Shriram has tapped only a slice of a huge opportunity in CV segment: MD
Umesh Revankar, MD & CEO, Shriram Transport Finance, says the current CV growth is being fuelled by rural, e-commerce and construction-related segments. Excerpts from an interview with ETNow .
ET Now: Let me start off with your own broad overview on how things are shaping up? What factors do you believe are driving the revival of CV financers from the recent slowdown? Do you believe the bottom of this cycle is very much in place and behind?
Umesh Revankar: As far as CV demand is concerned, two factors are really boosting sale of new vehicles and demand for used vehicle. One is the rural demand, which is very strong, mainly for agrarian transportation. Having two good monsoons has helped rural India. This year kharif output was quite good. So that is the main activity where the demand is coming. Rural demand is basically for used vehicle and probably smaller vehicles, LCVs. So LCV sales have increased sustainably.
The second factor is e-commerce activity. E-commerce activity is redistribution of goods within a city or outside of it or to individual requirement. This is another segment driving LCVs and smaller vehicles. Apart from that, construction activities are doing quite good and the demand related to construction vehicles is good. So this is consistently helping demand. So, demand for vehicles is very high and we are yet to see production-led or construction-led demand. So that is next I think. It should come any time. I feel long-distance freight-related activities are yet to come. It may take some time.
ET Now: Can I connect the CV monthly dispatch numbers as a lead indicator of what will happen to your business?
Umesh Revankar: There is huge opportunity for us to cover other geographies where we have not covered. We are very strong in the south and to some extent in the west, but in north, east and central India, we are not very strong. By adding more to the network, we can increase our lending. I feel there is huge opportunity. The other lending happening earlier by money lenders or local financiers is slowly becoming more and more organised. So, demand for us, especially for used vehicles, is going up month on month.
ET Now: For the NBFC sector, per se, the good bit has been the cost of borrowing has come down dramatically. But now we are nearing the end of the rate cut cycle and the cost of capital will go higher. That is your basic raw material. What happens in this situation? Because you borrow long and you lend short. Do you think in the short-term there could be pressure on margins?
Umesh Revankar: We normally borrow for three years and lend three years. So we normally do not have a mismatch; that is one thing. Secondly, the drop in borrowing cost has benefitted the NBFC industry as a whole in last two years. Maybe it has come to an end, and probably it may remain at this level. I do not see a big jump or any increase right now. So there is enough liquidity and we are quite comfortable. I do not really see a reason for an increase in cost as of now. We are very comfortable because our ALM mismatch is not there and we do not normally borrow short.
When we borrow CP very short and lend – put that as a spread – then you have a problem. When you do not consider CP at all and you put your three-year borrowing as your borrowing cost, then you do not have a distortion. So I do not expect any disturbance or shock because of this spread.
ET Now: Just an extension of that, what do you foresee to be the case with asset quality with the cost of borrowing going up. You do not see that to be a concern right now, but how do you view the asset quality situation going forward?
Umesh Revankar: For us, the asset quality at present level is not a big surprise. Because we had seen some impact of the government policy change in last one year which made NPL look a little elevated. But it is not a cause of concern, because we have been dealing with these customers for last 30 years and customer behaviour does not change. They have been used to a particular way of operating. They used to keep one or two instalments per year outstanding and that will remain same. We cannot change our customer or our business model to suit the NPL recognition changes being brought in by RBI.
We feel we are comfortable and with around 8 per cent at 120 days and maybe when we move to 90 days, it may be around 9-9.5 per cent on the gross NPL. But over a period, customer behaviour can be influenced. Once we move to 90 days, our ability to influence customer behaviour and make them bring down NPL levels will be a possibility. So we are quite confident about it and we are comfortable with the customer base. Customers what we have are all individual customers and their earning is fungible.
Let’s block ads! (Why?)
Via:: Economic Times – Stocks