Cash flow still holding up for our customers: Ramesh G Iyer

Interview with Managing Director, M&M Financial Services

M&M Financial Services, the Mahindra & Mahindra group’s non-banking financial company (NBFC), seems to have bucked the economic slowdown, recording impressive growth in January and February. Managing Director Ramesh G Iyer, in an interview with Manojit Saha, explains why the group is in an advantageous position to open a bank, if given a licence for this. Edited excerpts:

Vehicle financing is one of M&M Financial’s key activities. With automobile sales taking a hit, how is your business faring this quarter?
While overall, things seem to be going a little slow, I think the rural market continues to hold on to the growth story. We are one of the companies with the highest penetration in the rural market. We have a wide range of financial products in that segment. We also reach locations dealers are often unable to. This helps, especially in the second-hand vehicle financing segment, in which people are looking for products to start with. We are also expanding and creating the market. In January and February, we financed about 46,000 vehicles each, compared with about 35,000 in January 2012. In January, we disbursed about Rs 1,900 crore, 20 per cent more than in January 2012.
 
How does your distribution network work, especially in semi-urban and rural areas?

Today, we are present in 1,70,000 villages; we want to go much deeper. Most villages where we have touch points are unbanked. So, while a large number of our 640 branches might not be in unbanked areas, most of our customers are from unbanked regions. It is not where you are; what matters is where you are serving the customers. Usually, in a year, we add about 40-50 branches. We plan to raise this figure to more than 50.

Why do you focus on the rural market?
The opportunity in the rural market is very high. It is exciting for us — not only on the business front, but also on the collection front. We haven’t seen any significant asset quality deterioration. Cash flows are still holding up for our customers. So, they are able to discharge their liabilities. As of December end, our gross non-performing assets stood at just about four per cent. We don’t expect any major change this quarter.

What business growth do you expect?
So, far we have maintained it at 20 per cent; continuing this doesn’t look like a challenge.

Recently, the Reserve Bank of India (RBI) released the final guidelines on new bank licences. Would you be interested in entering the sector?
This is a great opportunity and we are excited about this. We will surely consider this very closely.

NBFC is one business model; banking is another. Both the models have advantages and disadvantages. For example, as an NBFC, we could be more flexible in designing products, while banks would have some format in which the product has been designed. Banks are obviously more regulated than NBFCs. But, a bank’s cost of funds is lower. There is room for both the models to co-exist.

Why do you think the M&M group is in an advantageous position to open a bank, if it secures a licence? Have you applied for a licence?
We come from a big corporate group with rich experience in rural areas. Also, we have the experience of a well-run financial services business. For a group like us, capital can never be a constraint for growth.

We are yet to apply…we still have time.

What is cost of funds in the lending business?
Our cost of funds is 10 per cent, as we borrow from banks at their base rates. Our spreads are six to seven per cent. Returns from assets are three per cent.