“There could be some marginal shift within these segments so far as tractor and utility vehicles and car segment is concerned you are right, we are the market leaders in the rural market clearly, our market shares are high, and the growth rate will come from the overall volume that we see from those OEM side,” says Ramesh Iyer, MD & VC, Mahindra Finance
Look at the numbers that we have seen in a good performance compared to the year ago period. What does it indicate a good momentum on the back of higher disbursements and improved collections?
You know overall the demand has been pretty good, the sentiments are very positive in rural areas. I’ve been asked this question. We say the sentiments were positive. There were some remarks received from some other quarters where the feel was that the demand is not as high, but we have seen very good demand, positive demand from all sectors and across geography.
I would think that if better inventory levels were available the sales could have been even much higher or disbursements should have been even much higher but if I must put it in the order of demand all of us saw a very high demand for tractors in April-May and therefore the quarter was very good.
We saw from the vehicle side the demand going up, used vehicles are very buoyant, heavy commercial vehicles have picked up so I would think without exception the demand seems to be there from all products and across geography.
With marginal increase in cash, there has been an uptick in gross NPAs, why is that the case and how are you going to meet your own guidance of having gross NPAs below 7%?
First, let me clarify that there is absolutely no stress on the collection front if you look at our collection efficiencies, they are upward of 94% plus and that is for the first time we have seen in the first quarter, these kinds of collection efficiencies.
It is important to understand rural areas and the first quarter always has tremendous pressure from the climatic conditions of extreme summer, so the activity levels do come down. But in this quarter what we saw was unlike ever before. It may be because of the past lot of pending demand. The tourism was very high, people movement was high, the contracting segment was active so we found that in every segment there has been a good collection from almost every geography without exception.
There were a few days lost here and there because of heavy monsoons in the northeast etc. but that is not something to be really recognised at this stage.
The little increase that you are talking of if you see again historically the first quarter normally the increase is upwards of 2% plus and that is what we had even predicted when we closed March but surprisingly now because of the high activity level and the excellent cash flow we could contain it at a very marginal increase, and this would get corrected.
To your point on how do we see going it forward, we are very confident of what we have stated that we would bring down our gross NPA levels substantially from where we are today and that trajectory is clearly in that direction and the best half, the second half is the best for the rural markets and with good monsoons we do expect that the cash flows will hold up and we would see excellent collection and correction in the second half.
Company continues to remain the market leader as far as tractor utility space is concerned but incremental focus will be on used vehicles, help us understand the growth potential in this segment and how can we expect the loan mix concentration towards used vehicles going ahead?
As far as outlook on loan mix is concerned, they would remain range bound because we are now in all segments, all geography and therefore whatever is the overall volume of their market we will kind of maintain or grow our market share and therefore we do not see a big product mix change happening.
There could be some marginal shift within these segments so far as tractor and utility vehicles and car segments are concerned. You are right, we are the market leaders in the rural market clearly, our market shares are high, and the growth rate will come from the overall volume that we see from those OEM sides.
The advantage I would see is apart from the volume growth for this year, we expect that there will be price increase to the assets as well and that would add to additional disbursements so therefore the disbursement growth will come both from volume increase, a little of market share gain added with the price increase of the vehicles and tractors expected to be so that is one very clear growth that is possible.
The growth engines that you talked of as I said would remain range bound for high products but even used vehicles today the availability is the biggest issue, there are not too many vehicles available because the banks and NBFCs are repossessing low because the collections are pretty good.
Exchange programmes are not very aggressive because the new vehicle availability is still a little issue, once the availability of new vehicle goes up you would see supply on used also improve and that would definitely be our focussed area.
Margin in Q1 stood at 8.2 versus 7.6 in the entire FY22 looking at the current interest rate environment, where do you expect the NIM strength to be in the medium and the short term?
Based on the increased cost of borrowing, we have already increased our lending rates to 30-40 bps, is this what we are going to do every quarter the answer is no but clearly if we do see the borrowing cost continue to keep moving up then I think the market will adjust itself to the borrowing cost as well and there would be some increase happening.
We do not see a big compression of net interest margin for two reasons: one a little pass on that will happen. Secondly, we talked about the product mix and if the tractor and used vehicle numbers were to go up, they come at a much higher yield and they would help also protect the net interest margin.
What would we see as net interest margin may be to start with at 20 bps dip could be seen in the next couple of quarters, but will be the lag be catching up as we close the year?