Credit growth driven by pre-owned vehicles, CVs, says Mahindra Finance’s MD

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New Delhi | Published: July 31, 2018 1:30:34 AM

Mahindra Finance posted a 34% year-on-year (y-o-y) growth in net profit in the June quarter to Rs 269 crore.

Credit growth driven by pre-owned vehicles, CVs, says Mahindra Finance’s MD

Mahindra Finance posted a 34% year-on-year (y-o-y) growth in net profit in the June quarter to Rs 269 crore. The 23% credit growth was driven in large part by pre-owned vehicles and commercial vehicle (CV) categories, Ramesh Iyer, managing director, tells Shritama Bose. Excerpts:

What is driving credit growth for you?

Pre-owned vehicles is one segment where we have seen good growth because we see demand for second-hand vehicles in the rural market picking up. That is mainly because after demonetisation, the brokers who were buying and selling vehicles had gone slow. The organised sector is picking up, whether it is (Maruti Suzuki) True Value or Mahindra First Choice. That helps a player like us because we have control over the documentation and processes. That has helped grow the business. The other factor is that our commercial vehicle (CV) base was low in the first quarter of last year and it has reported upwards of 70-80% growth.

So clearly, CV is one segment where we see good traction. The third is that Maruti volumes have been good and since we are a significant player there, we are getting the benefit of the volume growth at Maruti and other car OEMs (original equipment manufacturers) reaching out to the market. In our own UV (utility vehicle) and tractor segment, we have had a good market-share improvement of about 2-3% over the previous year, which has helped. So if one looks at it sequentially, the big growth has been in pre-owned vehicles and CVs, followed by cars, UVs and tractors.

Any impact of Ind-AS implementation?

Fortunately, since we did not have too much up-fronting of income and so on, Ind-AS has not had any impact on the revenue side per se. But, on the NPAs (non-performing assets), stage 1 and stage 2 provisions, which is the new norm, as against the standard provision of 0.4%, there has been an increased impact. In the actual 90-day plus NPA segment, there has been some reduction because of the estimated credit loss approach. Overall, if you look at it even on an Indian GAAP (generally accepted accounting principles) basis, this quarter has been one of improvement in terms of overall collection efficiency, which is one indicator which has improved at least 2-3%. Our gross NPAs have almost stabilised at March levels, which is significant because historically, the first and second quarters have seen an increase in NPAs and in Q3 and Q4 they begin to come off. So we believe this is going to be a good year on an overall basis and asset-quality problems seem to be over.

What kind of margins you have seen?

We have held on to our net interest margins. We have not had any impact in terms of our borrowing cost or, even for that matter, the lending side. While one may see a little dip in the margin due to a change in product mix, it is not due to our ability to borrow or lend.

What about your cost of funds?

Any new borrowing that we have done has been in the range of 8.5-8.6%, but our overall cost of borrowing on an opening basis, with the liability book, among others, will be anywhere around 8-8.25%.

What is your outlook on interest rates?

From here to March, we believe there could be an increase in our borrowing cost by about 25-40 basis points (bps), but we also have the ability to re-price, or pass it on to the customer. There may be a lag. We may not immediately pass on the higher rate; we’ll wait for another 25 bps of rate increases. Also, we may not pass it on across the country and across products. There will be some competitive intensity in some markets.

What is your forecast for credit growth?

I won’t put a number, but I can tell you that in Q1, there has been a growth of 20-21%. The third and fourth quarters are the best ones, from a rural perspective. So I would think our growth rates are going to remain high.

Any concerns around the monsoon?

The monsoon has been timely and well-spread, except in a few markets like Uttar Pradesh and Bihar, where there has been some delay. We definitely expect that as the season unfolds, it could average out. We expect both farm cash flow and infra cash flow to drive rural sentiment, which is a positive for a company like us.

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