Chennai: Shriram Transport Finance Co. Ltd, India’s largest vehicle financier, halved its loan growth forecast for the current fiscal, citing rising interest rates that have discouraged prospective borrowers from buying new or used vehicles.
The truck financier has scaled down its loan growth forecast to 10% for the year to 31 March, R. Sridhar, managing director, told Mint in a telephone interview. Profit for the curent fiscal is also likely to remain flat as higher interest income from existing loans gets offset by rising defaults.
Shares of the Mumbai-based group fell nearly 1% to Rs552.70 on Monday on the Bombay Stock Exchange.
“The market has factored in concerns of regulatory changes for NBFCs (non-banking financial companies) which will impact the company in terms of capital requirement and non-performing asset classification to 90 days from 180 days,” said Abhishek Kothari, an analyst with Mumbai-based brokerage Way2Wealth. “The asset classification will double as the non-performing assets (NPAs) for NBFCs is reduced to 90 days.”
A committee, set-up to strengthen and regulate NBFCs and headed by former deputy governor of Reserve Bank of India Usha Thorat, recommended raising the core-capital requirement to 12% from 9% and stricter provisioning for bad loans in August.
“The company is facing multiple challenges in terms of higher interest rate which has led to rise in cost of funds,” said Sridhar. “Liquidity in the market is okay but demand has still been sluggish and regulatory changes expected from RBI will impact the company’s performance in coming quarters.”
Shriram Transport on Wednesday reported second-quarter profit rose to Rs299 crore from Rs298 crore in the year earlier, even as income from operations rose 12% to Rs1,446 crore as the company made provisions of Rs 236 crore for likely defaults, largely from the mining sector, and writeoffs doubled in the quarter because of exposure to the mining sector.
In July, India’s Supreme Court banned illegal mining in a move that has shrunk mining activity, which in turn hurt demand for large tipper trucks and reduced demand for heavy commercial vehicle loans for Shriram Transport Finance.
Demand for loans for large trucks has been further hurt by renewed concerns of an export slowdown stoked by unemployment concerns in the US and the debt crisis in Europe.
When demand for products is low, companies prefer to transport goods in smaller vehicles to avoid higher fuel and driver costs of bigger vehicles that will not be filled to capacity – unimaginable for Indian transporters used to the economics of overloading.
Normally, slowing demand for large goods carriers because of an economic slowdown gets offset by demand for used vehicles. But inflation and rising interest costs have cut demand for used vehicles as well.
Likely default of mining truck owners from Karnataka on their payments and repossession of those used vehicles, whose value may be lower than the loan given by the company, sent Shriram Transport’s stock price to a 52-week low of Rs533 on 10 October.