‘Clocking Rs 10,000-crore quarterly disbursement not a challenge’ | The Financial Express

‘Clocking Rs 10,000-crore quarterly disbursement not a challenge’

Interview: Ramesh Iyer, vice chairman and managing director, Mahindra & Mahindra Financial Services

‘Clocking Rs 10,000-crore quarterly disbursement not a challenge’
With a loan book of Rs 73,817 crore as of September 30, the company does not see a challenge in doing Rs 10,000-crore of quarterly disbursement going ahead. (File)

Mahindra & Mahindra Financial Services is currently growing its assets under management (AUM) at more than 15%. With a loan book of Rs 73,817 crore as of September 30, the company does not see a challenge in doing Rs 10,000-crore of quarterly disbursement going ahead, Ramesh Iyer, vice chairman and managing director, tells Shashank Didmishe. Edited excerpts:

The company has seen historical disbursement in Q2. What is the reason behind that?

Whenever Dusshera and Diwali happen in the same month, we have high demand and high volume. But, undoubtedly, whether festivals are in the same month or not, the demand has to be good. That is exactly what we have seen, at least in the rural market. Every product has shown phenomenal demand. If only there were more vehicles available, including pre-owned, our disbursements could have been even better.

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Was there any supply issue from the production side like we saw in tractors two years ago?

No, tractor availability is not an issue. But, utility vehicles and even cars and pre-owned vehicles are witnessing some issues. Many people want to buy second-hand vehicles, but availability is poor. If I am not buying a new vehicle immediately, I am not giving up my old vehicle. Secondly, if finance companies are not repossessing vehicles because their collections are doing well, then even repossessed vehicle availability is low. So, the demand for second-hand vehicle is high and availability is low. On the car and UV front, there is a waiting list and vehicles are not available.  

Given this trajectory what kind of credit growth are you looking at for the rest of the fiscal? Which segments are poised to grow?

From a segment perspective, we are able to see traction across the country and across products. We have reintroduced SME as a portfolio. A couple of years back, we had a book of about Rs 5,000-7,000 crore, and because of various market conditions we were going slow. We have re-launched that product and you will see some growth coming from SME. Overall, after a long time, AUM is registering over 15% growth. We believe this trajectory would continue given very robust disbursement. The quarter ended with a disbursement growth of 83% Y-oY, and in this month, we have done Rs 5,000 crore. So, clocking about Rs 10,000-crore quarterly disbursement should not be a big challenge.

Banks are currently going aggressive on deposits and the system liquidity has contracted. So considering that banks borrowing is one of the major sources, how will that impact your borrowing costs and subsequently margins?

We are carrying four months of fund requirement as a chest. So, we do not see that as a problem. We have a lot of lines of credit which have also been signed up. So, we do not think liquidity will be a challenge. From the capital perspective, we are already at a very high capital adequacy of 23-24%. It is sufficient capital for growth requirement for at least next two years without any hurdle.

What will be your ideal funding mix be beyond four-month situation, and are you looking to change funding mix?

Our first philosophy is a good ALM (asset liability management) match. The second philosophy is not to over-borrow from any one instrument. Thirdly, our internal asset liability committee has prescribed certain norms for each of the instruments. The fourth philosophy will be that our average cost of funds should be maintained through a product mix approach. So, if we are borrowing more from a bank today, for us, our ability to raise money from a bank at a reasonable price compared to any other instrument is high. So, given the current rate situation and the liquidity situation, maybe the bank borrowing would have gone up from 35-37% to 40-42%.

Are you able to pass on rising rates to the customer without affecting demand?

Without affecting demand is something that I can not predict, but whenever the borrowing cost increases beyond 50 basis points (bps), that is a time we start passing it on to customers. So, the passing on of the rate will always happen with a lag. This time around, rates have gone up very aggressively in less than three to six months. We started passing on in October when we increased rates by about 50-100 bps on some products. By March, we should fairly cover for the full increase. Since we are holding three to four months extra liquidity, there will always be a holding cost which we will incur that cannot be passed on to customers.

Is there any update on credit cards?

We believe it is a little premature for us to go for the product. The prime product has picked up so much now, and there is so much growth happening that we do not want to divert our attention to anything new. We want to first stabilize this big ship.

What about conversion into a bank?

I think we are doing everything the way it is required to be done, and which is why we keep on saying that we will watch that space very closely. When the opportunity opens up for companies like us, we would look at this opportunity very closely and not let it go.

On the asset quality, what kind of guidance is provided?

The second half is much better than the first half historically, as the crop money starts to come, festival spend begins to happen and customer gets better cash flow. Tourism begins to happen after October-November. We would see a more positive trajectory in the next two quarters, both in terms of collection and overall quality.

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There was an unfortunate incident regarding recovery agents. What kind of long-term steps have you taken to avoid that kind of incident?

We have tightened our approach while appointing repossession agents. We are reviewing them more closely and ensuring that they follow all the guidance and directions.  

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First published on: 05-11-2022 at 09:36 IST