rightly said. The MOSL initiating coverage report on Gruh Finance http://www.motilaloswal.com/Financial-Services/Research/Detailed-Report/Initiating-Coverage/13921/511288
tells how Gruh has decreased its LTV in FY15 over FY14 among other safeguards. It is a good report to read.
I would also give an unsolicited advice that, one has to be careful in looking at NIM. I would say that it is better to avoid looking at it. The formula for NIM in India is not followed outside the country. Let me explain.
NIM = Net Interest Income / Asset = (Interest Income – Interest Expense)/Asset
= Lending Rate – (Borrowing RateDebt)/Asset
= Lending Rate – Borrowing Rate(1-Equity/Asset)
= (Lending Rate – Borrowing Rate) + Borrowing Rate * (Equity/Asset)
= Spread + Borrowing Rate * (Equity/Asset)
NIM mechanically depends on capitalization levels, that is Equity/Asset, and also Borrowing Rate at a given level of interest spread. For example, if Gruh and Repco have same borrowing and lending rates, then Repco would have a much higher NIM because it has much higher capitalization ratio. It is better to look at spread when we are trying to assess gross profitability. Infact it looks like Repco has lower spread and yet higher NIM!
There are problems with Indian definition of NIM that go beyond comparison between Gruh and Repco. For example, consider two lenders called RISKY and NOT RISKY with same Equity/Assets. RISKY lends to somewhat riskier borrowers, and hence, has both lending and borrowing rates higher by 1%. To summarize, both have the same spread and same capitalization levels but RISKY is in riskier lending business. In this example, RISKY will have higher NIM, because it has higher borrowing rate other parameters being the same. I would rather prefer to invest in LESS RISKY who is conservative and still maintains the same spread and the same capitalization ratio, while NIM will point to RISKY.