Cholamandalam Investment and Finance Company Limited (511243) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Cholamandalam Investment and Finance Company Limited Q1 FY '21 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nischint Chawathe. Thank you, and over to you, sir.

Hello, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited to discuss the 1Q FY '21 performance of Chola and share industry and business updates. We have with us today Mr. Arun Alagappan, Managing Director; Mr. Arul Selvan, Executive Vice President and CFO; Mr. Ravindra Kundu, Executive Director; Mr. Shaji Varghese, President, Housing Finance; and Mr. Suresh Kumar S, Senior Vice President and Business Head, LAP and SME. I would now like to hand over the call to Arun for his opening comments.

A very good morning to everyone. I take pleasure in presenting to you the quarter 1 performance of the company for the financial year FY '21. The quarter gone by was a test of the company's ability to adapt and be agile in the face of significant external disturbances to the business. Challenges continue to persist for the business with disbursements being down to a combination of weak demand and supply side constraints in the automobile industry. New business prospects during the month of the April was mute due to COVID-19 lockdown and the resultant closure of dealerships, technical, legal offices and our own branches. However, we witnessed a slight recovery in the month of June '20, had significant improvement in business with disbursements being more than 75% of June 2019. The improving trend is likely to continue in the coming months as well. The key items on the company's financial performance in Q1 FY '21 is as follows. Profit after tax were at INR 431 crore for the quarter ended June 2020 as against INR 314 crore in previous year registering a growth of 37%. Interest income was at INR 2,034 crore for Q1 FY '21 as against INR 1,876 crore for Q1 FY '20, registering a growth of 8%. Thanks to several cost reduction measures undertaken post the COVID-19 impact, the company was able to improve its efficiencies. As a result, it has reduced its operating expenses to average assets ratio to 2.2% for Q1 FY '21 against 2.6% in Q4 FY '20. Ratio of cost of funds to average assets saw reduction as well and was at 7.1% for Q1 FY '21 as against 7.7% in Q1 FY '20. The PBT ROA was at 3.6% for Q1 FY '21 as against 3.4% for Q1 FY '20. Return on equity was at 20.6% for Q1 FY '21 as against 20% in Q1 FY '20. Aggregate disbursements for the quarter ended June '20 were at INR 3,589 crores as against INR 8,572 crore in the previous year, registering a decline of 58%. The drop was primarily due to the lockdown on account of COVID-19. Assets under management grew by 13% year-on-year to INR 70,826 crore at the end of Q1 FY '21 as compared to INR 62,827 crore in Q1 FY '20. On the nonperforming assets, asset quality as of June '20 for Stage 3 assets had stood at 3.3% with adequate provision coverage at 41.6%. Moratorium. Pursuant to the moratorium announced by RBI on EMI repayments, the company has granted moratorium to its customers for installments falling due between March and August. Nearly 74% of our customers availed moratorium considering the uncertainty over the period of lockdown. However, post relaxations of lockdown after May 15, we witnessed traction with respect to moratorium availed customers paying their dues in advance. We have around 50% of our moratorium customers repaying installments. During the month of June, the company has also made a lot of awareness calls, SMS to customers, explaining to them the impact of moratorium. I come vehicle financial business. Following are the key pointers on the performance of our vehicle finance business in Q1 FY '21. Assets under management for vehicle finance business grew by 9% during the quarter to INR 46,828 crores in Q1 FY '21 compared to INR 42,977 crores in Q1 FY '20. Vehicle finance business has clocked a volume of INR 3,231 crore for the quarter ended June 2020 as against INR 6,940 crore in the previous year. Lower disbursements were account of severe degrowth in the auto industry across product segments. Significantly despite a lower disbursement, the company's market share in vehicle finance has more than doubled across the board. So 1.7% in Q1 FY '20 to 3.99% in Q1 FY '21. In CVs, the market share moved from 13% in Q1 FY '20 to 23% in Q1 FY '21. In TVs from 3% to 6%. In 3-wheelers from 3% to 19%, in two-wheelers from 1% to 2%, in tractors from 6% to 11% and in construction equipment financing from 8% to 21%. The vehicle finance PBT was INR 440 crore in Q1 FY '21 as against INR 319 crore in Q1 FY '20, registering a growth of 38%. The vehicle finance division pulled back its gross PSU assets to 2.41% in Q1 FY '21 against 2.91% in Q4 FY '20. On the loan against property business, which we earlier used to call the Home Equity business that basically moving on to the business right now, the AUM for LAP business managed to grow by 8% year-on-year from INR 12,119 crore in Q1, FY '20 to INR 13,109 crore in Q1 FY '21. Disbursements for the quarter was at INR 119 crore as against INR 1,101 crore in Q1 FY '20. A weak demand and conscious underwriting to avoid bad loans were reasons for the drop. The LAP PBT was INR 86 crore in Q1 FY '20 as against INR 84 crore in Q1 FY '20 (sic) [Q1 FY '21], registering a nominal growth of 2%. Now moving to the home loans business. The AUM for the home loan business managed to grow by 47% year-on-year from INR 2,240 crore in Q1 FY '20 to INR 3,302 in Q1 FY '21. Disbursements for the quarter was at INR 190 crore against INR 420 crore in Q1 FY '20. The PBT was at INR 28 crore in Q1 FY '21 as against INR 13 crore in Q1 FY '20, registering a growth of 151%. The capital adequacy ratio for the company as on June 30, 2020, was at 20.4% as against the regulatory requirement of 15%. On the liquidity position, the company has not availed moratorium so far on its borrowings. The company holds strong liquidity position with INR 7,169 crore as cash balance as of June '20, with a total liquidity position of INR 11,677 crores, including undrawn sanction lines. The ALM is comfortable with no negative accumulative mismatches across all-time buckets. Even after extending the moratorium to its customers for the second phase, the cash position of the company is adequate to meet all its maturities and fixed obligations till December 2020. We are happy to announce that the company has been included in the FTSE4Good Index Series created by the global index and data provider FTSE Russell. The FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong environmental, social and governance practices. The indexes are used over a wide variety of market participants to create and assess responsible investment funds and other products. The evaluations are based on performance in areas such as corporate governance, health and safety, anticorruption and climate change. Businesses included in the index meet a variety of environmental and social and governance criteria. Looking ahead now, the quarter gone by for the vehicle finance business starting with digital transformation exercise. The LAP business has rolled out its newly developed loan origination and loan management system. With the effect of COVID-19 on the sourcing side of business slowly subduing, we expected growth in disbursement in the coming quarters as compared to the quarter just gone by. From the collections point of view, we expect Q2 and Q3 to be critical quarters for FY '21, and we are sufficiently prepared for the same. Before me and my colleagues would answer your questions, I request our CFO to kindly in detail discuss on the moratorium front as well as on the provisioning. And then my colleagues and I will be happy to take your queries now. Over to our CFO, Mr. Arul Selvan.

Yes. Thanks, Arun. Good morning to everybody. We had introduced a few new slides in our presentation. With regard to the moratorium status and I presume because it is the first time, I thought it may be appropriate if I also take you through these slides to make it clearer from an understanding perspective. Here, I'm talking about Slide #27, which is the moratorium collection to-date. First of all, I wanted to also apprise you that our moratorium percentage remains more or less at the same level of around 76% from a value perspective. This is primarily because most of our customers are still uncertain about the future, and they want to keep the eligibility of being covered under moratorium as an eligibility for them to take a call whether to pay subsequent another 2 months, July and August EMIs or not. And because the coverage in the moratorium also helps them by protecting them from being declared to the Bureau, they want to keep that. And we are with them to give them that flexibility. And that is why you would not see us declaring that the moratorium percentage has come down. However, having said that, we have been making efforts to be in touch with the customer and collect from them, whatever surplus they could afford to cover, not only in case of past over dues for Stage 2 and Stage 3 customers, but also even in Stage 1 customers, we have been able to collect EMIs for the moratorium period. And this is what is shown in Slide #27. So in slide #27 if you look at it, the left most corner talks about moratorium month is defined how many months of moratorium the customer has opted to avail, whether he wants them -- wanted only 1 month. Because 1 and 2 months primarily represent customers who are usually opted for moratorium, and then they had moved back to non-moratorium. And so that is the few cases. And as it goes down, what are the charges the customer has exercised with regard to the opting of moratorium. The number of agreements is given. What has happened is in most of the cases, we are collecting at least 1 or 2 full EMIs. I mean -- and some of the cases we are also collecting part EMIs. This is what is represented here. 1 EMI, 2 EMI, 3 EMI, and 4 EMI, because right now, only 4 EMIs have been up, 4 months have been. So that's where it stops. And since that is -- that represents where we have collected full EMIs constitutes 34% of the book, which is like at least 1 full EMI has been collected. Over and above this, we have also collected part EMIs from various customers, and that constitutes another 16%, taking total collections from moratorium customers to 50%, but not necessarily the entire -- all EMIs of the customers from the moratorium period. I think this is a clarity I want to bring. And I don't want to say that we have collected from moratorium customers and hence it moves out of moratorium. I hope this is clear. Any questions on that, I will take it in the call as we move on. We also added another slide, which is Slide 28, to give the [ insight ] of the customers, who have availed moratorium, with regard to Stage 1, Stage 2 and Stage 3. So we have given how old the customers were when they started availing moratorium. So if you look at it, the Stage 1 customers, if I -- this is why we are giving this is to give this comfort that most of the customers who have availed moratorium have been in the system with us for a longer period basis that we are comfortable that god forbid even some of from don't pay, we are adequately protected because their capital in the loan is not that larger. So if you would recall is most of the vehicle finance customers, the loan tenure is around 36 months. And if somebody has paid anywhere between 18 months and above, they are adequately -- the capital of them in the asset will be adequately large. It also means that in case god forbid some of them are not able to catch up and meet the repayments subsequently, even if we have to reprocess the assets, we have enough capital to protect the losses. Generally, our losses in Q4 will be in the range of around 28% to 32%. And so we -- if somebody has already paid 18 installments, then there is a adequate protection to us is available. And this is also a reason why -- this is also factored into our provisioning adequacy estimations. So if you see here in Stage 1, almost 45% to -- 45% is covered at 18 plus. And if I look at it from a 12 plus angle, we discovered that almost 68% is covered. And in Stage 2 and Stage 3, if you look at it from 12 plus, it is 94% and if you look at it from 18 plus, it is around 79%-80%. So that is the -- this is the second slide, which we wanted to also explain to you. And the standard slide, which we introduced last time and we continue this time it is Slide 26 represents the movement of assets as compared to March in each of the regions. And how we have factored in the behavior pattern of the customers. I think there's been 1 or 2 questions on the movement between the Stage 1 moratorium of the 0 overdues being high. Primarily this is because of certain non-moratorium customers availing moratorium when the second moratorium was introduced and that's the shift. We have restricted -- we have not given moratorium to any new loans that has been given post -- I mean, in this financial year, which is like 1st of -- from 1st of April. So the Stage 1 represents the new disbursements coming into and that is also a shift from non-moratorium to moratorium in the current figure. I'll stop here. I thought this explanation would be helpful to at least reduce the number of queries from the investing public and others, who are in this call. However, I'm glad to take any further queries on this during the call or even later. Thank you, everybody. Nischint?

[Operator Instructions] The first question is from the line of Udit Kariwala from AMBIT Capital.

I wanted to ask, sir, you said that the number of -- sir, if I turn onto the slide, the moratorium collections table. When we say there are around 40,000 odd customers, who had availed moratorium only for 1 month. And as you commented that these may be customers in the initial period of the lockdown and subsequently they haven't taken any moratoriums. Then how does that 74% number remains at 74%? Because these customers are no longer at moratorium -- in moratorium. So are we saying that there is an equal amount of addition to moratorium? Or is it that we have not changed that 74% number, and we are saying that was the initial number of customers who had taken moratorium?

Yes, that was the initial number of customers who had taken moratorium. When -- the people -- there have been also inflow into the moratorium as I said, which we exercised in May. That is after May, the second moratorium got extended. That's what I also explained that there have been non-moratorium customers in our March declaration versus now, who are moved from non-moratorium to moratorium. So there had been an inflow also. There has been some outflows and there has been some inflows.

And another question, sir, when you said 31% customers have paid 1 EMI, where they had taken 1 month moratorium. So basically, they have -- these customers have cleared all their dues, right? Is this the right way to read this?

Correct. Correct. They have paid all their dues. For the rest 69% of the -- adjust that 17% also, that is for them the tenure will get extended by 1 month.

Okay. And when you say 6 months of moratorium months, which means these customers as of 20th of July have either asked you to avail moratorium in August as well or have not responded in saying that, please don't give me moratorium in August. Is that the right way to read this?

No, they have exercised the need to consider them for the full period.

Okay. So they have said that we want moratorium in August as well?

So we have got that sort of thing -- flagging in our system, where we can track for every agreement, which month moratorium they have availed. So we have -- when somebody exercises their option to avail for all the 6 months, we flag them that won't. Because we need to do this upfront so that the checks or the PDCs don't go for collection as per the billing cycle.

Okay. Okay. And sir, if I read the slide, in terms of 50% of people who've taken moratorium have paid either -- have paid some amount for you or rather have started to repay. 50% have not repaid. So if I talk about in terms of amount, because given the EMI size may not be same for all customers, can you give us some sense as to -- in terms of amount what is the efficiency?

See, bulk of it is vehicle finance. And if you go to the earlier slide, you have the values given there from a overall book perspective, right? So from there you should deduct it. I mean you should reduce, what is the number. I can't add it frankly. I have -- I mean, we have gone overboard on declaring all this, because we want to be clear about this moratorium as to the extent what we are able for tracking. Because there are multiple versions of the moratorium being in the general public awareness. So we thought what we look at as moratorium is what we have tried and explained to you. I think value comes and there is more or less, you can arrive at its numbers.

Okay. And sir, last question, which I had was that...

Sorry, I think normally, there's a large queue generally to ask questions. That's what the [indiscernible] moderator but. Please go ahead.

Yes, sir. Sir, the last question, which I had was that in Q1, the additional provisioning which you have taken is around INR 17 crores with -- in relation to the contingent provision for the impact of COVID. So has this collection efficiency, which you have stated on as anticipated because that is how I read. Otherwise, there had to be a little more contingent provision given the lockdown has been extended, right? Nobody anticipated that the lockdown would extend so long. And do you expect the loss given default numbers to move higher given that this industry was already into crisis before COVID?

No. See, unlike some other participants in the industry, we declared our March results itself much later than the lockdown extension. So when we planned our numbers for March, declared our numbers for March, we have factored in the second moratorium also. And that is why like -- unlike many others, we don't have to again provide anything. Our provisions are adequate taking into consideration both the moratorium periods.

Okay. And the LGD, sir?

Sorry, what is...

Do you expect the LGDs to move up given the system was already into...

No, no. See LGDs will always work backwards and that's why because we don't have a positive key, we're not calculating LGD. Towards that we are providing these COVID provision and on over and top of it is the management overlay of the INR 240 crores for the Stage 3. So this is what is -- in our opinion, the -- it covers our worst case scenario also. If we have done stress testing of our portfolio and calculated high, low and medium levels of stress and even in the worst case, it will cover. And in the low stress scenario, we will continue to hold this INR 500 crores of provision without having to -- and which can be sort of a cushion even at the end of March ‘21.

[Operator Instructions] The next question is from the line of Bhavesh Kanani from ASK Investment Managers.

Thank you for providing this additional disclosures this time now. And my question pertains to Slide 28. In the moratorium by vintage disclosure. When we look at the bottom exhibit, it shows for Stage 2 and 3 that the contribution from 24 months to 36 months vintage is higher than the other vintages. While I understand that the amount involved are small, but I just wanted to understand -- you mentioned that 36 is a typical tenure. That means if customers are towards their end of the tenure, then why would they be kind of defaulting or be captured in Stage 2 and 3? The contribution from that vintage is a little bit higher compared to other vintages. Just wanted to...

This is also a conscious decision to give moratorium to such high vintage customers because the equity is protected in that cases. If you take a stage -- again, you are -- if you look at it, the value within the stage, those sectors are the -- those segments were the highest. So it is -- it follows the same pattern.. And it is also to give ourselves the protection. Because if somebody is in Stage 2, that means they have got 2 EMIs overdue. So we need to look at it that if his vintage is 18 months and he has got 2 EMIs overdue, so he has paid only 16 installments. So that is how we should treat it. So that is where it is better as you go down and Stage 3 and Stage 2, we need to go down the segment to protect yourselves better. Suppose I give him 6 month installment give more in Stage 2, that means there are already 2 installment dues, then I'm only protected for the extent of 4 installments.

Got it. Sir, our LGD risk is pretty low since the agreement is already towards end of the tenure?

Yes. Yes. Yes.

The next question is from the line of Rohan Mandora from Equirus Securities.

[indiscernible] present, just wanted to...

Mr. Mandora, sorry to interrupt, can you come off the speaker, please.

Is it better? Yes. First of all on slide #27, when you're talking about customer who have availed 1 or 2 months moratorium. Because in period one they had not availed the moratorium, is it fair to assume that they have received all the -- you have received all the remaining EMIs?

See, it will go to non-moratorium and it will follow billing and if he has not paid, these will -- it will follow the delinquency cycle. I may not be able to individually tell which of them are performed correctly or not, but more -- as you can see from the overall summary, the Stage 2, and Stage 3, they are also coming down. So this pattern is good. And see, why would somebody say that he does not want the moratorium, when he has the confidence to service the loan. And that is why he himself taking it off and that's a very small quantum as you can see. And these are customers who have understood that if they take a moratorium, they will have an interest liabilities. So they want to move out. So we keep educating the customers that if you take moratorium, you will get certain amount of additional interest because these moratoriums add up to your principal and you need to pay interest. So people who are confident and who have got the earning potential, clearly visible for the moratorium period, have gone ahead and moved back. For those who have got uncertainty, they want to keep the option open.

Got it. This is clear. Now if I try to look at the repayment that has happened during the quarter on the vehicle finance, it was around INR 610-odd crores. But during the previous quarter run rate was close to INR 5,000 crores, and then 25% of the customer...

Sorry, what is that?

On the repayments, repayment trends, if we do the calculation of movement of AUM, and we have a disbursement number. So the computed repayment comes down to INR 609 crores for 1Q with around INR 5,000 crores for -- INR 5,000 crore run rate for 2Q and 4Q so is around 25% of the customers not in moratorium. I did -- this number should have improved at least closer to INR 1,000 crores, and we are not seeing any movement in Stage 2 and Stage 3 also for the customers which are not in moratorium. So how do we reconcile these 3, 4 numbers?

I don't know how you have got this back. I need to understand a little bit more for -- to respond to this. I'm not -- you are saying the collection...

So when we're looking at the vehicle finance...

When you're reconciling that amount, there's 2 things you have to factor in. You need to factor in that the moratorium customers' assets are not moving down. So that is continuing in the assets. And also the interest on the moratorium assets for the period, intervening period is also now added to their asset for these 2 months, 3 months whatever is the period. So those things unless you factor in, taking opening balance for disbursement minus closing balance may not work perfect. I think you have done that approach. Correct?

Yes, sir. Yes, it is.

If we take the opening balance, add a disbursement and minus closing balance would have given you and collection amount, and that may not work in this scenario. Normally, it works, you're right. But because we have here other factors coming in. Send me your worksheet, I can just run through with my numbers and then tell you where that has -- how -- where it is differing.

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

Sir, on the presentation, we have seen there has been a decline in the net interest margin for the entire -- full we can say portfolio. However, if we bifurcate between the vehicle financing, loan mortgage portfolio, there has not been a big movement in the margins or slightly declining only in the vehicle finances. So what is the difference between the 2? Why it is there will be a 60 bps decline in the net interest margin on overall basis?

Yes. Thanks for observing that, that is primarily because now we are carrying a large quantum of cash in hand. The average cash balance, which we had in Q1 of last year was only around INR 2,500 crores. So at the end of the quarter, we did have last year, around INR 5,000 crores. But this year, throughout the entire quarter, we have been holding almost INR 7,000 crores. So the INR 7,000 crores, again, last year, Q1, the deposit rates were very high. It was -- we were getting almost like 7% yield on that deposits. Now we are getting only around 4.5%. So quantum is more and rate is less and that's what is dragging them in from a -- because the negative carry of holding high liquidity position. I hope that explains. So the business IRR is good. Unfortunately, because we are in a very volatile circumstances, we carry a high level of liquidity because of moratorium. We don't know whether it's again going to get extended, et cetera, et cetera. So if that is the case, we don't want to get ourselves into any liquidity issue and so we are carrying a large amount of cash. We are carrying -- actually, even in Q2, we will be carrying almost like INR 8,000 crores in July, and then it will come down progressively because we improve certain ECBs. So these are the factors that are still there. You are right in observing that the business IRR is protected, and it's improving by -- the overall IRR is coming down because of the negative cash.

Sir, just one clarification on that part. As you have said rightly on the Y-o-Y basis, liquidity has been too increasing. But on a sequential basis, if I consider from Q4 to Q1, last time, you were holding around INR 6,000-odd crores of liquidity. And currently, it's around INR 7,000-odd crores of liquidity. Although there has not been a big change in the liquidity part, but the sequential there has been a difference in the IRR, which you are seeing, sir.

The yield has also dropped. Most of the FDs got closed in March last year. So which was earning almost like 6% to 7%, which we needed to now renew it to around 3.5%, 4%.

Okay. Okay. Okay, sir. And lastly sir, on...

There are factor also yield -- okay, maybe I don't know whether you considered it or not, there is no gain on assignment this quarter. While last year, we did a lot of assignments throughout the year in really all the -- almost all the quarters, that part is not there in the current year.

So if you can guide for the full year, any thought process on this, what should we be -- what really goes on?

Sorry, we don't want to give any forward-looking statements. So we have product-wise business. You know the business has been doing higher yield products, which is visible in the slides in the vehicle finance business, et cetera. And the business yields will improve. Even if you take or we are taking conscious calls to keep the liquidity, I mean, the negative carry on the liquids cash we can into maximize the returns from that. But we all have to also factor in how the circumstances will evolve with regard to requirements to keep more cash. Further, really money market is opening up. We are finding the amount of deal happening, we're also doing certain deals. But right now it's very difficult to give any forecast number here.

Okay. Sir, lastly on this provisioning part. Currently, we are holding 41.6% as a PCR, our coverage ratios. So if we assume there has been increase in the cost or in the gross NPR or asset quality changes, should we consider that this 41.6% will be maintained? Or we can adjust according to the LGD and it should come down as the change in asset quality. How is the thought process on that?

Yes. If you look at it all through whether it is under direct or NDAs, our provisioning norms have been in the range of anywhere between 30% to 35%, which is what we reasonably see as a adequate provision coverage for our other cut off portfolio for as such. We have increased that from 32% to 42% almost over this -- because of this COVID. We will take a call as we go along to understand and then we will consider whether we need to bring down or hold it. But right now, it is -- right now, at least till the end of this year, we should be able to almost reach level.

The next question is from the line of Bharat Shah from ASK Investment Management.

One of the most important thing that I felt in the quarterly result was that your specific credit cost that you chose to provide in this particular quarter. So we not only low compared to the fourth quarter last year, but it should be lower depending on what we've seen in the preceding quarter, which helps. So in the fourth quarter, I think we provided INR 380-odd crore of specific ECL provision cost and INR 250 crore of COVID is a general one that we provided. Now in this quarter, we have chosen to provide only INR 56 crores. So I suppose that reflects your confidence that you have taken care of all that is there to be provided. You've identified whatever are the assets where provisioning is needed. In addition, you have made a COVID provisioning extra in the fourth quarter last year. And all that you have done represents a good summary or a view about like a credit cost. Is that a correct assumption?

Yes, sir. I'll explain to you, sir. Sir, normal -- in a normal earning period, what happens is if you look at any of the past years, in Q4, we do very good with regard to credit costs, and we will have a very small hit in Q4 because a lot of efforts are done and pushed and rate collection is better. And in most of the year, we will always have a little bit of a bounce back on that. See, that is the NPA or Stage 3 as well, so -- in Q1. So even if you see last year, what happened was Q1 was a -- there was a very high level of provisioning, which we had to do because Q4 of FY '19 was a very good year, and we did a loan -- we did a very low level of -- returned loan losses. So Q1 of last year was a little bit bad from that context. But this year, what happened was in Q4 of FY '20 itself was a bad quarter. So there has not been any further pushbacks that could happen from the portfolio. And in Q4, actually, we provided almost INR 500 crores of onetime provision. So our normal provision in Q4 when I look at it is -- so if you look at it -- I'm trying to dig out that statement.

I thought in the fourth quarter last year, you had INR 284 crores of specific identified provision on the -- stage by stage, and INR 250 crores of COVID provision if I take a look at...

No, no, sir. INR 280 crores was the COVID provision. On top of the COVID provision, we provided INR 250 crores as an overlay. So INR 530 crores provision we carried was beyond the normal provision. If you refer to Slide 26, you will find that, sir.

Okay, sir. Okay. So in other words, what you gave -- so why did -- in the fourth quarter last year, INR 280 crores plus INR 250 crores plus about normal provision, whatever that you -- of INR 50 crores that you provided, and taking into account the moratorium progress so far and taking into account the client situation, given the fact that you have written off INR 56 crores in this particular quarter, in the first quarter, it reflects your confidence that asset quality and everything is under control. This provision fairly summarizes what you believe is the situation.

Yes, sir. We are confident. That is also because -- as I said earlier in the call, the March number itself was arrived at after taking into consideration the moratorium too -- also and that is where in March, we took a larger hit, unlike many others, in proportion to the NPA numbers, our NPA numbers versus individually, any other companies. So that way, if you look at it as a proportion of NPA, our provision in March was very high. But we took all of the hit in one go in Q4 itself. So we don't need to provide additionally, in our view as per our current trend, more for the COVID or any other macro events right now. We will keep closely evaluating this. And as and when this -- all of this is required, we will provide. But currently, our confidence is that a good -- that it is provisioning more than adequate for the entire year. We are -- right now are carrying INR 1,400 crores of total provision, which is almost 150x of what we normally carry.

[Operator Instructions] The next question is from the line of Aswin Kumar Balasubramanian from HSBC Asset Management.

My question is related to, I mean, the Vehicle Finance segment. So within that, I mean which customer segments are you kind of seeing are more stressed? Is it more on the FTU, FTB side or the small operators or the larger fleet operators? And also kind of related to this, like you provided one table that is good, month-wise, like how many customers have paid and so on. So is it also possible that -- like when you said 1 EMI, they have paid, that they may be in May or June but have not paid in July. So are you seeing that kind of trend as well? Or is it like more -- or like once they have paid in May, then they continue to pay in June and July and so on?

Ravi, are you online there or should I?

Yes, whatever, sir. No problem.

Okay. See, there, you were right that there will be certain [ area ] or people who would have paid one installment in, let's say, April installment but not have paid May installment also. See, this is primarily because, as you know, there's lockdown that are happening much more dynamically in respect to certain areas. And again, lockdown is opening but then it cannot be assured. For example, in Chennai, there was a second lockdown. Bangalore, there was a second lockdown. Like that, it is -- that is why people want to stay within the moratorium eligibility. So people can pay when they are generally having enough of money in hand. So if you look at the typical [ SRTO ] segment, light vehicle owner, then he has to operate at least some 65% of his capacity -- or above 65% of the capacity in order to start repaying an EMI. So only when he reaches that level, he will be able to spare money to knock off the EMI or pay off the EMI. So this is a volatile time. So that customer profile of ours is such that they are general purpose vehicle -- no, they are -- the vehicles are general purpose applications. They can carry any load. It's not like car carriers or oil tankers that without -- if this industry is out, they are out. It has got both positive and negative. Well, the positive is they can move from one demand -- one product demand to another product. And so they can keep on finding more opportunities to use their vehicles. It is also -- on the flip side, they will also find competition coming into that segment if there are others who are willing to do it at a lower price. So that's where there is volatility in their earnings. So depending on where there's availability of load, et cetera, people will be able to spare money, and that's how they have been managing this, by paying one or more installments. Thankfully, our customer profile, especially in the Vehicle Finance, is more rural-oriented and considering that there are enough activities going on in the rural because the monsoon is good and there is not that much amount of lockdown in the rural. So they are -- they have been able to find, I mean, capacity to keep their vehicles occupied. However, now probably also, there is some amount of the COVID impact moving into the hinterland. So we need to wait and watch how this pans out in the coming months.

Okay. All right. So would it be fair to say that your customer profile would mostly be in the SRTO segment? So that's where -- I mean that is why your comments, sir, are currently related to or...

Yes. Our customer profile is mostly in the SRTO segment.

Understood. Just one follow-up. In the used vehicle segment, you've made a fair amount of business into this quarter. So is that more in like the refinance kind of segment or the actual, like, secondary sale kind of segment? And if it's in the refinance segment, I mean...

I think -- if you're asking if it's restructuring, no, it is not. These are new customers.

No, no. The normal refinance which you do after, like one cycle gets or -- not restructuring, but like the refinance which you're doing. So my question is more related to that, sir. Sir, I mean is it that? Or is it...

That is where -- there is a fair amount of that proportion also, but it has also got new customers coming in. So both mix is there. Because after the BS-VI coming in, the demand for used vehicles have gone up and so that -- this has helped the used segment growth, revenue.

The next question is from the line of Dara Mehta from Darashaw & Company Pvt. Ltd.

Please, if we can have a little bit more clarity on Slides 27 and 28.

28.

27 and 28, the moratorium, old, aging. So you were mentioning -- what do you call that. This is Stage 1, Stage 2, Stage 3. So coming to Slide 27, we are talking about this part EMI. So only 31% has paid 1 month.

They have availed 1 month and they've paid 1 month. Likewise, totally, from an overall pool, 1 installment paid is 17%. 2 installment paid is 8%. 3 installment paid -- whichever cut you want to look, you can...

Correct. Okay. And if you see the next slide, I think -- if you can just explain. You're talking about Stage 1 is the most important because 96% of the moratorium. So what is the difference between Stage 1, Stage 2 and Stage 3?

That is the ages. Stage 1 is where it is less than 30 days overdue, predominantly 0 days overdue with some amount of -- it is there. And say, if you look at that definition or you want to see it, you can see Slide 26, it gives you -- Stage 1 is 0 overdues or the overdues is less than 29 days. And Stage 2 is anywhere between 30 to 89 days.

So you are saying that even people who are in moratorium were already overdue before the moratorium?

Correct, correct. We have taken the call and given that. Anybody who is less than 180 days and if they want to avail moratorium, we can support the portfolio [ we have given ].

Okay. But then as the economy is opening up and all, why is our number of moratorium remain so stubbornly high at 74%?

I explained to you. People are wanting to remain within moratorium because their earning potential is volatile from our customer perspective. So they want to keep -- because if you are in that cover in the moratorium then you pay -- happen to not pay, then it does not count as a delinquency for reporting to the bureau. They would prefer that because -- today, the customer is very clear that they don't want themselves to be brought under the bureau scrutiny. Because for them, that means they cannot borrow from us or from anybody else or most part of the organized lending segments. So then they have to fall back on money lenders and deal with unorganized segment where the rates are higher. So that's why they appear. And so they like to keep that option because that option has been given by RBI. So they want to keep that option. So that's where we have -- being -- molding to be covered under moratorium. They're eligible to do it. And so they are claiming that or they are wanting to get covered under that.

[Operator Instructions] The next question is from the line of Piran Engineer from Motilal Oswal Financial Services.

Congrats on the quarter and on the full disclosures. I just have a couple of questions. Firstly, our FY '19 GNPL numbers have been restated in the latest annual report. Is that to do with some difference between GNPL and gross Stage 3?

The latest annual report, FY '19, was it here? What is the presentation? I'm...

From INR 1,100-odd crores to INR 1,400-odd crores, so involving...

Can we take this off-line with you?

Sure, sure.

Because I know you can call me because I don't have the report right now in front of me. I was more focused on these Q1 results.

That's fine. No problem. And now the question just on this quarter. Most of my questions have been answered, but one of them was that we saw very strong disbursements in tractors. And we are typically not a very large player in tractors. But if I see our disbursement, they were as high as, say, a Mahindra Finance; 40%, 50% higher than an L&T Finance. I just want to understand really what happened in this quarter, where scale is so high that we capitalize on them? Have we gone a bit more aggressive? Some of your thoughts on that, please.

Ravi, you want to take that?

Yes, yes, yes. Sure. Yes. This is Ravindra Kundu. So we mentioned this thing in the previous quarter investor presentation and we've given the industry outlook when we declared the result of last year. Because we declared the result a little late, so we've mentioned that, what is going to happen this year. And then when we were talking about tractors with the OEMs, they also expected that if [ we did ] this year, we are expecting better monsoon. And last year has been a better monsoon, rabi and kharif. Both the crops have been very good. MSP from the government has been very high, and therefore, yield of the farmers have gone up. And that's a good base for the farmers to basically buy the tractors, and that was expected that in the month of May and June, it will go up.

Sir, sorry to interrupt you. I get that the tractors sales are good, but our market share in financing has gone up meaningfully. And players like L&T, Mahindra, they also didn't have any liquidity problems. So they could have also grown really fast, but we've grown much faster. So I just wanted to understand why that has happened.

Yes. So that's what -- I was saying that. So we decided to actually focus tractors. And one of the -- June basically was not doing much here in the previous year. So this year, we have actually started expanding across the country in terms of the tractor business. Also, we have also expanded across top 3 manufacturer. We have -- we were not having one manufacturer. So in terms of the market share, again, it has come from the -- one of the top OEMs, which was not there because the preferred financier chief was not there. This year, they decided that they will be actually including Chola as well as one of the preferred financiers so that it's given opportunity for us to increase the volume. Because these happen only when there is a tie-up between the OEM and the finance company. And we don't want to be -- just do the business unless there is a clear-cut understanding with OEM. And that too, we want to focus more on the better -- top 3, 4 OEMs. So in this quarter or going forward, it has come out well in terms of tying up and then preferred financier also got tied up, and that helped us to increase our disbursement.

One minute, sorry. In the first part of his question, which -- I just checked it out. See, in FY '19 when we reported, RBI has not come out with a clarification of accepting Stage 3 as an NPA from their perspective. So the disclosure from that perspective was based on the IGAAP notes. In the current year, because RBI has now given guidance that Stage 3 is acceptable, we have shifted to putting them under Stage 3 now, which includes the interest component, whereas in the earlier IGAAP method, income reversal will go and -- the income reversal and only the -- NPA is only on the principal. I hope that clarifies. If you have any further queries, you can write to me.

The next question is from the line of Chirag Sureka from DSP Mutual Fund.

This is Chirag. Congrats on the disclosures. So my questions were as follows. You've taken a view and I know said you won't do a forward guidance, but what I wanted to understand is in terms of even the tractor portfolio, the previous question that was asked, how is it possible that you are able to nimbly move from one segment to another and as well as the customer quality? Because if we're looking at last year's kharif crop and rabi crop, what they're doing is looking backward trends rather than looking forward in terms of how it's going to come out in the next few years. So that's question one. And the question is also related again to the Vehicle Finance portfolio with the reason it's actually going up quite high and the economy slowdown, but do you see pressure from freight rates coming in and then that affecting your portfolio more than in the past? Those are my 2 questions.

Yes. So I mentioned that even for the current year also, the monsoon has been expected to be better. And that was the -- in your prior point and that the past also has been good. So both put together, it is likely to -- and we mentioned very categorically in our previous presentation and this current year where current quarter presentation as well as industry is looking better and crop really is going to go up. Now coming to the moving from one product to other product, that is not happening actually. We have done the disbursement even last quarter almost, I mean, INR 600 crores. And this quarter, it has gone up to close to INR 700 crores, INR 800 crores. So the people were there. Only thing is that they -- the productivity has gone up. And we have a specific team who takes care of the tractors. It is not that we have a commercial vehicle team going and doing the tractors because tractors are in a specific business and it needs to be done very specifically. So we have been maintaining that. So in terms of tractor business, we have done only when we understood that it is actually happening better and it is -- the market conditions are conducive and it is better for future aspect. Now coming to the commercial vehicle, the commercial vehicle, as of now, the freight availability itself is a problem and obviously the operating expenses of the transporter or whatever capacity utilization we have today. Today, their operational expenses are slightly higher. And during this period when there has been a lockdown and the capacity utilization was impacted and then further, we entered into the lean period of July, August, September -- we're in rainy season. People do not offer it to the fullest capacity. Obviously, people are actually going through tough time. And that is also a reason for customers, mostly those transporters who are actually in the long-haul operation, they have opted for moratorium. So obviously, they are not traveling to the fullest capacity, and therefore, we are not in a position to serve them. However, in the future, we are expecting that when lockdown is over and then the transportation naturally increases from October onwards and because the festival season coming up due to weather, agricultural activity happening, we are expecting that the freight availability will improve. And by the time when things -- and the diesel prices are actually -- because of the tax component, not that the crude oil prices have gone up, maybe -- I think by that time, it will start going down. So future, we're -- from the future point of view, we are expecting that it will be better. However, yes, current context, if you see the calculation of the diesel price, it is high and that is actually impacting their operating expenses.

Sir, one quick question. Arul, how long would it be till you carry this extremely high level of liquidity?

I think progressively, we will bring down, but I think we will hover around the INR 6,000 crores mark through the rest of the year because we -- see, as you know, liquidity will be paramount. If I -- it actually can -- if you're missing on that, then you can get dragged down, like sell across all other parameters. So we don't want to take any chances, but I think we will bring down from the INR 7,500 crores levels to INR 6,000 crores levels going forward, yes.

The next question is from the line of Mansi Sajeja from SBI Funds Management.

Sir, very specific one question on the ALM, which I see June '19 ALM, you have shown income from advances for this July, August, September quarter at some INR 4,500 crores. And in this year, you are showing that number to be INR 2,000 crores. So what is the behavioral assumption again that you're taking here? And specifically, it looks very stark. If we see only the month of September, which traditionally -- which is according to now, it should be no moratorium month, whereas against INR 1,200 crores monthly inflows expected, you were expecting only INR 750-odd crores. When I'm considering that there is not much change in your overall composition of your loan book, it has only grown by INR 750 crores, 70%?

The collections, you are talking?

Yes. So the ALM statement, the advance -- behavioral advance -- your collection as against INR 4,500 crores, it's INR 2,000 crores, the collection.

INR 4,500 crores is...

Last year.

3 months.

For last year, 3 months, yes.

Yes, for the 3 months. Then that is -- actually, full collection will happen. In September, we are conservatively -- because it is the first month after moratorium, we are conservatively showing a little lower only because we did not want to consider -- and then all of them will behave immediately post the moratorium. This is a much more conservative approach taken.

Okay. Sir, that then clearly shows us a direction. Is it like 60% of last September collection is what is...

Sorry?

It's about 60% of last year's collection, which is of number that you are showing or the higher outlook. Is it too conservative or is it the direction you are in [ currently ]?

See, it is a conservative approach. It's -- whether it is too conservative or not, I don't know -- want to respond to that. We would prefer to keep a little bit -- better cash in hand for those periods, right, but then -- because there's the first month post moratorium, we want to be -- we don't know how the behavior will be. So we needed to be a little bit more conservative at least from a liquidity angle. While we are making every effort and, as we said, while we are clear about what is happening there, then we'll present what is happening, what we are really going to collect. In the rest of the period, we are -- funding will be conservative.

Okay. So just one more thing. Between banks and capital markets, what would be the difference between a 3-, 4-year cost of funds perspective now?

It's widening drastically over the last few weeks. Now 3-month money is -- 3-year money is available. Actually, we did a 4-year money at less than 7 40. So 3 months should be less than 7 or maybe around 7. But as the banks are now still at around 7 50, that will -- and again, you have to factor in the bank or monthly payment, [ little things ] or services. And so these can be analyzed.

The next question is from the line of Darpin Shah from HDFC Securities.

Sir, in the Vehicle Finance business, the yields which you have given have fallen on an efficiency basis, whereas our high yield [ curve ] has gone up. So what explains that?

See, in the Vehicle Finance book, we have also done some write-offs of old overdues, which we have then provided. But the unfortunate thing in India is you carry the provision, including the interest in the provision line. And only when you write off, you need to account it in the income line. So that is what is happening. So that is another reason why our provision looks lower, some amount of write-offs. We did some write-offs of old overdues of Vehicle Finance as well as a very small quantum of agri loans, which we're then carrying in the past. We carried and we dropped the product. So both these had provisions in the loan losses line as a provision, but that has to be reversed. And we needed to [ state basically ] in the income line. So that is why the income line looks lower and the provision line looks also lower.

Okay. And sir, this quarter, there has been half a drop in cost to average assets. Some of that can be attributed to the lower business. But what is your sense now -- how much of this can be structural for us going forward even when the business move into normalcy?

Average?

Cost to average assets, availability and...

OpEx, OpEx.

Yes.

Yes, that's clear. Yes, some -- yes, you're right. Some of them are onetime, like some amount of rental savings retained, which are like we could negotiate for a onetime reduction. But most of them are -- can be carried forward. And I see that we will be able to see a good amount of OpEx reduction. The other factor you also need to consider is because our disbursements were low and were even -- to some extent, April, May, our collection activity was low. The cost on that account has been lower, which -- once it bounces back to normalcy, we will have a higher disbursement and so a better income, but we will also have a higher OpEx.

The next question is from the line of from [ Rajiv Kubar from Bond Investment Fund ].

Sir, just one question. Could you just talk about -- I understand that a lot of your customers are in the moratorium because of -- varies on the future [ trend ]. In terms of income to EMI ratio, where is that for your customers today, especially for the higher vintage customers? Are they earning enough to cover the agreement?

See, that's where I covered [ them ]. The customers are able to earn 65 or -- operate 65% of their capacity or above, then they are comfortable servicing the EMI. So this is not like, as you said, attained because they are not running freight contracts for somebody and -- like you pay for -- running for Maruti or running for Ashok Leyland. And we know that Ashok Leyland has started already. So we will start now getting money. I will say it again in some other context. These are -- there is -- as it comes out of a business for them, right? So in one way, it is good, but in another way, it is for the ability to [ direction ]. So once the economy starts moving, thankfully even now the revised guidelines have not stopped the operation of transport between states or intrastate and interstate, et cetera. So hopefully, they will be still able to apply and keep operating. But it is also linked to the demand, which is still to pick up fully. Any of the downstream industries or requirements are not fully operational. So to that extent, that capacity is lower. Utilization is lower. Until that backs up, then it will be a little [ tighter ]. So it is not easily workable for them. For 1 month, it would be better. Another month, it could be worse. So it is not something which we can tell you, give you a number unless you do it customer-wide. And -- or in other words, the guys do on the ground -- at the ground level, at a branch level, but we can't do this at a macro level.

And can I extrapolate that e-way bill generation data, which we see to your customer is a proxy of utilization. Is that what we can do and that wouldn't be a fair way to look at it because...

In case, it would be. But I think Ravi, you may be -- you -- can you address that?

Yes, yes, yes. Sure, sure, sure. E-way bill for the month of June has been higher. And that is the reason we have also seen that capacity utilization of the customers especially in the month of June has improved significantly over May, but it has again gone down in the month of July because the lockdown has been expanded into Tier 2s, Tier 3 towns. And also, there has been a very high -- heavy rain across the country. And in some of the cases, it's actually flood. So -- because of the flood situation and also lockdown extended in these small towns, the capacity utilization started shrinking again. And normally, it happens every year. In July, August, it goes down. That is also one of the reasons people are ahead of their time. They decided not to come out from the moratorium because for the July and August looking to be very lean period for the transporter because every year, they earn money for 10 months and they pay from their profit during July, August. So e-way bill is going to be lower. My expectation, it's going to remain for the month, yes, but it is -- yes, it is directly proportional to the capacity utilization.

My understanding was that in the month of July, at least on a Y-o-Y basis, e-way bill generation is like 15% below what it was last year same time. And as you said that at 65% utilization plus, they will start paying EMI as well as -- it's easy for them to pay EMI. Then in the month of July, it's fair to say that this is just data, you could see -- we could see higher collections or the visibility for collections for you in the month of July are higher than -- I'm not -- I mean...

Our July month collection has been equal to June month collection. It has not gone down. However, the capacity utilization has come down. So that capacity utilization is specific to the transporter. It's basically the SRTOs. But we have overall product. It is not only the SRTO or the heavy commercial vehicle. It is a well-diversified product mix. So the collections are equal to last month. However, the capacity utilization is looking down because people are not able to utilize it. There are 2 reasons: because of the heavy rain; and second is that there has been a lockdown extension in the smaller towers.

The next question is from the line of Abhijit Tibrewal from ICICI Securities.

First of all, also, thank you very much for a very elaborate explanation on the new moratorium slides that were introduced. Some of these questions that I had is if you could please give the GNP for vehicle, LAP and Home Loan segment. What was the total quantum of write-offs in the quarter? And then I had one question for Shaji, sir. We did these home loan disbursements of about INR 190 crores in Q1. What I was trying to understand is when -- even some of these affordable housing finance companies have found it difficult to reach a run rate of about INR 200 crores to INR 220 crores and obviously much larger -- affordable HFCs than us, how is it that we were able to disburse, I mean, something like INR 190 crores in Q1?

Shaji, shall I respond to the NPA first before you start or -- the NPA for Vehicle Finance at Stage 3 is 2.41% and around INR 1,100 crores. So Shaji, please, you can go ahead.

Also, can you also please -- GNPA for LAP and Home Loan segment?

That's around 6.9%. Home Loan, I don't have -- Home Loan is 3.3%.

3.5% GNPAs on assets.

Okay. Yes.

Okay. When it comes to the home loans, now let me first define whom do we serve and whichever markets we serve. We serve the middle-income group spread across mostly in Tier 2, 3, 4 and not in the larger cities. Now even to the extent even the top 8 cities, even 3 cities, we are not even present. We have 167 branches we have established. Of that, 90%, 91 percentage is 2, 3, 4. And even when we look at our portfolio, majority are self-construction, okay, or retail. We are also not actively present in the developer [ circuit ] and the construction market where the demand is hugely subdued and there are -- it's on -- we don't see much a velocity there. The segment which we operated last, even during the lockdown day, the activity levels in 3, 4 especially are for first period than the rest. By clear presence of us in these markets, we have a reasonably good traction which we could see. That having said, in our peak, we have reached around INR 185 crores, INR 190 crores, but we have also reached -- to reach 50% of that at this peak, which was in the month of June. We did reach INR 100 crores against INR 185 crores, INR 190 crores we had done in the past. So it's not that we have anything extraordinarily here. But yes, our strength lies in 3, 4 self-construction and retail, where the demand is [ certainly ] better than the Tier 1 and 2s, what we understand when we look at the sales velocity data from various agencies.

Sure, sir. And Kundu, sir, if I can ask you just one more question.

You can ask.

What's the percent of your...

I'm sorry.

Yes, sir. What's the percent of your total disbursement of INR 3,200 crores would be top-up loans in the quarter?

We have not them in top-up loan because now, the 75% customers are in the moratorium. So then we are not financing, no.

Okay. And sir, if you could just give some color on this new term, NRRB, that you introduced in the last earnings call. Are those metrics looking good now?

Yes, it is looking better actually, in fact, in the month of May, I told you for market 1 and 2 moratorium-delinquent customers, the customer who have got 1 installment due or 1 to 1.99. So that time, I told you that the NRRB for the month of May was 26.79%, which has gone up to 33.98% in the month of June. And not only for 1 to 2 bucket, 2 to 3 vertical also has improved, 3 to 4 also improved. So as the capacity utilization is improving, it is also improving. So for example, heavy commercial vehicle, I'll give you for overall book and giving one for -- giving just one more example. I'm not going to tell you all products because heavy commercial vehicle NRRB was, say, 17% in the month May. For the month of June, it has improved to 30%. So that is we see. So it is looking better in terms of -- that's the reason Stage 2 is actually coming back if you see that our Stage 1 has gone up. And last time, I mentioned that Stage 2 customer who are into moratorium, I am having 1 or 2 installment due. Now current 1 installments are not getting paid. So our focus is to basically collect from them with respect to the previous due as on 29 February and make them normalized and then make -- then further we pursue with them for advance collection. So a lot of customers have paid advance. You have seen that in Page #27. Around 34% customers have paid at least 1 EMI and 14% -- 16% customers have paid part EMI. So the collection efforts from the moratorium customer is on with respect to both delinquent and nondelinquent customer. And delinquent customer, the normalization rollback is higher.

Due to time constraints, I now hand the conference over to the management for closing comments.

Thank you. Thank you, everybody, for joining us in the call today, and we thank the management for giving us an opportunity to host the call. Thank you.

Thank you.

Thank you all.

On behalf of Kotak Securities, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.