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

Ladies and gentlemen, good day, and welcome to the Can Fin Homes Limited Q1 FY '23 Earnings Conference Call hosted by Investec Capital Services. [Operator Instructions] Please note, this conference is being recorded. I'd now like to hand the conference over to Mr. Nidhesh Jain from Investec. Thank you, and over to you, sir.

Thank you, Vikram. Good afternoon, everyone. Welcome to the Q1 FY '23 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. Amitabh Chatterjee, Deputy Managing Director; and Ms. Shamila, Business Head; and Mr. 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. Welcome to the earnings call. I will not get into numbers in detail since you would have gone through the numbers. I'll quickly give you a brief, then we can open the floor for Q&A. It was a good quarter. Quarter 1 was really good for us. So approvals to get INR 1,750 crores, which is up by 111% on a Y-o-Y, a disbursement at INR 1,721 crores, up by about 93%, book from INR 22,221 crores. It went up to INR 27,538 crores, which was an all-time high of 24% in last '21 quarters. There was a good growth in NII at 38%, PBT at 50%, PAT at 50%. We were able to maintain GNP at almost same level. It is 0.64% last quarter and this quarter is 0.65%. On the net NPA is 0.3%, ROA, ROE, I think on all the parameters, there has been improvement. In terms of NIM, last quarter was 4.07%, this quarter it's 3.6%. So NIM basically has 3 components. One is the interest income. Second is the other income. And the third is income on the investment. So last quarter NIM what we saw was a bit of an aberration because we made a lot of investments in the last part of the year. And therefore, if you discount that, I think NIM would have been some 3.8%. So against that, we are at 3.6%. That's -- this has an impact to a certain extent on disbursements and other income. Spread is at 2.66%. So we have improved over last quarter. Cost to income is 15.84%. Again, I think as a guidance, we will be anywhere around 18%, 19% on a yearly basis. Profit margin has improved to about 27%. PCR, I think this marginal improvement of 54% and trade cost is almost 0 for this quarter. In terms of yield portfolio, it's 8.46% and incremental yield was 8.21%. Cost of funds portfolio was 5.8% and incremental 5.67%. Costs went up. Cost is going up since last few months because even NAREIT has gone a price. We increased the rate last year. So that benefit we are seeing now. And therefore, we see improvement in yield, which has led to good profitability in this quarter. I think last quarter, we discussed about audit and all. So we have, based on the Board's direction, we have done audit in all the branches. All the 200 branches we have done audit. There were observations and most of the observations are now rectified. And we identified small irregularities totaling to about INR 2.34 crores -- INR 2.43 crores, which is fully provided. So that inspection was done by our internal team to a certain extent and statutory auditors. So we had various state auditors appointed. So together, they covered all the branches. It was concluded last month. And the impact of that, additionally, it's about INR 2.43 crores, and it is fully provided. So last quarter, what we had provided was INR 3.93 crores. Out of that INR 1.4 crores is closed, that loan is closed. So that book has now come down to about close to INR 2.5 crores. Incremental is INR 2.4 crores. So I would now request to start Q&A.

[Operator Instructions] We have a first question from the line of Shreepal with Equirus.

Congratulations on a good set of numbers. So you highlighted about the audit that was run internally, but there was also an audit, which was conducted by Canara Bank, which we highlighted during the last quarter. So was there any observation from there? And also, what is the nature of irregularities that you have found in your internal audit?

So basically, Canara Bank audit was, last time, we had covered that in the results. So after that, we had -- we got all the branches audited based on the Board's direction, which was done by internal team, 25% and 75% brand statutory auditors, okay. So basically, these are multiple audit firms. We have to engage them to do the audit, okay. Now last quarter, we covered based on the Canara Bank audit, we had identified irregularity to the extent of INR 3.93 crores, which was provided in quarter 4. And out of that, close to INR 1.4 crores loan is closed. Now the outstanding is about INR 2.5 crores. And in this audit -- after auditing all the 200 branches, irregularity is INR 2.43 crores. Now -- so this is the outcome of the inspection or audit in all the 200 branches.

So what will be the nature of these irregularities, like if it could close...

Irregularity, this is basically financial documents forged or something like that. Basically, these are forged.

Okay. Got it. So with respect to the rates on the yield side, so does the rate that we would have offered to our customers during, say, January 2021 to March 2021. Now that would have got repriced during this Jan to March 2022, right? So what would have been the repricing now like for these customers that you would have disbursed loans for?

Now see, the reset happens once in a year. So depending on when the loan is availed, where is it happens. So all the loans which we have given last year, so after 12 months, it will get reset.

And then reset like increase would have been like by how many like percentage of basis points?

So I told you now the yield is about 8.46%, incrementally 8.21%.

Okay. Okay. Got it. And then one last question on the credit cost side. So while our yearly guidance is for 40 basis points. And like we had created buffers during last quarter and which we reversed during this quarter. So I just wanted to understand like are we still sticking to the 40 basis point credit cost guidance or would we be revisiting it now?

No, no. I think we were referring to 2 different data points. So if you're talking about credit cost for the year, it will be in the -- there is no change, it will be about 0.22% to 0.24% in that band only. So if you take overall, it comes to 0.4%, I think that was -- because we were talking about 2 different things in the last con call. So if you have to talk about credit cost during the year, I think -- which is basically charged to P&L, it will be in the range of 0.22% to 0.23%.

Okay. Okay. Got it, sir.

And also, you asked about the kind of irregularity. I think there are 2 parts. One is with respect to financial statements, financial documents. And second, there could be some deficiency in properties, which I'm talking about INR 2.43 crores.

Sorry, sir, what did you say properties?

No, no. This INR 2.43 crores, irregularities been basically fraud. So the deficiency would be with respect to either property or with respect to financial documents.

Okay. Okay. Got it. Got it. And good luck for the next quarters.

Thank you.

We have next question from the line of Ankush Agrawal with Surge Capital.

Congrats on a good set of numbers. So actually, I'm on the audit, so just seeking some clarification on what you said in the last quarter, the Canara Bank audit resulted in what we call the INR 4 crores fraud that we discovered, right? And the same was provided last quarter. And this quarter, based on our internal audit that we did across all the branches, we again found about INR 2.5 crores of fraud. That is what we meant, right?

It's not only internal. It is partly internal and partly, we have engaged audit firms, external audit forms to do it. So it is 25% our own audit team and 75% we had engaged external auditors.

Right. And this additional fraud is relates to branches that are not the same, right. It belongs to the other branches that was covered in the last fraud that was discovered, right? So these are different branches.

So see, this audit covered all the branches. It includes the earlier branches also.

Right. But the fraud was -- the additional fraud of INR 2.4 crores is covered in different branches, right? It's not the same branch.

So it was in the -- earlier, we had one branch. So there, there were some incremental cases and we add 2 other branches also.

Okay. 2 more branches also. Got it. So sir, any kind of communication that we have made to say, NHB or Canada Bank and has been got in hand or response from that on the findings of this audit?

Nothing, I think whenever we detect a fraud, we have to report to the regulator that we have done.

Right. Right. So at the moment, like status quo we -- nothing communicated from the auditor -- from the regulators side.

So it's status quo because you would appreciate the fraud is part of normal business risk. And now we have covered all the branches, entire 200 branches.

And we would have taken obviously the step sensitively to curtail this, right.

Yes. Yes, absolutely.

That was important.

We have next question from the line of Shubhranshu Mishra with UBS.

A couple of questions, sir, on the outstanding book. Can you split the book into CAT A, CAT B and CAT C per customer? And what's the respective FOIR for each one of them and the average income that you take for each one of them and same on the incremental book versus of the disbursements. And my third question would be on the concentration of the book, what portion of the book capacity is based out of Bangalore and what proportion of the book is based out of Karnataka?

Okay. So in terms of profile, we focus on CAT B, now for CAT B customers. And within that 50% would be government, 50% would be private. In terms of income, average income would be anywhere between INR 38,000 to INR 40,000 per month. That's the income bracket. And in terms of concentration, I think we are well diversified. And Bangalore, in fact, Bangalore is major portion in Karnataka. I think Bangalore contributes to about 20-odd percent. And if we compare Karnataka about 22%.

And FOIR of each of these categories.

Come again, sorry?

FOIR. FOIR while originating.

Yes.

Yes, sir.

So that will be common across. See FOIR also depends on the income level. So basically, I think the entire industry operates on lower the income, lower the foyer, higher the income slightly higher the foyer, where we have a step-up for your metrics. So based on this, we fix the foyers. So it starts from 40% for us.

We have next question from the line of Onkar Ghugardare with Shree Investments.

My question was regarding the AUM disbursal and all the growth metrics. What would be your guidance for the full year, sir, in terms of all the...

It will be around 18%.

18% to -- 18%, right?

Yes.

And what kind of deals you are looking at?

See we -- I've been saying this that spread of 2.4% and NIM of 3% would be the threshold what we would maintain. So today if we look at...

NIM is 3%?

Yes. I NIM of 3%. Today NIM is 3.6%. So for next year quarter, it will be hovering around 3.5%, 3.6%. I think on a steady state, long term, I think we would protect 2.4%.

2.4%?

Spread of 2.4%. And NIM of 3%.

Correct, yes. And NIM of 3%.

So if you look at threshold, yes.

And any capital base planning, right?

Yes, we are planning to raise capital in this year. So it will be part of the enabled amount, which is about INR 1,000 crores, we'll be raising some portion of the INR 1,000 crores.

So this will be a Tier 2 capital or what?

That we'll have to see. It will be Tier 1 only. So we'll take a call at the appropriate time but it will be Tier 1.

And in terms of NPAs, what are you targeting?

So we don't see a significant change in NPA levels. We are at 0.65% now. So maybe 10 bps here and there, but we don't see anything beyond that. I'm talking about this year.

We have next question from the line of Anuja Jhalkar with Dalal & Broacha.

Anusha Raheja, here. See, I just want to understand because of this irregularities what was the cause of this? Was it people or the systems? What is the main reason behind it?

So it is actually combination since the amount is very less, considering the total outstanding -- total book, right? And this is -- fraud is part of business risk, right? So in some places, it was the people, but it's not system. In some cases, it is a channel partner. So it's a combination of all.

So I mean how do we ensure that frauds may not happen in the future?

See, madam, I don't think so today, any financial institution would guarantee that no frauds will happen.

I mean, in just request is -- effort is to ensure that such things may not happen.

Whenever such thing happens, we identify and we do RCA and then we try to correct whatever it has to be corrected. But however, you must appreciate that since last so many years, every year or the other, there is some kind of fraud, which happens or may not. We should say what is the percentage of that in proportion to the book? And what is the frequency of that, right? So our systems are robust enough to prevent fraud.

And also, I just want to understand how you're seeing the demand for the housing loans and the rising interest rate scenario, assuming that even if you increase the rate, you feel that demand can dampen further or how it will be?

I just covered that. So I told, we'll be able to grow at about 18%. So that is taking into account the interest rate increase, all possible economic factors, which might impact we feel that around 18% should be decent in that growth.

Okay. And on the asset side, what is the loans that are fixed price ones and the floating base one?

On the asset side, all the loans are floating only.

All the loans are floating. And the repricing happens once in a year.

The repricing happens once in a year.

So when you do that?

Sorry. It's on annual basis. It's an the annual basis. So once in a year.

Yes, that happens, middle of the year -- mid of the year, just want to understand.

No, you will have to wait till 12 months.

We have next question from the line of Pooja Ahuja with Monarch Networth.

Sir, firstly, I wanted to understand that on the disbursement while you've guided for an 18% growth. Just wanted to understand the trajectory, while on a year-on-year basis, of course, you've seen a strong growth, but we've seen a sequential decline this quarter. So do we expect to go back to the disbursement levels that we saw in Q4.

So I had told for the whole year. Generally, quarter 1 will be muted compared to quarter 4. So this is the industry trend. So I have told around 18% taking into account for the whole year.

Okay, sure. And what was the BT out during the quarter. I just wanted to understand, has that thing normalized right now? I mean, what's the competitive intensity like with banks?

It normalized, I think, about 4, 5 quarters back only. So it's around INR 100 crores for the quarter.

Okay. Okay, sure. That's it from my end sir.

Thank you.

We have next question from the line of Ratik Gupta with Guardian Asset Management.

Yes. So sir, I was trying to reconcile the cost of borrowings for the bank, basically the funding basket. What I can see is the average approximate borrowing based on the annual report is approximately 6.5% to 6.6%, but the cost of borrowing that we are reporting is 5.8%. So can you give a light on how is this actually be reconciled?

No. On portfolio, the cost of borrowing is 5.8%. So if you look at the mix today, you have 54% is bank. 22% is from NHB. NCD, 11%, CP, 11% and deposits, 2%. So I don't know from where, you've got this 6.5%. If you could please help me, we can check and come back to you.

Yes. So actually, I have taken the cost of borrowing based on your 2021 annual report, the average cost of borrowing for each individual basket. And based on that, I have arrived at it. Anyway, yes, I can take this offline. Sir, my second question is where is the minimum cost of borrowing that you see at foresee level? I mean, is it from the bank or is it from the NHB that you're assuming going forward?

As of now, it is NHB.

Okay. So NHB will have the lowest cost of borrowing from you.

Yes, NHB, then bank, then NCD.

Okay. And what will be the approximate rate for the bank?

See now it will be -- it depends 6.1% to 6.2%.

We have next question from the line of Souresh Pal, an Investor.

I have 2 questions. My first question is, may I know what is the status of the restructured book as of now? And whether any loans from that book has slipped into NPA? And my next question would be, whatever guidance you have given, what are the things that you -- what are the things that you think it can prevent us from achieving us -- from achieving that kind of growth rate? These are my questions.

Restructured book was about INR 709 crores. So now out of that INR 45 crores is the -- book has come down to INR 45 crores. So these are basically loan closures either from own source or switch to other institutions, right? So today, it is INR 709 crores minus INR 45 crores, that's the outstanding book from the initial level. As of now, no account is NPA from restructured book.

And sir, my second question was what are the things that can prevent you from achieving 18% growth guidance that you have given?

Okay. So if you look at the performance since last 5, 6 quarters, I think you are seeing growth on all the parameters. Market is quite robust. Real estate industry has derived and it is deriving, right? Interest rate, of course, there has been increase. I think last 2 changes were on the higher side. And one more time, I think rates might go up. We have factored all these things. But I think what we should talk about is demand. Demand is very robust. Since demand is so robust. I know that there will be some impact because of increase in costs and also because of increase in cost of construction. So I know that construction cost has increased in cost of funds will go up. In spite of that, I feel that achieving about 18% growth shouldn't be a problem given the architecture of what Can Fin has in terms of sourcing, underwriting and servicing the customers.

We have next question from the line of Krishnendu Saha with Quantum AMC.

Most of my questions have been answered. There's just a couple of small things. Our DER is at -- what -- where do you see our DER is going at? And just on the repricing, if I'm to understand the assets are on the external benchmark. What is your benchmark to treasury report? What is it because you're doing repricing once a year. So understanding it really differs to every 3 months for that -- and if you can expand and how many branches would say, we will start at 187 I suppose. So what do we see? Hello?

I really couldn't get. I really couldn't hear properly, but what I understood was what is the benchmark rate? That is one question which came to my mind? And I couldn't follow-up the other question.

Sorry. Let me start all up again. Just on the DER side, we are on 8% -- 8x. So how much debt to be twill go ahead to the DER part. And second is that we reprice our assets once a year. So right now, what portion of the book is into the external benchmark. What is the benchmark? So like I suppose it should be a reprice. I was under understanding, as it gets repriced every 3 months. So what is the benchmark? And what are the -- or how many branches do we expect to expand in the coming years or because our productivity is increasing at a rate of 7% per branch, what do we see out there?

Our RAC rate now is 8.25%. Our DER is now 7.84%. And as per the regulatory, I think up to 12x our loan, that's the borrowing limit. In terms of branches, we'll be opening about -- we'll reach about 210, I would say.

By the end of the year.

By end of this year, end of this year. Yes.

Yes. And you said the DER is going to be 12 times at the max you're looking at? Is that right?

12x is a maximum permitted by the regulator as said.

How much are you looking...

Banks are comfortable, who are lending is comfortable with around 80 share price. So depending upon the situation we plan to think of what's the capital raising. You're referring to the capital raising and referring, that is what we have been planned.

Okay. And what percent of our book is to external benchmark? What is the benchmark you can tell me?

You're referring to the borrowings.

No, for the asset side.

Our advances. Everything is in a way lead to PLR.

Yes, Okay. I get that.

On the asset side. Yes.

We have next question from the line of Franklin Moraes with Equentis Wealth Advisory.

So sir, just in case, in terms of the fraud, what was the total number of branches that were impacted by this?

4.

4 branches. So initially, it was -- in our initial -- it was 1 branch, right? So on subsequent...

Yes, initially, it was one branch, correct.

Okay. But at that time, the quantum was also about INR 4 crores.

INR 3.93 crores, correct?

Sorry, correct. So now also our outstanding quantum still remains at INR 3.93 crores, which has come down now to INR 2.43 crores.

If I have to club both the quarters, last quarter, now the outstanding is about INR 2.5 crores and now it is INR 2.43 crores, so would put together less than INR 5 crores.

Okay. And sir, are all these borrowers standard as of now?

No, in one branch, all the accounts are standard. In the other branches, it is different buckets, if I may.

Okay. Okay. So they have...

In terms of DPD, we are standard, but since we have declared as fraud. So we have force marked as NPA. So any account we declare as fraud will be force marked smarter NPA, which means technically all the accounts are now NPA.

Okay. Okay. And sir...

In spite of customers paying on some of the accounts.

Okay. Sir, and also, Canara Bank had deployed some personnel, I believe, in risk and audit team. So are those personnel still being deployed?

I think I've clarified this in the last con call only. I think it is a regular normal process. So they have deploy -- whenever they deploy, it's earn, it's for a 3-year period. So that is on.

Okay. Okay. Got it. And sir, last question in terms of your salaried share, that has been on the rise, I believe we want to kind of try and reduce that share. But so far, that number is a bit sticky at about 74%. So could you throw some light in terms of what is the trajectory that we are looking.

We are looking at 70-30. It used to be 70-30 and when COVID started, this 30 came down to 12 and 70 increased to 88%. And when things started improving from 88 it has now come back to 74. And CNP is 26%. I think in another few quarters, it will come back to original 70-30 mix.

We have next question from the line of Subrat Dwibedy with SBI Life.

Yes. So on the restructured book, just wanted to understand when -- how much was the moratorium given? And by when are the loan payments resuming on these accounts? That's the first question. Second, just wanted to know the Stage 2 number.

Okay. So we -- actually, we have in different, different buckets. So it is a combination of morat and then a step-up EMI in some cases, full EMI? So we have a combination of that. So the initial amount was about INR 709 crores, now INR 45 crores is closed. Now most of the accounts have not fallen due. So it will start falling due maybe after 2 quarters or so. Having said that, we had initially anticipated 7% of the book, which flow to NPA that is -- if it is a book of INR 700 crores. We were anticipating INR 50 crores to flow as NPA. But I think now we are moderating that number to about 5%, which means INR 35 crores. So initially, this number was INR 49 crores. Now we are anticipating INR 35 crores. That is for the simple reason, most of the accounts, even though restructured, customers have started paying back. So in terms of percentage, it's close to about 17% to 18% of customers, they have already started paying even though EMIs are not due.

Okay.

And therefore, this percentage of 7 is now moderate to 5% between INR 700 crores into 5% is about roughly INR 35 crores, which might slip into NPA over a period of time, let's say, next 5 to 7 quarters. Having said that, we also have a large NPA pool, which we are working on, on the recovery front. So if you see the net impact, I don't think so. Our NPA level would drastically change. Today, it is 0.65%, maybe it might go by another 10, 12 bps.

Okay. Okay. And the Stage 2 number sir? Hello?

Yes, I'll just come back to. We can move to the next question in the meanwhile.

INR 471 crores.

INR 471 crores Stage 2 number.

INR 471 crores, okay.

We have next question from the line of Rohan Advant with Multi-Act.

Sir, in one of your earlier answers, you mentioned that on credit costs, you expect what will hit the P&L is 0.22% to 0.24%. But overall, it will be 0.4%. So can you explain what is the -- what are these 2 different numbers that you are talking about to clarify?

No, no, as far as the way we track, we mean you and I both of us track is cash to P&L that will be in the range of 0.22% to 0.24%.

Okay. And sir, 0.4% is what number then?

No, no, that is reporting to the regulator, that is overall total on the portfolio. So incidentally, that comes to 0.4%.

We have next question from the line of Harshvardhan Agrawal with IDFC AMC.

Sir, can you please help me with the total borrowing number on our balance sheet?

Sorry.

The total borrowings on a balance sheet.

Our borrowing is INR 25,408 crores.

INR 25,408 crores. Sure. And sir, sir, another question is what is our incremental yield or the yield on the loans that we are underwriting now?

Incremental yield is 8.21%.

Okay. Sir, just wanted to understand, like if I were to look at your website, there's a PDF where we have given the yield. And on that thing, the yield starts from 8.75%. So I'm just confused as to why are incremental yields are at 8.2%.

No, because we will have offers also. So if you see the weighted average, it comes to 8.21%.

Okay. Okay. Got it. And against this 8.2% incremental yields or incremental borrowing costs were at 5.8%.

Incremental borrowing cost is 5.67%, 5.8% is on portfolio, incremental is 5.67%.

We have next question from the line of Aswin Balasubramanian with HSBC AMC.

Just wanted to understand on the borrowing side, how frequently is the rate reset. And what is the amount of borrowings which is linked to the external benchmarks?

In terms of frequency, I think whenever there is a change in repo, I think it's aligned with that. So the rate reset follows a change in repo. In terms of external and here I'll just tell you.

Yes. So total book around 21% is linked to repo and 22% is linked to the bill and 7% is linked to the NCLR. Whereas NHB borrowings have a separate yardstick, which is their internal rating. So it is a mixed bucket of borrowings.

Okay. So in terms of the borrowing costs then because you mentioned the incremental borrowing cost is about 5.67%. So that doesn't seem to have gone up much because the repo rate has moved up by 90 basis points in the past couple of months. So just trying to understand...

No, this also would have a comp cost on CP. So this is weighted average, incremental cost of bank, NHB, NCD, CP and deposits.

Okay. But even on the overall book, it's 5.6%, right?

No, no. Overall book is 5.8%.

Portfolio is 5.8% and incremental is 5.67%.

Yes, that 5.8% is moved from 5.5%. So in the coming quarters, that would reprice further higher by how much of the repo rate goes up by?

Yes, it's just a mix to the asset because repo rate, bill linked is there so it cannot go parallelly, that much hike. We have to see how the repo rate changes likely to take place.

We have next question from the line of Gaurav Jani with Prabhudas Lilladher.

Sir, firstly, last quarter, you had quantified the treasury income impact on the NII at, correct me if I'm wrong, at about INR 16 crores, so what would have been this quarter?

Prashanth on you.

Just carry on with this call, I'll just refer and come back to you.

Sure. And if you could also help me out with the total investment income recognized in FY '22, that would be helpful?

Sure.

Sir, secondly, we saw dip in terms of disbursal in this quarter, while it could be, of course, seasonal, but the dip seems to be sharper. So that's 1 part of the question. So how will you sort of look at that?

Okay. In terms of amount, INR 16 crores this year, that is this quarter, is about INR 22 crores. Referring to the disbursement, see, generally quarter 1 will be muted in terms of disbursement and generally NPAs would go up. And it will normalize in subsequent quarters.

Because we have 18% considering the 36% dip on a Q-o-Q basis seems a bit steep. So just wanted your thoughts on that?

Because this is a regular phenomena for the entire industry, not just for Can Fin. So generally, if you look at quarter 1, because what will happen is after Q4, so quarter 1, it will be slightly muted and then they pick up from quarter 2 onwards.

No, what I was also trying to understand that have we sort of reduced some aggression also more to focus on quality customers or nothing is rather changed much?

No, across whether it is -- depending on the early part of the year or quarter 2, quarter 3 or quarter 4, I think quality of customers, that is very, very -- I think that's paramount. And we have enough filters to source while sourcing and underwriting. So quality of customers is something that we always take care. So quantum of business doesn't determine on the quality necessarily.

Sure. Sorry, so you mentioned the figures for the investment income. So INR 22 crores is for the quarter, right, quarter 1?

Yes. As of start of the year. Yes, correct.

Okay. And what will be for the entire year FY '22?

On this basis, if we calculate because these are all -- most of the investments are in government securities. So on this basis only, it can be calculated.

No. Correct. Sir, I was trying to get at the annual report number of investment income for FY '22. So if you could help me with that would be great? But -- so coming to the -- again credit flow side of the disbursal side. I wanted to understand that commonly we have sort of narrowed down our guidance earlier we were guiding at about 20%, 25% and right now we're guiding to 18%. So any sort of -- or the reason for change or how should you look at that?

No, as of now, if you're talking about disbursement growth, I think 18% is very much possible because we've seen in the past few quarters that demand is quite robust and 18% is something which we can achieve. So I know this is taking into account the increase in the costs and also increase in construction costs because these 2 would have some kind of impact on growth.

Right. Got it. Sir, coming to asset quality, the restructured that was then declined by INR 45 crores that was during the quarter, right, in line?

No, no, no. This is not quarter, this is from the opening balance.

Okay. So from when -- so what I'm trying to understand is between how many quarters this -- will this INR 45 crores occur?

So this will be restructured, I think, the last 3 quarters, I would say, because once the restructuring window was closed...

Yes, this has started from -- actually for the month of December '21 to June '22, 7 months period, it is INR 45 crores, INR 47 crores -- yes, INR 45.49 crores.

Got it. Sir, the fraud total amount that you mentioned of INR 5 crore, how much of that is provided?

What 5 crores? Come again. Entire amount is provided. Full amount. 100%.

100%. Okay. Perfect. Sir, last 2 questions from my end. You mentioned that some other branches also saw this phenomenon of fraud coming through. Were there from the same locality or those are spread across India?

No, it is different a region altogether.

Because I think the first 1 cropped up from Rajasthan, but so were they from the same state or...

Then -- no, no, no, then the other things cropped up Tamil Nadu and Andhra. And the mode is totally different. So these are for different, different regions.

Okay. Okay. Got it. Sir, lastly, you mentioned that Canara Bank personnel are deployed every 3 years. My question is, when was the last time they were deployed?

No, no, it's not every 3 years they deploy. Whenever the deployment happens, it's for a period of 3 years generally.

No. That I understood. What I'm trying to ask you is when where they last deployed in Can Fin?

So see, I'll tell you, this used to happen in the past very frequently. After that, at a senior level, there were people being deployed such as MD level or may be at the BMD level. So now BMD level is continuing, and we also have now some people in various departments as we've seen in the last quarter.

Okay. No, I just was trying to understand whether that -- earlier, whenever that the permit used to happen, was that in the regular course of business or were there particular reasons for that?

See, this reputation used to happen -- of course, it is happening now also, it's happening in the past also.

It's a regular course. This is a regular course.

We have next question from the line of Ritika with Ocean Dial.

Firstly, sir, if I could just request again to -- again share the incremental yield and cost numbers?

Incremental yield is 8.21%, incremental cost is 5.67%.

Right. 8.21% and 5.67%. And sir, -- and the reported number for this particular quarter?

So that is on the book, yield is 8.46% and cost is 5.8%.

Okay. So sir, just how to maybe reconcile these 2 numbers?

No, incremental is for the quarter and book is entire book.

I mean both are actually lower than the blended so is there something which I'm not getting correct.

No, madam, 1 is on the book and 1 is incremental. See, for example, 1 is the entire portfolio. So let's say, our book is...

What was incremental yield last quarter?

You're referring to the March one, madam?

Yes, sir.

March one, March...

No, no, yield.

The yield is...

8.07%.

8.07%.

Last quarter, incremental yield was 8.07% and this quarter, it is 8.21%.

Okay. And sir, if you don't mind, again, just explaining again of the 40 basis points and the 20 and the 24 basis points...

No, no, 40 basis points that is different that is to report to the regulator. The way you calculate credit cost is charged to P&L every year, correct?

Right.

So that will be between 0.22% to 0.24%.

So sir, what additional goes to the regulators? I mean...

That's overall.

Portfolio, madam.

That's portfolio. What we hold total provision in the books of account.

We have next question from the line of Dhruvish with Mirabilis Investments.

I have 3 questions. First, I wanted to understand the unutilized buffer which we have right now? And when do you expect it to run down?

So we have liquidity -- we're holding liquidity of about close to INR 3,000 crores, so it will take care of for next 6 months approximately.

I'm referring to the unutilized COVID buffer, which was, I think, some INR 29 crores, INR 30-odd crores.

No, no, we don't have any COVID buffer. We've withdrawn entire amount.

Okay. So the INR 3.7 crore which got utilized and the total buffer, right, like...

Which INR 3.7 crores?

Which got utilized in this current quarter.

No, no, no. COVID provisioning, we had withdrawn long back.

Okay. Okay. So this INR 3.7 crores came from where, this utilization?

We had additional provisioning under general category, not under COVID.

Got it. Okay. Okay. Yes. And secondly, like I want you to understand that when the yields go up, so do we increase the tenure of the borrower or the installment goes up?

So we'll see, depending on the residual age of the customer, we increase the tenor or if customer intends to increase the EMI, we increase the EMI. So basically, we could be whatever customers choses.

Got it. And the INR 80 crores out of INR 100 crores, which you mentioned, so like can you name the banks which those -- banks or NBFCs which took those accounts? And secondly, what was the reason for that? So was it some top-ups we couldn't give or some aggressive pricing by them? So yes, that is the question.

Normally, we have a bank list with bank, institution list, which is more than 20. So it is spread wide across. And reasons are both, 1 in terms of incremental exposure -- additional exposure and the rates.

Okay. So can you name some banks or NBFCs which like took it over?

To name the bank, it will be right because almost all the banks would take over, private, PSU, HFCs, large HFCs, midsized HFCs, so -- NBFCs.

Got it. So largely, this came because of aggressive pricing by them or because of top-up, which we couldn't give, like, which was the bigger reason for the -- I know the number is normalized, but still trying to understand why is it happening?

So I think if we compare both, I think it will be skewed towards pricing. And this is a regular phenomena.

Got it. And my last question is on the branch expansion. So like I think in Q3, which is some 6 months back, we had mentioned some 12 to 15 branch expansion which we expected in FY '23. Now we are down to 10 branches a year. And if you look at the last year branch expansion, we have like done just 2 branches, so like why is this like stagnant? And secondly, so if you look at the lever of the growth in last 2 years, whatever happened was due to the operational efficiency. So like our business done per branch was some INR 100-odd crores, which is now up to INR 147-odd crores. So like what is the cap of this? Like this can't go above INR 160 crores, INR 170 crores, so what are your thoughts on that? And like why is the branch like expansion stagnant? So yes.

So it was more of a strategy and also because of COVID, we couldn't really expand. But having said that, our current set of branches will be able to grow the book right up to INR 40,000 crores. Having said that, by this year-end, we would reach about 210 branches.

Okay. So do you have a number in mind where you think that the capping of branch efficiency, so like business done per branch can't go about INR 200 crore, which is at INR 147 crores right now. Because if you do the math, like if I take the same branch efficiency of INR 147 crore and add up the 10 branches, still 18% growth seems quite unlikely. So trying to understand how headroom -- how much headroom more we have with respect to branch efficiency, like business done per branch? Like, if you can say a number?

Basically, it's a function of 2 things. For a minute, I'm just leaving the branch expansion. Out of existing branches, it's a function of 2 things. One is potential in the catchment; and number two, adding manpower. So by doing these 2 things, we can -- with the existing set of branches, we can grow up to INR 40,000 crores. Having said that, we also have plan, every year we'll open branches. And by this year end, we will have 210.

Got it. Okay. And last question. So I wanted to understand how -- like -- how different is the cost in setting up of satellite center and affordable housing loan center vis-à-vis the branch and the operational metrics are the same? So yes, that's the last question.

I think the cost is very, very -- the cost difference is very, very less. So I think the category and tagging is more to do with the location and potential, not with respect to cost. There is not much difference in cost, that's what I mean to say.

Okay. So if you look at the satellites center and affordable house loans center business done per branch, what would that be like INR 40 crores, INR 50-odd crores or maybe more?

See, when we open branch, we're opening regular branch. We're not opening any satellite center because satellite center, only in terms of the office space, it will be less in number, manpower debtor business, it will be tacked to the nearest branch. So since we see opportunity in every pocket, now we are opening only branches in all the pocket. And over a period of time, even the satellite centers will be converted branches.

Got it. Got it. And the 10 branches which you mentioned, which you plan to open this year, that would be in the locations, like can you name the states or the locations broadly?

For example, it will be Karnataka, then Andhra Pradesh, Tamil Nadu, Maharashtra, Rajasthan, so across.

We have next question from the line of Mudita Nahar with Abakkus AMC.

Most of the questions are answered. Just 1 thing I wanted to ask. Sir, on the overall portfolio, how much of the -- how much percentage would -- we have repriced this quarter, sir, loan book?

Approximately about -- see, I'll tell you, every quarter, I'll put it this way. So whatever business we do this year, for example, roughly about 20%, 21% price in the quarter.

We have next question from the line of Sanket Chheda with B&K Securities.

Yes, sir, I had 2 questions. One was that you said the reset on asset side is yearly, right? But it would depend on the origination on loan and basis which every quarter, there will be certain loans, which will be up for the repricing, right?

Not every quarter, every year.

Yes. And the second question is, sir, on restructuring. Now we have about INR 650 crore of restructuring left, INR 660 crore. So on that, we would be having 10% provisions, which is like INR 60 crores -- INR 70 crores, and we say that we expect INR 35 crores, INR 40 crores to slip imminently. So on that, even if it say falls to end there, you need to provide 25% of it, that means INR 10 crores, INR 11 crores, INR 12 crores would suffice. So that will release up to, say, INR 50 crores even if on a conservative basis, if you want to put higher PCR on the NPAs then also maybe INR 40 crores of amount it would release. Now whether you want to take it as a write-back or not, but is that understanding correct that we may have INR 40 crores available as we head into Q4, which will then decide that whether to have a write-back or keep it on the books?

We will have write-back from the restructured provisioning pool. Your calculation is, yes, here and there, it is right because we foresee INR 35 crores to INR 40 crores. So I think to that extent, whatever is the balance, that would -- pool will be available for writing it back.

We have next question from the line of Nischint Chawathe with Kotak Securities.

Just wanted to understand your borrowings from NHB are around 22-odd percent. What are the terms of these borrowings? Are these fixed rates or are these floating rate and under which fleet.

So it's actually a mix set. It's a blend of both, but the overall cost would still be much cheaper when compared to banks and NCD. So it's mixed because partly, it will be fixed and some portion of loans will be -- yes, actually, it's fixed for 3 years and then it will be floating. So it's like that. But overall, blended rate will be much lower. As of now, it's around 5.4%, 5.45%, which is the lowest.

And any large block of this, which is probably getting redeemed or repriced this year?

No, these are all long-term -- 10 to 15 years. So it's not bunch up in 1 particular quarter or so. Yes.

So 10 to 15 years, but probably getting repriced every 3 years. So nothing kind of comes in and change like significantly this year.

The reprice happens whenever there is change in repo. Whenever the rate goes up, repricing happening, I mean outside the fixed rate bracket.

Perfect. Your cost of funding of around 5.8%, if you could kind of just give some sense in terms of where do you see setting by the end of the year?

I'm sure, I'm sure you can guestimate it. I think rates will go up. So -- and I'm not sure to what extent. I think in next 8 to 9 months, there will be at least 1 increase, maybe 35 to 40 bps.

Sure, which would affect the book. Sure. Just 2 data points. If you could share the absolute number of amount of Stage 3 and Stage 2 loans? I think you shared the number, but I missed out, sir.

Yes, sure, sure. No issue. And I think in the meanwhile, let me just clarify on the other point, which Saket (sic) [ Sanket ] asked. So while I clarified on the restructured provisioning pool, we also have an NPA pool. So from that, we are expecting about INR 40 crores to INR 45 crores of recovery.

The Stage 3, as we told, is the NPA figures only will be in the Stage 3, that is around INR 180 crores. And Stage 2, that is SMA-2 as I'm informed, it's INR 471 crores.

Sure. Just 1 last point is that are you kind of contemplating doing co-lending with Canara Bank or any other banks?

See, I think there is -- if I'm not wrong, I think there is regulatory restriction to work on co-lending with the parent bank. But I think as a concept outside of what we discussed now, I think we don't intend to get into co-lending model.

I mean any specific reason? I'm just trying to understand your thought process.

Yes, I'll tell you why. See, basically, my understanding is that co-lending is either to get networking in benefit or the pricing benefit. So today, in terms of cost leadership, I think we are 1 of the lowest in the industry. And as a company, we want to grow our book. And therefore, at this point in time, we feel that we have advantage on both the sides. Therefore, we want to leverage these 2 parameters and grow our book.

Sure. Then if I can squeeze the last one. Any plans on capital issuance?

Capital. We do have plans, yes. This year, we will raise some part of capital out of INR 1,000 crores.

We have next question from the line of Abhijit Tibrewal with Motilal Oswal Financial Services.

Yes. Sir, if you will, excuse me, many of my question...

Sir, I'm sorry to interrupt, your voice is not very clearly audible. If you can please speak close to your mic or you can pick up your handset.

Is it better now?

Much better, sir. Please go ahead.

Yes. So sir, please, excuse me, if any of my questions sound the repetition, I joined in a little late. So firstly, I mean, this 18% growth that you're guiding for, you're guiding for 18% growth in disbursements or your loan book?

Book, loan book.

The loan book, right. Okay. So secondly, during your opening remarks you suggested that during this audit process when you audited 200 of your branches, there were certain observations and those observations have now been rectified. So while you did touch upon, I mean, what were the observations and like you said, it was either deficiency in financial documents or property, but I mean, I just wanted to understand what are those rectifications that you have done with regards to these observations?

No, no, financial -- I think what you mentioned now is for the fraud cases, which is irregularity cases, not the other observations. The INR 2.43 crores -- that was the observation for that.

Okay. Okay. Okay. So when you said observations, you're not talking about fraudulent accounts?

No, no, no. When I say irregularity, that is fraud. When I say observation, these are observations. For example, let us say, FBM is supposed to visit the customer and then submit a report. And in that report, let's say, signature is missing, that's an observation and the yield in terms. So observation is different, irregularity is different. Irregularity is equal to fraud. Observation is equal to some kind of document incompleteness.

Got it. Sir, secondly, what is the total quantum of provisions that you're holding on your balance sheet now? Understandably, you have already reported the standard asset provisions and the NPA provisions in your presentation. Is there a third component of OTR provisions as well?

I'll tell you. So standard asset is INR 101 crores. NPA is about INR 98 crores. Then for restructuring, both framework 1 and 2, we hold about INR 67.69 crores, so totally, we are holding about INR 267 crores.

Great, sir. Sir, and lastly, there was a provision write-back that you did on your standard loans in this quarter. And why I ask this is -- I mean last quarter itself, you had taken about, I think, INR 15 crores of additional provisions on your standard loans. So what is it that kind of changed in this quarter? Is it just because the audit has not been completed and you are relatively more reassured is why we were taking this provision write-backs on standard loans?

No. Basically, we realize that we will have a bit of cushion on the restructured provision pool so that we are not withdrawing. So that we will leave it to accumulate, and we'll have enough provisioning buffer just in case we need in future. And therefore, this is withdrawn.

Can you please explain this a little better, sir? I mean why was there was provisions that were withdrawn on standard loans?

No, no. What I meant was on the restructured pool provisioning, we will have enough buffer, which will get created in future quarter-on-quarter. So that we will not write back. We will leave it to accumulate, which can take care of any requirement in future. But for that, every month, we would provide based on NPA: a, in terms of new additions; b, in terms of bucket movement and for standard assets.

Got it, sir. This is very clear. And sir, congratulations on a good quarter and all the very best.

Thank you.

We have next question from the line of Naishi Shah with Acko Global.

So I have a set of 2, 3 questions. The first 1 is what is the average loan tenure of the outstanding loans in your book?

Okay. I think the loan on book average is about 8.5 years.

8.5 years. Okay. And sir, we know that we largely do the affordable segment when it comes to the lending. And we know that NHB tends to refinance these loans. And there has been a marginal reduction on a y-on-y basis when it comes to NHB financing. There has also been an improvement when it comes to CP, the percentage of CP in our funding mix from 19% to 11%. So what levels are we targeting for CP? And even with NHB, what level would we be comfortable with?

So on CP, we are okay around 15% plus/minus 1%. Exposure from NHB, I think we are open depending on the available pool and appetite for us to borrow and for NHB to lend. So that is something which we will keep it open. We are pretty comfortable because there we -- see, because -- the source of finance for us is really agnostic whether it's from bank or NHB as long as cost fits into our structure. So as of now, NHB is very cheap, and therefore, we are agnostic, and we'll be happy if the share goes up.

Okay. Sir, please correct me if I'm wrong, but the loan tenor that we take from NHB is 10 to 15 years, right?

Yes.

And what would be the case for banks? What's the loan tenor?

Largely 10 years, otherwise between 7 to 10.

Okay. And sir, we made a profit of INR 22 crores on our investment book, if I'm not wrong, this quarter?

Profit income. Income, income.

Income, income. Okay. So this is all realized plus unrealized, right?

Yes. This was the investment we had made. We have made for the LCR purpose, we've invested for SLR purpose and supportive for the purpose of OTB we've invested. Totally around INR 1,500 crores of investment is there on book, which also...

Sorry, could you please repeat?

The interest on that investment is...

We have next question from the line of Anil, an Investor.

Sir, just 1 basic question. You run a housing loan portfolio. And even your parent, Canara Bank has a very active housing loan there. So what is the difference? What is -- is there a clear demarcation what kind of book or what kind of customers you would look at vis-à-vis your parent? And how -- I mean, as parent any time communicated how they want to take both the entities forward? Or is there any plan in future whereby it can be clubbed and run by 1 entity?

See, 2 entities are different entities and they have their own customer base and customer segment. And the way we have, let's say, Canara Bank, we also have SBI, ICICI, HDFC, Kotak and stuff like that. So as of now, there is no discussion or arrangement. So both the companies would independently try and build the mortgage book.

So there is no -- I mean ticket size wise, there is no demarcation? I mean can there be a case whereby both of you can cater to the similar customer base?

There is absolutely no arrangement at all. So we can do INR 1 crore, they can do INR 10 lakhs. We can do INR 10 lakhs, they can do INR 2 crores. So it's -- we don't have any sourcing or any demarcation in terms of either sourcing or lead generation or whatever. So these are 2 different entities, Canara Bank is our parent. Yes, but as far as demarcation...

Okay. And secondly, sir, while this audit and investigation was going on, has it hampered your normal business routine? Maybe because of that, your approvals and disbursement got delayed somewhat or turnaround time must have gone up. Anything of that sort?

I'll tell you, every year, we do audit, okay? And this time, it was advised by Board -- Board had instructed therefore, we had conducted the audit of all the 200 branches. Now having said that, every quarter 1, there'll be some dip in disbursement numbers, and there'll be increase in NPA numbers. This is -- this year since the last many years, probably decades, right? So I don't think that these 2 will have to be linked. Because as an organization, I think everything is important. For us, liquidity is imported, asset quality is important. At the same time, audit is important, disbursement is important, growing book is important. So I think -- as a company, I think company should focus on multiple things. And quarter 1 happened to be such quarter where we have to focus on multiple and we have managed.

Okay. And sir, last thing, this annual resetting that you do of interest rates, is that a normal industry practice? Or I mean in terms of kind of frequency of rate changes, it could be slightly different from the industry? How is it like?

Basically, it's passing on the interest rate. I think how we should pass on, I think every Board that the company would decide and then the implementation happens. I think net-net, what we're seeing will call the different name, I think basically, when the interest rate scenario is either up or down, I think same thing gets passed on that's all.

We have next question from the line of Gaurav Jani with Prabhudas Lilladher.

Just 1 question. Sir, you mentioned about 20% of the loan book sort of reprices, right, per year, what would that number be on the borrowing side? I mean just simplifying.

No, on the borrowing side, I think the change would have typically happen whenever there is a change in repo. So what I told was basically, we have 12 months in a year. And so whatever I book, let's say, in the month of April will come for reset in next April. And therefore, have taken approximately about 7% to 8% every month. So quarter 1 being slightly low, I just took a number of 20-odd percent. Otherwise, it has to be 25% each quarter. So it will start with 20% and then move to 22% to 23% and then 26% and the balance in quarter 4.

So to put it the other way, calculating the EBLR-linked portfolio comes to about 50%, right? So that 50% does it reset from day 1 or not?

You're referring to the borrowing or...

Borrowing, borrowing.

Borrowing, borrowing, yes.

Our borrowings are linked to 3 different -- one is the repo link, bill link and the MCLR. This is the major consisting of around 50% will be on that one. NHB of their own as I told earlier. CP and NCD market borrowing, which costs 25% have the fixed rates. So it varies depend upon the tenure and the change in the repo and bill.

So basically, MCLR, repo-link and NHB directly, indirectly is linked to repo change.

Correct. So my question is, sir, whenever the repo changes, the next day all of these reset or not?

No, they will rest on the quarterly basis.

That will be on a quarterly basis. So the lag time could be 15 days, 20 days, 1 month, depending on when the repo increases.

Ladies and gentlemen, that was the last question. I would now like to hand the conference back to the management for closing remarks. Over to you, sir.

Thank you very much to all the investors who've stayed with us for a long, long time. And we had a good quarter, so we look forward for the rest of the year to be as fruitful as quarter 1. Thank you so much.

Thank you very much, sir. Ladies and gentlemen, on behalf of Investec Capital Services, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.