Spotlight. Rejigged portfolio will improve return ratios: Shriram Finance chief

It’s a work in progress; it will take us some more time to have a fully integrated unit. In states such as Tamil Nadu or Andhra Pradesh, where both the teams (Shriram City Union and Shriram Transport Finance) have strong volumes, we cannot just merge the branches or have one person handling all the products. We’re trying to introduce other products at these branches and place people who are trained in these products, either new [appointees] or from erstwhile SCUF branches. That will probably take another year before we have all products in all branches.

We have introduced gold loans at 600 branches that handle commercial vehicle loans. We have recruited, trained and placed close to 2,000 people. It’s an exercise we’re reviewing regularly. The proof that it’s working is that in nine months of FY24 we grew 20 per cent against the estimated 14-15 per cent at the time of merger. We’ll close FY24 at 20 per cent growth and grow 15-18 per cent in the next two years.

The product mix has about 30 per cent new vehicles and 70 per cent used. Both are growing, but in the new PV [personal vehicle] loan segment, we are mostly into entry-level cars because our customer segment comprises those upgrading from two-wheelers or a CV [commercial vehicle] owner who is buying a car. Since our reach has extended almost overnight from 2,000 to 3,000 branches, we are able to offer PV loan products to customers. CV loan segment has grown by about 13 per cent, wherein LCV [light CV] loan growth is slow; the heavy vehicle loan segment is growing.

MSME [micro, small and medium enterprises] lending has grown by 30 per cent, two-wheeler loans by 21 per cent and gold loans about 30 per cent. In personal loans, where 99 per cent goes to existing customers, we have around 2.3 million live customers, of whom 50 per cent have completed 60-70 per cent of their loan tenor. Another 10 lakh loan contracts expired last year. Ideally, PV should be 25-26 per cent and CV 35-40 per cent. Construction and farm equipment should be 6-7 per cent, and personal loans we have capped at 8 per cent of our portfolio. But it will take at least 3-4 years to reach 8 per cent, because it’s a short-tenure product. The 65 per cent growth in Q3 FY24 looks high because of a small base, but it could grow at 20-25 per cent.

Between new and used vehicles, I would prefer to fund used vehicles. At a blended level, the share of new vehicles will reduce because banks are lending at 9-10 per cent, which we can’t do. We’re happy funding existing customers but we don’t want new vehicles to be a big portion of the book. Prices of new medium and heavy CVs have crossed ₹40 lakh. Drivers who want to become owners will never be able to afford a new vehicle, and it’s mostly fleet owners who are moving towards new vehicles. We don’t want to compete there because they’re already being funded by other banks or NBFCs [non-banking financial companies] at lower rates. We don’t want to lend at those margins, or ramp up the top line at a cost of the bottom line. We will continue in used vehicles because that is our core strength.

Opex is 25-27 per cent, which includes a hit of ₹100 crore every quarter because of merger-related intangibles, which should be absorbed in 2-3 quarters. Staff cost has gone up because we onboarded nearly 13,000 people last year. The nine-month NIM [net interest margin] improved to 8.77 per cent in FY24 from 8.31 per cent a year ago, which should sustain. Cost of funds should be stable. The change in the portfolio mix due to the growth in personal and MSME loans is helping us hold NIMs. Also, we have a negative carry of about three months of liquidity on the books. That is reducing and should help improve margins and return ratios. RoE [return on equity] right now is 15 per cent and should improve to 16-16.5 per cent and RoA [return on assets] from 3.11 to 3.50 per cent.