Will tread carefully in SME biz: Capital First

Capital First's businesses are doing well, and there is no new information that that should warrant any significant movement of the stock either way,says
V Vaidyanathan, CMD of Capital First, on the stock going up 11 percent on Wednesday after it fell 20 percent on Tuesday.

Talking to CNBC-TV18, he says that there has been no stress on the company’s SME portfolio due to the weakening of the rupee, with collections on their existing portfolio close to 99.9 percent. The company’s non-performing asset (NPA) numbers over the last three years have been consistent, with the gross NPA not moving higher than 0.1-0.2 percent and the net NPA is even lower than that. But the company will be watchful for incremental businesses in the SME sector as there are power issues in south India and some SMEs businesses are export related, and vulnerable to global conditions. Below is the edited transcript of his interview with CNBC-TV18 Q: On Tuesday, your stock was down 20 percent. Anything that we may have missed which the market knew? A: All the businesses of the company are doing well. There is no new information that we are aware of that should warrant any significant movement of the stock either way. All our businesses are well disclosed, the stages of the businesses are well disclosed on the website and there is absolutely no new information that you should be concerned about. Q: You have a gold loan portfolio. Have you witnessed any trouble in terms of people not wanting to come and redeem their gold? What is the quality of your gold loan portfolio and has that business show any trouble in the past six months? A: Not at all. Our gold loan book, to give a number is only Rs 400 crore, out of total assets under management of Rs 7,500 crore. The bulk of it was originated after the Reserve Bank of India’s new norms of 60 percent loan-to-value (LTV) had been implemented. So, there is no issue at all for us to worry about on the gold loan portfolio for us. Q: We also learn that some tax notices have been sent to gold financing companies. You said that it is a very small in your portfolio, but even then for whatever it is worth, have you also received any notice? A: No, we have not received any notices, but in any case we do not securitize gold loans as a company at this stage of our organisation. So, to the best of our knowledge this does not apply to us. Q: You provide loans to small and medium enterprises (SMEs) and micro, small and medium enterprises (MSMEs). Any stress because of the way in which the rupee has rocked? A: Not really and not directly because the SME portfolio is doing very well. If you see our non-performing asset (NPA) numbers consistently over the last three years, the gross NPA is not more than about 0.1-0.2 percent and net NPA is even lesser than that. That is holding up. Nevertheless we should be careful in the light of the fact that there are power issues in south India and maybe some SMEs are export related businesses and so on. So, we should be watchful for incremental businesses, but as far as our collections on existing portfolio is concerned, it is close to 99.9 percent. Q: There wouldn’t be tremours because they are dependent on certain kinds of imports? A: Nothing that we have seen significant on our portfolio. In any case our SME portfolio is entirely covered by security in terms of property and we lend typically between 60-65 percent. We have not seen anything significant on the portfolio. For example, our portfolio on the SME side is about Rs 4,500 crore out of retail book of about Rs 5,500 crore. That is about 85 percent of our portfolio and retail constitutes about 75 percent of our portfolio, now up from 10 percent three years ago. So, there is nothing that new information that is there to the exchange either in the form of SME portfolio or gold or anything like that.