At a time when NBFCs are dealing with liquidity crunch as a result of the IL&FS crisis, a few players such as Mahindra Finance have managed to sail through by focussing on their core business. The Mahindra Group’s NBFC arm remains focussed on the rural growth story, be it affordable housing or tractor financing. The company also plans to raise ₹3,500 crore through NCDs (non-convertible debentures) that closes on January 25. Ramesh Iyer, Vice-Chairman and MD, Mahindra Finance, talks to BusinessLine on the company’s expansion plans, demand outlook, IL&FS crisis, and how to ensure that such incidents do not recurr. Edited excerpts:

2018 was a challenging year for banks and NBFCs with the IL&FS crisis impacting the sector. Did this affect your growth?

No, it did not. We have not had any stoppage of disbursements. We have not had any stoppage of our growth trajectory. And, we have not had a situation where a lender has refused to provide money to us. And, I think, investors have stayed put with us in this situation. So, I think, ours is a stable business model, which has been built over a period of time, focussing on certain products and segments and remain around them.

How has the crisis been averted? Is the worst over for NBFCs?

What I can tell you about us is that we have been very disciplined when it comes to ALM (asset liability management). We have a very well-matched ALM. As an NBFC we have taken a very clear view that if you are doing long-term lending, it will be done out of long-term funds. And, if you are using short-term funds, it will be only for short-term lending, or it could be a small bridge.

So, you need money only at the end of the month, or you get the money at the beginning of the month. So, maybe, you will kind of invest that money and use it at the month-end types. The second discipline was the decision to stick to our core business. We have chosen strategically to be in semi-urban rural geography, and we stick to that.

So, I would think that these are the two very strong practices that we have had from the beginning. And, therefore, I think we have been able to overcome any scenario that emerges on the front.

You have also diversified into segments such as housing. How is the segment doing?

It’s a business that needs capital almost every year because we are growing at 40 per cent (both revenue and profits). We will be going ahead with one more rights issue soon. At this stage we are not looking at taking Mahindra Home Finance public or for PE funding. We still think we have to get the business perfectly right.

We have to ensure that asset quality is under control. And, because it’s a unique business and we are experimenting for the first time, we would like to make sure that every parameter of the business is well understood.

Housing is very clearly our growth engine. And, we are looking at maintaining aggressive growth of 40 per cent-plus, both in terms of asset growth and, therefore, the related profit growth. And, as I said, 15 per cent of the book, or 20 per cent of the book in the next 2 to 3 years, would become affordable and low cost housing portfolio, when the book itself is growing at 40 per cent. In the next 2 years, we may see the book crossing ₹10,000 crore.

Elections are round the corner. Do you expect demand to pick up ?

In this round there are more States offering loan waivers; the farmer will now be left with surplus for future consumption. So, I believe, this will drive some kind of good consumption story.

Is the rural economy bouncing back?

My reaction is that rural remains buoyant around elections because a lot of spending will happen from the government side for infrastructure creation. And the assets and the labour get extremely well-deployed during this period. Let’s say that they come out with a one-year project to create roads or wells or whatever they are going to do.

How is your vehicle finance faring? What is the mix of tractor and auto finance?

So, let me kind of put it up as follows. When it comes to Mahindra UV, Mahindra’s auto business, we already have a 30 per cent market share. So, our growth will be a natural growth over what their growth story is.

Since they are expecting 10 per cent growth, we will also have a similar growth and an increase of 1 or 2 per cent market share may happen.

When it comes to tractors, we have a market share of 32 per cent. So, we think we have a 35 per cent market share.

Any target that you have set for for the next two years ?

We ensure that we don’t lose market share. So, our targets are actually for UV. We want to maintain the 30-32 per cent market share. When it comes to the car segment, Maruti is a large segment that we finance currently.

We have about 8-9 per cent market share, and we think we have the capability to take this up to 12 per cent.

Related Topics
comment COMMENT NOW