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“In retail, all our collection ratios are back to pre-Covid levels and in some cases, even better than pre-Covid levels and GS3 comes much later. We monitor very strongly our zero DPD and that is where our data analytics and digital drives are tremendously helping us,” says Dinanath Dubhashi, MD & CEO, L&T Finance Holdings.

You have come out with a strong set of numbers. What is your assessment on the quarter gone by and how has the year been for you?
The quarterly PAT is up by 28%. It is important to understand how it has come about. We have emerged stronger after the Covid years. The important thing is where is the growth going to come from? We guided last time that growth is going to come from retail. This year, we have done our best ever retail disbursements of close to Rs 25,000 crore. This quarter is our best ever quarter of retail disbursements and the best ever quarter of micro loan disbursements. So there are many ‘best-ever’ that has happened and that is where the growth is going to come from.

The entire swivel of the balance sheet from wholesale to retail is happening. Retail is now 51%. The good thing is that the new products which were launched like these are digital native products and completely paperless, have also grown. This quarter we did almost Rs 800 crore disbursement of consumer loans which is completely paperless and we expect to continue this trend.

I will talk a little bit more about it but the good thing which is happening because of this retail shift is; one, the NIMs plus fees are going up and we will see quite a few continuous quarters now of it remaining in the 8% area. In fact in Q4 it is 8.17%. Credit cost is becoming more and more predictable and because of that, at this point of time, GNPA is down smartly but at the same time, in addition to our provisions, we are also carrying Rs 1,700 crore of additional provisions.

We had thought that perhaps we will start releasing something this quarter but we have not released so far. The board felt that with the talks of the fourth wave etc. we should be a little more careful. The good thing is that the entire Rs 1,700 crore we are carrying into the next year. All this bodes extremely well for years to come and with the various measures that we have to grow retail. On Monday, we are unveiling a strategy for future growth, on how we are going to grow over the next four to five years. We call it the Lakshya 26 strategy but very clearly, there are various ways to grow retail business.

You sound fairly optimistic about the retail segment.You have already talked about how the net interest margin plus fees will continue in the 8% range. How do you see NII moving forward?,
As far as net interest income is concerned, we are now over 8% NIMs plus fees. It is coming out of two things: one, increasing retail, two best-ever cost of funds. Now we are talking about slowly hardening interest rates. These are the two things that will come to our help; one in retail, we have a much better pricing ability than wholesale. So to quite some extent, we will be able to pass on any increase to our customers because of the strong competitive position that we have in many of our retail businesses.

Secondly, as the percentage increases, the overall maturity tenure of the balance sheet comes down because retail are shorter tenure assets and because of ,that our liability tenure can also duration can also come down and hence the increase in cost credit interest cost will not be proportionately higher because the maturity of the balance sheet will also come down.

These things will benefit us and as interest rates hardened, we believe that if at all any reduction is there, it will not be anything substantial. So, we should be able to manage NIMs plus fees at a very healthy level of 8% plus or minus a few bps. That is clearly what we are confident about.

As rates harden, the cost of funds will get more expensive for you. Also you have a capital adequacy ratio which is healthy at this point of time. Is it sufficient to help grow going forward as well?
The capital adequacy currently is 25% and now the push is more for growth because capital is more than adequate and even at a very healthy CAGR of 20% plus in retail. In real estate funding, we have stopped further underwriting and we are looking at various ways of reducing the real estate portfolio. In fact, it has been reduced quite smartly through collections and we will look at various ways.

In infra, we are continuing a capital light model of growth. So the infra book definitely is not growing. We will look at ways of maybe in that very strong platform, perhaps exploring ways to get some partners and things like that. Because of that the capital is more than adequate even for a 20% plus CAGR of retail. The way we are planning, it looks like in the next three to four years, we would not need to raise equity capital. It does not look like that even at this very healthy CAGR of retail, we will have quite adequate capital.

Can you talk about asset quality? I can see your gross three-stage assets have come down sharply QoQ. Talk to us about the improvement. Do you see credit cost going lower from here on?
The improvement is because of two things – one, in retail, all our collection ratios are back to pre-Covid levels and in some cases, even better than pre-Covid levels and GS3 comes much later. We monitor very strongly our zero DPD and that is where our data analytics and digital drives are tremendously helping us.

So product after product, our collection efficiencies are definitely better than last year. In many products, they are reaching better than pre-Covid levels. That is the number one reason the retail portfolio is smelling of roses. The wholesale portfolio is under good control. Also in accordance with our strategy of reducing capital to wholesale, we even sold some wholesale assets to ARCs in this quarter. These two are the main reasons why the GNPA has come down.

So one is a one-time big reduction because of the ARC sale and the second is the sustainable reduction with retail asset quality continuously improving. On credit cost, I do not want to give a very specific guidance but most definitely, in the last two years, we have been creating substantial amount of management overlays in addition to the NPA provisions. Next year, hopefully, we may not create additional NPAs and in fact we will be perhaps writing back some of those provisions. So, credit cost should trend down year after year.

I will be cautious for one more quarter to watch how the Covid fourth wave goes, but the third wave which came in January hardly affected business or collections. So we h(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)ope that the intensity of Covid is not that strong and if it does not lead to any lockdowns, we should be fine.


(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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