Shriram Finance’s gross stage-3 loans may decline to 5% by end of FY25: Umesh Revankar

Umesh Revankar

Shriram Finance’s stage 3 loans overdue for more than three months is expected to fall to 5 percent by the end of the current financial year, Umesh Revankar, executive vice chairman, said in an exclusive interview with Moneycontrol.

“By the end of this financial year, we have a target of 5 percent gross stage 3 loans, ” Revankar said.

Currently, gross stage 3 loans of the company stood at 5.45 percent, and net stage 3 loans stood at 2.70 percent, as per the company’s investor presentation.

Stage 3 loans are those where repayments haven’t been met for more than 90 days.

As non-banking financial companies like Shriram Finance follow the Indian Accounting Standard (IND AS), they have to classify bad loans in three baskets or stages: stage 1 which are those overdue by up to 30 days, stage 2 for loans overdue by 31-89 days and stage 3 for those overdue for more than 90 days.

NBFCs need to make provisions according to the category of the loan.

In FY24, Shriram Finance’s gross stage 3 loans declined from 6.03 percent in the first quarter to 5.45 percent in the last quarter. Similarly, net stage 3 loans eased to 2.70 percent in Q4FY24, from 2.96 percent in Q1FY24.

Revankar said over the last seven quarters, the company has shown an improvement every quarter in percentage terms.

He added that stage 3 loans arise from almost every segment of borrowers. “Certain segments will be low due to the nature of the lending, like gold (loans against gold and/or jewellery) will be low, (loans for) two-wheelers will be low because they are very short-period loans. Others will be bit higher,” Revankar added.

Also read: Shriram Finance: Strong quarter, thanks to better execution, post merger

The margin play

The company’s net interest margin (NIM) is likely to sustain at the current levels because most geopolitical uncertainties have not materially heightened, Revankar said.

“I do not expect any pressure on the NIM because whatever heightened pressure we have seen in the last few years such as Russia-Ukraine war, Gaza conflict and Iran-Israel conflict, but all three now have not materially impacted us, so I don’t see any reason for any further kind of escalation,” Revankar said during an interview.

The company’s NIM stood at 9.02 percent in the fourth quarter of 2023-24, rising from 8.99 percent in the previous quarter and 8.55 percent from the year-ago period.

Building on that, Revankar said as the market and economic conditions are good, “we don’t expect cost of funds to further go up from here”.

The company’s cost of funds increased 5 basis points (bps) on a quarterly basis and 20 bps on a yearly basis. One basis point is one hundredth of a percentage point.

Overseas borrowings

Revankar during an interview said external commercial borrowings (ECBs) are coming at a better rate because it is mostly from international banks and “we are getting at a competitive rate, hence you saw an increase in such loans in last few quarters”.

“Borrowing through ECB loans is a continuous programme. Depending upon the market conditions we will keep doing it. Initially, it was once in a year, but now, as we have been in the international market for the last five years, every quarter, whenever there is an opportunity, we will keep raising (funds from overseas),” he said.

In the reporting quarter, Shriram Finance’s ECBs grew to Rs 14,470 crore, from Rs 12,010 crore in the quarter-ago period.

Also read: Shriram Finance Q4 results: Net profit rises 48.73% to Rs 1,945.87 crore

Personal loans

Revankar said one of the reasons for a fall in personal loans disbursed is the company’s change in credit norms after the Reserve Bank of India mandated an increase in risk-weight norms.

Asked about the fall in further personal loans’ share in total assets under management, Revankar said no significant reduction is expected, but it will grow with the portfolio, adding, “We can expect a marginal reduction in personal loans.”