INTERVIEW: Ramesh Iyer, vice-chairman and managing director, Mahindra Finance: ‘Customer cash flows are better now, but not enough to clear all past dues’

I was always hopeful that the post-monsoon festival season will be a buoyant one, and I continue to hold that view.

Mahindra & Mahindra Financial Services, which had reported a gross non-performing asset ratio of 15.5% at the end of June 2021, saw its collection efficiency rise to 97% in August. The business environment is looking up and customers’ cash flows have improved, but not yet to an extent where they can clear all their past liabilities, Ramesh Iyer, vice-chairman and managing director, Mahindra Finance, tells Shritama Bose. Excerpts:

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You have said your collection efficiency has improved, but what is the sense you are getting from the ground in terms of the business environment?
Even in Q1, on a 90-day basis, if a customer works only for 15-20 days, then you don’t expect things to change there. But, if you were to look at it not as the whole quarter, but June 15 onwards, after things opened up, we saw an improvement in sentiment. All through July, things were getting to normal. August was again a good month, where activities did begin. But, is it fair to say everything is back to normal? I would say the answer is still no. If you look at the northeastern states, lockdowns are continuing. Kerala has got its own share of problems, Maharashtra has some problems on and off.

Still, if I were to score the first quarter on a scale of 10, I would give it a 3, and in July-August it has gone up to 7. Customers are back to the dealerships, wanting to buy vehicles, we are seeing them coming to branches for making payments. Our own people are able to travel and meet customers and get their money. Customers’ cash flows have improved, but not to such an extent as to pay off immediately their dues from April-May-June. These are people who have to earn every day, every week in order to pay off their loans. They are earning enough to pay their current loans for sure and a small part of the past (liabilities), and therefore, in the next two or three quarters you will see all that we saw built up in the first quarter would get completely collected.

Has the weaker-than-expected monsoon hurt business?
The weakness is on an overall basis, but if you look at markets most relevant from the perspective of cropping, like Maharashtra and Madhya Pradesh, they have got average-plus (rainfall). They have a good water level already and the sowing was done well on time. The harvest will therefore be good.

The festive season has set in. Is that helping disbursements?
The clear answer is yes. To start with there was so much negativity that people were looking forward to some small event to start feeling better. In that sense, the festivals that went by were quite exciting. The footfalls at dealerships are very high. In fact, the problem really is the availability of vehicles rather than the demand for vehicles because of the supply chain problems of some OEMs (original equipment manufacturers). I was always hopeful that the post-monsoon festival season will be a buoyant one, and I continue to hold that view.

Have price hikes by OEMs affected demand?
People who want to exchange their old vehicles will not be much affected because their old vehicle will fetch them a better price. The personal segment normally doesn’t get affected by this. It is in the commercial vehicle segment that we see more of a reaction to price revisions. Their freight rates have to reset or the passenger fare has to reset. Unfortunately, along with price hikes of vehicles, even input costs in terms of fuel and other things, have gone up. Definitely, there will be a reset in freight rates and passenger fares. So there will be a lag for sure, but I won’t be surprised to see freight rates start moving up in a month or two. The delay is because the load factor is still not adequate for vehicles to be very busy. In the meantime, if the economy opens up, then this might not happen.

In which categories is the stress most pronounced?
The categories remain the same as what we saw initially, which is school bus operators, which may take another quarter or two. The tourist centres normally start in the winters and then tourist vehicles can start. Most offices are opening up from October and therefore, the taxi aggregator business will pick up. The fourth is the three-wheeler passenger segment, where people movement has to start. These are the four segments in the people-carrying side. On the goods-carrying side, commercial vehicles have to start, which is just beginning to happen. If that continues, that segment should also start improving from January.