The proposed asset classification norms, which mandate that non-banking finance companies (NBFCs) should classify a loan as non- performing if the instalment is overdue for 90 days instead of 180 days, will spell disaster for NBFCs, according to G. S. Sundararajan , Managing Director, Shriram City Union Finance.

He feels that the proposed prescription on asset classification norms may not see the light of day as NBFCs have strongly put across to the regulator the futility of such a norm.

In an interview with Business Line , Sundararajan speaks about the complementary nature of NBFCs and banks and the need for the company to keep its NBFC business separate from the likely foray into banking should it get a licence. Edited excerpts:

Bank lending to NBFCs has seen a spurt in recent times. What has changed?

If you look at the segments that are really growing, then it is the micro and small enterprises segment. This is the segment that NBFCs lend to. The mid-corporate and medium enterprises are not growing as much.

Also, banks see NBFCs as complementing their business. There was some scepticism a few years ago, but now even in the RBI there is recognition that co-existence of NBFCs with banks is the only way to achieve financial inclusion. When it comes to last mile coverage, banks can never do, at least not in my lifetime.

About 46 banks are now lending to us. So, banks are looking at good NBFCs and are willing to give them more.

Which segment of your business is growing well? Would you like to restrict growth in any of the sectors?

We lend against gold, we lend for purchase of two-wheelers, to micro enterprises and to the low end of small enterprises. About 45 per cent of our portfolio was gold loans about 18 months ago. We never wanted that to be a large part of our business. We want to be financiers of MSMEs (micro, small and medium enterprises) than a gold financier. So, we have now got it (gold loan portfolio) down to 23-24 per cent. We wish to maintain it at that level in the foreseeable future. The two-wheeler and MSME segments are growing well. We think both the segments will grow at 50 per cent and 40 per cent, respectively.

About 75 per cent of our total lending out of our Rs 15,000-crore portfolio is to small and medium businesses. Most of the customers, across the three categories, are either self-employed or run small businesses.

But banks have been complaining about high stress in the MSME portfolio with truncated cash flow and delayed orders…

We are in a different segment than banks. We do not rely only on the financials but also on credit worthiness. We do more community lending because we are there in the community and understand the business cycles of our customers.

Banks rely heavily on financial statements. Even big corporates fudge their financials, so what do you expect the mid-corporates and medium enterprises to do, when banks do not give them the required amount.

In our case, I would not say delays are not there. Delays are there but they are not so much as to lead into losses.

Will you be willing to fold your NBFCs into the bank, if you were to get a banking licence?

We have asked for a licence whereby we can keep our NBFC business separate from the bank.

The combined loan portfolio of Shriram City Union Finance and Shriram Transport Finance Corporation is about Rs 70,000 crore. It will take us at least eight to nine years to raise this amount through deposits.

We have said in our application that it is not possible to bring all these (NBFCs) under a single entity.

Our business is different from other NBFCs and bringing all our business segments under a single unit will increase the concentration risk, which the RBI does not want. I don’t think the RBI will force us to convert all our businesses under a single head and if they force us, then we do not want a banking licence.

Are NBFCs facing any major regulatory challenges?

There is a growing recognition within the RBI about the importance of NBFCs. However, it will have to go back on some of the decisions taken earlier. For instance, it said that we should not collect retail debentures more than twice a year. How does it matter if the NBFC that has the licence to collect deposits raises money through debentures?

Because of episodes such as Sharada, the RBI decided to put restrictions on raising resources through debentures. We have expressed our displeasure to them.

Next, the asset classification (Usha Thorat Committee) norm is again something we have serious issues with. Aligning the asset classification norm (from 180 days to 90 days) for NBFCs with banks will be a disaster for NBFCs. It is conceptually a wrong thing to do. It will severely impair financial inclusion and reduce the difference between banks and NBFCs.

But the speed at which the committee’s proposal came, they have not implemented it. We believe that it will go into cold storage. I don’t think it will come.

Related Topics
comment COMMENT NOW