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Ramesh Iyer, Vice Chairman and Managing Director of Mahindra & Mahindra Financial Services Limited (MMFSL), talks about concerns related to NPA growth in 2021, commercial vehicle (CV) segment, important growth triggers in 2021 for the company among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: There are concerns that the NPA level would rise in the NBFC sector in 2021. What is your view on it and do you think that it can create a problem? Overall, what is your outlook for 2021 in the backdrop of the indications that RBI has provided for the NBFC sector?

A: As far as NPA is concerned, I don’t feel that NPA is likely to increase a lot in this sector. I am talking about those companies who are functioning in retail finance, whether it is a vehicle, tractor and small trader finance because between April to October and November, we have seen an improvement in the collection every month. Yes, surely, a moratorium was granted in between but after the moratorium customers have started paying their instalments. Possibly they are not being able to pay their instalments every month but they are in a condition to pay at least one or two instalments in three months.

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So, I think that provisions for few companies may go up in stage-I and stage-II according to the provision norms of the Indian Accounting Standards (Ind AS) but NPAs will not increase that much. Going forward, if the economy opens up little more, their cash flow starts improving and the work starts recovering, then these all are retail assets, and if these people will earn then definitely will pay back their instalments. I don’t subscribe to this view that there will be a huge increase in NPA in retail assets.

As far as the next year 2021, as we talk, I feel that 2021-24 will be a good year. These three years will be a good run for NBFCs. As I work in the rural market, so would like to talk about it and we are seeing that infrastructure is opening up, mining is restarting as well as farm flow is also good because the climate has been good and monsoon was very good. If these two things are seen together then we are bullish and believe that these three years should be good for us in the rural market. 

Q: Tractors outcome has been quite good and the sale was very good in the segment. But CV has been a segment that has underperformed but expecting that it will recover now and it will play an important role in COVID vaccine distribution, which can spur the demand. Are you factoring it and what kind of impact it can have on your company? How is your credit growth outlook?

A: If we will talk about the overall credit growth then firstly should talk about the number and this year, the numbers were definitely subdued number, especially in the first six months. But now, we are seeing good demand and OEMs are unable to deliver the vehicles, if their supply goes well, then I feel, vehicle demand will go up. Along with this, inventory levels are very low, if we will talk about the dealerships, then definitely, discounts will not be available. Going forward, it is expected that there will be some price increase. If all these factors are taken together, volumes will increase, prices will go up and there will be no discounts then there will be good growth in overall disbursement for the finance companies.

This is my view, in the next three years you will definitely see a growth, yes, initially there can be a growth of 8-10%, which can go up to 15-20% with the time, I feel, this growth is going to be good. As you have talked about the tractor, yes tractor is in great demand and the demand that we have seen till date is related to farm cash flow. As soon as infra opens up, contracting buying will happen, the exchange will happen in which people exchange their vehicles will buy new tractors and all these things are yet to come. So, I feel tractors will also have a very good time in future. 

Q: What are going to be important growth trigger or growth drivers for M&M Finance in 2021? What are the new and important focus areas for the company? What strategy is being built because RBI norms are also suggesting that there is a big opportunity for NBFCs to become banks?

A: As far as being a bank is concerned, this is still a very preliminary stage of discussion and making any decision on it or saying what can happen with it in the future won’t be proper for me, it is not a right thing from my end, the board will take the decision. Whenever, this kind of opportunity comes than companies like ours will definitely go deeper, look at the advantages that it has for us and how we should proceed.

We are looking at it as an opportunity but telling anything about what we will do and how it will be done is too premature, so I will not be able to make any comment on it. But as far as what we will do going forward, I think, the number of customers we have, in which we have worked with 7 million customers and there 3 million independent guarantors, and all of them expect small loans from us and hope that we will offer small size tickets to them.

So, we will definitely launch a digitally-driven small ticket loan in the New Year and hope that it is going to be a parallel growth story for us. Penetration has always been in our strategy and we have our customers in four lakh villages, we have 1300 branches and you will see that our branch network will increase and we will penetrate deeper. Thirdly, we will provide the kind of solutions our customers require in this situation and would just not pressurize them. Many OEMs are focusing on rural and many new vehicles are coming to rural and we are working with all these companies and believe that we will be benefited from it. Lastly, I think, demand for the pre-owned vehicles will be very high for the next three years because people will want to keep their own car and those who do not want a new vehicle will move towards the second-hand vehicles first.

So, I believe that there will be good demand for pre-owned vehicles. That will be the overall strategy.