Longer forbearance will help in conversion to a bank, says Y S Chakravarti

We are not going in for external funding. We have decided that SCUF will fund them, says Shriram Group MD

Shriram City Union Finance (SCUF) has seen a big rebound in its business — collections are up sharply, and the book under moratorium is only at seven per cent. The deposit-accepting shadow bank is at an inflexion point, given the emerging regulatory framework, with the Shriram Group set to revisit its banking ambitions. Y S CHAKRAVARTI, the firm’s managing director and chief executive officer, spoke to Raghu Mohan. Edited excerpts:

What explains the big bounce in your business in the third quarter of FY21 at 27 per cent year-on-year, and will it sustain, going forward?

Small borrowers got squished, particularly businesses dependent on working capital from other than banks. And most of the non-banking financial companies (NBFCs), too, had slowed down. When businesses restarted, the credit cycle — on the goods sold on credit to them — had also shrunk from 30 days. It went down to 15 days, and from 15 days to seven days. And you had to push more working capital into business. The segment we handle — retail, trading, grocery stores, pharmacies — saw business volumes bounce back. And therefore, our numbers have seen a sharp rise in lending. The third quarter was not an exception because of the festive season. The same thing happened in the fourth quarter also. It is a secular bounce-back.

How have collections shaped up in the last six months, and how much of your book is under the moratorium? In the case of some banks, this is at 20-25 per cent.

In December itself our collections were back to pre-Covid levels. Our book under moratorium is at   around seven per cent. Fifty-five per cent of my business is to micro, small and medium enterprises (MSMEs) and 25 per cent is in two-wheelers. Our personal-loan business has an average ticket size of about Rs 55,000; so too, in gold loans. Then, 99.9 per cent of my other customers and the majority of the MSMEs have not opted for a moratorium. Most of them said that they will delay by two to three months in servicing loans, but have not opted for a moratorium.

The Reserve Bank of India (RBI) has aligned regulations of NBFC and banks. Will you revisit your banking ambitions in the context of the internal working group’s (IWG’s) draft?

Revisiting our banking ambitions could happen, but not because of the IWG. The revised regulatory framework for NBFCs (which was released subsequent to the IWG’s draft) has four layers — base, middle, upper, and possibly, a top layer. I am at Rs 30,000 crore in assets, but Shriram Transport is at Rs 1 trillion-plus, and this may also place me in the upper deck, when combined. The only thing we are looking at is whether, at the upper level, RBI will restrict our borrowings. That is the only point of concern. You see, regulations, monitoring and all that is not an issue — we are ready for that.

Can you please explain what the concern is at the borrowing end?

What I’m saying is that the entities (SCUF and Shriram Transport) together will have nearly Rs 1.40 trillion in assets, out of which we have about 50 per cent of borrowings from banks and 50 per cent from retail. So, what if the RBI were to put a constraint on banks, or on us, saying that you can’t borrow so much from banks; or you need to reduce your borrowings from banks? It can be an issue. So, even if the RBI says, come and start a bank, my concern is I have two NBFCs, and RBI may not allow them to exist along with the bank.

Will a five-year glide path work for you?

  

It is difficult for me. You need to reset your liabilities. Current and savings accounts of Rs 70,000-80,000 crore in five years to replace existing liabilities is very difficult. Apart from this, you will also need money for growth. The glide path needs to be elongated, not five years.

Assuming you are not going to get a banking licence, what’s the future of large NBFC groups like yours at a time when regulations are more or less aligned with those of banks?

We are more or less aligned with banks on regulations. In fact, I am of the view that we have much stricter NBFC regulations when compared to banks today. We are on Ind-AS (the Indian Accounting Standards). In provisioning, banks have an edge — they get a tax relief which we don’t get. You see, I am 200 per cent clear that there should be banks and NBFCs, and there should be a partnership between the two of them, rather than saying that only banks should exist — because I don’t think they have the last-mile connectivity of NBFCs. Now, let’s assume that I do not become a bank, but continue as an NBFC. Well, even then, I can partner with banks and get into the co-lending model.

What is the status of fundraising in Shriram Housing Finance?

We are not going in for external funding. We have decided that SCUF will fund them. We are looking at an initial amount of Rs 300 crore, and another Rs 200 crore in the form of warrants. This will take care of the housing finance company’s capital requirements for the next 18 months to two years.