Increase in bond yields still lower than avg cost of funds for co: M&M Financial

Non-banking financial companies (NBFCs) are in focus on back of rural market seeing uptick in growth which is a big positive for them but on other hand hardening of bond yields could be negative in terms of increase in cost of borrowing.

To discuss the above in detail and get the on ground reality in terms of outlook for the sector, CNBC-TV18 spoke to Ramesh Iyer, VC & MD, M&M Financial Services.

Iyer said they are definitely seeing an uptick in rural financing because they are present across the country and have multiple products.

The volumes for them are holding up well. They have a market share of only around 30 percent and so even if the overall volumes go down, the market share slightly improves and they get the benefit, he said.

He said in the last two-three quarter they have witnessed growth in volumes and so are buoyant going forward too.

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He said growth for them has been averaging around 8-10 percent this year from the 5-6 percent seen in FY17, adding that historically as well second half has been good for them and the industry in general.

When asked if increase bond yields would be negative for them in terms of increase in cost of money going up, he said for them even the increased rates are lower than their average cost of money because they do have high cost funds from the past. So, for them the average cost of funds would be around 8-8.25 percent, while marginal borrowings could be even lower, he said.

Therefore, they are likely to see net interest margin improvement even at these levels of bond yields.

Talking on particular business segments, he said monsoon has bene good so rural cash flow is holding up, sentiments are positive in construction equipment space and expect them to remain so for next couple of years.

He said although CV sales are happening more in fleet operations and they are not focused in that area, there are segment of mid-size operators who buy few vehicles and that is showing good traction for them. It could be a growth driver for them going forward.