Mahindra Finance says RBI order will hit vehicle recovery; stock tanks 12%

Mahindra & Mahindra Financial Services Ltd. on Friday said the company will immediately implement the Reserve Bank of India's order by stopping any recovery or repossession activity through outsourcing arrangements.

The Mumbai-based non-banking financial company repossesses about 4,000 to 5,000 vehicles per month, using the third-party agencies and its own employees in the normal course of its business, according to a stock exchange filing.

However, after the RBI order the company expects this number to go down temporarily by about 3,000 to 4,000 per month. The central bank has allowed the NBFC to continue to carry out recovery or repossession activities, through its own employees.

Reacting to the latest development, the company's stock tanked 12% to ₹196 per share on the National Stock Exchange on Friday.

This comes days after a pregnant woman was killed under the wheels of a tractor when it was forcibly taken away by recovery agents affiliated to MMFSL in the Hazaribagh district of Jharkhand. As per an agency report, the farmer had borrowed ₹1.3 lakh from Mahindra Finance to buy a tractor and since he had defaulted, his tractor was seized. The loan recovery agent was allegedly driving away with the tractor parked at a petrol pump, prompting the farmer to run after the vehicle. During the melee, the farmer's pregnant daughter, who tried to intervene, came under the tractor's wheels.

In its order on Thursday, the RBI said that the action is based on certain material supervisory concerns observed in the NBFC, with regards to the management of its outsourcing activities.

On August 12, the central bank had said that recovery agents resorting to intimidation or harassment of their customers will face strict action from the banking regulator. Cracking down on unlawful loan recovery practices, the RBI reiterated that the ultimate responsibility for outsourced activities of its regulated entities vests with them and they are, therefore, responsible for the actions of their service providers, including recovery agents.

Banks and other financial institutions covered in the August 12 circular have been advised to ensure they or their agents "do not resort to intimidation or harassment of any kind", including verbal or physical persecution. The RBI has said to collect debt, they can't indulge in acts intended to humiliate publicly or intrude upon the privacy of the debtors' family members, referees and friends, sending inappropriate messages either on mobile or through social media.

Fortune India reported earlier this week that Mahindra & Mahindra Financial Services had violated its own principles in the recent incident.

While sharing a business update, the company said the count of contracts under Stage 3 was 1.35 lakh and it carried a sufficient provision of 58% on these assets (inclusive of 100% provision on contracts with age of over 18 months) as on June 30, 2022.

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, it added.

Meanwhile, Mahindra Finance said it has not outsourced any collection activities in its vehicle finance business to any third-party agencies and therefore, the company does not expect any impact on the collections in this business.