The merged company will be called Shriram Finance Ltd, with a total asset size in excess of Rs 1.55 lakh crore.
“The move should cut the concentration risk that weighed on portfolios during the pandemic,” Umesh Revankar, managing director, Shriram Transport Finance, told ET. “This will help in diversifying our loan book as we aim to foray more into rural retail. We expect at least one outlook revision in the next few quarters.”
The integrated single entity stands a fair chance of an outlook revision as rating companies are assessing its future growth path. For now, it will likely avoid overseas borrowing but tap local resources.
STFC is primarily engaged in second-hand truck purchases.
SCUF deals in a wide range of retail credit, including funding to small and micro enterprises, two-wheeler purchases, loan against property and gold and personal loans. It has a separate subsidiary – Shriram Housing Finance.
“The merger of two Shriram group companies will pave the way for diversification of loan book, partly mitigating risks associated with lending to a single asset class,” said Karthik Srinivasan, group head of financial sector ratings at ICRA.
“With the formal merger, we will assess its impact on outlook and creditworthiness,” he said.
Shriram Transport reported about 6.5 percent fall in its standalone net profits at Rs 681 crore in the third quarter.
During the December quarter, the gross non-performing ratio, a gauge for bad loans, was at 8.40 percent versus 5.39 percent a year ago.
The Shriram Group will aim to get the merger approved by the National Company Law Tribunal in this calendar year.
While Shriram Transport is rated AA+, Shriram City Union is graded a notch lower at AA.
The merged entity is likely to be rated AA+ benefiting City Union initially, market sources said.
“We shall start introducing complementary products of each other’s companies from April 1,” Revankar said.
Shriram Transport has 1,824 branches, which will be consolidated into 2,800 such units with the additional counts coming from Shriram City Union.
“We will not lay off any people but train them to be reskilled to work for the larger entity,” said the managing director.
The company will raise resources tapping local credit lines like traditional bank loans, bonds and public deposits.
“We will look at overseas resource mobilization after we establish credentials of the merged entity,” he said.
The merged entity will also cross/upsell group insurance products. Shriram Life Insurance and Shriram General Insurance are two companies that are expected to have access to this combined non-banking finance company.