Shriram Group expects cross-selling, lower cost of funds and scale post-merger

Mumbai: The Shriram Group will consolidate its lending arms into a single entity called Shriram Finance Ltd as it seeks to take advantage of the economies of scale, cross-selling opportunities, lending synergies and lower cost of funds from a large entity.

On Monday, the board of directors of commercial vehicle financier Shriram Transport Finance Ltd (STFC), consumer loan financier Shriram City Union Finance Ltd(SCUF), and holding company Shriram Capital Ltd voted to merge SCL & SCUF with STFC.

Umesh Revankar MD at STFC will be the vice-chairman of the new entity, while YS Chakravarti, CEO, SCUF, will be the new CEO of the consolidated entity.

STFC will issue 1.55 shares for every one share of SCUF and 0.09783305 shares for every share of SCL. STFC shares ended at Rs 1,485 apiece on the BSE, down 1.10%.

Revankar said the merged entity will translate into the largest retail NBFC in India with over 2 crore customers, Rs 1.50 lakh crore of assets under management (AUM), 3500 branches and 50,000 employees.

"We will be number one in commercial vehicles and two-wheeler loans and have the widest gold loan network. It will give us a common product suite and scale without significant capex. We expect a 10% incremental impact on our bottom line post the completion of the merger because of the cross-selling opportunities, deeper penetration and scale-up," Revankar said.

The insurance and mutual fund companies of the group have been kept out of the merger. The new company will continue to sell insurance policies of multiple companies. The group, however, has not ruled out considering applying for a banking license sometime in the future. "Right now, there is no plan to apply for a banking license, but if there is an opportunity in the future, we will consider it. For us, NBFC is the right vehicle to reach customers because it is quick and fast.

If we become a bank, we will have to have every other product. So unless we are comfortable, we will not look at it," Revankar said.

The group, however, expects the merger completion to take at least 10 months, as it will require approval from shareholders, lenders, and also regulators namely, RBI, NHB, IRDA, SEBI, besides the NCLT and the Competitions Committee of India (CCI). Revankar said he expects the new structure to create a counter-cyclical advantage and complement the businesses to deal with the emerging risks in the economy. The group was caught amidst economic uncertainties, recently post the Covid waves, which hit collections.

STFC, which makes up Rs 1.13 lakh crore of the group AUM, was hit as commercial vehicles business is closely linked to the economic activity.

"It will help us deal with competition in the underserved market segment. We have 2 crore customers, and the data can be harvested through one super app, which we are building. We will have one data centre to capture all customer information which will help us increase fees and product per customer," Revankar said.

The merger will also increase the treasury size, which will augment the bargaining power for the group and bring down the cost of funds by 30 to 50 basis points. Revankar also expects rating agencies to upgrade the company's debt post-merger, given the advantages in terms of consolidation.

The merger would help the group bring together all its lending products – commercial vehicle loans, two-wheeler loans, gold loan, personal loans, auto loans & small enterprise finance - under a single roof.