The Shriram group is just one “final approval” away from kicking-off its Asset Recovery Company with a ₹300-crore investment and is quite gung-ho about the prospects.  The final approval is awaited from the Reserve Bank of India.

Subhasri Sriram, a long-time Shriram group executive who was recently appointed as the Managing Director and CEO of the group’s holding company, Shriram Capital, told businessline recently that she believes that the ARC business is practically a blue ocean for the group, as “we are starting the ARC with specific focus on retail recovery.” 

The six-decade-old group, which started as a chit fund, grew into a major financier for the purchase of used commercial vehicles and is now a financial conglomerate with interests in NBFCs, life and non-life insurance, insurance broking and wealth management, finds a gap in its offerings—asset recovery. 

Shriram ARC is to be positioned directly under the group holding company, Shriram Capital Ltd, a company in which Sanlam of South Africa holds 40.7 per cent stake (the rest is held by a Shriram Ownership Trust.) 

RETAIL LOANS

Explaining the rationale to jump into the new business she observed that in the present era of fintech companies offering retail credit, secured and unsecured, loans are given on the basis of their ability to judge the borrower, but “very little capability is built for collection.” 

The Shriram group has long experience in collecting retail loans—in fact, that ability is its USP. Shriram City Union Finance (SCUF—now merged into Shriram Finance), used to give out retail loans – consumer loans, gold loans and personal loans. Subhasri Shriram, as the company’s Executive Director at SCUF, used to run the business. “We lend because we collect,” she said. 

“Today, there is significant reliance on technologies like Google and GPS, but they (fintech companies who lend) don’t have resources to reach the borrower. Just with repeatedly calling from a call center, alone would not help,” she said, adding that collecting back loans called for hard work and “if you don’t arrange for an eye-to-eye contact or meet the borrower, recovery is not easy.” 

There are 27 ARCs in India and the total loans acquired by them as at the end of June 2024 was ₹9.85 lakh crore. The earliest ARC was Asset Reconstruction Company of India Ltd (ARCIL) and, by some accounts, the biggest is Edelweiss ARC, with assets under management of ₹31,590 crore, as at end March 2024. Most of these ARCs are on to recovery of large loans. For example, Edelweiss ARC, according to the ratings agency, ICRA, “focusses on the large single borrower segment, an asset class with a high-risk profile on account of its complexity, higher ticket size as well as the significant degree of engagement with promoters.” (The ratings agency said in June that Edelweiss ARC “has also forayed into retail asset resolution, though its share in overall AUM remains moderate.”) 

Subhasri believes that “wholesale recovery is a very different ballgame”, where lenders and borrowers work together for a resolution and often through a court process. Frequently, the original borrower is not even in the picture. “Our business model does not subscribe to outsourcing collections or recovery. New age lenders and fintech companies are not owning employees, they don’t visit customers today,” she said. 

The ARC business in India seems to have a lot of potential, going by the quantum of stressed assets in the banking system. According to RBI data released last week, the gross non-performing loans as at the end of 2022-23 were ₹5.71 lakh crore, which was 3.9 per cent of the gross advances (down from ₹10.4 lakh crore, 11.2 per cent of gross advances, in 2017-18.) In January 2023, the ratings agency, CARE, noted that the Indian distressed assets market is in a “nascent stage” and “gradually developing”. 

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