R Sridhar on what makes Shriram Transport Finance Company a success

R Sridhar's performance is enviable as managing director of Shriram Transport Finance Company (STFC). In 2005, STFC had an asset base of Rs 5,000 crore, net profit of Rs 50 crore and a market capitalisation of Rs 500 crore.

Today, the company is the largest asset financing, non-banking finance company in the country with an asset book of Rs 18,000 crore, profits of Rs 1,230 crore and a market capitalisation of Rs 36,000 crore.

Not just that, Sridhar has also contributed in a big way to make lending to truckers a credible business. In a brief chat to N Madhavan, he explains his strategy -
 
Q: Your success at Shriram Transport Finance is not just about the growth you delivered. It was also about making the company and its business more credible. How did you achieve it?
A: Shriram Transport Finance has been financing for the last three decades a niche segment, which is the small road transport operators. These road transport operators have been perceived risky by the environment and that is the reason they have not been able to get institutional finance and have been in the grip of unorganised lenders.

What Shriram Transport did is to first bring credibility to the customers who have been perceived as risky. So, we have put in place a different kind of management...relationship-based instead of due-diligence based. We built the relationship with the customers, did not depend on documents for recovery and collected the money by persuading the customers and becoming their partners and giving them all kinds of financial help.

In the process, we have been able to maintain excellent recovery and asset quality. Once the asset quality was proved over a period of three decades, the institutions felt that this customer is similar to others and that is why our business has become very successful.
 
Q: What were the challenges you faced in making STFC what it is today?
A: The main one that we faced was on institutional resource. As I mentioned, we were dependent on retail funding as institutions felt that the customers whom we were financing were risky. It took a lot of time for us to change their mindset.

This we did by maintaining excellent asset quality and once the change happened over the last seven or eight years, money started flowing in and we grew from Rs 5,000 crore of assets in 2005 to Rs 30,000 crore in 2010 and are now nearing Rs 40,000 crore. So, that much money has come in to the credit-starved road transport industry and the small truckers segment. The main challenge, hence, was the mindset change.
 
Q: What is the secret of your success when it comes to management?
A: We have a relationship-based model and that means human beings in our company are very important.

So, what we did was to create entrepreneurs among the employees as well as customers. Our customers are small road transport operators who are entrepreneurs. We also felt that the need for entrepreneurs in our employees and hence put in a different system of credit management where sales and credit is handled by the same person.

STFC has given authority as well as responsibility to its front line staff. Each one of our employees who builds relationships with customers feels that he/she is an entrepreneur...and does everything to build those relationships. In the process, it brought STFC lots of customers and delivered value to each one of them. Delegation of authority as well as responsibility worked wonders for the company.