Mahindra & Mahindra Financial Services Ltd may become the first Non-Banking Financial Company (NBFC) to enter the potentially lucrative credit-card market after a recent rule tweak by the Reserve Bank of India (RBI).
Mahindra Finance is exploring the possibility of launching a credit card for its customers and employees, Managing Director and Chief Executive Officer Ramesh Iyer told Moneycontrol in an interaction on May 4.
Iyer also said the company is likely to post double digit growth in assets under management (AUM) in the current fiscal year.
Iyer’s comment comes on the heels of RBI’s April 21 directive that NBFCs can offer credit cards if they receive regulatory approval and have a certificate of registration.
For co-branded cards, the RBI said the role the of the co-branding partner shall be limited to marketing and distribution of the cards. Additionally, the co-branding partner shall not have access to information relating to transactions undertaken on the card.
Shriram Group too in the fray
“We are exploring the possibility... we did not want to go in earlier with a co-branding approach. Now that we can ourselves issue credit cards, we will look at this as another parallel possibility of repayment for customers or asset acquisition for customers,” Iyer said.
“There is a team looking at the needs and requirements.., what is their readiness for that. I think we should come back with this story more specifically in a month’s time..,” Iyer added.
Apart from the Mahindra Group, the Shriram Group is also studying details of the RBI’s circular.
“We are not saying no, we are looking at the possibility (of issuing credit cards),” Shriram Transport Finance’s MD & CEO Umesh Revankar told Moneycontrol.
Bankers including Axis Bank’s card and payment division head Sanjeev Moghe say the new RBI norms will result in an increase in the number of outstanding cards and affect overall margins.
When asked about competition in the credit-card market and how Mahindra Finance will gain market share, Iyer said the employee and customer base of the Mahindra Group is a very large one to build on.
”Look at Mahindra Group as an employee base...(it has) some 2-3 lakh employees including Tech Mahindra. And then we have a very large Mahindra supplier base, they can become our very active customers,” Iyer said.
In the last two financial years, because of COVID-19- induced lockdowns, Mahindra Finance’s loan book shrank to Rs 60,445 crore as of March-end from Rs 64,993 as of March 31, 2020.
With the re-opening of the economy and in anticipation of a revival in demand, Mahindra Finance is targeting double-digit growth in its AUM in FY23 and a 2X asset growth by FY25, Iyer said.
“We have started registering AUM growth which was so far negative; now it has become positive, 1.5% or so we have started growing. I think with the disbursement growth for this year, which I expect to be definitely much upward of double-digit growth, AUM growth will also inch towards double digits,” he said.
According to an investor presentation by Mahindra Finance, the NBFC will diversify its product lines by increasing the share of small and medium enterprises (SMEs) and loans against property (LAP), among others, in its portfolio. The non-vehicle finance segment will still form 15% of the overall portfolio.
“We would double ourselves from where we are and we will go to Rs 1.20 lakh crore by 2025 and then we are saying about 15% of that book will constitute of all the elements, which would mean that Rs 18,000 crore to Rs 20,000 crore will come from all the other product lines, which is SME, LAP. Currently they constitute about Rs 2,000 crore to Rs 3,000 crore,” Iyer said.
Mahindra Finance’s Net Interest Income (NII) during January-March declined 1% on year and 4% sequentially to Rs 1,531 crore. Iyer said this was on account of the NBFC gaining market share in lower-yielding products such as car and truck finance.
“We gained market share in UVs (utility vehicles) and cars and we restarted truck business and we have done about Rs 1,000 odd crore... in trucks so those are all low- yield items and thus there is a dip in NII,” Iyer said.
As the borrowing cost remains low, the NBFC’s net interest margin has remained almost unchanged at 7.5 per cent-7.6 per cent, he added.
Mahindra Finance held a total liquidity buffer of about Rs 9,000 crore on its books as of March 31 to deal with economic uncertainties.The NBFC will likely keep maintaining a three-month buffer this fiscal year, Iyer said, adding that “it is quite possible” it will not have to maintain such a buffer in case it gets a secured line of credit from bankers.