Bad rains impacted Q2 nos; optimistic about Q3, Q4: M&M Fin

A: The collection pressures if you kind of rural market comes from largely two reasons. One, how has been the farm sentiment related to monsoon and the second is what has been the overall economic activity and therefore the cash flows. So, if you look at the rural has being going through some cash flow pressures both in terms of overall size of the activity as well as stretch in their collections from their contracting segment and we work with almost the entire segment of earn and pay and therefore the pressure.

In terms of geography one looks at it really from monsoon perspective. States of Maharashtra, Madhya Pradesh, parts of Uttar Pradesh, we had Karnataka, these three or four states had its own impact in terms of monsoon being below average. But the overall sentiments I would still think that the large work yet to commence the contracting segments in these markets have yet to start generating enough of cash flows and that is what lead to some pressure in terms of our collections are concerned.

But it is extremely important to understand that in line with the regulatory requirement where Reserve Bank of India (RBI) wants us to move to 120 days by March 17 while we have still more than a year, we have about 15 months plus for moving to that level but we thought it prudent that if we can start already moving towards that and in that connection we made an additional Rs 61 crore of provision which also has added up to the gross numbers going up.

Nigel: What were the fresh slippages this quarter, how much was from the restructured portfolio and how much did you do in terms of income reversals on account of it?

A: So far as income reversals are concerned it is about Rs 24 crore on account of this additional provisioning that we have made and as far as restructuring is concerned we do no restructuring at all and I want to be extremely clear on this that not even a single contract in our book is restructured, not even a single contract. So, our numbers are as you see there are absolutely no restructuring and so far as the gross non-performing asset (GNPA) increase is concerned it is important to also understand that it is an effect of also the denominator which is - when your asset base doesn't grow then when you look at NPA as a percent to asset you see a pressure being little higher. So, it is not absolutely as through the NPAs are going up at that level but when the asset base isn't growing even the percent looks a little more steeper.

Reema: Give us some guidance on the asset quality and slippages in the coming quarters? Currently the GNPLs stand at 9.4 percent, will it be below from this level or do you see rising even above that 10 percent mark, any level or range that you can help us with FY16?

A: The asset base if it grows the percent will automatically look very different. So, if we were to keep that aside for a minute it is also extremely important to note that the two quarters i.e. the third and fourth quarters normally for rural India is a good quarter and we have historically seen it in the past, while we do believe that there will be some pressure coming on account of weak monsoon and therefore the harvest expected in some of these markets are expected to be low. But nevertheless given that be it is the two quarters which is the third and fourth quarters do show some improvements in this market and we do believe that this year will also be not different from any other past years and therefore one would see some betterment happening but one has to also see how the asset base is going to grow and therefore how the percent will change. It will be difficult for me to put a number out to say where will we close but by effort, by our reach, by our interaction with the customer going more deeper to the market we do believe that we have things under control and we want to work towards improvement and not really look at how much more will it deteriorate.

Nigel: Provisions have jumped significantly, 54% over last year. Could you give us a break up of where these provisions were made? Also when does the company expect to transition to 120 or 90 day recognition?

A: We have actually moved to 135 days in this quarter. As I said we have accelerated and we are moving towards 120. We would not wait to March 17 for us to reach there. As far as the absolute increase in NPA provision is concerned it is also important to understand. When we compare two period of 12 months, during the 12 months period we have done enough of business. In a 12 month period we do business upward of Rs 20,000 crore. Therefore even if you were to apply a normal NPA percent which is applicable to these kind of businesses you will always see an absolute value increase. So, it is not right to compare two absolute values which is why many times it is important to compare percent to asset and as I mentioned when the asset base doesn't grow the percent by itself looks deeper.

So, we are not concerned honestly when we look at what is the absolute increase to the value and as far as geography is concerned as I explained to you these three or four states which is Maharashtra, Karnataka, parts of Uttar Pradesh and of course from an overall perspective parts of Tamil Nadu are the four or five states where we have little pressure of collection, but these are progressive states. We are sure that once activities commences you will also see reversals happening from these states.

Reema: What was the cost of funds this quarter and there the net interest margins (NIM) and spreads and any guiding on the same?

A: So far as NIMs is concerned you see some compression on NIMs on account of two reason. One, the income reversal of NPA happens from the top line and therefore you will see little compression on NIMS but as otherwise with the kind of interest drop scenario that we are all witnessing we do expect that going forward one would see some improvement happening to this.

The other reason for the NIMs is also a mix of product. When tractors are high yielding product as compared to the cars are a low yielding product and when you get some disbursement growth coming from cars one would see compression on NIMs but effectively one would see that profits don't change because of the NIMs because cars are also expected to come with lower NPA levels. So, the overall NIMs going forward we would only think with the interest rates coming down it will only show some improvement.