Shriram Finance to limit fresh personal loans to existing customers only, says Umesh Revankar

Umesh Revankar

Non-banking finance company (NBFC) Shriram Finance doesn't plan to go big on risky personal loans and will limit fresh personal loans to existing customers only and specifically to those who have repaid previous loans, Umesh Revankar, Executive Vice Chairman, told Moneycontrol in an exclusive interview on July 28.

"Personal loans we are giving only to the existing customers. The customers who have completed the loan. We don’t really intend to go big in there, we will limit it to existing customers only. It will not become a large portion of the book," said Revankar.

Most banks and NBFCs have ramped up personal loan books in recent months prompting analysts to warn of potential risks if the economy doesn't do well.

Revankar further said the company is targeting a net interest margin of 8.50 percent despite the slight increase in the borrowing cost.

In the April-June quarter 2023, non-bank lenders have reported an on-quarter compression in the net interest margins (NIM), but on a yearly basis, margins have improved 20 basis points (bps). One basis point is one hundredth of a percentage point.

NIM is the difference between the interest earned on loans and paid to depositor in percentage terms. The company reported an 8.32 percent NIM in Q1FY24, compared to 8.12 percent in the Q4FY23, and 8.55 percent in Q1FY23, according to the investor presentation.

Edited excerpts of the interview:

What is the pipeline on fund raising? 

Fund raising is planned much in advance, it is a continuous activity. It is not that we have a committee and then start discussing. The borrowing instruments through which we raise funds keep changing depending on the costs, and the most effective cost-efficient instrument will be preferred.

Also read: Shriram Finance reduced bank borrowing as interest rates rose, data shows

Could you be a bit more specific?

There are two things here, one is the existing facility which will be retuning, and we also have additional resources. My total borrowing is Rs 1.62 lakh crore, and if any additional funds need to be raised, that will depend upon the growth. So, we expect we need around Rs 18,000 to Rs 20,000 crores in entire year. It is not for a quarter, but it’s a full year’s plan. And depending upon the fund requirement, we will keep raising (funds).

Your borrowings through term loans have reduced in the last few quarters... 

Right now, public deposits are more cost-effective because the average coupon we pay on our deposits for a full year is around 8.07 percent. Therefore, our focus is to improve our deposit offering in the market. As repo rates have gone up since last year, our term loan rates have increased. It is not that we are preferring one over the other, but we will prefer to increase our deposit portfolio which comes at a lower cost.

What is your outlook on the cost of funds?

We will give weightage to all instruments because we need to keep the balance between various instruments. So we also raised ECB loans in the last quarter. We will also focus on non-convertible debentures and bank borrowing. We will keep changing our strategy depending upon the cost. Since the deposits with the company have surpassed other instruments, we will focus more on deposits for the time being.

The portion of your stage 3 assets (stressed assets) has been increasing...

You have to look at the percentage, because as overall volumes go up, the absolute figures may increase, but percentage wise it may be coming down.

We are improving on our stage 3 assets and if you look at the last five quarters, every quarter we have been improving our stage three by a certain percentage. Firstly, our aim is to bring it below 6 percent and then will look into further improvement.

Also read: Shriram Finance Q1 results: Net profit rises 25% YoY to Rs 1,675 crore

There has been a sharp increase in personal loans in the current quarter...your views?

Personal loans we are giving only to the existing customers. The customers who have completed the loan. We don’t really intend to go big there, we will limit it to existing customers only. It will not become a large portion of the book.

What is your guidance on NIM for FY24?

Basically, there is a slight increase in borrowing costs, so that is the main reason, and we are confident that it will improve in the next couple of quarters. We are targeting margins at 8.50 percent.

There were reports that you will sell a 15 percent stake in Shriram Housing. Could you throw some light?

No such stake sale is being discussed and it is not on the table right now.