A mega merger has been initiated with IDFC and Shriram Group agreeing on exclusive discussion. However, details are awaited.
Several questions have been raised after the announcement of this merger plans. To share the rationale behind this deal CNBC-TV18 spoke to R Thyagarajan, Chairman, Shriram Group in an exclusive interview. Yesterday they had spoken to IDFC Bank MD and CEO Rajiv Lall.
Thyagarajan said they will be taking the merger proposal to the investors once IDFC agreement is clear. The response form some investors was positive, he added.
According to him, the shareholders are sure to be happy if the returns are healthy.
He said it is quite possible that the Reserve Bank of India (RBI) will approve the merger proposal but if it does not then they will continue to with their business as usual.
Discussions between RBI officials and company members have taken place, he said, but cannot say that there has been assurance from RBI with respect to the IDFC merger.
Below is the verbatim transcript of the interview.
Q: There are a lot of doubts in the Shriram twin company’s investors’ minds. In the first place, Shriram Transport investors probably wanted an exposure to commercial vehicle (CV) cycle in which you setup world benchmarks in the way in which loans ought to be given. Now suddenly you are forcing them to take an exposure to insurance companies, etc. Are you sure all your investors are on-board on this?
A: As long as the transport finance company does well in terms of returns to the shareholders improving over a period of time steadily and continuously, I think shareholders will be happy. Whatever we have been doing in Shriram Transport Finance company over the years is to improve the quality of service that we provide for our customers, making them prosper more and more as we go along and in the process provide adequate profit and growth in profits to the shareholders. We have been able to achieve it over the last 20 years or so, and I think this will continue into the future.
Q: Have you have taken your major investors on-board, your big foreign institutional investors (FIIs), they probably are fascinated by the manner in which you have taken truck financing to gold standard levels, but now you are forcing them to keep an insurance exposure for which they could have gone to an ICICI Prudential, they could have gone to several other companies. Are your investors on board?
A: We will be taking it to our investors once we get our agreement with IDFC clearer. The preliminary interaction that we have had with some key investors, has been very positive. I would explain to you as to what we have been able to achieve when we have been offering newer products to our own customers. For example when we went into offering them general insurance product for our trucker operator, Shriram Transport Finance company started getting a new revenue stream into it.
The truck operators had a tremendous amount of benefit because since we understood that business, and since we understood the insurance business as well, we were able to give them claim settlements within 40 days from the date of accident as against 1.1-5 years on an average it used to take for them to collect their insurance claims from the insurance companies earlier. Now the Now the truck operators have benefitted because they get 30-35 percent more by way of claims without its adding to the cost to the insurance company in any way. Purely by improvement in efficiency we are able to deliver a much better product to our truck operators. They have benefited enormously and we also benefitted because there was a stream of income coming in.
In the last one year, we have started extending life insurance benefits also to truck operators and it is being appreciated. It is creating a revenue stream for HDFC. However, at the same time the customers are also being benefitted. So when we offer banking products through the association with IDFC, revenue stream for HDFC will improve, our customers will be benefitted even more, that is way we look at it. We have achieved it in the past and I am sure we will achieve it again in the future.For entire interview, watch accompanying videos.