M&M Finance plans to tap rural, semi-urban segments to step up growth

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Auto financier Mahindra and Mahindra Financial Services (M&M Finance) will focus more on the affluent customer segments in the rural and semi-urban areas for growth in FY22, the non-banking finance company’s (NBFC) Chief Operating Officer Raul Rebello told Moneycontrol on June 14.

The NBFC has set itself the target of doubling its loan book by FY25 from nearly Rs 65,000 crore as on March end, and is open to inorganic channels of growth during the fiscal, Rebello said.

“Though it is a very aggressive plan, we are very clear about the pillars of this growth. In the vehicle business, our strength has been in rural and semi-urban markets, and we will continue to hold leadership position there,” Rebello said. “What we articulated as growth in the vehicle business will come from the affluent section of people,” he added.

Till now, M&M Finance had not overly focused on approaching the affluent customer segment, said Rebello, but now it plans to tap that market segment actively.

“In that direction we started three months back and crossed Rs 1,000 crore of disbursements in the affluent customer segment of the vehicle market,” Rebello said.

During January-March, M&M Finance’s disbursements grew 54 percent year-on-year (YoY) to Rs 9,902 crore. The NBFC disbursed a total of Rs 27,581 crore of loans in FY22, 45 percent higher than in the previous fiscal.

SMEs and LAP

In order to double the size of the NBFC’s assets, the lender is also keen on growing its new small and medium enterprises (SME) loans and loans against property (LAP) businesses, Rebello said.

Rebello said presently the SME business is materially very small, accounting for about Rs 2,500 crore, but M&M Finance will ramp up that book four or five times in next three years, as it can lean on the vast dealer base of Mahindra Group for cross sales.

Further, M&M Finance will also focus on its leasing business, Quiklyz, for growth in the current fiscal. The NBFC has made over Rs 275 crore of disbursements under the leasing facility till date, Rebello said.

“Because we have listed aggressive targets for ourselves, we are not ruling out inorganic methods of growth in terms of wholesale lending to NBFCs. We are in the process of getting Board consent on some of these vehicles that we can use for inorganic growth,” Rebello said.

Co-lending business

Lastly, Rebello said the NBFC is finalising a co-lending agreement with a large state-led lender, along with which the company will disburse at least up to Rs 50 crore a month.

Rebello did not name the partner bank.

Banks partner with NBFCs for co-lending to meet minimum regulatory requirements on priority sector lending (PSL) and gain access to vehicle loans like tractor loans, commercial vehicle loans and three-wheeler loans.

Rising rates

Going ahead, customers of M&M Finance will likely face a rise in instalments as the NBFC has started passing on the rate hikes to customers from June onwards, Rebello said.

“We are passing on rate hikes as the cost of funds has gone up. If our cost of funds goes up by 40-50 bps, we will have to pass it on, but overall our NIM (net interest margin) will be between 7.5-8 percent in FY23,” Rebello said.

As per rating agency CRISIL, borrowing costs for NBFCs will likely rise 85-105 basis points (bps) this fiscal. Overall profitability, however, is expected to remain steady cushioned by a reduction in credit costs, it said.