Mahindra Rural Housing Finance Ltd (MHRFL), has resumed loan disbursals and collections, both of which had been put on hold for most of the first quarter due to the Covid-19 pandemic outbreak.

MRHFL, a subsidiary of Mahindra and Mahindra Financial Services, has raised over Rs 1,400 crore in April-July 2020 to stay liquid.

Anuj Mehra, managing director, MHRFL said it was a conscious call on the part of the company not to disburse. Its business model is entirely physical as property and documents have to be checked. There was no activity In April and May, and limited activity in June.

“The company did not want to start disbursements unless and until we were comfortable that physical interaction and due diligence is done”, Mehra said.

With a freeze on disbursements, its advances were almost flat at Rs 7,783.8 crore at end of June 2020 as against Rs 7,870.1 crore in March 2020. The advances stood at Rs 7,872.2 crore in June 2019.

Keeping entity liquid during pandemic

According to rating agency India Ratings, MRHFL has mobilised Rs 1,430 crore during April-July 2020, including Rs 500 crore from National Housing Bank and Rs 700 crore via reasonably priced capital market and money market instruments.

"At this point in time, we are not facing any challenge on the liquidity front. The company is well placed. The incremental fundraising is happening at a lower cost, helping to reduce the cost of funds," Mehra said.

On pick-up in business

"By and large, the underlying trend is positive practically everywhere in rural areas. The kharif sowing has been decent. That is what should give cash-flows in October when harvest happens," Mehra said.

“Going by current the trend, we should reasonably be back to normal by October-November (for disbursement and collections). I am cautiously optimistic”, he added.

In normal times monthly disbursements were between Rs 170 crore and Rs 200 crore. The collections would be around Rs 250 crore.

Moratorium

As for use of a moratorium option by customers, Mehra said. "It is a wrong idea to say how will be paid and how much will not be paid to 75 per cent of customers were under moratorium in March. They are under it because we could not reach them nor they could reach us. Now we have started meeting them, explaining to them the implications of moratorium – it is not a waiver and only postponement and there is an interest component."

“A lot of them have started paying up. We see about 40 of per cent of people who were given a moratorium have paid,” Mehra added.

Asset Quality Woes to Aggravate:

MRHFL caters to the loan requirements of a weaker customer profile in rural geographies. The average loan ticket size is also relatively low at Rs 1.4 lakh, where the end-use is typically home improvement or expansion/renovation. The slowing economic activity due to the Covid-19 pandemic has put pressure on these borrowers’ cash flows, India Ratings said.

Also, the income volatility of these borrowers and events like unseasonal or inadequate rains can cause a disproportionate impact on their debt-servicing ability. This has resulted in higher gross non-performing assets (NPAs) for MRHFL at 15.5 per cent in (Q1FY21), from 15.1 per cent in FY20 and 13.02 per cent in FY19.

The company’s provision coverage ratio has improved from the low levels in the past to 39.4 per cent in (Q1FY21) from 32.5 per cent in FY20: and 19.32 per cent in FY19.