Recent announcements about crop loan waivers by a number of state governments are unlikely to impact companies such as Shriram Transport Finance, Umesh Revankar, managing director and chief executive officer, tells Shritama Bose. While the first half of FY18 may be a tad slow in terms of loan demand, the company expects the full-year loan growth in the commercial vehicle (CV) segment to be between 10% and 12%. Edited excerpts:
Are you seeing any spillover impact of the farm loan waivers and farmer agitations?
People have been asking that, but I don’t think it would have any impact. One, the government will take the responsibility of paying back the banks. So, banks are not going to suffer. Where we have been lending is basically against the equipment — tractor or harvester or whatever it is. They are all commercially-used equipment for one’s own farm and also on hire and our installments are monthly. So we collect monthly. Unlike crop loans, which are given quarterly or half-yearly, nothing gets accumulated. So I don’t think there is any challenge for collection. In the past as well, such events they did not impact us.
After demonetisation, your business had taken a hit. How has the recovery been?
I should say it’s recovering and maybe 60-70% of it is already recovered. In one or two segments, a section of people have still not come back, especially self-employed and very small enterprises who are mostly cash-driven businesses. For transport, I don’t think it had any impact because it’s largely a service industry. When I say self-employed, it’s basically catering, event management and other small businesses which were probably not registered and depended on cash. Such people are yet to find proper ground. People’s spending has also come down. Probably once the GST (Goods and Services Tax) is there, there will be some direction in terms of taxes because most of the self-employed can come under this composite taxation. We are not sure, but even that can be a disruption for the next three-four months. After that, things will become normal.
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What would your forecast for loan growth in the CV segment be?
For the system, I think, it’ll be around 5-6% and for us the loan growth should be around 10-12%. In the first half, it could be around 8% for us and the second half should be more than 12%.
Have your borrowing costs come down, now that we have seen a year of the MCLR regime?
Borrowing costs have come down by about 20 basis points (bps). We are slowly reducing bank borrowings. It is at 25% (of all borrowings), while it was 35% at the beginning of FY17. Yields are also falling…
In the last two-three months, yields were steady. So the overall advantage of MCLR and market borrowings put together would be about 20 bps. What is your outlook on rates?
I feel looking at the current state of affairs that rates should come down. The repo rate should come down by at least 25 to 50 bps. If the monsoon is good and the food inflation risk is not there, it should come down. That should give an opportunity for reducing the borrowing cost for us. There could be expansion in the net interest margin (NIM) by around 15-20 bps over the year for us.
How much do you plan to borrow over the year?
It should be around Rs25,000-Rs30,000 crore for the full year. We have maturity of around Rs24,000 crore. So the net increase will be around Rs5,000 crore.
Many of your customers had switched to digital modes of payment after demonetisation. Do they continue to pay digitally?
We would like everyone to go digital, but people have gone back to currency. What I found is that if there are monthly installments of roughly Rs20,000-25,000, people still prefer cash. If it’s more than Rs25,000-30,000, they prefer cheque. The means of origination is important. If the origination is through digital means, it will remain that way. If the origination is in cash, it will remain in cash.