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

NBFCs typically source money from banks or from markets to do business.

Shriram Finance has reduced its dependence on expensive bank loans as interest rates have shot up over the last few months, data shows. Instead, the company has increased its reliance on cheaper public deposits. Interest rates have been on the rise on account of back to back rate hikes by the Reserve Bank of India (RBI) since May FY23.

Non-banking finance companies (NBFC) typically source money from banks or from markets to do business.

Numbers

In the April-June quarter of FY24, the non-banking lender reduced its term loans to 24.31 percent of the overall borrowing portfolio from 25.87 percent in the corresponding period last year.

In absolute terms, the company has borrowed Rs 39,373 crore through term loans in Q1, as compared to Rs 39,468 crore in the corresponding quarter last year.

A term loan is a line of credit that must be repaid regularly over a predetermined duration. Usually, companies use this facility as part of their borrowing from the market.

Shriram Finance’s Executive Vice Chairman Umesh Govind Revankar said the NBFC had increased public deposits because they were more cost effective. “It is not that we are preferring one over the other; but we will prefer to increase our deposit portfolio, which is coming at a lower cost,” he added.

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

Further, he said as repo rates have gone up since 2022, term loan rates have increased, which led to lower borrowing from this segment.

Borrowing profile

In Q1FY24, term loans and public deposits were a major borrowing source for the company, comprising 24.32 percent and 23.87 percent, respectively of total borrowings.

Over FY23, the non-bank lender reduced its dependence on term loan in overall borrowings. The company reduced borrowing from 25.87 percent in Q1FY23 to 24.31 percent in the first quarter of the current financial year.

However, its dependence on public deposits increased to 23.87 percent in Q1, as compared to 22.89 percent in the quarter-ago period, and 20.10 percent in the year-ago period.

“We will keep changing our strategy depending on the cost, since deposits with the company have surpassed other instruments, so we will focus more on deposits for the time being,” Revankar said.

Non-convertible debentures comprise 17.73 percent of the NBFC’s total borrowings. Revankar added that the company will give weightage to all instruments because “we need to keep the balance between various instruments”.

Rate hikes by the RBI

Since 2022, the RBI has increased the repo rate by 250 basis points (bps) to tame inflation, which has been persistent. This has forced banks to increase their deposit and lending rates, forcing companies to cut borrowing through term loans.

Apart from Shriram Finance, other NBFCs and housing finance companies such as Bajaj Housing Finance have also reduced their bank borrowings.

According to an investor presentation of Bajaj Housing Finance, the company reduced borrowing from banks to 47 percent of total borrowings in Q1FY24, as compared to 53 percent in the corresponding period last year.

“Bajaj Housing Finance’s bank borrowing may be largely linked to the repo rate,” Elara Capital said in a report.

Also read: Piramal Enterprises to sell entire 8.34% stake in Shriram Finance via block deal: Sources

Motilal Oswal said 25 percent of bank borrowings are repo-linked, 30 percent are marginal cost lending rate-linked, and 55 percent are linked to treasury bills and external benchmarks, in a report.