Speaking to CNBC-TV18 Ramesh Iyer said that the rural segment is going through difficult times due to the cash crunch and expects difficulty in business for the next two quarters.
Post demonetisation footfalls at dealerships in semi-urban markets have gone down and the volume of work has come down in the last few weeks, says Ramesh Iyer, VC and MD of M&M Financial Services.
Speaking to CNBC-TV18 he said that the rural segment is going through difficult times due to the cash crunch and expects tailwinds in business for the next two quarters.
He said that the commercial vehicles are seeing the highest volume drop.
Below is the verbatim transcript of Ramesh Iyer’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Anuj: Since you are in lot of an auto financing and we have seen tell-tale evidence of slowdown specially in commercial vehicle (CV) market if you could give us any numbers over the last one month in terms of the hard data that you have?
A: Last one month may not be the right indicator because the first 10 days was still a normal 10 days spill over of October festival mode, so in fact we had a slight growth in our disbursements in November coming out of the volumes that were transacted in the first 10 days. However, we do see definitely that footfalls at the dealerships have gone down and we are seeing it in these semi urban - rural market which is where our presence is. Our own expectation is that overall volumes are going to remain subdued during this period because people are possibly asking a very simple question on should be not wait what is the hurry to buy.
Latha: Yours is a practiced eye, you would be able to gauge from what your dealers and your sub-staff are telling you, what is the sense in this quarter itself, how much might recoveries fall or repayments rather recoveries and how much might loan growth not come through?
A: The indications are that the volume of work has come down and we work with really earn and pay segment of customers. We have seen that in the last 21 days that is the last three weeks of November the volume of work had substantially come down. As I said people are kind of asking this fundamental question on when will it recover what next kind of a question? The farmer segment is also going through difficult times; the crop is in the hand but not yet able to be transacted, cash not coming in.
Also we have another additional problem I would think from a rural perspective which is the customers not able to operate through cooperative banks system. Many of our customers do have cooperative banks accounts. I would definitely guess that overall volume of both business and recovery is going to go through a difficult phase even in the next couple of months until things really return back to normalcy in terms of volume of work.
Customers are paying some part payments not able to earn enough to pay the full EMI so that pressure is definitely on. At least our branch tell us that customers are available to be met, they want us to also participate and give them some possible solutions if we can. Therefore, the pressures are high and I would think we will need to go through it for couple of months.
Sonia: You spoke about how footfalls in the semi urban market has fallen, I wanted little more granularity on what is happening in the rural market and a break up between the utility vehicles (UV), the tractor and the CV segment? Which pocket is seeing the worst or the biggest fall in footfalls and when do you see recovery?
A: I would think CV is seeing the highest in terms of volume is concerned because there also really high ticket items with even if 20-25 percent margin money has to be brought in that is a very high value. As far as UV, cars etc are concerned I think the drop in volumes have happened possibly out of exchange programs aren’t happening in a very excited manner. Because ultimately when the dealers takes in the second hand vehicle he needs to sell them off and the broker community is not pretty active at this stage.
We do see drop in volumes in all segment, but if sequentially if I have to put it at least from our books we have seen heavy commercial vehicles showing down slowdown in as far as UVs are concerned is followed by that. Cars and tractors seems to be kind of okay not as badly impacted because there are also lot of fixed earnings customers and therefore we don’t see them drop that big. However, clearly we do see in the CV and the UV segment there is a drop.
Latha: Are you all changing your strategy in any fashion and for the full year what kind of return on equity (ROE) or loan growth can you assume at this juncture?
A: In the first five-six months has to be sawed, we had that 8-10 percent growth and actually the second quarter, almost end of second quarter September etc started registering much higher percentage growth. That number is not going to possibly be seen in the next six months. Ultimately, we are just an enabler unless the overall volumes really pickup how do we get benefit of it. So, if all the car manufacturers, commercial vehicles segment, UV segment is going to register some kind of a de-growth I think as enablers we will also go through the same pressure point.
In as far as the recoveries are concerned I think the farmers would be the community I guess which would come out fastest out of this because they already have the crop in hand and which I would think the government will buy out may be in the next two weeks, three weeks type situation and therefore they may get their cash flow much faster. The sowing has been extremely good, I think upwards of 80 percent across the country we have heard and therefore January crop is also expected to be good. So, as far as farmer community is concerned we would think they would be the fastest to come out.
The car segment will also come out faster because once they realign themselves to their fixed kind of expenses out of what they earn they will also start repaying their instalment. I think the suffering segments are going to be the once which are daily earners and what they have lost in the last two or three weeks I am not sure that they will be able to recover because then it gets automatic extension to how do they earn over a period of time.
I think the other area to really look at is how is the collateral value going to behave. With second hand market remaining subdued, brokers not buying out assets, exchange programs remaining kind of not very active, so one has to be very and clear and cautious about circumstantial versus intentional defaulters. Intentional defaulters when you take back collateral how are you planning and how do you want to really transact.
So, strategically if you ask me we are engaging with customers we put a very vertical split between normally customers who have repaid extremely well in the last six months, ten months time and the once who have not paid so well and therefore engaged with them more closely is the real strategy. Otherwise these are circumstances that we ourselves don’t have yet a very complete understanding of where it is.
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