Want to be the responsible financial solution partner to emerging India: Raul Rebello, M&M Finance

In my previous job, I was wired towards serving low-income households and providing financial solutions to them, a segment which resonates with my current portfolio. If you look at the products of Mahindra Finance, it also caters to the semi-urban and rural markets. What is amplified now is the scale at which we operate. Previously, I was largely a lending guy with acumen for payments. Now, the role is much more diversified, with various subsidiaries nationally and internationally.  

The business model which we built over the years gave us a strong edge basis our vehicle finance dominance and acumen of rural and semi-urban customer appreciation. Mahindra Finance has gained relevance not only within the Mahindra ecosystem but outside of it, too. For some of the auto sector OEMs, we are the second or third preferred financier. On a large scale, we are in all segments of auto lending, from three-wheelers and upwards. The used vehicle financing business holds great promise for us going forward. That said, till now, as we are hitting Rs 1 lakh crore of AUM, we cannot bet our fortunes on a single industry. We want to be the responsible financial solution partner for emerging India, which entails diversifying at the right time within the right sector.  We have entered into personal and consumer loans and build the SME and LAP businesses. Leasing is another business which is complementary to our auto financing module.

Currently, premiumisation is happening (in a segment) where we were largely absent. This is either the mid to affluent passenger vehicle buyers or the CV fleet operator segment. The passenger category (or Prime X segment), currently accounts for over 10 per cent of our monthly sourcing volumes. In the CV fleet operator segment, we have orchestrated co-lending and co-origination partnerships with two large banks to earn a share of the revenue pool by bringing our relationship and distribution acumen. The asset quality issues have also been largely addressed, and we will continue to maintain industry-best underwriting and risk practices and streamlined collection practices.

We have been influencing and executing the most controllable variables. We are in a decent spot in terms of our cost of funds, compared to the industry, as we are AAA-rated, doing a lot of priority sector lending, which is almost 65 per cent (of our loans). It helps us get a better rate. We are also ensuring that our growth in revenue outpaces our operating expenses. We are investing in new channels of CPC (Centralized Processing Centres), contact centres and new format branches to deliver long-term best-in-class. We will double our AUM by FY25 (base year as FY 2022), looking at the tailwinds and the investments that we are making. We will operate at 7–7.5% NIM. Our ROA will be around 2.5%, and we will bring our vehicle lending book to 85%, while continuing to hold our leadership position in the vehicle lending categories.

I agree, though I will oversee subsidiaries from end of April 2024, when I take over.  In rural housing, we have put in place a new leadership team and it is moving towards the affordable housing segment. The subsidiary is now working towards stabilising the asset quality and effectively managing the cost of operations. It is also reviewing its NPAs, improving its underwriting standards and collection efficiency, in addition to drawing some synergies with Mahindra Finance. In the insurance segment, we are among the top brokers, open to partnerships to build synergies. Currently, we do ₹ 5,000 crore of insurance premiums a year. In the Manulife partnership, scale has become very important today. There isn’t a cost benefit to the business if operated at ₹10,000 crore of AUM. We are working on making the expense ratios smaller, focussing on breaking even at the earliest.

They must improve their efficiency before we can look at inorganic options. In rural housing finance, our focus will be to get the GNPA numbers below 4 per cent and then consider something inorganic because right now, we won’t get the valuations.

NBFCs have their unique place and a significant stake (in terms of loan book) in each asset category where banks operate. We’ve existed for 30 years as an NBFC, and there is no existential crisis to continue doing so.