Top shadow lender Shriram City turns cautious, cuts loans to its most prized customers by 99%

Shriram City Union Finance Ltd., a shadow lender backed by Apax Partners, is turning cautious on its most important set of customers as the coronavirus pandemic roils businesses.

Loans to small businesses including grain merchants, which make up a little over half of the company’s borrowers, plunged 99% to Rs 20 crore in the June quarter from a year ago. While there’s demand for small-ticket loans, the financier prefers to wait for more clarity on their recovery, according to Chief Executive Officer Yalamati Srinivasa Chakravarti.

“Most of the businesses have not come back to their normal level of sales,” Chakravarti said by phone on Thursday. “I have to look at their cash flows much more closely than earlier.”

Shadow lenders in India supply last-mile credit to businesses such as mom-and-pop stores, small restaurants, and individuals who need to purchase a new refrigerator or car. The bulk of Shriram City’s customers seek loans of less than Rs 15 lakh each, and are probably among the most vulnerable in an economy forecast to shrink for the first time in decades.

The government’s massive stimulus package announced in May was aimed at helping small businesses, as Prime Minister Narendra Modi prepared to restart the economy. Earlier this month, the Reserve Bank of India allowed financiers to restructure certain loans by granting extensions of as long as two years with or without a freeze on repayments.

Chakravarti said he is against recasting loans as the practice leads to problems down the road. He predicts people will resume borrowing to buy scooters and motorbikes to aid mobility as states across India lift lockdowns.

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The Chennai-based firm’s shares have lost almost half their value over the past year, compared with an average 18% decline for its 21 peers tracked by Bloomberg.



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