Aavas Financiers Limited (AAVAS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aavas Financiers Limited Q3 FY '24 Earnings Conference Call. This conference may contain certain forward-looking statements about the company, which are based on beliefs, opinion and expectation of the company as on date of this call. These statements are not the guarantees of future 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. Rakesh Shinde, Head of Investor Relations at Aavas Financiers. Thank you, and over to you, sir.

Thank you, Ria. Good morning, everyone. I extend a very warm welcome to all participants. Thank you for participating in the earnings call to discuss the performance of our company for quarter 3 and 9 months FY '24. The results and the presentation are available on the stock exchanges as well as on our company website. And I hope everyone had a chance to look at it. With me today, I have entire management team of Aavas, including Mr. Sachinder Bhinder, MD CEO; Ghanshyam Rawat, President and CFO; Ashutosh Atre, President and CRO; Siddharth Srivastava, Chief Business Officer; Surendra Sihag, Chief Collection Officer; Ripudaman, Chief Credit Officer; Jijy Oommen, Chief Technology Officer; Anshul Bhargava, Chief People Officer; and Rajaram Balasubramaniam, Chief of Strategy and Analytics. We will start this call with an opening remarks by our MD, Sachinder Bhinder; CFO Ghanshyam Rawat; and CRO, Ashutosh Atre, followed by a Q&A session. With this introduction, I hand over the call to Sachinder. Over to you, sir.

Thank you, Rakesh. Good morning, everyone. Thank you for joining the call early morning. I want to take this opportunity to wish all of you and your family a very happy new year, and a 2024 filled with health, happiness and success. We are delighted in yesterday's Interim Union Budget announcement, the continued government trust to boost housing for all and the plan to build additional 20 million houses in the next 5 years with promoting to buy or build own houses under Pradhan Mantri Awas Yojana Gramin augurs well with Aavas' vision and mission. Let me now take you through the key highlights of our performance. As a part of our Aavas 3.0 strategy, we embarked on the journey to become India's most trusted affordable housing finance player led by people, process and technology. Our investment in technology will help the business deliver sustainable growth and superior customer experience. Our digital transformation journey is progressing well and equally well adopted among our employees. The implementation of best-in-class technologies like Salesforce, which is a part of LOS, Oracle Flexcube LMS and Oracle Fusion will help us in building scalable and sustainable platforms. After rolling out Phase 1 of Salesforce, we have successfully processed 1 lakh plus applications and sanctioned cases worth INR 45 billion through our Salesforce platform. We have now rolled out Phase 2 by implementing Account Aggregator Integration and further other upcoming modules like lead management, customer service integration, app score will be going live in the coming months. Oracle Fusion, ERP system was made live from September 2023 and stabilization of the new system is progressing well. The new loan management system on the Flexcube is currently under testing and migration. We have successfully piloted a ChatGPT powered GenAI chatbot with multi-lingual support in the customer app. With the help of stable infrastructure on hyperscaler clouds, omnichannel experience for our customers, a modern application ecosystem built using Salesforce and Oracle products, machine learning models for analytics, technology is playing a key role not only in organizational transformation, but also in bringing down TAT meaningfully, a log-in to sanction TAT has reduced from 13 days at the peak to 9 days as we speak. We are expecting to complete our major business systems transformation in the next 3 to 4 months. In terms of business update, in Q3 FY '24, we saw a pickup in our disbursements. We disbursed INR 13.62 billion, registering a 8% Q-o-Q and 13% Y-o-Y growth. We are witnessing a month-on-month improvement in disbursement. In January, the month of disbursements also have shown growth, which gives us confidence to deliver on our guidance. We continue to grow our AUM in line with our guidance of 20% to 25% Y-o-Y growth. We have registered AUM growth of 23% in quarter 3 FY '24 versus 22% in quarter 2 FY '24 and have crossed INR 160 billion mark. As a pan-India organization, we are seeing well diversified growth in disbursements across the states, especially from states like Karnataka, UP, Maharashtra have shown a robust growth. We have opened new branches -- 5 new branches during this financial year in our existing states to deepen our reach. In terms of the new states that we're deepening our understanding in the southern states like Karnataka that gives confidence to expand in the adjacent states in the Southern India, which is a huge potential. We expect our disbursement growth to catch up. It would be faster in FY '25, enabling us to deliver on our stated guidance of 20% to 25% AUM growth across the cycles consistently. We expect doubling of our AUM in the next 3 years. In terms of our quarter's financial performance, our AUM grew 23% Y-o-Y at INR 160 billion during the quarter. During the 9 months, we reported a net profit of INR 3,480 million, registering a growth of 15% Y-o-Y, led by 18% Y-o-Y growth in the net total income. We continue to maintain spreads above 5%. Further, important to note, OpEx to asset ratio has moderated by 30 bps from a high of 3.79 in Q1 to 3.49 in quarter 3 FY '24. While maintaining our operating metrics, we have delivered operating profit growth of 11% Y-o-Y for quarter 3 FY '24 and 18% year-on-year for 9-month period FY '24. We believe with increase in productivity led by a tech transformation, coupled with rising contribution from OpEx-light channels would further help us in improving our OpEx ratio. In terms of asset quality, it remain pristine with 1+DPD at less than 4%, at 3.75 during the quarter 3 FY '24. Our GNPAs are broadly steady at 1.09% with 5 bps Q-o-Q rise in line with the seasonality in nature, credit cost continues to remain below 25 bps. In terms of liability, we have one of the best well-diversified liability franchise. We are one of the unique HFCs where the tenure of liabilities is higher than the tenure of assets. Our incremental borrowing cost remains slightly above 8%, indicating a cost of borrowing peaking out in line with benchmark rates. I would now hand over to our CFO, Ghanshyam Rawat, to discuss the financials in detail.

Thank you, Sachinder. Good morning, everyone, and a warm welcome to our earning call. In terms of borrowing, we continued to borrow judiciously, and we raised around INR 42,934 million at 8.14% during first 9 months of FY '24. For Q3, we raised around INR 12,173 million at 8%. Total outstanding borrowing as of 31 December 2023 stood at INR 1,45,011 million. Overall borrowing mix of 31st December 2023 is 47% from loans, 24.2% from assignment and securitization, 18.8% from NHB refinancing and 10.1% from debt capital market. During the quarter, overall cost of borrowing increased by 9 basis points quarter-on-quarter to 7.95%. Our incremental cost of borrowing for Q3 FY '24 was 8% versus 8.3% in Q2 FY '24. Lender support continued to remain extremely strong in Aavas journey. There is access to diversified and cost-effective long-term financing, a strong relationship with various development financial institutions. As of 31st December 2023, we maintain a sufficient liquidity of INR 40,750 million in the form of cash and cash equivalents and unavailed CC limit of INR 18,510 million. Documented unavailed sanctions of INR 22,240 million, including INR 7,000 million from National Housing Bank. In terms of spreads, as of 31st December 2023, the average borrowing cost 7.95% against an average portfolio yield of 13.07% resulted in spread of 5.12%. We have been able to maintain our spread above 5%, in line with our guidance despite competitive pricing pressures. Our margins, NIM as a percent of total assets during the 9 months stood at 7.94%. Our NIM in the absolute term has increased by 18% year-on-year for 9 months FY '24. In terms of operating costs, our OpEx to assets ratio improved by 30 basis points to 3.49% in Q3 FY '24, to a peak of 3.79% in Q1 FY '24. Similarly, our cost-to-income ratio for the quarter was 45% from 47% in Q1 FY '24. Our total cost has increased by 18% year-on-year in 9 months FY '24 against the 31% in FY '23 full year. We are committed to bring down OpEx ratio in gradual manner towards 3%. Credit cost during the quarter stood at 25 basis points and 22 basis points in 9 months FY '24. In terms of other parameters, profitability during the quarter increased by 8% year-on-year to INR 1.16 billion and 14.6% on year-on-year basis for 9 months FY '24 to INR 3.48 billion. ROA stood at 3.22%, and ROE was 13.45% for 9 months of FY '24. IGAAP to Ind AS reconciliation has been explained in detail for profit after tax and net worth on Slide #30 and 32 of the presentation. We are well capitalized with a net worth of INR 36,314 million and capital adequacy ratio at 45%. Our CAR has impacted by 200 basis points -- 277 basis points on account of new regulations pertaining to high risk weightage 125% on non-housing loan portfolio that is LAP book which is around 15% of total AUM. Total number of live accounts stood at 2,06,618, translating into 18% year-on-year growth. Employee count is back to March level around 6,000. Now I would like to hand over the line to CRO, Ashutosh Atre, to discuss the assets quality.

Thank you, Ghanshyam. The key portfolio risk parameter, asset quality and provisioning. One day past due stood at 3.75% in 9 months FY 2024 as against 4.05% at the 9 months of last year. Gross stage 3 stood at 1.09% and net stage 3 stood at 0.79% as of 31st of December 2023. During financial year '22, our resolution plan was implemented for certain borrowers -- borrower accounts as per RBI resolution framework 2.0 dated 5th of May 2021. This is the perceived risk and as a matter of prudence, some such accounts with an outstanding amount of INR 713 million as of 31st of December 2023 have been classified as Stage 2 and provided for as per regulatory guidelines. Out of INR 713 million, INR 544.3 million is into less than 30 DPD bucket. Total ECL provisioning including that for COVID-19 impact as well as the Resolution Framework 2.0 stood at INR 845.6 million as on 31st of December 2023. Aavas is strongly placed to continue delivering industry-leading asset quality. With this, I open the floor for question and answer. Thank you.

[Operator Instructions] First question is from the line of Abhijit Tibrewal from Motilal Oswal.

Sir, my first question is on loan disbursements. I do not want to labor too much on disbursements since I've asked this question to you last quarter as well where you had shared that, you will need a couple of quarters to get your disbursement run rate?

Abhijit, you are not audible. Can you...

Is it better now? Is it better now?

Yes. Little bit better. Yes.

So sir, what I was saying is, I mean, the first question was on disbursements. I mean I asked you this question last quarter as well where you had shared that we need a couple of quarters to get the disbursement run rate back on track. But very clearly, I mean, I'm sure you will also have acknowledge the disbursement engine is maybe not working as one would have liked right now. So just wanted to understand, is this something unique for us or is it because of the sectoral demand itself being weak? Is it some kind of a zero-sum game wherein some player becomes aggressive in a particular quarter and then the other peers kind of suffer? And maybe a related question during your opening remarks, you had shared that your LOS has already been implemented, but you yourself acknowledged that the LMS is under testing now. So by when will it be implemented and when it gets implemented, will we again have an impact on the disbursements?

So Abhijit, I'll answer the question. So I'll answer the question in 2 parts. You have 2 basic questions. I think as we have guided earlier, we continue on the AUM growth of 20% to 25%. I think on the disbursements, what you're referring, we've seen a sequential month-on-month growth, and that gives confidence to us as management team to -- in the coming quarters to come back to the growth on the lines, what is expected. That's one. Secondly, I think on the tech transformation, we'll have to really appreciate that it's a overall of the entire tech transformation right from an LOS, LMS and ERP. The Phase 1 of LOS and the Phase 2 of LOS, which is the loan origination system has gone live. The second phase, which is the loan management system is under implementation, and it will take another 3 to 4 months for us to get it live. I think once all of them, the 3 systems are live together in the coming 3 to 4 months, we see a real tech initiative transformation benefits really flowing in actually. So I think this is what will really help us. They help us in 2 counts end to end, as this period of time, when we speak, our ability to have 30% lead generation from the digital channels and 10% disbursements coming from those channels will get augmented, and we will move towards more defined business sourcing channels like the Mitra, eMitra. The recent tie-up which we have done is the eMitra tie-up in Rajasthan, which has an OpEx light kind of a model where the sourcing is really defined in the peripheries and deep down of Rajasthan, and a couple of them, which we are in actually talks, so this will help us in sourcing, in defining and transforming the technology what we have implemented to really see the benefits. But in the initial phase, as we talk, I think on a system which we've got implemented, having seen 1 lakh plus of applications going through and INR 4,500 crores of sanction go through gives us a confidence that the stabilization on the LOS is there, and we see green shoots on those lines, actually. And we see that in numbers on month-on-month improvement on the disbursement side, Abhijit.

Got it, sir. So sir, I mean, if I might ask, what was the disbursement run rate like in January? .

So as we speak, it is in -- compared to the last January, we are in excess of 20%, 25% of the previous year. But that gives us confidence and improvement over December, so to say. Yes. That gives us the confidence. And what -- see, Abhijit, you will have to appreciate the 2 parts. It's a foundation of the tech, which has been implemented as a whole and across and this has started showing green shoots. It's the foundation which is being set up. And without what I would really appreciate with the management team or the tech transformation team and with our partner, that this has been a very laminar rather than being anything which would create the road bumps or anything which disrupts actually in such a major tech transformation. So I think one is the tech transformation. Second is the behavioral adaptation across 350 branches, 13 states across the length and breadth and the direct sourcing model, which we do. So I think that is a big amount of behavioral adaptation, which is there. And the green shoots of that in improvement, green shoots on, as I talk about reducing the turnaround time from 13 days to 9 days are there in them. As a result of which, you'll see those kind of initiatives, which we really have a monetization happening. One of the key factors which we said that you'll have to really appreciate this kind from a 3.79% OpEx ratio to 3.49% a sequential reduction with that is also one of the testimonies of the fact actually. So there are green shoots, a good sound tech foundation with process people will -- are showing signs, actually.

Sir, my second question was around your yields and margins. I think during our opening remarks also, we acknowledge the competitive pressure which is there on yields. But very clearly from what it looks like, right, I mean we're having to kind of retain customers by offering them lower interest rates, which is obviously having an impact on our yields and consequently on margins and spreads. But a related question here, I think I also heard during your opening remarks that you are guiding that cost of borrowings have now peaked out and you will expect it to kind of remain stable. So you could just explain the competitive dynamics, which is leading to this kind of yield compression? And then, I mean, how should we think about cost of borrowings going ahead?

I'll divide the question in 2 parts. The first question on the compression because of the competitive pressure. I think 2 things there are -- 3 things happened actually. One is the time when you try to retain the right kind of a customer, which is BT in, which reduces the rate, I think that puts pressure. Second is when the BT out happens, you have the high yield which goes, but I think we are ready to let that go and fly because what we've seen in our observation is whatever we let go because some of the players in the market try to over leverage the customer, has resulted into customers 3x worse off than what it was at Aavas but that loses across a certain amount of yield there, a yield because you retain a good customer and some part of it is on the competitive pressure. So that's the 3 sites, if I were to talk about that. But as we say, with the quality and with maintaining the one plus, I think what is right for the institution as risk-adjusted returns, we'll continue to do that what is right for the institution. On the cost front, I will have Ghanshyam talk about how has it peaked out and how it will span out to the coming quarters?

Thank you, Sachinder. You see our cost of...

Could you please return to the question queue for follow-up questions, as there are several participants waiting.

Yes. I think the cost of borrowing question was there. Let me address that question first. Cost of borrowing, if you see, a digit on quarter-on-quarter, with the last quarter, we borrowed at 8.3%. This quarter, we borrowed at 8% incremental cost of borrowing. And secondly, you see our now overall liability portfolio is at 7.95%. And we are at an incremental borrowing at 8% around basically. So that give us the confidence we're almost at a peak level of cycle at a cost of borrowing, a few basis points here and there, that's all. I think almost, we are at a peak level basically.

The next question is from the line of Shweta Daptardar from Elara Capital.

A couple of questions. So our employee count stands at around 6,000, right? And we have also been progressing well on LOS systems and the tech transformation. So how do you see going forward the productivity improvement? And do you see consolidation around the 6,000 odd count? And if you could just bifurcate how much of this is part of collections and how much is actually on the ground or on the business acquisition side? That's question number one.

I think on the collection side, we can go on record saying that despite the increase in AUM in the last couple of years, we did not have any manpower addition in the collection side. I think that's a great thing about the team, the quality, the underwriting and the credit goes to the entire team effort there. I think and it's very important parameter to really talk about. Secondly, as I talked about that in such a big transformation, it becomes important on certain green shoots which we are seeing, and we've seen the green shoots in the turnaround times. Definitely, that will have a productivity impact. And as you see that the front line as an attrition, the time it takes to settle down, I think takes its own time to really monetize on their productivity levels. That's the answer #2. And thirdly, we will work across on those OpEx-light models, which are digital and we talk about tech transformation, keeping in mind our customer type, which is unserved, unbanked and unserved in that segment. And how do we really make that happen. So that is the progress which we will try to make so that there's a business origination, which gets really tight, and we are able to monetize the technology by the roots of digital channels. I think this overall will help us out, and we are seeing the green shoots in there. It's early at this period of time. But yes, there surely is the green shoots and some parameters that we talk about is the turnaround time. And definitely, it will flow in, in the productivity in the coming months.

Fair point, sir. So second question is, sir, correct me if I'm wrong, if I recall correctly, last quarter, you had mentioned that we have increased PLR by 40 basis points. So did we get any benefit on this side because you had also highlighted on risk adjusted yields earlier. So did not we get any such benefits from here on the yields front?

The 40 basis points, we have increased our yield on our customers in the month of April, in the Q1. After that, I think we didn't increase any new PLRs in last 2 quarters. But our overall, I think if you see, I think in the earlier question also and then similarly on this yield front again, if you see on quarter-on-quarter progress or journey, quarter 1 or year-on-year basis, they are minus 2%. The quarter 2 year-on-year, which is a 10% plus. Now in the quarter 3, we are the 13% plus in our disbursement growth basically, which shows, yes, we have strongly bounced back our business funnel. Our all verticals are growing very well in the organization as we continued to invest on those verticals in last couple of months or a couple of years. If we see more on the data point, like December month, we have generated new business lead, which is a fee based, which is around 13,500 lead basically we originated, which is amounting to INR 2,100 crores basically. And in January month, we have further increased that lead origination of 14,600, which is amounting to INR 2,200 crores. So all these are giving us the confidence, we are very much back to our business growth not only the December -- last quarter, in the coming quarters also basically. And our sanction to disbursement ratio in the few quarters which you mentioned, we lost somewhere something where we also come back to 82%, now 83% on that ratio. Basically, that is, again, let's say, our positive development on that side. Now in third phase, where we are emphasizing as a management team, we are again reinforcing, reenergizing our core product basically, which is our INR 7.5 lakh core product, where we are working in detail with the all business team, along with the management team is emphasizing that product because that product gives you a better yield than the other product basically. And which is today, we are targeting to increase that product in our disbursal mix around by 5% in the next few quarters, basically. That will help us to improve our new business yield, basically. But quarter-on-quarter basis, we are already in December quarter, 8 basis points better yield on the new business. So I just -- I want to communicate that things are coming in very much in a better shape on the yield front and the growth front. And cost side, as I earlier mentioned, cost of borrowing is almost at a stabilization level basically. So I think all 3 factors are coming up in a good shape now.

[Operator Instructions] Next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

Congratulations on a very steady performance. My 2 questions are as follows. Your GNPA coverage ratio is about -- close to 70%, this was 67%. Does it actually reflect the loan loss that you will get on your GNPA? That's question number one. Question number 2, you're relying on our -- you're moving towards a more origination model, which is based on tech and whereas your earlier model was more in terms of self-origination. So how do you expect this to play out? And what is the level of saturation in your current geographies that will -- that will mean that you'll have to move to new geographies?

Yes. I think your credit cost and provision, we are very much confident. And we are steady state in last, I think, so many quarters somewhere 60 to 64 basis points on overall AUM basis. And NPA level, we are somewhere 25% of our risk provisioning is enough to take care of any loss on the NPA asset because we are steady state back at 1% growth NPA and 4% is a 1 day past due. So we don't see any under-coverage and over-coverage on NPA provisioning.

On the sourcing side, I think it is just -- it is one of the facilitator. I think what has happened in the last couple of years is that Bharat has moved more digitally literate than what it was. So as we speak, within our framework, we have about 85,000 to 90,000 customers who are on customer app. We have part disbursements, which go online in the category of customers, we used to get. So I want to reiterate that in the segment which we are, which is tier 3 to tier 5, unserved, unbanked and these segments, we continue to do that. There's no segmental shift. It is the way you approach the customer and the way customer comes across to us, I think that is what we would like to take an advantage of. And that is because of a, IndiaStack and upcoming ONDC stuff, actually. So it's more from the sourcing, with no segmental shift or change in the customer focus of the customer segments. Is the way you approach the customer, the way you service the customer and way you underwrite the customer.

So in your existing geographies, there's still enough depth for you to originate is pretty much what you are saying?

Yes. So I think, yes, the other part, yes, that's another interesting piece. So existing geography doesn't have a saturation level that makes us to move to the new geographies. I think that is in with the fundamental philosophy of continuous expansion of geographies and the existing still continue to have that potential. The new ones, which we actually have ventured and I think one thing which is very unique to Aavas, which one has to note that we are moving as a pan-India organization and some organization which is moved to Southern Belt and Karnataka. Having seen the good amount of traction, good amount of underwriting, good amount of our experience gives us a boost saying that we can do and set up and expand in those regions also and take the advantage of the potential which lies there. But that is not because the existing markets are saturated. So that is -- that expansion is not because of that actually. So that continues to have potential -- whole potential for us.

Next question is from the line of Nischint Chawathe from Kotak Institutional Equities.

Just 2 questions. One is on the spread side. If I look at your -- those spreads are closer to around 5% now, and what is the broad thought process? Where can you go up to? And what is the range that you would want to maintain through the years?

Nischint, as we guided that we are at around 5.1% to 5.13%. So our consistent endeavor would be to keep the spreads in excess of 5%. So I think we will try and as earlier what Rawat-Ji talked about that some of the incremental focus on the lower ticket size, where you get the yield. I think that's more direct distribution led, which is an RO led or direct sales force led kind of a model which is there. So we are reinforcing that and focusing on that. And our endeavor is to really push that segment where we have our confidence, our expertise and scale that up actually to maintain that. But our continued guidance continues to be that we -- our endeavor to maintain 5% plus.

Yes, thank you Sachinder. What Sachinder Ji said, if you -- we all are in this market for last so many years. And if you see Aavas journey, before, let's say, interest falling started, we were at 5.19% at spread basically. Then in that journey we peaked around 5.75% in falling market scenario. When rising started, obviously, first, we pass on to the AUM basically. So we maintain at the same level basically. But obviously, cost of borrowing catch-up will happen in due course of time with a lag impact basically. Now we have gone back to where we started 5.15% around basically. So this is a normalization of spread. This is not a spread that is falling basically. Because in the years of journey, rising and falling in market, you will have that impact in your spread basically. But ultimately, we reach at a normalization, which we say 5% and above is a normalization level of spread in our journey, basically. No doubt, Sachinder said, as I earlier said, we are reemphasizing, we are reinforcing our core product, which will give us a better yield in the coming quarters.

Sure. A little strange. You said that your incremental cost of borrowing was 8% this quarter and 8.3% in the previous quarter. I mean, in terms of cost, it's going up for all the other players. So how come it's coming down for you?

Nischint, I think there are certain, I think, internal -- some borrowing side, we made a certain new products. which are, I think, is difficult to, I think, to say on this large call, but we brought certain long-term product which a bank found is very suitable for them, which we got at 8% to 10 or 15-year money. So those products helped us to bring down our cost of borrowing. As well as NHB funding is there with us basically. That is also -- still INR 700 crores yet to draw from NHB out of INR 1,000 crores. We are judiciously borrowing from NHB also. I think these 2, 3 discussions with the ALCO committee member where we brought certain product of pooling money we raise because we found 1 year MCLR money is not effective now because all most of the bank has increased that money. So we tilted towards that. Our MSME, 4 years back, I think Aavas, I think, let's say, entire management team, some product work in advance, thus goes very well in the journey into Aavas basically. We started MSME products 4 years back. And now today, there is 100% matching liabilities available for MSME products basically from various institutions, very cost effectively. And now are we at an increased risk weight? I think our out of 30% NHL book, 50% book not got impacted because that is MSME book basically. So those things have gone our favor. And we are confident that in the coming quarter also, I think incremental cost, if things remain same. So it will be around 8%.

Sure. No. But just curious, how much of the component -- how much will the incremental cost ex-NHB?

Ex-NHB, for this quarter, we borrowed from NHB INR 300 crores only.

No. I'm saying that ex of NHB, you said incremental cost is down from 8.3%.

At NHB -- if we do a total at 8%, we do ex-NHB, it become 8.20%.

Okay. And last quarter, I believe there was no NHB.

Yes.

Okay. I think that's sort of clarified. So my just -- simple question is that the rate of interest is kind of going up for all the players, chances are there that it would go up for you as well. And in that sense, would you kind of anticipate and do some rate hikes for your customers? Because you are kind of now to your target spreads of 5% and obviously...

Yes, Nischint, we are cognizant about that if cost of borrowing got increased, banks also increase. So we -- accordingly, we will discuss with our ALCO committee and Board. And we -- in the past also, we have passed our cost and all customer got absorbed because of that increase, we didn't see any spike in our balance transfer also, which is also in the range of what we budgeted, what we communicated earlier.

Next question is from the line of Kunal Shah from Citigroup.

Yes. So firstly, with respect to this entire omnichannel experience and eMitra. So if you can just highlight, no doubt, you mentioned like it's more in terms of changing the approach and the way in which we approach the customers. But eventually, maybe earlier, we used to be more like focused on direct sourcing. And where could we see the proportion of maybe eMitra in terms of the sourcing going up over the medium term, yes?

Kunal, on this, I think it is not that it is a strategic shift on the customer segment. It is only the sourcing channel. So these are the outlets which are there in eMitra specifically or in Rajasthan and which are spread across the length and breadth. And wherein it is only the customer where we get a lead referral and the completion and everything gets done by our direct channel, actually, so to say. So that is one. And what it really helps is to become OpEx light because at least you have some sourcing which is there, and I really appreciate. The last call when you were talking about the RO attrition, I think there is some point of it, which we have a certainty of the origination, which gets really defined. So we are moving towards those channels which are OpEx light, but getting serviced by our own -- by our own in-house channel. So there's no strategic shift in the sourcing pattern. It is the -- and again, at that period of time when we were looking at it, I think we did not have the technology which will really take. Once this is there on the LMS side, on the Lead Management System, it will have a pure fulfillment journey, which will help us in that. So our endeavor continues to be focused on the customer segment, service it through a direct channel, but look at OpEx light channel where the origination happens actually, like the way we talked about eMitra, which is an ecosystem of the building material supplies and stuff, which is there. We'd like to actually push that channel to build across so at least we have sourcing which gets refined, right?

Yes. No, so get that, but just in terms of if you have to look at it, even in Rajasthan today if we see the eMitras, what could be the proportion? So would this be as high as maybe 1/4, 1/3 of the overall sourcing per RM. So maybe if he is maybe sourcing or maybe finding the leads for 4, 5 files, could 1 or 2 be from eMitras. Would that be the kind of proportion which will eventually happen? And would the payout be also like 30, 40-odd bps, which is there for the other players?

Kunal, as Sachinder said, just we started this model. And initially, first like we tied up only just 10% of total eMitra and we are experiencing and progressing in that, but we strongly believe that this model is a very cost-effective model without increasing our branch infra, we can get additional business at low cost basically. So our endeavor is that to increase all these components, whether it's eMitra, Aavas Mitra, social, digital sourcing, all this put together want to increase instead of our direct sourcing, this is our, let's say, a nonconventional methodology of sourcing for the business, which we definitely want to improve in overall business.

So Kunal, as we speak, it just got launched. So it is -- we are seeing the initial green shoots. So we definitely would look at that as one of the period of time, and we'll keep you updated as we progress on quarter-on-quarter.

Yes. No, sir, only thing was maybe Aadhaar Mitra, eMitra, all put together, the way Aavas always has positioned to be more like, say, direct sourcing. So I was just trying to see if there is any kind of a shift wherein a component of business would come through. Maybe at least in terms of the sourcing, it could come through from say Aadhaar Mitra, eMitra, all of them, yes. And the related question in terms of branches. So you alluded, but still hardly like 1-odd branch getting added compared to what we highlighted 20 branches for the second half. So would we really grow slow in terms of the branch expansion? Or is that something which is there in the pipeline and which we should see the ramp-up in Q4?

Kunal, as we speak, I talked about that the -- we have 5 branches, which came up with this year. So this quarter, we'll have another 15 or 20. So we are very conscious of the fact that how we moved across with the OpEx light and more touch points rather than being a physical infrastructure. So we have this RRO model, which is a Regional Rural Officer model, where we feel that once it certifies, only then we start believing in opening the branches. So our endeavor is to go much deeper to get the deep penetration, but try to be OpEx light. So -- but we continue that expansion on that front. So as I said that 5 are there, in this quarter, we will have addition in the -- some in the existing states and some in the new states, which will be there. And that will be in line with our contiguous location expansion strategy, what we've already been clear of.

Next question is from the line of Renish from ICICI Bank.

Congrats on a good set of numbers, sir. So just 2 questions from my side. One, again, on this shift in the ticket size, where incrementally sort of we are targeting towards INR 7.5 lakh ticket size, which is far lower than our blended ticket size. So of course, it will help us in improving yield and so the spread. But do you foresee this will actually lead to a lower disbursement?

No, I think that is one of the facilitators, which is there. So we are saying that it is not that it pulls out on the absolute volume. So I think that gets compensated by the other parts which is INR 10 lakh and above stuff. It is more on reinforcement of getting the right kind of -- consistently getting right kind of share as we talk about the risk-adjusted returns. In that segment, where we have understanding, where we have knowledge, where we have last 11 years of understanding in that segment, we would like to scale up on that segment. And as we were speaking earlier, I think this gets sourced directly by the RO model and direct model. And some of the intermediaries, eMitra and stuff, which really lead to the referrals and facilitate this growth. But directionally, it doesn't seem or it will not result into the disbursements going down. It will add up in the spread and add up as an incremental volume. What Rawat Ji also pointed out is our endeavor is to increase by 5% on this segment per se. We have to think our disbursement in the composition, and low ticket or high-yield product need to be maintained or need to be increased. It's not substitution, it's not substitution of the product. It's mainly -- first is there if we need to maintain low ticket, which is a high-yielding product need to be maintained our growth journey, a little increase, 5%.

Got it, sir. And just last question on this. Again, sorry to circling back to the tech transformation. But when -- let's say, we have already implemented LOS, which is our front end application wherein LMS is more of a back-end application. So if you can just throw some light, let's say, after implementing the LOS and let's say, our sales staff by now will be used to it in terms of how to use it. So can you please throw some light on, let's say, improvement in the number of logins, et cetera, let's say, pre Salesforce and post Salesforce, which essentially, I'm just trying to get a sense whether one year down the line, we'll see a significant improvement in disbursement alone?

So I think, Renish, this gets in 2 parts. One is the incremental log-ins and one is the behavior adoption which we have seen and that really shows across in our sanction numbers, in our disbursement numbers. And secondly, the other part is that as we speak, we talked about the turnaround times of sanctioning from 13 days to 9 days. So that frees up the bandwidth for the RO to really work on the new cases. So definitely, that is there. And with the adoption and with the Phase 2 coming across, I think it will further help us in that journey.

So we have already seen log-ins improving month-by-month because sanction -- of course...

Yes. So as Rawat Ji talked about earlier, we were at 13,500 in December. As we speak in January, we were 14,000-plus of log-ins. So there is definitely month-on-month improvement in the number of log-ins actually. And the very other substantiate parameter we talked about is logging to sanction days actually, the turnaround times. So that has moved from 13 days to 9 days. So one is the sourcing part. The second is the sanctioning part also. And thirdly, on sanction to disbursement also, there is an improvement from 79%, 80% to 84%. So that's another the positive side. So green shoots are there. And Renish, I would appreciate this is a big transformation across. So behavioral adaptation is being there. And 1 lakh plus of files getting process itself is a big landmark if I were to put across. Seamlessly without any bumps or without any disruption. I think that's one of the very key parameters, which one has to look through and then seeing the green shoots of increase in log-ins. So I think one is adoption. Second is stabilization. Third is monetization.

Got it. Just a follow-up on that. So let's say, within 6 months from now, everything should be stabilized. So would you like to give any guidance on FY '25 AUM growth side? I mean, historically, we have always been maintained 20%, 25% kind of a growth range. But at that point in time, the tech infra was different versus what we have now. So any comment on that?

So Renish, we continue to guide between 20% to 25%. Any other opportunity comes across when it is there, we will definitely -- but our guidance continues to be in that range with the quality and with the metrics, operating metrics, which are there. And as we speak, we said that we guided that another 3 years. In the coming 3 years, we'll triple our AUM -- we'll double our AUM in the coming 3 years actually. So we guided 20%, 25% of AUM growth in part. And secondly, the other green shoot, Renish, is to really appreciate about the management team and the entire thing is you're seeing the green shoots even in the OpEx side. So if you have a peak of 3.79% to come at 3.49% is there. So I think we are working on multiple vectors, which really have an impact on our operating metrics right, from tech, which is helping out on the origination, on sanctioning, on reducing the wastage, 60% is the straight through sanctions with the system, which we are referring to. When we got the system improvement in turnaround times. I think these are the very important parameters and operating metrics, which we are trying to figure out. So which helps institution to be sustainable, scalable in the right fashion and to be a pan-India robust affordable housing finance company.

Got it. This is very, very helpful. Thank you for detailed answer. Best of luck, sir.

Next question is from the line of Rajiv Mehta from YES Securities.

Congrats on steady performance. Most have been answered. Sir, can you just share the quantum of BT request that were repriced in this quarter and at a incremental disbursement yield on blended basis.

Yes. Our BT out is roughly as we mentioned earlier also, it's a 6% of opening AUM. And we remain in the same -- even last year also, we are at 6%. Despite in the same year, we are seeing the 6% is the total BT out of opening AUM.

No, sir, I'm asking the pool of BT request, which were repriced.

I think a few -- I think BT request generally comes roughly 4%, 5% more, but out of that, few requests comes for -- they need more loan basically, which we in that journey, we are not aware if we can give them additional loan. So when they come for foreclosure, our centralized team immediately connect with them, then we found that 3 years back, we've given a loan, they performed well. Their LTV is less than 30%, 40% and now they need a loan for their kids education, their marriage. We offer them from a small tranche, which is within our risk parameter so that customer don't go out and remain with us basically. And few customers, which is let's say, looking for a very competitive, we tell them go allow certain customers, which we feel is not -- we don't want to retain them because their performance was very bad with us and industry wants to take them. So we allow them to go.

Got it. So my remaining question is incremental disbursement yield on blended basis? And what is the incremental cost of funds from banks?

I think incremental cost of funds Ghanshyam Ji highlighted earlier, and we continue to have the spreads maintained at 5% that's been our guidance and we said that. In order to really improve that, we will focus on certain segments and certain product contribution, which is there. So you guided on the 5% plus of spreads. And on the bank borrowings, Ghanshyam Ji talked about the quarter 3 at incremental rate of about 8%, and overall, at on a 9-month period, we are at 7.95%.

Next question is from the line of Shubhranshu Mishra from PhillipCapital.

The first one is on the LOS, LMS. So one, are we running it on an OpEx model or a CapEx model, is it cash based? How are we running LOS and LMS? And any specific reason that we didn't opt for Nucleus software because that's pretty much being used by the rest of the industry. So we are doing -- we've gone to some other vendors. So I just want to understand the reason for that. And when we speak about 25% provision cover on the Stage 3, this is largely to do with the LAP or HL, what is causing this 25% Stage 3 provision? And the third question is, we are speaking about the growth rate of almost 23%, 24% because we're speaking of doubling of the loan book in 3 years. So how do we decompose this 24%, what would be driven by ticket size increase, what would be driven by productivity increase? And if there is something else you can add on to the growth decomposition?

See, on the growth decomposition, we've always set around 20% to 25%. We continue to focus as the DNA of Aavas is on unserved, underserved, unbanked segment of customers, Tier 3 to Tier 5 towns, secular increase in the number of customers and not -- so even if you look at one thing you really appreciate that Aavas' volume growth has not even had retail residential real estate inflation also factored in. So it is pure number growth, which is there. We continue to go granular. We continue to serve where Bharat lies. And in that, as we've guided earlier, that the states which we are there, we go deeper, the states which we have invested in, we accelerate and the new states wherever the new geographies, we try and understand what it is there. And as a result of it, the cumulative sum comes to an average of that. Some of the places it would be higher. Some of the places, it would be moderate. So this is what we follow. But when it comes to the quality and collections, I think we follow an absolute model. We say that 1+DPD will be less than 5% and not having -- as we speak, the min max doesn't go beyond 1.5 to maximum of 6, 6.5. So I think that is a very important parameter and really to appreciate that you grow pan India, you grow granular, you grow modular with quality and with the kind of result and consistently. I think that's on the growth decomposition side, as we speak. On the tech side, on the cost part, but I'll just get a brief on that. I think it's a big tech transformation journey when it comes to the HFC of kind of thing. I think 2 important parameters, which are there. One is that as you scale up, I think it is important to have the right kind of technology platform, which helps you to scale you to build to get the confidence from a risk architecture perspective. Secondly, to really serve in a way which is digitally focused and in a way which is tech-oriented and use the new age AI/ML model which help you to service as a facilitator. And in that journey, we want to be as like a trustworthy on the tech platform like a bank, but agile as when we speak in the markets, which we operate. So as a result of this, the entire stack, which is the loan origination system, which is Salesforce, the loan management system, which is Flexcube and ERP, which is Oracle Fusion, the state of art, the best of the class have been put in place for our tech transformation journey. On the CapEx and the OpEx side, I'll have Ghanshyam really talk about what is that and how we have envisaged and how does it impact.

This is all the tech investments, Salesforce, Flexcube as well as the Oracle Fusion, 3 major projects transform with them. All our paper use base, all our OpEx model basically, very low CapEx is there, as we use that we will pay to the vendors basically. For the next 5 years, we have fixed the pricing also basically. So next 5 years, there is no inflation, no rising cost will be impact to us. Next 5 years, we have blocked our prices. As we increase more, we will be -- it's a pure variable model we built in for all 3, 4 products, all 3 products, basically. That's one thing. Another one thing, we mentioned about this provisioning piece. I think we have a 27% overall, let's say, NPA or Stage 3 provisioning, which is where we are very comfortable. For home loan and nonhome loan, we don't see there is a much variation in our customer profile as well as our ticket size as well as our LTV basically. And in real life in the collection, we are not seeing any major change also basically, We think our NPA also is 1%, 1.25% between home loan and nonhome loan. So obviously, there will be a few percentage change, but not significant in this provisioning.

Understood, sir. And if I could just squeeze in one odd question more, sir, what is our premium that the bank charges above the EBLR and MCLR, sir?

You will appreciate these things are very, I think, internal matters, and we're not able -- there are -- we are in relation with the 31 banks, every bank has a different way to lend us basically. We are very competitive when we borrow from the market. And we are the only HFC in India who borrow 11 year plus average maturity liability profile with the average rate 7.95%, incremental borrowing at 8%.

Next question is from the line of Jigar Jani from B&K Securities.

Can you please share what would be the disbursement figure for the month of December and January?

Jigar, we don't share individual numbers. As we speak we say that there is a month-on-month improvement. And every month, we see a granular and a modular growth on the disbursement. I think we always have guided on the AUM growth. We continue to do that. I think if you look at the AUM growth, it has been on the quarter 3 at 22.8%, which shows us a good impact, and we'll continue maintaining that.

But the previous full year guidance on disbursement has been...

We've always given a guidance on the AUM. So we continue that we are confident as a management team to deliver 20% to 25% of AUM growth.

Sure, sir. And sir, I think in one of our interactions earlier, you had guided you are looking at certain other products like ATS and affordable housing, the BARDA side of projects, and also certain new business lines. So what is the progress on that? And how much of our incremental disbursements, say, next year would be largely driven from these kind of projects? The reason I ask is probably this will be higher ATS projects and lower yielding projects. So how do we manage it with our new focus on the small ticket size, also we want to increase and we want to focus on these projects as well. So just wanted to understand the balance of how it could work.

Yes. That's a very good question. I think we are a unique HFC to have service the customer at different price points. And as we speak that on the affordable housing that we have is the Pradhan Mantri Awas Yojana related projects which we do, which is MHADA/CIDCO but I think important to highlight there is in that we identify segments and typically these are LIG, MIG and EWS segments which we cater to. Again, in that, our customer focus has been unserved, underserved and unbanked customers. The quality of the property being good and the assessment, which we understand from the risk-adjusted returns is better. So I think from a perspective of a distribution, having had the retail, the part which is the affordable which caters to specific on this, and we are very enthused by the fact that the government's focus in the interim budget continues to be there on this segment, and we have a good last 3 to 4 years kind of vintage in that segment will help us to monetize in the coming times when the opportunity opens up. Along with that, the focus on what Rawat Ji and others talked about is on the STS, which is a small ticket size and MSME loans, and the ones which are builder approved kind of loans, again, our customers where the segment is the one which is unserved, unbanked and unreached actually. So these are the ones which really help us. So all of this, help us to really be there consistently across the various customer segments and leverage the opportunities, which arise in the market actually. And we are ready with that along with that tech transformation.

Okay. And I was just trying to understand more from a yield perspective that on a blended basis, then the yields won't move up higher, right? Because partly your -- this segment will be lower yielding as compared to what you have on the...

As earlier we spoke that we said that we have an increased focus on the ticket size is less than INR 10 lakh increased by as a contribution on 5% to try to get across that. And we will not let the yield go because the segmental focus goes towards that, actually. So and we said that we guided on the spread, so that we'll continue to maintain 5% plus spread. And we'll manage and balance the yield portion, disbursement yield portion on the customer segment areas, but a continued guidance on 5% spreads is there.

And just last question on once the full tech transformation is completed, I think our earlier guidance for TAT would drop to 6 days. We will maintain that guidance?

Actually, yes. So if you look at it from 13 days, we have come down to 9 days. So there is -- this is a journey as we would really appreciate. And the other part that we have 60% of customers which are straight through sanctions. So we have seen the green shoots and immediate in that -- if you see that kind of traction, we will -- we are monitoring that to improve on a month-on-month basis. And this is 2 parts. One is, once there's technology service. Secondly, as behavioral adoption picks up, we have learning advantage which comes across as a firm and as the tech evolves.

Thank you. Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. Sachinder Bhinder, MD and CEO of company for closing comments.

As we conclude today's earnings call, I would like to extend my gratitude to our shareholders, employees, customers, partners and regulators for their continued support, encouragement and trust. I'm confident that with Aavas 3.0, we will continue to deliver sustainable growth profitably and value creation for all our stakeholders. Looking ahead, I want to emphasize that we'll continue to maintain laser sharp focus on governance, asset quality, profitability and growth, leveraging technology and creating superior customer experience. We remain optimistic about the future and confident that our strategic initiatives will continue to drive sustainable growth and shareholder value and continue to give us confidence of the green shoots, which we see because of the tech transformation with the guided AUM growth of 20% to 25%. If you have any further questions or require additional information, please feel free to reach out to Rakesh, our Head of Investor Relations. Thank you, and have a very wonderful year ahead. God bless.

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