Mahindra Finance eyes new biz categories for growth | Mint

Mahindra Finance eyes new biz categories for growth

Raul Rebello, MD & CEO designate, Mahindra Finance.
Raul Rebello, MD & CEO designate, Mahindra Finance.

Summary

  • MD & CEO designate Raul Rebello looks at forming partnerships to compete in price-sensitive segments

Mahindra Finance will go the partnership route to compete more effectively with banks as rising cost of funds for non-banking financial companies (NBFCs) makes lending in price-sensitive categories challenging, a top company official told Mint.

The rural and semi-urban India focussed Mahindra Finance is keeping a sharp eye on its margins as it looks to building a prolific, diversified financial services business, Raul Rebello, MD & CEO designate told Mint in an exclusive interaction. Rebello will take charge of the NBFC and its subsidiaries from April next year.

Leading NBFCs in the vehicle lending space like Mahindra Finance and Shriram Finance have expressed concerns that rising cost of borrowing from banks is leading to margin pressure in several lending categories for NBFCs.

Mahindra Finance, which is primarily a vehicle financier (with passenger vehicles and commercial vehicles together accounting for 93% of its disbursements) is banking on working with partner banks to stay viable in segments such as lending to the commercial vehicle fleet and certain PV sub-segments where high borrowing costs make these segments increasingly "unattractive" for NBFCs, as well as find partners for new business verticals like payments, insurance and investments.

"We have to optimize between growth, margins, and asset quality. Now, if we just grow without keeping our focus on margins, then we're not really going to be a viable enterprise going forward. So, we do realize that because of our distribution, and because of all the tailwinds in the auto sector — this year's festival season went well — there is an inherent growth happening in the vehicle finance space. But if we are to tick the second box of being prolific on margins, then participating in some of these segments on our book doesn't really make sense, because it will start shrinking our margins", Rebello said.

"So, what we have decided is we'll maximize the benefit we get from our distribution in a manner wherein we can find partners, because today, you don't need to do everything yourself. So, we're pretty much doing lending as a service in some of these segments," Rebello added.

Mahindra Finance, which is 52% owned by Mahindra & Mahindra, had shared a 7.5% net interest margin (NIM) guidance and 2.5% return on assets (RoA) target as part of its 2025 vision.

"Post-Diwali, we've again increased prices as cost of funds have remained elevated. Looking at the Fed guidance and the way inflation is playing up, high interest rates may play out for longer," Rebello said, adding, “In India, we are seeing RBI keeping rate static for some time, and so as long as there is no sliding down of rates, Mahindra believes that its 7.5% NIM guidance will move closer to the 7% range."

"And that's why the 2.5% ROA seems a little challenging and will likely be a little under 2.5% and that's exactly one of the reasons which in the long term we felt we shouldn't just have dependence on interest income. We are focussing on other avenues of shoring up fee-based income either through insurance or through cross sell of other products etc, which can make up for the lack of interest income", he said.

Rebello said that the company is working to scale its partnerships with State Bank of India in co-lending in the commercial vehicle space and with Bank of Baroda in co-origination of loans in passenger vehicles as he expects both to become a material part of its lending business. He explained that the fleet operator segment of commercial vehicle lending is becoming extremely price sensitive. "With the rates going so south, it becomes tough for us to lend to them on our books. So, with SBI that's the starting point, we're doing it largely on the CV fleet operators. With Bank of Baroda, it's largely in the PV segment. So, the price sensitive passenger vehicle customers whom we can't do, we don't want to completely jump off the revenue pole there too," Rebello said.

Moreover, the company is also preparing to roll out co-branded cards with a partner in the next couple of months so it can have a high-frequency relationship with its nearly 9.5 million customers located in "deep geographies" within the country. 

It'll look to scale up its fixed deposits offerings, offer co-branded credit cards, and other holistic financial services. Rebello said Mahindra Finance's shift from the previous focus on rural and semi-urban India to the broader term 'emerging India considers factors like ambition, occupation, household income, and digital maturity. As Rebello takes over as CEO in April, he is also taking a sweeping view of the company's digital transformation to match its "digital maturity with its customers".

 "We are trying to become a much more holistic financial service provider across the ambit of these four products of lending, insurance, investments and payments. In that endeavour, we will again do very meaningful partnerships", Rebello said, pointing to how the Reserve Bank of India has become very progressive in the way they are orchestrating some of these partnerships. 

"In insurance, we are an insurance broker. So, we work with a whole lot of manufacturers distributing products. We are already have very potent partnerships. And the objective, as I said, is to be really meaningful to emerging India," he said.

According to Rebello, most of Mahindra Finance's customers today are using both UPI as well as cards for their transactions. "Data is fuel and critical today for cross-selling and upselling. So, payments were largely absent in our product portfolio. And we do believe that there is a meaningful way in which we can play in this segment, we just don't want to be another me-too player," he told Mint.

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