Shriram group merger: STFC, SCUF may start working together from October

Shriram Transport Finance (STFC) and Shriram City Union Finance (SCUF) branches could start working together for all “practical purposes” from October 3. The group expects the National Company Law Tribunal (NCLT) to approve the proposed merger scheme by then, STFC vice-chairman and MD Umesh Revankar told Moneycontrol today.

“From the time we get the NCLT order in hand,  likely by 3rd October, we have 30 days to approach the Registrar of Companies (RoC) and execute the order. Since this merger involves multiple companies, we have to do it in sequence,” Revankar said.

The Shriram group's board had on December 13 approved the long-anticipated merger of its lending subsidiaries Shriram Capital (SCL) and SCUF with STFC. The merged entity would be known as Shriram Finance with combined assets under management (AUM) of over Rs 1.5 lakh crore, and a distribution network of over 3,500 branches.

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

“On 22nd September, the next date for the NCLT hearing, the court will pass the order for the merger. All other approvals have been received. It may take about a week or so to get the order in hand,'' Revankar said.

Fund-raise

Owing to the revival of credit demand, STFC will likely raise additional funds to the tune of Rs 5,000 crore in the second half of the current financial year to fuel growth, Revankar explained.

Of the total Rs 5,000 crore, over Rs 2,000 crore will be raised via fixed deposits, while the remaining will be a mix of capital market debt and bank loans, he said.

“ECB (external commercial borrowing) is out of question now because international rates are high. It will be mostly through banks and the capital market, and we always borrow long term, not short term,” Revankar added.

As at June end, SCF’s capital adequacy ratio (CAR) stood at 22.54 percent as against 23.27 percent a year ago.

Revankar said that despite the Reserve Bank of India (RBI) raising benchmark repo rates by 140 basis points (bps) over the last couple of months, STFC’s borrowing costs have not risen more than 100 bps.

“We expect maybe another 50-bps increase in the repo rate in the next meeting, which I personally believe will be the last. I do not think there will be a further increase in the repo rate because the RBI also wants to foster growth.

``I feel the incremental increase in cost of borrowing for us may be another 25-30 bps, not more than that,” Revankar said, adding that STFC's margins will likely not be impacted as it will be able to pass on the rate hike to customers.

However, going ahead, while the NBFC has guided for upwards of 15 percent growth, it may be lesser.

“We have guided for 15 percent growth for the full year. There have been some challenges due to which growth may come down to some extent, but we still are confident that it will be more than 12 percent,” Revankar said.

STFC’s AUM stood at Rs 1.30 lakh crore as on June 30, up 9.6 percent year-on-year (y-o-y).

Lastly, Revankar said that the RBI’s new norms for digital lending  will likely lead to changes at some NBFCs.

“NBFCs which handed over their license or franchise to fintech firms to lend and do business, that dependence will come down and the NBFC may be required to have their own platform and take total responsibility for all actions, including lending and collections, among others,” he said.