Award: Conscious Capitalist for the Year
R Thyagarajan
Co-founder, Shriram Group
Age: 77
Interests outside of work: Thyagarajan loves Carnatic music, especially the music of violin maestro Lalgudi Jayaraman. He has supported the promotion and preservation of classical music. He is interested in mathematics and has helped set up the Chennai Mathematical Institute
Why the company won this award: STFC’s vision was to modernise the truck industry, and it has achieved this by changing the perception of the industry among lenders. It has proved that lending to owners of one or two trucks can be safe and delivers good returns
“Trust begets trust. If you trust a truck operator and lend him money, he will trust you in return,” says Padma Bhushan awardee Ramamurthy Thyagarajan, who has been reaping the rewards of his faith in truck drivers since he founded the Chennai-based Shriram Transport Finance Company (STFC) 35 years ago. Through his non-banking financial company (NBFC), he lends money to commercial vehicle owners, especially those who own only one or two trucks and find it difficult to get loans from banks.
Shriram’s competitors don’t believe in lending on the basis of trust and “it works to my benefit because we are far ahead of all of them,” says Thyagarajan. STFC is a publicly listed company, and is part of the Shriram Group, a financial services conglomerate that Thyagarajan founded with AVS Raja and T Jayarama.
The 77-year-old businessman learnt to put his faith in customers in the 1970s when he was a branch manager with The New India Assurance Co Ltd, a government-owned general insurance company. “Our chief BK Shah [then managing director] believed in trusting people. He strengthened my own natural inclination to do the same,” says Thyagarajan, who started out by selling insurance policies to owners of commercial vehicles.
“In those days, the financiers of commercial vehicles would decide which insurance policy a truck owner should buy, so I started creating finance companies that would give loans to vehicle owners,” he says. This was an effective way to sell policies. Thyagarajan—with the help of his friends and relatives—created four or five small finance companies that loaned money to truck owners.
While the companies were set up to help bring in more business for New India Assurance, Thyagarajan realised he was on the brink of a business opportunity. “Back then, there weren’t too many financial entities (like the ones I had set up) in India,” he says. He quit New India Assurance to launch Shriram Transport Finance in 1979 with a personal investment of Rs 5 lakh. Today, the company has a market cap of Rs 22,000 crore, and owes its success to a unique business model.
Thyagarajan laughs at the mention of ‘business model’. “We just did business. There was a need for things and we met those needs. There wasn’t a model,” he says.
In the 1970s and ’80s, small-scale truck owners had no choice but to borrow from money lenders at interest rates as high as 48 percent because banks were reluctant to cater to them.
When Thyagarajan started STFC, a few companies like Sundaram Finance and Motor & General Finance did exist, but they dealt with operators who ran fleets of trucks. Thyagarajan decided to cater to the bottom of the pyramid, and started lending to people who owned only one or two vehicles. It was a large and untapped market. “But until Shriram became successful, nobody touched this segment,” says R Sridhar, former CEO of the NBFC and now director of Shriram Capital Ltd, part of the Shriram Group.
STFC knew that to make it in this business, it had to bring credibility to itself and to its customers. “I had defined our mission as one that will modernise India’s truck industry. Our objective was to enable the owner of a 20-year-old vehicle to move to a 15-year-old model by giving loans at reasonably low interest rates,” says Thyagarajan.
The problem that STFC faced was dealing with truck owners who didn’t know what a balance sheet was. Due diligence practices of banks and financial institutions could not be applied. “That’s because the ownership of the trucks was with people who did not have financial information of the audited kind. They did not have a balance sheet or a profit-and-loss account,” says Thyagarajan.
Instead, he relied on his experience of dealing with truck owners to create a model that did not involve balance sheets. The company hired local field officers who spent time with truck owners, understanding their business and building a relationship with them.
But though Citi and Axis had partnered with the Shriram Group, the floodgates did not open; there was still reluctance on the part of banks and private equity firms to partner with STFC, at least in the beginning.
(This story appears in the 17 October, 2014 issue of Forbes India. To visit our Archives, click here.)
A great man with a rare combination of business acumen, intellectual power, and a social conscience. Far ahead of everyone else, but deliberate keeps himself low key and low profile, and subscribes to a frugal ethos. I doubt any corporate leader in the nation is as widely and universally respected as Mr. R. Thyagarajan.
on Oct 20, 2014Totally agree with the opinion of Mr. Lalit Ganapathy
on Jul 23, 2015