Rural demand will be very positive for the next three years for M&M Finance: Ramesh Iyer, MD & VC

Ramesh Iyer, Managing Director and Vice Chairman, Mahindra & Mahindra Finance says that the company's net NPA Stage-3 will come down to 4% by March 2022 during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: RBI policy has been announced and rates remain unchanged. What is your view on the policy?

A: It is a good stance as support is required at present. As it is maintained at this level, there is no scope for an immediate rise in the interest rates, which is important. The customer will be benefitted from it. If the rates would have moved up then there would be some changes in our lending rates as well. So, I feel, looking at the ongoing situation, it is a good stance.

Q: Results were great in this quarter (Q3FY22) but the investors were worried due to Asset Quality Deterioration due to the RBI norms. Can you tell us by when do you expect this to reverse and how do you see the Stage-3 assets in Q4FY22?

A: As far as Stage-3 assets are concerned then we have said that quarter-on-quarter there will be an improvement and we have also shown it. Earlier at the start of this year, when we talked after the results of the first quarter, it was said that 80% of the provision that was made in the first quarter will be reversed by the last quarter and 60% of it has already been reversed. We have also said that our Net NPA Stage-3 will come down to 4% by March and we are confident that it will reach there. As far as talks related to the NPA created due to the changed regulation is concerned, it is important to understand that on the ground there is no change in the business of the customer. So, if we will explain to him/her that you will have to make payments on or before the due dates, if you pay it monthly then it will not be recognised due to which you will become an NPA, then it takes some time to explain this. Secondly, there were problems related to the third wave and people had a fear in their minds had reduced the business a bit, it slowed the speed at which things were moving. Interestingly, now, things are opening up gradually, like the tourism is opening up, temples are opening up, schools are opening, so, I think, that the cash flow of the customers will improve a lot in the next couple of quarters. So, we are not seeing this problem as a long-term problem but definitely, the customer will take a quarter or two to adjust to it. I do not understand that there is a requirement to do so because IND AS provision is still higher than the IRAC provision due to which we did not have to make any additional provision in the third quarter. But, as per the new norms, a new NPA number is discovered and when the customer will understand it, you will see the corrections happening. I believe that it will be visible in the next couple of quarters.

Q: What kind of additional provisioning should we expect as you always remain conservative in your numbers and you are supposed to provisions in accordance to the RBI norms?

A: If have gone through our commentary that was provided after the third quarter results then we have said that if there will be no improvement in the end NPA numbers of the third numbers by March 2022 then we will have to make a provision of Rs 1,500 crore and that was a worse scenario. We have always seen that the fourth quarter is the best quarter for rural and we have already seen that the crops have been sold and cash flows are arriving, so, it will benefit us. As I have said earlier that the businesses, tourism and people movement have started, so, there will be an overall improvement. The visible best scenario is that the least NPA provision should not be above Rs 500 crore and the worse scenario if there is no improvement in NPA then worst will be Rs 1,500 crore, which will not be a requirement but I am providing a range.

Q: Will higher provisioning move the company in a loss because this is a concern in the market?

A: We do not understand because if you will have a look then in the last two quarters, in both the quarters, we have posted a PAT (profit after tax) of around Rs 900 crore after making these provisioning. So, I do not feel that we will have to see a loss, definitely, the fourth quarter, as I said cash flows are very good and we have also shown the numbers of January and the collection efficiency stood at 96% and we have seen that even the NPAs have shown lowering trends and stage-2 has shown substantial improvement. So, we do not feel - if you will have a look from Ind AS parameters - that we should be in loss-making.

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Q: How has the demand been this Quarter? What is the contribution of rural and are you seeing any challenges and have the supply concerns have eased?

A: Even today, if we visit the dealerships, talk to the dealers, then we hear that the footfall at the dealerships are very high and demand is still holding up for vehicles but yet there are difficulties related to supplies and it is improving. Although I cannot comment a lot about it as far as our talks with the OEMs, we understand that this problem is getting sorted out and vehicles will start becoming available. So, if the vehicles are available, it will have another followed benefit and it is that as soon as new vehicles are available, those who will buy new vehicles will give their old vehicles in exchange. There is a short supply of second-hand vehicles, although the demand is quite good for the supply of the second-hand vehicle is not available, so, we will get a chance to see that trigger as well. So, I think the overall sentiment is positive. If you will have a quarter-to-quarter then there has been a growth and there has been a 40% growth on a year-on-year basis. we are very very happy to see that growth is also returning to normal, collections are improving, asset quality is improving and cost of operations are under control, so, I think, for the next two to three years, we should see rural to be very positive for us.

Q: How confident you are about the disbursement and going forward, what kind of disbursement trajectory is visible?

A: If we go to the customer today then definitely we can collect our instalments. But it is such that he is not earning enough that he will be able to repay two to three instalments which turned overdue earlier but definitely, he is servicing his contract. So, I feel that if the trend continues then you will also see that even the past overdues' get collected over a period of time. So, on the collection front, we are very very comfortable and there is no need for repositioning a lot, which means the customer is earning and he wants to settle himself. So, the collection front is very good. As far as a disbursement is concerned, as I have said that quarter-on-quarter there has been an improvement in disbursement, month-on-month we are seeing improvement in disbursement. There is a pent-up demand due to the non-availability of vehicles. If vehicles are available, then a good disbursement will be seen in this quarter as well.