The Impact of RBI Regulations on NBFCs
According to Umesh Revankar, Executive Vice-Chairman of Shriram Finance, the recent regulations issued by the RBI regarding risk weights will have varying impacts on NBFCs. While asset-backed lending NBFCs may not face significant challenges, those relying on unsecured loans may struggle to raise resources. As a result, the cost of capital is expected to increase and resources may become limited for the industry as a whole. However, Revankar believes that NBFCs can still raise resources from alternative sources and that credit growth should not be severely affected. Only consumer loans and unsecured personal loans may experience a decline in consumption.
Impact on Shriram Transport Finance
Despite the RBI decision, Shriram Transport Finance does not need to revise its overall guidance. The company has already exceeded its expected NIM level of 8.5% and is confident in maintaining strong NIMS above this level. The company’s loan portfolio is primarily backed by assets, which provides advantages compared to peers who rely on different borrowing mixes.
The Future of the Sector and Q4 Performance
Revankar does not anticipate significant differences between Q4 of FY24 and Q4 of FY23 in the truck financing business. However, he notes that the election season in April and May may impact infrastructure capex to some extent. Nevertheless, if the government continues with infrastructure investments, it will benefit the overall commercial vehicle industry and construction sector.
Partnership with Paytm for SME Lending
Shriram Finance’s partnership with Paytm is aimed at expanding their portfolio beyond truck financing. With 50% of the new merged entity’s portfolio dedicated to trucks, 20% to passenger vehicles, and 11% to SME lending, the company sees significant opportunities in MSME lending. Paytm’s platform, with over 75 lakh merchants onboarded, provides access to credit histories of individual entrepreneurs, making it a valuable channel for SME lending. Shriram Finance is focusing on individual entrepreneurs and micro enterprises and does not engage in unsecured personal loans on the Paytm platform.
Hot Take: Shriram Finance Diversifies Portfolio with Paytm Partnership
Shriram Finance’s collaboration with Paytm marks a shift from being solely a truck finance company to a multi-product company. With a diverse loan portfolio covering trucks, passenger vehicles, and SME lending, the partnership capitalizes on Paytm’s extensive merchant base and credit history data. By targeting individual entrepreneurs and micro enterprises through the Paytm platform, Shriram Finance aims to grow its SME book and seize the numerous opportunities available in MSME lending.
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