Magma Fincorp expects growth to rebound this fiscal

Kolkata-based non-banking financial company, Magma Fincorp, is expecting growth of its core asset financing business to bounce back this fiscal (FY18). Financing of used assets such as commercial vehicles and cars are said to be the prime drivers.

So far, the lending portfolio was more skewed towards cars, multi-utility vehicles and tractors. Commercial vehicles and used cars accounted for 15 and 12 per cent, respectively, of the portfolio size.

The segment bore the brunt of poor asset quality, with demonetisation further hitting loan recoveries in categories such as tractors.

According to Kaushik Banerjee, President & CEO, Asset Finance, Magma Fincorp, the idea will be to de-risk the portfolio. The portfolio mix isn’t expected to go for a drastic change immediately, but focus areas will change.

Despite high profitability, tractor financing is considered a volatile segment dependent mostly on how the rural economy behaves. So there may be some slowdown in lending there.

The big bet for Magma Fincorp include financing used assets. Light and small commercial vehicle financing rather than lending for heavy commercial vehicles is another strategic shift.

Pick-up in rural economy, courtesy good monsoons, and road building projects are expected to further push growth in the sector. “Focus will be on improving the bottomline through portfolio correction and making the mix of assets more broad-based. Some modification in portfolio is being done with the intent being improvement in asset quality,” Banerjee told BusinessLine .

“Unless there are major disruptions because of GST, disbursals on a year-on-year basis should not decline,” he added. In FY17, disbursals grew by 4 per cent over FY16, to ₹4,700 crore (in the asset finance category).

In FY17, Magma Fincorp’s bid to improve asset quality saw them sell ₹678 crore worth of NPAs (non-performing assets).

“The sale was necessary to improve the health of our balance-sheet in the coming fiscals,” Banerjee maintained.

Post the sale, gross NPA per cent improved to 6.7 in FY17 (8.1 per cent in FY16), while net NPAs stood at 5.6 (from 6.4).

According to him, the impact of this portfolio correction is likely to be seen over a three year-period or longer.

“A gross NPA of 4.5 per cent or below is considered to be comfortable by industry standards. Our expectations are more in line with the industry,” Banerjee pointed out.

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