In an interview to CNBC-TV18 YM Deosthalee, chairman and managing director of L&T Finance Holdings said, the guidelines issued by the Reserve Bank of India (RBI) for new banking licenses on October 5 are largely in line with draft.
Further, he said that L&T’s diversified shareholding is an enabling factor for the banking licence. "It's not a family managed company and our largest shareholders are financial institutions. L&T is the largest shareholder for L&T Finance Holdings," he added.
Meanwhile, he expects the central bank to start the process of issuing impending bank licences in one month. However, actual rewarding of licences might take atleast one year.
Below is the edited transcript of Deosthalee's interview with CNBC-TV18.
Q: How did you read the guidelines for new banking licenses which came out from the Reserve Bank of India on the 5th October? Did it seem to favour companies like yours without any great pronounced promoter group holding?
A: Those guidelines are more or less inline with the draft guidelines which they had issued, so there is nothing much in that. In terms of change; whether it favours or not is for the RBI to decide. I can only say that currently it is still speculative and we are awaiting the final guidelines from the government and we will take it from there.
The only thing which I can say is that it makes sense from a business perspective to have a diversified portfolio and that’s what we are building in L&T Finance. We are not only focused on non banking financial companies (NBFC) and that’s one of the reasons for that to derisk and of course to prepare for the future. In terms of guidelines, I do not think there is much of a change than what we saw earlier.
Q: The market seems to read it as a clear leaning towards professionally driven companies without an identified large industrial promoter group. Did you detect any such leaning in the guidelines which came out?
A: No, I didn’t. The fact remains that L&T group has definitely diversified shareholding. Everybody knows that it’s not a family managed company and our largest shareholders are financial institutions. L&T is the largest shareholder for L&T Finance Holdings.
All along for the last 75 years it has been that way and professionalism is in the genes of this group. But you never know, today it is all reasonably speculative.
Q: In your mind do you have a timeline by which things can move because after the initial flurry of activity a few quarter back things had gone into cold storage and they seem to have been rekindled again. What are your hopes in terms of some kind of timeline on announcements in terms of license?
A: In any case it is going to take time. If we read the newspaper reports; the process may start but, even if Reserve Bank of India starts, they will have to appoint a committee, ask for business plans, they will have to wait fit and proper. The entire process may take time, but we hope that the process will start sooner than what we were thinking a few months ago.
So that’s the only thing which we are reading, maybe in a month or so the process maybe initiated. I am not very sure whether the actual awarding of license will happen very soon because in any case, it takes time for the regulator to decide. If I were to make a guess, then the process may start but it will take about a year before a new license is issued, at least. This is my initial guess and that’s all speculative.
Q: There was some talk in the market a couple of months back that you are looking closely at acquiring Societe Generale’s auto finance business. Is that on the cards? Is it something that you are evaluating?
A: There are lots of proposals which come our way from time to time and we keep evaluating. There is nothing which is final on this. Since we have made a couple of acquisitions and have also stated that we want to have a diversified portfolio, these things do coming up. But I do not think there is anything more than what I am saying.
Q: How is the business environment right now because there has been so much concern about the banking sector in terms of asset quality? Are you concerned about what kind of asset quality cycle L&T Finance Holdings could be looking at over the next few quarters?
A: The first point which we need to understand is L&T Finance Holdings has a diversified portfolio. In L&T Finance, which is the oldest NBFC, we have assets like construction equipments, commercial vehicles, agricultural tractors, harvesters, small commercial vehicles and cars. We have a whole range of equipment which we finance, plus there is a portfolio of corporate and some supply chain funding. That is around 15,000 crore as of now.
In that it’s a mix bag; rural portfolio continues to do exceedingly well, not only in terms of growth, but also in terms of quality of assets. There is not much of an issue over there. We have a small portfolio of equipment financing, cars and therefore there is no issue in that. Harvesters, small commercial vehicles are doing fine.
When it comes to construction equipments and commercial vehicles, both these sectors have been impacted because of the lower growth in the economy. But in addition to that some issues relating to sectors like mining have impacted these sectors. Therefore, growth in these two areas will be muted. Also if one is chasing topline, which we are not doing, if there is a compulsion then there could be some problems of quality.
Last year itself, we have sensed some problems in these sectors and we have reduced our focus in some of these areas. It is not that we have withdrawn from the market, but the focus is on other areas and wherever we find that the market is reasonably okay we are lending in these sectors.
In terms of corporates, there are small and medium enterprises. There are issues with this. We have said in the beginning of the year that in this year there will be some volatility in corporate. Therefore one has to be very watchful. We are managing our position well but this is going to be a challenging year. For infrastructure financing so far, we have a diversified portfolio there; power, roads, telecom and construction companies. Considering the fact that we have reasonably diversified portfolio, we have managed the situation well.
However, the fact remains that quite a few infrastructure companies are going through some difficulties. They have working capital problems and they also have invested in BOT projects and are finding it difficult to financially closed some of these projects and put in equity in this project.
In terms of disbursement in the first few months; in Q1 we had a degrowth and that’s fine although the book grew handsomely, but ultimately we have to be extremely cautious in terms of quality. We have managed the portfolio well and NPAs well. Overall, we will have a reasonable growth and we will be able to manage our quality well, but this is not a year for an aggressive positioning.