Seeing good demand for bond-based issuances: L&T Fin

Below is the verbatim transcript of N Sivaraman's interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy

Latha: What is the situation in the market itself looking like to you? Today there was this big news that is hitting the entire banking and finance space, State Bank of India (SBI) has cut deposit rates by 0.25 percent. Are you getting a sense that cost of money will fall shortly for all players?

A: Given the overall credit growth expectations as well as liquidity generation within the economy. I do believe that there is a potential for the rates to drop from where they are today. However given the slightly volatile or uncertain inflation situation, we could get to see this rate drop in a matter of two-three quarters rather than in a hurry. What we have seen is that there has been good demand for bond based issuances. So we have also been substituting our bank borrowings with bonds which has helped us overall bring down the borrowing cost by few basis points over the last two-three months of this quarter.

Sonia: The reason perhaps the stock has not performed as well as some of its peers is because of the asset quality pressures that L&T Finance has faced and even in the quarter gone by we have seen the worsening of the gross NPAs to about 3.57 percent. Are you noticing any improvement on the ground either in the infrastructure sector or with respect to retail finance and if yes how much time do you think it could take for asset quality to recover?

A: There are two aspects which I want to talk about, regarding core competency, it is important to know that we are either a number two or number three player in every segment that we are participating other than commercial vehicle (CV) segment.

CV segment perhaps we were the only one to have degrown disbursements to this segment over the last more than 30 months. So it is a sweeping comment to talk about core competency when we have built our asset book at the rate of about 35-40 percent CAGR for last five years. The growth itself has not contributed to GNPA, the environment has definitely contributed.

When you have a sluggish economy for a period of three years with government payments not coming through, there have been a lot of delayed payments coming through to the developers from various agencies and we have a stretched economy as far as the investment cycle is concerned. I don’t see ourselves being singled out as one entity which has seen deterioration in asset quality and we have seen this happening everywhere. Yes, we have had a series of setbacks beginning with micro finance and to some extent economic issues around credit quality. Perhaps this is a time when we can say with a positive outlook towards the near future both on the margin side where we have consistently shown an improvement in margin by about 15 bps in the retail segment every quarter. Secondly, we have seen a slowdown in accretion to new quality issues as far as assets are concerned. And we have given our outlook that we do see this stabilising to dropping in the next three quarters.

The effect of these will play out on our P&L and balance sheet as we look forward to the next three years. It is not our lookout to comment about the stock price. The fact is that we have 4.5 lakh retail shareholders which is the largest in the country for a size of ours.

Latha: Which segment do you see recovering fast, those who were disadvantaged by their exposure to trucks and construction equipment are also the ones who are beginning to see some level of improvement because we did see CV sales growing. In the several sectors that you service where are you seeing a turnaround first?

A: Definitely construction equipments, commercial vehicle we will continue to remain cautious. The freight loading or the opportunity to hire out construction equipment continues to be low. The cost of operations is yet to come down. The margins over there have not gone up to compensate for all that has happened. So we will continue to remain cautious in this sector till we really see a turnaround and even if you look at the sales numbers for construction equipment, they have been once again negative. Commercial vehicles other than the higher end vehicle there has been no pickup as far as the volumes are concerned. We will continue to remain cautious. Infrastructure we do see opportunities on the refinancing of the operational projects, we have done reasonably well, we have seen a slue of approvals going through. Hopefully some of them will definitely get converted into actual loans on our books and with the idea of becoming operational, we see it to be a string that will contribute to our disbursement growth and book growth in the current year.

The rural segment despite rain related issues seem to be stabilising and we see decent demand coming through. Some of the manufacturing tie-ups that we have been able to put through is helping us maintain disbursement in this segment.

On the B2C segment we also have been very active on the housing side, we do see it on a relative basis really picking up disbursements compared to the previous years. Cars is becoming slower, it is becoming far more competitive than what it was a year back given that this is one segment growing and relatively safer credit.

In the two-wheeler segment we have been able to improve our market share constantly from below 3-4 percent to around 7.5 percent today on financing. So looks well, these are the segments that we will see. The disbursement trends have not dramatically changed from the last six-nine months period. We do believe that the third and fourth quarter should give us some positive momentum.