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

Good morning, everybody. Welcome to the 3Q FY '21 Earnings Conference Call of Cholamandalam Investment and Finance Company Limited. To discuss the financial performance of Chola, we have with us today Mr. Vellayan Subbiah, Chairman and non-Executive Director; Mr. Ravindra Kundu, Executive Director; Mr. Shaji Varghese, President, Housing Finance; Mr. Suresh Kumar S., Senior VP and Business Head, LAP and SME; and Arul Selvan, Executive Vice President and CFO. I now hand over to Mr. Vellayan for his opening comments, after which we can take the Q&A.

Good morning, everybody, and welcome to the call. Thanks again for joining us on a day when there's clearly going to be lots of action after this. Just to give you some quick update on the results, and then we'll be happy to kind of turn it over to Q&A. Our total AUM crossed INR 75,000 crores, and was up by 15%. NIM for the quarter was at INR 1,364 crores, and that was up by 26%. PAT for the quarter was at INR 409 crores, that was up by 5%, and we'll discuss kind of why that spread later. The -- basically, in terms of Q3 performance, we'll go through quickly and then come back. You've seen the numbers in detail. The biggest kind of difference, obviously, is when we compare it like-on-like versus last year. We had overall higher net income, but also higher overall loan losses as a result of coming out of moratorium. So we had INR 445 crores in loan losses, which then resulted in a PBT of INR 551 crores for the quarter and INR 409 crores for the year. Overall, though, I would actually say that the loan loss behavior coming out of moratorium is in line or slightly better than what we expected it to be. I would actually say, in our main business, vehicle finance, definitely, it's been better than what we expected it to be. And though kind of, obviously, we've had our fair share of kind of changes in what's moved to Stage 3 as we've kind of come out of moratorium. Disbursements -- and just one point to note on the loan loss is that we've indicated that includes additional COVID provisions of INR 216 crores for the 9 months ended December 31, 2020. The total COVID provision that we are holding on our book as of December '20 is INR 750 crores, right? So that's another point to note in terms of what we're holding for COVID. Aggregate disbursements for the quarter were at INR 7,926 crores as against INR 7,475 crores in Q3 FY '20. That's a growth of 6%. And disbursements for year-to-date December 2020 were at INR 17,972 crores as against INR 23,429 crores, which was a decline of 23%, obviously, because of the first quarter. Vehicle Finance had a volume of INR 6,084 crores in Q3 as against INR 5,949 crores in Q3 FY '20, which is a growth of 2%. And year to date, Vehicle Finance has a decline of 25%, again because of the first quarter. LAP basically disbursed INR 1,265 crores as against INR 908 crores or a growth of 39% and year-to-date, again, LAP has had a decline of 21%. Home loans disbursed, INR 434 crores as against INR 400 crores, a growth of 8% for the quarter. And for the 9 months, they've had a decline of 32%. AUM grew by 15% at INR 75,813 crores compared to INR 65,992 crores. PAT, like I discussed earlier, has had a growth of 5%. And PAT for the 9 months is INR 1,272 crores as against INR 1,010 crores, which is a growth of 26%. PBT return on total assets is at 3.1% as against 3.4% in the previous quarter, whilst year-to-date, we're at 3.4%, which is the same level for the first 9 months last year. And ROE of 19.2% as against 20.3% in the previous year. We continue to hold a strong liquidity position with INR 6,228 crores as cash balance. And total liquidity position of INR 10,923 crores, if you include undrawn sanction line. ALM is comfortable and provides no negative cumulative mismatches across any of the all-time buckets. We're also announcing an interim dividend of 65% which is INR 1.30 per share for the year ending March 31, 2021. In terms of asset quality, the Stage 3 stood at 2.57%. And we'll come to kind of those numbers later. Basically, as you probably know, the Supreme Court has directed that accounts which were not in NPA as of August 31, 2020, shall not be declared as NPA until further orders. So therefore, we have not classified these accounts as NPA after August 31, 2020. If we did classify these accounts as NPA, then our gross Stage 3 would be at 3.75% versus the 3.8% at March 2020 and 3.54% at December '19. And our net Stage 3 would be at 2.12% as of December 2020. So like I mentioned earlier, we basically have -- we have a provision coverage of 44.94% now as against 32.95%, which we had in December 2019, and we have 755 -- INR 751 crores that we continue to carry as a COVID provision in our books. Total provisions currently carried against the overall book is 3.09% as against our normal or average kind of overall provisions, which are usually at 1.75%, which is what we held prior -- pre-COVID. So that's basically in terms of provision, that's an increase of 175%. Capital adequacy continues to remain strong. We're at 19.25% as against regulatory requirement of 15%. So with that, I'll basically end kind of our overall financials, and I'll be happy to turn it over to you for any questions from the audience. Thank you.

The first question comes in from the line of Hitesh Gulati.

Sir, I have a couple of questions. Can you let us note the pro forma gross NPA number in the Vehicle Finance, Home Loan and LAP segment separately? And also if you could tell us the write-offs for the 9 months and the Q3 period, both, sir?

The numbers written to considering adjustments for the Supreme court, that means at the end going forward number, which is comparable to the 3.75% number Mr. Vellayan was talking, vehicle finance is 2.78%, home equity is 7.3% and home loan is 3.8% and yes -- sorry, that 3%.

Yes, sir. And sir, on the write-offs for Q3 and 9-month period? Hello? Can you hear me?

Who is that? The moderator is there?

I think we are on. Hitesh, can you repeat your question please?

Yes, my question is what were the write-offs for the Q3 and 9-month period?

Q3 and 9 months are the same because this is the point...

Write-off.

Write-off? Okay. Write-off number. Okay, I can tell you, just give me a minute, I can tell you.

So Hitesh, we'll come back to you with that number. We can move on to the next one.

Next question comes in from the line of [ Abhijit T ].

Am I audible?

Yes, yes.

Yes, yes. First question is on your credit costs. So we've seen a 40% quarter-over-quarter increase in credit cost. Sir, until last quarter, we used to say that we have very adequately provided and that we might actually end up taking some write-backs, if asset quality actually panned out the way we had anticipated. However, I mean, given the kind of credit cost that we took in the current quarter. I mean, would it be fair to say that, I mean, the slippages were actually higher than what you had anticipated? And can you give me some color on how we are seeing that asset quality now in the coming quarters? Am I audible?

Yes, we are just awaiting management's revert. We are awaiting your revert.

Obviously, a certain amount of this has been expected in terms of when we came out of moratorium. And what we will say is that this quarter is going to be kind of fairly useful for us to try and understand what will happen overall, right? So the general thing I would say is that we can kind of end the quarter with Stage 3 assets to total gross assets significantly less than we did in the -- I mean, at the March point last year, which is March 2020, and hopefully, kind of significantly less than December 2019 as well. Then that would give us comfort that we have overall NPA problem kind of [indiscernible]. Moderator, I don't know how many people we have talking at the same time. I think it's tougher -- a bit tough to kind of listen with multiple people at the same time.

It's only you, me and Abhijit, I think, only 3 lines are unmuted right now.

No, there are other voices coming.

Are you guys working on other [ boxes ] or is it just us?

It's just us.

No, no, [indiscernible] background noises.

From whom? Okay, continue, but I just think we'll have to trans -- okay, yes.

So my second question was to Shaji, sir. Sir, I mean, even if you look at the other HFCs and banks, most of them, while they have seen very good demand in home loans and mortgages, where are you seeing the demand in your home loan [indiscernible] kind of customer segments that you cater to, where are you seeing the demand in home loans?

Okay. See, the TG, the target group we are serving is LMI, lower middle-income families, predominantly Tier 2, 3 and 4. And the clients which we are looking at are those who are looking for self construction, those who are looking for a resale ready property. So 96% -- 94 percentage of our branches and the assets are in Tier 2, 3, 4. That's the TG we are looking at, clearly end-use driven home purchasers. So we don't really focus on the under construction property supplied by the developers at all. So clearly, our focus is in this direction. This is where we are also building a capability to process as well. Why we did that specifically is, we are directionally moving towards self-construction and ready property, that also leads to the internal capability of, we need multiple disbursement to be done to a self construction, which also means we need to build that capability or valuation, stage of construction and so on and so forth. This is the market we are focusing. That's where the demand we are going to tap because even the segment we tap is a INR 3 lakh crore market. But within the INR 3 lakh crores market, what is that we are choosing? Clearly end-use driven self-construction and ready property. That's where -- that's the demand we would like to look at. There are more demands, but this is the demand we would like to serve.

Okay. And sir, my last question is to Ravi, sir. Sir, I mean, while we see that -- I mean, we've been doing very well in terms of disbursement growth in used vehicles and construction equipment, are we losing some market share to, let's say, banks in cars, MUVs and tractors?

So for tractors, we are not losing it. The cars and multiutility vehicle, which is quite sensitive in terms of the rates, and there, we would have lost a little bit. But it is like -- in terms of the car, our market share is very low. We were at 2.6% and it has come down to 1.9%. So this is hardly any difference. We are [indiscernible] country and we do put together entry-level car only. So in terms of the entry-level car, if you see, our market share has actually gone up in terms of 1 specific segment. But overall industry may be just slightly down this quarter. But tractor, we have gained.

Tractors, you've gained market share?

It isn't -- like last year, it used to be 5.1%, it is now 5.4%. So there is a slight increase in terms of the market share.

Okay. And sir, just one last question. While the other HFCs were suggesting that they still remain a little conservative on LAP as a product, why is it that we are so aggressive in our home equity or LAP segment?

As far as LAP is concerned, if you see that for last 5 years, our disbursement per month has been hovering between INR 300 crores to INR 350 crores. And during this period, we have actually expanded our branch network to 125 to 250. And so we have started moving towards Tier 2, Tier 3, Tier 4 towns. So the disbursement, we're actually expected to go up from last financial year, since in the beginning of the financial year. But due to the COVID, we did not go up. So the capacity utilization of the people and the branches we have put up for LAP during last 2 financial years has now started actually delivering it. So there is a small increase in terms of the disbursement in LAP. Another thing is that if you see that in a macro's point of view, with Tier 2, Tier 3, Tier 4 towns, especially from the consumption side or distribution side or the retail side, they are doing better. So there is a demand for that. And because we have moved into Tier 2, Tier 3, Tier 4 towns, it has helped us to do the business. But we are not doing the LAP business with the tours and travels and that segment. We are only focusing on retail and distribution of food, FMCG, consumer durable and hardware and building side.

The next question comes in from the line of Nidhesh. [Operator Instructions]

I'm Nidhesh from Investec. My question is on -- just 2 questions. One is on -- data point question on ECGLS (sic) [ ECLGS ] scheme. How much we have disbursed and what more restructuring we expect in coming quarters? And second is, we have seen a significant improvement in our PPOP to asset ratio. It has almost increased by 130 to 140 basis points versus last year in this quarter. So do we expect this improvement in operating profitability to sustain going into next year? These are 2 questions.

ECGLS.

ECGLS is around INR 1,500 crores is what we have disbursed during this quarter. And with regard to profitability, yes, we will be sustaining. There will be improvement in NIM, and OpEx will increase a bit, but I think that will get offset by the lower loan losses that we expect going forward. As we told even in the previous call, this quarter, we expected loan losses. And to also give the comfort, we have not utilized the moratorium, the COVID provisioning. We have only written back around INR 50 crores, which is mostly on closed accounts, et cetera. So the rest of it is to meet any contingencies. So we are confident enough to maintain it.

Sure, sir. And sir, restructuring number in coming quarter? Or we are done with the restructuring, that we're at around 2% of a year?

Yes, we are done with the restructuring. There may be 1 or 2 cases or a few cases, which we have committed, which we may be doing in this current quarter. But I think predominantly, the 2% range is what we will be holding to in the coming quarter also.

Next question comes in from the line of Umang Shah.

This is Umang from HSBC. I just have 2 questions. One is, clearly, on Stage 1 and 2 or Stage 3 assets on a year-on-year basis, we have considerably improved our provision cover. Just wanted to understand, as we get into FY '22, is there any change in management stance in terms of our provisioning policies? Or -- I mean, whether will we hold any sort of excess provisions on balance sheet? Or we will normalize to pre-COVID levels over a period of time?

This, again, we spoke last time. What we will be doing is as we move into the next year, we will reverse to the extent of the COVID provision, but to the extent of the macro management overlay, we will continue to hold. That will be in the range of around INR 250 crores to INR 300 crores, is what we will hold. Rest of the COVID related, it's consumed as and when these accounts get closed out and move more into resolutions. So then that will get -- so out of the INR 800 crores or INR 750 crores we are holding now, INR 250 crores to INR 300 crores will be held and the rest may be reversed. Then we will take calls as we move along, but this will be the more conservative approach.

Okay. Fair enough. And just wanted to confirm one data point. Could you please clarify what was the home equity gross Stage 3 percentage you mentioned? Sorry, I missed that number.

7.3%.

7.3%. Okay. All right.

The next question comes in from the line of Nishant Shah.

This is Nishant from Macquarie. Good to have your back, Mr. Vellayan. Just a couple of questions, sir. Could you comment on like the leadership changes which have happened, the current CEO has left. There's a professional director which has been appointed. We have you on the call as well. So how should we think about the leadership in the coming years? that's the first question.

Yes. So Nishant, the -- generally, as you know, we have a policy at 65, kind of the Group Chairman basically retires. And that's basically what happened in the November time frame, where Mr. Murugappan basically retired as the Chairman of the group. Consequent to that -- obviously, kind of the family had been planning that move for quite a while. And consequent to that, obviously, there was -- we looked at kind of roles that different younger members in the family would take, well, younger to Mr. Murugappan, would take consequent to that change. And as a result of that, kind of the thinking has been that kind of we would return to kind of areas that we basically had traditional strengths in. And I kind of moved. I've moved back to kind of provide oversight for Chola as well. And this is kind of a long-term direction. So given any other unforeseen kind of circumstances, this is the kind of broader direction that we will take for the long term from now.

Okay. So just sorry to pick you on this. One more question here. Who is the interim CEO now? Or is there a time line during which we will [indiscernible] will be appointed as CEO?

Yes. So that's a good question. So basically, as you know, consequences has changed. We've also been looking. And like you know, the RBI is coming out with a series of kind of changes that looks like for NBFCs, right? The first of which was announced with NBFC upper layer, but there's also been some questioning as to whether the larger NBFCs should become banks or not. So what we're going to do at this stage, Nishant, is basically wait for clarity on that, right, to basically see whether -- what the RBI basically directs, right? And we are going to develop our strategy based on the RBI's overall direction. What does that have to do with leadership? Obviously, kind of if the RBI is going to kind of push some of the larger NBFCs to become banks, that calls for a different type of leadership. If Chola should remain an NBFC, that calls for a different type of leadership. The -- as you know, I mean, the one thing that we are fairly comfortable with is that the entire team here has worked together and has worked here for a long time before. Ravi Kundu continues to be the Executive Director and has a significant experience. And Ravi and I have worked together for a long time in the past for over a decade. Similarly with Arul Selvan as well, who is the CFO, and continues to kind of play that role very well. So basically, the team that's in place is kind of a team that's basically had the experience and has that working relationship over a long period in time. Shaji has come in kind of in March, and is developing a fairly strong hold on the housing loans business. So our current position is that we need to wait for some of the regulatory direction in order to determine what the company derives. And so till we get that clear regulatory direction, I think we feel comfortable kind of operating in this mode. And as soon as kind of we're a bit clear in terms of regulatory direction, then we'll basically -- consequent to that, we'll develop a clear outline for what's happening within leadership -- for leadership within the company.

Just one quick data keeping question for Arul, sir. What will be the percentage of customers who have not paid anything at all so far?

We are in 2%. You are talking about the moratorium customers, right?

Correct, correct. And this will all be in Stage 3 now?

Some maybe in Stage 3 and some maybe in Stage 2.

Next question comes in from the line of Piran Engineer.

This is Piran Engineer from Motilal Oswal. just firstly, one clarification. If I heard you correct, the ECGL disbursement is of INR 1,500 crores in this quarter.

Yes. That's correct.

Okay. But sir, compared to your competitors, the vehicle financiers, their disbursements are actually much, much lower. Like the largest financiers' disbursements are half of you all. And the other one is probably 1/5 of you all. So is there any reason for this dichotomy? What would you attribute this to? Or is this mostly towards LAP and that's why it's not comparable?

See totally, we have disbursed INR 7,000 crores in the....

Why don't we talk about the profile of customers?

So can you just repeat the question, Piran.

He is saying why large -- yours is so high compared to other vehicle financiers. Can you talk about the profile of customers in vehicle?

You are asking whether it is high or low. What is that you're asking?

No, high. The ECGLS of INR 1,500 crores is much higher than say Shriram, which is INR 700 crores or Mahindra Finance, which INR 250 crores. So I just want to understand what is the reason for this dichotomy?

Okay. So in Vehicle Finance, we have actually disbursed INR 1,162 crores, which is closer to 80% of the overall disbursement. And in the LAP, we have disbursed INR 384 crores, which is 30%. So in the vehicle finance, the percentage is only 11 -- 18%. That is one. Second is that if the vehicle finance customers who are actually depending on the industrial production or their vehicles are actually attached to the factories, so there, output to the factory is actually lower during the Q3. So because of that, they wanted some support in terms of the financing. And that's what is the direction also from the government that we need to give 20% of the outstanding. So we have followed that norm only. And under that, mostly the new HCV customer are from that, and therefore, there is a -- if you are comparing with the finance company having a higher book of the used business, then obviously, our number will be slightly higher than that.

Okay. Sir, then do I take it that this INR 1,500 crores is not part of your used CV disbursements because if I look quarter-over-quarter, your growth in vehicle finance disbursements is from used CV only.

Used CV disbursement has definitely gone up by 30%, but GCL has been funded mostly to the new HCV customer.

The next question comes in from the line of Dhaval Gada.

Congrats on decent performance. I had 3 questions. First to Mr. Subbiah on the sort of long-term strategy. So you, in your earlier remarks, mentioned that this is going to be slightly long-term assignment. So I just wanted to understand how do you see the sort of outlook for Chola over the next 5 years, given that when you left, one of the objectives that you were trying to achieve was related to ecosystem, pertaining a larger part of the ecosystem. And since then, we've not seen significant changes, and we've seen more of business as usual with significant changes on the digital front. But in terms of business, there has not been much addition. So if you could just talk how Chola is likely to evolve in the next 5 years, that will be quite useful. So that's the first question. And then Arul Selvan. In terms of provisioning, so while I see that the absolute amount of provisioning has gone up, but if you look at the percentage of provisioning related to Stage 1, that's come off from 97 basis points to 67 basis points. And on Stage 2 from [Audio Gap] percent. So while on -- so if you could just talk about how you think about provisioning and this model change that you're seeing? And what's the rationale for this percentages dropping? So that's the second. And third one is related to the ECLGS part. So I just wanted to reconfirm the numbers. You mentioned INR 1,162 crores. So that implies about 11%, 12% of VF book being ECLGS funded? And similarly, for LAP, about 13-odd percent. Is the numbers correct? Yes, those are the 3 questions.

Okay. Sorry, and we missed who actually asked the question.

Dhaval.

Dhaval. Okay. Okay, Dhaval. So first, we'll answer the first question. In terms of -- we are still in the process and kind of we're still in early stages of defining kind of the strategic direction, like I said, because we want to define a fairly long-term strategic direction for the company. We started that process in December. And so I would say that we will basically get it done perhaps in the April time frame. So we would probably start articulating more of that either kind of in the April call or on the July call. But definitely, there will be kind of a shift more towards the ecosystem play. And there will be kind of that broadening. I think some fairly good examples have gotten played out in India, especially with kind of the way Bajaj has played it out since. And so we see definite value in that. Obviously, we recognize that kind of just following a clear Bajaj strategy is not the way for us to go because we're late to the game there. However, we continue to believe in this whole financial services kind of because given the low level of penetration in India. And so what we're working on is what, in our minds, is kind of a more differentiated strategy that will get us to that same ecosystem answer, where we can offer multiple products to our customers within an ecosystem -- within multiple ecosystems, I should say. And so we're in the process of articulating that, and we will be able to kind of share more with you in the next 3 to 6 months. But we definitely see a lot of opportunity coming back from that, and that having implications for our medium- to long-term growth as well.

Dhaval, on your question on the Stage 1 provisioning. Yes, so if you recall, the -- we were -- prior to COVID, we were putting Stage 1 provision in the range of around 0.3%. Now in COVID period, because of the moratorium, most of the assets were lying in Stage 1, and we did not know where they will move post the moratorium. That is why we have to -- we have increased the provisioning out there to around 0.7 -- 0.74% in March and thereafter slightly more. Now after the moratorium has moved, we have -- now whatever has to be in Stage 1 has -- will be -- would a vehicle be there because they're performing well or they would have moved further up into Stage 2 or Stage 3 depending on if they are not doing well. So now going forward, Stage 1 provisioning need not be maintained at the same high level. This is the logic. But we have not fully reversed them. We are progressively reversing them. And the other factor for that is that some amount of the restructuring loans are also coming in Stage 1. To that extent on that, we have increased the provision. That part is also increasing the Stage 1 provision. So this is the background for the Stage 1 provision cover movement. Does it answer?

Yes, yes. It does. And the third one?

On the third question, on the GCL part, it is around 15%, if you look...

18%.

18% if you look at the vehicle finance. And with regard to...

27%.

Loan against property, it's 27%. I think this gives a -- we had capitalized on this onslaught because the government is guaranteeing the repayment of this part. And so we are comfortable lending this, and we wanted to maximize it.

The next question comes in from the line of Nikhil Upadhyay.

Just one question. Because we finance to generally cash flow generating assets, is there a difference between the cash-generating ability of our customers who are in manufacturing versus who are in consumer-oriented sectors, if you can share any inputs based on what you've seen?

So as far as the vehicle finance is concerned, our customers are mainly into Tier 2, Tier 3 town, and we are also addressing the customer who are either in trading or distribution or they are basically consumption side. So manufacturing side, our vehicles are not depending much. But the new vehicle, a little bit numbers are there who are actually SRTOs having 10 vehicle customer are actually attached to the vehicle wherein the factories are the load provider. So on that side, the dependency is less. As far as the LAP is concerned, we have also come out from the maximum manufacturing side to the retail side and distribution side. So obviously, during this time, when we see our collection efficiency improving month-on-month significantly during September, October, November, December, that is because of our distribution of loan in Tier 2, Tier 3 town and not having much dependency on the factories or industrial production.

The next question comes in from the line of Mr. Antariksha.

Am I audible?

Yes, you can go on.

So good to have you, Vellayan sir, on the call, again. There are 2 sets of questions. One is to Mr. Kundu on the Vehicle Finance. You did highlight about the used vehicle disbursement growth. So my question is a major part of it coming from cars? Or is it bulky used CVs only?

70% is our used vehicle, our commercial vehicle. And 30% of used vehicle are the passenger vehicle. And disbursements are more or less going high, both of the side. But due to the lower base in this -- in the car and used in the car and MUV in the recent time, so the growth is slightly higher than the commercial vehicle used.

Sure. So in the commercial vehicle side, what we get, we understand from some of the other comments is that there are some constraint on OEM volumes. Is that one of the reasons why used CV sales are so high? And is that expected to sustain?

No, used vehicle has been doing better for the last 1.5 years since when the people who started actually selling the vehicle due to the EMI affordability, and that has started last year itself. In fact, new business has come down due to the scarcity of the vehicle supplies because of the reposition not happened during April May, June, July, August and also because of the replacement did not happen. But now replacement cycle is going to start as far as the heavy commercial vehicles are concerned since macros are looking improving. So people who are due for purchasing the new vehicle, they will sell the vehicle and buy for the new vehicle. So used business is going to go up and new HCVs is also going to go up.

Got it. And sir, for the vehicle finance segment per se, what would be your best estimate of the stress pool or the percentage of customers, say, belonging to the school bus operator, travel, all those segments in your entire portfolio that are probably still struggling to pay?

No, we have seen that our -- most of the customers who were actually struggling to pay because of the capacity utilization is not happening to the fullest capacity or partially it is happening, those customers are below 2%. And they have asked for the restructuring, and we have accepted that. So the rest of the customers are paying. So if you take our Stage 1 who are 0 to 29 bucket customer for the loan book, which is 92% of our overall portfolio, the collection efficiency is 98%. So 2% only is actually rolling forward.

Sure. Just one small question to Mr. Vellayan. Since you did allude to RBI regulations and the upper layer of NBFCs, if the choice is left to the company, what are your thoughts on becoming a bank?

Obviously, we wouldn't comment at this stage. Like I said, we're basically kind of -- we are basically going through this broader thinking on long-term strategies for Chola. And I'd say that next 3 to 6 months, we'll give more commentary on it. We need to understand, obviously, how the RBI is going to specify what they want, right? And so it's too premature for us to comment.

[Operator Instructions] The next question comes in from the line of Abhishek Murarka.

Yes, can you hear me?

Yes.

Yes. This is Abhishek Murarka from IIFL. A couple of questions. One, have you accounted for the interest reversal on your pro forma NPA? And is that reflecting in margins? Or is that made as a provision? And the second question is, in terms of disbursements next year, so you've seen a pretty sharp bounce back. Do you think you'll get back to your trend rate of disbursements in FY '22 and how do we look at it? Do we look at it with FY '21 as the base or FY '20 as the base and build from there?

Yes. With regard to interest reversals, under Ind AS, it goes into the provision only because that is to be kept -- the provision has to be considered on the gross assets based on the recoverability. So unlike the earlier period, the interest reversals don't take place in the top line. The Ind AS reversals will come into effect when you -- if you adopt to write-off of a loan and on that point -- at that point in time, if we have to reverse interest because you're writing it up, that goes to the top line.

As far as the disbursement is concerned, we have been doing this budgeting exercise with our Chairman, as Mr. Vellayan mentioned that, and we gave them the number, and it was looking very high. So he said that, don't look into this number, let us actually compare the last to last year number. So then we started looking at the reality. So -- but that is also looking better, actually. I mean, it is in double digits and fairly double digits.

So broadly, just to kind of, as we say -- like we said, we are kind of -- we are now fine-tuning the longer-term kind of strategic outlook. Given that we're in the midst of that process, I think we'll be able to give clearer direction in that April time frame versus kind of provide that direction right now. Overall, I would say we're optimistic on kind of the growth potential and the opportunities going into next year and in the medium term. But in terms of actually kind of any form of guidance, I think we'll have to wait for April.

But fair to say there would be a step jump in disbursements in FY '22, given '21 is a depressed base.

See, obviously, it depends upon -- I mean, effectively, the last 2 months fully, right, and kind of 1 month -- half of 1 month. So obviously, if you take that into effect, yes, it will be a step down.

Sure. And finally, just could you share the number for interest reversals overall on the pro forma increase as in whatever you've provisioned for?

Provision for -- that is not separately available because it goes into the gross asset and then you do the PD/LGD on the total assets. So we will not be able to give that number.

Next question comes in from the line of Nikhil Upadhyay.

I'm done. I think I forgot to lower the hand, sorry.

[Operator Instructions] The next question comes in from the line of B&K support.

Yes. So this is Sanket here, Sanket Chheda from B&K. So my question is on areas of growth from Q4 and FY '22, next year. So for us, the key ability of Chola has been that whether we are smaller player in particular segment, that doesn't really matter. Whenever there is opportunity, we tap it. We did it in tractors in the first quarter and then used vehicles in second and third quarter. So my question is, sir, on now HCV, wherein our market share is relatively lower at 2%, and in good times, it moves up to 6%. So what are -- what is the strategy on now picking up pace on maybe higher growth on HCV segments? And what would be the key differences maybe an HCV we do or an HCV maybe a player like Sundaram would do?

Yes. So HCV, if you see that from the December month itself, the numbers started picking up. And as we expected from Q4, replacement demand would play in terms of the industry sales. And since the last year, Q4 was very small number in terms of heavy commercial vehicles because of the transition from BS-IV to BS-VI. Industry would see huge growth in terms of Q4 to Q4. So that is one. If you consider December as a stand-alone number, which is 15,000 units HCV being sold in December, and that same number being sold, so then it will be 45,000. And last year, Q4 was 33,000. So as against that, the industry will see 40% growth, if you take the December as a -- same number is going to happen. So obviously, we are -- if we continue to be the same market share, our disbursement also will go up. And during this season, if the replacement cycle goes up or starts playing, we normally play during the first 2, 3 years. So our -- we will try to see -- go to SRTO customer, not depending on the industrial production in the Tier 2, Tier 3 town. We will be focusing that. So with that, our HCV number also will start picking up. That is it. Then we have been discussing about co-lending. So the co-lending also going to play, which is going to start from Q4, any time. So put together, our disbursement from heavy commercial vehicle will be better than now.

The next question comes in from the line of [ Kaushik Agarwal ].

[indiscernible]

We can't hear you.

Am I audible now? Hello?

No, your voice is very weak.

Am I audible?

It's very, very weak.

Yes, can you hear me now?

Slightly better.

Yes. So my question is -- I just had one question [indiscernible].

Kaushik, we can't hear you. We can barely hear you. Can I request you to kind of use another Internet connection and maybe join back. We'll move on to the next participant. This is Rikin Shah.

This is Rikin from Crédit Suisse. Two questions. The first one, on the collection efficiency numbers. So how are they looking up for the different months in October, November, December? And moving into the 4Q which is also seasonal, what's the outlook on the same? And the second question is on clarification on ECLGS scheme. I did not understand clearly why the ECLGS takeup is higher for our customers, so repeat that.

Yes. Rikin, Ravi Kundu here. The collection efficiency measurement, we can do it in many ways, but there are 2 ways actually we are following. One is that, what is the collection efficiency against the billing? So against the billing, as we mentioned last time, INR 2,001 crore was the billing in the month of September, and we did INR 1,749 crores. I'm talking about the vehicle finance. So we did 87% of the collection against the billing. So 87% of collections against the billing in the month of September has gone up to 103% in October and 105% in November and 108% in December. And going forward, you can see at the same level because now we got the momentum. That is one way of doing the measurement in terms of the collection efficiency. And we call it a billing collection efficiency. Now billing plus arrears. So cumulative collection efficiency, if you want to see, then it was 59%. It went up to 61% in October and then 67% in November; and December, 62%. Now if you want to see the Stage 1 loan book collection efficiency, it was 93% of the loan book of Stage 1 collected fully. Stage 1 book of October, 95% collected fully. And the Stage 1 book of November, 97% collected fully. In December, it is 98% collected fully. As far as the ECLG is concerned, what I mentioned that, we have done 20% of our overall disbursement. In that, majority of the customers are new heavy commercial vehicle customers, who are depending on the industrial production, their vehicles are attached to the industry or the factory where the outputs have not reached to the normalcy, or the customers who are school bus operator, their vehicles are not operating during this period. The used vehicle, the ECLG is significantly lower. That is the reason I said that if you're comparing with the company who has got higher used book, and -- then it is not apple-to-apple comparison.

Next question comes in from the line of Mr. Chintan Shah.

Kunal over here.

Chintan, we cannot hear you.

Yes, this is Kunal over here. Can you hear me now?

Yes, yes. Kunal, go ahead.

Yes. So just in terms of the Stage 2, if you can highlight your collection efficiency, so how is the pool in the Stage 2 behaving just in terms of the number of assets that would flow through into Stage 3 in coming quarters?

Stage 2 is basically 1 to 2 and 2 to 3 bucket. The customer who are 30 to 59 and 60 to 89. So there are 2 buckets are involved. So we need to [Technical Difficulty] below 90%, has started picking up above 90%.

Okay. It's above 90%. And -- okay, so maybe in terms of the flow-through into Stage 3, should be relatively lower then?

Yes. So from 1 to 2 bucket, the roll forward is 8.20% in December.

Okay. Okay. Cool. Yes. And secondly, so this was on the Stage 2. And finally, in terms of the overall stress pool, if you have to look at it, so almost like say, Stage 2 plus Stage 3 at 9-odd percent, plus another 1.6% of restructuring in Stage 1.

No, no. 5% is basically -- if you're asking for the overall company -- if you're asking for the overall company, Stage 2 is 5.25% and Stage 3 is 3.75%.

Yes. So I just wanted to understand maybe in terms of the overall stress pool, if we have to look at it, including the restructuring and including the Stage 2, then that seems to be somewhere around 10.6-odd percent, against which we are carrying the provisioning of 3-odd percent. So this seems to be sufficient enough? Or would there be a need for higher provisioning? Maybe currently on restructure, it is 13-odd percent. But what is the texture of restructuring? Is it -- because most of the guys highlighted that in terms of restructuring what they are doing, plan for the costing for 3, 5 months. And that's the reason there was no need to go in for a restructuring, and they have allowed it into the Stage 2 also. But what is the quality of our restructuring if you look at it in terms of what is the kind of extension which they have sought or maybe any interest deduction, if any.

Yes. Stage 1 -- Stage 2 and Stage 3 plus restructuring book is close to 9.9%. And if you see, the restructuring is mainly in vehicle finance. We have given it to the school bus operator, but those who are actually have been paying absolutely fine during last so many years. So they are our existing customers. But because the schools have not opened up, they wanted 30 to 90 days' time. And few customers who are basically having a plan to open up the school only by June, they have taken 90 -- 180 days also, but that is very few. So mainly the schools are actually the customer who have been -- taken the -- this thing. And in addition to that, as I mentioned, that if the heavy commercial vehicle attached to a cement plant or factories where the industrial production has not come to the fullest capacity, then their transportation is affected to the extent of the load provided by the manufacturer, which is likely to improve from January. And already, we have seen that it started improving. So both the -- so heavy commercial vehicle customers who have taken it for 30 to 60 days and school bus operator have taken slightly for the longer period.

The next question comes in from the line of Bunty Chawla.

Congrats on the set of numbers. My 2 queries are, first, we have seen very strongly 120 bps improvement in the margins in Q2 and 650 bps, again, continuously improving in Q3 as well. So what is the going ahead outlook for that, if you can share that number -- if you can share that outlook? Secondly, what we observed in the home loan business, specifically, this quarter, there has been a huge credit cost of 2.8%, which you highlighted in the presentation. If we compare with the other HFCs who already have declared this number, it is slightly higher. Is it due to the customer base, which we are focusing, which you have shared earlier? Or is it we are very much conservative in terms of provisioning in terms of home loan business?

See, with regard to the margins, as I said earlier also, the cost of funds are being beneficial and then may have -- they have been improving. Right now, we can't give any forward-looking numbers on this as we move into the subsequent quarters. Shaji, you want to?

Yes. See, as far as home loan is concerned, we just want to tell you that we have actually gone back to the portfolio performance to the pre-COVID. In fact, Stage 1 and 2, I'll just come to the provisions specifically after that. Stage 1 and 2, in fact, it is actually performing even better. Just to throw some numbers here, and -- in Stage 1, was 93.29% pre-COVID. It has come to 94% now. Sorry, Stage 1, sorry. On Stage 2, it was 2.95%, now it has come down to 2.06%. And Stage 3, 3.76% and 3.77%, so it is stable there. Then when it comes to the incremental provision, it is mostly driven by the restructuring because even though it is in Stage 1, it attracts a 10 percentage of provisioning. So we have around INR 177 crores total being done in restructuring, hence provision had to be done higher. That's why this quarter provision has been higher than the corresponding previous quarter and the corresponding year. So the stages have not moved because there is restructuring. As per the regulation, we have to do 10%. That impacted this.

The last question comes in from the line of Mayank.

This is Mayank from Franklin Templeton. Just a question on operating profitability. I think you've been already asked this question, but if I look at your OpEx, given that you've had a 6% Y-o-Y increase in disbursements and I'm sure there would have been a lot of collection -- sorry, there's just too much disturbance.

Yes, Mayank, you are unmuted. You can ask your question.

Sure. So again, the question is that despite a 6% increase in disbursements, and I'm sure there would have been a lot of collection intensity going on right now, the OpEx decline, how is that happening? And is that sustainable? And if you could just talk about what do you think medium-term trends on operating profitability could be like?

OpEx. So I think your question on OpEx decline, obviously, kind of -- there are a couple of factors driving it, right, which is kind of -- there's a real kind of -- because of COVID, kind of there was no -- I mean, like a lot of costs were not there, right? Some of those costs will also start coming back next year. So I think we would see a slight uptick next year from current levels. But it will be kind of manageable and controlled, right? So I don't think we'll have huge move, but it will be a slight uptick from current levels. And your second question in terms of operating profitability, and I think we've kind of indicated some of that earlier, which is we see current levels kind of almost -- our improved levels basically kind of sustaining, but we don't want to give any specific guidance on it, and we'll see what happens next quarter.

Thank you very much. That was the last question for today. Thank you, everybody, for attending this call, and we thank the management for providing us an opportunity to host this call.

Thank you.

Thank you.