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Shriram Group may sell minor stake in housing finance arm in next fiscal, says Shriram City Union Finance MD

As on June 30, Shriram Housing Finance’s AUM stood at Rs 5,803 crore

July 28, 2022 / 04:50 PM IST
Representative Image

Representative Image

The Shriram Group may sell a part of its 85.02 percent stake in home loan arm Shriram Housing Finance in the next financial year, managing director and chief executive officer (MD & CEO) of Shriram City Union Finance (SCUF) YS Chakravarti told Moneycontrol on July 28.

But the sale is unlikely until the mortgage lender reaches assets under management (AUM) size of Rs 8,000 crore to Rs 10,000 crore, he said.

“Probably a year from now (the AUM will rise)…There are a lot of options on table, one would be to divest a small portion and then go for an IPO (initial public offering)…,” Chakravarti said.

On December 13, the Shriram Group approved the long-anticipated merger of its lending subsidiaries Shriram Capital (SCL) and SCUF with Shriram Transport Finance Co (STFC). The merged entity would be known as Shriram Finance. While STFC Vice-Chairman Umesh Revankar would be the vice-chairman of the merged entity, Chakravarti will be the MD and CEO of Shriram Finance. Shriram Housing Finance is the mortgage lending arm of Shriram Group, promoted by SCUF with 85 percent shareholding as on June end.

As of June 30, the housing finance company’s AUM were Rs 5,803 crore, up 48 percent year-on-year (YoY), with total disbursements rising manifold year-on-year to Rs 795 crore during April-June (Q1FY23).

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“I think there is still time, the first objective is they (Shriram Housing Finance) need to cross Rs 8,000 crore (of AUM). So we will look at something between Rs 8,000 crore to Rs 10,000 crore in AUM. Till such time, we wouldn’t be looking at anything,” the MD said.

Merger 

Moneycontrol on July 28 first reported that the Group has received approval from the Insurance Regulatory and Development Authority of India (IRDAI) for the proposed merger of group companies.

Following the approval, Shriram Group companies now require regulatory approvals from the National Company Law Tribunal (NCLT) and the Competition Commission of India (CCI), Chakravarti told Moneycontrol, adding that the merger will likely be completed by September-end.

The merged entity would have a combined AUM of over Rs. 1.5 lakh crore, over 20 million customers served till date and a distribution network of over 3,500 branches. All of these would be serviced by a team of over 50,000 employees.

Q1 results 

Chakravarty’s comments come on the heels of SCUF reporting its April-June (Q1FY23) net profit at Rs 323 crore, up 55 percent year-on-year (YoY) on the back of higher loan disbursements and stable asset quality.

SCUF’s total disbursement rose 82 percent YoY to Rs 8,726 crore during April-June, as per its Q1 investor presentation. AUM grew to Rs 40,414 crore as of June-end, up 21 percent YoY and 5 percent sequentially.

“The demand across products has revived.. We are seeing robust demand also for products other than two-wheelers…SME (small and medium enterprises) picked up, PL (personal loans) which has higher yield, has also picked up very nicely, pre-owned 2 wheelers…these comprise about 45 percent of disbursements, gold loan also has picked up nicely,” Chakravarti said.

The non-banking financial company’s loan disbursements were impacted by the pandemic in the last fiscal year and SCUF created provisions against doubtful assets, the MD said.

As the economy revives, the over Rs 300 crore of SCUF’s Covid-19-related provisions will likely drop more, he added.

“We are very comfortable( on asset quality)...If you look at Covid-19 provisions also, which is steadily dropping, now we have over Rs 300 crore, I think in a couple of quarters we will drop these provisions also…”

As of June end, SCUF’s gross non-performing assets (GNPA) stood at 6.11 percent, 20 basis points (bps) lower sequentially. Net NPAs, meanwhile, rose 2 bps sequentially to 3.32 percent. Provision coverage ratio (PCR) stood at 47.13 percent as on June end, as per the NBFC’s Q1 financial results filed with exchanges.

One basis point is one-hundredth of a percentage point.

Credit cost, at 2.68 percent as of June-end, was higher than 2.15 percent that of March end.

“…we would like to bring it (credit cost) to what it was at March-end, which is 2.15 percent, that is my first priority,” the MD said.
Piyush Shukla
Siddhi Nayak is correspondent at Moneycontrol.com
first published: Jul 28, 2022 04:48 pm
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