Shriram Transport Finance’s provisions are likely to remain elevated over the coming quarters following the company’s classification as an ‘upper layer NBFC’ by the Reserve Bank of India.

“Generally the regulator wants us to maintain higher provisioning, and they appreciate us for being very conservative. Therefore, it will remain elevated for some more time to come till the regulator and the market is comfortable,” said MD and CEO Umesh Revankar.

In addition to higher provisioning, the central bank also expects Shriram Transport Finance to be run like any other scheduled bank as far the overall supervision, regulations and maintenance of accounts is concerned, Revankar told businessline.

“We feel that their expectations will be a little high on the overall provisioning and accounts maintenance, which we will be able to manage quite well, because they have been guiding us for the last two years and we know what is coming for quite a long time,” he said.

On September 30, the RBI categorised 16 large NBFCs as ‘upper layer NBFCs’ as a part of its scale-based regulations for the sector.

Business conditions upbeat

In addition to loan loss and ECL (expected credit loss) provisions, Shriram Transport Finance also held special Covid-19 provisions of ₹1,741 crore as of September 30, which have been made against individual accounts, Revankar said. He added that the company does not plan to draw down these provisions as most of these accounts have a 3-5-year repayment period and the company may use these provisions to meet shortfalls, if any.

However, these are not of much concern as market conditions are currently strong, freight rates are good and repayments are on track, he said, adding that even borrowers that went through a difficult period during the pandemic, have also been able to “get back into their business”.

The urban economy has been seeing good demand, largely led by the strong real estate market, but rural off-take was slower due to delayed rains in UP, MP and Bihar which delayed Kharif crop sowing. But the situation improved once the monsoon caught up.

“One of the primary indicators is two-wheeler sales, which are going up MoM and YoY. Also, whenever the agriculture produce price is good, the rural economy benefits. So, I don’t think the rural economy has any challenges now, it’s doing well,” he said.

Tractor sales too have improved marginally from last year, are seeing good traction and are expected to do reasonable well going forward, he adding that the NBFC sold 3.2 lakh units in H1FY23.

New business segments

Shriram Transport Finance has been looking to venture into supply chain finance and LAP (loan against property) to cater to its SME borrowers and businesses.

“We are working on small pilots now. Our SME customers also have some invoices or pending outstanding that we would like to help them with. So it’s mostly to help the existing business line and not to really start a separate line of business,” Revankar said.

The NBFC may look to expand the scale of these pilots in a couple of months, depending on the experience, he said adding that the LAP business is on a smaller scale.

“We are not going into LAP business in a big way. We will look at an opportunity, especially in the semi-urban area where we feel our margins can be quite healthy, and may not launch this in the urban market,” he said.