There was a strong profit growth of 40% in your Q2 results. What have been the key drivers?
One is the asset growth. Asset growth has been good and the NPA has been down. These are the major reasons. Our micro finance business has done well. Gold loan is going strong. Our other businesses like commercial vehicle finance, home finance and SME, etc, all are doing well. In the second quarter, the ROE has gone up to over 22%.
What is the outlook on margins given that we are seeing rising cost of funds?
Between Q1 and Q2, there is a rise of 10 bps in average borrowing costs. It is going up. This quarter, we are expecting an increase of 30-40 bps. This can be passed on because gold loan comprises 75% of our portfolio. It is a short-term loan. The gold loan, even though granted for a period of three months gets an average of 60 days time and it is also below Rs 13,000. So, passing on 30-40 bps will not be an issue.
The other factor is micro finance which is around 15% of our consolidated portfolio. In other businesses also, 30-40 bps can be absorbed. Overall, we do not expect much NIM pressure because the cost escalation is around 50 bps.
What do you could happen to NBFC growth because of liquidity crunch? Free flowing credit, which was coming to NBFCs, is going to dry up. NBFCs will have to calibrate growth. What has been your experience?
ALM could be an issue. The companies borrowing short and lending long can be an issue. Around Rs 70,000 crore of commercial papers (CPs) is coming for renewal and so in the short term, there will be liquidity pressure.
I hope the policy makers will come forward with some sort of window to address this because if business of NBFCs is curtailed, it will have a chain effect and could be a trigger. In the interest of the overall economy, there is pressure from all quarters to manage this situation.
As far as companies like us are concerned, we borrow slightly long term. The average borrowing is longer term and lending short term. The ALM mismatch is positive. So, we do not face any problem in getting the short-term as well as long-term borrowings renewed from the banking system as well as the market.
What do you think will happen to this issue of commercial borrowing or commercial papers which are due for a rollover in November? Mutual funds are unlikely to give money back to NBFCs because of sectoral limits.
Yes. The companies may move to long-term borrowings. They may raise funds from the market through NCDs, from banks as well as long-term borrowings. It has to get recalibrated. That can create some pressure for the companies lending longer.
What is your overall gold AUM growth? Why is it still at a slower pace of about 1% sequentially vis-à-vis 17% on a year-on-year basis? What is going to be your outlook going forward?
It is primarily because gold price during the second quarter was down. Because of that, LTV has gone down and so even though there is a tonnage growth, collateral growth did not reflect in the growth of the AUM.
Overall, judging from the present trend of growth, we feel 10-12% growth is possible during the year compared to 17% last year. But it may change because there is seasonality. This may change as well.