Mahindra & Mahindra Financial Services: M&M Financial doubles provision to cover for Covid uncertainties

MUMBAI: Mahindra & Mahindra Financial Services has doubled provisions for bad loans as it seeks to cover its loans from the heightened risk due to the economic impact of localised lockdowns. The company made Rs 1320 crore in provisions on likely distressed loans in addition to the Rs 996 crore of provisions it had on expected credit losses (ECL) due to uncertainty caused by second wave of the one year old Covid-19 pandemic.

“The pandemic has spread to different parts of the country even in rural areas where we are present. We think it will take atleast two months for things to settle down so we expect some pressure on our books. Customers will need more time to pay back as unlike last time this time there is no moratorium too,” said CEO Ramesh Iyer, referring to special dispensation given by Reserve Bank of India (RBI) during the first wave of the pandemic last year.

In a statement the company said the impact of pandemic on the global economy, governments, businesses and consumers is still uncertain.

The company carried an ECL provision of Rs 996 crore as on March 31, 2021 up from Rs 574 crore a year ago.

The extra provisions has resulted in the company’s post provisions net NPA coming down to 3.97 per cent in March 2021 from 6 per cent a year ago. Gross NPAs inched up to 9 per cent from Rs 8.40 per cent a year ago. With the higher provisions the company now covers for 58 per cent of stressed loans higher than the 35 per cent required by its own ECL calculations.

In the quarter ended March 2021 the company’s net profit declined 32 per cent to Rs 150 crore from Rs 221 crore a year ago due to higher provisions and as income declined due to a 5 per cent fall in the loan book to Rs 64,608 crore from Rs 68,089 crore a year ago.

“Our collections picked up pace month on month during the quarter. Collection efficiency was at 109 per cent in March. We collected a total of Rs 10,000 crore and so even if disbursements also increased the loan book degrew,” Iyer said.

Total disbursements during the financial year ended March 2021, at Rs.19,001 crore was down 41 per cent from Rs.32,381 crores last year indicating the slowdown caused by the pandemic.

Iyer said he expects pressure on loan growth as well as collections during the first quarter.

“The lockdown will have an impact and we expect some pressure in the first quarter. But unlike the one last year this time they are localised lockdowns so we expect a lesser impact. Things are likely to be subdued till mid May and normally the first two quarters are anyway slow, but positive cash flows from agriculture and a good monsoon will hopefully lead to a bounce back post October,” Iyer said.

On a consolidated basis, total income declined by 3 per cent to Rs.3,038 crore while net profit fell 8 per cent to Rs.219 crore during the quarter ended March 31, 2021.

Iyer said the company has excess liquidity of Rs 8000 crore and a capital adequacy ratio of 22 per cent.