The company said its broad-based distribution network and improved underwriting quality support this growth outlook.
“We’ve been guiding for 5 to 7% for more than nine quarters. Our guidance hasn’t changed,” said Mahesh Dayani, Executive Director at SBFC Finance, in an interview with CNBC-TV18.
The company saw a 100 basis point increase in its bucket one delinquency pool, largely driven by stress in certain geographies and the smaller ticket segment. Dyani said SBFC had anticipated this and was prepared for a mild increase in credit costs.
“We had said that it’s going to be 1.1%, and I guess we’ve landed at 1.1. We have guided for anything between 15 to 20 basis points from the current level,” he said.
These are edited excerpts of the interview.
Q: What’s driving the pressure on your credit costs this time around? Your collection efficiency has also declined on a sequential basis, and the early delinquency pool is showing an uptick. Is there a specific segment or region that is causing this? And do you see this normalising over the next three quarters?
A: There’s been almost 100 bps that we’ve seen in bucket one, and that’s something that we called in pretty early. We’d called in pretty early last year, that we see stress building up, more in particular pockets, in geographies, and towards the smaller ticket segment. Having said that, we were pretty much prepared for this particular outcome, and that’s the reason we had guided that the credit cost is going to be slightly elevated.
But if you look at our overall matrix, our overall growth in terms of assets was around 7% on a quarter-on-quarter. But the pre-provisioning operating profit grew more than what your assets had grown, which grew by 9% and 34-odd percent. That means, at an operating level, you’re able to price your assets well, you’re able to borrow reasonably well, and you’re sweating your distribution.
Now, what are we doing with the enhanced contribution that’s coming in? We are going to fortify our balance sheet and ensure that we prepare for the worst possible outcome by improving our coverage and providing more in various stages. We feel that it’s part of the routine, it’s part of the cycles that we’ve seen in the past, and we’re not really losing our sleep over it.
Q: But your credit cost guidance has been raised marginally. From 1%, you’re now at 1.1 to 1.15%, right?
A: We had said that it’s going to be 1.1, and I guess we’ve landed at 1.1. The way we are now looking at it, we have guided for anything between 15 to 20 basis points from the current level.
Q: What about AUM? It’s been growing healthily, about 30% up on a year-on-year basis. And you spoke about a 5 to 7% increase on a sequential basis in AUM. What gives you that confidence? And what’s the outlook on yields and NIMs?
A: So, we’ve been guiding for 5 to 7% for more than nine quarters. Our guidance hasn’t changed, and the confidence is largely because of the large distribution that we have. You may have some pockets of inconsistencies which may come in. We’ve already budgeted that close to around 15 to 20% of the distribution might have to be curtailed, but the balance 75 to 80% of the distribution is well-swept and will continue to grow. That gives us the confidence that the 5 to 7% number is going to remain intact. If you look at our quarterly numbers, we were close to more than ₹800 crore in disbursals. Even if we were not to grow, and we tightened all our filters in terms of underwriting, we would still grow by 20% on disbursals and more than 25% in AUM.
Q: You mentioned you’re not losing sleep over the rise in credit costs, but is the stress that’s building up coming from the new loans, or is it coming from the legacy book? And what are the underwriting measures that you are undertaking currently? Are you strengthening them further?
A: Over the last four quarters, you will see that customers with a score of more than 700 have gone up by 200 basis points. Now, almost 87–88% of our customer acquisition has a score of more than 700. We might end up tightening that further and probably be leaning more towards 90%.
When we talk about delinquencies, it’s not 90+—what we talk about as delinquency is anyone who skips a single EMI is counted as a delinquent customer. There are some pockets of early delinquencies, but we’ve seen that happen in the past. Around 18 months back we went through the same cycle because of some pockets in some geographies, but it’s reasonably fair to assume that we will be able to cure it and pull it back. So that gives us the confidence that it’s not going to worsen from where we are.
