NBFCs draft guideline won't hit profits: Shriram Transport

According to a draft guideline of RBI, non banking financial companies (NBFCs) would need RBI's prior approval before making changes in their ownership control. The draft guidelines were based on the Usha Thorat Committee.

In an interview to CNBC-TV18, Umesh Revankar, managing director, Shriram Transport says the new guidelines will not impact profits. He also says that liquidity will not have an impact. "We have been highly liquid all the time. So in that case, we have no issue," he adds. Below is the edited transcript of Revankar’s interview. Q: A word on what you felt the RBI has issued and do you see that as a slight dilution of what Usha Thorat had recommended?
A: Yes, infact we are quite thankful to the RBI for listening to us, but we still would like to represent the customer to whom we are financing. Our customers, especially Shriram Transport Finance and most of the non-banking financial companies (NBFCs) are unbankable. They only have the option of taking finance from our NBFC or private money lenders. Since the customer is totally dependent on the asset, that we are financing like the commercial vehicle or tractor or passenger vehicle, one or two EMIs becoming overdue in a year is quite common.
So, we need to give the customer that option, opportunity to not consider making an asset a non-performing asset (NPA). We should atleast continue to give him180 days instead of 120 days before declaring it’s an NPA. This will help the customer get adjusted to the financial discipline by giving him more time. Q: How do you expect your FY14 to pan out? You will have to move to that 120 day NPL recognitions so that would mean perhaps a little more in terms of provisioning. Your standard asset provisioning goes to 0.4 as well as you have to maintain that liquidity ratio. What will be the net impact on margins?
A: As far as the liquidity is concerned, we have no impact because we have been highly liquid all the time. So in that case, we have no issue. Change in asset provisioning will definitely show some impact. If the asset provisioning goes up by 0.15 from the existing provision and NPL of 120 days continues, it can go upto 5 percent on gross NPA immediately.
However, since we have time, we will try to make it better. So, we may end up at around 4 percent, but still there will not be increase in credit loss. Credit loss is what impacts the profitability. So, we don’t really feel that it will have an impact on our profitability. Q: However, you have to provide more, isn’t it?
A: Yes we will have to provide. The provisioning will go up. We will get a write-back after maybe two years. So, in 2015, we may get the write-back whatever we do in 2014. Q: Tier I will be calculated on profitability and if that dips, you will anyway have to dilute equity? So do you envisage additional equity dilution upcoming in FY14 itself?
A: No we are at 16.8 on Tier I and we have reasonably good margins. I don’t think equity dilution could happen in 2014. It could be after three years. Q: Do you see yourself as a candidate for bank license?
A: I don’t want to comment on that. We have multiple NBFCs in Shriram Group so Shriram Capita will take a call on that at the right time. Q: The market has been bidding up some stocks on the assumption that they look likely candidates for getting a bank license. In your case have you identified the entity in which you will develop the license if you get one? Will it be Shriram Transport or Shriram Capital?
A: We have not taken any call on that. We are waiting for the final guidelines from the RBI, because unless we see the final guidelines, we will not be able to take a call. Once it comes, we will look into it. Q: Among the listed entities, is Shriram City Union Finance a possibility just in terms of what the group is thinking at this point?
A: I am not sure right now so I don’t want to give any comment on that because Shriram Capital would definitely look into all aspects and take a call at the right time. Q: Have you seen any improvement in your NPL position? More and more areas are coming under the mining ban. What is the status of the quality of the asset book as well as loan growth?
A: We had immediately recognised the problems in mining. We had done the write offs, tried getting the vehicle back and provisioning. We did everything in the last financial year. So this financial year, we are not exposed to mining. Virtually I should say it’s negligible and we have come out of mining segment totally.