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‘During COVID, we provided customers the breathing space they needed’
The Hindu
Mahindra Finance diversifies customer base to focus on used-vehicle financing to improve asset quality & boost profitability
Having turned around from the adverse effects of the pandemic, Mahindra & Mahindra Financial Services Ltd. (Mahindra Finance) has now diversified its customer base to focus on growing the used-vehicle financing business and to improve asset quality to boost profitability, vice chairman & CEO Ramesh Iyer said in an interview. Edited excerpts:
Over the past three decades, our commitment to empowering semi-urban and rural communities has been unwavering. Our journey commenced in 1994, driven by a resolute focus on these geographies. We placed particular emphasis on the vehicle and tractor lending space, carving a niche in the dynamic automobile industry. This strategic vision led us to establish 1,400-1,500 branches, all in alignment with our steadfast dedication to retail.
Our portfolio distinctly reflects our affinity for customers in the emerging ‘earn and pay’ segment – individuals new to credit and endeavouring to acquire their first or second vehicles. This strategic alignment, while rewarding, did expose us to the ebb and flow of the on-ground reality. However, none tested our resolve more than the COVID-19 pandemic, a challenge felt globally. This unprecedented event impacted our customers severely, as their ability to utilise their vehicles diminished, thus affecting their earnings. Naturally, this strained their repayment capacity.
Yet, it was our conviction that these customers, who invest 25% of their own funds in their vehicle purchases, held genuine intent. They were not seeking to default, but were navigating circumstances beyond their control. Thus, our approach remained steadfast – patience combined with a collaborative partnership with customers, guiding them through these challenging times. This approach proved pivotal in weathering the storm.
Amid the first and second waves of COVID-19, we encountered a non-performing assets (NPA) surge, reaching 14%. Concerns arose regarding the resilience of our model and the prospects of customer recovery. At that moment, we reaffirmed our belief that given the essential nature of our products, a rebound would occur in the subsequent quarters. This conviction propelled us to extend support to our customers through government and regulatory initiatives, such as moratoriums and loan restructurings. Gradually, market conditions improved, and so did our collections.
Within a year, we transitioned from a 15% NPA closure rate to a commendable 7%, reflective of our patient yet purposeful approach. Recognising that these customers required time to settle overdue amounts due to their income cycles, we provided them the breathing space they needed. Our dedication and their resilience led us to our current standing – an NPA rate under 4%.
This journey of transformation also prompted us to ponder risk mitigation. Rejecting the notion of turning away from long-standing patrons, we conceived the ‘prime segment’. This strategic pivot targeted customers one tier above, endowed with steadier cash flows. These ‘Primex’ customers now contribute 10-12% to our portfolio, fortifying our risk profile while acknowledging the capabilities and character of our clientele.
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