Nearly 17 years after entering the affordable housing space, Mahindra and Mahindra Financial Services may be sharply reducing its exposure to this segment. Highly placed sources say a thorough restructuring of the housing finance business is underway at the non-banking financial company.
According to people aware of the developments, persistently high non-performing assets of Mahindra Rural Housing (the lender’s affordable housing arm), nudged India’s second largest vehicle financier to de-risk its housing finance business. In September last year, Mahindra Finance’s board announced its foray into the prime and mid-market mortgage business in a bid to diversify its presence in the housing finance segment beyond the gamut of affordable housing.
This is seen as the first major overhaul under Raul Rebello after he took charge as managing director and CEO in April 2024, succeeding Ramesh Iyer. The people cited say the new strategy adopted by the lender essentially suggests a shift in focus from low-cost affordable housing to mid-market and prime mortgages.
Mahindra Rural Housing is focused on the rural and semi-urban markets where the ticket size of loans is less than Rs 10 lakh. As per the revised business plan, Mahindra Finance will focus on loans with a ticket size upwards of Rs 30–35 lakh. Mahindra Finance holds 98.43 percent stake in Mahindra Rural Housing, and the rest is held by the company’s employee welfare trust.
Change in management
Incorporated in 2007, Mahindra Rural Housing is one of the oldest subsidiaries of Mahindra Finance. According to the people mentioned above, Shantanu Rege, managing director of the housing finance unit, who was appointed in October 2022, is said to have stepped down from his role.
Rege joined the Mahindra group in 2012 and was an executive assistant to Anand Mahindra, the group chairman. Jaspreet Chadha, who joined Mahindra Finance as chief business officer, mortgages, is now overseeing the lender’s housing business, including the rural housing finance arm. Chadha joined Mahindra Finance to lead the mortgages business in September last year from Bajaj Housing, where he was the group business head for home loans.
An email sent to Mahindra Finance seeking comments on the development remained unanswered till the time of publishing the article. It will be updated once Moneycontrol receives a response from the company.
In the September quarter investor call, Rebello indicated that the company has exited most of the low-ticket housing loans.
“We've got Jaspreet who's come in to head mortgages at Mahindra Finance, but we have currently seconded him to the rural housing finance company to also provide leadership guidance and leadership bench strength to get this organisation at least in the next two quarters, to (a) GS3 numbers closer to the 5.5–6 percent levels,” Rebello said in a call with investors following the September quarter results announcement. GS3 stands for gross stage 3 assets, also referred to as gross non-performing assets ratio in banking parlance.
“The overall theme at the subsidiary is to ensure that we are able to get the asset quality under control. There is no growth compulsion at the moment,” he added on the call.
All options possible
People aware of the restructuring underway say Mahindra Rural Housing Finance has not made fresh loan disbursements in the last few months. Instead, it is focusing on loan recoveries and collections. As on September 30, 2024, the rural housing finance firm’s workforce strength stood at 6,312 employees, against 8,435 employees as on March 31, 2024, indicating that the entity has been trimming its headcount.
As for the Rs 7,010 crore of outstanding loans at Mahindra Rural Housing Finance, its parent company, Mahindra Finance, is in the process of paring the book. The people aware of the matter say all options are on the table, including sale of assets to asset reconstruction companies.
“If there is a buyer to acquire the business in full, that option is also on the cards,” said one of the persons. However, any sale transaction in the rural housing finance arm may not be imminent, at least until the company reduces its bad loans. At 9.14 percent gross non-performing assets as on September 30, 2024, it is one of the worst-performing segments for Mahindra Housing.
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