AU Small Finance Bank Limited (AUBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the AU Small Finance Bank Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aseem Pant, VP, Investor Relations and M&A. Thank you, and over to you, sir.

Thank you, Madri. Good morning, everyone, and welcome to AU Bank's Earnings Call for the Third Quarter of FY '21. We thank you all for joining the call today, and we wish you all the health and happiness for the calendar year 2021. On the call today, we have members of our senior management team, including: Our MD and CEO, Mr. Sanjay Agarwal; our ED, Mr. Uttam Tibrewal; our CEO, Mr. Deepak Jain; our Chief of Staff and Group Head of Strategy, Mr. Yogesh Jain; our CFO, Mr. Vimal Jain; our CRO, Mr. Mayank Markanday; our Chief of Credit and Strategy for Commercial Banking, Mr. Vivek Tripathi; our Chief of Wheels business, Mr. Bhaskar Karkera; our CIO, Mr. Ankur Tripathi; and our Chief of Products and Communications - Liabilities, Mr. Shoorveer Singh Shekhawat. Besides that -- them, we have the IR team comprising of myself, Prince and Ayush. We announced our Q3 results yesterday and hope you all had a chance to go through our results and investor presentation. Before we go into Q&A, I would just -- we would just like to share a few thoughts around our operating environment and our performance. In terms of operating environment, things have become a lot more stable, driven by higher COVID recovery rates, declining new cases and commencement of vaccination. More and more businesses, offices, schools are opening up, and people are coming out with confidence, and fear factor has significantly reduced. Branch footfall has gone up, and 99% of our employees are now working from offices. In fact, for us, we would say the last quarter has been better than normal, as can be seen across our deposits, disbursements and collections data as well. Going ahead, based on the trends so far, we believe that Q4 '21 can positively surprise us in terms of growth and collections. In terms of our performance for Q3, all the pillars of the bank are doing well, and the bank is focusing on bringing a method to the madness to retail banking. The focus is on developing the retail franchise, and individual-driven banking now accounts for 60% of overall deposits. Our digital-led banking journey is also shaping up well. During the quarter, we launched the new mobile banking and Internet banking platform and also soft launched credit cards for our employees. Our efforts around video banking and QR codes are quite intense, and we aspire to be the next level player in the payment space, capturing the complete ecosystem across customers and merchants with UPI, AePS, FASTag, POS, et cetera. On the assets side, vehicles have shown strong growth driven by need for personal mobility and improving macro. SBL is stabilizing. It was expected by many to be the worst impacted segment, given small borrowers with self-employed business models. However, their turnaround has been remarkable, and demand is clearly much better than anticipated. Commercial banking, too, is becoming more stable with things turning normal. And now probably the most talked about subject, which is around our asset quality. At the end of Q2 FY '20, we took a pause in our commentary to better understand the sustainability of initial trends in collections and the green shoots that we were seeing in the businesses. With this quarter being the first full quarter after the moratorium, we believe most of the problem is now recognized, and the stressed assets have broadly peaked for us. Certain segments like commercial taxis, hospitality and schools have been impacted more and are taking slightly longer than others to recover. Even though our historical credit losses have been limited in these segments, as our assets remain secured, we have used the Aavas sale proceeds to make additional provision buffers to fortify ourselves against any future stress. We believe we now have more than enough provisioning for both losses arising from the stressed assets as well as any potential near-term stress due to COVID. From here onwards, we believe that in FY '22, the economy will see a strong rebound, and the credit demand will grow at a rapid pace. And we are working with the same momentum as pre-COVID now. The pandemic has been a once-in-a-lifetime event and has taught us many valuable lessons in handling crisis and focusing on managing difficult situations. The past year has tested us in several ways, and we believe we have emerged stronger from the pandemic and developed even greater confidence and resolve in our journey of building a truly world-class banking franchise. We strongly believe that what doesn't kill you only makes you stronger and that the best is yet to come. With that, we can now move into Q&A. So over to you, Madri.

[Operator Instructions] The first question is from the line of Bharat Shah from ASK Investment Managers.

Two issues. One will be asset quality. At the end of the second quarter, we made a very small kind of a credit cost provision. And the discussion that time centered around that going forward, we do not think that we require much of the provisions. And what we have done in September, more or less, should take care of it. Then December, again, we are seeing a significant amount of the credit cost. So I'm glad that we are taking care of possible stress. But can you say why did we stop making better amount of provision and charging it to the profit and loss account rather than stopping halfway through in September?

Yes. Yes. Bharat-bai, hope everybody is fine at your end. So if you remember last time, we commented that as of that time, we thought that we are enough covered. And there was -- at that time, the things were not as clear as what we have seen now in last third -- December quarter. And we were actually covered because we've done some sort of provisioning in the quarter 4 last year and the quarter 1 around INR 280 crores size. And now what happened because now after fall, because the whole moratorium ended on 31st August, so September, October, November, December, you've got 4 clear months, and we have a lot of visibility now. And you will appreciate that the earlier comment of us that our peak NPA can be around -- can be -- the peak gross NPA can be around in the range of 3.5% to 4%, so now it's picking there. I strongly believe that my provision coverage till quarter 1 end, which was INR 280 crore, is sufficient enough to manage those because our NPL ratios are always around -- net credit loss ratios are always around 0.3%, 0.4%. But for a prudent practice and being more stronger on our balance sheet side, we have enough cushion available with us this quarter. We thought to really actually [ preform ] out any kind of eventualities. So we created more provisions so that from quarter 4 onwards, and I'm very clear in my heart that from quarter 4 onwards, maybe next 3 to 5 quarters, you won't be seeing a lot of more extra provisioning in AU balance sheet. We really want to convey a very strong message to the entire community that for us, the pandemic gets over by December last. So whatever we face as a challenge, as a one-off challenge in the last 9 or maybe 12 months, we want to really cover up till December and really want to start fresh from January 1. So that is [indiscernible] conservative this time and thought to do this.

So there are 2 things that I'm understanding from this. There is that whatever we have now provided by December '20 in terms of the credit costs available within 9 months, what we have provided, is almost about 1.75% of full year [ tax ]. And that should not -- from January onwards, our credit cost is most likely to revert to our historical 30, 40 basis point cost and should not be out of line other than that. Am I right in that understanding?

No. I would -- Bharat-bai, I would say, in my opinion, the pandemic has actually hit more to the marginal customers, marginal businesses and has made some customer marginal, right? So for me, in my whole INR 30,000 crore of book, which was, as of maybe last half, we only -- having a challenge around INR 1,000 crores or maybe INR 1,500 crores of book, so that whole NPL level has been fast tracked. And we have already done that provision till December. So if you believe me, and if I'm able to predict right for the next maybe 4 to 5 quarters, my NPL ratio on an incremental book would be lesser than what you are talking about. Because whatever we had in marginal book and marginal customer, we have arrested till December. So it might be lower than that. Barring this INR 1,500 crores of maybe restructured book in next 3 months, I believe my book is well enough to take care of lesser NPLs.

So you provided in terms of the credit cost already about 1.75% [ entailed ] in the 9 months. And how much is the provision we are taking as a buffer in addition to this?

Sorry, Bharat-bai, I'm not able to get your last point.

Well, I'm saying how much is the provision buffer that we are carrying with us is on [indiscernible]?

So if you go in the mathematics, so I believe that we have actually covered around 60% of our NPLs. And my loss ratio always were in 0.3, 0.4, which is 50% of my PCR as of now. So I have that extra buffer, right? So -- but we need to see next maybe 1 quarter or maybe 2 quarters to really come out clearly on this. But I strongly believe that my PCR is enough to cover my -- any kind of losses.

[indiscernible] Sanjay [indiscernible] expenses. So while I appreciate and understand that we have not given up on our [indiscernible] growth and rightly so with the status of where we are [ sky ] is an opportunity. But if that were the case, then expenses is [indiscernible]...

Bharat-bai, I'm sorry, your voice is not clear. I'm not able to hear your question very properly.

Okay. I'm sorry for that. Is it clear now?

Yes. A little bit, but fine.

Okay. I was saying that we -- if we look at our expenses over last 5 quarters, while good parties that we are preparing for the growth, when that hunger for growth remains, which is a positive. On the other part, I was just trying to correlate meaningfully expenses to the net income level that we have. So from a total disbursement, while that can [indiscernible], but still, it's really difficult to make any meaning out of how one should view our expenses to net income level over a period of time. And cost to income ratio is something that we are unable to get any grip on as to how to look at [indiscernible].

So Bharat-bai, you will appreciate that we are in -- just in our third year, fourth year as a bank. We have our growth aspirations, and we would love to invest in the -- in all aspects, whether it's infra, whether it's people, whether it's digital. So -- and the bank also has to invest around their brand and our marketing, right? So -- but we are fortunate that we -- our yield on assets are high. We are saving a lot of money on our cost of money. But OpEx remains -- will remain elevated because of our own requirement around the franchise for next 10 to 15 years. So I would say, OpEx level around 50%, 55% over the next maybe 2 years. I'm very comfortable because we need to invest in this franchise on a very, very regular basis.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

My question actually was also on cost to income only. Is there some way where you quantified the cost to income on mature branches versus -- I know you've been in the business only for a few years now, versus the branches you're setting up, in the sense, where would the trend line become over, let's say, the next 5 years?

It's difficult to answer as of now, my friend, because as I already told that this franchise will require a lot of investment in the infra, tech, digital, brand, marketing, people. And we need to keep investing in those, all segments and all verticals. So because there is always a difference between a mature branch or upcoming branch, but ideally, I would say, next 5 years, whatever branches we will open maybe in the next 3 years will get profitable in the whole 5 years. But after 3 years also, we'll be putting more branches, right? So it's a journey which we all have to take. So requesting everybody to have a little bit of patience. But I would say that our OpEx to income would not be above level, right? We'll try to manage it between a range of 50% to 55%. And because we have that ability to lend high and our cost of money is also growing sometimes. So I believe that will give us enough margin to manage ourselves.

Excellent, sir. Sir, could you also just help us with your Wheels business in terms of how the trends are going? Because amongst all your business, in terms of either full and part collection is one of the lower numbers, given the pickup in economic activity, and is there a trend that you're seeing in January that's better than December? That's my last question.

Sorry. So Bhaskar, can you reply to that?

Yes. Vivek, the trend both in terms of your question about -- pertaining to collection of business, just for my understanding?

It was in respect to collection only, in terms of -- it showed 81% as full collection, 6% is part collection. That is, amongst your businesses, the lower of the numbers. So I just wanted to see how the trend is going in January. And what are the factors impacting it?

Okay. Okay. So Mayank can reply. But initially, I will tell, Vivek, that our January numbers are better than December as of now. So Mayank, do you want to comment on this?

Yes. Vivek, as you rightly picked up, our December numbers were better than November. Every month, the customers' activation levels are increasing. And collection, as you can see, has also increased in the Wheels product. And it is not only Wheels product. Across the products, it is increasing. We have touched upon higher than 3% in December. January until now, also if you ask me as of 27, we have already crossed 100% mark, which is -- which shows a sense of recovery coming across. And we are pretty much confident that we'll achieve the same levels as what we did in December. And these customers are coming. And they are paying it back wherever [indiscernible] moratorium or earlier. But now they have paid us well in last 2, 3 months. So we are pretty much confident that will improve from here on.

Vivek, just to add -- Vivek here. Just to add to what Mayank said, I think we also -- there were 2 slides which were given, 16 and 17. So one refers to customer activation, the other refers to collection efficiency. The customer activation number is 81% full and 6% part. But if you look at the collection efficiency number, which is close to what we -- was there in the pre-COVID level, 99% was there last year, which has already reached 98%. And as Mayank mentioned, that January is still looking further more along the same lines, right?

Okay. It's just that if more number of customers get activated at this, I'd assume even the collection is presumably going to go over 100%, which we're already seeing.

The next question is from the line of Bhavik Dave from Nippon India Mutual Fund.

Sir, my couple of questions, one is on the asset quality. Could you just mention what would be our normalized customer activation rate when it comes to Wheels business, which is at around 82%? What is the number -- 81%, sorry, full payment. What is the number like in a normal case of business, like in a pre-COVID level? If you can talk about...

So Bhavik, [ COVID ] aside, the normal activation always ranges around 90%. So -- but it's always about full and partial. So we are close to that, maybe 5% down whatever the pre-COVID levels up to December. But I strongly believe this quarter will be as good as pre-COVID levels.

Sure. And sir, secondly, on the slippages that we saw this quarter, do we -- is it fair to assume that next quarter onwards, this number should like dramatically come off or be similar to what we were reporting like in that INR 100 crore-odd range, INR 150 crore slippages that you used to report quarterly? Should we trend back to that level? So this would be the peak of slippages?

So I would say broadly speak, now that we have only 5%, maybe plus 5%, maybe minus, it won't go dramatically down because we strongly believe that the customer is not paying us from last 4, 5 months, and that's due -- because of COVID. It's difficult to -- for them to come back, right? So largely, I would say -- but I would again [ reinsert ] that for me, it's a fast track of mine, maybe 2-, 3-year of NPLs in the past 1 quarter itself. So my strong belief is that the rest of my book remains very strong and now steady. And if anything, around this INR 1,000 crore, maybe INR 1,200 crore level kind of thing is quite adjustable or quite acceptable.

And just to be clear, Bhavik, I mean, we are referring to gross NPLs here.

Yes. Yes. So yes, that INR 1,000 crore number should be somewhere around maybe 5% over and above this INR 1,000 crore. Is that a fair assumption?

Sorry, can you repeat again?

So all right. What I'm trying to understand is that INR 700 crores that got slipped during the quarter. And if this year-long period average is to be around INR 150 crores to INR 140-odd crores, should we assume that the INR 750 crores can now -- next quarter onwards, we see INR 500 crores, INR 600 crore kind of addition towards GNPA?

No. No. Not at all. Not at all.

Yes. That is what I was trying to...

Yes. Yes.

Yes. So next quarter, it will be broadly INR 100 crore, INR 120-odd crore.

INR 50 crores plus, INR 50 crores minus, 5%.

Okay. Okay. Understood. Okay. Understood. Understood. And sir, finally, on the credit cost front, this quarter, again, like similar question on the credit cost, this should be like the peak. And now the credit cost from here on, from next quarter onwards, should be broadly similar to what you were reporting pre-COVID, right? Like that 30, 40 basis point of average assets should be our credit cost for next -- going forward, next quarter onwards?

Yes. Broadly, broadly, I expect lower but broadly.

Sure. Understood. And sir, secondly, on the business front, on the cost front, we've seen like -- like you rightly mentioned that we are investing in our businesses. If you could just talk about -- and we've done a very, very, very good job on -- when it comes to technology and tie-ups with digital platforms. I just wanted to understand how -- what is the kind of investments that we are doing on the technology front and building these apps and tying up with these Flipkarts and Amazons of the world? How does the economics work there? What do we get out of it? If you could just talk about that because that is quite interesting.

Bhavik, that's a large question. So I would love to answer you off-line because this is a little bit confidential to any organization. So it's good for us to talk off-line on this.

All right. Okay. Understood. And sir -- yes. And last question is on the deposit front. Sir, just wanted to understand because you -- one line you've mentioned on the presentation is that because of these tie-ups and more active customers, our balances are increasing amongst those customers. So if you could just throw some light on, if we were to compare like customers who are active on these platforms versus customers who are not, what is the kind of differential on deposits? Like how -- what metric are you tracking to see that is helping us improving our deposit franchise? Shoorveer, sir, if could talk about that.

Shoorveer, can you comment on this?

Yes. So Bhavik, your first question was metric we track on this is number of transactions or the number of times the customer is using these offers. But in terms of the population of both on the deposit side, what we track is the number of -- average number of transactions which per customer is growing on a monthly basis. And you've seen a significant improvement in that. So if I give you numbers from -- as of September, if our average customer was doing 11 transactions per month, it has improved to 13.8 transactions per month. On the other side, when you talk about people who are using these offers, we track particular customers on a monthly basis who have been offered -- who have been active on e-com and POS or to a merchant stand. On that level, we have seen an improvement of at least 21% in terms of average balances which are being maintained with the bank. And this is largely -- you understand that when there is a primary account, customers start using your account predominantly for spend. That is the primary account where the funding stays for a longer period of time, and this is what is reflected clearly. So largely, whether it is a non-zero balance customers in terms of our clear metrics, in terms of the transition of the book or it is about average transactions per customer or is it about products per customer, and the number of customers which are doing transactions more than 4 transactions per month, which is a benchmark from industry level in terms of tracking the engaged customers, across all metrics, we have seen a considerable improvement because of these investments.

And Bhavik, just to add to that, if you refer to Slide #31, we have disclosed how these movements have been over the last 9 months, at least each of these metrics that Shoorveer be talked about.

The next question is from the line of Pranav Gupta from Aditya Birla Sun Life Insurance.

Am I audible, clearly?

Yes.

So first question is partly on the classification on the...

Sorry to interrupt you, Pranav. Your audio is not very clear. [Operator Instructions]

Is it better now?

At the moment, currently, it is. If there's anything, I'll let you know.

So just 2 questions. So first of all is on the activation as well as the collection efficiency. So I know Sanjay just said that the activation is still 4%, 5% of the usual pre-COVID levels. I just wanted to understand whether a large part of these unactivated customer bases would probably flow into NPAs in the coming quarters? Or do you believe that over the next 1 or 2 quarters, you can still see some activation levels going up? And a connected question is the collection efficiency numbers that are given, these are including past months or years, right?

[ Sunil ], can you comment?

So I hope -- the first question is you asked if the activation levels may go high from here on. And since you have seen the NPA numbers have already been higher, so the activation level reduces because of that also. Whenever any of the NPA numbers are high, less numbers of customers are activated. So there is a difference because of that also. But yes, from here on also, we are seeing high -- the activation levels either go higher by 2%, 3% more. The second question on the collection efficiency was you asked...

Including arrear, right?

Yes. It is always with the arrears.

Excluding [indiscernible].

Yes. That is the reason why certain products should be above 100% at this point.

Yes. So could you provide us with the probably collection efficiency in Wheels and SBL excluding arrears, if that's possible?

Yes. As of now, it's not -- so we can talk off-line on this, Pranav, because there's a lot of internal data. So we can share you if will really require it. But generally, collection efficiency has been calculated on the opening over due plus current billing divided by current billings.

Understood. Yes. So a second question on the growth side. So Wheels and SBL has seen a good bounce back in growth. If -- and in tandem with that, we've seen a good sort of improvement in disbursement yields as well. So could you talk about what sort of traction you're seeing on the Wheels side, whether it's -- what segments are driving this on the Wheels side specifically and whether SBL growth is driven by ECLGS?

So I would take -- I would like Bhaskar to reply on the Wheels side, and the rest of the questions I can answer.

Okay. Yes. See, the momentum that we are seeing on the Wheels business, whatever we have seen in the last quarter. There is a general belief in the industry the momentum could continue. There is a buying at the personal segment, which is happening. Most of the people who move to area use trains and buses, they are also looking at entry-level cars. And also, there is a demand pickup from the rural areas as well. So both manufacturers, be it Maruti, Hyundai broadly being the largest and Mahindra, all 3 of them see the momentum continuing in the months to come as well. And it will be that -- from the industry input, it will be driven both sides. There will be an uptick in the rural as well as we should see some demand coming in from the urban as well. So, so far, so good.

Yes. Other than wheel, as wheel is picking up, a lot of businesses are coming to the normal pace. So they are looking for credit. A lot of greenfield projects is also approaching us. So I'm seeing a lot of traction around our commercial banking space. Vivek can talk a lot on that. Plus adding the surprise factor for us is a housing book. We are growing it by 100% this year, too. So I think the base is helping us. So we -- so these 3 books, which is wheel, SBL and housing on our retail side, giving us very, very positivity around everything. And commercial banking, we are investing in that franchise from last 3 to 4 years. So green shoots are available, and Vivek can talk on that, right? Vivek, can you reply on commercial?

Yes. So on -- what we see on business banking and [ exit ] banking side that the CapEx cycles have come back again after a gap of almost 7, 8 years. So we see a lot of brownfield expansion as well as greenfield expansion happening, and people have really good orders. And their order books -- and it is across the sectors. Barring a few segments like hospitality, education, et cetera, almost all sectors are [ banned ], be it FMCG, be it consumer, be it [indiscernible] so -- and infra, especially in metals, everywhere, we see the [ flood ] of demand. And these are small customers. They don't -- we are not into the mid-corporate or large corporate. So we are seeing demand even in the small enterprises and the mid-sized enterprises.

Right. And just 2 data points. Could you give us the ECLGS disbursements that you've done? And secondly, the overall breakup of disbursements, probably retail and wholesale, if that's possible.

So just -- I'll answer the second part. Overall disbursements for the quarter, Wheels was at 41%. SBL was 23%, so these 2 major segments. And of course, business banking grew by -- the disbursement was about 11%. Total retail was about 94% and 11-odd -- sorry, 89%, and 11% is corporate side.

Okay. Sure. And ECLGS?

So ECLGS, so far, since 31st of December, we disbursed about INR 546-odd crores, which is spanning across almost 11,000 customers, 11,600 customers.

Yes. For the quarter, it was close to INR 150 crores.

The next question is from the line of [ Vikram Raghavan ] from [ Moon Capital ].

Just continuing the question on ECLGS. Is there any color on the end use of credit? What percentage is used to retire other debt and what is used for fresh funding needs of entrepreneurs? And would be the target for the ECLGS? My second question is regarding capital raising plans. When will it happen and what size is targeted?

So I would answer the first question, which is end use of ECLGS. So it was pretty defined the way the policy was designed for ECLGS. It was largely to meet operational expenses. And obviously, it was not for the CapEx. So any short gap between the operating expenses and the revenue generation for the customer for a pandemic period, people availed this -- customers availed this facility. And our ECLGS numbers have been pretty calibrated in terms of people who opted for it and the way we approached to customers. We did an entire due diligence in terms of where is the need of money. But it is difficult to -- still difficult to pinpoint to say that -- because these are small customers, right, and largely, small businesses where OpEx are not that high. So largely, it has been to bridge that gap between the lockdown period and a full-blown business period. That's what -- had been in the -- those cases, right?

So [ Vikram ], about the capital, right? So as you know, by March 31st this year, our adequacy would be around 20% and -- which is sufficient for us to manage the next year growth also. But -- and there is some stipulation around -- as a promoter, which can be lower than 26% by April '22. So there is a little room available. The room is available only with -- to the extent of INR 500 crore to INR 600 crore kind of money. So that we might raise, but that will only be subject to the growth we expect next year. And if we really want to make our balance sheet more stronger and stronger, so that is the only room available for next 5 quarters. So -- and post '22, a lot of things will get changed. So let us see how we really plan for a high capital raise post that.

The next question is from the line of Saurabh Dhole from Trivantage Capital.

Sir, I just have one question, which is on the credit card business. Now you've already rolled out this product for your employees. But what I want to know is that different players have gone down different paths in this particular business. So some of them have partnered with an NBFC. Some of them are planning to slash charges and interest rates. So what kind of strategy do you have in place? And when do you think -- with the strategy that you adopt, when exactly do you think that this will be ROE accretive?

So my friend, credit card is still in a development and strategy stage. We have just launched to see our operational efficiency around it. We will discuss a lot around our strategy in this quarter because the formal launch has been expected around next quarter only. And for me, credit card is one of the most important payment instrument. And being a new bank and a tech-led bank, this instrument is required because we all know about it that people generally want to use more credit card than a debit card for security reasons also and how the whole digital space is being evolved around payment. It is so difficult not to have your own credit card. So we went to our own ambitions, planned around that. We should own the credit card. We should be our own platform without any partnership, without anything because we have a customer base of close to 2 million with us. So a lot being discussed internally. So I would love to explain you more and more in next quarter than as of now.

Okay. Okay. And sir, given the kind of geographies that you operate in, do you think that there is a fair amount of demand for a credit card given the kind of economics that they are and given the kind of adoption challenges that some of these segments face? So do you think that your own customer base is enough to launch the product with enough scale?

Well, that was more of a traditional thought process that once you have a database, your own, then only you launch credit card. But now the world has moved from your own database, right? There is a lot of database available in the universe. The database is with credit bureaus. There is an existing client of credit cards. We have our own database. So I don't think that there is a challenge around data or people's -- the market itself. So market is huge. It's more about execution and execution with a lot of sensibility and a lot of buffers, right? So we are bent upon to build our digital payment space as a subject, right, whether it's a credit card, whether it's QR code, whether it's UPI, whether it's FASTag, whether it's a balance and payment system, whether it's EPS, you will see AU Bank in next maybe 2 years around every facet of payment side because if you want to really build a transition banking and if you really want to capture the imagination of the retail depositors, we need to be there with a fulsome product range, right? So that we'll work upon in the last 2 quarters, but still a long way to go. So that is why I'm saying that give us more time to really come and tell you about the whole strategy of payment space.

The next question is from the line of Abhijeet Sakhare from Kotak Securities.

So first is a question on Wheels, maybe for Bhaskar, sir. How big would be the refinance segment for us? And what I mean is cases where we typically possess the asset and finance the resale of the vehicle.

Yes. Abhijeet, your question is, when we possess the vehicle, you mean...

Repossess the vehicle.

Sorry?

So when we repossess the vehicle, let's say, if any customer is facing challenges.

Okay. So you're saying a customer who's defaulted with vehicle we have repossessed. How much of that do I refinance?

Exactly. Yes.

None.

0.

0.

Okay. Understood. And sir, in terms of collections, we have this guarantee arrangement, which helps a lot in certain circumstances. If you can roughly quantify if that has been very helpful over the last 6 months or so in terms of rough quantification of that benefit. Hello?

Why is there feedback? Mayank, are you there?

Sir, I think we lost the line. I'll just reconnect you.

Yes. Just reconnect us.

And sir, another clarification, sir, on the -- how do we -- when we took out the pro forma slippages, we've said that it is based on 90 plus at the end of December. But do we otherwise typically follow a daily stamping of NPLs?

Just hang on for a second. Just wait for us to come back. [indiscernible] got disconnected. Just wait. [Technical Difficulty]

[Operator Instructions] Ladies and gentlemen, thank you for patiently waiting. We have the line from the management reconnected. Over to you, sir.

Yes. Abhijeet, you can repeat your question, right?

No. So a question on -- for the vehicle book, in some of the markets, we have a guarantee arrangement with the existing borrowers. So given that we've seen good collection track record, if you can quantify what share of vehicle repayment has benefited from this kind of arrangement.

Abhijeet, I think this is a wrong understanding. We -- in the commercial space, we always take guarantor who might be a borrower of us, right? But generally, collection happens because we need to engage with my original borrower, right, the main borrower. So it will always have a mental kind of help. Otherwise, no guarantor or no borrower is going to [ pay ] for you.

Okay. It's more of a nudge for repayment.

More of a mental kind of -- psychology level kind of arrangement.

Yes. Okay. Okay. And sir, on the vehicle segment itself, has there been any change after COVID in terms of the tenor on loans, like typical duration? Has it gone up or gone down? Because typically, what we are seeing is that the repayment rate tends to be quite high, right?

No. I think our -- we haven't changed our credit policy after COVID. Rather, we had made it more stringent. So the tenure or the IRR or LTV has actually been like pre-COVID level or maybe tougher than that.

Okay. And sir, a final clarification on NPL. We've said that the pro forma NPLs is based on 90 plus as of December.

Correct.

So -- yes. So sir, do we otherwise follow a daily stamping of NPLs? Or we typically recognize it if it is only at the end of the quarter?

Yes. Yes. If we follow daily due date past NPA norms, and -- but a Supreme Court is not allowing us to do that. So that is why we are not tracking anything as a daily DPD. So whatever accounts who are 90 plus as on 31st December, that has been given as gross NPLs.

Okay. Understood. And sir, final data point question is, what is the average cost on the book?

Average?

Sub-6, sub-6, 5.8, 5.9 type.

The next question is from the line of Nitin Aggarwal from Motilal Oswal Securities.

Congratulations on good results. I have a few questions. Firstly, sir, if you can clarify if we have reversed the interest on these performance slippages because the NII growth is like looking very sharp in context with our loan growth.

Yes. We have made provisions for that, against that. So there is a INR 37 crore, INR 38-odd crore provisions made on this INR 1,100 crore book because we can't make reverse in the books account because we haven't tagged it as NPA. But to do a prudent accounting, we have made a provision against interest.

On the entire amount?

Yes. INR 48 crores -- INR 38 crores.

INR 37 crores.

Okay. Okay. And secondly, sir, on the restructuring, now we have offered 3 to 6 months of moratorium on principal payments. Do you think that this much will be enough for the borrowers? Or do you think that we are going rather conservative here than what we should?

Does he mean restructuring mostly...

Eventually, it depends on the customer segment. So if it is, let's say, a school, where we anticipate that this academic year, the parents have not -- a lot of parents have not paid fees, especially in the rural segment, but now, as most of the states has allowed for 9, 10, 11, 12 school opening from January onward. And probably next month, the face-to-face classes will also resume, so we see this is -- and that is how the customers are approaching that they want further 3 months or 5 months or 6 months of a breather, accordingly, we are giving. It's not a -- our guidance on it, it is a customer requirement, which is that we are assessing and giving moratorium.

Okay. And is it possible if you can share how much of this restructuring of potentially 1.5% is going to the school and the allied exposure given this?

We can discuss it off-line.

Yes. So Nitin, we have, in any case, given the wheels and SBL, the breakup in terms of the business segments. Now within further cuts within that business segment, we can definitely discuss.

Sure. And lastly, like if I look at the geographical expansion, we are like adding our presence to new states. This quarter, we have added another 2, 3 states. So what are the plans there? Like we are looking to further keep on expanding because we are already touching 15 states now? Or we would want to deepen our presence? And secondly, related to this, on the mix of business, like while deposit mix is like getting diversified, the reliance on Rajasthan is coming off. But on terms of assets, it still remains 42%. So how do you see that?

So Nitin, first of all, we are not expanding state. We are expanding cities. So the strategy is to go and be at every state capital. If you really see our expansions, we are now at Kolkata. We are now at Hyderabad. We are now at Guwahati, Bhuvaneshwar, Bangalore, Lucknow, right? Our immediate action -- our immediate state can be UP. So that's why we are in Kanpur and shortly opening in Agra, Lucknow, shortly opening in Banaras. So we really want to expand more deeper in UP for the next 3 to 5 years. But other than that, as you all know that because deposit franchise always is largely led by cities, money lives in big cities, so we really want to go there. And our digital properties should help us in further accepting as a franchise because generally, people don't want now branches. The video can -- video banking can be a great changer where people might want to interact more on video than on the branches. So we are working on many aspects. So the branch expansion can be very calibrated as we move forward. In terms of Rajasthan and being 42% in asset, it will gradually come down because the other states are picking up, our -- Gujarat, MP, Delhi, Haryana, Punjab. They are now showing that they can take the leadership positions. And I hope in next maybe 2, 3 years, you will see substantial reduction in our Rajasthan share in terms of assets.

The next question is from the line of Renish [indiscernible] Bhuva from ICICI Securities.

Congrats on a great set of numbers. So sir, just first question on the disbursement specific to SBL. So sir, what is our -- the ground feedback suggests, sir, whether the incremental money has been used for the -- buying a new machinery or maybe expanding the business? Or it is just used for the stretched working capital cycles at the customer end?

So SBLs are very small ticket loans, if you look at this year further [indiscernible] now. So these are not typically CapEx loans. These are typically small working capital loans only, right? Because the money is fungibly used a little bit for -- if there could be some asset acquisition, let's say, someone is operating out of a rented shop or premise might want to buy. But these are very far and few cases. Largely, it is for further enhancement of business activity only.

Okay. Got it. Yes. Okay. Sir, next question is on the states pool. I think in last con call, we highlighted that our states pool would remain around 2.75%. So it is fair to assume that the pro forma slippage broadly captures that?

Yes. So we never said that our slippages would be only around 2.75%. We always had a view that our slippages would be in the range of 3.5% to 4%. So broadly, we are saying that we have -- our gross NPLs at peak, maybe 5% here and there, and the quarter 4 will bring a lot of more clarity on it. But we are pretty fine around these numbers.

Okay. And sir, what about the restructuring part? I mean we are saying the total restructuring would be around 1.5%. So do we expect any slippage from this going ahead in FY '22? Or we believe that these accounts are pretty much manageable and they will come back to normalcy, given the support we got to them?

No. We say broadly, this would be the last quarter to do any kind of restructuring because the guy who is in trouble, right, he just is coming to us and saying that he requires a little more time. He might be looking for some structuring around his tenure, time, EMI. So that we're already in discussion with the customer and customer in discussion with us. So we are in the last leg of it. What we have given is estimation can be in a high -- with extreme number, right? It might range in between 1.2% to 1.3% also. So let us see because the gradual numbers are now slowing down. And I don't think that restructuring account is as bad as NPLs. Because if this customer has a lot of intention, he's sitting and coming and discussing with us his challenges. And we're also helping them out, right? And it's all secured. So I strongly believe that the restructured account [indiscernible] we have as what NPLs will behave.

Yes. And having said that, still, as you can see on Slide 20, Renish, we have still gone ahead and made -- used this quarter to make some additional provisioning around restructuring as well, which is over and above the regulatory requirements.

Yes. Yes. So sir, just last question to Sanjay, sir. So sir, if we try to assume that the -- from FY '22 onwards, the growth and credit costs both will normalize to historical level?

I would say from quarter 4 onwards, my friend. And of course, if quarter 4 remain that like what we are expecting, then next year would be above normal, in my opinion.

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

The financial and digital world, intersection of finance and technology, and you've been very mindful of that. I would like to know a bit more in detail from the technology that we are building, not just for today but for tomorrow. And where do we stand in that journey?

So Bharat-bai, we have very high aspiration around our tech initiatives. We all know this fact that pandemic had its own challenges, but one silver lining was tech adoption. In spite of this, that first quarter of this financial year, nothing happened. But banking remained very vigilant because of its tech ability and tech adoption through customers, through employees and throughout the world. And we have launched our super app, a new Internet and mobile app. I would love everybody on this call to really download it and use it. We have really launched our video banking. Video banking for us is not only video KYC. It is about acquisition, engagement, service, transition. A long way to go, but we have initiated that. We also launched our credit card internally. Credit card for me is one of the most important payment mediums. So we just want to catch up what we have not done in the last 3 years. So the commercial launch will be next quarter. And you have [indiscernible] also. So I mean, what -- the way we are thinking that there will be 2 banks in AU, right? One is very physical or physical, and there would be one bank which is digital, right? But it will require a lot of investment, a lot of, what do you call, discussion around it. It's a very high skillful work. I'm a chartered accountant, does not understand much, but we are building a very decent team. Our CIO, CEO, entire team is up there to really deliver one of the best of the class in digital world. So I would love to explain you more and more in our one-to-one meeting because it takes a lot of time. The CIO has to express himself, but we are determined to become one of the finest digital bank of this country in next maybe 5 to 10 years. But we will make ourselves at that level.

But my sense is that you said, what you've talked about is, this is a good way to [indiscernible] being done by many entities in that area. How do we integrate in each? Adoption of technology not just for the whole thing, but to deliver the fuller experience, the conversions, [indiscernible] predictive powers to minimize risk on the business and to acquire scale? From a variety of points of view, many different technology interfaces are necessary. So what you are describing is important, but it is already being done by many. So how do we want to be ahead in the game?

Bharat-bai, you have to believe in the execution capability of the bank, right? We, at AU level, always believe that whatever we say, whatever we plan is not important. The importance is how we execute our plans, right? So like, for example, the QR code, it's so simple for me to tell you that we launched QR code. But happy to tell you that we actually had now 40,000 QR codes and with the -- activation level is around 75%. The benchmark in industry is around 50%, right? And we have aspired to do around 1 lakh QR code by March, right? And it's an amazing merchant acquisition tool. And then from April onwards, we really want to launch a analytical-driven credit to those customers' site. So honestly, I don't want to talk much on this call because these are our own strategy, but love to take you through all our thought process, initiatives and the purpose around it. And -- but I want to really assure everybody on this call that for us, digital is not one buzz world. We really want to make it happen on the ground.

Okay. Maintaining good idea, Sanjay, if you hold a session now which only focuses on technology and various kinds of things that we are doing, I think that will be very educative and very important to understand where we are.

Correct. So give us one more quarter. In April, we'll give you full our digital strategy, landscape, and we can discuss more on that.

One last thing. Should we say that fiscal '21 was a rude interruption created by an enemy which is [ strengthening ]? But from next year, fiscal '22 onwards, we are back to where we were as if fiscal '21 did not occur. Would that be fair to say as far as AU is concerned?

Bharat-bai, my take on last year is that -- because we always say internally that AU is forever, right? We are in the journey of -- for the next 100 years. So 1 quarter, 2 quarters of last year, which is one of a kind, helped and taught us that in spite of so much of challenge, the world was shut, the businesses were shut, people were shut, right? The NPL levels are just 3.3% on a base of -- on a customer base which is a little below one level, right? So that has given us more confidence that we are on the right path. We are with the right customer, right businesses, and we should continue to do that work with more confidence now. And to be very honest, I personally have got a lot of confidence, a lot of belief that this platform is immense, and we are very fortunate that we got this license. So -- and this is one of the license which has an amazing kind of breadth and length. So if the team is able to manage this whole volume the way we handled last 9 months, the future is very, very bright.

Just one last one there, Sanjay, it's interesting that you made a statement about 100 years and more for AU. But just to put a picture in perspective globally, all kinds of businesses, all [indiscernible], more than 98.5%, 99% businesses don't last even beyond 50. So ambition of 100 years and more will require a huge amount of perspicacity, resilience, real strength of the character to be built to last that long. I thought I'll just bring that point here.

No. No. I appreciate, Bharat-bai. But we already spoke of first 25. So -- and I've reiterated, always know that first 25 is so difficult, right? So I think next 25 is also important. But post that, the team should have that ability. And whether -- you will also appreciate that banking platform, in that 2% which left, which would have survived 100 years, 50% would have been the banking one because I read somewhere that the oldest bank in this world is still alive, which is 500-year old. And your own Citibank is more than 100 years. You own SBI is more than 100 years. So there might be a change in the name, but the institution remains there, right? So -- and that is why we operate how to become bank, because of its longevity, because of its sustainability. And the pandemic has actually given us -- reinforced that thought process, that if you do our banking right, then you can survive even these tough times.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to the management for closing comments.

So thank you, Madri, and thanks to all the participants. On behalf of AU Bank, we wish you a very happy 2021. And thank you for attending the call. Look forward to see you after 3 months. Thank you so much.

Thank you. On behalf of AU Small Finance Bank, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.