Refused to commit on whether roe target too.

Firstly, what was the ROA indication that you gave? I could not catch that properly.

See, right now, our ROA is around 2.8. We expect it to improve to 3.6.

Sure. But, sir, what will be the ideal proportion? I mean, how much do you want to increase the proportion of new vehicles to?

Yes. See, basically, our new vehicle market share is very low. It's around 3% , including the passenger vehicle among the overall new vehicle sales, which we would like to double it in the next three years.

Got it. And the ROA target, not target, but the indicative ROA is for two to three years, is it?

Yes. It will start improving from the next year and it will have over the four years.

So my first question is, some of the management changes we did two months ago, was this in lieu of this deal? And should we expect any more changes over the next course of the next few quarters?

No, the management changes were the normal management changes. There is nothing surprising here. So as the term came to end of the earlier Managing Dir ector, the new Managing Director and CEO has come, Mr. Parag Sharma. And he will continue for a longer time. And there is nothing in anticipation of this deal we have done.

And so also, like you mentioned that in the vehicle segment, you will go into the higher ticket, lower risk segment. Should we expect something similar in MSME where you get into higher ticket lap right now you're operating in the INR10 lakh, INR12 lakh segment? But that's still a more niche market, the INR50 lakh, INR1 crores segment? Should we expect you all to enter into that also?

No, we will not go into large ticket SME lending. We will never get into lab lending. We will do only the SME business lending. We are very clear. However, yes, we will have additional security of property, either commercial property or residential property that will continue. But we will not get into large ticket and will not get into LAP.

But if I may ask, why will you not do that now that your cost of funds is likely to be competitive with the good players?

See, we have been repeatedly saying that we are a conservative company. We do not wish to play for a long term lending. LA P, moment you call it as a LA P, it goes into 12 t o 15 years longer lending, which you would like to restrict to five to seven years only, and only for a term loan and for the business purpose and based on the cash flow.

Understood, understood. And even this vehicle, new vehicle segment th at we are talking about doubling market share, that will come primarily from new vehicle loans to existing customers. We will not go into the open market to source new vehicle loans aggressively?

Yes, yes, you are right.

Got it, got it. And just my last question, could we, now that we're sitting on INR40,000 crores of cash, any potential acquisition, M&A that we could be thinking of?

No. So we'll not be looking into any kind of inordinate growth.

First question, again, repeating on that, of course, you have provided some color, but I mean, with the higher capital in terms of accelerating growth, I mean, in terms of product, customer and geography, I mean, on the product side, adjacencies, you explained where you would like to go. Now, in terms of your geographic footprints, you have been relatively more into the rural, semi-urban. I mean, does now your cost of funding becoming very, very competitive? Would you like to kind of venture more aggressively into urban or metros as well as, I mean, going after the prime customers also? And secondly, on MUFG, I mean, of course, the filing and everything says for now they are kind of a public investor. But now given the kind of direction of this investment and its trending importance, is there a plan from their side kind of being turning into the Copper Motors and like that?

See, basically, we would like to remain in our geographies where we are. We do not want to get into metros at all. We would prefer to be in the semi -urban rural market. And as I was telling, that we would prefer to retain my existing customer and definitely I will create more rea ch in the north, central and east where our footprints are a little less. We would be expanding. We have a rural center there. We would be converting those into branches. So naturally, my reach in these geographies are going to be better. Even if you see the way each states are growing in India, south seems to be growing much faster and the GDP per person also is much higher and also to some extent west. But there is a scope in the east and north and central to grow. Especially we believe that central and north are likely to grow much faster and there is enough indication for us that they are catching up with south maybe in the next 5 to 10 years. And that is where we believe the sweet spot and the maximum growth we should be able to get.

And secondly, on MUFG, I mean, of course, the filing and everything says for now they are kind of a public investor. But now given the kind of direction of this investment and its trending importance, is there a plan from their side kind of being turning into the Copper Motors and like that?

On MUFG, there is no discussion whatsoever for any further stake. They will be classified as non-promoter and have 20% stake. There is no discussion whatsoever for any further increase as of now. And this is huge capital which is going to take some time for us to deploy. There is no need for any further capital or discussion for their stake increase.

So one question, irrespective of this large capital, we had the wherewithal, the products, the customer segments, etc etera, to kind of accelerate growth. But like you mentioned, for the last 3, 4, 5 years, we have been growing at this 15%, 16%, 17%. So is it just this incremental capital which kind of now makes us more aggressive and we want to do 20%? Because the reverse would have been what we would expect. We are growing at 20% and you need capital and hence you went out and got capital. It s eems the reverse where you got capital and hence now you want to grow faster.

See, basically everything falls into your cost of borrowing. And with this new capital, our cost of borrowing will come down and that will help us to get into a c ertain segment or certain customers. And therefore, the growth rate is higher. So it is not that we can grow at 20% at the current borrowing cost and attract capital. Therefore, we were looking for a partner for making a ground that our total liability cost, borrowing cost comes down with the peers in the market.

Correct. And sir, this 100 bps of cost of fund improvement over 2 years, if I just highlight the timeline, what happens very quickly, what happens 2 years out and the assumptions behind the thing?

I think 2-3 things. One is the incremental liabilities and replacement of the current debt takes 2 years to 3 years. That is why we said it will happen over a period of time and not immediately. So whatever debt gets replaced, maturity will be around 2, 2.5 to 3 years. So that is why we give this 3 years' timeline. And for growth, whatever liabilities we raise additionally, that will definitely come cheaper, but that will be around 20% growth only for liabilities also. But replacement of debt, which normally takes a longer period for getting the pricing benefit.

So the thought behind this is two, right? So one is a larger institutional partner backing us and two potential rethinking upgrades. So two of this fall in place an d we 100 bps is what we can get?

So, I think that is the thing. And in fact, other thing also, because of RBI action rate cuts, the benefit is anyways flowing in...

I thought this 100 was over and above that. So this assumes the RBI rate cut s, which is yet to pass through?

Correct. It assumes that also. But yesterday also one rating agency has upgraded us to AAA. So we expect other rating agencies actions also being there. So let us, I think we will wait and watch. But we factor in all the positives and then say 100 bps improvement.

Correct. And sir, last on this $200 million non -compete that the Employed Trust kind of got. If you just explain what is this, the rationale, something on this?

See, basically the promoters, part of the in the SOT, they should not be starting a similar business. Because you would have seen that normally whenever there is any investment, there is a non -compete clause for maybe a year or two. But this gives an, ther e is an understanding that we will not start any similar business by the promoter group. That is SOT. That is why this payment is made.

No, fair. But the one of the cohort of investors got a larger, I mean, if you do the per share calculation, what you got a different amount than what the others got, what Shriram Finance got. So, I mean, agreed to what you are saying, but did you, I mean, the promoters did get a different rate?

No, promoters are not selling anything here. It is a fresh capital that is coming in.

So just the stock exchange notification that was originally put out, there were two other points which you answered earlier, but I'm j ust reiterating it, that MUFG can second up to three of its personnel as senior management up to 6 months of the completion date. And there is a non -binding M oU to explore framework to identify beneficial business opportunities, which implies that there c ould be senior management changes, or they can have their own people come in. Second is that there can be acquisition targets. You answered these two, but if you can just clarify these two points from the sto ck exchange notification itself?

Yes, see basically the understanding is that none of the second is -- would be either KMPs or senior management. They will be number two or number three level only. So none of the KMPs and senior management change is envisaged at this level or discussed.

Areas of synergy.

Areas of synergy is basically, see, since they have investment in other Asian countries, we would like to see how their investment have progressed. And depending upon that some sharing of the information will be there. It can be that they will also learn from our experience here in India, and we can also learn from their experience. It's a mutually agreed. And I believe on the digital platform there will be some advantage, because they have a very robust digital platform in the Asian countries. And even though India is one of the leading in the digital what you call network and digital transactions, we believe that the other Asian countries have done much better in certain areas. We would like to really know from that and if possible, adopt here.

One last question is that they also have a significant stake in DMI Finance, which is into digital lending and consumer durable lending, which could be a complementary business for us as well. In the future, is there a case that we will see the merger of DMI Finance into Shriram Finance?

No, we don't see that opportunity -- the chances because it's a purely Fintech company and we have never -- we did not discuss. In fact, they have invested in DMI through their fund, one of their fund called Ganesha Fund and not directly from the bank as planned, as they're investing here.

And we don't want to explore that complementary business also in the present construct, consumer durable financing, Fintech partnerships, so on and so forth?

Nothing was discussed and I don't see any kind of a chance there.

So, what is the timeline that we're looking for the completion of this transaction and once the transaction is completed, within what timeframe can we expect this equity including the two get deployed?

Basically, the 14th is the EGM date and after that we need to apply for RBI approval, a formal approval from RBI and CCI. We expect it to take two to three months, but it can be faster also. It all depends on how these things move. And we would be happy to get it in this financial year, but at the max it can be April. So, we are happy to receive as early as possible.

Okay. Got it. So, the other thing is, I mean, yesterday we reported we already have a AAA credit rating approved from CARE and m aybe the others will follow it in the coming quarters. After that, I mean, with the AAA credit rating from multiple credit rating agencies, what is the steady state leverage that we can operate at?

See, as we have an international rating, we have to have a capital adequacy of 20. So, we always feel the sweet spot for us is anywhere between four to five times. Maximum five and four is ideal. And for reaching that four times leverage it may take maybe five to six years, but we are happy in this. I think the sweet spot is four to five and we should or I shoul d say 4.5, should be the exact.

Got it, sir. Sir , then, I mean, a couple of times earlier in the call, we shared that over the next two years, we're expecting 100 basis points impact or benefit on a blend ed cost of funds. So, if Parag sir can just briefly explain, where is it that the bigger benefit will come from? Will it come from the debt capital market or will it be coming from the bank borrowings a nd how much of this benefit will be retained versus passed on to the customers to be mortgaged?

Yes, I think two, three fronts where the larger benefit will come. I don't think there is much of a differential when it comes to the bank borrowing between AAA and AA. There is definitely a lot of differential between the capital market borrowing what we have and also the retail deposit. Retail deposit is, for us, is around 26 %, 27%. So, as and when we reduce rate there and the capital market, which is close to around 23% of our liabilities, both this will have benefit and that should happen over a period, as I mentioned, around two and a half to three years.

Got it. And sir, lastly, we spoke about now maybe targeting a 20% kind of an equilibrium CAGR with this equity infusion. And like you said, even if we end up retaining some of our existing customers who move out, we can very well get there. Just trying to understand, I mean, we've discussed already a lot in terms of our focus on maybe venturing into newer series, maybe a bigger MSME playbook. But in terms of product segments, which are those product segments which will enough consume most of this growth capital that has come in?

See, vehicle being 70% of my book, automatically, the larger ca pital will flow into that. All commercial vehicle, construction vehicle, plus your passenger vehicle is put together 70% of my book. And in the two wheeler, we're already number one player in the market. And we'll continue to remain number one there. I don't really see a big change in the two wheeler, our market position. Probably, we'll be able to grow on the , what you call , bigger bike, that is -- which we were mostly focusing on a transportation kind of a bike. We may get into a little bigger bike, that' s all. Otherwise, there may not be a big difference there. But in the SME, I see a huge opportunity, but we'll be very cautious. As I was explaining you, we will not get into that. We will do only SME cash flow based lending. But definitely, we'll go for a secured lending. At least for some more years, we believe til l the SME segment becomes much well understood by us, we will get into secured lending.

So, first of all, you have mentioned also the 100 bucks reduction in cost of funds. Now, if I tie in this with the lower leverage that we will have post this money coming in, and also the lower credit cost that you guided, do you think you are being too conservative on the ROA numbers that you are guiding for, sir? Because just mathematically, when I added all these three up, the numbers seem to be much higher the ROA uplift, at least, of course, in the intervening period.

3.6, I said at the end of 5 years. Interim, yes. When the capital comes in, the ROA will go up significantly. It may go up to 3.8. But it will slowly, as we expand our business, it will come down to 3.6. Whatever I'm trying to say is at the end of 5 years.

Okay, got it, sir. Sir, secondly, on the growth front, you mentioned the growth acceleration from 15%-16% to, say, 18%-20%. And this seems to be just incrementally on back of lending for new vehicles and that too for retaining customers. Do you think this is the kind of, just on back of this, we can achieve this growth, even, say, in the next 1 to 2 years?

Yes, we are quite confident. See, the GDP growth rate gives us that kind of comfort and scope for growth. Now, 8% GDP growth in the last two quarters is very positive for us. And the credit demand, because of the increase, today's headline also you'd have seen that manufacturing is -- in one of the highest in the month of November. So, I think there is enough demand for us to grow. So, as I was telling you, by just retaining my customer, I'll be able to grow 20. I don't have to really acquire a new market or new customer or do something totally different to achieve my growth.

Got it. And s ir, lastly, on the leverage, you mentioned the sweet spot of 4.5 x. Just wanted to clarify, are you referring to the debt-to-equity or the asset-to-equity?

Debt-to-equity. Debt-to-equity.

My first question is just focusing on your product mix. While you've explained very well that your new customers itself, your existing customers themselves can support growth, but where would the vehicle, non-vehicle mix be for you? It has been at about, if you include two -wheeler in the vehicle, it has been at about 80 -20. Will that, over 5 years, will you keep it at 80 -20? Does that shift to 50-50 or any other number?

Basically, on the overall proportion, I don't see there is any change because, as you rightly said, including two-wheeler and construction equipment and farm equipment, it is 80-20. That is, 15% is SME and another 5% is gold and personal loans. So, overall, that proportion will continue to remain. But maybe, yes, we will be a little more aggressive in the gold financing because we have a reach which we need to take an advantage. There will be a certain push for gold finance that will increase maybe another 2% more. So, gold finance going up by 2% more can bring down our proportion to 78 -22. So, it will be just 2 -2. Maybe 5% variation could be there within the segment -- broader segment, not the small segment, that is how I think it will play out over the 5-6 years.

Got it. But there is still a possibility that some of them could come into some business segment as secondary also, right? Not just in these three, account maintenance and reporting that you are talking, that is still a possibility. There is no restriction on that, right?

See, I can't put any restriction. But yes, definitely if they want to learn something in India and use that in Indonesia, definitely welcome, no.

First is on the non-compete, if you could just help us understand this better. So, what is the duration of the non -compete? And the non-compete, does it just apply on SOT or even the members or beneficiaries of the SOT, which could be current or past senior management within the group?

No, it is basically for SOT, that is a promoter group. And there is nothing like a timeline. So, we have decided that we will not have another business started by the SOT, that's all. Matter is over. One time.

Okay. And any of the members or beneficiaries are sort of then technically become part of this agreement, right?

They are all part of the SOT. Anyone who is part of the SOT, they will not be able to start any business. Matter simple.

Okay, understood. Sir, the other two clarifications. One is once all the regulatory approvals are in place, the $4 odd billion comes, the money comes into the company in one shot or are there any milestone linked investments?

No, it is one shot.