The share price of Mahindra and Mahindra Financial Services declined over 10 per cent in the morning trade on Friday, a day after the Reserve Bank of India barred the company from outsourcing loan recovery or repossession activity.
The Reserve Bank of India (RBI) has directed Mahindra Financial Services to stop using third-party services for loan recovery. The RBI action came after a 27-year-old pregnant woman was allegedly crushed to death by a tractor which was forcibly being driven away by the company’s recovery agent in Jharkhand’s Hazaribagh.
The non-banking finance company, however, can continue to carry out recovery or repossession activities, through its employees, the RBI said in a statement.
“The Reserve Bank of India has today…directed Mahindra & Mahindra Financial Services Ltd. (MMFSL), Mumbai, to immediately cease carrying out any recovery or repossession activity through outsourcing arrangements,” the statement said.
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 added.
In connection with the death of the woman, the police had arrested one Roshan, an employee of Team Lease, a firm hired by Mahindra Finance.
Soon after the incident came to light, Anish Shah, the managing director and chief executive officer at Mahinda Group, assured support to the authorities will be provided during the investigation.
“We will investigate this incident from all aspects and will also undertake an examination of the practice of using third-party collection agencies that has been in existence,” he said.
In an exchange filing, the company said RBI’s restriction would not have a significant impact on the collections.
“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. We expect this number to go down temporarily by about 3000 to 4000 per month, as the company implements the RBI order with immediate effect,” the company said in an exchange filing.
The temporary halt to repossession activity using the third-party agencies was not expected to have any material impact either on the financials, it added.
“In the normal course of its business, the Company repossesses about 4000 to 5000 vehicles per month, using the third-party agencies and its own employees. The Company expects this number to go down temporarily by about 3000 to 4000 per month, as the Company implements the RBI order with immediate effect,” Mahindra & Mahindra Financial Services Limited said.
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Morgan Stanley has an “overweight” call on the stock with a target price of Rs 225 per share. “The company can make alternate arrangements till the order remains in force,” the brokerage noted.
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