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Collections improving, demand picking up in rural India: M&M Finance

‘Around 15-20% of the moratorium customers have started repaying the instalments’

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Last Updated: Jun 03, 2020, 07.55 PM IST
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Quick Bytes: Mahindra Finance MD on plans to raise funds via rights issue
Quick Bytes: Mahindra Finance MD on plans to raise funds via rights issue
We are very clear in our minds that we want to be adequately capitalised as we would need capital going forward, says Ramesh Iyer, VC & MD.

Everybody in the entire country is focussing on rural India. NBFC with deeper penetration will lead the turnaround story in rural India, which clearly means the prospects of M&M Financials are good. Tell us what are your observations?
In April, things were really not as good. There was no volume transacted. Collections were very low at 15%. Then there were clear indications that with the harvest being good, the cash flows from farm will improve and in the month of May, we had about 1,000 branches opening in green and amber zone and we saw the collection efficiency zoomed from 15% in April to upward of 50% in May. So that was one very clear indication of how things are panning out to be because the customers were waiting for branches to open to be able to come back and repay their instalments.

Over 70% of the customers had taken moratorium and around 15-20% of the moratorium customers are now repaying the instalments. So that is one good news as we the sentiment is turning positive. The other good news was we saw the tractor volumes pick up. In April, we hardly did any business and in May, we ended up doing about 15,000-16,000 vehicle business from these branches. Also, all our branch executives want to go out and go to the dealerships and meet the customers. Believe me, in these thousand branches, we have seen a daily footfall of about 7,000 customers coming in for repayment of instalments and asking for certain vehicle finance. I think if you put this together, there is no reason why we should feel otherwise. We are feeling extremely buoyant that rural is turning around.

Some of your peers went about shoring up the balance sheet and raising money from the market. Now M&M Finance has also announced the rights issue. Talk to us about how NBFCs as a space is placed and within how is M&M Finance placed?
We are seeing these kinds of sentiments return back to market but at the same time, we all have an absolute understanding of how it is going to pan out over a period of time. So we have kind of taken a view. You can look at it from a very pessimistic approach and say NPA will be very high and things will not improve for the next few quarters. That is one view one can take.

The other view one can take is, if things were to start happening were to turn positive, then the opportunities could be very large. Which is why we believe for players like us who have such deep penetration and very strong relationships and presence across the country, there is an emerging opportunity. Whether you say things will take longer to improve or you say things will start to improve very dynamically after a couple of months; in both situations, we want to remain adequately capitalised.

We are very clear in our minds that we would need capital going forward for either reason. Therefore, doing a capital raise at this hour is the best thing to doAll of us are getting ready to say that let us raise as much money that the balance sheet allows us to raise so that we are able to meet all the liabilities on time and able to maintain the fixed cost that needs to be maintained during this period. If things were to turn positive and we need money for disbursement, then we are not looking at money on that day. So preparing for the future is what all of us are trying to do.

How much can NPAs spike up for NBFCs or lenders in your view, given that even the retail is at risk?
It is important to understand the overall segment mix of the consumers who took loans from NBFCs. There are two clear broad segments; need-based segment and aspirational segment. As far as the need-based segment is concerned, tractors, small LCV are all livelihood products. If they are put to use, they earn out of the product and they repay their monthly instalment. Therefore, there could be some delay cost by lowering the revenues for them. The business size has shrunk and that would delay their instalment but they would never reach the defaulting category of someone who will not want to repay because they are all underlying collateral and people will want to repay as they have invested 25% of their money acquiring that asset; so there will be no intentional defaulter. Some circumstantial delay and pressure could build up. Therefore, one should not be overly concerned if in a quarter or two, the overdues go up or if an NPA incurs upward. They are not going to write it off and they will come back for sure.

There could be some segments where people have taken consumption loans or people have taken certain aspirational products and if their revenue was to shrink, they could take longer to repay. They could be in a situation where they may want to come back and surrender the asset or they may take much longer because if they take longer to start earning, they may take much longer to repay.

Again, my word of warning would be please do not equate NPA to bad debts. These are circumstantial delays and not intentional defaults by consumer and circumstantial delays in our own experience historically, even with some delayed times, the instalments do come back. So I would not think that even if NPA was to go up in retail with collateral backing, the money would come back. Yes, if there are unsecured loans and if the customer is not able to earn and if they are going to be in default, possibly some percentage of that could turn out to be bad but collateral-backed livelihood product who have been in this business for long would never be an intentional defaulter, but circumstantial delays could be there.

I would like you to leave us with some numbers. How many branches across the country have reopened? What is the feedback on the ground? Are inquiries coming in?
We have about 1,003 branches which are open; another 160 branches are getting ready to be open. So out of our 1,300 branches, close to 1,200 branches will already be up and working by mid of June, which is a very large number. Other 100 branches that are yet to be open could all be in the red zones and could take a little longer.

Of the workforce on a select basis, with less number of people in any branches, still about 50% of the workforce is engaged in the activity on a rotational basis. So far as footfall in branches are concerned, we are already seeing 7,000-8,000 on a daily basis. We are seeing consumers walk in and I would very strongly think June will be a turnaround month as far as enquiries are concerned. People asking for credits including people being able to repay because the harvest money is coming and they are repaying their instalment. So I think June would see a good turnaround in terms of sentiments turning positive.

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