Mahindra Finance is focused on reducing non-performing assets of its housing finance subsidiary, which would enable it to garner funds at a subsidised cost from the National Housing Bank, says MD and CEO-designate Raul Rebello. He tells Ajay Ramanathan that the company may launch co-branded credit cards this financial year.
You plan to diversify the portfolio, what are your plans for credit cards?
We are seriously evaluating co-branded credit cards and we are looking at the current fiscal or the early next financial year to launch them.
How is the mortgage business doing?
Mortgage is an attractive business for someone like us who has a deep distribution and brand value. Having said that, our housing finance company today is in a place where we need to correct a lot of the book. Our non-performing assets are quite high and unless we bring them down, we can’t dip into the NHB subsidies. We were deep into rural home improvement loans of a small ticket size but those have not played out well. Once we correct the book, we will start ramping up growth.
Are there plans to unlock value in Mahindra Rural Housing Finance?
Mortgages as an asset category is three times the size of the wheels category. It is too big for us to sit out. When that business fundamentally starts to create value, we will decide to unlock that value through an IPO or some other route. But, it is too early to give a timeline for the IPO.
Are there too many players in the NBFC space?
The household credit-to-GDP product in India is still the lowest among developing countries. There is place for folks to come in and play wherever there are missing gaps. However, we have seen cost of funds becoming a big challenge for many of the smaller NBFCs and with the latest guidelines on risk weights, the cost of funds will go up.
How does one differentiate oneself?
Some NBFCs will need to recalibrate how much they can earn by way of fees versus interest income. We have seen cost of funds becoming a big challenge for many smaller NBFCs. Competing with banks and well-capitalised and well-rated NBFCs, where the cost of funds arbitrage is quite high, will be difficult unless you are participating in a field where the internal rate of return is above 15-16%. Otherwise, it is going to be very difficult to get a net interest margin and a return on assets, which will you give a return on equity.
Given your strong rural focus, when do you see the prospects of the rural economy improving?
It is always good to live in challenging times and optimise in challenging times. We are in a business where we need to wear the risk hat. We are calibrated about returns and risks. In any environment, you need to keep weighing your balances because if you go rogue on one, it can seriously compromise the overall organisation’s delivery. I do agree that cost of funds is still elevated. The good thing is that the India growth story is still intact.