Given the tough economic climate, Reliance Commercial Finance (RCF), a division of Reliance Capital Ltd, is focusing on improving the asset quality as well as the profitability of each loan given, and not just on gaining market share.
RCF’s product offerings include home loans, loans against property, SME loans, commercial vehicle loans, loans for construction equipment and infrastructure loans. As of March-end 2012, RCF’s outstanding loans stood at Rs 13,239 crore against Rs 12,290 crore at March-end 2011.
The company has been disbursing only secured asset-backed loans and has wound up the unsecured loans portfolio.
In an interview with
What is your company doing to weather the current economic slowdown?
Our focus has always been to maintain high credit quality and focus on secured loans that lead to productive asset creation. We have always followed a conservative approach in lending and kept our costs low. This approach has helped us in keeping our NPAs within manageable levels and maintaining our profitability, even though due to higher interest rates, the cost of funding has gone up.
Which segments of your lending portfolio are seeing a pick-up and which are witnessing a slowdown? Why?
By and large, we see greater demand for loans and creation of assets happening in the smaller towns and cities than in large metros. There may be a slowdown in large projects, but the small and medium enterprises are still maintaining a reasonable growth rate. As our focus has been on funding this sector, we are able to maintain disbursals at a reasonable rate. Some sectors are witnessing a slowdown (heavy commercial vehicles and cars), but smaller commercial vehicles are showing good growth rates. There is renewed interest in affordable housing, especially in Tier-2 towns.
Now that we are seeing a greater stability in interest rates, we believe corporate capital expenditure should revive in the second half of the financial year, thereby increasing demand for loans.
Given the slowdown and high lending rates, how has borrowers’ behaviour changed?
Some larger borrowers have taken a ‘wait and watch’ approach. However, many sectors such as education, healthcare, and food are expanding and there is no major impact of the slowdown. By and large, the behaviour of borrowers depends on the sector, region and size of the enterprise. We have been studying these trends and tapping business opportunities thrown up by these sectoral needs.
What precautions are you taking to ensure that the loans you make now don’t turn into NPAs?
Our conservative approach and asset-backed lending have stood us in good stead and we are not seeing stress in our lending portfolio. We focus on lending to productive sectors and stay away from funding speculative, consumption-oriented or non-value adding activities. We work on a cash-flow-oriented approach to ensure serviceability of loans.
We are also making proactive collection efforts. Above all, over the past one year we have been educating SMEs on the need for greater discipline and governance, the importance of maintaining a clean loan track record and how to manage business cycles.
What are your credit growth targets in FY2013 vis-a-vis FY2012?
We expect overall credit growth to be 16-18 per cent during the year. Our business growth should be broadly in line with that number. However, our focus is not growth per se, but the quality and profitability of the book and hence the actual growth rate is not very important.
Is there any new line of business that you would like to venture into?
We have established a strong presence in mortgages, lending to SMEs and in equipment finance. We will continue our focus on these sectors and widen our footprint across the country.
Do you think the RBI should relax prudential guidelines for NBFCs so that they can play a more meaningful role in the economy?
We believe prudential norms are necessary to maintain healthy growth of the NBFC sector. They are, therefore, welcome. Widening fund-raising opportunities through a deeper debt market and easier opportunities for securitisation would be critical for the sector. Restoration of priority sector status to loans raised (from banks) by NBFCs for on lending to SMEs, small road transport operators and for affordable housing would go a long way in boosting the ability of NBFCs to service these critical yet under-serviced sectors of the economy.