Chennai: Ramamurthy Thyagarajan , 75, founder of Chennai-based Shriram Group, is renowned for his modest ways. He dresses in a safari suit, drives a Hyundai Santro hatchback and doesn’t own a mobile phone. Thyagarajan has built Shriram Group into a Rs.60,000 crore business, with interests in financial services and other areas. The group has moved its non-financial businesses worth Rs.4,500 crore to a new holding firm, Shriram Venture, to meet the Reserve Bank of India (RBI) norms and likely apply for a banking licence when the avenue opens up.
Since 2004, Shriram Group has attracted 20 private equity investments and Thyagarajan has created a trust in which employees are partner-owners. An ardent Carnatic music enthusiast and an atheist, Thyagarajan spoke in an interview about the evolution of the business. Edited excerpts:
How did you come to branch off on your own and set up your own business?
In the late 1950s, the Kolkata-based Indian Statistical Institute offered a stipend of Rs.125 a month (the hostel fee was Rs.15 and food was Rs.35). This was the attraction for me to join (it) as I wanted to be financially independent, and against the wishes of my dad, who wanted me to continue at Vivekananda College, Chennai, and pursue my masters in Mathematics.
I applied to New India Assurance in 1961 after seeing an advertisement for management trainee—(it offered a) training stipend (of) Rs.500 (higher than the Rs.300 other companies typically paid) at the time and got selected among 12 other people.
In the early 1970s, the government nationalized the (general) insurance companies and the day it was announced, I made up my mind to quit the organization in a year or two and set (out) on my own. I knew New India Assurance will not be the same organization after the government had taken over. However, I managed to (stay) till 1976; I quit for an entirely different reason—to turn around an ailing firm called Mount Mettur Pharmaceuticals Ltd.
What prompted you to set up Shriram Chits in 1974? Did you think that it would grow to become such a large group in four decades?
Honestly, I had no vision; each business was set up to help a friend who wanted to do something—like Shriram Chits. Hyderabad-based A.V.S. Raja, a friend working in the railways, wanted to do business. To enable him to set up a business, I asked nine of my other friends, my brother and me, (we all) invested Rs.10,000 each.
We set up the chit firm because I (had) set up a commercial financing business in 1964 while I was working in New India Assurance. I drew money from my family firm, which was into finance.
I diverted the money to commercial financing partly because I felt it was (a) safe and better business and it created (a) premium for my job and helped my career.
New India Assurance had a subsidiary, Jayabharat Insurance, which was converted into a hire-purchase finance and commercial leasing company called Jayabharat Credit Ltd, which the company asked me to look after since they knew I was doing a commercial vehicle business.
Jayabharat Credit was inflexible so I set up another public company called Madras Motor Finance and Guarantee Co. Ltd to support the activity of Jayabharat. If a poor customer required Rs.25,000 to buy a truck, Jayabharat would offer only Rs.20,000, so I set up this commercial vehicle company which will pitch in the additional credit of Rs.5,000 as it would enable the customer to buy an asset and when he repaid Jayabharat, he would pay us as well.
In 1979, Shriram Transport Finance was born to help Lalgudi Jayaraman, a Carnatic violinist, who travelled a lot to perform at music concerts. I told to him that he should remain in Chennai and not waste his energies in travelling to earn an income. (Thyagarajan asked Jayaraman to contribute whatever he could and started Shriram Transport Finance along with investments from some of his other friends and his own contribution.)
In 1998, RBI cautioned depositors of Shriram in a notification. How did you manage to overcome this?
The RBI notification hurt Shriram badly, although it was not their intention. Yes, it was front page news in many newspapers. We had deposits worth Rs.800 crore of 2 lakh depositors with us; if our depositors had panicked and withdrawn the money, we would have defaulted as most of it was lent... It would have been a total disaster for Shriram.
Yes, it came as a shock and we had to keep things under control—I didn’t lose my heart. We had 5,000 employees—all I did was to keep the morale of employees high and asked them to talk to depositors. Three months later when things were under control, I told employees about Winston Churchill’s famous speech during World War II when he spoke about (the) German invasion through air and how Britain’s small Royal Air Force saved the country... I said (in Churchill’s words that) never was so much owed by so many (our depositors) to so few, referring to the employees who spoke patiently and assuaged the fears of customers.
Shriram Financial Services manages about Rs.60,000 crore in funds, but the non-financial business revenue is about Rs.4,500 crore. Why hasn’t Shriram’s non-financial business grown as fast as the financial services businesses?
It is not actually so. In 1985-86, when the vehicle financing business was successful, I felt 10% of its resources can be deployed in non-financial services like industries, which would take eight to nine years to grow, and set up a couple of companies...in the interest of shareholders to give them better returns. However, RBI thought we were siphoning off the money and disapproved (of) the diversification. After RBI’s notification, in 1999-2000, we were forced to sell mature businesses like Medicorp Technologies, Sembawang Shriram Integrated to the Singapore partner and Hi-Tech Arai to (the) Japanese, all at a premium... We (then) went slow on diversification, but now we have created a new holding company for all the non-financial businesses to give it the much-needed focus.
What prompted you to set up the Shriram Ownership Trust in 2006, a unique structure in India?
No one individual can create wealth; it is in partnership with others (that) we do it. It was only fair to share the wealth that was created in partnership with employees. Employees who helped build Shriram are partners in it. There are about 36 senior employees who have grown with the group, who own about 1% to 2.5% depending on their seniority and contribution. The remuneration would kick in only when they retire.
How do you envisage Shriram’s growth? Do you see it becoming a bank?
It is okay if it becomes a bank and it is fine if it doesn’t. My focus is that people should look at Shriram, that it is a company with social commitment and responsibility, (that it) acts like a trustee. Like Gandhi said, create a company that creates wealth for society and employment, and run it like a trustee—you are just in charge to create the wealth, not own it.