Merger with IDFC Bank will benefit our customers, says Shriram group founder

Shriram City Union Finance, which is proposed to be merged with IDFC Bank, had a rather strange beginning. It started as a partnership firm in order to financially support violin maestro Lalgudi Jayaraman, for whose art the Shriram group’s founder, Ramamurthy Thyagarajan, has had a mindless devotion. The motivation for starting SCUF exemplifies Thyagarajan’s business philosophy, which he ceaselessly articulates: service to the society — profits are important, but incidental.

In 1974, RT (as he is called) quit his job as an officer with New India Assurance Company to start a chit fund business to finance truckers — a community he had extensively dealt with at New India. Years later, the Shriram group would occupy a niche as a used-truck financier, an area where banks feared to tread. In the first decade of this century, the group set up both life and non-life insurance businesses, both of which are profitable today.

And, now, the group is to be “merged” with IDFC and IDFC Bank, a move that the market has given a thumbs down to. BusinessLine caught up with RT to find out how the man who founded the group looks at the move. Excerpts:

The financial services companies of the group (Shriram Transport Finance Corporation and Shriram City Union Finance and the two insurance companies) have all been doing well. Why are you trying to fix something that ain’t broke?

We are not trying to fix anything. We are very good in deposit mobilisation, but we are not in a position to give the whole range of financial services to our customers. The merger will enable us to do so.

But your not being a bank was not affecting your business in any way.

I will put it the other way. Our customers will get more advantages if we are a bank. For instance, our truck operators could open a savings account, get a credit card, etc. They will benefit, and because they benefit we will make (more) profits.

You have been personally opposed to converting your NBFCs into a bank.

No, that is wrong. I was never opposed to that. I said it was not possible for us to conform to RBI regulations.

A loss of Shriram identify is feared.

IDFC Bank is a young organisation, it does not have a legacy. It has not developed a rigid culture, whereas Shriram group has a culture. It is very likely that this culture will influence the growth and development of IDFC.

They don’t come with a preconceived notion as to how to run the bank. So Shriram’s influence on the bank will be there, though Shriram’s people will not be running it.

Apart from being able to open savings and current accounts, how will your customers benefit?

What more we can do with banking we will be guided by IDFC, because we ourselves do not know much about banking.

But IDFC Bank itself is less than two years old.

Rajiv Lall and others are specialists in banking. They know more about banking, banking regulations, RBI interface, etc. So, if we want to participate in banking, I would only say, participate — we are not going to run it.

But it does look like giving away your beautiful daughter in marriage to a groom who has yet to prove himself.

If you accept that argument you will never do anything new. The beautiful bride will remain unmarried. You have to take a chance.

Are you taking a chance here?

Of course. Every decision is taking a chance. If you are a wise person the chances of the decision going wrong are less. We believe that having been around for 35 years, we have acquired a certain amount of wisdom, because we have made some mistakes in the past and have learnt from them.

Your philosophy has been that a business is primarily meant to serve the society, and profits are incidental. This is not how most others look at — businesses are run for maximising shareholders’ wealth. With this merger, do you not think your business philosophy will get diluted?

No. Ajay Piramal shares the same philosophy. He also considers business to be a way of serving the society.

But Ajay Piramal is not running IDFC.

Even Rajiv Lall’s thinking is the same. I have spent some time with Rajiv Lall, I have studied his background. I know his thinking is the same. He is an idealist. I am convinced that he thinks of business and its role in the community exactly the same way as I and Ajay Piramal think.

So, you are handing over the daughter to the right groom?

I would not say we are handing over anything to anybody. We are just bringing a few organisations together. It is a merger, not a takeover of one by another.

Who will be running the merged entity?

It is not a question of who. “We” will be running the business. Ajay Piramal, Sanlam, IDFC, all of us will be running it, because all of us have stakes in it, all of us have interest in it.

There is a perception that this merger has happened due to the Shriram group’s inability to bring in a succession plan.

We have been having a series of succession plans, each better than the one before. First we had Arun Duggal as the Chairman, then we felt it would be better for the long term to have Ajay Piramal. Now we believe that the merger with IDFC will be better.

When such a major move was imminent, what was the need to change the CEO of Shriram Capital and bring in Rajesh Ladda?

The decision to bring in Rajesh Ladda was taken in October 2015, but it was delayed because Ajay Piramal needed him elsewhere. In the interim period, he (Ladda) has been working as if he was the CEO of Shriram Capital. He has not stepped in because of this or that.

Another criticism is that the shareholders of Shriram Transport will now hold shares in a listed holding company, and be subject to ‘holding company discount’.

In this part of the world, conglomerates have done much better. Therefore, there should be a ‘holding company premium’. Secondly, even after ‘discount’ if IDFC is going to do well because of the profits of Shriram Transport, its profitability will go up.

How will the other leading executives in the Shriram group, such as Akhila Srinivasan, R Sridhar, Jasmit Gujral, and Subhashri Sriram, take this move?

We would tell them, you taste the food when the cooking is complete. Then come to a judgment whether it was good or bad. By merely looking at the recipe don’t come to a conclusion. And the sensible people among them will take the same stand.

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