Shriram Finance: Small business loans drive SME growth from Shriram Finance

Mumbai: Unbanked finance company Shriram Finance Ltd. expects its strong growth in micro and small businesses to continue due to demand for low cost loans of entrepreneurs even as their main business vehicle business It has undergone a change with carriers purchasing larger vehicles.

Executive Vice President Umesh Revankar said the company expects 25% annualized growth in its MSME portfolio. briefcase over the next three to four years, consolidating it as the company’s third-largest business.

“For micro businesses, our average loan size is Rs 10 lakh, but we also lend to individual entrepreneurs like shopkeepers, vendors and distributors, the amount of which can be anywhere between Rs 1.5-2 lakh, which is growing very rapidly today. These are collateral-free loans backed by cash flow information as these customers have been borrowers before, mostly they have taken loans for two-wheelers and we know them,” Revankar said.

The latest results at the end of June show that such Loans for MSMEs At around Rs 29,000 crore, they account for 12% of the loan portfolio and are the fastest growing segment with a year-on-year growth of 44%.

Revankar said the company has diversified its MSME The book goes beyond the allied activities of its core vehicle finance business and also expands beyond the Southern market, giving it new avenues for growth.

“For larger loans (Rs 10 lakh on average), we seek a mortgage as collateral. Both loans are growing and we expect to continue to post 25% year-on-year growth.” Reserve Bank of India“The credit gap estimate itself is Rs 40 lakh crore, so there is enough demand,” Revankar said. The strong growth in SME lending has come even as commercial vehicle (CV) financing, the mainstay of the business, has seen slower growth of 14% year-on-year. Revankar said he expects single-digit growth in CV financing this year, after a slow start due to elections and weather-related disruptions, because transporters are opting for larger vehicles as it is more economically viable. “Light commercial vehicle sales have remained stable over the last one year and are likely to grow by around 4-5% and heavy vehicles by around 7-8%. Apart from three-wheelers, the growth will be in single digits. But larger units are being sold. Earlier, 24-tonne vehicles were being sold, today we are seeing sales of 36-tonne. So, capacity is increasing but the number of units will be less because there is demand for higher tonnage vehicles,” Revankar said.

He said demand for larger vehicles also indicates stronger economic demand and the company expects to finance fewer units, but at a higher value.

“Our growth is due to increasing ticket size. If you look at the number of customers we have added year-on-year, it will be just 5%, but our value has increased by 15% in terms of CV. So, this additional 10% is due to increasing ticket size,” Revankar said. CVs and passenger vehicles together account for 67% of the company’s Rs 2.33 lakh crore portfolio. Revankar expects the share of SME loans to rise to 15% in the loan book in three to four years.

In a post-earnings note, Shweta Daptardar, analyst at Elara Securities, said Shriram Finance has seen a close to 5% drop in vehicle finance share since consolidating its businesses into a single entity, paving the way for growth in high-yield products (i.e. MSMEs, gold loans and passenger vehicles). The company merged its consumer lending businesses Shriram City Union Finance and Shriram Capital into Shriram Transport Funding Effective from December 2022.

“The benefits of the merger, led by a favourable asset mix and cross-selling potential, augur well for healthy earnings. Geographical expansion into SMEs and beyond the South will help achieve the growth target of over 15% going forward,” Elara said. The brokerage has raised its growth estimate from 16% to 18% for the company in the next fiscal year.