Expect new NPA accretion to slow down next quarter onwards N SIVARAMAN President L&T Fin Holdings In an interview to CNBC-TV18, N Sivaraman, President & Whole-Time Director, L&T Finance Holdings said that the Reserve Bank of India's recent move to ease infrastructure loans is a positive. Sivaraman hopes to larger participation by retail and institutional investors now. Also, he sees better evolution of capital market as a fallout of RBI norms. Meanwhile, speaking about the latest happenings in the company, he said that the company's pipeline of restructured assets is likely to start slowing down and L&T Finance will continue to invest in diversifying liability side of business.
Also Read: To gain from RBI norms over medium-long term, says Gammon Infra Below is the transcript of N Sivaraman's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: You have worn the infra hat when you were in L&T in the finance department and now you are a lender for infra and other companies. Your comment on the infra bonds rules announced by Reserve Bank of India (RBI)? Will it suit both banks and infra companies?
A: Let's look at it in multiple dimensions. On the overall, I would say that it is positive for the sector as a whole. If I look at from the borrower's perspective, because the large part of lending in the sector does come in from banks and the banks being funded by deposits, the lending community has not been able to take a long-term pricing view on lending to the infrastructure sector. So typically you end up doing either a fully free floating way of lending, or lending reset at periodic intervals. For a leveraged business, which infra is, because you end up operating at a three-four times leverage on the equity, so clearly any volatility or fluctuations of interest cost, has an impact on the equity returns. Today, with the combination of 5/25 structure, as well as lending backed up by long-term bonds, either banks or non banking financial companies (NBFCs), it just created a far higher level of stability in the price to the infrastructure projects. So assuming that the promoters do look at it as a positive, because if someone is looking at it as a declining interest rate environment, he will end up borrowing on a floating rate basis - that is not a good thing in infrastructure segment because your inflows are more or less based on a fixed rate. So that is going to be positive for the sector. Second is, if I look at it from a capital market development point of view, banks are perhaps the best institution to raise larger quantum of borrowings enabling more investors to participate and also banks are generally seen to be a better credit. So there will be larger participation of both retail and institutional investors into the segment so, all in all we might see a far more evolved capital market. Lot more of investors participating so there could be good amount of liquidity in the various instruments that the banks might issue. So I consider this to be positive even for a player like us, a well developed market will be positive, that is what I am saying.
Latha: All this depends on whether banks will find adequate buyers for their seven year bonds, will depositors transit to this seven year bonds, will there be other buyers for these bonds?
A: Let me speak from our own experience of raising long-term money. I think even in the current market, given the supply is limited, we are able to get borrowing at a price which is less than bank's lending rates for us, I think marginally higher than the deposit costs of the banks. Of course the distribution cost of such long-term borrowing is going to be something additional. That is something we will have to consider. All in all I do not see this to be substantially higher than the give year fixed deposits, as it stands today, because the participants are going to be both retail as well as institutional money that will come into the segment. If I look at it from a lender perspective, just continuing to respond to your previous question, I think it also gives them far more stability on the liabilities side to support the asset buildup. I think in fact for NBFC like us, it brings us as well as the banks on a level playing ground because ultimately the source of money will end up being the same set of investors, so it is subject to only the credit rating based differential. We will be able to attract money from the same set of investors.
L&T Finance stock price On July 17, 2014, at 15:30 hrs L&T Finance Holdings was quoting at Rs 71.85, up Rs 0.35, or 0.49 percent. The 52-week high of the share was Rs 88.35 and the 52-week low was Rs 53.00. The company's trailing 12-month (TTM) EPS was at Rs 1.14 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 63.03. The latest book value of the company is Rs 20.52 per share. At current value, the price-to-book value of the company is 3.50.
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