Despite clear signs of slowdown in the Indian economy, the rural market is still booming, believes Ramesh Iyer, managing director, Mahindra Finance. In an interview with Vishwanath Nair, he highlights how the non-banking finance company?s asset quality has held out over the years and which parts of India are still giving pain.

How big is the rural business for you, when compared with urban?

I would assume that more than 90% of our business will only be rural or semi urban. This is where we are seeing all our growth coming from. Our branches may be in city centres like say a Jaipur or an Ahmedabad, but our customers will be another 100 kilometers deeper in the adjoining rural areas.

What about your urban business though? Is it able to keep pace with the rural growth?

We are a very insignificant player when it comes to urban businesses. It forms only about 5-7% of our total business. So we would have gotten what we wanted during this year.

How has your asset quality held out so far? Which geographies are you seeing pain from?

Over the last three to four years, we have really been able to bring down our gross non-performing assets and that continues to be the story. Our gross NPAs used to come down every year by at least 100 basis points, currently it is at around 4%. There are two reasons for this. One is that the rural cash flow itself is good and the second reason is that the overall rural economy has done very well through better crops, yields and better output. But I think more importantly, the loan to asset value (LTV) has also come down. While earlier LTV used to be 75% or above, now it has come down to 65-70%. If your borrower is investing 30-35% money in the vehicle, then his interest to repay the loan is much higher. Apart from the economy supporting him, he is able to bring in good amount of upfront equity.

In terms of pain, I still think some places in South India is going a bit slow for us. This however may not necessarily be due to economic reasons, could be political too. Parts of Andhra Pradesh, Karnataka and Orissa are all high effort in terms of recovery. Even some regions in Maharashtra have not done very well due to less rainfall and slowing economic activity. So there is no particular state which is doing bad entirely. But on an overall basis, rural story has been very strong.

What kind of performance has each business segment shown this year?

When it comes to heavy commercial vehicles and construction equipments where the dependence on contracting sites are high and since the projects are not really very aggressive, things may look slow there. Moreover, the overall cost has gone higher with the increase in diesel cost, manpower and so on, which they are not able to pass on to consumers immediately by raising freight rates. We also witnessed some slowness in tractor sales, because usually demand is from farm and contracts. About 8-10% of our total business is in the used vehicle side, which has done well this year.

What kind of demand have seen during the first to months of this quarter? Has the festival season worked in your favour?

I must admit that these have been very exciting two months as far as overall volumes are concerned. In October, we financed more than 53,000 vehicles. On Dhanteras day we financed 4,000 vehicles. This would mean nothing less than 15-20% growth from the previous year. But is this true across the country? Maybe not. Dussera and Diwali as festivals are prominent North or West regions of India, while South will pick up later in January. On a comparative basis, from the previous year till this period, yes the buoyancy was there. Surprisingly, one would have expected a lot of discounts and many freebies from manufacturers during the festival season, but this time none was there. So it appeared that genuine demand really helped our business this time.