The three-way merger at Shriram group led by Shriram Capital and Shriram City Union merging intoShriram Transport Finance is at its final stages. Internally, senior executives at the Shriram group are preparing for the merged entity - Shriram Finance Limited, to come into effect by October. Piramal Enterprises, which recently converted to an NBFC, is expected to hold around 10 per cent stake in Shriram Finance. Upon listing of Shriram Finance, Jairam Sridharan, MD, Piramal Capital and Housing Limited is clear that his parent entity will exit its holding in Shriram Finance. “We will divest from Shriram at the right time”.
According to Sridharan, it is the cultural differences between the two groups that led to Piramal’s decision to exit the Shriram group. “We have also got to stay true to what our culture is and if something is not fully aligned from a cultural-fit standpoint, you got move on”.
With the stake sale going through, Piramal Enterprises would be on an excess capital pool of nearly ₹10,000 crore, which will largely be utilised in pursuing the inorganic opportunities in the financial services space. “We have M&A in the DNA. It’s very unlikely that that there’ll be some meaningful transaction in the financial services space where we are not present,” says Sridharan.
It’s not without a reason that he is looking at the inorganic route: it is rumoured that the Piramal Group is on securing a bank license, once again. The recently concluded demerger of pharmaceuticals and financial services business would take them a step closer and Sridharan is clear that whatever is required to be done from a regulatory comfort perspective will be done. “There are many steps to take to become fully ready from a structural and governance standpoint for a banking license. We are doing all the right things in that direction”.
For the Piramal group, an entry into the banking arena is seen as key to build a sustainable large scale lending business. Having faced the brunt of steep cost of capital post 2018’s IL&FS fiasco when the non-bank’s cost of funds shot up to 10 – 11 per cent and the bond market not evolving enough to support NBFCs as a reliable or cost-effective source of funds, Sridharan is clear that a bank license is the ‘holy grail’ and possibly the only real way to achieve the group’s objective.
In fact, the interest shown in acquiring in Reliance Capital’s general insurance business is also with the objective of widening the group’s presence across spectrums of financial services business. “There is capital available for non-lending M&As, including the one you spoke (Reliance General Insurance). We like insurance (life and non-life), wealth management (distribution and manufacturing), microfinance and gold finance. We are also interested in the tech/finetch space,” Sridharan said. But he was quick to add: “Just because we would look at transactions, doesn’t mean we’ll necessarily go after everything that comes our way”.
Third time lucky?
The question is whether the Piramal group will be third time lucky in pursing its banking interest.
In 2013, Ajay Piramal held a 9.9 per cent stake in Shriram Transport. Around that time, the Shriram group had also applied for a bank license. A year later, with an intention of merging Piramal Enterprise with the financial powerhouse, Piramal picked a 20 per cent stake in Shriram Capital. In 2017, Shriram group once again revived its banking interest and wanted to merge with IDFC Bank. That too didn’t materialise, though a year later, Piramal picked a 9.9 per cent stake in Shriram City Union.
But soon, the clash of ideology at Piramal and Shriram become evident and Piramal Enterprise exited its investments in Shriram Transport and Shriram City Union.
Once again with the Piramal group committing to make the right moves, can it get it right?