The NBFC sector is in stress and so are builders. But it is not a full-blown crisis, said Dinanath Dubhashi, MD of L&T Finance, in an interview with ET. Edited excerpts:Liquidity is a dominant theme for the past few months. How does it look to you?Liquidity issue will not go away for bad companies. It has gone away for good companies. It lasted for threefour months for good companies. NBFCs who are not careful on their asset liability management who today have to sell portfolio to repay loans, have nobody else to blame. Assets have not become NPAs. If RBI comes up with a special liquidity window, it would help. A problem becomes a boil when you don’t do anything. The infrastructure issue became big and power and thermal rusted due to policy paralysis. Now, I don’t see that. Now, government looks at it differently.Some have suggested asset quality review on NBFCs. But some in Industry have opposed it?RBI should do anything it can to get back the confidence. The regulator is trying to put up norms which everybody will have to adhere to. These are good things for the sector. A special window should be looked at as a confidence-boosting measure and not something that everyone would use.But the bother now seems to be real estate, especially builders. You also have exposure to companies like Supertech...Real estate lending is not a spectator sport. Your people must be on the site depending on the difficulty of the project. In the Supertech project, our people are on site. I believe people like HDFC or L&T whose DNA is construction, can do this business. Loan is controlled when there is delay of even a day. We do not declare it NPA but my problem starts once it is a one day delay. I have to invest in recovery.Are builders in trouble because of tight liquidity?There are difficulties. Many housing finance companies (HFCs) are not disbursing funds, bringing projects to a halt. For financiers it is important to see the choice of the builder. They have to see that the project is finished and sold. The margins that were taken on projects were so comfortable that if a project was completed and sold, our money will come back. For example, we are confident about completing Supertech.In the absence of investor demand how will builders ensure cash flow?Cash flow will still happen, and velocity of sale has to be moderated. It is clear that large part of the project will have to be sold only at the end and not before. Sales will increase when the project is nearing completion. This reality has to be built into projections. Outside Mumbai 1,000- 1,200 square feet homes are selling and in Mumbai 700 to 800 square feet homes are selling. Price of large flats is not going up. People are not buying generally for investment.Is liquidity affecting growth?At this point, liquidity is not affecting growth. Growth will be less because there is not much demand. Tractor demand is down by 20%. For good companies’ liquidity will not be an issue. There is tremendous demand in real estate, but I will not grow there. Growth is a combination of risk, demand and liquidity. Today I am not growing because enough good quality assets are not available.When do you see demand reviving?The areas that we are in, monsoon is very crucial. Also, the new schemes that the government launched will lead to pick up in tractor demand. We believe before the end of this financial year demand should start picking up. There is a stock liquidation happening. If monsoon is good demand will pick up quickly. The jury is out.You have been lowering wholesale book. What is the plan?Wholesale book has come down but not the business. Our faith is in areas that we are in — renewables, roads refinance and transmission. Some transmission projects are coming up and we will continue to support infra but how much balance sheet we will give will depend on other things. We have decoupled balance sheet growth from business growth. We will be the first NBFC to do this.Solar tariffs have collapsed. Isn’t that a risk? Banks are averse to lending to the sector…Tariffs have reduced over the last 3-4 years but in the last six months it has gone up. It has collapsed because cost and risk came down. Solar panel costs have continuously come down as Chinese capacity increased. The duty will be pass through. It did affect the profitability of power producers. The big risk was land acquisition, evacuation, tariff-PPA. Now, PPA, tariff and minimum evacuation is guaranteed. There was a lull because of elections. Now government will push it again. We have chosen our sectors carefully. We believe cycles will come.
from Economic Times http://bit.ly/2XoHqrh
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