BL interview. Can’t get away from repossession or using agents: Ramesh Iyer, M&M Finance

We do about 3,000 – 4,000 units a month and we didn’t do any repossession in October. During these festivals period, repossessions were very slow, and H2 of the fiscal is good cashflows. Borrowers may not want to leave their assets. I don’t think it has a P&L impact immediately. But the fear is that such defaulters if they are not settled by repossessions, we are allowing them to misuse the asset. So, I will not look at it only from a P&L perspective. We have sent strong legal notices and pursued alternate methods of handling them to defaulters where we are not able to repossess. The investigation is on and if you ask me whether there is scope to relook at the process and tighten it further, I think yes. From every such incident, there is a learning. We onboarded about 6,000 field agents on our books; we did it the same day. But we cannot get away from repossessions and not using agents in future because these are specialized activities.

Last year’s Q1 was the most difficult quarter that we ever had, and we made a very clear articulation of where we wanted to go ahead. I’m sure everyone is watching us to see if that’s the direction we are taking. NPAs are coming down as promised, collections are improving, and profitability is coming back. Then we said that in three years, we want to double our balance sheet. And now, you’re seeing signs of growth as well. We also said that we focus on our cost and rationalise it over time with balance sheet growth and the introduction of technology and digital data. That’s something that people will start seeing soon and once that’s visible, then they will know that all-around actions have been completed from growth, quality, and cost perspective. Once that begins to happen and we continue to provide that kind of growth, we should have addressed the concerns.

Our expectation was 75 basis points hike in the year, but an almost 200 bps hike has happened. So, the cost does remain a little elevated. We started estimating the liquidity pressure in the system and we didn’t want to run into a situation where we must pay a little more price for borrowing more. So, now we have enough money to meet our four months of liabilities and that obviously puts a little more holding cost. I would think that we don’t have steep increases from here on. The good news is while the new borrowings are coming at an elevated rate of at least 100 basis points, the overall impact is only 40 - 50 bps because we have many liabilities of the past at lower rates. The other thing is that we are not a single-product company. We have a good mix of bank borrowing, bonds, and fixed deposits. Since we are broad-based on borrowing programs, we don’t need to correct our liability frequently. We hope that by the time our liability starts to come up for correction in the next 6 months to a year, the rates may start correcting itself downward.

We are internally keeping a target of 15 – 20 per cent and currently at about 10 per cent. We will look at 3 – 5 years deposits because that helps in a big way.

Normally, tractors and pre-owned vehicles are at high yields. The low-end products are personal segment vehicles and commercial vehicles. For tractors, the season begins now. For used vehicles, there was non-availability but the demand was very high. As we see used vehicle availability increasing, the rate corrections will begin to happen. Also, we have not passed on all the borrowing cost increase; normally, during the festival season, one doesn’t do that.

If borrowing cost have gone up by 100 basis point, people will pass on at least 50 per cent of it. Another 25 bps may offset due to volumes. About 25 basis point kind of remains uncovered and that’s the likely impact.