Mahindra Finance To Focus On Affordable Housing As Rural Business Takes A Hit

Mahindra Rural Housing Finance Ltd. is shifting its focus more towards affordable housing, according to Ramesh Iyer, managing director of Mahindra & Mahindra Financial Services Ltd.

"It's a conscious decision to move from deep rural financing to more affordable financing," Iyer said in a conversation after the announcement of Mahindra Finance's second-quarter results.

It is a strategic shift as deep rural financing has lots of vulnerabilities due to various on-ground conditions, which has also been an observation over the last decade of operations, Iyer said.

Hence, it is important to have a proper mix of both rural and semi-urban, which means that affordable housing is the way forward, he said.

Ramesh Iyer, managing director of Mahindra Finance (Source: company website)

In the quarter ended September, MRHFL's profit after tax stood at Rs 11.6 crore, down 62% year-on-year. Its income stood at Rs 331 crore , compared with Rs 328 crore in the same quarter a year ago.

The ambition is to take the company's book from the current Rs 7,000–8,000 crore to Rs 20,000 crore in the next three years, Iyer said. "The book would change from what it is currently to at least 50% of this coming from affordable housing, and that will be the way forward for this balance sheet."

For this, the non-banking financial company has also taken some corrective actions to clean up some accounts in the past that it experimented with, he said.

On Oct. 27, Mahindra Finance reported its Q2 earnings, where the net profit stood at Rs 235.18 crore, down 47.5% year-on-year.

The dip was due to a provision, and there is no pressure on profitability, Iyer said. "I want to reassure you that our strategy of doubling the balance sheet by 2025 stays good."

In an analyst call after the results, the management said the dip in profit was due to temporary provisions on the back of gross stage 3, and it was taking a cautious look at growth.

Iyer said the additional provision of Rs 300 crore, largely driven by tractors, was not indicative of any emerging challenges from the rural economy.

"September turned it around, and we had a good monsoon. What typically happens is that when you have such delays, the cash flow of the customer gets postponed by a week or 10 days. So, if you look at the provision that's happened, it's in (a) few geographies," he said.

The provision would get reversed, and it isn't a cause for concern, Iyer said. This is mainly due to a delay in cash flow due to the end of September and switching to the third quarter. "The sentiments remain positive," he said.

Shares of Mahindra Finance fell as much as 14.41% intraday on Monday to Rs 237.35 apiece. The stock was trading 10.64% lower at Rs 247.80 apiece, compared to a 0.04% decline in the benchmark NSE Nifty 50 at 10:21 a.m.

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