In an interview to ET Now, Umesh Revankar, Executive VC, Shriram Finance, shares his business outlook. Edited excerpts:
ET Now: The RBI has zeroed in on 15 NBFCs, placing them in the upper-layer category. You are said to be on that list. What is your initial assessment of the impact? Are you in compliance with most of the stricter regulations? If not, what measures would you have to take in order to comply?
Umesh Revankar: I think this is one-year old, because the list was already announced earlier. They had revised the list now. So, we are already into the system or into this new dispensation for more than a year.
Before that, RBI did indicate the upper layer and other layers more than three years back. So, all the NBFCs who are in the upper layer or whichever layer they are in, they are in full preparation and they understand the requirement and also the regulatory supervision and the regulatory requirements. This has all been addressed and we have been continuing with this for nearly three years. So, we do not have anything to have a surprise on the same.
Let’s talk about your overall segmental growth — vehicle financing, MSME, gold loans, etc. How are these segments performing?
We are clear leaders as far as vehicle financing is concerned, including two-wheeler financing, because in all commercial vehicles, we are the largest. In two-wheelers too we are the leader. We have the largest presence across the country.
We are continuing with our growth there. We do see a good growth opportunity because there are two things — one, the sale of new vehicles is continuing to be good and it is growing month-on-month or even year-on-year. Plus, we also observed that the resale values of vehicles are very strong and good, which really helps us in asset quality.
Strong resale values mean the demand for the second-hand vehicle is very good. This means vehicles or machineries or tractors are being used in the economy. That is very good for us.
So, our asset quality continues to be very strong and is improving quarter-on-quarter. I think credit growth will be decent for us. We have already given a long-term guidance of 15%. In first quarter, we had around 18% AUM growth. We should be able to continue to grow in a similar vein.
Do you expect the pressure on your NIMs to ease as well going forward?
As of now, NIM will remain at current levels. It may not ease immediately because the indication from the inflation and RBI standpoint, and overall liquidity in the system is likely to remain at present level or maybe a little tightened over the next one quarter or two.
It all depends upon how the agri output turns out to be. The Kharif output would be something we will be knowing in the first week of October. There has been disruption in the rains. As far as the Rabi crop is concerned, the rainfall has been reasonably good, so that should really help.
As for Kharif, there is some uncertainty because of the delayed rains. We would like to assess the situation by the end of September or the first week of October.
Once we know that and the inflation concerns are addressed especially on pulses and the vegetables, etc, I think we should be able to easily gauge the RBI’s mood or the overall liquidity scenario.
So, as of now, we do expect a little tight liquidity for next two quarters, which will make NIM expansion a little challenging. But we should be able to maintain our current interest margin.
Do you not think liquidity will actually come back?
It should come back, because right now in September this advance tax the money gets locked. So, there is a temporary shortage of liquidity. But it will come back.
I think the next couple of quarters will definitely help us gauge the mood of the country and also the levels of economic growth that is possible. So, if GDP growth continues to be above 6.5%, I think we should be having a very good year financial year.
Going by two-wheeler sales and HFCs and other such data, the rural economy is not really recovering. Will it have an impact either on demand or repayment ability of borrowers?
I am not looking at the benchmarking of two wheeler numbers on par with 2018-19 numbers. If I compare it to 2018-19 numbers, the two wheeler numbers are not great. But year on year it is growing at 10% and even month on month sales are good. So I do not really see stress there.
There is also a possibility that people are shifting from two-wheeler to car in certain pockets, especially in the southern market. I do see increasingly that two-wheelers are reaching a particular level of maximum limits and people are turning to the four-wheeler. So there is more wealth that is getting created in the rural economy.
I do agree that there has been some kind of uncertainties such as rainfall disruptions. But the disruptions are not too worrisome. So there is no reason to lose hope on the rural economy. And the government also has expanded the MSP cover to a larger number of agri output. I think all this should help us.
What of your tie-up with Paytm to get on their digital lending platform? What is going to be the nature of these loans — are they going to be largely unsecured?
Paytm is in the system for more than 10 years now. They have built a huge franchise of good merchants and good manufacturers on their platform. And they have a track record.
We would like to lend to small merchants. We are targeting small-ticket only — around one and a half lakh ticket size lending to the small merchants and distributors so that they can manage their inventory or their working capital requirement. So that is the agenda or the plan.
We are yet to build a credit rule engine and start lending on it. It will take some time, but we should be able to do it. So it is basically aimed at reaching out to the customers whom otherwise we are not able to reach. Even though we have 3,000 plus branches and a large field force, some of them would be out of our reach. So we would like to reach them and offer them our assistance through a digital platform so that entire transaction will remain on the digital platform with less supervision or less physical requirement or touch point requirement.
That is the idea behind it. Once the initial test models are successful, we will expand them. So initially, we would like to restrict it to a small geography, then we will expand it.
What is the outlook on your overall asset quality?
The overall asset quality has been improving for the last five quarters and it is likely to improve for the next two quarters as well, because the overall underlying economic activities, demand, the utilisation of vehicle, earning, everything is positive and good.
We hardly see a customer not being able to pay because of the economic condition or not being able to ply his vehicle, use his machinery, surrender his machinery. Nothing of that sort is happening. In fact, the possibility of repossession and taking back the asset is virtually nil. So to that extent, there has been excellent progress for all our customers.
I do see the improvement in the asset quality going forward. Our credit cost in the first quarter was 1.67%, much below our long-term average of 2%. That means we should be able to continue this good run for a longer time.
