Mahindra Rural HFC to disburse higher-ticket affordable loans

After building a critical mass of small-ticket loans, Mahindra Rural Housing Finance (MRHFL) is tweaking business strategy to diversify into higher-ticket affordable segment — Rs 5 lakh-Rs 10 lakh.

The diversification in higher-ticket affordable segment is expected to reduce operating cost as well as reduce delinquencies. 

MRHFL, subsidiary of Mahindra and Mahindra Financial Services (Mahindra Finance), is raising short-term funds up to Rs 300 crore through commercial paper. India Ratings has assigned “A1+” rating for the CP offering. Mahindra Finance holds 87.5 per cent stake in the company and the balance is with the National Housing Bank.  

HFC’s scale of operations, although small, has been improving over the past few years. Its advances have recorded a compound annual growth rate (CAGR) of 55 per cent over fiscal years 2012 to 2017. 

These grew 47 per cent year-on-year at Rs 4,824 crore as on March 31, 2017, against Rs 3,265 crore as on March 31, 2016. The advances stood at Rs 5,244 crore at the end of June 2017, according to rating agency CRISIL.

Its disbursements also registered a healthy growth of 36 per cent y-o-y to Rs 2,116 crore for fiscal 2017 against Rs 1,552 crore in 2016.

India Ratings said MRHFL’s asset class and housing loans below Rs 2 lakh have shown high delinquency rates (90 days overdue) both on account of seasonal cash flows of borrowers and modest borrower profile. This is reflected in high gross non-performing assets (NPAs) ratio, rising to 12.8 per cent at the end of June 2017. It was 9.6 per cent for FY17 and seven per cent for FY16.

Recent deterioration in asset quality in the case of Mahindra Rural Housing Finance was primarily led by challenges confronted in few southern and western markets and because of farm-loan waivers. 

With collections improving, asset quality is expected to stabilise in the next two quarters, said CRISIL.

Since inception, Mahindra Finance and National Housing Bank have together infused Rs 266 crore as equity, which also includes Rs 130 crore infused in fiscal 2017.