Q&A: Umesh G Revankar, executive vice chairman, Shriram Finance
Shriram Finance anticipates the growth to be slower in the second quarter of the current fiscal because of rain-related disruptions, Umesh G Revankar, executive vice chairman, says. He discusses with Narayanan V the company’s performance, disbursement focus, credit availability, and the Shriram Group’s entry into the ARC business. Excerpts:
What is disbursement guidance for the rest of the fiscal?
The first quarter was very good, better than expected. The second quarter should be good seasonally, but we can’t say much about it because of the distress caused by excessive rains. However, the second half of the fiscal will definitely be good because, typically, when there are good rains, rural activity increases and demand goes up.
Overall, the disbursement growth will be more than 15% in FY25, according to the guidance.
The share of commercial vehicle financing as a percentage of total assets has been going down. Is there a conscious choice to diversify?
No, there is no conscious decision, it is only natural. The vehicle financing company (Shriram Transport Finance) had branches across India. On the other hand, erstwhile Shriram City Union was dominant only in the South and to some extent in the West. These branches are now accessible for non-commercial vehicle finance activities.
MSME and gold loans are growing around 30%, while two-wheeler loans are growing at 25%. These three have grown faster due to the benefit of wider geographical coverage coming out of the merger.
Which other portfolio is growing faster?
Passenger vehicle (loans) is another business that has benefited from the merger and is growing at 30% year-on-year. Activating passenger lending is easier compared to MSME or even commercial vehicles because the demand for PVs is a country-wide phenomenon.
More people wanting to own vehicles is also creating demand.
Does this imply a slowdown in the CV financing business?
No, we have grown 15% year-on-year in the CV business, and that is the guidance we gave. CV is essential for the economy, so 15% growth in CV will happen, and we will be consistent with that. If at all we want to grow the CV business faster, we have to get into new vehicle financing, which has the challenge of competition from captive financing companies and sometimes from banks. So, we prefer to be in used vehicles.
What about MSME lending?
The MSME credit gap is big. If we look at any World Bank or RBI report, it says there’s a huge gap between what MSMEs need and what’s been provided to them. The credit gap can come from two things. One, a person not having any access to banks, and two, a person having access to banks, but being underbanked. I think MSME credit demand will continue to remain for a very long time.
Currently, CV accounts for 47% of your assets. Do you have any desired asset mix?
If MSME grows fast, then CV may even become 46%, but that doesn’t mean that we are changing our business model. When you add CV, you must also look at PVs, which together account for close to 70%. Even though CVs have not grown, PVs have grown very fast, so 70% is retained putting together passenger and CVs.
Banks are struggling to shore up deposits, but for Shriram Finance, a quarter of your liability comes from public deposits. Was deposit mobilisation a challenge?
On the deposit franchise, the merger and the consequent reach have helped us to give service from more branches.
Savers, especially retired people and those in the mid-income group who want half a percent more than bank deposits, will prefer to go to NBFCs. I think that is one big advantage for us.
Higher flows into mutual funds and SIPs are also said to be one of the reasons for bank deposits not growing faster. So, banks have to figure out how to increase their deposits.
Has high reliance on deposits increased your cost of borrowings?
Ten years ago, if you looked at our balance sheet, the deposit cost would have been higher than other borrowing costs. Today, it is at par with any other source. Our incremental borrowing in the last quarter was 8.8%, and our deposit coupon rate varies between 7.5% and 8.5%.
Shriram Capital has received RBI’s in-principle approval for an asset reconstruction company (ARC). What is the next course of action?
We announced the ARC business a year ago. We want to focus on retail loans as banks and NBFCs lose interest in retail over time if some amount of money does not come back.
We specialise in retail portfolios. There are not many ARCs focusing on retail. We have demonstrated collection capability over 50 years.
Your investor presentation talks about the Shriram One app. Is it for loan disbursements?
Shriram One is a super app for the customer, which will have access to all products and services of Shriram. The idea is to make the customer’s life comfortable. Once you are on-boarded on the app, you can use it for utility payments, apply for loans, invest in fixed deposits and buy insurance for your vehicle.