Thanks to a rise in incomes in rural and semi-urban centres, Shriram Transport Finance Company is now looking to branch into used passenger vehicle financing. Umesh Revankar, managing director of Shriram Transport spoke to Shashidhar KJ about the company?s expansion plans. Edited excerpts:
What are the reasons behind Shriram Transport?s decision to enter financing a new segment?
With our existing customers, once their lifestyle goes up, they want to upgrade their personal vehicle. Many of them have gone for private cars, which we don?t normally finance….As we understood the business and built our confidence on valuation of vehicles, markets, we felt that we can expand further. And we feel that there is a huge untapped potential in used private cars and utility vehicles. In used vehicles, typically you find that it is financed by private financiers or there is no finance. So we decided to enter into this market and open it up to other customers.
What advantage do you have over private financers by entering this segment?
We have the largest network for commercial vehicle financing and we also have a huge customer base. The thing is we need to understand the product. We have to know the valuation and the resale value of the vehicle. You only need to know the cash flow of the customer and the structure of the loan. If you ask what we bring in competency, I can say that we?re the corporate, and we give better service to customer and probably enable local financiers.
How big do you believe the business could be?
We already have a commercial passenger vehicles segment, which is three-wheeler vehicles to buses for transportation of people. That is about 22% of our assets under management (AUM), about R10,000-11,000 crore. This new business will add to this segment. So, overall our passenger vehicle portfolio will become bigger. It will grow from 22% to 25%. In absolute numbers, we?re looking at financing about 2,000-3,000 vehicles per month to start with. It may be about R50 crore per month. We?re looking to grow the passenger vehicles portfolio to 25% of AUM in about 3 years.
We?ll be adding about another R2,000 crore through private cars and utility vehicles. Typically, the loan ticket size will be around R1.5- 2 lakh.
How will these loans be priced?
Normally yields in used vehicles are a little higher. So it will be anywhere between 16-20% depending on the vintage of the vehicle and also the ticket size. The higher the ticket size, higher the vintage and higher the lending rates. Right now, we?re looking at passenger vehicles with a vintage of seven years.
Given the slowdown in passenger vehicles, why do you feel this is the right time to enter the market?
Only heavy vehicle segment is not doing well. There is opportunity in the rural and semi-urban markets. Growth in the rural and semi-urban market is much bigger than the urban market as their ability to spend and invest on certain activities has increased.
Are you looking at tying up with any manufacturers for used vehicles?
We are not tying up with Mahindra First Choice or Maruti?s True Value. What we have is Shriram Auto Mall and that is tying up with some of the manufacturers and dealers for selling their used vehicles. Manufacturers and dealers are finding it difficult to offload used vehicles, which they get in exchange schemes. Finding a customer with finance becomes a challenge. So Auto Mall will be tying up with them and we will be arranging the finance. We have about 30 Auto Malls across the country and we?re planning to have about 60 Auto Malls in the next financial year.
