 "Ramesh Iyer, Vice-chairman and MD, Mahindra Finance. | Photo: YouTube")
The March quarter was the best in FY16 for Mahindra & Mahindra Financial Services, breaking the jinx of single-digit revenue growth and three quarterly declines in profits. Ramesh Iyer, vice-chairman & managing director, Mahindra & Mahindra Financial Services, tells Hamsini Karthik what lies ahead. Edited excerpts:
What factors aided your performance in the quarter?
Deeper penetration closer to key markets, more branches and having more people on the ground, focusing on collection, supported by improved cash flows in the local market due to better cash crops and higher agricultural realisation. Markets such as Rajasthan and Andhra Pradesh were buoyant on funds from infrastructure activities.
Disbursement in the commercial vehicles (CVs) and commercial equipment (CE) businesses has marginally improved, while tractors have seen some slippage. How do you see these businesses shaping?
Within the automobiles space, CVs have shown improvement. As for tractors, it has been a tough year and overall disbursement has been less than the loans which matured during the year, including securitised assets. If the monsoons are above average, we could see an overall turnaround, not restricted to a particular segment Strategically, we see growth coming from CV, CE, pre-owned vehicles and cars in the coming financial year.
Provisioning and NPAs in Q4’FY16 eased-off significantly. What has helped you in reducing these numbers?
Last quarter, we indicated that provisioning will not go up from the 10 per cent level. As a company, we do not believe repossession of assets is an answer for settlement. But, wherever the provisioning is high, we would negotiate with the customer to take over the asset and dispose it. The key component of lower provisioning in the quarter has come largely from improved collection. Also, some customers were able to service their loans for more than one installment in the quarter, which helped in lower provisioning. Overall, our strong focus on recovery rather than chasing business has helped us.
How much would an above-average monsoon help your FY17 earnings?
Cash flow in the hands of the customer would improve and so would our collection. This would help our loan book. Also, as farm-related activities pick up, it will be a key trigger for most automobile manufacturers with a rural presence, whether in tractors, utility vehicles (UV) or CV. We have a market share of 30 per cent in UV and tractors, and 10 per cent share in cars. So, even if our market share is maintained, you will see a different number from us once the sales volumes increase.
As banks start passing on the lower interest rates, does that not put some pressure on your business as well?
If we get some relief on our cost of funds, we will pass it on to our customers and this will help increase volumes. Most banks are in the retail (small individual borrowers) business but in the urban and semi-urban segments. We don’t see them yet in the deeper rural market where we are present. So, I don’t think competitive pressure is going to drive lending rates differently.
The Reserve Bank recently allowed private banks to acquire non-bank financing companies and vice versa. Does this excite you as an opportunity to enter the banking business?
This opportunity certainly excites us and we would study it in detail and explore if it makes sense for us.
What factors aided your performance in the quarter?
Deeper penetration closer to key markets, more branches and having more people on the ground, focusing on collection, supported by improved cash flows in the local market due to better cash crops and higher agricultural realisation. Markets such as Rajasthan and Andhra Pradesh were buoyant on funds from infrastructure activities.
Disbursement in the commercial vehicles (CVs) and commercial equipment (CE) businesses has marginally improved, while tractors have seen some slippage. How do you see these businesses shaping?
Within the automobiles space, CVs have shown improvement. As for tractors, it has been a tough year and overall disbursement has been less than the loans which matured during the year, including securitised assets. If the monsoons are above average, we could see an overall turnaround, not restricted to a particular segment Strategically, we see growth coming from CV, CE, pre-owned vehicles and cars in the coming financial year.
Provisioning and NPAs in Q4’FY16 eased-off significantly. What has helped you in reducing these numbers?
Last quarter, we indicated that provisioning will not go up from the 10 per cent level. As a company, we do not believe repossession of assets is an answer for settlement. But, wherever the provisioning is high, we would negotiate with the customer to take over the asset and dispose it. The key component of lower provisioning in the quarter has come largely from improved collection. Also, some customers were able to service their loans for more than one installment in the quarter, which helped in lower provisioning. Overall, our strong focus on recovery rather than chasing business has helped us.
How much would an above-average monsoon help your FY17 earnings?
Cash flow in the hands of the customer would improve and so would our collection. This would help our loan book. Also, as farm-related activities pick up, it will be a key trigger for most automobile manufacturers with a rural presence, whether in tractors, utility vehicles (UV) or CV. We have a market share of 30 per cent in UV and tractors, and 10 per cent share in cars. So, even if our market share is maintained, you will see a different number from us once the sales volumes increase.
As banks start passing on the lower interest rates, does that not put some pressure on your business as well?
If we get some relief on our cost of funds, we will pass it on to our customers and this will help increase volumes. Most banks are in the retail (small individual borrowers) business but in the urban and semi-urban segments. We don’t see them yet in the deeper rural market where we are present. So, I don’t think competitive pressure is going to drive lending rates differently.
The Reserve Bank recently allowed private banks to acquire non-bank financing companies and vice versa. Does this excite you as an opportunity to enter the banking business?
This opportunity certainly excites us and we would study it in detail and explore if it makes sense for us.
