STFC not considering increase in lending rates: Company vice-chairman

It will be 'nimble-footed' as a NBFC and not seek a banking license, says Umesh Revankar

Vehicle financier Shriram Transport Finance Company (STFC) sees demand recovering this financial year. Umesh Revankar, the company’s vice chairman and managing director, said STFC’s prefers being a non-banking financial major and not go for a banking license. In an interview with Shine Jacob, he said the company’s merger with Shriram City Union Finance (SCUF) is on track.

Here are edited excerpts from the interview.

After the pandemic-hit last two financial years, are you seeing a recovery in demand? How do you see the changes happening in green energy?

Financial year 2022-23 has started on a strong note, credit demand had turned buoyant in February-March and demand is continuing. Asset quality is improving gradually and recoveries are also good, and I don’t see any red flags as of now. The economy is in a revival mode and the environment is conducive to growth revival. At STFC we are targeting an AUM (assets under management) growth of 12 per cent in FY23 and long-term we would like to grow by 15 per cent CAGR (compound annual growth rate).

The recovery is quite positive and we don’t foresee any challenges. If the inflation goes up further, the input cost will also go up and the price of the product will be higher, leading to a dip in consumption. There is an increase in consumption compared to last year, but it may come down if inflation remains elevated.

On the green energy front, we believe the commercial vehicle EV market is still in a nascent stage in India. We are seeing only the two-wheeler and three-wheeler sales and financing having some traction. The rest of it will take a long time. The infrastructure around EVs needs to be developed--unless there are enough charging points there may not be an immediate shift into the segment. Meanwhile the CNG variant vehicles are gaining ground and giving some momentum to green initiatives.

What is your take on the RBI rate hike and its impact on commercial vehicle financing?

The majority of my borrowing is at a fixed rate, with around 20 per cent of our borrowing is floating and 80 per cent fixed. To the extent of 20 per cent floating, the increase in interest rates will flow through. If the MCLR (marginal cost of funds based lending rate) rate is increased by 15-20 basis points, our rates also go up to that extent. The fixed borrowing remains unaffected, thus on a blended basis, the impact for us is limited. Thus, we are not looking at any immediate increase in lending rates for the borrowers. However, we have revised our FD (fixed deposit) rates higher for the depositors. Given that we are in an upward interest rate cycle, higher lending rates will percolate over some time to borrowers, but not immediately.

It was in December that the group announced the merger of Shriram Capital Ltd (SCL) and Shriram City Union Finance Ltd (SCUF) with STFC. What is the status of the merger?

The merger of STFC with SCUF to form India’s largest Retail NBFC is on track. It is progressing well and we have a shareholder's meeting on July 4 for the approval of shareholders for the merger. The integration is going on quite well. We have run the pilots already in 50 branches and are extending it to more branches going forward. Technological integration is also in place and our group company Novac Technology is working on it to expedite the overall integration.

Can we see it as a step in going for a banking license?

We prefer to be an NBFC. Our customer base is unbanked and under-banked and to serve my customers better I need to be nimble-footed and understand my niche while reaching inaccessible areas. The on tap banking license is available and we have an option to look at it.

You have secured long-term funding of $250 million from the International Development Finance Corporation (DFC), the US government’s development finance institution. What was the thought behind this?

Shriram Transport Finance Company has a long-standing relationship with Development Finance Corporation and we have raised funds through DFC in the past as well, given the various government's appetite for lending towards sustainable income. With the US government, this is the first time. STFC started our social bond program set on serving the financially underserved across India and governments across the world are interested in investing in companies like us that provide social finance. Social bonds are a way to innovate in the capital markets and access long-term and lower yield bonds, while simultaneously supporting the local communities we serve by giving them that needed extra hand.

Our entire business model is financing sustainable income generation. This means when you buy an asset or vehicle or machinery, use that for generating income and that translates into sustainable income for a family. It is the income generated for entrepreneurs. In many underserved communities access to credit is limited. The social bond is a formalised commitment by STFC to help these customers and communities progress to a better future through our responsible and affordable lending products. This is a testament to our commitment to financial inclusion and reinforces all the work we have already been doing to provide underrepresented communities with access to safe,  and affordable credit.