‘Our credit cost will be restricted around 2.5%’

Our restructuring was planned initially for around 3%, but now it looks like our restructuring would be less than 1% because many of the segments where we had initially expected challenges are now functioning normally.

The growth momentum that had fizzled out in January has returned in February and March and it is likely to sustain, Umesh Revankar, MD & CEO, Shriram Transport Finance Company, tells Shritama Bose. The company’s credit cost may stay close to 2.5%, he adds. Excerpts:

What could be the impact of the new scrappage policy on vehicle sales?

We need to be clear on the scrappage policy because these are draft guidelines. We are not sure about the final thing. One thing the government has talked about is the vehicle being scrapped at the scrappage centre. Who are going to run those scrappage centres? Is it a private or government body? That is not very clear. Who will fix the price of vehicle scrappage? They’ve mentioned 4-6% of the current price. That is one area where unless there is clarity, we’ll not be able to comment.

The second area where clarity is required is the person who owns a vehicle for more than 15 years. If it is found not fit to run, then it will be scrapped. In that case, the owner will get a certificate, and avail some benefits if he buys a new vehicle. Our suggestion is that the certificate should be transferable so that the person who actually buys a new vehicle can use it. A person who has a more than 15-year-old vehicle is unlikely to buy a new vehicle. They are likely to buy a second-hand vehicle. These are the two major points – a transferable certificate and who runs the scrappage centres and fixes prices – where we need clarity.

During the festive season, we had seen an uptick in growth across lending categories, but it fizzled out thereafter in some segments. What has your experience been?

The demand has been quite good, though there was a slowdown in January. It picked up in the second half of February and March is being quite good. For new vehicles, demand is good. The same applies for construction equipment and construction vehicles. I feel that will continue for another couple of months because in April-May the agri output is going to be bumper and many construction activities are likely to kick-start. The momentum seen in March would continue to be positive.

Is there a possibility, particularly in the construction segment, that growth could again slow down if Covid cases continue to surge?

I don’t think so. In Maharashtra, though there are some worries, my impression is that the government will not go for any kind of a lockdown. They will go for restrictions like night curfew. So, there may not be any impact on construction activity.

What trends are you seeing in terms of asset quality? How much of your book has been restructured?

Our restructuring was planned initially for around 3%, but now it looks like our restructuring would be less than 1% because many of the segments where we had initially expected challenges are now functioning normally. Tourism and urban transportation have become normal. Only in school buses there are some challenges where schools have not started, as also in staff transportation. That is less than 1% of our portfolio. MSME loans are less than 2% of our book, and there customers have already availed the credit guarantee. So, the restructuring option is not available to them. In terms of overall repayments, almost 100% is back to normal.

Your Q3 provisioning rose 52% year-on-year. Are you going to provide aggressively in Q4 as well?

We have been aggressive in making Covid-related additional provisions, which we continue to do. But I don’t think it will be substantial in Q4 because we would have already provided for the entire book in the last four quarters. At the beginning of the year, we had estimated credit cost to be 2.8%. We should be able to restrict it to around 2.5%.

Bond yields have started to harden. To what extent has your borrowing cost been affected? How much of a rise in costs will you be able to pass on to your customers?

Right now, we are not witnessing any hardening in our borrowing costs because we are not doing any short-term borrowing. But every year in March, some amount of hardening happens; so it is nothing new. Being in a niche segment, we will be able to pass on any increase if it happens. We are quite confident that we will be able to borrow at lower rates.