Good NPA recovery is expected in the fourth quarter: Ramesh Iyer, Mahindra Finance

Ramesh Iyer, Vice Chairman and Managing Director of Mahindra & Mahindra Financial Services Limited (MMFSL), talks RBI’s draft circular on the declaration of dividend by NBFCs, demand prospects, expected recovery and disbursement level among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: How do you see the draft guidelines released for NBFCs by RBI and how important it is going to be for NBFCs?

A: I don’t think that the dividend payment should be less. If you look at the circular, then they have created different brackets. They have created a bucket in accordance with companies with CRAR of a certain percentage and certain percentage of NPA. I think this is a guideline which will allow companies to see in which bucket they are and accordingly their planning will be made. And, investors will know in advance that the company is in this bucket, so they can expect such dividend from the company. The important aspect of the regulation is that the RBI wants to say that you should take care of your capital first before dividend can be given so that you will be comfortable in working further. I feel it is a positive step and definitely, the companies will be benefitted in planning.

Q: But how much additional provisioning, the company will need to give dividend because brokerages feel that more provisioning will be required?

A: The business houses, who has given the report, we have talked with them. This is a wrong report because probably they have not seen the report carefully. So, they have just seen the first bucket and said that these companies may have problems because they will have to do additional provisioning. If you look the guidelines properly and see our three-year performance, then we would be sitting in the second bucket properly because our Capital is very good and CRAR stands at 20% + and net NPA was below 6% last year. So, I don’t think that their report is correct and we have talked with them and they are talking about republishing the report, by changing it. So, this report is not correct and no company will have any problem with this, all the companies will get a facility to pay dividend properly in some of the other buckets.

Q: A very strong demand has been seen and the rural push was strong due to which the company’s prospects were looking strong. The festive season has also ended, so, how is the demand particularly in the tractors segment? 

A: I think that the rural sentiments are quite positive and tractors are definitely benefitted when the rural sentiments are positive. Even today, we see that the tractor demand is very good, in fact, there is a short-supply of products and customers are in waiting. But, if you have a look at other businesses and that too in an urban and rural split then I think rural growth in vehicles has been good in comparison to urban. So, overall, we should look at the rural sentiment, which is positive, and due to this vehicle sale, whether it is a tractor or some other vehicle, is positive.

Q: If things are seen segment-wise then where highest recovery is seen and looking promising and which are the segments where problems can be seen and you will be a bit cautious about them?

A: As far as demand is concerned, vehicles, like Pick-Up, those are local good carriers and carry goods locally, such as perishable and daily use products, have been in good demand. We have talked about the tractors and they are in good demand. Pre-owned vehicles have been in good demand because people who wish to have vehicles but don’t want to invest in new vehicles are looking at second-hand vehicles. In fact, second-hand vehicles are also short-supplied. I think, there has been a good demand for these products. However, we have seen pressure in the heavy commercial vehicle goods carrier segment, school bus operation and few vehicles which especially runs in taxi model, like aggregators, because their business has not normalized yet. But in the taxi aggregators segment, it seems that their business is also growing a little bit and I think it should be fine in the fourth quarter.

Q: Update us about the disbursement levels and is it improving on a month-on-month basis, if yes, then at what level do you expect them to be in the coming future?

A: If seen on a month-on-month and quarter-on-quarter basis then there has been an improvement in the disbursement front. But, disbursement has not caught up when compared to the last year because the first quarter has been very low and in the second quarter, things picked up just in July. Therefore, if seen on an overall perspective then it will be low when compared to the last year but if seen on month-on-month and quarter-on-quarter basis then everything is doing fine in the case of disbursement. As said in the beginning there is a shortage of vehicles and if the vehicles are available then I think that disbursement can also pick-up. Definitely, we will have an advantage in the fourth quarter. Many OEMs are saying that they will make vehicles available by the fourth quarter and if it happens then disbursement will be good even in the fourth quarter.

Q: What is your outlook on loan growth and what kind of trends are visible in asset quality? 

A: When it is about the loan growth, I think, as it has been in the first and second quarter, therefore, we will be somewhere in the lower double-digit kind of number because disbursement has not picked-up yet and contracts will also mature. As far as recovery is concerned, everyone is aware that the first quarter was bad, lot of improvement was seen in the second quarter, then after the moratorium, some customers have problems and we do not want to do restructuring for all the customers. It would be better for those customers who need it the most and think, they will come out of the things in the next 2-4-6 months. So, possibly recovery will be little flattish in the third quarter.

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But as an improvement in the farm cash flow is visible and the season has been quite good this time, as well, and as the contracting segment will open, I think, a good recovery will be seen before the year-end in the fourth quarter and NPA corrections will also be seen.