The credit demand for commercial vehicles (CVs) has fallen after demonetisation hit small borrowers’ ability to offer margin money, says Ramesh Iyer, managing director at Mahindra & Mahindra Financial Services, adding that farmers will be the first to recover from the economic shock of demonetisation.
How have your collections moved since November 8?
I think it’s still very early days in the sense that initially everybody just focused on understanding what was next, whether it was our customer or our employees, even all of us. The first two or three weeks passed in just taking a secured, careful position. To that extent, if you look at November, definitely collections are lower than what it would have been if the conditions were normal.
What has the impact on your customers been?
Many of our customers who are from the ‘earn and pay’ segment are definitely telling us that the volume of work for them has come down, in the sense that someone who’s using a small LCV (light commercial vehicle) was not able to use it every day to carry some small goods up and down is seeing lower volumes of work. This will be seen more in December because in November, we still had some 10 days of contribution.
About 35-40% of your repayments used to be in high-value currency. What have you done to deal with that?
People who were paying in high-denomination currency did not have a lot of money stored in the past. They are people who earn on a daily basis and convert it (the cash) with local traders so that it is easy for them to handle. A classic example would be that of an autorickshaw driver. The small change we pay him adds up over the month. He would have to convert it every week to higher denominations and then repay his loan. We have (now) got into handling of smaller denominations, including coins. That’s one new administrative issue that we are currently handling.
People who were getting their money from contractors and others in denominations of Rs 500 and Rs 1,000 are the ones who are not getting it now because such currency is not being paid. Until such time that the new currency comes into the system, these are the people who are going to be our defaulters.
CV sales were poor in November. To what extent has CV credit demand been hit?
I think it’s important to understand this is not the hour when people would want to acquire a new asset. So that’s one reason why overall vehicle sales are a little low. The second is that many a time, the margin money is something that they temporarily borrow from local sources or they sell their existing second-hand vehicle and get the margin money to buy a new vehicle. Definitely, second-hand vehicle sales are normally done by brokers, and that has gone down because of less cash in the system. Therefore, someone who wants to exchange a vehicle is not able to come forward to buy a new vehicle. Anyone who was depending on margin money to be locally borrowed or for it to be generated out of the sale of an old vehicle is not able to do it.
How long could this demand situation persist?
I personally think that the first ones to come out of this (situation) will be the farmer because he has got the crop and he is waiting to sell it. Earlier, he may have sold it to an intermediary. Now he will send it through the official channel and maybe in December or January, he will get the money. The other segments, possibly, will take three to four months. There is no specific data from which we can make this judgment. Given the size and pressure of transactions, I think it will take two to three months to stabilise before people can feel comfortable and confident enough to start investing in new purchases.
Has the RBI’s Nov 21 notification on forbearance affected your collections? Have there been customers who assumed it to be a repayment holiday?
No, I don’t agree. The rural market that we operate in, these things don’t disseminate so low and that far. I would assume these are all interpretations of employees of finance companies who wonder, “Will the customer now think that I don’t have to pay for this?” But we have not encountered any customer telling us about this.
To what extent are your Q3 numbers likely to be hit?
This is not an issue exclusive to Mahindra Finance or to rural markets, where we operate, or to our type of customers. I think this is a national issue and everyone is trying to find a solution to this. Therefore, it may not be appropriate for me to give any direction towards the numbers, but I must tell you that the patience, perseverance and intelligence to sail through this situation will be of the highest order.