Nearly six months after the mega merger of Shriram Transport and Shriram City Union, in an exclusive interview with businessline, YS Chakravarti, MD and CEO, Shriram Finance, explained how the merger is helping the lender explore branch networks and quickly gain leadership in some pockets. It’s probably the oversupply of shares in the stock exchange that is suppressing the valuations, he opines. Edited excerpts:
How would you rate the experience of the merger so far?
In certain states where retail finance did not have much of a presence, we were able to take all products to more geographies. Particularly in two-wheelers; today, in Karnataka, Madhya Pradesh and Orissa, we are the second largest player. In Gujarat we are the third largest. We have also introduced gold loans in about 100 outlets of Shriram Transport. By the end of FY24 the number will become 300. The other advantage is that supervisory talent is also important. Since STFC has a large pool (of people) we can now rely on them to grow the younger generation of both products. The challenge, if you ask me, was to put at rest the question in the minds of people as to what will happen to their career. I keep disappearing out of Bombay to meet teams and make them understand that they are a part of a larger organisation today. I’m telling them that the AUM (assets under management) that each of them are handling is only growing and not coming down.
Growth was robust in retail loans, whereas the commercial vehicle (CV) segment was soft. Is it because you want to lower the CV exposure to 60 per cent over the years?
The idea is to grow the other products and not degrow these (CV) products. But it looks like it’s going to be difficult to bring it down to 60 per cent because the CV business is growing well. In Q4 we disbursed ₹12,000 crore of CV loans out of ₹31,000 crore of transport finance book. In fact, our new vehicle disbursement is also going up now. Probably this year our new vehicles disbursement will grow faster than our used vehicle. The 60 per cent (share of CV loans to total loan book) is an aspiration. But what is happening is that, though the disbursement is growing 30–40 per cent in other products, the truck finance may appear less. For example, personal loan is a 21-month product growing at 40 per cent versus a five-year product (CV) growing at 15 per cent and may look like lower growth. But we don’t want to grow too fast in unsecured products. Even SME (small and medium enterprises), I’m okay with 30 per cent growth in disbursement. Anything above this, basically your credit can suffer. The products themselves are not conducive to rocket-speed growth. Similarly, in new branches you don’t want to grow gold loans too fast. In any branch if they grow gold loans by more than 20–25 per cent in a month, we have an audit immediately done to be sure we don’t have accidents.
So it’s quality of growth versus quantity?
Yes, always. For the segment of people that we work with, if you’re not careful and do reckless lending, it can be very difficult to collect from them. In a ₹8-lakh SME loan, if the customer misses two instalments, it is very difficult for him to pay three installments at one go.
Excluding Shriram Finance, for most players the non-performing assets (NPAs) are at 4 per cent. What’s your guidance on this?
Starting with Covid we decided that we will do a stress test every two years; not necessarily based on just your portfolio quality but also based on economic factors and the global outlook. One of the big fours has done it. Initially we were anticipating a rate cut and, looking at the global macro, the test indicated it might create stress in the portfolio. We tabled it to the board also. And it’s better to do it rather than postpone. But credit cost will not cross two per cent. We are sure about that. NPA numbers on a quarter-on-quarter basis should see continuous decline. In the next 24 months we should come below five per cent at a gross level.
Does it irk that the market isn’t reflecting the value of Shriram Finance?
Yes, it does. But there are reasons which are beyond my control; probably the overhang of supply in the market. Apax suddenly came in and exited. TPG and Piramals have made their intentions clear to exit. Mutual funds would also want to get in at the far end of the supply getting absorbed.
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Published on May 30, 2023