NEW DELHI/CHENNAI: Shriram Finance has no plans to apply for banking licence, its top official said on Monday after the announcement of its formal pact with MUFG Ltd, which has picked up a 20 per cent stake for Rs 39,618 crore.
Umesh Revankar, executive vice chairman, Shriram Finance, told the media that it opted to go the partnership route as this would ease the borrowing process from the international market. As part of capital buffer needs, the partnership enabled access to large capital.
Asked if the company would apply for a banking licence, Revankar was quick to point out that there was "no discussion at all" in this regard. Also, it will service its existing constituency along with MUFG and remains content with its current business growth opportunities. "We have been servicing unbanked and the underbanked segments. Right now, we don't see scope for being a bank," he reiterated.
Hironori Kamezawa, group CEO, Mitsubishi UFJ Financial Group, said it is "happy to be a significant minority shareholder in Shriram Finance," and would focus on synergies.
The proposed minority investment by MUFG Bank is subject to shareholder approval, regulatory clearances and customary closing conditions.
The Board of Directors of Shriram Finance Limited (SFL) at their meeting held on Monday approved entering into definitive agreements with MUFG Bank Ltd (MUFG Bank) for an investment of Rs 39,618 crore ($4.4 billion) in SFL through a preferential issuance of equity shares.
There would be no structural changes at SFL, Revankar said, highlighting its management strength as it would look at leveraging MUFG's experience in other Asian countries and digital platforms.
Anticipating the cost of funds to come down and the rating to be upgraded, he pointed to the "substantial" equity investment happening in Shriram Finance.
To a query on inorganic growth, Kamezawa said "this investment is big enough to digest for the time being," as the focus would be in turning this partnership into reality.
On a possible name change, the response was MUFG respects local brands and local names.
Revankar said the Shriram Finance did not have much presence in metros as it continues to focus on semi-urban and rural areas, where it has 80 per cent of its business growth. "We prefer to grow deeper in rural areas," he said, adding 600 rural satellite centres would be converted into branches thereby strengthening its network reach. The deal with MUFG would generate employment for 3,000 to 5,000 people while 100-150 new branches would be added every year.
Despite the GST cut, it has seen 20 to 25 per cent growth in the last three months, he said, in response to another query.
TRANSACTION ADVISORS
MUFG Bank: KPMG India Corporate Finance (Lead Financial Advisor), JP Morgan (Financial Advisor), AZB & Partners (Legal Advisor), Nishimura & Asahi (Gaikokuho Kyodo Jigyo) (Legal Advisor)
Shriram Finance: Wadia Ghandy & Co (Legal Advisor)
STRATEGIC PARTNERSHIP
Largest FDI in a financial services company in India
Reinforces confidence in India’s lending and financial services sector fundamentals and future growth potential
Strengthens SFL’s capital base, accelerates growth trajectory