L&T Finance to expand micro loan business in North India

L&T-Finance-AgenciesKolkata: Non-bank lender L&T Finance is planning to expand its microfinance business in Punjab, Haryana and Uttar Pradesh as it aims to grow the microloan vertical at 20-25% CAGR while growth in the tractor financing and two-wheeler loan segments remain muted amidst severe farm distress across the country.

“We will expand to newer geographies, to newer customer groups,” said chief executive for rural finance. “We are looking at geographies like Punjab and Haryana. We are examining it on ground and are also looking at whether we can further expand in geographies where we are present but perhaps not in as bigger strength like in Uttar Pradesh.”

L&T Finance’s rural loan book size is about Rs 25,600 crore with nearly half of it (Rs 12,500 crore) coming from micro loan vertical.

The firm, a subsidiary of L&T Finance Holdings, has begun micro loan business in Bihar, Jharkhand, Assam and Tripura last year. Prabhune said that one-fourth of the business comes from these states today.

“Expansion plan in other states will be based on assessment on ground on whether there is room available and what is the demonstrated credit behavior,” Prabhune said.

“We follow three layers of strategy — growth, margin and asset quality with primacy always going to asset quality. We will continue with this strategy. To achieve growth, we are trying to build adjacencies where we can access good credit, rather than getting into price war,” he said.

It has about 59 lakh women micro loan customers as on March.

The company’s other two rural business verticals — farm equipment finance and two-wheeler finance – are however facing challenges amid pressure on rural income.

“Any demand for tractors is a function of rural income. There is stress there. The story was not very different in two-wheeler loans. The market did grow but the growth was not what we saw the year before when it was fairly exuberant double digit. But not just March, April was also fairly subdued for the industry. There has been pressure on rural income and that is impacting the demand for what we regard as income enhancing or income generating assets.

L&T Finance’s farm equipment loan book was Rs 5,739 crore while two-wheeler loan was Rs 7,362 crore at the end of March 2019.

“Some significant actions are required to turn the page. Clear and significant actions facilitating rural income is the need of the hour. A lot depends on monsoon while the third factor will be policies that enables alleviation of the rural situation,” Prabhune said.