Expect NPLs to fall further going forward: SREI Infra Fin

A: We are seeing, as we have been giving the indication for the last about 2-3 quarters that there is a growth which we have been seeing in the equipment financing business, specifically in the construction and mining and especially in the roads sector. So, therefore, this figure that we see is basically reflecting whatever we have been indicating to the market in the last couple of quarters.And also, because the non-performing loans (NPL) percentage has come down, the profit growth has also been better and with last quarter specifically, with Viom and with SREI Equipment Finance also going to be fully consolidated into SREI, all these advantages would be coming in and quarter to quarter, we will see an improvement.

And specifically, the non-performing loans (NPA) also coming down. So, all the indications that we have been giving to the market for the last 2-3 quarters, we have been seeing that that is getting reflected in the figures. Everything does not happen immediately. It takes a little bit of time and that is why there has been a lag. But now, going forward, we are quite sanguine that things will start looking better for the company specifically.

Latha: I take your point about your NPLs falling, then why have your provisions risen so much? On a year-on-year (Y-o-Y) basis, they have gone up from Rs 58 crore to Rs 358 crore. Quarter-on-quarter (Q-o-Q) as well, they have gone up from Rs 69 crore to Rs 358 crore. What did you do? Try to make it 90-day in one shot?

A: No, actually what we have tried to do is clean up everything because this quarter, we have had the benefit of the Viom transaction and the SREI Equipment Finance also because of the treasury stock that we had. So, we thought that this would be prudent that to basically provide for as bad debt to whatever we write off, so to clean up the balance sheet.

So, going forward, our balance sheet will be much healthier because this was just like one-time gain that we had from various transactions. So it is not that all these things which we have written off will not come back, but it is more prudent to write off and then wait and see that as the realisation comes in Q-o-Q, the things will start improving with that.

It has been more of a conservative approach that we have taken towards our entire asset portfolio.

Latha: What would be your provision cover ratio therefore?

A: Therefore, now with the bad debts provided for, the gross NPL percentage if you see, from last year, first quarter which was 4.6 percent, it has come down to 2.7 percent. And the net NPL has come down to 1.9 percent from 3.6 percent. So, therefore, both these two are indicators that there is a reduction in the NPL ratio which is happening.

Anuj: Your return on equity (RoE) for the quarter was 5.48 percent. So that has gone up from 4.1 percent. What can you tell us about where it is headed over the next 2-3 years?

A: Giving absolute figures would not be correct on my part. But I can only say that things are on an improvement track and things will gradually keep on improving quarter to quarter because there was stress in the infrastructure sector which all of us, we are aware about it. But being a very specialised institution, we have been able to take care of all of those particular problems to be able to address it to a very large extent. I am not saying that everything can be addressed at one shot. In infrastructure sector, it takes a little bit more time. But more or less, if we see that and especially this quarter also, as you would have seen, we have provided for, we have written off a substantial amount also where we have any doubt that these money will not be coming back.

So, therefore, we have been quite prudent in our accounting provisions, etc. Plus on the business also, the business is improving, our focus would remain in the infrastructure space, especially in the construction, mining and equipment financing segments. Strategic investments portfolio also which we had, we have already given indication to the market by the sheer performance that we had, that both these two assets, Viom and SREI Equipment Finance, we have been able to address it even in an adverse market situation. So, going forward, we have a couple of more portfolio on our strategic investments which we will try to address and see how these can also give good returns to the company.Latha: Then two questions. What is this other strategic initiative that you have up your sleeve first?

A: We have already mentioned that Bharat Road Network which is our road portfolio that we have and Sahaj which is our second investments which we had done. So, both these strategic investments have come to a level of maturity. So, therefore, we would be diluting these two companies’ stakes and that would again help us to harvest some returns into SREI what we have done for Viom and for Equipment Finance. So, a couple of more portfolios that will also help us reduce our strategic investment portfolio by harvesting. It is not that there is any problem with those particular stakes, so therefore, we are a distressed seller. We are only trying to get the best value for the shareholders of SREI because both these companies are doing reasonably well.

Latha: The other question I wanted to know is you recognised bad loans at 180-day, 90-day, four months or five months?

A: We basically follow the RBI guidelines.

Latha: The RBI guideline has moved, that is why I am asking. RBI guidelines requires non-banking finance companies (NBFC) to move from 180-day to 90-day and some people like Bajaj Finance are already at 90-day, some others are at four months. Where are you?

A: We are about 120-days and we will also move to about 90-days as RBI has given the guidance. Therefore, we will definitely be following that. At present, we have already come down to 120-days. Moreover, if we find that there is a management perception that these particular assets, some of the assets, if it is not going to be performing well, we do make a full bad debt provision for that, we write-off as a bad debt like what we have done for this particular quarter.

Sonia: You said that the Equipment Finance business is growing from strength to strength. What kind of asset under management (AUM) growth do you see and disbursement growth for the Equipment Finance business itself, by the end of FY17?

A: It could be anywhere between 10 percent and 25 percent. It will grow according to the market; as the market has picked up quite well in the last couple of quarters. So, we still have to see that how the market is going, but we would be moving according to the market and it could be anywhere between 10 percent and 25 percent. It is a large range, but we basically move as per the market.