The NBFC sector is on a strong wicket: SCUF MD & CEO Y S Chakravarti

Shriram Group has received the Competition Commission of India’s nod for the merger of Shriram City Union Finance (SCUF) and promoter entity Shriram Capital with Shriram Transport Finance Company (STFC). The newly minted entity - Shriram Finance - will be the country’s largest retail non-banking financial company (NBFC) with assets under management of Rs 1.65 trillion (end-June). Y S CHAKRAVARTI, managing director and chief executive officer of SCUF (he is to head the merged entity as well) spoke with Raghu Mohan on the road ahead for the company and the sector. Edited excerpts:

What were the drivers behind the three-way merger of Shriram Group’s lending entities?

What started as a small chit fund is today a large financial conglomerate. It has assets of close to Rs 2 trillion, with multiple financial entities under one roof.

The idea was to simplify the group holding structure, so that each business is held separately. The thought process was to provide investors with an opportunity to invest in specific sectors instead of buying the entire bouquet of financial services. The structure, therefore, allows somebody wanting to put money into general insurance, or somebody wanting to invest in life insurance only to do so. Those interested in participating in the lending story can now look at Shriram Finance. If they’re coming into the holding company, they’re buying into the entire business. It simplifies the entire structure.

The other reason is the synergy that had not been explored between the two lending arms - SCUF and STFC. A study of our customer segment provided insight into 20 per cent-plus SCUF customers owning commercial vehicles - most being small business owners and in need of commercial vehicle loans being funded by competition.

Through the cross-sell mechanism, we will look at targeting them for funding from STFC.

Another reason is that STFC has a network in places where SCUF has a very limited branch presence. We thought we should leverage STFC’s branch network and expand the business across India.

The Reserve Bank of India (RBI) has come with its scale-based regulation for NBFCs. How do you see the emerging NBFC landscape?

NBFCs are an important pillar of the economy today, and the sector accounts for around 20 per cent of the total credit in the country. NBFCs have a competitive edge with their superior understanding of local dynamics, superior collection systems, and personalised services - all of which are driving financial inclusion in India.

Lower transaction costs, quick decision-making, customer orientation, and prompt provision of services are some of the areas that differentiate NBFCs from banks.

The reach and last-mile advantages of NBFCs have empowered them with technology-based lending, powered with agility, innovation, and a cutting edge in providing formal financial services to the underbanked and unserved sections of India.

The RBI’s scale-based regulation will ensure NBFCs are made more resilient, well-regulated, and properly governed. It will ensure NBFCs are fit for the future.

The emerging landscape will enable banks and NBFC to co-exist. I don’t think banks can reach the lowest stratum of society. Even developed economies have NBFCs. It has to be a partnership. It’s not that one model works.

On last-mile delivery, I don’t believe banks will be in a position to do it.

What about your banking ambitions?

We are happy to be an NBFC. We are one of the largest NBFCs today, and we’ll be happy to grow and be an NBFC tomorrow.

Earlier, there was some concern in the market and among a few analysts on the size of the liabilities - whether we’ll be able to raise and sustain the required liabilities to meet the needs of the business. We can raise money comfortably. We can raise another Rs 25,000-30,000 crore through public deposits. The RBI has announced through external commercial borrowings, we should be able to raise some more money before October this year.

Even if you look at the single-party exposure, there is a great deal of leeway for us to go to banks and borrow.

As long as liabilities are taken care of, I don’t think becoming a bank is on the cards.

Is the worst over for NBFCs or are there still some pain points?

I think the NBFC sector is on a good wicket. What we have learnt from the pandemic is how to drive digital business. What we have learned as an organisation is that even in the remotest of areas, people are using smartphones to transact, and digital lending isn’t just for the metros.

We spent a lot of time and money on analytics during the pandemic period. Today, we can deliver credit digitally across the country. It also taught us the importance of being in constant touch with the team and customer and supporting the customer in hard times. If you support them, they’ll come back and reward you.

If you look at our collections, most customers are coming back and repaying us. Collections have been quite good in the past two to three months.

So yes, NBFCs have evolved and undergone a significant transformation in recent years and the worst is behind us.