‘Our focus now is on lending to small vehicles segment’

Conservatism is always good and Shriram Group has been conservative, says Umesh Revankar, Managing Director, Shriram Transport Finance Corporation (STFC). The non-banking finance company will not tap the market for additional resources this year as growth is still a year away, he says. In an interview with Business Line , the MD of the country’s largest asset finance company tells why, in the current environment, he is betting on small vehicles and the company’s strategy to battle the slowdown.

Eight months ago, when we met you said that rural demand is firing growth for the company. What has changed?

The consumption demand (growth) was quite good till the beginning of this year and then it slowly started reducing and came down to 1.6 per cent, according to a Crisil report, from an average of 4 per cent last year.

This year there is a de-growth in the small, medium and heavy commercial vehicle segment.

However, the de-growth in the small commercial vehicle segment is still just four-five per cent.

The preference now in rural areas is for used commercial vehicles since there is not enough capital to buy new vehicles.

Also, according to estimates, there are about one crore small and heavy commercial vehicles in India. There is more frequent selling of these vehicles as it is passing from one hand to another.

What is STFC doing to battle this slowdown across segments?

We are giving lower amounts of loans to customers. So, earlier we were lending 65-70 per cent of the asset price… we have reduced this by five per cent in August. We have also increased our interest rates by 0.5 per cent.

We are aware that this reduces the demand for loans. But we did this to bring more discipline. Also, if economic condition further deteriorates there is a likelihood of resale value going down further. So, these were the twin reasons for doing this.

Our focus will be on the small vehicles segment for the next 12 months.

The end of rice cropping season, then wheat production in winter and later mango production will see huge utilisation of trucks to transport the produce. Hence, smaller and medium vehicle demand will bring good income for us.

The growth rate would be somewhat subdued this fiscal. This means that we will grow at a more moderate 10-12 per cent (20 per cent, last year) for the next 12 months.

With such check and balances, do you see a slow recovery for the economy?

There are some greenshoots of recovery due to expectation of a bumper farm output growth. Second, the fact that there is increased power production — albeit with imported coal — should give some confidence to the small and medium enterprises. A good agriculture output and continuous electricity production should help bring down inflation in the next four months.

A declining inflation should bring down bad loans and also help RBI to lower the interest rates. Ultimately, it should give hope to industries to make capital expenditure and fund their abandoned projects.

Are you disappointed that not too many projects have taken off and clearances have been slow?

Definitely. We would have liked the coal linkages and allocation to be done very quickly, which has not been done.

Because of this, local power manufacturing companies have to import coal, which is a big drag on our foreign exchange reserves.

We were not able to export iron, despite having huge reserves of iron ore. That is definitely a situation where nobody will be like to be in.

The bad loans on your books have increased slightly. Has the re-possession gone up?

No, we are not re-possessing vehicles. When there is stress, we encourage customers to pay partly.

So, even if he pays three-fourth of his EMI in a particular month or a few months, we don’t harass him. Even in a year, if this continues then he would have skipped paying EMIs only for three months. That’s not a big default for us.

Our 10,000 plus workforce also constantly keeps in touch with the customer.

Are you prepared to come under a holding company as your parent Shriram Capital has applied for a bank licence?

We want to keep STFC separate from the bank. We have mentioned this in our application to the RBI.

We don’t know if the RBI will allow us.

Also, the RBI has spoken of a tap on licensing. They are also talking about differential licensing. So, even if we do not get a licence now, we will have more opportunities.

What are your capital raising plans for the remaining part of this year?

We have a board approval to raise Rs 2,000 crore in this financial year, of which we have raised Rs 1,250 crore. We don’t intend to raise any more money from the markets this year.

We also do not want to scale up business when the market is not really good.

The liquidity is good and we are also carrying huge cash on our books that we need to deploy.

satyanarayan.iyer@thehindu.co.in

COMMENT NOW