M&M Financial rules out waiver for tractor loans; bets on cars for growth

The economy was under pressure due to demonetisation but it is limping back to normalcy. Iyer said that the farm sentiments are getting back to normal with good crop and the money is also coming back. Therefore, the volume should return, he said.

He also said that a correction of around 50 basis points in cost of borrowing has benefited them.

Cars are contributing to the growth story of M&M Financial, especially carmakers such as Maruti Suzuki that are doing well in the rural market.

“Tractor has contributed to some kind of growth for us because the industry did well and we got the benefit of the volume.”

Below is the verbatim transcript of Ramesh Iyer’s interview to Latha Venkatesh, Anuj Singhal, and Sonia Shenoy on CNBC-TV18.

Anuj: State Bank of India (SBI) has announced a one-time settlement for tractor loans which ends on March 31 and they have book of around Rs 6,000 crore. It is a haircut of 40 percent, in that scenario, what is the impact on you?

A: I am not aware of the details of the scheme, but the fact remains that when you make any announcements of this, it is purely based on the experience that you must be having with the respective customer portfolio that is being handled. So, the portfolios could be so different for the two business entities that -- we don’t resort to any kind of settlement of this type except on a customer to customer basis. So, we have never come out with any program of these type.

Typically I would look at it little differently. Let us say that if these customers, I am assuming they are the ones who have not been regularly paying and therefore you need to go in for some settlement, what are the choices these customers would have had? Either to sell-off the tractor and pay it off or surrender the tractor and ask for a settlement. In both these situations, when the tractors are resold in the market, the resell price could fall.

However, if the same customer is allowed a settlement which means the customer continues to use the tractor, in a way you actually are able to protect the resale price of the tractor which is good for the industry and good for everyone else who is in the financing system.

Latha: Let us come to the demand scenario, all companies witnessed a fall in demand during those two demonetisation months, how is the rebound, are you back at October levels?

A: As far as tractor particularly, fortunately they had finished their season before demonetisation and therefore they did not have to go through the pressure. In this round, once again as you see, between March-April, we do expect that the demand will come back to some kind of a normalcy because the crops have been good, the prices have been good, and the cash flows have improved from November to now.

Even though there was a delay in getting their money in November-December, I think most of the farmers have sold up their crop, at least the first one they have sold off. January they got money from mandi; the next crop is on sale between February and March, by end of March most of it would get sold off. So, I would think the farm sentiments are kind of back to normal with good crop and the money coming back and therefore the volume should return.

As far as overall rural market is concerned, I think the sentiments are limping back to normal. I would still think that it is a little wait and watch for vehicles maybe, but farm definitely has bounced back.

Sonia: What about the cost of funds and the margins, is there any change now because banks have crashed their rates, how is your cost of funds and your margins shaping up compared to a year ago?

A: At least from a cost of borrowing perspective, definitely we have also got the benefit of what we borrow from the banks or the bond markets and there has been at least a 50 basis point correction, but of course not all liability were due for correction, so, therefore the full effect of the 50 basis point would not kick-in. However, definitely a downward trend has been seen in the last couple of months and we have -- at least the fresh borrowings are coming at 50 basis point cheaper.

Latha: AUM is divided almost equally, give or take a bit, between commercial vehicles, tractors, cars, autos, and used commercial vehicles (CVs). Now there is a bias I guess towards cars and autos, which of these are showing growth and by how much?

A: One is of course cars are registering growth and for us it is from two reasons. One Maruti Suzuki is doing well also in the rural market, so, we get benefit of their volumes and since we are also financing all other models, a little of everything adds up to our number. So, therefore, cars is one that we see.

We also clearly saw, at least the last three or four months, tractor has contributed to some kind of growth for us because the industry did well and we got the benefit of the volume. The kind of second hand pre-owned vehicles, that is from customer to customer sale, someone who has used the vehicle for three-four years wanting to sell, we did find some benefit of volume coming there as well including second hand tractor volumes. So, I think the growth area for us clearly is going to come from car registering growth, pre-owned vehicle registering growth and tractor by itself.