‘No three-way merger, insurance business to remain independent’

Demand revival for commercial vehicles (CVS) is sustainable, says managing director (MD) and chief executive officer (CEO), Shriram Transport Finance. In an interview to Hamsini Karthik, he says that as fleets resume plying, restructuring requests are fewer than expected. He also spoke on Budget-related developments for the business. Edited excerpts:

How sustainable is the well-rounded recovery seen in the October-december quarter?

Recovery is strong and positive, so I feel it will remain quite good. Whatever development we have seen in the last few days and in the Budget, and the way the market has taken it, it gives us hope that sustainability will be there for long. Definitely, the pent-up demand will also come back to propel the economy.

Unlike in the passenger vehicles space, pent-up demand isn’t visible in the CV segment...

New vehicle sales are not always the indicator of how demand is because what happened in CVS is that there was an overcapacity in the system because of the axle weight norms. The overcapacity is now getting absorbed, and as that happens, the new capacity requirement will start looking up, may be in six months. Heavy vehicle demand also depends on government spending on infrastructure. With the Budget giving a strong infra push, demand for new CVS will also come.

At what juncture would you consider a bank licence favourably?

Whether the group should have a bank was discussed in the past but we are not looking at transforming the NBFC into a bank. We are not looking at any inorganic opportunity as far as banking is concerned. On the

basis of the Reserve Bank of India’s internal working group report, it is very clear that both the bank and NBFC will continue to remain but there will be higher regulatory supervision than earlier, on a par with banks. We feel that this will improve the health of NBFCS.

What is the position on the three-way merger of group companies?

We are not considering any three-way merger now. The group would like the insurance

business to remain independent.

How positive is the scrappage policy in terms of providing a growth opportunity to the sector?

There are no clear guidelines about a vehicle scrapping policy. What was mentioned in the Budget looks like more of a voluntary scrappage for CVS above 15 years. So, the government has to give some incentive if it is voluntary. The other way is that it may start charging a green tax or some extra fee for vehicles older than 15 years when they come for fitness test. What will happen is that people who have older vehicles — more than 1520 years — may buy 5-10 year-old vehicles. Those who have 5-10 year-old vehicles will buy new ones.

How confident are you of keeping the restructuring book at 3 per cent?

We planned for 3 per cent, but as of now, the restructuring has been much lower — just 0.3 per cent based on what we have done up to December. Our latest target is around 2.2 per cent and not even 3 per cent. That’s because many vehicles, which had challenges earlier, are coming back on the road, especially on passenger transportation. There is revival and people are confident of paying and not really seeking restructuring.

What’s the comfort on cost of fund?

Sequentially, our cost of borrowing has been reducing every quarter. In the last two quarters, we have shown improvement in net interest margin, and sequentially, it improved by 22 bps in the last quarter. We expect a further improvement of another 1520 bps in March as incremental borrowing is coming at a lower cost. We recently raised a sum of $500 million through social bonds from the international markets. Even through the domestic bond market, we were able to raise money at a cheap rate. Moreover, we are a deposit-taking NBFC and public deposit inflow has been very good. Public deposits made up close to 11 per cent of our liability last year, and it has grown to 14.7 per cent in the December 2020 quarter.

Managing Director & Chief Executive, Shriram Transport Finance