Merger with Shriram Transport Finance will be completed by October 2022: YS Chakravarti, Shriram City Union Finance

YS Chakravarti, MD & CEO, Shriram City Union Finance Ltd, talks about the demand situation, auto loan, interest rates, credit cost of the company, merger with Shriram Transport Finance, Shriram Housing Finance IPO among others during an interview with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: How will you summarise the overall demand for disbursement?

A: Lending to MSMEs is one of our largest portfolios and we are seeing a good credit demand from the MSMEs. Similarly for the gold loan also. Two-wheeler is a bit subdued and I think that we will have to see how it performs in the next couple of months. As of now, two-wheelers are a little slow but demand for gold loans and MSME loans is very robust.

Q: There is a laggard in terms of auto loans. What can be the reason for it and by when the recovery is expected in the domain?

A: There are various reasons for this of which one is the high fuel prices, which probably is deterring people from buying new two-wheelers. We are also seeing people are not replacing it, they are postponing the replacement of the old vehicles. So, the market is not able to grow. Again, the cost of ownership had also gone up and even the fuel prices have also created a problem for a lot in terms of running costs. I think, we estimate that it will take at least another quarter before we see some numbers happening on the sales side, provided again the borrowing or interest costs do not go up. If the inflation goes up and RBI is forced to raise the rates then probably anywhere between six to nine months, we see growth in the two-wheeler sales.

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Q: But there are other opportunities like electric vehicles and electric two-wheelers that have taken good traction. Are your disbursing loans on the front and do you see an opportunity on that front for the company? Are you seeing demand in that area?

A: We have tied up with a majority of the EV manufacturers, particularly the two-wheelers. There is also the production capacity of the current manufacturers. If you will have a look at the production capacity of petrol Vs EVs then it probably EV has around 10% production capacity and the cost. We are waiting for large capacities to come in there. If you really want to see a large number of EV sales again the constraint is the production capacity. Surprisingly, there is robust demand from the non-metro Tier-II cities and rural areas for EV vehicles. The cost of petrol is also helping the EVs to sell. So, across the country, we are funding EVs and as and when the production capacities increase, we will increase our share there.

Q: Demand is good in the MSME segment and good growth is visible in it. What is your outlook for the MSME segment and what kind of growth should be expected in it in comparison to the last year on a year-on-year basis?

A: As far as our company is concerned, we are looking at growing the MSME book by at least 20-25%. Let me put it this way, for me, the confidence comes from the fact that the collections are behaving very well. So, we are actually confident of increasing the book year on year by at least 25-30%.

Q: Can you name the pockets that are performing well in the SME space and the laggards?

A: My portfolio particularly is skewed towards mostly services and trading activities. So, we are seeing very good demand from both these sectors.

Q: What about those who are not performing in the SME space?

A: Basically, we have few exposures to textiles which is doing well. Small, micro-units which supply the textile units are doing well. We are not into manufacturing, so, I wouldn't really be able to comment on that. But wherever, we have exposure, particularly to the textile sector, they all are doing well.

Q: What is your outlook on Interest rates and what impact will it have on your industry?

A: I will go along with the market as the market is expecting a rate increase probably in the next quarter. But if the oil prices stay where they are then probably, we will see higher inflation numbers and that will lead to an increase in interest rates.

Q: The credit cost of your company is continuously increasing. It has increased from 2.5% in December 2020 to 2.79% now. What is the reason for this?                 

A: Basically, it is the after-effects of COVID. But, if you will look at our credit cost for the last 10 years or so, it has always been in this range of 2.50% to 2.90. So, there is nothing special. Another point is the new RBI regulation of recognition of NPAs.

Q: The Company’s Board of Directors, in its meeting held on December 13, 2021, had approved the amalgamation of the Company with M/s Shriram Transport Finance Co. Ltd. Can you please explain at what stage is this amalgamation, what are the synergies and when will the amalgamation be completed?

A: We are in the process and we expect that formalities to be completed between September and October. The NCLT process has to be completed by October.

Q: There has been a long wait for Shriram Housing Finance. When should we expect the IPO to hit the market? 

A: No. It is some time away. So, it is too premature for me to comment on that at present.

Q: Recently there was news that KKR has signed a deal to buy a 10% stake in Shriram general insurance for Rs 1,800 crore. Can you tell us how much stake you have in Shriram General insurance? Also apart from this 10% will there be more stake sales?

A: It depends but as of now, we are not contemplating anything. Whatever we wanted to do has been done. So, right now, I don't think that you will see anything in the next 18 months.