Creating a bigger reach very important in MSMEs: Shriram Finance exec VC

Shriram Finance Ltd, India’s largest retail NBFC, plans to increase its presence in the Micro, Small, Medium and Medium Enterprises segment, while strengthening its existing foothold in commercial vehicles and passenger cars. Umesh RevankarExecutive Vice Chairman of Shriram Finance expects the company’s assets under management to grow by 15 percent in FY24. He spoke to Shane Jacob about the future growth roadmap for Shriram and talks about selling a stake in the housing finance arm.

During the fourth quarter, your net profit increased by 18% and your net interest income went up as well. What were the key drivers of growth during the quarter?

The comparison would not be appropriate, mainly because of two different sets of scenarios. Last year the numbers were standalone and the previous quarter was the first post-consolidation results. If we look at this particular quarter, we charged an additional integration fee of Rs. 303 crore for integration. This is one of the reasons why the numbers seem lower.

Overall, payments growth and AUM growth were very good. If you look at the AUM growth for the year, it was up 16 percent. Spending for the last quarter was Rs. 31,054 crore and AUM growth on a quarterly basis was 4.61 per cent. Those are all positive net interest margins that we were able to maintain at 8.55% versus 8.52% in the prior quarter. Compared to last quarter, the earnings numbers appear lower due to additional charges. Otherwise, volume growth and drainage were quite healthy.

All of the segments that we’re in, whether it’s commercial vehicles, passenger cars, construction equipment, gold, two-wheelers and MSME, everywhere we’re seeing good growth, quarter-over-year and year-over-year.

Is it true that Shriram Finance is looking to sell its 15 per cent stake in its subsidiary Shriram Housing Finance?

We’ve talked to various interested parties, but there’s no firm plan to sell 15 percent at any time.

Total assets under management were 1.86 trillion rupees at the end of March 31, compared to 1.6 trillion rupees during the same period last fiscal year. What is the reason for this increase and what are your expectations for fiscal year 24?

Merger was certainly one of the reasons. We now have a larger network that’s really helping to expand, especially since we’re located in rural and semi-urban areas. You need to do tax work and access to increase lending. The consolidation has helped us gain that additional network and create the ability to do additional products in each of those branches. I must say that the integration is almost complete in terms of operation.

Our goal is to grow in terms of assets under management by 15 percent in FY24. What we’re focused on is improving our bottom line. Therefore, the net profit growth will be much higher than the net profit growth.

Commercial vehicles still contribute 50 percent and passenger vehicles approximately 18 percent of your assets under management. What is your strategy with these two divisions?

As far as the car is concerned, access is very important and we have now created because of the merger. In used cars, it is important to know the geography in which they grow. Growth will come from urban and rural markets. In urban markets because spending on real estate and infrastructure is high.

The demand comes from government spending on infrastructure. Increased demand for steel and movement of building materials are all of these things. All segments are growing positively, whether it is two-wheelers and tractors in the rural belt and passenger car and commercial vehicle in the urban belt. Since the investment in infrastructure is high, so is the demand. Since new car sales have grown this year, we expect the demand for used cars to grow as well.

MSMEs are one of your main areas of focus. However, your strength is primarily the south and now you are looking to the north as well. How do you plan for this?

Creating a greater reach is very important in MSMEs. We were mainly focusing on southern markets. Shriram had a larger presence in the south. Today with the availability of the Shriram Transport branch, many of the staff are well experienced in these geographies. Geographical knowledge is more important in MSME lending and this helps us in doing more business.

During the fourth quarter, in the segmental breakdown of assets under management, the share of CVS, construction equipment, agricultural equipment, MSMEs, and gold decreased. What is the reason for this?

Passenger cars have grown faster and the demand for them is very strong in rural areas. Maybe it’s a post Covid phenomenon and also people with two wheels are upgrading to four wheels. It doesn’t mean that other portfolios have gone down, ratios may have gone down and the growth rate could be a little bit lower. Other than that, we’ve seen growth across all segments.

You had plans to raise $2.44 billion during the current fiscal year. What’s the status of that and what do you think of the sharp increase in cost of funds?

Raising capital or debt is a continuous process. It is not a one time upload program. I only have comments on 2.44 billion. And incrementally, cost of funds grew about 9 basis points for us over the most recent quarter. I think since the RBI has paused, there will be no further cost increase.