M&M Financial Services on Monday said the company expects gross non-performing assets (NPA) to correct to 7.5 percent from current 9 percent.

Overall if we look at fresh borrowing, it has gone by at least 50 basis points and on an average basis, we were somewhere around 25-30 basis point, said Ramesh Iyer, VC and MD, M&M Financial Services.

On passing on the increase in the borrowing cost, Iyer said any increase will necessarily have to be passed on to the consumer over a period of time.

Edited Excerpts:

Cost of capital has risen, is that going to be a big pain point as you have to raise money at a higher price? How does it look for the rest of the year?

I think we are an enabler. At the end of the day, how long can we raise money at a higher price and not pass it on to the consumer? I have always said that maybe we would have waited for a little, say 50 basis points increase or whatever, but I think we have reached that period. As a matter of fact, for some of the products, we have already pushed up our price.

So, clearly I would think that any increase in the borrowing cost will necessarily have to be passed on to the consumer over a period of time; whether we do it now or we wait for little longer, it is just matter of time, but any borrowing cost increase will get passed on.

Can you give us the numbers, how much has the cost of borrowing gone up over the last two to three months or a quarter and how much would you be likely to pass on? How much have you passed on already and what would the future look like?

Overall if we look at fresh borrowing, it has gone by at least 50 basis points and on an average basis, we were somewhere around 25-30 basis point. So, at this stage, we have not passed it on to all products, all segment and therefore, the overall impact would be around 25 basis point that we would have passed on. I would think around the festival season or a little after that we would pass on another 25 basis points.

What about the impact on loan growth? We have seen a fairly strong loan growth coming from your company, in the first quarter of FY19 it was up 26 percent. It was coming on a quieter base, and maybe the base will start catching up by the time you come to Q4, but will you as a whole find fewer takers as the loans become expensive?

I think the overall demand for the vehicle still remains, I will not say very aggressive. Therefore, one has to look at the competing space also. We do not see too much of competition on there, possibly the nationalised banks are also not as aggressive as we would have seen them maybe a year back. So we are gaining volumes also from lack of competition.

Two, I would think also that almost all products have now reached rural. We were looking at our own numbers from Maruti Nexa showrooms, earlier it used to be a very urban product, maybe a year back. Currently, we do close to about 700-800 vehicles of them.

So I would think our story is multi-product approach and also deep penetration with less competition around there. I am not too worried about our own growth, but on an overall basis, I would think that the aggressiveness of growth is still not there as much. However, we are not much worried about it.

You are talking about higher rural sales from the Nexa showroom and Nexa is a premium product, it is a premium showroom so all the products that come out of there are high value. Are you seeing such premiumisation in other pockets as well, be it higher tonnage trucks being sold or any other pockets in the auto space? Can you just throw some more colour?

The tractor side is still very buoyant and it is at the back of infrastructure story opening up in state-level. I am seeing even at the local municipalities and gram panchayats, spending leading to some kind of an asset acquisition by the smaller contracting segment.

The pickup segment is doing well clearly. I am also seeing Renault, Nissan, the kind of car penetration in that market and also at the back of dealerships being opened in deeper pockets.

So it comes from what is a penetration of dealerships and that leads to a consumer willing to look at alternative products. But definitely we do not see heavy commercial vehicle penetrating that deep. It is still an light commercial vehicle (LCV) kind of a market which we are operating as far as rural is concerned. The commercial vehicle for us has been semi-urban market kind of situation.

First Published:Sept 10, 2018 7:54 PM IST