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We have not faced the ALM issues: Senthil Kumar, Manappuram Finance

Higher borrowing costs detrimental to retail lending: Senthil Kumar, Manappuram Finance

Advait Rao Palepu 

Senthil Kumar, Executive Vice President at Manappuram Finance
Senthil Kumar, Executive Vice President at Manappuram Finance. Photo: Advait Rao Palepu

Senthil Kumar, Executive Vice President at tells Advait Rao Palepu that despite borrowing costs rising, the company has not faced the asset-liability management (ALM) issues that other non-bank financiers faced in recent months. However, he says if financiers face higher borrowing costs in the coming months it would be detrimental for and consumption.

Has the present liquidity and situation affected Mannapuram Finance?

Well, I understand that our cost of funds has gone up a bit over the last one year. However, we do not face any pressure on the side. A large part of our consolidated AuM — in fact nearly 75 percent — is parked in short term gold loans where the average loan gets repaid in about 60 days. Another 15 per cent is accounted for by microfinance (MFI) loans which are also quite short term. The Small-Medium-Enterprises (SME) book was under pressure on account of the twin disruptions of demonetization and These pressures are now easing but the overall cash flows are still somewhat strained although it is heading to normalcy. Therefore, we just do not face the issues that other NBFCs may be facing.

Are you seeing any pressure on the SME and Vehicle finance book?

The signs are positive and one needs to carefully understand the cash flows and cycles of these businesses and monitor them appropriately. The segment continues to be high on potential and has good credit absorption capacity. We expect it to grow in line with the economy. Similarly, in vehicle finance, the disruptions caused by demonetization and have eased over a period of time though the routine cycle is yet to return given the backdrop of the steep increase in fuel prices. Overall, our NPAs are at 2.6 per cent in the vehicle finance book which is relatively low and we are not observing any pressures. Having said this, our constant endeavor is to bring down the delinquency levels by filtering the right customers through our efficient credit mechanisms which makes use of our indigenous data analytics platforms. Currently in vehicle finance we have an AUM of Rs 9.2 billion focused on commercial vehicle and two-wheeler financing. We are venturing into used cars and Tractor finance by tapping our vast customer base. I see the vehicle finance business growing to Rs 40 billion in AUM terms in the next two to three years.

Are SMEs facing lending or repayment issues, given the overall credit crunch in the economy?

There’s no doubt the SME’s are up against an overall credit crunch which has made it more difficult for them to access loans from banks and NBFC’s. Moreover, the banks have always had relatively rigid policies which rendered them unable to fully meet the dynamic credit demands of this segment. The non-banking entities have been addressing the credit needs of the lower rungs of the SME segment by using innovative methods to assess their creditworthiness. The system worked fine till recently, but the recent default by IL&FS has soured the mood. I understand that credit availability for most NBFCs has shrunk, leading to curtailed lending to SME enterprises by NBFCs. Here, I may add that has not faced any credit crunch, as all our limits are getting renewed on time.

Do you think will be the next segment to face higher borrowing costs? Will this affect consumption in the economy going forward?

Our target customers are in the affordable segment and about 25-35 per cent are first time borrowers. Therefore we have created our own credit rating models, and robust IT platforms for risk management and fraud detection. If borrowing costs continue to rise, it will no doubt be detrimental to and consumption. However, recent inflation data shows a cooling contrary to earlier fears, and so there is good reason to believe that the RBI may not hike interest rates any time soon.

First Published: Wed, December 19 2018. 16:08 IST