Tata Capital plans to grow by 23-25 percent this year by focusing on loans for retail customers and small businesses. The company is adjusting its portfolio away from wholesale loans while managing pressure on profit margins caused by high borrowing costs and evolving RBI regulations on revolving credit.
Tata Capital has announced a growth target of 23-25 percent for the current financial year. The lender is prioritizing lending to retail customers and small and medium-sized enterprises (SMEs) to drive this expansion. This marks a clear shift in strategy, as the company looks to increase its exposure to retail and SME segments to 85-87 percent of its total assets, while shrinking its wholesale loan book to 13-15 percent.
Focusing on Core Lending Verticals
The management expects that strong demand for two-wheeler loans and a projected rebound in the commercial vehicle segment by the third quarter will support this growth. By concentrating on smaller, more granular loans, the company aims to move away from large-scale corporate lending. The leadership has indicated that they intend to grow organically rather than through large acquisitions, as this approach helps them better manage their borrowing constraints in the current market environment.
Managing Costs and Regulatory Shifts
Profit margins for many lenders are currently under pressure because the cost of borrowing money remains high, even as deposit rates in the broader system fluctuate. While about two-thirds of Tata Capital’s assets are linked to floating interest rates—meaning they can adjust to rate changes—the company’s reliance on repo-linked loans creates some sensitivity to interest rate movements.
Simultaneously, the Reserve Bank of India (RBI) is reviewing the framework for revolving credit and flexible loans, which are common products where borrowers can withdraw and repay money repeatedly. This is a sector-wide issue for non-banking financial companies. Tata Capital has engaged with regulators to explain potential liquidity risks for borrowers if these rules are tightened significantly. The company is closely watching the final guidelines, which it expects may differ from early drafts.
Financial Targets and Asset Quality
Despite the competitive landscape, the company aims for a return on equity of 17-18 percent and a return on assets of 2.5 to 2.7 percent. Credit costs, which represent the money set aside for potential bad loans, are expected to remain below 1 percent. This suggests a comfortable asset quality, although there might be a slight increase in these costs due to the company's product mix. As the company navigates these challenges, key areas for investors to watch include the final RBI guidelines on revolving credit, the actual recovery of demand in the commercial vehicle sector, and the company's ability to maintain stable profit margins amid high borrowing costs.