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Informist, Friday, Oct. 25, 2024

By Pratiksha

NEW DELHI – Shriram Finance Ltd. does not expect deterioration in its asset quality in the near-term, the company's management said in a post-earnings conference call Friday. "We don't really see any further improvement in our asset quality. There may not be anything adverse now because of economic activity being very strong, the foundation of the country is very strong and government spending on infrastructure is likely to improve in the next two quarters," it said.

In Jul-Sept, the non-banking finance company's asset quality saw a slight improvement sequentially, with the gross non-performing asset ratio falling to 5.32% as of Sept. 30 from 5.39% reported a quarter ago. The net non-performing asset ratio dropped to 2.64% as of Sept. 30 from 2.71% a quarter ago.

The Chennai-based non-banking finance company expects net interest margin to remain steady at the current level going ahead. The company's net interest margin moderated to 8.74% in Jul-Sept from 8.79% reported a quarter ago and 8.93% a year ago.

The company's management does not expect the Reserve Bank of India to go for a repo rate cut before February. Thus, it does not expect improvement in funding costs immediately. When asked how a repo rate cut by the RBI will impact the company's margins, the management said, "Obviously, when there is a rate cut (by the RBI), the banks start passing on that benefit to us, that benefit will accrue to us. It will come at a lag. We can't tell in advance."

Further, the non-bank lender expects a moderate rise in operating expenses going ahead, albeit not around the current level. The company's operating expenses rose 20.4% on year and 8.6% on quarter to INR 170.96 billion in Jul-Sept. When asked about the factors that contributed to the rise in operating expenses, the management said, "There were some fees paid in the current quarter due to increased two-year and other loans, which was sourced through the direct sourcing agents and there were also some costs incurred on our branding front. Apart from these, it was a normal increase."

The company expects disbursements to improve in Oct-Mar. The management said it has tightened its criteria for lending personal loans, which is why the share of personal loans from the total assets under management declined in Jul-Sept from the previous quarter. The personal loans segment accounted for 3.40% of the non-bank lender's total assets under management in Jul-Sept, compared with 3.82% in the previous quarter and 4.36% a year ago. The company's assets under management rose 19.9% on year to INR 2.43 trillion as of Sept. 30.

"On personal loans, what we did was we have further tightened our criteria for giving a loan to our existing customers, and that's one of the reasons why you see that slowdown, but going forward, we will wait for a couple of quarters before the industry and the regulator gets comfort, and then we will increase this portfolio," it said. The company expects credit demand to improve in Oct-Mar on the back of good rainfall and good output in the rural agricultural production.  End

Edited by Ashish Shirke

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