Mahindra & Mahindra Financial Services (MMFS) expects repossession activity of vehicles to reduce temporarily following the Reserve Bank of India’s (RBI’s) directive asking it to stop using third-party services for loan recovery until further notice.

“In the normal course of its business, the company repossesses about 4,000 to 5,000 vehicles per month, using the third-party agencies and its own employees. The company expects this number to go down temporarily by about 3,000 to 4,000 per month, as the company implements the RBI order with immediate effect," MMFS said in a regulatory filing.

 The company said it has not outsourced any collection activities in its vehicle finance business to any third-party agencies and does not expect any impact on collections in this business.

 “As on 30th June 2022, the count of contracts under Stage 3 was 1.35 Lac and the company carried a sufficient provision of 58% on these assets (inclusive of 100% provision on contracts with age of 18+ months). The vehicles that are repossessed are mostly classified under Stage 3 and, therefore, this temporary halt to repossession activity using the third-party agencies is not expected to have any material impact either on the financials or on Net Stage 3,” MMFS said.

 On Thursday, the RBI directed Mahindra & Mahindra Financial Services to immediately stop loan recoveries through external agents until further notice.

This action is based on certain material supervisory concerns observed in the said NBFC, with regard to the management of its outsourcing activities, the RBI said

The directive came a few days after Mahindra Finance’s outside loan recovery agents allegedly crushed a 27-year-old pregnant woman in Hazaribagh district in Jharkhand to death under the wheels of a tractor. 

 The central bank, however, allowed the company to carry out recovery or repossession activities through its own employees.

 In a note, ICICI Direct said the restriction imposed by the RBI would likely impact MMFS’ overall recoveries & collection efficiency in the near term.

“Recoveries via own employees may keep CI elevated. The company had reported volatility in its earnings and credit costs, which need to stabilise,” the note stated.

The company’s asset quality was on a recovery path. “However, with this ban, MMFS may witness an increase in gross non-performing assets as the pace of recoveries slows down,” the note added.

 Mahindra & Mahindra Financial Services is primarily into vehicle financing business. This includes financing of auto, utility vehicles, tractors, passenger cars and commercial vehicles. As of June 2022, the company’s network comprised 1,384 branches spread across India.