Shriram Finance, a prominent player in the Indian financial landscape, has set its sights on raising $1 billion from overseas markets over the next six months. This move marks a significant milestone for the Non-Banking Financial Company (NBFC) as it looks to bolster its financial muscle for future expansion and cater to growing demand across its key business segments. This fundraising initiative is not only a testament to the company’s strong positioning in the market but also a crucial step in its growth strategy.

In a highly competitive and regulated sector, this strategic effort by Shriram Finance highlights its ambition to cement its leadership position and continue supporting businesses and consumers alike.

The Significance of Overseas Fundraising

In a financial ecosystem where accessing capital at competitive rates is critical, Shriram Finance’s decision to tap into international markets is both timely and strategic. The company aims to raise $1 billion (approximately ₹8,300 crore), which will be divided into two phases. First, Shriram plans to raise $300 million by October 2024, followed by $500 to $700 million in the latter part of the financial year.

The funds will be sourced through loans from development financial institutions like the Asian Development Bank (ADB), KfW (a German state-owned investment bank), and the United States Development Finance Corporation (DFC). These institutions are known for their ability to provide low-cost capital aimed at fostering growth in key sectors, such as infrastructure, sustainable development, and small-to-medium enterprises (SMEs). By leveraging these resources, Shriram Finance aims to fuel its expansion in critical segments like vehicle finance, SME lending, and gold loans.

Why Overseas Funding is Critical

Shriram Finance’s decision to raise funds overseas is influenced by a broader shift in the Indian financial sector. Following the Reserve Bank of India’s (RBI) November 2023 directive that requires NBFCs to maintain more capital for their loan portfolios, borrowing from domestic banks has become more expensive, especially for smaller and lower-rated NBFCs. In this environment, larger, more established players like Shriram Finance are turning to international markets to secure more favorable terms.

Despite these challenges, Shriram Finance is in a strong position, boasting a diversified borrowing base that includes public deposits, bank finance, and other domestic sources. The company’s bank borrowings account for only 24% of its total liabilities, which allows it the flexibility to explore alternative funding options without excessive reliance on any one source.

Moreover, Shriram Finance’s high credit rating has enabled it to access international markets on favorable terms, making the overseas fundraising a logical step. This is especially important as it plans to grow its loan book by 15-16% during the current financial year.

Growth in Key Business Segments

One of the primary motivations behind this capital raise is Shriram Finance’s expansion plans across several business verticals. The company is known for its strong presence in vehicle finance, SME loans, and gold loans—segments that are poised for growth as India’s economy continues to recover and expand post-pandemic.

Shriram Finance’s management has outlined plans to significantly increase its loan disbursements. As of June 2024, the company reported assets under management (AUM) worth ₹2.33 trillion, with loan disbursements for Q1 FY25 reaching ₹37,710 crore, a substantial increase from ₹30,455 crore in Q1 FY24. This 24% growth in disbursements reflects strong demand for credit across various sectors, including commercial vehicles, small businesses, and gold loans.

The company also plans to expand its gold loan business by increasing its branch network from 1,500 to 2,000 over the next two years. This move aims to tap into the growing demand for short-term, collateralized loans, particularly in rural and semi-urban markets, where gold remains a highly liquid asset.

Positive Market Response

Shriram Finance’s announcement to raise $1 billion has not only attracted the attention of international lenders but also had a positive impact on its stock price. Following the announcement, Shriram Finance’s shares surged to an all-time high of ₹3,310 per share in early September 2024, reflecting investor confidence in the company’s growth trajectory. The stock was trading 2.1% higher in intraday trading, making it one of the best-performing stocks in its sector.

The fundraising initiative has also garnered attention from global brokerage firms. UBS, for instance, has maintained its ‘Buy’ rating for Shriram Finance and raised its price target from ₹2,915 to ₹3,850 per share. The firm cited the company’s stable asset quality, robust growth in key segments, and its ability to maintain a low cost-to-income ratio as reasons for its bullish outlook.

Shriram Finance’s plan to raise $1 billion from overseas markets marks a critical step in its ongoing growth story. By accessing international funds, the company aims to secure capital at more favorable terms, diversify its borrowing sources, and continue expanding its market presence in key segments like vehicle finance, SME loans, and gold loans.

In a sector where access to capital is vital for growth, Shriram Finance is positioning itself for long-term success. The positive market reaction and the support from global financial institutions underscore the company’s strong fundamentals and growth prospects. As it continues to expand its operations and grow its loan book, this fundraising initiative will be a key enabler of its future success.

Shriram Finance’s strategic move is not just about raising funds; it’s about reinforcing its leadership in the Indian NBFC sector and positioning itself to capitalize on new opportunities in the rapidly evolving financial landscape.