Will protect NIMs by price hikes: Shriram Transport

Most non-banking financial companies (NBFCs) have had big problems raising money from the wholesale market ever since the Reserve Bank of India (RBI) tightened liquidity on July 15. However, Umesh Revankar, managing director, Shriram Transport doesn’t reflect any of these worries.

On the contrary, Revankar, speaking to CNBC-TV18 says that the commercial vehicle financer is in no hurry to raise money and is aiming to maintain its net interest margins (NIMs).
What is adding to Revankar’s optimism is a good monsoon season in August.
“It did look like things are going out of our control in July due to heavy rains but in August, the collections have been good and we are very confident that September would be very good. As the festive season is coming, customers will have more money because our customers are basically cash and carry,” explains Revankar. Below is the edited transcript of Revankar's interview to CNBC-TV18. Q: How is your cost of money now, are you forced to take money from banks because the wholesale market has completely closed and we also hear that banks are lending at a higher premium to their base price?
A: The rates have gone up, but as a company, we have a policy of keeping high cash on our balance sheet always. We always have Rs 2,500-3,000 crore of cash on our balance sheet. We carry excess cash always.
Hence, we are not in a hurry to raise bonds or raise money immediately. Our recoveries are quite good. Infact, maybe our presence in retail business is helping us. All the customers, 99 percent of our customers are retail, small time operators. Our recoveries are very good. So, that is helping us. We are not looking at raising resource at a higher cost even though we keep hearing the higher rates in the market. Q: Your stock is down quite a bit, I am reading a Goldman Sach’s report, they point out that your ability to raise lending rates is restricted because of the kind of economic scenario that prevails right now and it could lead to your profit before tax (PBT) being hit by about 3-5 percent, the combination of higher rates in the system and your inability to charge higher rates, how would you respond to that?
A: We always have that ability to pass on the rate to customers. We are in a niche segment of used vehicles and we don’t have much corporate competition there. We also have a reach to rural area and semi-urban areas where we don’t see much of a competition.
We can pass on but it depends upon the economics of customer. So, to that extent even though we pass on cost as and when the cost increases, we also look at the customers comfort before raising the cost. Passing on the cost is not a big issue. Right now we are focusing more on customer’s cash flows and his ability to pay and his ability to service the loan. Q: Therefore, what will your margins look like this quarter compared to what it was last quarter?
A: We cannot say right now because we are in the mid of the quarter. Q: Can you talk about how many basis points lower it might be?
A: I don’t see it will be a change from the previous quarter, we should be able to maintain same is what I feel because we are able to pass on some of the cost. We would be definitely able to manage our product mix in such a way that we would be able to maintain our net interest margins (NIMs). Q: What about loan volumes, how much do you think you might do this year, are you seeing a slowdown in demand or is it working better for you because of the monsoons?
A: Definitely it is working out better in the sense August has been quite good. The credit demand has been quite surprisingly good for us. July was a little dull because of excess rains in most of the parts but August has been good.
We have been a little more cautious in this part of the quarter because we feel that unless the economy picks up, we should be little careful on the loan-to-value (LTV) fronts. We have reduced our LTV and are demanding more margins from the customers because we feel that by reducing the LTV controlling the demand is very much important at this stage rather than getting into lending or looking at the growth for time being. Q: In Q1 your AUM growth was 25 percent against the guidance of 15 percent, for full year what would be your guidance given that you grew 25 percent in Q1?
A: Our guidance would remain same, it will not change for now because this quarter since we have reduced our LTVs, probably the loan growth we may go little slow because we would like to see the impact of diesel price hike on the margins of the customer and maybe the likelihood of diesel value coming down. We are little careful. So the overall guidance of 15 percent will not change for time being but we are quite confident of good growth in Q3 and Q4. Q: Do you notice pressure on asset quality likely more NPLs?
A: No, infact I should say that in an assuring way because it did look like in July things are going out of our control but August it is back. In July it was mainly because of the heavy rains but in August the collections have been good and we are very confident that September would be very good as the festive season coming, more money will be there with the customers because our customers are basically cash and carry. They always have the business in their hand and we should be reasonably good and maintain the asset quality at the previous quarter.