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The rise in cost of funds following the NBFC crisis, and a slowdown in disbursements due to increase in interest rates, may exert pressure on Magma Fincorp’s profitability.
According to Kaushik Banerjee, President and CEO, Asset Finance, Magma Fincorp, there has been a 70-120-basis point rise in cost of funds for players across the industry. However, only a portion of the rise in cost of borrowings has been passed on to customers.
“Interest rates have gone up only by around 50-80 basis points compared to borrowing costs, which have increased between 70 and 120 basis points for the industry as a whole. There is likely to be an impact on the bottomline,” Banerjee told BusinessLine .
For the quarter ended September 2018, the Mumbai-based NBFC posted a net interest margin (NIM) of 9 per cent. However, holding NIM at these levels would be a ‘challenge’, he said.
Lacklustre disbursements
The funds crunch, and the resultant rise in interest rates, impacted disbursements during the festival season. While car sales were muted due to the rise in fuel prices and increased rates, the housing sector, which usually witnesses a spike in demand during the festival season, was also affected.
“Diwali is usually a period lenders look forward to, but it didn’t pan out the way it should have,” he said.
Banerjee, however, expects the situation to ‘ease off’ in the next couple of months, given that the liquidity position of NBFCs has improved over the past one month.
“While things may ease off in the next couple of months, however, the increased rates of interest are here to stay,” he pointed out.
Magma recently undertook a realignment of its product portfolio by scaling down exposure to the “more volatile” tractor lending business and broad-basing its loan book by focussing on used vehicles and commercial vehicles. The effort has ‘paid off’, with disbursements growing nearly 34 per cent during the first half of this fiscal.
The company is also mulling the possibility of offering two-wheeler loans to its existing customers. It will also focus more on cross-selling insurance and home loan products to its existing customers to boost profitability.
“We will probably have some headwinds in H2, but we are expecting a double-digit growth in disbursements,” he said.
The company’s assets under management (AUM), which had de-grown following the realigning exercise, grew by a marginal 6 per cent during the first half of this fiscal to ₹16,623 crore on year-on-year basis.
“We are expecting decent accretion in AUM in H2,” he said.
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