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

Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of Aptus Value Housing Finance Limited, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Mona Khetan. Thank you, and over to you, ma'am.

Thank you, Muskaan. Good evening, everyone, and welcome to the earnings conference call of Aptus Value Housing Finance India Limited to discuss its Q3 and 9 months FY '24 performance. We have with us the senior management for Aptus to share industry and business update. I would now like to hand over to Mr. Anandan for his opening comments. Thank you, and over to you, sir.

Yes. Thank you, Mona. Ladies and gentlemen, good afternoon to all of you. I'm Anandan, Executive Chairman of the company. I welcome you all to conference call to discuss the company performance for the third quarter and for 9 months ended December '23. I have with me Mr. P Balaji, Managing Director; Mr. C T Manoharan, CBO; and Mr. John Vijayan, CFO. The financial results and the investor presentations are already available in the stock exchange and the company's website. I hope you have had a chance to look at it. As you know, affordable housing finance as an industry has been backed by several initiatives, including from the government in the form of interest subvention, tax incentives, priority sector status and lower risk of weightage on small ticket home loans. These coupled with low margin penetration and high housing shortage, particularly in the Tier 3 and Tier 4 cities of the country across geographical markets, really good workshop to believe that there is significant runway for growth in the affordable housing finance space. And we can continue to -- continue our growth momentum of serving low and middle income customer segments, belonging to self-employed categories living largely in Tier 3 and Tier 4 cities. Aptus, as you are aware, believes in growth with due importance in the quality of secured book with good financial metrics. Very happy to report that Aptus had a good third quarter and 9 months report. Sharp business focus, good distribution network, deep penetration in served markets, customer centricity along with appropriate tech support have enabled the company to achieve good growth. The company's performance for this period demonstrate a sustained trajectory of stability, growth and diversified income stream. In order to take the company to the next level of growth, middle management in sales and marketing functions, credit, collections and IT have been strengthened, I think I mentioned about it in the last con call already, have been strengthened in addition to investments in relevant technology. Our net worth stands at INR 3,700 crores, indicating a robust capital adequacy. This coupled with good support from NHB, banks, DFI and other providers of funding, along with robust on-ground demand for both home loans and small business loans gives us the confidence to pursue strong growth in the years to come with sustained profitability. I will now hand over the line to Mr. P Balaji, Managing Director, to discuss the business focus, operating and financial parameters. Over to you, Balaji.

Thank you, sir. Good afternoon, friends. As we have been explaining in the earlier calls, we will continue to focus on key strategies, which are growing disbursements and loan book, both in housing loan and small business loans, considering the large headroom available in the low and middle income segment in Tier 3 and 4 cities. Increasing penetration in existing geographies by opening new branches and commencing operations contiguously in the states of Orissa and Maharashtra. Strengthen analytics and digital adoption. For this quarter, the business from the tech-enabled platform was around 17% and mostly this has come from customer referral app, construction ecosystem app and social media channels. Our focus shall be to increase the leads through these channels in addition to the physical grounds network. Of course, we will continue our focus on productivity, collection efficiencies, OpEx and cost of funds. Major performance highlights for 9 months are as follows. AUM grew by 28% year-on-year to INR 8,702 crores (sic) [ INR 8,072 crores ]. Disbursements increased 25% year-on-year to INR 2,159 crores. NIM was at 13.37%. OpEx to asset was at 2.67%. PAT at INR 448 crores was -- grown by 22% year-on-year. ROA and ROE was at 8.06% and 17.1%, respectively. Total live customers were 125,000. This has grown 25% year-on-year. During the 9 months FY '24, 31 branches were opened, including our first branch in Maharashtra. Now coming to the asset quality. Collection efficiencies dropped marginally by 7 basis points to 99.65% mainly because of unprecedented rains and floods in the southern part of Tamil Nadu during the month of December. Our 30-plus DPD improved by 23 basis points to 6.04% on a year-on-year basis. This will be focused and improved upon in the ensuing quarters. Net NPA was at 0.89%. Provision coverage ratio has been maintained consistently at 1.06%. We are carrying a total provision of INR 86 crores and this when completed as a percentage of NPA works out to a coverage of 89%. Moving over to funding. These are well-diversified borrowing. Of the total borrowing, 63% are from loans; 23% from NHB; 14% from NCDs issued to IFC, mutual funds and securitization. Sufficient on-balance sheet liquidity was paid as on 31st March to the extent of INR 961 crores, including undrawn sanctions from -- of INR 300 crores from NHB and INR 310 crores from various other banks. Now with these remarks, I open the floor for the question and answer section. Thank you.

[Operator Instructions] And the first question is from the line of Raghav Garg from AMBIT Capital.

I just have one question. Your branch network and your employee base has expanded sequentially, yet what we've seen is that the OpEx to assets has come down versus last quarter. Is it that a lot of this expansion was back-ended during the quarter, and hence, we'll probably see some of those costs in Q4? Just your thoughts on that would be useful.

Regarding the cost. It is not that it has been back-end, right? It is basically -- if you look at the cost, it has not gone down very substantially. It has gone down from 2.71% to 2.67%. And also if you look at the salary cost, it has gone down by INR 1 crore as compared to the last quarter. It is basically because if you look at our disbursement, it has grown by 3%. The employee cost that is directly related to the disbursement related payments have slightly come down. It is basically that reason. It is not because of any back-ending of any investments that has happened.

Sure. Sorry, just if I can ask one more question. What is your outlook on -- that your yield has -- it's basically flat quarter-on-quarter, but the cost of borrowing has gone up. How much more of an increase should we expect in your cost of borrowings? And what would be the trajectory on the yield front? That's all from my side.

Yes, Raghav. See, what has happened, the yields have been flat quarter-on-quarter because we have -- because of the product mix that has happened in the disbursements in the quarter Q3. Basically, out of INR 767 crores, we have disbursed almost INR 470 crores of housing loans, which means almost 62% was the housing loan, which is earning a lesser rate of interest as compared to the other products. So that is why the yields were flat, because the cost of borrowing is -- we are not very much affected on the borrowing side on the housing finance because we have been consistently raising funds at around 8.25% to 8.5%. But on the NBFC, because of the RBI circular on the risk weight, it has slightly gone up 0.25%. We are currently raising it around 9% to 9.15%. So it is basically because of that reason, the cost of funds is going up. And this quarter also, we will be raising funds in the NBFC at around these rate. So likely -- it is likely that another 0.1% or 0.15% borrowing cost increase will be there in this quarter as well. But what will happen is, in this quarter, we'll be drawing INR 300 crores of NHB borrowings. So that will slightly compensate for the increase in borrowings from the NBFC.

Just to add to what Balaji said, our yield -- we have very consciously, there is a large -- even though the -- we have the pricing power to fully pass on the cost increase to customers. But nevertheless we have taken a conservative position and we have increased the interest rates to our customers much lower than our CASA times, and there was lack of that also. But at the same time, to answer your question in terms of further increase as you are aware, the further increase in our borrowing cost most probably unlikely, given the overall environment, including the budget proposal today in terms of things like that and the expectation that the interest rates are like to soften a bit as we go along in the next 3 to 6 months. So while we don't really expect any substantial increase in the interest rates going forward, if at all it could come down, but at the same time, since we have a significant part of our portfolio in the fixed contract, while our loan book is of this contract, that is the interest costs are likely to come down going forward over a period of time. So that puts us slightly in a better position going forward.

Sure. And one more question, sorry. So what I noticed is that the average ticket size or average loan exposure for you hasn't really increased whereas if we look at for some of the other affordable housing finance companies that has increased quite substantially or they are pursuing growth in higher ticket size segments. So why is it that we haven't seen any increase? Is it more to do with that or with your strategy to focus on this bottom-of-the-pyramid type of customer and you are averse to, say, higher ticket size lending? What is it exactly? Or is it that you are going down the risk curve, so the average ticket size is not really changing? I'm just trying to understand what's happening here.

We have a very clear business focus of tending to the largely self-employed living in Tier 3, Tier 4 cities. And that too from full constructed house is almost about 80% cap of our home loans. And again, we don't fund for the land, we only fund for the construction -- part of the construction cost. These results in our average loan size, these used to be lower because -- and as we go deeper into the, again from Tier 3 to Tier 4 to even a level deeper into the territory, the average size also will continue, will be somewhat lower. Only if you move towards metro, the loan size will begin to go up. But we are very conscious in our business focus that we would want to be serving this kind of market customers who are really -- largely in need of genuine home loans for genuine home purposes. So given that, I think the fact that we're wanting to consciously move to a higher end of the average home loans because we believe there are a lot of players service the higher end -- average size, higher loan size. Already we have enough big players are there, and that is not going to be our focus.

The next question is from the line of Nidhesh from Investec.

Firstly, on the growth trends, if you can speak about how are the growth trends in terms of disbursement and loan book in the state of Tamil Nadu, how they are shaping up in Q3?

Tamil Nadu loan book has been growing at 13%. I mean there is a slight -- there is a 1 quarter lag in the growth which we have actually anticipated in September. But having said that -- and also what has happened is, in the last quarter, there were floods and because of that, the disbursement in December in Tamil Nadu was slightly low. Because of that -- when you look at the January disbursements in Tamil Nadu, it has become -- it has caught up. Basically, the shortfall that has happened in December has been -- we were able to make it up in to an extent in January. Also -- and also what has happened is we have got all the manpower in place now. And in Q4, I think the Tamil Nadu growth will be back on track.

Sure, sure. And sir, I noticed that we have increased our sales managers quite sharply on a 9-month basis. So how is the productivity levels of that now? And should we expect -- how should we expect growth in FY '25?

No, I didn't get your question, Nidhesh.

I was saying that we have added a lot of sales managers in 9 months FY '24. Our sales manager number has increased quite sharply. So how is productivity level there? And how should we look at growth in FY '25?

See, first of all, let's look at the year-ending FY '24. What has happened, yes we have added sales officers, but we have also added the number of branches. We have almost added 31 branches, and we are also going to add 7 more in this quarter, 3 in Orissa and 4 in Maharashtra. So anticipating this, the recruitment levels have gone up. And this is -- and we are a productivity-oriented organization. The headcount will increase based on the volumes and also the login that is getting generated per sales officers per month.

Sir. And sir lastly, on the yield front, last quarter, I think we have taken 50 basis points price hike on the entire book. But our yields are flat sequentially. So the benefit of it is not visible.

As I explained, sequentially, why the yields were flat because we did take more housing loans in this quarter than the other products, which is actually 15.5% is the yield that is getting in that. So that is why it has happened.

And what is the incremental yield on the loan book -- incremental yield on the disbursements that we have done in Q3?

See, for the housing loan, it is at around 15.5%. For the nonhousing loan, basically the quasi home loan, it is around 17.5% to 18%. And for the small business loans, it is around 21.5%.

And the next question is from the line of Mona Khetan from Dolat Capital.

Just a few questions. So firstly, on the yield again. So while your yields have held pretty steady, I wanted to understand because you have raised rates recently by 50 bps across HL and non-HL portfolios. And given the fixed nature of your portfolio, could we see -- is there a scope for further improvement in yields as we go forward?

We don't really foresee any further increase in the yield at least in the -- because I think we are quite comfortable in the sense though we have raised our pricing lower than the actual interest cost, but still has the balances as the home loans we have is more of 15% and quasi home loans we have 17.5% and something about 21.5%. And this average is quite reasonably good. And given the overall context in terms of possible increase in the interest cost per se, because we did not put an interest [indiscernible] but has slightly just moderated as we go forward, given that we don't really see any need for us to really go for any yield -- further yield increase, we will be quite happy to operate the rate. And we will also get the full benefit because the last yield increase -- interest increase has done by us effective 1st November '22. So last one was done in 1st December, and the full benefit also we'll start accruing as of now.

Right. So I was not referring to the pricing. I was more referring to the full benefit coming in given the fixed nature of your portfolio. So is that yet to play out over the quarters?

Absolutely. What I would say is now the full impact will be -- will have a beneficial impact for us in the ensuing quarter.

Got that. Secondly, on the demand environment, I just wanted to understand if there is anything adverse that you're coming across? And how do you see demand for both home loan and SME loans in your segment and geographies?

The on-ground demand is quite very strong. I mean if you look at -- I mean after I got into this, I have also started traveling to branches where I'm able to see quite good business potential to be done. And if you look at our growth, except Tamil Nadu, look at Andhra, it has grown by 47% loan book. And I think Telangana has grown by 41% and Karnataka has grown by almost more than 20%, 22%. So when we look at the field -- when we look at the demand that there is no dearth of demand, and it is really good and we can do more business. And the guided growth of 30% is achievable.

So as you highlighted in the opening remarks, you have strengthened the middle management, sales, credit collection. So with this, do you see scope for higher growth guidance over time?

No. Obviously, we are growing on a year-on-year basis. And we sense that if we look at anything between 25% to 30% of growth going forward. So as it keeps, we are really preparing for a higher base. And these are higher level of operations. If we are really operating around INR 10,000 crores today, we have been looking at how can we take it up to INR 15,000 crores, INR 20,000 crores, INR 25,000 crores going forward. And towards that, we have now started looking at the organization and started strengthening at the certain level itself, with more resource, basically, to prepare the organization for a much higher level of in size and growth.

Got that. And just coming to the incremental cost of funds, what rates are we borrowing from banks, both across the HL and the NBFC book? And do you believe cost of funds has peaked or where do you expect it to peak for you?

I just explained this. On the housing finance companies, we have been borrowing at 8.25% to 8.5%. And on the NBFC, we have been borrowing at around 9% to 9.25%. Earlier, it was at around 8.75% to 9%. Now it is becoming 9% to 9.25% because of the RBI circular on the risk weight. But we feel that another one quarter after that, we feel that the rates would have got peaked and we feel the rates can come down in the next year. If that happens, that's what Mr. Anandan also explained, we are slightly better off there because most of the loan book -- almost 80% of our loan book was on fixed rate basis. So if -- and also consciously, what is happening is we are also moving from the fixed rate borrowing scenario to the variable rate scenario. If you look at our investor presentation, the fixed rate borrowings, which was at around 60% maybe last year, it has come down to 54%. So this means the rate transmission when it happens the cost of borrowings can come down with the result, the NIM can expand. Also, most of our present borrowing from the bank, the rates are linked to the repo rate, external benchmark rate or repo rate rather than the MCLR. And given that, any change in the repo rate going forward, the impact comes back up.

Got it. I understand your logic of moving more to fixed rates, but doesn't that pose ALM risks in the longer term?

No. What Balaji says that our loan book is at fixed rate. What I told is loan book is the fixed rate, whereas on the borrowing from fixed rate, we are moving to variable rate.

Got it. Got it. And just finally, if you could share the 1-plus DPD as well.

8.1%.

The next question is from the line of Kunal Shah from Citigroup.

So firstly, on the credit staff, so that has come off. So is there any restructuring or something which has happened on a quarter-on-quarter basis, maybe...

No, no. What has happened, Kunal, we have reclassified that. Only the branch credit has been shown as the number there. And the head of the staff has been grouped under the head office criteria. That's why it has come down.

So there is 21 people have moved to head office rather than being classified under the branch. But there is no change in terms of the credit...

The classified number has changed, but that's not moved. That's it.

Okay. Okay. And secondly, on OpEx. So again, you touch base in terms of it being lower. But eventually, how we look at it because we are seeing many of the HFCs investing quite aggressively and still from our side in terms of the cost to assets, that's being contained quite well. So do we see that we will have to be in an investment mode quite aggressively to manage this 28%, 30% kind of a growth trajectory? Or maybe it can continue at the current levels?

Kunal, we are in investment mode only. But only thing is we don't want to open 100, 200 branches at one point of time. What is happening, for the current branches itself, we want to have more productivity, and over and above that, every year, 30 to 35 branches will be opened. The logic behind this is the 30 branches opened in a particular year is going to contribute to the expenses of the new branches that is going to be opened in the next year. So that is how we want to grow, and that's why -- I mean, we are a productivity-oriented organization. So this is how the whole thing will happen. So -- and going forward, the expense ratio will be somewhere around 2.7% to 2.75%. And this is how this company will be run.

So Kunal, just to add to what Balaji said, primarily, our OpEx will continue to be one of the best in the industry. And even because of a significant part of this OpEx, not only for us for the others also, there will be manpower in our related cost. And the manpower cost again has got 2 elements. One is really the productivity of the manpower. And second is really the attrition, the high manpower cost arising out of the high attrition, particularly the field charges otherwise. So those companies which have got a very, very high attrition level, as we are still facing our customer-facing jobs like sales and collection, their manpower cost tends to be higher. At the same time, those companies where the productivity per staff, number of files per staff is lower, their manpower cost also will be higher. So we are very conscious on 2 things. One is that we're very, very particular about tracking -- achieving target setting, achieving training, handholding, everything to ensure a decent level of productivity, right up to the branch level, sales officer level, collection officer level. And also very conscious in terms of about our attrition level. So the lower attrition and higher productivity is something which is helping us to maintain reasonably well our manpower price, hence the overall OpEx itself. Of course, there are -- so otherwise, even for -- it's not that we pay lower salary or anything in terms, our salaries when compared to others when we've got some kind of inter-firm comparisons, it sits good, but at the same time, our operating cost is lower because of we are very conscious about productivity aspects.

Sure. And lastly, in terms of the overall NBFC growth, so quite strong, almost from, say, 1,500, it's going up to almost like INR 1,700-odd crores in one single quarter. So would this maybe -- what's actually driving this kind of a sequential growth, maybe almost like more than 12%, 13-odd percent on a quarter-on-quarter basis, 35-odd-percent on year-on-year. And would this -- maybe in terms of the proportion now being there at 21-odd percent on the consolidated, given that we need to meet up with the overall home loan as well. So would we see that component going up? And any impact on yields positively that we could see on account of this, Yes?

If you look at the NBFC growth, as you rightly said, from INR 1,512 crores to INR 1,722 crores, what has happened is right from April onwards, we have started booking some of the LAP purchase and construction, the nonhousing loans also in the NBFC, which will yield around 17.5% to 18%. And also the small business loans, which is holding around 21%. It is basically because of that, these loans were earlier booked in the housing finance company that we have moved it into the NBFC. That is why the growth is stronger there. So that is one. Then the next thing we are talking about the yield increase, but it might not be that much because we are booking the nonhousing loan, which is earning 17.5% to 18% also in this. So with a result, you might assume that all these loans are earning around 21%, it is not the case. So we might not -- to that extent, it might not positively impact on the yield.

Sure. And traction would continue?

Traction will continue, yes.

The next question is from the line of Renish from ICICI Securities.

Congrats on a good set of numbers. Just two questions. One on this Tamil Nadu growth, which has been slightly -- relatively lower as compared to other states. Now is this due to the competition in Tamil Nadu? Or is there something else at the ground level wherein we are not growing because when we look at the other peers who are based out of the Tamil Nadu, those guys are growing at a decent pace, so how one should look at it this, sir?

So thing is, right, I think in the last quarter and the last to last quarter, we explained that there were some staff issues with us and that's getting corrected. And of course, in the last quarter, we have told that the whole issue has got corrected, but still the people -- the contribution from the people had to come more faster, but that has not happened in Q3. Over and above that, as I told you, there was some disruption in the last 15 -- 10 days or 15 days in December, where people were -- some of the areas were affected by flood. And because of that, the contribution was not able to come in. In fact, our disbursements growth -- I mean, I think we were aiming for INR 800 crores of disbursements and because of this flood, this INR 767 crores came in. So it is basically, if that has come in, I think the disbursement growth also would have been better. But that has been caught up in January, Renish. So hopefully, things will be back to normal in Tamil Nadu in Q4.

Got it. Got it. And second question, again, sorry to circling back to the cost effect. But let's say, internally, when we are targeting 35% -- 30% growth, and the way sort of competition is in this segment, do you feel that adding 30, 35 branches would be enough to sustain this kind of a growth rate?

Yes. Actually, if you really look at it closely, I think in fact it is laid out there in the presentation also. One is really we are really working very closely on the inquiry generation through the other channels, including the customer app, eco-partner app and the social media. And I think we have done about 17% of our disbursements through this inquiries. In fact, we have about 175,000 customers already. And of that, about 70,000 customers are really already in our customer app. And we are expecting that we would expect at least about 4 to 5 inquiries coming from the primes and ratings of these existing customers per annum, of course are inquiries per annum. That itself will be standing about 3,000, 4,000 inquiries. That inquiries will be flowing in a particular spot. And we are really going through the inquiries on the calls -- calls are really converted to warm leads after going through the customer, customer background, requirements, loans, et cetera, and then passed on to the branch. Because of them, our [ representative ] are becoming very good and very high. And sales office is also when you go and meet customers earlier, they hit it maybe 2, 3. But today, the hit rate has really substantially improved. So that's what even sales guys also to spend more time on the field to look at new customers. So in other words, this is a view -- this is something which we're really working in the last 6 months, now started fructifying. And this will complement our existing branches. So branch alone is not the -- for us -- in a way to grow. The branches will be there. We'll keep adding. But at the same time, we're also working on the other channels as well.

Got it. So sir, if you can share some numbers to this, so let's say, in Q3 of incremental logins, how much of the incremental logins would have come from the non-branch channel?

I'll just explain, of the total -- I'll talk in terms of disbursement instead of login.

Yes.

Out of total disbursement, 7.41% came in customer referrals, 6.21% came in construction ecosystem app, 3.17% came through social media, which adds up to almost 16.8% or something. 17% of our disbursements have been through these channels.

And do we have any internal cap on, let's say, sourcing from alternate channel, let's say, 25%, 30% -- at what percentage you will again start...

What is happening if you do the sourcing through this thing, till the branches are involved. It is not that branches are excluded from this. See, the leads are getting forwarded to the branches. The branch people have to do the work of having a discussion with the customer, assessing his cash flows and everything. So still that is there. I mean there is no cap. And also the conversion rates here are, once the login is happening, the 90% of the logins are getting sanctioned, which means it's a very good channel to deal in and then taking it forward.

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

The first question is around -- what are the net curing rate from the first bucket to the bucket 0? That's first question. Second is, sir, there is a...

We're not able to hear you properly.

Can you hear me now?

Yes.

So what is the curing rate from bucket 1 to bucket 0? That's the first question. Second is, what are these quasi home loan in the home loan book? And the third one is we mentioned that the invokes are quasi - if my understanding is correct, quasi can't be invoked below ticket sizes of INR 20 lakhs. So if you can speak on these three, sir?

Yes. First, let me talk about the quasi, please. What we indicate of housing finance company, sir, there is no limit on invoking business, even if it is 1 lakh or 2 lakhs, in the case of housing finance companies, that self it can be invoked. And -- that is the first thing. Next one is on the -- what was that -- your second question, what was that, Shubhranshu...

The net curing rate from bucket 1 to bucket 0.

Do you mean the receivables...

No sir. So you said that the 1 plus is 8%. So how much of that is getting cured? There will be some kind of curing as well, right?

Curing to the nil OD, that means from 1 bucket, it is going to be nil OD, is it?

It's going back, sir. So they would lead us to forward rate and they would be backward rate as well.

There is nothing old -- either we collect or it remains outstanding and moves into the...

No, it has always -- see, what has happened is, over the quarter it has remained steady. [ EPA 8.1% ] is the -- last time it was around 8%. And if you look at the 60 to 90, it was around 0.5% or 0.68%. So it has remained at the same level there.

Okay. Okay. Okay. Got it. And quasi home loans?

Quasi home loans, what has happened, see, we are in the business of funding with self-employed people. So we don't plan well in advance to get a housing loan. So if a loan given, has to be classified as a housing loan, the customer should approach us when the construction is happening. Since we are in the business of funding the self-employed people, unlike salaried people, they give bulk cash flows from business and they use that money for construction of the house, complete the house and they live in that house. So once they start living in the house and then they are continuing with their businesses, they find themselves cashed out for running the business. So they come to us for a loan, but that cannot be classified as a housing loan as per the NHB direction. So we give it out as a quasi home loan, but the time period is 3 to 6 months of completion of construction. When they come to us, it gets classified as the quasi home loan. Otherwise, if it is more than 1 year or 2 year, it gets classified as a small business loan. That's the difference.

So is it an unsecured loan or a secured loan? What is this exposure?

There are no unsecured loans in our portfolio. Everything is secured by immovable property. Self-occupied, residential, immovable property.

The next question is from the line of Arul Selva from Independent Advisor.

You can move on to the next afterwards he can join.

And the next question is from the line of Bhavya Sanghvi from Fortress Group.

We can get to the next one.

The next question is from the line of Arul Selva from Independent Advisor Private Limited.

Just wanted to go back to a previous comment that was made. Did I hear you correctly when you said that you're planning on moving your overall liabilities towards having a greater proportion of variable borrowing from fixed borrowings currently?

Yes, yes.

Okay. Because I'm just asking to understand, do you have any specific target in mind in terms of where we want our fixed cost -- fixed versus variable borrowings to be at?

It would be around 40-60.

Yes. And 40% is the fixed cost?

Yes.

Okay. So the reason why I'm asking here was that given that your asset book has 80% of its assets in fixed cost, I was just trying to understand what was the reasoning or what was the thinking behind shifting towards a more higher proportion of variable cost? Because I would think that given the higher proportion of fixed assets, it would be perhaps more prudent to have a higher proportion of fixed borrowings as well.

See, if you look at it now because of this interest rate environment which is going to come down expectedly, so we are moving into it. If you look at our past experience, we were able to get around 60% to 65% of our loan borrowings in the fixed rate form. In fact, all of our NHB borrowings is fixed rates. So we'll be able to -- I mean, because of this interest rate scenario, we are getting into this. But we are very confident that we'll be able to move over to the fixed rate borrowings in the future as well.

Okay. Okay. Perfect. Perfect. That sounds right. So it's just the current interest rate environment, which is kind of making you slightly shift your borrowing structure. Okay. That's one question. The second question I wanted to ask, I didn't hear the previous question on this. The growth rates in Tamil Nadu, were they affected predominantly because of the staffing and the floods or whether were there any other issues affecting the operations of Tamil Nadu?

As I explained, the staff issue has been sorted out. It is basically the floods in December that has slightly -- that has affected the growth in this quarter. That has come back to normalcy in January. So this quarter, it will be back.

Right, sir. And has there been any impact on the collections, in Tamil Nadu specifically?

Very marginally. Yes.

Could you please give a number if you had to like give a ballpark estimate?

Collections efficiency, it was 99.72% earlier. Now it has become 99.65%.

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

Just 2 clarifications. One was, you mentioned that your incremental cost of borrowing went up 10 basis points quarter-on-quarter?

Yes, Q-on-Q.

On an ex-NHB basis?

What was that? I didn't hear you properly, Nischint?

Excluding NHB borrowings. I'm saying when you're looking at...

See, we have not drawn the NHB borrowings, which has been sanctioned, which is around INR 300 crores. We'll be drawing it in February.

Sure. And -- if I look at the fee income, I know the numbers are small, but there was some uptick on a sequential basis. Anything to read in that?

No, it is basically we have just realigned some of the processing fees, that's it.

I mean the insurance part, is it?

Not the insurance part. It is basically the cost increase which we charge to the customers. We have just realigned some of it, that's it.

Okay. So then it kind of gets adjusted maybe from the yield-to-fees or something like that?

Yes, yes.

And the next question is from the line of [ Ankit Bhansal from AB Investor ].

My question is, sir, the kind of environment coming ahead in next 2 quarters with the rate cut evidently. Sir, with the kind of rating you have from the rating agencies, one of the best. Sir, are we able to see the best phase of Aptus growing more than 20%, 30%? Can you please share the details?

As we have been guiding the market, the loan book growth, we have been guiding between 25% to 30% in the next 3 to 4 years. That will be done.

Okay. Okay. But sir, I want to know the kind of environment we are getting like with the rate cuts. I want to see the aggressive side of the Aptus about the growth because you are stable in this kind of environment with the rate cuts in your hand and with the kind of interest rate ratings from the agencies of borrowing you have, the growth, I don't know how aggressive can you on the growth side, so that will be beneficial?

It is too early -- I don't know -- someone from that -- because we don't know what is the time that the reduction interest rates going to happen. And over what period of time and whether it is substantially enough to influence customers to take a call on home loan demand. There are -- a lot of things around it. So we probably would be able to comment better as we go forward than today.

The next question is, are the net NPAs and gross NPAs kind of -- will remain in that range or upside 1 or 2 bps?

Currently, the net -- gross NPA is at 1.19% and the net NPA is at 0.89%. Our endeavor is to bring it around 1.05% to 1.1%, then that will get maintained. So that's what will be the NPA.

Sir, any new geography are you entering in Delhi side or in north side?

No. Our growth strategy has always been a continuous growth. So we have opened branches in Orissa and Maharashtra. In November, our first branch in Maharashtra has opened. And we would like to fully take the -- I mean, use the potential that is available in these 2 states and then get into the next state, which is near Maharashtra. And then we will go to the north. But as of now, it will be a contiguous growth, which is from the current existing states where we are operating.

Sir, next, are you...

Sorry to interrupt sir, may I request you to follow back in the queue, several participants are waiting. And the next question is from the line of Bhavya Sanghvi from Fortress Group.

Sir, my question is in medium term. So as in the earlier participant question, you alluded to OpEx to asset ratio of close to 2.7% to 2.75%. So my question is with respect to the capacity additions and branch expansion that you're going through. And I'm sure the 25% to 30% growth guidance would entail higher number of accounts getting added and more leads from non-Aptus markers like the -- like except from feet-of-street, the other avenues that you are looking at, like social media, et cetera. So I was just wondering and wanted to ask your opinion about the IT systems and the investments that you would entail in the medium term. Is the management thinking about enhancing the LMS, LOS and the investments that could happen in the future when the loan book size grows about 10,000?

What is happening -- if you look at our IT investment, if you look at the operations of the housing finance companies, whether it is sourcing credit, legal, technical, collections, everything we have technology-enabled kind of a thing. And then we have also got Novac systems, which has been in operation from 2016. It is an end-to-end system. This is one thing which is happening now. We are having various apps for sourcing the customers, for onboarding the customers. We have a credit scorecard mechanism for evaluating the customer. And also we have the app, which captures the video of the customer at his workspace, at his residence and then we will be able to assess them. And similarly, in the technical, we have an app which marks the boundary which geo tags the property. Similarly, the collections, we have an app, which monitors the moment of our collection officers. It optimizes its route to go and collect the money. All these things are there. Over and above that, what we are doing now is we are changing the loan origination system with the lead management system. And it will be a mobile-first technology where people will be able to onboard the customer within the mobile. And that is from the main system, which is Novac, which has been supplied by the Novac systems itself. So this is one investment which we'll be making. And whatever is relevant and what is -- I mean, if you look at our legal, what has happened is we have tied up with the service provider called Legality, where all the agreements are done digitally. All the agreements were signed digitally. So these kind of enhancements and also the use of technology will be investing in. And then what is relevant for the housing finance industry in the affordable housing we'll be investing.

Got it, sir. Also I wanted to ask you about any plans that you guys have in the medium term in the NBFC arm to do a small -- like a lower tenure loans, like a consumer loans? And will the IT system -- if yes, will the IT system be unable to do those in the future?

We don't have any other intention other than to do these 3 products, which we are in now.

The next question is from the line of Raghav Garg from AMBIT Capital Private Limited.

So to one of the questions, you were highlighting that the employee attrition issues that you were facing 1 or 2 quarters ago, you addressed those issues. So can you elaborate on what specific measures have you taken? And how confident are you that given the increase in competition in affordable housing space, these employee attrition issues won't crop up again?

Actually, the -- obviously, one can't take a view that the attrition will never happen or will not happen. But what we are trying to do is that, in fact, even we have major attrition issues in Tamil Nadu, but in overall terms, the company has grown the loan book by about 28%. And there is a very strong growth in Andhra Pradesh and Telangana and Karnataka in that order. And Tamil Nadu also grown by about 13% or so in the loan book. So -- but the overall company terms, we've been growing. So in particular process in Tamil Nadu, we had issues that we have resolved. But to answer your question in terms of how -- what action we are taking to reduce attrition is really in terms of -- we are taking lot more care at the recruitment stage, and at the training and also in terms of handholding them. The new staff will be put along with the existing experience of the sales officers or with the branch manager himself to handhold him and go along with him for 2, 3 months for all the transactions. So that helps with new sales officers to get the inducted properly into the system, that we are doing. Also what we are trying to do is that to enter -- because we also saw, based on data that the attribution if at all very high in the early part of the period the attrition is highest in the first 6 months up to 1 year. And once the 1-year period crosses, when we come to know probably the company -- the company comes to know of them and the attrition rate drops. But the challenge is really how do we really hold them in the first 6 months and the first 6 months, 7 months. And therefore, we have introduced them a sort of recognition stream for those like to complete the first 6 months range, we will reward them with a particular reward scheme. So that's why we are really taking several initiatives, particularly for the field-facing, customer-facing jobs like sales officers and collection officers, right from the recruitment to induction to handholding to motivation measures, we are trying to reduce attrition.

Sir, what kind of rewards are you referring to? Can you give us some specific examples? And one more question is in your organizing hierarchy, from which level do you start issuing stock options, just to understand...

I think we would like to take it offline because we don't want to get into specific reward schemes and the numbers and the financial aspects. We can give them, it is not an issue, but otherwise speak to you later, we will see what we can do.

As that was the last question, I would now like to hand the conference over to management for closing comments.

Yes. Thank you, Mona. Thank you for organizing this conference call. I would like to pay my sincere gratitude to all analysts and investor friends who have taken time out of their busy schedule to listen to us today. Please feel free to connect with us in case you have any further queries. We would be happy to get back to you. Thank you.

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