Future Capital is a provider of financial services across consumer and wholesale businesses. In an interview on CNBC-TV18, the Chairman and Managing Director of the company V Vaidyanathan says that interest rates have hurt the consumption story. “The larger point is it has probably affected investments more than consumption.”

There are problems in the asset quality of PSU banks. Concerns in the power sector, the airline sector and overall decline of manufacturing activity is having a downstream effect, he adds.

Below is an edited transcript. Watch the accompanying video for more.

Q: This 6.9% GDP number is a little eerie where the legs of growth, consumption and investment have shown significant deceleration, investment has contracted and consumption has fallen to 5.9%. In the first quarter we were up by nearly 7%. Are you getting a sense that retail loans are beginning to pullback, both retail and wholesale? What are you seeing in terms of loan demand?

A: There is no doubt that interest rates have affected consumption. But the larger point to discuss is that it’s probably affected investments more than it has affected consumption. As far as the lines of businesses are concerned, many of the businesses that we operate are largely in the mortgage space and the consumer durable space etc. Certainly, we are seeing a moderation of credit demand. We used to talk about India’s credit growth growing at maybe 18-19% at the beginning of the year. Frankly, by end of the year it may be at 16.5-17% which is a better guess as far as credit growth for the country is concerned.

Q: Do you think asset quality could start turning around because we have already had a lot of trouble in the PSU banks. What is your sense on the retail side of things?

A: According to me the asset quality deterioration that we are seeing largely in PSU banks is more optical. There is some real issue as far as the power sector or the airline sector is concerned and overall decline of manufacturing activity which is having a downstream effect.

But it is also optical because of most banks moving to a computer based reporting system which has one time done an increase of reporting of provisions and asset quality. If you take out this portion of it, at an SME level we are not seeing any issues. At least, our portfolio is holding up quite well. I would say that most portfolios, particularly, in the retail sector and the SME sector are seeing no problem at all.

Q: You said your loan book is at Rs 3,800 crore and you guided for about Rs 4,800-4,900 crore by the time you ended the year. Will you want to rethink that number going by the tell-tale signs of slowdown?

A: About Rs 4,700 crore is probably a fair guess at this point in time. We started the year assuming we will grow to Rs 5,000 crore but we normally like to keep ourselves somewhere in a zone so depending on the credit demand situation we can calibrate ourselves.

What is interesting is that while the credit growth for our company will probably be at about 65-66% growing from Rs 2,800 crore to may be Rs 4,700 crore, the profit numbers seem to be doubling over last year’s numbers. Our EPS will probably double over last year. So, there maybe a bit of improvement on margins, maybe a little lesser on the credit cost front which are all adding up to what's being done on the overall profitability sense.

Q: Who are your major clusters of borrowers in retail and in wholesale credit? Where is the most pressure showing up in?

A: The pressure will show on volumes. You would probably not meet the original number that you initially thought in the beginning of the year. It’s more in terms of disbursals. Pressure is not showing in terms of asset quality at all. As far as the profile of consumers is concerned, largely our borrowers are traders and small and medium enterprises or MSMEs. So between Rs 50 lakh to Rs 1 crore is the typical ticket size and their annual income will probably be in the region of about may be Rs 15-20 lakh. So this is a typical profile of customers whom we lend too.

The other is people who take consumer durable loans and two-wheeler loans etc for which the profile is very different. The gold loan consumer’s are even smaller. The ticket sizes are Rs 50,000 and probably their annual income maybe about Rs 1 lakh to Rs 1.5 lakh or may be Rs 2 lakh.

As far as wholesale is concerned, we do working capital financing of all sorts, which includes real estate as well but apart from real estate, we have certain manufacturing companies as well.

Q: Do you see pressure there?

A: There is no pressure there as well. We have not received even a single request for restructuring for example, leave aside doing one.

Q: There was a very strong buzz that the Future group will be selling out their stake in your company. Is there anything that you can update us on that issue?

A: I really wish I could update you on this, but sorry I cant. If there is anything material at any stage for us to inform the public or the market, we will certainly come back to you and announce it.

Q: Has this short list been added to?

A: If there is anything material at any stage I will tell you. Right now I can’t comment on this.

Q: Would you say rates have peaked off now? For the SME, MSME, as well as the big working capital borrowers, are you going to get money a little cheaper?

A: In the next credit policy, we will certainly see a pause in terms of the rises that we have been seeing over the last 12-18 months. It is unlikely that the RBI will probably cut the CRR to address liquidity because that would mean a very significant change in policy. Liquidity will probably come through in the form of OMO and a few other instruments.

If you see the RBI’s comments in the last policy, they made a very significant comment about them being concerned about investments. I think it has paused and it should ease off from there maybe over the next six months or so.