Too many lenders are following them
L&T Finance Limited is a well known name among non-banking finance companies and offers various financial products and services for trade, industry and agriculture. A subsidiary of L&T Finance Holdings, its focus is on corporate products, construction equipment, commercial vehicles and tractors. The company had announced a few acquisitions recently as part of a strategy to consolidate. In Chennai recently to launch a CSR (corporate social responsibility) initiative of the company, L&T Finance Limited Chief Executive Dinanath Dubhashi spoke to The Hindu. Excerpts:
How is L&T Finance doing, given that the government had announced measures aimed at boosting sentiment?
The last 12-18 months had not been extremely good. Last year has been a year of consolidation. Though our profit growth was decent, about 20 per cent, the disbursement growth has not been much. This was primarily because good assets to lend, especially in corporate and SME, are fewer. There are too many lenders following them.
In the retail and asset finance side we are seeing good traction. The growth may not be what we have seen over the last four years, but we see good growth. On the corporate side we see consolidation and with the government declaring its intentions the mood has started. Perhaps nothing has really turned on the ground, but the mood has started and many times things improve because of the mood.
Yes, corporates are facing liquidity issues. But, the trick in lending is to identify two things, whether the issues are only temporary or permanent. People are under stress and watchful, the aggression, the growth focus has shifted more to consolidation. But overall things are turning around.
You had acquired Fidelity mutual fund and signed an agreement with Societe Generale Consumer Finance to buy FamilyCredit Ltd. How will these help?
L&T Finance Holdings wants to be a full fledged financial service provider. Everybody is also talking about banking licence. It would be great if it happens and when it happens, we hope it will be in our favour. Irrespective of that we are building a franchise which is very much bank like, other than savings and current account.
So for L&T Finance Holdings’ umbrella of firms on the lending side it starts from project finance, then corporate finance, supply chain finance, SMEs, some construction equipment, and commercial vehicles, tractors and other automobiles, cars besides micro finance. The spectrum is from Rs.500 crore ticket to a Rs.10,000 ticket. We have just signed the share purchase agreement for Family Credit. They are in two wheeler and auto sector, and very strong in East and Central India, where we are not so strong. Both our acquisition of a housing finance company and this one are very complementary, in terms of portfolio and on geography. On the mutual fund side, our portfolio was Rs.3,000 crore and the accepted wisdom is that it should be Rs.10,000 crore for people and distributors to respect you and we needed to reach there. Secondly the Rs.3,000 crore was primarily debt, 90 per cent of our portfolio was debt funds, whereas Fidelity was exactly other way round, 80 per cent equity and remaining debt.
How is the micro finance business post the crisis in Andhra Pradesh?
When the micro finance losses happened in Andhra Pradesh, we made provisioning up to 80 per cent the next year. Though RBI has given us time till 2015, we made almost full provisioning and the rest we will make in the next year.
The RBI Governor urged the banks to consider taking up last mile operation in micro finance? What are your comments?
Micro finance has already seen a huge shake up, anybody who was associated with Andhra Pradesh micro finance, even in the nearby districts of other States got their networths wiped off. So today if you see serious players, the consolidation is already happening. Banks are welcome and if all of us can work towards making poverty disappear from this country I think it would be great. In fact when we started I told my team if we can close down this department, I think we have achieved what we wanted. Of course, this statement I don’t think will happen in my lifetime. Competition as such is never a big issue, but scaling up is. Scaling up is possible from Rs.200 crore to Rs.2,000 crore, but for it to reach Rs.20,000 crore it is possible only when the structure changes. If the money goes electronically and mobile [phones] and comes back through mobiles, then it is possible.
Will an Aadhar card kind of system make a difference?
I would think so. You would find it amusing, but a chaiwallah near our office in Bandra-Kurla complex has put a board saying if you want to make mobile payment for the tea send an SMS to this number. Hopefully this should spread and we have to all work for making mobile payments popular. And if mobile money spreads and Aadhar helps then this business can steady, and we can seriously talk about a date by which we can talk about total, complete inclusion. But till it is cash I believe it will remain limited.
In what ways a banking licence would benefit?
We can offer customers the entire bouquet of services. In financial terms, the balance sheet becomes more predictable. Today, I am the second intermediary and borrow from banks and mutual funds. When I become the first intermediary the intermediation costs go and I can pass the benefits to the consumers.
Which sectors look promising in the current half of the fiscal?
I think rural sector. There was a brief scare in the first half because of the monsoon. Road, construction sectors should pick up in view of the government taking some steps, renewable energy is doing very well. Certain urban infrastructure, the next wave of sewage treatment, water treatment plants, power, ports, with infrastructure construction equipment market would move up.
Five years down the line, where do you see the business?
There are internal ambitions, but I don’t comment on size targets. Profitability is the key. If you have to sacrifice growth for profitability we will do it. If we maintain a decent CAGR of, between 15-20 per cent, then from the current [book] size of Rs.26,000 crore [of L&T Finance Holdings] we should be anywhere between Rs.70,000 crore and Rs.1 lakh crore and with that we would be among the top 10-15 private lenders in the country. That should be the goal. More importantly we want to be a company that gives very steady RoNW (return on net worth), steady growth and no surprises, no 10 per cent in one year, and 30 per cent in the next.