Lower loan-to-value ratio has given STFC greater control over portfolio

Mobile phones have improved financial institutions’ communications with rural borrowers and have also helped in reducing bad loans, says Umesh Revankar, managing director, Shriram Transport Finance Corporation (STFC). In this interview with Vishwanath Nair, he talks about the market environment, growth prospects and new business initiatives.

What do you make of the regulatory environment in India? Is the RBI right in its decision to sacrifice growth, while inflation still seems out of its range of control?
The regulatory environment in India has been independent and fair to all. The RBI has been very consistent in its policy. Faced with an uphill task of containing inflation, the RBI has been very cautious. However, India needs growth, especially in industrial and agricultural segments, as our country needs to create employment for unskilled and semi-skilled labour force.
 

What is your cost of credit? Do you think it will be curbed by the recent CRR (cash reserve ratio) cut?
Our cost of credit ranges from 10% to 11.50% depending upon the source of credit. The CRR cut has definitely created more liquidity in the system and some cost savings for banks. If the banks bring down their base rates, we should get benefit of the same.

In a difficult macro environment, how does STFC grow its commercial vehicle book? What are the latest trends?
STFC’s presence is in the niche segment of pre-owned commercial vehicle financing. In this segment, growth depends upon two factors: the ability to penetrate the market as most of it is still untapped by the organised sector and the ability to reach the customer through foot soldiers. We have decided to penetrate the rural market to tap the huge potential and growing demand. The Automall initiative has given us big access to all potential buyers and sellers.

What are your expectations for the rest of the financial year? Is there any guidance on growing your book and your profit?
We are looking at the growth of assets under management of 12-15% over the previous year and hoping to maintain net interest margin (NIM) in the range of 7.2-7.6%.

Which are the sectors contributing to growth? Which are the sectors in trouble?
The pick-up, small commercial vehicle and multi utility vehicle segments are growing whereas the heavy commercial vehicle segment is facing decline in demand due to sluggish growth in manufacturing segment.

What is the bad loans scenario like? Any guidance for this fiscal? What are the initiatives you have taken to reduce non-performing assets (NPAs)?
The gross NPA growth is arrested and hopefully would decline as the festival season would improve market conditions. We had reduced our loan-to-value ratio on our lending from last one year, which has helped us in managing our portfolio with lots of control. The increased mobile phone usage by our customers has helped us in improving our communication with them who otherwise would always be on the move on their vehicles. The call centre and the SMS message are being used frequently to reach the customer.

You had opened automalls across India. What has been the response? What was the philosophy behind opening these? Any plans to develop this idea further?
The Automall response is phenomenal and we have registered more then 2 lakh customers for buying and selling. The basic philosophy was to create a fair and transparent market for buyers and sellers to transact with finance being always available. We would like to make this a 24/7 service by offering new products/services on the web. We also would be offering a host of vehicle-related services in Automall like insurance, tyre credit, vehicle refurbishment, bill discounting, load placement.

Any more fund-raising plans in the offing?
Our business requires funds throughout the year as we lend Rs 1,600 crore to Rs 1,900 crore per month. The funds are raised on a continuous basis to meet the needs of the business.

Your non-convertible debenture (NCD) issue received a good response recently. Do you think people are finally shifting away from traditional investment avenues like fixed deposits?
The NCD issue response was overwhelming and we thank all investors for the same. In the recent public issue, we offered the investment in physical format and we received very good response. This shows that there are many potential investors who do not have demat accounts but would like to invest. Any financial institution requires funds on regular interval and retail resources like deposits are part of it and are very much essential for stability and growth.