Optimistic in medium to long term; can’t see growth in Q1: Dinanath Dubhashi

It has been a resilient quarter for you. We are seeing disbursements rising to pre-Covid levels in most segments and the gross stage three NPA ratio has actually come down on a quarter on quarter basis. What led to such a performance for the company?
I would like to answer this question in a way that it explains our strategy and strengths. First of all, profits at all the three levels — pre-provision operating profits, PBT, and PAT before extraordinary items, — the profit has actually increased quarter on quarter, every quarter. Now it has reached a level where it is even positive over Q4 last year. This is very important and one has to understand why it has happened.

It has happened because of: a)Business strengths — each product has increased disbursements quarter on quarter. In fact, with rural disbursement at Rs 6,000 crore, we are having our best quarter. In infra, our sell down abilities are excellent. b)Collections are our second strength. The collection efficiency is back to pre-Covid level. The total amount of collections we did in FY21 is 33% more than FY20. c)Liabilities — in bad times, raising liabilities when required. In good times raising liability at good cost. In fact, the total cost is the lowest ever. d)The fourth strength is asset quality. GNPA at 4.97%, PCR at 69% and more importantly the NS3 or net stage three, is at best ever 1.57%. The story does not end here. e)The story is the extra provisions that we created throughout the year. There has been about Rs 1,700 crore of additional provisions other than NPA till the second quarter. We used a small amount of Rs 18 crore in the third quarter. In the fourth quarter, we were carrying this Rs 1,700 crore. The collections in the fourth quarter were so good that we utilised only Rs 700 crore out of them and Rs 1,000 crore are being carried to next year.

Covid-19 second wave clearly is far more infectious and far more severe than the first wave. We are yet to reach the peak of the second wave. What kind of impact can Covid second wave have on NPAs? You already have about Rs 1,000-crore odd provisions. Will you have to make more provisions?
One thing that life and Covid has taught us is not to do crystal ball gazing, at least not in terms of numbers. I will not like to guess in numbers because everybody is trying to guess that this will be wrong. We have to see if we have the right balance sheet and business strengths to face the crisis to some extent. Will Rs 1,000 crore be enough? I do not know. I hope it is, but I do not know.

But whatever the problems are, the hit to P&L will be less by Rs 1,000 crore now because I am carrying that forward. That is the point I am trying to make. The strengths of the balance sheet as well as business prepare us for the uncertainties and that is the operating word. It is a big uncertainty. Even in Covid 1.0, it is very simplistic to say FY21 was a bad year. Yes, it was a bad year but every aspect of the economy or business varied from quarter to quarter. The first quarter was horrible, the second quarter was just opening and in the third quarter everybody forgot fears and everything was very good. The fourth quarter (Q4) was a little bit problematic towards the end and now Q1 again everybody is pessimistic.

We have seen such waves or cycles happen over four or five years. This time it has happened over four quarters and hence every good company should not try to guess what will happen because guessing is of no use at all. More importantly, prepare for business strengths as well as balance sheets to face the future to the best extent possible and we have tried to do that. Humility is going to help us.

What could possibly be the worst case scenario that the company would prepare for in terms of a rise in non-performing assets that can be expected from the second wave?
It is too early to talk about NPAs. We got the NPA last year three months after the impact of Covid 1.0 and that is well behind us. Facing Covid 2.0, we don’t know what will be the worst NPAs. We have learnt that when there is a huge storm blowing, protect yourself and when this storm goes away which hopefully will go away in 2-3 months, that is the time to double down on your strengths and do as much business and as much collections as possible. That is exactly what we have done. We started with hardly any business, hardly any collection, hardly any profits in the first quarter and we have grown to this kind of level, which is a good business strategy in the face of the unknown.

In the last 15 days, wherever there have been local lockdowns, most definitely businesses have been affected because point of sales have been closed. How can I do a two-wheeler disbursement or a tractor disbursement if the dealership is closed? How can I do home loan disbursements if registrars are closed? So those things will happen on a local level.

As per your result, rural finance disbursement has reached an all-time high. Infrastructure is doing well. What are the trends that you are seeing across rural, infra, two- wheelers and microfinance disbursements as of now?
In the middle of the year, we achieved number one position and we continue to maintain that which means around 15% to 16% market share. The business is growing and monsoon has been predicted to be 98% of long term average even if the monsoon is little bit here and there the reservoir levels are good.

I am not talking about the short-term phenomenon of Covid; but if you take the medium-term cost, we are looking at one or perhaps two years of good growth in the tractor market. We are number one and we are there to take advantage of it.

Two-wheeler has been a difficult market. Last year, we saw slow growth returning, especially in the rural areas, in the motorcycle segment. There has been a little bit of inventory collections at the dealership but the trend is not bad. We have gained market share and we are doing micro loans well other than in a few states.

We did an excellent amount of micro loans disbursements this quarter and we see the same strength going ahead. In infra, we are quite hopeful that our strengths of operating roads, HAM projects etc. as well as renewable will help us underwrite a record number of projects. Also there will be a good appetite for us to sell them now. I am not again talking about the first quarter. The secular trend is that we will keep growing in our focussed businesses.

Despite so much uncertainty, you are sounding very positive about growth. What actually makes you so positive?
The positive statement is about positive growth in the medium to long term. I have very clearly said that this quarter I do not know about the growth. We will have to wait till maybe the first part of the second quarter to see how Covid develops. Over the medium to long term, I remain optimistic about the market as well as our strengths. Even in the short term, I am positive that the strengths we have built up are reasonably well set to face this big problem in front of us. So, I am sounding positive in that respect but I am not predicting any growth in the first quarter. It is not going to happen.