Landed Cost Of Freshly Raised External Commercial Borrowing Is 8.5-8.6%: Shriram Finance | CNBC TV18

Summary

In this interview, Mr. Amsh Ranker, Executive Vice Chairman of Sham Finance, discusses the company’s recent $36 million funding raise, sourced from development financial institutions. He outlines the firm’s diversified borrowing structure, emphasizing a cost of 8.5-8.6% for the new loans, including hedging. Ranker shares insights on the easing liquidity environment, with expectations of improved margins in future quarters. While noting the seasonal slowdown in vehicle financing, he addresses concerns about auto financing constraints, stating that they are not as critical as some analysts suggest. Overall, Sham Finance remains positive about its growth prospects despite market fluctuations.

Takeaways

• 😀 Sham Finance raised $36 million from development financial institutions through an internal commercial borrowing.
• 😀 The company aims to keep a balanced borrowing strategy, with 20% from each major source: deposits, bank term loans, securitization, external commercial borrowings (ECBs), and capital market borrowings.
• 😀 External commercial borrowings, especially from development financial institutions, offer Sham Finance better rates, resulting in a landed cost of around 8.5% to 8.6%, including hedging costs.
• 😀 The company hedges all its international borrowings, including those raised in dollars, to manage risk.
• 😀 The company has seen a 10 basis point improvement in its incremental borrowing costs quarter on quarter, indicating a positive trend in financing conditions.
• 😀 While the company expects margins to improve in Q4, it doesn't expect a large impact on net interest margins due to lower rates on new vehicle lending during March.
• 😀 The RBI's actions to ease liquidity and reduce risk weights have been beneficial for non-banking financial companies (NBFCs), with more favorable borrowing conditions expected in the coming quarters.
• 😀 Despite challenges in the market, Sham Finance hasn't seen a decline in year-on-year growth in vehicle financing, including two-wheelers, with flat growth observed in certain geographies.
• 😀 The third quarter of the year sees higher financing activity due to the festive period, which typically results in a smaller fourth quarter compared to the third.
• 😀 Sham Finance foresees the easing liquidity conditions and regulatory changes to eventually translate into lower financing costs, benefiting the industry in the next couple of quarters.

Q & A

What recent development did Sham Finance announce regarding its financing?

Sham Finance announced that it raised over $36 million from development financial institutions through an internal commercial borrowing, showcasing a strong move towards diversifying its financing sources.

How does Sham Finance structure its borrowing mix?

Sham Finance aims to maintain a balanced borrowing structure, with around 20% from each major source: deposits, bank term loans, securitization, external commercial borrowings (ECB), and capital markets.

What is the interest rate on the new loan raised by Sham Finance?

The interest rate on the new loan raised by Sham Finance is approximately 8.5% to 8.6%, including hedging costs.

How does external commercial borrowing (ECB) help Sham Finance with its cost of borrowing?

External commercial borrowing (ECB) typically comes at a better rate due to participation from development institutions, which allows Sham Finance to secure a lower overall cost of borrowing, making it more cost-efficient.

What impact does the easing of liquidity and RBI's changes in risk weights have on Sham Finance?

The easing of liquidity and the changes in risk weights by the RBI are expected to lower borrowing costs for Sham Finance and improve its margins, although the full benefits will be more apparent in the upcoming quarters.

What did Sham Finance observe regarding its net interest margin (NIM) in Q4?

Sham Finance observed a slight improvement in its margins due to a 10 basis point reduction in borrowing costs, but it doesn’t expect a significant impact on NIM for Q4, as vehicle lending rates remain low.

How does the seasonal nature of vehicle lending affect Sham Finance's performance in Q4?

Sham Finance typically experiences lower vehicle lending in Q4 compared to Q3, due to the festive season being in Q3, which results in weaker sales and lending in the last quarter of the year.

What has been Sham Finance's approach to managing its borrowing and interest costs?

Sham Finance has strategically diversified its borrowing sources and uses hedging to manage interest costs, ensuring a more stable and cost-efficient financing model.

Does Sham Finance see any constraints in financing two-wheelers?

Sham Finance does not see any significant constraints in financing two-wheelers, although the growth in this sector has been flat year-on-year, primarily due to the seasonal nature of vehicle sales.

What is Sham Finance's outlook for its future growth, particularly in vehicle financing?

Sham Finance remains optimistic about its future growth, especially in vehicle financing, and expects better conditions in the upcoming quarters as liquidity improves and risk weights decrease.