In the third quarter ended December, Shriram Transport Finance's gross non-performing loans (GNPLs) rose 11 basis points (bps) quarter-on-quarter (QoQ) to 4.29 percent.
Speaking to CNBC-TV28, Umesh Revankar, MD of the company attributes the surge to struggling rural economy and low wages which in turn has a negative impact on purchasing power.
Furthermore, NPL levels may increase by 100 bps, he says, adding, "we need to bring in little more discipline and their (rural India) financial literacy has to improve; that will bring better consciousness among the customer and NPL levels will come down."
Below is the verbatim transcript of Umesh Revankar’s interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.
Anuj: What led to the 11 basis point improvement or rather rise in gross non-performing loans (NPLs) this quarter?
A: The rural economy is still struggling, I should say because two consecutive year of deficient rainfall has taken a toll. Even though festive period has created a new demand coming up both in urban and rural market but overall the stress levels at rural is little high. One is the wages in the rural are weaker and their purchasing capacity is lower. So, less consumption, less purchasing capacity and plus less production of the agricultural produce has led to some stress in the rural which I believe will be okay in the next quarter because even though the initial report of rabi crop was weak.
We were expecting around 10-12 percent less production in the rabi crops. However, latest reports in the January it says that some rainfall has occurred in the Eastern Uttar Pradesh and Chhattisgarh and also with the rainfall the temperature also has come down. So, the colder temperature is advantageous for the wheat crops so I believe with better rabi crops the rural economy will see some change, some better prospects and the overall NPLs should get resolved is what I believe.
Sonia: You are at 180 day gross NPL recognition. By when do you expect to move it to 150 days and 120 days and what is the guidance you can provide for the same?
A: Next quarter we are moving to 150 days being the last quarter of the year. We expect another may be up to 100 basis points increase in the NPL levels due to that. We are also simultaneously talking to the customer, trying to make them more discipline because whatever income they make being the owner operator most of them, whatever income they make out of the vehicle it becomes fungible. So, it gets used for their personal consumption also. So, we need to bring in little more discipline and their financial literacy has to improve. So, that will bring better consciousness among the customer and NPL levels will come down.
Most of them are individuals, only thing is we have to reach them, talk to them and talk about the changes. That is continuously happening. With mobile penetration being high we are able to reach them over phone also. So, through call center we are trying to reach many of them. Our business model is one to one relationship with customer so our strong connection with the customer, we are able to reach most of them all the time.
(Copy edited by Raveena Singh, interview transcribed by Vrushali Sawant)
Watch video for full interview..