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

Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited's Q3 FY '22 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note this conference is being recorded. I would now like to hand the conference over to Mr. Nischint Chawathe from Kotak Securities Limited. Thank you, and over you, sir.

Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. To discuss the 3Q FY '22 performance of Chola and share industry and business updates, we have with us today Mr. Vellayan Subbiah, Chairman and Nonexecutive Director; Mr. Ravindra Kundu, Executive Director; Mr. Shaji Varghese, President, Housing Finance; Mr. Suresh Kumar S., Senior Vice President and Business Head, LAP and SME; and Mr. Arul Selvan, President and CFO. I would now like to hand over the call to Vellayan for his opening comments.

Thank you, Nischint. Good morning, everybody, and welcome to the earnings call for the third quarter. Just some key financial results and highlights. Disbursements for the quarter were at INR 10,413 crores, which is up by 32%; and Y-to-date they are at INR 22,772 crores, which is up by 27%. The total AUM is at INR 79,161 crores, which is up 4% year-on-year. The NIM is up at INR 1,484 crores for the quarter, which is up 9% year-to-date and INR 4,240 crores for year-to-date 2021, which is up 18% year-on-year. The profit after tax is at INR 524 crores for the quarter, which is up 28% year-on-year and INR 1,457 crores for year-to-date, which is up 15%. Some quick highlights. The -- post the second wave of COVID, we've actually seen that economic activity has steadily been improving, especially in contact-intensive service industries, which were hard hit by the pandemic. Pent-up demand and the monsoon has further aided to a swift revival of the economy in Q3. And we've seen uptrend in basic economic indicators, tax collections, power, value registration, highway tolls and e-way bills. And that all gives us a sense that this is going to be more broad based in terms of the recovery. This, in turn, has led to a sharp recovery in both our disbursements and collections during Q3. The positive momentum seen in Q2 further accelerated during Q3 in terms -- basically on account of healthy demand during the festive season and boosted auto sales and improved customer sentiment overall, right? And that led to a healthier demand for mortgage loans as well. In the last quarter, we also announced new business divisions and digital partnerships. So the 3 new business divisions are targeted at the consumer and SME ecosystem. One is consumer and small enterprise loans, and this division will offer personal and professional loans and micro and small enterprise loans through traditional, direct-to-customer and digital partnership channels. To that end, we've entered into 3 strategic partnerships with leading fintech companies Bank Bazaar, Kreditbee to scale up this business vertical. Second is the secured business and personal loans. So this division will offer loans to self-employed nonprofessionals through traditional channels for their day-to-day operations and capital investments. And the third is the SME loans, which will offer term loans, working capital finance, equipment finance and supply chain finance to SME customers through, again, both traditional and digital channels. We also made an equity investment in Payswiff where we have entered into a strategic arrangement to acquire up to about 72% of the equity capital of Payswiff Technologies Private Limited for a sum not exceeding INR 450 crores and will consequently become a subsidiary of the company. Payswiff is engaged in the business of enabling online payment gateway services for e-commerce and provide e-commerce solutions. Payswiff is an omnichannel payment transaction solution provider that lets business owners accept payments from their customers in store, at home deliveries, online and on the go using their product offering. The relationship is expected to add value to the existing Chola ecosystem by providing a platform to build new age SME offering at scale, access to the SME network across the country and an opportunity to be one of the preferred SME financials. Next, I want to talk a little bit about the changes to RBI regulation on asset classification and provisioning under IRAC, which basically, as per the circular dated November 12, 2021, this is probably the most significant change from RBI in this last quarter. And base is this -- the following are the key changes brought into scope and into immediate effect. NPA evaluation will be on a day-to-day basis -- on a day basis based on daily DPDs after the end of the day process in the system. Agreements which crossed 90 days DPD should continue to be classified as NPA until all due towards principal and interest are completed. While these changes are regarding evaluation of NPA as per income recognition and asset classification and provisioning, IRACP as defined by RBI has no bearing directly on the ECL model. We have made suitable changes in presenting the stage-wise asset categorization to bring in more transparency in our reporting to enable all stakeholders related to figures, both under the IRAC model and the IND AS ECL model. Accordingly, we have subcategorized the stages as follows. We now have Stage 1, Stage 1A, Stage 1B and Stage 2, Stage 2A and 2B. So Stage 1 total is the summation of those 3, Stage 1, Stage 1A and Stage IB; Stage 2, 2A and 2B combined; and then we have Stage 3 and Stage 3 legal. I'll just talk a bit about what some of each of these subclassifications are. Stage 1 represents assets which have never touched NPA and currently is within 30 to -- 0 to 30 days, and hence, not an NPA as per RBI norms. Stage 1A represents assets which have been an NPA in the past but have normalized and currently in the 0- to 30-day bucket, so it's hence no more an NPA as per RBI norms. Stage 1B represents assets which have been an NPA in the past but are yet to be fully normalized, though it has moved to Stage 1 currently. And hence, this will be an NPA as per RBI now. Similarly, with Stage 2, 2A and 2B, 2 will be assets that have never touched NPA and have always been in 0 to 90, so therefore, they will not be an NPA per RBI norms -- current RBI norms. 2A will be assets which have been in NPA in the past but have now normalized in the -- sorry, and now in the -- had been normalized those, but are now in the 31- to 90-day bucket, and hence, they are no more NPA per RBI norms. And Stage 2B will be assets that have been NPA in the past and yet to be fully normalized, though it's moved to Stage 2 currently, and hence, these will be treated as an NPA as per current RBI norms. And Stage 3 will represent assets which continue to be an NPA as on the closing date. And these are obviously an NPA under RBI norms. So I think most of you have received the press release by now, but we've got detailed figures as to what the totals are in each of those stages and that will give you a much better and more transparent view as to what the overall implications for NPAs are. During the quarter, the company also made additional provisions of INR 136 crores towards management overlay, taking the total management overlay to INR 836 crores. I've been through the overall performance highlights. In aggregate disbursements in Q3 were at INR 10,430 crores, which is a growth of 32%. And we -- I'll just go through the individual businesses. Vehicle finance disbursements were INR 7,647 crores as against INR 6,084 crores in Q3 FY '21, which is a growth of 26%. And year-to-date December 2021, there were at INR 16,654 crores as against INR 14,096 crores in the previous year, which is a growth of 18% year-on-year. LAP was dispersed INR 1,763 crores in Q3 as against INR 1,265 crores in the same quarter last year, which is a growth of 39%. And disbursements year-to-date were at INR 3,884 crores, which is a growth of 59%. Home loans dispersed INR 437 crores in Q3 as against INR 434 crores and disbursements year-to-date were INR 1,129 crores, which is a growth of 12%. The total AUM is at INR 79,161 versus INR 75,813 crores. And the PAT year-to-date is at 14 57 and for the quarter is at 5 24. PBT ROA was at 3.8% and year-to-date -- for the quarter and year-to-date is at 3.6% and that's against 3.1% and 3.4%. And ROE is at 19.3% against 17.6%. The company continues to hold a strong liquidity position with INR 6,317 crores as cash at the end of December and then including -- that's including INR 1,500 crores invested in GCC. And it's a total liquidity position of INR 10,671 crores, including undrawn sanction. ALM is comfortable. We have no cumulative mismatches. And the company, also the Board of Directors has approved the payment of an interim dividend of 65%, which is INR 1.30 per share. Asset quality, as I talked about earlier, Stage 3 assets were at 5.8%, with a provision coverage of 38.8% as against 6.16% at the end of September 2021, with a provision coverage of 36.45%. The total provisions currently carried against the overall book is 4% against a normal overall provisions levels of 1.75%, which we carried pre-COVID. And as per the RBI norms for the November 12 circular, our GNPA will be at 8.53, and our NNPA will be at 5.76. And we carry INR 746 crores higher provisions under Ind AS versus IRAC. The capital adequacy company is at 19.8% as against regulatory requirement of 15%. And our Tier 1 capital was at 16.8%. So let me stop with that, and then we'll be happy to turn it over to you for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Rikin Shah from Credit Suisse.

I have 4 questions. The first one is on the new business verticals launched recently. Would you please elaborate a bit more in detail about the typical customer profile yield tenure and medium-term growth aspiration for each of these new business divisions that we have launched recently? Second, the strong disbursement that we saw also finally pick up in the growth in vehicle disbursements. Given the demand outlook from here, do you expect this strong momentum to continue over the medium term as well? Third is on the asset quality norms. Regarding the RBI circular, I wanted to check whether it was applied retrospectively or prospectively from 12th November onwards? And going ahead, how should one think about the credit cost? Would it require further management overlay every quarter? And the last one is some data-keeping questions. I wanted the total outstanding restructured loan book split between GS 1 and 2, the total ECLGS disbursements made until now and the collection efficiencies for last 3 months?

Okay. My RAM is not that high. Arul, have you got all the questions?

Can I reply that business, sir? Respond to that?

Yes, Ravi, why don't you start with the new business and then we can talk...

Disbursement on vehicle finance and then...

Arul, you can talk about the IRAC question, November 12 and retrospectively. And then the last question also then, Arul, you can respond.

Yes, sir.

Arul, is there?

Sorry, sir, I was on mute. Yes. Yes.

Okay, okay, okay. So first, Ravi, why don't you answer on the new business and this thing?

Sure, sir, sure. Good morning, all of you. So as our Chairman mentioned sometime back that we want to basically attach this ecosystem of consumer and SME, so I'll try to basically explain the business line what we launched in line at past public. So SME ecosystem, we are now starting from top of the bottom of the -- which is small grocery shop, general [ kirana ] restaurant, and that is a secured business loan. It will be based on the informal and that can be given to a smaller stationary shop, it can be given to medical shops, electrical appliances, services and those stuff. And it is only the Tier 2, Tier 3 town. The ticket size will be around INR 1 lakh to INR 5 lakhs, small ticket size, small loan. Small people who are starting their business, they have stability, they have a business stability that kind of business, and it's going to be a good ROA, but starting point of SME. The second point is going to be the professional and nonprofessional business loans, which is going to be given to a small self-employed customers who are running a little bit customers who are going to be served by the secured loan category. And third category SME, which is a medium enterprises where we will be giving a term loan. So under the secured business line, the loan will be a plain term loan where it will be collected month-on-month and it can be to the [indiscernible]. And in the case of business loan, there are 3 types of business loans as of now in the market. One is the term loan, then there is a flexi loan. And within flexi loan, we have a triple flexi, hybrid flexi, drop line flexi. So those are all the loans. And then subsequently, we will start the credit line also. So whatever is basically being offered in the business category in the market, whereby the various competitor, various such players, all of -- all will be done by us. And this will be done in 3 channels, D2C, direct to customers; and secondly, the traditional channel, which is a franchise channel; and third is the channel where it will be generated and served by the [indiscernible]. So this is the SME, which is starting from top of the -- bottom of the pyramid and slightly upper segment of the -- not the large ones, but it is the medium. So it basically cover entire SME spectrum. In the case of consumer, we are starting both professional loan and salaried loans, but the salaried loan will be small in terms of the percentage of the overall book, but professional is going to be catering to the doctors, engineers and chartered accounts, and those professionals will be more. So around 70%, 50% will be a tax of the -- will be coming from there. Now coming to the SME. SME, we will be giving 3 types of loans, and which is going to be a term loan, working capital, equipment loan which is industrial equipment and supply chain channel, both forward integration and backward integration of and giving this is the channel funding and the response vendors. So these are the products which we are as of now about it, but their market and planning to whatever is going to be reasonable for us, we will be doing it. As Chairman said that, it is important for leveraging 1,100 branches. And going forward, whatever new location is going to come, it will be easy for us to expand our very fast and we will be traditional channel and then move to the partnership channel where the 3 partners have already been onboarded. And around 3 partners, we are discussing with them. And mostly, we are getting all digital lending in line with the market and then those partners will be working with us and both of us will be working in 3 types of tie-ups, one is in loan -- doing collection or loan originated impacted and end-to-end collection and underwrite with them and they'll be doing origination. So this is what is the new business. As far as the disbursement of vehicle finance is concerned, we have seen that we've been doing very well and this is because a small commercial vehicle, heavy commercial vehicle and cars and higher growth has come from new vehicle which they continue to grow. We are expecting that the growth momentum that we gained in quarter 3 is going to be continued now because we are seeing that the impact of is slowing down now. A little impact came in the month of January, which is slowing down now. And we will start getting benefit from February. Hope I've addressed the entire -- your business growth question.

And sir, just on this, if we could also share any ballpark or typical yield profile for the new business verticals that we have launched? And what would be our medium-term growth aspiration for this?

Yes. So yield, we will not be able to disclose, but the ROE will be higher than the current ROE, that is one. And we don't disclose of the existing business. So the ROA -- if you -- the ROA which we are going to target from the new business line will significantly happen what current levels are. And secondly, that it -- immediately from the Q4 itself, I'm expecting that like we have done INR 10,000 crores. If you start adding from the new 3 business lines, it can be around [ 600 to 700 ]. So 7%, 8% increase will then come from the Q4 itself. And then subsequently, as we expand it across the country then the divestment can be anything.

Okay, fine. That's helpful, sir.

Yes. Sorry, this is Arul here. Can you hear me?

Yes, sir.

So this is on the question on IRAC, we started using the daily DPD from November 1 because they have that data from November 1 and they have system capabilities from November 1, though the circular came on November 12 because we can do it from the 1st of November. Credit provisions, as of now, we don't see anything further going up. And as a matter of fact, there should be reversals. And that we have to look out for how the COVID pans out, shutdown pans out, et cetera, that we will have to see. You had another question on the restructuring. Currently, the total book is around INR 4,600 crores on the restructuring. Almost INR 4,000 crores of that is -- INR 4,300 crores of that is in Stage 2 itself, which is where we have grouped whole of the restructure book. Around INR 300 crores has moved to Stage 3 is because of some of them having some delinquency starting to come in. On the ECLGS, during the current year, we have not done -- we have around INR 30 crores -- INR 35 crores of disbursements. The opening book is around INR 2,000 crores. So that's the status on ECLGS.

And sir, when you say the restructured loan book, INR 300 crore has moved into Stage 3, so there is nothing...

[indiscernible] people to restrict to 2 questions, giving opportunity to others.

Yes, because of the time, we only have 1 hour today.

Sure. Just a clarification one. On the restructure, nothing is in the Stage 1 book, right?

Stage 1 is grouped at Stage 2 because though it is Stage 1, we have grouped all of the 3,000 in Stage 1 only. They are not having delinquencies of even 30 plus. But as a -- because they are restructured, we have considered them as a slightly higher risk and providing them with the higher levels of PD and LGD. That is why they are grouped under Stage 2. Even the RBI doesn't mandate us to group somewhere.

[Operator Instructions] The next question is from the line of Dhaval Gada from DSP Mutual Fund.

I had 2 questions. First was on the new verticals that we announced. So the question is we made certain investments, we've opened 3 new verticals. Is there any gap that is still to be bridge either via organic or inorganic strategy? And overall, I think Ravi mentioned about 7%, 8% of disbursement coming from this vertical. In the next couple of years, would these be like 20% or more in terms of disbursement? Would that be the sort of momentum that we'll look for? I mean, some color beyond 1 year, if you could provide and the cost associated with these -- is it already loaded? How much more can we expect from this?

So Ravi, will you take this?

So first question is what you're talking about to fill up the gap. As of now, we have already invested in the proceeds and -- because it will provide us the access to MSME, wherein we can actually go to 3 point -- 3 lakh customer they have. So we can achieve after them, what are their needs, and we can actually serve from the point of view, and market is dynamic. As of now, we have not thought about it. The investment in hotel and [indiscernible] are giving opportunity to kind of -- we expand our business from this level to the next definitely, but it's just based on any opportunities now we think about it. But it comes to the disbursement. I mentioned that within, say, 6 months time, the run rate per quarter can be more than INR 1,000 crores from the indices. As of now, we are doing INR 10,000 crores from the 3 business lines which we have and this INR 1,000 crores within next 2 years' time can actually go up to more than INR 5,000 crores also. So it depends on how fast we expanded it. Opportunity came on the [indiscernible]. As you have seen that in the past also, we do not jump into growing very fast. But then it looks like these 3 businesses are in terms of execution and in terms of increasing the volumes are faster because we have an opportunity coming from the partnership, opportunity coming from the traditional channel and opportunity coming from the D2C channel, which -- all 3 are not available in network LAP or So definitely, the growth will be faster. But I don't want to give you any mix as of now whether that has actually quarter-on-quarter, we see. Like I'm expecting that these 3 businesses can start growing INR 1,000 crores a quarter within 3 to 6 months time. And then we can discuss, but opportunity that numbers and it is going to be very fast as competitive with previous businesses.

And on cost, any color?

So cost is part and parcel of the business. As of now, what we have -- like technologically, whatever investment have been done or what are new corporate And most of the cost in the technology side is basically getting the technology companies for leading their system on cash model. So it is not CapEx but OpEx mode. So therefore, the cost in the technology point is not [indiscernible]. It is people cost. So we have already incorporated in business and business plan itself. So -- and it will be in line with the business as we grow business and the businesses will see that franchise [indiscernible]. So the one important thing is that we need not worry about the infrastructure cost for expanding the business people and [ refute ] in the branch, which are there in the vehicle finance. So in any way, it will actually leverage on our existing branch network and it will improve the utilization of the branches. So from they're there, we don't have any problem. The costs will be -- going to be one content. Secondly, the OpEx of the EV loan origination system or loan management system or loan collection system of the [indiscernible], which we are going to use it. So it will be in line with the business, but it will not be from that cost.

The next question is from the line of [indiscernible] from L&T Mutual Fund.

I just have 2 questions. Firstly, on that stage-wise ECL summary slide of yours. Between 1A and 1B, you have written that 1A is normalized and 1B is yet to be normalized. So can you just help me understand what do you mean or what do you define -- or how do you define normalized?

Yes, this is Arul here. Normalized is what we mean is that it becomes 0, but that is all -- dues have been repaid. So as far as the RBI norm, you have to -- you will have to collect everything due from them with regard to the EMI and principal by the -- before you can reclassify them as non-NPA or a standard as well. So I'm trying to follow the same thing in the ECL model or under the IND AS also, by classifying basis the -- given ECL model, you have to classify based on number of days. So Stage 1 is less than 30 days and Stage 2 is 30 to 90 days and Stage 3 is 90 plus. So which has past 90, but -- and I moved to moved back to Stage 1 and become completely normalized, that gets classified as Stage 1A. Stage 1B is those which have gone to 90, but have moved back, but still not that come to [ Q3 0 ]. That is they're not completely extinguished all the overdues. Then they are classified a Stage 1B. So 1B under the new norms is an NPA. 1A is not NPA.

Just a follow-up on that. If let's say in 1A, the account was 90 days plus, you have recovered some dues and it has moved back to Stage 1, but as per RBI, you have recovered each and every penny from account. Now it still continues to remain under Stage 1 or 2. It should be a fully normalized account, assuming you have recovered everything.

No, between the time it became an NPA and now there are further EMIs following dues, all that also got to get recovered.

Okay. So 1A is basically that has moved back from 90 days to Stage 1, but has also cleared all his dues. Whereas in 1B, it has also moved back from 90 days to Stage 1, but it is not clear...

Yes. Yes. What we are doing is 1A is still pursued a slightly more riskier because he had touched the NPA and come back. 1B is those who have touched NPA and come back, but not cleared per RBI.

Sorry, can you repeat this line, sir?

So 1A is those who have touched NPA and come back. So they are pursued a slightly more riskier than the pure 1. You were never going to NPA at all. That they are trying to bring and that is why you see the provision consolidate also slightly higher for each of these categories.

Understood. And second question I have is, we have seen -- in a generalized economic trend right now, we have seen cost of funds more or less stabilized, whereas for Chola, the cost of fund has also declined very sharply this quarter. So just a 2 subsection on this question. Number one is how much of your cost of funds you can leverage further on the yields and eventually mean to existing business to drive NIMs from here? And secondly, in this new businesses, verticals that you will grow over the next few years, how those NIMs of those businesses will be as compared to the existing business?

See, what we do is we don't play with the price to boost our disbursement or otherwise. It is than from an underwriting principle to see that we lend to people who could pay back in time. So the price is secondary. I'm not saying it is unimportant, but it is [indiscernible]. So the price will be the determining factor. So the NIM is cost of fund reduction need not necessarily always be sometimes it is possible, sometimes it is held back. So we are in a situation where they are right now holding back. At some point, when we see we may of to on the yields but that will be more market determined. The second question on the new businesses, it is revolving. We need to see. But I'm sure there the NIM levels are very high, but there you will also have on the flip side more OpEx and slightly higher credit cost. So overall ROTA will be better than our traditional businesses, but it will have differential names and differential operation and the credit costs.

The next question is from the line of [ Darshan Sridhar ] from ACI Mutual Fund. [Operator Instructions]

Sorry, am I audible?

Yes, now you are audible.

Sir, you're just talking about some type of flexi loans on the business side. The general confusion we have is when the customer does not have to pay a principle every month, how do you figure out the repayment trends and credit costs? And how does that differ from a normal term loan to the same SME? Or is there a difference? Just that one question, sir.

No, in the flexi law, there are 2 types of flexi loans. One is a simple flexi loan wherein you can actually give the opportunity to customers to save on the interest and at the end customer can take [indiscernible]. We are talking about the OD drop line flexi wherein every month, the OD limit will keep coming down. So to that extent, customer has to repay that principle. So the interest also will be served. And in fact, in the market, there is a hybrid flexi loan is also there, wherein for 2 years -- suppose there is [ total 4 to 10 out of 5 years, so 2 years, ] that means when the customer will the interest and then after that, drop line will start. So we are focusing more on the drop line flexi loan. And simple flexi loan, we are not at all encouraging as of now. That is the reason what you mentioned about it. And hybrid flexi loan, we have not launched so far.

Sure. Sir, just one follow-up. How do you -- you would have done some study on the credit costs for these flexi loans, right, drop line or hybrid, whatever. How is that different from normal credit cost to the SME sector? What should we sort of expect when we compare it with that?

Look, there are different, different players and the mix of the drop line versus some loans are varying, because loan the ROA or ROTA is lower. And the drop line flexi is -- basically is like -- from the vehicle finance point of view, it is new and used, okay? So in the yield, what we have higher NCL and higher -- it is high risk, high reward type. It depends on how best you do the collection. So there are players like some who are doing very good collections. And therefore, they have a higher infill, but they are able to manage it within the threshold and we're able to deliver higher ROTA. So in the case of the drop line flexi as of the term loan will be higher -- slightly the yield will be high and NCL will be high. At the end, the ROA will be high.

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

And so, I mean -- I understand you've been asked to restrict to just 2 questions, but apologies, and I have 3 questions, one each for Vellayan, Ravi and Arul sir. Sir -- Vellayan sir, firstly -- I mean, I think -- I mean, if I heard you right, that we're looking to partner with fintechs. So just wanted to understand that there are so many other NBFCs who would have entered into such co-origination and co-lending partnerships with fintech. So are these partnerships exclusive in nature? And just if I might ask, I mean, we already have done a JV with DPS in the past, like experience was not good. So I mean, what will be the right to win in these newer ecosystems and product segments? Have you already done hirings for these newer segments, who will be leading this these newer ecosystems and products? And sir, lastly, what measures have you taken to ensure that this time around, there are no lapses, I mean, like we had about a decade back when we enter consumers?

Yes. Okay. So first, in terms of the -- you're right that these -- so first off, I think we should understand the nature of what happened with DBS and what is happening now is very different, right? In that case, DBS came in and they had a very significant role in the management of the company day-to-day, right? Here in the case of these partnerships, it's still very much kind of Chola culture. And honestly, I think kind of one of the big reasons why the DBS the staled -- kind of the relationship with DBS because we had 2 different cultures under the same roof, right, kind of the classic NBFC culture, which is what Chola came from and it's very different from kind of what I would call a DBS, which is much more a bank-like culture, right? Also when they were approaching it then, you got to recognize that there was no data available on Indian consumers, right? There's no CIBIL -- or CIBIL was at very, very early stages. And pretty much all of the data, we are used to submit to CIBIL, we didn't actually kind of get the information from any of the credit rating agencies. So first off, India was a very different point then, right? So that's the first thing. The second is, like I said, the role of DBS as a partner was different, where they were involved in the management, right? Here, the role is totally different because it's Chola managing with our culture, with our way of approaching things, with our underwriting capabilities, where we're basically using partners like this who can help on origination, right? So if you talk about the Bank Bazaar and for example, there right now, we're pretty much the primary partner, Bank Bazaar is kind of partner with somebody else on the card side. But in terms of this product that we're going after, we're the only partner initially. And also the format of the structure is different from kind of the classic kind of FLDG format, it's actually structured is a way like a co-sharing relationship, right? The loan still sits on our balance sheet, but basically, it's a very different structure from an FLDG structure. And so -- your question on kind of why are we taking this up -- I mean there are 2 questions, I think, kind of why is this approach different from DBS? Hopefully, I've answered that? Second is why do we need to partner with these fintechs. I mean, honestly, the way I look at it right now is we see it as kind of as a different mode of acquisition, right? I mean, basically, I think gone are the times where only one mode of acquisition will work. And so whilst we have the core business and the core underwriting skills posted under a key person, we just -- for that person, there's a traditional mode of origination that he or she is managing. And in addition, we're also trying these digital modes. So like Ravi said, we're going to be cautious and early scale, the modes that we believe are scalable. And that's always Chola's approach and that will continue to be Chola's approach now. Your question in terms of why will we not fail like we failed last time. I don't know, I think I'm paraphrasing it, maybe kind of was asked in a different way. Obviously, I think it's the approach, right? I mean, basically, right now, even on these loans, we were predominantly still looking at it. Our whole mindset at Chola is first is collections, second underwriting, third origination, right? And so we still are looking at, will we be able to collect on these loans? How will we be able to collect if there's nonperformance. And then looking at underwriting standards, where we now have a lot more access to data on these customers than we did before. The last time we did consumer loans, we had very little data and therefore it was a very different approach at that point in time. So I don't know if that answers your question on that.

Sir, and lastly, have you already done the hiring for these newer segments and who's been leading this segment?

Yes, we've done the hiring. Ravi, do you want to -- sorry, I think -- okay. And so Ravi, maybe you just answer this, and then we can move on to next -- in terms of -- I think the question is who is leading the segments. I mean, Arul, Ravi, have we shared kind of who's leading in the past?

Yes, sir. No, we have not shared. So all 3 businesses have been now headed by [indiscernible] worked in Chola for many years. And after that, the people who have been working in this industry and they've been highest in the market. And the hiring is going on as of now, but were all those 3 businesses heads from Chola, who are working in Chola for many year -- more than 15 years.

So I think that should give you comfort. [ The business ] has been in the company for over 15 years.

Sure, sir. So if you allow me, can I squeeze in one last question here?

I think it will be better if you come back because...

The next question is from the line of [indiscernible] Life Insurance.

So I had a couple of questions. One, can you throw some light...

Excuse sir, I'm so sorry to interrupt, but your audio is not clearly audible.

Hello?

Yes, go ahead.

Yes. Am I audible now?

Yes.

So sir, I have a couple of questions. First, can you throw some light on the collection trends in the January? And how do you see this would be bucket moving forward? Do you think it is going to normalize in subsequent quarters? Or this is the natural outcome of our business model? And the second one is that our net NPA is currently close to that 6% threshold target. So what sort of on net NPA? And do you think collection alone can drive it let's say [indiscernible]?

Yes. So this is Ravi Kundu. And I'll just talk about the collection [indiscernible] 70% of overall portfolio. It matter most actually. [indiscernible] in December. In October, 116%. In January also, we closed 123% against the billing. In terms of collection of the nondelinquent book in the month of October and November, it was more than 98%, 98.5%. In the month of December, it reached to 99%. So also was 1.07%. In the month of January, again, 99%, but the role for 1.13%. So the collections have improved and it is significantly better than the past, and it has reached to the level where we used to do it in the past. Now coming to the NPA like at Chola's level, we are at 5.85% in terms of Ind As. And as far as the RBI, it is 8.53%. In this quarter, I think we will try to reduce it by 2% over and above RBI, whatever we are at. And if you take the net NPA, so net NPA is [ 5.75 ], it can go down to 4% level within, say, 6-month time and I'm just trying to keep 3 more funds extra. But we are moving in the direction. Quality improvement has started seeing in the month of January as against the December. It's just a matter of 6-month time because the new RBI norm wherein the 90 customer who were basically touching 90 and being there in the phase 2 for a longer period and which have gone up during last 6 months post wave 1 [indiscernible] that will be taken care because we will go to the customer to educate them and try to get basically collect money from them because it is kind of their score getting impacted and their loan -- if they want to take a loan that will also get impacted. So by that, we can actually convince those customers who are in the bottom low-hanging fruit like they are in Stage 1 and then Stage 2 customer.

The next question is from the line of [indiscernible] from Edelweiss.

This question was asked -- the previous person also asked this question. So the other transport financials want to move to 4% NPA, net NPA. Is there any such plan for you?

Arul, you can...

Yes. So the need by some of the other players who are -- have to move to 2% is because of the dividend policy announced by RBI where if they had crossed the 6% NPA in the past, in the current year, unless they've taken 4%, they cannot declare dividend. That is that by the threshold of 4% is being targeted by them. Not that we don't want to go down to the 4% level. But in our case, since we have never touched a 6% NPA in our -- in the last 3 years, we are not constrained by that regulation to declare dividend even if we are above 4% as long as we are below 6%. So we are below 6%, and we will certainly be driving it to bring it down to 4%. But that constraint of having to necessarily touch 4% is not mandatory or regulatory requirement as we speak.

Got it. Again, what would be your outlook on margin, given that bond yields are firming up? So your bank borrowing, the reset on bank borrowings is what, 1 year, 6 months?

It all is different for different, different borrowings. We have borrowings which have got a 3-month reset, 6-month reset, 1-year reset. We have a borrowing ranged to various benchmarked there were repo or treasury bill, et cetera. And some of them we have also hedged against by having a fixed to -- floating to fixed sort of an arrangement. So it's not like we can't -- if we don't have one single move, it next time we do it and we manage it depending on what we see as the outlook for the coming period.

The next question is from the line of Piran Engineer from CLSA.

Some of questions have been answered. Just on the previous question itself, I just wanted to understand that during COVID, we got bank sanctions at really low rate by linking to external benchmarks and now that, that priority sector thing has gone, how do we see this repricing upwards next year? And just the other clarification to thing about INR 600 crores, INR 700 crores of quarterly disbursement from the new business. The runoff of this business will also be pretty high, right? Is that a fair assumption? So that's it from my end.

Okay. I'll take the first question, Arul here. So we will see repricing when we have a MCLR repricing happening in case of bank loans. And in some of the cases, what we have done is we have moved away from MCLR into benchmark currencies even for bank loans. Today, banks are offering benchmark very fairly low rate even for non-PSL effects, earlier, they were only restricting it 2 PSL effects. Now today, they are offering because banks are also in need to grow that book. So we are capitalizing on that. We have repriced a lot of our loans during Q3, which is where you see a very further improvement in cost of funds in Q3. We see that continuing for some more time. Yes, at some point, the trend will change. And at that point in time, we have to take necessary actions to protect our NIM, and we will be doing so.

The next question is from the line of Subramanian Iyer from Morgan Stanley.

Thanks for the opportunity. My question has already been answered all the answered. Wish you all the best.

The next question is from the line of Aditya Jain from Citigroup.

If you could talk about a little bit about the fintech partnership. So if the credit we say, for example, has multiple NBFC partners, how does the allocation that happened to Chola book? And where does your underwriting model feature into the process? How automated is it? If you could give some color along those lines.

Yes. So the allocation is based on the writing non decided and the commissions itself. So therefore, that is one. And underwriting is fairly automated and nothing has to be done manually. We need to crosscheck and see that if there's a problem, we can recalibrate time to time, which we have opportunity to it every month. In terms of their other partners, they are preferring us because we have a huge network. And in case of the fall back, we can support payment collection. So the branch network, collection efficiency and collection strength of the companies are preferred more than anything, and there's definitely which are underwriting commercial are also important. So commercial is the starting point. But the main point is how we can support them in order to basically serve their customers in a largely way. And they see that Chola is one of the largest players in the market in and having a very robust collective mechanism, which can support them.

The next question is from the line of [indiscernible] from IDF PMC.

Just 2 very quick questions. One is on the restructuring book number that we gained. Does it have any overlap with this 2B, the Stage 2B book?

Shyam, do you have that data? I got to check that out. I'm not -- there will be some maybe, yes. But it will be very miniscule because it would not have time to move to again come back, so that would not be the case at least for now.

Okay. Sure. And one last thing is like during the start of the year, we typically guided that we intend to take our Stage 2 plus Stage 3 back to 10% by the end of this fiscal. So do we still expect that Stage 2 plus Stage 3 to come down to 10% in the next quarter?

See, to some extent because the restructured book will continue to be in Stage 2, irrespective of whether they are in 0-bucket or otherwise, Stage 2 will look inflated because unlike the earlier restructuring norms where RBI allowed us to reverse back from NPA status which was assigned to the restructured book after 1 year. In the case of the new norm, they have asked us to hold it restructured and carry an additional provision for a period until 50% of the loan is repaid. So until then, we can't reverse this back into Stage 1 is the -- as we have opted to keep it in Stage 2 because of the higher provision, et cetera. So till that time, we will continue to keep it in Stage 2. As and when they reach the 50% threshold, then we will move them to Stage 1. So it may take a little longer time, but that does not mean that the book is bad. That's what I'm trying to convey.

And it has to come take [ 1.37 ] now already.

The next question is from the line of [indiscernible] from Elara Capital.

Sir, my question is pertaining to home equity GNPA. So they have been sticky for some time now, whereas things are actually picking up on the growth traction plant. Also, how is it panning out in terms of resolution? Could you throw some light there?

Suresh?

[indiscernible]

Suresh, we can't hear you properly.

Sir, can you hear me now?

Yes, that's good.

So our Stage 2 and Stage 3 from quarter-on-quarter with both Stage 2 and Stage 3 coming down, and we see a lot of traction happening on the side now because the DPIs as far as the court started issuing order, we still see some of the orders now coming from the but we expect that things will easy out now with most of the lockdown have been released. Now so we see it should be only improving from this point onwards. I hope -- hello?

Yes. Yes, I could hear that. Thank you.

Ladies and gentlemen, the next question is from the line of Nischint Chawathe from Kotak Securities.

No, this was just maybe probably just got slipped off, but there was one question that in the new businesses, while the disbursements would be high, your rundown probably also remains higher right because some of these will be short tenured loans. Maybe if you could just comment on that.

Yes. The mix of the small tenure and longer tenure is that similar to vehicle finance as now. In fact, small tenure is very less. So so the rundown will be also similar to vehicle finance. It will not be aggressive.

Sure. That was the last question. Thank you, everybody, for joining us today, and thank you very much to the management for giving some opportunity to host the call.

Thank you.

Thank you.

Thank you.

Thank you all.

Thank you, everyone.

Thank you.

Thank you. On behalf of Kotak Securities, that concludes the conference. Thank you all for joining. You may now disconnect your lines.