Moneycontrol
Feb 21, 2017 09:53 AM IST | Source: Moneycontrol.com

Profitable growth, not market share the aim:L&T Fin's Deosthalee

L&T Finance Holdings will continue to shed its non-core product lines and focus on those where it has a competitive advantage as it aims for an 18 percent return on equity (RoE) by 2020, non-executive Chairman YM Deosthalee said in a free-wheeling chat with Moneycontrol.

 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

Santosh Nair & Tarun Sharma
Moneycontrol 


L&T Finance Holdings will continue to shed its non-core product lines and focus on those where it has a competitive advantage as it aims for an 18 percent return on equity (RoE) by 2020, non-executive Chairman YM Deosthalee said in a free-wheeling chat with Moneycontrol.


“We are in a transformational stage,” Deosthalee said, adding the company would focus on lending in the areas of renewable energy, real estate, two-wheelers and tractors. Simultaneously, it will look to exit areas like cars, commercial vehicles and construction equipment.


Deosthalee said the company had accumulated various product lines in the run-up to applying for a banking licence. With that not coming through, L&T Finance has been in the process of restructuring its portfolio since the past year.

Roughly 40 percent of L&T Finance’s loan portfolio is retail and the rest wholesale. Deosthalee does not see this mix changing much as company looks to achieve his RoE target.


“Our focus is profitable growth; we are not looking to simply grow the balance sheet,” he said, adding that the company would sell down the loans wherever it got a good opportunity.


He said the company was looking for buyers for its non-core loan portfolios, but it also had the option to wind them down by not growing it further.


Over the last year, the company has managed to increase its RoE by 2 percent percentage points to 14-15 percent through a focused approach, and is confident that the target of 18 percent by 2020 can be achieved.


Desothalee is bullish on affordable housing and renewable energy, both areas in which it has a sizeable exposure. It has also stepped up loans to transmission projects and road projects, saying there was a revival in both sectors.


He said the government’s thrust on affordable housing had the potential to be a game-changer. That is because it would provide employment and support a diverse range of industries from building materials to banks.


But for that to happen, the states and the Centre had to work in unison since land laws were both a state and central subject.

Deosthalee said L&T Finance, too, had been hurt by demonetization, but not to the extent that it had feared. Micro finance, tractor and two-wheeler collections were impacted, he said.


At the same time, there were some positive effects as well. Notably, some of the disbursements that used to happen in cash are now happening through cheques, and borrowers, too, were forced to accept cheque disbursals.


Deosthalee disputes the widely held view among analysts that demonetization would hurt non-banking finance companies in the long-run. In theory, as more people become part of the formal economy by opening bank accounts, they will prefer to borrow from banks which offer loans at a lower rate of interest.


“Demonetisation will not take away the competitive advantages that NBFCs enjoy over banks — quick response, the ability to provide customized solutions, nearness to the customer, and better understanding of focussed business segments” Deosthalee said.

On corporate governance, Deosthalee said, “People who talk about corporate governance first need to understand what corporate governance really means. Everybody uses the term as it suits them.”

On corporate social responsibility (CSR) initiatives, Deosthalee felt that it would make a bigger impact if companies came together to take up focused issues.
Deosthalee feels the system of quarterly earnings announcements should be done away, as it was forcing company managements to take a short term view without it really benefiting any of the stakeholders. He feels the company can update shareholders every quarter on how it is placed to achieve its longer-term goals, and announce earnings every six months.

Sections
Follow us on
Available On