RBI Removes Restrictions on M&M Finance


The Reserve Bank of India (RBI) granted Mahindra and Mahindra Financial Services (M&M Financial) permission to continue loan recovery and repossession actions through third parties.

The RBI informed M&M Financial of its decision to lift restrictions in response to the company’s submissions, as well as its commitment to strengthening recovery practices and outsourcing arrangements, tightening the process of third-party onboarding agents, and strengthening the accountability framework, according to an exchange filing.

The central bank barred the lender from utilising third-party services to recover loans in September, following media allegations that a 27-year-old pregnant woman was crushed to death while attempting to stop a loan recovery agent working on behalf of M&M Financial. The woman allegedly attempted to prevent the recovery agency from seizing her father’s tractor owing to loan arrears.

M&M Financials’ stock dropped more than 20% when the order was issued in September before recovering those losses by December.

Following the release of the company’s September quarter results, management informed analysts that the impact of the RBI repossession prohibition would be limited to 2,000/3,000 vehicles per month. The company also announced the beginning of a programme in which clients whose vehicles were about to be repossessed would be permitted to pay their accounts.

These words, together with the company’s outstanding July-September results, helped to assuage investors’ anxieties. Nonetheless, the incident and the RBI’s following response put debt recovery agencies under the microscope once more. In reality, the central bank released a circular in August addressing several issues relating to recovery agents hired by banks and non-bank lenders, as well as the procedures and practices used by these agencies during recovery.

The August circular, among other things, curtailed the hours for phoning borrowers on the phone to recover unpaid loans. The circular was issued against the backdrop of increasing instances of improper conduct by loan recovery agents.

In 2005, the RBI established guidelines on risk management and a code of conduct for banks outsourcing financial services.

In the intra-day trades, shares of Mahindra & Mahindra Financial Services (Mahindra Finance) were up 3% at Rs 240.60 on the BSE after the Reserve Bank of India (RBI) relaxed limitations on the company that prevented it from carrying out any recovery or repossession activities through outsourcing contracts.

The stock was trading 2% higher at Rs 238.05, while the S&P BSE Sensex was down 0.11%. On January 3, 2023, the stock reached a 52-week high of Rs 247.05.

The RBI asked the company to immediately cease carrying out any recovery or repossession activities through outsourcing arrangements until further directions were issued on September 22, 2022.

Meanwhile, Mahindra Finance shares have outperformed the market by 20% in the last three months, compared to the S&P BSE Sensex’s 4.4% rise. The stock has risen 30% in the last six months, compared to a 14% growth in the benchmark index.

On the back of a positive economic environment, Mahindra Finance announced a healthy disbursement number for December 2022, rising 67 per cent year on year (YoY) at Rs 4,650 crore. Disbursements in the December quarter (Q3) increased by 80% year on year to nearly Rs 14,450 crore. The YTD disbursement of around Rs 35,750 crore increased by 95% year on year.

Mahindra Finance reported solid disbursement figures, demonstrating strong underlying demand and market share growth. Because of the high collection efficiency, asset-quality measures are likely to improve even further. Furthermore, the company intends to diversify its growth engines and expand its non-vehicle lending share in the SME, LAP, and digital markets.