Informist, Saturday, Apr 27, 2024

--Shriram Fin MD: Plan to raise at least $1 bln via overseas mkt FY25
--First tranche of overseas bonds likely in Jul-Sep
--Can raise funds in onshore mkt but at a high cost
--Expect to maintain NIM at 8.8-9.0% as of now
--See assets under management growing 20-25% in FY25
--Expect to grow gold loan book to 12% in FY25
--Target gross NPA ratio below 5%, net NPA below 2.5%
--Looking at conservative growth target of 12-15% FY25
--Hopeful of getting ARC licence from RBI by Jun-end

By Subhana Shaikh and Kshipra Petkar

MUMBAI – Shriram Finance Ltd is drawing up plans to raise at least $1 bln in the current financial year by tapping the overseas market, Managing Director and Chief Executive Officer Y.S. Chakravarti said, adding that it will be a mix of loans and bonds. The move gains significance as non-banking financial companies are finding it challenging to raise funds in the domestic market.

"I mean funds are available, but they are available at slightly elevated costs, but we are not seeing any crunch as of now...so quantum, I am not sure as of now, but if you can say at least a billion dollars," Chakravarti told Informist.

The Reserve Bank of India has been pushing non-banking financial companies to reduce their dependence on banks for borrowing and diversify their fundraising options. In November, the RBI increased risk weights on personal loans given by banks and non-bank lenders to 125% from 100%. It also increased the risk weight on credit exposure of banks to non-banking finance companies by 25% to 125%.

According to Chakravarti, the Chennai-based group will be looking to issue its first tranche of bonds in the September quarter as several non-bank lenders and public sector entities have lined up their issuances in the current quarter.

Currently, Manappuram Finance, Muthoot Finance, REC are said to have been in talks to issue bonds in the offshore market in the near term, market participants said.

In January, Shriram Finance raised $750 mln by issuing dollar-denominated social bonds maturing in three years at a coupon of 6.625%. The company raised the funds under its $3.5-bln global medium-term note programme. In late March, the company raised 7.33 bln rupees in the domestic market through bonds maturing on Apr 29, 2026, at 8.9402%.

"We wanted to reduce our reliance on the banking system. Also, you know how strong or shallow the bond market is right now. So, we would prefer to raise money there, overseas, because it helps to diversify your borrowing profile, so, you don't run a risk of concentration again," he said.

The non-banking financial company announced its Jan-Mar earnings on Friday, with its shares closing 0.3% higher at 2,498.60 rupees on the National Stock Exchange.

Speaking about the company's financials, Chakravarti said he expects the net interest margin to remain in the 8.80-9.00% range in the near-term. For the quarter ended March, the NIM was 9.02%, higher than 8.99% a quarter ago and 8.55% a year ago.

In terms of growth, Chakravarti said that he expects the first quarter to witness some slowdown. For the current financial year, the company has estimated a conservative target of 12-15%.

On loan growth, Chakravarti said he sees it in the range of 20-25% in the current financial year as the company's overall assets under management grew by around 20% last year, making a reasonable case for 2024-25 (Apr-Mar) as they are also increasing their footprint. As on Mar 31, the company's total assets under management were 2.24 trln rupees, up over 21% on year and nearly 5% on quarter.

When asked if the company had any concerns about its gold loan book, Chakravarti said, "...there are no concerns from the regulator's side as far as our book is concerned. Probably they are looking at books that are growing too fast."

He said the company aims to grow the share of its gold loan book to 12% in the current financial year. In Jan-Mar, gold loans formed 2.8% of the company's total assets under management. "It's not easy, it's also a task to grow because it is a short-term product. So, 12% is a big ask, but that's what the aspiration is."

In March, the RBI barred IIFL Finance Ltd from sanctioning or disbursing gold loans as certain material supervisory concerns were observed in the gold loan portfolio of the company, such as deviations in assaying and certifying purity and net weight of gold by the company when sanctioning loans and at the time of auction upon default.

The central bank also found breaches in the loan-to-value ratio, significant disbursal and collection of loan amount in cash far in excess of the statutory limit, non-adherence to the standard auction process, and lack of transparency in charges being levied on customer accounts. Recently, the company began the special audit directed by the RBI.

In terms of asset quality, Shriram Finance's gross non-performing asset ratio was 5.45% as on Mar 31 and the net non-performing asset ratio 2.70%. Chakravarti said they are targeting the gross and net NPA ratios to be below 5% and 2.5%, respectively.

On entering into the asset reconstruction business, he said that Shriram Group expects to get its licence from the RBI by the end of the June quarter. "We are waiting for a clearance from RBI...I think it is in the final stage, and we should hopefully get it by the end of this quarter."

In November, the Shriram Group, which is into lending, asset management, general and life insurance, and stockbroking, had announced that holding company Shriram Capital would invest 3 bln rupees to set up an asset reconstruction company focussing on bad retail loans. End

US$1 = 83.34 rupees

Edited by Ashish Shirke

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