Government should provide reschedulement facility to Finance Companies: Ramesh Iyer, MD & VC, Mahindra Finance

Ramesh Iyer, Vice Chairman and Managing Director of Mahindra & Mahindra Financial Services Limited (MMFSL), talks about March quarter results, the strategy that will be adopted to boost credit demand and disbursement, company's financial situation and fundraising plans among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts: 

Q: Your profit has declined by more than 60%. Were you expecting such a fall or the fall is bad then what was expected? Even the stock performance has slipped hugely due to the results. What is your view on it?

A: As far as profit is concerned then we have made an additional provision of Rs 564 crore. It was planned by keeping the future in the mind and the way in which we understand the concerns of the customers. I feel that provisioning was required at this juncture. It was done overly otherwise we would have posted better growth over the previous quarter. So, we are not quite worried that the profit has fallen by 60%. The decision to make an additional provision was made consciously. As far as stock performance is concerned then we don’t concentrate a lot on it. Our job is the keep performing, handle our business properly, understand the demand of the customers and then provide a solution to them. Stock will continue to do its work and I think that there is no need to pay any special attention to it. 

Q: We have seen lower disbursement in this quarter. What kind of strategy will be adopted by the company to boost the demand in credit off-take and disbursement?

A: If the country is divided into green, amber and red zones then I think that the green and amber zones will bounce back soon and our business will start. And, we can see that there is a good demand for tractors and customers are coming to us seeking finance for tractors. Other products will also unfold in the same manner and I think that the pre-owned vehicle will be the second product where such a movement will be seen, which will be followed by LCV, small pick-up vehicles and three-wheelers that carry goods among others. The segments that will take more time are passenger vehicle and commercial Vehicle, due to a shortage of drivers and load factors. If we look at these in a combined manner then some demand is visible to us but its benefit will be seen in the post-monsoon season. And, if monsoon remains average plus then the rural market revival will be a good one. 

Q: Do you think that this provisioning is enough or there can be a further need for such provisioning in coming quarters? 

A: We have speculated that the moratorium has been provided till May and what if it is not provided further. I think that it, moratorium, must not be provided whereas a reschedulement should be allowed to finance companies so that they can understand the requirement of every customer. Every customer doesn't need a 90-month. There are customers who want a reduction in their instalments, some want a month’s time for the purpose and there are few customers who want an extension of the period. It can’t be handled with the moratorium. I feel moratorium should be replaced with reschedulement. 

And, if the moratorium period ends in May with an expectation that the customers will be regular from June than it is not possible because he/she may not start earning immediately and even if they earn that they will first like to keep something with themselves and rest in the repayment of the short-term loans that they would have taken in this period. Our estimate suggests that they will take 2-3 months to stabilize themselves. Secondly, we have also seen the segments that will be under pressure like commercial vehicle and factory operation. They will need more time. Thirdly, we have seen the area or zone which will take longer than it is clear that the red zone will take longer. So, these three things were combined to find the kind of provisioning that is required. So, it is not a matter of a quarter or two. So these segments, like a commercial vehicle, aggregators, factory operations, customers in the red zone and customers who want to reduce their EMIs, were combined to provision. But the situation continues to be the same for a long period like next six months, COVID’s impact continues to be here for six more months and the lockdown is extended accordingly then we will have to think about something else. But, we are well covered in the existing atmosphere. 

Q: Several announcements connected to farmers and agri-segment has been announced to revive the rural economy. How it will impact your businesses in a positive sense?

A: The announcement is very positive and it is trying to reform the sector. But we will have to wait and watch the way it is implemented on the ground level and the kind of farmers who are benefitted from it. We have always seen that whenever there is an improvement in the cash flow of the farmers then its direct benefit is passed on to the rural market, which will benefit us directly as we work a lot there. So, we expect that the benefits of these announcements will be seen a year after its details and execution plans of these announcements are out and they are implemented at the ground level. We also hope that the sentiments will return positive and farmers will be benefitted, which will benefit us.

Q: Talk about your customer base and plans to increase it? How many of your customers have availed this moratorium facility that was extended by the RBI and what impact it will have on your business?

A: 70-75% of the customers have taken moratorium and we in the month of April when the complete lockdown was enforced across India that around 15% of the customers paid money through ECS and banking system and around 20% people have already paid money in initial 15 days. So, we understand that it is not that the customer will not pay but it is necessary to understand that will they be able to pay it immediately. People are facing a situation where they will take time to generate income. It is a situation where a partnership approach should be adopted instead of pressurizing someone due to which the person returns the vehicle. What will we do with the vehicle?

So, there is a need to understand the problem and provide a solution to them, if any, like more time because they have also invested at least 25% money in the vehicle and it is not so that the vehicle was bought only on loan. So, those who have a 25% contribution and have paid the EMIs for one-two months have already contributed around 40-50% in the product. So, I don’t think that every customer will say that they are not going to repay the loan. But there is a need to understand the requirement of every customer and then provide a solution accordingly may it be a reduction in period or extension of the period or they are in a need of temporary loan so that they can come out of the problem. If we work with such an approach that I think that most of the customers will get out of the problem.

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Q: What is the financial situation of your company and do you have any immediate fundraising plans?

A: When it comes to liquidity than big companies with good ratings, track record and backing by a good promoter will not face problems in raising funds. When it comes to Mahindra Finance then our liquidity position is sound. If the situation remains the same for the next six months then collections and disbursements will be low but our cash flow position will enable us in repaying entire loans and service the interests and meet the fixed cost. So, our plans for the next six months is ready, if the collections and disbursements remain low than our cash flow position will enable us to meet the requirements of six months.