Don't anticipate any impact of farm loan waiver on Punjab's book: Bharat Financial

He also expects more collections from customers that company missed during demonetisation.

According to him, the company is steadily moving towards a conclusion with regards to possible merger and should have a concrete plan to get merged, in the next three-six months.

Bharat Financial is exploring talks with others apart from IndusInd Bank, added Rao.

Below is the verbatim transcript of the interview.

Latha: If you could begin by telling us what is the share of your loans in Uttar Pradesh, Maharashtra and in Punjab?

A: Three states put together, we would be around 25 percent. But the Uttar Pradesh farm loan waiver was announced first and we did not see any impact on collections. On the contrary, the collections improved marginally in Uttar Pradesh. The same thing we saw two weeks back when Maharashtra announced the farm loan waiver. Our field operations continued to be on track and we have seen marginal improvement in collections. So the farm loan waiver has not had any impact.

Punjab, as a percentage of portfolio is just 1.5 percent of our portfolio. But we do not anticipate any impact on the repayments despite this farm loan waiver because going by the experience of Uttar Pradesh and Maharashtra; we do not see this having any impact.

Sonia: You spoke about how the collections have improved in Uttar Pradesh, but can you give us a sense of what the other states have thrown up in terms of better collections, any improvements, etc.

A: I referred to Uttar Pradesh and Maharashtra in the context of farm loan waivers, but post demonetisation and the aftermath; we have seen collections coming back to 99.9 percent in most of the states. Uttar Pradesh, there was an impact and it is coming back to normal, it is close to 99 percent now. Maharashtra, notwithstanding the farm loan waivers, we are seeing slight improvement in collections.

Latha: Collections have been improving for all microfinance institutions (MFI) because loans that were missed out, instalments that were missed out during the demonetisation days are now being returned. I guess that explains the improved collections in the current month?

A: Yes. The thing to keep in mind is that, if a woman, particularly in this segment, has not paid four instalments, she does not have the wherewithal to come and pay the four instalments in one shot. So, she will be paying the current instalments and we see more and more people coming and paying and trying to clear.

Latha: That is exactly what I was trying to distinguish. We just spoke to Satin Creditcare Networks and he was also pointing out that the instalments missed during the demonetisation period are not slowly getting regularised and people are paying back a few of their previous instalments. But as the loan waiver word gets around, isn't there a possibility that people will start defaulting on fresh loans?

A: We go back to some few years back when the central government had announced Rs 60,000 crore farm loan waiver, if you recall. At that point of time also, we did not see any impact. Essentially, the borrowers do ask, are we part of this loan waiver scheme and our loan officers are trained to respond to that, this is a loan waiver by the government and this microfinance loans have nothing to do with the farm loans that they have taken.

Sonia: So, despite the credit culture perhaps getting impacted over the longer term, you do not see any specific rise in non-performing assets (NPA), especially for a company like yours?

A: No.

Latha: What is the expected NPA number for the current year or percentage for the current quarter?

A: Current quarter I cannot disclose the numbers because we are yet to complete the quarter, but we stand by our guidance for the year that we will grow by 50 percent, both in terms of disbursals, topline and bottomline. We do not see that getting impacted any which way.

Latha: No, I am not questioning the loan growth. I am asking you asset quality; will you have any directional, any guidance?

A: I was referring to that in a roundabout fashion. We provided for certain set of loans as of March 31. Marginally, there could be a change in numbers, but we expect that by September 30 or December 31, those numbers to improve significantly as we see signs of collections. Momentarily, you might see number here or there, but seeing the repayment of borrowers as you were mentioning, they will be paying the current instalment now and clear the arrears over a period of time. We see some of those loans have been provided for coming back to us.

Latha: So, what you are saying is we might see a higher NPA in the current and next quarter, but by December 31, you see it reducing?

A: No, I am not saying we will see a higher NPA. I am saying marginally, let us say the street is expecting us to provide another Rs 180 crore, just to throw a number just to illustrate a point, we would be around Rs 180-160, but that is going to be momentarily. But over a period of the next 3-6 months, we will see most of these loans coming back to us in terms of repayment.

Latha: But why would you provide more?

A: What has happened, we follow a conservative provisioning policy of providing for loans which have not paid for 60 days while the RBI guideline is about 90 days. Since we had already provided for that in March 31, while customers continue to pay out of this bucket, they would still be in the 60 days overdue bucket because as I said, they will be able to pay only the current instalment and not be in a position to clear the arrears.

Sonia: Since 80 percent of your book comes from the rural market, how are the rural indicators looking at this point in time? The monsoon progress has not been as good as expected so far, but what is the anecdotal evidence suggesting?

A: Since bulk of our loans are for income generating purposes where people take these loans to run a kirana store or buy a buffalo or run small tea stalls, with monsoon or lack of it does not impact the business too much. On the contrary, we see some of the people who are wholly dependent on agriculture, trying to take microfinance loan to do small businesses to tide over this monsoon crisis.

Anuj: At what stage are we in terms of negotiations with IndusInd Bank with the merger?

A: The paperwork, as we gave the stock exchange notification, we are getting the consultant's opinion on what are the various options that we would look at. So that is work in progress and I can confirm that we are moving steadily towards some conclusion.

Anuj: So can we expect that in maybe next 3-6 months?

A: Yes, so it is not just IndusInd, we are exploring a lot of other options based on how things pan out. Yes, in the next 3-6 months we could come out with an announcement one way or the other.

Anuj: IndusInd and what is the other one, RBL Bank?

A: I am not going to answer that.

Latha: But is it another bank?

A: Basically, we have done a pilot with about 100-150 kirana stores. Essentially, we are trying to make the kirana stores the local ATM point in a rural village where customers can use biometrics to push and pull cash from their accounts. That is very successful and we see that having a huge potential. Our plan is to roll out two lakh such kirana stores. So given that there is a bank account that is needed, we are looking at various options. It could be a merger or it could be a bank that will enable us to open accounts and run these kirana stores to cashless in the rural belt.

Latha: So, then it will be a bank?

A: It needs to be a bank; you need to have a bank account there.

Latha: So, it makes logical sense for you to be with a bank?

A: Yes or just have a bank opening accounts for us on a standalone basis. All the options are being explored.