RBI Grants Shriram Group Approval to Enter Asset Reconstruction Sector

Chennai-based conglomerate Shriram Group has received in-principle approval from the Reserve Bank of India (RBI) to enter the asset reconstruction (ARC) business which aligns with the group’s expansion strategy that also includes a foray into the wealth management sector.

Expansion Plans

Umesh Revankar, Executive Vice-Chairman of Shriram Finance, confirmed the approval and highlighted that both the ARC and wealth management initiatives are group efforts. The wealth management business is  in collaboration with multiple partners and will be primarily handled by Shriram Credit, a subsidiary of Shriram Capital, while the ARC operations will be under Shriram Capital directly.

Operational Readiness 

Revankar further mentioned that the group is now focused on setting up internal operations for the ARC business over the next two quarters that will primarily target retail loans, leveraging Shriram’s extensive network and collection capacity. The company plans to build an in-house team to manage the ARC operations going ahead.

Q1FY25 Performance 

Shriram Finance, the group’s flagship company, reported a 19% increase in consolidated net profit for the Q1FY25, reaching Rs.2,031 crore compared to Rs.1,712 crore in Q1FY24. The company’s total income grew by 16% y-o-y to Rs.9,610 crore, while total expenses rose by 21% to Rs.6,943 crore. The asset quality of Shriram Finance also improved, with Gross Non-Performing Assets (NPAs) declining to 5.39% from 6.03% and Net NPAs moderating to 2.71% from 2.96% y-o-y.

Divestments

In June, Shriram Finance’s Board approved the sale of its housing-finance subsidiary, Shriram Housing Finance, to Warburg Pincus for Rs.4,630 crore, aimed to refocus on core operations and secure growth capital. The deal, pending RBI clearance, is expected to conclude by Q3FY25.

Conclusion: Shriram Group’s entry into the ARC sector marks an expansion in its financial services portfolio, backed by strong internal preparations and a focus on retail loan acquisitions. With strong financial performance and initiatives, the group seems poised for growth in the coming years.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.