Stress on asset quality not alarming: Shriram Transport

Umesh Revankar, MD, Shriram Transport, says that the stress on company's asset is not alarming and we are comfortable with the current situation. The company expects good vehicle sales in the third quarter. 

Also read: NIMs maintenance & restructuring likely in Q3: Union Bank Below is the edited transcript of his interview to CNBC-TV18. Q: The Street is expecting loan growth to be higher than the guidance of 10-15 percent which you gave. As already half the year has passed do you see a possibility of exceeding the guidance on the loan growth side?
A: The loan growth in the first half of this year has been quite good and on a consolidated basis our assets under management (AUM) has grown by 18 percent. Normally, the second half is robust part of the financial year, we do expect to maintain at least 15 percent loan growth and hopefully exceed the target. Q: You gave a target of 10-15 percent increase in AUM. Do you think you will do better than the higher level that you gave?
A: We expect good vehicle sales in the Q3 but the current indicators are not good because the sales of heavy vehicles in October continue to remain negative on year on year basis. Light commercial vehicles (LCV) growth has been steady. The indications are not great on vehicles sales because new vehicle sales gives a velocity for used vehicle transaction and provides a boost. We penetrated in to new markets and achieved growth and we hope to penetrate in more used vehicle markets.
In November there was some activity in the market, the flight movement and the number of contracts issued by government has increased. The Andhra government is meeting some hirers, giving more orders, some contracts are getting executed and the delayed monsoon had delayed the harvesting season. The kharif crop which was expected in October end is coming now. There is some activity and a likely boost in new vehicle sales will help us to cross our target. Q: How is cost of funds moving, they look to have eased in the past few weeks, we are again seeing tightness and CP rates may have gone up but overall do you think this year cost of funds has moved lower?
A: We do not borrow on CP so we are not dependent on it. Normally, we borrow on long-term basis because most of our contracts are on contractual basis.
We believe to have a perfect Asset Liability Management (ALM), so we normally borrow for three years and more either through bonds, non-convertible debenture (NCD) through securitization. So our cost of borrowing is the almost same. In the last quarter we had an advantage of around 20 bps. We could see further improvement in cost of fund in the last quarter. Q: We saw 10-11 percent growth on a quarter on quarter basis with respect to gross NPA as well as net NPA in both Q1 and Q2. How is the H2 expected to pan out with respect to H1 in terms of asset quality? Will the increase in gross NPA continue to be close to 10 percent mark or are things expected to improve?
A: In percentage terms we have decreased from 2.95 on the Q1 to 2.89. We should be able to maintain 2.89 or try to improve on it. Overall, the stress on our asset is not alarming and we are quite comfortable with the situation. Our customer is normally in the cash and carry segment, he is not impacted by economic slowdown. We do not see adverse stress on our asset quality. Q: Your net interest margins improved by 25 bps quarter on quarter when we saw your Q2 numbers. Would they inch up further for Q3 and Q4?
A: We hopefully would like to maintain the same level. If we see good opportunity for growth then we can pass the benefit to the customers and grow. We can sacrifice some amount of NIM and grow faster. We like to hold on to at least 7.5 because we are in small lending business. It is better to have a reasonably good NIM to cover our likely losses. Q: If Usha Thorat recommendations on bank exposure to non-banking financial companies (NBFCs) as well as the responsibilities of deposit taking NBFCs come into law, do you think you will be severally constraint?
A: I don't think it is a serious issue. The bank exposure on us is mostly on the priority sector lending. I do not think there will be any adverse effect on STFC. Q: Your non-performing loans (NPL) recognition is currently on 180 days?
A: Yes. Our customers are non-bankable customers so we have to continue with 180 days. We have to wait for RBI action on how they would like to give us longer time for us to adopt.