Cholamandalam Investment and Finance Company Ltd.’s collections against loans have begun improving from the start of this quarter but the festival season will be an important milestone to see how the company’s customers are able raise capacity utilisation, earn revenues and service debt, said CFO and executive vice-president Arulselvan D.
The company had earlier said that both disbursements and collections had been impacted in the first quarter due to the second wave of COVID-19. “For us, July performance is almost at par with March 2021. Borrowers who did not pay April and May dues have begun paying across June and July.” However, he noted that the situation was only ‘stabilising’, not ‘normalising’ for the financial services firm that is into vehicle financing, loans against property and lending to small and medium enterprises.
“Our borrowers need to operate at least at 60% capacity. When that goes up to 70%, they can start paying that month’s dues. When it inches towards 80%, then earlier dues on which they had defaulted would be serviced.” With the arrival of the festival season, Mr. Arulselvan reasoned, the ability to service dues for April and May would return to the company’s borrowers. The caveat, of course, was the risk to the economy from a likely third wave, he added.
The company has also been able to raise funds without hindrance. “The economy is flush with liquidity. The RBI has also been benign on the rate front. Also, when we lend to the middle and lower strata of society, this qualifies as priority sector lending for banks. So, with on-lending, the risk of default is borne by the company while banks are able to meet PSL norms.”
He also clarified that he did not see the need to hold as much as cash as had been the case in the past few months. “When uncertainty abounds, one tends to hold cash in hand. Going forward, I don’t see the need to hold ₹7,000-8,000 crore of cash; can bring it to ₹5,000 crore or lower. Negative carry of that much cash in low-yielding deposits can be avoided. This can help improve our margins,” he said.
Late last year, Mr. Arulselvan had talked of a possible replacement cycle beginning soon for heavy commercial vehicles (CV), after axle load norms and BS-VI fuel regulations kicked in. He said he retained optimism on that front: “The CV side will go up. Replacement demand has been put off for quite a bit. It had started picking up in January-February. Then the second wave hit us.”
For all the latest business News Click Here
