Shriram Finance slows farm equipment lending, sees recovery from Q3

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

The non-banking finance company (NBFC) on Thursday reported a 19.7% year-on-year rise in assets under management (AUM). ₹2.03 trillion. Among credit segments, agricultural equipment was the slowest growing sector with 5.6%. The fastest growth was seen in personal loans (73.3%), albeit on a smaller base than most other segments.

“Only agricultural equipment has not grown as much as we expected. The indication is that it will grow in the second half of the financial year,” Revankar said in an interview. “We have made some cuts on the farm equipment side due to the uncertainty in rain, but the rains have been good since September [and] “I believe it will grow in the second half of the year.”

Revankar said there are several reasons to be optimistic about rural demand. “The government has announced MSP (minimum support price) for rabi crops which will provide support to farmers. “Moreover, the increase in real wages in rural areas shows that consumption will increase,” he said. Considering that general elections will be held next year, it is possible that the government will provide more support to the rural economy in the next few months.

Regarding the strong growth in personal loans, a segment in which the entire industry is subject to regulatory scrutiny, Revankar said that the company’s personal loans are given to existing customers and are therefore secured.

“It is based on past performance of clients and is secured in the sense that we know the client and the past performance. As our customer base grows, our ability to offer this also increases, and although we do not have any targets, we will continue to offer it to our existing customers,” said Revankar.

He said that since individual loans are given mainly to small business owners and not to the salaried segment, they expand businesses instead of fueling consumption.

Shriram Finance, formed last year through the merger of Shriram Capital, Shriram Transport Finance Company and Shriram City Union Finance, posted a sequential increase of 60 basis points (bps) in net interest margin to 8.93%.

“We used to keep additional liquidity for 4-5 months, but we reduced it to three months. This has led to improvement in our margins,” said Revankar.

Even though borrowing costs have not fallen, the company’s spreads have increased due to more credit being available in high-margin businesses such as gold and personal loans, he said. “We said at the beginning of the year that it would be 8.5 percent, and we want to keep it above 8.5 percent on average,” he said.

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