Signs of revival turn lender bullish on India

by BLOOMBERG

MUMBAIThe recovery in India’s rural economy is likely to curb bad loans and boost profit at financial companies that specialise in credit to the country’s villages, according to one of the biggest such lenders.

Mahindra & Mahindra Financial Services Ltd (M&M Financial), which offers loans for equipment and vehicles in 330,000 of India’s roughly 600,000 villages, is seeing business growing and bad loans dropping since the middle of 2017.

That’s because the crucial monsoon rainfall was normal last year and the negative effects of the government’s shock decision to invalidate high-value currency notes is fading as authorities step up spending on roads and healthcare across the hinterland, said M&M Financial MD Ramesh Iyer.

“We have a bullish forecast for the agrarian economy,” Iyer said in an interview at the company’s headquarters in Mumbai, adding that delinquent customers are now resuming loan repayments. “The twin cashflow — income from farm produce and government’s infra spend — is leading to an improvement in rural sentiment.”

India had been ravaged by insufficient rainfall since 2015 and Prime Minister Narendra Modi’s cash ban the following year caused crop prices to crash, triggering a wave of farmer protests across India. That pushed authorities to shift policy from keeping food costs low for consumers to offering farmers higher prices for their produce.