Expect uptick in credit post Sept 2015: Srei Infrastructure

Below is verbatim transcript of the interview:

Q: I am reading a JP Morgan report which says that it is unlikely to impact companies much. What is your reading of the revised guidelines?

A: That is true to a large extent in a sense that all the large non-banking financial companies (NBFCs) although the RBI guidelines are what they are but basically they have already tightened the rules and regulations internally and following more prudent norms than what RBI guidelines was, most of the larger NBFCs. What the RBI is trying to do with these guidelines is to bring in alignment with the banking system and the larger NBFCS.

I have only two concerns; one – on the NBFCs if the capital adequacy has been much tighter than the banking system so if the prudential norms and all are getting aligned over period of next two–three years we would hope that the capital adequacy also should be aligned in the same manner so that you could attract capital to the sector. Otherwise to attract capital and get returns on equity will be challenging.

The second aspect is where my key concern is which does not affect us as a large company but affects a lot of smaller, midsize companies here in India that have been engaged in the asset finance company for financing smaller assets and midsize companies all over the country in many places.

They play an important role in the SME financing. India just does not live in the cities. There are lots of secondary towns where the financial inclusion penetration is not much.

Asset finance companies traditionally have played an important role in their smaller segments. It is important to ensure that the guidelines are made in such a manner that such companies also are continued to survive healthily without impacting the system but definitely in a proper manner and there when you have a backup of an asset and then to make a provision of 3 years it does not sound well.

Q: How is credit growth doing for Srei Infra at this point in time? Has there been any pickup as compared to Q3 and if so in which vertical and if not why so?

A: In the infra sector we have not seen much growth. There has been very slow growth in this financial year; overall in our portfolio we will grow only 5-6 percent which is one of the lowest in the last 20-25 years of our existence.

We are hoping that years to come should be better. We may see 15-16 still to be a notch better than the previous year but the future with the way the government is working on various areas we hope that things should pick up.

Q: In the previous quarter your gross non-performing assets (NPA) stood at around 2.9 percent and your net NPA was around 2 percent for the infra finance vertical in particular. Do you see further stress in terms of gross NPAs for your infra vertical at present?

A: It will be more or less the same, it may go marginally up or down because every quarter you have some changes with the guidelines that come in and in the last couple of months lot of changes are happening.

The challenges from the past are getting addressed. Lot more will get addressed in the next 1-2 years. It would be a little slow, at this juncture definitely the infra sector is no doubt in stress, challenges would need to get addressed going forward.

Q: For the next financial year what kind of outlook can you paint to us going by the recent anecdotal evidence in terms of credit growth and in terms of the kind of economy that we are in right now?

A: In the infra space the uptake on credit should happen post September because in the month or two we get into the monsoon season where pick up would be slow again. Secondly, all the assets that are lying at the moment where the project was stuck in the past slowly the projects are opening up.

Next couple of months further we should see opening up. Mines and all that have been impacted will start to open up. Therefore, I see a growth beginning to happen in the second half of this financial year and we should see a much better growth in the next full financial year.

However, I see growth coming up post September that is a feel within the manufactures of equipments and the way we see the trend from our customers.

Q: Do you expect provisions in the coming quarters to be as elevated as Q3? I won’t ask you about Q4 in particular because it is quarter ending but may be terms of a trajectory?

A: We will see some pain in the next two-three quarters before it starts improving.

Q: The last time we had spoken to the management about the Viom Networks possible stake sale you all did say that it was under deliberation still and different statements coming from the management with the same meaning that it is still underway. Any progress that we could see and any plans any formidable development you could talk about?

A: The work is still in progress. We would want to monetise part of our investments in Viom and there are lots of investors there. The business is doing well and it is in progress.

A lot of times things take their own time. What approach for process there have been lot of developments and changes by the government also whether it is the market whether it is the infra real estate investment trust (REIT) guidelines etc. So multiple options are there and we are exploring and working towards them.