In an interview to CNBC-TV18, Umesh Revankar, MD of Shriram Transport Finance Corporation spoke about RBI's rate cut and how the business shapes up going forward.
Below is the transcript of Umesh Revankar’s interview with Latha Venkatesh and Sonia Shenoy.
Latha: How does life change after yesterday? Will the cost of funds in the next three months be substantially cheaper? How much cheaper?
A: I do expect it to be cheaper by around 30 basis points over the next six months. Immediately of course, some of the banks have already announced, so that should translate into some advantage of around 15-20 basis points for us plus 25 percent of our total borrowing is from the bank right now. So, rest is retail and the institution.
Latha: How is business though? Will you have to lend at lower rates and what is the volume of loan pick-up at all?
A: As of now, credit growth is quite because we did not witness any reduction in credit demand for us both in urban and rural area because we are in a niche segment of used vehicles. However, the lower cost should attract new vehicle buyers because some of our customers would like to upgrade themselves to buy a new vehicle and lower interest rate should attract them to upgrade them for buying new vehicles.
So, as a mix our yields may come down a little, but our net interest margins (NIM) will be protected and I feel it will be a very comfortable situation when our customer really wants to upgrade and buy a new vehicles and he sees better cash flows, economy growing. However, what is more important is how the consumption will increase.
Latha: That is exactly what I am asking. Are you seeing your truckers coming and asking you for loans? Is there any improved activity on the ground?
A: There are. In heavy vehicle sales has been going up for the last four quarters. There is increased demand in heavy vehicles especially coal transport has been good. Slowly cement is picking up. That is the latest indicator in the last one month. Cement movement and steel movement is going up and that is a definite indicator of infrastructure picking up.
However, this trend is just one month, so we would love to see it for a very long time, maybe two-three years continuous growth of cement and steel movement and that will create a big demand for heavy vehicles.
Sonia: Can you just put some numbers to that? I mean in the quarter gone by your stand alone assets under management (AUM) growth was around 11 percent which was steady, but in the next couple of quarters, given that the situation is improving as far as interest rates, etc. is concerned, how much do you expect in terms of growth?
A: We had given guideline of around 15 percent for the year. We should be able to achieve that is what I feel at the end of the year.
Sonia: Can you break it up for us between passenger vehicles, tractors and heavy commercial vehicles because in the last quarter, although a couple of your segments like passenger vehicles and tractors picked up, there continues to be a lot of subdued movement as far as heavy commercial vehicles is concerned.
A: Heavy is picking up of the lot because the ticket size being bigger, even a small improvement can lead to a bigger growth in the volume. So, heavy pick-up is little faster than the passenger and tractor as far as the volume is concerned. As far as numbers are concerned, we are really growing fast in passenger because passenger transportation is growing much faster both in semi-urban and rural area and if we are able to witness that there people prefer a better vehicle, a faster mode of transportation. So there is a huge unmet demand in the semi-urban, rural area which I feel will be a big advantage for us who have a big reach across India.
Latha: What about bad loans and defaults? Even the last time when you announced numbers, there was about a 12.5-13 percent increase quarter-on-quarter (QoQ) in the amount of distressed loans or loans not getting paid back. Will that improve as you reduce rates or is that improving already because business is improving?
A: People are very comfortable today compared to what it was last year mainly because of diesel price coming down, but whether they will be able to pay back arrears, which has already built up over the last two-three years, is little difficult, it is challenging. However, the life is a little bit more comfortable to our customer. They are more comfortable repaying one equated monthly instalment (EMI). So, whether they will be able to pay one-and-a-half-two EMI is a challenge.
However, I feel going forward as economy picks up, their ability to pay will improve and they would like to repay the loan as early as possible. In India, one thing is everyone would like to repay the loan as early as possible and want to be debt free. So, if technically people going more than 180 days or 90 days, we do not really get worried unless the economy worsens or intention becomes bad. However, I am not seeing. I am able to a positive signal across.
Sonia: So, just to give us some more numbers on that, your gross non-performing assets (NPA) were about 4 percent in the last quarter. By the end of FY16, since you were saying that a lot of these truck makers, etc. are increasing their ability to pay or readily paying now. How much do you think you can bring down your gross NPAs by?
A: We are moving from 180 days to 150 days in the last quarter. So, it would be very difficult to give you a number at this juncture.
Latha: Let us put it this way - is the stress going down? How much were the fresh slippages in the first quarter? How much are they likely to be in the second and how much in the third?
A: Quarter-on-quarter it moved from 3.8 plus to around 4.07, that is around 20 bps increase. We should be able to go back to the previous quarter is what I feel in the next two quarters.