CreditAccess Grameen Limited (CREDITACC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CreditAccess Grameen Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Tibrewal from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Yes. Thank you, SriChand. Welcome, everyone, to the CreditAccess Grameen's Q1 FY '25 earnings conference call. We have with us today from senior management, Mr. Udaya Kumar Hebbar, Managing Director; Mr. Ganesh Narayanan, Chief Executive Officer; Mr. Balakrishna Kamath, Chief Financial Officer; and Mr. Nilesh Dalvi, SVP and Head Investor Relations. With this brief introduction, let me hand over the call to the management for their opening remarks, post which we will open up the floor for Q&A. Thank you, and over to you, sir.

Thank you. Good evening to all, and warm welcome for joining the conference call to discuss our first quarter FY '25 business performance. Before we begin, I would encourage everyone to read our FY '24 integrated annual report themed Being Sustainable and Responsible, which is available on our website. This report highlights our initiatives aimed at sustaining robust cross-cycle business performance, promoting strong governance and best practices, conscious effort to reduce our environmental footprint and safeguarding the stakeholders' interest. As we reflect on the last quarter, it is evident that we navigated well though a seasonally moderate period for microfinance coupled with general election process during large part of the quarter. Despite facing challenges such as extreme heat waves across regions and operational limitations during general elections, we maintained consistent performance in our net interest margins, operating efficiency and return ratios. Our overall AUM grew by 20.6% Y-o-Y to INR 26,304 crores. The GL book grew by 18.2% to INR 25,542 crores as against our annual guidance of 20%. While the RF book delivered a healthy growth to INR 762 crores. The overall portfolio declined on a sequential basis, in line with our internal estimates given the seasonally weaker business momentum in the first quarter coupled with the general elections. We had factored this in our annual guidance of 23% to 25% portfolio growth in FY '25, estimating a lower growth of 20% in Group Home business as against 24.7% growth in FY '24. Therefore, we reiterate our annual group guidance for FY '25, and we do not see any downside risk towards growth guidance. The disbursement stood modest at INR 4,476 crores. We added 1.9 lakh new customers in Q1, leading to 12.7% Y-o-Y and 1.3% Q-o-Q growth in the customer base to 49.84 lakhs. Our branch infrastructure stood at 1,976 spread across 388 districts at the end of June '24 as we added 9 new branches during the quarter. The net interest income grew by 24.8% Y-o-Y to INR 953 crores, in line with the loan portfolio growth. Our portfolio yield at 21% continues to remain the lowest in the microfinance industry resonating with our belief in serving customers with responsible pricing. On the other hand, the cost of borrowing was also stable at 9.8% despite the tightening liquidity scenario in the banking system. We expect our cost of borrowing will be within the range of 9.8% to 9.9% for FY '25, guided by a healthy mix of domestic and foreign borrowings, along with maintaining a robust ALM position. While we operate with an interest spread of 11.2%, our NIM for the quarter stood at 13%, benefiting from our strong capital position and our balance sheet -- on our balance sheet. The positive operating leverage generated due to the scale of our business, coupled with improved income profile, controlled costs, resulted in a cost-to-income ratio of 29.2%. PPOP grew by 30.4% Y-o-Y to INR 709 crores. Coming to the asset quality, we saw a transitory increase in delinquency trend during the first quarter due to one, low base impact on account of 1.5% Q-on-Q reduction in our loan portfolio. Two, extended impact of low rainfall during last year followed by a severe heatwave across several regions throughout the quarter, coupled with operational limitation during general elections, which impacted regular collections and follow-ups in the delinquent buckets considering the elections considering the borrowers profile. We have been anticipating a gradual increase in business cash flow delinquencies over the past 3 quarters due to ongoing issues like temporary customer migration, rising customer leverage trends, third-party loan utilization issues, and higher steady-state delinquencies outside Karnataka. And accordingly, we had budgeted higher credit cost for FY '25 compared to the previous year. We, however, expect the delinquency trend to stabilize in the coming quarter and credit cost within the guided range of 2.2% to 2.4% for the year. As you can see on Slide 6, we continued to witness sustained partial repayments in the PAR 60 bucket with an improving repayment trend as you move forward. Additionally, we have taken adequate measures like tightening credit filters, while onboarding new customers, while extending new loans to existing customers, limiting overall leverage, while disbursing et cetera and deploying senior and experienced field staff and business support teams to control the PAR trend in some pockets. Despite increase in delinquency during the quarter, our asset quality continued to remain strong with the collection efficiency excluding arrears of 97.8% for Q1 FY '25, PAR 90-plus at 1.13%, GNP of 1.46% majorly at 60 plus DPD and net NPA of 0.45%. The credit cost of INR 175 crores during the first quarter compared to INR 153 crores during Q4 FY '24 reflects our early risk recognition and conservative provisioning policy. Our ECL provisioning stood at 2.29%, which is 116 bps higher than our PAR 90-plus and 136 higher compared to like proceeding norms. We have strengthened our ECL provisioning policy further by aligning the provisioning rate based on district specific risks compared to state specific risk earlier, along with customer vintage. For conservative approach of granular risk recognition and higher provisioning has historically positioned us to quickly navigate any potential asset quality cycle and capitalize on growth opportunities. We plan to implement district-based loan pricing in Q2 FY '25, leveraging the business loan engine that would help align the loan provisioning rate on a granular basis. Thus, by generating loan-facing strategies based on basic specific factors, we not only aim to mitigate the potential risk, but also optimize revenue generation safeguarding our overall returns. Our gross credit cost stood at 2.7% for Q1 FY '25, while net credit cost stood at 4.6%, which is slightly higher due to transitory nature and base effect of Q1 as explained earlier. Coming to the return profile, Q1 FY '25 PAT stood at INR 398 crores resulting in ROA of 5.4% and ROE of 23.5%, in line with our annual guidance. This is our sixth consecutive quarter where we have delivered ROA over 5% and ROE over 20%, resulting in sustainable profitability, leveraging our strong cross-cycle performance. Looking ahead, we would like to reiterate our confidence in achieving our annual growth and profitability targets. Our strategic initiatives coupled with resilient business model and dedicated team position us well to mitigate the loan-risk effectively. Lastly, before opening the forum for question-and-answer session, I would like to highlight the guardrails implemented by the industry body MFIN earlier this month enforcing a cap on microfinance indebtedness to INR 2 lakh, number of lenders to 4. The industry collectively has come forward to move towards a sustainable growth path given large untapped credit advancing opportunities available through microfinance channel. We look forward to your insights and questions as we dwell deep into our Q1 FY '25 results and strategic outlook. Thank you.

[Operator Instructions] The first question is from the line of Rajiv Mehta from Yes Securities.

I have a couple of questions. Sir, first question is, as we are defining this increase in delinquencies as temporary have you already seen improvement in fresh PAR accretion in June and July? Or conversely, if you can share whether there has been improvement in the collection efficiency of June and July so far?

June and July is still remaining stable, it's a little higher sequentially. But we believe that the overall by Q2, this should improve. So what I'm trying to explain you is the 60 days what the general election time you have difficulty in managing the collections, particularly going to field, going to do a follow-up of delinquent customers. That bucket would have moved further. Whereas new PAR, we are able to collect back or correct partially or moving backward. So therefore, overall, the overall delinquency trend may remain same, but the new PAR actually, ability to collect is much higher than the first 60 days.

Okay. And sir, you have mentioned about strengthening of the ECL provisioning policy in first quarter, and you've aligned your provisioning rates on districts versus states earlier, and also along with the customer vintage. But when I look at the ECL coverage on standard loans which is Stage 1 loans, it remains the same. So incrementally, as the growth picks up in the remaining quarters, would this ECL coverage percentage increase, right? Because more and more growth will come from the newer geographies.

Correct. It's right. When we realigned the -- in all 3 bucket you could see variation, for example, you have seen the standard is set, it has come down by 2 bps, whereas Stage 2 has gone up by 2% and Stage 3 has come by 1%, correct? It's more of when we moved from a state level to district level, we moved it to granularity, so some of the states, the actual numbers would have changed, the coverage. For example, take an example of Maharashtra, we decided as high-risk state earlier. So now we will move to district-wide, some districts move to medium districts, some district's move to low districts. The customers also move in the same coverage buckets. So therefore, there is a onetime aberration for a change based on moving from a state level to granular level. And going forward, this would actually remain the same or follow the past 36 months' trend, actually, get reevaluated every quarter. So it's a onetime change because of a move from state to district and move to granular level.

And just lastly, we don't see any structural issues in any of the large markets like Bihar, Tamil Nadu, Karnataka and Maharashtra, in terms of rejection rates increasing or in terms of unique borrower acquisition challenges in these metrics? Are we seeing any issues at all? Because your guidance seems to suggest that things will come back normally in the coming quarters.

So there could be some stabilization because of the new guardrails, which implemented. So because the overall, the total borrowing of unsecured is more than 2 lakhs, we will not be able to acquire the customer at the new guardrails, which is going to be common for the whole industry, not just for CAGL. But our view is that this should not impact too much because we always have this policy with us. Therefore, we don't see any challenge because of this. But yes, there is little increase in the rejection rates, but I think it would help us to acquire new customers to compensate that kind of rejections.

The next question is from the line of Renish from ICICI Securities.

Sir, just 2 questions from my side. So one, on the PAR 0 trend, right? I mean if we exclude the Karnataka and Maharashtra, which has been the best performing state for us, as well as I am assuming for the industry, wherein we have 50% of our book, now if I exclude these 2 states, then the rest of the states PAR 0 is actually 3.4%. So it clearly suggests that there is some challenges across these states now. Of course, this could be because of transitory in nature because of the election in April, et cetera. But how one should sort of read this data? I mean is this due to the over leveraging, given the industry has been growing at an accelerated pace post-COVID? Or is there any structural change in the customer behavior because we have been hearing a lot from the industry player that the center attendance is not sort of back to the pre-COVID level which of course tells us that the customer behavior has changed structurally. So sir, where do you see a PAR 0 settling down in near term for us as well as you see for the industry?

So PAR 0 other than the core markets, it was a little higher earlier also. That's why in our earlier call also we said that we have to increase our credit cost guidance because we continue to grow outside Karnataka. So therefore, it actually moved up by about 60 to 70 bps compared to earlier, at the first quarter. You have to see the next actually maybe Q2, we feel it should stabilize from here. But on a continued sequential basis, last 3 to 4 quarters, we have seen increase in the credit cost in the noncore markets. So therefore, we anticipated an increase of credit cost guidance last year -- for the year itself. So currently, we are seeing little higher than what we anticipated in this business. But we believe it is a transitory nature in the first quarter and it should come down to a normal stable cost, we anticipate about 3.5% outside these core markets.

Okay. So let me put it this way sir. So do you think this 3.5% in other markets, is there a steady state PAR 0 one should think of going ahead?

Even again, PAR 90 will be -- yes, PAR 90 maybe much lower score, 4.1% is higher considering the average -- different Q1, right? So it should be -- maybe PAR 90, you should look at maybe 1.2% to 1.4% may be a stable PAR 90 for our noncore markets. That is what reflects in our credit cost, what we built up for the FY '24, '25.

Got it. So in a nutshell, I mean, is it fair to conclude that whatever we have been hearing in the newspaper or media articles about building of stress in the sector, on ground, maybe as per your assessment, things will come back in Q2?

Should be stable in Q2. And you still have to complete the journey what you had in Q1, right? So actually, the fresh accruals should come down and on top of what you had already in the Q1.

Sir, June and July doesn't indicate those improvements?

Actually June and July seem stable, seem stable where the ability to collect back is better actually, so delinquent trend remaining stable, but ability to collect is better. Whereas May and June -- sorry, April and May, delinquent was there, but our ability to recovery was bad. The difference is that.

So basically, net flow forwards in June and July should be lower than April and May?

Absolutely.

Okay. Fair enough, sir. And just last question from my side...

Sorry, just if you look at our Page 6 where we said that the 0 to 60, your collection partially is much higher, almost close to 40% to 45%. Whereas 60 above is actually collection is much lower because it was part of the -- I mean April.

Okay. Got it. And sir, just last thing on the retail loan side. Of course, now that book is at around INR 750-odd crores. So which product is driving this growth? Is it the individual loans which are driving this growth? Or...

Yes, individual a larger portion because we started that as the first product, it's already -- it's a vintage product more than 2 years now, the other PARs we started recently. So currently, 70%-75% is more of the individual business loan.

And let's say, the PAR or trend or asset quality is similar to that of JLG or it is slightly worse than that?

It is much better than the JLG at this point of time because these are all cherry picked seasoned vintage customers.

It's quite low at the moment across all RF products, nothing significant to mention about.

And sir, Ganesh do we have any internal let's say cap in terms of to which -- to what percentage we will scale up this book?

So we already said earlier, by 2028, we said that we will reach up to 15% of our book.

I think that was for the total retail asset.

Correct. See, it will all go by a different products starting from a different point of time, for example, individual loan we started 2 years back, when we started what's called LAP product and two-wheeler product, then we put our housing loan, eventually, by 5 years' time, we are looking at about 40%, 45% in secured book in terms of LAP and AHL and two-wheeler. LAP and AHL is a long-term product, whereas individual loans is 3-years product less than that, you'll churn out, so when you have a seasoning of the retail, you will see 45%, 55% kind of asset -- I mean secured and unsecured book.

Got it. So maybe if I would just to split it, 7.5% will be secured and 7.5% will be individual loans.

Yes. It will 7, 8 kind of thing, correct, correct. Because you know the LAP book will not run down, right? It only keep accruing, whereas other books like this are running down over a period of time.

Very well said, sir.

The next question is from the line of Kunal Shah from Citibank.

Sir, firstly, in terms of the incremental delta of 70-odd basis points, which states, so maybe earlier you said like there is an increase, but any specific state which is leading to a higher delta ex of Karnataka and Maharashtra? Yes. So any particular state wherein this increase of 1.7% to 2.5%. Is it like spread across all of them? Or maybe we are seeing 1 or 2 states having relatively higher?

So we saw largely, other than Karnataka, we saw largely, but Karnataka, Maharashtra it's just standing out, you know Madhya Pradesh standing out, it's less than 2.2%, whereas others have a little higher, which actually forms only 15% of our business. Particularly, what we saw a little higher is Rajasthan, Kerala, between Jharkhand and some pockets of Tamil Nadu.

Okay. Rajasthan, Kerala, Jharkhand and some pockets of TN.

Correct.

Okay. And secondly, with respect to disbursement. So if you can just suggest in terms of the monthly run rate, okay, because maybe it's like less than INR 1,500 crores a month, sir, how would that have been maybe like April and May was lower, and getting into June, July, we are seeing the traction better because, on a year-on-year basis also there is a decline. So I just want to look at it, how it should actually pan out, say, in the coming quarters?

Year-on-year, the plan is basically first 2 months is election process, normally, you have a lot of restriction on, due to code of conduct, cash handling and number of customers joining, early subscribed, to make sure about that. Therefore, we anticipated lower disbursement in any case during the first quarter. But we would retain our annual guidance of growth, and we believe our disbursement will continue to become normal maybe after 1 or 2 months because we still believe June, July or July, August may be more of a calibrated growth because we have to see how this whole industry across to play around, so 1 or 2 months or 3 months, we will calibrate. But Q2, sorry, Q3, Q4, we should be able to grow. We are, normally in microfinance, Q3 and Q4 is a higher business. So therefore, we still believe there is no risk of what we call non-compliance with the guidance.

Yes. Sir, maybe July, August also, we could see 1,500 crores a month kind of disbursement on this or not much?

It's maybe between 1,500, 2,000, we calibrate.

The next question is from the line of Shweta from Elara Capital.

Two questions. One, so why we have maintained portfolio needs over the past 3 to 4 quarters? Now given the fact that we are going to implement district-based loan pricing in Q2, sir, do we see any changes out there in the trends going forward on the variation front?

It should not be. Even if it is, it will be very small, because when you move to granular, they'll respond whereas like ECL, what I explained earlier, a small variation. So this may have a small variation, but we are not anticipating any significant variation there.

Second, on the borrower addition front, so obviously, seasonally, Q1 tends to be a weaker quarter. Also there have been transitory challenges as you explained. But this consistent decline in borrower addition, since past 3 to 4 quarters, so now that we are at a number of 1200-odd kind of a number, so how much of this would you attribute to these transitory challenges? And how much would be on the grounds of prudency wherein we are sort of trying to curb the challenges because of the industry headwinds?

I think there is a correction. Our customer addition has not reduced except last quarter. Y-o-Y, we have borrowers gone up by almost close to 13%. So it is a quite healthy customer relation. It's only Q1 we had a transition challenge, now we're already back to normalcy about 100,000 per customers per month, we should start going back. If you go back last 12 months, other than the first quarter we would have added almost 100,000 new customers every month. So there is no reduction in earlier quarters. But it's already come back to normalcy in terms of acquisition. We would be able to acquire almost 100,000 clients from this month onwards.

Noted, sir. Thank you, and all the best.

The next question is from the line of Abhishek M. from HSBC.

Yes. So my first question is just on this rains, which have been fairly disruptive. There have been flood conditions in several parts. Any kind of impact due to that in this quarter, in the second quarter so far?

We don't see. Normally, Abhishek, when the rain impact, it is very short term, and nothing should happen actually. And rain impact on the ground, it's more than 1 week, 2 weeks, then there's a difficulty in earning capacity of the customer, or displacement then it will impact but we are not anticipating that so far. So far, that situation has not happened. So we don't see any impact because -- there will be a short impact, but very, very few but we don't see any significant impact because of that. So like for let's say 2019, you had 15 days of rain across, flooding, people are displaced, then there's an impact, a temporary impact. But we are not anticipating it.

So far you have not seen that in any major...

No, no.

And sir, the other thing is your credit cost guidance. So you're at 2.4 also for the full year. The implied credit cost for the rest of the year is hardly 2.1% to 2.2%. So do you think there's upside risk to that?

Should not be. Actually, as we said, it's kind of stabilizing now. And we will review by Q2, but we have a strong sense that it should be normal. We anticipated and which is inline, it's only Q1, which is higher actually, but we still believe that our overall credit cost should be within for the year, right. So it has low basic free cash as well as the low growth effect for this. So overall, it should not change.

The next question is from the line of Ashlesh Sonje from Kotak Securities.

Just a couple of questions. Firstly, on the MFIN rules, would you have a sense of what is the proportion of your borrowers who would either -- who would be in breach of either of those 2 rules, either they have more than 4 lenders or the exposure is more than 200,000?

Okay. So our current analysis is there could be an impact of roughly around 8% of our borrowers. But I think with the new customer acquisition, we should be able to manage that.

Okay. And what is the typical plan of action for these borrowers in your case?

These borrowers are normally, if they're high vintage, good business, there's always a position for them to move to retail also, some of them. Because it's a straight business, right culture and opportunity, it is -- actually we have a [indiscernible] product, they can always move to them. Others we may have to decline. But yes, we have to compensate through our higher customer acquisition at this case.

And to a certain extent, the 2 lakh limit was an internal guideline, already we are covering, it could have certain impact with 4 lenders. But I think that we should be able to compensate through better run rate.

And the retail?

Ashlesh INR 2 lakh is already your internal buyback even otherwise obviously we would not have liked.

Understood, sir. Sir, and you mentioned that you have tightened some credit filters. Can you please elaborate on what changes you have done exactly?

So one is whatever MFIN is asking, largely, we are already doing it in our book. Top of that, we have certain geographical credit filters, using rules. For example, if we see that state is high risk, we would do not even 4 lender, we may do a 3 lender, or 2 lenders. So it depends on, our loan sites variation is based on the geography and risk. All these are filters, which we are using to do lending. So it depends on each risk, the risk we can actually play with our rules. That's what we are using.

And these tighter credit filters would be largely temporary or these are more permanent in nature?

It depends, we have to continue the filter, right? So we will keep evaluating every quarter or 2 quarters. We'll see if there is a variation, whether we have to tighten or loose, we can do that. So good part is we have a right software, right engine to manage such things.

The next question is from the line of Sebastian from DWS Investment GmbH.

I just have a general question about the regulatory environment. I mean it's like basically no week where the RBI, the regulators making any statements about total bank, loan deposit for the NBFCs. I mean, how do you expect the regulatory environment for the rest of the year to shape up? What kind of measures do you think the financial sector needs to put on itself in order to appease the regulator a bit more?

Right. I think there has not been any further regulatory actions or indications, except for pricing, that the regulator is closely monitoring. However, the self-regulation that the industry has put in through the SRO is also in the right direction, right? So you are reacting much proactively to the market conditions. And that, I think, will go in the right way towards the regulatory governance.

On loans to NBFCs, I think it's more of the NBFCs whereas they exempted such kind of risk weight for private sector lending. So by default, any lending by banks to NBFC-MFIs, so the rules were exempted Sebastian.

The next question is from the line of Hardik Shah from Goldman Sachs.

I have 2 questions. First one is on the borrower addition. Incrementally, what could be the proportion of NTC borrowers that we are onboarding? And on a stock basis, what would be customers which would be unique to CredAcc?

So if you observed it for last 4 quarters, we saw about 30%, 32%, 35% some time they are new to credit we observed and we feel that will remain at that same trend of 30%, 35%. And unique customer is in a little declining base because as we keep acquiring customers with -- from other MFI, so unique will come down. Currently, we are at about 29% -- 29% currently. So it's a small marginal change will happen as we add more and more customers with other customers belong to other MFIs or other lenders.

Understood. And sir, my second question is on the overleveraging. Your slides also mentioned that you're seeing some kind of over-leveraging on ground. And also Bureau Data suggests that there is high level of retail loan exposure to the MFI borrowers, especially in the states of Karnataka and Tamil Nadu. So can you share some color on your portfolio, how much of your borrowers would have retail overlap in terms of number of customers as well as value, if you have that?

I think the percentage -- I think you are referring to [indiscernible] report.

Correct.

Largely it resonated in the whatever their target is, states resonates to us also. But it's more of a secured kind of book what we saw, like gold loans or a two-wheeler or a housing loan kind of thing, home loan, so which have longer tenure, or that somebody in the home other than the customers would be paying also. So we are not seeing any such impact because of that on our customers. Gold loan is one common thing across the country -- across the southern part of the country, which is normally they would be able to interchange, as I can keep renewing it, so therefore, it won't impact as a leverage for our customers. However, in the last 3 quarters, what we observed is the leverage of the customer has increased by about, how much, about 15% or something, our overall leverage we saw on example basis, not full customers. We saw that. Similarly, the FYR or repayment loan or something also increased by about 12%. So which you saw in our sample. We keep watching this and taking actions, corrective actions based on the buckets. As I said, we strengthened the management, strengthened the teams in the buckets where such things happen. We keep watching with the samples. We don't have full data, but we have to go by samples.

Also our retail finance strategy will also take care of it, right? So the whole logic of building a retail front in CreditAccess Grameen is seeing the trend in which customers are availing retail finance loans and the products that we've chosen also in that nature. So as the customer's income profile improves, we have better credit risk, they we will have access to retail finance products from CreditAccess itself. So we can move them up as we move forward.

Interestingly, the retail finance delinquencies are much higher than the microfinance delinquencies that we see in the industry. Any specific reason for that? How do you read that? So you mentioned that is more secured kind of a book. But for example, housing loans are showing 30-plus BPD of as high as 10% as of March '24. So how do you read that data?

See the difference between industry and Grameen is that we are doing retail finance with carefully selected products, who are vintage with us. So who's got a credit history and relationship with us. So hence, we will always be better than industry even in this side of the business.

Okay.

See, one of the data points probably what Ganesh says is very important, so the unique to Grameen and vintage to Grameen, we have seen absolutely great, great pattern. So that is what we are actually capitalizing when we do the retail book.

The next question is from the line of Shreepal Doshi from Equirus Securities.

Just one question on the classification of states in terms of low risk, medium risk and higher risk. Sir, have you seen any deterioration in this in the last 1 quarter, given that the PAR number in states like, as you highlighted Rajasthan, Kerala, Jharkhand has increased? And also in the slide that we have given in the presentation, it shows that even states like Bihar have elevated PAR 0 number. So have you seen the risk classification changing for some of the key states for us?

So risks actually, now we move to districts. So states wise we stopped tracking now, but you can see when you do the state wise our total 29% portfolio was falling under high risk, whereas when you move to district, 34% fall into high risk, correct? And medium actually 40-30 -- medium is actually reduced to 30%, whereas low risk is used to 31% of our book actually moved up, around 35% of our book comes under low risk loan because of this transition, complete answer to your question as well.

So okay, there has been some movement is what you're trying to indicate, but not at a state level, more on district side. Okay.

Correct. More district side. Correct.

Sir, the second part, like with these new MFIN guidelines, do you expect that even in key states like Bihar and Andhra and the new states that you were targeting for incremental growth, would see some moderation in our aspirations given that these are already, like especially Bihar, UP, these are decently penetrated states in terms of MFI presence? So overall, our loan growth would also see some moderation in terms of versus our guidance in the presentation.

I think it's important to note that the industry body has come up or the regulatory assurance to all of us, that we will -- we'll rebuild or we'll actually make it more resilient business going forward. I think we should anticipate this better and improved learning process going forward because it is accepted by the whole body. Everybody came together under the banner, which includes the MFI, the SFC, the NBFCs and the bank together. Today, all of us are part of one entity MFIN and then the responsibility, what we call, accepted by all of us together. So we believe it should be -- it should be better going forward. So I agree that there could be some moderation in growth for a shorter period, may not be a longer period. Short period, could be some growth moderation for the whole industry. We do assume a kind of little lesser growth. If you see, last year, our microfinance grew towards 24.1%. What we actually built for FY '24, '25, it's only 20%. So though our total growth we anticipated this 23%, 24%, microfinance growth is only 20%. So it is already inruled in our budget, so when we started our annual exercise this year. The little higher credit cost, we feel low growth in microfinance was anticipated.

Last one question. It is on center meeting attendance. So what is the difference that we have when we talk about center meeting attendance in the state of Karnataka, which is truly the best performance state for us and for industry versus probably the rest of the states? So for us, what would be the difference in terms of center meeting attendance?

So largely, Karnataka, Maharashtra, Madhya Pradesh, Chhattisgarh all are actually quite good in terms of attendance. Within deviation we could see in the other part of the country, so where we are a core market, we are top and first entry, so we have seen -- we are able to maintain that culture to an extent. But overall, still we have a good 50%, 50% attendance in most parts of the country. Yes, a little higher in Karnataka definitely.

Sir, what will be in Karnataka, for example, the existing bench mark?

Karnataka, maybe about 70%, 72%, and then overall market maybe 50%, approximately. I'm not able to give right now here. But overall 70%, 72%.

Good luck for the next quarter.

The next question is from the line of Ajit Kumar from Nomura.

So my first question is the regulator has been instructing MFI lenders to lower growth in Bihar and UP as per various new articles. Is there any communication that is currently going on with the regulator on this? And also your portfolio in Bihar and UP has become like 3x and 4x, respectively, between FY '22 to '24, much higher than the overall AUM growth. Are you going to intentionally tone down growth in these states? So that would be my first question.

The first is, I think there is no communication from RBI to any MFIs. Okay. Maybe we have seen only news article, we are also seeing news article, nothing else. So we have not heard from anybody that RBI wrote to anybody to reduce or maybe recheck about it. In terms of growth, I think we continue to do the calibrated growth. We continue to watch the industry, watch the risk of each district, and accordingly, we'll grow. So I think our growth, what we call, what we estimated is not very high. Therefore, we will still continue to grow in the calibrated manner in those states also. But Bihar, we are not planning any branch openings because we have sufficient branches there. It's only growing in the branch where we already have our existing branches. But UP, probably we expect to add some more branches. But our major growth should come from -- new branches should come from AP, Telangana and West Bengal.

Okay. Sure, sure. And sir, in order to achieve this 23% to 24% AUM growth target in FY '25, what is the disbursement growth target in FY '25?

Similar, about 23%, 24%, this would do it.

Okay. For the full year, right?

Yes, yes. Correct.

Okay. So sir, in that context, disbursement growth in remaining FY '25 has to be around, roughly, you can say 28% to 30%. That is a steep task given soft disbursement even in July numbers. And if you see in last year, disbursement growth during 2Q '24 to 4Q, '24 versus, let's say, 2Q '23 to 4Q '23 was only 12%. So this disbursement growth target seems a little bit on the higher side.

No. Annualized growth last year for Q1, Q2 together, it was about 14%. And the balance in the period, we actually achieved 23%, growth come in the first 2 quarters and we did 23%, so 27%. That means 19% growth we achieved between Q3 and Q4 last year. So we believe microfinance normally 60% to 65% growth comes in the second half.

Sure. So that is achievable...

Yes.

The next question is from the line of Raghav Garg from Ambit Capital.

Sir, I just have a couple of questions.

Sorry to interrupt you, sir. May I request you to please use your handset?

Sure. Audible?

Audible.

Yes. Sir, just 1 question from my side. When you look at the food inflation data, that food inflation has been quite persistent. And it matters even more as food expenditure as part of the overall expenditure is pretty large for bottom of the pyramid customers given their income levels. And rural wage growth in real terms has been negative for the last quite a few quarters. On the other hand, you have a typical MFI customer seeing about 10% to 11% increase in exposure levels on a Y-o-Y basis. So in light of this, how do you expect the repayment capacity to evolve over the next 12 months for your customers? Or if you can comment on the broader industry, that will be very helpful.

I think we've seen in history, in times of inflation, our customers, who are largely into similar profiles own a little more and sometimes also negative correlation to collection. Having said that, whatever self-regulation that MFIN has imposed upon I think this will limit any kind of overlevering that could build up over the next few quarters. And it should improve from here. I don't see it deteriorate from where it is today over the next few quarters. It should improve from where we are.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Most of my questions have been answered. Just one question on this overall sort of delinquency that we are seeing. I think you have been alluding to these being majorly caused by the election and the heat waves. But at the same time, there are a lot of concerns in the news reports that we have been reading about overleveraging and this sort of credit cost being expected to go up along with that. So how do we reconcile both this information? I mean, this is just a Q1 phenomena which should stabilize by, let's say, Q3 for you? Or we are still in a wait-and-watch mode to understand how things will shape up with respect to delinquency, especially in the noncore states?

Yes. I think both the delinquency potential in the noncore states, we had anticipated that there will be little higher credit cost compared to the core states that is mixture of all these things instead of overleveraging, it could be customer migration, it could be political or some local interventions there are many other parts within that, there will be whatever expenditure major reason why which the credit cost has increased because of the sensitive period of 60, 70 days, your ability to follow-up and convince the customer was less due to the sensitivity. That is one of the major regions, therefore, the buckets have moved further. Okay? Now potentially, after that, I think that the ability to go back and talk to customer and convince them to repay, if it's higher, therefore your ability to control the credit cost is higher. So we can keep listing many other reasons also, but we only give the high-frequency reasons during the quarter. And try and believe that this is a onetime and a little higher. And we also saw, as I said earlier, we saw 3, 4 quarters there is a little increase all the time in the noncore states, that's the reason we don't really allocate cost, so I just explained that also earlier.

And it also appears from your comments as well as what the industry body is trying to do that any such effort to contain the credit cost going forward would be at a significant cost to the industry growth rate in terms of the AUM. So would you agree with that sort of a statement?

So it depends. If somebody wants to go and lend to same customer in the industry, then what you say is right. But there's still opportunities because as per the industry estimate also, your potential customer in microfinance is almost 16 crores, and what we addressed is only about 8 crores so far. So if you further on your acquisition formula, handbook where we go deep rural instead of doing in only cities, I think still you have good opportunity.

It's actually widespread.

Growth has to come from customer acquisition route, not by particular increase in ticket fee that's all.

Understood. And sir, finally, at the same time, we are also seeing normal sort of rainfalls across the country. So that is expected to sort of help the rural economy. So do you expect any upside happening because of this because last year was also not so good on that account? So in your model projections and what we are seeing on the ground, do you see any upside coming from a normal rainfall?

So which should actually help to stabilize further on the, what you call, credit cost and collection actually. Automatically when the rainfall is normal, every product, every job level is improved, every infrastructure level is improved, I think it will only improve our collection efficiency and the delinquency. Demand will go up in parallel for sure.

The next question is from the line of Nidhesh from Investec.

Sir, you mentioned in the presentation that you're tightening your business by onboarding new customer and expanding new loans to existing customers. So what exactly we are doing here? And what will be the target in terms of new customer acquisition for FY '25?

So target for our newer customer acquisition, I think we already told this, about 13%, 14% will be our customer growth what we anticipate for '24, '25. And the tightening is both sides, one is renewal and one is about the new customer. And even in both cases, the tightening will be different in different states or different districts. It depends on the risk behavior, what I said earlier, if 2 MFINs had 4 customer nor more than 4 lenders, so many, many states we only have 2 lenders per rule. Maybe some districts we will in the go in the 2, even the loan is 2 lender or less. So it's all naturally based on the risk Nidhesh. We do not have a general rule for everything. We go by the risk and reacting to the risk in each district. So it's a granular setting given risk, anticipating risk, tightening the rule, placing it appropriately, and provisioning accordingly. All 3 are -- go with the correlation actually -- all 4 items go in correlation at the granular level.

And if I may add, adopting a rule engine, we've got a lot more power in the hands. So all our attempt is towards making this a lot more finer, making it maybe more resilient than what it was when we did at state level. So we could work on many variables, including retain of obligations of customers, like some of you pointed out the overall leverage, including retail loans. If you even look at many other variables as we move forward, right? So we can work on PIN codes, we can work on certain villages, whatever we want, we have the power to do it. So we are able to look at things a lot more granular than what we used to do earlier.

Sure. And secondly, in the PAR 0, do you think this has peaked out here or there is a possibility of further increase in PAR 0 from the current level?

Our belief, it will be stable for some time and start coming down.

Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to the management for closing comments.

Thank you, everybody, for joining even at late hours. So we look forward for the next quarter and look for your support. Thank you so much. Have a nice good evening.

Thank you.

On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.