The Hindu Business Line : `We're planning to channelise, lend more in old truck segment'

Chennai June 4 Shriram Transport Finance Company (STFC) is the largest non-banking finance company in India, engaged primarily in the business of lending to the commercial vehicles segment.

The company reported 34 per cent growth in profit last fiscal (to Rs 190 crore) on income of Rs 1,416 crore.

Mr R. Sridhar, Managing Director, spoke to Business Line on performance during the last fiscal and its outlook for the immediate future. Excerpts:

Your company has reported 34 per cent growth in profit last fiscal. What do you attribute this to?

We attribute this mainly to our strength in lending to small truck owners, predominantly in the used vehicles segment. However, I also believe that this is attributable to robust growth in the commercial vehicle industry.

We were able to generate huge resources from the banks and institutions, which were not very keen to fund small truck owners earlier.

We have worked hard in the last 25 years to create a good perception regarding the credit-worthiness of the small truck owner in the minds of banks and institutions, thus paving the way for more resources to the commercial vehicles industry.

How much did disbursements amount to last year and how much do you plan to disburse this year?

The total disbursement stood at Rs 6,600 crore, of which disbursements for new vehicles were Rs 2,400 crore and the rest for used vehicles.

We plan to disburse Rs 10,000 crore in the current fiscal, with new vehicles accounting for Rs 2,500 crore.

What is your market share in these segments?

The market share for new vehicles is 7-8 per cent and around 30 per cent in old vehicles.

How has the rising interest rate impacted your cost of funds?

Rising interest rates naturally increase our cost of funds. In our loan basket, 50 per cent of the loans are at fixed interest rates; hence, any rise in interest rate will not impact us on that portion.

What is the funding mix for your company in terms of bank finance, debentures, fixed deposits and securitisation?

The funding mix of the company has shifted towards banks and institutions in the last five years.

Before the year 2000, we relied mainly on retail borrowings. As of now, we have 80 per cent banks and institutional borrowings; the rest comes from retail borrowings.

Have rising rates impacted your borrowers? Has there been any increase in defaults?

The loans that we have already disbursed to the truck operators are all fixed rate loans; hence, they cannot be re-priced due to increase in our cost of funds.

Therefore, rising interest rates will not affect the borrowers who have already borrowed. So, the question of increase in defaults does not arise.

What is your current capital adequacy ratio?

The current capital adequacy ratio of STFC as on March 31, 2007 was around 14 per cent; the minimum required as per regulation is 12 per cent.

What is your outlook for the current fiscal?

We are bullish about commercial vehicle industries growth. We are planning to channelise and lend more in the credit-starved old truck segment. The commercial vehicle has seen increasing replacement demand over and above the economic growth.

This is the reason why we have seen consistent growth of new vehicle sales in the last five years, whereas the commercial vehicle industry is known to be cyclic in nature.

We anticipate this replacement demand to intensify in the coming years, requiring more funds for modernising the country's fleet.

This will throw up huge opportunities for companies like us and we are geared up to meet this opportunity.

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