offer significant headroom for growth in vehicle financing, driven by rising retail credit demand. Shriram Finance now expects retail credit to grow substantially and is targeting a 20% compound annual growth rate in its vehicle financing business over the next four to five years, up from its earlier guidance of 15%.
Impact of the deal on the company’s numbers
With this deal, the capital adequacy ratio of the company would inch up to 31% from 20.68% as on September 30. He highlighted that since the company was tapping bonds and certificate loans from international markets, the rating agencies there preferred a 20% capital difference. “So, we were in the bottom and had to plan for a long term.” He added that the company would utilise 1.5-2% of the capital every year, however it may vary depending on the economic activity.
The lender expects this deal to bring about a rating upgrade which would eventually lower the cost of funds. “Between the rating where we are right now, which is AA+, versus AAA, which is among the peers, the differential will be anywhere between 50 to 75 basis points. So, that is a journey, and it would take some time,” Parag Sharma, MD & CEO of Shriram Finance said.
Yasushi Itagaki on future prospects
When asked if MUFG would increase its stake in the company going forward, Yasushi Itagaki, group head of the global commercial banking business group at MUFG said that they would prefer to have a minority stake. “We will try to make MUFG as the enabler. If we understand where Shriram Finance has challenges, we will provide them with resources be it technology, risk management or network,” Itagaki said. Structurally too, Revankar said that there would not be a big change in the way the company does business.
On whether MUFG is looking out for other business opportunities in the NBFC space, Itagaki said, “For MUFG this investment in Shriram Finance is big enough for us to digest. So, for the time being we will be focussed on the delivery of this partnership into reality.”
On Monday, the shares of Shriram Finance closed 3.7% higher at Rs 934.80 on NSE.
