High defaults prompt Mahindra Rural Housing Finance to rebalance book: CEO

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Mahindra Rural Housing Finance may reduce exposure in the rural housing segment by the end of this financial year due to rising stress, said Managing Director and Chief Executive Officer Shantanu Rege.

“In the rural housing segment, the delinquencies are high. That is why it’s a conscious effort to move to a business model which, as a percentage of the total book, is more affordable housing,” Rege said in an interaction with Moneycontrol on August 29.

Rege added that by the end of the current financial year, the mix of rural housing finance and affordable housing will be 50-50 percent. Currently, the total loan book of the company consists of 60 percent of rural housing and 40 percent of affordable housing, he said.

According to the company’s investor presentation, its net loans and advances stood at Rs 6,626 crore as on June 30, as compared to Rs 6,974 crore as on June 30, 2022.

Loans disbursed in April-June 2023 fell to Rs 289 crore as against Rs 395 crore in the same period last year.

Rege attributed this to the company revamping its lending suite, loan origination system, loan management system, etc. “We’ve moved from a largely manual process to digital.”

The total loan book stood at Rs 7,200 crore at the end of FY23 as against Rs 7,603 crore in FY22.

Rege said, “In the next three quarters, the balance sheet will also grow and we want rural and affordable both to grow, but the contribution of affordable housing in the total book should be higher because rural housing is a much shorter tenure loan.”

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High delinquencies and NPAs

Rege told Moneycontrol that out of the total 11.97 percent of gross stage 3 assets as on June 30, the majority of the delinquencies are from the rural housing segment.

A loan becomes bad if there is no repayment for 90 days.

He added that the company has set an internal target to lower these delinquencies and stage-3 assets. “Our number one priority is to get gross stage-3 assets down significantly. Obviously, we have very aggressive targets internally,” Rege said.

In Q1FY24, the company was able to reduce gross stage-3 assets to 11.97 percent, from 14.49 percent in the corresponding period last year, according to the investor presentation of the company.

Similarly, net stage-3 assets fell to 8.53 percent in April-June, from 9.95 percent in a corresponding period last year.

In the January-March 2023 quarter, gross stage-3 assets stood at 10.46 percent, lower than that reported in the first quarter of the current financial year.

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Other financials

In the April-June 2023 quarter, the company reported a loss of Rs 23 crore as compared to Rs 2 crore profit in the same period last year.

Rege attributed this to changes in delinquencies in the April-June quarter.

On the borrowing front, he said that the company currently borrows 60-70 percent from banks and the rest from the market through non-convertible debentures (NCD) and other instruments.

As per the latest figures available, secured borrowing was 64.51 percent of the total borrowing as on March 31, while the remaining was unsecured borrowing.

Secured borrowings include bank term loans, lines and NCDs, and unsecured include NCDs, sub-debt, and inter-corporate deposits.

He added today the rate at which companies borrow from the market is in fact lower than the price of borrowing from banks. Any prudent lender, if there is access to lower cost of funds, will certainly explore that, he said.

“Today, as a matter of fact, the non-bank borrowings are cheaper than bank borrowings,” Rege said.

Additionally, he said the company has so far passed on to its customers 100 basis points (bps) out of a total 250 bps rate hike by the Reserve Bank of India since May last year.

Since April, the central bank has paused rate hikes due to better inflation figures and other data in the economy.

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