Ajay Piramal Sees A Challenging Year For Financial Services Business
Piramal Enterprises Ltd. expects the ongoing financial year to be challenging for its financial services business because of liquidity concerns and asset quality stress.
Loan book grew at 34 percent in the year ended March, according to its filings. That came despite a credit crunch and higher borrowing costs for non-bank lenders after a series of the defaults by the IL&FS group.
“The growth is somewhat muted compared to what we have done in the past, but 34 percent is still a very good growth rate,” billionaire Ajay Piramal, chairman of the Piramal Group, said in an interview with BloombergQuint.
Next year [2019-20], we will keep it between 25-30 percent because I feel it’s also going to be very challenging in terms of availability of liquidity, also there could be stress on the quality of assets.Ajay Piramal, Chairman, Piramal Group
The company has been cautious in lending given its exposure to the real estate sector. Gross non-performing assets for the year ended March stood at 0.90 percent, up from 0.5 percent as of December 2018. “We would like to be more and more conservative,” Piramal said. While the provisioning has been 1.93 percent, he said the company’s gross NPA at 0.9 percent is still best compared to peers.
Piramal sees only top 10 percent of the developers surviving in the current environment. The company has been looking at restructuring these assets. “We have already taken action wherever we have seen stress coming to developers by moving the asset to those who are stronger,” said Piramal.
As of December, the company had more than 5 percent exposure to stressed Lodha Developers, Omkar Realtors & Developers and Vatika Group. “We have significantly reduced the exposure to the three,” Piramal said. “We have only Lodha which is today at 7 percent of our book. All the others are below 5 percent. Even in Lodha’s case we have seen that they have made pre-payments and I can say very confidently that we will see significant decline in exposure to Lodha in excess of Rs 1,200 crore.”
The company has reduced the wholesale real estate lending book to 63 percent. “We will bring down the exposure to below 50 percent in this financial year.”
But that doesn’t mean the company will be aggressive in expanding its financial services business. “We are not aggressive, we are conservative.”
Piramal Enterprises is looking at the retail assets of Dewan Housing Finance Corporation Ltd. but will look at the quality of books. The company is also looking to exit its nearly $1-billion investment in Shriram Group. But before that, it’s looking to consolidate the financial services group.
“We are seeing how to create value for the Shriram and Piramal shareholder. One of the steps we are doing is to bring all Shriram companies into one. That will create value for Shriram shareholders,” said Piramal. “We are also looking at an exit. If we get the right value and the right buyer, we may do it.”
Watch the interview with Piramal here: