Mahindra Finance, the non-banking finance arm of the Mahindra group, saw its net profit double in the second quarter. Recently, it also crossed the one million customer mark. In a conversation with Sudeep Jain, the company’s managing director, Ramesh iyer, talks about their core commercial vehicles’ finance operation and the new lines of business the group plans to enter. Excerpts:
You planned to enter a host of new businesses such as asset management, loans against gold and equipment finance. How are those efforts shaping?
As far as the AMC (asset management company) is concerned, our application is with Sebi (Securities and Exchange Board of India). So, that business may not start this financial year. For loans against gold, we have started a pilot project in western and southern India. This is a business which we will grow well, because we know that the segment of customers we work with do have gold. As far as construction equipment and commercial vehicles is concerned, we have started that activity on a selective basis, as it requires a different skill set. It is a high-value asset and the ability to understand the cash flow of the customer is very important.
Don’t you think the AMC space is already quite crowded?
Our focus will be the semi-urban and rural market and we will design products that suit that market. You won’t necessarily see us competing with the other AMCs in the urban market.
Are there any other new lines you plan to enter?
Not really. One of the things we are most passionate about is rural housing. Our rural housing subsidiary has been operational for a year now and that business turned profitable in the first half. That will be the story of the year and going forward, that business should see phenomenal growth.
Our insurance broking business is also doing well. There we need to increase the penetration into Mahindra Finance’s existing customer base.
It started off with a 10-15 per cent penetration and now is around 40 per cent. Before the end of this year, we want to take it to 60-70 per cent.
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How have things been on the liabilities side?
A year before, our dependence on mutual funds was higher; now that has come down. Now, we have good lines of credit from various banks. So, in a way, banks have replaced mutual funds. The cost of borrowing over the past one year has come down by at least four to five percentage points.
In the monetary policy review, the Reserve Bank of India has said the risk weight associated with loans by banks to NBFCs will depend on the latter’s credit rating. Will that impact your cost of funds?
We have an AA- rating. It will not necessarily reduce our cost of funds. Probably, it will push up the cost of funds for NBFCs with poor ratings. Today, our marginal cost if I take a fresh loan for three years is 8.5-9 per cent. I don’t see that coming down because of this rating.
How is your core commercial vehicles finance business doing?
It couldn’t be better. In September, we financed 20,000 vehicles. In October, we did about 25,000. Overall, all manufacturers have done well. And all of them are looking at rural as a big opportunity, whether it is Maruti, Hyundai. Being present in rural India, we get the benefit. In addition, liquidity conditions have improved significantly.
What is your current headcount and do you plan to hire more people?
We currently have around 6,000 people. In the last two months, we have added 45,000-50,000 customers and the excitement is till there.
The way we are growing, we should recruit 500-plus people very soon.