Non-bank Financial Institution Casebook

16 | The Problem STFC cross-sells insurance of the commercial vehicles financed through its tie-ups with a number of insurers. STFC pays the insurance premium to the insurers for all the insurance policies issued for its customers, and adds this to overall financing amount. STFC would pay the insurers at month end for all the insurance policies issued during the month. Policy issuances throughout the month were supported by bank guarantees (BG), replenished as and when the limit was reached. However, guarantee issuances incurred additional costs for the company. STFC wanted to move away from the existing BG arrangement and make payments to insurers on a regular basis as and when insurance policies were issued. The company was looking to reduce BG issuance and renewal costs, and also increase the payment cycle for cash outflow. Overall, STFC wanted a solution that would not increase the overall cost of funding for the insurance premium payments. The Solution To realize its objectives, STFC partnered with Citi to implement a purchase card solution, the first of its kind in the market for insurance payout flows. With the purchase card, STFC could now pay insurers as and when the insurance policies were issued. This extended STFC’s days payables outstanding (DPO) and also helped them move away from the guarantee issuance arrangements, thereby Shriram Transport Finance India Reduce Bank Guarantees Issuance and Renewal Costs, and Also Increase the Payment Cycle for Cash Outflow Shriram Transport Finance (STFC) is a large commercial vehicle non-banking financing company. The company has niche presence in financing pre-owned trucks for small truck owners (STOs) and has a network of 1,585 branches, 856 rural centers and tie up over 500 private financiers across the country. SHRIRAM TRANSPORT FINANCE