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Acquisition will be driven by product requirement: N Sivaraman

Interview with President & Wholetime Director, L&T Finance Holdings

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L&T Finance Holdings, listed in August 2011, has seen healthy growth in the previous quarters and is also open to inorganic opportunities.

N Sivaraman, president and wholetime director shares the business plans with Malvika Joshi, and the challenges of setting up an infrastructure debt fund. Edited excerpts:

What was the key driver of growth in assets?
The third quarter results show us having grown by almost 30 per cent (asset under management) till now. The asset size (loans) has grown by 50 per cent year-on-year. This has primarily been on the back of a growing infrastructure book and robust demand for rural products like tractors and farm equipment. Although disbursements to the sector have not increased a lot. Our focus on long-term loans has resulted in robust growth in our loan book and the balance sheet.

What are your expansion plans?
We will continue to grow the existing product lines. Yes, we will have to add some more products to our portfolio to sustain the sort of growth we are seeing currently.

We will be looking at adding some asset-backed products. It will be important to add new products because at some point the existing ones will reach saturation. Then, we will merely grow at the market rate.

Do have any acquisition plans to assist expansion?
Acquisitions have to be carefully handled in the financial business, more so in lending. It is important to evaluate how different it is from a portfolio purchase. We will look at products we do not have at the moment in our portfolio if we are are going for acquisitions, so that we can kickstart the product in the market smoothly. If new products are available, we will explore the opportunity.

What are the kinds of projects you are looking in a scenario where infrastructure sector is in a lot of trouble?
Our exposure to the thermal sector is lesser than our total lending to power projects based on renewable sources. Our exposure to the power sector is around 37 per. Out of this, 21 per cent is in renewable power.

We have financed solar, hydroelectric wind and biomass-based power projects — these have driven our growth . The solar projects are primarily located around Gujarat, as part of the solar energy mission. This is the first phase. Most of the projects are operational.

Being an infrastructure finance company, are you looking to set up an IDF (infrastructure debt fund)? If yes, will it be set up as mutual fund (MF) or (non-banking financial company?
One issue with IDF is the requirement of a certain maturity or lock-in period. FIIs (foreign institutional investors) cannot trade outside the FII segment. In a scenario where we are seeing Europe in almost a meltdown situation, we are not receiving much attention for such an initiative.

However, as a large infrastructure-focused NBFC, this is an obvious area of interest. We are putting together our business plan and the framework we want to use to build up this business. The MF model will be better for domestic investors, whereas an NBFC model will allow foreign institutional investors to invest.

How has been the response to the second tranche of tax-saving bonds?
The response has been quite encouraging. We still have some more days for the issue to close. The response has been good so far, but the tax-free bonds have certainly been a challenge for this instrument.

The incentives to investors and intermediaries available through tax-saving bonds are less. The efforts in issuing these bonds have to made worthwhile in terms of funds procured, as the benefit of raising money at a cheap rate gets lost in the distribution costs.

The budget should allow more incentives to investors through these bonds, as they are a viable source of retail funds for infrastructure projects.

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