Shriram Finance looks at new borrowing strategy to reduce costs

Umesh Revankar

Shriram Finance is actively developing a new borrowing strategy aimed at further reducing its cost of funds over the next six months, Executive Vice Chairman Umesh Revankar said in an interview with Moneycontrol.

Revankar noted that the company’s current debt includes older borrowings at relatively higher interest rates. Replacing these with lower-cost funds will take approximately 18 months. However, the company is already taking steps to restructure its borrowing approach in the short term.

"We are working on certain changes to our borrowing strategy. As a result, we expect the cost of funds to decline over the next six months. Going forward, we aim to give equal importance to all lines of borrowing," said Revankar.

Addressing the decline in the company’s gold loan portfolio, Revankar attributed the dip to slightly elevated maturities during the first two months of the current financial quarter, which impacted the overall Assets Under Management (AUM).

As per the company’s investor presentation, the gold loan AUM of the company fell 15.82 percent on-year to Rs 5,154.05 crore in April-June quarter of FY26, from Rs 6,122.51 crore in a year ago period.

Edited excerpts:

What has helped the company report such good numbers? 

We have remained very steady with our line of business and the environment also is quite positive. Asset quality also has remained strong.

Why has construction equipment AUM fallen in this quarter?

The early onset of monsoon has mismatched the cash flows in small areas, otherwise, overall business is looking good. Because of early onset of monsoon, many of the construction activities got delayed. I think it got postponed to August and September. That could be the reason. Typically, rain comes in mid June, this time, the rain has come 15 to 20 days early.

Our credit cost also has come down. Credit cost for the last quarter was 1.64 percent.

Why gold loan AUM was also down on a yearly basis?

Gold loans have gone up for us in the last 4 months from March to June, even in July. Month on month, the disbursement has gone up.

There have been some maturities because the gold loan has a shorter maturity. There was a little higher maturity in two months. Therefore, the portfolio looks as if it has come down.

But since the disbursement has gone up, in the next two quarters, you will see that our portfolio will go back (up) or grow faster.

How much growth can we expect for this entire year? 

We would like to grow as much as possible. I think if there is an opportunity, I would like to grow 30 percent on the gold. We are working on it. Maybe, we will be able to comfortably do that kind of growth.

How has your cost of funds moved in the first quarter, and can we expect any reduction?

In Q1, our cost of funds on the book was 8.87 percent and incrementally, it was 8.34 percent, which is much lower. Old borrowing is at a higher rate and it will get replaced over the period. It will take 18 months' time to get it replaced and the cost of funds will come down (then).

What will be the borrowing strategy in the coming quarters to reduce borrowing cost?

There will be some change in the strategy, which we are already working on. We have announced the reduction in our deposit rates from August. We have taken some measures. Therefore, the cost of funds should come down over the next six months.

We would like to give equal importance to all the borrowing lines -  term loan or securitisation or capital market, ECB, and deposits.

We have five large pools of resources and we will be giving them equal importance. But depending upon the situation, we may choose one over the other temporarily to bring down the cost.

How much excess liquidity do you have on your books?

We have excess liquidity on the balance sheet, and we are focused on utilising that first.

If you look at investment and cash, we have around Rs 40,000 crore in investment and the remaining as liquid cash.