Non-banking finance company Shriram Transport Finance is hopeful of maintaining its FY14 loan growth guidance of 15 percent. Managing Director Umesh Revankar told CNBC-TV18 that the company does not expect to see decline in margins for this quarter since it has been able to pass on the cost to the customers.
He further added that as of now there is not much demand for new vehicles, but the situation is likely to improve post monsoon. However, there is a constant demand for used vehicles, he said.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: We just get noises about the mining ban getting removed but things are still pretty bleak as far as that segment is concerned, are you seeing any improvement in demand for trucks at all?
A: If you are asking me for new vehicle sales, I don’t see any kind of a demand coming up right now because even in the mining area, it has been raining and normally mining activity starts after the rains. So you can see the activity post October or September. Even then I don’t see having huge demand for new vehicle sales.
However, as far as used vehicles are concerned, there is constant demand because of the day-to-day activities that is continuing in this country.
Q: Just one follow-up question to that although there may not be too much improvement in demand, there is a sense that there are higher non-performing assets (NPAs) that you might see in the truck financial vertical because of the pressures that the sector has seen. Do you expect to see more asset quality pressure, defaulting of loans etc and hence do you think that your gross NPA levels could rise above the 3 percent that you have clocked in?
A: The NPA levels keep going up when economy is slowing and when the income of the truck operators are coming down, so there could be part payment and postponement of payment. However, this is a part of the cyclical change and every company has to undergo this kind of some disturbed stress level.
For us customer relationship is important, so we manage the NPAs through a good relationship and we are handholding our customers through the crisis or difficult times. So gross NPAs could rise little up but it is not alarmingly bad and we are confident of managing the situation along with the customer. Individual operators do find their own business and they keep running their truck and earn and keep paying us.
Q: You are going to raise money through non-convertible debentures (NCDs) - what is the approximate yield that you will pay as well what is your cost of money for this quarter?
A: We have not decided on the pricing right now because we felt that we should wait till the RBI monetary policy, only then we will be able to come out with our rate because there are so many other factors affecting the cost.
As far as this quarter is concerned, we have not raised any resources this quarter. So there is no repricing on our cost but overall there is a small jump in the cost in this financial year because of less liquidity.
For this particular quarter, it could be around 10 bps more than the previous quarter, not really big.
Q: How much will margins decline therefore?
A: We are able to pass on the costs to our customers. So there will not be decline in margins for us. We have increased the margin requirement from the customer, so that customer is able to take a smaller loan and repay it. That is our strategy is. We have gone slow but we are able to pass on our cost to the customer.
Q: What is your NPA recognition level now; is it still 180 days by when have you to move to 90 days?
A: It is still 180 days; there is no change in policy as of now, so we are not likely to move till there is a different direction or guidelines from the RBI on the same.
Q: How much loan growth will you do this year?
A: We had given a guidance of 15 percent in the beginning of the year and we would like to maintain that. Even though we had grown a little faster in Q1 but since then, we have been trying to go little slow and trying to put control on our lending by lower loan-to-value (LTV), still we should be able to do that 15 percent growth because demand for used vehicle is quite constant across.
We don’t see much slowdown there and also with the coming quarter seeing a good harvest, there will be demand from rural segment.