Slowing loan growth clouds outlook for Shriram
Thanks to its focus on rural areas and financing used commercial vehicles, Shriram Transport Finance Co. Ltd
remained relatively unaffected by the slump in new commercial vehicle
sales. But as the economic slowdown continues and the downtrend in
commercial vehicle industry deepens, the competitive advantages are
wearing off. Asset growth in the recently concluded March quarter slowed
to 7%. In the previous three quarters assets grew by at least 14%.
As truckers shied away from purchases, the new commercial vehicle
assets plunged 34%. The used commercial vehicle assets business
continued to grow, but the rate of growth almost halved from 33% in
first quarter to 17% in the last quarter of the recently concluded
fiscal year.
Several factors weighed on loan growth. According to a report by broking firm Nomura,
low government spending and heavy rains in some states may have reduced
demand for loans. “Management indicated that LCV (light commercial
vehicle) demand still remains sluggish and agri demand in states like
Punjab, Maharashtra and Madhya Pradesh have been impacted due to
hailstorms,” Nomura said in a note.
The sharp slowdown in asset growth hit interest income.
Net interest margins softened both from a year-ago period and the
December quarter. Margins were affected by tax incidence on
securitization income. Another reason why margins fell is that a
considerable part of incremental loan growth has come from low-yielding
assets. “Shriram Transport’s calculated margins declined 10 bps (basis
points) sequentially to 6.1% as incremental growth in used vehicles
originated from lower vintage vehicles (three-to-five years), where
yields are 400-500 bps lower than higher vintage vehicles,” Antique Stock Broking Ltd said in a note. One basis point is one-hundredth of a percentage point.
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source live mint
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