Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
Japanese bank MUFG’s $4.4 billion investment in Shriram Finance Ltd for a 20% stake will help the non-banking financial company (NBFC) expand and better plan for the future, but it will continue to focus on its core business of transportation and SME financing. In an interview with BT, Umesh Revankar, executive vice-chairman, Shriram Finance Ltd (SFL), said that with a strong balance sheet and strong capital cushion, its borrowing cost would come down and credit improvement would occur, and the liability cost of the balance sheet would come down by around 100 basis points. Edited excerpts:
What does the MUFG deal mean for you in terms of your expansion plans and future business prospects?
This transaction puts the company in a very comfortable position where I can plan for the long term without really knowing what will happen to my capital, my capital adequacy or the cost of funds. It addresses most of the challenges we face. I strongly believe that with a strong balance sheet and strong capital cushion, our cost of borrowing will decrease, credit improvement will take place and my liability cost on the balance sheet will decrease by approximately 100 basis points. This gives me a comfortable business plan that allows me to retain my customers who, to get a better rate, move to other companies or other banks, and it also helps me attract customers from other companies and banks who were previously in Shriram but later left. Since we have 50 years of experience and know most of the business people, especially in the constituency where we operate, we will be able to grow our business much faster in the next five years. SFL is the second largest NBFC in terms of assets under management, offers several products including
What are your plans in terms of physical expansion and customer acquisition after this transaction?
Basically, it improves our ability to respond to the customer and even customize products according to their needs. When the cost of your funds is a challenge, you are unable to truly address it. I now have all the advantages and can respond quickly to the customer and even offer them products in advance. This is the comfort and freedom we now enjoy.
Will you continue to focus on your core lending business or expand into other products or segments?
What we really need to see, I would prefer to stay within the ecosystem of the current business sector that we are in – transportation and SMEs. Within this ecosystem, if a new product can be launched, new services can be offered, then we can give it away. We should do what we know well. We believe we are the financial partner of the client and when you are a financial partner you have to know the business as well as the client.
Will you consider applying for a banking license and converting to banking in the future or would you prefer to experience the freedom you enjoy in your current structures as an NBFC?
I don’t really see any big advantage in becoming a bank. It’s better to be where you know the environment. We have no intention of becoming a bank. We have not discussed this with our partner MUFG. None of our discussions over a year have centered on a bank.
What is the current demand for credit in the vehicle and SME finance sector?
Rural demand looks pretty good. Some feedback indicates that urban demand slowed in December while it was very good in October and November. But I haven’t gotten the numbers on that yet. But rural demand seems to be holding up without much change.
