Shriram Finance, the merged entity of Shriram City Union Finance (SCUF) and Shriram Transport Finance Corporation (STFC), with assets under management (AUMs) of Rs 1.71 trillion, plans to focus on small and medium-sized enterprises (SME) to drive growth. YS Chakravarti, MD & CEO, Shriram Finance, tells Shashank Didmishe that they plan to tie up with fintech firms soon to expand business. Excerpts:
What segments are you looking for growth in the lending business?
The company will grow by a minimum 10% in the commercial vehicles (CV) business. So, SME is one product we are looking at to bring the growth, along with personal loans. Additionally, big corporate loans are also expected to push the growth. Currently, we offer loans of up to Rs 30 lakh in this segment. These are the segments that we feel will grow much faster than the rest of the products put together. Probably, in 12-18 months, I would also bet on gold. By the time, I would have expanded the network and have manned branches.
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Given the pick-up in the overall credit demand, do you think there is need to revise the AUM growth guidance of 15%?
No. We definitely do not want to grow aggressively in lending. In fact, if you ask me, I would have given a 12-13% forecast as it is always better to plan conservatively in a lending business.
Are you looking for co-lending partnerships?
We are talking to bankers, but nothing has fructified so far. With fintechs, we are in discussions and will close agreements shortly.
How far along are you in the integration of the systems of SCUF and STFC?
The systems are totally integrated as of today. In terms of cross selling of products, we have run some pilots that have worked well. The biggest learning is that gold is the easiest product to replicate. We also did some SME loans. During the pilot, we were able to actually streamline the processes. If it is an SME loan, now the CV team can actually onboard customers and the process required is ready to set this in motion. Now that we have access to data from both the companies in one place, our data team is also working on it.
Are you looking for an upgrade for the merged entity from the credit rating agencies?
Currently, Shriram City Union Finance is ‘AA’ and Shriram Transport Finance Corporation is ‘AA+’. So, obviously, since STFC is the acquiring company, we will keep our ‘AA+’ rating. Going for the rating exercise probably will take some time because these agencies would like to look at performance of the combined entity before they decide. I cannot give an expected rating, but we are hoping for ‘AAA’ rating.
Will it impact the company’s cost of borrowing?
Just because the company is AAA-rated, the rate will not automatically come down as the banks have their own individual ratings. However, in the commercial bond market borrowing, there could be a weight of AAA-rated company. So with scale, one can definitely influence rates. This is what we are hoping for. The current average cost of borrowing is about 8.5%. The incremental borrowing is expensive today compared to earlier. This rate could move up by about 10-15 basis points in the next quarter, if the Reserve Bank of India increases the rate.
Are you looking to make changes to the borrowing mix?
There may be a change if we do not go to a bond market because the pricing has firmed up. However, the change to the borrowing mix will not be more than 3%. But we will like to actually focus on our deposit. Currently, we have around Rs 30,000 crore of deposits and we can actually go to about Rs 50,000 crore. But ideally, we would like to be around Rs 40,000-45,000 crore.