Money & Banking

Magma Fincorp lowers exposure to tractor loans

Shobha Roy Kolkata December 20 | Updated on January 09, 2018 Published on December 20, 2017

Kaushik Banerjee, President and CEO, Asset Finance, Magma Fincorp. - DEBASISH BHADURI

Move in line with the NBFC’s plans to de-risk its portfolio and broad-base its loan book

Kolkata-based Magma Fincorp has seen month-on-month disbursements under tractor lending drop to 15 per cent, compared to 25 per cent in the same period last year.

This is in line with the NBFC’s plans to de-risk its portfolio by scaling down exposure in the “more volatile” tractor lending business and broad-base its loan book.

According to Kaushik Banerjee, President and CEO, Asset Finance, Magma Fincorp, nearly 28 per cent of its total advances book of ₹11,000 crore (as in FY17) was from tractor loans. Plans are afoot to bring it down to 20-22 per cent of its total lending in a phased manner.

“Earlier, 25-26 per cent of our disbursements on a monthly basis was driven by tractors. Today, that is down to 15 per cent. Used vehicle finance, which accounted for 15-20 per cent of our monthly disbursements, has now gone up to 35-40 per cent,” Banerjee told BusinessLine.

This shift in disbursement pattern may not immediately reflect in the portfolio composition as there is likely to be a lag effect. However, the share of tractors and cars to the overall assets under management (AUM) is likely to come down by 2-3 percentage points in the near term.

Magma’s lending portfolio, which was more skewed towards tractors and cars, would be revamped with a focus on commercial vehicles and used vehicle (cars and construction equipment) finance.

Though there is no wilful default, tractor loan repayments, which are linked to crop cycle, are more volatile in nature.

“With 28 per cent of my assets lying in tractors, the risk is fairly high,” he said, justifying Magma’s move to reduce its exposure to the sector.

Disbursements

Magma is expecting its disbursements to pick up in the remaining part of this fiscal. Its disbursements had seen a 20 per cent decline in Q1 FY18 over same period last year; and remained flat in Q2 FY18 (over Q2 FY17).

“Post the change in product mix, we took a hit (in disbursements) for one quarter and in Q2 we were flat. Going forward, with product re-composition pretty much in place, we see disbursements growing,” he said.

Magma is expecting better spread supported by higher disbursements to used vehicles.

“Used vehicles deliver equal or even higher margins when compared to tractor finance, but without the associated volatility,” he pointed out.

On the asset quality front too, the NBFC is expecting a ‘visible improvement in portfolio behaviour’ by the end of this fiscal.

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Published on December 20, 2017
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