The collections have gradually improved in January, mainly because currency availability was low. Till mid-December, the old currency was still being used.
Vehicle financier Shriram Transport Finance has begun to tide over the shock to disbursements and collections, Umesh Revankar, managing director and CEO, tells Shritama Bose in an interview. As the company transitions to the 120-day period regime for bad loan recognition, gross non-performing assets (GNPAs) will rise by a percentage point, he adds.
How have collections done since the end of December?
The collections have gradually improved in January, mainly because currency availability was low. Till mid-December, the old currency was still being used. As we moved towards January, the old currency was not there and new currency too was not available. There were some challenges, but people went to digital payments. Many of our customers and the entire transport system went digital. Cash collections were the least we have seen in many months, or even years. By February, currency availability increased and even cash collection increased. But what we are witnessing is smaller-ticket (transactions), cash is still preferred. On an average, around 30% of our total collections would be cash, which was earlier around 60-65%. That should be the pattern going forward.
What is the average ticket size of loans still being paid back in cash?
Up to R15,000, there is a preference to pay in cash while anything beyond R20,000, people are preferring to pay by cheque. Earlier, people would pay up to R25,000-R30,000 by cash.
Disbursements had been hit during Q3. Has that changed?
In January it was slow, but in February we are seeing a good pick-up. Some of it was due to the BS-IV standards, where the likelihood of price increase is around R1-2 lakh per vehicle. Because of that, there is some pre-buying. When pre-buying is high for new vehicles, automatically the demand for old vehicles goes up, and it flows through the entire chain. We expect March to be very good and there will be a jump from last quarter to this quarter as far as lending is concerned. Year-on-year, there may not be a big growth because of a high base. Also, we understand that rabi crop sowing area has been much larger — 68% more than the previous year. We expect a bumper crop for rabi, as has been the case of kharif. But since there is GST in between there could be some apprehension on the demand for vehicles because there may be a tendency to postpone.
You had used the RBI dispensation for small loans in Q3. How are collections from those accounts coming on?
We had used the dispensation for about R450 crore, but we had provided 5% more (than mandated) for coverage so that profits don’t turn out to be higher than normal. Collection picked up in February. I expect March to be very good and we should be able to resolve most of them.
By March 31, you will have to transition to the 120-day period regime for recognition of NPAs from 150 days now. How will that impact your asset quality?
It (gross NPAs) should be about 100 basis points more. What happens is that customers who are habituated to paying two or three instalments late will remain at that level. You can’t expect them to change suddenly. But these will all be delayed payments, so it need not become a credit cost.
What kind of growth are you expecting in FY18?
I am certainly looking for 12-15% growth in AUM (assets under management), but the growth in the first six months may not be as good because of uncertainties around GST. For smaller firms, adopting GST may have a big impact. If there is a good monsoon and kharif harvest, growth should definitely be 15%.