CreditAccess Grameen Limited (CREDITACC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Results Conference Call of CreditAccess Grameen hosted by HDFC Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krishnan ASV from HDFC Securities Limited. Thank you, and over to you, sir.

Very good evening, everyone, and welcome to CreditAccess Grameen Q3 FY '25 Earnings Call. On behalf of HDFC Securities, I'm Krishnan ASV. And I'd like to thank the CreditAccess Grameen management team for giving us this opportunity to host the call. Today, we have with us the senior management team of CreditAccess Grameen represented by Mr. Udaya Kumar Hebbar, the MD; Mr. Ganesh Narayanan, the CEO; and Mr. Nilesh Dalvi, the CFO. Without further ado, I'll now hand over the call to Mr. Udaya Kumar Hebbar for his opening remarks, and then we'll open up the floor for Q&A. Over to you, sir.

Thank you, Krishnan. Good evening, everyone. I'm wishing you all a happy and prosperous new year. Thank you for joining today's conference call to discuss the performance of the CA Grameen for the third quarter and the first 9 months of financial year '25. The resilience of microfinance industry has been tested and validated multiple times in the past, and both business operations and asset quality were affected by various external and internal factors. Today, the industry is mature and capable of proactively take corrective measures to navigate any crisis. The MFIN guardrails introduced by industry has served the purpose of strengthening and underwriting standards, which will not only protect the customer interest but also help in maintaining stable asset quality. While there has been a transient increase in the delinquency trend due to various reasons since Q1 FY '25 and resultant tighter underwriting norms, we believe that these measures will make the industry more robust and drive balanced growth in the future. CA Grameen has consistently demonstrated superior cross-cycle performance on the back of our customer-centric and employee-first approach, which have not only shaped our day-to-day operations, but also served as the pillars of our resilience. The recent increase in the industry delinquencies have again tested the strength of our business model, and we have been able to emerge stronger given our enduring fundamentals and agility in responding to evolving circumstances. Our initial assessment of the current delinquency cycle being transitory in nature has come true as we see the new delinquency addition rate slowing down across various geographies since mid-November 2024. While we had initially estimated the delinquency trend to peak out in September, the actual peak out was seen in October and until mid-November due to the temporary impact of festivities, heavy rains, cyclones and localized disruptions. The new delinquency trend reversal was materially visible across various markets beginning mid-November, getting further stronger in December and continuing in January also. While Tamil Nadu also has been showing an improving trend, there was a minor increase of PAR 15+ in January was due to lagged impact of heavy rains and cyclones in November and December. However, we expect this also to normalize since there are large number of borrowers paying partially, but still in PAR 15 bucket. Overall, we believe that new delinquency addition should normalize by Q4 FY '25 or Q1 FY '26. We have also seen roll forward rates having reduced in PAR 1 to 60 bucket driven by 40% of borrowers making partial repayments. This improvement is due to experienced employees who are deployed to support collections in critical locations. With delinquency trend showing the signing of improvement, growth has remained our focus, reflected by AUM growth in December after 8 months of contraction. Our monthly disbursement rate, which was at 50%, 60% of the normal trend over July to November, crossed 80% in December and expecting 90% in January. Similarly, trend is also reflected in our new borrower additions, which also saw the share of new-to-credit customers increasing from 30%, 35% to 42% in Q3 FY '25. Our retail finance division, central to our evolving with customer strategy, also experienced significant growth with disbursement increasing by 51% Q-o-Q, reflecting our ability to deliver tailored solutions. The retail finance now accounts for 5% of our AUM amounting to INR 1,245 crores at the end of Q3 FY '25 compared to 2.1% a year ago. In the light of current industry scenario, it is important to quantify the current impact of existing MFIN guardrail 1 and potential impact of guardrail 2 applicable from Q1 FY '26. We'd like to draw your attention to Slide 10, briefing about the current impact. Notably, there has been a significant deleveraging on both customer base and the loan portfolio. In the -- more than -- Grameen +3 -- over Grameen +3 lenders cohort, the GLP share decreased to 18.8% in December '24 compared to 25.3% in August '24. This improvement is over almost 7%. Additionally in terms of customer base, the share dropped by 500 basis points to 23.6% at the end of December '24. Furthermore, deleveraging trend is clearly evident in the cohort of borrowers with unsecured indebtedness over INR 2 lakh, which includes microfinance and unsecured retail loans. The AUM has decreased significantly from 19.1% in August to 13.3% in December, reflecting a sharp reduction in exposure to this segment. At the same time, the share of borrowers in this category has declined to 11.6% in December compared to 16.7% in August. Kindly note that the unsecured indebtedness refers to both MFI loans and unsecured retail loans as defined by the guardrails stipulated by MFIN under guardrail 2. Now coming to the delinquency portion on Slide #11. The impact of tighter underwriting standards has largely been realized. PAR 15+ in case of borrowers with Grameen +3 lenders or -- and 3 and above lenders increased from 6.1% in Q2 FY '25 to 10.1% in Q3 FY '25. Similarly, PAR 15+ in the case of borrowers with more than 3 lenders stood at 22.1% in Q3 FY '25 versus 12.2% in Q2 FY '25. Out of overall PAR 15 of 6.3%, 2.9% was on account of borrowers with 4 or more lenders. Similarly, PAR 15 on account of borrowers with unsecured indebtedness over INR 2 lakh was 1.3%. So we have also analyzed the loan performance of MFI borrowers with active retail finance loans and found that the delinquency rates for both segments are not significantly different. The Par 15 for MFI borrowers with retail loans is 7% compared to 6% for those with only MFI loans. This is an encouraging sign given our strong underwriting standards and the fact that majority of retail exposure is in the form of gold loans where PAR is technically in nature -- PAR is technical in nature. The assessment of potential impact of MFIN guardrails in the coming quarters is captured in Slide #12. Out of the 23.6% borrowers with more than Grameen +3 lenders, 84% are promptly paying as of 31st March -- 31st December 2024. This will help them in gradual reduction of leverage and multiple loans, making them eligible for future loans. Further, only 30% of this cohort have unsecured indebtedness exceeding INR 2 lakhs. Based on our internal evaluation, we are confident that we can retain more than 80% of borrowers in the 4 and 5 lenders cohort also. This analysis clearly shows that MFIN guardrails will not have any major negative impact on our customer retention in the -- and the future growth. Now I will request Ganesh to brief you on financials, new initiatives undertaken and performance guidance. Over to you, Ganesh.

Thank you, Udaya. A very good evening to everyone on the call. I start by wishing you all a very happy New Year. Thank you, Udaya, for the detailed brief. While we are anticipating the new delinquency accretion rate to normalize over the coming months, it is imperative for us to complete the accounting journey for the existing delinquent book. Our early risk recognition and conservative provisioning policy have been key drivers in maintaining financial stability and ensuring that we are well positioned for the future. However, our approach to take accelerated write-off over the 3 quarters starting from Q3 FY '25 is an effort to early recognize the impact on our financials by end of Q1 FY '26. Accordingly, we took an accelerated write-off on loan accounts with 180+ dpd, non-paying amounting to INR 229 crores this quarter, resulting in an additional credit cost of INR 73 crores. The total write-off from Q3 FY '25 stood at INR 376 crores and for 9 months FY '25 at INR 606 crores. Overall, we continue to hold INR 134 crores higher provisions compared to the NBFC industry, 243 bps or INR 587.5 crores higher provisions over PAR 90, and 412 bps or INR 1,010 crores higher provisions compared to IRAC prudential norms. The credit cost stood at INR 750 crores for Q3 FY '25. Our collection efficiency, excluding arrears stood at 93.3% and collection efficiency, including arrears at 94.1% for Q3 FY '25. PAR 90 stood at 2.64%, GNPA at 3.99% and net NPA at 1.28%, both predominantly measured at 60 dpd. The collection efficiency X bucket was over 99.20% for December. The net interest income grew by 7.4% year-on-year to INR 862 crores with portfolio yield at 20.2% and interest spread of 10.4%. We've been able to maintain our average cost of borrowing at 9.8% for the last 6 quarters despite the prevailing scenario. In Q3 FY '25, we raised INR 3,862 crores, including EUR 25 million from German Investment Corporation, DEG and INR 170 crores from Citi through a co-financing facility. With DEG on board, we now have 6 international DFIs in our lender profile. These strategic partnerships are crucial in diversifying our funding sources and in providing access to long-term cost-effective capital. NIM slightly declined to 12.5% for Q3 FY '25 due to interest reversal of INR 75 crores, while 9-month FY '25 NIM stood firm at 13%. Cost-to-income ratio was at 31.3%, while PPOP stood at INR 623 crores in Q3 FY '25 and INR 2,004 crores in 9 months FY '25. While conservative provisioning and accelerated write-offs impacted Q3 FY '25 profits, it will safeguard our profitability over the coming quarters with growth rate getting normalized. Overall, despite elevated credit costs, we estimate to deliver 2.3% ROA and 9.4% ROE in 9 months FY '25. We are maintaining healthy liquidity levels with cash and cash equivalents of INR 3,222 crores, amounting to 11.7% of the total assets. Additionally, we have sanctions in hand of INR 4,071 crores, backed by both domestic and foreign lenders, and another INR 6,733 crores worth sanctions in the pipeline. The capital adequacy remained high at 25.9%. As a part of our strategic initiatives, we are pleased to introduce 2 new applications, Grameen Maitri, designed for employees, which is a comprehensive platform that manages the entire customer life cycle from onboarding to dropout. It streamlines branch operations by enabling all required tasks to be performed within a single unified system. On the customer side, MAHI, our customer digital handle has been launched to offer convenient access to individual and group loan products, requests for additional loans, receive payment reminders and make repayment through UPI, et cetera. With over 2 lakh registered users so far, the app is available in 10 languages across our operational regions. Built with the latest technology stack, it integrates all necessary digital APIs and interfaces, ensuring a seamless user experience. Basis the transaction history, the app will offer varied features, experiences to the customer. Drawing reference to the past crisis like demon and COVID, we witnessed normalization in profitability over 3 quarters. Considering the current scenario, we are aiming for an AUM growth of 7% to 8%, NIM of 12.8% to 13%, credit cost of 6.7% to 6.9%, ROA of 2.3% to 2.4% and an ROE of 9.5% to 10% in FY '25. The preliminary outlook for FY '26 projects healthy 18% to 20% AUM growth, 4.2% to 4.5% ROA and 17% to 9% ROE. We shall come up with a detailed FY '26 guidance in May, along with our FY '25 financial performance. We thank you for your time, interest and continued support. We look forward to addressing your queries as we open the forum for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Shreepal Doshi from Equirus.

Sir my question was firstly on this accelerated write-off during the quarter. So what was exactly the profile of these customers in terms of they being more than INR 2 lakh ticket size or they being credit +3, credit +4, if you could just give some color on that?

Sorry, Shreepal, this is more based on the repayment profile because these customers are already more than 180 days, and there is no repayment coming from them at least for minimum 90 days. So that is why we thought it fit to write off. We have not gone through that kind of detail, which we can analyze and share you privately or separately.

Got it. Okay. Sir, second question was on X bucket collection efficiency trend from September to Jan '25, if you could provide, that would be really helpful.

For the month of December, it is 99.2% actually. So I think it's more relevant is -- what is latest, which will continue. And we expect January also continue in the same level. And as of now, it is equal to 99.2% level. November and December, it was -- I'll tell you, November and December, it was around 98.8% and 98.7% between October and November, and for the month of December, 99.2%. January, we were experiencing similar performance. It's available in your presentation actually, in the Slide#6. It's available. If you factor in PAR 15, but I think more or less, you can see that. PAR 15 are already available. The reverse data is actually expected, right.

Right, right, right. Got it. And sir, one last question was on the industry side. So with guardrail 2.0 being implemented from April and while we are seeing positive trends on asset quality side and also on the disbursement trend that is highlighted in one of your slides in Jan, but how do you see things shaping up for us and for industry in FY '26 in terms of trends on growth as well as on sustainable growth rather?

So maybe I will be able to give trend for us actually, the industry because it's -- we need to see exactly for the industry after getting more balance sheets and publications by others. So for us, we are clearly seeing visible improvement. Two, for new customers, largely, we already implemented that guardrail. We feel it is very important for new customers, though it is deferred to April 1. And also, we put a trend there in our presentation that even if it is implemented from 1st April, the implication is quite low because in that set of cohort, already 84% are paying. And our internal assessment clearly show that we will be able to retain more than 80% of customers in that bucket also.

Got it. So growth -- I mean, I know you highlighted that the growth percentage guidance would be given later on, but will it be like structurally coming off at closer to 15%? Or would it -- or there is a possibility of even better trends on the growth front?

No, as an industry, it's definitely difficult to say right now because it depends on how long we go to [indiscernible]. We have actually estimated, if you see the slide number -- which talks about the annual guidance, we said 18% to 20% growth is estimated preliminary by us actually for the next FY '25, '26. And for current year, we're talking about 7% to 8% growth.

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

Can you hear me?

Yes.

Yes. So Mr. Ganesh, I didn't get the presentation. So maybe some of my questions is because I don't have a physical -- not able to see the PPT. But I'm just curious, we see the trend of delinquencies across the industry, but when can we expect normal figures coming in, maybe like what Q1 of FY -- next year or it might take more than that? What is the is the...

I think we did that initial remark. I think between Q4 this year and Q1 next year, between that, we should be getting into a normal zone, Nitu.

Okay. And just because I don't have a PPT, what is your -- what is the loan portfolio size right now? Have you seen a decrease or an increase from last quarter? [Technical Difficulty]

Ladies and gentlemen, the management line has been disconnected. Please stay online while I get them reconnected. Ladies and gentlemen, we now have the management on the call. Please go ahead, sir.

So we were able to hear Nitu's first question. Was there any follow-up question to that?

Sir, I was just asking what is the loan portfolio size now compared to last quarter? And I've heard that you are seeing a positive trend. So I'm expecting it to grow in the next few quarters. But right now, I don't have the figures for this quarter.

Okay. Okay. So as of December, the AUM of the company stood at INR 24,810 crores. As of January 20, it is at INR 25,125 crores. So year-on-year, we've grown. Quarter-on-quarter, we have degrown simply because of accelerated write-off.

The next question is from the line of Shreya Shivani from CLSA.

Can you me?

Yes.

Sir, my question is more around the business operations on the field. We had heard about loan officer attrition being high in the -- across MFI players. And probably that number is north of 50% for the industry. Where would we stand? Can you help us understand what are the key concerns the loan officers have currently? And we'd also picked up from some industry interaction that there is a peculiar case in the MFI industry that many of the loan officers who quit their jobs in the past couple of months, they actually quit and never -- and did not join any other formal sector. So can you help us understand what's exactly going on at the branch level amongst the loan officers and at the operational level, not so much to do with what's happening with the customers over here? That's my question.

Normally in periods of elevated stress, the attrition does moderately go up, same for us. But however, for us differently, during this cycle, we've got roughly around 3,000 employees requesting to rejoin with CA Grameen. So I think we will be able to manage even if the attrition goes up slightly, but right now, it's not a big challenge for us.

Sir, is your attrition rate higher than 50% or lower than 50%? Is there some number you can...

It is lower than 50%.

It is lower than 50%, right. And sir, this is not just specifically about you, but if you could just help us understand, yes, in times of stress, the loan officers do exit, but is there a trend where they exit and they do not take up jobs in the formal market because we picked up this in some of our conversations with some other industry experts.

It's a combination -- yes, it's a combination. Some of them do, some of them don't, right? So it can be probably equal in number. A lot of young guys who join -- young guys and girls who join, test the waters, and if it doesn't suit them, they leave the industry. And if it doesn't suit the organization, they go to some other company.

Got it. And sir, will the -- in times of stress, does the attrition rate pick up more in loan officers who have joined within the past 1 year or with more than 2 years or 3 years? Or was there a change in the way hiring was done that did you pick up -- did the industry hire people with lower expertise or something like that? Has something changed in the last 2 years that led to much worse behavior in attrition trends currently? Or this is this normal trend that has gone on?

No, it is a normal phenomenon under stress. Like I said, because a lot of freshers who come in, they will not be able to kind of handle the situation. But once the employee normally crosses 6 months or 1 year, they don't have all these issues.

Got it. Got it. And sir, my last question, just one follow-up over here. Have we changed any requirements in our hiring process for these loan officers? Have we tweaked it upside or downside?

No. So we -- you would know that we always hire only freshers, and we stick to that strategy. And there is no tweak in any of our processes.

The next question is from the line of Sanket Chheda from DAM Capital.

So sir, my question was on our guidance. Particularly this year, we have been stretched on our credit cost guidance as we move quarter after quarter. And now as there was earlier question that from April, the guardrail 2 will be in the effect, and we have a decent share in terms of CreditAccess plus -- 3+ and 4+. So what makes us so confident to give this guidance of 18% to 20% growth plus ROAs also almost in the range of normalized levels and ROE, while it's been a turbulent last few months. November was just the peak. After that, it's just 1 month, 1.5 months that we have seen some improvement, but we are yet to solidify those trends. So what gives us that confidence to be so early in terms of guiding, say, mostly a normalized year, which is FY '26?

Right. So if you look at our earlier guidance about peaking out and how we will normalize, we are more or less there. We've got a 4-weeks delay. But otherwise, we are already seeing that pattern emerge, both in December as well as January, and we are confident that we should sustain it during the year, right. And like we shared earlier, all our internal analysis, we've done a full CR of our customers, et cetera. Based on our internal analysis, it gives us enough confidence that the next year growth also irrespective of the new guardrails coming in, we should be able to meet it and we have our strategies around it.

Sanket, I'll add here. So see, one thing is that if you see always a majority of our growth has come from customer retention. Historically, 60% growth has been from retention of customers. So as we have shared data, we have a fair visibility on retaining the customer cohorts who have, say, more than 3 or 4 loans because a majority, more than 80% of those customers have been promptly paying. So that -- as a result of that, there has been a normative deleveraging, which has happened over the last 6 months, and which will continue to happen over the next 3 to 4 months as well. So in a normative fashion, they will become eligible to avail future loans. So that's where it gives us visibility to retain our customers. And second is the addition of new customers. So like in month of December, we have added 70,000 customers. The current run rate in Jan suggests that we'll cross 80,000. And in a normal period, we have been typically adding around 1 lakh customers a month. So adding 1 lakh customers a month in next year should be achievable for us, which will give us a high single-digit growth in borrower base, and overall microfinance portfolio will be maybe around 15%, 16%. And on top of it, we will also be getting growth from our retail finance, which has been demonstrating healthy growth. So like as you see over the last 1 year, retail finance has grown from 2% to 5%. And lastly, it is behaving very well from the asset quality point of view as well. And it is a step towards retaining our high-vintage customers. So a combination of all these factors gives us the confidence to deliver that growth in the next year.

And in our ROA guidance, what have we assumed in terms of the credit cost for next year?

So Sanket, like if you see our guidance this year, we had earlier guided around 5%. Now we have revised it to 6.7% to 6.9%. So basically, the 1.2% to 1.4% delta, it is on account of a month of delay in the improvement of the -- I mean, the reversal in the delinquency cycle. That's where 1% has added to this year's credit cost. And now through the -- as we said, we are going to take accelerated write-off over Q3, Q4 and Q1. So that will help us to absorb more than 80% of the current year's impact in the current year itself. So from that perspective, maybe in a normative year, if our credit cost is around, say, 2%, 2.5% on top of it, maybe another 75 to 100 bps might get added into the next financial year. So that's where for next financial year, we -- as of now, the estimation is we should have a credit cost of 3%, 3.5%, which will give us an ROA of 4.2% to 4.5%.

I think just to flip it actually from an ROA point of view, Sanket, the current year, our ROA will be less by 3% -- close to 3% ROA we will take this year and 1% ROA hit we will take next year. So net-net, overall, the delta of ROA hit to us because of this event in both years together is only 4%, 3% this year, that means we will be delivering a 2.5% to -- almost 2.5%. Next year, we'll be able to deliver ROA about 4.5%.

The next question is from the line of Rajiv Mehta from Yes Securities.

Sir, my first question is, sir, while the new PAR addition is now lessening, any improvement is also seen in resolutions across rest of your buckets? Can you comment on that? Is the NPL recoveries also improving along with the new PAR getting less added? Are you seeing improvements there also in the bucket resolutions and NPA? And one last thing -- sorry, please complete.

Yes. Maybe I will respond first and next you have a question, Rajiv. See, I think it's an improvement in both sides. One is reduction in new PAR accrual. Second is improvement in the forward. Forward is actually reducing and the increase in the business momentum. So all 3 are combination actually, Rajiv. You see almost 40% of our Stage 2 bucket already in a partly payment stage. And the reduction -- which is the X bucket, the collection efficiency more than 99% now.

So sir, what do you attribute this to? I mean, this improvement in collection across buckets? Because as I see, you haven't added employee or collection team like so many peers and because your employee base is actually flat. So what do you attribute this improvement in collections to? Is it attributed to any improvement in center meeting attendance, better customer reach out? And how have you done it?

No, I think we anticipated early also. It is more of a transient nature. And I think, we estimated that this will peak out and start coming down, the new PAR. I think it happened in October -- October from November. Similar to this, we are also able to deploy more people, experienced people in the pockets of collections to work on that. And then the underwriting quality changed for at least new customers and new disbursements. So all these are a combination of things. And then we didn't have so much of attrition also. Now if you compare to attrition, it's not very large deviation from the normal. That also helped us. All these together and a combination effort, I think where the customer who are defaulting largely were already defaulted. I think there's no more new customer defaulting, very less new customer defaulting. That also is a trend we are seeing now. So overall, there's a good improvement in terms of both the sides, improvement in terms of collection, improvement in terms of disbursement, improvement in terms of lesser forwarding, all these are happening together.

Also in times of such, all our control teams also support us with collections.

Okay. And any revision in lending rates that we are planning?

Rajiv, one minute.

So I also wanted to add, Rajiv, as a demonstration to the field team, so almost all employees in the management space, so the entire top management has adopted zones. And all of us have traveled extensively over the last few months, including meeting PAR customers' collection more towards a demonstration to the field force, right? So everybody is in the front. So I think the biggest difference in such scenarios may be your field supervisors, your seniors, getting involved in solving the trouble. And like I said, we also have an additional workforce with very high number of control teams. So they also contribute in such times of stress to support the field teams to come back to normalcy. And you would know about our people strategy, how we play on hiring only freshers and retaining them. A lot of our seniors have seen multiple cycles, right? So they also know to -- know exactly how to navigate the scenarios. It takes some patience and hard work, but it's something that we have done well so far.

Just one last thing. Any revision in lending rates that we are evaluating in the light of increased credit cost and maybe even OpEx? Because when I look at your NIM guidance for the whole year, it implies that in Q4, your NIM has to improve by 30, 40 basis points over Q3. So what will drive this NIM improvement? Because you will still have higher interest reversals in this quarter. So what will cover up for it? Have we taken any rate hikes?

So Rajiv, our pricing policy is very clear and based on certain -- data based actually. So based on the variation, whether in OpEx cost or the credit cost or the borrowing cost, so it will change to some extent every quarter being reviewed. I think there is a small review happened in Q3, where certain basis points, the change was there. Similarly, as and when there's a change, every quarter, there will be change. So there may be a small variation because of that. But because of the higher interest reversal, the NIM is actually moderated back to the same level.

And to a certain extent, the pricing policy does not change much because it's a long-term average that you take. You take a few quarters' average and keep repricing as and when required. So there is a Board-approved policy for this. And every quarter, if the credit cost is there for the next 4 to 8 quarters, then it will gradually get passed. So right now, we don't see a big movement in pricing, but we should come back to normalcy quick.

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

Sir, just 2 questions from my side. One on this PAR 15+ accretion. So when we look at the state-wise numbers, of course, there is an improvement across states, except Tamil Nadu. And when we look at the Karnataka specifically, though there is an improvement in Jan, but there are a lot of news flows which sort of keeps on coming over the last month or so, wherein some district, some pockets, there is some external events are happening. So how confident we are that the kind of improvement we have seen in Karnataka maybe over the last 2 months from a peak of 1%, we are now down to 60 basis points. That will sustain? That's my question number one.

Yes. I think you're right, there are some negative news around microfinance in Karnataka. But this was actually happening from last 2 months, majority was in Gulbarga and [indiscernible], Belgaum districts. There was some impact we saw in the last month there also. Despite that, we are actually able to show better performance in Karnataka. So recently, there are more news in the media, a lot of microfinance news in the recent days. There have been a few local third-party interventions, particularly what I said Gulbarga, Venugrama, Tumakuru, Ramnagara districts. Members and industry bodies successfully addressed and appreciated to the administration of respective districts as well as the government of Karnataka on the governance of microfinance, third-party's code, given the status of the system with the regulated entities like RBI and SROs governing the REs, so these all applies to them and how these are handled well. Based on various publications, I think the Chief Minister of Karnataka also called a meeting tomorrow of stakeholders, including the -- including the members and including the RBI, all of them, they call for a discussion actually. I think this will serve as a platform to discuss the role of institutions, role of microfinance, which contributed to the state economy, how the microfinance are actually running with a partner and practicing a third-party's code, the regulations and the governance and then RBI and SROs also can explain what they are supporting and handling. I think this will help us to build a strong connect as well as this meeting will be -- outcome of this meeting will be more productive and a step forward for us. I think the situation is not that much -- situation is good. On the ground, there is no such issue. Collections, everything is going on smoothly, no problem. But yes, there are some news, particularly what we observed is from a nonregulated entities. There are one-off issues difficult to identify and inform. But wherever possible informing the police also, I think we will be able to highlight these issues to the administration and the government tomorrow probably. So we definitely believe that this will be a good step forward for getting resolved these issues.

So at this point in time, I mean, is it fair to assume that you guys don't foresee any risk to the sort of improvement what we are expecting in Karnataka?

No, we do not see actually. Even if you see worst scenario in even October, November, Karnataka X bucket collection is more than 98.5%, right. So right now, it is almost 99.4% kind of thing. So therefore, we do not see any major worries in Karnataka.

Got it. And sir, again, second question is related to that in Tamil Nadu, though there has been an improvement in December, but then again, there is a very, very sharp deterioration in Jan. Of course, we did mention that these are the transitory and maybe things should improve in Feb. But is there any lead indicators in place wherein we -- sort of we are expecting things to bounce back in Feb?

No, actually, Tamil Nadu, again, it is more of a lag impact of December month's rain and cyclone. There's a small increase in the PAR 15 but PAR 0 still it is normal right now. PAR 15 because there's a lag impact. But most of these customers are also partly paying, not able to pay all 4 weeks or 3 weeks. That is why it's still there. So therefore, we don't see major issues in Tamil Nadu also. It's temporary. Maybe this month, by month end, most of things will sort out. So therefore, we don't see too much of issues in Tamil Nadu also.

Got it. And sir, my last question, again, on the guidance side. So now sort of when we look at our FY '25 performance versus the guidance, a couple of times, we have been forced to change our guidance. Of course, I do understand because of the on-ground situation wherein industry is so dynamic every 2 months, things might change. And again, hence, what sort of confidence you guys have that whatever guidance we are sharing for FY '26, that will hold true?

Yes. This is an extraordinary year, Renish. Otherwise, probably there were no chances to change the guidance actually. But it's important to inform you upfront about what we can do, is most important. That's what we are doing also. If you see... [Technical Difficulty]

Ladies and gentlemen, the management has got disconnected. I would request you all to stay online while I reconnect with the management. Thank you. Ladies and gentlemen, we have the management back on the line, so we may continue.

Sorry, Renish. When we compare to the revised guidelines, we are actually up then only. Even we are saying that we are achieving between 7% to 8% despite we are taking the write-offs, extraordinary write-off. Therefore, we are actually not changing the guidance actually. Where we're changing guidance is a kind of credit cost again because of the extraordinary write-off we took plus a small delay in our estimation. We estimated to be peaked out in September, October, but unfortunately, it went into now -- sorry, in September, it was delayed by 1 month. That costed us about another 100 bps additional cost. Otherwise, we are also there in the guidance actually. There's not too much change in the guidance. And for the next year guidance, we have calculated carefully. It's a preliminary estimation, but largely, we should be there. So that is what we estimate and internal confidence we have against that. But definitely, we'll come back with the full guidance in the month of May after our annual performance.

Got it. Maybe let me put it this way. So what are the risks which can lead to sort of we revising this guidance or we revisiting this guidance? I mean, internally, do you foresee any risk to this guidance or maybe the parameters which you would track very closely. Of course, collection is one number, but anything apart from this in terms of, let's say, the district which are in stress currently because of external events or maybe some political event happening in some states, et cetera. I mean what are the key things which you guys would be watching very carefully to ensure that guidance remains?

I think we are clearly seeing the improvement is visible for last -- I can say 2 months from mid-November to almost mid-January. We have seen the change in terms of reversal of trend in terms of delinquency, in terms of disbursement and in terms of new customer addition, we're able to see. Unless drastic change in this trend reversing back. Otherwise, we don't see any other reason for failure in this guidance.

The next question is from the line of Bhavik Dave from Nippon Mutual Funds.

Sir, am I audible?

Yes.

Sir, just a couple of points, right? One is, again, on the guidance bit. We missed our guidance like 2, 3 quarters in a row. I think it will be good to maybe wait out for the end of the year before giving guidance on growth because my question comes back to growth, right? And when I look at your numbers, you've been adding 1 lakh, 50 thousand customers per quarter. You mentioned that you will add 1 lakh per month. And even if we do that, and when I do the math, the 15% to 20% growth seems to be a bit of a stretch. And in that context, it will be great if you could just maybe give us a sense that why will customers after the 3 guardrails stick to us versus going to someone else who might give a higher loan, considering the customer segment we've seen has behaved very similarly for all lenders, right? It's not that customers have paid X lender and not like defaulted to the Y. Unfortunately, over-leveraged borrowers have default or behaved in a similar way. And second is on the retail finance as well, we've majority mined our existing customers and given -- upgraded them to retail financing. So a large part of our customers will also be upgraded in that sense, right, the 70%, 80% of the customers that pay back after this washout. It seems that the customer that we'll be able to lend in the existing format and also the new customer addition seems to be a bit of a stretch in my number that I'm working around with. So if you could just like explain us how this 15% to 20% growth will come through because I'm a little -- I'm not going to be able to maybe do the math in terms of the customer and the ticket size that we are working with.

I think broadly, what we've guided, the growth will come from both retail and microfinance, right? So we've always been saying that as we grow bigger and bigger, the growth rate of microfinance would slow down. You've already seen that our share of retail has moved from 2% to 5%. So with every year moving by, the contribution of retail will continue to grow. And again, we always stated that microfinance will be an entry point for the customers. And only a certain profile of customers will be able to upgrade, not necessarily that everybody will move towards retail. People will have to have certain demonstrated history, certain amount of cash flow to demonstrate for them to move towards retail, right? So I think there is enough room in whichever markets we are. If you look at any of our non-core markets, we are still very, very small. And I think there's enough room for us to grow both in microfinance and retail, but increasingly, the growth in microfinance will take a step down and retail will catch up. So with the combination, we are looking at delivering this kind of growth.

And also, sir, when I look at your Bihar PAR here, right, I see that outside the 3, 4 strong states of ours, our performance has been quite poor because we've heard other lenders talking about Bihar recovering quite well for them. In that context, how has our experience been both in microfinance and retail when it comes to the non-core geographies, like in a sense, Karnataka, Maharashtra, Tamil Nadu seems to be our strong point. Apart from that, how has our experience been in terms of retail and MFI in the cycle? Has it been far worse? Or how are you thinking about those -- on those lines?

Right. So today, we operate retail only in our core geographies, which is Tamil Nadu, Karnataka, Maharashtra and MP. And we are not there in other geographies because our strategy around retail is to bring in customers, season them to a certain extent and then offer retail finance. So probably we will take a few more years to reach our non-core geographies. Once we become a certain size in each of these geographies is when we will roll out retail finance strategy. With respect to our retail finance portfolio, it has been absolutely good even in the worst times of stress. We are going through a very high credit cycle. However, the retail finance book has held really good asset quality. I think 30-plus as of December, even for our unsecured graduated business loans is in the range of 70 basis points. So this is unsecured. Secured is even much lower.

Sure. Because unfortunately, sir, what we've seen is most of these MFI customers have other retail loans, and that's what is causing the overall [indiscernible] as well. We are just like as an industry, we are just looking at maybe borrowers who have 3 or 4 lenders to them. But other than that, they have other retail loans, and that cohort has done even worse than just MFI loans. So that's the reason I'm trying to maybe drill down a little more. And last question is, sir, not a question, but just to understand...

Just one comment on your last statement. So even in our presentation, we isolated and given the numbers that in our case -- while it could be some numbers published by different agencies, in our case, what we see is that there is no difference in credit cost between customers who are only microfinance customers as well as microfinance customers with retail overlap. So in microfinance customers' case, the bar is around 6%. And in retail's case, it is around 7 -- sorry, 7% and 6%.

You can refer to Slide 11 for the clarification on that.

And also in all our retail finance journeys, we have consistently reiterated, we are not in a hurry to grow. We will test it. We've piloted each of the businesses for enough time, tested results against these pilots and only then we scaled up. So there is a clear strategy around whom we will offer retail, be it secured or unsecured. And what is the marketplace, what is the pace at which we want to grow. So it will be a natural progression over a period of time. And we are very mindful about keeping this quality intact.

The next question is from the line of Arjun Bhatia from Bowhead.

Can you hear us?

Yes, we can hear you.

Sir, I just wanted to understand, do you also get...

Sorry to interrupt, Arjun, can you please come a little closer to the microphone?

Am I audible now?

Yes, much better.

Sir, we wanted to understand, do you, by any chance, get disclosures about loan prepayment schedules of your existing customers to other microfinance companies as well?

Disclose loan repayment?

Schedules, like if you have a customer, let's say, he's got loans with 3 other people or 4 other people, do they disclose with you the repayment schedules like when is the repayment -- when is the loan getting foreclosed from the other?

It's available in the bureau reports.

So you have entire access to the data?

Yes. So we may not have the entire repayment schedule, but we will know when was the loan disbursed and when is the closure...

Okay. And have you used that modeling somewhere in your analysis?

Yes. We have to use it for -- even for our calculation, right? So the whole [Foreign Language] about the new regulations is that you have to calculate their overall liability, what is the repayments they make as a family every month and then derive [indiscernible] out of it.

Understood. So broadly, what you're saying is that you have mapped already which customer is going to -- loan is getting foreclosed and therefore, how many loans will get foreclosed at your end versus others. What I understand from guardrail 1 and 2 is that whosoever loan has to be repaid, first, that loan cannot be renewed. If he is more than 5, then it has to come down to 4. And in the second guardrail, if it's 4, it has to come down to 3 and so forth. Is my understanding correct?

Very true. Very true. Would you like to join our strategy team?

So in that sense, sir, I wanted to understand that how do you get the comfort that whosoever is paying you now after the guardrail 2, he gets choked in terms of further supply, he will end up paying to you because he's not going to pay the repayment. I just wanted to get some perspective on that. And whether -- and you have modeled all that in your forecast for growth, all of these like who will get foreclosed first at your end versus the others because wherever it gets foreclosed first, the customer can't come again.

Yes. So we've taken everything into our model, and that is also the reason for our confidence. And again, taking a loan is a customer's choice. Not everybody closing a loan asks for a second loan. So that is where you need to continuously run for new customer acquisition also, right? So it takes care of many things.

Understood. Secondly, sir, I wanted to understand, based on discussions some of the players, we are told that there's a possibility of new regulations on capping the NIMs directly, indirectly through various ways. Additional top-up loans, one could give -- like we understand we give some top-up loans. What are your thoughts on that? And do you expect any further regulations at some point of time in the next 6 months, 1 year, which will then lead to further consolidation in the industry?

Right now, we are not privy to any such information. I don't think we should speculate about it.

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

So the first thing that I wanted to understand is what are the covenants that we have in place from our lenders? What is the GNPA or GS3 threshold in our covenants and what are the thresholds in profitability, quarterly profitability?

Abhijit, Nilesh here. So there is a wide range of covenants. We have more than 70 lenders and the covenant levels will obviously keep varying from lender to lender. So we have a good amount of comfort there. Usually, typically in the industry, you will see the GNPAs, if they cross, say, 4% to 5%, then there can be some kind of a challenge. So as of now, we have no such issues or...

Got it. So I mean, basically, whatever thresholds are there on NPA GS3, we are at least, I mean, much lower than whatever those thresholds are, is it?

Yes, yes. As of now, we are not facing any issues. That's the reason why the access to funding is continuing for us. And as we reported, even in third quarter, we have drawn close to INR 4,000 crores from more than 17 institutions. And even the -- our borrowing cost, there has not been any change. Our marginal borrowing cost continues to stay at 9.4%. And at the same time, we are -- I mean, there is a continued confidence what we are able to maintain with our lending partners.

Got it. And also remind us, while we took accelerated write-offs in this quarter, and you spoke about taking some accelerated write-offs in the next quarter as well. What is our usual write-off policy? Just trying to understand the accretion that we are seeing in GS3 right now, at what point in time they start getting written off?

So in our normal policy, we write off after 270 days. And during even COVID, we had taken some accelerated write-offs. Similarly, now we've taken write-off for a portfolio which have not been paying, like Udaya said, for the last 3 months at 180 days plus.

It's actually less than 1% of portfolio we took a write-off, which are -- later -- after -- which is [indiscernible] for at least last 3 months and which are already crossed 180 days.

Got it. Got it. And sir, lastly, just trying to understand, I mean, while we did speak about Karnataka, whatever is happening there, and you also spoke about that despite all that, we've managed a good collection efficiency. Let's say, when you look at your X bucket collection efficiency on a national basis and when you look at Karnataka, how lower is Karnataka from the national average?

It is by and large saying that -- I think Karnataka is better than last [indiscernible].

Yes. So Abhijit, if you see Karnataka, it's around 20 bps better than our overall...

Got it. Got it. And just one last question then. I mean, of all the collections that are happening, I mean, what proportion is kind of getting collected in a center meeting and what collection -- what proportion of collections are happening through door knocks?

Predominantly, it will continue to happen in center locations. Sometimes what happens if the field officer is delayed for the second meeting, then the customers don't wait. So there they won't collect from the Kendra leaders. And some of them, if they don't pay, that is when we go for door-to-door collections, but that is supported, like I said, by a massive team, including control team, field supervisors and many officers. Probably as an indication, which is relevant to the chain.

The next question is from the line of [ Parth ] from Nomura.

My question is a bit broad-based. So sir, you mentioned that the delinquency trends are transitory in nature, and you have been seeing reversing trends since November or December onwards. So sir, what has changed on ground that makes you confident that this is just transitory in nature and the reversal trends will sustain going ahead? And sir, another question is that on the new borrower addition rate, we have seen a significant uptick in December '24. So sir, what has changed on your underwriting process or your onboarding process, which will give us some confidence on the...

Sorry, can you come closer to your mic and repeat your question again, please?

Sorry, am I audible now?

Much better.

So sir, on the delinquency trends, you mentioned that they are transitory in nature, and we have been seeing reversing trends since November and December, mid-November. So on this, sir, what has changed on ground that gives you confidence that this will stay -- this is just transitory in nature and the incremental reversals on the delinquencies would sustain going ahead? And sir, on the next part, the new borrower addition rate has seen a significant uptick during the month. So sir, what has changed on your onboarding processes or your underwriting processes, which gives us the confidence that these borrowers would be better in nature than the previous borrower?

See, on the first question, I think the whole presentation is demonstrating with sufficient data as to why we think this is sustainable. However, we'll have to see how it goes for Jan, Feb months, right? So we are reasonably confident we peaked out. We are showing as on date, whatever is happening in December and Jan. We've also demonstrated that overall, we are able to see leverage coming down. And we've also demonstrated in our presentation how the previous cycles were and in how much time we've come back, right? So you would see in our presentation, what we did in COVID, what we did in demon. So overall, roughly a 3-quarter disruption is what happens for us to come back to normalcy. And we believe it is similar in nature now that we've started showing performance in the last 2 months. New customer additions, we are a little mindful. We have tightened, like, say, in the guardrails, we have been already doing voter ID evaluations. The field verification processes have been strengthened in geographies where we are seeing certain higher delinquency, we've moved house verification 1 level up. We've also used quality control teams to vet in -- customers joining us new in all geographies where we have elevated credit cost. It's a continuous process. Yes. And in some places, we've also made it stringent with guardrails where we limited the overall maximum outstanding to INR 1 lakh, 50 thousand and also the maximum number of lenders to be not more than 2 and 1 in different locations. So based on that district behavior, we follow a district model. Depending on how we stress in each district, we keep moderating our operating procedures.

Our business rule engine gives us the flexibility to adopt a differentiated underwriting process at the district level.

Okay. Okay. I think that is helpful. And just one more question. So I understand Bihar and UP are your non-core geographies. But some of your peers have highlighted some collection efficiency issues in those 2 geographies. And while on the PAR accretion part, you have shown some improvement in the December and Jan '25 numbers. So what are you doing differently in Bihar and UP where you have seen better collection efficiencies or improving trends there?

See, I think overall, like you said, different people have different geographies, depending on which district they are present -- which part of the state they are presenting. However, Bihar also, we've demonstrated that we've significantly come back in the last 2 months. So we hope this will continue in the next 2 months in the quarter also.

Just to add here, so that whatever increase we have seen in July, August, September, as we said earlier, it was kind of an accelerated increase because the underwriting got tighter in the industry. And now because of the deleveraging happening, we see -- I mean, we are of a view that the customers who were not in position to honor their repayments or wherever they were not able to handle multiple loans, or they were over-leveraged, those customers have kind of gone into higher buckets so far. But the other customers, they have continued to repay on a prompt basis. So as we have provided in our presentation, even customers with multiple loans or higher leverage, 80% of those customers have been able to pay us on a prompt basis. And overall, Bihar and UP, it is around... [Technical Difficulty]

Ladies and gentlemen, the management has got disconnected. Please, stay online while I get them connected. Thank you. Ladies and gentlemen, we have the management back with us. Please, go ahead.

Yes, [ Parth. ] So UP and Bihar, it's close to 6%, 6.5% of the overall portfolio. So even there, larger delinquencies kind of have played out in the month of October, November, and that is where we are seeing the new delinquency addition rate slowing down at a faster pace in December and Jan. So our approach has been consistent across all the markets. But yes, different markets are behaving or kind of reversing at a different pace. Like if you see in Maharashtra, in Madhya Pradesh, our portfolio quality has been much, much superior compared to the industry.

The next question is from the line of Kamal Mulchandani from Investec Capital Services.

Firstly, like if you could just let us know that if we are facing some attrition at the branch manager level as well? And if yes, like what would be that number for us?

No, not very different from the earlier time. So we have been range bound and we remain there.

So what is that number?

Around 30%.

Okay. As usual...

Yes. Normal, there is no extra attrition we saw in this period. We saw a little -- whatever change is slightly variation only in loan officer level where we always keep recruiting and having sufficient backup actually. So branch manager and above, the attrition is quite stable.

And again, branch manager and above because we only do internal promotions, there is always a bench which is ready to become branch managers in case attrition goes up. And also, like I told earlier, because it's a tough time, people who joined different institutions or have left the CreditAccess Grameen has also placed a request to join back. So we roughly have around 2,900 requests to join back CreditAccess.

Okay. Got it, sir. Also, I would like to know that what is our net forward flow rate from 1 to 30 and to 31 to 60 bucket and like -- and what was it earlier versus the current year?

See, flow forward temporarily had increased. I don't have the numbers.

So yes, typically, in normative times, we have seen that around 50% to 60% of customers in 0 to 30 bucket, they do roll back and the balance flows forward, post which, as you see, our provisioning rates, typically, we provide 70% in the Stage 3, which means that the roll rates are in that rate -- I mean, around that in the normative times. During last 4 to 5 months, we had seen the roll forwards were higher by 10% to 15%. But now it is kind of again reverting to the earlier in month of Jan. So we are seeing a reversion in the roll forward rates.

Okay. Got it. And lastly, if you could just help me, what were the interest reversals during this quarter and during Q2?

In Q2, we had around INR 35 crores of reversal. And now in Q3, we have around INR 75 crores of reversal. So in this around close to INR 18 crores is on account of the -- sorry, around close to INR 25 crores is on account of the write-off, overall INR 376 crores, whatever we have written off and balance INR 50 crores is on account of Stage 3 accretion.

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

One qualitative question from my side, and apologies if you have answered this in some form before because I joined a bit late. Sir, in the past few months, we heard of several lenders narrating unpleasant anecdotes, for example, instances when several lenders were queuing outside the doors of delinquent borrowers to collect their respective installments and that resulting in tensions at the local level. Are those kind of issues now largely behind, largely sorted, declining meaningfully?

Yes. As we stated a little earlier, probably our door-to-door collection is under 2%, right? And I think because we have a weekly model, rural model, and we also have a larger understanding of how to navigate such issues. We don't see much of an issue around this space, the point that you're making right now.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments.

So I take this opportunity to thank all of you for your patience and time in joining this call and for very interesting questions. I hope we've answered all your questions. And in case there are any further questions, do write to us to reach out to us. We'll be happy to clarify them. Thank you so much.

Thank you. Ladies and gentlemen, on behalf of HDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.