Shriram Finance slows down farm equipment loans, sees recovery from Q3

Mumbai: Shriram Finance slowed down its lending for farm equipment in the September quarter on the back of uncertain rainfall, but the situation has since improved and the company expects rural demand to strengthen, executive vice-chairman Umesh Revankar said.

The non-banking financial company (NBFC) on Thursday reported a 19.7% year-on-year (yoy) increase in assets under management (AUM) to ₹2.03 trillion. Among loan segments, farm equipment grew the slowest at 5.6%. The fastest growth, was seen in personal loans (73.3%), albeit on a smaller base than most other segments.

“Only the farm equipment did not grow as much as we had expected. The indication is that it will grow in the second half of the financial year,” Revankar said in an interview. “Because of uncertainty in rainfall we did withhold a little on the farm equipment side but since the September rainfall has been good [and] I believe it will grow in the second half of the year.”

Revankar said there were several reasons to feel upbeat about rural demand. “The government has announced the MSP (minimum support price) for rabi crops and that will give support to farmers. Moreover, real wages in rural areas have also gone up, indicating that consumption will increase,” he said. Given that the general elections are scheduled for next year, the government could give more support to the rural economy in the next couple of months.

On strong growth in personal loans, a segment for which the entire industry has come under the regulatory scanner, Revankar said the company’s personal loans are to existing customers and therefore as good as secured.

“It is based on the past performance of customers and is secured in the sense that we know the customer and the track record. As our customer base increases, our ability to offer this is also increasing and while we do not have any targets, we will keep offering it to our existing customers,” said Revankar.

He said that since personal loans mainly given to small business owners and not the salaried class, they end up augmenting businesses rather than fuelling consumption.

Created from the merger of Shriram Capital, Shriram Transport Finance Company and Shriram City Union Finance last year, Shriram Finance saw a 60-basis point (bps) sequential expansion in net interest margin to 8.93%.

“We used to keep four-five months of additional liquidity and have reduced this to three months. This led to an improvement in our margins,” said Revankar.

He said that although borrowing costs have not come down, the company’s spreads have increased because of more loans in high-margin businesses such as gold and personal loans. “We said at the beginning of the year that it will be 8.5% and, on an average, we would like to maintain it above 8.5%,” he added.

Asked by when he expects to add another trillion rupees of AUM, Revankar said that at an expected 15% compound annual growth rate (CAGR), the lender should hit ₹3 trillion in five years. “We went from ₹1 trillion to ₹2 trillion in AUM in four years. Of course, the merger also needs to be accounted for,” he said.