Mahindra and Mahindra Financial Services is set to raise ₹3,089 crore through a rights issue, which opens on July 28. Ramesh Iyer, Vice-Chairman and Managing Director, Mahindra Finance, said it will take care of the capital requirements for the next two to three years and will help meet any uncertainties as well as meet growth requirements.
In an interview with BusinessLine, he further said that loan repayments in rural areas are likely to restart post October, while in urban geographies it may normalise by the fourth quarter this fiscal. Edited excerpts:
How will the capital raised through the rights issue be utilised?
It will be utilised purely for business disbursements or meeting liabilities that mature in the next 3-4 months and maybe a small percentage will be used for our regular operational branch use. As of June 30, our Tier 1 capital is about 15 per cent and the rights issue will take it up to close to 19 per cent to 20 per cent. It will take care of our capital requirements for the next two to three years. It will also take care of any uncertainties from the current economic situation.
You had good Q1 results. What is your strategy going ahead?
Interest is at a lower price, provisions are under control and overheads are curtailed. These have helped our margins and profitability. Our coverage ratio of NPAs has also gone up substantially from 19 per cent to 20 per cent six months ago to 40 per cent now. Even pre-Covid, we had put a project in place to look at each line item of expense and how to control it. We have taken various actions for rent rationalisation, travelling and conveyance control.
Are you concerned about stress after the moratorium ends?
It will depend on the class of assets and geographies. In the rural market, the moratorium ends in August, rural season begins in October. So there will be one-month pressure, people may not pay September EMIs and there could be some increase in stress. But post October and good monsoon, harvest is expected to be good. There are also a lot of government initiatives towards rural infrastructure. So essential assets, or required to be used assets, like small LCVs or pick up vehicles, will start to earn as the season begins and will service the loan earlier. Non-productive assets like temporary business loans could take little longer.
Covid is very urban-centric. Even if the situation settles down, urban would show signs of positivity from the fourth quarter.
Which are the sectors of loan demand?
Tractors have shown buoyancy, the volumes have picked up. There is also demand for pick-up vehicles, small LCVs, small three wheeler goods carriers. Also, there is demand for small cars. Where we are yet not seeing demand is heavy commercial vehicles and taxi and tourist operators are also not looking to buy more vehicles. For pre- owned vehicles, while demand is very high but supply is very weak.
What is your expectation on loan growth going forward and are you being cautious on lending?
In the current year, April, May and June are almost lost. Even in July, while the volumes will be good, it may not be as good as the previous year. In 2020-21 fiscal, overall disbursements would be 50-60 per cent of last fiscal. But disbursements in October to March 2021 could be equal to or better than the previous year. I don’t think we have become risk averse as we are still in the “earn and pay” segment, we review the customer’s cash flow ability, how much margin he brings and if he is worthy for financing.
How is the collection efficiency?
In the first round, our moratorium was as high as 75 per cent but almost 40 per cent of the customers began to pay so the net moratorium position came down to about 50 per cent. We would have seen that improve in this period. I think about 30-40 per cent of customers will remain under moratorium and are expected to pay from October. From June onwards, we are seeing upwards of 77 per cent. But collections are going to be a bit of a high effort zone and not everyone is earning very steadily, some may pay their EMIs in instalments.