Expect loan growth of 12-15% in FY13: Shriram Transport

With a rate cut from RBI expected on Monday, credit demand for financing companies is likely to go up. In an interview with CNBC-TV18, Umesh Revankar, Managing Director of Shriram Transport Finance Company said that though, demand will increase, it is more important to create that demand through economic activity.

Revankar believes that a spike in manufacturing activity and agricultural output are very important for creating demand for the transport segment. With hopes of an economic recovery, he is looking at loan growth of 12-15% over last year. Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: There is a debate in the market about how much the RBI could cut, 25-50 CRR, whatever it may be, do you think if the actual lending rate in the system goes down by say 25-50 bps, credit demand for companies like you will go up?
A: Demand will definitely go up. But what is more important to create the demand is economic activity and what is needed is increased manufacturing activity and probably agricultural output. These two are very important for the transport segment, which will directly or indirectly create demand for our segment.
Right now, the demand is steady. I am not saying it has slowed down in our retail segment. But, rate reduction will definitely help the other activity which will directly or indirectly help the retail loans. Q: At the moment what kind of loan growth are you penciling in?
A: Right now we are looking at somewhere between 12-15% growth over last year and we should be able to comfortably reach this, hoping the economy will revive in another couple of quarters. Q: There is still a huge government borrowing program. On expectation of cuts, today you did see the 10 year go to 7.96%, it came back and now is at 8.06%. We had a treasury guy telling us that even if there is a rate cut overnight at 7.75%, you still can't see the 10 year going below 8%. So, what happens to your cost of money. For the next six months, how do you see it, how do you see your lending and therefore your margins?
A: Demand for lending, especially in the retail segment would be always there. It will not improve dramatically. What is needed is the manufacturing activity. It needs to be boosted because it will generate employment, it will generate growth and will generate the goods movement. Our activities are mostly secondary. Q: I want to know the cost of money really? How much do you think you can raise money at, how much do you think you can lend it at?
A: Our fund raising program is there throughout the year because we lend approximately Rs 1500-1800 crore every month. The demand - if there is a lower cost of money, we can pass it on to the customer and customer will be little sensitive to the rate cut. He will definitely try to increase his business activity.
But, that does not directly push the lending. What is pushing lending is the market activity, economic activity and that in turn will push retail because in retail even if the cost is little high, people will still take it. If there is an opportunity to earn extra he will still take. Q: What will your spreads be this year?
A: We have been operating at spreads between 7-8 on AUM basis. We hope to have it more than 7 all the time and anything beyond 7.5 we will pass on to the customer, so that we can increase the volume. Q: You are perhaps best positioned to tell us how the CV cycle is panning out. Have you seen a significant slowdown or in the next few months if the RBI doesn't move much on rates, do you think there could be a significant slowdown in CVs?
A: There is a slowdown in April-May in the off take of heavy commercial vehicles, which is directly dependent on industrial production. We do expect that slowdown to continue for another two months. May be by August end or September, with the festive season and new activities, when agricultural output starts coming, the demand will revive.
But, the demand will revive more towards smaller vehicles if agricultural output improves for essential goods movement, not really towards heavy commercial vehicles. Heavy commercial vehicles are totally dependent on manufacturing activities and there will be a velocity in the overall lending activity. Each heavy vehicle sold will lead to the sale of one or two additional smaller commercial vehicles.
So, manufacturing activities have direct impact on heavy commercial vehicles and we feel that some activities like mining, which is expected to start in two months, should propel the growth.