Shriram City Union Finance Cautious On Gold Loan Business

South-based lender Shriram City Union Finance Ltd. said multiple factors including the effects of demonetisation and setting aside a higher percentage of funds for bad loans than the Reserve Bank of India's requirement led to a surge in provisions and writeoffs in the quarter ended March.

The lender's provisions and writeoffs jumped 83 percent in the quarter over the previous three months to Rs 412 crore. Its net profit fell more than 78 percent to Rs 12 crore over the year-ago period, according to a statement by the company.

Bringing down the number of days to recognise a bad loan to 120 from 150 days after the repayment deadline also pushed up provisions, the non-banking financial company said. The October-December quarter had benefited from the RBI's 90-relief to recognise bad loans of up to Rs 1 crore, a relief granted after demonetisation, it said.

The company will bring down the number of days beyond repayment deadline to recognise bad loans to 90 in the ongoing financial year, in line with the RBI's norms, which will bring down its provision coverage ratio to 60 percent, said R Chandrasekar, chief financial officer of Shriram City Union Finance. The ratio, or percentage of cash to be set aside for bad loans, stood at 73 percent, three percentage points higher than the RBI's requirement, in January-March. The company would maintain its provisions at the current levels in 2017-18, he said.

The gross non-performing assets for the fourth quarter stood at 6.73 percent, down from 7.5 percent in October-December (based on 120 days to recognise bad loans).

Gold Loans A Worry

Total disbursements in January-March rose 21.3 percent year-on-year to Rs 6,245 crore. Loans to small enterprises, which contribute the maximum 40 percent to its advances, grew 5.1 percent. But it rose 24.4 percent since the previous quarter that saw the impact of demonetisation.

Loans for two-wheelers fell 6.9 percent from the year-ago period and 23.8 percent over the previous quarter. The management attributed that to the implementation of new Bharat Stage-IV emission standards for vehicles.

Chakravarti sees the share of SME and two-wheeler loans moving up from the current 55 percent to 60-65 percent of its portfolio over the next two years. The management, however, sounded cautious on the company's gold loan business.

FY18 Guidance

The management expects the non-gold assets under management (AUM) to grow 20-25 percent in 2017-18, with margins falling by half a percentage point due to its foray into lower-yielding urban area customer loans. The management's caution on the gold loan business also reflected in the AUM growth outlook.

The housing finance business is expected to grow at 50-60 percent this financial year despite the high base of 39 percent growth in FY17. Operational expenses will also be maintained at the current levels of 40 percent.

Shares of Shriram City fell as much as 5.6 percent, the most in three months, before paring some losses on Wednesday compared to a flat Mumbai market.