Tata Capital to step up corporate finance lending to better rated borrowers

Tata Capital's book size increased from Rs 77,110 crore as at March 31, 2019 to Rs 77,610 crore as at March 31, 2020, on a consolidated basis

Taking benefit of space vacated by many lenders in wholesale lending, Tata Capital, with three NBFCs under its wings, is looking to step up the corporate finance business by lending more to better-rated companies.

It is also looking at prospects for Alternate Investment Funds (AIF) to finance corporates as it consumes less capital and provides flexibility to structure deals.

After the Pandemic, the Tata Capital group has a realigned strategy with an emphasis on safer business and protecting asset quality. The company will do more business with corporates with rating AA and above and salaried customers, Tata Capital managing director and chief executive Rajiv Sabharwal.

Analysts said many lenders including finance companies engaged in wholesale funding have turned cautious in lending due to rising risks in the backdrop of economic contraction in aftermath of the pandemic. Moreover, some finance companies continue to face the asset-liability challenges which were triggered after the collapse of IL&FS in 2018.

After a trying first quarter due to lockdown, business is gradually moving up in tandem with gradual easing. In August, the business was 70 per cent of pre-Covid-19 levels, he said. Its consolidated loan book stood at Rs 76,743 crore in June 2020.

Tata Capital’s book size increased from Rs 77,110 crore as of March 31, 2019 to Rs 77,610 crore as of March 31, 2020, on a consolidated basis. This increase of Rs 500 crore was mainly due to the growth in the loan book of Tata Capital Housing Finance Limited (TCHFL) of Rs 547 crore and Tata Cleantech Capital Limited (TCCL) Rs 455 crore. This was offset by de-growth in Tata Capital Financial Services Limited (TCFSL”) of Rs 502 crore.

The focus in the current financial year including the lockdown period has been on recoveries that would help to reduce credit costs. Yet as a prudent step, it has made a provision of Rs 185 crore for Covid-19 related impact. As for the extent of restructuring of loans, the picture will become clear only by the end of the month or early October, said Sabharwal.

On the operations side, it resorted to using a digital platform to bring down the cost to income ratio. It also took benefit of abundant liquidity in the system to replace costly debt with cheap funds, helping to reduce the cost of funds, he said.

Its profit before tax rose by 123 per cent to Rs 262 crore in the first quarter ended June 2020 from Rs 118 crore in the same quarter in 2019 (June 2019).

According to CRISIL, Tata Sons, a group holding entity, has infused equity capital of around Rs 6,300 crore in TCL since TCL's inception. About Rs 2,500 crore were invested in Fy19 and Rs 1,000 crore in Fy20. This indicates the intent of the group to step up its focus on the lending business.