Bajaj Finance Limited (BAJFINANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bajaj Finance Limited Q4 FY '20 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Singh from JM Financial. Thank you, and over to you, sir.

Thank you. Good evening, everybody, and welcome to Bajaj Finance's earnings call to discuss fourth quarter FY '20 results. To discuss the results, we have on the call Mr. Rajeev Jain, who's the Managing Director; Mr. Sandeep Jain, who's the Chief Financial Officer; Mr. Atul Jain, CEO, Bajaj Housing Finance; Mr. Anup Saha, Deputy Chief Executive Officer of Bajaj Finance; and Mr. Deepak Bagati, Chief Risk Officer. May I request Mr. Rajeev Jain to take us through the financial highlights, subsequent to which we can open the floor for a Q&A session. Over to you, sir.

Thank you, Karan. Good evening to all of you. First of all, our apologies for doing this call so late in the day. We just finished our Board meeting and updates to the Board. I'll be referring to the presentation that we uploaded on the Investors section of our website. We have provided a reasonably comprehensive update to the investing community, and I'll be referring to that. I'll try and run 3, 4 slides very quickly. It's a long presentation. I don't intend to do that. It's overall 69-odd pages. I'll just run through the executive summary and 2 other slides downstream, talking about the moratorium to our base and so on and so forth, and then open it up for questions. Quickly jumping to Slide #4 on our presentation. In our assessment, clearly, Q4 was quite a promising quarter, aided by various fiscal measures that Government of India had actually taken and good monsoon. Economy in our assessment -- across the businesses that we cover, in our assessment, was clearly on the mend in Q4, but COVID really changed everything from 22nd of March, leading to a full lockdown. Company did lose 7 to 8 productive days in March from virtually 22nd of March onwards. Despite all of that, we had very good 81 days. And overall, the quarter was a pretty good quarter. Assets grew, new loans grew, customer acquisition grew and overall franchise grew. If you look at Q4, balance sheet ended with 27% as we've articulated with the Street on 6th of April call that I've done, adjusted for 8 days, otherwise, the growth would have been something like 31% in Q4. OpEx to NIM, it's a denominator-numerator metric, so not really relevant from a number standpoint. Loan loss to average AUF 139 basis points includes a INR 1,419 crore onetime provision costs that are actually sitting here, which I'll cover in the next few panels. Despite the INR 1,419 crores of impact that we've taken on a onetime basis, overall PAT came in at INR 948 crores, a degrowth of 19%. If you take into account the INR 1,419 crores one-timer, growth otherwise would have been 38%. Sorry?

Only COVID-19.

Yes. ROE came in at 2.9% as a result of onetime impact. On a full year basis, balance sheet is, of course, INR 147,000 crores. OpEx to NIM has come in at 33%. Loan loss to average assets is 3.1% and PAT of INR 5,264 crores, a growth of 32% and ROE despite INR 1,419 crores onetime impact is coming in at 20.2%. What is relevant and important at this point in time to everybody is what is the view from a COVID-19 standpoint. Panel 5, clearly, unprecedented time. We are focused on -- we articulated on April 6, capital preservation, balance sheet protection and operating expenses management. That's really what we are fundamentally up to tailwinds that we have is very healthy capital adequacy, very strong liquidity position. As a result of the onetime impact that we have taken of 392 crores on 2 large stressed accounts, we are entering next fiscal with virtually similar gross NPA, net NPA that we actually entered with giving us tailwind. We have access to retail deposits. Balance sheet is now close to INR 21,000 crores on retail deposits. Continue to deal with mass-affluent clients other than our 2-wheeler portfolio, very diversified mix and so on and so forth. In general, the limited point that I would make, given the tailwinds and the headwinds of COVID-19, we are very confident of navigating the challenges posed by COVID. Let's just go through very quickly as to what we are up to and what gives us that confidence. Panel 6. Clearly, this will give you a texture on what has happened in the last -- we are virtually on 19, which is 50 days into the quarter and 60 days into COVID. Clearly, we've taken a cautious stance on and have tightened underwriting standards and LTV norms across businesses. We had no business in our B2B business in April, given lockdown. In -- from late April and early May onwards, green or orange locations have started to resume business. We are currently open. We have 2,134 locations that we are present in. We are -- 1,600 locations are actually open, 1,583 to actually be precise. We are now originating between 22,000 to 25,000 applications in the 1,583 locations on a given day. No lending in auto finance, similar to B2B. B2C, which is our personal loan cross-sell or our unsecured businesses, we took a view to not lend in April and in May. We will gradually reopen in -- first in green and orange from June onwards and pick it up from there. Similar for our SME businesses. B2B rural has also resumed operations. We do believe that rural will be the fastest to recover. One of the businesses that we've been building, which we've not talk too much about, is gold loan business. We do expect to see increased demand in this business, and we've organized ourselves in the last 60 days to be able to seize that. Mortgage business for us, which is 31%, 32% of the balance sheet is essentially in top 30 cities and mostly in red zones. So it will take longer to recover. Commercial lending is in -- is virtually in pause, except for lending to existing customers. LAS remains open. We're willing to lend, but demand is very low given the volatility. So that's really on where we are in the last 50 days from a open-for-business standpoint. If you jump quickly to liquidity, we ended as of 15th May at -- virtually, tad below INR 21,000 crore. Additionally, we have SLR investments of INR 3,300 crores. Virtually, basically, 19% of our overall borrowings is technically in cash and cash equivalent at this point in time. Given the environment, given the risk aversion in general, I would say that for -- at least for the first half of the year, we'll continue to run in a high liquidity mode. We have stress tested our liquidity model very, very deeply, and we remain very comfortable to support growth as it comes back and the repayment obligations that we have as a company for a long foreseeable period of time. We continue to remain open for business to accept deposits. Even during the period of lockdown, we originated sizable value of retail deposits. We're also repivoting the deposits business and anchoring it more towards corporate. Retail corporate mix is now 67-33. It's likely to probably gravitate towards 75-25 or 80-20. OpEx, really, where we have significant control and company has moved with agility to manage its OpEx to retrofit it for the -- given the environment. We do believe we have significant modularity across our lines of businesses. Company has done what lots of companies have done, frozen all incremental and replacement hiring till September 2020. We do have a modular compensation structure, which creates -- which helps the company in times like this. So you will see reasonable reduction in salary costs, which is, in general, the largest line item for most financial services companies. We've frozen, you can see, advertising, promotion, travel, training and so on and so forth. In general, it's our assessment at this point in time based on the actions that we've taken on our fixed OpEx, we have knocked off anywhere between 22% to 24% of our fixed OpEx in the last 60 days for us as a company. Rightfully, we've also suspended all new branch expansion. Lastly, and more importantly, while do we believe -- we do believe India will come back. You got to prepare for anything. Nobody prepared for COVID. The company has fundamentally initiated -- despite the actions that we've taken, we do believe there's an opportunity to reimagine our cost structure. There's an opportunity in this challenging time to see how business could be done differently as we get out of COVID-19. So we've introduced in the company a zero-based budgeting model across business and functions. And hopefully, we will see a reimagined way to do business in the next 9 to 12 months' time. Credit cost, the most important area of attention. Clearly, the first point I must make, and we have covered that, that there is -- as of February, where were we? That's as important a question as post-COVID where we are. Did we get into this with trouble in hand or did we get into this with a clean slate? Clearly, it was a clean slate. As you can see from the data that we have actually published that on a year-on-year basis as of February, other than our 2-wheeler business and our lifestyle business, we were same or better off across our -- out of the 13 lines of businesses, only 2 were yellow or red and rest 11 were green. The second line is important, and it's got demonstrated by our Q4 results that despite that company has very strong preprovision profitability to navigate through the potential risk emerging from COVID-19. I think that's an important point that do we have sufficient profitability to sustain shocks and COVID is, if anything, but a once-in-100-year shock. Clearly, we are starting to prepare for COVID-19. We took, as you can see, INR 1,419 crores. There were 3 elements to this. One was an annual ECL recalibration, that's INR 129 crores. Second was INR 900 crores of the general COVID contingency provision, and we decided to charge-off the 2 large identified stress accounts that were -- that have been outlined to investors. We decided to charge them off, totaling to INR 1,419 crores. 22nd point is important. There are questions on what is the overall provision available. On standard asset provision, as a company, we have 160 basis points of total standard assets provision available. So on INR 147,000 crores, we have 160 basis points of provision available. That's INR 2,352 crores of total standard asset provisioning that is available with the company. 23rd point is important. 27% of consolidated AUM as of April 30 is under moratorium at this point in time. Of this 27%, 68%, or let's say, round up to 70% have no recent bounce history. No recent bounce history being defined as in Jan, February and March, they did not default. And default being bounce, not as default. People ask us, have you done scenario planning? The answer is yes. Scenario planning takes into account all the lines that you see written here. Clearly, the focus of or the modeling is essentially focused on the moratorium portfolio. The entire exercise risk managers across the world would be doing on wherever -- whichever country has given moratorium, and it includes India, would be on clients who've given moratorium. What is the likelihood of those moratorium clients slipping into default? And those who don't slip into default in moratorium are obviously, in general, adjusted for the second order impact of the economy should continue to hold their performance in line or better? Panel 9, clearly, we've given bounce data. Bounce is up to 2.5 to 2.7x, has to be collected from. We've used the last 60 days to significantly augment -- expand our collections capacity model, so that as markets start to open, whether it's green, orange or red or what we are increasingly calling internally deep-red, we're ready to rapidly move and engage our clients to be able to collect efficiently and effectively. And we are not waiting for it to open. We're adding -- if I may give you statistics here, close to 2,800 offices in the company are being added to this activity to do this. Gross NPA, net NPA 161 basis points, 65 basis points, sequentially flat year-on-year, virtually flat. The line that you see here is we chose as -- this data is as of March, not to give moratorium from an accounting standpoint to those customers who had high likelihood of default. If I've taken it for apple-to-apple that into account and given moratorium to all the clients, we would have published a number of 138 basis points of gross NPA and 51 basis points net NPA. We've chosen to take into account those who have a high likelihood defaults to -- for 161 to 65 basis points. Overall, profitability contracted 19%. As you're aware, adjusted for INR 900 crores, it could have been up 38%. We are looking at our margin profile across our lines of businesses. We do suspect and expect a more benign competitive environment. But of course, it will be subject to competitive intensity as to how quickly this will come back. Our entire focus at this point in time is on mining our base. New to Bajaj customer, new to bank customer has always been riskier than existing customer. We are using the franchise to do more with them, whether it's a health card, health insurance or various other products that we feel comfortable. So the focus will remain for a foreseeable future on ETB or Existing to Bajaj, rather than new to Bajaj. Capital position remained strong. Book value came in at INR 538. Just Panel 10. Let me just jump you now straight to Panel 50. This is our provisioning coverage data. Very quickly. This is by lines of businesses. You see on a gross NPA basis, clearly, what we had from a management assurance provided read on, which was our auto finance -- 2-wheeler financing business. Gross NPA, net NPA year-on-year jumped by 130 points. Otherwise, you see a 30 basis -- 28 basis point movement in sales finance, 22 basis points movement in B2C businesses and so on and so forth. Rural improved. Rural B2C was flat, commercial lending, because of the charge-off of the account dropped from 64 to virtually 0, mortgages dropped as well. So that's really the gross NPA, net NPA, 154 on a year-on-year to 161, sequentially flat. Net NPA year-on-year, just a movement of 2 basis points. And this also includes, as you see below, a set of changes as required by RBI. And as you can see below, this on an apple-to-apple basis, meant gross NPA, which is coming in at 161, otherwise, would have been 155 basis points, technically flat. And net NPA actually would have been down from 63 to actually 60 basis points. Let me now jump you to Panel 58, which is really by portfolio, we've actually provided you data on balances, amount of AUM under moratorium, percentage of AUM under moratorium and so on and so forth. It's a little busy slide, but out of INR 143,000 crores, INR 38,500 crores, which is 27% of total AUM, is in morat at this point in time as of April 30. On an average, our default rate was -- or bounce rate was 12%. As you can see, April, it jumped to 3x. Fortunately, it does seem that whatever had to move, moved. You're not see -- we've not seen much movement more worsening from there on. It's a 100 basis points worsening. 68% of these clients have never defaulted. So if the economy was to come back and things were to get normalized in 2 to 3 months' time, it is possible that lot lower hits may have to be taken on this portfolio. At this point in time, we have a 233 basis points coverage on the morat portfolio. Largest impacted in this is clearly the mass business, the first row that you see, which is our 2-wheeler business. If I -- it's 9% of the portfolio, but it's substantially larger portion of our morat book. Adjusted for this, in the rest of our businesses where we fundamentally deal with mass affluent client, the overall moratorium would be around sub-22% actually. But there is no such thing as X. On a consolidated base, it's 27%, and this is profile of -- by lines of businesses. That's really all while there is more data on how overall leverage of clients is looking under normal circumstances, there may be interest in that if we were in a non-COVID situation. But in the interest of transparency, we decided to still provide this data. We provide this annually. We publish this data to ensure there's continuity on an annual basis, but I -- just given the environment, there is low interest on it. These are the slides I thought I wanted to cover. We can refer to more such slides based on questions. That's really from us very quickly and happy to take questions.

[Operator Instructions] First question is from the line of Dhaval Gada from DSP Mutual Fund.

Rajeev, 2 questions. First is on Slide 58, I was very surprised to see the sort of bounce rate in the consumer B2C business, given the sort of consistency and these are all propel customers essentially. So I mean, first, your comments around this portfolio, would it be the most riskiest portfolio amongst all the other portfolios in terms of just the effort required to collect this amount? So one. And the second question that I had was on the rural business. So I mean, just your thoughts of how much sort of opportunity is it in the current environment, given you've mentioned that gold loan is something that you're picking up. So some comments around the rural business on the growth front and on the B2C business on the asset quality side.

Look, you see this panel, the so-called riskiest to so-called safest, everything is up 4, 4.5, 3.5, 3x. Look at the mortgage business, right, we deal only with salaried customers, a 4.5% average mount is up 4x. I think it's -- I'm giving you a reference point. There is fundamentally no outlier rate on this panel from wherever the client was. Let me tell you the safest one, mortgage is a safest portfolio, doctors is one of the safest lines of businesses up 4x again, 3.5x, 4x. See -- and it doesn't happen that 5th of March, you bank a portfolio, and it has a bounce rate of x. And on 5th of April, the same customer you bank, he is at 4x. So clearly, this is not credit at work, okay? So credit situation does not -- and that too when March had fundamentally passed. We went into March virtually on 25th or 26th of the month. Most people had earned whatever they had to earn. There is more than credit at work. And we provided full disclosure here. You tell me which line is not up 2.5 to 3x? None. So riskier or nonriskier is a matter of judgment. We'd rather go by data rather than a matter of judgment. I must just make one point, which is an important point I'd continue to make. They are all adjusted. Each one of their profitability models take into account significant amount of -- leave significant room for -- from a profitability standpoint from wherever they are. Would mortgage have lowest? The answer is yes. Would B2C business have highest? The answer is yes. So it's adjusted for risk and cycles that really how each one of these business stand. So that's part 1. Part 2, look, growth, we are focused on restarting at this point in time. That's our core focus. Locking it down was very easy. You just put a lockdown. You come back 60 days later, you got to dust everything off. You've got to clean the house. That's really our focus at this point in time, which is dusting everything up, dealing with different states, different nuances, different branches and so on and so forth. We want to get the company to work quickly. Growth is not our -- on our immediate priority at this point in time. But are we a growth company? Yes. Would we like to grow -- come back to growth mode sooner rather than later? The answer is yes, but not at the cost of being in haste. And gold loan will move as well.

The next question is from the line of Kuntal Shah from Oaklane Capital.

Again, congratulations for some exemplary data disclosure, which we don't see from any of the financial players. My question is, we have 160 bps standard provision and 90 bps extra provision on -- as per ECL. Can you compare what is the requirement for RBI Ind AS and iGAAP for banks and for NBFC? And how do we stand vis-à-vis this? And secondly, we had INR 275 crores exposure to IL&FS and INR 312 crores to Karvy. You have written off INR 587 crores, but you have a lot of security against them. So you could have chosen to provide more for COVID and less for this, but you have chosen to do exactly opposite. So can you throw some logic while you are in a rush to clean up the balance sheet far faster than is required to do so?

Kuntal, this is Sandeep Jain here. On your point relating to general provisioning, it's not 160 plus 90 basis points, it's 160 basis points of provision that we are carrying, totaling up to approximately INR 2,300 crores that we are carrying at this point in time, including INR 900 crores that we have created for COVID-19 specifically. In terms of -- if you look at RBI has mandated from the current year to also disclose in the balance sheet, the comparison, if the company was supposed to follow the iGAAP or the prudential norms of RBI from provisioning point of view, how the provisioning would have looked compared to ECL. And that disclosure will be part of the annual report. You will see that the company continues to provide significantly higher, I would say, multiples of what one would have provided under prudential norms. To your question regarding writing off INR 537 crores (sic) [ INR 587 crores ] of amount, one, this amount does not represent the total amount because some portion of the amount was already provided for between last year that we did for IL&FS and in the current year, Q3, that we provided for Karvy. So this amount that you are seeing in the P&L is a net amount for the quarter.

No, no. I'm saying, overall, you have written off INR 587 crores cumulatively over quarters. But you still have the assets under your collateral. So there, you expect some recovery, right?

Kuntal, so 2 things. IL&FS technically, 21 months -- 18 months into 20 -- 18, 19 months into the entire debacle. Legally, we are not seeing any outcomes. We're not seeing any sales. We're not seeing any outcomes. So as prudence would demand, as management, we have a responsibility to justify to our auditors and to our shareholders is for how long will we wait. Do we have 2x the security cover on the asset? The answer is yes, okay? Do we expect recovery? The answer is yes. But time value of recovery is as important as recovery. So that's first part. The second, which is a broker account. Do we expect significant recoveries? Likely is yes. Given the state of things, given that the account had actually technically, given that the security -- for the regulatory action that happened and account is unsecured, technically, despite the 10% that we own of a subsidiary company of theirs, in prudence, we took the decision to provision and charge it off. Any recovery that comes in on both the accounts will fundamentally augment our COVID buffers, if required. If they're not required, they'll get passed through to the P&L for lower risk in future.

Sandeep, how much is our provision in excess to the bank's mandated provision?

Mr. Shah, sorry to interrupt. [Operator Instructions]

Kuntal, I'll just respond. It's not a straight answer. Straight answer would be 40 basis points, which will be inaccurate. And that's why Sandeep is saying if now required by RBI, and -- there will be full disclosure on that because risk weights and so on -- and asset classification, et cetera, come into the play for determining the standard asset provisioning part.

[Operator Instructions] The next question is from the line of [ Nitin Jain from Arc Capital ].

I have only 2 quick questions. If you could disclose the deposit number as of the end of April or better till 15th of May. And the second question is, in your Q3 presentation, you had mentioned about the systematic deposit plan, but I don't find it in the Q4 presentation. So has the company dropped that? Or what will be the -- can you give some color on that?

So deposits, this is -- he's asking as of 15th of May. We won't have it handy at this point in time. Maybe we can source it before the call ends, maybe we can give you data as of 15th May. We don't have it handy. The second order point, SGP, have we dropped it, answer is no. It's a new product. We're building that out. We are quite excited about the product given what SIP has done. We think SGP could fundamentally do that. There was one large technology capability that was coming in that would have made the product more attractive. As a result of the lockdown, that got pushed out to 1st of June. So we haven't dropped it, and we hope to build a very large business out of this.

If you could give me the deposit number of...

Second order point, without knowing the details as of today as to where we are on deposits, if you refer to Page #7, we actually specifically said that we're reducing our reliance on corporate deposits. As you can see, so absolute balance sheet, it's likely may go down by design, not by anything else. We're largely -- we're renewing only at much lower deposit rates on the corporate side of the balance sheet. Retail, also, we have drop rates, effective 5th of May, but that's a strategic part of the balance sheet and that we intend to continue to invest and grow.

The next question is from the line of Parag Jariwala from White Oak Capital.

Rajeev, in the previous call, you have highlighted the 3 scenarios and a relevant increase in the credit cost and the profitability and the growth metrics. Now we are in -- I mean most of the states lockdown has been extended till May end. Anything you can guide further on this would be very helpful. That's my first question. Secondly, in this overall environment, what happens to fee? Because what I see is that last 2 years, we have done excellent on fees and fees has very high correlation with incremental disbursement.

Yes. So clearly, if you refer to Panel 8, we are fundamentally saying, am I -- are we -- have we created multiple scenarios and their impact -- and the impact of credit cost as a result of COVID-19? The answer is yes. Are they wide and deep from a scenario planning standpoint? The answer is yes. Do they take into account phasing behavior of morat, collection capacity management? We are waiting to see what RBI has to do on whether there is extension of morat or is there forbearance that comes in or there is none? It's difficult to predict at this point in time. And the broader point, which is the -- how does the economy respond as it opens. So quite honestly, do we have a model? Yes. Is that model constantly being repopulated as a result of our experience on an ongoing basis based on these points that I made? The answer is yes. Now let me come to the number point. [Foreign Language] What is the view on the number? I'll make a different point that can I give you a number based on what I'm saying? The answer is yes. What will be the possible variance in the number? It's difficult to state. I will repeat the point that I'm making which is linked in a way to your fee point that our preprovision profitability as a company remains very strong. We can sustain shocks and COVID is a once-in-a-generation or a once-in-100-year shock. All scenarios are saying that we will continue to remain solid, if that does provide some degree of comfort. Did we say as part of scenario 3 that we are likely to see credit costs go by 80% to 90%, referring to my April 6 call, are we holding mostly there in line based on April and May experience plus minus 10%? The answer is yes. Can that change for better? Possible. Can that change for worse? Possible. You'll have to just bear with us and with everybody. We know only as much as you know. Fee remains an important driver. I mentioned it specifically, health card, health insurance, mining the franchise is the only way we'll navigate this storm better.

The next question is from the line of V.P. Rajesh from Banayan Capital.

My question is regarding the recent announcement by the Finance Minister about suspending IBC process. So could you comment on the impact of that on our book?

No impact on our book. We have no clients on -- under IBC, especially after -- I mean will there be an impact like IL&FS kind of account? The answer is likely yes. And this is exactly my point that given that we are in looks on legal we might as well charge it and move on. Otherwise, no impact. Post charge-off of these 2 accounts, no impact.

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

Rajeev, I think especially this kind of disclosure, I must congratulate your team and yourself for this. This design usually attempt is to shove things under the cover. But I think here, the disclosure level has actually exceeded expectations. Just one part. On the earlier question of the fee income, I can't fully comprehend. How do you plan to ensure that the fee income remains robust? Can you please deal with that again?

So I'll give you an example, Bharat. Let me make a point. What I wrote as health card, let's say, as an example. We have 20 million EMI card customers as a company, that's a number that we disclose. We were -- over the last 18 months, have been investing in a life care financing business. We are present in top 30 multispecialty hospital chains across top 20 cities in India. Now we think life care financing is a very large opportunity. We were building that as a client, you can have multiple cards. You could have a store card where the limit is different, whereas if you went into these multispecialty hospitals, your limit is different. And he needs that limit to be different. We realized in June last year, we -- our technology infrastructure did not allow for a multi-carding infrastructure. In January, that went live. Let me provide disclosure. Between April and May, we have -- to our clients, we have sold 300,000 health card as a company. Client gets much higher limit to be used only in those multispecialty hospitals or in -- for a set of elective procedures and pays INR 700. This is an example that I'm giving you of cross-sell or mining our franchise by creating opportunities for our -- and products for our customers. There is a lot more work that we're doing, Bharat. I mean I must just say that from a confidentiality standpoint, I would have to stop with this example. As we deliver more, we will talk more. I just want to say we remain focused on it.

The next question is from the line of Prashant Kothari from Pictet.

Just one question from my side. Especially, I looked at this article from Economic Times suggesting that players like RBL Bank, SBI Card, all of them are seeing better repayment rates in May compared to April. But your data is not suggesting that improvement kind of sequentially. Why do you think that is the case, if this is the right data? Is it that the customers are treating banks versus nonbanks differently? This is like a -- they're treating for nonbanks.

So 2 things. We should not compare company disclosure with press disclosures. There are 2 different things, principally. Let a company disclose and then I would agree. And it's not about -- let the banks disclose. Let me make that point first. When they disclose, then I would compare. Whatever they have disclosed, as you can see on an overall moratorium basis, we're in line in most cases, given that most banks have very large corporate balance sheet despite where we are looking only in line. Logically, Bajaj Finance is not in moratorium for INR 70,000 crores of its assets sitting in banking system and so on and so forth. So let's just compare presentation to presentation and disclosure to disclosure or in press, that's one point. Second order, however, when we look at data, we bank 18 million customers in a month, I look at it, you name the bank. We have very large statistical sample by each bank from the -- what you would call the best bank to what you would call the worst bank. Numbers stack up 2.5 to 2.7x across. They stack up very secularly and linearly. You know it is all I would just say to you.

The next question is from the line of Ashish Sharma from ENAM AMC.

Again, a question on the credit cost, Rajeev. This just as we clarified that we are looking at 80% to 90% increase that would be adjusting for the one-offs we have provided in FY '20, right? That would be the right way to interpret?

In one-off, I would take the INR 900 crores. I would not take the INR 392 crores, Ashish, because something can -- there are blind spots and corners that miss it, right, which I may not be aware of. There -- as a result of COVID-19, their situation can change. So just at a design level, I would not take INR 390 crores. It is in normal course of business. We gave money to that -- those clients. They did go into difficulty and as a result, I have made a wrong credit decision. INR 900 crores is COVID, rest is what I would call business as usual. And I'm not trying to manage expectations and numbers. Something like INR 392 crores or INR 100 crores or INR 50 crores or INR 75 crores can happen as a result of normal credit decision.

Sure. And just on the moratorium data, would you have data currently just in terms of split between salaried and self-employed or is the moratorium similar in both the segments?

Structurally same. So do salaried bounce less? Answer is yes. Are they 2.5 to 3x? Yes. Is the self-employed bounced more? Answer is yes. Structurally, are they 2.5 to 3x from there? Answer is yes. Look, it's -- we have cut it by bureau, we have cut it by salaried, you've cut it by self-employed, you've cut it by locations. You do know after 13 years that we are data driven, we have reasonably sophisticated analytical infrastructure. Information is available on the fly. It's pretty secular and linear. There are no -- for our size of franchise, we are unable to find any hidden corners.

[Operator Instructions] The next question is from the line of [ Ashutosh Garoor from Ocean Dial ].

So given the current data at 2 months of whatever feedback you have got from your customers and the segment across which we are present, how do you think lending as a habit and the reduced, let's say, salary levels and earning capacity is going to impact the disbursement growth, which we are looking for, let's say, in the next 3 to 4 quarters? Because borrowing as a product itself can go behavioral change. So in that aspect, what are your thoughts as we speak?

Behavioral change needs much longer than the event that has happened. Any behavioral change, right? The only behavioral change right now, I'm wondering, especially in Pune is are people ready to go to work now. That's the biggest behavioral change I'm asking myself. And it's as much in seriousness as in lighter way. I must make that point. It's that tough for a call, I must say, coming back to the question. I think we will have greater clarity by July or August, given a...

And how do you plan to do the disbursement?

Sorry. Sorry. Go ahead.

So what kind of an impact it would have on the disbursement levels, which you would be planning to do in the next 3 to 4 quarters?

The right thing, we are already partially foolish based on the question that somebody asked me on credit cost. I'll be more foolish if I said in where I'm sitting as to what do we see disbursement growth outlook to be. Our current focus fundamentally is to ensure we restart our 2,134 branches, number one. We augment our collections infrastructure, number two. We, in the interest of balance sheet protection and capital preservation, focus on managing risk rather than managing growth. And as we navigate through this, we will worry about disbursement growth.

The next question is from the line of Praful from Pinpoint Asset Management.

I have just one question. In case of morat is extended from 3 to 6 months, how do you -- do you think the probability of recovery goes down in that event? And any thoughts or plans if business coming through?

Quite honestly, and I find it a little foolish to make the point after 27 years of working in financial services industry that one don't -- that I don't know. Behavioral risk, we had articulated in April 6 call as well is tougher call. We will only know it as we get the ability to be able to reach customers, sit face to face and see their response. The truth is if you look at the moratorium data that in B2B business, the bounce rate was 9.5%, 97% of them paid us. That is our experience over the last 2 years before that 95%, before that 93%, before that 91%. That's our experience for the last 13 years. Now first thing to do, open. Do we have the people who can sit in front of them and be able to engage and understand, collect, number one. And then understand, number two. Answer is yes. We will only know that as we get the flexibility to be able to get to work. Behaviorally, it's tough for a -- it's tough to call. We'll have to see. I suspect I must just make a point that the moral hazard will not just emerge on a -- as a single decision-making pillar. The second order point of the impact of the economy on him or her will also have a bearing on this. So it will be a combination rather than just pure moral hazard point that I've not paid you for 2, I got 2 more, which is 4, I won't pay you. I think it's not going to be as simple as that. It is a multivariate rather than univariate conversation that pure morat makes a customer tip. It will be 2, 3 combinations.

The next question is from the line of Sameer Kulkarni from Autus Securities.

Sir, congrats on emerging [ good ] in a difficult environment. Can you please highlight the key strategic initiatives you are taking to take BFL to the next level in post-COVID era?

It's a fair question from an investor standpoint, as operating manager we are right now all hands on deck to manage the current environment. Do we have a strategic framework as a company, which we do very rigorously and in a disciplined manner, every November? The answer is yes. Do we continue to remain anchored on that? The answer is yes. Were we significantly expanding our hiring in technology, analytics, geographic expansion? The answer is yes. However, at this point of time, we have put that on a little bit of back bench. Intention is to manage balance sheet, preserve capital, manage OpEx. We are building this business with a 10-year view. We've done it for the last 13. We are building this with next 10-year view. So plus/minus 5, 6 months don't trouble me at all and doesn't trouble the management and the shareholders at all. We have to do what is the right thing at this point in time, which is to preserve capital and protect the balance sheet. Hopefully, I do hope that in 6 months' time, when we are in more peace times, we can share greater color on what do we intend to do in next 3, not 10.

The next question is from the line of Gurpreet Arora from Aviva India.

I have 2 big questions. What is the thought behind reducing PCR in the auto finance book, especially when the NPAs have risen substantially? And are we looking at changing the contours of doing this business? I mean our share of the group business, I mean, is more than 50% now. So what is our thoughts on that? Second, majority of our liabilities is on fixed rate, and we are carrying excess liquidity on the balance sheet also. So how imperative it is for us to pass it on or refinance or basically, I mean, if you could guide us towards the future cost of funds?

Sandeep?

On the auto finance piece, the provision coverage ratio, of course, the number is still strong, 54%, given the fact that we have a strong reposition mechanism in 2-wheeler, 3-wheeler business. However, in case of 2-wheeler and 3-wheeler, what we have done is cases which were in higher delinquency, we have chosen to write off quickly rather than carrying it longer. There's a change in the accounting policy that we have done in the current quarter, which had a small impact on the P&L. Part has ensured that we are not carrying the baggage of customers who are in long overdue in the balance sheet. So there is that reason why the provision coverage ratio has come down marginally.

And clearly, there's a drag, right? But thankfully, our liquidity model has been very strong. And we have very little PP borrowing. Look, the -- since IL&FS, the -- it's a different world for nonbanks. Clearly, things got improved. And then you see what, again, COVID does to the risk aversion. We -- if you look at our cost of funds for the quarter, it came in at, if you did apples for apples, the number would look like 8.76%. Give me one second. 8.76% with liquidity drag. If I knocked off the liquidity drag, it would look like 8.35%. So clearly, are we ceased of the fact that we're carrying a drag, but as far as we are concerned, preservation of the balance sheet, maintaining sufficient liquidity until we feel comfortable as ALCO and as a company that we are in -- on safe ground remains the biggest priority. Now AF, clearly, as we've articulated since quarter 2, the portfolio has been marked as red. You continue to see deterioration. We have seen -- we have tightened the underwriting norms in that business in the last 2 quarters. You should, in the next 2 quarters, start to see improvement in the portfolio. So actions have been taken. Do we tend to remain captive? The answer is yes. Does it remain over cycles a reasonably profitable business? The answer is yes. Is the loss rate sustainable from a product profitability modeling standpoint? The answer is yes. And should we guide on this, the answer is we have done that.

The next question is from the line of Mayank Bukrediwala from Franklin Templeton.

I had a couple of questions. The first one was more specific on the collections. Now bounce rates have gone up 2, 3x. And as the book come sort of moratorium will again need more effort in terms of collections on that. So the question is, could you give more color on how you're ramping up the collection part of the business? One. Second, what part of a business runs on a third-party collection capability? Are we increasing that part of the business as well? And how does your OpEx such sort of guidance tie up with the need to actually ramp up collection capabilities in the near term?

So let me take the last part first. Adjusted for that. So that line is going up dramatically. Rest of the lines, that means are going down more. So the point that I made as part of my opening remarks takes into account this going up. And this has 2 lines. One is the staff who works in the company to manage that. That is a number of 2,800 people that I made to you. The second order point is there will be few thousand people who are being added in the last 50 days, we don't collect ourselves other than our SME business, where we collect number of small clients have to be dealt with by the company rather than by outsourced staff. We -- in the rest of the company, we do not collect on our own. We work with agency infrastructure that, in general, more often than not, given our size and scale, works only for us. It's largely proprietary to us, but outsourced fully. They have been ramped up. So the entire collections model works grounds up rather than top down. How many people default by each zone, zone -- just to give you texture, if you're in Bombay, Bombay as far as we are concerned as a company is divided into 48 different codes. That's more than the pin codes Bombay has. That's really how they are cut. Based on that, we look at each code has our many defaults, how many bounce customers, based on that, we determine staffing for that zone. And then the model builds up. Are we ready as the country opens up or as green zones are opening or orange zones are opening, are we ready in terms of where we ought to have been on 20th of May? The answer is yes. So that's some color to collections.

[Operator Instructions] The next question is from the line of Anand Laddha from HDFC Mutual Fund.

Just 2 questions from my side. What's your average cost of deposits? And our average borrowing cost is somewhere close to 6.3 and what -- when we interact with most of the players, we've seen only good quality NBFCs are getting money at a very significant lower price. So how do you expect your cost of deposit or cost of fund to move for you for next 1 year? Second, when the customer has taken moratorium, have you interacted with customer, what could be the reason for the moratorium? Is it just a fear factor, is it the factor that it is available which we have taken, despite the fact that moratorium has a cost? Are we reconnecting with our customers just to see if they can pay a part payment so that burden comes down for them?

Yes. So are we tracking dispositions by millions of customers that we collect from? The answer is yes. Clearly, let things open up, anxiety is the largest part. As I said in my opening remarks, Anand, [Foreign Language] other than COVID and the resulting lockdown. Nothing changed for the client. Salaried customer got his salary. Self-employed customer had that much money. Clearly, it's the anxiety of unknown that changed. I can still understand April deteriorating -- May deteriorating April. And that deterioration is not significant. I could have still understood if the impact -- if the April was 20%, 30%, let's say hypothetically, and May was 2x, then I would have said, fundamentally, that is a result of deteriorating financial situation of the customers. I cannot say that today that between 5th of March, it was 9%, and it became 25% on 5th of April. It is nothing else, but anxiety at work. And these 9%, as I said earlier, 97% of these 9% used to pay. I just want to repeat that statistics just for information purposes. So that's on -- that's really what the disposition at this point of time is coming to. Cost of funds will go down as our CP book. If you see in the presentation that we show that the CP book used to be 9%, 10%, it should be 9% to 10% of our book. Today, it is less than INR 2,000 crores. In the last 5, 7 days, we raised some CP borrowing because when I get logically, if my 3 months inflows are at -- in a normal course, INR 20,000 crores, logically, I should have INR 18,000 crores to INR 20,000 crores of CP book. I have less than INR 2,000 crores. So that color, if it goes back to the normal times, if you see March 18, okay, it was 8%, 6%, 43%, 31%, 12%. That's on Panel 40. During this period, CP [Foreign Language] this is further in -- and retail deposits have moved from 12% to 21%. So clearly, CP book has to move given the nature of the balance sheet. That's really how one of the ways you will see our borrowing costs go down.

Even banks have got MCLRs. So volume cost should decline faster.

MCLR is beginning to play rapidly. Answer is yes, it should. But Anand, I must make just an important point, are we structurally seeing incremental borrowings go down? The answer is yes. Bank -- cost of borrowings are they getting repriced? The answer is yes. Drag is eating most of it at this point in time. And that's a management call rather than a market view. So when we feel comfortable, you will start to see a rapid drop in our cost of funds.

The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.

Firstly, what is the tenure of the ECB borrowings and the full rate for the same?

Sorry, sorry, sorry.

The tenure of the ECB borrowings, sir and the full rate that you're paying for that.

Tender of ECB borrowings. Totally, as you can see, it's 4% of the overall borrowing. I think the total number is around INR 5,200 crores, INR 5,300-odd crores. It's a 3-year program, fully hedged both for principal and for interest. Timing is an important dimension in when you borrowed. Last time we borrowed, which was a large -- we borrowed $100 million in April. And prior to that, the balance $600 million was raised. The -- if I recall, the previous number, fully loaded, everything all in, it was sub-8%. This $100 million came in at?

We had $75 million and...

$75 million. Okay. And at?

7.5%, 7.6%.

At 7.5%, 7.6%.

Okay. All right. And as for the collection infrastructure, right, I mean now are these collection agencies that we employed, these are completely our proprietary agencies. Any signs of people losing their jobs at the agency end or are you taking -- are you ensuring the staffing requirements are adequate and how are we handling situation?

We have ensured that we got to keep the fire on despite the fact that overall efficiency levels, because of the inability to collect from clients have remained low. As I said earlier, in general, lots of these agencies work exclusively for us. We've ensured that we provide adequate support during this time to keep businesses going. And that should help us as we get -- as overall economy opens up.

[Operator Instructions] The next question is from the line of [ Ketav Shah from Millennium Partners ].

One question is I just wanted to understand the mechanics of the moratorium interest that you account for from customers who have taken loan under subvention. What would be the interest rate that you would charge for them for the 2 months, 3 months moratorium?

Interest rate is same. Interest rate that was contracted by the -- as part of the subvention pricing with the manufacturer. So if you were at, let's say, anywhere between 21% and 26%, and that does get published to the customer in his statement of account, that is really what is charged.

Okay. Okay. Fair enough. And sir, any texture on where rural business could be in the next 6 months, 12 months? Or is it too early?

Yes, it's too early is all I would say. Do we believe, it will come back the fastest? Yes. To what degree? Tougher call. I may just add only one point. The way we classify rural for the investors is different from the way we look at internally. In general, our experience from a data standpoint is that 120-plus markets in India, in general, represent very similar behavior across most metrics. So we -- so the company has -- looks at even the urban business as a prime business as a growth business and as a -- in growth business, looks at further prime and further growth. That's really how -- and there is emerging. To us, 120-plus market represent very similar outcomes. Do they have the highest likelihood of coming back quickly? The answer is yes. Same way, and I must make a point, top 15 cities in India continue to be 30%, 40% of India from a consumption power standpoint. So both must be remembered.

The next question is from the line of Hiren Ved from Alchemy Capital.

Rajeev, congratulations on good numbers given the circumstances and also top-notch disclosure standards. My question is just, wherever you've opened your branches, what's been the experience? Do you see you will see an initial spike because of pent-up demand?

Experience is that every market is today structurally run by District Collector or District Magistrate. That's the only experience, Hiren. And circular -- so that's all I would say. Do we see some spike when we open the market? Yes, but they don't represent demand. Is there suddenly a demand for more dishwashers? The answer is yes. Are people looking for more iPad? The answer is yes. [Foreign Language] If customer's confidence comes back, demand will come back. I go back to my first panel where we said economy was on the mend, we were clearly seeing it. The worst was Q3, October, November. Things have turned the corner from December. And you are seeing that in IIP data, in various other data points that were emerging for January, February. We are 60 days into it, longer we take, longer will be the time for the economy to come back. But no such expression, Hiren, if I give you a specific response on pent-up demand. Confidence [Foreign Language].

Right. Right. And so my second question is, I know you mentioned and I think probably that's the right thing to do, which is to focus on risk management and balance sheet more than growth. But again, I mean, there are various projections about where the GDP growth could be this year in terms of whether it's a negative 1%, 2%, 4%, 5%, 10%, I don't know. I mean it's -- everybody has their guess. But a more fundamental question is that given your current size and penetration, do you think that you will still be able to grow given all the other -- everything else being equal, even if the GDP contracts, which means will you, in your assessment, be able to gain market share in the true sense of the term because your balance sheet is still relatively compared to large retail lenders like an HDFC Bank or whatever, it's far smaller?

Are we 133 basis points of total trade in India? That response remains yes. Do we remain pre-March 22, a growth-oriented company? The answer is yes. Are we organized to capture opportunity? The answer is yes. From a capital liquidity, talent, shareholders, low gross NPA and net NPA. But the most important point I must make, Hiren, is, I think it is true that unless and until everybody -- we are missing it completely that things will be slower for a while. What is going to make a big difference is, do you have the franchise to do something with. If you have a franchise and you have a cultural orientation to be able to do work with the franchise, we should do relatively better. I think is the way I'm seeing it from a short-term standpoint. Medium term, we are a growth company, and we would like to continue to grow our share of total credit in India.

Just 2 data points. I think somebody asked a question on deposits. We have seen INR 200 crores of increment in retail deposits in the month of April and INR 1,000 crores of maturities and prematurities on the corporate side of the deposit book. Secondly, in terms of ECB borrowing that we have taken in the month of April of $75 million, that came in at 7.2% fully loaded.

Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Karan Singh for closing comments.

Yes. On behalf of JM Financial, I would like to thank Mr. Rajeev Jain and the senior management of Bajaj Finance and all the participants for joining us in the call today. Thank you and stay safe.

Thank you. Good night. Sorry for doing this call so late. Thank you so much. And my apologies for the interruption by moderator, he was doing his job, in restricting it to one question. Myself and Sandeep, we are happy to engage one-on-one wherever required. Thank you. Good night.

Thank you. Ladies and gentlemen, on behalf of JM Financial, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.