Non-banking finance company (NBFC) Mahindra & Mahindra Financial Services (M&M Finance) is looking to lower the share of gross Stage 3 asset ratio, or gross non-performing asset ratio (GNPA), to 3%-3.25% by the end of the current financial year from 4.35% as of June, vice chairman and MD Ramesh Iyer told FE in an interaction.
“We don’t see any build-up of NPA and if things continue in the same vein, we will believe that 3%-3.25% (GNPA) is quite possible,” he said.
Since the NBFC has a provision coverage ratio of 60%, it is planning to reach out to customers for settlement or termination of loans. In case a customer wants to surrender the asset, the NBFC can accept the proposal and lower the gross NPA ratio without impacting the overall profitability. The NBFC’s collection efficiency averaged at 94% during the first quarter, according to the investor presentation.
M&M Finance on Friday reported a net profit at Rs 353 crore for Q1FY24, up 58% year-on-year (YoY), owing to a strong growth in the loan book, which grew 28% YoY and 5% sequentially to Rs 86,732 crore.
Disbursements during the reporting quarter rose 28% YoY to Rs 12,165 crore. The disbursement growth was broad-based across vehicle segments, the NBFC said, adding that it will focus more on growing its used-vehicle segment, SME loans, leasing and personal loans. “We are very confident and sticking to our larger strategy that we put out in March 2022. Then, we had said we will double our book by 2025. I think we are cruising well on that direction as we did in the past year as well,” Iyer said.
The credit growth for the NBFC is expected to sustain at current levels on account of higher vehicle demand from rural and semi-urban areas and higher demand in the pre-used vehicle segment.
M&M Finance will launch a co-lending partnership with State Bank of India (SBI) to further its loan growth in the next two weeks. “I think we are at a very advanced stage and very soon we will be announcing our arrangement… It (partnership with SBI) will be for high-end customers who are seeking long-term loans at lower cost. Currently, we cannot service these customers, but along with a large bank like SBI, we can certainly do so,” Iyer added.
M&M Finance’s gross spread reduced during the reporting quarter to 6.8% against 8.2% a year ago. The contraction was on account of a change in the NBFC’s product mix, with the share of high-end customers increasing 10%-12% of the overall book, where the loan yield is typically lower.
However, on the positive side, these high-end customers help the NBFC lower its operating expenses and credit cost. Going ahead, with greater traction being seen in the pre-used vehicle segment with higher yields, the NBFC will be able to raise the net interest margin or spread to 7.1% in FY24.