State Bank of India is in talks with Tata Motors finance arms to acquire the private firm’s automobile loan portfolio of up to Rs 14,500 crore. Separately, private sector banks have also expressed interest to buy part of the loan portfolios of Tata Motors Finance (TMFL) and Tata Motors Finance Solutions (TMFSL).
A banking source said one of the drivers of asset sales by leading non-banking financial companies (NBFCs) is the imminent change in the interest rate regime. Banks may soon start charging higher interest rates and that step will affect NBFCs as well, said a source close to the development. “But ahead of this switchover (in interest rates), there is good appetite from the funds-flush state-run and private banks to buy good quality assets from NBFCs”, said a banker asking not to be quoted.
A business buying Tata Motors finance loan portfolios will stand to gain, as it would qualify to be under their priority sector portfolio, the banker said as TMFL financed 27.4% of Tata Motors commercial vehicle sales in the nine-month period ending December 2021.
Both TMFL and TMFSL are owned by TMF Holdings, a subsidiary of Tata Motors. TMF Holdings, in turn, is owned by Tata Motors. The shareholders of TMFL and TMFSL cleared the sale of loan portfolios on Friday.
The shareholders of TMFL and TMFSL have also cleared raising of Rs 500 crore each by way of debentures while parent TMF Holdings plans to raise Rs 2,000 crore by way of debentures. As on September 30, 2021, the consolidated asset under management (AUM) of the Tata Motors finance companies was Rs. 42,834 crore consisting of new vehicle financing at 81% of portfolio and used vehicle financing at 13%.
SBI and Tata Motors did not reply to not reply to Business Standard’s questions.
The Tata Motors finance companies are also targeting to reduce their non-performing assets. As per rating firm, ICRA, the gross non-performing assets (GNPA) of TMFL was 20.8 per cent and net NPA was 17.9 per cent on a standalone basis as on December 2021. At the same time, TMFSL reported gross NPA and net NPA at 13.3% and 10.6% respectively.
The Tata Motors finance companies plans to raise additional fresh capital to bring down their net NPA on a steady state basis while maintaining adequate capital adequacy in order to stay out of the prompt corrective action framework for Non-Banking Financial Companies (NBFCs) which comes into effect from October 1, 2022, ICRA said.
“TMF group has also strengthened the collection team with additional manpower and is endeavoring to bring Net Stage three assets below 6%. Thus, the continued effort by TMFL and support from Tata Motors to TMF group would be imperative to maintain prudent capital structure over the short to medium term. Further, the group’s ability to manage recoveries or mitigate losses through its new strategies and also by the enforcement of security while arresting fresh slippages will remain key rating monitorable,” ICRA said in a February 15th note.
Following a restructuring of the TMF Group in FY 2017, the new vehicle financing business of the group was housed in TMFL and the corporate lending business and used vehicle financing business was housed in TMFSL. In FY2021, TMFHL on a consolidated level reported a profit after tax of Rs. 269 crore on an asset base of Rs. 45,864 crore as against a PAT of Rs. 139 crore on an asset base of Rs. 37,947 crore in FY2020.
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