Despite having not collected money in the past 50 years, Sundaram financial institutions have a balance sheet of Rs 35,000 crore. After 37 years of management, TT Srinivasaraghavan says that Ankur Mishra continues to strictly and prudently pursue growth.
For a company that will celebrate 70 years in 2024, you have grown conservatively
It consists of two sections. Firstly, as you correctly pointed out, our development is not comparable to peers. We have not raised a shareholding of Rs 35,000 crore from retained earnings in the last 50 years, as opposed to other NBFCs. Although the equity raise is not incorrect, our approach has become a stable and sustained growth model, without the volatility that often accompanies significant investment. We have done our business as relaxed as possible. It’s a matter of choice.
About 50% of your borrowings are through debentures and 15-16% from banks. Isn’t it cheaper to borrow from banks?
This is not so in our case since AAA rates help us to collect the money at lower rates than banks. One explanation is that banks must meet MCLR standards and cannot fall short of the MCLR. On the other hand, the stock market is moving very smoothly. By investing in debentures, we could save 100 bps or more.
Given the opportunities, do you think it makes sense for Sundaram Finance to step up the pace?
I don’t want to speculate about the strategy of my replacement, but I think we want to keep up the current rate of growth as a corporate philosophy. Years have passed since we expanded by about 20-25 per cent with a chance. I do not see the organisation rapidly expanding on a secular basis. Therefore, it will be cautious and calculated growth.
Have you ever considered becoming a bank?
No, not so. We also calculated the options with respect to the price payable to become a bank, etc. We passed the loop when RBI opened the browser. Yet every time we examined it, we didn’t see a convincing justification to get a banking licence.
What do you feel about regulations being tightened for NBFCs?
We have never been opposed to strict rules as responsible player in the NBFC. But I’d like NBFCs to provide some banking facilities if we talk about harmonisation with banks. Along with the control, there needs to be a developmental factor. And that’s not yet there.
NBFC continues to struggle the most, not the bigger ones like us, either the smaller ones or the smaller ones. Any time a financial market crisis is present, there has been no aversion to lending to NBFCs, although the track record of the smaller NBFC is largely ineffective. Yes, an IL&FS was, a DHFL has occurred, however, it’s exceptions. It is a structured funding organisation that I want to see. Like a national housing bank to support housing financing firms, should we have a smaller NBFC funding entity?
Consolidated net profits for the nine months to December 2020 were Rs 895 crore, 50% higher y-o-y and 13% more than in FY20
We concentrated more on the company lending aspect. We have made it clear to the vulnerable creditors that this will reduce their responsibility after the moratorium has expired and require them to pay only a modest fee, notwithstanding the moratorium. We regularly participated, informed, nurtured and assisted our smaller borrowers. All of them praised us for lifting the ban, so they were better off than others who paid almost zero. There is an economic area, such as tourism, bus and tour operators, that was affected by the Covid 19. We gave these creditors restructuring in accordance with the guidance of the Reserve Bank of India. But we had to make arrangements as consolidation was not easy. 2,5 per cent of our overall book has been restructured.
The other point is that there was steep demand when the economy opened up after the moratorium. And we concentrated on the segments in which we saw growth potential. Thus, it was a mixture of strategies that led to our end, but again we have not achieved a smooth development. We have an internal mantra, GQP, meaning development, efficiency and profits. Our market is driven by this.
CVs accounted for 29% of your disbursements in the nine-month period, compared with 52% last year. Was that part of a strategy or a fallout of the economic situation?
Both of them were. The industry’s profits have fallen. In reality, since October 2018, the CV industry has declined, with BSVI standards making matters worse. And before the BS-VI came into force, Covid-19 struck. Thus, it was a sequence of events that hit the CV sector. The risks have increased substantially, and overcapacity is also important. This also made us reverse the funding of our CV.
Your NIMs are at an eight-quarter high. Is that sustainable?
According to the liquidity boost of RBI, it was very simple for six months of the financial year. There was also a security flight, as the lenders chose the more rated NBFCs. We enjoyed this, with reduced funding costs. But now ten-year bond yields have begun to rise. I think we’ve been in a sweet position and when liquidity continues to rise, we’ll be back in the usual range.
