Cholamandalam Investment and Finance Company has reported a 9 percent jump in its second quarter consolidated net profit at Rs 99.1 crore against Rs 90.8 crore (Y-o-Y). Consolidated operational income for the quarter increased to Rs 917 crore, up 14.7 percent, against Rs 799.5 crore on a year-on-year basis.
Discussing the earnings, Vellayan Subbiah, MD & ED, Cholamandalam Investment and Finance, said the company expects to see a decline in non-performing loans (NPLs) in the next two quarters.
According to Subbiah, net interest margins have been holding steady, he doesn’t expect it to come down at all.
Below is the transcript of Vellayan Subbiah’s interview to CNBC-TV18’s Latha Venkatesh and Anuj SinghalLatha: The numbers clearly look good but what is not looking good is the increase in bad loans. Can you take us through this non-performing loans (NPL) growth, it is 2.6 from 1.4 percent year ago levels. How does it compare on a quarter-on-quarter basis, are you at least troughing out?A: Everbody is concerned about the NPAs right now. What we have seen is a sequential increase in NPA levels almost for the last six quarters. Obviously the challenge has been the overall conditions of the economy that has affected our light commercial vehicles and actually been across our truck portfolio. So in terms of whether this is going to improve or not obviously is dependent on the economy. What we are seeing is much more positive sentiment than before. We haven’t seen real translation on the ground yet but I feel we are at the cusp of a turn, perhaps November, December sometimes in January is when it will begin to turn. The unfortunate bit with the NPA is that you have a bit of a lag effect around it because as performance improves, we have seen roll forward rates decreasing across a couple of buckets. But it takes a while for that to translate in the NPAs because when you are dealing with six quarters of declining NPAs, you are probably going to have a hangover from that for at least a couple of quarters before you see that number beginning to move south again.
Latha: When does it get lower? On a quarter-on-quarter basis can you give us the aggregate number, increase and is the current quarter likely to be the last one? Are you likely to see at least decline in the aggregate NPLs?A: Usually what happens is because the overall buckets have gotten so much larger, the amount that is sitting at 150-180 days in delinquencies and then rolls forward into an NPA bucket, those buckets themselves have gotten a lot larger than they were before. So when will we see a decline in NPAs I would like to think that it is about two quarters out.
Anuj: Your margins have fallen across categories because your net interest income has jumped about 19 percent but profit growth is only about 6 percent or so. Across categories we have seen fall in NIMs. Would that trend be arrested going forward?A: There is actually no real drop in NIMs. What you see in reported numbers are usually due to income reversal on accounts that go into NPA. Our NIMs have actually held fairly steady so when you take interest plus fee margin which is what we show as our net income margins, that number is held fairly steady both across vehicle finance and home equity. Any drop you see is only due to income reversals due to accounts going into NPA. But NIMs are continuing to hold and we don’t see NIMs coming down at all.
Anuj: In terms of commercial vehicle financing how are things looking up, have you seen any kind of recovery on ground and would you expect that to continue? A: What we are seeing on CVs for example right now is a couple of markets are beginning to pickup. One is the used CV market and the other is heavily commercial vehicles. Right now heavy commercial vehicles is predominantly fleet buying but that is a good sign because usually that is a lead indicator and usually after certain level of fleet buying you are going to see the smaller buyers get into the market as well. Actually if you look at what happened on the overall cycle, heavy commercial went down first and then that was followed by small commercial vehicles and lights. So even on the uptick looks like that is going to take the same pattern so we are going to see heavy commercial vehicles pickup first and hopefully we will see light and small commercial vehicles pick up in fairly quick order after that as well.
Latha: Is money getting any cheaper, I believe you are looking to raise funds?A: Two things, one we did just raise a lot of equity, we took in Rs 500 crore in equity actually in the form of CCPS and that will convert into equity in a year. We did that recently in September. As far as debt is concerned debt is getting cheaper which is a good thing for all of us. We are seeing both NCDs and commercial paper dropping of a bit so we are adjusting our mix in terms of bank borrowing versus what we take in terms of paper. So we are definitely seeing reduction in the cost of funds and that is helping us on the NIM front as well.
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