Shriram Transport Finance expects non-perfoming loans as a percentage of advances to rise further in April-June as the company adopts the RBI’s norm of classifying an account as NPA if payment is overdue for 150 days, says Umesh Rewankar, the managing director. In an interview with Aparna Iyer, Rewankar says margins will improve and the NBFC will be able to contain NPLs after the initial jump. Excerpts:

There has been a big rise in bad loans and provisions in January-March, especially in equipment finance business.

What are the reasons?

Equipment finance depends on infrastructure activity, which has slowed down in the last one year, and the payments for these are not being released. Earlier, we had the issue of payments not coming in time, but in the last quarter, there have been simply no payments at all. Also, RBI’s 180-day classification norm contributed to the jump in bad loans. Hopefully by June, we would be able to collect money from customers and the NPAs will be contained at current levels.

Will the parent company infuse more fund into the equipment finance subsidiary?

Right now, we have infused Rs 100 crore to maintain the Tier-I capital level, but I don’t see any need for further infusion.

Gross NPLs have gone up to 3.79% of advances. What is your outlook for the coming quarters?

Since we need to move towards the 150-day classification norm, there may be a jump in NPLs and provisions. So, in the first quarter, we could see a jump in NPLs, but it would then stabilise in subsequent quarters.

What about stress due to fall in rural wage growth and monsoon outlook?

The prediction is for 93% of the long-period average. My assumption is that there may not be a shortfall in agricultural output. Rural wages have not come down; there is still growth there. I don’t think the rural economy is weak.

Margins have improved because cost of funds have come down. Do you expect further improvement?

Bank base rates have come down by 25 bps. Term loans constitute a third of our total borrowing. So, a 25-bps fall in base rate would translate to around 8-bps improvement in margins for us. We can expect 8-10-bps improvement in cost of funds going ahead.

How much do you plan to borrow from the bond market?

We don’t want to change the composition of our borrowings, but, yes, there could be a little more borrowing through bonds this year. We may require Rs 4,000 crore more than the previous year. Last year, we raised Rs 2,000 crore from a public bond issue. This year, we have enabled Rs 3,000 crore, but we may like to borrow at least Rs 2,000 crore through a public issue, tentatively in July.

What kind of growth do you see in assets under management?

For FY15, we are looking at a 12% growth in AUM.

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