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Last Updated : May 02, 2016 12:48 PM IST | Source: CNBC-TV18

Targeting double digit growth in FY17: Cholamandalam MD

A pick-up in sales of commercial vehicles may help Cholamandalam Investment and Finance clock 20 percent growth in fiscal year 2017, Managing Director Vellayan Subbiah says.

A pick-up in sales of commercial vehicles may help Cholamandalam Investment and Finance clock 20 percent growth in fiscal year 2017, Managing Director Vellayan Subbiah says.

In an interview with CNBC-TV18, Subbiah said company's net interest margin (NIM) saw an improvement last fiscal, adding that this was due to increased fee incomes and decline in cost of funds. "We expect this trend to continue," he said.

Below is the transcript of Vellayan Subbiah’s interview with Reema Tendulkar and Nigel D’souza on CNBC-TV18.

Reema: The assets under management (AUM) growth has been quite good, close to about 17 percent in this quarter. What ca you guide for FY17 AUM growth?

A: Yes, it has been a very good year and the last quarter was a good finish for the year. In general, right now, we are seeing good pick up in commercial vehicles and so, we do see fairly decent and fairly strong double digit growth coming up in the current year as well.

Nigel: I was just hearing you out and you mentioned that double digit growth is something that you are targeting. In the last year, you did around 28 percent in terms of disbursement growth. Can you maintain something like a 25 percent plus? And also, your net interest margins (NIM) have improved in this last year, so what exactly is your borrowing mix?

A: The NIM improvement has also been driven by a couple of factors. So, we have also had increased fee income, we have seen the actual yields in the product remain fairly steady and we have seen a decrease in the cost of funds. Most of those factors are going to sustain through the current year. So, I do think that we are going to see NIMs remain strong in the current year as well. In terms of disbursement growth, right now it is looking very optimistic. You reported Maruti’s numbers and usually, April, May and June is a weak quarter. Like you are seeing, everybody is coming out with fairly strong numbers right now.

So, we anticipate this growth to basically stick for the current year as well. And we are very bullish on this current year’s performance, so I do think it is going to be a strong year for us.

Reema: Your gross non-performing assets (NPA) stands at 3.5 percent. But right now, it is a 120-day provision. So, as you transition to 90-day, what would the gross NPAs look like and generally, your guidance on the gross NPAs?

A: The good news there is that we have dropped from 4.3 percent at the end of last quarter, at the end of the December quarter to 3.5 percent now. So, we have actually seen 0.8 percent in gross NPAs which is a very significant drop in one quarter. We do see gross NPA performance continuing to improve. And, we have already provisioned for most of what is required for a move to 90-day. You probably saw an additional provision of Rs 54 crore that we took. That is predominantly to cover for a move to 90-day. So, we have got most of our provisions covered for and we are pretty much operating on a near 90-day basis right now.

Nigel: Your NIMs, we were talking about it, I did not get the mix. How much are you borrowing from banks? Also, you could get some benefit coming in as banks move towards Marginal Cost of Funds based Lending Rate (MCLR). So, do you think you are going to be passing that on and also, will you be looking to increase your exposure to securitisation on the whole?

A: The answer on securitisation is definitely yes. We do see more opportunities to do that and so we will increase our mix there. On your questions on NIM, yes about 40 percent, actually about 45 percent of our borrowing is bank borrowing. So, we can see some of those benefits come in this year. How much of that gets passed on to the customer, obviously, depends on the business. Vehicle finance business is a fixed book and so, in interest rate cycles where the interest rates trend downwards, we tend to benefit in that book. On our home equity book, yes some of that does get passed on to the customer more quickly.

First Published on May 2, 2016 11:36 am