Our provisions for bad debt will fall in the coming quarters: Mahindra Finance MD Ramesh Iyer

Q1FY23 has been relatively benign in terms of asset quality performance for Mahindra Finance and credit costs could trend down through the rest of the year

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Festive demand is set to be strong as vehicle supplies improve, he added.

Q1FY23 has been relatively benign in terms of asset quality performance for Mahindra Finance and credit costs could trend down through the rest of the year, vice-chairman & MD Ramesh Iyer told FE’s Shritama Bose. Festive demand is set to be strong as vehicle supplies improve, he added. Edited excerpts:

You have improved on most parameters, but why have operating expenses risen?

We have said before that we have already invested for the needs of at least a year. So as the productivity kicks in, you will see this getting corrected. The investments are in people, our technology and the digital space, all of which do not show results immediately after you invest. We’ve invested some in this quarter, some were in the previous quarter also. They will now start kicking in. We will now see disbursements growing and assets under management (AUM) growing. Imagine if the AUM grows by 10-15%, then 3.3% will start looking like 2.75%.

Your write-offs have also risen year-on-year. What is the profile of these written-off loans?

In the third and fourth quarters of last year, we had gone a little aggressive on our repossessions. Out of those customers, some wanted to come out of these businesses due to the pandemic – they could be taxi operators or three-wheeler operators. But, this is not going to be the trend going forward. If you look at our gross NPA, normally from the fourth to the first quarter, you’ll see a very sharp rise, after which it starts to climb down in the third and fourth quarters. This year, we’ve not seen that kind of climb. So, going forward, you’ll see much lower provisions coming from bad debts, write-offs, etc. The other thing is, in the last quarter of last year, we introduced the new write-off policy, which is for accounts overdue for over 18 months, we started providing 100%. We’ve continued that practice this quarter as well.

How do you see the early trends for festive demand?

Sentiments are very positive, with monsoon widespread. There was some concern about Uttar Pradesh and Bihar, but they too have caught up now. The demand is still holding up, but vehicle availability is still an issue. You talk to any dealership, they believe that the festival demand will be very high.

How much of a problem is the supply situation?

Inventory levels are slowly improving, but people are still having to wait. Earlier they could get the vehicle in a week to 10 days, but the waiting period had risen to two-three months at one point. That has come down to a month or so. It’s getting better. The original equipment manufacturers (OEMs) are telling us that they are building up pre-festival stock and there will be enough availability during the festive season.

Do you expect the strong demand to sustain?

I think so, and there are two-three reasons for that, at least from a non-banking financial company (NBFC) point of view. One is, that you’ll get the volumes coming in. Some of us who are well-penetrated may also get some market share benefit. The third element is, that I’m reasonably sure vehicle prices will start going up. As that happens, you will see the disbursement value being higher for the same volume. So you’ll have volume benefit, market share gain and value increase, and all three together should help a decent disbursement growth.

How has the restructured pool been performing?

We had done close to Rs 4,000 crore of restructuring for 1 lakh customers. That is now less than half, and more than 60-70% of them are in the zero (delinquency) bucket. We should remember that restructuring was done for the low-bucket customers because even by regulatory requirements, people with three EMIs outstanding were not allowed. The customers with lower delinquencies got the restructuring. So, that pool is behaving quite well for us, and there are absolutely no concerns on that side.

Have you been able to pass on the interest rate hikes to your customers or do you see that happening at a later stage?

We’ve increased it by 30-40 basis points, but the rise in the market has been much higher. Fortunately, since we have a lot of past liabilities, our average rate has not gone up. To that extent, what we have passed on is sufficient for what, we have incurred so far. But clearly, as we keep changing our liability profile, you will see our cost of funds go up and there will be one more price increase, which will be passed on before the festive season. But this happens with a lag, and we will see it fully covered only close to the end of the year.

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