Bajaj Finance Limited (BAJFINANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Bajaj Finance Q4 FY '21 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 Ms. Bunny Babjee from JM Financial. Thank you, and over to you, Ma'am.

Thank you. Good evening, everybody, and welcome to the Bajaj Finance Earnings Call to discuss the fourth quarter FY '21 results. To discuss the same, we have on the call Mr. Rajeev Jain, Managing Director; Mr. Sandeep Jain, Chief Financial Officer; Mr. Atul Jain, Chief Executive Officer, Bajaj Housing Finance; Mr. Anup Saha, Deputy Chief Executive Officer of Bajaj Finance; Mr. Deepak Bagati, President Collections; and Mr. Fakhari Sarjan, Chief Risk Officer. May I request the [ inimitable ] Rajeev Jain to take you through the financial highlights post which we can open the floor for Q&A session. Over to you, sir.

Good evening and good morning to some of you who are in to another hemisphere [indiscernible] BSE and NSE to upload the Investor Day, and that's why you're not uploaded in our section of our website. It's being done so now I'm told, so you can refer to that. But I'll run through a few slides quickly to give you a texture on the quarter that went by. Overall, if I look at the assessment of the quarter, I would say, given the circumstances, a good quarter for the company. With, I'm on Slide #4, with most lead financial indicators fundamentally normalizing to pre-COVID levels. Our business transformation plan that we have been sharing over the last 3 quarters is on track. We expect to launch the overall 3-in-1 financial services infrastructure in a phased manner between August and September as a company. If you look at the quick financial highlights, the year -- on a year-on-year basis, we ended March 31 with AUM at just a tad below INR 153,000 crore, a growth of 4%. OpEx to NIM, versus 31% last year, came in at 34.5%. And I cover that in with some texture in a moment. PAT came in at INR 1,347 crores. It's a growth of 42%, but the year-on-year comparisons are not really relevant fully, but I still -- and that will remain the case for the next 4 quarters as we go from here. So this is -- we'll have to live at some degree of, I would say, this -- we'll deliver these numbers at least for the next 3, 4 quarters. ROE came in at 3.7% versus not annualized, which is versus 2.9%. Net NPA came in at 75 basis points versus 65 basis points as of March 31. Let's quickly run through the key numbers. Overall AUM, as I said, I'm on Panel 5, INR 153,000 crore, year-on-year growth of 4%. Core AUM growth was INR 9,400 crore versus a year ago, INR 2,061 crore. If you look at the AUM growth between Q1, Q2, Q3 of FY '20, on an average, the AUM growth on a quarterly basis was INR 9,700-odd crores. So we are within the 95%, 97% run rate of quarterly AUM growth in Q4. We were at INR 8,500 crore core AUM growth in Q3, and that's moved to INR 9,400 crore. In terms of accounts book, the company booked 5.5 million accounts versus 6 million accounts a year ago. We've updated the investors, in general, about 2 businesses that we have put either in a pause mode or in -- or have constrained their lending, mainly our wallet loans business, which used to be 175,000, 200,000 accounts. The -- that business kept in abeyance. And our retail EMI card spend business, that is capped at this point in time at 50,000 accounts per month versus 150,000 accounts that they used to do pre-COVID. Adjusted for this, we -- on an apple-to-apple basis, we are at just about 6 million accounts on a quarterly basis. The company added -- the new customer acquisition run rate has come back to pre-COVID levels at 2.26 million new customers we acquired in Q4. In general, that's -- our long-term guidance, in general, is between 7 million to 8 million customers in a year. In the last 2 quarters, we fundamentally hit a 4 million kind of number. So we're well on track to normalizing new customer acquisition in the last 2 quarters back to pre-COVID levels. Our overall franchise was the 48.6 million. The cross-sell franchise was 27 million. Overall, on a year-on-year baseload growth of 27 million gives us a reasonably good platform to grow from once we're out of the second wave as a country. Our total geographic footprint, 3,000 -- just a tad below 3,000 locations and 110,000 distribution points. In terms of margin profile, we're holding margin profile except mortgages. In the Q4 that went by, we took an interest reversal of INR 300 crores as compared to INR 122 crore that we were taking in Q4 last year. The interest reversal peaked in Q3. That was INR 450 crores. It's already come down to INR 300 crores. We think it should fully normalize by Q3 back to INR 120 to INR 140 range. Overall cost of funds, we had shared that we are -- as we start to bring down our liquidity buffers, as we start to have greater confidence on growth, we will start to also improve our borrowing, which should fundamentally lead to reduced cost of funds given where the environment is. The overall cost of funds came in at 7.4% or 7.39% versus 8.37% a year ago. That's close to a 100 basis point differential. The liquidity buffer still held quite high. We will -- we expect to bring this down to about INR 9,000 crores to INR 10,000 crores in the current quarter as things normalize. As part of the process to bring down our cost of funds, we have shared even in Q3 we have now paid down close to INR 7,500 crore to banking system to various banks as part of our strategy to optimize. The deposit book, with the intent to continue to granulize our liability balance sheet, grew 20%. It's now crossed INR 25,000 crores, just a tad below INR 26,000 crore at INR 25,803 crore. Overall, corporate and retail in [ NA ] retail is 77%, corporate is 23%. OpEx, as I said earlier, I would cover in -- with a little bit of detail, came in at 34% versus last year at 31%. In absolute terms, OpEx was higher by INR 153 crore. Recovery commission in that line was higher by INR 140 crores, and employee-related costs were higher by INR 151 crores. OpEx -- so part of it was mitigated by prudent management of other expenses, so while the number was higher by INR 300 crores, the net number was higher only by INR 153-odd crores. If you look at the ratio, which is OpEx to NIM ratio, fundamentally came in at 34.5% versus 31%. In general, as you're looking at the management of OpEx, we're also clear that as the AUM starts to grow over the next 2, 3 quarters and operating leverage starts to kick in and we expect collections costs to fully normalize by Q3, you should start to see OpEx soon go back to pre-COVID levels. And hopefully, by Q4 of the year, as we deliver business transformation fully, should start to look lower. Let's come to loan loss and provisions. We had guided that we would take between INR 1,200 crores, INR 1,250 crores despite the fact that overall bound collection efficiencies, even as you were speaking in January, were looking better. As a prudent measure, we decided to continue to take provisions. Due to provisions of INR 1,231 crore, we also did accelerate writeoff to the tune of INR 1,530 crores on account of COVID-related stress and have fundamentally, on a go-forward basis, advanced our right of policy. So this is really how you will see the numbers play out as we move from here. Overall, last year, we -- as a result of COVID, we entered FY '21 within INR 900-odd crores of COVID overlay. We are again entering, in a way, second wave with INR 840-odd crores of management overlay and macro provision. Gives us confidence that we can navigate through this crisis if it becomes one in an efficient stroke and effective manner. Gross NPA and net NPA we think represents the health of the business, came in at 179 basis points and 75 basis points versus 161 and 65 basis points. The absolute net NPA was up only INR 200 crores from where it was in March 31, 2020, at INR 1,136 crores. Even in that, the -- our auto finance portfolio and mortgages largely were -- saw an increase of INR 300-odd crores, as you can see from the numbers here, from INR 419 crores to INR 609 crores, that's INR 180-odd crores and another INR 120-odd crores. The non-overdue, which is portfolio which is current but classified as onetime restructuring, stood at INR 1,739 crores. It includes INR 918 crores of secured exposures, essentially, again, auto finance and mortgages, one large B2B retailer account of a strategic partnership that we have of INR 397 crores, and INR 424 crores of unsecured assets. We have essentially considered the OTR book as an indicator of significant increase in credit risk and, as a matter of prudence, classified it as Stage 2 assets. Against these assets, we are holding a provision of INR 328 crores, which is a 20% provision. The non-OTR Stage 2 assets stood at INR 5,000 crores against INR 3,150 crores. We hold a ECL provision of INR 1,240 crores, which is 25% against INR 589 crores, which was 19% that we held on -- against INR 3,000 crores of assets as of March 31. Of the non-general Stage 2 book, secured assets are INR 3,000 crores, and unsecured assets are INR 2,000 crores. Bounce rates, if I look at new origination over the last 6 months, fundamentally, I'm on Panel 7, clearly, across businesses are in line or better than pre-COVID origination ought to be, in general, the current bucket bounce rates, which is good customer slipping into default, is back to pre-COVID levels now. The current market collection efficiencies are significantly better than prior to pre-COVID levels. The overall collection efficiencies across current bucket, Bucket 1, Bucket 2, which is 30 DPD, 60 DPD even right of recovery continues to be significantly better than the experience that you had for a long -- I mean, we've not experienced these kind of collection efficiencies across our portfolios in the last 14 years since at least I am running the company here. Overall, gives us the confidence that we are well positioned to navigate any temporary stresses on account of second COVID wave that may actually emerge. Pat, we talked about INR 1,347 crore versus INR 948 crores. And the Board of Directors, given that we've accreted capital in the current year, have recommended a dividend of INR 10 per share, which is 500%, which is the same as last year. Capital adequacy remained very strong at 28.5%, 28.34%, and Tier 1 in that was 25.1%. BHFL, the mortgage arm of the company, the AUM grew by 19% to just a tad below INR 39,000 crore. Its capital adequacy is again strong at 21.5%. And it's post-tax profit -- it's PAT for the quarter was INR 179 crore versus INR 91 crores, a growth of 97%. Overall, it's our view as management at this point in time that the company is entering FY '22 or has entered FY '22 on a reasonably strong footing. Barring, I would say, a nationwide lockdown or extended lockdowns in large GDP-contributing states or a national lockdown leading to a moratorium, I think barring these 3 events, we are reasonably confident of delivering our long-term guidance metrics in FY '22. Given that we're at a moment where -- I'm in Panel 8, we're in a moment where, in general, people are also asking us to what's the feel on the ground. I thought that would give you some texture to give you where we think we stand and how some of our high-frequency businesses are from an origination standpoint are doing at this point in time. We are virtually headed into end of April, and the disruption in general across the country started in the last 10, 12 days. There are 7, 8 points. Let me just quickly cover that. As I said, barring a national lockdown 3 to 4 large GDP-contributing states going into simultaneous lockdown for 3 to 5 weeks and another moratorium on loan repayment, in -- barring these 3 big events, we are reasonably confident of delivering the long-term guidance metrics in FY '22. We're also wiser I think having experienced the first wave. We believe that a disruption in the first quarter could be reasonably mitigated in the balance 3 quarters. I think none of us expected how quickly the economy will bounce back in September quarter and the January quarter, gives us confidence that, even if it's a disruption of -- between April and May, a month is lost, let's say, for a moment, hypothetically, it can definitely be made up in the balance 10 months of the year. Having said that, we're in a rapidly developing situation. We are watching the situation closely and are taking appropriate action to navigate through this, so that while we're confident about it, we don't want to be overconfident about it, and we're watching the situation very, very closely. One of the things that we're also clear about from the last event is that we'll remain fully open for business as a company in whichever we can despite the significant disruptions that one has seen in few states in the last 10, 12 days. We remain open in line with local administration advisories. If you take the last 7, 10 days, in general, we continue -- we are still originating even with larger state being 15%, 16% of GDP, 15% of GDP comes from Maharashtra. Delhi is a very large market and so on and so forth. We are still originating 50%, 55% of daily volume in our B2B business. Given our deep distribution and widespread geographic footprint that we have, 80% to 85% of our business in B2C and SME businesses and 40% to 50% of business is in mortgages is really how last 7, 8 days have fundamentally panned out. The reason for the confidence is also because I think in the last 1 year, last time around, we didn't have opportunity to be -- none of us down any time. I think in the last one year, we significantly augmented our digital capabilities to remain fully functional, whether it's for new origination, for full-fledged service, full-fledged operations, or collections in a work-from-home situation, I think there is significant preparedness and readiness to navigate through this a year later into the pandemic. We're also clear that we have 25 -- I'm just down the last 2 points, and then I'll hand it over to your questions any which ways. We're well on track to launch our 3-in-1 financial services between -- in a phase manner between August and September. We also believe that if the recovery in general is a back-ended recovery given the COVID second wave, I think it'll help us accelerate our market share as the economic momentum accelerates is really what our point of view at this point of time is. There has been no cuts that we've taken so far. In the last 15 days, the risk and collections data is not warranting any kind of risk stance change at this point in time. However, we'll continue to remain data dependent as a company and will make this decisions as may open up and so on and so forth. I think as I said, we're a lot more prepared. I think the business continuity for micro-containment, which we increasingly call playbook, is more prepared. And lastly, but an important point, I think while we all were worried about the health of the franchise, it did not -- this time, we're really worried about the health of our employees and our -- given the high transmissibility and more lethal as it seems and are closely monitoring the situation. We had a reasonably generous financial aid program last year. The company spent INR 37-odd crores on that. We have reinitiated that program. We also decided to -- we've initiated work with vaccine producers to vaccinate all our employees and our associates as quickly as we can, and the company will bear the cost of it. That's the preliminary assessment. Let me just quickly run through Panel number -- to -- sorry, to -- yes. Let me give you update on business transformation, which is really what we're most excited about. Fundamentally, as you're aware, for our -- I'm on Panel #10, the 3-in-1 financial services for our, let's say, by the time we launch this, it'll be 51 million, 52 million customers that we're launching as omnichannel frame for our franchise. We'll launch as an update form on our Experia app. I think by the time we launch, we'll have 10 million customers on it already. At this point in time, we have 7.5 million Experia users. So it'll cut short or shorten the onboarding process significantly. Parallelly, as we do this, the productivity apps, our sales app ecosystem, our merchandise ecosystem, collections app, and partner app will go live between May and September in a phased manner, again, between now and between -- yes, we are virtually into May, between May and September. [indiscernible] We're just waiting for regulatory clearance for -- PPI ready to go live. We're just waiting for approval for the wallet business to -- for the PPI business to go live. The 3 marketplaces, which is our eStore insurance and investment marketplace are in advanced digital development at this point in time. The first phase of eStore has gone live in February. We have now 25,000 SKUs on it. Our consumer electronics business, 40,000 retailers have been onboarded. And the full -- the final capabilities of the eStore will go live between July and August '21. The insurance and investments marketplace will go live between July and August as well. The onboarding app of Bajaj Financial securities has gone live, and the trading app will go live on 31st of May. Twelve adjunct partner apps are already live, and overall, 28 apps will go live as the financial service as the 3-in-1 financial services goes live. Quickly on customer experience, I had outlined that we are clear that if you have to be a moment-of-truth company, we will need significant transformation in customer engagement and experience. We think engagement is a function of -- engagement comes from service. So there's -- just to give you texture, 33% of the overall app ecosystem is dedicated to service just today just at a frame level. So clearly, we think it will lead to -- that is really the core reason why customers will engage more and we'll do more business with you. You see a set of points here on Panel 7 -- on Panel 11. The [ exudal ] infrastructure is working quite well. 15%, 16% of the calls are happening through that. We are deploying an AI solution to analyze these calls along with a [ bag of words ]. We opened collection service desk across 10 branches. We're adding 7 more, so we'll go to 17. We are -- on a proactive basis, we are investing in DRA certifications. 7,000 of our agents have already got trained. We'll cover that in full year. The NPS for collections, probably we are the only exception anywhere in this part of the world doing that. 97% of our customers are giving us 4 and 5 scores. So that's an update quickly. Let me just jump, in the interest of time, all the way down to how are we seeing the portfolio held to be. That's virtually down to panel -- so that I leave some time for questions -- Panel 50. Okay. Yes. This is -- Panel 49 fundamentally represents -- I've talked about it that fundamentally INR 141,000 crore of assets are in Stage 1. OTR assets are INR 1,739 crores. Stage 2 is INR 5,000 crores and Stage 3 is INR 2,731 crores. Versus last year, as I've articulated, INR 3,100 crores is Normal Stage 2 versus that is 5, and INR 2,400 crores last year was Stage 3. It is INR 2,731 crores. And we had a coverage of 60%. We had coverage of 59% in Stage 3, 58.5% in Stage 3. And we had a coverage of 19%, we have a coverage of 25%. In general, is the -- I'm down to Panel 50, 51, 52 represents 11 of our different -- sorry, 13 of our different businesses. We're at red here, which is still our 2-wheeler and 3-wheeler financing business, which is still significantly behind where it was a year ago in terms of Stage 1 assets. Other businesses have all caught up or are better off. The B2C loans is still behind by 108-odd basis point. And as a result, Stage 2 there is higher at 120-odd basis points. Otherwise, rest of the businesses are back to where they were in February '20. This is not March '20, is February '20 because March was -- so that's the reference point that we'll use -- that we've used for the last 4 quarters that we continue to intend to use. So that's really the quarter gone by. And myself and my colleagues here are ready to take any questions that you may have.

[Operator Instructions] The first question is from the line of [ Rakhi Prasad from Alda Capital ].

I wanted to get a sense for your credit underwriting in terms of automated credit underwriting, what kind of products are you doing through automated digital methods? And any sense on what would that be on reporting percentage of AUM? And how has that trended over the last 10 years?

So fundamentally, our B2B, which is the point-of-sale business, is the one which is, quote/unquote, the fully automated underwriting. Our B2C businesses are quasi-automated because we fundamentally determined, based on our analytics who we want to give money to. But to only 10% of the customers, we're able to do -- we are willing to do straight through balance 90% go through a quasi-underwriting process. Everything else would be fully underwritten. And if you look at the portfolio in that sense, the B2B businesses, which essentially contribute to -- if you just go to composition. If you go to Panel 43, you'll see the composition there. So the 8% of the business; and too, 10% of the business is going to be automated. The consumer B2C and rural B2C, which is another 33% -- 28% of the business is cause automated. The rest is fully underwritten. Are we audible?

Yes, sir you're audible. We'll move to the next question from the line of [indiscernible].

[indiscernible] so in the last quarter, if my understanding is right, we had INR 2,000 crores restructured in Stage 1, and Stage 2 was about INR 5,900 crore. And in 4Q, the 2 collectively OTR [indiscernible] was INR 6,700 crores. Is that right? And then if it is then the decline has come from where, say, the writeoffs movement to GST or upgrade?

Yes. I don't know -- there are 3 questions that you're asking. One is on the OTR book, the OTR that we had offered to the customers was approximately INR 2,200 crores, of which some INR 400 crores customers have already been classified as Stage 2 in the normal process because of the [ ore ] position as on 31st March. The balance 7,139 crore INR that you see are the customers who have taken OTR from us but are honoring their promise as per the revised repayment terms. Had it not been for OTR, these customers would have got classified as Stage 1 only. That's point number one. Point number 2, the balance that you see in Stage 2, that has gone down. The point is correct. It has gone down from INR 5,900 crores in the last year to INR 4,985 crores as of now. This is on account of 2 things: one, the recovery that has taken place in quarter -- end of Stage 2 as well as the customers moving into Stage 3. Most amount of writeoffs that we have done in the current quarter and in the previous quarter as well are basically from these Stage 3 assets and not from Stage 2 assets. So Stage 2 is mainly on account of recovery and some migration to Stage 2 that has taken place in the current quarter.

Got it. And one question on the digital transformation side. So if you could just help us understand, in terms of size, how many point-of-sale terminals you referred, what will it mean in terms of change in business model if, say, you have X amount of people at the [ tools ] Present today? How would that change? Some sense of what the cost movement essentially will be because of all these initiatives?

So fundamentally, look, it's a fair question. You have to -- while we share with you that these are different apps, we see them as a single ecosystem to -- let me make that point. Because fundamentally, we are very clear. We are in a highly regulated business. Click a button and get your money will happen for 10% of the clients, 90% will need assistance. And that's really how you fundamentally see sales on app as integral. Sales on app, Merchant One app are integral to what we call omnichannel infrastructure is integral to the overall design. It's important for -- and that's why we're saying an omnichannel framework, where customers will be able to transition in a frictionless manner between off-line and online and [indiscernible]. So I think that's something for you to remember. Now let's just take an example for a moment so that it becomes clear. Point of sale, you go to any store, you are on eStore at home. You look for a retailer in your vicinity. You identify product. You don't buy it. You go to, let's say, add to cart, and you left it. We realize that appliances is a high-enrollment category. We will fundamentally flow that lead to the store that you've chosen and the person either to the retailer based on our arrangement or to the point-of-sale person that we have, who, based on appointment will speak to you and assist you and help you while you're in the store and do the transaction. That's one example of omnichannel. The other example of omnichannel, we may preapprove you. You've downloaded the 3-in-1 financial services. You do add to cart. We -- but are not able to go ahead because we need -- you need some assistance or we need something from you. That lead, based on an allocation methodology, will flow to a particular person in the field who would assist you and help you go through the transaction. We are very clear that, on the other hand, it may be an insurance product or an investment product that you may be able to buy in 3 clicks. It may be a broken account that you'll be able to -- if you're a customer care onboard customer, you'll be able to open in 3 clicks. So it will differ product-by-product and nature of the product and the nature of the transaction. So the right way to look at it would be, as it emerges between August and September, as you experience it as a consumer, that's really where the imagination would become more clearer. So we are excited about launching this from the end of [indiscernible].

Also, Rajeev, I just said that this is a two-way framework, which is the online to off-line and off-line to online. We are not taking a position that it is only online. Let's say, a assisted two-way framework, where the customer desires, he can go all the way to disburse. If he needs assistance, we can call fairly quickly. I think the game here is how fast do I reach out, and that's where the moment of truth will really play out.

Got it. That's helpful. Last, just clarification. So how will all of this relate with the intermarket cap? Has it been completely disconnected? Or, yes.

Since your market cap is completely disconnected, but the company is helping us build a technology platform because we are in the middle of building 3 new financial services. We are in the midst of significant transformation of our current core technology platform. So they are building the investment and insurance and eStore marketplace for us on an excellent base as a technology partner.

Next question is from the line of Kuntal Shah from Oaklane Capital.

I would just focus on the Slide #10, giving the transformation thing, particularly 2 aspects that I'll lead your comments on what would be the switching cost for the customers in the current existing other platforms pertaining to investment, insurance, eStores and the stickiness for you as on to justify the current acquisition cost? And your comment on the fintechs, which are acquiring customers spending crazily versus your cost of acquisition? Secondly, more comment on how the [ relevant ] pricing is going to work between the parent company and just because, ultimately, the platform owner owns the customer, not the service providers. So some clarity on who is owning the customer and how it will flow through between the 2 respective...

Okay. So first of all, Kuntal, as you can see on top on Panel #10, we're not building this for new customer acquisition. At a design level, as I've said in 2 panels before, we continue to originate customers at point of sale. That does not mean that this will not originate new customers as well. We see EMI card origination has now become a reasonably large stand-alone digital engine for us. We're now originating anywhere between 60 to -- 40,000, 45,000 paid customers and 60,000 to 70,000 approved customers on a month-on-month basis. We think as this ecosystem becomes large, it's very much possible that, that number will significantly expand. But leave that aside. Our focus is on originate at the point of sale, and acquire and cross-sell has really been our strategy, and that's really what this panel and platform is intended to serve. We have enough customers. We are very clear that we will be -- sometime in the near future, we'll be 100 million customers company, given the distribution and the product portfolio that we bring to the table and the geographic presence that we bring to the table. So that's one part. Omnichannel frame, originated point of sale, do more with them is really what this platform's for. Now that's one part of the question that you asked me. Card [indiscernible] technology partner for us. [indiscernible] markets is a technology partner on an ongoing basis. They are paid to build the technology. The way we work with various companies, whether it's -- I mean, I don't want to give names, but we have various technology partners but have seen some markets as -- is another important strategic group technology partner. That's really how we are doing this on a complete [indiscernible] basis. Customer, as I said, belongs to us. Any customer who comes on this platform, takes our product belongs to us. So there's no confusion at all. Having said that, since there was an earlier question and there is this question, we created Bajaj Finserv market as a challenger in the group. That was our original objective and that objective stays. They are a challenger. We are, quote/unquote, producers, if I may say so, between us, Allianz life insurance company, Allianz general insurance company. We are producers. Among them, we happen to be somebody who's a producer and is a open architecture large distributor as well. So I understand the confusion that at times it can -- we created them as a challenger to make sure that they cannot -- that this space is very large. It's a growing space that can create a distinct and differentiated model to find a new way to originate customers. And that's really what they've been up to for the last 3.5 years, and they're their own journey. And we, as a company, have our own journey. They have their own customers. We have our own customer. So there's no confusion in our mind. This just happened to be. You have to look at them as you guys understand it easily as Amazon and AWS. That's an easier way to look at them. They have 2 parts. They do business on their own, and they also do technology development. We are using their technology development. That's all, nothing else.

Okay. So Rajeev, just one question is, can we expect all the engagement metrics like DAU, MAU, churn rate, [ cat ] call to be published after the third quarter?

I would say one way we are seeing that is that we go live between August and September. We are already working on what I would call a Stage 2 between -- we know that given the large ecosystem that we are looking at creating, there will be optimization opportunities. And that's being polite. All large app ecosystems as they go live. That's really how the nature is. We do think there'll be optimization opportunities that will appear between in Q3 and early Q4. From end of Q4 -- from Q4 results onwards, we'll start to publish. Answer is yes.

Okay. And what are the friction between -- for switching cost from one platform to other -- there are marketplaces right now, right, insurance investment. So what are the switching costs and stickiness consideration involved?

So the switching cost fundamentally is -- appears as we see only in the mutual fund space. Otherwise, there are not switching costs. You could -- so that's the only place where I'm aware of there is a switch cost that appears if you move from a direct plan to -- if we move to a direct plan. Otherwise...

Rajeev, I meant from one platform to other, like if somebody has a policy or a live account of mutual fund or FD in one marketplace. What are the inertia and the considerations to switch to your...

That's something that -- See Kuntal, we, at the design level, we're originating a customer at a point of sale. We offer him an ecosystem. We continue to give them rewards. We continue to reduce the friction for him. He will have a higher propensity to stay with you. I think that's, at a frame level, that's the journey that we're going to. We think this is a -- this is really -- this will become the present and the future of the company from a next 5-year standpoint. So I think while COVID has had many costs, I think it has significantly accelerated our orientation and our direction a lot more rapidly than we had actually planned before COVID. And you'll see it play out very, very rapidly.

What kind of marketing budget do you have in mind to acquire customers or at least make the products aware to a widespread of potential customer base?

Kuntal, we like to deliver return on equity to our shareholders. In general, I'm reasonably miser on these. We will continue to originate customers at the point of sale. I've reiterated it 4 times. I won't repeat it for the fifth time. Our origination frame is not changing. It may bring additional customers at no cost as a result of SEO and a small INR 40 crores, INR 50 crores a year that are currently spent in marketing in SEM. We don't need more customers. We need greater engagement, and we need greater share of the wallet. That we are super clear about.

The next question is from the line of [ Satik Jain from Pernile Fund ].

Yes. So given the erratic lockdowns in most of the main states and cities, so could you walk us through what different you are doing versus the competition to maintain such good recovery rates?

When you say recovery rates -- so in general, as I said, the capacity planning was significantly augmented in Q1 last year. If you recall, we added -- we virtually added a [ 33% ] additional debt management infrastructure in Q1 last year. That's one part of the conversation. Two, the incremental through the door acquisition is distinctly superior, very clearly. The B2B portfolio of ours, which is really where millions of customers are, has largely fully churned. If you see that on Panel 50, you will get a texture of it. If you see our B2B business, you see, since December '18, which is virtually 4 -- 8 quarters, we never saw it go past 99% in terms of being current. We are seeing them at 99.52. That's 1 point here. As I mentioned on Panel number 7 or 8 earlier that the incremental through-the-door acquisition is looking -- and their current bucket balance sheets are looking significantly better. So it's a factor of both what is coming through the door, and clearly, how efficiently we're able to manage those clients is really what so far has played out in the last 6 months.

The next question is from the line of [ Chig Nasheel ] from Emkay Global.

Firstly, congratulations on a good set of numbers and very valid disclosures that you have given. I have just a single question now. If I can see roughly around INR 840 crore of macro and management of [indiscernible], I can see it up right now. Any brief idea around what kind of credit costs are you looking for, for the current year as well as for the next year? Or at least for the current year, considering this COVID really is still there the second wave has already been there out, and businesses are getting affected and all. So any guidance, how we are going to utilize this particular -- over there? Or how will be the credit cost planning out for the current year?

So you would appreciate that it is -- I've given you preliminary assessment. It would be -- so let me place this into 2 parts. Prior to March 31 as this crisis started to unfold so rapidly, I would have confidently told you we'll look probably close to our end will be -- we'll look between 150 to 160 basis points. It could have even been lower given the kind of right of recovery rates that we were seeing in the last 2, 3 months. At this point in time, and we have transparently laid out the way we see the situation to be. We would have to wait for a little while for us to have a full view. The only point I wanted to make is that we are technically not carrying any baggage, rather carrying a surplus into the wave -- into the second wave. So I think that is what is very clear and important how it play -- it is also showing that the -- through the lower acquisition, it is better. It is also showing that our collections interest is much stronger. It is also showing that we'll remain open for business. If the 3 events, which I talked about, which is the national lockdown doesn't happen, 3 to 4 large GDP contributing states don't go into simultaneous lockdown for 3 to 5 weeks, and there is -- as a result of some of these events, there's no -- another moratorium, I think we should be between 150 to 170 basis points. It may be a little lagged. It may not be the case in Q1. But on a full year basis, I think sitting here, I would like to believe so, but we are as aware as all of us are.

Understood. And just one quickly, if I understand PAT, we had an OTR offer for around INR 2,200 crores kind of [indiscernible] offered, and 400 enrollees converted into normalized H2. And balances, we're keeping at a Stage 2 only, but under our own [indiscernible], it would have been in Stage 1. Am I understanding, correct?

That's correct. That's correct. [ 7,839 crores ] does not have any audio, but because they have taken [indiscernible] we have classified them as Stage 2.

Next question is from the line of Nischint Chawathe from Kotak Securities Limited.

A very simple question from my side. What was the total writeoff in the quarter?

If you go to Panel 5, Panel 6, it's specifically mentioned there. The total INR 1,530 crores was written off.

INR 1,530 crores was the additional number that we have done on account of COVID-related stress as well as on account of writeoff policy change. Apart from that, we had INR 500 crores of normalized writeoff happening in the month -- in the quarter.

The total writeoff at around INR 2,000-odd crores.

That's correct.

The next question is from the line of [ Hasmukh Gala from Finvest Advisors ].

Congratulations for such a brave world [indiscernible] putting up in this adverse time. Can you just tell me how far we will be from our normal growth trajectory, et cetera? Looking to the second wave when we don't know how long it's going to start, and as you said, the moratorium and other issues that could come up, so how far we are -- we will be from our normal growth profile? So will you again be looking at the growth? Or will you be looking more at the protection of assets, good quality assets. So what will be the strategy in FY '22?

So look, and that's why I realize it's a fair question that will be asked. FY '22 is a long year. And that's why we gave you a preliminary assessment the way we are seeing it at this point of time on Panel #8. No, just go to Panel 8. Yes. That's on panel 8. And we exactly outlined to you the way we are seeing it. If these 3 events don't happen, we think we will deliver our long-term guidance metrics that you outlined for many years, a 25%, 27% balance sheet growth and 18% to 20% ROE. And the current growth in end year numbers. If it's -- if these 3 events don't happen, if they play out, then we'll have to see. The additional point that I made here is that I think we are a lot more braver. I think having faced first wave, which caught each one of us unprepared financially and health-wise, I think a lot more preparation is there, which is really what you can see on Panel 8 and Point #4. I think whether on new originations, service operations or on collections in a work-from-home situation, we will continue to deliver 90%, 94% PAT is really the way we are looking at it as. Even if the flows were to increase in an intermediate period, which is really what we saw last year, I think we have additional staffing in our debt management infrastructure to be able to support. So I can only go by our readiness. The -- as I've said, even if the recovery was back-ended, which is possible if this goes beyond May end, the 3-in-1 financial services would have gone live. So I think -- and we have not baked that as part of our plan this year. As part of a planning process, we'll not bake that in because, as I said earlier to the respondent that we think it will get launched in August/September. We are very clear there'll be optimization opportunities. That's really how large app ecosystems work. And for next fiscal, it will be a big play. And that's why the entire management team fully sees that it's without it that we have to deliver the long-term guidance metrics, and we've given them the resources for the same. So I can only comment on our readiness. Very hard to say how things will play out.

And my second question is, out of the 9 different total asset classes, which are the asset classes where we will see some good positive movement maybe for the start of the year?

Look, if you see Q-on-Q movement for all 8 asset classes, you would see momentum across. We're still a little behind in our B2C businesses. But otherwise, across all, and that's why the overall growth was reasonably granular, whether it was mortgages or B2C or SME or B2B. It is -- on a Q-on-Q basis, if you look at them, they were all growing in a fine way. We will remain data dependent and act accordingly, is really all that I would say. The last thing we would want to ever do, the building business with a long-term view that if the data does not support, we're not going to chase growth, whatever it means. But if the data does support, we will accelerate growth. I am clear about that as well. So the readiness on both sides, the prudence requires that we play it that way. And agility is going to be of an important -- dimension is really what our assessment over the last 13 months. [indiscernible] mobilize.

The last question from my side. Any further thinking on banking type of it, which you had touched upon in the third quarter that you are looking forward to what kind of guidelines come from RBL. And then you will decide the structure and all that [indiscernible]. So any further thought process crystalized on that?

No, we are -- we -- as I said, we are awaiting. And based on that, we'll advance.

Ladies and gentlemen, due to time constraint, we take the last question from the line of Hiren Ved from Alchemy Capital.

Rajeev, congratulations for good set of numbers given the circumstances. I just have 2 questions. One is that our current cost-to-income ratio, obviously, is higher given that the momentum of business and the growth has come down. And I remember that when we were talking about our digital transformation, one of the objectives was to structurally reduce the cost-to-income ratio. So would it be fair to say that we should see a 2-stage reduction in cost to income from the current levels? One is to go to a normalized pre-COVID, pre-Bajaj finance transformation, and then, because of the transformation initiatives, you could see another step down structurally?

Yes. That's really our -- I mean, without the digital transformation or so-called transformation plan, we were at 31.5%. So there's no reason for us to believe that we won't go there. But as you're rightly saying, as the operating leverage kicks in as some of the transient pieces of the OpEx goes away as a result of the event, you will see that happen very clearly.

Okay. And my second question is that, considering what the country has gone through last year because of the first wave and a little bit of the second wave, do you believe that your addressable market would have got impacted, which means -- what I'm trying to say is that, let's say you have a credit underwriting framework, and let's say, earlier, in normal times, if you have 100 people making an initial contact and finally 25 going through the door, do you now have to address 125 opportunities to get 25 through the door?

So Hiren, I am -- it's a fair question. I am looking at 2 million customers a quarter. I have a little more simpler view to life. In the last 2, 3 quarters, not having faced it, I would like to believe, without having -- in no manner, in fact, tightened underwriting standard. If you could originate 1.8 million and 2 million customers, 2.2 million, 4 million customers, I will take it as it comes. I think very deep distribution. That's one part being in terms of geography and in terms of point of sale is ensuring that we can capture the market. And -- sorry, as Anup is rightly saying that the overall competitive intensity from a credit also has taken a knock. Clearly, not too many P&Ls have the kind of ability to take this kind of shock. We write off, but I right off flowing it through P&L. I don't write off as a balance sheet entry. If P&L has a power to -- they won't write off, they should take it on and run a prudent business. So we have that firepower. We run a conservative business. We think gross NP and net NPA flow through the P&L reflects the true strength of a business, and we'll play along that way. And we'll keep growing customer franchise 2 billion at a time or 1.1 million.

Thank you. I would now like to hand the conference over to Ms. Bunny Babjee for closing comments.

On behalf of JM Financial, I would like to thank Rajeev Jain and senior management for Bajaj Finance allowing me to participate joining them on the call today. Good evening, and thank you.

Thank you. Thank you all so much for the late call. Really appreciate. Thank you. Stay safe.

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