Asset-financing NBFCs could be hit by slow car sales

The slow pace of growth in car sales is likely to hit the business of asset financing non-banking financial companies (NBFCs), which are expecting a challenging year ahead.

Umesh Revankar, managing director, Shriram Transport Finance Company (STFC), said, "The next six months are likely to be tough, as we don't see a major change in economic activity and the expected lower GDP growth is a further dampener. We expect things to change after October but that will depend on a host of factors, including a good monsoon and the government's ability to push the reform agenda."

STFC's profit grew 14 per cent in the December quarter while assets under management (AUMs) rose 19 per cent. The company expects 12-15 per cent AUM growth from used commercial vehicles segment in the first two quarters.

According to figures released by the Society of Indian Automobile Manufactures (Siam), passenger vehicle sales declined for the first time in a decade. Companies were able to sell 1,895,471 units, a decline of 6.69 per cent from last year. In the case of commercial vehicles, sales were down just two per cent, aided by growth in light commercial vehicles, which grew 14 per cent. However, heavy and medium commercial vehicles registered a fall of 23 per cent.

"The whole (2013-14) year is going to be a washout," said Lakshmi Narasimhan, chief financial officer, Magma Fincorp. "I would expect normal business to return only after October 2015." He said Magma's strategy was to go into new areas and offer more products in existing branches to grow the business.

Magma's disbursements grew 20 per cent in the third quarter.

There was no respite for infrastructure finance companies as well, as these are experiencing falling growth in disbursements.

"Construction equipment (CE) sales haven't picked up but our focus is on consolidation since last year. Our strategy has been also to go cautious and slow on disbursements and concentrate on profitability," said Hemant Kanoria, chairman and managing director of SREI Infrastructure Finance said.

SREI saw 30 per cent lesser disbursements in the nine months ended December 2012.

Sliding auto sales have also prompted Finance Industry Development Council (FIDC) - the umbrella body of asset financing NBFCs - to request the Reserve Bank of India to postpone the new norms for NBFCs, based on the Usha Thorat Committee report. Already suffering with low business growth, FIDC said new norms, if implemented, would put further pressure on NBFCs profitability. RBI had in its draft norms for NBFCs bought asset classification norms to 90 days from 180 days and increased tier-1 capital requirement to 10 per cent from 7.5 per cent.