With a total loan book size of ₹35,000 crore, Murugappa Group’s NBFC Cholamandalam Investment and Finance Company has emerged as one of the dominant players in vehicle finance business. Recently appointed Executive Vice-Chairman and Managing Director, N Srinivasan, discusses the company’s growth prospects and new initiatives. Excerpts:

How have been Q2 and the first half for your businesses?

The vehicle finance segment recorded an impressive performance in the second quarter. All pent-up demand in the auto sector was released in Q2. There was growth across the heavy commercial vehicle, mini commercial vehicle, tractor and used-vehicle segments.

Each category has done well, but for different reasons. Festive season sales were also good. Though recovery was in sight in the early part of Q1, GST-related uncertainties came up after the announcement of implementation dates and that caused some slowdown.

We generally get a feeling that the worst is over and demand is coming back.

Do you expect strong disbursement growth in vehicle business in H2 also?

We expect some more pent-up demand coming in Q3 as well. And, Q4 will always be better. The heavy commercial vehicle segment has been growing in double digits. Our reach and branch network help us to take advantage of demand revival in vehicle categories.

We hope we will be able to maintain the 20 per cent plus growth in disbursements in the second half also as there is visibility for such growth.

When do you expect improvement in the home equity business?

Till H1 of last fiscal, we were consistently growing. Last year, when we saw some tremors in the portfolio after demonetisation, we decided to slow down. It was actually a business loan. The typical customers included small shops, small industrial undertakings and ancillary suppliers.

They got impacted due to demonetisation and GST as cash transactions are more in these businesses. They are all in the process of coming into the GST system and it is taking time to return to normalcy.

NPA in the business is at about 5.6 per cent, which is the highest. But these are all secured by valuable assets. Also, these are all customers we have known for long periods. So, loans are all recoverable.

However, in the post-GST environment, working capital requirements of businesses will go up. Since demand has come back, our disbursements have been steadily growing in home equity since Q4 of last year to Q2 of this fiscal.

In Q2, though disbursements were lower year-on-year, profits were higher. Also, our loan losses were lower compared to the previous period. From next fiscal, it will be business as usual in this business.

What are your plans in the home loan segment?

We have started pure home loans and the current portfolio size is ₹600-700 crore. We are presently lending to affordable projects and the average ticket size is ₹15-20 lakh. While the affordable focus will stay, we can also look at higher tickets. We want to give a bigger thrust on this segment.

The opportunity is huge, though there are numerous players. We would like to stay in this business and we will ramp up the volume. For us, the big advantage is the branch network. We have 725 branches and still expanding.

In a couple of years, we will take it to about 1,000 branches. All these branches were started mainly for vehicle finances. But if we want to expand our home loan or home equity business, we can identity the locations and start operating without any cost.

Can you highlight some of the key initiatives you undertook after taking charge?

Over the next two to three years, we would like to focus on doing our business better across three areas — vehicles, home equity and home loans. Actually, I wanted to get the best in treasury, reduce the cost of funding, and improve profitability within the budget after I took over.

My immediate task was to engage with the rating agencies to improve our ratings. As a result, we have got AA+ rating from India Ratings and CARE, while we are in discussions with ICRA and Crisil. This will help us borrow funds at lower cost and compete effectively with others in lending.

Since we switched over to 90-day NPA norms from March, a year before the effective date stipulated by RBI, about ₹450 crore of normal assets turned NPA. We are making full effort and working with the teams to bring down the level of NPAs by March 2018.

Today, tech-driven businesses have some advantages and markets also respect that. So, we are trying to move to that level to drive the business using credit analytics and other technology initiatives.

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