The merger of Shriram City Union Finance (SCUF) and Shriram Transport Finance is aimed at reenergising the non-banking finance business of the group, a top executive said.
Business synergy is the principal reason for the merger of the two units, said DV Ravi, managing director of Shriram Capital Ltd (SCL), the holding company of the group.
The Shriram group had multiple non-banking financing entities in the past. They have all been merged to retain SCUF, he said.
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“SCUF has evolved due to synergy and we see synergy as a serious driver for growth,” Ravi added in a free-wheeling interview with Moneycontrol at his office in Chennai on Wednesday.
The merger is a part of an organisational restructuring the Shriram group announced some time ago.
Under the plan, SCL will de-merge its investments in non-listed entities (such as insurance and other businesses) and merge itself with Shriram Transport Finance.
In the second part of the exercise, SCUF and Shriram Transport Finance will merge to create a new entity, Shriram Finance Ltd.
The effective date for the merger of the two is April 1.
The group is still awaiting the approval of assorted regulatory agencies for its reorganisation.
The merger will make the combined entity one of the country’s largest non-banking financial companies.
Both NBFCs have strong pockets and domain expertise, Ravi said. Besides the benefits that would result from scale, the non-banking finance business of the group would gain greater stability and achieve higher growth, he said.
“The cyclical nature of the business of Shriram Transport (which is into truck financing) will get offset with the retail pool that comes into play because of the merger of SCUF,” he said.
Ravi expects the cost of funds for the enlarged entity post- merger to come down by 30-50 basis points. One basis point is one-hundredth of a percentage point.
“We can also go for re-rating because of the benefit of scale,” he added.
A combined data base would accelerate the growth momentum, especially in view of the digital thrust that was being contemplated after the merger, Ravi said.
“When we look at simplifying the structure, we are convinced that the combined data base of the two firms will bring in a lot more benefits to our customers,” he said.
The merger, he reckoned, would provide customers enhanced access to the product offerings.
“We look at the merger not as a cost-saving proposition,” he said. To a query if the merger would result in rationalisation of the workforce, he replied in the negative.
“With the kind of growth anticipated, we don’t see any surplus manpower,” he said.
Nevertheless, he indicated that there could be some repositioning and re-skilling of the staff in the wake of the merger. “I cannot take the knowledge of the customer out of my employees,” he said.
Since it is a merger between two group companies, Ravi does not expect any hindrance in their integration; they share a common culture and are focused on the customer.
“Our close connection with the customer is our DNA. We will maintain our customer connect irrespective of the model we follow,” he said.
Asked if the Shriram group still nursed banking dreams, Ravi said it would be quite difficult for a large NBFC to convert itself into a bank in the current regulatory context. It requires expansion of the balance sheet, a re-jig in the liability profile and the like, he added.
To a question on the Shriram brand, he replied: “We want Shriram to be the customer’s preferred financial services destination.”