Aptus Value Housing Finance India Limited (APTUS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aptus Value Housing Q1 FY '24 Results Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Mona Khetan from Dolat Capital. Thank you, and over to you, ma'am.

Thank you, Yusir. Good evening, everyone, and welcome to the earnings conference call of Aptus Value Housing Finance, India Limited to discuss its Q1 FY '24 performance. We have with us the senior management from Aptus to share industry and business updates. I would now like to hand over to Mr. Anandan, Executive Chairman of Aptus for his opening comments, after which we can take up the Q&A. Thank you, and over to you, sir.

Thank you. Ladies and gentlemen, good afternoon to all of you. I am Anandan, Executive Chairman of the company. I welcome you all to the conference call to discuss the company's performance for the quarter ended June '23. I have with me, Mr. P Balaji, MD; Mr. C.T. Manoharan, CBO; and Mr. Vijayan -- John Vijayan, CFO. The financial results and the investor presentations are available on our website and is being posted on the stock exchanges as well as our company. I hope everyone had a chance to look at it. Aptus, as you're aware, believes in growth with the due importance to the quality as well as the -- quality of the loan book and financial metrics. Very happy to record that Aptus had a decent first quarter FY '24. Sharp focus, customer centricity, deep penetration in served markets along with appropriate tech support have enabled the company to achieve good growth. Going forward, we will continue to focus on some of the key strategies, namely, we will continue to growing disbursements and loan book -- we will grow the disbursements and loan book. Growth in HL, housing loan, as well as in the SME loans. Considering the large headroom available in the low and middle income segments, particularly in Tier 3 and Tier 4 cities, increasing penetration in the existing geographies by opening new branches, and commencing operations on a continuous basis in the adjacent stage is that we are starting -- we have started already in Orissa and we're going to start in Maharashtra as well. Strengthen analytics and digital adoption, again, about 14% of our business in Q1 '24 has come from construction ecosystem app, that's our own app, and customer referral app and social media lead. Our focus will continue be to increase the leads through the channels. In addition, the physical branch network -- in addition to the physical branch network, yes. And I continue to focus on productivity, collection efficiencies, OpEx and in cost of funds as well. Our net worth, as you know, stands at around INR 3,,400 crores, indicating robust capital adequacy. This coupled with good support from NHB, National Housing Bank, banks, DFI on the bottom side and with strong ground -- on ground demand for both home loans and small business loans gives us confidence to pursue strong growth in the year with sustained profitability. I would now hand over the line to Mr. P Balaji, MD to discuss various business parameters.

Thank you, sir. Good afternoon, friends. As on 30 June, the total live customers were over 112,000 representing a growth of 27% year-on-year. Total number of branches were at 231. 7 more branches have become operational as we speak. These branches are mostly in the states of AP and Karnataka, employee count was 2,584. Major performance high lights are: AUM growth by 29% year-on-year to INR 7,123 crores, disbursements increased 23% year-on-year to INR 646 crores. Spread was at 13.29%. OpEx to assets were at 2.55%. PAT at INR 142 crores had a growth of 20% year-on-year. ROA and ROE was at 8.21% and 16.93%, respectively. Now coming to the asset quality, collection efficiencies dropped marginally to 99.52% in the quarter, which is somewhat seasonal as it is applicable to most of the NBFCs in the first quarter. This has resulted in 30-plus DPD and GNPA increased marginally by around 0.37% and 0.14%, respectively. This will be improved and restored back to the collection levels of more than 100% in the ensuing quarter. Net NPA was 0.97%. Provision coverage has been consistently maintained at 1.06% as on 30th June. We are carrying a total provision of around INR 76 crores, and this when computed as a percentage of NPA works out to a coverage of 82%. Outstanding restructuring book was minimal at 0.58% and the behavior of this book is on par with our normal book. Coming to the borrowings, we have well-diversified borrowings. Of the total borrowings, 50% are from banks, 28% from NHB, 9% from NCD issued to IFC, mutual funds and NBFC and the balance in the form of securitization. We enjoy a rating of AA both from ICRA and CARE. We have sufficient on-balance sheet liquidity of INR 897 crores, including an undrawn fraction of INR 400 crores from NHB and from banks. As on 30th June 2023, our net worth was at INR 3,400 crores. Thank you all. Now with these remarks, I open the floor for the question-and-answer session.

[Operator Instructions] We have our first question from the line of Ms. Mona Khetan from Dolat Capital.

So firstly, going by the low credit cost in an environment where you're seeing slightly higher NPA level and ECR stable levels across your overall ECL versus the Stage 3 provision. Were there good recoveries during the quarter that helped the low credit cost?

Actually, if you look at the provision increase as per our ECL table, it is around INR 4.5 crores or INR 4.2 crores. From INR 71 crores, we have increased it to INR 75.51 crores. But if you look at the P&L debit it is around INR 2.5 crores, which means there is a good recovery from the loans which have been earlier written-off. So that's the reason why the difference is there, and we have recovered almost INR 1.8 crores.

Actually, just to add to what Mr. Balaji said. Actually, if you look at our pre-COVID year FY '19, FY '20, FY '21, we've always had a very low NPA and hence very low credit costs as well. Only FY '22 and '23, our credit costs have gone up primarily to provide more -- we have really gone from a very comfortable level and a very high level of provision. But having made that, that's where we currently carry a cumulative provision of about [ INR 70 ] and odd crores. So that's very well covers our requirement in terms of the NPA and others. So going forward that way, the high level of provision that was required on account of COVID and the consolidated increase in NPA, may not be required on the same level. So in other words, while it is true that when compared to FY '23 or '22 first quarter credit cost is lower. And going forward also this trend will be more around this level. In fact, in the pricing, we did provide credit cost of up to 0.5%. But actually, will be much lower than that going forward.

Got it. And just referring to the rise in Stage 3 levels this quarter, so where could we end the year? Could we see a similar trend like last year where Stage 3 increased in Q1 but then moderated over the course of the year?

I think that's what will happen. See if you look at our earlier NPA as of June '22, it was around 1.75%, it has reduced to 1.15% as of March. So -- but we are starting this year with a much lower NPA as compared to June '22. But this, again, will be reduced and it will be brought down to at least to the levels of the last year, basically at least at 1.15%. But efforts are on to reduce it below that as well.

[Operator Instructions] Next question is from the line of Bhuvnesh Garg of Investec Capital.

Congratulations for a good set of numbers. Sir, I have a question regarding our cost of fund. So we have seen increase in cost of fund during the quarter. So how much further increase do you expect in cost of fund? And then how our NIM would play out in that scenario -- in rising cost of fund?

During the quarter, we've got sanctions worth INR 740 crores. Of that, we have drawn some and we have still INR 400 crores yet to be drawn. If you look at the various kind of interest rates what we have contracted with, basically in the housing finance company, we have contracted at around 8.1% to 8.2% of around INR 400 crores. This is, again, fixed rate interest -- fixed interest rate loans, which is going to be there for the next 5 years. So that is on the housing finance side. And for the NBFC, it is slightly more by at least [ 0.25% to 0.5% ] where we have raised money at around 8.4% or 8.5% in the NBFC to the extent of INR 240 crores. So this is the level at which we are borrowing now and we are negotiating hard with the funding agencies for getting this done. But obviously, it is getting in the range of 8.2% to 8.5%. But what will happen going forward is during the third quarter, NHB will -- is likely to sanction some money. So that will be at a lesser rate of interest. With the result, the cost of borrowing is likely to remain for the year at around 8.3%.

Just to add, the other part of the question in terms of NIM. It is true that our NIM slightly has come down in Q1 primarily because of the 250 basis points increase that's happened in the interest cost during the last couple of -- we have really increase our [ EMIs ] only in the fixed loan contracts, that's about 23% -- sorry, variable loan contract, that's about 23% of our portfolio. And we have not gone for any increase at all on the other segment of the portfolio, and we have really absorbed everything. But we also believed in the philosophy that given our current lending rates and margins, we were not wanting to be ahead of the cost increase. And -- but having waited for a reasonable time. Now we have decided to revise our EMIs to incorporate the higher interest costs, and we have revised our EMIs to take another 50 basis points increase in our lending rates. So in other words, on the overall terms of 250 basis points, we had really gone for about 50 basis points on a portfolio of only 23% effective November '23 and -- November '22 and we are now planning to -- we are from 1st of August, we are increasing by another 50 basis points of [indiscernible] portfolio. This is really to cover the entire 250 basis plans that happened in the interest cost in the past.

Sure. And this 150 bps, when was this price hike taken?

I didn't get your question. What is that?

150 bps yield increase you are saying. So in which month it was taken?

50 basis points increase was done in November '22 and the current increase is going to happen from 1st of August.

1st of August. And secondly, sir, on our bounces if you can mention what was the bounce check for the quarter and how it has moved Q-o-Q or Y-o-Y?

See, bounces at the time of COVID around 26%, 27%. But after that, it is getting consistent at around 20%. But the kind of customers with this 20% bounce are predictable and it is in line. And again, this 20% bounce is also is not because the customers don't have the ability to pay the money, but they have those weak banking habits. So because of that, this 20% bounces are coming, even of this 20%, almost 15% -- I mean 85% of that 20% is getting collected by way of digital means either by way of Bharat Bill Pay or though UPI payments, which means the 5% of our total collection is only by way of cash.

Got it. And sir, about our credit cost guidance. So if I heard it correctly, so you said that the credit cost that we talked for the quarter it will remain at the same level for -- going forward. Is that -- is my understanding correct, sir?

Yes.

Only 15 bps then, for the quarter we had around [16 bps ] credit cost.

See, what will happen is we are having the provision coverage of 1.06%. See, if you look at my breakup, 76 -- of the INR 76 crores as for the ECL requirement, the requirement is only INR 42 crores. So the balance INR 33 crores is the management overlay, which we are carrying in our books. So this 1.06% is likely to be maintained over the quarter, which means the increase in loan book to that extent, we'll be providing at 1.06%, that's it. So on the overall book, this 1.06% will be maintained. So whatever is the differential that debit will come into the P&L account.

Also in respect of our level of the NPA. Not only NPA but even the [ 60-90 ] also is fairly at a lower level. And while there is scope for improvement in our [indiscernible] in terms of [ 0-30 or 30-60 ]. But [ 60-90 ] and the NPA levels have really come down reasonably and we are also in terms of putting our up collection efforts to improve that further. So going forward, our credit costs will be around that. It does possibly go up to maybe more 0.25% or 25 basis points. That's about it.

[Operator Instructions] Next question is from the line of Renish from ICICI.

Congrats on a good set of numbers. Again, just a follow-up on the price hike. So if I heard you correct, we are increasing our rates by 150 basis points from August 1.

Not 150. It is 50 basis points.

50 basis points only, not 150.

Okay. It is 50 basis points from 1st August.

From 1st August, yes, Renish.

Got it. And sir, secondly, again, on the ECL provisioning in the light of P&L credit cost. So this quarter, it was 15 basis points. So for rest of the 3 quarters, you are expecting this to remain at 25 basis points, is it right or?

Yes. It will be around that, yes.

For the rest of the 3 quarters, right?

Yes. Yes.

And on the full year basis, what is our AUM growth guidance, sir, for '24?

We have been guiding the market at 30% loan book growth. That will -- that is -- that will be there.

Okay. And with similar AUM mix?

Actually given the first while our disbursements are slightly lower, around 23% or so, but our loan book has grown even in the first quarter by about 29%. So for the full year, we are confident of around 30% plus going forward.

Got it. And AUM mix, I believe, will remain same? Or else...

What is happening is, if you look at the total consolidated book, 59% is home loan, which we have to bring it at least up to 50% for the housing finance company based on the total assets. So to that extent, there will be a small change in the housing loan to the other loans. But again, if you look at on a consolidated basis, we have an NBFC, where there is actually no limit for doing that business. So to that extent, it will get evened out, but it will more or less be the same. So only thing is this housing loan percentage will slightly go up.

Got it. Got it. Got it. And since the -- there will be only a percentage point of increase in the home loan, the book mix change will not have any impact on the yields, right?

Yes, it will not, it will not.

[Operator Instructions] We have our next question from the line of Ms. Mona Khetan.

Yes, sir, I just have a few additional questions. So firstly, on the loan mix, if you look at the loan mix slide, the [ SBL ] book, which is about INR 1,260 crores, it grew by 29% Q-on-Q, the NBFC book, which is I'm assuming largely constitutes of SBL. Yet, if I look at the share of the same in the consol mix, it's about 21%. So just wanted to understand, I'm assuming the entire NBFC book is SBL loans only. Is that correct?

I'll try to explain you Mona. What is happening there is from this quarter onwards, what we have done there is -- there are -- if you look at the nonhousing loans per say, there are 2 categories. One is the quasi home loans, which we have explained in the past. The other one is, some of the loans, it's called -- it is actually the [ LAS ] which is more acting towards the SME, the small business loan types. So what is happening there is those kind of loans, we have started booking in the NBFC. So there is also a small business loans that gets booked under the NBFC, there is also -- LAS, which is more like -- more towards small business loans, that gets this under the NBFC. So to that extent, which was earlier booked under the housing finance company. So that's the whole reason why this has got an increase in the loan book of 29% considering the lower base debt.

Okay. So essentially, the growth in LAS was pretty substantial, which comes under quasi HL.

Yes.

In the consolidated profile?

Yes.

Okay, okay. And if I look at the HL growth -- HL book growth, it seems to be -- okay, that's fine. Got it. And so where would be the 1 plus DPD for us as on June?

As of March, it was around 8%, right? Now it has gone up to 8.5% because this 0.3% plus 0.14% has got into this.

Sorry. Come again on the number?

8.5%.

8.5%. Okay. And just to reconfirm the rise in PLR in your case. So the price hike in all has been about 100 bps, 50 bps in November and 50 bps in 1st August.

Yes. And that to -- let's explain that. The first 50 basis -- actually, in all we have made only an increase of 50 basis points only. Of portfolio 20% -- 23% of the portfolio, we have implemented the 50 basis point increase from November '22. Of the balance [ 100 minus 23 ] of the balance, we are now increasing by another 50 basis points after the 1st of August. So it is not 50 plus 50, 100, no. That is 50 only.

Okay. So this is the fixed rate book where you can actually increase the -- you have the provision of increasing the yield. That's what is happening?

No, we have the clause in the agreement to get some increase done. Not a problem, yes.

And that's what you are exercising.

Yes.

Okay. Okay. So in all, there'll be only 50 bps for the overall book, the pending 70% -- 80% of the book will be inculcated in the 50 bps.

Right, yes.

Okay. Now that's really clear. Got it, sir. So just one final thing. You touched upon this regulation around HFC having 60% of assets, which needs to be towards individual housing loan. So are we already meeting this target, which is required by end of FY '24?

Yes. As of June, we are at around 58% there in the housing finance alone. If you consider the total loan book. 50% is easily achievable. We are working towards that to get this done.

Next question is from the line of [ Manoj Oberoi] from YES Securities.

This is Rajiv. Congratulations on healthy numbers. Sir, reconfirm me, have we taken 50 bps rate hike even for SBL?

Yes. Yes.

Okay. Okay. And in terms of geographic mix, when I calculate growth rates -- incremental growth rates, Telangana has seen -- seems to have witnessed some slowdown in this quarter. Would that be right, sir? And any reason for that?

No, actually. No -- if you really look at the loan growth. We had a very strong disbursements in Andhra, followed by Telangana and followed by Karnataka and then Tamil Nadu in that order. And really see the Telangana -- actually, in percentage Telangana it is really really -- loan book growth it's not here, is a breakup only. Actually, going forward, we are really expecting -- we are really looking for very good growth in Telangana. Currently, we have 35 branches, and we are planning to have another 15 branches in Telangana. Just to give you a number, actually, in Telangana, between, let's say, FY '23 we had a low loan book of about INR 703 crores. First quarter FY '24 is INR 1,003 crores, there is an increase of 43% in the loan book in Telangana. 48% increase in the loan book of Andhra. And so Telangana is one of our -- we had in the first quarter Y-o-Y. And even for the matter of Q-on-Q also. Y-o-Y growth is 43% in Telangana, I know where you got the number which shows lower there.

The rate of growth sequentially seems to have slightly softened. So I know it was pretty strong, I agree. So I was just saying...

No, actually, in our Investor presentation, I'm just reading out, [ INR 22,080, INR 21,400, INR 22,600, INR 23,900, now it has gone up to INR 1,003 crores ], So in other words, the year-on-year, very strong growth coming in Telangana. In fact, we are expecting this will continue and INR 5,000 crores also to go up substantially going forward as well.

Got it. Got it, okay. And sir, my question is for Mr. Anandan. So sir, how do you see your association with the company going ahead because your term is getting over as an Executive Chairman in December '24. So post that comment on how would your association with the company be, how actively -- any more position can you be involved with the operation of the company?

I'll take it -- I'll answer in 2 parts. One is that I will be in executive responsibilities from now that is as on date to December '24. That's a little over 1 year and 4 months. So I will be Chair in the executive position very much. Okay? Of course, I'll be focusing more in terms of the future strategies and more in terms of how do we really take this company forward from the current level of INR 7,000 crores loan book to let's say, INR 15,000 crores or INR 25,000 crores. And what do we do -- in terms for that to achieve what do we do on the product side, what do we on the geography side, what do we on the IT side, what do we broadly [indiscernible] and what's the kind of HR challenge that we had at the macro level. So that is what my focus will be. So because [indiscernible] organization to the next level. That's what I will be largely focusing on the -- in this year and 4 months or so. So as far as after December '24, it is something we are -- we need to -- we don't -- I don't have agreed or cleared or approved position or -- as on this day. That, as you know, the Board will deliberate and take a decision, maybe at least 6 months earlier than by December '24. I'm talking about this bit too early. But then -- so business precisely -- fully involved in the executive position until December. And at least 3 to 6 months before that, we will expand to all concerns, what will be my role, if at all I have a role after December '24.

Got it. But sir, post December '24, by virtue of your shareholding and being a founder, you can remain on the Board, right?

He can remain on the Board.

Even my intention is to remain on the board, okay? They have to decide whether they want me to remain on the Board or not. But as per recent SEBI guidelines, all of us including the -- there's nothing like non-retiring directors. Everybody has to really get reelected every 5 years, including the promoters.

Got it. So your intention is clear. Then, then the Board will decide. Got it. Yes. And just lastly on the distribution expansion plan. If you can just kind of elaborate how many branches, where the branches will be added in the next couple of years?

As of June, we had this -- as of March ending, we had 231 branches. And as of today, we have added another 7 [indiscernible], that is 231 plus 7, we are at 238 now. And by September, we will be adding another 10 more. That is -- so 238 will become 248. And after that, we'll be adding another 10. So by end of March 2024, we'll be around 260, 265-plus. And later, we'll be -- this second -- third quarter will be -- the second quarter itself, we will be entering Maharashtra state and we'll be trying to expand in a systematic manner in that state also. We have already done that in Orissa. So we have 2 branches in Orissa, which will go up to 5 or 6. And by September, we'll be entering Maharashtra with 2 to 3 branches, and then we will see how to take it forward. So by -- as far as distribution network is concerned, we will get to 260-plus by March '24.

So in addition to physical distribution, [indiscernible] and investment is going on, people and money investment on the digital side in terms of how to strengthen our app customer, our customer app and our ecosystem has and also through the other social media networks. How to enhance, particularly focusing not only the new customers, but we would want to focus on our existing customers who have already crossed over 110,000, 110,000 customers. And we see a lot of opportunity to mobilize business through our existing customers as well in addition to the branch network, both in existing states and the newer states.

Next question is from the line of Kushan Parikh from Morgan Stanley.

I have 2 questions. The first question is around our loan spread. So we've been seeing loan spreads declining over the past few quarters largely on higher funding costs and I mean like we guided earlier in the call that broadly F '24 costs would be settle around 8.3%, 8.4% for the full year. So just trying to understand, I mean, with the P&L hike that we are taking now of 50 bps. How should we think about loan price? I mean should loan price settle at current levels? Or I mean, should we see a slight increase going forward?

Consequent to the increase of the 50 basis points, which is going to be effective from 1st August, we are very confident of going back to the range as of March. So that is the thing. And obviously, it has to be supported by the cost of funds, which is likely, which is to be maintained at around 8.3%. With that in place, I think with this increase of 50 basis points for the rest of the portfolio, I think we are very confident of getting to the spreads of around -- levels of March.

Actually, there are 2 elements: one is the NIM level and second is the ROA level. At the NIM level, as I mentioned, we -- the 250 basis points increase in interest rate. We are really going to a maximum increase of 20 basis -- 50 basis points. And that -- and we do have a certain amount of pricing power, not only us, including our [indiscernible] also. We do have a certain amount of pricing power in this market segment. So 50 basis points should not impact us in terms of our loan [indiscernible] growth. And that will help us to maintain the -- at the NIM level spread. Second, in terms of ROA level, there could be some reduction. Some change could be there on account of -- purely on account of the leverage because as we really -- more funding comes out of borrowing rather than equity and the gearing level goes up. ROA will currently run much higher than [indiscernible], which will come down a bit. But then that will only, as you know, very positively impact our ROE. And as you may have observed, our ROE has already moved up from 14.45% in FY '22 to 16.32% in FY '23. And even last quarter, it has moved up to further 16.93%. So in other words, the small reduction in ROA consequent to the leverage will only have a positive impact in terms of shareholder EBITDA.

Sure, sir. I understood. Just 1 more follow-up on this question. Basically, on our incremental yield for both housing, non-housing loans, have we increased yield for them as well by 50 bps?

See, for the nonhousing and the small business loans, we have increased it. And even for the housing loans, already this 23% of the loan book as we have already increased it. So for the fixed rates, we are not increasing.

Okay. This is for incremental new loans that we do, right?

For the variable book, it's retrospective. For all the live customers, it is being done. But for the nonhousing loan and the small business loan, it is for the incremental book.

Okay. Understood. And just 1 last question from my side. On the employee cost, we saw Q-o-Q decline from 4Q to 1Q. If you could just explain that, elaborate on that a little bit? And how should we look at employee cost going forward?

So if you look at our disbursements Q-on-Q, it is slightly reduced, a little bit. There is a small decrease in the volumes which we have done in the first quarter, basically because of the seasonal impact that is there in quite a few NBFCs. After March and April, there is a small dip in the disbursements. Because of this reduction in the volumes, the variable pay which are payable to the sales officers and the feet on street has reduced and that has resulted in this savings in the cost as compared to the Q4 of FY '23. So going forward, this cost will be there as long as the volumes are picking up. So you can go up to that extent. But the increment, which we have given has already got priced in. So to that extent, there will not an increase. But this variable cost impact will be there, but that will be offset by the increase in the volume.

Actually, at the macro level, we will continue to be, whatever the organizations, with a very, very efficient OpEx plan. And our operating expenses are one of the lowest in the industry, as you're aware. The question in terms of bank programs, yes, particularly customer-facing jobs like sales officers and the collection officers. Now there, it is largely linked to -- particular sales officer is largely linked to the performance. It's a variable component importance. And it so happened in the month of April and May, our divestments are lower. Actually, our divestments started picking up in June itself. In fact, in July, our divestments are we have already passed almost over 30%, already in July. So if you look at our -- if you look at our manpower as in July -- improving from that. So in other words, particularly the -- there is a variable component, particularly the [indiscernible]. And that happens to be linked to the disbursement. And April, May, our disbursement is slightly lower. Again, it is a normal phenomenon. First quarter and the first -- month 1, month 2 has always been slightly lower. But it tends to pick up from third month itself, June itself. At July, we have come back to normal. Cost also will come back...

[Operator Instructions] Next question is from the line of Kunal Shah from Citigroup.

Yes. So firstly, with respect to this 23% of the floating portfolio is where we had revised the lending rates by 50 bps in November '22. And the balance, 77-odd percent of the fixed rate portfolio. Now lending rate is revised by 50-odd basis points from first of August. So is that understanding correct?

Yes. See, for the nonhousing loan, not the 77%. Kunal, what is happening is 23% of the housing variable rate belong to the housing portfolio. That we have changed this 0.5% for all the live customers in November '22. Now what we are changing now is basically the nonhousing loan and the small business loan by -- for all the incremental customers because these are fixed rate loans. As of now, we are not changing the earlier ones. So they are all the incremental loans, 50 basis points increase for both the nonhousing loan and the small business loans, we have to.

Yes. So this incremental which is there, that's not for the 77%. In fact, it is only for the nonhousing and the SBL because I think maybe what we highlighted was for the balance. We have increased it. But so it is only for the nonhousing and SBL is where...

Yes, that's [indiscernible]. Yes. Yes.

Okay. Okay. Got that. And when we revised this 23%, okay, by 50-odd basis points and the kind of yield expansion over last 4-odd quarters of almost like, say, 20-odd basis points. But there is no big change in the portfolio. Actually, when we look at it, almost like the portfolio is also steady across maybe home loans -- small business loans. So then maybe what would have led to this kind of increase of 20-odd basis points in the yields. And now with this 50 bps kind of an increase, how should we see the overall yield moment, yes?

See, basically, as Balaji was explaining, the overall basis, our HL is about 58% on a consolidated basis and 42% will be the non-HL. So the entire now HL of 42%, we will go for the 50 basis point increase effective -- already implemented, effective 1st of August. Now of the 58% of home loan, we have already revised -- variable part of the home loans, 23% of the 58%, they have revised it from November. And the balance, we are [ not ] planning to revise.

Yes. Got that. So that when we look at it, maybe 23% and 50-odd basis points, that should ideally have at the 10, 12 basis points of the positive impact on yields. Okay. So that's where I'm coming from. So there is almost like 20-odd basis points increase, but still...

I have told you how this increase has come, because of the small change in the product mix. Yes, that's right. If you look at our September portfolio mix, the small business loan was, I think, 19%. This has gone up to 21% as of up now. So there is a small change in the product mix that is helping us in getting the higher yields there.

Okay. Hardly like 1-odd percent. Okay. Yes. That's something which is helping.

Also, Kunal, the other aspect is that our -- some of the key earnings, particularly the process duty and all, it's somewhat linked to the volume of disbursement. And it so happen in the month of April and May where our disbursements are slightly lower. But now it's come back to normal. -- our fee income will get back -- given the month of July, it has gone back to the normal level. That also help in terms of our overall margins.

Okay. And how much would be the balance transfer for us in the pre-closure?

We have around 8% of the -- first I'll answer the pre-closure part of it. Around 8% of our average loan book is getting pre closed. Of that, almost -- 70% is out of own source, own funds from the customers. The balance, 30%, it is around 2.3% or so, is getting transferred to the outside, either small finance banks or some of the NBFCs, loan transfer, yes.

Okay. So compared to 3-odd percent, it's now down to 2.3% or so.

Yes, yes.

Okay. And 1 last question on OpEx. So where do we see? Would it come back to 2.75-odd percent given...

Actually, we -- our OpEx has been pretty good [indiscernible] OpEx, Kunal, if you really look at it right from '19 was 3.67%, 3.26%; 2.7%, '21; 2.5, '22; 2.7 [indiscernible] in '23 and now it is about 2.5%. We will be between the 2.5%, 2.6%. But we will be 1 of the most efficient and -- fundamentally, we believe in a very high level of productivity of our people. And it's not because of low salary. Because our attrition levels are not higher than others. In fact, it is [indiscernible]. And our salary levels as compared, much favorable with competition. But -- our salary levels are good, but we ensure that they perform. So it's more performance related where we emphasize and productivity where we emphasize. So that is helping us to really -- and also as far as the culture-wise, certain plurality is there [indiscernible] some of the companies kind of thing. So this will be -- we will -- our OpEx will always be efficient and comparable, and it will be around 2.6%, at that level.

Yes. So still compared to FY '23, maybe 15 bps decline is something which we can anticipate?

Yes. But if you really look at FY '22, it is only 2.53%. So in fact, FY '21, it was 2.7%.

Kunal, if you're expecting 2.55% for the rest of the year, I think it might not be there because -- we are adding branches, which is around 30, 35 branches. And to that extent, the salary costs and other costs will be there, and we are also investing a good amount of money in the technology. So it can land between 2.6% to 2.65%.

The next question is from the line of Pranav Gupta from Aionios Alpha Investment Managers.

Most of my questions have been answered. Just a couple of questions. So one is on the optimum leverage that we think that the business can run at. Currently, obviously, our margins are seeing benefit from the capital that is there in the books. And over a period of time, we will see the leverage go up. But when we interact with rating agencies, what is the leverage that they are comfortable with a business like us? That's the first question.

If you look at the leverage currently on the total balance sheet price, it is around 2.5 or something. If you look at the debt-to-equity, between [ 1.5:1 ]. So we are comfortable and we are having discussions with the rating agencies. And normally, the leverage they are comfortable with 5 to 6x, which means debt-to-equity will be between 4.5:5. So we are comfortable and -- we are also comfortable and rating agencies also comparable at these levels. But considering the process which we are making, it is difficult to achieve, it will take 2, 3 years' time to get to that level. So we will be really comfortable with these levels, and the leverage is likely to be at around 5 to 6x.

And so consequently -- I mean, let's assume that an optimal leverage of 4.5, 5x, where do we see the impact on -- I mean, how do we quantify the impact on margins that might flow in because the leverage going up and the proportion of capital funding of the book going down. How should one think about that?

Actually, the leverage going up, as you know, it will impact our ROE, return on equity, a lot more positively. And yes, as you know pretty well, it won't really impact the NIM level. But it will impact obviously the ROA level -- NIM will not get impacted because of leverage. ROA will get impacted because as the gearing level goes up, our NIM come down a bit. But it will impact very positively in terms of ROE, that we are seeing already. And we are really working towards improving our ROE further and to extent our leverage will help us.

If I understood what you said, correct. If I understood what you said, you said was that ROE will get impacted, but margins will not get impacted -- is that what you said, sir?

Yes.

I mean given that your proportion of borrowing will go up, logically, margins should get impacted, even though the spread might not be impacted.

Yes, net interest margin because NIM is really the play between the interest charge and interest [indiscernible] percentage-wise, percentage in our chain. But then you are right. Now when it comes to ROA, the finance costs will go up because of the higher level of borrowing and our leverage. So the ROA, return on assets, will come down a bit. But then that will precisely will result in -- there is a direct correlation between these. When the leverage goes up, normally ROE will go up, return on equity will go up. That's also what we are seeing, for example, as I mentioned earlier. FY '22, we had 14.5% and last year, FY '23 went up to 16.3%. So in first quarter, we have moved up to 16.9%. So -- but from the shareholder's point of view, it will impact -- our leverage will impact a better ROE.

Next question is from the line of Varun, an Individual Investor.

So just to type over the previous -- the conversation that you were having with the previous caller. I hope that you guys are not planning to artificially bump up the ROE by distributing dividends as you guys said in the last year, solely because, I mean, given the size of the company, the loan book and the potential -- the growth potential that the company has, dividends actually do not seem justified, right? It's better that the company invest the money back in the business rather than distributing it to the shareholders? So what is...

Sorry, we are very clear -- as a company, we will have a very clear dividend policy and with certain purpose. And dividend, as you know, will only be part of the [indiscernible] of the mix. And substantial profit will be left in the form of retained earnings for the company to support the company's growth. So definitely, we are not going only for 100% payout to ensure our ROE. And we are not going to do the way, let's say, historically, some of the other -- some -- 1 company in housing finance sector did go for a dividend to some 80%. We are not trying to be anything like that, okay? So in other words, the path will be -- there will be a hold-on to dividend policy in place to play part of the -- part of dividend, a significant part -- will also be left to support the growth.

Yes. But that is contradicting what you guys did last year, right, where the EPS was INR 10 and you guys paid out INR 4 a dividend, which is 40% payout. And given this stage the company is in, a 40% dividend payout seems exorbitantly high.

No, it is your view. And we have consolidated all aspects in the Board. And -- as you know [indiscernible] first year, and that is not only that this is the first year. So just watch for a year or 2 more, then your argument [indiscernible]. Just [indiscernible] 1 year, with that being the first year, there could be some special dividend also onetime.

But you understand from an investor's point of view, right? Even from a tax point of view, is not efficient for the investments because dividend for us are being taxed at marginal rate, which is 30%. We'd rather have our money invested. So we invest in a small-cap company like yours because we want to see that growth rather than you distributing the dividends to us and we're paying 30% tax on that. So it just seems a very inefficient way of rewarding the investors.

We are aware of the [indiscernible]. We know what is the tax rate on dividend. We know what is the tax rate on capital allocation. And what is required, I mean, in the Board or we have people who are very experienced being in finance industries and other industries. And we are -- we will be very responsibly -- I assure you we will behave very responsibly when it comes to [indiscernible].

Ladies and gentlemen, this was the last question for the day. I would now like to hand the conference over to Ms. Mona Khetan for the closing comments.

Thank you, everyone, for joining us today. Thank you to the management for providing us with the opportunity to host this call. Over to you, sir, for any closing comments you may have.

Thank you [indiscernible].

Thank you [indiscernible] and thank you, mona, for organizing this call. I would like to pay my [indiscernible] gratitude to all the analysts and investor friends who have taken time out of the busy schedule to listen to us today. Please feel free to contact either me or [indiscernible], Mr. Anandan as well, for any doubts you have on the company or anything -- any information you require. And thanks once again.

On behalf of Dolat Capital, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.