Auto financiers such as Mahindra & Mahindra Financial Services (M&M Fin) have been facing the brunt of weak vehicle sales for the past year. The non-banking financial company (NBFC), too, has witnessed around 10 per cent year-on-year decline in its loan disbursement in the September quarter. RAMESH IYER, vice-chairman and managing director of the company, tells Shreepad S Aute that NBFCs may not be able to cover the fall in loan sanctions in the second half. Edited excerpts:Recently, International Finance Corporation (IFC) announced to invest $200 million in your MSME (micro, small and medium enterprise) business. Will this business see a bigger focus?SME has always been an important vertical for us. It is a new business line and will be a growth driver. But as far as the funding is concerned, as an organisation, we always look at multiple sources. IFC is one in that direction. It is an ECB (external commercial borrowing), and it's a bullet payment for a tenure of over three years at sub-8 per cent, including the hedging cost. So, it helps overall ALM (asset-liability management) and cost of funds, and of course, with a specific understanding, we can create (an SME) segment out of that. Currently, our SME business is about 5-6 per cent of the overall loan book and we do believe it can go up to 10-12 per cent in the next two-three years.What is your take on the income-earning ability of SMEs? And, how do you see it in terms of asset quality as some reports have highlighted the pressure on this front?SME is a wholesale business and yields would be in the line with our average yield of 11-13 per cent. The good part is that unlike the vehicle business, NPAs (non-performing assets) from the SME vertical are likely to be low. We look at three segments — automobile, agriculture, and engineering — and SMEs will be from the existing industries which we currently cater for and have direct relationships. So, we’ll have a good understanding of their cash flow chain and overall business.How has been auto demand after the festive season?The festive season, October, was brilliant. November was not as bad as it was expected because definitely, retail was good which means dealers’ inventory levels have substantially come down and my belief is December will be better because everyone will try to liquidate stocks because of the year-end model change. Also, you will see a lot of schemes being floated by dealers. So, this quarter from a volume perspective will be one of the best in FY20.The recent sectorial data shows sharp de-growth in loan amount sanctioned by NBFCs, for the second consecutive quarter. Will this take a toll on NBFCs’ business?I would think so. Because if it's already fallen twice, you may not be able to cover this fall in the next two quarters, though it can be bridged to some extent. NBFCs are enablers, they don’t create demand. When we see the overall industry, things are slow. Expecting NBCFs to grow aggressively in this scenario is not possible. However, as the base effect trickles in, we may see improvement next year.When do you see a recovery?We are already seeing an uptick —the first two quarters of FY20 versus the current to next quarter. But the real growth story will be from the next festive season, around 8-10 months from now. This year the kharif crop harvest will be average but given enough monsoon, next year’s rabi crop output is expected to be good and this itself will boost sentiment. Steadily, various infrastructure projects will also open up during the year. How is the liability side of the balance sheet panning out? Has the current cost of funds increased, as against the pre-IL&FS crisis period?We are able to raise funds and the rates have also come down by at least 100 basis points from the rates prevailing in the third quarter of the previous year. For companies like us having a good rating, good track record, good promoter, etc, both liquidity and rate (borrowing rate) are not a real issue.