The Reserve Bank of India’s proposal to restrict NBFCs from offering revolving loan products is unlikely to have a major impact on Shriram Finance or the wider non-banking finance industry, according to its executive vice-chairman Umesh Revankar.
“The total NBFC size today is ₹30 lakh crore and the estimate of these products is around ₹2 lakh crore. So, It’s not big,” Revankar said during a media briefing here on Tuesday.
Earlier this month, the RBI proposed restricting NBFCs from offering revolving credit products. A revolving loan allows borrowers to draw, repay and redraw funds within a predetermined credit limit. The Finance Industry Development Council (FIDC), the representative body of NBFCs, has urged the central bank to reconsider the proposed blanket restriction, Reuters reported.
Revankar said Shriram Finance’s exposure to such products is limited, with a significant portion linked to credit lines provided to dealers.
“Our portfolio is very small because we only have trade advances given to the dealer. We don’t have other products. We are going to launch new products, but they are all short-term in nature. So, it is revolving because it is short-term—it gets exhausted and then you replenish,” he said.
He said the RBI’s proposal is aimed at periodic reviews of borrowers’ creditworthiness.
“If I give some credit based on today’s business position. It can’t be open for 10 years,” Revankar said, adding that the central bank’s message is to review the creditworthiness of customers every three years. “That’s the only change, I think. Otherwise, things will remain as it is,” Revankar said.
On the business side, Shriram Finance is targeting 18% growth in assets under management (AUM) for the full financial year. “In the first quarter, we grew at 15%. This quarter (Q2) also will be around that because we were not very aggressive in the first quarter. But after that, we should be able to grow faster. Our target is 18% for the full year,” Revankar said.
Shriram Finance’s total AUM grew 15% year-on-year to ₹3.14 lakh crore in the first quarter. Its core commercial vehicle portfolio grew 19% to ₹1.47 lakh crore, while the passenger vehicle portfolio expanded at a faster pace of 21% to ₹68,650 crore during the quarter.
The NBFC expects passenger vehicle financing to maintain around 20% growth, while growth in its commercial vehicle portfolio is expected to grow around 12-14%. “As a percentage, it (CV) will come down from 47% to 40% going forward,” Revankar said.
The company is also looking to scale up its gold loan business and increase its share in the overall portfolio to around 5%. In absolute terms, it is targeting a gold loan portfolio of ₹20,000 crore, compared with ₹7,513 crore in the first quarter.
Currently, 2,000 of Shriram Finance’s 3,225 branches offer gold loans. “Our aim is to make almost every branch (offer gold loans), but there are challenges. We have to build infrastructure also,” Revankar said, adding that the lender may bring another 500 branches into the gold loan business. After a six-month hiatus, Shriram Finance will also add 100 new branches by the end of the financial year.
The company is also looking to leverage its partnership with Japanese banking major MUFG Bank, which completed its acquisition of a 20% stake in Shriram Finance during the previous quarter for approximately ₹39,618 crore.
Revankar said the investment has helped Shriram Finance strengthen its access to more than 1,490 Japanese manufacturers and service providers in India, including Suzuki, Toyota, Honda and Yamaha.
The lender plans to launch bill discounting, supply chain financing and dealer financing from October 1 under its MSME portfolio, which currently accounts for around 13% of its assets.