We are open for new Asset that is in line with our Business and Strategy: Dinanath Dubhashi, L&T Finance

We have achieved top quartile ROE in this quarter, said Dinanath Dubhashi, Managing Director & CEO, L&T Finance Holdings Ltd.  During a chat with Swati Khandelwal, Dubhashi said that we will use digital technology to reach places and customers who haven’t borrowed till date and lend them. Edited Excerpts:

Q: L&T Finance has a posted its Q4FY19 results and margins are at high-levels but disclosure of your exposure on IL&FS is negative news. Tell us, how you will treat this account in the future and highlight the growth drivers of the quarter?

A: Two important things have occurred in the quarter and they are (i) we have achieved the top quartile ROE in the quarter and (ii) emergence of the IL&FS ghost. When it comes to the margin than our cost of funds as under a control and has increased just by 3bps from Q3. Secondly, the strength in our products would have passed on the increases and our margins has been steady and it stood at 5.01 in the third quarter and it went up to 5.08 in the fourth quarter and that too after this reversal of IL&FS.  

Q: Update us on the kind of changes that were implemented on the margin front and do you expect that you will be able to maintain it at the present levels?

A: First of all, we will promote our existing products through digital technology and go deeper. We will go to places, where customers haven’t borrowed, i.e. who are new to credit and lend them based on digital technology. Interestingly, papers are not used in any of our processes and everything is based on mobile-technology and it will help us in going deeper and increase our market share. 

Secondly, there are times when certain products are not able to perform or grow as per the expectations, as I think, there will be a slowdown in the tractor finance for the next six months. Thus, this is a place where we will have to adjust things, and this means that if there is a slowdown in the new tractor segment than start funding the old ones or provide top-up loans to good customers. 

The existing customer database, which is around one and a half crores, is the third pillar of our business and we will use data analytics to cross-sale or up-sale our products. 
Last but not least, we have plans to launch new businesses (one to two businesses) in the next two years and we are very excited to go for the SME business loans. If you have a look on our products then you will find that we are operational in infrastructure, rural and housing sectors, which is essential for strengthening the nation, but we aren’t present in the fourth segment that is an important part of the economy and that is SME and we will be launching a product in that segment.
 
Q: Rural assets grew by 50% this quarter. How confident you are about rural demand and how it will benefit you?

A: There are chances that there can be a slowdown in rural India, at least in the first half of the year which can improve in the second half if monsoon remains normal. We don’t enter any business for six months, but we build strength for five to fifteen years. I think that we can use data, more data will be available with us after a new Aadhaar law is implemented, to lend more by judging the customers. It will also help us in assessing the new customers, who haven’t taken a single loan to date. I feel that the scope for growth is tremendous in rural India, might be possible it is not available in next six months or a year, but we are extremely positive that over the next five to ten years huge growth can be seen in rural India in finance penetration and L&T Finance will be at the forefront of it. 

Q: Election is the next big trigger and what are your expectations in the form of a budgetary announcement from the next government, whoever comes to power, and the sector where you will focus?

A: Using data, we are very clear that rain was not low across the nation and we can do business at places where rain, irrigation facilities, ground-water level and cropping pattern are good. So, the ability to monitor this closely, along with our economic department and data analytics and then take actions accordingly.  Earlier, we had a process of allocating a complete year target to the branches but now the targets are provided after analysing the factors at the micro-level on a quarterly basis. The detailed analysis allows us to decide on the branches that should grow and the tractor model where we should grow, the village and dealer with whom we should grow. So, now we have the ability to deal with the short-term ups and downs and when it comes to long-term then we are very positive about this segment. 

Q: The sector has seen a liquidity crunch problem. I would like to know about the way that helped you in maintaining your balance sheet keeping in line with the growth guidance? What is your expectations from the steps taken by the Reserve Bank of India (RBI) to end this problem and will these steps have an impact on your numbers?

A:  There is a simple answer for it and situations has improved a lot since then. Secondly, if you have a close look at the situation then you will find that it created a divide between men and boys, in fact, it separated the two. If you have a look on the weak companies, weak NBFCs, then you will find that they had a severe problem in Q3, which also continued in Q4 forcing them to sell their portfolio to remain functional. But, strong companies with strong parentage, AAA companies, we are one of them, faced problems in the initial phase for 10-20 days. The market was completely dry between September 21 and October 10, 2019, after that the situation came back to normal and we were able to raise money. Our funding cost between Q3 and Q4 has gone up by only 3 basis points (bps). 

Q: Several mergers have been announced in the banking and financial sector in recent past and talks are still on. What is your view on this consolidation in the sector and do you have any such plan?

A: Mergers and consolidations are definitely happening in the sector, where big NBFCs are offering portfolios and offering for sale. We have to say something on this front and that is that yes, we will be interested in looking for good assets but on a condition and that is that the asset/NBFC should be present in the business that is liked by us. We will not buy any portfolio only just because it is cheap, but we don’t like their business.