'EV disruption in 2-wheeler space will not impact our market leadership'

India's EV financing industry is projected to be worth Rs3.7 lakh crore by 2030, shows a research report. What pie are you looking at?

Driven by powerful environmental, macroeconomic and technological factors, the transportation sector is in a period of historic transition. Shriram City Union Finance (Shriram City), India's largest 2-wheeler financer (by volumes) to capitalise on this has tied up with almost all electric vehicle (EV) manufacturers over the last three months. The disruption in two-wheelers is about to take off and we being a leader in the financing space are looking to capitalise on it. Currently the sales of EVs is less than one per cent of 2-wheeler (2W), we have 20 per cent of the market share of 2W finance currently and will continue to maintain that even in EV space, going ahead.

The company has tied up with Ola Electric recently. What kind of business are you looking through vehicle finance by the fiscal-end?

We have tie ups with Okinawa, Ather Energy and Ampere and are in the final stages of a tie-up with Ola too. There is huge scope for EVs given that the government has set a clear and ambitious goal of adopting 100 per cent electric vehicles by 2030. Several States are offering concessions, like Tamil Nadu has a concessional charging rate for EVs, Kerala offers schemes like no down payment and allows purchase of EVs on instalment. In Maharashtra's recently-introduced EV policy, the largest incentives are for electric 2Ws (subsidy of Rs10,000 to the first one lakh electric 2W buyers, early bird incentive of Rs15,000 for electric 2Ws with 3kwh battery etc). Maharashtra contributes 12 per cent of our 2W book and with the help of the incentives we expect the same share to be replicated in EVs as well. The EV finance book for us is currently miniscule given that sales of EVs is low, but as sales ramp up we will maintain our market leadership in 2W finance.

What is your total disbursement plan for the current fiscal and where do you stand at present?

We are targeting disbursals worth Rs23,000 crore for FY22. Q1 was weak due to the impact of the second Covid wave, however, there has been a pick up from June and for the period April-Aug we have disbursed loans worth Rs8,700 crore. For the industry, the rate of growth in non-food credit rose to 6.68 per cent year-on-year (y-o-y) in August. This is the fastest growth in bank lending in 16 months. As lending picks up, we will ramp up disbursements from current levels. Disbursement growth in 9MFY22 will get a boost from recently launched LAP, pan India roll out of gold loans and thrust on digital initiates (zero contact personal, 2W and gold loans) in the next 6 months.

Please throw some light on NPAs and your vision on it.

Shriram City has been one of the few NBFCs to manage asset quality amidst the pandemic. Gross Stage-3 loans rose by 55 bps qoq to 6.9 per cent in Q1FY22 and we are likely to bring that down to 6.5 per cent by end of FY22. Our restructured book stands at 0.7 per cent of the book and we will maintain it at current levels. This is exceptional performance considering large part of our portfolio is dominated with MSMEs and 2W portfolio. In particular, we cater largely to the trader segment of MSME customers and have not seen any rise in stress in this segment. Collections are back to 100 per cent, and with festive demand kicking in, things seem to be almost back to normal.

Two-wheeler sales have remained muted in the recent past. What is its impact on vehicle finance?

Q1 was weak for 2W sales unlike PVs. However, the drop in Covid-19 cases in recent months has been a shot in the arm for the two-wheeler sector. We are witnessing pent-up demand and along with the approaching festive season we are likely to see revival in two-wheeler sales. August has been better with sales growing month-on-month. Financing trends have been in line the demand trends. We expect to finance over 1,00,000 2W each in Oct and November on account of Diwali and Dussehra. We are currently within touching distance of 10 million 2 wheelers financed till date. We have completely digitised our 2W finance business end-to-end and now customers can get an Express 2W loan by the click of a button in a few seconds. Digitisation will help in higher sourcing and help reduce TAT.

How do you see the demand for gold loan?

The demand for gold loans has picked up due to Covid related disruptions, given that the Cash flows of select customer have been affected during the pandemic. Gold loan growth is expected to remain strong led by increasing our pan-India presence from the current five States we are offering it. We maintain our strategy of average LTV of 65 per cent which has led to negligible auctions and we will thus grow this business in FY22.

Your company has been cautious towards SME financing in recent times. Has there been any change in this stance?

As overall cash flows improve for the underlying borrower segment, SME disbursements are expected to gradually revive in the next six months. Shriram City is the second largest NBFC lender to MSMEs, with significant part from the trading community, which have been relatively less impacted. MSMEs contributed half of our total loan book and we will continue to grow once things stabilise. Currently for SME loans we continue to remain cautious and prefer to lend to existing customers.

How do you see the growth of other segments?

In Q1, growth was largely driven by personal loans (8 per cent of AUM), gold loans (15 per cent of AUM) and pre-owned vehicles (4 per cent of AUM).We are expecting to grow our total AUM by 10-12 per cent in FY22. Stronger growth is expected in gold loans and 2 wheeler loans while SME loan book growth is likely to remain weak and we continue to support our existing customers with personal loans. Our subsidiary, Shriram Housing is gaining rapid traction in the affordable housing finance segment; with a loan book of Rs 4000 crore, the company is on a steady growth path; we expect the company to reach Rs 10,000 crore by FY24.