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

Ladies and gentlemen, good day, and welcome to the Can Fin Homes Limited Q1 FY '22 Conference Call hosted by Investec India. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Utsav Gogirwar from Investec. Thank you, and over to you, sir.

Thank you, Rutuja. Good afternoon all. Welcome to the Quarter 1 FY '22 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 Limited; Mr. Amitabh Chatterjee, Deputy Managing Director; Ms. Shamila, Business Head; and Prashanth Joishy, CFO of Can Fin Homes Limited. I would now like to hand over the call to Mr. Girish Kousgi for his opening comments. Over to you, sir.

Good afternoon to all the investors. Welcome to quarter 1 earnings of this year. It was a fruitful quarter in many sense, that after lockdown in April, we had tough time managing our book and also to get back business with whatever 45 days available in the quarter. So even -- I think eventually, it was a good quarter. I will talk about the numbers a little later. So let me start with last year quarter 3 after COVID 1. In quarter 3, we came back with good growth of 12%. And quarter 4 was all-time high. We did disbursement of INR 2,000 crores, which is all-time high in the history of Can Fin. And our NPA was at 0.91%. So if you look at June, 0.91% has come down to 0.9%. And in terms of business, because of second wave, we got impacted, but we were able to manage on the collection front. We improved our efficiency, which was quite low in April. May was moderate. June, we picked up very well, and we were able to disburse, which was equal to 123% on a Y-o-Y basis. Now in the last few quarters, we're maintaining that margins will come down because we've changed our pricing strategy. And that change was warranted because of heightened activity, especially in the mortgage business, both home and nonhome, largely driven by all the banks to focus on retail because corporate and SME was not taking off due to COVID. And this was the fastest way of -- to build a book and especially by doing balance transfers. So in order to protect the customers and save the book and thus to grow thereon, so we had to change our pricing strategy. We changed the pricing strategy, and that lasted till about last year March, that is quarter 4. So if I have to talk about quarter 4 pricing, the lowest was about 6.95. And we also went up to 6.75 for some time with an offer. Now what we have done is we have increased the rates. Now, our rate is 7.5. And also to talk about the entire portfolio, 70% of the portfolio is repriced. So we have only 30% left and any repricing in future will happen at a higher rate. So which means I think bottoming out of both spread and NIM has already happened. And from this quarter onwards, quarter 2 onwards, you will see improvement in both NIM and spread. In terms of business, outlook is very good. We -- actually it started in quarter 3 of last year. Quarter 3 was good. Quarter 4 was very good. Quarter 1 would have been very good, but for COVID second wave, which actually put brakes on -- because it impacted mobility of both customers as well as our employees. And therefore, we had to curtail our plan in terms of business. We've been very high on liquidity. I think that there is no need to talk about that because our -- we always are in excess of about INR 3,000-plus crores, which will last for another 5 to 6 months' requirement. In terms of profitability, it's quite moderate. In NII, in terms of revenue, revenue has come down. That's only because of the falling rate interest scenario where the yields will come down. And we also -- we were also able to manage with lower cost. So I think this really helped us. And so now if you have to talk about spread, it is 2.4% and NIM is 3.31%. So I think going forward, you will see both these going up. I think you know about all the numbers. I'll be happy to take up any specific queries which you may have.

[Operator Instructions] The first question is from the line of Dhaval Gada from DSP.

Sir, the first question I had was on business momentum. If you could talk about how situation was in June? And also how you're seeing the situation in July in terms of fresh inquiries? And overall, just given the trend that you've seen in the last few quarters, how do you see the rest of the year pan out on the business front? If you could start with that.

So actually, if you see, from last year quarter 3 onwards, business trend is very good. Market is very robust. And in quarter 1, we did business only for 45 days. So whatever business we have done is only for 45 days. Within quarter 1, June was very good, and July also is pretty good. So from quarter 2 onwards, business outlook is very good, as long as wave 3 doesn't hit us. So it's pretty robust. Actually, quarter 3 onwards it's good. Only thing is quarter 1, we had to take a break because of COVID. Otherwise, the trend is very positive.

Sir, and -- when you say June and July were very good, just if you could put that in context of, let's say, what you did in 2019 June and July, how would that stack up? Like, if you could just sort of -- because last year base would not be comparable. So I'm just saying the year before that, how would the current numbers stack up with that to put things into perspective.

So yes, if I have to compare with last to last year also, only thing is, in quarter 1, we lost 45 days. So had we done business for 90 days...

No, no. I was looking to, sir, June and July only, so -- yes.

July is very good. July is very good. In fact, this quarter, we'll be doing very good numbers.

Understood. So basically, like the INR 1,300 crores plus disbursement that you did in 2019 -- FY '20, basically, 2Q FY '20, so do you think that, that should be [Foreign Language] that run rate or more than that run rate should be doable in the coming quarters? So just...

Will be far better than that number.

Okay. Okay. Yes, that's what I wanted. Yes. Okay. The second thing, sir, which I was looking for is on the asset quality front. So now we've had 3 quarters where we've gone back to the pre-COVID credit cost trend. How do you see the rest of the year pan out? And also, if you just quantify the excess provisioning that you carry on top of the specific provisioning and standard asset provisioning, if there is any buffer that is there? And how do you intend to utilize that for the rest of the year?

So in terms of asset quality, I think -- assuming that there is no third wave, I think we are pretty comfortable on asset quality. And we are holding about INR 33 crores now, additional provisioning, which we can utilize if need be. So we are pretty comfortable on asset quality. And if there is third wave and if it is not severe, we'll be able to very easily manage.

So the current credit cost trajectory should be the new [Foreign Language] should be the consistent trend that one could expect give or take few basis points?

Yes, it will be very -- yes, yes it will be consistent.

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

One question is that your excess provision, has it come down Q-o-Q?

In quarter 2, what we have done is we have just set aside against some of the restructuring pool.

When you quantify the restructuring pool, then?

Actually, we are in the process. So I think by next quarter, we'll be able to exactly talk about that. See, we were holding about close to INR 70 crores of provisioning. We still have an excess on that. So we have earmarked some amount. So there will be restructured pool. And also going by the trend what we feel is that once the term gets over, about 15% of the restructured pool would actually turn out to become NPA. So we are well covered for that.

So what you are saying is that INR 70 crores of excess provisions you were carrying and out of that INR 37 crores, now you have earmarked towards restructured pool?

Approximately.

Okay. And that's why now you're carrying INR 33 crores of excess provisions. Second question is that now, see, what has changed in the environment that you are now confident that you should get higher yields as well as higher growth because in the past, I mean post the third quarter of last year, the strategy that we adopted was to try and get higher growth because maintaining both yield and growth was turning out to be tough. So is it that the competitors have also increased rates and that's why we are able to increase rates? Or now this is a conscious strategy that we are seeing growth anyways, and that's why we can maybe get higher yields?

Our growth story is intact. So we had an outlook of growing much faster than market, I think that is still intact. So we will definitely grow at a faster pace. Now we had changed our pricing strategy because of intense competition, largely because of COVID. Because of COVID, economy was down and certain segments didn't take off for big banks and therefore, all the banks, they were focusing on mortgage, right? So now we see that market is quite robust and slowly other segments are picking up, which means the intensity in mortgage business by large banks would come down gradually. And therefore, we thought we see an opportunity while we grow at a faster pace, we can also try and improve on margins, which is -- in fact, even earlier I had said that 2.4 and 3, so now we see some opportunity where we can try and improve this from this level.

Okay. And one last question from my end is on -- so if you look at the cost Q-o-Q, it has once again come down sharply. How should we revert your overall OpEx?

So just talking about cost to income, so what happened was last year, COVID was there for quite a long time. And therefore, we had to skew all our CSR spends towards Q4 -- Q3 and Q4. Otherwise, what you see for last quarter is an aggression. So what you see now is the right cost-to-income ratio.

The next question is from the line of Anand Bhavnani from White Oak.

I have 2 questions. The first question is on the yields. Sir, what could be the increment -- yield that you would be earning on incremental lending in Q1?

So incremental yield is about 7.23, and incremental cost is 4.87.

4.87. Okay. And sir, so the incremental spread comes out to around 4-point -- sorry, 2.36?

Incremental, yes. Yes.

So which is obviously -- I mean lower spreads. So do you anticipate the spreads to remain at this level, incremental spread for rest of the financial year?

That's what I mentioned. From this quarter, both spread and NIM will increase.

Okay. Okay. And this could be driven by higher yield or lower cost of fund or both?

This will be driven by, one is, lower cost of funds; number two, higher business; and number three, higher yields.

Okay. Okay. And sir, in terms of your stage-2 assets, if you can give us what would be the stage-2 assets as of Q1 end? And what was the number for Q4 end? And also the restructured book?

You need to give us some time to get back to you on the restructured pool because it is still work in progress, right? Otherwise, other numbers you are aware.

Stage-2 assets, sir?

Yes, stage-2 assets put together is somewhere around INR 400 crores.

And what was the figure at the end of this year, '21?

This is the June figure.

But I'm asking for March [Technical Difficulty] see how has it changed?

Anand, your voice is breaking.

Yes, I wanted to understand how was this figure at the end of March, so that I can compare the sequential figure for stage 2.

You want to compare to the March figures?

Yes.

Yes. Just a minute. We'll revert back, in between I'll confirm you. We'll take the next question. Once it's over, I'll confirm you. I request some time to take the...

Sure, sir. Sure.

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

Sir, I have a couple of questions, basically just 2. The first question is, sir, if we see, the disbursement for this quarter has been INR 800 crores, while our loan book has just expanded by INR 100 crores. So I just wanted to understand, I know we've consciously taken the strategy of reducing the rate to -- with respect to the competition. But as we've seen the -- even the loan book growth has been written on the lower side. So just wanted to understand how the strategy is panning out for us? I mean is it like -- is it working for us? If you could just throw some light on it?

No, it's working for us. What happened in quarter 1 was, as I told you, that we are not able to do business for 45 days, okay? Now every month, there are repayments which happens. Now definitely, your book will go down because of that, which will come to close to about INR 370 crores per month, right? So these are the normal repayments which happens month on month. Since we were not able to disburse in quarter 1 because of COVID, you will see even the book growth slightly lower. So from this quarter onwards, since there are no challenges, so book growth should be pretty good the way we've shown in quarter 4 of last year and partly in quarter 3.

Okay. Okay. And sir, my second question is also around the disbursements. Like you said, we had -- Q2, I think you disbursed INR 1,200 crores last year, and that was the highest disbursement, all-time high, right? I just wanted to understand, now going forward, assuming we don't have the third wave or the impact of the third wave is less, and like you're saying on the ground, the momentum is really picking up. In fact, it started picking up since last year Q3. So can we take a benchmark -- can we assume a benchmark disbursement rate of INR 1,000 crores to INR 1,200 crores every quarter going forward?

Far better than that.

Better than that. Okay.

Far -- no, no, far, far better than that.

Okay. Would you be able to give a ballpark number, sir?

I don't think so I can. But all -- I can only say that quarter 4, we did INR 2,000 crores, right? So I think if you look at the average for next 2, 3 quarters, I think it will be slightly above that. So I mean the market is really robust. The only thing is we were not able to do business in quarter 1, and this is true for the entire industry. So it will be far, far better than the numbers which you quoted.

[Operator Instructions]

Just to give the additional information for the earlier question regarding the stage 2. The stage-2 assets were INR 1,184 crores as on March 31, 2021. And June, it is INR 1,200 crores. So there is hardly increase of around INR 16 crores from March to June in the stage-2 accounts.

[Operator Instructions] The next question is from the line of Shubhranshu Mishra from Systematix.

A couple of questions here. Wanted to understand what was the rejection ratio in this quarter versus what was the entire rejection ratio in FY '21? And the second question is what percentage of our book is domicile in Karnataka? And further what percentage of our book is domiciled in Bangalore?

Okay. So if I have to -- last financial year rejection ratio was about 15%, and now it is 11%. Historically, it used to be around 10% to 11%. Because of COVID, we had made small changes, we had put additional filters, and therefore it went up to about 15%. Now it is back because we have normalized all those changes. So now it is 11%, back to normal. In terms of Karnataka, Karnataka contributes close to about 26%. And out of -- within Karnataka, Bangalore accounts to almost 80% to 82% of the business -- of the book.

80% to 82% of Karnataka, right, sir?

Exactly. Yes, yes, yes.

Right, sir. And sir, just 1 last question. What is your normalized run rate in terms of number of loans per quarter or even on a per month basis if it is possible?

So it will be approximately about 12,500 to 13,000 per quarter.

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

Sir, my question was answered. Question was on disbursement only. So I got that disbursement going ahead would be at least INR 18 billion to INR 20 billion is what you are indicating, right, INR 1,800 crores to INR 2,000 crores or more than that?

Yes, that's on the same lines.

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

This is Sonal Minhas. I wanted to get some heads-up update on, last time when you talked about you releasing the noose on the quality of the customers who would be getting added in the loan book, and hence deliberately getting a new set of customers with a higher yield or maybe a higher risk profile as well. So just wanted to get a subjective update from you as to how is that panning out? And what all things have the company done in the last quarter or maybe 6 months to make sure that we are on track on that?

So what we did was, since we changed the pricing strategy, we had the ability then to focus on slightly better profiles, rather than saying better, maybe high ticket, slightly higher ticket, so that we can grow our book faster. And all these are salaried and therefore, the risk is lower. So our ticket price went up from INR 18 lakhs to INR 20 lakhs. So that's the change. So we also had to reorganize some of our strategies to ensure that we start sourcing more from CAT A and CAT B developers. CAT A and CAT B corporates in some of the metros and major cities, right, since we had the pricing power, right? So even now, going forward, we will have the pricing power. We may not be on par with the best banks in the country because you also need to maintain the margins. At the same time, we won't also get back to our pricing strategy, which was there 2 years back where the differential between the best bank and us was about 150 to 200 bps. So going forward, we will have a difference of about 75 to 80 bps. So we will have that differential. Since we are widely spread, we'll be able to generate that kind of business and maintain higher yields.

Okay. And sir, in terms of internal processes, to assess, let's say, a customer who is applying for a second house or, let's say, a top-up loan or a third house, what additional things have been reinforced in the company to make sure that this is a water tight process? And maybe the approvals for that are looked at in a tighter manner because it's a new business that -- or a new business that you're trying to get into. I just want to understand that from an operations perspective -- internal operations perspective.

So if it is a second loan and if it's a top-up, then actually the process is simplified so that the tact is better and customer experience is good. Because we have customer repayment track record with us, and we have all the details of the customer, including the repayment. And therefore, we have simplified the process. However...

Basically because you have a existing customer. But for a new customer -- yes.

For a new customer, the same process continues, where we check on the customer profile, check the property, check his cash flows, banking and income level. We are a little tighter in terms of calculating the FOIR because this is a second property. So we have all prudent credit checks which we apply, and apply various filters because it's at the other side of the FOIR -- higher side of the FOIR and then we take a call. So I think these loans have really worked out to be good for us in terms of delinquency. The customer with a better repayment track record behaves well in our book.

Understand. And in no way a customer who has, let's say, less credit history or, let's say, an inadequate track record on their credit gets through the system because of this being a new product segment or a category you're getting into?

No. We have a mix. We also cater to first-time borrowers. When I say first-time borrowers, home, because customer might have a credit card or maybe a small unsecured, so which will not give us the credit history in spite of referring to bureau. So we have a lot of customers who would be first time into major exposure. And therefore, our internal risk assessment becomes the key. We have a scorecard to assess. A scorecard is nothing but a mini bureau. So we apply various parameters. And then there is a scoring done and then the risk tagging gets done. So based on that, we price and we take exposure on the customer. Because of our internal risk assessment and underwriting, we are able to control that, but we have good 40-odd percent in the portfolio, which is doing very well.

The next question is from the line of Shalini Vasanta from DSP Mutual Fund.

Sir, I wanted to know the amount of your CP borrowing. And also, you have mentioned that the incremental cost of borrowing is around 4.8%. So how much of this would be coming from the CP?

CP. See actually...

Yes, from a CP.

Yes, yes. CP, we'll take only as a backup. We don't raise CP for funding. So only if we have -- this is our internal policy. Only if we have unutilized OD and sanctioned unutilized term loan limits, only then we take CP. So CP is used more to leverage on cost and not for funding.

Okay. So as a policy, you would have unutilized banking mix against all the CP borrowed?

It is unwritten policy. It's not a documented policy. But since we are -- see, we have to keep our costs low. Since we are high on liquidity, I think it is aiding us to keep our cost low by raising CP as well to leverage on cost.

Sure, sir, that helps. And how much would that number be, if you could give us a number?

CP number?

Yes.

It's about INR 4,200 crores now.

The next question is from the line of Manan Tijoriwala from ICICI Prudential Asset Management.

Sir, I have a couple of questions. So first one on reported yield, I see that they are reduced by 140 basis points. I'm not sure if this was covered earlier. So is there an annual reset also that contributes to the reduction in yield?

Yes. So for example, we have repriced 70% of our portfolio. We do annual reset. So it works in both the ways. When the rate goes down, our portfolio will get repriced on the lower side. When rate is going up, it will get repriced on the higher side. So now, for example, interest rates started moving up. So you will see in the next few quarters, the interest portfolio will get repriced on the higher side. So it helps on both sides. So now we are almost at the fag end of the falling rate scenario. And so in the next 1 to 1.5 years' time, we will see good lift in the yields on portfolio.

But sir, that is -- you're saying that 70% gets repriced annually. So is there a quarterly repricing as well, which is why you expect the yield to go up?

No, it's done on a monthly basis. It's done every month. So a certain set of customers would fall due for conversion every month. So in 1 year, we would have covered the entire cycle.

Okay. Okay. Fair enough. Sir, for example, now if say you would have generated a loan, which was at around say 6.9% or whatever was the rate at that point. So how much would that get repriced this year?

It will be at the card rate. For example, now any repricing now will happen at 7.5%. So any repricing in March would have happened at 6.95%. So whatever is the card rate at that given point in time, let's say, in that particular month, for example, let's say, 2 quarters later, if my card rate is 8%, any repricing will happen at 8%.

Right. Fair enough. So basically, the lowest rate guy gets the lowest rate now. Okay. Fine.

Exactly. So now we have seen almost end of the downward rate scenario, which is why we also increased rates from 6.95% to 7.5%. So I think going forward, we can see upside on yields.

Fair enough, sir. And sir, how much of your portfolio would be, say, probably below 7% in the entire portfolio right now?

You're saying less than 7% or more than 7%?

Less than. Less than 7%.

Less than 7% may not be much. But for the origination, what we did, in a part of quarter 4, so that will be, let's say, about INR 1,000-odd crores, not INR 1,000 crores, sorry -- yes, it will be INR 1,000-odd crores, about 45 days [indiscernible] about INR 1,500 crores max. Because we changed the pricing somewhere in the mid of the quarter, so if you take that into account, even the repricing and this all put together, it will be about -- not more than INR 2,000 crores.

Okay. Got it. Sir, 1 last question. So sir, borrowings, so whatever is above 7%, how much of it would come for repricing in this year?

All the borrowings are linked to the repo plus spread whatever we have from the nationalized banks and from other banks. Whatever we've borrowed from the National Housing Bank is linked to their lending rates. CP as well as NCDs are as per market rates. So as and when the repo changes, the rates will get changed.

So one is that. And number two, we also proactively engage and negotiate with all the bankers. We've been doing it for the last few quarters to get our term loans repriced on the lower side.

The next question is from the line of Dhaval Gada from DSP.

Sir, just 1 clarification. So on the -- you said that you'll give the restructured number in the next quarter. But just the amount that you have sort of kept aside, INR 37 crores. And if I assume 10% coverage on that, that amounts to like 1.6%, 1.7% of loans. Is that broadly where we should be approximately?

Yes. It will be less than 2%.

[Operator Instructions] The next question is from the line of Amit Ganatra from HDFC Asset Management.

Sir, can you provide the total borrowing number for this quarter? What is the total borrowing quantum?

Incremental borrowing, you're referring to?

Not incremental. Total. It was INR 18,246 crores in the fourth quarter. What would you be in the first quarter of this year?

It is INR 19,275 crores.

And out of that, you mentioned that some INR 4,000-odd crores is CP. Is that correct?

Yes. See if you want to know the bucket mixing, banks constitute to 47%, NHB is 25%, market borrowing consisting of CP and NCD is 26% and balance 2% is from the public deposits.

The next question is from the line of Anand Bhavnani from White Oak.

Sir, my question is more from a strategy perspective and more of a 3- to 5-year kind of a question. So apologies in case find it tough for the particular quarter. The question is we hear a lot about fintechs coming and there's this [indiscernible] whereby people will have an account with NBFC account, and they can easily share data with [ freelancers ] and it will be -- [ people say ] it will be equivalent of UPI for credit -- for payment [Technical Difficulty] So in that kind of environment, assume it takes 2, 3 years of the environment to kind of develop, in that kind of environment where would Can Fin Homes fit because all of your customers [Technical Difficulty] they would bank for a better rate and they will go out. So 3 to 5 years out, how would Can Fin Homes be able to sustain its book? And if you can share any thoughts or any plans you're building forward that sharp deterioration in book because people move out as technology makes it very, very easy.

I think very good question. See as long as there are banks in this country, as long as there are [ HFCs ] and NBFCs there's going to be differential in pricing. And therefore, it becomes very critical to keep our costs low, and also ability to generate business at a higher yield. Today, if you look at market, there are so many NBFCs and HFCs, which are in a position to generate business at a much higher yields. Today, we have mortgage book at 16% yield, at 18% yield, at 15% yield and also at maybe 7% or 8%. So market is quite big. And I don't think that should be a worry as long as the company is able to manage on both sides, one is trying to generate business at a higher yield and also control cost in terms of borrowings. So fortunately, we are in a position to keep our cost low, and we have the ability to generate business at a higher yield. We have done this for almost 31.5 years, because only in last 1.5 years we could see some change in the pricing strategy. Otherwise, always our pricing was about 150 bps higher than banks, in general. So market is quite big. And we are also tuned to raising and doing business at a higher yield by keeping our costs low. So I know that there are a lot of fintech's which are emerging. But I think at least for next few years, a fintech would probably enable faster disbursement or maybe automated sanction, automated disbursement. As far as small ticket personal loan is concerned, largely unsecured. But for huge exposures because there is a property and therefore, there's a legal and technical angle, and currently, if you see in India, both legal and technical are not automated. So there is no 1 repository where you can refer to and then take a call. And therefore, it will be difficult even for a sanction. So pre-approval would be difficult, whereas prequalified is a way out. We are also working on that. That we can just do a bureau pull and then give a prequalified limit to the customer, subject to verifying asset and other documents. So definitely, going forward, the company has to be agile and aligned to what the market needs in terms of automating. So we are on that path. Only thing is because this is home loan, long-term product, more of a human touch is required in terms of servicing, and there is one more leg of property, this might take much longer compared to other loans. And second reason is that this is a high value loan. So we talk about INR 15 lakhs, INR 18 lakhs, INR 30 lakhs, whereas small ticket personal is hardly about INR 1 lakhs or INR 2 lakhs. Even high ticket unsecured loans won't go through this channel at this point in time.

The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

Sir, I have 2 or 3 questions. Maybe I can ask all of them to you now and then you can answer them one by one. Sir, so -- I mean first of all, congratulations on a very strong asset quality during such difficult times. But what I was trying to understand is, in which stage have you classified your restructured loan? And what's the pipeline like for your restructured book now? Understandably, what you suggested some time back that you have taken the INR 3,700 crores of provisions and assuming you have made 10% provision cover, other than that, that is the restructured pool that you have already restructured, I mean the loans we have already restructured. But what's the pipeline looking like now because, I mean, people can still apply for a restructuring. Is the first question that I had. The other question, sir, that I had is some time back, you shared that your stage-2 numbers and -- I mean very [ hearteningly ] it's kind of just moved by about INR 16 crores Q-o-Q. So what is the provision cover that you are carrying on these stage-2 assets? And sir, lastly, your incremental cost of borrowings during the quarter, which was 4.87%. Is it largely because during the quarter, you raised money in the form of CPs and NHB borrowings and going forward, when you will have to borrow from, let's say, a debt market and from banks, the incremental cost of borrowings can go up when we don't have enough and more available from the National Housing Bank. So the last question is, in the past, you've guided on spreads of 3% and NIM of 2.4%. Given that during your opening remarks, you alluded that these spreads and NIMs have now bottomed out. Where is your -- what is your guidance now? Those are my questions.

Okay. So on the restructuring, we have identified some are done, some are in the process. So we have identified and therefore, we have provided. So -- but I think the overall number is going to be about 2%, which I indicated on the restructuring part. This is an approximation number. And based on the past trend, about 12% to 15% of this pool has probability of moving into NPA, right? This is on the restructuring part. And on -- I'll come back to SMA. On the cost of fund fee -- this quarter, incremental costs is because of many factors. One is we tried to leverage by raising CP. That is number one. Number two, we availed loan from NHB at a much cheaper rate. Number three, even from all the banks, both private and PSU, we are able to raise at a very, very competitive rate. And in fact, some of the rates are around 5% -- sub 5%, right? So it's not just one. It's not just CP or not just NHB or not just bank, I think blended is able to manage this. Even going forward, we'll be able to manage costs. So this trend will continue. Suppose if the interest rate starts going up, so this 4.87 might go up. It might go to 4.9, maybe 5. So in that sense, we'll also try to increase our yield to maintain the margins. Lastly, on margins, we had told that margins will come down, and that is for a reason. And the reason was that we want to grow our book during COVID. Since opportunity available for all the banks and the financial institutions to source and build the book was less due to COVID, BT was a easy kill, and therefore, we wanted to retain a book and whatever business we generate, we wanted to be competitive in a small market available because of COVID. Largely impacted due to mobility, not in terms of real potential, at least on the affordable space, right? So why I'm saying that margins will improve over a period of time is only because we saw till quarter 4, we were dropping rates. Now we have increased rates. And we see that this trend will continue, though it will not be substantial. I think quarter-on-quarter, you will see both margins -- both spread and NIM will start inching up. I won't be in a position to give guidance at this point in time. But yes, 2.4% -- at a portfolio level, 2.4% and 3% would be something which we will protect. Having said that, I think from now onwards, you will see margins improving.

Regarding the stage-2 accounts, see, as you are aware, as per the NHB or revised RBI guidelines, HFCs have to calculate the provisioning both as per the IRAC norms as well as the ECL model adopted by the Board, and higher among that has to be provided. In the ECL model, we are authorized to collect the marketability of the security, discount to a particular level and on the balance amount provide for. Generally, ECL model is going to come down value what provision is required as the retail model is going to be the less on account of security value consideration. So that is why whatever the provision has been held for the stage-2 accounts, will be as per the IRAC norms. And stage-2 account consists of SMA 1 and SMA 2, that is 30 to 60 and 60 to 90 days bucket. And the provisioning generally will be as per the standard asset provisioning to be carried, which will be around 0.40% on a weighted average basis. Accordingly, the company holds the provision in the books both as well as Q4 in -- as well as Q1 in the current financial year.

[Operator Instructions] The next question is from the line of [ Dhruvesh from Mirabilis. ]

Just 1 quick question. So our BT out was INR 250 crores and then it went down to INR 90 crores when we reduced the rate in Q4. So now that we have increased the rate again, what was the BT out in Q1?

In quarter 1, it was INR 57 crores. So we're able to manage that. Because see, what happens is that when the differential is big, then even customers will be motivated to switch loans. And if the difference is not much, then the cost of switch in terms of time, energy and money proves out to be costly. And therefore, we are available to manage that.

Okay. Got it. Just if I can squeeze in a quick question, if you allow?

Please go ahead.

Yes. So sir, in the last call, you had mentioned that our DSA payout is much less than the industry. So won't -- that can be considered as a business risk? I mean, let's say, the competitor increases their DSA payout by, let's say, 20 basis points, then the spread will be -- spread will increase and as a DSA will prefer to source other NBFCs and not prefer Can Fin. So how do you see that since 55% of our sourcing comes through DSA? So it is a substantial thing to be look at.

No. See, this differential existed since decades. So it's not now. So the difference in the payout is there since last, I think, more than 20 plus years. The set of DSAs who do business for us, it's largely because of customer pull. Because it is customer pull, I don't think that this will impact because if at all this had to impact, this must have impacted in the last 1.5 years because that was a tough patch we've gone through in the last many, many years, right? So I don't think so. I'll tell you why it may not impact because we are making payout to the DSA for the work what he or she does, which is less than 50% of the work what typically a DSA would do for any other institution, because our DSA sourcing model is different, it's only origination model and not fulfillment model. Whereas for any other institution, it is origination and fulfillment. And therefore, I can say part 1 and part 2. We only get part 1 done and make the other part.

The next question is from the line of Rahul Maheshwary from Ambit Asset Management.

Am I audible?

Yes, please go ahead.

First of all, congrats on asset quality front. A couple of questions is that, firstly, as you wanted from the start of pandemic, the strategy of low yield so that you can compete with the large bank. Can you give incrementally, no doubt first quarter was hit by second COVID wave, but once the unlocking has taken place, how the trend has been? And as you are at the bottom end of your guidance, even in terms of the lending rates, and plus on top of that, you were being aggressive in terms of the second homebuyers and in terms of higher ticket size. So can you give some color on July trends or going forward how confident you are keeping in mind that the third wave doesn't take place. How for the full year, you're confident on the guidance, which you have given?

Looking at the trend, July is better than June, and I'm sure August and September will be better than the previous months. The trend is pretty strong. I think with every passing month, the month would be better than the previous month in terms of trend, unless and until wave 3 hits. Otherwise, trend is quite robust. And also -- no, in terms of the outlook, we are pretty -- we are well covered and there is no issue at all. In terms of pricing strategy, it was only for short term because we had to protect our book and also be competitive in the market. And now we've seen end of that. And therefore, I mentioned earlier that you will see quarter-on-quarter, we'll be improving our margins. I would not be in a position to give guidance, but definitely, we are seeing -- because we are increasing rates. We have increased rates now, right? So I don't see any issue with respect to that. We'll be able to manage. Did I answer your question?

The next question is from the line of Aswin Balasubramanian...

I think just a second. I just want to check, did I answer the question or have I missed anything?

Mr. Maheshwary?

May I ask?

Please?

Yes.

Sir, just -- as you mentioned that you have taken a rate hike in the current quarter, and previous quarter, in quarter 4, we have seen a record disbursement trend where the balance transfer was -- balance transfer in was 3x. Now going forward, as you're taking rate hike, what was the current trend in the quarter 1 of balance transfer in because of the lower yields which you are charging? And how confident you are in terms of balance transferring apart from the normal trends, which is taking place because of the pricing strategy which you mentioned earlier, sir?

So in quarter 1, BT was INR 57 crores, which was much lower than what used to happen earlier. So we have very well controlled with that. So going forward, we see good uplift in disbursements, and we'll be able to manage BT of at least less than INR 100 crores month-on-month.

Sir, what was balance transfer in? This was BT out, I think so for INR 57 crores.

BT in, in quarter 1 was not great because of mobility for almost 40-odd days. So BT in, generally, we do about 12% to 15%, in quarter 1, it was less than 10%.

Okay. And this run rate will continue to maintain despite you have taken a rate hike -- yield hike which you have taken?

No, going forward -- see, we have to make note of one thing. We will not probably go back to our earlier levels of pricing in terms of strategy. Now we'll be slightly higher than some of the big banks, just to keep our yields higher and maintain our margins. In terms of book protection, we'll be able to protect because the difference is not going to be much. And in terms of BT in, we will have a better chance of generating more business through BT in.

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

Sir, my question was largely on [ marketing ] strategy and maybe heading more into affordable housing. Right now, we are doing an average ticket size of about INR 18 lakhs to INR 20 lakhs. And in the higher ticket size, mostly the players like HDFC, LIC also have a lower cost of funds whereas in lower ticket size housing loans, about INR 8 lakhs to INR 10 lakhs most of the players have higher cost of funds. So do we -- and also a point that most of the bigger NBFCs are present whereas the banks are present mainly in the metro cities, we are in a unique position [indiscernible] Tier 2, Tier 3 cities, wherein we can make our [Technical Difficulty]

See, amongst all the HFCs, we are lowest on costs. I think we will continue to enjoy that advantage. And what we will do is we will have a differential pricing where we'll be able to attack slightly better ticket profiles and also focus on affordable just to have a blend of both the profiles as a mix to ensure that we have a higher yield. So I don't see that as a challenge, because we are best in the industry with respect to cost. And in terms of profile, we have just upgraded to the next 2 levels in terms of generation. So in terms of risk, it will be lower. In terms of yield, it will be slightly less than earlier, but of course, compared to a revised strategy a few quarters back, it will be far better than that. So it will be a win-win. So now we have taken the mid part with keeping very aggressive growth plans.

Sure. So we are looking into maybe slightly lower ticket size also?

No. Ticket size will inch up. So it was INR 18 lakhs, now it is INR 20 lakhs. So ticket size will go up. But it will be a mix of both, affordable and also big ticket loans. When I say big ticket, I'm talking about INR 40 lakhs, INR 50 lakhs, INR 60 lakhs, INR 80 lakhs, salaried profiles.

Yes. So because we are in that position of having the cost reductions, we'll be able to do that...

Exactly. Yes, yes, yes.

The next question is from the line of Aswin Balasubramanian from HSBC.

Just wanted to know, in terms of asset quality value with stage 2 and gross NPA numbers, which have been more or less stable. I just wanted to understand in terms of collections, what is the kind of impact that you saw like, in terms of collection efficiency during the second wave and how has that kind of normalized? And in general, what's been the impact in terms of the second wave on asset quality as compared to the sort of first wave? And second question is you indicated that the demand is quite robust. So I mean is this something which you're seeing across markets? Or it's more in like Karnataka, Bangalore where you're more dominant?

Okay. So in terms of collection efficiency, I think the second wave was more severe in terms of efficiency dropping compared to first wave, even though first wave lasted for about 5, 5.5 months. Second wave lasted for about less than 60 days. The impact was more in the second wave because in first wave, there was morat and there was restructuring. Whereas in second wave, there was no morat and it was restructuring, which was announced as a reference date 31st of March. So we had a lot of difficulty in terms of managing the collections in the month of April. Efficiency dropped. It was probably the lowest in last few quarters, I must say, last 6 to 7 quarters. So we had really tough time managing that. However, we were able to pull it back in May and June was very good. So I think we averaged it out very well at the end of the day for the whole quarter. But yes, Q2 was pretty bad, especially in the month of April because entire April was hit in terms of mobility and therefore, we had an impact. But fortunately, we were able to pull back in March -- sorry, in May and June. So overall, if you see now, we don't see any impact on asset quality because of either first wave or second wave. Because even in first wave, if we remember, we spoke about morat percentage. Yes, we were on the higher side, that's because we gave that option to the customer. We had given a default option to customer. Therefore, we had slightly higher number. And eventually, it turned out to be pretty -- working pretty well because our NPAs didn't increase compared to what we thought it would inch up to. Similarly, even second wave has spanned out very well so far. And anyway from this quarter, it will be pretty stable. So to be very honest with you, we were able to manage both wave 1 and wave 2 pretty well, especially on the NPA front.

Ladies and gentleman, this was the last question for today. I would now like to hand over the conference over to Mr. Girish Kousgi for closing comments.

Thank you, investors, for spending your valuable time with us. Going forward, we'll be keeping a very fine balance between loan growth and as well as [ volatility ]. And thank you all for showing confidence in us. Thank you once more.

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