Happy as NBFC unless there's glide path to becoming a bank: Umesh Revankar

Microfinance can never be a sunshine sector because every 5-6 years it gets into some kind of challenges, says Revankar

Umesh Revankar, executive vice-chairman of Shriram Finance, speaks to Manojit Saha and Subrata Panda in Mumbai about why the company is content remaining a non-banking financial company (NBFC), the segments it is currently focusing on, and how it plans to maintain a steady growth of 15 per cent, given the current economic growth of the country. Edited excerpts:

 

What is stopping you from becoming a bank? 

The regulatory requirement for banks is very high. It may look like NBFC and bank regulations are the same, but they are not. Also, you need to have a huge deposit franchise to become a bank. In the initial years, the cost of deposits is higher than your borrowings, with the ratio (SLR) and cash reserve ratio taken into account. So, why would current shareholders sacrifice profitability? I believe it is not easy to become a bank. Unless the regulators want large NBFCs to become banks and provide a glide path, we are happy to remain an NBFC.

 

Now that the gold loan norms have been relaxed, do you plan to grow this segment faster? 

About 45 per cent of our book is commercial vehicles (CVs), 20 per cent is passenger vehicles (PVs), 6 per cent is two-wheelers, 7 per cent is construction equipment, 3 per cent is farm equipment, and 14 per cent is small and medium enterprises (SMEs).

 

Gold loans account for just 2.5 per cent of our book. This portfolio will go up. The unorganised sector gained when the Reserve bank of India (RBI) released certain guidelines on gold loans. That business will now come back to NBFCs. We intend to double our gold loan portfolio in three years.

 

You don’t want to get into the microfinance business? 

Microfinance can never be a sunshine sector because every five to six years it runs into some kind of challenge. Multiple microfinance companies give multiple loans, resulting in consumers borrowing more than what they really need. So, we don’t want to get into microfinance. From the very beginning, we have stayed away from it. 

 

Which are the segments you want to double down on? 

My aim is to grow across all businesses, depending on the opportunities available and the scope of those opportunities. Right now, the scope is a little bigger in SMEs because there is huge potential — the credit gap is highest in the SME segment.

 

As for CVs and other segments, it will depend on how the market and the economy grow. If GDP grows around 6–6.5 per cent, the opportunity to increase the CV portfolio would be around 12 per cent. PVs may grow faster. The opportunity in CVs is greater because the government has stopped investing in public transport for nearly seven to eight years now. Hence, there is more demand for buses and taxis in the private sector.

 

What is the rationale behind entering the primary dealership business? 

We have to invest ourselves because of the SLR requirements on our deposits. We felt that we could build specialisation there. It is a safe business, and as long as it gives reasonable returns, we are happy. We have received in-principle approval from the RBI.

 

Following the reversal in risk weights on bank lending to NBFCs, has the flow of bank funds improved? 

At least I don’t have anyone calling me and saying that we are not getting bank funds. So, in the past six months, it has improved.

 

You want to enter the payments business… 

We felt that if we are able to retain customers by holding on to them through transactions, it would be an advantage for us. We want to enter the wallet business. It will take some time as we have to get approvals.

 

What is the growth you are targeting? 

We want to grow at 15 per cent. Right now, I feel this is the right pace because the economy is growing