Bajaj Finance Limited (BAJFINANCE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bajaj Finance Limited Q1 FY '22 Earnings Conference Call hosted by Bank of America Securities. This call will be recorded, and the recording will be made public by the company person through its regulatory obligation. Certain personal information, such as your name and the organization, may be asked during the call. If you do not wish further to be disclosed, please immediately discontinue this call. This call is not for media representatives or Bank of America investment bankers or commercial bankers, including corporate and commercial FX. All such individuals are instructed to disconnect now. A replay will be available for Bank of America investment bankers and commercial bankers, including corporate and commercial FX. The replay is not available to the media. [Operator Instructions] I now hand the conference over to Mr. Anuj Singla from Bank of America Securities. Thank you, and over to you, sir.

Thank you, Rutuja. Good evening. Good morning, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Bajaj Finance earnings call to discuss Q1 FY '22 results. To discuss the results, I am pleased to welcome Mr. Rajeev Jain, Managing Director, Bajaj Finance Limited; and other senior members of the management team. Thank you very much for the opportunity to host you. I now invite Mr. Rajeev Jain to introduce the management team on the call and take us through the financial highlights for the quarter, post which we will open the floor for Q&A. With that, over to you, Rajeev.

Thank you, Anuj. I have with me Sandeep Jain, our CFO; Atul Jain, CEO, BHFL; Manish Jain, CEO, Bajaj Financial Securities; Anup Saha, Deputy CEO Bajaj Finance; Anurag Chottani, CIO; Fakhari Sarjan, our CRO; Deepak Bagati, our Chief Collections Officer; and Kurush Irani, our Head of Operations and Business Transformation Project. I also have our Compliance Head and General Counsel, Babu Rao. Thank you, Anuj, for the opportunity, and thank you for hosting us. And I'll be referring to the investor presentation that is being uploaded on the Investors section of our website. Let's quickly jump on to Panel #4. I'll be essentially referring to Pages 4, 5, 6, 7 and 8 and Panel 43 and 45 and then be opening to questions. We've tried to write it in a self-explanatory manner, but I'll still read them out to make sure there's clarity on what we are trying to communicate. Overall, we are all aware, we just went through a very severe second wave. Clearly, the quarter was a muted quarter. That's not a word that I have used in last 14 years of doing 4 quarters each this is -- in a way 56 quarter that we're doing, but that's really what pandemic does. It was a muted quarter impacted by a severe second wave of pandemic, both business and management efficiencies were affected due to strict lockdowns across most parts of India. Overall, as I've said in 2 calls that we did during this period, sometime in June and one at April end, that it's been an emotionally hard quarter given the number of deaths we've had actually in the company. Despite that, the show goes on. The business transformation remains on track for Phase 1 go live in October '21. The company still continue to remain in business reasonably aggressively through Q1. Let me go to -- so as a result of that, AUM grew to INR 159,000 crores, OpEx to NII came down to 30.6%. PAT just remained a tad above INR 1,000 crores or INR 1,002 crores, a year-on-year growth of 4%. ROE came in at 2.7%, not annualized, that means a 11-odd percent run rate. And net NPA, which is really where the big burst was, we had given a warning to that effect in our June 4 release, moved from 0.5%, which is again not relevant due to moratorium. Having said that, it is a year-on-year number. So has to be represented, came in at 1.46%. Let's just dive deep into the numbers. Let me go to Panel 5. First of all, I must state the year-on-year numbers are not comparable. Last year was a complete lockdown, till May end. This year is in parts. Last year, there was EMI moratorium. There is no EMI moratorium this year. So they are not comparable at all. It's the first point I must make. Overall, core AUM growth was INR 4,100 crores. From this, I'm knocking off INR 2,980 crores of IPO financing book. I'm knocking off the interest reversal adjustment, as you can see below. So core growth in Q4 was INR 9,500 crores. Core growth in this quarter was INR 4,100 crores, mainly on account of B2B business dialing down. Essentially on a quarter-on-quarter sequentially, the -- if we had a normal quarter and didn't have second wave, that book normally sequentially goes up by 4,000 crores to INR 5,000 crores. So actually, the biggest part of the impact is actually on account of urban B2B and rural B2B business. But it is what it is. The core growth was INR 4,100 crore. If there is no third wave and life stays even the way it is at this point in time, since, let's say, I would say, 21st of June onwards, I would say we expect the quarterly AUM growth rate for the balance to be at pre-COVID level -- if life, as I said, if there's no third wave and life continues the way it is at this point in time. We booked 4.63 million accounts. We acquired 1.88 million new customers. We crossed at least -- there's one good milestone that we crossed we crossed 50 million customers to end the quarter at 15.5 million customers, overall growth of 17%. Cross-sell franchise stood at 27.5 million customers. Total geographic footprint was at 3,113 locations, 115,000-odd distribution points. We added 125 new locations. We started our financial inclusion journey. We added 50 locations where there is no bank in Q1. It is part of the plan. There's plan to open 50 more such branches if this pilot was to run successfully in the fourth quarter of the current fiscal. The company also added 49 -- just a tad below 50 branches in existing locations, mainly 25 stand-alone gold loan branches in 2 cities in India. We are now going bigger into gold loan. As you walk into it, we opened 25 branches in Jaipur -- sorry, 13 in Jaipur and 13 -- 12 in Vizag. And 24 dedicated branches for FD we launched in Q1 as well. Our overall margin profile adjusted for interest income reversal remains -- and as a result of cost of funds going down, otherwise remains steady across all businesses. The interest income reversal came in at INR 451 crores. It's even higher than what it's been in the last -- last 2 quarters was real. The first 2 quarter was a replace card. So we've taken a place card number of INR 306 crores knowing fully well this would come last year. So last year number was place card. But this year, it is a real number, which is INR 451-odd crores. You're trying to pace out the interest reversal, that's how we've taken last year's Q1. Cost of funds, we have guided. We'll continue to go down. It came down to 7.11%. Overall, as we dialed down the liquidity buffer to around INR 8,500-odd crores, that's one. And even now, company has very little CP. There's virtually no CP sitting in the company. Less than INR 1,500-odd crores of CP is what is sitting in the company. We are very clear the CP is to go to 8% to 9% of the balance sheet. As that goes in that direction, we will see 7.11% go down further. On Panel 6, deposit book continues to grow, giving us granularity on the liability side. Its contribution now is at 21% on a consolidated basis. OpEx to NII came in at 30.6%. Several actions are again taken to try and partially mitigate the financial impact and that's how the number is -- it saved close to INR 200-odd crores -- INR 250-odd crores of OpEx in the current quarter as a result of set of actions that we took on the quarter basis. Overall, we expect that this will normalize to around 33% by Q4. You may see a jump up in Q2 and settle it closer to this number in Q3 and hopefully stabilize fully by Q4. The EMI bounce rate, that's something that we guided The Street. Overall, we have provided data for April and May and June. This is for July. The overall July bounce rate at a fundamental level has actually come in marginally lower than what it was on an average basis in Q4. Even this metric, we did not see deteriorate through April, May, June. So if there is some light at the end of tunnel on this, at this point, fundamentally reflects a positive metric is what I would say. Forward flows clearly were constrained due to debt management efficiencies. Overall, things have eased at this point in time, but I'm not providing guidance. But overall, July seems in line with March, or I would say, marginally better than March. March, as we had -- when we had given Q4 results, we had said that we have not seen numbers like this. So it's pretty volatile. If things were to not harden, lockdowns were not to happen again, they are probably better paced to navigate through this. Loan losses, as a result of point #11, as a result of being unable to collect from an ECS standpoint, were pegged at INR 1,750-odd crores -- not -- I'd say, a INR 1,750-odd crores. So clearly, it's a number higher than even first quarter last year number that we had taken on. Management overlay provision from INR 840 crores, we consume part of it. As of 30th June, we had INR 483 crores. Gross NPA, net NPA, as a result of outflow movement, came in at 2.96% and 1.46% versus -- the right thing to do is to compare against on a sequential basis rather than comparing year-on-year because last year, as I said earlier, we were in moratorium. Exiting Q4, we were at 180 basis points, that moved by 115 points to 2.96% and 75 basis points on net NPA which moved to 146 basis points. Let me just go -- given the kind of movement in gross NPA and net NPA, let me just go to Level 2. Overall, GNPA for the quarter increased by INR 2,006 crores from INR 2,700 -- by INR 2,006 crores from INR 2,731 crores to INR 4,737 million. The biggest burst was actually in the auto finance business. As you go to Panel 43, you will see the gross NPA, net NPA fundamentally, other than that portfolio, versus December has actually improved. So even versus March, some of the businesses are improved. But versus December, there is positive movement in -- which is when we were actually getting out of pandemic in that sense. So that's something that I'll talk through when I get to Panel 43. But overall, the GNP increased from INR 2,731 to INR 4,737 crores. Auto finance, as I said, worst affected. The AF business GNPA increased from INR 1,200 crores to INR 2,426 crores. So just in this line of business, there was a movement of INR 1,227-odd crores. Other lines of businesses, which is INR 159,000 crores minus INR 12,000 crores, the movement was only INR 800-odd crores. Moving to Panel 7, which is NNPA panel, which is NNPA metric, came in at INR 2,307 crores versus INR 1,136 crores as of March. Secured contribution moved from 50-odd percent to 74-odd percent in terms of NNPA metric. Non-overdue OTR, which is onetime restructuring, which was announced, which was shared in March as well, actually moved down from INR 1,739 crores to INR 1,300-odd crores, either as a result of pay down or as a result of movement from -- to Stage 2 and Stage 3. Overall, what we are very clear about is that in the risk business, the true health of the business fundamentally is represented by the GNPA and NNPA number. That's a metric that essentially determines the health of the business. It's very clear we are at 2.96% and 1.46%. We are very clear that we will do whatever is needed to be done to bring the GNPA back to 1.7% to 1.8% and NNPA to 0.7%, 0.8%, either by flowing through the P&L, accelerate or portfolio improves. It's only one of the events that's going to happen. But we are quite clear that, to us, the long-term guidance range for gross NPA, net NPA remains 1.7% to 1.8% and net NPA at 0.7%, 0.8%. Based on that, at this point in time, our assessment is the overall credit cost for the year will be been INR 4,200 crores to INR 4,300 crores for us to be in the corridor of GNPA corridor of 1.7% to 1.8%, and NNPA corridor of 0.7% to 0.8%. This is something that we don't want to tolerate flipping in any given manner. As a result of these events, the consolidated profit, I already talked about. Capital adequacy, of course, growth was 15%. AUM growth was only 15%, so capital adequacy remained strong at 28.5%. Tier 1 crossed 25% mark. So we are very well positioned from -- as COVID eases, as growth stands comes back, we are reasonably well positioned from a capital standpoint. BHFL AUM grew by 24%. Capital adequacy of BHFL also remains very strong. BHFL post-tax profit grew 75% actually from INR 92 crores to INR 161 crores. BFSL has now started to warm up to retail clients, added -- has 95,000 customers, acquired 52,500 customers. It's running a run rate now of 40,000 to 50,000 customers in a month. We do foresee that sometime between September and October, we will start to run -- have a run rate of 75,000 to 90,000 customers in a month. Over to the next panel. Today, we talked about on business transformation very quickly, that at the AGM, we shared the home page and how our consumer app will fundamentally look. It's also uploaded on the Investors section of our website. Please do have a look at it as to how we imagine we will look for customers as we start to roll out in October the entire new digital platform. I've talked about Point #2 as well. In the AGM, it's a reasonably large ecosystem of over 2,000-plus screens across all businesses and service modules, 7,000-plus content pages. It's reasonably large work that we've been at for the last 8, 9 months and hoping that we can pleasantly surprise consumers as we launch this. As I said, Phase 1, to various investors I have said that as we launch this in Phase I, there will be a Phase II. Phase II being defined as that we perfect it. We have a long list of things that we want to do. So I would say between October and -- or mid-October to March is when we think we will have a -- we'll get to a degree of satisfaction, which gives us satisfaction to the work that the team has been at. The wallet business. We got the PPI license from RBI. We launched the business 1st of July. So far, we've onboarded 320,000 customers. We are reasonably on track to originate 5 million customers for our wallet business in FY '22, given the run rate that we have at this point in time and the adoption that we see. Of course, it will have phases. Customers will have to start to use their debit functionality. Clearly, a team has been created to run and drive that business. But step 1 is to onboard our customers to start to activate clients. With an intention to -- as we move to -- as we deliver the entire digital platform. We were super clear even last year that the second phase of that would mean significantly enhanced presence or control over the payments business. Because as you see the home page, after our products, the next component fundamentally that is of payment. So to us, it is very clear that it's very, very strategic in nature. But it is also very clear to us that is very hard to make money in the business, so it has to be done from an engagement standpoint and from a retention standpoint of clients on the platform. So it's needed, doesn't make money, but needed to engage clients. Having taken the strategic call, we do not want to do -- make partial effort. We've taken the Board approval now. So we have so far -- PPI license gave us issuance. We'll now want to get into acquiring. There are 3, 4 different modes of acquiring. We expect to see ourselves being present across all the 3, 4 modes of acquiring. We are now beginning to -- based on post approval, we will build out the teams to build out this business. So there are 2 licenses that we'll apply for, which is a Payment Aggregator license. We've taken the Board approval today and BBPOU license. BFSL launched its app on 31st of May. Let me now jump quickly to Panel #43, which provides some texture and detail on the provisioning coverage and the gross NPA, net NPA by lines of businesses. Fundamentally, as you can see, at an overall bottom block, you see that the GNPA on 31st December at quarter -- ending quarter 3 was 2.86%. It dropped to 1.79% and has inched back to 2.96%. Net NPA was 122 basis points as it went down to 75 basis points and has inched back to 146 basis points. So to that extent, COVID has taught us that these things can be volatile, they can oscillate. We don't like it, but that's the nature of where we are in pandemic. If you see what I was saying to you that if you see the auto finance business, that is really where the -- if you see December to June comparison. And between December and March, at the design level, you will remember that we landed up taking only INR 1,250 crores of incremental provisions in Q4. So it's not like we took between December and March very high provisions, in fact provisions reduced to INR 1,230 crores of provision between Q3 ending quarter and Q4 ending quarter. But as you can see here, the gross NPA of the AF business is really where the movement is, from 11.5% it went to 19%. But sales finance business went down from 1.91% to 1%; 3.34% in consumer B2C to 2.84%, 2% to 1.35%, 3.64% to 2.85%, 2.33% to 2.15% and 0.95% to 0.88%. So clearly, the -- when I was saying that the worst effective was auto finance business of ours, that's really what I was meaning. If you see the net NPA, you see very similar play there. From 6%, net NPA went to 12%. Sales finance 0.24% to 0.24%, 1.23% to 0.95%, 0.26% to 0.29%, 1.45% and 0.92%, 0.84% to 0.70% and 0.56% to 0.61%. So clearly, that's -- the mover of the portfolio metrics fundamentally in Q1 essentially came in from the auto part of the business for us. I'll just go on to my last slide. That's a little more busier than even this, but it will provide some more degree of texture to what the comparison that I did between December and June. You can see a lot of numbers here, but the numbers to focus on fundamentally is how you see OTR has moved, which is column #3 from INR 2,000 crores to INR 1,300 crores, from INR 6,000 crores to INR 6,000 crores, and from INR 4,200 crores to INR 4,700 crores in terms of Stage 2 assets. In terms of provisioning, it's very similar, except for one thing to remember, is that, here, while the gross NPA and net NPA moved, it's also important to remember that it's a repossessable asset. It's an asset that can be repossessed. And we do believe that the -- that if there is no continued lockdowns or things were to continue the way they are, we should be able to bring control to the portfolio in the next 3 to 4 months down – months' time. That's really all from me. We have provided all the details that are necessary for -- from an analysis standpoint. And we can head to Q&A.

Rutuja, go head.

[Operator Instructions] The first question is from the line of [ Mahrukh Adajania ] from Elara.

My first question is on NPLs. So obviously, COVID has impacted auto loan collections. But why is it that your NPLs on auto is secured. So why is that your NPL on secured is so much higher than on the unsecured segment? So that's my first question. And my second is that what is the proportion of flexi loans, if at all there is one? What was the total conversions in FY '21? And also in terms of unsecured loans, are flexi loans or unsecured loans, or there's a secured portion to the flexi loans as well? That's my second question, and then I have one more.

Go ahead. Go ahead with your third question.

My third question is on your cards. So basically, what is the status of your retail EMI card and Health EMI card? And also if you could give the NPL movement in terms of slippages for the quarter?

So you have to -- so let's start with the first one. See, look, very clearly, even in AF, or auto finance as we call it, if you look at the numbers, the biggest stress there actually is not even that portfolio because we didn't want to keep breaking portfolios and providing data. At a fundamental level, the 3-wheeler business there, which is 30% of the business is more severely impacted. The reason one did not see the pressure of it last year was essentially because we were in moratorium. So out of INR 11,500 crores book that you actually -- that we have, INR 4,000-odd crores, INR 11,347 crores book that we have, close to INR 4,000 crores is 3-wheeler business. That was far more impacted. So that's one part. Two, we do deal, you have to realize, and we have said that many times that, that's the only business where we fundamentally deal with mass customer. They were far more impacted or they are far more impacted, even in Wave 1 they were impacted, if you see the number of the same panel full year for last year, you will see there's a proportion of balance sheet to proportion of loan loss was significantly higher. So it played out last time as well, and it's playing out this time. On flexi loan, I thought you will not ask me this question. Given the data that I gave you, if you go to Panel 43 again, that flexi loans were converted in consumer B2C. Flexi loans were -- we do it as a business in SME. We do it as a business in mortgages. So if the numbers are telling you anything, we are now 1 year into it. I think this debate should be settled by now. And probably, I'll answer it for 1 last time today because I've been polite in making the point, but probably today is the last time I'm responding to a direct question on flexi. Let me add a point just before anybody else as to ask, did we do any flexi loans in the current quarter? The answer is no. So then we put it to -- that's once and for all. To point -- to question #3, on EMI card, we continue to acquire EMI cards. We acquired -- that's also there in the deck. That's on Panel 40. Overall, EMI cards is at 24 million, that is on Panel 40 that you will see -- sorry, yes. It was at 21.5 million in last year same time. It's at 24 million in as of 30th June. That's the third business. That's the third point. Retail EMI card spend business, we have capped that business at 50,000 accounts a month. At this point in time, we are transforming the business. The ticket size in that business used to be INR 9,000, INR 10,000 per account. We became very clear post COVID that unless and until it's INR 14,000, INR 15,000 per ticket, there is no economic frame. So that's something that we are -- as a result, it meant categories changes and so on and so forth. So we're doing it. But it used to 150,000 accounts a month. We are now -- we have capped that business at 50,000 accounts and we are continuing with the business and with a higher ticket size, and it's profitable to that extent. We can move to the next question.

The next question is from the line of Kunal Shah from ICICI Securities.

Firstly, 2 data points. In terms of the write-offs, how much it would have been? And post that there is this kind of NPA so -- and would decrease in provisioning coverage from 58% to 51%, would that be largely on account of -- and maybe when we look at it the write-offs in the period now.

You should -- write-off was given...

So Kunal, the write-off is approximately INR 950 crores for the quarter. Balance is the addition in the provision that you will see in the statement as well. To the other question in terms of movement of numbers in terms of GNPA, et cetera, it is largely concentrated around the auto finance business vertical.

Sure. Yes. That's fair. And in terms of restructuring, so you said like it's either moving into Stage 2 or Stage 3 and that's the reason it's coming off. But broadly, maybe under OTR 2 also there would have been requests. So is it implemented or maybe this is OTR 1, which has come off and we are yet to implement the requests which are there under OTR 2 and there could be more restructuring additions?

The request for OTR 2 has been very little so far. We have not seen a lot of customers coming and seeking OTR 2 unlike what we have seen in OTR 1. To your previous question, you were also asking about...

It's also reflecting just to add to what Sandeep is saying, it's also reflecting in default rates or bounce rates. If that was high, you would see high OTR requests. That number has actually gone down. So just to correlate the point. Sorry.

And to your previous question on the provisioning coverage ratio, it's going down marginally versus where we were in, let's say, December and March. That's mainly on account of customers moving from Stage 2 to Stage 3 and being in early delinquency in Phase 3 rather than going into delinquency.

Okay. And in terms of wallet, you too said like maybe it doesn't make money, but any kind of a burn that would happen or maybe the kind of cost we are planning to incur given that we are looking at onboarding almost like 5 million odd customers. So finally, how much could be the cost? Definitely there would be an engagement plan as well to ensure or maybe retention of the customers. But would we be burning money and it could really impact it, if possible, to maybe highlight that?

No, it's a fair question. Do we foresee that based on customer segmentation, it could go all the way to dropping INR 150 into per client account is possible. But the large part of the frame is actually built on our entire voucher management infrastructure that we've created, which generates offers from our retail ecosystem, which is what is going to drive that on second usage he will get money dropped into wallet. So there are various promotion frames. On an aggregate, however, you should assume that we will end up spending, investing anywhere between INR 75 to INR 100 per client in warming them up to a wallet account. So -- and that's planned for.

Okay. And when we highlight in terms of OpEx to income ratio, that is broadly considered by getting into the number?

Because we also significantly foresee much higher velocity in the process. So the answer is yes.

Okay. Sure. And lastly, in terms of the rollout, so the last time, it was quite a detailed one in terms of -- within all the marketplaces how we are seeing this rollout. So many of them would have already got implemented. But maybe if you can further highlight in terms of what's happening out there in terms of the various marketplaces? And what is pending? And until October, what are we planning to implement in the Phase 1?

Yes. So eStore is now reasonably warmed up. Just to give you a texture, out of 4.6 million loans that we did 120,000 loans came from, between attribution and contribution, directly from eStore. In that, the June number was actually 60,000. We foresee that we will be doing 150,000-odd accounts by October, November. We are a lot more confident of its integration increasingly between the omnichannel frame. It's our first big test on omnichannel. That is a call received by the customer from our point-of-sale person in 15 minutes time, either by him or her or the retailers. So that's something that we are a lot more comfortable with and confident of, and we are beginning to see that reflect that in numbers. It's obviously hard, but I think we are a lot more confident that we will continue to deeply integrate the eStore ecosystem. Same thing will happen as on 31st of October, the insurance marketplace and the investment marketplace goes live. So clearly, the omnichannel frame is about integrating off-line-online, online-off-line and just keep tightening the screws between off-line to online to reduce friction for customers. It's hard, but we are clear that's the only way to play, and we are comfortable with it.

Okay. And Partner One app and Merchant type is also very much on track in terms of...

Yes. So Partner One app, we are now -- I mean so Merchant One app will be the one that will be the consumer app, which will go live between October and November. Anurag is looking at me, it is January, that's correct because that will go live in January. Our Phase 1 of Merchant app will go live in January. That will, in a way, further augment the retail EMI spends business. Our new avatar of retail EMI business to the earlier question is actually linked to a new merchant app ecosystem. So that will go live Phase 1 of that on -- in sometime in January is when it will go live. Partner One app, we are now aggregating the whole thing into one place. Anybody who wants to become a partner of the company will go through this single interface. We expect that to go live also between February and March. So in a way, we have lots on our plate and are hands full, but anyway COVID is creating more volatility in the business. Might as well spend our time getting business a lot more ready for the future.

The next question is from the line of Aditya Jain from Citi Group.

So in the presentation that you just mentioned of wallet business, about INR 320,000 crores -- 320,000 customers added, I think the launch on 1st July is a pretty sizable number. So could you talk about how much of it is, let's say, completely fresh customers are and how much are coming from the existing customer base? And then related to this, the 5 million target for wallet, does that assume again some cross-sell from the existing customer base? And is that cross-sell assumed sizable and how much of it is fresh customers?

So one, it's all existing. But 2, they have to open the account. So they are fully KYC'd, so that reduces friction, that's level 1. Our focus is not on new customers. As the ecosystem develops, new may happen, but we don't need new customers. So -- but it is not automatic. Let me just make that point. We will land up doing, let's say, 1.6 million, 1.7 million customer run rate on any given month. But of that, as you can see, so far till 18th only 320,000 happened. They have to open the account. So there is one hop. So it's not automatic. There is an hop. He has to register -- Kurush, you want to -- he has to accept. Sorry.

So for us, because they are full KYC customer, we -- majority of our customers, the wallet is opened at the point of sale. So 70% is at point of sale and 30% is at home. And because the customers are full KYC, we are able to open a full KYC PPI wallet. It is a one extra hop in the app, where customer has to take the consent.

And based on various promotions that we earlier talked about, we may do voucher drop, we may do money drop and then he links his bank account and starts using.

Because as Rajeev said, the whole frame for payment for us is around the reward currency. Since we work with the 100,000 merchants, we work very closely in terms of the voucher management frame, which are co-opted in terms of the promotion. And that will be the core heft on the PPI for us.

Got it. On the sales finance, in both rural and urban, while the GS3 hasn't risen much, the GS2 increases in the quarter are fairly high. So one behavior there is fairly different from the personal loan side. So what is driving that? And then going forward, does that mean a different expectation here. So next quarter onwards, would GS3 be increasing in the sales finance side, in rural and urban?

Aditya, you are not clearly audible. We did not understood your question, please.

Can you just repeat, Aditya?

Sorry, my question was there's a GS2 increase in sales finance, both rural and urban is fairly high. Although the GS3 increase isn't high, but the GS2 increase on a percentage basis is fairly high. So does that mean that there is -- would you expect a reasonable amount of this to convert to GS3 in the next quarter? Or is there expectation that there should be more recoveries from this?

See, you meaning Stage 2, when you say GS2?

Yes, Stage 2.

So fundamentally, if you look at the Stage 2 -- look, the only -- the fundamental difference between sales finance business, which is both sales finance business, which is sales finance and rural sales finance and versus others is, it churns very, very rapidly. That's the only fundamental difference: churns very rapidly, flows very rapidly, washes very rapidly. I mean that's the only way. That's the only distinct difference between this business and the rest of the businesses. And that's all you should read from this and nothing else. I mean, it is all I would just say, Aditya. I don't know whether I'm responding to the question that you're asking. I'm not...

Maybe enough for now. But just last question for me, the restructuring, could you just give us, qualitatively, which segments the restructuring is more in within the different products?

On Panel 46, as you can see -- if you go to Panel 46, OTR is there for [indiscernible]. Majority is, as of today, sitting in mortgages, INR 700 crores and INR 400 crores in sales finance and very little in -- the numbers are right there.

The next question is from the line of Aakriti Kakkar from Goldman Sachs.

This is Rahul here. Rajeev, 2, 3 questions. Number 1, on the wallet side, clearly, I think you're revitalizing the use case of wallet by talking about the voucher management. But looking about 3 to 5 years out, eventually, what really would be the game plan of this? Because I understand -- and correct me if I'm wrong, but there are discount options that are available. You do cards also, co-branded cards, which can be useful for reward management, et cetera. And this wallet always existed. So is it a critical part of the strategy that over time we get into other lower ticket size items through wallet? That's question number one. Question number 2 is, on the payment side, how critical the payment piece is going to be for the success of this platform. And in payments, we already know there are various types of form factors, which are available for both customer-centric and merchant-centric. So which part of the ecosystem are we looking to target?

Yes, so fundamentally, Rahul, I'll answer the first part, Anup can cover the second part. The first part is meant for our existing customers. Number two, as I said earlier, the second component after our product offering is payments. We are seeing payment as a single checkout page will be following. EMI card, credit card, UPI, PPI, this is the -- and reward. This is the rewardless currency. This is the buy -- because Rewards will come in by January, February, but this is the single checkout page strategy that we're headed to at a fundamental level. That's how important integral and critical payments to us is. When we launched on 31st of October, you will see UPI, PPI, credit card and an EMI card. The fifth one, Rewards will come in sometime between January and February. So that's one part. We're also very clear that this is what will create stickiness and engagement. So as I said earlier, Rahul, this is a burn frame, that also we are clear about. It means burn. But when we look at various players in the market, the only thing that we found lacking was that people are doing more -- nobody is doing structured reward management work. Everybody is essentially doing -- when people want to acquire customers, they throw in money and they go away. 3 years ago, lots of millionaires in my office were all using Google, Paytm. Then they started using Google Pay, then they started using Phone Pay. People want to acquire customers, throw money, burn $0.5 billion and go away. We don't have a customer acquisition problem. We are generating -- we have 50 million customers. They are fully KYC'd. That's the second point I must make. Three, we continue to acquire 1.8 to 2 million customers in 3,000 cities in India. Engagement is really where our entire focus is. That is really why the digital acceleration stroke transformation as well, and in that, payment is critical. Why are we bringing it now? Because we had to first get the money making machine going, then we will get the engagement machine going. So you will see on, as we go live in October, these signature page across these 4. But -- so that's a strategic frame. Now let's talk about at a mechanics level and at how broad we are looking at playing the PAPG and the BBPOU. Anup can cover that in a moment.

At an overall level, as we bring our 3-in-1 asset life to consumer, what we are missing is the high-frequency transaction. So as Rajeev said, payment fills that gap for us. And second is, we don't have a challenge of consumer downloading the app. What we -- because our point of sale is where we get maximum of our customers. And as we get them in for the payment, they stay with the app because payment is a daily transaction. However, in terms of our EMI transaction, credit card transaction, loan transaction, all of that will be available in the app. Having said that, that's the PPI licenses where we believe we can originate a significant amount of our acquisition in terms of customers and payment. What you are now bringing because if you want to play the payment, you need to play the full stack payment which is what we have now taken approval on the acquiring side of the payment and also the Billpay OU license. These are the 2 licenses we are now going to apply to RBI because the other big plan for us is we are available in 3,000 cities. We have point-of-sale people on 3,000 cities where the real payment, the transformation will come because what we are seeing in our market by market is the adoption of digital as we go beyond the 120 market is dramatically very high. Our presence in 3,000 cities is going to cover that. And in a way, if you break this up into population, 2/3 of population is sitting beyond on the 120 cities. And I think that's where our key heft is. Having said that, the bigger city as well, we have a dominant market share in our counters. Consumer acquisition costs, we don't need to spend. We can get them downloaded at the point of sale. Payment ensures that the daily transaction happens and they remain sticky on the app. And the offline retailers need a solution to get the customer on the store and which is where they contribute along with us in the reward framework. So when you look at reward, as Bajaj Finance, we don't need to burn all the money ourselves. The 100,000 merchants are participating on an ongoing basis. And as we bring the asset, they get a sub-Wallet to spend as well.

So just to the last one, I think Anup has made extremely important point that outside of 100 cities, the distribution doesn't exist. The second important point that he has fundamentally made is on off-line retailer, look, in the last 3 years, there are lots of noise and competitive activity at point of sale. At a margin profile level, our margins profile improved rather than deteriorated. It was a very easy call for us to, let's say, we'll also burn money because we need this customer acquisition. We never let that happen. That's really our voucher management frame was born, being able to originate vouchers from merchants and making -- or making them participate in the frame.

And this would be a onetime cost is when the customer downloads the wallet and activates on it? Do we need to -- this would be a recurring feature to keep the customer active because, of course, the competitive landscape, as you rightly pointed out, still remains a fairly...?

It will be determined by customer NPV. Larger their customer NPV, we'll see, n is equal to 1 will determine that, quite honestly. So credit card rewards to the point Anup is making, we already burn at stores. If you have reward points on Bajaj Finserv, RBL credit card, you can burn them today at the point of sale. We've been doing that now over the last 1.5 years. So we'll keep ring fencing the customer around it through this frame is really what we are clear about rather than burning a hole through the P&L.

At a design level, PPI, UPI are small ticket transaction. As you go to larger, they are the credit card and the EMI card transaction. And Reward comes in for split and pay because down payment is adjusted to reward. And today, we run that burn for 100,000 merchant with our credit card rewards. So as we bring in all the 4 instruments of reward, that kitty of reward becomes far larger for the consumer.

Got it. Just a final follow-up on this. So would it mean that we'll also need to get into the off-line pause? Or that would be done via our tie-up with RBL?

It has become very -- we are very clear that we will do offline. As Anup says, 75 cities, nobody is there. It's a problem that needs to be solved for. And as Anup says, we are there. We are physically -- as I said in AGM, we lend, collect and deliver the last mile. So we have looked at all 3 form factors. We will now -- we are -- post approval, we'll build out teams. We're now doing this with a short-term view. We are doing this as a full-fledged business, warming up to issuance. Now we'll start to warm up to acquiring.

And also on the acquiring, as Rajeev said, you will have the QR-based acquiring, which is the all-in-one QR, with the all 4 instruments live on it. You'll have the point-of-sale QR, which is the physical machine, depending on the type of merchant. And you'll also have the online acquiring business, which are the high-velocity business. So as we are applying for it, we are applying for all. And since -- unlike the other players, we have point-of-sale people, they are in 3,000 markets, we will be able to bring that at a significantly lower cost.

And sorry, just remind me, when are we going live with this? Off-line, POS and all?

It will take time, Rahul. We have to first deliver 31st October the consumer app. As I said in January, we're launching Merchant app. With that, we will go live with the QR. So QR will go live along with the Merchant app. So that's one part. But again, I must just say that these are strategic frames. We'll start to peel them as we get into deeper and deeper into consumer financial services what we rolled out today, Rahul. So QR in January, along with Merchant app. And you will hear from us over time on the rest of the sales as we get license from RBI to go ahead.

Makes sense. Just one final question on asset quality, if I may squeeze in. So excluding AF, the performance is pretty solid as it appears. What would you attribute this to? Is it the reflection of better selection over the last 12 months or generally the market itself has now matured and the underbelly of 10%, 15% customers have been written-off in general across the system? What would you...?

Yes. So bounce rate fundamentally represents default. I am super clear about that. So in fact, you can ask me the counterquestion, then we should not say the loss will be this much. One could argue that. But in uncertain times, we don't want to guide wrong. And I want to deliver 1.8% gross NPA and 60, 70, 80 basis points net NPA. So we're keeping -- that, to me, is nonnegotiable. The formal trade represents -- the default rate, let me give you one texture. Even exiting moratorium in October, November, December last year, the bounce rate were running at 2.2x of post moratorium -- February, what it was to what it opened then -- what it remained in October, November, December. That is not so the case as you've just articulated in June and as we articulated in July as well. But I just want to make sure that we tied through July and August. If there is no disruption in July and August, it's possible that we are sitting in a better place.

But Rajeev, when we see the match data, it still appears to be around 30%. Pre-COVID, it was about 24%, 25%. Now I understand there are various nuances to this data, but that's what it appears to be for the whole system.

Now you have to just remember, Rahul, there are various aspects to this. And let me give you texture so that we're all clear because when we peel the onion for you, you guys -- even a Stage 3 customer is banked. Please remember. Okay? If I have written him off, I may write him off, but I'll keep banking or every bank will continue to bank him. Please remember this. I am -- I have an obligation or the banking system has an obligation to continue to bank. Current bucket bounce is really where the frame is. You were not in default last month, you are in default this month. That represents current bucket bounce rate. So you -- I mean, I can peel this for you in various ways you are looking at. And that represents many, many other aspects of SI and so on and so forth. We are giving you banking of 14 million customers. I think -- 15 million is a banking basis. Really, we are giving you at a -- I can't speak for rest.

[Operator Instructions] The next question is from the line of Kuntal Shah from Oaklane Capital.

Kuntal here. So 2 data points is that 1/5 of your auto-finance loan is now in GNPA. And at the same time, we are now -- you said bounce rates are stable and -- but provision coverage ratio has dropped from 65 to 51. So is it your assessment that many of these earning assets will come back online or can be repossessed and there is some recovery there that's why the provision coverage is kept low? Or how do we read this provision coverage also going down in view of the rising GNPA?

You have to read it in point number -- Kuntal, point number -- just one second. If you see the mix on Panel #7, NNPA was INR 2,307 crores versus INR 1,136 crores. 74% of this is now secured. So the mix has really moved. It is really how you should see. Earlier to the point that I made to Rahul, we do foresee that while auto finance has moved dramatically, the repossessibility as clients flow should lead to significant improvement, but I can't bet on it or bank on it. And that's why when the account flows, I have to provide for it.

I think that clarifies. My other question is on, our reliance on one bank for the credit card partnership and one service provider master card. Are you planning some second partnership?

We are going live with DBS sometime in end November, early December.

Okay. And my last question is on the friction between marketplace and the OEM products, which both of us will go concurrently. If I buy an asset on aggregator marketplace, but I want to then subsequently borrow from Bajaj Finance. All those kind of interoperability issues will come in and would there be a friction. How do you capture the transaction between the 2 marketplaces or your marketplace and the Bajaj Finserv marketplace?

So look -- no, no, there is no 2. There's only one, number one. If you are our customer, you will see -- you will use your EMI card, create a loan and walk home. Number one. Two, we are bringing a whole host of partnerships onto that platform. So let's say, Samsung is going straight in a way using EMI card, Samsung now is going straight to the consumer. So in a way, for Samsung and LGs who have the SKU infrastructure, inventory management infrastructure, we are working with all manufacturers now closely to go direct. In fact, one of the outcomes out of this has also been that, that it's helping manufacturers go direct. So there are no -- and they use essentially EMI card or credit card to do the transaction. That's really how the conclusion of a transaction, Kuntal, is.

No, so what I meant is suppose if I buy an asset on the aggregator platform through some third party, but want to then borrow from Bajaj, how it will work?

No, no, we have to stitch. That's the whole point. That retail EMI card -- that's the reason I gave you the math -- sorry, sorry, Anup was trying to make a point. As we stitch our -- the way it happens today on Amazon and Flipkart, that let's say, 200,000 customers or 250,000 customers in a month use EMI card on Amazon and Flipkart as a payment instrument as we stitch more and more of such partnerships, more and more EMI cards can be -- then be used for the same. So we're doing that with e-commerce. We're doing that with MakeMyTrip. We're doing that with the whole host of travel, EaseMyTrip and so on and so forth. We just keep on professional courses. So wherever we have bilateral relationships, it's used as a -- EMI card is used as an instrument to create a loan.

If it is an aggregator, then our product gets in as an instrument. When it comes to our eStore, the retailers are also brought in by us and the instrument is also available for you. So we work both offers and on ourselves.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Anuj Singla for closing comments.

Yes. Thanks, Rutuja. Thank you very much to the management of Bajaj Finance and Rajeev for giving us the opportunity to host you. That concludes the call for today. Thanks, everyone, for joining, and have a good day.

Thank you, Anuj. Thank you, all. Thank you.

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