With the impact of the pandemic now easing, Mahindra Finance is upbeat about the prospects of the farm and infra sectors, says Ramesh Iyer, Vice-Chairman and Managing Director, Mahindra Finance. In an interview with BusinessLine, he spoke about growth plans and outlook on interest rate. Edited excerpts:
With economic activities normalising, what is your target for disbursements?
In the next three to four years, we expect both the farm and infra sectors to do extremely well. We have set a target to double the balance sheet in three years from now. The core business may grow at over 20 per cent. We also expect growth from the new business verticals, including SME [small and medium-sized enterprises] lending and LAP [loan against property] business, that we are entering. Together they will contribute about 15 per cent of the overall growth. In our core business, pre-owned vehicle segment is going to be a very aggressive growth engine.
Do you expect inflationary pressures to impact demand?
Today, diesel prices are high, interest costs will start to move up in the next two quarters and these will lead to increase in freight and passenger fares. But today everyone is coming out of the negative mindset to a positive sentiment after the last two years of struggle. People are not worried about earning enough today, rather they are looking at whether they can be meaningfully employed and deployed.
What are your views on interest rates? Will you hike rates too?
The low interest rate regime is over. It is now kind of flattish and, in a quarter or two, it will start increasing by maybe 10-20 basis points. This year itself could see a 25-30 bps increase, but it is going to be an upward trend. The demand is very high so people won’t resist the price increase. It is just that we have to be conscious of when we want to do [the increase]. Post-festival season is when one will start seeing the rate increase.
Are you interested in issuing credit cards following the RBI guidelines?
We are looking at that space. We have launched a digital finco within Mahindra Finance for small-ticket loans. We will look at credit card as an opportunity to be given to our customers. I would look at it as another channel of payment for a customer. But honestly, we don’t know the economics yet of a credit card — how many cards do we issue to break even. There is a team working on it. Now that NBFCs [non-banking financial companies] can independently issue credit cards, it leads to more interest.
Would you consider converting into a bank?
As the Mahindra Group, we will definitely watch this space very closely. On all fronts, we will have a tick box. But industry houses are not allowed today to become a bank. That’s a regulatory limitation. If we want to do all products, be in an overall lending space, then bank is a better model. But if we want to be largely in the vehicle space, I think NBFCs are doing a better job in that space.
Collection efficiencies are not a worry anymore?
No, there is absolutely no worry. Our collection efficiencies are a direct reflection of the rural economy picking up. If you look at the market we are working in, the customers always have good intentions, but due to circumstances they come under pressure. Now their circumstances are positive, vehicles are being put to use and they are earning money. Yes, some of them will have some liability raised during the pandemic so they may have to discharge some of that liability.
How are you engaging with fintechs to expand your business?
We have a separate team that looks at digitising some of the core activities, better use of data and partnering with fintechs. We have to be clear that fintechs can help us solve some of the problem; they are not a complete business model, as far as our business is concerned, because, ultimately, we still have to do a lot of the physical collection. The way we look at it is that, instead of doing it all by ourselves, can some of the activities be outsourced to fintechs. For example, can the entire KYC be better handled by them, analytics of which customer to follow up, can they become your inquiry generating engine for loans, etc. There can be different pockets of use for fintechs. You will also see us very active in that space. We are already working with three or four fintechs on this front and we will add more.
How is your new vehicle leasing vertical doing?
That’s doing pretty well. A lot of corporates are showing interest. We did about ₹275 crore of leasing business last year, though it was launched late in 2021. On the retail front, it is still catching up, but we believe that youngsters will push this programme over a period.