‘A transport finance business cannot grow just in itself... it will slow down’
MUMBAI: IDFC Ltd’s proposed merger with the Shriram group has raised a lot of questions from the reason to delist Shriram Transport to the potential benefits to who will be chairman of the new entity. In an interview, IDFC Bank chief Rajiv Lall explains the rationale behind the deal. Edited excerpts:
What’s the rationale behind the decision to delist Shriram Transport Finance Ltd (STFL)?
It’s a regulatory rationale. Merging Shriram Transport into the bank at this stage is regulatory-wise not possible because it would have implied a more than allowable dilution of the promoter entity (IDFC) which has an ownership stake in the bank. You cannot violate that.
Second, in terms of people, distribution, the transport finance business is very large. (It has) ₹80,000 crore in advances. In the bank, we have only ₹60,000 crore advances. With Shriram City Union Finance (SCUF) assets, we have the same size of assets in the bank as we have in STFL. When you financially merge two entities, the bank has to replace the liabilities of the NBFC. Banks cannot do bond financing. Expanding the balance sheet in one shot by ₹25,000 crore (i.e. SCUF), we believe we can do. But to do another ₹80,000 crore will be challenging. That market is not deep enough to allow us to do that.
Third, this buys us valuable time. Nothing prevents us in fullness of time to contemplate a merger of the transport finance company into the bank. We have two, three, four years to figure out…technology integration, cross-selling of liabilities from bank to STFC customers, culture issues, people issues. Let’s make all that work first.
Why do you want to delist the shares of the company? Will it happen soon?
That will happen immediately. It will become a 100% subsidiary of IDFC Ltd, but it will be listed through IDFC. So, all its profits and earnings will be captured in IDFC.
Do you intend to run down the book of STFL?
We will do whatever makes sense for shareholders. It’s too early to say how business is going to pan out. You could take the view that beyond a point, how far can just a transport finance business keep growing? From a much larger base, its growth will slow down, I imagine.