Legal merger of Shriram Group firms to happen by Sep, Oct: YS Chakravarti

Demand is definitely coming back, said Chakravarti

With Shriram Group's restructuring on track, Shriram City Union Finance (SCUF) expects the merger to lead to a 10 per cent rise in disbursements in 2022-23. YS Chakravarti, MD and CEO, SCUF, talks about the merger, the integration roadmap, technology up-gradation and revival trends in an exclusive interaction with Shine Jacob. Edited Excerpts:

What is the status of Shriram Capital Ltd (SCL) and Shriram City Union Finance's (SCUF) merger with Shriram Transport Finance Company (STFC)?

The appointed date will be April 2022, and we are on course for the legal merger by September or October 2022.

We needed to apply to the Securities and Exchange Board of India (Sebi) for its approval for the merger. We have already applied. Simultaneously, we will also have to go to the Insurance Regulatory and Development Authority (IRDAI), the Competition Commission of India (CCI) and then the Reserve Bank of India (RBI). Then we need to approach the National Company Law Appellate Tribunal ((NCLAT), call for a shareholders meeting and need to get approval from the majority of the minority shareholders. This is the legal process and a no-objection certificate (NOC) is also needed from 75 per cent of lenders for the merger.

We are working with our lenders, have already received NOCs from a majority of them and are waiting for a few of them. We don't anticipate any issues from our lenders.

How are you looking forward to the merged entity in terms of performance and also, are you revising the targets for FY22?

Right now, both the companies have their own targets. Because of the integration or the coming together of the companies, we are looking at a 10 per cent increment in disbursements. In the first year, there may be some teething troubles, like the integration of manpower.

We are not projecting a very aggressive growth during the first financial year, as by the time the legal merger takes place, half the year would be gone. Then we will officially be able to work, merge the products and offer all the products across branches. We would like to utilise this time in cross-selling products of each other and also work on some pilots, so that we are ready to take off whenever the legal clearance comes in.

For the current fiscal, the first quarter was a disappointment because of the second wave and third quarter we picked up.  We are on track with our projections and will end up approximately at around 13 per cent growth in assets under management (AUM)). At the beginning of the year, we said it would be around 12-15 per cent. The next three years will be Shriram's years. We will stay true to our company's purpose and focus on the long term, while adapting to this new world around us.

How will the integration of work and rationalisation of branches happen?

Rationalisation is not going to happen in terms of people. We may need more people going forward. There could be some rationalisation in the back office, but those people will be used in other Shriram Group entities. In terms of branches, we have around 40 branches that are in the same premises, that will be rationalised.

On the technology side, both of us are on a common platform. So technology integration is not a major issue. Since we are on the same platform, integration should hardly take two to four weeks.  We will start some pilots by April and will introduce new products like loan against property, supply chain financing and co-lending with a couple of fintechs. We will keep one employee of another entity in each branch and do a hub and spoke model of credit.

Will the super app called Shriram One be part of this integration process?

The Super app is a work in progress and the team is working round the clock to make it successful. Both entities have individual apps. After the legal date, we will combine both these. We will keep on adding functionalities and products. It will take at least two years to have a comprehensive application. Every quarter there will be additions to the app. All lending products will be available by November or December this year.

How do you see the disbursement trend now?

Demand is definitely coming back. We grew in terms of gold loan disbursements -- Q2 was around Rs 1,482 crore and Q3 was around Rs 1,676 crore. SME also saw marginal growth from Rs 1,825 crore to around Rs 1,980 crore QoQ and year on year there has been a sharp rebound. In Q2 itself we saw that demand for credit on SMEs growing. Going forward, demand from SMEs will be robust.

Omicron has not impacted as much as the first wave or the second wave. We are seeing a much more relaxed attitude from people now. Economy has started doing well. The pick up in collections is a big signal for me to start disbursements. In Q3, we reached around 103 per cent of collection efficiency. In Q2, it was 100 per cent and in Q1 it was 93 per cent. That is a signal for us that customers are paying and cash flow is coming back. That gives you confidence to go out and lend.

In FY23, for SCUF as a standalone company we are looking at growth in mid-teens. At STFC we expect around 10-12 per cent growth. We should beat these estimates as normalcy returns. We have started seeing demand for CVs picking up. The government's increased spending on infrastructure will push the movement of goods and in turn higher demand for commercial vehicles (CVs). It is the CV market where we are seeing the green shoots. The merger is a stepping stone to enable the Shriram Group to be future ready, and over the next three years we will achieve durable profitability, and create value for all stakeholders which will be sustained over the long-term.

How do you see the RBI guidelines on new asset classification for NBFCs?

We have always followed, once an NPA, always an NPA, rule even before the RBI guidelines at SCUF and STFC. The only difference today is the daily stamping, which has added around 0.69 per cent to our NPAs, which is the difference between the old and new method of classification for us in Q3. We are confident that by the next two quarters we will be able to pull it back. It is not just customer behavioral patterns, but also our staff need to be trained and that is on-going. We have been following a particular way for the last 20 years so we need a couple of quarters to readjust. We don't anticipate any additional provisioning from here on.

For us, coming together will make a much more efficient organization than what you have seen so far -- both in terms of CASA funds and operating efficiencies. SCUF won't be a South Centered business anymore and will get an upgraded rating. While STFCs business cyclicality will be eliminated.