‘We’re confident of becoming a large housing finance firm in five years’

Shriram City Union Finance, a subsidiary of Shriram Capital, has become a key a player in the retail and MSME segment, from being a predominantly commercial vehicle financier. In a chat with Business Line , Managing Director GS Sundararajan spoke about the transition of the company over the last 10 years and the way forward. Excerpts:

Can you take us through the transition from being a financier to commercial vehicles to one who now caters to the retail and MSME segment?

After the commercial vehicle financing business got merged with Shriram Transport in Mumbai, the deposit taking NBFC was available to us for doing other businesses. Our real support was from Shriram Chit Fund customers in four states.

Since we had a history with them, we started the community lending under MSME and this is how the whole business started 10 years back. In this process, we realised there were other opportunities such as in two-wheelers and gold. We expect the gold loan portfolio to be about 25 per cent, another 25 per cent from two-wheelers and the rest from MSME.

Two years back you started your housing finance business. How did that come about?

We realised that many of our customers needed housing finance. But we started this business under a subsidiary, because as an independent housing finance company you are eligible for support from National Housing Board (NHB), and the SARFAESI Act is also applicable.

Also, lower risk weights are applicable if the assets belong to housing finance.

Now, we have about ₹350 crore of assets in the second year of operation. Overall we are confident of doubling our book next year and become a large housing finance company in the next five years.

How do you assess risk in the unorganised MSME segment?

Today, 90 per cent of our customers in MSME are chit fund customers. So, we have a 10-15 year track record. It is thus easy to lend to such customers with property or machinery as collateral.

We are also experimenting with new customers currently who are not our chit fund customers, but chit fund customers will still be two-thirds of our total MSME book.

What about the proposal to bring down the cut-off for non performing assets to 90 days for NBFCs? There has been no update since last year on this proposal.

That’s because we have been fighting the battle. The category of customers that we target are in the fourth level of value chain and their cash flows are very irregular.

So, we have represented ourselves to both the government and the RBI after the Usha Thorat Committee guidelines.

In fact, we are now looking to increase our cut off days from 150 days to 180 days for incremental loans, from April onwards.

Will the group opt to apply again for a bank licence, perhaps under the differentiated banking model?

Differentiated bank licences at this stage are only a nomenclature. We would like to understand what this actually entails and then opt for it. Shriram Group has always keen on a banking platform as long as it facilitates our strategy of inclusive growth and without being detrimental to our existing target market even in the short-term.

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