However, in the last two months, the company has been seeing an improvement in disbursements as well as a reduction in NPA. In July 2021, Mahindra Finance There was a disbursement of around Rs 2400 crore with a collection efficiency of 95%. Efficiency improved last month to 97% in August 2021 as the economy opened up and improved mobility. The company saw a reduction in NPA contracts during August as cash flow to customers improved.
Shares of Mahindra Finance are up in comparison to the last month. Ramesh Iyer, Mahindra Finance’s VC and MD are excited about the second half of FY22, especially festive season, demand and growth expected to pick up.
Excerpts from an interview….
What kind of growth do you expect during this fiscal?
As compared to the previous years, the disbursements will be higher. I see volumes going up for auto loans, tractors, pre-owned vehicles. Disbursements will show growth trajectory and NPAs [non-performing assets] There will be a downward trajectory in FY22.
Is demand increasing at the moment?
Even during this pandemic, we didn’t see a lot of cancellations, but dealerships were closed. With the opening in June, we saw an uptick in volumes and this continued in July. Generally July and August are not good months to buy vehicles as people wait for the festive season. The demand may also slow down from the first quarter of the current financial year. We expect no severe third wave and with a good monsoon, can be expected to do well in both September and October, especially due to spurt in infrastructure work. With both of these happening, this could be a good encouraging story from a rural point of view.
How has the collection and disbursements been in the last few months?
During the month of July 2021, the company saw the macro sentiment turning positive with normalcy returning. Disbursement during the month ~ Rs. 2,400 crores, more than double on a small basis as of July 2020. Collection efficiency further improved to ~95%, up from ~90% in June 2021. I think the trend is catching up, sentiments are very positive, people are back on the streets doing their activity for the most part and when we met sometime in July, I just said that as things get back to normal We will see a jump in collections and we are seeing that very clearly.
What are the changing dynamics in the auto lending business?
Lending dynamics are evolving, which we see needs to be a demand maker. See ‘Physical’ is becoming a reality later on. Lending has to focus on the consumer, rather than what you are lending. Financiers have to move from product financier to solution provider. Financing has to carry past cyclical factors. Growth of CV industry is inevitable as these are need based livelihood products.
Are you looking at new products or focus areas?
From our point of view, it is important to capture three areas for further development. We have built a very strong SME [small and medium-sized enterprises] Vertical, where we are working with a large Mahindra ecosystem and other OEMs [original equipment manufacturer] ecosystem, where we will support suppliers for their capital expenditure or working capital requirements. We have chosen three industries to operate in – Auto, Agriculture and Engineering – where we feel there is a lot for SME players. In the vehicle segment, pre-owned vehicles will be a good growth segment. With the opening up of infrastructure, tractor volumes will pick up.
Many OEMs in cars are also reaching out to rural markets with their launches and this can become a natural synergy for us to achieve volumes. We are confident that vehicle leasing will become a major sport in the next three years. We have established a digital Finco for small-ticket consumer durable and personal loans. The platform is live but this is a trial year. While we have done some loans, you will see a lot of aggression in this business after next April.
How confident are you about the reduction in NPA levels?
The NPAs in the first quarter were purely on account of liquidity problems for the customers, where they could not earn enough and hence delayed payments. I would call them as delay and not default. We are confident that customers who have delayed their installments will definitely pay back.
Will there be a need to raise judicious capital in the next one year?
Capital adequacy today stands at 23% and Tier-1 20%. Having made such provisions for NPAs, we are adequately and adequately capitalised. We are really looking forward and waiting for the market to change for growth and then we will see an aggressive growth in that market which will also help in a better recovery. This is a very unique market. These customers are affected the quickest and fastest as soon as disruption occurs, but as soon as things start to change, they bounce back at the same pace. When growth returns, collections will improve as it is a direct reflection of an improvement in cash flow.
What are your plans to strengthen the leadership bench at Mahindra Finance?
We have a new incumbent for a COO position soon. As we work very deeply into the rural market, the next 3-4 years could be really crucial with a decent rural boom. We need to capitalize on all the emerging opportunities in the rural market. We are giving our management team a broad base to be able to handle all our new initiatives, to really go deep and make the rural market bigger for us.