Can Fin Homes Limited (511196) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Can Fin Homes Limited Q2 FY '21 Earnings Conference Call hosted by Investec Capital Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Utsav Gogirwar from Investec Capital Services. Thank you, and over to you, sir.

Thank you, Raymond. Good afternoon, everyone. Welcome to the quarter 2 FY'21 earnings conference call of Can Fin Homes Limited. To discuss the financial performance of Can Fin Homes and to address your queries, we have with us today Mr. Girish Kousgi, MD and CEO of Can Fin Homes; Mr. Shreekant Bhandiwad, Deputy Managing Director; Mr. Prashanth Joishy, CFO; and Ms. Shamila, Business Head. I would now like to hand over the call to Mr. Girish Kousgi for the opening comments. Over to you, sir.

Good afternoon to all the investors, and thank you for coming on this call. As slightly changed the format this time, because every time we find that there is not enough time to handle all the questions, so I just thought you would have gone through the financials. So I would straightway start with how Q2 was in terms of our business, NPA strategy, and what is the outlook in terms of business, NPA. And any specific questions on financials, we can take it up in the Q&A session. So I'll keep the format that way, so that we will have more time for Q&A session. So Q2 was basically very good for us. I say it was very good for us because we were quite high on liquidity as usual because we thought that this is the time that we should be excess on liquidity because excess on liquidity would help us to borrow out fine cost and, therefore, we'll be able to onboard more number of customers since the price is going to be competitive. So we were quite high on liquidity. Our 4 DNA parameters are liquidity, growth, asset quality, so we actually focused on that. In terms of business, Q2 was better than Q1, obviously, because in Q1, we lost almost about 65% of the entire time. We did business only for 5 weeks out of 12 weeks. And therefore, we were able to do about a little over INR 400 crores. In Q2, we did INR 825 crores, which is a little over double than what we did in Q1. In terms of demand, demand is slowly coming back, which we have seen in Q2. Q2 being significantly higher than Q1. If you compare on a Y-o-Y basis, definitely there is a degrowth to the extent of 38%. And currently, we are at about 60 -- now we are at -- September, we were at about 70% of our peak level. Otherwise, we were -- every month, this number was increasing, and now we are at about 70% of peak level. On moratorium, initially, we said both Part 1 and Part 2. Once the time had matured, we were at about 29% of the book worth under moratorium. So now moratorium is now over. Now September was the first full month where all the customers had to pay whether the customer had opted for moratorium or not. So in the month of September, our collection is 93%, which is actually better than pre-COVID months. So in terms of collections, it's a very good sign. It may be just 1 month, but that 1 month is very critical since customers who had availed moratorium, they had not paid for either 3 months or 6 months, depending on what they had chosen. And suddenly coming back and paying in September is something which really is very, very critical from company's point of view. And therefore, we feel that now the moratorium story has actually played out in terms of risk. We still have to manage that. We have to see for at least 2 more months, that is October and November. But even in October, we've seen at least about 70% of the customers' EMIs were due, and we have status of that. So we feel that now moratorium has actually played out. And going forward, I think we need to manage a set of customers, who were not able to pay in September and actually require some kind of restructuring because their business is not up to the mark or it has not started or maybe in terms of salaried, jobs loss cases. So our focus is going to be on that. In Q2, largely our focus was on asset quality, trying to get customers understand, know the entire moratorium process and its impact and getting the awareness amongst the customers to start paying from September. I think it looks like in hindsight that I think it was a good effort and it has yielded results since our collection percentage has actually increased. Just to give you an industry comparison, pre-COVID and post-COVID, increase in bounce rate at least companies which are focusing a blend of HL and non-HL, non-HL being equal to or less than 30%, the bounce rate increased by about 70% to 80% is what I get to understand. As far as the bounce -- increase in bounce rate was just about 20%. So -- and this is on a very low base, because our bounce rate was -- is lowest in the industry, and on that 20% increase also would be obviously hardly anything. So I think that it talks about how good the portfolio is and how good the portfolio is built over a period of time. So this is what happened in Q2 in terms of managing the customers, managing moratorium and also managing collection. In terms of business, we are now operative in all the locations where we are present, but demand is not completely back. It will take another 2 quarters. In Q4, we may reach to a level of about 85% of peak level. To reach 100% it may take another quarter or so. So Q1 of next year is when probably we can see that will be back to pre-COVID levels. Now in terms of -- since our collection was very good, the team has really put in great efforts. Our NPA has actually come down this quarter to 0.72%, which was 0.75% last quarter. And even if I have to assume deemed NPA, because of Supreme Court direction, there was no NPA tagging and, therefore, even though the DPD moves we have not tagged, so even if I take that pool into account, our NPA would have been 6 bps higher, that is 0.78%, instead of 0.72%. And one more clarification I would like to give is that, in the SEBI format, we have mentioned opening balance was INR 1,444 crore. This is the opening balance. And that balance as of September is -- this is basically customers who availed moratorium Part 1 and 2 or any combination, some would have chosen only one, some only 2 and some both, the outstanding of such accounts, the balance, we have mentioned that is INR 670 crores. So basically, this is the pool or set of customers where we have extended asset classification benefit. Now this has got nothing to do with the provisioning what we have done or the NPA numbers -- deemed NPA of INR 12.45 crores. Now we have provided INR 86 crores towards COVID in terms of provisioning. So Q4, we provided INR 36 crores; then Q1, we provided another INR 36 crores; and this quarter, we have provided INR 13 crores general provisioning that is towards COVID only. So overall, it's about INR 86 crore. So we are holding enough -- and this is apart from provisioning for NPA, which is about INR 55 crores. This apart, we are holding INR 74 crores for standard assets. So totally, it's INR 214 crore. So this INR 86 crores is more than sufficient for us to absorb any shock, if any, with respect to NPA in next 2 or 3 quarters. Our strategy in terms of profile mix is going to be the same. So because of COVID, we have seen a slight dip in the profile mix. Salaried proportion has gone up and self-employed has come down, so we're trying to get back that to the right mix, but it may not happen immediately because there is an inherent risk if we maintain the same profile mix and, therefore, maybe in the next 2 to 3 quarters' time, it may come back to the same profile mix of 70% salaried and 30% SENP. As of now, SENP has come down and salaried has gone up. It is more because SENP has come down, salaried looks high, it's not that salaried has gone up, because we are at about 70% of peak level. And therefore, there is a slight change in that. In terms of product mix, there is no change since our non-home was very small portion. So that has not really undergone too much of change. But for this, we are pretty comfortable in all other strategy whatever we stated in the last couple of quarters, our focus is on affordable housing. In terms of branch expansion, every year, we plan to open about 15-odd branches. In last 2 quarters, we were not able to open because of COVID since there was a mobility constraint. In terms of all the key ratios, today, NIM incremental, we are at about -- NIM is 4.09%. Now this is -- there have been many questions even on media. 4.09% is not sustainable. We will be happy for a company of our size, given the kind of business we are into, a NIM upwards of 3%, we will be comfortable. So 4.09% is an aberration. It may not -- eventually, it will come down and settle at about 3%. It may take some time, but 4.09% or 3.8% to 3.5% is not sustainable in the long run. Spread also, we are at 2.83 -- 2.86%. Spread will be around 2.4%, and NIM will be around 3% in the long run. In terms of liquidity, we are very well covered. As I told you, it was a strategy to be excess on liquidity. Today, as we speak, we are -- we have approved, but not utilized, limit close to about INR 5,000 crores. And we have another INR 2,500-odd crores in the pipeline. So we are very well covered for next 1 year on liquidity. So we tried to reduce our costs in the last quarter, so we engaged with all the bankers, we tried to bring down the rates, and therefore, you will see our margins improving. Last few quarters, there was a trend of falling interest rates. But going forward, I'm not very sure how long this will go on, because from current level, drop in interest rates will be marginal. And therefore, there will be contraction in margins, which is why I said the current NIM and spread is not sustainable. In terms of all the growth parameters, I think, you would have seen there. So I would now open up the forum for Q&A, so that we'll have more time to address all the questions.

[Operator Instructions] The first question is from the line of Ashutosh Garud from Ocean Dial Asset Management.

Congratulations on a great set of numbers. A couple of things. If you throw some light on; a, first is competitive intensity. I mean, how is the competitive intensity in the given scenario where maybe you suggested that the demand outlook is yet to come back to its pre-COVID level. So if you can share some aspects on the competitive intensity, what kind of preferment happened and any transfers, which maybe some competitors got intense in the given scenario? And also on the demand outlook, if you can share your thoughts on how long it will take to come back to normal and how -- because given the interest rate scenario, I mean, there is a heat for high demand on affordable segment. These two aspects if you can add a note.

Sure. So what happened is during COVID time in last 2 quarters, since the demand in the market was quite low, so there was a lot of -- there was heightened activity in BT. So there a lot of BTs which are happening. So it is a game that every company has to manage between BT in and BT out. So we also saw BT out increasing. So quickly, we had put up a team in place. We have a very strong retention team now. So -- and also, we passed on the interest rate benefit to all the customers, so that the current -- existing rate for the customer would be competitive enough for us to retain such customers. So competition has increased. I think this pressure will be there for at least next 2 quarters because a lot of private banks and PSU banks, because their cost structure is different, they would be in a better position to offer competitive rates to HFC customers. But having said that, we are somewhere in the mid part. On one side, we have a lot of HFCs from whom we can take over looking at the customer profile and the repayment history; at the same time, on the other side, we have a stead of institutions, including banks, who take over loans from us. So it's a balancing game. Only thing is there was a slight change in the mix in this BT component, because overall, the demand was down, now demand is back. If you compare the demand in May, June and now, which is September, October, I think there is a significant change. I think over a period of time, this heightened activity in BT also would come down. It is coming down now. It will come down in future as well. So it's a very temporary thing. And all the HFCs had to manage this, we also managed that. The impact of this is that our asset growth would have been in the range of 14.5% to 15%, whereas now it is 10%. So I think it will be in the range 10% to 11% for the next couple of quarters. And then from Q1 of next year, I think everything will be back to normal. This is on the competition. And also just adding to what I said earlier, since our cost is very less, we are in a better position to offer competitive rates to the customer. So we are able to onboard customers, because of our pricing, more than before. Even though it is COVID, we are able to offer competitive rates and we're able to get more customers onboard. However, we are still at 70% of peak level. Now in terms of demand outlook, in Q4, we will reach about 85% of peak. Still there will be a gap of 15%, which I think -- and this is largely because of the builders' case. Because builders, they are really under stress. So they will take some more time to come up with new projects, they will take some more time to complete all ongoing projects. And therefore, it will take some more -- maybe Q1 of next year or Q2 of next year, that is when we expect in the affordable space 100% of demand to come back considering the mix what we have. Our mix is 25% builder, 75% non-builder. So this is true for Can Fin, may not be true for other companies, who are in affordable space as well because our mix is different. We are in affordable, our builder is only 25%. And therefore, this is true for Can Fin. For others, maybe a quarter here and there, there could be a difference. So 2 to 3 quarters, we should be back to about 100% level.

Right. And sir, just to understand from a medium-term perspective, would that mean from a HFC competitive scenario, you would stand to gain because of the current situation and -- since 2018, we have seen some kind of competition at least within HFCs receding. So would -- from a medium to long-term perspective, would that scenario be in your favor once the temporary competitive aspect of the bank play out?

We actually gained more from till pre-COVID, that is till March, we really gained because in last 2, 2.5 years, lots of HFCs, they are either slowed down, some were closed as well, because of IL&FS and Dewan. And therefore, it was advantageous for companies like Can Fin. So we actually got the benefit. And therefore, you will see that we accelerated our growth in Q3 and Q4, not just on booked, but even on disbursements. But unfortunately, COVID happened and there obviously it impacted the entire market. So in spite of COVID, we were able to manage it better: one, because the team had put in a lot of efforts; two, because a lot of -- number of players in the market have come down. So that also helped. It helped us more till March. It was a little helpful during COVID period. And I think maybe starting from this quarter, I think we will again get back to those levels where the gain for us is going to be little more than what it was because of number of players coming down. So it actually helped, because we have liquidity, we have -- our business model is quite good. We are present in small towns, where the demand is there and competition is less. We are able to reach out to customer faster than others. So that -- definitely, the benefit is there, but we saw a little less of that benefit during COVID time, the last 2 quarters.

The next question is from the line of Anirvan Sarkar from Principal Asset Management.

Congrats on a great set of numbers. So just for my understanding, the table that you have published, I just want to understand what this means. So it means that you are saying that as of March 31, 2020, the amount where asset classification benefit has been expensed is roughly INR 210 crores. So does this mean that INR 210 crore of assets would have slipped if not for the standstill benefit as of March 31? And this amount has increased to INR 660 crore as of September. Is that the right understanding?

So I'll try and explain. So INR 210 crores was SMA-2 in March. If there was no moratorium and if all these customers had not paid, INR 210 crores would have become NPA.

So they were SMA-2 as of 29th February or as of March 31?

March 1.

As of March 1. Okay. Sure.

March 1. So for example -- 1st March, we had SMA of about INR 210 crores.

Got it, got it.

Okay. So if these customers had not paid, they would have become NPA. And this INR 210 crores is no different than February or January or December or whatever. The only thing is we had to provide 10% on set of cases where we are extending asset classification benefit. Since moratorium started in the month of March, and for Q4, March was the last month in that quarter, and if all this INR 210 crores set of customers, they opted for moratorium, which means we have extended the benefit of asset clarification and, therefore, 10% of INR 210 crores, INR 21 crore we provided. This is for Q4. Now then, as of September, we had to be declare to set of customers where we have offered moratorium and asset classification benefit. So when we say asset classification benefit, the entire SMA-0, SMA-1 and SMA-2, all these set of customers, which is INR 1,444 crore, you can see that opening number, correct? Now this -- all these customers, they opted for moratorium. So SMA-0 in the month of April, if they don't pay 3 installments, then they will move to the fourth bucket and 90 plus, that is NPA. That means the entire delinquent pool, SMA-0, SMA-1 and SMA-2, since they have not paid, which is true for every single company, I guess, so that would have become NPA. And therefore, by offering moratorium, we have extended asset classification benefit.

Got it. Very clear.

Okay. So that number, as of September, is INR 670 crores. I will give you an example. For example, let us say, SMA-1 customer, he would have paid 1 EMI. Unless, the SMA accounts become regular -- if they become regular, it will not reflect here. Even if there is INR 1 in 1 DPD, that will appear here, which means that INR 1,444 crores, customers who opted for moratorium, some have chosen Part 1, some have chosen Part 2, some have chosen Part 1 and Part 2, some have chosen, but still they have paid half the EMI, some have chosen, they would have paid a little bit of amount for 3 months, right? So the outstanding of INR 1,444 crores has come down to INR 670 crores. So what happened to INR 1,440 opening balance of SMA? This is the entire pool of SMA and The INR 670 crores is the number of all customers who opted for moratorium and that is the balance as of 30th September. So this has got nothing to do with NPA or provisions. This is the disclosure which RBI wanted all the banks and HFCs to disclose and, therefore, we have disclosed.

Got it. So INR 661 crore roughly is the amount that has come from overdue as of 30th of September and who were taking moratorium?

It can be in any bucket today. Today, it can be in any bucket. It can be in SMA-0, it can be in SMA-1, any bucket.

Got it. Got it. So the other thing is that because our provisions made has actually took kind of stationary between 2Q and 1Q, it was INR 728 crores. So have we considered making some additional provisions from this pool because I understand not all of this will slip, but as of now, on this INR 660 crore, we have something like 11% coverage. So does it make sense to provide some more on this? Or how are we looking at this pool?

So today, for example -- today, our NPA is INR 150 crores. If we take that INR 200 crores -- INR 210 crore, which was in March, as of September, it was INR 12.54 crore. So that is deemed NPA, we have not tagged because of Supreme Court direction, otherwise our NPA would have been INR 150 crores plus INR 12.5 crores, that is INR 162.5 crore. That means it 0.78%. Now our NPA itself, including deemed, is INR 162.5 crores, and we have provided INR 86 crores towards COVID, which means we have a buffer of our NPA increasing by more than INR 500 crores, which is next to impossible. I'm just giving a number. So we are holding enough and more provisions towards COVID because we have a comfort that we will have the right to write-back in the -- in Q4. We are holding more than enough, INR 86 crores is more than enough. And the outlook on NPA also I have said before, for the benefit of all the investors, I will once again state. Our NPAs next quarter and next to next quarter will go up. Q3 it will go up, Q4 it will go up. So in next 4 quarters or so, we will be able to bring back NPA to the current level. So we don't expect our NPAs to rise back to the levels -- NPAs will go up, but it will not go back to that extent that we need to bother about provisioning because we are holding enough and more provision towards any future NPA because of COVID.

Got it, got it, sir. Very helpful. The second question that I have is that some interaction, sir, actually say that home loan demand has come back in a big way, the commentary from banks, the commentary from DSA, so retail home loan demand is back in a big way to this in the -- towards the end of September, at least the bigger banks where kind of full with their queries and could not handle anymore. That was the feedback given. So what is our experience in the sense that I know you have commented on demand already, but are we holding back to some extent choosing to go cautious? Or are we taking a calibrated step? How are we looking at this? What is our approach? Because demand seems to be there in the market.

Yes, yes. Fortunately, our mix is 70% salaried -- at a portfolio level, 70% salaried and 30% self-employed. So we have slightly tightened the policy for self-employed because I think we thought was wise to do, maybe we will stay with that policy for another quarter or two. So otherwise, in terms of business, we are pretty aggressive, and we are present in all the markets where demand has come back, and we are pretty aggressive on our numbers. Now this is on one side. So just to answer your question, we are pretty aggressive, and we are open to do more business because we -- one of our DNA is growth, and we want to keep that at the high. But however, having said that, we are little cautious on self-employed. And rightly so at least for the next 2, 3 quarters, we should see a little careful on self-employed, that we are. Now what will happen is maybe in next few quarters, all this will come back. Our mix of 70/30 also, we'll start seeing in next 3 to 4 quarters. So it's only a question of time that we are little -- slightly conservative on SENP, but very aggressive on salaried. Since our mix is favorable -- is favoring salaried, we don't see any impact on that. Also, it's also the time that every single company should focus on asset quality because getting back business is just one quarter. One quarter if there is enough focus on business, we can get business back. But getting book into shape is a 3 years story. So our focus is slightly more on managing our asset quality, and we are very clearly focused on collections a little more than required vis-à-vis compared to business. Having said that, there is -- we are not ignoring any business. Since the demand is low, there is enough bandwidth available, which we are utilizing for collection, which is why you will see our collection at 93% in September, which is better than even pre-COVID levels. If I compare with January or February, September collection percentage is excellent in spite of 20% spike in bounce rate. And this bounce rate is purely because of COVID, and 20% is -- what I understand is the least in the industry. So we are very, very open for business, but it is very easy to get back business once demand is back. It's extremely difficult to get book in shape. And therefore, there is a constant effort in terms of managing books.

The next question is from the line of Rahul Nair from SBI Mutual Fund.

So this is collection efficiency figure of 93%, does this include the previous month outstandings as well or just the September billing?

No, I'm only talk -- see because -- see, what happened, let us say, we had a set of customers. Out of that, we have 2 pools, one who opted for moratorium and one who didn't opt for moratorium. So set of customers who had not taken moratorium, anyway they were paying for 6 months, so they will continue paying in September also. So that is not the worry. So the worry is on set of customers, who had opted for moratorium, which would have a combination of delinquent and regular in terms of profile, salaries and SENP. So that pool is a concern, correct? Now I am only talking about what is the demand, which was raised in September and how much you have collected? That is 93%. So our collection is 93%. And to answer what is the collection out of which the moratorium pool, that INR 1,444 crores and INR 660 crores, I think that is the answer for that, which means lot of customers who opted for moratorium, still, we have gone ahead and made some collections in delinquent accounts because the due pertains to prior to COVID period.

Right. And as a percentage of your AUM, what proportion is the customers who have paid nothing, zero installments?

So this number keeps changing. So I mentioned in last interaction, 14% of customers. 14% of customers, they had opted for both moratoriums, Part 1 and Part 2. No, but that is history, that is history, that is history, because they all paid in September. So the collection is 93%. That is -- moratorium is now over. I think that has played out very well for us. So September, my collection is 93%. So once I look at September collections, so that 14% who had part paid, 14% who have not paid anything, all that is now which happened -- even which happened prior to September. So September, 93% and October, we have very encouraging trends. So now we feel that I think moratorium is now cleared very well, and we need to probably focus on restructuring for customers who are in stress.

Okay. And for restructuring, what is your preliminary estimate?

It's too early actually. Restructuring, we will take it up as and when it comes. So we have a very -- we have a feedback mechanism where the brands engage with customer and give feed to collections team, which is based in central office. And then we take it up case by case depending on the stress level at the customer level and then based on the policy approved by the Board, as per RBI direction, so we will restructure. But this will be on a case to case basis. If customer is in stress, we will restructure. This feed will come from the branch, it will come to collections as a feedback to credit team and credit team will apprise and restructure the loan.

So till date has any customer approached us how...

So far, not anything. When I say so far, till date.

The next question is from the line of Antariksha Banerjee from ICICI Prudential Asset Management.

Can you hear me?

We can hear you.

Sir, 2 questions. First is on sanctions. So for the quarter, I note the number, it's available on the -- I mean, you've given the numbers of new approvals. But if I compare September versus September, particularly, how much would it have reached compared to last year, the exit number?

See Q2 -- compared to last year Q2, we were down 38% on disbursement. Sanctions, we have not seen but it will be in that range only because what really matters is disbursement because there are a lot of cases which we sanctioned, but we're not able to disburse. And unless they're disbursed, company is not earning interest. I will just check the percentage for you.

Yes. So I think for the quarter numbers I have, but -- so correct me if I'm wrong, that trend must have been upward only, right, from July, August to September. So the September number will be closer to last year levels than probably for the whole quarter average. Is that right?

No, no, that's what I mentioned. So when I told 70%, it is not 70% YTD. It is 70% in the month of September. So when I say demand is back for around 70%, that is incrementally because if I see probably May, we would have done some 40% of what it is in previous May. If you look at Q2 of the -- so 70% is not YTD, it is only for the month of September, that means there is a short term -- there is a degrowth both in disbursement and sanctions even if I compare with last year's September.

Got it. Got it. So I'm sorry if I missed some of your opening remarks, so you expect this to go back to the normal run rate by when?

In Q4, by -- it will go up to 85% and in Q1 100%.

Sure. Okay. And do you see any geographic driver -- I mean, difference in the terms of demand because the anecdotal evidence we get is Bombay demand has recently been very good because of the government policy. Is there any geographical dispersion you see in your portfolio?

Not in many cities because cities way which are predominantly dependent on developers, only there we see demand is quite less. For example, Bombay, it is a bit less compared to what other cities. So all other cities because we have blend of both independent houses as well as apartments, Bombay is the only city probably where 99% or maybe 100% is apartments -- since the builder market has to still evolve after COVID, so there there's slight delay. But however, our share from Mumbai per se is not that big.

Sure, sir. The next question I had is on your borrowing mix and followed by the consequence of the capital raising plans. So I know historically the motivation behind us trying to raise capital was to reduce the leverage on the balance sheet and, to some extent, even comfort the lenders. If I look at your borrowing mix, you've been drawing down more from NHB and market borrowings have actually sharply dropped. So what are your thoughts on capital raise now that you think that provisions are adequate, you will -- the book -- the stress on the book will not surprise adequately, and the demand will still take, say, 2, 3 quarters more to come back. But on the other hand, on the -- your borrowing mix is tilting more away from the capital markets. So are you getting these questions from lenders as in when the capital raise will occur and the leverage will reduce? Or is that not a problem and you can push that away because demand is not there?

With every passing quarter, our DER is improving, now it is 7.75%. So not anymore will this question be raised by any lenders, because, first of all, there is enough and more liquidity; number two, there are not many players, who can actually take credit. And therefore -- number three, with every quarter, our DER is coming down, so now it is 7.75%. I think that is not a challenge, either for us or for the lenders, number one; number two, if you look at our CAR, we are pretty comfortable. So now it will be close to 25 -- 25%, right? Yes, 25%. So we are pretty comfortable on CAR. So on both DER and CAR, we are comfortable. But we still have plans. So we will raise some capital, that we will decide probably in Q4 firm and constant.

Okay. But I mean the urgency is not as much as it was, say, probably last year? Is that a fair reading?

Actually, last 2, 3 quarters, there was no urgency at all.

Sure. Sure. That's helpful. And just one last thing. If you can -- have given a lot of data points, but just 30 DPD number or the stage 2 number on a quarterly level, if you could disclose that would be helpful.

See now you have INR 670 crores -- INR 660 crores, INR 660 crores, right?

That is 30 DPD?

Not 30 DPD. No, this is a combination of all. This is combination of all, which means we are...

I was just asking how much is 30 DPD because the more aging bucket -- I mean, it's okay. But just to get a highlight of the early stage delinquencies just after the distortion in the...

I will give you some industry benchmark. I think that probably might help. See, whatever is the NPA, so companies which are predominantly focused on HL and a small portion of LAP, that is not home, so they will have a total delinquent pool in the range of 16% to 17%. And the 70-30 mix, would have 20%. And 60-40, would have more than 20%, and if NBFC is focusing only on LAP, then it will be 25%, correct? Now 30-plus would be almost 70% of the delinquent pool. When I say delinquent, it is SMA-0, 1 and 2. This enters...

Means any overdue, basically.

Exactly, exactly. 1 to 30 will be 70%, and SMA-2 would typically be around 10%, and SMA-1 would be about 20%. So all I can say is that our numbers, since the delinquent pool is very small, the mix won't change, is what I'm saying, mix won't change. But we are the lowest in the industry.

Sure, sir. So roughly 70% of the INR 660 crore would be the 30 plus. That's the broad way to think about it.

It is not a right comparison for the simple reason there was moratorium for 6 months. All the regular customers who wanted to pay, they have not any which ways moved bucket. All the -- some parts of regular customers and all the delinquent customers, all delinquent customers, they opted for moratorium, obviously, most of them. And some parts of regular customers, they opted for moratorium, correct? Now since there was no bucket movement, you only have 1 month. So based on 1 month, these ratios, it would have skewed. So obviously, you can't go by this one. Probably you should look at the 30+, 60+ to 90+ maybe after 3 months. You have to give that one cycle. One cycle is 3 months because that is when you will see a case becoming NPA or not. So with only 1 month of repayment, it is very difficult to understand. See -- the reason also is this because when you -- customers, who have opted for moratorium, when you capitalize the interest, you are also increasing the EMI, correct? So when you increase EMI and if there is -- then what happens is that because of a small amount, let us say, EMI is INR 12,000 and the new EMI is INR 12,400, so the case might be in 1 to 30 because of a short payment of INR 400. So INR 400 is not actually SMA-1. Yes, technically it is SMA-1, but in terms of ease of collecting, it is a lot more easier to collect because these customers are regular customers and they were not able to pay that shortfall for the month of September. And therefore, they are occurring in SMA-1 -- in SMA0. And therefore, I'm saying -- many things have happened; one is moratorium has happened; number two, it is a mix of both regular and delinquencies; number 3, because of EMI increase -- because you can't increase tenor beyond 6 months. So once you give moratorium to the customer and if you have to keep the same EMI, you have to extend tenor starting from 15 months to 30-odd months depending on the balance tenor and the EMI amount. And therefore, there are a lot of cases where customer has been regular in paying, but to the extent of increase the shortfall and, therefore, these cases are in SMA-0. So for example, collecting the entire EMI from SMA-0 customer and collecting only that shortfall of INR 300, INR 400, there is a big difference. And therefore, I said, we should not look at this INR 660 crores or the SMA pool now because this may not give complete picture. After 3 months, then if you look at the entire SMA pool, that will be indicative.

Sure. And since we are on it, sir, this collection efficiency of 93% in September, since you have interacted with your customers so deeply, what's your sense of how durable would that be? Because these people would have saved some over the last 6 months, would it have made it easier for them to clear off the September dues and if probably income has not come back to the collections, they might find it more difficult in October, November, December. Do you get that sense? Or do you think once they have cleared September, they should be able to start paying regularly from here on?

So once you have cleared September, I think 90% you are home. I'll put it that way. So still 10% you have to watch for next month. And maybe if you are through with October, and we suppose, let's say, my October collection is 93% or more than 93%, then I'm -- almost 97% I am through. I will have to wait one more month to see the 3%. I'm only saying 3 months -- we need 3 months. If any customer pays for 3 months after the moratorium period, then we can assume that the customer is not going to default.

Sir, sorry, 97% you said what, I just missed it.

No, I just gave you a percentage. For example, September collection efficiency was very good, which means 90% of the problem we have addressed. Suppose if I have same collection efficiency in October also, that 90% will become 97%, where I have only 3% problem left. And if I see for the third month also, the collection efficiency, which is more than 93%, then I have -- then I can say I have addressed all the issues. Only thing is our engagement level with customers is so intense that we are able to see very high collection efficiency because we were constantly trying to keep our customers away for both pros and cons. We kept all -- we started sending awareness messages, SMS Blast, mailers to all the customers, we covered all the customers through wire, I think that really helped us.

The next question is from the line of Amit Ganatra from HDFC Asset Management.

Sir, you mentioned that next couple of quarters NPAs will go up. But how should we view the provisions because you already have made some excess provisions. So now once NPA actually go up, will you be utilizing those provisions? Or these provisions will not be utilized? You will have to -- you will make provisions through P&L, how should we view the provision cost?

As of now, we have provided INR 86 crores towards COVID, okay, which is more than required. So we don't anticipate our NPAs to go up drastically. Actually, we have enough cushion available with the provisioning amount. So NPAs will go up, definitely it will go up, but it will not be substantial. It will be to a lesser extent compared to what industry is going to witness. And therefore, we are holding much, much, much higher provisioning on hold.

So effectively, you are saying that whatever NPA goes up, the amount that you've set aside will be adjusted first.

More than enough.

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

Sir, in terms of disbursements for this quarter, what percentage of that would have been the bunch of effects from Q1?

I would say zilch, nothing at all.

Okay. And what percentage would have been due to balance transfer in this?

See, there are -- BT has always been less than 20% out of -- suppose, let's say, if I do business of INR 100 crores, what we're going to do business from BT in is about 20%. So I think that number has not changed drastically.

Fair enough. My next question is that out of the salaried moratorium pool, I mean, what sense are you getting that what's the reason why this particular borrower segment is looking at moratorium? Are there job cuts? Are there salary cuts? What have you been able to ascertain there?

Actually, now -- yes, I will answer this question, but now that the issue is behind us. Because we have seen September collections, we have seen largely October collections as well. But yes, when we actually checked on customers why they opted for moratorium, it was mainly because of uncertainty. So we had close to 5% of cases, which was due to either cut in pay or job loss, job loss was 0.5% and cut in pay was 4.5%, right? I think now all that is behind us because those customers have -- some of them have found jobs, some of them, they are still very comfortable paying the EMIs in spite of pay cut. So this is the number, 0.5% of job loss and 4.5% was pay cut. But if you look at September collection, I think it's been pretty good. So now all these percentages and the challenges are behind us.

Sure. Sir, my next question is that in terms of sourcing, we -- DSAs contribute 58% to 60% of our sanctions. So what -- are we looking to maintain this composition or we'd find a change anything over here?

So this mix has always been in the range of 50% to 55%. So it is actually not by design, it's not by design. The reason I'll tell you why it's not by design because we don't see any incremental risk to because of DSA sourcing because we only confine DSA sourcing to loan origination. Processing and underwriting and all critical functions are managed by our staff and, therefore, it is not by design. So going forward, you'll see 50/50. We don't see any risk in DSA sourcing because DSA only -- so it's equivalent to a lead generation, that's all, nothing beyond that. So typically how the DSA model works with us is that DSA will source the file and login the file with a couple of documents. And then we take over the customer from that point in time, and we compete all the process. So every single customer is met by our employee. Typically, what happens outside is that DSA would login the file, takes the customer through the entire process, he will go through the entire sanction process, does documentation, does disbursement. So DSA is involved right from enrollment till disbursement. And only after disbursement, company will come into picture for servicing. In our model, it's only the first step; DSA will only originate, after that the company takes over. And therefore, we don't see any incremental risk and, therefore, we will not put a cap on DSA sourcing. But however, the mix has been 50-50.

So any way you're saying that in your case, there are no merits to increase the internal sourcing than external?

We have not put a cap there. And therefore, we have just left it free.

Fair enough. Last question any steps are we taking to expand our deposit franchise?

It all depends on the cost of raising deposits. As of now, there seems be some challenge in cost of raising deposits. And therefore, as of now, there is no plan to substantially increase the deposits.

The next question is from the line of Jigar Mistry from Buoyant.

Sir, my question is on selection efficiency. So the way it is defined, it is the total collections received in the month of September while it is based the total billing for the month of September.

Exactly, correct.

Now humor me for a minute, sir. Now imagine I'm one of it -- those 14%, where I was worried that my job will go in the COVID period, so I have taken both the moratoriums. At the end of August, I realize that, look, my job hasn't gone, I have received increment and I want to come and deposit all the savings of outstanding installments that were there. That each year, it will be taken as collection, correct. And therefore, counted as part of the 93%, which the company reports. The question is, do you think the number of such people are large as in if you were to compare that 14% as number of people and amount outstanding, will the 7% more or less be off that 14% altogether?

No, the number may not be 7%, but we have seen a lot of customers who had opted for a moratorium and later on they have come back and they have paid the money and they have requested us to adjust towards the principal amount. That means moratorium is still there, whatever money they've paid, they've adjusted towards the principal amount, so their principal has come down. So we have seen a lot of customers, who came back and paid. So talking about that 14% of...

If you remove such repayment, what would be the collection efficiency?

No. During moratorium period, the collection efficiency is based on non-moratorium cases because customers who opted for moratorium, and if they make a payment, that amount is excluded, so that will go into prepayment bucket, not in normal monthly EMI collection bucket.

No, no, sir. For the month of September, when they make the payment...

So just to put it in other way, see, those who opted for moratorium, they started paying, some of them they have paid earlier also, and they have paid for September also. So other regular customers, they were paying earlier, and they have paid -- out of say 100 customers, 93 customers or 93% of amount has been repaid. So overall collection efficiency during September as against the demand was 93%. This includes both regular as well as moratorium consumers.

But if you remove the prepayment...

Okay. To answer your question -- one last clarification. In the month of September if X amount was the demand, 93% of X has been collected, which means 7% is delinquent.

Okay, sir. But I am sorry to harp on this because it's such a critical number, but that 93% you are saying will not include prepayments?

No, 93% will not include prepayment. Because the prepayment is over and above paying the EMI. For example, if I am the customer, I have 2 choices; I'd pay September EMI and if I pay extra, it will go to my principal amount reduction.

Adjustment. That's abundantly clear.

The next question is from the line of Sanket Chheda from B&K Securities.

Congrats on a very good set of numbers. Sir, my question was we're on other OpEx, so in 1Q, our cost-to-income ratio had fall down to 11.2 and it had broadly remained at the similar levels for Q2 as well. So going ahead, particularly, you see any increase in other OpEx? Or it is likely to sustain at current level?

Participants, please stay connected. We seem to have lost the line for the management. Please stay connected while we reconnect the management. We have the line from the management reconnected. Over to you, sir.

Yes. Yes. So what I was clarifying, this 93% excludes prepayment because as customer if my EMI -- if my September EMI is due, if I make any payment, first, it will go towards adjusting September EMI and any excess only will go towards principal cash. Hope I have answered your question? Hello?

Mr. Chheda?

Sir. I just wanted to have another question that you're saying that INR 86 crores of provision is adequate now even if the slippages materialize in Q3 or Q4. Is that right? So even if delinquencies will rise, the NPA might go up, but we are adequately provided as of now. So there won't be any material increase in provisioning in coming quarters? Is that assumption right?

So I think we are holding enough or more amount towards COVID. At least for next -- for this entire COVID, next 2, 3 quarters, we are holding enough provision.

Congrats once again on strong set of numbers.

The next question is from Subhradeep Mitra from UTI Mutual Fund.

Sir, I wanted to understand that of the 7% of the customers who have not paid in September, what would be the breakup of salaried and SENP out of that?

See, as of now, we've seen the mix, there is no change in the mix. For example, our portfolio 70% is salaried and 30% is self-employed. So we see a slight increase in SENP, but the ratio is by and large the same.

Okay. Sure. Sir, my second question would be what is AUM that you are targeting for end of FY '21? And in that direction, given that you already mentioned that in Q4, there is a plan for equity raise, so what is the amount of capital market borrowing that you were looking for in the next 6 months?

No, we haven't really given a thought to that. We had a plan of raising if at all we had to raise in Q4. So at this point in time, we are pretty comfortable on both, DER and CAR. So at this point in time, we are not very keen. But yes, if at all we have to raise, we will raise in Q4.

Okay. And any capital market borrowings that you were looking for in the next 6 months, any plans for that?

Capital borrowing in the sense, market borrowing you are talking about?

Correct.

No, no, no. Because we define market as both NCD and CP. If you're referring to NCD and CP, yes, we have plans to -- we have plans for NCD as well as CP as a continuous process. But for equity, as I told, we will plan only in Q4.

The next question is from the line of Swechha Jain from ANS Wealth.

Sir, actually, most of my questions are answered. I just had a bit of conclusion between the 2 numbers that we were discussing. One was the INR 660 crore and other was INR 210 crore. Now what I understand is -- I want to know that whether the INR 210 crores is now a subset of that INR 660 crore, a smaller number would be a subset of that INR 660 crores?

Yes, it is a subset.

Okay. Okay. And INR 210 crores were the morat 1 and morat 2, right?

No, INR 210 crores was the SMA-2 in the month of March. And for that quarter -- for that quarter, asset classification benefit has given only INR 210 crores, because 1 month SMA-2, if those customers don't pay 1 EMI, it will become NPA, whereas SMA-1 if rolled, it will be SMA-2, not NPA. And that is why only on INR 210 crores we provided 10%.

Okay. And sir, the INR 660 crore would also include some portion of those cases who have taken morat 1 and morat 2?

All the cases, morat 1 and morat 2, the outstanding is as of 30th September, all.

Okay. And that number is, sir?

INR 660 crore.

Okay. Okay. Okay. Got it. Got it. Got it. And sir, just wanted to understand in terms corporate agency...

Basically INR 1,444 crores has become INR 660 as of September ending.

Okay. Okay. Okay. And this includes everything, SMA-1, 2, 0, morat...

Everything. It includes everything.

Okay. It concludes everything basically. Okay. Okay. Okay. And sir, with respect to our corporate agency license that we have, I just wanted to understand how does it fit with our overall long-term strategy of the company and how do we plan to take this ahead?

See, we are working with 2 insurance companies, okay? What is more important for us is that the customers' life has to be covered and the property has to be covered. So to that extent, we are committed, and we will try to bundle and onboard customers with insurance option.

Okay. And just one last question. Sir, on an average, what would be our repayment and prepayment rate, if you can bifurcate both of these separately?

So because of the morat, the option is available with the customer to whatever he wants to pay whenever he wants to pay. So we cannot classify that amount as a prepayment or a repayment for the next 3, 4 months, till his accounts become regular because he always has the option to pay and regular his account without opting for the longer tenure. So this classification cannot be derived.

Okay. Okay. And then historically, what the rate has been, will you be able to share that, sir?

So probably it will take another 4 to 5 months to come on normal scenario.

Now it's difficult to say that. But pre-COVID level, I think if you look at prepayment, that will be very small amount, right? If it is full -- if it's a foreclosure, it will be obviously BT. So prepayment as a percentage, it will be...

It will be around 10% to 15%, not more than the total repayment.

10% to 15% of total prepayment and foreclosure put together. That is INR 100 crores is the amount, which is the combination of both prepayment and foreclosure, significant portion will be foreclosure, which means through BT out and the balance will be prepayment because prepayment will be a very small amount.

Right, right, right. So overall, 10% to 15% historically has been the rate, right, sir?

Yes.

The next question is from the line of Bunty Chawla from IDBI.

Congratulations on a great set of numbers under this environment. Sir, just one clarification. On the previous question, as you said, the collection efficiency 93%, can we just say that 7% of the book -- total book have not paid a single EMI from April to September. Is my analysis right?

No, no, no. In the month of...

Okay. Okay. So can you give that number that who have not -- percentage of who have not paid a single EMI from April to September? Is it possible?

Now for me the risk is September only because all the buckets have moved. Customers opted for moratorium has not paid. Customer not opting for moratorium has paid. So you have to see the September collection, which is 93%. So 7% of the customers, they have not paid in September till the last date of September, okay? So which means we had to collect in the month of October some September dues. This moved October to 7%.

Okay. It is 7%, okay. And sir, as you have said, there will be still competition from the bank side in the next 2 quarters will remain. So what will the number on the AUM growth we can take for the full year FY '21? As we have seen in H1, it has come down to 6%, for full year, what should be the number?

See competition was there in the past, even though it is there, it will be there in the future. So that is something which is part and parcel of business. So that is -- what you are seeing now on a Y-o-Y basis is about 10%. I think going forward, this number should slightly improve, not drastically, slightly should be improving because the demand is coming back with every passing month, so the increase also should be slightly better.

Okay. Okay. And lastly, as you have said that there could be some inch up, not much, but slight inch up. So on a conservative basis, can we say we should be approximately 1% gross NPA by end of FY '21 and should move to 0.75%, which is current level by Q2 FY '22. Is this assumption right?

We don't give guidance on either business or NPA. All I can tell you is that in next 4 quarters, it be back to about advantageous levels.

The next question is from the line of Sakshi Goenka from Alchemy Capital.

Pardon my ignorance, I just wanted a clarification on the tables which you have provided. This INR 660 crore number, which used to be INR 1,440 crores, sir, is it fair to assume, that this INR 660 crores are those customers who have either not paid their September installment and some installment prior to March, which is the X of the moratorium period. Is that the right understanding?

No. For example, in INR 1,444 crores, if they have not -- all of them have opted for moratorium and if they have not paid any amount in between, the amount would have remained the same. That is the way to read it.

No, INR 780 crores out of -- for example, INR 1,440 crores minus INR 660 crores, that is INR 780 crores, they have paid the installment and it has now moved out of SMA. So the remaining INR 660 crores is either in the SMA0, SMA1 or SMA 2 as on 30th September.

Sir, this period is ex of the moratorium period, right? It does not include the moratorium collections. The moratorium --- the dues...

Because of that collection -- on an account of collection, INR 1,440 crores has become, INR 660 crores, means INR 780, there is a repayment subsequently and up to March 1st and these accounts have moved out of SMA. Even though they opted for moratorium, but since they have paid the amount, it has been taken away -- taken out of moratorium.

The other way to read is that INR 1,444 crores has come down to INR 670 crores and -- INR 660 crores. So this INR 660 crores can be any bucket, it can be in SMA-0, SMA-1, SMA-2.

Sure, sir. SMA2 right now and SMA, a customer who is 60 DPD due, that means he is 2 installments due, so his September installment must have been due and his Feb installment must have been due. Is that right?

No. SMA-2 is basically as of 30th of September, the bucket has not moved, which is less than 90 days. So 0 to 1 is SMA-0; 1 to 30, is SMA-1. And so that is how the bucket flows. Anything which is more than 90, 90 and above is NPA. So all these accounts are either in SMA-0 or 1 bucket. 61 to 90 is SMA-2 bucket.

The next question is from the line of Abhisar Jain from Monarch AIF.

Sir, just wanted to know that in the salaried class of customers for us, which is around 70%, would you be able to indicate what is the mix between the government salaried and the private institution salaried customers?

50-50.

50-50. And sir, would that ratio have remained same over the last 3 years or 5 years?

At a portfolio level, this ratio is 50-50. You see initial part of the year, SENP was quite less and salaried was quite more. But if you -- within salaried, it was almost 50-50 only. So this has not changed much, maybe 51-49, 48-52. So it has not changed much.

Right, sir. Right, right. And sir, even on the quality in terms of the NPA within those 2 buckets within salaried, is it like the similar? Or do you see differences as such, now or before?

It is similar.

Similar. Okay. And sir, the other question was on the branch network expansion. So we had mentioned in the PPT that we're still looking to add 10 branches in FY '21. Since we have not added anything in the first half because of COVID, do you think that we are on track for the 10 additions and which geographies will that be?

See but then -- suppose this COVID is out, if COVID is over by December, we can still open. Suppose if COVID goes on till February or let's say further, then it will be difficult. So we still have 6 months' time to take a call whether we can open 10 or not. I just want to say, yes we can. But it COVID goes beyond that spread, nothing is difficult.

Sure, sir. And sir, last one on that only, just a follow-up. Sir, what will be our non-South branches out of 198 branches that we have?

Non-South business is about 30%. Number of branches south, I will tell you -- South, 200 branches, we have totally 200 branches. Out of that, South, I think it will come same number, I will confirm it.

Not the same number. Reasonably it is about 70-30, 70 is south and 30 is non-South.

Yes, it is about 67%, 68%.

South branches are old and are having more business, maybe slightly, which is 4% to 5%.

I'm sorry, sir, I missed that number.

35-65, 35-65, 35-65.

I'll give you that number in a couple of minutes.

Sure, no worry, sir. I'll just move to the next -- last question. Sir, over next 3 years, sir, what will be our strategy? Would we want to still remain 70-30 on South and non-South or would we want to diversify a bit from South?

To be very honest with you, I think we will relook at strategy after COVID because we don't know what is the impact of COVID with respect to business class, whereas salaried we could assess the impact, but not on business class. Yes, in terms of branches also 70% is South and 30% is non-South; business also 70% is South and 30 in non-South. I think we will give you a strategy after COVID, which is about maybe 2 to 3 quarters from now. But having said that, our focus is on salaried. We will be keen on bringing self-employed business in good market. When I say good, good in terms of repayment. So we are agnostic in terms of geographical presence, but we are very keen on the mix depending on the potential or the payment cycle of the particular geography.

The next question is from the line of Punit Bahlani from HDFC Securities.

I just wanted to know like what are your -- can you give some color on the cost to income ratio, like where you see it in the will -- because I just -- in the previous quarter, you had mentioned that you will be like -- improvement in digital infrastructure. And along with that increase in branches, but of course, you answered it very well like in the near-term it's not going to take place. So just some color on that.

Now see if you look at cost to income ratio, I think in an ideal state, it will be in the range of 15% to 16%. As of now it is less because of the COVID, otherwise it would be in the range of 15% 16%.

The next question is from the line of Sonal Minhas from Prescient Capital.

Sir, I just wanted to tie a few numbers together. On your balance sheet, there is a provision on nonfinancial liabilities of around INR 102 odd crores. I understand that includes provision for taxes as well as for bad loans. So when you say that -- so this is roughly around 0.5% of your overall book, just taking ballpark numbers. So I -- so if this is the overall position tool, assuming this is for NPA as a whole for the argument, is it sufficient to take care of the INR 660 crore off the restructuring pool that we are looking at right now? And that's number one. And secondly, what gives you the confidence that roughly around INR 100 crores -- INR 86 crores to INR 100 crores is off provisions that you have built in, will be sufficient to take care of further INR 350 odd crores of the restructure, please. So just want to understand line between the 2 -- how will you measure and, therefore, how you say that this is sufficient for me? So your line of thought on that, that's all.

So if you look at the entire industry, delinquent pool is about 20%. So if the portfolio is INR 10,000 crores, INR 2000 crores will be delinquent, that is one DPD and above. So for this number, the number is half of that percentage. So today, if you look at the INR 660 crores, INR 660 crores is not pool to be restructured, or INR 660 crores is not the pool, which has become NPA. This is only delinquent. That is SMA-0, 1 and 2. Okay. So typically what happens is that for the industry, if INR 100 is 1 DPD, the NPA will be 2. Okay. Right? For us, our NPA is 0.72. So you can calculate what will be the opening balance. So this INR 660 -- INR 660 crores is not the pool, which we will restructure or it's not that this INR 660 crores we will move to NPA. Some might move to NPA, some will be write-back from NPA to regular as well, this is number one. Number two, today, if you look at -- see in last 3, 4, quarters, our asset quality is stable. Even in this quarter, our NPA has come down from 0.75 to 0.72. Even, if I add deemed NPA, suppose if there was no Supreme Court direction, then my NPA would have been 0.78, which means INR 12.5 crore got added to NPA in spite of all this moratorium. Okay. And with a large pool of SMA-1, 2, -- 0, 1, 2 whatever we had as opening balance. And therefore, I'm saying, INR 86 crores provision what we are holding at the first stage, which means there is hope of NPAs going up to beyond INR 350 crores. Today our NPA is INR 150 crores. On a book of INR 20,025 crores, our NPA is INR 150 crores. Even if you assume that it will go by whatever percentage, we are holding enough or more to cover.

Got it. So sir, a follow-on question on this one. And I think this is just trying to understand how maybe large other peer banks work. If I were to do a stress test like today and pardon my understanding that, let's say, this entire INR 670 crores becomes NPA, I'm assuming it will not, but let's assume it does become, the provision pool is not sufficient to take care of this amount for sure. So going further, like is there a mechanism wherein the provision pool is buffered up and that becomes a cushion for any macroeconomic black swan events like COVID going ahead in the future. Because right now, I understand you're working very close to where you have been and your asset quality is very good, therefore, I think you have that confidence that this is sufficient for me. But assuming the worst, would this provision pool be buffered up, so that, let's say, if things go beyond your assumptions, the provision pool is more than enough to even take care of maybe 2%, 3% NPA, if at all that kind of a situation arises? I am just opening an argument as well.

So basically -- I will address your question. Definitely, I appreciate this question, it's not a doubt, it's only a clarification. See, 1 DPD as a percentage only 2% is in NPA. So that is what history says and this is the average for the industry. So if there INR 100, which is 1 DPD, that is 1 plus I am telling, it can be any -- from 1 to 100, it can be at any bucket. Only 2% is from NPA. Now going by the industry average, our average is quite less than that. And if you take INR 670 -- if you take 2% of INR 670 crores, it's INR 13 crores, and our number is much, much lower than that. I mean, I am not predicting. This is not a guidance. I am only giving you the industry benchmark. If you apply 2% on that pool, it will be less than INR 13 crores, maybe INR 14 crores, number one. Number two, 2%, 3%, we never thought of NPAs at that level. From what we are able to see from those lines, I will give the calculation for you. All I am saying is that if you see what is their NPA? And what is the power they have? I think you'll get a -- you'll be very comfortable looking at our numbers whatever we have provided and what are the NPA levels. Our NPAs are in the level of 0.74%, 0.75% and what is the amount, which means our NPA is INR 150 crores, I have provisioned INR 86 crores, which is at most about 60%. This percentage is quite high. In fact, some investors will ask, why have you provided more? Do you see any issue in the asset book? I think there is a reverse thought as well. So we feel that we are pretty comfortable on the coverage, and we don't anticipate our NPAs to go up drastically.

Sir, I appreciate that. But I think our NPAs started going up even before COVID. And there was a systematic slowdown in the industry because of which I think the NPAs went up from 0.4% to 0.7% even before the COVID period. So I think the asset quality has been sort of, I think it's not even ready. The point that when -- so one is more to my understanding kind of an approach, which is in reaction to what you see in the industry. Whereas the other, if I may use this as a word, is more like a more smoothening of the NPAs where -- or just smoothening of the accounts because you've provided for, for things much before they are anticipated. So being on the call, I think for the last 5, 6 quarters, the NPAs going up has happened even before COVID. So -- and therefore, I wanted to ask this from a more longer-term perspective.

No. Our -- the amount what we have provided will take care of any shock with respect to NPA increase.

The next question is from the line of Ritika Dua from Elara.

Yes, just one clarification on the capital adequacy percent, the movement on a quarter-on-quarter basis?

Yes. Now we -- yes. So last quarter and this quarter, what is the movement, right?

Yes, sir. Yes, sir.

So the only thing is the movement in that one is the undisbursed sanctions.

No, no. From what to what?

Yes, the same number, 18.5% to 24%. The capital adequacy has improved.

Yes, sir, I'm aware of that. I just wanted to know the reason for such a sharp increase quarter-on-quarter.

The main thing is the sanction of the undisbursed amount requires a risk weight of 50% for the capital adequacy. On account of COVID breakdown, there were sanctions, but not disbursed amounts were there. As we have explained, as we were even shutdown in the April as well as May month. So this disbursement which was sanctioned earlier as well as the fresh sanction, that disbursement has not taken place, either it is because of the closure of office or lockdown or any reason, it has to be kept in the books with respect of 50%, which has reduced the capital requirement. So that is why the adequacy has been come down. Now all this has been disbursed. The undisbursed sanctions have been come back to normal or a little bit slightly higher, so that is why capital adequacy has improved.

No, what he is saying, earlier out of the loans sanctioned whatever was the unsanctioned portion, also we have made capital provisioning. Now over a period of time, over the last 4 or 5 months, all these loans they had disbursement and the undisbursed has come down substantially. Because of that, our CAR has improved.

So maybe for this particular quarter, actually, a large part of the last quarter sanctions have been disbursed.

That's why you can -- if you go back and see the last figure, it was 22.26%. It has come to 24.77%. In between June, it has come down to 19.53% only because of that.

Understood sir. Sir, and the second question, while MD sir has already shared his view on how margins would normalize, but if you could just maybe kindly share what are the incremental yields, which are panning out because on a static basis, the number still remains very high. So is it something that maybe the S1 category loans are more prone BT or ideally we should have -- we thought that maybe the S3 category should be more prone to BT because that's where the differential versus what is there in the market would be much higher. So if you can combine that question with what is the incremental yield on advances?

I may not be able to answer because that assumption cannot be done at this juncture because as we said, COVID related matters are there in H1 and H2, whatever we are talking about the BT, we cannot come to a conclusion. Only as I told earlier, we may have to wait for another 3 months to see how the movement is there, then we can comment because if then COVID is over, things are coming back to normal, even if not fully gone, we have still the -- implications are still there. So we don't come to crystallize anything maybe this is the implication. We want to wait and see for another 3 months.

The next question is from the line of Sanket Chheda from B&K Securities.

Sir, my questions have been answered.

The next question is from the line of Nirmal Bari from Sameeksha Capital.

I have a couple of clarifications is to ask. One is on the collection efficiency when we -- am I audible?

Yes.

Okay. So on the collection efficiency, when we say 93% collection efficiency, would that include the prepayments and the foreclosures as well?

It doesn't include.

Sorry?

It doesn't include.

It doesn't include the prepayment. Okay. The second clarification was on the INR 780 crore, that is the difference between INR 1,440 crores and INR 660 crore, would it be fair to say that this INR 780 crore have cleared all their EMIs of the past 7 months?

That's correct. All the overdues outstanding as on February 29 have been cleared in those accounts and they are out of SMAs.

Okay. As of February 29, those have been cleared, not as of September 30.

So those accounts have become -- they have come out of SMA. Though, they have opted for moratorium as of February 29 or March 1. Subsequently, they have paid their amount and as on September 30, there was no arrears in those accounts. That is why they are out of that INR 1,440 crores.

Okay. The next thing is on -- if you can -- I missed the incremental cost of funding, if you mentioned it. So if you can state that bucket wise as in from the NHB, from the banks and from NCDs and CP, what is our incremental cost of funding? And secondly, if you can state why are we focusing more on bank borrowings when we are so highly rated, and we can easily get far more funding from NCDs and CPs at relatively lower rates? So if you can comment on that as well.

So our incremental cost is 7.1%. So we keep reviewing all the cost of borrowing from different sources and then we take a call. So for the -- in last 2 quarters, we found that the bank borrowing was coming at much cheaper than NCDs. However, this quarter and next quarter there will scope for raising NCDs, so we will do that.

Okay. So our average cost for the previous quarter was 7.1%, and the incremental cost was also the same?

The incremental cost will be much lower than that.

Much lower than that.

Yes. So what was that?

I mean, the incremental will be about 6 point...

6.54%.

Sorry?

6.54%.

6.54%. Okay. And the last question I have is on the rate reduction that we have done recently. It was about 110 basis points at the lower end of the -- lower end of our grade bracket. So how do we see the yields panning out as in the next 1 year -- in the next 6 months? What proportion of loans will get repriced to this lower rate?

Yes. I have mentioned this before as well. We will be maintaining NIM of more than 3% and spread of 2.4%.

Okay. But I just wanted to know the -- like what proportion of loans get repriced in H1 and what proportion get repriced in H2. I know that Q1, there is relatively higher proportion that gets repriced. But would it be possible to get this number?

No. This number is dynamic. So what we do is we always give guidance -- kind of guidance around the NIM and spread. So we will maintain spread of around 2.4% and NIM of 3%. So today, NIM is quite high, but that is not sustainable. So we will maintain more than 3% and 2.4% spread.

And now that our rates are quite competitive even when compared to the larger banks and all, the GAAP is back to 70, 80 bps only. So do -- will it help in controlling the BT? Are we already some trends in October and all?

Definitely, yes. We are able to retain more customers than before because of our competitive pricing.

Sir, finally, on the -- again, on the collection efficiencies. We are near the end of October and so is the number in October so far been higher than September? Or what has been the trend over there?

No. We will get to know this number only on the last day of October because we're talking about collection. So if any -- if the instrument bounces in October and gets collected in the month of October, that we will get to know only by the last day of the month. So it will be difficult to give a number at this point in time.

The next question is from the line of Pavan Kumar from Ratna Traya Capital Partners.

Sir, my understanding right, if I -- the INR 210 crores out of the INR 660 crore bucket you are saying are SMA-2, they won't be eligible for the restructuring part of it?

No. They will not be eligible for restructuring because restructuring guidelines is clear, the accounts should not be more than 30 days DPD for this time period. So because they have opted for moratorium and these accounts are having arrears, they will not come under restructuring.

But for the INR 210 crores, say, if they do go into an NPA, how far -- over a period of -- over what period do we provide for those accounts?

Like becomes -- NPA we will provide.

What sir?

See, this INR 210 crores is considered to be a significant portion.

No, it is not really INR 21 crores. It was INR 210 crores as of the end of February.

So actually what got added, what would have got added to NPA as of Q2 is INR 12.6 crores. So there will be some small portion of INR 210 crores lying in this INR 12.5 crores and the rest is collected.

Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

So most of the points have be covered and MD has explained in the beginning itself about what has happened in the last 6 months, and what is the way forward for the next 3 or 4 quarters. So let us hope worst part of the COVID is behind us. As we informed in the MD&A -- Q1 conference call that Q2 will be better than Q1. Definitely, Q2 has been better than Q1, and we are sure that Q3 will be much, much, much better than Q2. And hopefully, the Q4 or the next by latest -- Q1 of next year, we'll be almost reaching the level of pre-COVID sanctions and disbursements and AUM growth. And main focus so far is on asset quality and that will continue to be our focus here. Apart from that, loss in class 1s, we're also giving a lot of focus for the business also. And in the next couple of months that will also improve. And being -- we're going to have sufficient funds and very, very competitive rates. And also, we are offering the customer one of the best rates at present and business will definitely pick up and we will be able to contain our NPA levels, slightly where it is -- it will increase by March end, definitely, we will be able to bring it back at least to the level of pre-COVID levels, if not by March, at least by Q1 of next year. So with this, I would like to conclude.

Thank you very much. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.

Thank you.