Shriram Fin expects rating upgrade

Shriram Group’s merged non-bank financier Shriram Finance Ltd expects a credit rating upgrade to AAA due to diversification of its merged portfolio, said executive vice-chairman Umesh Revankar, ultimately helping in better pricing on lending.

Three entities of the Shriram Group – Shriram Transport Finance Company Limited, Shriram City Union Finance Limited, and Shriram Capital Limited – have recently merged to form Shriram Finance Limited.

Prior to the merger, Shriram City Union Finance had a credit rating of AA, while Shriram Transport Finance had a rating of AA+.

“Shriram City Union was a notch below (compared to Shriram Transport) and post merger, the portfolio will get upgraded from AA to AA+. To that extent we get benefited. As a diversified portfolio, you have a better chance of getting upgraded and we are working on it.

Revankar said a credit upgrade would provide a 40-50 basis points (bps) return on the cost of borrowing to the financier. Currently, its average cost of borrowing is 8.6%.

“We are aiming to become an AAA-company. One of the comments from rating agencies in the past was that the company is monoline and subject to cyclicality. Once this is resolved with a diversified portfolio, we believe that it is possible.”

He added that the diversification as a result of the merger would be more in terms of geography rather than products.

“We are still south-based and feel that the central, western and eastern regions of India are less penetrated. We will take each product to different geographies depending on the local conditions,” he said, adding that the lender immediately Will not open any new branch.

Revankar said there are 2,875 shakhas and around 800 rural centers and the focus will be on converting these centers into shakhas.

Asked whether the merged entity needs to raise capital soon, Revankar said the lender does not need fresh capital at the moment. “Deposit growth is good at around 25% and we expect it to grow further. total deposits are 32,000 crores for the merged entity and accounts for about 20% of our liabilities. We have room to grow there,” he said.

Meanwhile, YS Chakraborty, managing director and chief executive of Shriram Finance, said the timing of the merger is excellent.

“As India continues to grow, we are witnessing strong demand for credit among micro, small and medium enterprises (MSMEs). We are always close to the market with our over 3600 locations. All our business segments – commercial vehicle finance, MSME, personal loans, gold loans and vehicle loans – are set to grow.”

On Monday, the lender said it would be a diversified player with a net worth 40,900 Crore and Assets Under Management (AUM). 1.71 trillion. The company serves over 6.7 million customers across India and the company’s growth strategy will be focused on driving self-employment and the Micro, Small and Medium Enterprises (MSME) economy.