homebusiness Newscompanies NewsMahindra Finance focuses on high end customers to stabilise bad loans — shares rally over 13%
Mahindra Finance focuses on high-end customers to stabilise bad loans — shares rally over 13%
Mahindra & Mahindra Financial Services (Mahindra Finance) went for and is eyeing several high-end customers, even in the rural market in order to stabilise its non-performing assets (NPA), the company’s Managing Director Ramesh Iyer said on Thursday.
He explained that the high-end customers come at a little lower yield and therefore the product mix causes some yield dip. “But that should be more than compensated as we go along both from the cost of operation as well as from the NPA that these portfolios will expect to provide,” he told CNBC-TV18.
Iyer’s remark comes a day after M&M Financial reported a 55 percent decline in its net profit at Rs 492 crore in the quarter that ended September 2022. The profit came in lower due to a reversal of impairment provisions recorded. In Q2FY22, it witnessed a significant reversal of impairment provisions due to improvement in asset quality which had deteriorated during Q1 FY22 during the second wave of COVID-19.
The lender's asset quality improved sharply, with gross stage 3 loans -- loans overdue for over 90 days -- easing to 6.7 percent at September-end from 8 percent at end of June.
"Big asset-quality surprise, but need clarity on weak NIM and operating costs," Morgan Stanley said in a note.
M&M Financial MD too admitted that one area where the financing firm needs to focus is the cost of operations. “Currently, the cost of operation is a little elevated, because we are over-invested in future needs, whether it's technology, digital, or the data space. We have also taken some salary correction because in the last two years it was a very subdued increase,” he explained.
Net interest margins (NIM) were at 7.5 percent for the September quarter, down from 8.2 percent in the previous quarter as borrowing costs increased. However, going forward, the firm expects it to improve for certain portfolios.
“We have started moving up our rates on the lending side and they will catch up with a lag and therefore, in the next two quarters, we will start seeing NIM improvement on the portfolio where the rate increases begin to happen,” Iyer said.
He added that the cost of borrowing has gone up plus the company holds some additional funds, which come with a holding cost, considering the liquidity situation.
Mahindra Finance also released a business update for October, for which it has estimated total disbursement of approximately Rs 5,250 crore, delivering 97 percent growth over October 2021. The Gross Stage 3 (GS 3) as at October end is estimated at 7 percent.
Also Read: HDFC beats Street estimates with 18% jump in quarterly net profit boosted by robust loan demand
Iyer said disbursements were extremely robust in October and collection efficiency has remained the same year-on-year. The crop money would b coming in between November and December and this quarter should also see similar collection efficiencies, he added.
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