M&M Financial Services’ Ramesh Iyer Says Rural Demand Could Turn Around After October
Mahindra & Mahindra Financial Services Ltd. expects a turnaround as soon as October as rural demand boosts its business operations currently disrupted by the Covid-19 outbreak.
The impact of the pandemic in rural India is not as severe as seen in urban cities, according to Ramesh Iyer, the managing director of the country’s top tractor financier, as sparsely populated villages allow for natural social distancing. Moreover, the government’s new agricultural reforms allowing for produce to be sold outside the “mandi” (markets) will improve cash flow to the farms, he said, increasing demand and payback rates for the financier.
“If production meets the requirement, the number might go up for the coming six months from October to March compared to the previous year,” Iyer told BloombergQuint.
The company already saw signs of normalcy in June with over 1,100 branches and centres in rural India starting operations and most of the employees back on the field for collections and other activities, he said.
By June, we never thought that business would come to normalcy; we did a total of 30,000 vehicles in June.Ramesh Iyer, MD, M&M Financial Services
In June, the collection was up by 77% compared to April. This was maintained in July too, Iyer said.
Covid-19 reached India on Jan. 30 and subsequently led to a lockdown from the last week of March, which lasted through all of April and most of May.
Moratorium Extension Vs Loan Restructuring
The Reserve Bank of India has asked lenders, under a moratorium, to defer loan payments till Aug. 31, as a relief for borrowers.
Dissenting with the idea of the moratorium, Iyer said restructuring the loan payments is a better idea. He expects defaults to increase from September itself. Farm-bases customers could start repaying loans and EMIs starting October if the year’s monsoons allow a good harvest, he said.
The company’s priority remains a healthy asset quality. “Growth will happen naturally once the market opens up, our focus is on collections and to ensure that your asset quality is protected,” said Iyer.
The Question Of Profitability
Iyer said the moratorium will lead to a lower bottomline. The NBFC, however, is working on offsetting it through a number of cost-cutting measures.
“We have reviewed every line of an item of expense to bring down the cost,” he said.
Iyer expects a wider net interest margin to support profit as the borrowing cost in the market has reduced. The company is also reviewing costs of advertising, branding and branch rent, etc. which will be reduced by 10-20% over the last year. Hiring has also been frozen, he said.
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