Asset quality to improve going forward: Chola Inv & Fin

The first and second quarters are traditionally difficult quarters, says Vellayan Subbiah, MD, Cholamandalam Investment and Finance. And while gross non-performing assets have not reduced significantly, the good thing is that there is no cause for alarm, he tells CNBC-TV18. "Disbursements were up about 12 percent this quarter against the comparable quarter last year which we think is quite encouraging," he says, adding, "most of the growth has come from heavy commercial vehicles and our used portfolios."He sees the asset quality imporving in the coming quarters. Below is the transcript of Atul Jain’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.Ekta: It has been an overall stable quarter for you all but I just wanted to start with the asset quality. If you look at it on a year-on-year (Y-o-Y) basis there has been around 40 basis points worsening that has taken place on the gross non performing loans (NPLs). Where did the worsening come from this quarter and what is your guidance?A: Overall, the gross non-performing assets (GNPA) has been, I would say a kind of fairly good for the first quarter. First quarter traditionally tends to be our most difficult quarter because the market is usually down in the first and the second quarters. Given that the GNPA is at about 3.33 percent now at the 150 day provisioning which is where we are at we are still seeing overall weakness in terms of the commercial vehicle market and that was combined with a slight increase in GNPAs on the home equity side as well this quarter. The good thing is that we don’t see it at overly at alarming levels. We haven’t seen significant deterioration. We believe that over a next few quarters things will begin to get better.Ekta: How is your commercial vehicle (CV) portfolio doing in terms of incremental disbursements?A: Disbursements were up about 12 percent this quarter against the comparable quarter last year which we think is quite encouraging. Most of the growth has come from heavy commercial vehicles and our used portfolios. So, we are seeing significant growth both in the used portfolio and heavy commercial vehicles. Also we have been fairly robust in a weak market on the tractor side though we are cautious on disbursements there. Ekta: If I am looking at your disbursement chart your micro, small and medium enterprise (MSME) disbursements seems to have declined quite sharply in the quarter though it might be on a low base. However, what is the strategy there?A: Our MSME business is traditionally like you said it is reasonably small component of our overall portfolio. I would just like to say that our SME loans are also basically are loan against property (LAP) business. Our loan against property business also has SME loans in it. The MSME portfolio basically what we are looking at is more working capital loans and term loan to clients with collateral other than property. We are basically looking at that product and seeing what parts of that product is more scalable. So, in that segment we tend to see variants from quarter to quarter. I do feel that the second half of this year we are going to see growth from that business as well.