Non-banking financial company (NBFC) L&T Finance had managed to bring down gross bad loans by 13% in Q2 FY15. In an interview with Shayan Ghosh, L&T Finance managing director and CEO Dinanath Dubhashi says the company is adequately capitalised and is not worried about RBI’s new NPA classification guidelines that puts them on a par with banks, though he would like access to Sarfaesi. Excerpts:

RBI has told NBFCs to make higher provisioning for bad loans and adhere to a 90-day classification like banks…

We are adequately capitalised as our capital adequacy ratio is 16.7% and have a Tier I capital of 14.3%. As far as profit-and-loss book (P&L) is concerned, L&T Finance and Family Credit follows a policy of Rs 90-100 crore of excess provisioning. When the classification gradually moves to 90 days from the current 180 days, much of the extra provisioning will cushion us. After three years, when these norms kick in, we will not provision agressively.

What are you doing to check NPAs? What are the recovery measures put in place?

At present, the recovery team swings into action and starts collection drive after 90 days, well ahead of the 180-day NPA norm for NBFCs. Before 90 days, we send dunning notices and after 90 days, we send legal notices and start repossessing assets. The idea is to collect or repossess before the overdue reaches 180 days. Over the next three years, these collection drives will have to be advanced.

While we talk about a level-playing field, we have requested the regulator to give NBFCs an access to Sarfaesi Act, which is a tool to achieve faster recoveries. As of now, banks can use the Sarfaesi Act and if we are to be in line with banks, we would require access to Sarfaesi.

Which segments you think will drive your growth?

At present, we are concentrating on two-wheeler and tractor sales and on strong manufacturer tie ups which help customer identification. We have tied-up with Honda for two wheelers and Sonalika and Escorts for tractors. We also finance vehicles sold by their dealers, though it’s not an exclusive arrangement. Thanks to these tie-ups, we have been able to grow our market share to 6% in two wheeler and 10% in tractor sales and have grown above industry average. However, in cars we have less than 1% market share.

At a time when most banks have given up funding two-wheeler purchases, why are you so upbeat about the segment?

We started two wheeler financing by acquiring Family Credit in 2012 and see big potential in the two-wheeler market, which is growing every year, thanks to the rising income levels in rural areas. Our rate of delinquency is well within control and portfolio is performing as per expectations. Hence we are confident of our strategy.

Analysts expect the tractor industry to grow around 4% in FY15. Why is there a lull in this market?

In last three years, the tractor industry has grown 24-30% a year, so there needs to to be a period of consolidation. Also, while the monsoon was slightly deficient, the predictions of a drought were incorrect. However, the situation is little worrying in Andhra Pradesh. India now sells, close to 6 lakh tractors compared with 3 lakh tractors in FY12, so there needs to be a period of consolidation.