Mahindra Finance bad loans may rise on RBI order to stop third-party recoveries

On Thursday, while barring third-party recoveries, RBI said the company can carry out the activity through its own employees. The regulator cited certain “material supervisory concerns” with regard to the management of the lender’s outsourcing activities. The regulatory action on Thursday came days after reports of a woman being allegedly crushed to death in a scuffle with Mahindra Finance’s recovery agent in Jharkhand.

“Its asset quality was on a recovery path. However, with this ban, MMFS may witness an increase in gross non-performing assets (NPAs) as the pace of recoveries slows down,” said a note by ICICI Direct.

Mahindra Finance said in a statement on Friday that it has not outsourced any collection activities in its vehicle finance business to third-party agencies and therefore, does not expect any impact on the collections in this business.

The vehicles that are repossessed, it said, are mostly classified under stage 3 (bad loan) and therefore, the temporary halt to repossession activity using third-party agencies is not expected to have any material impact either on the financials or on net stage 3. As on 30 June, the count of contracts under stage 3 was 1.35 lakh and the company said it carried a sufficient provision of 58% on these assets.

In the normal course of its business, Mahindra Finance repossesses about 4,000-5,000 vehicles per month, using third-party agencies and its own employees, it said. The company said it expects this number to go down temporarily “by about 3,000 to 4,000 per month”, as it implements the RBI order.

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