Impact of rate hike on credit demand a concern: Future Cap

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Impact of rate hike on credit demand a concern: Future Cap

V Vaidyanathan, chairman and managing director of Future Capital Holdings said that the interest rate hike and its impact on credit demand have become key concerns for the company.

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Financial service firm Future Capital Holdings has announced its first quarter (April to June) results. The company has posted a 126% jump in its net interest income. Speaking to CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee, V Vaidyanathan, chairman and managing director of Future Capital Holdings said that the interest rate hike and its impact on credit demand have become key concerns for the company.

Below is a verbatim transcript of the interview. Also watch the accompanying video.

Q: As far as the retail finance servicing business is concerned, what you saw this quarter in terms of trends and what you expect to see for the rest of the year given the rates are?

A: On the retail side, our growth comes from the mortgages space. We lend mortgages to SMEs, who in turn use it as a working capital to finance their businesses and that business has done quite well. Our book has become Rs 1,200 crore purely on that space and overall the loan book has grown to Rs 3,400 crore. So the overall picture is looking quite fine but we have to watch out for interest rates and what it does to the credit demand.

Q: What do these kinds of rising interest rates mean in terms of credit demand? Also give us your margin picture?

A: Right now our margins are 4.5%. Last year same time, we had posted 4%, so to that extent, we are looking good. With regard to what is happening to credit off-take, we had projected that we will grow to a loan book of Rs 5,000 crore. We are still going for it but looking at the credit situation, we would like to keep our own targets a bit flexible on this front.
 
We are finding that even SMEs are seeing a little dip in credit off-take due to the interest rate environment. Moreover, the consumption sector of India is continuing to hold up.

Q: You don't have an asset quality problem yet but the way rates are moving up, do you fear that there could be some problems with asset impairment down the line?

A: Asset quality is something to be watched out. We should be more careful on the wholesale side because cash flows get disrupted with one large project and with the kind of interest rate environment we have.

On the retail side, we think the system will be far safer because the products you finance for are much more liquid and it is easy to get out of the transaction if you really have to. You normally evaluate cash flows. My estimate is that we will hold out far better in the credit time as far as real estate business is concerned. However, we don't have an asset quality issue.

Q: You indicated that your gold loan business is doing pretty well for you. How much of a growth have you seen in that category given the way gold has been moving?

A: It is a really good business. We started 5-6 months ago and we have added the more branches. Our gold loan book has already crossed Rs 30 crore in three months and we expect to have a gold loan book of Rs 150 crore by the end of this year, so things are good on that front.

Q: We have been speaking to Kishore Biyani on the possible contours of any kind of stake sale and he told us he has been speaking to a lot of parties on various businesses. Do you think Future Capital lends itself to any major strategic stake sale anytime over the next 6-9 months?

A: The company is really doing very well. Their loan book has grown over the last year. The sources of funding are far more diversified. Funding lines and profitability are looking good. The EPS now is in excess of Rs 11.5 against maybe Rs 7 or 6.5 last year. So, the core is looking quite good. With regard to stake sale discussion, I won't comment at this stage.

Also read: RBI to test inflation indexed bonds in market