Home / Companies / News /  Mahindra Finance sees revival in auto demand by October

MUMBAI : Arebound in consumer demand is expected to start from the festive season later this year as the domestic automobile industry steadies from its ongoing transition towards stricter Bharat Stage-VI (BS-VI) emission norms, said Ramesh Iyer, vice-chairman and managing director of Mahindra and Mahindra Financial Services Ltd (MMFSL).

“I won’t say revival has started. Everyone is getting ready for BS-VI, so inventory level correction is happening. There will be revival from the next festive season, beginning October, because BS-VI will come, prices will get stabilized and people will decide whether to buy or wait and see," Iyer told reporters.

On an overall basis, the rural and semi-urban focused non-banking financial company (NBFC) is in a comfortable position with improvement in loan collections, he said, adding cash flows are expected to sustain going forward.

Automakers will have to stop production and sale of BS-IV vehicles by 31 March and shift to BS-VI vehicles. Prices of most vehicles, especially those that run on diesel, is likely to rise due to the transition.

“We do see by the next festive season, the market will open up for even higher volumes available to transact along with adequate liquidity. If we have patience for six months, we can see much better days," said Iyer.

He said MMFSL is seeing a trend wherein consumers are using their funds to discharge their liabilities, but avoid adding assets. This is different from past experiences, where “if the business was good, collections were good".

“In this round, we have seen that while the business is not as good, collections are good. So, people have the money, but they do not want to add assets. They may be possibly waiting for the BS-IV to BS-VI transition to happen."

Iyer said while there were liquidity pressures about 15 months ago, the NBFC did not face hurdles in raising funds. “We did get sufficient funds 15 months ago, but had to pay a higher price then. Liquidity was not our pressure point, it was cost and that, too, has come off now," he said.

Last December, Reserve Bank of India governor Shaktikanta Das had said that credit flow to the non-bank sector was slowly seeing a revival and the better-performing ones are able to access funds from the market at pre-IL&FS rates.

NBFCs faced a liquidity crunch following defaults by Infrastructure Leasing and Financial Services in September 2018.

MMFSL has also started giving small-sized consumer loans with an average ticket size of 40,000-50,000 to existing customers. “Existing customers do need these loans for which they go to a moneylender or a cooperative bank, so we wanted to support them. It helps us retain that customer," he said.

Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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