'Shriram needs to shift to insurance'

The Shriram Group will need to shift its focus from its mainstay lending business to insurance amid tighter regulation and rising competition from banks, said R. Thyagarajan, who founded the financial conglomerate as a chit fund nearly half a century ago.

- Gopika Gopakumar

Thyagarajan’s prognosis isn’t uniformly shared across the group, though. While Umesh Revankar, vice-chairman of Shriram Finance, said lending and insurance businesses will have to co-exist, S. Natarajan, a member of the Shriram Ownership Trust (SOT) said the group’s views may be different from that of the founder.

While group flagship Shriram Finance had a loan book of ₹2.02 trillion at the end of the second quarter, its two insurance businesses had combined assets under management of only ₹21,756 crore.

“(If) I’m looking at a 10-year scenario, diversification into other financial services (is imperative). In the next 10 years, more bank funding will come into the commercial vehicle (CV) financing segment and NBFCs’ CV business will come down. Banks will provide 80% of the credit requirement of the industry, and NBFCs will be down to 20%. In the next 15 years, it will further come down to 5%. We should focus on diversified enterprises as they will become important for us," Thyagarajan, 86, said in an interview.

For long, India’s non-bank lenders thrived under light-touch regulation, offering cheaper loans thanks to their lower costs. As many of them turned systemically important, the rules governing them tightened as well. After the collapse of Infrastructure Leasing & Financial Services Ltd (IL&FS) in 2018, the Reserve Bank of India directed NBFCs to set aside higher capital, shrinking their regulatory gap with full-fledged banks. In September 2022, it named 16 NBFCs including Shriram Finance as upper layer NBFCs (NBFC-UL), which must adhere to more stringent regulation.

Non-bank lenders including Shriram are now looking at ways to scale up operations, either by graduating to becoming a top-layer NBFC or trying their luck at becoming a universal bank.