New NPA recognition rule may hit profit rise: Shriram City Union

Shriram City Union Finance will shift to the 120 day non-performing asset (NPA) recognition norms soon. This may lead to a rise in gross NPAs by 200 basis points from 5.11 percent in the first quarter of current fiscal, says Subhasri Sriram, Executive Director and Chief Financial Officer, Shriram City Union Finance.This may also crimp net profit growth, she says. The company's cost of funds declined to 10 percent from 10.8 percent during the June quarter, she says. Below is the transcript of Subhasri Sriram’s interview to Ekta Batra and Prashant Nair on CNBC-TV18.Ekta: Wanted to start with the key highlights. How did demand look on the ground for you considering you have got a net interest income (NII) growth of around 19 odd percent. You have got your gross non-performing loans (NPL) which have been stable this time.A: We have had a very good quarter. We have seen 17 percent growth in our overall assets under management (AUM). And in fact, our non-gold book actually grew by 21 percent. Overall, across products we have seen good traction, both in terms of disbursements, asset quality and all of this being possible without much reduction or hardly any reduction in our lending rates. End result, we have got better spreads, our NPLs have come down from 5.15 to 5.11. It has overall been a good quarter for us.Prashant: Could you flesh out the segment by segment details a little bit more in terms of what the growth and lending was in each of the segments, how did asset quality hold up in each of the segments?A: The business loans continue to be the largest. It is close to about 52 percent of the overall book. We have seen the NPLs more or less steady at that product. Across products, NPLs have not moved up from our March numbers. 5.38, 5.39, 6.45 in terms of personal loans. And gold at 3.63. in terms of two wheelers, we have seen 20 percent plus growth, we have seen 65 percent growth but on a very small base in terms of our personal loan which is now about Rs 1,200 crore in terms of AUM, 6 percent of our book. And in terms of yields, across products we have been steady. The average yield is close to about 21 percent right now.Ekta: Your net interest margins were at around 13.7 percent for the quarter. Can you detail to us what exactly were the cost of funds this quarter and how do you expect it to move. And what might your net interest margin (NIM) guidance be?A: In terms of cost of funds, it is close to about just a little over 10 percent. This has come off from close to 10.8 now closer to 10. We have seen good offtake in our bond market issuances and our public commercial paper issuances. We continue to get high quality funding from banking sector too. And this is in short the cost of funds is well within control and actually coming off quarter on quarter. And, this will continue to probably, we expect to see this for a couple of more quarters till the banks pass on the entire interest rate reduction to the customers.Prashant: What would the overall, annual assets growth be? Would it be in the 20-25 percent region and can we expect the profit growth also to sustain in the 20 percent region?A: Yes, closer to 20. 25 is maybe a bit too early to put that number right now in the first quarter. As far as profit is concerned, it may not be a 20 percent range only on account of, we will have to move our NPL recognition from 150 days, the current compliance to 120 days as on March, 2017. And that will be a one-time impact as at March, 2017. That might result in a profit growth slightly muted than our balance sheet growth.Ekta: So, when you do make that transition to 120 days, how much more do you expect your gross NPLs to spike up?A: That 5 percent which we see around, likely to be a 200 basis point increase plus or minus 7 percent.