Not looking at three-way merger now: Revankar of Shriram Transport

In a Q&A, the firm's MD &CEO says as fleets resume plying, recast requests are likely to be lower than the 3% that the company had earlier planned

Revival in demand for commercial vehicles is sustainable, says Umesh Revankar, MD & CEO, Shriram Transport Finance. In a conversation with Hamsini Karthik he said as fleets resume plying, restructuring request are fewer than expected. Shriram group’s three-way merger plan may also be on hold for now. Edited excerpts:

How sustainable is the well-rounded recovery seen in December quarter?

Recovery is strong and positive, so I feel that it will remain quite good and whatever developments we have seen in the last few days and in the budget and the way market has taken it, it gives us hope that sustainability will be there for a long and definitely the pent-up demand also will come back which will propel the economy going forward.

So unlike in the passenger vehicles space, pent-up demand isn’t visible in the commercial vehicles segment…

New vehicle sales is not always the indicator of how the demand is because what happened in CVs is that there was an overcapacity in the system because of the axle weight norms. The overcapacity is now getting absorbed and as that happens then the new capacity requirement will start looking up, maybe in the next 3-6 months. Heavy vehicles demand also depends upon the government spending on infrastructure. With the budget giving a strong infra push, demand for new CVs will also come.

How positive is the scrappage policy in terms of providing a growth opportunity for the sector?

There are no clear guidelines yet about vehicle scrapping policy. What they have mentioned in the budget looks like more of a voluntary scrappage for commercial vehicles above 15 years. So the Government has to give some incentive if it is voluntary. The other way is they may start charging a green Tax or some extra fee for vehicles older than 15 years when they come up for fitness test. What will happen is that people who have older vehicles - more than 15-20 years, they may buy 5-10 years old vehicles and those who have 5-10 years old vehicles will buy new vehicles. So that will bring some positive push for new vehicles but it may happen over 3-4 years; not immediately.

How confident are you keeping the restructuring book at 3 per cent?

We’d planned for 3 per cent, but as of now the restructuring has been much lower-just 0.3 per cent based on what we have done till December. Our latest target is around 2.2 per cent and not even 3 per cent. That’s because many vehicles which had challenges earlier are coming back on road, especially on passenger transportation. There is revival and people are confident of paying and not really seeking restructuring.

So where is the problem now?

School buses and staff transportation, where we have already done restructuring.

What’s the comfort on cost of fund?

Sequentially, our cost of borrowing has been coming down so every quarter. In the last two quarters we have shown improvement in net interest margin and sequentially it has improved by 22 basis points (bps) in the last quarter. We expect further improvement of another 15 – 20 bps in March as incremental borrowing is coming at a lower cost. We recently raised USD 500 million through social bonds from the International markets and even through domestic bond market we are able to raise money at a cheaper rate. Our focus is mostly on raising term loan from the public sector banks and from the bond market. Moreover, we are a deposit taking NBFC and public deposit inflow has been very good. Public deposits made up around 11% of our liability last year and that has grown to 14.7% in December quarter.

At what juncture would you consider a bank license favourably?

Whether the group should have a bank was discussed in the past but we are not looking at transforming the NBFC into a bank. We are not looking at any inorganic opportunity as far as banking is concerned. Basis Reserve Bank of India’s internal working group report, it is very clear that both bank and NBFC will continue to remain but there will be higher regulatory supervision than earlier, on par with banks. We are comfortable with that. We feel that this higher regulatory supervision will improve the health of non-banking finance companies. So not really looking to become a bank.

What is the position on the three-way merger of group companies talked about earlier?

We are not looking at three-way merger now. The group would like the insurance business to remain independent. So, we are not focusing on the three-way merger and the businesses will run as is.