“We believe there is an upside risk to the interest rate table and we believe that rates will continue to rise for some more time before they start sliding. Yes, the cost of borrowing is higher, it may inch up even further sometime more before it stabilises. NII may take a bit of a hit because of the rising interest rates fully getting factored in the cost of borrowing and with the growing balance sheet, it will provide a fillip to the absolute NII growth,” said Vivek Karve, CFO at M&M Financial Services in an interview to moneycontrol.com
Do you see a rise in borrowing cost for your company due to the competition with banks as players are offering higher and competitive rates
The repo rate increase has already been affected to the extent of 250 bps since the beginning of the year. If one looks at the US jobs data and the unemployment data, it appears that US Fed will take further action in the rise interest rates which means that RBI will most likely follow suit. If that was to happen, the borrowing cost will go up.
The borrowing rates are already higher by about 1.5-2 percentage points in Q3 FY23 which means that large part of the repo rate increase has been passed on either by the money market or by the banks to NBFCs because we depend on the bond market and the banks as our source of funds.
Going forward, I believe there is an upside risk to the interest rate table and we believe that rates will continue to rise for some more time before they start sliding. Yes, the cost of borrowing is higher, it may inch up even further sometime more before it stabilises.
We have seen slow growth of NII of Rs 1,650 crore, which was just up 7 percent YoY, do you see earnings taking a hit in the next few quarters or the company will show investors a positive surprise?
In the month of November and December, we had taken the leading rates higher by almost 70-80 bps which should definitely help the company to maintain at least a 7 percent net-interest margin (NIM) for FY 24 if not more. In the current year our disbursement growth has been quite healthy. On a QoQ basis, we have been growing our disbursement both YoY as well as sequentially. That benefit will also get factored when we look at our NII growth.
In terms of percentage, the NII may take a bit of a hit because of the rising interest rates fully getting factored in the cost of borrowing and with the growing balance sheet, it will provide a fillip to the absolute NII growth.
World Meteorological Organization said that El Nino may visit India in coming months, how do you see this phenomenon affecting your loan portfolio?
It is not necessary that the country is only dependent on rain-fed agriculture. Our customers have typically had dual incomes including agriculture and mobility or contracting. Therefore, one year of bad monsoon will not necessarily impact the availability of our customers. However, there may be an impact but the severity of the impact may be of lower intensity.
Which are all the sectors that will boost the loan book?
95 percent for the balance sheet is catering to the mobility sector which is vehicles. The balance of 4-5 percent includes SME, leasing and unsecured personal loans. We have tied up with digital platforms wherein customers who wants to buy used vehicle, we offer a financial solution.
Do you see NBFCs have a tough year in 2023 on account of tight regulations from the RBI?
RBI believes that some of the large NBFCs need to follow certain regulations which provides the Central Bank with the necessary comfort. It does increase the cost of compliance but we will take the necessary steps in risk management processes or compliance processes and we will make our systems more robust which will make us prepared for a much larger scale of operations.
When do you see the interest rate hikes by US Fed or by the RBI will stop?
Another 25-50 bps increase in interest rates can happen, not immediately but over a period of next six months or so. If you look at the macro scenario, the economy has continued to grow and may grow by 6 percent in the coming fiscal. This makes us one of the very few economies in the world which will grow at such a growth rate.
As the 2024 general elections are on the horizon, the government will continue to spend on infrastructure and rural development including agriculture which augurs well for the rural and semi-urban space.
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