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The Chennai-headquartered Shriram Group has historically been involved in lending to small and medium enterprises (SMEs), including individual borrowers. The group's businesses range from chit funds to truck financing for customers who have no access to organised banking channels. G S Sundararajan, Group Director, Shriram Group, explains to T E Narasimhan the philosophy that drives the company and the road ahead for it. Edited excerpts:
How is it that the Shriram Group's traditional strength has been lending to SMEs?
We have always looked at the under-served segment. The chit fund business which was the group's foundation used to focus on the self-employed and micro business, and encouraged them to save and borrow. Then we moved into transport, and here again we looked at smaller operators with one or two vehicles. The original customer base was derived from the chit fund business, while our track-record and relationships helped the group start individual financing for small businesses through Shriram City Union Finance (SCUF). There, we were doing small-ticket lending of less than Rs 10 lakh, and around 60 per cent is to micro and small business.
Even in Shriram Truck Finance Company (STFC), our lending size is less than Rs 10 lakh. Our entire focus is on SMEs. Once we knew that there are a lot of entry barriers, we expanded in a big way and got external funding including private equity, besides roping in strategic partners. We have grown to Rs 15,000-16,000 crore in SCUF and around Rs 60,000 crore in truck finance, but there is a huge opportunity to grow in this area. We have close to a million customers.
What are the challenges, especially in fund-raising?
In 1999-2000, the group had exposure to not more than Rs 28 crore of bank lending. No banks were willing to lend, since they did not understand this business. This changed after partners came in, including TPG, Chrys Capital and Citibank. They have showed confidence in our business, and were willing to put in a lot of money. Once we started attracting these partnerships, bank funding automatically started coming in. Currently, we have close to Rs 40,000 crore of bank funding. Depositors are also willing to entrust their money to us because they have confidence in the group.
What are the NPA levels like in STFC and SCUF?
Our net NPAs are 1-1.5 per cent, while gross NPAs are 3-4 per cent. We have been able to collect the NPAs, because they are collateralised either through trucks, property or two-wheelers. We can go back to customers and retrieve the assets. We have been able to collect two-thirds of gross NPAs.
What is your profitability?
We have 2.5-3 per cent return on assets (ROA) in a business which is supposed to be high-risk. We can sustain the business at 2.5 per cent-plus return, and one reason is that competition is less - because people don't know how to do this business.
How do you see the future?
We will be the largest small business finance entity in the country. If you combine our entities, we are already the largest now. We will continue to focus on encouraging entrepreneurship and funding small business. If there is enough encouragement, from regulators or the finance ministry, we can increase our customer base three or four times over the next five to seven years.
The Group has applied for a banking licence. What role will you play in the SME sector if you get it?
We want to be a SME-cum-retail bank catering to the small business community, and providing them products which they never got, such as bank guarantees, cash and trade products and term loans.
What are your plans for geographical expansion?
The North and West geographies have been slowly expanding. Since chit fund businesses are not present in these markets, the expansion will be slow and might take four to five years.
