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Vehicle financier Mahindra and Mahindra Financial Services Ltd may have swung to profit in the March quarter, but the company is not out of the woods yet in terms of growth or even asset quality.

The lender reported a net profit of 149.97 crore for the March quarter, compared with the 274.14 crore net loss reported in the previous quarter.

As such, the net profit was lower than the consensus estimate of analysts surveyed by Bloomberg. Behind the net profit disappointment is not just a fall in revenues but also the lender’s need to make provisions.

Paras Jain/Mint
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Paras Jain/Mint


Mahindra Finance jacked up its provisioning against delinquencies and other stressed loans by 31% from the year-ago period. The motivation behind this was not just necessity but also regulatory glare.

“In accordance with the regulatory expectation of the Reserve Bank of India to bring down the net NPA ratio below 4%, which the management has agreed with, the company recorded an additional provision of 1,320 crores during the quarter on stage 3 loans," Mahindra Finance said in its release.

Notwithstanding the surge in the provisioning coverage ratio to 57.9%, the company managed to bring down its net bad loan ratio just a shade below 4%. On a gross basis, bad loans still form 9% of the book, marginally lower than 10% in the previous quarter.

One silver lining for the lender on asset quality is the relatively low restructured loan pile. By March, the lender had restructured only 63 crore worth of loans, which is less than 1% of its loan book.

What’s more is that the lender has been able to collect repayments from all of its customers in the March quarter. Collection efficiencies have improved to 100%. This brightens the outlook on asset quality.

Even so, the company may now face headwinds from the second wave of the pandemic, which has necessitated lockdowns in various states. Although the restrictions are milder than last year, the effect of these lockdowns are being felt in collections and loan offtake of lenders.

Mahindra Finance is particularly vulnerable given that semi-urban areas have also begun to see restrictions. On the growth side too, things are not looking up for the lender.

Disbursements were down 15% from the year-ago period, but this was expected. The outlook on growth is riddled with challenges given the second wave. In a call with analysts, the management has indicated an improvement in disbursements going forward. But it remains to be seen how strong this improvement would be.

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