Raul Rebello, the new MD & CEO of non-banking finance company (NBFC) major Mahindra & Mahindra Financial Services (M&M Finance) will prioritise maintaining its market share in the vehicle business and improve efficiencies with dealers and original equipment manufactures (OEM). In his first interaction after taking charge on April 29 this year, Rebello tells Piyush Shukla the NBFC will grow its overall AUM by 18-20% in FY25. Excerpts:
What will be your key priorities during the tenure?
We are amongst the top five NBFCs in three-wheelers, PVs, CVs, LCVs, SCVs and used vehicles financing and first in tractors segment. This has been built through painstaking efforts and one of my key priority is to protect that. Secondly, we historically started out as rural and semi-urban player and have largely been in that segment for longest period of time. As there are some tailwinds present there right now, customers and households have started cross pollinating. So households maybe in rural but cash flows are coming from urban and metro cities. Accordingly, while rural remains our largest customer base, we are breaking away from rural-semi urban sort of labelling and our new statement is to become leading lender of choice for emerging India.
Third, we work with 5,000 plus dealers and our relationship with OEMs and dealers needs to be protected and it will be a focus areas. In that light, for last 1-1/2years, we have built digital products like dealer buddy and sales buddy to improve our efficiency with channel partners. We are also building a super app in collaboration with IBM for customers. We are also investing a lot to make sure that volatility in past is significantly addressed.
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What is the target on RoA and AUM growth for FY25?
We want to get back to 2.5% RoA (return on assets) in the medium term of three years, we closed last year at 1.7%. We have to do a lot of structural investments to climb up. In terms of AUM (assets under management), while one major event of general election is over, we have to watch how the monsoon turns out. Some segments of vehicle business did well in the first two months of the new fiscal, so if everything plays normally, on wheels business we are factoring a 12-14% rise in disbursements. Overall AUM, accordingly, may grow by 18-20%. Wheels business today forms 94% of the book, I won’t be surprised if it comes down to 92-93% in FY25. From a long term perspective, our desire is to take non-wheels business to 30% by FY30.
What’s the guidance on asset quality and margins?
My business model can stomach anywhere between 1.2-1.5% credit cost to deliver decent RoA. Since we are lending to new customers, first time buyers, there is a higher risk element. Accordingly, gross stage 3 asset ratio (GS-3 or bad loan ratio) of 3-3.5% in good times and up to 4.5% in bad times is what we can look at. The net interest margin (NIM) fell below 7% in FY24 and this business model shall allows us to take it back to above 7% in the later half of the year.
Will you look to monetise your stake in rural housing subsidiary?
We want to play mortgages in a larger frame and are looking to become a medium to large player in the business. We do know that there are a lot of attractive avenues in the mortgage business including loan against property and affordable housing. The financial outcome from our housing subsidiary was not handsome and we are on course correction mode. We have, in fact, stopped growing and consciously made collections the priority. Our GS-3 number has come down significantly and we have set significant target in terms of trimming down bad loans. We have now created two verticals within the subsidiary—older rural home improvement loan and newer affordable housing loans. The old side is practically not growing but newer business is growing due to quality of book. We are now more focused on collections and rationalising the business.