Tata Capital eyes 25-30% credit growth in FY20 amid ongoing NBFC crisis

Amid the crisis in the NBFC sector, Tata Capital, the financial services arm of the Tata Group, is looking at a growth of 25-30 per cent per year in its loan book in the next financial year (FY20) and beyond.

With the loan book value of the company at Rs 70,000 crore, a 25-30 per cent growth could take it up to Rs 1 trillion in 2020. At present, it has three lending arms — Tata Capital Financial Services, Tata Capital Housing Finance and Tata Cleantech — a joint venture with International Finance Corporation.

Rajiv Sabharwal, managing director and chief executive of Tata Capital, said, “We want to grow at 25-30 per cent and also ensure that our portfolio quality and return to investors remains good.”

Source: Annual report

“The biggest advantage we have is our strong parentage. Whatever challenges that these NBFCs were facing in the recent past; we have not been hit by that. We are continuing on the path that we have set for us,” he told Business Standard. On the capital requirement of the company, Sabharwal said, “The company has made certain estimates. We have support from Tata Sons. We will always work with 15 per cent capital adequacy.” Tata Sons, the holding company of Tata Group, has already committed to put in Rs 2,500 crore in the company.

With liquidity drying up after the beleaguered IL&FS sector defaulted on debt payments, many Non-Banking Finance Companies (NBFCs) faced liquidity crunch, however, Tata Capital was not particularly hit. However, with liquidity becoming scarce, the cost of funds increased and this has posed a serious challenge to maintain margins as the cost that is moving up cannot be passed on to the borrowers completely.

For Tata Capital’s lending, most of our books is floating rate book so the company was able to pass that on but obviously there is a fixed rate book on which one cannot pass on the rise in the cost of funds, Sabharwal said.

On an overall basis, the company’s loan portfolio comprises of 60 per cent retail loans, 25 per cent SME loans and

15 per cent corporate loans. And within that corporate loans segment, there is small portion for infrastructure.

Within the infrastructure loans segment, Tata Capital funds clean energy has projects in Tata clean tech capital. However, lately, with declining tariffs, imposition of duties and exchange rate movement, the clean energy sector has slowed down. This has caused the company to rethink on the investment strategy of the company. Although the NBFC crisis opened up opportunities for those in the sector with a good track record to leap forward by acquiring some of the struggling ones, Sabharwal said, “We had options of portfolio buyouts but we didn’t go for it. We felt that the growing our business organically is more important. We thought focusing on quality of credit, yields is more important than the book size.”

The company is now focusing on newer avenues to grow. It is working with Tata Sky, another subsidiary of Tata Sons, to offer their customer base with certain kind of pre-approved loans.

“They have got a lot of customers and they communicate to their customers even through their set-top boxes. We are also working on how we can communicate to their customers and whether their customers can be give certain pre-approved loans,” Sabharwal added.