Magma Fincorp expects disbursements to start picking up by the end of the third quarter, backed by a steady improvement in demand. The company will focus on extending credit for used cars and tractors and will largely concentrate on servicing its existing borrowers.

According to Deepak Patkar, CEO, ABF (asset backed finance), Magma Fincorp, while there were hardly any disbursements during the first quarter, they have started to pick up during the second quarter. The demand has been steadily improving from July-August onwards.

“We were very clear that we would not have any disbursement in Q1 given the kind of lockdown. In Q2 we have started doing some amount of disbursements though it is nowhere close to how our normal disbursements would be but we are getting there slow and steady. The demand has been low, though we have seen rapid improvement in the demand situation from July to August, and hopefully in September, we will see even better ramp-up in terms of demand,” Patkar told BusinessLine .

Magma, however, is “very cautious” and would prefer lending to its existing borrowers with a good track record. In terms of segments, it will lend to used cars and tractors and stay away from financing commercial vehicles.

Demand to pick up

The agriculture and related segment has been faring well and has also been showing fast recovery supported by government policies. This segment is a significant base for the company both in terms of tractor loans as well as other loans. Hence, a recovery here would augur well for the company both in terms of disbursement and collections.

However, there were some issues with the segments dealing in the commercial side of business, such as commercial vehicles, equipments and cars.

“These are the worst hit, and rightly so, because these are all directly linked to lockdown. But in the last three months, we are seeing movement, particularly in the CV side as vehicles are being delpoyed. In May, the deployment was down at 6 per cent, which increased to close to 60 per cent in July — though it is not satisfactory yet from an industry standpoint because industry expects close to 80 per cent of assets being deployed at any given point in time,” he said.

“Moreover, the load utilisation, which is a critical factor in determining the ability of customer to repay his debt, has also been low. We expect 70 per cent load utilisation for us to be comfortable as an industry; what we are seeing today is about 50-60 per cent,” he said.

However, the situation should improve moving forward, with lockdowns being lifted by most States and things going back to normal. Magma will, however, stay away from lending to commercial vehicles because of poor load utilisation.

Collections to improve

Meanwhile, Magma has been focussing on improving collections and is also working with customers to see what kind of restructuring support might be needed.

Close to 85 per cent of its customers were under moratorium in the first phase, primarily because the company was unable to reach out to them due to the lockdown and restrictions in movement. The number of customers under moratorium has come down to 45 per cent in August.

“In the second phase of moratorium we took a completely different approach. We engaged with customers and explained to them why the moratorium for a long term is not to their benefit. We have also identified customers who need help and are working with them to understand how we can restructure their loans,” he said.

It would however, be difficult to ascertain what percentage of its loans has to be restructured at present, as the grind back to normal has just begun and customers will take at least one month after the lifting of moratorium to figure out what is it that they can service, he said.

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