The stock of L&T Finance Holdings has risen more than 62% this year, helped by streamlined businesses and strict management of costs. In an interview with Amrutha Penumudi, managing director Dinanath Dubhashi speaks about future growth areas and how the lending community, which has finally come to terms with the issue of toxic loans, is focusing on resolution.
How was this quarter for L&T Finance?
These results are an indication that our strategy is working. The strategy was to increase shareholder value by growth in the RoE. We have been doing it by a combination of healthy businesses, a simple structure and the right people.
The first quarter went according to our plan, and now the second quarter has worked even better than our expectations. We are very focused on this front — anything that helps RoE we will do. Anything that won’t — we won’t indulge in.
Which segments helped in profit growth during the second quarter?
There were various elements responsible. Apart from the RoE which increased by 2%, the cost to income ratio also came down. To decrease costs, we reduced our workforce in the head office and increased the number of people working in branches, as costs reside in the head office mostly. In terms of segments, all three of our focused businesses – rural, housing, infra – showed fantastic growth. We came down from 21 businesses to 3 and expect a 33% de-growth in de-focused products.
What kind of loan growth are you expecting for the rest of the year?
The loan growth in our focused products will be around 25 % this year. The de-focused business will come down by 30-35% and if we manage to sell it, it will drop even lower. Based on this, the average loan book is expected to grow at 15-18 %.
The monsoons have been good this year, how will this impact your rural business?
The last three monsoons have been bad which meant the farmer was in deep trouble. This time, the monsoon was excellent. So, largely the kharif crop is going to be very good.
However, this does not mean the farmer will utilise the money he gets in repaying loans – he has other responsibilities. But we have seen a great turnaround in sentiment. Healthy water tables and higher reservoir levels will also ensure a good rabi crop.
What about NPAs? What do you think is needed for quick resolution? Do you expect to see fresh slippages going
It is the infra segment where we saw trouble in the past, especially in EPC (engineering, procurement and construction) and thermal power contractors. We are now seeing a lot of positives here. Other infra businesses are growing.
For instance, there has been a lot of government initiatives in roads and this in turn has increased business for EPC companies. The governments decision to release 75% arbitration award will put more liquidity in system, and help resolve projects quickly.
The entire lending community is slowly accepting the NPA issue and is moving towards resolution.
We believe scares will continue to be there, and lenders may have to take few haircuts, but the stress in many of these sectors is getting resolved.
Are you happy with what the government has done to help the resolve NPAs?
I think the government is doing its bit. The bankruptcy code is a big positive, the GST is a huge positive. It is one thing to blame the government for not doing anything, it is another to take responsibility and make the most of whatever measures that have been provided so far.