Mahindra & Mahindra Financial Services has directed its employees to go for settlements instead of repossession as a measure to maintain its recoveries and collections in order to work around the restrictions placed on appointing third-party agents and has managed to improve its asset quality and collections aided by improvement in rural incomes, Ramesh Iyer, vice chairman and managing director, said.

While the company’s gross stage-3 asset ratio improved to 6.70% as of September 30 from 8.03% a quarter ago, its collection efficiency improved to 97% from 94% even as the company has altogether stopped its repossession activity.

“We have told our employees to seek settlement rather than repossession. Because there is money in the market, we will tell you (borrower) to settle the account and we will not take your vehicle,” Iyer said in an interaction with FE.

The company has not done a single repossession in October, he said. Typically, the company does repossession of around 4,000 vehicles a month, of which around 2,000-3,000 vehicles are released back to the customers after the repayment. The company has on-boarded some employees from outsourced recovery agencies on its roll, and some of them continue to repossess vehicles. The improvement in the rural economy has also curtailed the need for repossession as steady cash flows are coming from farm income and allied activities. Additionally, the company also goes slow on repossession during the festive season.

“Fundamental reason is all the activities are going well for rural. Tourism was at its best, people movement is going on very well. Schools are open so vehicles are operating. Infrastructure story is doing well, so tippers and machines are doing well. Then we are seeing very clearly that farm cash flows are very good. Therefore, tractors are doing well. All activities are doing well so cash flows are doing well. So all of it is helping us in normal recovery,” he said.

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Although the company is allowed to do repossession through its own employees, the management has asked its staffers to repossess vehicles only in cases where the borrowers are willing to surrender the vehicle as the repossession in difficult cases is unsafe and requires very specific skill sets, which is why the process is outsourced.

Iyer expects that the company will receive approval at some stage to restart repossession activity as it followed the protocols and it will restart the process. The process is required to reign in intentional defaulters, who earn from the vehicle and do not pay back, he said. Repossession, which is used as last resort for recovery, is needed as such errant borrowers put the entire credit system at risk.

“We are hopeful that we will get the approvals to start at some stage. Because we have followed all the process…We are taking this as an opportunity to revisit our process, guide people who follow the process and tighten it further if necessary,” he said.

The Reserve Bank of India (RBI) in September directed the company to cease repossession activity through outsourcing arrangements till further orders, after a pregnant women succumbed to the injuries on account of being allegedly run over by third-party recovery agents appointed by the company. RBI had on multiple occasions directed banks and NBFCs to strictly comply with the guidelines on third-party recovery agents.