Shriram Finance Targets an Increase in Gold Loan Portfolio: A Strategy Analysis by Executive Vice Chairman Umesh Revankar 2023
According to executive vice chairman Umesh Revankar, Shriram Finance is concentrating on diversifying its gold loan portfolio. It will be opening new branches every three months to boost volumes.
According to executive vice chairman Umesh Revankar, Shriram Finance is concentrating on diversifying its gold loan portfolio. It will be opening new branches every three months to boost volumes. Revankar informs Ajay Ramanathan that although the net interest margin decreased sequentially in the June quarter, it will either increase or stay at the current level. Excerpts:
You were looking at possible sources of money for the housing finance division. Have you made up your mind about what to do?
No, nothing has been settled in stone. The economy is strong, and business is expanding. The way the firm is now operating is satisfactory to us. At this moment, the subject has not been raised or disputed.
What is your projected borrowing and spending budget for fiscal year 24?
The growth rate will determine our objective for borrowing. We must borrow enough money to cover the net growth rise. If not, we can carry on the current arrangement and maintain continuity. The amount needed will be 15% more than what we borrowed last year. That will require an extra investment of almost Rs 20,000 crore.
For FY24, a 15% increase in assets under management is what we have projected. That amounts to around a $1 trillion payout.
On a sequential basis, your net interest margin (NIM) has decreased. What do you anticipate happening?
The compression is only momentary. The NIM will either stay the same or become better. We are much better at managing liability expenses, so it might not compress, and we should be able to pass any increases in liability costs forward to our consumers. Our current NIM is 8.32%. By the end of the year, 8.5% will be the target.
How do you see your funding costs changing?
Our cost of funds on the balance sheet is around 8.8%. I predict that it will stay there. I don’t notice any growth. It can change by ten bps from the present level.
Many of your colleagues are expanding into the MSME market. What unique contributions does Shriram Finance make to the market?
Our attention is on the tiny ticket. Small ticket refers to purchases between Rs. 5 and Rs. 10 lakh. Other institutional NBFCs are focusing on more prominent tickets if you look at them. Consequently, there is a distinction between us and them. We have a sizable number of branches in the rural and semi-urban markets.
We’ll aim for high volume and low ticket prices. Since markets vary, everyone will have a part to play, and I believe everyone can satisfy the criteria. The expected credit shortfall is 32 trillion rupees. Everyone will have their need in their speciality section since the gap is more expansive.
What plans do you have for gold loans?
The percentage of gold loans will rise. About 250 new branches have been created just for gold loans. We’ll introduce a few more each quarter and enhance the gold loan offer. More of a neighbourhood funding, gold loans. People enter and obtain loans. We will automatically increase the volume as we add new branches. The gold lending industry is anticipated to expand further. It also closes more quickly since the typical term is shorter—six months. We must continually increase volume to increase our part of the entire business.
Our percentage of gold loans is about 3.5%. We will expand there, but I have yet to offer you a target. Every quarter, the mix will improve by a few basis points.
The RBI now permits credit card issuance by NBFCs. Do you find that section interesting?
There are several instruments available now. You’re not required to extend credit just by credit card. We may only be interested in something other than credit cards, given that most of our money is for commercial purposes rather than consumer use.
The financial market in India has always remained dynamic, susceptible to various economic changes, and is constantly evolving to adapt to these variations. Shriram Transport Finance Company Limited (STFCL), one of India’s prominent asset financing Non-Banking Financial Companies (NBFC), has always been a critical player in this dynamic market.
In a recent statement, the company’s Executive Vice Chairman, Umesh Revankar, revealed Shriram Finance’s new strategic focus: to increase its gold loan mix, diversify its credit portfolio and fortify its financial base.
The gold loan market in India has traditionally been a buoyant sector. Many of the Indian population relies on gold loans due to their easy accessibility, swift processing, and lower interest rates than unsecured loans. Acknowledging this, Shriram Finance has been progressively expanding its presence in the gold loan market. Mr Umesh Revankar, who has been instrumental in guiding the company towards this decision, believes it is a prudent step towards achieving more substantial growth.
Revankar recommends that diversifying into gold loans can be beneficial for the company to minimize the risk associated with a concentrated lending portfolio. Also, the gold loan market has remained resilient during economic downturns, making it a safer bet during unstable financial scenarios.
Umesh Revankar, with his extensive experience and astute business acumen, is spearheading this strategic move. He has been a part of the Shriram Group since 1987 and has held various significant roles, contributing extensively to the group’s growth. He understands the need for diversification in the financial portfolio and believes that gold loans can provide a risk-adjusted return and a steady revenue stream.
Shriram Finance has historically led commercial vehicle finance, explicitly focusing on pre-owned trucks. With changing economic scenarios and increasing competition, there is a need for the company to diversify and expand its portfolio.
Gold loans are a less risky investment avenue as they are secured loans with an asset (gold) backing them. The volatile global situation due to the COVID-19 pandemic has made gold a popular choice for investors looking for safer investments. Shriram Finance aims to leverage this trend to fortify its financial standing.
In its bid to increase the gold loan mix, Shriram Finance is expected to streamline its lending process, making it more customer-friendly. Revankar hinted at leveraging technology to make the process more accessible, efficient, and fast. He also expressed his confidence in this move and stated that this strategic shift would provide an impetus to the company’s growth in the coming years.
Shriram Finance’s strategic shift towards increasing the gold loan mix in its portfolio reflects its adaptability and readiness to leverage market trends. As a seasoned leader, Mr Umesh Revankar’s understanding of the market and the industry’s changing dynamics is critical in this shift. It remains to be seen how this move pans out for Shriram Finance and how the Indian financial market responds. This step, nevertheless, is a testament to the company’s dynamic and responsive business strategy.
