SHRIRAMFIN — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

OFFICER · MR. PARAG AGARWAL – JOINT MANAGING DIRECTOR & CHIEF

MR. PARAG AGARWAL – JOINT MANAGING DIRECTOR & CHIEF

FINANCIAL OFFICER · MR. S. SUNDER – JOINT MANAGING DIRECTOR – HEAD OF ACCOUNTS &

MR. S.

SUNDER – JOINT MANAGING DIRECTOR – HEAD OF ACCOUNTS &

ADMIN · MR. SANJAY KUMAR MUNDRA – HEAD, INVESTOR RELATIONS

MR. SANJAY KUMAR MUNDRA – HEAD, INVESTOR RELATIONS Shriram Finance Limited January 25, 2024

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to the Shriram Finance Limited

Questions and answers

Moderator · Conference Operator

We will now begin the question-and-answer session.

The first question is from the line of Mahrukh Adajania from Nuvama.

Please go ahead.

Mahrukh Adajania

Sir, my first question is on margins.

It has already surpassed your guidance and it has been very strong for the last two quarters, and the growth in interest expenses is also on the lower side.

So, how do we look at margins from hear on?

I know that an increase in the liquidity cover was mentioned earlier, but just in terms of margins, what range of margins do we now look at?

Umesh G. Revankar

So, I think we are actually hopeful that we will be able to hold the margins at around 8.9% going forward.

Mahrukh Adajania

So, you can hold it here with changing mix even though cost will rise or -?

Y S Chakravarti

The interest costs we don't believe that they'll rise any further as of now, I mean, we are hoping that it's not right.

But even then as you put it, since the mix is also slightly altering, we are actually very confident that we will be able to hold it at 8.9%.

Umesh G. Revankar

Both the mix and our ability to pass on the increased cost will give us the confidence of keeping this margin intact.

Mahrukh Adajania

My next question is on AUM.

I mean specially outlook for CV growth, how it gets, I mean, especially for your CV financing, not so much for the sector, how it could or if it at all would be impacted in elections and how do we look at it from like say a one-year perspective because the share of CVs has been coming down?

Umesh G. Revankar

If you look at the guidance, we gave the guidance of 12% to 15% growth in CV in the beginning even during the merger and we are maintaining that.

If you look at the AUM growth, CV is growing at 13%.

So, that is something we are maintaining, and we know that in economic ups and down CV can go up and down, therefore we are very steady in our CV, whereas high margin, high yielding businesses, we are increasing which are shorter tenors and better Shriram Finance Limited January 25, 2024 visibility because shorter tenors visibility will be better, margins are better.

So, in our gold loan, two-wheeler and passenger vehicles we are focusing on, these are the products which can be done from all the 3,000 branches.

So, that's how we have been able to manage.

And the election will not have a big impact because CV demand mostly depends on infrastructure activity and overall economic activity.

Both are being good, and we expect there is a very steady growth for CV and plus since the CV cycle has just started two years back and the used CV demand will come at a lag, so we expect the CV demand to continue to remain good for the next couple of years.

And as I was telling you, we will maintain a 12% to 15% growth in CV, which is very steady.

Mahrukh Adajania

Even in FY'25?

And what would be the overall AUM growth you would look at in FY'25?

Umesh G. Revankar

We will give guidance of 15% only because in the beginning we had given 15% guidance for three years and this year economic activity being quite good, we grew at 20%, but in the long run or maybe even in the next financial year, we would like to give a guidance of 15%.

Moderator · Conference Operator

The next question is from the line of Vikram Raghavan from Moon Capital.

Please go ahead.

Vikram Raghavan

I just have two questions.

One is, what is your disbursements for the quarter, and second, the guidance on credit costs?

S. Sunder

Disbursements for the quarter were 37,787 crores as against 34,605 crores in the previous quarter.

Umesh G. Revankar

The credit cost guidance will be 2% for the full year.

For the quarter it was 2.15%.

Moderator · Conference Operator

The next question is from the line of Avinash Singh from Emkay Global.

Please go ahead.

Avinash Singh

My question is on credit cost.

I recall you explained some changes into the PD and LGD.

I mean, this quarter has seen increased credit cost, and you are still maintaining 2% guidance.

So, which product segment particularly has sort of Shriram Finance Limited January 25, 2024 led to or rather you are seeing your PD, LDG changing more and despite this increase you are still guiding for 2%, so I mean where do you sort of see that, okay this will moderate?

The second one again related would be now on your personal loan segment, your overall GS3 PCR is 53%-odd whereas I mean in the personal loan that's largely unsecured and of course you are still kind of keeping it around 50%-odd, so what is sort of leading to that having a personal loan PCR being lower than your overall PCR?

S. Sunder

The quarter-on- quarter PD movement has not been significant.

As you see the Stage-I PD was stable at 7.89, which was similar to what was there in the previous quarter and the Stage-II PD was 18.25, a marginal increase of four basis points compared to the previous quarter.

And LGD also if you see it is six basis points increase compared to the previous quarter.

Again, there is a combination of various factors of the mix and all those things which drives this number.

Coming to your other question of personal loan, the coverage which we maintain is based on the ECL norms, which is based on the historical track record.

So, as of now, the personal loan has been behaving pretty stable.

And as we have also indicated in the previous calls that we extend these personal loans to customers who have already demonstrated by paying off the full two- wheeler loans and hence the default is comparatively lesser compared to the certain other segments.

Avinash Singh

On Shriram Housing, your subsidiary, also the growth is pretty strong and particularly on the core lending BS side.

So, if you can help us understand, I mean who are your kind of a key partner among the banks, and also I mean there has been a sort of reporting of your plan to divest this, so I mean, what's going on there?

G S Agarwal

In terms of co-lending, we are basically doing co-lending with one PSU bank and one private bank and DA we are doing mostly with all the private banks and PSU banks and our total DA and co-lending volume is close to 20%, 21% of our total AUM.

Umesh G. Revankar

We are looking at capital infusion for the Shriram Housing because it is growing.

So, we are looking at the various options and any one of the options Shriram Finance Limited January 25, 2024 that suits, we will take the call.

It is basically to give growth capital.

We are looking at the various options.

Moderator · Conference Operator

The next question is from the line of Shweta Daptardar from Elara Capital.

Please go ahead.

Shweta Daptardar

I have two questions.

If you could throw light on the write-off trends this quarter vis-à-vis the previous quarter and also a bit on asset quality.

I think you partially answered this in the previous question.

So, what has changed besides in terms of across products or asset classes wherein certain products would have put up benign asset quality trend and others some swings there, which has led to such market improvement in GNPA and credit cost?

G S Agarwal

The breakup of the credit cost for the current quarter is write-offs are 725 crores and provisions are 525 crores totaling to 1,250 crores.

This compares with the previous quarter write-off being 839 crores and provisions being 289 crores totaling to 1,128 crores.

And the other question as regards the asset quality, it has been fairly holding up and then there has been a marginal reduction in the Stage-III asset and Stage-II assets also are more or less holding up compared to the previous quarter.

Umesh G. Revankar

The economic environment has been quite positive for all the businesses which we are in, whether it is infrastructure, whether it's logistics, whether it is a demand for a two-wheeler, that is the rural economy or semi-urban economy.

So, we are quite confident that our asset quality will hold good in the coming quarters, even though the elections are likely to be there in the next financial year.

Typically, in election time the diversion of mind or business activity is for 15, 20 days it will not have a bigger impact for the full year or maybe for a full quarter.

Shweta Daptardar

Does anything change on the goal post on growth outlook now that you're at 20%-plus?

Umesh G. Revankar

No. See, this year we definitely will be looking at 20% AUM growth, but for the longer period we have given 15% guidance during the merger announcement and post that.

So, that will continue to remain.

Shriram Finance Limited January 25, 2024

Moderator · Conference Operator

The next question is from the line of Piran Engineer from CLSA.

Please go ahead.

Piran Engineer

Just one clarification.

Did I hear the incremental borrowing for -?

Parag Agarwal

If your question is regarding the incremental cost of borrowing, yes, I mentioned it at 8.95%.

Piran Engineer

And up 25 bps QoQ, is it?

Parag Agarwal

Correct.

Piran Engineer

So, this is because of the risk weight guidelines or what has caused this jump?

Parag Agarwal

In fact, there will be factors regarding mix of liabilities what we have borrowed.

We have also increased our retail deposit rates.

We have a higher duration of capital market borrowing.

With the longer duration, the cost is generally up and also the other term borrowing for the bank, there has been a slight increase in cost.

Piran Engineer

So, this ECB rate, what would be the fully hedged cost?

Parag Agarwal

So, on fully hedged, what we have raised will be around 9.5%, but there is the withholding tax, which has to be grossed up, will be closer to around 10%.

Piran Engineer

Secondly, on Shriram Housing Finance, I just wanted to understand whether our distribution is from all our 1,800-odd branches or what is the distribution for the HFC subsidiary?

Y S Chakravarti

No, the HFC is focusing only on eight states, they're not present across the country, their focus area is eight states and probably we'll be adding one more state in this fiscal, but only here and their offices are exclusive, 149 offices and all of them are exclusive to the SFL network.

Piran Engineer

At this scale, we are at 12,000 crores and when we've looked at other affordable housing financials, we don't see players of this size growing at 60%, 70%.

So, I just wanted to understand what's giving us this edge on growth versus some of the other players that are actually listed?

Shriram Finance Limited January 25, 2024

Y S Chakravarti

I think one is basically as I said strategy of focusing and going deep into territories.

So, we have identified those eight, nine states I mean about 70% of the business is there and with the conscious strategy of going deep in those territories.

For example, the southern states of Tamil Nadu, Karnataka, Andhra Pradesh, Telangana and Maharashtra, Gujarat, we actually have gone into it very deep.

So, that actually is one.

The other point is of course the team makes a difference.

Then, third is they're coming off a small base.

So, don't read that 66% growth, but because that's come from a small base.

Probably going forward they may not grow at that 60%, 70% growth, probably they will grow at 25%, 30% growth.

Piran Engineer

How many employees do we have, sir, if you could just help me with that in the HFC subsidiary?

S. Sunder

In Shriram Housing, we have around 3,500 employees.

Moderator · Conference Operator

The next question is from the line of Kunal Shah from Citigroup.

Please go ahead.

Kunal Shah

So, the question was maybe when we look at your three segments like two- wheeler, SMEs as well as PL, no doubt that there is a substantial increase on a QoQ basis in the AUM which is showing relatively lower Stage-III, but otherwise there is an absolute increase which is there in the GNPA.

And in fact, the Stage-I provisions out there, they have also increased, okay, I think we have raised it across some most of this product segment.

So, looking at this how comfortable we would be in terms of sustaining such a strong growth in these three products?

Y S Chakravarti

See, on this two-wheeler, I think this is like bread-and-butter product for the team.

They've been doing it for the last 23, 24 years.

We don't see any big risk there.

And we are pretty confident that we'll be able to hold both GNPAs and the net at these rates.

S. Sunder

And replying to your other query on the provision, we have taken a hit of Rs.525 crores as incremental provision in the current quarter.

That has mainly come out of the Stage-I asset which has increased by Rs.351 crores which is primarily again driven by the growth which is close to 11,200 crores of increase Shriram Finance Limited January 25, 2024 in stage-1 assets and in Stage-II assets we had taken a hit of 30 crores and the balance 143 crores in stage III .

Kunal Shah

If I have to look at it in terms of the percentage as well going up from 3.06 to 3.11, and if I broadly the split in terms of the segments wherein the Stage-I provision has gone up, it is largely MSME, two-wheeler and PL wherein again in each of these segments, the Stage-I provisions have gone by almost like 40, 50-odd basis points?

S. Sunder

Yes, correct.

So, as I was explaining to the previous caller also, the provision requirement depends on the LGD and the PD rate and hence it is difficult to off-hand comment on that.

So, I would request that you contact Mr. Mundra who will be able to give those finer details.

Kunal Shah

And in two-wheeler, no doubt it's a main stay, but if we look at the sequential momentum again like 16% QoQ growth in AUM, so that's again quite strong, so, obviously there would have been some increase in the market share and the positioning.

But how much is coming on account of any synergy?

So, if we look at the growth in some of these segments, can you highlight what is coming out of really the synergies post the merger?

Y S Chakravarti

See, two-wheeler largely has been mapped earlier also by the erstwhile SCUF team.

So, basically all the dealers are already mapped.

But one portion of the country where this new growth is coming from in two-wheelers is Odisha, West Bengal and the Northeast, and portions of UP and MP where the SCUF did not have a strong network.

The other point is also basically QoQ quarter growth bound to be there because any quarter that has Diwali and Dussehra, Dhanteras coming in, the growth will be strong.

The numbers would normally be about more than two times of what we do normally in any given month, particularly in November.

So, that also is the reason for QoQ growth.

But yes, because of the synergy, as I said, these states actually are giving us extra numbers.

Kunal Shah

And lastly, slightly revising the guidance earlier on the credit cost, we were at somewhere around 1.5% to 1%, now maybe this quarter also credit cost continues to be 2.4% not coming off and we are now saying that it will be like Shriram Finance Limited January 25, 2024 around about 2%-odd.

So, any worries in any of the segments that we are doing with this kind of growth?

Y S Chakravarti

To be honest with you, no, because each of these segments we operate as an individual.

Each of the business teams have responsibility for a product and they operate within their known environment, so there's no worries on any specific segment as of today.

Moderator · Conference Operator

The next question is from the line of Viral Shah from IIFL Securities.

Please go ahead.

Viral Shah

So, I have three or four questions.

First is on the PL book.

So, you mentioned that the provisioning on that is based on the historical track record.

So, is this the SCUF track record that you are referring to?

Y S Chakravarti

Yes.

Viral Shah

Is the incremental book that is being sourced in this segment, the customer profile of it, is it similar to what the SCUF customers were?

Y S Chakravarti

It is exactly the same, because this is basically 99% of this incremental book is coming from mostly two-wheeler customers or customers who have finished one, also, customers who have finished one cycle of two-wheeler and the PL and coming back for another PL.

Umesh G. Revankar

Two-wheeler is a short-term tenure, 18 months, 24 months.

So, it's very easy to offer to them and keep them in our books.

Viral Shah

The second is basically if I look at the slippages trend, so that has been actually inching up; in last quarter it increased by 30 basis points and in this quarter it has again increased by now 45 basis points.

So, what is driving this?

Umesh G. Revankar

Which segment you are saying?

Viral Shah

On an overall basis, the net slippages?

Umesh G. Revankar

Stage-III has actually come down from 6.2 to 5.6.

Shriram Finance Limited January 25, 2024

Viral Shah

So, if you add back the write-off, right, then basically that slippages number is inching up?

S. Sunder

Correct.

See, if you see the overall Stage-III number of absolute amounts, in percentage terms it is coming down absolute amount, there is an increase, there is no denying of the fact.

And similarly, the Stage-I and Stage-II assets also are going up because the overall book size itself is going up.

Viral Shah

In terms of the growth driver, right, so now primarily we see that the growth for the SCUF segments is coming from the expanded distribution that we are now enjoying.

So, how much more juice is left in terms of being able to scale up these products in the erstwhile Shriram Transport branches, and how much should we expect going ahead, because these products are growing at 30%, 35%?

Y S Chakravarti

I'll do it this way.

If you look at the overall growth of the company itself, where we have guided for about 15% growth at the beginning of the year, I think the growth is also largely a factor, or in some of these products as you said, expanded network.

For example, gold, we have actually introduced in about 600 of the CV branches.

There is still work-in progress and these branches have also started producing results, but they have not yet reached the full potential, #1. #2, then gold probably we will introduce in another 600 branches going forward in the next year.

So, this is a work-in-progress.

We'll have to keep on introducing this.

Similarly, the MSME loans, basically we need a people trade.

So, it's not that I recruit and deploy people at one go.

It's a stage- by-stage process that we're doing.

So, we do feel that gold and MSME will continue to grow strongly.

The reason again on the personal loan growing so strongly also is major factor is the distribution.

Because earlier we were in SCUF, we were struggling to reach these customers because we had close to 3 million eligible customers and we were struggling to reach them.

Now, with that expanded network, we were able to reach them and service them.

So, that's why you see that 60%, 65% growth in personal loans.

Viral Shah

And if I have to ask you to ascribe a number at what potential are these products reached from these new branches so as to just get a sense.

Y S Chakravarti

Sorry, I didn't get your question properly.

Shriram Finance Limited January 25, 2024

Viral Shah

Like for example, the gold loan of 600 branches where you have already rolled it out, so in those 600 branches, what's the gold loan AUM and how is it compared to your erstwhile SCUF gold loan in those branches?

Y S Chakravarti

I don't have the number off-hand, but I think, if you can reach out to Sanjay, he can give you those numbers.

Viral Shah

On the status of the fintech partnerships on the PL and the MSME piece, if you can talk on that, what's the status of the progress?

Y S Chakravarti

See, we are only working with one partner, that is only a sourcing partner.

We've been working with them for the last six, seven years.

So, we are not pushing that.

Basically, it's happening about 4, 5 crores per month is what we're doing with them.

Now, on the MSME side, we have only tied up with Paytm to do only merchant loans.

But that is we are still finding our way around.

So, it's not a full-fledged operation as that.

We are actually exploring the area, so probably we will only see how we will be able to guide you how much we will do probably down a quarter.

Viral Shah

Lastly, basically, in terms of the share of the personal loans, last quarter, you had said that we will probably be capping it at around 4.5%, 5%.

We have now reached around 4.5%.

So, should we now expect that the growth going ahead will be in line with the overall loan book growth?

Y S Chakravarti

Yes.

Though we have an 8% cap authorized by the board, we would like to keep it below 6%.

Viral Shah

Below 6%.?

Y S Chakravarti

Yes.

4.45% now.

Viral Shah

So, you'll probably take this up to 6%?

Y S Chakravarti

It's not a question of taking it up to 6%.

As I told you, we have a 3 million eligible customer’s database, eligible customers in the sense basically basing on their payment factor and basing on their income sources, we have a 3 million database.

It is available there and those customers are our existing customers, they are not market customers.

It's not that I'm consciously pushing it since we Shriram Finance Limited January 25, 2024 have the data, CV branches are also involved, it has grown, but going forward, it should grow at about 20%, 25%.

Viral Shah

I would say a bit of data keeping question.

So, the cost of funds you mentioned has sequentially gone up.

But when I look at the calculated funding cost that is actually showing a 20-bps decline QoQ.

Is that the intra-quarter adjustment averaging effect?

S. Sunder

That has been mainly driven by the liquidity.

Okay, that reconciliation anyway, Sanjay can help you out offline.

Moderator · Conference Operator

The next question is from the line of Nilesh Jethani from Bank of India Mutual Fund.

Please go ahead.

Nilesh Jethani

My first question is in line with the previous participant only.

So, on this 20%- odd AUM growth, wanted to understand what you would attribute to branch expansion, cross-selling, etc., via the Shriram Transport branches, and what could be the actual growth which you ascribe to this 20%, a)?

Second question is on the passenger vehicles growth.

So, growth seems to be higher for us.

So, what you would ascribe to pricing and volume?

And how do you see this phase of high growth to continue over the next two-to-three-year period, what is your sense on that?

And third is on the credit cost.

So, directionally as the share of SCUF product increases, do we attribute from a two to three-year perspective, credit cost can actually go up to 2.5, 3, which is normal for a two-wheeler and a personal loan business?

Y S Chakravarti

Answer to your last question is, no, we don't anticipate the credit cost to go beyond 2%.

Basically, they're holding pretty steady there, and in fact, if you look at the two-wheeler credit cost, it's slightly lower than the personal loan, which is expected.

The other question on the growth ascribed to the product expansion to branches, as we said in the beginning of the merger time, we have guided for a 15% and today we are at 20%.

I think you can expect the growth in gold loan, personal loan and to some extent MSME and passenger vehicles to the merger effect also, expanded network effect also.

Commercial vehicles, not so much from the erstwhile Shriram City branches, but mostly the existing CV branches because it's difficult to actually evaluate those vehicles source customers from these branches.

Because, again, most of the cities and branches Shriram Finance Limited January 25, 2024 are situated in the center of the city or a town, whereas for this business, you need branches in peripheries.

Nilesh Jethani

In the passenger vehicles piece, in volume versus price growth what you're seeing, if any can you attribute and how to look at growth from two to three- year perspective for us?

Y S Chakravarti

We hope the demand will continue to be there.

Two things; one is personal mobility vehicles and the other one is your commercial passenger vehicles.

Both are growing.

And with the improved infrastructure, I think that will keep growing.

There's also a lot of upgradations from a two-wheeler customer to used car.

Umesh G. Revankar

Aspirational demand is coming to passenger vehicles, that is really helping us, and the previous track record of a two-wheeler customer who wants to upgrade, that helps us to grow faster in passenger vehicles.

So, that is really helping us to grow faster in passenger vehicles where we are growing around 30% YoY.

Nilesh Jethani

Our branch count from 2,900 has only increased to 3,137.

Wanted to understand what is our strategy -- maybe this year or next year are we focusing on cross-selling and probably start on the branch expansion from a year or a two later, what's the thought process of the branch expansion?

Umesh G. Revankar

Most of these branch expansions are happening where we are having rural centers.

We're converting that into branch after reaching a certain growth.

So, that is the main addition into the branches.

And also, there are some locations where we feel we can offer gold loan to the customer in the residential area.

There, we are putting the branches.

So, totally we have added 136 branches in the last one year if you look at last year same period to now.

So, our guidance was that we would be opening around 100 to 150 branches, which is a combination of conversion of rural center and the new branches.

Moderator · Conference Operator

The next question is from the line of Chandrasekhar from Fidelity.

Please go ahead.

Chandrasekhar

I had a few questions.

One, could you please remind us within this how large is the used bus segment?

Then maybe how large is our fleet operators within Shriram Finance Limited January 25, 2024 this segment?

And what is the average ticket size right now on the passenger vehicles segment?

Umesh G. Revankar

We don't have a large bus segment which is financed, because tourist bus we don't lend much, and the normal transportation buses where the government has the monopoly, we don't lend.

So, most of our lending will be for the four wheelers and the local transportation.

Chandrasekhar

Sorry.

I meant school buses.

Umesh G. Revankar

School buses, we have a reasonably large portfolio, but see, post-COVID it has not really grown big, during the COVID it came to a standstill, and after that it has not really grown big.

But that's a least credit cost portfolio, it is one of the good portfolios which we may consider growing as the business picks up.

Chandrasekhar

So, is the delta coming in from people upgrading their fleets over here like the fleet operators, Ubers and OLAs are upgrading their fleets because I mean my understanding is that the entire used PV segment is like 100,000 crores market size and our book is already 35,000 crores over here.

So, I'm just trying to get some sense around the market sizing and then this how large we are related to the bus?

Umesh G. Revankar

See, normally what happens is, you can't just have a strict monitoring of a passenger vehicle.

Thumb rule is one-third, two-third.

One-third is used for what we call commercial use, two-third is for personal use.

Even the vehicles registered in a personal use, used in the commercial activity in the semi-urban and rural area, not in the urban area, urban area is strictly monitored.

So, many of the customers would be having a vehicle which is registered as a personal vehicle but using for commercial purpose in the smaller towns.

So, the business in the semi-urban, rural area, that is where we are very active, and many of them are SUVs or NUVs or a car and not much in buses, we don't have large bus portfolio.

Chandrasekhar

Is it safe to say that the average ticket size will be about 150,000 approximately?

Shriram Finance Limited January 25, 2024

Y S Chakravarti

Chandra, it's about 2.5-3 lakhs.

The used car sizes have also gone up substantially.

Chandrasekhar

On the MSME segment, are there any changes in the ticket sizes of tenures which we have done?

I mean, we used to have 8 to 10, it came down to 6 to 8.

Is it going up towards 8 to 10 again?

Y S Chakravarti

No, it's still the same; it's still about 8 to 10 only and no change in tenors.

Chandrasekhar

There was 100 bps of capital consumption in the quarter, tier-1 down to 20.

So, maybe just help me understand where this 100 bps get consumed within one quarter itself?

S. Sunder

This is mainly because of the growth, and some 20 basis points increased due to the risk weight attributed to the personal loans.

Moderator · Conference Operator

The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

Please go ahead.

Abhijit Tibrewal

If you can provide the product-wise split of your disbursements?

S. Sunder

The CV 14,449, passenger vehicles 6,092, construction equipment 2,780, farm equipment 464, MSME 4,328, two-wheeler 3,699, gold 3,120, personal loans 2,853, totaling 37,787.

Abhijit Tibrewal

The second question I had was on the liabilities.

Obviously, there were multiple questions on where the cost of borrowings have moved up, where the incremental cost of borrowings are.

I wanted to understand, I mean, the impacts from this RBI risk weight circular where it has increased risk weight on bank loans to NBFCs.

Is that impact already there in cost of borrowings or do you think that last part of our borrowings or as PSL they will not be impacted by the increase in this circular?

Broadly, what I'm trying to understand is, how are the banks posturing on the liability side?

And the other thing is from what I understand, given the deficit liquidity in the system, short-term rates have actually spiked up.

Will it not have any impact on your cost of borrowing because somewhere I remember hearing that you're saying that we don't expect cost of borrowings to go up further?

Shriram Finance Limited January 25, 2024

Parag Agarwal

I think two, three things.

One, what you said right was immediately after RBI notification on the higher risk weight for lending to NBFC, two, three banks have actually increased the overall rate for us.

Most of the other banks have only said that on incremental lending they will increase the rates.

As I mentioned, the incremental cost of fund for us for the quarter was 8.95% which previously the banks were lending at around 8.60% to 8.75%.

That is why we don't expect even at higher lending rates this to breach beyond 8.95% is something which is not foreseen.

So, that we don't look at any substantial increase because of the incremental borrowing from the banks be at a higher cost, that is not foreseen.

Any other your liquidity related concerns, whether there will be a further spike, I think that liquidity tightness is there for some time.

The capital market rates had gone up.

And that is all factored in.

We are not seeing any further increase in the capital market rates.

So, beyond this, as of now we don't foresee any substantial increase in the liability cost.

Abhijit Tibrewal

My last question was again kind of circling back to Shriram Housing.

While I understand you have already partly answered that we'll be looking for capital infusion in your housing subsidiary.

So, from what I recall earlier, the discourse used to be that we will maybe look to get an external investor in the housing subsidiary for maybe primary equity infusion.

I mean, what recent media articles are suggesting is that you yourself acknowledge that you are looking at various options.

The articles have even gone to the extent of stating that you are even looking at completely selling down the HFC subsidiary rather than I mean doing an IPO of the subsidiary at some point in time.

So, if you could just briefly elaborate on that?

Umesh G. Revankar

At the time being, we're looking at all the options with the open mind.

We're not either choosing anything right now.

So, we will not be able to give you a very specific answer because we are still looking at all the options or various options.

Moderator · Conference Operator

We would take that as our last question for today.

I would now like to hand the conference over to Mr. Umesh Revankar for closing comments.

Umesh G. Revankar

Thank you very much for joining this call.

As you are aware, the last quarter will be always the biggest quarter and we all are looking at the final quarter for Shriram Finance Limited January 25, 2024 this financial year as going to be a very large quarter and also a busy quarter.

And we also have interim budget even though, which gives some indication on government's plan on the infra spend, which is actually giving in the last couple of years big boost for most of the demand for commercial vehicle and the construction equipment.

We all hope that will continue to remain as the primary objective of the government of building infrastructure for Make in India and therefore we expect a busy quarter and also a good set of numbers.

Thank you very much for calling.

We'll meet you again in the next call.

Moderator · Conference Operator

On behalf of Shriram Finance Limited, that concludes the conference call.

Thank you for joining us.

You may now disconnect your lines.