Shriram Transport confident of 12-15% loan growth in FY13

Despite slowing economic growth, Shriram Transport Finance Company expects a loan growth of 12-15% in FY13.

“In the first quarter we have grown by around 4%, so that gives some indication on the likely AUM growth. We are confident of growing between 12-15%,” managing director Umesh Revankar said. He further said that net interest margins will be better managed this year, especially if the cost of funds falls going forward. However, Revankar says that the slowing economy has impacted demand for heavy commercial vehicles. “Due to slow industrial output, bulk material transportation was not much and the freight rates in bulk transportation came down a little. So that has reduced the demand for heavy vehicle growth,” he said. On the positive side, strong consumer demand and the need for transportation of agricultural goods has helped prop up the small and light vehicles space. Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Q: Have you seen a significant slowdown in credit and particularly what is the feedback on the commercial vehicle space? A: Credit outlook is quite steady and good. July is the difficult month every year because of floods and other reasons, but this time there was no such reason because of the monsoon deficiency. Credit growth has been good, especially in tier-II cities and the rural area. So I do see reasonably good outlook in the rural and tier-II and tier-III cities. Q: What if you had to only compare the months that have elapsed, April to August? How pronounced is the slowdown compared to the prior period? A: This slowdown was mostly in heavy commercial vehicle demand because of industrial growth being slow. Due to slow industrial output, bulk material transportation was not much and the freight rates in bulk transportation came down a little. So that has reduced the demand for heavy vehicle growth. But it has not impacted the small vehicles or light commercial vehicles which predominantly run for essentials and day to day needs. I still feel consumer demand is quite good and that there is quite a good movement on agricultural goods. So only the bulk goods and maybe the sectors which were earlier catering to mining and core transportation and the manufacturing side had an impact. Q: Have the securitisation guidelines made money expensive for you? How would you say the cost of money has moved in the April-August period compared to January-March period? A: The cost of funds has not increased. In fact, we are looking at period where it is likely to decrease. The demand for securitisation normally comes at the fag end of the second quarter, that is in September, so we should see good demand in the month of September. Normally we do bulk of the securitisation at the end of the year, that is February-March. Securitisation as an impact on our overall balance sheet or cost of funds will not be visible now. It will be visible only by September. At the same time, the liquidity and money availability is quite good.  So the cost of funds has not increased over last year. Q: What been your experience with asset quality and do you foresee any kind of pressure given the fact that monsoons are likely to disappoint and that may actually hit transporters? A: No credit quality has been quite good for us. July usually is a difficult month for collection, but this time July has been very good. August seems to be very encouraging as well. The monsoon has progressed over the last 15 days, especially in some belts where we had concern such as Karnataka and Andhra Pradesh. So that has really given us a lot of hopes and demand in Karnataka and Andhra Pradesh. Only Rajasthan is little disappointment as far as monsoon is concerned, but Rajasthan again is a mostly irrigated area, so it should not really matter. But the linkage between the monsoon and the truck demand normally comes after the output, after the agri output coming, so it cannot be linked now. Maybe after two-three months we will be able to really see the push for transport demand when the harvest is out. So right now, there is no direct linkage. Maybe there is a linkage for tractor demand because it has been little low this time. Q: What will you do by way of net interest margins and loan growth this year compared to last year? A: As far as the loan growth is concerned, we are confident of growing between 12-15% on AUM. In fact, the first quarter we have grown by around 4%, so that gives some indication on the likely AUM growth. As far as NIMs are concerned, I think first quarter we have done better than the previous quarter, that is Q4 of last year. So 7.24% to 7.42%, which is an indication that we are able to manage our NIMs better this year. Going forward, if at all the cost of fund comes down, then we will have some advantage on NIMs.