Srei Infra's, chief managing director, Hemant Kanoria, spoke about the company's performance in FY19, stressed accounts and equipment finance business among others in an interview with Swati Khandelwal of Zee Business. Edited Excerpts:
We expected growth in our equipment and project financing business in FY19 and were successful in maintaining the target. In short, FY19 has ended on a good note. Though the IL&FS issue led to a slowdown of our disbursement in the third quarter, the equipment financing business noticed a growth in the fourth quarter. In fact, it was our strategic decision to be slow on disbursement as focused on improving return on equity and profitability. We were able to end this quarter in the same way but will be able to share the figures only after the results are out.
The first quarter of FY20 will remain slow due to elections. The new government's - whosoever comes to power – investment strategy towards infrastructure and the projects will be out by June 2019. Thus, things will depend on it but the running projects, specifically, state government projects, will continue as it is. Similarly, there will be momentum in central projects that have been given to construction companies or contractors. We will finalise our strategy in accordance with the strategy of the new government.
There is a continuous improvement in stressed assets and our non-performing assets (NPA) has come down substantially. We also declared the same in the last quarter. In fact, NPAs are improving each quarter and went for a realisation for the problematic stressed assets.
In 30 years, we have developed a process to repossess the equipment and resale them. Interestingly, several construction companies like buying repossessed equipment. Thus, we face minimal losses on this front. When it comes to infrastructure assets then we have worked on the stressed account and recovered a lot from our clients and provisioned certain accounts, where recovery was not possible. However, we also work on the provisioned account because provisioning doesn't mean the asset is under stress. They are provisioned in accordance with the guidelines issued by the regulator. We work on the asset to revive it and increase cash flow from them. In the same way, we approach clients and make efforts to turn that asset into a performing one.
We never go for asset liability majority mismatch in our borrowing portfolio. This is the reason we never faced liquidity issues at our end. We lend after matching the liability side where we only go for long-term borrowing. This is a reason that the recent crisis didn't have any impact on us because we had a perfect book in the tenure.
Undoubtedly, the interest cost has gone up in the last one-two quarters. Interestingly, we don't take any risk of this interest rate, i.e. we reduce interest rates for the clients whenever there is a decrease and vice versa when it goes up. Thus, the interest rate movement doesn't have any impact on our net interest margin (NIM). For instance, we have passed on the interest rates to the clients, which went up in the last quarter.
Last year, we wanted to bring an initial public offering (IPO) of the equipment business, but cannot do due to the market conditions. Later, demerger of the equipment financing business was announced in the month of January, so that, it gets listed directly. Srei Infra shareholders will directly get the stocks of the equipment business. However, regulatory approvals are needed for the purpose and we have submitted applications for the purpose. It will take time, six-nine months, and we are expecting that we will be completed by FY20 so that Srei Equipment gets listed directly. This will enable them to raise equity directly from the market and meet its capital requirements by directly accessing the market and the investors.