Stocks of rural- and consumer-centric lenders no longer have the love of their investors, with the narrative of consumption slowdown gathering traction. In this context, the first quarter results of Mahindra & Mahindra Financial Services Ltd were disastrous.

The non-banking financial company (NBFC) reported a massive 75% fall in net profit for the June quarter, missing estimates by a mile. It was obvious that investors would balk, and they did by sending the stock tumbling over 10% on Wednesday. It’s now down about 30% since early June.

Mahindra Finance had to set aside 6,196 crore as provisions towards bad loans. This is 111% higher than last year. Gross impaired loans at stage 3, according to the Ind-AS accounting standards, were 7.4% of loans, higher than the 5.9% a year ago.

In a call with analysts, the management explained that elevated provisions were a fallout of the new accounting norms, which do not take into account seasonal factors. “We would see an improvement in gross NPAs (non-performing assets)," said Ramesh Iyer, managing director, Mahindra Finance.

To be sure, the first quarter is typically weak on asset quality, but the extent of the pain seems to be more this time around.

When it came to disbursals, both the June quarter performance and management outlook were far from being sanguine. Iyer said loan growth could be muted this year.

There was a sharp drop in disbursements of tractor loans, a signal that rural distress isn’t over yet. The uneven monsoon distribution and the possible delay in sowing partly explains this fall.

The lender also saw a massive fall of 59% in disbursals to small businesses. Car loans shrank around 2%, a fallout of the slowdown in the auto sector.

But Mahindra Finance lucked out in loans to purchase utility vehicles and other automobiles. Disbursals towards these grew 15%, the only saving grace in an otherwise dismal disbursal growth. That said the growth in assets under management was a decent 22%.

Analysts believe there is a lot of uncertainty over the outlook, and even though the management had guided for an improvement on asset quality, the risk of the slowdown affecting repayments cannot be ruled out.

The silver lining was that the company managed to keep its liability mix kosher. Given the recent liquidity scare for NBFCs, it is comforting that Mahindra Finance’s inflows outstrip its outflows in the short term.

The consumption slowdown is real and uncertain rural conditions are making it difficult for investors to have confidence on stocks of lenders such as Mahindra Finance.

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