R Thyagarajan (RT), Founder - Chairman, pointed to the environment in Tamil Nadu as favourable to financial services: “the state has witnessed the evolution and growth of regional banks – Bank of Madura, City Union Bank, Karur Vysya Bank, Lakshmi Vilas Bank and the Tamil Nadu Mercantile Bank. These evolved as strong commercial banks effectively meeting the credit requirements of a large number of local businesses. These banks mobilised the savings of the community around and employed these profitably to meet a variety of needs of large number of enterprises spread around the banks’ operational areas.”.
The culture of saving and investment also helped in the evolution of non-banking financial institutions. RT pointed to Sundaram Finance emerging as a pioneer in this area that extended finances to a large number of customers not effectively serviced by banks. The strengths of the TVS Group in road transport operations both, for passengers and freight that extended to vehicle distribution, bodybuilding, tyre retreading and spare parts, helped in a logical expansion into vehicle financing.
“This success was quickly followed by Sakthi Finance and Shriram Finance. During the 1980s and 1990s, these finance companies helped thousands of individuals to emerge as entrepreneurs owning trucks and other small enterprises. For a couple of decades, every business house diversified into financial services! The state also saw the emergence of leasing companies – First Leasing Co and India Equipment Leasing.”
The going appeared good until the 1990s when the Reserve Bank tightened regulation over NBFCs. RT compared this to the carpet-bombing of Vietnam! “With great enthusiasm RBI heavily tightened the regulation and, combined with fiscal measures from the government, this resulted in the closure of a large number of finance companies.. Not just the bathwater, the baby and his parents were also thrown out,” said a bemused RT.
At STFC, innovations flowed in continuous stream and helped the company surge. Tie-ups with banks helped tap their huge resources. This single factor refined through several innovative measures took the company to great heights.
The company made excellent use of a booming global economic environment. From 2004 there was massive interest on the part of FIIs to invest in India. The result: STFC reaching unprecedented and newer heights in expanding assets under management.
The Shriram Group historically was best known for the Chit funds business. Shriram Chits handles even today around Rs. 1800 crore of business providing a source for small and medium businesses and the middle class access funds in times of need. RT said that with the increase in cost and tougher norms, this business is losing its attraction.
Opportunities to leverage STFC’s strengths
Sometime in 1999 STFC tied up with Citicorp for commercial vehicles financing under portfolio management services. Another major break came in 2005 when STFC accessed investment from ChrysCapital and the next year from the US private equity TPG. Yet another innovation was the issue of non-convertible debentures to domestic investors.
Just in a decade of the first such transaction with ChrysCapital in 2004, there has been an expansive growth. Sanlam Insurance of South Africa with which the Shriram group tied up for setting up Shriram Life Insurance Co and Shriram General Insurance Co, found in Shriram group a partner with great potential. Shriram Capital Ltd was set up as the holding company for STFC, Shriram City Union Finance, the insurance and other financial services companies.
Looking ahead, RT believes the past cannot be the pattern and guarantor of growth for future. The search for a stronger strategic partner to accelerate growth lead him to Ajay Piramal as a natural partner. In 2013-14, Piramal invested Rs.4556 crore in the Shriram Group.
RT is confident that of these two strong partners will help expand Shriram operations and visibility across India.