Mumbai: Piramal Capital & Housing Finance Ltd (PCHFL) is expecting challenging times for non-banking finance companies (NBFCs) as bad loans build up in small ticket and microfinance loans, said Jairam Sridharan, managing director.
In an interview with Mint, Sridharan said that the NBFC remains cautious about asset quality deterioration.
“Asset quality environment has been tough over the last few years, especially in the last two quarters. Initially, the deterioration began with small-ticket loans, then credit cards, and later with microfinance lenders. It’s like a series of dominoes falling one after another, which usually signals contagion or some risk spread across the market. It’s a time to be very cautious, and we have been cautious for the last year and a half. Tougher times may lie ahead for NBFCs, but we are prepared,” he said.
The holding company Piramal Enterprises saw its gross non-performing assets rise to 2.7% in the first quarter from 2.4% in the fourth quarter. The non-bank lender had taken a hit in its consolidated profitability for fiscal 2024 with the company reporting a loss of ₹1,684 crore compared to profit of ₹9,969 crore at the end of fiscal 2023, owing to elevated credit costs in the legacy accounts.
“You have to separate the legacy business from the growth business. The growth business is robust, delivering about ₹200 crore profit in the quarter. We’re happy with its stability and continue to expect progression on that trajectory,” he said. “The legacy business however, will always be somewhat volatile due to cleanups. That said, we believe the days of major volatility are behind us as the legacy book has become smaller.”
Growing loan book
PCHFL has been focussing on growing its retail loan book following the acquisition of Dewan Housing Finance Ltd (DHFL) during fiscal 2023. The retail loan book has increased to ₹50,000 crore from ₹20,000 crore over the last 2.5 years. The legacy book of DHFL which includes wholesale book 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 Enterprises with its wholly-owned subsidiary PCHFL. The merged entity would be renamed as Piramal Finance Ltd.
PCHFL has also been focussing on diversifying its borrowings after banks slowed down 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 from securitization to around 18% of total funding. The company is also looking to tap the bond market for funds.
