Chennai-based Shriram City Union Finance (SCU) is likely to see an increase of 35-40 basis points in its cost of funds due to change in fund raising guidelines by the Reserve Bank of India (RBI), which mandated some restrictions on fund raising through privately held debentures.
According to G S Sundararajan, managing director of the non-banking finance company (NBFC), it has a borrowing book of around Rs 11,500 crore as of June 30, 2013; of which the company raised around Rs 2,500 crore via privately placed non-convertible debentures. This share of the debt book will come down.
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"Our cost of funds may go up by 35-40 bps depending on fixed cost borrowings. However, such impact can be nullified as we will negotiate with banks to take loans at lower rates. We plan to open 450 branches in next five years as against 43 branches in the first quarter," he told moneycontrol.com.
The NBFC meets majority of its funds requirement through bank loans, which forms 53 percent to Rs 6,041 crore. Public issuances of non-convertible debentures constitute 10 percent of the book at Rs 1,184 crore while the company arranges 28 percent of the borrowings at Rs 3,243 crore.
City Union pays interest at a fixed rate of interest on 51 percent of the book while the rest 49 percent is on floating basis. For a private placed debenture issue sized between Rs 500-600 crore the company generally pays an interest rate of around 9.5 percent on an average. Those securities are of 1-5 years tenure.
During the April-June quarter, SCU reported 14 percent rise in its net profit at Rs 117 crore. However, provisions and write offs increased 15 percent y-o-y to Rs 101 crore.
Total assets under management rose at a muted pace of just about 3 percent y-o-y to Rs 15, 393 crore.
"We have consciously brought down the share of gold loans. We have created our own subsidiary company to offer specialized home loans with an average ticket size of 10-15 lakh. Through this subsidiary, we get financial benefits that the National Housing Bank, the regulator for housing finance companies, offers for priority sector lending," Sundararajan concluded.
The company is engaged in the two-wheeler finance, auto finance, loan for small and medium enterprises (SMEs) and others.