The Chennai-based Shriram Group, the financial services conglomerate, is keen to foray into the banking segment. G S Sundararajan, group director, speaks to Krishna Pophale about their banking aspirations and strategies. Edited excerpts:
What are your preparations on the banking licence?
Under the Shriram umbrella, we already have a couple of NBFCs (non-bank finance companies) doing considerably large business, and the group is already into the financial inclusion space. We await the final guidelines, as we need to look at the fine print before the preparations start. We shall also bring this up to the regulator, about how it will enhance our financial inclusion agenda rather than being detrimental to it. We have been serving the underserved community; as long as a bank platform enables us to better serve this target market, we will be keen to become a bank.
What are the challenges for an NBFC to convert into a bank?
If organisations are large, the possibility of converting these into a bank comes with formidable challenges. We are keen on a licence that will facilitate offering of multiple banking products to our existing eligible customers, as well as graduating into higher-end customers in the salaried and business segments. Having said this, a bank within the group will be a positive strategic step for Shriram and the society we serve.
RBI wants to convert existing NBFCs into banks…
If we want to continue to achieve financial inclusion, we should realise some NBFCs like us and banks are in mutually exclusive customer segments. Hence, if we want NBFCs to get into banking space, then they should be encouraged to continue with their business models and, at the same time, expand on their additional products to the existing customer base after conversion.
What if RBI insists?
In the current scenario, there are some businesses which we can do as a bank. So, there is a choice, which we will have to exercise. As long as we are able to convince the regulator that there will be no regulatory arbitrage, I am sure they will support us in furthering financial Inclusion.
RBI recently brought out new norms for NBFCs. Should NBFCs be treated at par with banks in asset classification?
As I said earlier, the customer segment which NBFCs like Shriram cater to are very different from those addressed by banks. These segments are prone to irregular cash flow and require a lot more tolerance in repayment. This is why such customer segments are perceived to be high risk. We would, therefore, believe that any reclassification of non-performing assets will hurt the fund availability to this category of customer.
What are your capital infusion plans in the insurance arms?
We have excess capital in the life insurance company, so, we will not need any more in the next two-three years. In general insurance, we brought in some fresh capital but we are adequately capitalised now. Our solvency margin is much higher than the Insurance Regulatory and Development Authority’s stipulations; we are, therefore, well covered in terms of capital for the medium term.
Which areas is the group currently focusing on?
Housing and construction equipment finance are the two areas which we are looking to grow in the next three to five years. Our existing network and customer base will help us there. Wealth management is still on the drawing board. We are evaluating means to reactive our asset management company, using our distribution arms, mainly Shriram Fortune and Shriram Insight.
