Why The Volatility?
A question that must be asked is why the volatility. Over the years, Mahindra Finance has tried to diversify its loan book, presumably in the hope of more stable growth.
For instance, since the financial year ended March 2009, Mahindra Finance has seen its tractor finance portfolio reduce from 25% of the assets under management to about 17% as of March 2021. The share of utility vehicles, other auto financing businesses, as well as commercial vehicle and commercial equipment financing, has increased.
But why has the financier not seen the benefits of a more diversified portfolio? Once again, Iyer blames timing and economic conditions.
The company has always wanted to be a multi-channel lender in the vehicle finance market, said Iyer. The company started extending more commercial vehicle and commercial equipment loans in 2012 and 2013, in a bid to finance infrastructure development in rural and semi-urban centres, he recalled. But the timing was wrong. “Our foray into CV/CE financing was followed immediately by various problems,” Iyer said. “Mining projects were being cancelled, road projects were being shut down, demonetisation was affecting borrowers and we also had bad monsoons for a couple of years in different states.”
The situation is different now, Iyer said. Mining contracts are once again being extended to contractors and road projects are set to restart once the Covid-19 situation normalises across the country. Besides the monsoon is expected to be above average. This is likely to boost Mahindra Finance’s businesses, Iyer said.
Along the way, there were other bets that went wrong. Mahindra Finance got into taxi financing. But the business came under stress when cab aggregators like Uber and Ola started cutting back on commissions to drivers, said Iyer. The Covid crisis made things worse. This business is likely to only return to normalcy in about a year and growth in the segment is likely to be muted, Iyer said.
The lender was also attracted to rural housing finance, a business that is housed in a separate subsidiary. Here too, asset quality has remained a trouble spot.