The Reserve Bank of India has tightened the rules for non-banking financial companies (NBFCs), bad loan norms have been brought on par with banks.
N Sivaraman, president and wholetime director, L&T Finance Holdings spoke to CNBC-TV18 to detail the impact of the move.
According to Sivaraman, the financials of the company are unlikely to get significantly impacted by the RBI move. He expects more guidelines from the central bank on the same. Below is verbatim transcript of the interview:
Q: What’s the impact in the FY16 balance sheet? Your non-performing loan (NPL) recognition will come to five months as well there will be provisioning of 0.35 percent instead of 0.25 percent now. So what’s the likely hit on earnings?
A: RBI has shown significant level of understanding regarding the time required to really enable all the NBFCs to adjust to a new regulation.
In the beginning I hope this is not the final set of guidelines. There should be more guidelines to enable NBFCs to compete in the market along with banks and that’s what I will welcome RBI to do. I don’t think it will be a very significant impact on the profit and loss (P&L).
Q: Would you have to raise more capital? What is your tier-I capital at this point in time? Do you all have to increase it to 10 percent?
A: Most of the NBFCs have had a capital beyond 10 percent on the tier-I level. Given that the first year requirement is going to be only 8.5 percent it actually leaves us extremely comfortable in complying with the regulations. I don’t see it really impacting us.
Q: What about the NPLs? What will happen to the gross NPL ratios, will it rise in the following years?
A: On a snapshot basis there will be a rise because we have always been planning for a 180-day kind of a situation when we plan our collections on the ground. However, as we have the time to adjust, close to 18 months available for us to really get the NPLs under control at 150-day level and then to 120-day level by 2017 and 90-day by 2018 it gives us sufficient comfort. If the economy does improve, the situation can be far better managed without any serious impact on the financials or the company.
Q: Would there be zilch impact on the profit and loss (P&L) in FY16?
A: I wouldn’t like to use a dramatic word called zilch but it is not going to be very significant from our current outlook.
Q: Can you give us a ballpark estimate of how much this could impact provisioning, how much could it impact the return of equity (ROEs) in the next one year?
A: We have been providing on the basis of loss given default whenever the account becomes an NPL at 180-day level. So we may need some marginal recalibration to make it work well.
As almost all the NBFCs are in similar sector, gap between the 90-day principal outstanding and the 180-day principal outstanding is very large. Whereas by the time it comes down to 150-180 level the amount of difference is almost not very large. So I don’t see this is really having to provide match it. I don’t see it really impacting the ROE’s or P&L in a significant way in the next year.
Q: Every now and then L&T Finance holding is in news for taking over of a bank. We have that buzz about Yes Bank now we hear about ING Vysya Bank. Are you buying any bank at all?
A: We are not averse to any inorganic root but I don’t see ourselves committing specifically about any one target either in a positive way or negative way.Q: Have you been in discussion with ING Vysya Bank in the last couple of weeks?
A: It is all speculation at the moment.
Q: Is it something that has crossed your mind and will brew in the next week or so?
A: If you look at it that way almost any entity including ours also being a subject of matter of a potential acquisition or otherwise.
We are not averse to do any organic opportunity. It doesn’t mean that we look at every bank. So we will be conscious about we need to achieve.
Q: Have you written to the RBI lately for permission?
A: No, it is premature to approach RBI at this point of time. There is nothing on the table at the moment.
Q: Anything that we can expect in the next one year?
A: One year is a long enough period to work around. It is best not to speculate about anything which is in the conjecture mode at the moment.
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