Even as Chennai-based Shriram group is gearing up for a bigger play in the Indian corporate world with its proposal to merge with IDFC Bank, its founder R. Thyagarajan (known as RT, to many) gets candid on many issues in this free-wheeling interview.
Why did you embark on this merger?
We are very good in deposit mobilisation. But we don’t have the reach of a bank. So, we are not able to give a whole range of products which a bank is able to provide. Even with all these constraints, we were able to create a deposit base of ₹15,000 - 20,000 crore.
All your financial services firms are doing well. Why do you wish to fix something that’s not broken?
We are not fixing anything. Why did we start general insurance business with Sanlam?
We were doing an excellent job of servicing both our depositors and truck operators. Where was the need to get involved with the general insurance? Our truck operators today have an advantage because we were delivering general insurance products to them. As against a one to one-and-a-half year wait for getting their claims settled, today they get them settled in 40 days.
That means an enhancement of the claim amount by 30%-40% since he gets it earlier. He borrows money at 24%, and now saves interest on that.
Claims processing costs him five to six thousand rupees. We have eliminated all that.
We make a profit by doing insurance with them. He gains enormously by dealing with us rather than with some others.
Could you have done it without Sanlam?
We could have done it with anybody. It is designed for the Indian market. The services are designed for truck operators. Sanlam did not have much of a role except appreciate and motivate.
Is that what you expect from IDFC?
Rajiv Lall and others in IDFC are banking specialists. They know more about banking and RBI regulations. We [Shriram] are participating in banking. We are not going to run a bank. We will bring our experience and perceptions of what the markets and our customers want.
Were you not opposed to converting your NBFC into banking?
I was never opposed to doing anything. I always said that it would not be possible for us to conform to the RBI norms and start a bank. We are not opposed to getting into any business for that matter.
How did we get into general and life insurance when we had no background? Only I had the experience, and not the whole team. We did not take people from the general insurance industry at all.
Your not being a bank - does it affect your business?
Our customers will get more advantages by our being in banking. If we are not in banking, our customers will be benefiting less. If we are in banking, our customer will put his money in a savings account. He may go for a credit card. All these facilities we can offer to him. These we can’t do today. He will be the beneficiary. Since he is a beneficiary, incidentally, we will also benefit. If you look at general and life insurance, it is more and more accepted by the trucking community. Today, we have over 20,000 customers from the trucker community. People have realised the advantage of going in for life insurance. We don’t force them to go in for life insurance.
Popular perception is that ‘Shriram is RT and RT is Shriram’. What will happen now?
In India, there are 20 lakh truck operators. I would say only 100 people know RT. The rest don’t know me. Similarly for depositors. About 90 to 95% of them won’t know who RT is. Today, I don’t have a single share of the Shriram group companies.
Is it not true that you grew the group?
No. 60, 000 people did that. Starting with 100, it has grown to 60,000. All of them have influenced the growth of the organisation. It is not a one-man organisation.
But 60,000 people did not give direction to the group. Are you being modest?
I am not a hypocrite. If modesty is practised for the sake of it, you are cheating the people around you. You should be what you are. You don’t try to be a modest person. You are what you are.
Can 60,000 people give direction to the group?
Following and implementation are as vital as giving a direction. When you talk of giving direction, quite a few participated in it . It can’t be one individual creating an enterprise. Not even a CEO. It is always a team. One man cannot create an organisation. One man may be good enough to assemble a team. Sometime, the team automatically evolves.
Bank of Madura lost its identity on merging with ICICI Bank. Will Shriram too experience t his?
IDFC Bank is a very young organisation. It does not have a legacy. It has not developed a rigid culture. Shriram group has a culture. So, it is very likely that this Shriram culture will influence the growth and development of IDFC. They don’t come with a pre-conceived notion as to how to run a bank. And, they don’t have a set of people with a culture which directs how it will go in the future. Shriram has, however. So, Shriram’s influence will be there. It is not that Shriram people will be running it.
Why is it then called IDFC-Shriram and not the other way round?
Alphabetically, I comes before S. It is a merger and not a takeover of one by the other. Therefore, we are equals. We treat each other with the respect each commands.
There is a charge that the Shriram group has just been gifted away to people from north?
This question will be asked only by people in Tamil Nadu. It is an Indian organisation, and a human organisation.
Isn’t it like somebody giving away his beautiful daughter to someone who is yet to prove himself?
If this argument is to be accepted, our beautiful bride will remain unmarried. You have to take a chance. That is all. Every decision is about taking a chance. Having been around for many years, we have acquired some amount of wisdom as we made some mistakes in the past. We have learnt from mistakes, and, therefore, we have become wiser. So, our decision going wrong will have lesser probability.
Do you think the merged entity could command the trust that Shriram has managed to elicit?
When we started, there was none. We built the trust. It has been built over the last 40 years. It did not happen overnight. A similar thing will happen here. Our track record shows by and large we do things right. We will do this also the right way.
How critical is a banking licence to you?
It is not as if we were dying to be a bank. We always felt that our customers will benefit more with a banking instrument. We are looking at what is good for our customers. He can now do many things ... may do money transfer ... he can do that easily now. What more we can do with banking as an instrument? In this, we will be guided by IDFC.
IDFC has just over two years’ experience as a bank. Why do you want to ally with them?
For one, you don’t have baggage while creating an organisation together. The disadvantage is that there is not too much of an expertise and experience.
How do we take advantage of the strengths and keep the weaknesses away? That is what we should bring together. The way we are working with Ajay Piramal, Sanlam and earlier with Telco and Ashok Leyland ... in all our partnerships ... there were certain advantages and disadvantages. Ashok Leyland put two of their important directors on our board. They were actively involved. Tatas put two of their men on our board because they put 15% equity. We are used to partnering with organisations.
We have been successful in building on the strength they brought in and avoiding their weaknesses. We have successfully managed it in four partnerships before.
Will the chit business remain independent?
An enterprise belongs to the community. Shriram Transport may not belong to the Shriram team or employees. Owning a share does not mean that you are owning the company. It is owned by the community. Ownership is not our obsession.
What about the non-financial firms in the group?
Ten years ago we felt that we were running our financial services business very profitably. We, at least I, felt that we have a moral responsibility to the community to support entrepreneurship of a difficult kind. We realized that creating an industry and running them successfully is much more difficult than what we have accomplished in financial services business. So, we started investing and supporting entrepreneurship in other areas. At some point of time, we decided that it should be separated from financial services because the financial services business was looking for different kinds of partners across the world and all of them were comfortable in dealing only with a pure financial services company and not with a group which has got different interests. So, Sanlam is clear that they want to be with Shriram only in insurance business. Hence, we took a decision to separate the business. Our commitment to the community in terms of supporting entrepreneurs remains. So, we transferred money. We said we would transfer about 25% of the wealth created and then remain hands off. Professionals will run it. ownership will be with those people. We have no ownership there. We came out of it totally. Our non-financial activity cannot be considered as Shriram group in that sense. It is like partition in your family.
Doesn’t Shriram Capital have any ownership in these?
Nothing at all. We don’t give any guarantees to banks. Lending money as a proposition with security we may do. There is no equity. A holding company is created subsequently to put all of them under one umbrella. Just financial services came under Shriram Capital.The chit business is outside all these. It remains independent, owned by Shriram Trust.
Bharat Re was promoted by Shriram Capital to strengthen our general insurance business.
Having achieved that to some extent, we are taking it out of Shriram Capital. It will not have more than 15% capital in it.
It will not be a part of the Shriram group any more. The next phase of growth for Bharat Re is an independent ownership
How will the insurance business benefit from the merger?
As and when we extend our customer acquisition through the banking operation, every new customer we are looking at will be able to take advantage of all the services we offer. You make the customer acquisition a faster process.
Are insurance partners comfortable with the merger idea?
Very much. They are very enthusiastic about it.
What about other partners in Shriram Capital?
TPG is very enthusiastic. Sanlam is happy. Ajay Piramal too is happy.
What is your responsibility in this context?
I am 80 and already got out five years ago. I am a consultant and advisor pre-dominantly in the area of insurance. In the lending business, I am not. If the group does very well, I will not benefit even by a single paisa. If they do badly, I won’t lose even a paisa. In running an enterprise, I don’t believe in ownership. I run it on behalf of the community.
Is everybody on board on the merger?
Every one is on board. In any case, it is only a decision to talk on the concept. A long path needs to be travelled.
Has the merger talk created confusion?
Inside the organisation, there is no confusion. Nothing is going to change for the next one-and-a-half years. So, everybody is pursuing whatever they are pursuing.
Is there no dissenting voice?
Nothing to dissent because we have not taken a decision.
There is a perception that the merger is happening because of the inability to bring in a succession plan. What do you have to say?
We have been having a series of succession plans ... one becoming better than the other at every stage. First we had Arun Duggal coming in as chairman. We felt the better solution from a long-term perspective would be to bring in Ajay Piramal. Now we believe a merger with IDFC is still a better solution. A series of solutions to the problem of succession has taken place ... each one is better than the previous one. There was nothing wrong with the previous one. It was fine but a better option has come up.
What is the trigger of the IDFC merger?
Somebody takes the initiative and make a suggestion.
Who made the suggestion?
An investment banker.
Don’t you think that than an investment banker has an uncanny ability to kill the legacy?
Simply saying legacy is no good. It is like the caste system. We should abolish it. For every part of the culture, you can say legacy. There is a negative part to culture also. Legacy is not great by itself. You must make it better and better.
Investment bankers derive satisfaction by disruption...
His role will be disruption. Will that benefit the organisation or not? That is rather left to people who are running the organisation. If they have the wisdom, they will take the opportunity of disruption to make the organisation better.
Is this disruption good?
It is extremely good. It is a new opportunity. Let us look at this merger as a synergy rather than incompatibility. We are not aiming at compatibility. We want to create an enterprise which will thrive on creating synergies. Consistency is not my virtue. As and when I see new things, I change.
What is that one thing you will regret?
I don’t regret anything. I learn lessons. You can’t undo the past. All of us suffer from a feeling of nostalgia. Any thing changes, we are okay.
Is the transport business going to be a separate company?
It can’t merge with IDFC. The bank is small and the transport business is very large.
It has various regulatory obligations. So, why undertake [the merger] now?
You always talked about business as a means of servicing the society. Will these new set of people view it the same way?
Having moved with Ajay Piramal for the last few years, I am convinced that he looks at the prosperity for his company because it is prosperity for the community. The focus is not prosperity for himself. He believes business is your way of doing social service. . There is nothing wrong in it. This philosophy is not my monopoly. I am not more socially committed than Ajay Piramal or Rajiv Lall.
Are you giving away your daughter to the right person?
You are trying to create synergies between businesses. You are not handing over anything to anybody else. You are bringing a few organisations together. The best way to create more wealth to community is to create synergies.
Who will be running the bank?
It is not a question of who. All of us will run it. Ajay Piramal, Sanlam, IDFC ... all of us will be running it because all of us have stakes.
Are you a democratic disruptionist?
If you like change, you call it innovation. If you don’t, you call it disruption. I will call it innovation. Disruption and innovation are one at the same.
Is there a downside risk to the merger?
I don’t see anything wrong. In the worst case scenario, you allow the bank to run on its own and we run our own. That is not good. You are not creating synergy then.
How have the leading lights in the group taken to the merger?
We will tell them to taste the food when cooking is completed and then come to a judgement if the food is good or bad. By merely looking at the recipe, you don’t come to a conclusion.
