Mahindra Finance is tapping new segments to tackle the errant monsoon and fickle farm incomes.
In 2009, when the monsoon was less than 20% of its long-term average, Mahindra Finance was debating whether to stay true to its business model. The gross non-performing assets (GNPA) had touched 9%. For the company, which derives close to 85% of its business from rural and semi-rural markets, keeping bad loans in check was proving difficult.
It had to live through that again as GNPAs rose from 4.4% in FY14 to 8% in FY16. The drought had impacted the cash flows of its customers. It’s not like Mahindra Finance was alone. Peers Shriram Finance and Cholamandalam Finance, too, saw a sharp uptick in their bad loans. For Mahindra though, patience was running thin as it was desperately looking to reduce volatility and keep asset pressure under check. “Our customers didn’t have any CIBIL scores. So , we had to predict cash flows. That combination posed a challenge. But we took some measures to ease the strain without diluting the focus on rural and semi-rural markets,” says V Ravi, CFO, Mahindra Finance.
For starters, Mahindra increased its reach. Most of that geographical expansion has come in the past year – penetration now stands at about 44% from 37% in FY15. Today, the NBFC is present in about 286,000 villages, with plans to add one lakh more villages in the next 18 months. It has ramped up its dealer network from 6,000-odd dealers about three years ago, to over 14,000 now, and has doubled its branches to 1,167 during the same period. The new branches are also to tap growth as Ravi expects “rural recovery to happen as a result of good monsoon in the coming months.”
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