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From 15 September, financial-services company Mahindra Finance’s collection agents in India’s eastern state of Jharkhand have had to forgo their incentives. Repossession of loaned vehicles has been halted. And, the top brass has been queuing the Reserve Bank of India (RBI) office. India’s largest rural non-banking financial company (NBFC) is staring at a dent both in its books and reputation.

It all began when a 22-year-old pregnant woman was mowed down by a tractor in the city of Hazaribagh,100 km from the state capital Ranchi.

On that day in September, four of Mahindra Finance’s third-party recovery agents landed at her house to repossess her father’s tractor that he had bought in 2018 through the company. During the second Covid-19 lockdown, he missed six equated monthly installments (EMIs). The total amount due was Rs 1.2 lakh (~$1,500) and he was Rs 10,000 (~$120) short.

After Mahindra Finance passed on his name to the recovery agents, they decided that the amount justified confiscation of the vehicle. And in an attempt to stop them from taking away the tractor, the woman came under its wheels and died the same day, according to the family’s neighbour.

The tractor still stands in front of her house. Mahindra Finance decided not to repossess it.

The next evening, Mahindra Group’s managing director (MD) and chief executive officer (CEO) Anish Shah, expressing grief, tweeted a statement that said they will investigate the incident from all aspects.
Mahindra & Mahindra Financial Services’ vice-chairman and MD Ramesh Iyer and its chief operating officer (COO) Raul Rebello visited the victim’s family. Rebello was tasked with taking stock of the situation as the collections department falls under him.

A week later, RBI banned Mahindra Finance from using third-party agents for repossession.

“It is true that outsourced employees are used by the entire industry who go beyond guidelines to recover assets. But because the accident happened with Mahindra, it got penalised and acts as an example for other NBFCs. Moreover, RBI has no jurisdiction over third parties,” said a senior NBFC official, not wanting to be named because he did not want to comment on a competitor.

The regulator’s penalty came right when the NBFC was beginning to see light at the end of the pandemic-forged tunnel. After two years of volatility and sluggish growth, the company’s gross non-performing asset (NPA), loan book, and profit-after-tax numbers were beginning to look better in the quarter that ended September 2022.

On average, ~45% of the vehicles loaned out by Mahindra Finance are its parent company’s assets. However, when compared to peers, Mahindra Finance still has a lot of ground to cover. It has struggled with high single-digit NPAs, when rivals consistently maintained a sub-5% figure. Mahindra Finance’s cost-to-income ratio to date is the highest among competitors. Even its quarterly profit-after-tax (PAT) is below what it saw year on year.

In the aftermath of this tragedy, the company has directed its agents on the ground to change the way they deal with customers.

AUTHOR

Rounak Kumar Gunjan

Starting out as a business journalist in 2016, Rounak has written about energy, politics, social justice and financial services. He has worked with BQ Prime, CNN-News18, Outlook Money and NewsCorp VCCircle.

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