Aavas Financiers Limited (AAVAS) Earnings Call Transcript & Summary

Ladies and gentlemen, Good day, and welcome to Aavas Financiers Limited Q2 FY '21 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of the performance, and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sushil Agarwal, MD and CEO. Thank you, and over to you, sir.

Good afternoon, everybody, and thank you for participating on the earning call to discuss the performance of our company for Q2 and H1 FY '21. With me, I have Mr. Ghanshyam Rawat, CFO; Mr. Ram Naresh, Chief Business Officer; Ashutosh Atre, Chief Risk Officer; [ Lai Sina ] and Himanshu Agrawal, Investor Relationship; and other senior members of the management team and strategic growth adviser or investor relationship adviser. The recent and the presentations are available on the stock exchange as well as our company website. I hope everyone have had a chance to look at it. I'm very happy to inform you that during the quarter, company's long-term credit rating was upgraded from A+/Positive to AA-/Stable by ICRA. I take this opportunity to thank all of our stakeholders for their continued trust and support. At Aavas, we continue to grow consistently and have registered AUM growth of 24% year-on-year, while maintaining best-in-class asset quality with gross Stage 3 of 0.47% as of September 2, 2020. The basal reopening of the economy and people adapting to new normal, our business has also seen improvement, while the total disbursement for H1 FY '21 at 8,796 million were lower by 33% on a year-on-year basis. The disbursement for Q2 FY '21 is at 666 crores registered a growth of 3% year-on-year. Profit after tax for H1 FY '21 was lower by 4% on a year-on-year basis as per Ind-AS accounting, but registered a 24% year-on-year growth as per IGAAP accounting. Given the current situation, we have proactively adopted a cautious stance in our incremental lending. Usually, the proportion of home loan in the disbursement during the first half of the year is around 70%, with the balance 30% being other mortgage loan. This year, the proportion of home loan in H1 FY '21 disbursement is higher at around 75%, with a corresponding reduction to around 25% for the other mortgage loans. As you are aware that due to various efforts of RBA and the government, there is a marked improvement in the systemwide liquidity. We have also benefited from this to some extent, which reflects in the reduction of our average cost of borrowing over the last 6 months. Continuing to our belief of being transparent to our customer and passing on the benefit of lower cost of borrowings and payable, we have decided in the Board to reduce our financials lending rate by 10 basis points with effect from 1 January 2021. I would now hand over the line to Ghanshyam to discuss various business parameters in the K.

Thank you, Sushil. Good afternoon, everyone, and a warm welcome to our earning call. As mentioned earlier by Sushil on call, ICRA has updated our long-term credit rating from A+/Positive outlook to AA-/Stable during this quarter. The rating upgradation, which has come in current turbulent time, is a testament to our well-capitalized balance sheet, long-term diversified borrowing mix, strong liquidity profile, better than industry average assets quality and the demonstration of one of the lowest level of moratorium, which reflects the adoption of better underwriting processes, collection infrastructure and analytics framework. Our long-term crediting continued to be AA-/Stable for CARE. During the quarter, company borrowed an incremental amount of INR 5,199 million at 7% for 167 months. As of September '20, our average cost of borrowing stood at INR 7.90 on an outstanding amount of INR 75,361 million with an average maturity of 130 months. Despite the highest short-term rating of A1+, we continue to maintain 0 exposure to commercial equipment as a prudent borrowing practice. IGAAP to Ind-AS reconciliation has been explained in detail for PAT and as well as network on Slide 31 and 33 of our presentation. Further key parameters. As on September 30, September 2020, the total number of live accounts stood at 1 lakh 12,500. That is a 25% year-on-year growth. Total number of branches was 259, that is 43% new branches ended in last 12 months. Employee count of 3,519 versus 2,553 as on September '19. Assets under management grew 24% year-on-year to INR 53,669 million as on September 30, 2020. For the price breakup, home loan 73.5%; other mortgage loan 26.5%. Occupational breakup, salary at 35.1%; self-employed 64.9%. Disbursement decreased by 33% year-on-year to INR 8,796 million for H1 FY '21. But with the return of a normalcy, disbursement increased by 3% year-on-year to 6,663 million in quarter 2 FY '21. Spreads were maintained above 5% at 5.62% as of 30 September 2020. Average borrowing cost of 7.90 against average total of 13.52%. Borrowing. We have access to diversified cost-effective long-term financing, a strong relationship with the development financial institutions. Our overall borrowing mix as on 30 September is 36.3% from term loans; 23.7% from assignment and securitizations; 21.7% from NHB; 18.3% debt capital market. Our projects. Additional ECL provisioning of INR 56.8 million created to consider the impact of COVID-19 during quarter 2 FY '21. This has been arrived at by our consistent followed practice in last 3 quarters, including this quarter, by: A, categorization of portfolio into high, medium, low risk basis profiling of customers and their fixed income obligation ratio; b, reduction of valued on mortgage property in express scenario; and c, observing the [indiscernible] and assessing the cash flow stress of customers during the moratorium period. Total COVID-19 provisioning stood at 147.4 million as on September 30, 2020. Total ECL provision, including COVID-19, as stated ago, provision stood at INR 340.6 million as of 30 September 2020. Assets quality rendered past due stood at 6.20%. Gross Stage 3 stood at 0.47%, and net stood -- net Stage 3 stood at 0.32% as on 30 September 2020. Gross Stage 3 is inclusive of loan around, which are not classified as NP as per the interim order dated 3 September 2020 of honorable Supreme Court. Such account had an outstanding amount of INR 24.4 million and have been provided for as a prudent practice during this quarter. Liquidity of INR 25,870 million as on 30 September 2020. Cash and cash equivalent of 15,750 million, unavailed cash credit limit of 1,420 million, documented unable sanction limit from National Housing Bank 2,060 million and documented unavailed sanction limit from other banks and institutions, 6,640 million. Profitability. PAT decreased by 4% year-on-year to 1,166 million for H1 FY '21 as per Ind-AS accounting. As per IGAAP accounting, PAT registered a year-on-year growth of 24% to INR 1,270 million for H1 FY '21. ROA was 2.9%. ROE, 10.8% for H1 FY '21. ROA was 3.2% and ROE 12.2% for Q2 FY '21. We endeavored to maintain ROE 2.5% [indiscernible]. As on 30 September 2020, we are well capitalized with a net worth of INR 22,215 million. Capital adequacy ratio stood at 53.1%. Our book value per share stood at INR 283 for the [indiscernible]. With this, I open the session, I open the floor for Q&A.

[Operator Instructions] The first question is from the line of Karthik Chellappa from Buenavista Fund Management.

I have a few questions. Firstly, if you look at your 1-day [indiscernible] about 6.3% for September, can you give us some color on which are the geographies or the segments that are contributing to this price? And also what percentage of your borrowers have not paid a single EMI since March? That's my first question.

So Karthik, you are asking all your question, I'll each answer it one by one.

Whichever is comfortable for you, sir. I can ask all my questions together also, if you want.

Our September number 1+ is 6.2%, and this is better than our expected. Geography-wise, there is almost similar trend. There is no change across geography, maybe 0.5% here and there. Maharashtra is a little bit 2% higher because more pandemic impact there, but we are seeing that, that is also coming back to normalcy. But there is no huge [indiscernible], like we always tell when 1+ is 6.2%, so it's not 2% and 20% difference. It's 3% to 7%, 8% in between. And after this 6.2%, also in this month, almost 50% of customer has paid 1 installment already. So I think we are in a better position as of this. Any -- not yet [indiscernible] someone paid since March. Just give me 1 second. Karthik, total amount of that kind of customer is INR 44 crores.

[indiscernible] crores?

Crores.

INR 44 crores, okay.

[indiscernible] is the total portfolio of INR 8,400 crores.

So basically, about 0.5% of the portfolio have not paid a single installment.

Yes.

Yes. And this is as of August. And I will tell you, in August, total moratorium was around 10%, which is reduced to 3.2% in September, so further customer might pay.

Okay. Excellent. Sir, my second question is on the OpEx growth that we have seen this quarter. So this quarter, we have also added 8 branches. And the OpEx growth has also been quite strong. And in the past, you have indicated that we wanted to focus on existing sales first, but it so happens that this year, we've actually entered a new certain markets that is. So can you give us some of your thought process on how you are thinking of OpEx growth and branch additions and as well as new sales penetration going forward?

So as you can see H1-to-H1 comparison, our OpEx has reduced from last year H1 3.28%, to this year 2.8% And from first quarter, 2.6% to 2.8%. This is normally where when we told that some OpEx are business related. So then disbursement has increased. So in that proportion, that variable cost has increased. And we have told you is there -- in the first 2 quarters also, we told you that we will open 30 to 35 branches, which is our normal practice in AES. So we are on the right track. And [indiscernible] is subset of for us of [indiscernible] and Haryana. So there are 4 branches. So it's not like a new stake. So that is as per plan. And anyway, this 5-year block, where we open up new states will close on 31 September, 30th March. So from next year onward anyway, we'll take another block of 4 to 5 states for developing in next 4, 5 years.

The next question is from the line of Kunal Shah from ICICI Securities.

Congratulations, sir, for a good set of numbers. Again, in terms of -- if we have to look at it where, we would say that we are in terms of the normalcy. So disbursements, sir, definitely are back to 3%, 4% year-on-year. But if we can just get the trend in terms of how it's been in July, August and September, and are we very much into the growth phase or how it's going to be over the next couple of quarters? And even in terms of the behavior of the customers, no doubt now we have 1+DPD and you highlighted in terms of how many are not paying. But given the self-employed category, are most of them back to the business? And what would be the level of collection efficiency going forward for most of them in terms of there? So maybe not collection efficiency, but in terms of their business earnings, where our customers would be? And are we completely out of this entire COVID crisis?

So Kunal, [indiscernible] doesn't always stay every 1 revenue quarter. It changes its shape. So on that side, I will not comment. But as far as business is concerned, I think we are almost have been the normal pre-COVID level numbers. As you have seen this year also, this quarter also quarter-on-quarter, we have shown growth. And we are hopeful to maintain that in Q3 and Q4 also. And we continue to focus on conservative approach on underwriting side. And we are almost sourcing another 8,000 to 10,000 piles and disbursing 3,000 pile per month, which is pre-COVID number for us. In terms of self-employed versus sell lead, as you have seen, we published 1+ [indiscernible]. Even if customer has paid part installment, we counted in 1 plus. So that way, we were not hoping this to happen this early. We thought it will be -- it takes 2 to 3 quarters more to reach around 5%, 6% level of 1 plus, but because of the underwriting which -- practices, which we have adopted in the past and collection efforts, we are looking normalcy at that end. Normally, collection efficiency for us is 97%, 98% in normal quarter. We have already reached 95%, 96% and hoping to reach to earlier collection efficiency level within this quarter and also 1 plus number maybe in the same trajectory as we were in the last year.

Okay. So in terms of reading this 1+DPD. So finally, we are seeing any which was out of this also, we have recovered 50% from this in the last month. So the next quarter itself, we will see it getting back to the normalized level, which has been there also.

Yes, around 5%, which we always say, okay, 1+ should be around 5% in the business.

Yes. So it's somewhere around 4%. So when we look at the March, June, September, what we had given out in the presentation, it's somewhere around 4%, 4.2%. So we should be more or less back to those levels.

Yes.

The next question is from the line of Bhavesh Kanani from ASK Investment Managers.

My question again pertains to the 1+DPD number of 6.2%. You have shared the flavor on geographical concentration being spread well over the areas. Can you shed some color on the profession-wise color as well as the borrowers that's within this 6.2%, if there are any specific professions in which borrowers are engaged, which are witnessing more stress? And also some color, if possible, on what is your assessment on the recoverability within the 6.2%? I do understand that even in normal business conditions, we used to have 4% to 5% 1+DPD. But recoverability -- ability to recover out of that 5%, I would assume, is tougher in the post-COVID era. So I would love to hear your thoughts on this.

Bhavesh, firstly, there is no major aberration in terms of -- so we have 2 customer [indiscernible] self-employed. So normally sell, sell-in customers are around 30%. And even in moratorium side, 6.2%, around 25% to 30% standard customer has not paid. Rest is self-employed. In self-employed category also, we maintain around 40-plus categories of customers, depending on their business profile. There also, there is no operation. As we have told, they're around 2%, 3% or 4% portfolio is there, which is hospitality industry. So there, it is maybe 5 basis points more, but more or less in all the other segments, it's almost similar. And anyway, we categorize them medium, high and low risk. And we are consistent. Because of this, there is no major change in our definition of any profile of medium, low risk and high risk. As we always tell that whatever is 1+ numbers, it translates 10% to 20% of it into NPA. So anyway, if it's 6% in the good -- the better collection efficiency will achieve around 0.6. In the difficult time, 0.9% can be NPA. And we have more than that provisioned already in the balance sheet. But as a prudent management team, we will continue to relate the situation in coming quarters. And if required, balance sheet sufficiently buffer on the profit side for the -- if more posing is required. But looking at last 3, 4 years' trend, whatever is 1+ numbers, mostly 10% to 20% of it become NPA. As I already told you, 50% of the customer out of this 6% has already paid in October. So we are hopeful that we will attain our past experience of 10% to 15% maximum side going to NPA out of this number.

Okay. And so in that context, should we expect the provisions to now normalize back because since last 3 quarters, we have actually been kind of accelerating the provision.

So Bhavesh, right now, we have around INR 31 crores of NPA, and against which around 22% is normal NPA [indiscernible]. And apart from it, we have done INR 15 crore of additional COVID provisioning. So if you will see, overall provisioning is sufficient for even up to 2% of NPA. But looking at the 3, it will be around 0.6%, 0.9%. But as further quarters will come on, we will evaluate situation. And if required, we will do a prudent practice and we'll be conservative on that side.

Okay. And sir, lastly, if I can squeeze in 1 more. On OpEx side, along with sharp improvement in disbursements, the OpEx have also gone up sequentially materially, when should the OpEx to AUM ratio settle down? And some color on structural savings we have generated out of any realignment or restructuring out of which this funding fundamental cost.

Bhavesh, we always tell that year-on-year basis, there will be 35 to 40 basis point OpEx to a year reduction. So in FY '19, it was 3.81%, last year it was 3.4%. And this year, again, we hope to reduce it by 40 basis points. And for next 2, 3 years, we are seeing the same trajectory on this part. And until now, customer has not requested for us for the restructuring of the loan, though we have got the policy of books from the board. But we are not seeing any restructuring in our book because mostly it's a small ticket loan, average ticket sizes of INR 9 lakh. And we don't have total corporate loan [indiscernible] book is around 0.2% of the book totally. So we don't see, at this point of time, any restructuring to be done in our book.

The next question is from the line of Piran Engineer from Motilal Oswal Financial Services.

I have 2, 3 questions. Firstly, can you give me a breakup of your employee count as per function wise? Like because we have one of the largest teams on the street, about 3,500 employees. Last year also, you added 1,000, 1,500 employees. So I'd just like to understand how many are in credit, how many are in collection, how many in sales? And as the business grows, let's say, beyond COVID, 20%, 25% annually, how should we think about employees and employee costs also growing? So that's my first question.

Piran, department-wise, maybe I will not be able to tell you. But as a philosophy, we have 2:1, so 2 person in business and that support team is 1 person. So there's the normal breakup on the employee side. We always invest for future growth. And looking at competition also, we keep the bench strength. So for 25% business growth, the number might not increase sequentially because our senior management side and supervisory level, we have sufficient bench strength and people. And supervisory level is tough and trend level staff increases in proportion to business and certain time for investment also. So we are opening branches and branches becomes fully effective in 3 years' time. So that is the trajectory on that side. But on OpEx side, as I've told you, year-on-year basis, 35 to 40 basis points of reduction from OpEx to [ ATA ].

Okay. Sir, my question, how much of top-up did we do this quarter? I believe it was INR 31, INR 32 crores last quarter.

So this quarter, total top-up is less than 1% of total disbursement.

Okay. Fair enough. And sir, just lastly on Slide 24, where you mentioned principal repayment of 300-odd crores every quarter. Are you factoring in some prepayments, which are business as usual sort of prepayments? Or are these more contractual?

Yes. So we take behavioral side and whatever -- every -- whatever we see as a...

Are you asking for asset side or liability side?

Asset side. Assets side. liability will be contracted to INR 314 crores.

Yes, on asset side, during in this COVID period, as explained in the last call also, we have assumed lowest prepayment rate. Otherwise, in normal business scenario, we take a 3-year average. And the 75% of that we consider for the factoring in the principal collection in every quarter. But during the COVID phase, we have assumed just 20% of normal prepayment rate.

Will profit be enough?

Yes, it will include then normal business profit also.

So Piran, our quarterly profit [Foreign Language]. So that is there.

Sorry, sir. I missed that last part.

[Foreign Language]

The next question is from the line of Antariksha Banerjee from ICICI Prudential Asset Management.

Yes, sir. Firstly, just continuing from the last question, if you can give us a number of people in your underwriting and collections team, sir, that will be very helpful if you have that detail.

[Foreign Language]

[indiscernible]

[indiscernible] employee is [indiscernible] about a year to a level of [Foreign Language] supported by 10% to 18% collection [indiscernible].

So 800 roughly split half-half? So 400, 450 level each of underwriters and collections. Is that a good number?

Yes.

Okay. So I was actually just trying to place the number of hires or log-ins and how many per person is -- we are doing. So it comes out to about 30, 40 a month at a rough level at the underwriting. Is that a...

[Foreign Language] That's a good number. And again, average. Because some branches [indiscernible] on the other side. So we keep a capacity level of 30 cases a month. So we have that capacitive buffer also for the growth.

And sir, on collections, have you increased the number of people over the last 2, 3 quarters substantially? Because in this environment, it will be necessary, no?

So Antariksha, we have added some around 50 people there only because as we have a team at the business level also create team also. So both those teams also has helped in Q1, Q2 for the...

Okay. So they used to do that job.

Yes, yes.

Okay. Sure. Sir, on your rejection rate. So you mentioned this 10,500 [ sales ] coming and 3,000 crores at 30% rate. I remember it used to be there during the IPO also [indiscernible]. So after COVID, isn't the rejection rate going up? Because I thought [ files ] would have been coming more, right, because of less players in the market or maybe you could have tightened some of your loans like cash salary [ collating ]. Is there something like that, that has happened?

No, I think we try to be consistent, job outsourcing better [indiscernible] sourcing [indiscernible]. So those files which you are saying that should be rejected, that was not included in sourcing.

Okay. But in terms of filters, file sanctions or the underwriting team, are there some additional learnings from COVID? Or it is what it used to be only? So that is sufficient?

No. In my previous talk as I have told that earlier, there was a negative list. Now there's only positive list. So we work laterally from positive list and thus everything we will not do. And that's where -- and we improved the log-in filter itself. So these files will not even log-in like cell data and whatever you are telling.

So it [indiscernible]. And just 1 more question on this 1+DPD just to clarify my understanding. So roughly 6.2% of people as of September end had not cleared their full installment. That is why they are 1+DPD. Is that right?

Even part installment. Because for us, even part...

94% had paid in full. Is that right?

Yes.

So out of the remaining stakes, about half of them have cleared full installment in October, but some more people would have wanted added to that list?

It's correct. Correct.

So you just explained [ 2 crores ] you are saying will go back to [ 5 ]. That includes some more people coming into the pool, but old pool, say, 50% have already cleared the entire thing by whatever 28th of October.

28th of October.

The next question is from the line of Aravindan Jegannathan from JK Capital Management. .

I just wanted to understand your ROA 3 because I feel you are saying that your OpEx-to-asset ratio is actually coming down on a consistent basis. And in that case, why would your ROA drop from 4% level to 2.5%? Like why do you feel that -- why are you so conservative in giving an ROA benchmark of 2.5% and above? Because maybe NIMs coming down has a mathematical impact of increasing leverages there. But beyond that, do you feel there is intense competition or something that is going to bring down the ROA? I mean because at 7%, 7.5% NIMs and 3% ex OpEx, you get a 4.5% pretax ROA and around 3%, 3.5% post-tax ROA on a comparable basis. So I want to know the reason why -- on your conservatism, why that 2.5% level?

So, [ ROA ], we say 2.5%. So we also say that it will be on 6 to 7x leverage book, 2.5% ROA. Since right now, we are less leveraged because this is the capital in IPO also. So that's where, right now, with excess capital, we are able to give excess ROA, which is for this quarter, is 3.21%. For H1 cumulatively it's 2.9%. And so we want to maintain and which we have maintained in the last 36 quarters also 2.5% and above in a fully leveraged balance sheet basis. So normal assumption is that 2.5% ROE, gross it up by tax, then your 0.5% for the credit cost, then your OpEx. That should be your lending rate minus borrowing rate. So capital is -- and as you'll see, we are maintaining our spread consistently. OpEx is also coming down. And when balance sheet will be leveraged to that extent of 6% to 7%, then there will be 2.5% ROA. Till that time, we will continue to give more ROA on that side.

No, my question is exactly that. So you are saying the compression of ROA is purely due to the leverage going up and the cost of funding going up. I mean the overall cost of funds, not the range of cost of fund. So that's the only thing. You're not foreseeing the spread coming down below 5% in a meaningful manner. You are not taking such a factor.

We also tell that we anticipate even in -- when the IPO, we said that this 5% can go down maybe 4%. But that we will compensate by reducing the similar number of OpEx by [indiscernible] [ period and ] [indiscernible]. That spread we were still able to maintain, but OpEx has reduced. In future, maybe 3 to 5 years down, we might not be able to maintain this 5% spread. Maybe it can come down by 50 basis points, 75 basis point, 200 basis points. But similar amount of balance sheet lever we have on the OpEx side. So it will reduce our OpEx by 30 to 40 basis points every year. We will match that number. So still we will be able to do 2.5% ROA.

You're already at 3%, maybe the 3% level of OpEx to assets. How long can you achieve the 35 bps reduction on a consistent -- I mean you hit the floor at some point, you need expenses to run a business. So what would be your lowest trough level of OpEx-to-asset ratio?

We believe in long-term running the business. We will continue to do investment. But keeping that in mind, 30 to 40 basis point is still possible for next 3 to 4 years.

You think your OpEx-to-asset ratio can go as low as 1.5%?

Yes. Right now, it is around 3%. So to 30 to 40 basis point means 1.75% to 2% in the next 2 to 4 years.

Okay. So that level-- that low loan can be achieved.

Yes, yes.

The next question is from the line of Bharat Shah from ASK Investment Managers. .

Sushil, the disbursement that I see for the second quarter, probably the only lending entity I've seen so far where disbursements for the second quarter have exceeded disbursements of the last year second quarter. So is this an indication that we feel that basically things have normalized from our perspective, and we are ready to do the business in its full [indiscernible] [ strength ]?

So Bharat, if you will see that our employee strength has increased from last year H1 to this year 1,000. So we invested in our capacity building in H2 of last year. And first quarter COVID and [ closer ], it was not there, but we have built our capacity to have much more business than this. So even at reduced capacity level, we were able to achieve this growth in Q2 of our disbursement. Yes, as per business terms, now again, we are sourcing around 9,000, 10,000 files per month. So that is showing the normalcy in the areas where we are working. And hopefully, since we always keep bench strength also, looking at the competition, so we will be able to continue this growth momentum for it. Nothing as unfortunate happened in H2. So we will continue that journey. And this is our normal level. We have more capacity than this which we have built for looking at 2021, 2022, '23 numbers because we invest in 2 to 3 years ahead in our distribution model. I hope I have answered your question.

Secondly, Sushil, view on technology. I wanted to understand what are our efforts because increasingly, finance and lending is a cross-section of finance along with technology. Customer acquisition, customer analysis, scaling, disbursement, recovery, in artificial intelligence and risk control, fraud prevention either internally or externally. All of these increasing the technology are a very, very critical field. [ These are all the cities ] on that front.

Yes, so Bharat, as we have told in our last call also, so at Aavas, we have married our brick and mortar model to technology platform. Today, our 100% leads come through mobile app. Our repayments are 99.9% through digital mode and NSEH. Our 100% of MIGs are coming through SaaS server without any member intervention. Our 100% data is geotagged and we do allocations and collections through technology. We have 80 people technology team and 15 people data analytics team in-house. We do predictive analytics also. Our total portfolio is in heat map. So earlier, like [ I might just ] do the country, state, district fieldwork. Now you put a finger on India map and ask within 5 kilometers of this finger how many customers you have funded and their demographic detail and the collection pattern for last 7 years, it's on click available. Then we have implemented 100% CRM. And today, customer app is there. On customer app, customers can take 85% of customer needs through that app, no need to come to the branches. So that is there. Still, we are improving every facet of our working and [ reducing ] because we know our technology will be a survival risk for us going future, and technology will enable us for the cost reduction also. So we continue to put investment in that site. Today, we are on cybersecurity compliant and bank level kind of framework rather than HFC and NBFC. Secondly, we continue to do more and more on predictive analytics. As we earlier told, we used to predict which customer will bounce. And we reached 85% accuracy on that level. During COVID, it came down to again 30%, 40%. Again, we are putting our learning and trying to take it back to 75%, 80%. We predict which customer will come for [ forfeiture ] because that is the perennial problem for any finance company portfolio going out. So there, our retention rate has increased, and that has given us leeway from around reducing 50% of our portfolio going out with that technology. Further, we have introduced robotic process automation and machine learning things in cyber [indiscernible] or processes and integration. Now our collection allocation is also based on geotagging and we are using satellite-based software if we are to allocate appropriately. And that has helped us. Despite in COVID time, our collection number in terms of number has increased by 50% to 80%, but we were not able to without -- we have increased our collection team only by 10%, 15%, and we were able to manage that kind of number. Further, in every process, like HR, we have now introduced machine learning-enabled software and performance system. So we will continue that journey. And I think that is the differentiator, and that's where we are confident that we are able to reduce our OpEx also 40, 50 basis points year-on-year despite growing book at the predicted level. So we'll continue to do that investment in this side.

Do you [indiscernible] marriage of physical and digital [ mature ] book, [ shoddy cable ] contemplation in every consumer [ geography ].

[indiscernible] there are also [indiscernible] just with increase of time, it continues to increase and ease of business and how to see that from the future perspective. So from 3 year hence, what problem we'll face, we are investing in today. 5 years hence, what can the problem be, we're investing in today. But whatever business opportunities are there. So I myself has done some calls from Howard on fintech. And our technology operations team, people are also doing that. So we are continuously evolving and learning ourselves also. And seeing what are the opportunities and best practices are currently, work which we can improve for implement in Aavas. So we are doing both the [ side ].

Delighted to know. Congratulations for a very competent performance in tough times.

The next question is from the line of [ Vikas Kasturi ] from [ Focus Capital ]. .

I have a few questions on -- about your business. So my first question is about the balance transfer out. So sir, since your credit underwriting is so good, probably the best in the industry, do your competitors try to poach your good customers? Could I ask the other 2 questions also?

Yes, yes.

So my second question is, sir, you have open great teams to explain your business model in the previous conference call. And you have constantly mentioned that you do not outsource any leads. So is there any particular reason why you don't outsource any leads using DSAs? Another question is, sir, again, just to be opportunistic of the low interest rates currently, you could, for example, you could use some CPs to lower the cost of borrowing. But you've taken a decision not to have any CPs in your borrowing. So could you just throw some light on these things, sir?

Yes, thank you. I'm taking your question one by one. Your first on the balance transfer. Definitely. We, as Aavas, is creating a new market segment, rural and semi-urban area, not competing with the banks and institutions, large HFCs and NBFCs. This -- in their life of customer, we are creating value in the system, in the customer's life basically because if you visit 100 customers, you will find 95-plus customers are living in those houses. So -- but as they grow, yes, they may be challenged on the balance transfer also as the other player is also facing the similar problem. This is, I think, a normal course of business, somewhere on an average 12% to 18% of opening AUM balance transfer happened with everyone in the industry. But we have built up a certain analytics tools inside the company with the help of IT through which we forecast and predict a model [ via ] which a customer in the next 2 quarters will have a foreclosure or some sort of a balance transfer request because their [ behavior ] is increasing. So we keep engaged our central team with such sort of customer and find appropriate solution for them. So that whenever they approach us, our team can immediately address their problem, provide a solution to them. And earlier, when we see, let's say, 1, 1.5 year back, if similar problem is coming to us, those are customers approved to 1 branch and the branch say we are forwarding your request to head office. And then the head office request counts, then again, they provide what is the issue. Almost 5 to 10 days could be lost that period, and by the time customer has that, confirm plan with the other institution to borrow from them basically. But now within 24 hours, we start to engage with that customer immediately, address those problems. That's why you see our balance transfer has been successfully has been reduced substantially in last couple of quarters. Some of the competition issue also, some of that, I will refer to also [ as go on that site ]. But there's no harm to assume, yes, there will be some balance answer in the normal case business scenario. Regarding DSA, non-DSA, we are -- I think when we -- 10 years back, will form this company. And continuously, every year, we evaluate annual business plan, annual discussions. We believe very strongly the in-house model where we are all sales teams generate the business leads at a ground level. We adopt various mechanisms at a ground level. Start with various in-house localized model we have developed through which we generate a lead. Later on, in last 2 years, technology is also helping us to generate those leads through -- we have certain unique apps which we have made for our housing ecosystem, who has helped, like, all the cement suppliers, [indiscernible] supplier, water supplier, all these we made them for our connector -- lead provider for them. For them, it's not a DSA. For them, it's really creating value for their own customers also. That's why they also create the value for those vendors also in that business. So we strongly believe, as a non-DSA model, we have performed well until now. We believe to continue non-DSA model for -- at least for near future. No CPs, whether CPs, I think we, in last 10 years, we never borrowed in commercial paper. When we are having a less than low rating, CP was the highest rating. Our long-term rating of A+. Even then we didn't borrow to commercial paper. Now we have a AA- predicting for the long-term sources. Average cost of borrowing is already fallen at 7.9% with average maturity of 130 months of overall liability maturity, we don't feel we need to adventure unnecessarily in the commercial paper, which we have seen [ their delay ] has suffered a lot on that account.

The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.

I just have 1 clarification. In the results which we have filed with the stock exchange under the disclosures as required by the RBI circular, there is one line item that says respective amount where the asset classification benefit is extended as of September 30. And that amount is about 85.6 crores. So is this the amount of NPL that would have slipped in September, has the supreme score direction not been there?

Yes.

Yes.

Okay. So which means if the Supreme Court direction was not there, the actual NPL would be close to 1.5%. Is that how I should interpret it?

This 85 crores has -- because of all DPD freezing from the 29 [ February ] yes, this customer has not -- had taken a moratorium up to 85 crores. And the 85 crore is a customer who took a 3 or more moratorium in that out of 6 moratorium period. So if this freezing didn't have been provided by RBA, so this 85-crore figure has been moved to 90 plus.

Okay. Just 1 more data point. Would you have the Stage 2 loans percentage for June and September?

Stage 2. Yes. Stage 2, we have. Just 1 minute. We have 1 plus 6.2% [ breakable debt ] [indiscernible] Stage 1 is 99%, Stage 2 0.6%, Stage 3 0.47%.

Sir, can we have the figure again? Stage 2 0.6% for September?

Yes.

What will it be for June?

June, give me just a couple of minutes. 0.7? 0.7.

Okay. Sir, the reason I asked this is basically the amount of NPL, which would have slipped without the Supreme Court direction, is 1% of the loan book, which is about 85 crores. But this is even larger than the Stage 2 loans. So that means these people were probably over you from the beginning itself, is it?

The beginning?

I mean, from the beginning of March itself.

Yes, obviously. Obviously, this table, are they -- are testing. This circular itself says, I think these customers, whose ever is customer between 1 to 90. Or 29th [indiscernible] need to report into the quarter in this table.

Okay. Okay. Perfect. Got it. I understood.

Thank you. I would now like to hand the conference over to the management for any closing comments.

Yes. Thank you all. Thank you all for attending the call. And to summarize, at Aavas, we aim to be one of the key enablers in broadening and deepening of credit facilities to unserved and underserved customer in the semi urban and rural areas. We feel that our deep understanding of this segment and our in-house execution model will enable us to fulfill the aspiration of our customers and expectation of our stakeholders. Further, we will continue to make investment in technology, analytics and digital initiatives as that will further improve the operational efficiency and enable us to serve our customers even better there. Thank you so much for your time. For any further information, we request you to get in touch with Himanshu Agarwal in our Investor Relationship team, or SGA, our Investor Relationship adviser, and they would be happy to help you. From entire family of Aavas, here, I'm wishing you a very happy Diwali in advance, a very prosperous New Year. Thank you very much.

Thank you. On behalf of Aavas Financiers Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.