Shriram Finance expects rating upgrade following merger

MUMBAI: Shriram Finance Ltd., the merged non-bank financer of the Shriram group, expects a credit rating upgrade to AAA due to diversification of its merged portfolio, ultimately allowing it finer pricing on borrowings, said the lender’s executive vice-chairman Umesh Revankar.

Shriram Transport Finance Company Ltd., Shriram City Union Finance Ltd., and Shriram Capital Ltd. were merged to form Shriram Finance Ltd.

Before the merger, Shriram City Union Finance had a credit rating of AA, while Shriram Transport Finance was rated AA+.

“Shriram City Union was one notch lower (than Shriram Transport) and following the merger, the portfolio will get upgraded from AA to AA+. To that extent, we get an advantage. As a diversified portfolio, you have a better chance of getting upgraded and we are working on that,” Revankar said.

A credit upgrade would allow the financier to get a 40-50 basis points (bps) advantage on its cost of borrowing, Revankar said. At present, its average cost of borrowing stands at 8.6%.

“We are aiming at becoming a AAA-company. One of the observations that rating agencies have had in the past was of the company being a monoline and subject to cyclicality. Once that is addressed with a diversified portfolio, we believe it is possible,” he said.

The diversification, as a result of the merger, will be more in term o geographies, instead of products, he said.

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

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

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

Meanwhile, YS Chakravarti, managing director and chief executive of Shriram Finance, said that the timing of the merger was brilliant.

“As India is growing, we are seeing robust 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– financing commercial vehicles, MSMEs, personal loans, gold loans, and vehicle loans – are poised to grow.”

On Monday, the lender said it will be a diversified player with a net worth of ₹40,900 crore and assets under management (AUM) of ₹1.71 trillion. The company caters to over 6.7 million customers across India and the growth strategy for the company will be focused on driving the self-employed and the micro, small and medium enterprise (MSME) economy.