Shriram Finance, which formed from the merger of vehicle loan and small-ticket retail financing companies, looks to build its SME and gold loan businesses for its margin expansion. Umesh Revankar, Vice Chairman, Shriram Finance told Fortune India that the NBFC is expected to grow the SME business by around 20% year-on-year.
"We are strengthening the existing branches with new infrastructure like strong rooms and other security systems to support the gold loan business," says Revankar.
“Banks have been lending against gold for the last 100 years. However, the specialised NBFCs disrupted the gold loan market through expansion. My view is that gold is something you need to be near your home. Nobody will travel 5 kilometres with gold for a loan,” he adds.
Revankar expects that the NBFC will get more gold loan business with the activation of branches. “We are growing steadily in the business. The biggest competition for a gold loan is not the banks, it is the pawn brokers. Every street has a pawnbroker. I feel there is enough business to get from the unorganised market. There is nothing that you need to compete with stand-alone gold finance companies like Muthoot or Manappuram,” he says.
The credit gap of Rs 40 lakh crore cited in the RBI report highlights the opportunity for Shriram Fin’s expansion in SME business. “Nearly 20% of our truck loan customers were using the vehicle for a captive purpose - either for their mill/factory or distribution or wholesale business. They are SME customer for us,” he says. Revankar expects the SME portfolio to grow by around 20% year-on-year. The other products, excluding SME and gold loans, are expected to grow at around 15%, he said.
In December 2022, the group merged Shriram Transport Finance Company, a commercial vehicle financier, and Shriram City Union Finance, a two-wheeler and micro, small, and medium enterprise (MSME) financier, to form Shriram Finance. The merged entity became India's second-largest retail-focused NBFC after Bajaj Finance.
When Shriram companies were merged in December 2022, it gave guidance of 15% asset under management (AUM) growth. “We are delivering around 20% growth in the last year and a half. We gave a net margin target of 8.5%, but it reached 8.8%. We gave a guidance of 2.5% credit cost. We reduced it to around 2%. We outperformed on all parameters. However, I would like to say that it is the economy that has helped us to perform better,” he says.
After the merger, the employee count went up, thanks to the addition of new portfolios and branches. "We were 57,000 and today we are at 77,000. We have added 20,000 people in the last 2 years," he says. Shriram Finance plans to add around 700 branches in three years. It will be converting 750 rural centres into branches. The NBFC has 3,148 branches.
The NBFC's AUM grew by 20% to Rs 243,000 crore during the September quarter, driven primarily by passenger vehicles (19.6%), farm equipment (28.4%), MSME (51.2%), and commercial vehicles (14%). The company’s profit jumped 18.26% to Rs 2,071 crore, from Rs 1,706 crore in the year-ago quarter.
