Mahindra Finance, which saw loans growing at just 1.5% in Q4FY22 despite a 54% jump in disbursements, expects the growth momentum to return in the next few quarters. If vehicle prices keep rising along with fuel prices, the demand for pre-owned vehicles will go up further, Ramesh Iyer, vice-chairman & managing director, Mahindra Finance, tells Shritama Bose. Edited excerpts:
Asset quality has improved significantly, but is much of it due to write-offs?
Our NPAs are below last March and we’ve actually ended the year with negative provisioning. So it cannot be due to write-offs. We’ve taken some additional write-offs, undoubtedly, but they are more on the basis of an assessment of what the customer problems are after the pandemic and some of them saying that they wouldn’t be able to come back to business and surrendering the asset. In the June quarter we had gone up to 16-17% of gross NPA, and that’s come down to 7.6%. It has been largely caused by collection and to some extent by write-off, and that would be about Rs 300-400 crore of the total. One important point is that we have made 100% provisioning for all the accounts which are over 18 months overdue, even though we believe recoveries from these accounts are possible. But, given the situation these customers went through, we have taken a prudent provision. If those accounts had also been written off, our gross NPA would have come down to 5.3%.
Any impact of the higher fuel prices on your customer base?
Currently, we are seeing everybody in a turnaround mode. After the last two years, now people are getting a good opportunity to come back to business. So I think people have accepted the position of earning a little low, but still being operational. My own belief is that very soon, you will see freight rates go up and passenger fares go up. Ultimately, these vehicle owners are only intermediaries and they will pass on the cost to the end customer. I also think if vehicle prices keep going up and along with that fuel prices remain a little high, the demand for pre-owned vehicles will further go up.
Is the chip shortage still affecting disbursements and new vehicle supply?
Clearly, the demand for vehicles is very high, footfalls at dealerships are high, the waiting lists are getting longer, and we see that availability of vehicles is an issue. That will remain for some more time and to that extent, disbursements will also remain a little muted. This is a continuing problem from the previous year. So on a low base of last year, you will still see growth this year. But if you were to compare it to a scenario where availability was normal, there is a clear dip due to non-availability.
Your disbursements have grown 54% y-o-y. How much was the book growth?
The book growth has been very marginal, at about 1.5% or so, because when you collect so much, the book runs off faster than it can grow. The good news is that we have started registering asset growth. In the next two or three quarters, you’ll see double-digit growth coming back.
What is the mix of used and new vehicles in incremental disbursements?
Used vehicles will continue to remain at about 12-14% of our book. A few important things have happened. In tractor financing, we have regained the leadership position, which we had conceded a year ago, when we were going a little slow on disbursements. In the non-commercial pre-owned vehicle segment, we have become the number one NBFC, which is largely cars, utility vehicles, tractors. We have also seen market share gains in the Mahindra UV segment as well as in the non-Mahindra LMV (light motor vehicle) segment. So overall our market share gains have resulted in the disbursement growth.
Your income has been hit by a one-off item. Could you explain that?
Income growth has been impacted by a provision which we had to make for the year of about Rs 142 crore. We had certain structured schemes for the customer and the regulatory requirement was that we had to intimate the closing IRR for the customer as well. There was an element of excess interest if computed differently and therefore, the requirement was to pay back that little excess to the customers. This was highlighted during the (RBI’s) inspection. So we made a full provision while making an overall estimate of the programme. It’s quite possible that we may also have to make some recoveries from the customers. So we may get a benefit going forward. There will be no continuation of this and it was a one-time charge.