Bl Interview. Preparing ourselves to be as good as a bank: Umesh Revankar, Executive VC, Shriram Finance

We (Shriram Finance) is improving CRAR by nearly 1 per cent and I need not go to the capital market immediately. It can delay by a year or two. SHFL required immediate funding and in this deal Warburg is investing ₹1,000 crore immediately closing the after the transaction is completed. That’s a big boost. Also if we had done a share swap (deal) instead of cash (deal) that again is illiquid for a year or so. It would not have solved both the problems. Therefore we felt that it is better to do a cash deal.

Some of the past transactions which have happened has a big LAP book which made their margins are better. When the margins are better, it looks more profitable. Here (Shriram Housing), we did not have a LAP book and so the margins were reasonably lower and valuation changes. But it also has a risk. Maybe if I had a part investor, the I will get a better valuation, but we don’t want a situation where two of us will be promoter. 

Right after the regulatory approval, the brand will change 

Rating right now AA and it should get the same rating. We’re not sure how rating companies look at a standalone company. 

Had I tried to sell it and then I go to the market, market will know that I’m going to sell it and will go at a discount. That will not serve the purpose. Even if I had gone with artificially higher valuation, market will immediately realize it’s on the block and same thing. I think what we got is the best.

We have a history of 40 years plus in lending and we have been lending to businesses for acquiring a vehicle or running a business. We want to focus on that. We want to be a partner to proprietors and self-employed, Housing is something which we went into, because we felt that affordable housing will be as cross sell opportunity for our existing customer. But once it reaches a particular level, you need to take a call. I could have continued it putting more equity or hive off at the right time. We felt this (hiving off) is good for us as it is helping us saves capital and gets some additional capital. 

Yes. Our MSME and SME loan is against LAP. Instead of doing it for three years, we can do it for seven years. For instance, for a person who wants education loan, we can do it like LAP. We don’t have to create a product and commoditize for education loans. 

Net interest margin of 9% is something which should be maintained. We need to improve on our operating expenses (front) and improve further on asset quality. This will give us scope for improving our bottom line. In FY25 we will try to see how best we can improve these parameters. That is the target. 

Unless RBI comes out with some kind of guiding path (to become a bank), there’s no point in discussing about it. It is not that we are not discussing internally; we are discussing internally on which vehicle is better to reach to our milestone. We will not be as nimble as the NBFC when you become a bank. Shareholders will have expectation too. Whether they are willing to wait for 4 – 5 years if we become a bank or I have to find a shareholder who is wanting us to become a bank and want to be larger shareholder. We have discussed this with some of the potential investors and try to understand. Shareholders are not willing really that long. So unless we find a large investor who are willing to partner with us and this question doesn’t arise. But we are still discussing about it and internally we are preparing ourselves to be as good as a bank. We would like to be fit and proper at any given time.