Expect to grow lending business by 30-35% in 2014: GS Sundararajan, Shriram City Union Finance
ET NowDec 24, 2013, 03.44PM IST
In an interview with ET Now, GS Sundararajan, Chairman of Board of Directors of Shriram City Union Finance, speaks about the company’s credit outlook, performance and plans going ahead. Excerpts:
ET Now: In the last two or three months, how has the demand been for credit so far in the SME, two wheeler or the auto loan growth segment? Do you see that traction continuing or improving in the next six months?
GS Sundararajan:We are largely into the MSME space and more of the first M rather than the second M. We are in the micro and small business space as far as the MSME segments are concerned. There we are really dealing with customers who are credit starved by the institutional sector. Demands which are catering to the local markets around these MS, micro businesses, are something which we have been able to manage. We do see significant growth especially in some of the states. While overall two wheelers’ sales have come down, we have been to grow. We were earlier marginal players with very low market shares and having learnt to do that business extremely well and profitably, we are seeing significant growth.
ET Now: Can you put some numbers to this significant growth that you are speaking about?
**GS Sundararajan:**If you look at the verticals of MSME and two wheeler, at least as far as we are concerned, we expect to grow at about 30% to 35% in 2014 vis-a-vis what we have done in 2013.
ET Now: What does that do to your overall loan growth because that forms a large chunk of your business yes, but keeping in mind that you also have a gold loan book, how do you expect the overall consolidated numbers to look like?
**GS Sundararajan:**Our gold book has significantly come down in the last year. At one stage in a similar period last year, about 42% of our book was gold. While we know that gold is a good business, we did not want to be as high as 42%. So we had actually consciously brought it down. Today, it is about 23%. We would like to retain that as 23-25% of our total book. We actually came down by about Rs 3000 crore. Despite that because of the growth in the other two segments, our book will definitely see about 20-25% growth in the overall asset book. Next year we will again see a similar growth on the asset book also.
ET Now: Which are the sectors that are going to remain under stress because last quarter if we look at your gross NPAs, you stood at 3% and the net NPAs was at 0.65%, if I am not mistaken. What kind of a range can we anticipate for that and where exactly are we going to see the stress points?
**GS Sundararajan:**We should be able to retain the same level of NPAs because our gold book has stabilised. Gold was one book where the NPAs are very low and to that extent when we brought it down from 42% of our book to 23-24% of our book, there was a little bit of spurt in the NPAs, but that is more related to the gold book itself contributing to 40% versus 23%. With the stable gold book at this point in time and we not wanting to grow it beyond that 23-25% stage, we will be able to stick to the same NPA numbers which we have as of now.
From a stress level stand point, I do think that there are going to be delays on the MSME book, but they will not translate into delinquencies or losses primarily because we know that they are secured book. We know the customers who we are dealing with and because of our community lending kind of an approach, we do not see that becoming much larger. Whereas in two wheelers, we have to wait and watch because it is a growing book for us and that is something which many players have burnt their fingers while we have a model which is working extremely well. That is one area where we would like to be cautious and trade cautiously so that the NPAs do not go up significantly.
ET Now: Two months ago you said that the margins might just come down slightly going forward. Given the current interest rate environment, are you sticking to that? When can we see your margin stabilising?
**GS Sundararajan:**The margins as a composite portfolio did go up a bit because gold was one book where the margins were the lowest for us. With gold book coming down, the margin shot up from an overall composite figure of 10.3 to almost 10.9%. We do believe that as long as we focus on two wheelers and MSME with the kind of interest stability which is likely to come in, we will be able to retain that kind of margin at about 10.5% for next year also.
ET Now: Shriram Capital had applied for a bank licence, although Shriram City Union assets will be transferred to the bank unit, they have requested an exemption from Shriram Transport assets being transferred to the bank. Can you just tell us if there has been any response or any revert from the RBI on this?
**GS Sundararajan:**We are one of the applicants for the banking licence. It has been applied from Shriram Capital from a group standpoint. We have had a lot of enquires more on the application we have submitted in terms of additional data and information. Beyond that, we have not heard anything. We are waiting for RBI to invite us for a presentation at which point in time we will discuss what challenges we have.
ET Now: What happens if the RBI denies an exception? Would the promoter still want to go at with the bank licence?
**G****S Sundararajan:**We are quite clear that we would like to ensure that we get a new banking licence and because we are focussed on retail and MSME as an area of expertise as far as the group is concerned we would definitely like to get a licence which is not necessarily forcing us to convert large monoliners like the transport finance business we have or the perceived high risk profile which Shriram City has. We would definitely like to use this expertise to get into banking, but if this exception is not granted, we may have to approach RBI and try and justify why we are asking what we are asking.
ET Now: In the eventuality that the RBI does deny despite your clarifications, you are saying that you rather not go for the bank licence then?
**GS Sundararajan:**Exactly. That is what we have always been maintaining. We have said that we do believe that we can contribute to the financial inclusion agenda with a bank, but we do not want to have a bank at any cost because ultimately our customers who are serviced by these two large entities – Shriram Transport and Shriram City – will be deprived of this facility if we get into banking by merging all of these. Because there is a huge liability side which is largely funded by banks and that is the reason why we have said that we would like to have a new banking licence.