Chennai-based Shriram Transport Finance Corporation on Thursday said that there is enough demand in rural areas and the company has increased network in last one year by adding 270 branches.

Talking on new axle load norms, Umesh Revankar, managing director, said that manufacturers have to redesign the new vehicle to 15 percent to accommodate the overall weight.

In an interview to CNBC-TV18, Revankar expect the company to maintain assets under management (AUM) growth target of 18-20 percent over the previous year.

Edited excerpts:

The space that you finance to – commercial vehicles – has undergone a lot of changes over the last two weeks, whether it’s the new axle load norms, there was a big truckers’ strike and now ban on ten year old diesel vehicles as well. Will all of this put together change the texture of the market and impact your business disbursements in any way?

As far as cost of fund is concerned, at the beginning of the financial year itself it was expected total 75 repo increase based on the Reserve Bank of India (RBI) commentary. So already 25 + 25 has come maybe another 25 is expected. So that expectation is there and we have already build in our lending, so we have increased our lending yield by around 20 bps. So we are able to cover that part of it.

However, as far as liquidity is concerned, we are looking at various options including masala bond and external commercial borrowing (ECB). RBI has allowed ECB for non-banking financial companies (NBFCs) and also retail. We have raised retail resources through public issue of Rs 3,700 crore recently and we are also a deposit taking company. So we have alternatives and we have different sources, so we are not really constrained by that, and the demand is quite good. The demand we see on ground is very good and we expect to maintain our assets under management (AUM) growth target of 18-20 percent over the previous year. So that’s the broad outlook.

As far as ban is concerned, it is only in Delhi otherwise it is not there. The scrappage policy, which not the cabinet has proposed, it talk about 20 years above vehicle to be banned. So I do not think there are any challenges on that ground.

The question asked to you is, first to draw up the demand position and then to check whether the demand position is strong enough to bear a few more increases in rates – that’s the real question. Is demand healthy or are these repeated attacks of axle load or bans, are all these spoiling the demand picture?

I do not think so. Maybe the accelerated demand may not be there and when I say accelerated demand, if people are expecting around 20-25 percent increase, it may not happen. But in deep rural, there is enough demand and we have increased our network in rural in last one year. We have added 270 branches. We are accessing new customers, so we are able to reach out and grow. As far as axle issue, the effective increase is around 15 percent on the vehicle, which is also as per the manufacturers, they have to redesign the vehicle to 15 percent increase in the overall weight on to the new vehicle that is coming in. As far as existing vehicle carrying more load is concerned, everyone knows that around 60-70 percent of the vehicle that is running on the road, they are already carrying.

So a short point, you do not see a fall in demand?

I do not see any fall in demand, but there may not be accelerated demand because of improving economic activity.

Now tell us the cost of fund. How much does non-banking financial companies (NBFC) commercial paper (CP) or NBFC five year bond increase for all of FY19 for you compared to last year?

As of now in first quarter, we did not see any increase on quarter-on-quarter (QoQ). But this quarter onwards, we would be able to see around 15-20 bps increase on maturity, because we do not have CP in our books. Our CP is very small. So the impact will be on the reprising of old non-convertible debentures (NCDs), which are getting matured, three-four years back what we had raised. So it may not increase the overall cost of fund for the entire book. So we expect it to be around 15-20 bps and we should be able to manage.

On the disbursement front, if you can break it up for us what the trend is looking like. Are you seeing more used CV disbursements or is there now demand for more new commercial vehicles? What is the expected trend?

As far as Q1 is concerned, there was good demand for new vehicle, but the new vehicle demand is slowly coming down. Of course, there is an annual trend. July is a little weak month, because of monsoon and infrastructure activity slows down and even mining activity slows down and because of that, it naturally comes down and I feel it will pick up in August. Normally around Ganesh Chaturthi, there will be a big demand. Therefore, we have to wait till September to see whether we get further boost into new vehicle demand. As far as used vehicle is concerned, we are reasonably comfortable with growth, because of the reach we are generating.

For NBFC in general, how much would the average cost of money be higher in FY19 versus FY18?

I feel a company like us, which have a reasonably good debt should be around 15-20 bps. But if you look at the other NBFCs, which have recently come up, they may be having higher pressure and it could be around 50-60 bps.