With banks reluctant to lend, non-banking finance companies (NBFCs) have been facing a cash crunch in recent months. On Friday, the Reserve Bank of India (RBI) announced measures to step up the fund flow to the sector. Reliance Capital CEO Sam Ghosh speaks to Sidhartha about the likely impact on his group’s finance arm and plans for other ventures. Excerpts:
How has your NBFC fared in the last four months?
For the first 15 days or so in October, there was a considerable slowdown in disbursements as the liquidity was tight and interest rates were fluctuating. In December, the cost of funds came down and we resumed in a selective manner. When the cost of funds was high, and adding the interest margin to it, the lending rate went up to 18-19 per cent. At that level, there may be customers but many of them may not be able to pay beyond the first few months. So, one has to be selective. But now, we can hope to borrow at lower rates and also lend at a lower rate. We can be a little more liberal.
How did the cost of funds change for you?
At the end of September, the marginal cost of funds was around 11.5 per cent, compared with 9.5-9.8 per cent in the previous quarter. In November, it was around 13 per cent. We expect it to come down to 12-12.5 per cent but it will depend on how banks react to the measures. For the commercial vehicles segment, we expect it to be a little lower.
So, your disbursals must have been affected?
Yes, in the third quarter, it will be 30-40 per cent of the previous quarter’s level. NBFCs were not lending for purchase of commercial vehicles or automobiles because of the high interest rates and the impact of the slowdown would have on the borrowers. In the personal loans segment, we are not lending, though we may resume this quarter.
What does your loan book look like now?
At the end of December, it should be around Rs 9,000 crore, as against Rs 9,500 crore at the end of September. In December, we disbursed around Rs 100-150 crore, though the numbers are still being collated. By the end of March, the loan book should be around Rs 10,000 crore but a lot will depend on the next couple of weeks. We expect banks to firm up their plans by January 10 or so and the details from RBI will also come out by then. If everything falls into place by January 15, then we should be lending normally in the remaining part of the year.
How much can you raise through the SPV that RBI has announced? What about other sources of funding?
We have not got the details yet. But the problem is less now since banks are once again rolling over the papers. Also, they are taking over some of the exposure of the mutual funds. We do not have too much problem on the funding side as we can always go back to the banking system. Liquidity was not a problem in December.
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So, it is the quality of borrowers that is a bigger worry?
Yes. By offering liquidity, all problems will not be solved. The process will take some time. If people are not willing to buy, then there is not much scope for lending. Commercial vehicles are around 20 per cent of our portfolio. In this market, a lot of commercial vehicles are lying idle. You have to ensure your money is safe. Because of the liquidity problem, companies are not spending on acquiring capital goods.
Will your lending mix change?
We have slowed down personal loans, where we were only in the over Rs 2 lakh segment. So, its share should drop from around 10 per cent to 8 per cent. The share of SMEs would have dropped to around 15-20 per cent. But we want to grow our mortgage business, which now accounts for around 32 per cent of the portfolio.
Do you see NPAs rising in this environment?
Our current gross NPAs are less than 1 per cent, the lowest in the industry. There is no pressure at the moment but if the market continues to slow down in the next quarter, then there may be some defaults.
So, is it a good time to run an asset reconstruction company?
Till September-October, companies were dealing in assets acquired earlier. Banks will come to the market with new assets in the fourth quarter and we will look to buy some of these assets. But our focus is different, since we do not want to manage a large number of small assets. We are looking at four-five big assets in the Rs 25-50 crore range. We will work with the management and invest debt and equity to restructure the companies.
What about your insurance business?
Our life insurance company is one of the fastest growing companies in the industry, growing at over 100 per cent. In case of general insurance, nearly 50 per cent of the business is motor and the slowdown in automobiles sales has impacted us. But we have also deliberately slowed down the business this year since last year we grew fast and burnt capital. This year, the focus is on increasing profitability.
Have you decided on your foray into the pensions business?
We will finalise it next week. Since the life insurance company is not eligible, one option is to go with the asset management company. The other option is to have a joint venture between the AMC and the insurance company.
You had earlier said your private equity fund would be launched in the third or fourth quarter. What is the status?
We are raising funds and hope to launch it in the first or second quarter of the next financial year.
