'L&T Finance can compete with banks in retail space'

L&T Finance, which acquired two lending companies in the current financial year, plans to become a comprehensive financial services company. CEO Dinanath Dubhashi talks to Krishna Pophale about the company’s strategies and priorities. Edited excerpts:

RBI has issued new draft norms for non-banking finance companies (NBFCs) mandating higher capital requirement and provisioning norms at par with banks. How will this affect NBFCs’ operations, if implemented?

Tier-I capital norm will not affect us as we are adequately capitalised with capital adequacy ratio of above 15 per cent, most of it being Tier-1. However, we should have the freedom to decide risk weight according to asset category.

In asset classification, cash flows are not regular in the areas we operate. So, bringing them at par with banks may change the profile of NBFCs and some might stop lending to certain segments.

How do you plan to build on your acquisitions, including Indo Pacific Housing and FamilyCredit?

We want to be present across the chain in terms of customer needs. Housing finance as industry has grown steadily and non-performing assets (NPAs) are also low. Similarly, we decided on two-wheeler loans.

In both, we decided to grow inorganically primarily to get system and people who already have the know-how of these segments, which are relatively different from what we were doing till now.

We want to be a significant player in these spaces. FamilyCredit has a very healthy portfolio of Rs 1,300 crore (Rs 13 billion), of which 60 per cent is two wheelers and the rest is used cars. It complements our existing portfolio.

We took over Societe Generale’s retail operations in India (Family Credit), which provided us with good opportunities of consolidation with our existing branches.

These acquisitions have saved cost for us in the short-term and the growth and

other factors will come in the medium term.

How are you planning to compete with banks in the retail space?

There are certain areas where we are strong, especially in rural parts. Our presence there gives us the advantage.

We can easily compete with the banks there, perhaps even at higher rates.

While banks are facing sluggish loan demand, how has been the demand for the company?

We are present in several businesses, including microfinance and corporate lending. Our business mix ensured a steady growth rate of 25 per cent in the past five-six years.

Tractor industry is doing decently, but the growth will be muted this year due to drought situation prevailing in some parts of the country.

We are selective in corporate lending as there are lots of promoters who are asset rich, but liquidity is constrained and we expect a decent growth in corporate lending with prudent measures.

Overall disbursement growth is not very positive, but we are able to maintain growth given that we have diversified portfolio.

Had we been only present in areas such as corporate, construction equipment (CE) and commercial vehicles (CV), the growth would have been negative.

How do you tap the opportunity with your parent group L&T?

The entire supply chain of L&T is available to us. Then there are contractors working for L&T whose CE’s we fund. We also do syndication for large projects of L&T.

We have the entire L&T human resources for our retail lending. We have recently entered housing finance where L&T is present in small way. On the liabilities side, we get attractive rates thanks to the L&T brand name.

Would you be tapping the external commercial borrowing (ECB) market to raise funds for your housing finance company?

Not immediately. First, we will set up the business properly since it’s a new acquisition. Later, we will start thinking in terms of better and cheaper borrowing.