Mahindra Finance targets portfolio diversification in new age business models: CFO

Mahindra Finance is taking proactive steps to diversify its portfolio and reduce its reliance on vehicle financing, according to the company's Chief Financial Officer (CFO), Vivek Karve.

Karve emphasized that the company has set a target for 15 per cent of its Assets Under Management (AUM) to originate from non-vehicle sectors.

The CFO outlined plans to expand Small and Medium Enterprises (SME) financing, aiming to strengthen this segment over the next two to three years to achieve the desired 15 per cent penetration of non-vehicle assets in the overall AUM. Currently, SME financing accounts for approximately 4,500 crore of AUM, indicating the company's initial strides toward diversification.

Karve said " While our core business focus will be vehicle financing, we are also looking at diversifying our portfolio, and therefore 15 per cent of the AUM needs to come from non-vehicles. And we have sown the seeds towards that."

He further stated, "Small and Medium Enterprises Financing is now about 4,500 crore of AUM. We would like to significantly increase our initiative here so that over the next two to three years, we are able to achieve a non-vehicle penetration of 15 per cent in the overall AUM," during an interview with ETCFO.

CFO's Priority: Balancing Growth with Profitability and Asset Quality at Mahindra Finance

The CFO stated " Growth for the sake of growth is not what we are looking at. The growth has to be accompanied by healthy profits and a supreme asset quality."

Karve reaffirmed the company's commitment and expressed confidence in doubling its Assets Under Management (AUM) within a three-year period. Mahindra Finance aims to scale up from 65,000 to at least 120,000 by the end of FY25. These targets were initially outlined in the medium-term game plan shared by Mahindra Finance at the beginning of FY 2022-23.

The CFO also addressed the recalibration of net interest margin goals in response to evolving market dynamics, citing shifts in central bank policies.

The company now aims for a net interest margin of around 7 per cent, down from the initial target of 7.5 per cent, reflecting adjustments to borrowing costs and portfolio strategies focused on risk mitigation.

Furthermore, Mahindra Finance has made significant strides in enhancing asset quality, with a target credit cost range of 1.3 per cent to 1.5 per cent for FY25, indicative of robust risk management practices, the CFO stated.

In terms of operational efficiency, the company aims to reduce the operating cost-to-total assets ratio to 2.5 per cent from the current 2.8 per cent, with historical averages around 3 per cent.

These initiatives are expected to contribute to an improved Return on Assets (ROA) on a post-tax basis, with projections indicating a potential increase from 2.2 per cent in FY23 to between 2 per cent and 2.5 per cent in FY25, the CFO said.