Chennai-based non-banking financial company (NBFC) Sundaram Finance expects its net interest income and net interest margin to revert to pre-COVID sustainable levels over the next few quarters after the increased cost of borrowing and competitiveness in the medium and heavy commercial vehicle (M&HCV) segment hurt margin in the October to December 2022 quarter.
"Interest rates have moved up and therefore the cost of borrowing has, too. In a sense, we are coming back to pre-COVID levels in terms of cost of borrowing and we are seeing the repo rate back very much at pre-COVID levels," Rajiv Lochan, MD, Sundaram Finance told CNBC-TV18.
He said M&HCV, an important asset class for the firm, had been weak in the last few years but is witnessing a strong bounce back this year. "The upcycle of the M&HCV is now well underway. And so, M&HCV business as a mix of our disbursements has gone up. It is a heavily competitive segment with a great deal of pricing pressure from banks. And so that naturally brings the margin overall for the portfolio of ours a little bit lower," he said.
Lochan’s remarks come after the NBFC reported a 20 percent rise in its profit after tax (PAT) at Rs 243 crore for Q3FY23 on the back of robust disbursements and impressive AUM growth. The company’s total revenue stood at Rs 1, 009 crore in Q3 as against Rs 958 crore, logging a growth of over 5 percent. Disbursements recorded a growth of 45 percent to Rs 5,553 crore as compared with Rs 3,843 crore in Q3FY22.
After the highest-ever disbursals, Sundaram Finance is focused on ensuring to get the right asset mix and expects a reversal of asset quality to the pre-COVID level, he said. He also noted that asset quality issues are legacy issues in the home finance business.
“We are expecting to continue the trajectory that we are on. We expect the market to get back to healthy pre-COVID double-digit growth level across all asset classes,” he said.
Reflecting on inflation, Lochan said, the long-term direction of inflation is headed in the right way.
The top official added that the focus remains on protecting Sundaram Finance’s existing market share and improving it.
Lochan said the firm is seeing a start of an upcycle in the CV segment though small transporters remain under pressure from a viability point as freight rates have not moved up in line with costs
He added that Sundaram Finance remains bullish on growth in housing demand in India. "We feel quite confident that doubling down on Southern markets, looking at tier-three, tier-four towns a lot more closely, cleaning out the legacy asset quality issues, focusing much more on the housing finance segment as opposed to building a finance, which we had a bit of focus on before and driving productivity improvements through technology and digital are the big thrust areas there," he said.
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