MUMBAI: Ramesh Iyer, Vice Chairman and MD of Mahindra Finance is unassuming. He has an academic beard, but unlike a professor, he is nonchalant and easy-going. Though dressed in a light pink formal shirt and trousers, Iyer evokes a casual-Friday vibe on a crisp Tuesday noon, perhaps because of his trademark delivery that makes every statement sound both funny and reasonable.
“We were a garage startup with two employees (Iyer and V Ravi, Executive Director & CFO). First we had one table and two chairs. Then, we graduated to two tables and one cupboard, which doubled up as a cabin,” Iyer recalls the NBFC’s humble beginnings. Warming up to the conversation he adds, “From two to 26,000 employees now, it’s been a good journey.”
Mahindra Finance’s over two decade sojourn wasn’t all smooth and Iyer isn’t shy of admitting errors. In 1999-2000, the most serious error it would have ever done was to enter tractor financing without understanding basics. Unlike nationalized banks that offered annual repayments, Mahindra Finance sought monthly installments from farmers known for their inability to pay monthly debt. It later shifted to quarterly payments. “We messed it up for two seasons. We lost money, but learnt fast,” Iyer says indicating the move was more about principle than privilege.
Those days, tractors were restricted to farming and when haulage (transporting goods and services) applications began, new cash flows emerged, but Iyer’s team got it wrong again. “We didn’t realize the tractor value depreciates faster when used for multiple purposes. We tweaked our products later,” he says candidly easing into his push-back executive chair.
Rows of potted plants and multiple flower vases add exceptional grandeur to this otherwise large, but typical corner office on the fourth floor of Mahindra Towers in Worli. To keep it this way, he brings natural flowers every day and never uses room spray. “It gives a pleasant feeling,” chuckles Iyer, who took an entrepreneurial risk quitting Ashok Leyland to start M&M’s finance venture from scratch.
When it started in 1994-95, all auto firms had finance arms. M&M was a late entrant, as tractors were short in supply and customers made own finance arrangements. It took an unusual path roping dealers as business partners, but to be a retail financier, it set up branches and currently has over 1,400. “We are present in one out of every two villages,” he says taking a sip of his garam chai. But Iyer’s thirst isn’t quenched. “We believe rural is still a large opportunity and will cover at least 1.5 lakh villages in next two years.”
Organised financiers faced challenges those days as customers had no bank accounts, credit score was unheard of and cash collections were based on mutual trust.
Mahindra Finance undertook credit assessment based on customer interactions and plotting cash flows using an in-built matrix. Whether this is a proven model can be known from the fact that the entire business even today relies on the same logic.
As captive business stabilized, it considered diversification and market leader Maruti was the obvious choice. But then Mahindra Finance didn’t belong to the select club of Maruti’s preferred financiers. It took some convincing to break ice with Maruti, but once in there was no looking back. “Today, we are a versatile, multi-product company from what started as a captive unit,” he says.
Its asset book grew from `50 crore in 1995, to `50,000 crore now, maintaining a 20 per cent CAGR. Roughly 48 per cent business is from M&M (35 per cent from tractors, and rest from trucks and others).
Non-M&M vehicles contribute 52 per cent, of which 30 per cent includes utility, 17 per cent tractors, 9 per cent pre-owned and 23 per cent cars and rest are commercial vehicles. Reeling out the business break-up, Iyer is nearly out of breath.
“I’m the number one (first employee) in my company. It’s my business, my growth,” he quips.Lending to farmers is an emotional business and if a customer can’t repay due to unavoidable circumstances, Mahindra Finance doesn’t seize the vehicle ruthlessly. “When we build a business, we base it around culture,” he stresses. The company thus went out of its way asking insurers to provide a term insurance to protect the borrower’s life, and in case of eventuality, the family can choose between the vehicle or the claim.
Between1995 and 2017, what changed significantly? From image-based, emotionally-driven, interactive business, it moved to logical, data-backed, technology-driven and commercially-run business. “When emotions were driving, collateral was deciding how much loan we would give. When logic is driving, loan is deciding that,” he says.
His second cup of tea perched at an arms-length away, on the edge of his desk turned cold once again as Iyer reaches out concluding: “Historically if you look at it, we have doubled our balance sheet once in every 2-3 years. Given where rural is heading, maintaining the pace shouldn’t be a challenge.”
Mahindra Finance: A Late entrant
When it started in 1994-95, M&M was a late entrant to the financing segment, as tractors were short in supply and customers made own finance arrangements. It took an unusual path roping dealers as business partners