Government should create a refinancing body for NBFCs: Ramesh Iyer, M&M Financial
As far as capital is concerned, then, our adequacy level is quite good and stands around 18-19%, tier-1 is above 16% and I don't think that we will raise any more fund in next two years but it will depend upon the way the volumes will open, the growth rate, growth of the subsidiary companies among others.
'There is a pick-up in demand since the festive season and the sentiments have turned positive', says Ramesh Iyer, Vice Chairman & Managing Director, Mahindra & Mahindra Financial Services Ltd. During an interview with Swati Khandelwal, Zee Business, Iyer said, 'The government should create a refinancing body should be created for NBFCs, similar to NHB that is available with the HFCs'.
Q: Do you think that things are improving on the ground, if yes, are you confident that the fourth quarter will be better than the previous quarters?
A: We have seen that the demand has picked up since the festive season. The inventory levels at the dealership have decreased, however, it is not the same in all the states, as some states may still have certain problems. But there is a demand pick-up, whether it was in October or November and now in December. Sentiments have turned positive a bit.
Q: What is the company's strategy for deeper penetration into the rural markets and how your market share has improved in the region?
A: NBFC has faced liquidity pressure across the year but companies like ours have been able to raise sufficient funds from the banking system, bond markets and FD routes. Our market share has increased in almost every product may it be Mahindra's Auto, tractor and car segments as well as refinancing of the pre-owned vehicle segment. So, we have grown due to penetration and market share, which has increased. As far as penetration is concerned then a two-way penetration has been felt and they are (i) physical penetration through branch and network expansion to cover the deeper pockets and (ii) penetration through technology, as we have invested a lot in digital but I will not say that every customer have shifted to the digital platform or buying vehicles digitally or paying the instalments digitally but a certain percentage is using digital platform. Thus, the penetration strategy will be physical as well as digital that is termed at 'Phygital', when clubbed together.
Q: What are your expectation for vehicle finance demand from rural India? How are your cash flows of customers shaping up right now?
A: Customer sentiments are very positive. We have seen till date that when the business is good, the collection remains good, but this time, we have seen something else and that business is not as good and there has been degrowth in the market but the collection has remained a good one. So, I feel customers are willing to discharge their liability as a priority over asset acquisition. Thus, there is some deficiency in the business as I have informed earlier that our multi-product and deeper penetration strategy has helped us in gaining the market share and our disbursement growth has grown by 3.5% till September, at a time when, overall industry as far as auto, tractor and cars have registered as degrowth. So, I believe OEMs will also be careful till March 2020 in their billing as BSVI will be implemented after that. The overall approach of the dealership is how to reduce the inventory and that's why different programmes that were launched during the festive season like discounts and other schemes are continuing till date. So, I feel that volumes will be good even going forward, although, the overall volume compared to the previous year has registered degrowth I feel that the retail volume should be good and the inventory will come down.
Q: Any particular demand from the government that should be addressed in this budget to benefit your sector as well as the company?
A: I will not talk particularly about the company but from the industry side, we have always requested for creation of a refinancing body for the NBFC sector similar to NHB that is available with the housing finance companies (HFCs). The refinancing body of NBFC will help us by refinancing the loans that we raise in that structure from the institution. It will act as a facility and a stable cash flow will remain with the NBFC so that they can plan their disbursements. This is a pending request from our side and I would like to request the government to have a look at it.
Q: What are your view on NPA levels and asset quality in the next quarter and how are you gearing up for the next fiscal year 2020-21?
A: Growth will depend on the volumes of the OEMs as we are enablers. I have already said that there is an increase in our market share, so the disbursement growth will be directly concerning the volumes of the OEMs. But would like to say that although the volume remains at the same as it was last year then also the disbursement will lower due to the discounts of up to 10-15% that is being offered on vehicles till date. However, the discounts come to an end and BSVI is introduced at a new price then I can say that there can be a 10-15% growth in disbursement at the same volumes as vehicle prices will be increased. Thus, disbursement growth will be much better next year compared to this year even for the same volume. And, we will expect benefits at the volumes as well. Thus, as far as year-on-year (YoY) growth is concerned then it must not be a problem. When it comes to the collection then sentiments are positive, cash flow is good at the customers' end, who wants to discharge his liability. We have always seen that NPA levels increases in the two quarters that follow after the March-end but this time, we did not saw such an increase, as the customer wants to discharge his liability. Thus, I would like to say that the asset quality is not deteriorating so much and the collections are good and we are seeing it in the market place. Besides, the next crop RABI will be very good given the water level, which will give a boost to the farm cash flows. And, I feel infrastructures will be opened by next year. Improvement in these two cash flows will bring substantial improvement in asset quality and collection from that market.
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Q: What are your capitalisation plans as the World Bank Group’s International Finance Corp. (IFC) had lent a $200-million debt financing to your company?
A: We as a company, on the asset side, have a multi-product strategy and same goes in the case of liability side in which we raise funds from almost every source may it be retail deposits, mutual funds, banking system like IFC. We focus on keeping the asset-liability match perfect while raising the funds from these sources. As far as capital is concerned, then, our adequacy level is quite good and stands around 18-19%, tier-1 is above 16% and I don't think that we will raise any more fund in next two years but it will depend upon the way the volumes will open, the growth rate, growth of the subsidiary companies among others.
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