Mumbai: Piramal Capital & Housing Finance Ltd (PCHFL) expects tough times for non-banking financial companies (NBFCs) as bad loans pile up in small loans and microfinance, said Jairam Sridharan, managing director.
In an interview with MintSridharan said the NBFC remains cautious about deteriorating asset quality.
“The asset quality environment has been difficult in recent years, especially in the last two quarters. Initially, the deterioration began with low-value loans, then credit cards and later microfinance lenders. It’s like a series of dominoes falling one after another. “It’s a time to be very cautious, and we have been cautious for the last year and a half. Tough times may be ahead for NBFCs, but we are prepared,” he said.
Holding company Piramal Enterprises saw its gross doubtful assets rise to 2.7% in the first quarter from 2.4% in the fourth quarter. The non-bank lender had taken a hit to its consolidated profitability for fiscal 2024 and the company reported a loss of $1,684 crores compared to earnings of $9,969 crore at the end of FY2023, due to high credit costs on legacy accounts.
“You have to separate the legacy business from the growth business. The growth business is solid and offers approximately $Profit of Rs 200 crore in the quarter. “We are happy with its stability and continue to expect progress on that trajectory,” he said. “However, the legacy business will always be somewhat volatile due to cleanups. That said, we believe the days of high volatility are behind us as the legacy book has become smaller.”
Growing loan book
PCHFL has focused on growing its retail loan portfolio following the acquisition of Dewan Housing Finance Ltd (DHFL) during fiscal year 2023. The retail loan portfolio has increased to $50,000 million rupees $20,000 crores in the last 2.5 years. DHFL’s legacy portfolio, which includes the wholesale portfolio, now constitutes only 18% of our total portfolio, compared to over 90% in the past.
In May, PEL’s board announced a reverse merger of Piramal Companies with its wholly owned subsidiary PCHFL. The merged entity would be renamed Piramal Finance Ltd.
PCHFL has also focused on diversifying its lending after banks slowed lending to NBFCs following the increase in risk weights by the Reserve Bank of India.
The diversified NBFC aims to increase its borrowing from international sources to 10-12% and that from securitization to around 18% of total financing. The company is also looking to tap the bond market to raise funds.
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