Shriram Group's non-banking financial entities are most likely to get amalgamated by the third quarter of this financial year, according to a top company official.
Chennai-based Shriram Group announced the merger of two non-banking finance companies (NBFCs) in December 2021, which will create the largest retail NBFC in the country with a combined asset under management (AUM) of over Rs 1.5 lakh crore and a distribution network of over 3,500 branches.
Shriram City Union Finance Ltd (SCUF) has received shareholders' approval for the merger and it is expected to get the nod from the Insurance Regulatory and Development Authority of India (Irdai) and Competition Commission of India (CCI) soon, company's Managing Director and CEO YS Chakravarti said.
"The next step is, we need two more approvals. One from CCI and another from Irdai, which we should see happen soon. For the National Company Law Tribunal (NCLT) to pronounce a final order, we expect eight to ten weeks of time. So, 8-10 weeks is when we will be able to get the order (from NCLT). And once we get the order, we can consider it legal (combined entity), Chakravarti told PTI in an interview.
"So hopefully, if everything goes on well, the December quarter should see a merged balance sheet," Chakravarti said.
The name of the combined entity will be Shriram Finance.
"We will have to do all the rebranding also", Chakravarti said, who is also the Managing Director and CEO-designate of the proposed merged entity.
He further said the merger will give the ability to reach more customers, the ability to take the products to newer geographies where the company does not have the presence and be able to cross-sell products like two-wheeler loans, gold loans, working capital loans to general Shriram Transport Finance Company (STFC) customers.
"... So your ability to cross-sell and the ability to increase productivity. Your sales team will be equipped with more products. So basically a one-stop platform for all, which can cater to any type of financial requirement," the official said.
SCUF offers two-wheeler, commercial vehicle, passenger vehicle, gold and home loans, whereas STFC has a presence in the commercial vehicle financing business, consumer finance, life and general insurance and stock broking.
STFC has branches in Bihar, Rajasthan, North-East, West Bengal and Odisha, however, SCUF doesn't have much presence in these states.
Post-merger, the combined entity, Shriram Finance, will have five joint managing directors (JMDs) who will be the five geographical heads. While two JMDs will be from SCUF, three will be from STFC.
Once the merger process is over, Shriram Group will have five different financial entities catering to lending, life insurance, general insurance, broking and asset management. "So you have five distinct companies," he added.
Speaking about the current demand scenario in the market SCUF catering to, Chakravarti said the business has been doing good as disbursal during the first quarter ended June of this fiscal has grown nearly twofold.
"In June quarter last fiscal, we did a disbursal of Rs 4,560 crore out of which about Rs 1,000 crore was for two-wheelers and another Rs 1,100 crore towards MSME business. Another Rs 1,400 odd crore was towards gold loans among others. If you compare that to the current year's first quarter, we are actually close to 100 per cent growth. Last year there was an impact of COVID in the months of April and May. So this quarter (Q1FY23), we ended up doing about Rs 7,913 crore disbursal versus over Rs 4,500 crore last year," he added.
Breaking it up, he said the disbursals towards two-wheelers were worth Rs 1,800 crore this quarter (June 2022) and on the MSME side it was about Rs 2,053 crore.
On the rising interest rate scenario, he said SCUF is also looking to raise lending rates on a couple of loan products.
Inflation and the rising interest rate have not impacted the company's customer base much, the official said, a majority of the funding is towards the trading and service sector.
"Inflation and the rising interest rate have not impacted them as much as in the manufacturing sector. Secondly, we are seeing good demand for credit from the sector and we are looking at increased disbursement in the next three quarters, basically to MSMEs. The good thing is that the ticket size has also remained unchanged, our average ticket size is between Rs 10-12 lakh on the MSME side," Chakravarti.
It means the increased disbursement has not come because the company has increased the ticket size.
Further, he said there is good demand for credit from tier II and III cities, particularly from MSME and gold loan front.
However, on the two-wheeler loan front, the overall sales are still down. "There are some green shoots in the month of June, we will have to see how it pans out in terms of sales of two-wheelers, the sales are down, they have not come back to the pre-COVID levels," he said.