Volatility riddled with Mahindra Finance trying to turn the corner
Why the volatility?
One question that needs to be asked is why the volatility. Over the years, Mahindra Finance has attempted to diversify its loan portfolio, presumably in the hope of more stable growth.
For example, since the fiscal year ended in March 2009, Mahindra Finance has seen its tractor finance portfolio grow from 25% of assets under management to around 17% in March 2021. The share of commercial vehicles, other auto finance activities , as well as financing for utility vehicles and commercial equipment, has increased.
But why hasn’t the financier seen the benefits of a more diversified portfolio? Once again, Iyer blames the timing and economic conditions.
The company has always wanted to be a multi-channel lender in the auto finance market, Iyer said. The company started granting more loans of utility vehicles and commercial equipment in 2012 and 2013, with the aim of financing infrastructure development in rural and semi-urban centers, he recalled. But the timing was bad. “Our foray into CV / CE funding was immediately followed by various problems,” Iyer said. “Mining projects were canceled, road projects closed, demonetization affected borrowers and we also had bad monsoons for a few years in different states.
The situation is different now, said Iyer. Mining contracts are being extended again to contractors and road projects are expected to restart once the Covid-19 situation normalizes across the country. Also, the monsoon is expected to be above average. This should boost Mahindra Finance’s business, Iyer said.
Along the way, there were other bets that went wrong. Mahindra Finance has embarked on the financing of taxis. But the company was stressed when cabin aggregators like Uber and Ola started cutting driver commissions, Iyer said. The Covid crisis has made matters worse. This business will likely only return to normal in about a year and segment growth will likely slow down, Iyer said.
The lender was also drawn to rural housing finance, a business housed in a separate subsidiary. Here too, the quality of assets remained a problem.