Your loan book has grown at 25% in the third quarter, but it is slightly slower when you compare it to the pace of growth that one has seen in the last two quarters. What are your expectations going forward?
Ramesh Iyer: Whether the growth is at 25, 27 or 20 odd percent, I would not see it as a slower growth. And second, one should also look at it from last year’s third quarter: what was the overall disbursement and growth versus how is the disbursement and growth this year. Last year also was a very big base. So, honestly, we are not as concerned about 1% or 2% here and there. It doesn’t really matter so much.

As far as the segmentation or the segment-wise growth or classification of growth that we are expecting from, the rural market is doing pretty well, the vehicles are on demand, the footfall at dealerships are very high and yes, tractor has probably been the slowest in terms of all products put together growth. But for us, even in tractors, we have had a decent growth because of the simple reason that we have spread across the country.

I would look at it to see if there is any geography from where the growth is higher than any other geography. We are seeing pretty uniform growth across. So far as the product is concerned, pre-owned vehicles probably would go faster than any other segment.

You had also guided for an AUM growth of 20% to 25% in FY24. What are your expectations for FY25?
Ramesh Iyer: At this stage, we are not re-looking at lowering our growth potential. My belief is also that while there will be a volume growth which will come. I also expect that during FY25 there would be some price increase that would come from the OEMs. And if that was to happen, the growth rate would be well maintained because of the volume and the price both coming together.

You would have seen from our interactions that we are also gaining some market share in some of the products and that should also add up to our overall growth. So, at this stage, we are not really in a downward trend towards our growth.You briefly touched upon the tractor segment as well. Last quarter, most of your segments barring tractors did perform well and you were expecting a pickup in the second half. Is this panning out as per what you had anticipated?
Ramesh Iyer: Tractor at the back of a good infrastructure story should pick up well. Yes, from the farm side, the growth rate has come down. But clearly on the infra front, we are still expecting that the growth rate would come. And we see that even in the construction equipment side, the demand is pretty much holding up and if the construction equipment are holding up, tractors also play a good commercial role out there. So, my expectation is in the second half, one should see and maybe in this quarter or even going forward, I still expect that the haulage application tractor pickup would be there.

What about the performance of the used vehicle segment? Last time you joined us, you suggested that there were some supply side concerns for the entire industry. Has the situation improved now?
Ramesh Iyer: Not yet. One of the supply comes from vehicles which get repossessed by the financiers and the collections have been very good on its own. So, therefore, the need to really repossess has been very low and therefore, the supply side continues to remain a constraint.

But exchange programmes have picked up, that is the other source of supply for pre-owned vehicle. And if the exchange programmes do well, the supplies would start to improve but the demand definitely is much higher than the availability.

So, you have unveiled plans to enter the insurance sector via partnerships with a few insurance providers. What is the rationale here and what is the opportunity that you see?
Ramesh Iyer: It is a very large opportunity. We have a very large customer base and we are acquiring close to 70,000-80,000 additional customers and all of them do look for good insurance. So far, we were operating through the broking network that we have. We also see a direct correlation that is possible to work with this customer through an agency approach. So, what we have really kind of approached the regulator is to get an agency license and if we were to get that, then we would work with a select few insurance companies and take that product forward to our customers across and the second year, third year insurance also become super important, the renewal of insurances.

If we are an agent and play that role extremely well, our belief is that we can really penetrate more deeper into the market and can also at some stage start working with the insurers, help them design new product requirements for this market and that would become a growth potential. So, overall, the penetration would improve, products that can be made available will also undergo change and that would help a larger customer base that we work with.

Now your borrowing costs have also risen higher than expected for the quarter gone by. With banks now rationing credit, what is the outlook on cost of funds trajectory?
Ramesh Iyer: At this stage, the cost of funds is still not coming down. Fortunately for a company like us, liquidity is never a problem, availability of funds has never been an issue and it does not seem to be either. We are also a deposit accepting company and therefore we resort to all sources of borrowing that are possible. But as we speak, the interest rates have still not come down. And the expectation is that at least in FY25 one would start seeing that climb down and therefore the interest rates remain elevated.

Good news for someone like us is that we have a lot of PSL kind of lending that we do, and those qualify for some concessional borrowing as well. And therefore we have been able to contain the overall increase in our borrowing costs, but nevertheless they still remain elevated.

A standout factor this quarter has also been the improvement in your NIMs last quarter one observed a sharp contraction because of the rise in borrowing costs. Does this improvement reflect the repricing of the portfolio and what portion of your book is yet to be re-priced?
Ramesh Iyer: Our book is a fixed book so we cannot re-price the book, only new lending would come at a new price. For the improvement in NIMs, new lending has been done at an improved rate, which we talked about in the last quarter and we had expected that our NIMs will go to 6.8 and we are around there. The other reason is also the product mix change which we have talked about. We definitely saw an increasing trend in the pre-owned vehicle disbursements and they come at a different yield.

The third factor is, we have got some fee based income which have started coming in from the customers one is of course from the insurance front, which will further improve and once we get the agency license, but also there are you know other cross sell opportunities that we have started doing with our customers though in a small way. So it is not any one action. It is a mix of two or three actions which have gone in together for the NIMs to improve and you will see this trend even going forward.

How will you look at your NIMs evolving over FY25?
Ramesh Iyer: So we said that we were at 6.6%. The previous quarter we said we will move to 6.8% and then we will move towards 7%. I think this is through our actions. Our belief is that the borrowing cost starts coming down next year, that should also help us get at least 10-20 basis point further improvement. So once the borrowing cost comes down, one can expect NIMs between 7.1% and 7.2%. Until then, we would be very comfortable to say that we will go up to 7.

How about the asset quality? How is that shaping up in the incremental book? The credit costs have improved to about 1.25% which is lower than the guided range of 1.5-1.7. At what level would you end the year?
Ramesh Iyer: What we have committed to is definitely doable and the trends are very clearly visible and one should look at it from two or three angles. One is the collection efficiencies have held up very well upward of 95% plus. The second is if you look at our stage-2 that has also remained pretty stable or gone down which means the forward flow is not happening. So if you look at stage-3, stage-2 together they are at sub 10% level which is one of the best historically one looks at that number.

So these two or three indicators very clearly tell us that the credit cost is well under control and we are more than happy to commit to what we had said that we would be at the year ending. We do not see that a problem. I also touched upon if you recall that you know the repossessions have gone much lower because the collections are much-much better which also leads to lower termination or a disposal loss which used to be one of the factors of the past when you settle accounts by taking back assets and sell them. That is not the requirement any further. Put all this together we are pretty confident to kind of say that the range that we have committed to is a very easily doable task.

While the company is progressing well towards your mission 2025 growth, your ROA is a bit lower than the stated guidance of 2.5% because profitability has been impacted. So are you still on track for this guidance and will you be revising it?
Ramesh Iyer: Our first target would be to reach the 2% before we speak of 2.5% because the borrowing cost has been something that has dodged us. When we put out the 7.5% we did not expect the borrowing cost to be where it is which means our NIMs have come down and we talked about NIMs how it’s likely to improve. As the NIMs go back to a 7.2% getting to a 2.5% is a doable until then you know when the NIMs are at 7% one should expect that the ROA will also be anywhere between 2% and 2.1% or so.

The other area where we are really focusing to bring down is our opex which is at 2.8% and we have guided to say that we want to bring it down to 2.5% in a year or so and we would be comfortable to at least believe that 2.8% will come down to a 2.6% before it can go down. So if these two or three actions do pan out then we would reach the 2.5% that we are talking about.

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