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Shriram City Union Finance doesn’t expect business growth to slow much in the coming months despite tough economic conditions. The company’s MD, GS Sundararajan, in an interview with Vishwanath Nair, lists out the group's expansion plans, challenges faced and why the group has been opposing RBI’s 90-day asset classification norms.
Keeping in mind the recent developments in the banking sector, how are you coping with the increase in cost of funds?
As of now, we have some limits available with banks. But there is some amount of stress, which I can see developing in terms of the actual amount of funds available to us. Hopefully, over the next month or so, we will know whether the banks are going to charge us more. If they do, the increase will be about 50 bps on the cost of funds. We may still end up absorbing 50 bps, but beyond that, we will have to consider passing it on to our customers.
Have the bad macroeconomic conditions and higher rates translated into asset quality issues for you?
We have been seeing some delays in payments from medium small and micro enterprises (MSME). The delays have not yet translated into non-performing assets (NPAs). But even if they do, there might be a 25-30-bps variation in the asset quality situation. The only salvation is that about 95% of our lending to MSME is secured. At best, for the next two quarters, we may see some deterioration, but once we start realising and writing back, we will be able to stabilise them.
In these conditions, will you slow your business growth or is the demand itself coming down?
We are not going slow. As long as we continue to get liquidity from the banks, we will grow reasonably in the MSME segment. We may not see the 40-50% growth we saw last year, but, definitely, we should see a 20% growth this year. In our case, we have not seen any slackening of demand so far. But then our customers are really in the fourth level of the value chain, so, if at all we see some slowing down, it will be in the next six months or so.
Which are the geographies you are looking at outside of southern India? Will you be expanding aggressively?
In Uttar Pradesh, Haryana, Punjab and Rajasthan, we have opened about 100 branches, while in Maharashtra, Gujarat and Madhya Pradesh, we have opened 40-45 branches. We are seeing how we can expand our business there. Our philosophy as a company is that we do not rapidly expand. First, we understand that how we can establish ourselves in those geographies and, then, slowly expand.
We are not really in rural areas, though Shriram Transport has been opening a lot of rural offices now. We are largely in urban and semi-urban areas and our expansion will continue there.
Some of your peers have already started moving towards a shorter duration for NPA classification, expecting RBI’s new norms. Why is the Shriram Group waiting it out?
We are waiting because we believe that the segments that we are catering to are not going to be sufficiently catered to with these changed norms. These are sectors with irregular cash flows and they need a lot more tolerance when it comes to NPA recognition. We want to ensure that it is maintained the way it is. We are making a lot of representations that the changed norms will hurt financial inclusion. This is something we are categorically telling the ministry as well as the regulator.