See credit growth in rural markets: Shriram Transport Fin

Latha: Can you start with your margins, how did they perform and how do you expect them to pan in Q4?

A: The net interest margins have declined little in this quarter mainly because of some increase in our cost of borrowing and little on our operational expenses which we mainly targeted for the growth in the coming year. So we have been investing heavily on infrastructure and manpower and that have not translated into yield right now. But going forward we will be having a big foundation when the growth comes back.

The credit growth too was not up to the expectation especially the urban credit growth has been very flattish or declining. The credit growth in the rural market is very good and it is also expected to go up in the next quarter because of good winter crop and the expected agri growth is around 4 percent year-on year.

Latha: What will you do in terms of net interest margin (NIM) and what did you do in Q3 as NIM?

A: NIM is 6.51 percent against 6.73 percent previous quarter. I don't see further presser in this quarter. What happened is we increased our yield in the last quarter in the month of September. Normally we have a huge portfolio, with the entire portfolio the yield has to go up, it takes around two-three quarters and so we expect the yield to go up. Infact yield has gone up little but it has not impacted the portfolio.

So for the increased yield which we have passed on to the customer, to have an impact on the portfolio and have an impact on the margins may take another quarter or two. But definitely the margins will go up.

Secondly, Q4 borrowings will be mostly from securitisation which is the PSL requirement of the bank where our interest costs are likely to be lower. There we will definitely have a margin advantage of around 100-200 points for this quarter alone.

In the overall portfolio it may have an impact of around 10-15 bps. So, together there is scope for us to increase our margins.

Sonia: What about the assets under management (AUM) growth, this quarter around it was about 15 percent year-on-year while some analysts were expecting a higher trajectory. Going ahead what kind of AUM growth are you looking at and how much of it will actually come in from the commercial vehicle sector?

A: The AUM growth if you look at sequentially quarter-on-quarter it was flat because rural demand has been good but the urban demand has been sluggish or rather declining. Main reason is we increased our lending rate by 50 bps and we also gave the option to the customer that if they go for lower loan-to-value (LTV), they can still get lower yield.

People are preferring a lower LTV than going for higher yield, which indicates that customers are very conservative at this time and we appreciate that, it is good for us.

The AUM growth in Q4 is likely to be higher sequentially and we should end up at the earlier indication guidance we have given of 15 percent.

Latha: What about the Non-performing loans (NPLs), they have gone up a bit from 3.1 to 3.3 percent. Will the pressure alleviate or worsen?

A: I expect the pressure to remain but we are finding traction in the market that the collections have improved and freight rate has increased in the month of January around 5-10 percent in some geography and some geography it is between 3-5 percent. So increased freight rate should give some relief to our customers who are sandwiched between increased fuel cost and some kind of lack of freight movement. So there is some relief in the month of January and if this trend continues for another six months, our customers should be able to come out of the delayed dates or the overall portfolio should improve.