M&M Financial To Repossess Fewer Vehicles After RBI Order, Stock Hits Lower Circuit
M&M Financial Services says it does not employ third-party agents for collection of dues.
Shares of Mahindra & Mahindra Financial Services Ltd. hit the lower circuit after the company said it would repossess fewer vehicles than its usual flow, as a regulatory order requires it to suspend third-party recovery arrangements.
The non-banking financial company usually repossesses 4,000-5,000 vehicles each month through third-party agents and its own employees, it said in an exchange filing. With the new order from the Reserve Bank of India on Thursday, its repossession exercise will go down by 3,000-4,000 vehicles temporarily.
The RBI in its order had said the company must suspend all recovery and repossession actions through third-party arrangements. The order had come after a tractor repossession action in Jharkhand had allegedly led to the death of a pregnant woman.
The regulator said it found material supervisory concerns with Mahindra & Mahindra Financial’s management of outsourcing policies.
The company, in its statement, said it does not employ third-party agents for collection of dues. Thus, the RBI’s order is unlikely to impact its financial position.
“We have a detailed policy in place for compliance of third-parties, with regard to repossession of vehicles. In light of the recent tragic incident, we have stopped third-party repossessions and will further examine whether and how third-party agents will be used in the future,” Managing Director Ramesh Iyer said in the statement.
As on June 30, there were 1.35 lakh loan contracts classified as Stage 3—loans overdue for 90 days or more. The company maintains a provision coverage ratio of 58% against its Stage 3 assets, including 100% provisions against accounts which are overdue for more than 18 months.
Lenders typically repossess hypothecated assets after they have issued notices to the borrowers who fail to repay their dues.
According to the repossession policy available on Mahindra & Mahindra Financial’s website, borrowers are required to be given 10 days notice before the company repossesses vehicles from them.
While discussing the company’s first-quarter results with analysts in July, Iyer had said Mahindra & Mahindra Financial had undertaken aggressive repossession against some of its borrowers.
“…we believe that this is not what is likely to be as the year goes by because if we are today at 8% kind of a gross NPA number, we don’t need to now resort to a very aggressive repossession stance,” Iyer had told analysts.
The RBI has a strict code of conduct and guidelines for lenders employing third-party agents in their recovery processes. Lenders have to ensure that the third-party agents are compliant with the regulator’s norms, failing which it’s entitled to take action against the lender.
Shares of Mahindra & Mahindra Financial dropped as much as 10%, the most in at least a year, to hit a lower circuit of Rs 201.4 apiece.
Of the 31 analysts tracking the company, 17 recommend a ‘buy’, nine suggest a ‘hold’ and five have a ‘sell’ rating, according to Bloomberg data. The 12-month consensus price target implies an 2.4% upside.