bl interview. Holding firmly to the strategy of doubling book by 2025, says M&M Finance’s Ramesh Iyer

While there was a feeling of rural going a little slower compared to urban, we had a very different experience. Our understanding is that the segment of customers that we are working with, who are the local earners have been doing well on cash flows. The vehicles that we are financing are all need-based and being put to commercial use. With no exception of a State, everywhere, we are seeing economic activity at its best. We have not seen any lax in products or geography. That’s also reflected in our collections.

SME book is running faster than the disbursements because previously we had institutional lending. If you recall, we had said earlier that we are into doing institutional lending but want to focus on SME, whether agri, auto, engineering, trading, and allied segments. Therefore, the book is running off faster than disbursements and growth rates are a little slack. But if you purely look at disbursements year-on-year, we are growing at 30 per cent plus. With respect to collections normally in the first quarter, NPAs go higher than what we closed on March 31. That’s the nature of the market. But contrary to that, because the level of activity has held up so high during this quarter, that for the first time we have actually seen a decline in NPAs over March. I think, we are seeing the best on the ground. Around 60 per cent of our collections are now coming digitally which is another reflection of the customers’ ability to earn and therefore are paying on or before the due date.

There is a shift from a single truck buyer to fleet buyers. Therefore, the one to three vehicle owners are not buying. It’s only the fleet operators who are adding capacity because the cost of the vehicle has become so high that probably single truck owners are finding it an unviable opportunity. Construction equipment is seeing good demand and has remained buoyant. Tippers are doing well. It’s the goods carrier, trailer kind of a vehicles where we saw some slack. Buses are doing well; school bus additions have been there. Overall commercial vehicles are still registering growth, but certain segments within that are not growing as much as we saw in the past.

We don’t want to make a forward looking (statement), but if at the end of Q1 we have added 28 per cent loan book growth and normally, the third and fourth quarter are a much better quarter, managing a growth level of what we have already seen should not be a challenge. We are holding on firmly to the strategy of doubling our book by FY25.

FD is normally the costliest instrument for us. Normally we don’t get a lot of 4-year money, it’s mostly 2-year money. We were conscious about how much to push for FD versus other borrowings. We were more comfortable with bank borrowing and market instruments as that comes at least 50 basis points cheaper than FD normally. But as a finance company, we must have a proper mix of liabilities and historically, we have said FD will be about 10 per cent of our total borrowing. We’ll push it back if we see some stabilisation.

Our cost of borrowing is 7.5 per cent. But as the past borrowing matures and the new borrowing comes in, it will be 20-30 bps higher.

28 per cent was very high and we are now consuming well with growth coming back. Profits are also generated to get added back to that. RBI requirement for tier-1 capital is 10 per cent and we are at 18 per cent. Unless that number comes to 13 per cent, you will look at us to be in capital requirement. Up to doubling on the balance sheet by 2025 that we spoke about, we are not envisaging a capital raise.