I have a part of my portfolio in the finance space and would like to hone my skills in analyzing them,there are lot of grey areas,maybe all of us could help each other in understanding them.If we were to look at the asset side to see how risky it is/whether it is risky.
The asset book is granular in nature in other words large numbers of small ticket sizes.I have seen some branches of banks getting hit because the book had a few large customers.If we look at the individual asset classes-
MSME(49%)-from the site PAN card seems to be compulsory,therfore they must be doing a CIBIL search for defaulters,referal from an existing customer(chit fund) is required,business existence for 2 years,business registration docs.This means that some amount of verification/creditworthiness of customer is done without getting into stuff like IT returns/cash flow etc which banks get into The loan has to be backed by a collateral and knowing shriram group to be conservative,iam sure they keep sufficient margins.I dont see too much a risk on this part of the loan book.I assume interest rates are around18%
Gold loan(24%)-collateral is good unless prices crash,LTV is 60%,sufficient safety.one can look at the muthoot site for interest rates,i dont see too much of divergence.interest rates go upto 24%.not much of risk.
2 wheeler loans(15%)-this could be a risky one,if the vehicle is not recoverable/damaged and residual value cannot cover the principal+interest .interest rates are high here,expect around 20%-this has risks.LTV is again i think around 60%.
3.cars-they are also into used cars,lesser risk than above.
4.Personal loans(4%)- banks also offer this often to people having lot of money,but dont require it.banks are smart,they con the guys having money in borrowing at 18-20%.Iam not sure if shriram is smart at that,however this is the riskiest,as there is no collateral and guys in dire straits must be be borrowing.interest rates could be as high as 24%.
Maybe we can conclude around 80% of the book is not risky.There is also sufficient time and expenses involved in recovering pledged assets,i believe.Maybe some other way to compare the loan books of these NBFC’s.