IDFC-Shriram merger shows Piramal's entrepreneurial approach: R Thyagarajan

R Thyagarajan
Last week, the Chennai-based Shriram Group and IDFC announced they were looking at a possible merger of Shriram’s finance businesses with IDFC and IDFC Bank. R Thyagarajan, who founded the now-huge conglomerate in 1974, speaks to Gireesh Babu on merger talks and the way forward. .Edited excerpts:

What led Shriram to consider this merger?

Shriram has always believed in partnership. Over the years it has had various partners who have contributed. It was not only IDFC — many proposals came in the past two or three years, from a big bank, a small bank and an NBFC) non-bank financing company). We examined the workability. We found this proposal for merger with IDFC worth pursuing because it looks doable for us. We have not finalised it yet; we are still open to other suggestions and ideas, if it would improve the whole proposition. We don’t want to merge only for the size. In IDFC, we saw a lot of complementarities and so we decided to look into it. 

How will IDFC-Shriram complement each other?

This merger, if managed wisely, can bring in a lot of benefits to the customers, shareholders and the community. Shriram customers will get more advantages if we are a bank. For instance, STFC (Shriram Transport Finance) customers could open a savings account, get a credit card and other banking products which they are not getting now.

Shriram could have gone on its own if it wanted to become a bank. In the past, you dropped the idea…

We were interested in banking and we want to be a mass bank but the regulations then were not favourable. It didn’t allow an NBFC and a bank to run in parallel and wanted the NBFC to merge with the bank. A model was not available at that time and we didn’t take it forward.

Do you think the current proposal will sail through the Reserve Bank of India (RBI), considering you have an NBFC and a chit fund? 

We wouldn’t have looked into it if it is against the regulations. We don’t know what RBI is thinking. STFC, for now, will be a subsidiary of IDFC, while the chit fund, which is 100 per cent owned by Shriram Ownership Trust, is not part of the proposed merger. If there is still an issue regarding the ownership trust, which eventually will be a shareholder of the merged entities for owning the chit fund business, we will take necessary action at that time. For now, it is not an issue.

You are confident the merger will have a smooth sailing?

There is nothing called smooth sailing but Rajiv Lall (managing director of IDFC) and his team would deal with all issues related to regulations. 

So, cultural issues will be a challenge for you? 

In any partnership, there will be cultural issues. It was so when we partnered with Sanlam and Piramal. But, we could address this and eventually they became suited for business. Insurance is one example, on how our employees contributed for the growth. Likewise, they will also start contributing to the bank. 

Was the lack of succession in Shriram one of the reasons?

We requested Piramal (billionaire Ajay Piramal, who'd bought 20 per cent stake in 2014) to take over the leadership of Shriram Group, since he is a great entrepreneur. We had good professionals but for any organisation to grow in the long run, it has to have an entrepreneur’s influence. If it is going to be totally professionally run, it will decay unless among the professionals there is an entrepreneur. You need a person in the leadership position who has entrepreneurial attitude towards doing business. An entrepreneurial spirit or attitude is the willingness to take risk, not being afraid of failures, which are key to grow the organisation. Those with entrepreneurial spirit alone would do. That is why we requested Ajay to lead. His success rate has been high. 

Even this merger, I would say Piramal is pushing it, rather than Shriram Ownership Trust pushing it. Even this initiative of a possible merger is an expression of Piramal’s entrepreneurial approach to growing this business.

So, it is Piramal who will represent Shriram post merger?

Yes.

Are all shareholders of Shriram Capital happy with the merger?

Shriram Ownership Trust, Piramal, Sanlam and TPG are all with us. The key people are on board and so the rest will be as well, from the Trust. We will ensure the merger will benefit every shareholder of our businesses significantly.

What if the merger does not go through?

We will continue to do what we are doing now. If there are other proposals, our people will examine. All the new proposals will be primarily examined by Piramal. He is leading Shriram.

What about the non-financial service businesses of Shriram?

That is delinked from Shriram Group and is managed separately. It was delinked for the interest of our partners, to attract more partners. The non-financial business is quite big in terms of original equity  investment, which would be around Rs 2,000 crore, including the public money.

What is next for Thyagarajan? 

I am in retirement already. I retired when I handed over everything to Ajay, four years before. I'm spending more time on understanding western classical music, as I already know much about Carnatic music.

India is both a manufacturing and IT hub for us. We have wide range of products in India, including mobility solutions, IT solutions, industrial solutions, braking systems, electrical drives, drive and control, power tools, among others.


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