Sentiments in rural India has turned positive with the ebbing of the second Covid wave and a good harvest, said Ramesh Iyer, Vice-Chairman and Managing Director, Mahindra & Mahindra Financial Services.

The company is back on the growth track with a consolidated net profit of ₹1,102.94 crore in the second quarter of the fiscal and 61 per cent year on year growth in disbursements. Going forward, the availability of vehicles will be a key factor, he said in an interview with BusinessLine . Edited Excerpts:

Has business normalised after the second Covid wave?

After the first quarter, I had said things are returning back to normal in the rural economy. Of course, that time we were still using the term subject to the third wave, but it seems there has not been a severe third wave impact and the sentiments have definitely turned positive. Most of the businesses are slowly and steadily getting back to normal, which automatically means there is a better utilisation of vehicles.

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This trend is likely to continue and with good monsoons, good harvest and support price, we expect the farm cashflow to be good. Third, now even the infrastructure will open up in the rural market. So, with these three factors, I believe that the rural economy is in a good position for the next two to three years. The only two issues at this stage are the availability of vehicles for which the supply side has to improve.

Once that improves, you know, the business volumes will pick up. And the second is that diesel petrol prices gone up, and that has had some impact on the viability of the operators. But if the price is going to be at this level, then even the freight rates and the passenger fares will go up.

How far does the supply issues in the auto sector and diesel prices impact consumer sentiment?

We would have done another 15 per cent to 20 per cent more in disbursements, if the inventory had no problem. If the supply continues to remain like this, obviously the loss of volume will be higher.

High diesel prices are a very recent phenomena and it should not have a major impact on the sales because anyway vehicles are in short supply, people are willing to wait. The real impact will be on the commercial use of the vehicle – taxi and goods transportations. Unless they are able to price the customer or the freight rates, it can act as some pressure.

What is your expectation on disbursements?

We are back in growth in disbursement. Disbursements grew by 61per cent year on year on year to ₹6,475 crore in the second quarter of the fiscal. Going forward, asset growth will begin to happen. Growth in the second half will depend on vehicle availability. Otherwise, the growth rate will be in the same range that we are seeing already. Being one of the best borrowers, we also have a good benefit of cost of funds and our margins are healthy.

Are the restructured accounts an issue? Will you consider writing back some of the provisions?

We have restructured 1,04,130 contracts. But people don’t want to only pay as per the restructured contract. They will pay more than the restructured EMI if they start earning more. Then there is a possibility for us to reclassify these accounts.

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We have classified 96,391 contracts in Stage whereas they could have stayed typically been classified in the zero stage or Stage 1. Once we see they start paying regularly, then it’s an opportunity to restate the restructuring. On writing back of provisions, it is too early to say. We will wait for two or three quarters performance. Once the gross NPA continues to keep coming down the way we have seen in this quarter, then definitely we may not require a substantial overlay to be carried forward.

What is your view on the scale based framework for NBFCs announced by the RBI?

There was already a draft paper on this and I do not see too much of a regulatory change in the framework. FIDC had requested the RBI to give time to the smaller NBFCs for stage wise moving to 90 days, which the RBI has done. Most NBFCs like us will be in category two or NBFC-upper layer and we are already subject to a lot of on-site inspections, regulations and capital adequacy requirement.

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It’s good that NBFCs of different sizes get classified differently and the big ones will not have to suffer if something goes wrong with a smaller NBFC or vice versa. Also, today all NBFCs are looked at as one in terms of borrowings. Maybe tomorrow, there will be a carve out separately for each category of NBFC with a separate limit. We have to wait and see how this classification gets utilised going forward.