66% of L&T Finance’s business will retail in next five years: Dinanath Dubhashi, MD & CEO

Dinanath Dubhashi, Managing Director & CEO, L&T Finance Holdings Ltd, talks about Q2FY22 numbers, Plans related to provisions, disbursements, stress segments, lending book situation and RBI’s announcement of the eligibility criteria for NBFCs to pay the dividend among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: Take us through the highlights for this quarter and how much COVID 2.0 has impacted the result?

A: First of all, I will talk about the highlights and one highlight is quite simple that there 20% profit growth but it is also important to know that the first quarter of last year was also not good. So, 20% growth should be taken in that context but 20% means 20% and there is a growth in the second COVID quarter as compared with the first COVID quarter. But what is more important is that what we mentioned in Q4 that we gave created a trend in which we said that we have raised a strong balance sheet, equity, created good provisions, our business trends and collection trends were useful last year and last but not the least the strength of the liability cost/liability profile are the five strengths. And we said that if the economy would pick up, then we can grow beyond the economy but if it doesn’t happen and something bad happens with the economy then these strengths will keep us strong in a way that we are not affected by all these difficulties. It was not good that what we said happened immediately the whole of May and half June was not good but our strengths played out. If seen then wherever business was possible we did a good business, like in tractors and in June two-wheelers and infrastructure.

Q: How much provisioning you have done this quarter as you made a lot of provisions last year and it was reversed in the last quarter after which some provisions were seen? Also, what are the plans related to provisions in the future and how was the performance on the margin front?

A: One is NPA provisioning and I will not talk about that because we do it under the expected credit losses ('ECL') model as per IndAS, so that is one. As far as extra-provision is concerned, what we have done are that last year everyone was a bit scared in the first Quarter that as no one knew about what is going to happen and the future. So, we took an additional provision in the quarter. It was so that at the end of the first two quarters, we made an additional provision of approximately Rs 1,700 crore. Again in the third quarter, we didn’t make it as the situation was improving. The situation further improved in the fourth quarter after which we reversed Rs 700 crore from that Rs 1,700 crore, due to which you would have felt that we made a small provision in the fourth quarter. It is not the question of very low and huge, it is the question that we were ready by making provisions at the earliest. Ready as in, if you understand cricket, if there is a half ball then Kohli steps out of the crease and hits a boundary and if it is a bouncer then takes a back step. So, it is very important and even, we are following the same model this year as well. We are quite humble people and do not pretend in a way that we are aware of what is going to happen with COVID, no one knows and those, who say just make a guess and we can’t make a guess. So, what is best, as I said earlier that Rs 700 crore was used from Rs 1,700 crore, which means Rs 1,000 crore was carried forward and now, approximately Rs 400 crore has been raised.

Q: On the disbursement front, how much you have achieved and have you reached the pre-COVID levels and maximum contribution came from which sector? Where challenges are visible?

A: As far as a disbursement is concerned, there is only one business which ran well, in fact, we did our best ever the first-quarter disbursement and it was tractor business. Why did this happen? Definitely, COVID was spread in the rural areas but the point of sales and dealership among others were open to a large extent, except 15-20 days. And, there is good rainfall, crops are getting good water, ground-level water is all-time best and Kharif sowing is also happening well. So, it is visible that rural welfare and government expenditure on rural areas is showing results. Our tractor disbursement is definitely up, in fact, the tractor book is up, substantially. I would say that two-wheeler is urban business more and urban dealerships took time in opening and maximum disbursement started towards the end of June. In the case of micro-loans, disbursement was good in April but it was quite slow in May and June. The disbursement of around Rs 800 crore that is visible for the quarter, Rs 700 crore was made in April itself. And May and June were quite slow but we are hopeful that we will do better in Q2.

Q: Which are the sectors where you are seeing stress? Last time, maximum slippages came from MFI but what are the areas of concern this time?

A: Across the world, the area where slippage didn’t occur is infrastructure. The government looked very well and made all payments related to road and power on time, so, there is no stress on infrastructure. In retail, obviously, an issue of two months will be seen. On the farm, OTR among others was not allowed, so, there is a slight increase in NPAs. But more than NPA, I would like to talk about the collection efficiency and collection efficiency numbers were low in April in comparison to March and were less in May in comparison to April across the products. But in June, except for microloan, the collection efficiencies of all the products went up. Microloans went down a bit in June but if you take the first fifteen days of July then it has recovered very smartly. So across products, I will say that June was better than May other than microloans, and across products, July is better than June. So, this creates optimism in the mind, of course, we are very careful and watching the situation very closely but we are quite positive about the times ahead.

Q: Currently what is the proportion of retail and infra in your lending book? And will you like to increase your focus slowly to the retail side, if yes, is there any particular segment and what is the loan ticket size you are targeting?

A: We are quite clear in it and have reached 46% this time. In one quarter, we increased from 42% to 46%, this was not planned, it happened suddenly because the infra book came down suddenly because of pre-payments. That is why you can see de-growth in our overall book. But, our plan is quite simple; more than two-thirds of the book in the next five years should be retail. So, 66% minimum should be retail over the next four to five years

Q: Recently RBI announced eligibility criteria for NBFCs to pay dividends. How do you see this announcement?

A: We are studying it. The guidelines have been issued a few days back, we are studying and our auditors will have a look at them. As per the draft guidelines of FY21 (the last year), we have not declared the dividend for FY21. We will study this guideline and then look at it. I think we must not crib about the work that RBI did in the first quarter especially the dividend guidelines among others because RBI has maintained liquidity well. Just have a look at the first quarter of the last year, a panic was created due to liquidity and this time, there is no pressure of liquidity and I will use your channel to thank the regulator because every financial player has a maximum pressure of liquidity. The regulator has done a great job this time to maintain liquidity in the market. I think, everything is small in front of that.

Q: Outlook for FY22 on disbursement, credit cost, borrowing cost and asset quality front?

A: Borrowing cost certainly, I will be able to give, borrowing cost, I think, will remain benign for the first half, surely. And then in the country, the economy will start growing up a little bit. What we have done is that we have locked in the medium to long term liabilities. It will increase our cost but will not change a lot. And, the range of our NIMS Plus fees will reduce a bit but will remain healthy. So, it is very clear. Providing a short-term forecast of the growth is the most dangerous business, just imagine, if I would have provided this forecast three months back then I would have looked like a monkey. What happened in the last three months who would have judged? So, everything will depend on wave 3.0 if it occurs or not, it happens, how severe it will be, lockdowns will be there or not. So, things will depend on these factors including the vaccination coverage in the country and when the mass immunity is reached. So, there are many variables. I am too small to predict anything. I can just say that certainly, whatever happens, we have a job to strengthen the company in a way that if the situation remains good then we can reap the benefits of the same and it is bad then we can protect ourselves and wait for the betterment of the situation.