Shriram Finance is transitioning from personal loans to small business loans to align with regulatory guidelines and prioritize the MSME sector.
Key Points:
- Customer Base: Many personal loan customers are small businessmen or self-employed professionals, like plumbers and electricians, who also have two-wheeler loans from Shriram Finance.
- Loan Classification: The company is verifying if borrowers are business owners and whether their businesses are registered. If not, they are assisting in registering them under UDYAM, reclassifying the loans as small business loans, which qualify as priority sector lending (PSL) assets.
Statements from Leadership:
- MD and CEO Y.S. Chakravarti: “We are working on classifying loans as small business loans, which will be more profitable. We expect small business loans to grow faster than personal loans in the next 2-4 quarters.”
Financial Performance:
- Personal Loans: Grew 12.7% year-on-year but fell 0.6% sequentially to ₹8,925 crore for the quarter ending in June.
- MSME Loans: Rose 43.7% year-on-year and 9.8% sequentially to ₹28,802 crore, making up 12.3% of total loans.
- Approval Process: Stricter approval process for personal loans, aiming to keep unsecured loans below 5% of assets under management (AUM). Currently, they account for 3.7-3.8%.
Vehicle Finance:
- Medium Commercial Vehicles (MCVs): Lending has increased due to infrastructure projects.
- Light Commercial Vehicles (LCVs): Demand is expected to grow in the next two quarters.
- Used Vehicles: High demand but low stock due to rising prices of new vehicles. Longer replacement cycles and fewer repossessions are noted.
Financial Outlook:
- Cost of Borrowing: Average cost is 8.96%, slightly lower than the previous quarter. Cost of deposit is 8.69%. Expected net interest margin (NIM) improvement from this quarter, with FY25 credit cost around 2%.
Despite funding pressures, Shriram Finance remains optimistic about managing costs and maintaining profitability.
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