CSL Finance Limited (530067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CSL Finance Limited Q2 FY '23 Earnings Conference Call, hosted by Til Advisors Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sayam Pokharna from Til Advisors Private Limited. Thank you, and over to you, sir.

Thank you, [ Kathy. ] Hello, everyone, and thanks for joining the Q2 FY '23 Earnings Call of CSL Finance Limited. The results and the investor presentation and updates have already been published on the stock exchange website and the company website. They have also been e-mailed to you. To take us through today's results and updates on the business we have with us, Mr. Rohit Gupta, Managing Director; Mr. Amit Ranjan, Chief Operating Officer; Mr. Naresh Chandra Varshney, Chief Financial Officer; Mr. Chandan Kumar, Credit Head; and Ms. Rachita Gupta, Fulltime Director. We will be starting with a brief overview of the quarter gone by -- via Rohit sir, followed by a question-and-answer session. I would like to remind you all that anything said on this call that represents any outlook for the future that can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties have been mentioned in our annual report. I would now like to hand over the call to Rohit, sir. Over to you, sir.

Thanks, Sayam. I welcome you all to the quarter 2 and the half yearly financial '23 earnings call of CSL Finance Limited. Thank you for taking out the time to attend this call. It is a pleasure to address you all today and walk you through the performance for the quarter. So first, I will take you for the balance sheet update, starting with the AUM. Our loan book stands at the highest ever, INR 602 crores as of quarter 2 financial year '23, an increase of 10% quarter-on-quarter and an increase of 15% in the first half compared to 31st March 2022. Further, the mix of AUM stands at 63% in wholesale and 37% of SME retail portfolio, the highest ever in favor of SME retail as intended. Loan growth has been impressive on the SME retail front in quarter 2. The company recorded an increase of 24% quarter-on-quarter and 56% over 31st March '22. Loan growth in the wholesale portfolio has been flattish in the first half due to some seasonal effects and the healthy performance of NCR real estate market during the said period. Due to favorable market conditions, liquidity position, developers were very good, and the loan repayments were much on the faster side. And therefore, despite good disbursements in quarter 1 and quarter 2, we haven't witnessed any loan growth on the wholesale front. However, we expect to perform better in the second half. Total disbursements for quarter 2 financial '23 stood at INR 228 crores, an increase of 16% quarter-on-quarter and 144% increase on year-on-year. Total collections for quarter 2 financial '23 stood at INR 173 crores. Collection efficiency has been over to 99% for the overall portfolio, a trend consistent for last 3 quarters. AUM and asset quality. Our asset quality metrics have been persistently improving for the last 5 quarters. We witnessed an improvement both on GNPA and NNPA fronts. Our gross NPA stands at 0.83%, down 0.4 basis points quarter-on-quarter and net NPA as of quarter 2 financial '23 stood at 0.48%, down 30 basis points quarter-on-quarter. Furthermore, our provision coverage ration stands at 161% in quarter 2 financial '23 compared to 116% in the previous quarter. On the debt side, the company has further onboarded 3 new lending partners, which are some of the most well-regarded financial institutions in the country, namely ICICI Bank, Kotak Mahindra Investments, NBFC wholly-owned subsidiary of Kotak Mahindra Bank and Cholamandalam. In the last 6 months, we have added 5 new lenders keeping total down to 11. As of 30th September 2022, the company has adequate liquidity of INR 29 crores, including cash and cash equivalents and undrawn credit facility. Now coming to the profit and loss account. Quarter 2 financial '23 -- financial year '23. Our total income for quarter 2 financial '23 stood at INR 27.4 crores, an increase of 9% quarter-on-quarter and 60% increase year-on-year. Subsequently, the net interest income stood at INR 21.2 crores, reported a 10% growth quarter-on-quarter and 49% year-on-year. Our PAT for this quarter stood at INR 11.2 crores, an increase of 5% quarter-on-quarter and 58% year-on-year. As shared in our earlier update, we have completely migrated to our bespoke customer onboarding and loan underwriting platform with multiple API integration in quarter 2. We have also completed our integration with the collection module. In our next efforts, we are working on building a credit rule engine to further strengthen our underwriting. During the quarter, we have also added 4 new branches, taking the total to 26 branches spread across 6 states. All of these additions have been in our existing markets, following the clustered approach. On the new product and the customer segment side, as communicated earlier, we are looking to add an unsecured loan product for MSME in Tier 2, Tier 3 cities. We expect to do this by the end of this financial year or maybe in quarter 1 of the next financial year. We are already working on it and we want to build a platform first. And hopefully, we should start by the end of this financial year. Going forward, on the credit rating front, we are due to -- we are due for a review in the coming months, and we are quite optimistic that we'll be able to achieve an upgrade with -- which will help on the borrowing side. Our current portfolio [ 16-37 ] for wholesale retail, is not far from our stated target of 60-40, but partly because of the flat loan book of the wholesale front last 2 quarters, which I believe is the temporary trend. Nonetheless, we will be working towards [indiscernible]. I would like to reiterate that going forward, the basis of operational costs, especially the implied costs should remain same as now we have sufficient in strength to scale up to a loan book of INR 1,000 crores. This is a brief update on our balance sheet end of the quarter, and now I for your questions. Thanks very much.

[Operator Instructions] Our first question is from the line of Ankit Gupta from Bamboo Capital.

Congratulations on the steady set of numbers. Sir, on the SME retail side, we have seen a very sharp jump in our loan book. Last year in September, we were around INR 61 crores of loan book. It has now increased to almost INR 223 crores. So how are we ensuring we follow good credit practices given this sharp jump we have seen in our recent SME retail loan book?

So as we have already told in the earlier calls also, our effort was to build out in the SME segment, especially COVID, we took a hit on the fresh disbursement. So a lot of exercise went during that lean period of COVID where we worked on our processes, worked on hiring team and worked on building a new platform, which was suitable trend as per the needs of our segment, which we are focused on. So sum total -- a lot of focus has been on the SME. And very frankly, for the last 1.5 years [indiscernible] which earlier was used to be on the wholesale side has also be on the more under retail side. And so there's some total of all efforts of our team and the improvement of team strength. A lot of effort has gone in improve -- we opened 8 branches during last 9 months. And at the same time, we improved the infra and the locations of all our branches during the last 9 months. So a lot of exercise as well, and as a result of which, you are seeing that the numbers are also coming out.

Sure, sir. And one thing I wanted to understand is that a lot of our wholesale book is largely on [ civilian ] basis and even in SME, we have 6 loan books. So given the increasing interest rates, how are we handling sharp rise in interest rates? And how is that impacting our noninterest margins?

Yes, Ankit, we mentioned a little bit in the presentation also. Look, you have to understand, we are working already in a little higher IRR bracket and especially the retail one, the customers which we are dealing there from Tier 2, Tier 3 cities, small micro SMEs, self-employed businesses there and their businesses. And they understand more fixed EMI, fixed tenure. When we do a floating and sometimes we change the tenure or change the EMI, they are not able to understand. And we thought as our tenure period is 5 to 7 years, it is only during that last 9 months that we are seeing that abnormal sharp rise in our interest rates. Otherwise, it will -- when we see a little dip so that will also benefit. So we thought that we will stick to this fixed interest rate in the SME side. Where in SME, certain portfolios, which we are acquiring at a little competitive rate between 16% to 18%. We thought that we should move to the floating one. And so in the next 1 or 2 months, especially when we are working in interest bracket, we will do one floating and plus 18, we will still like to maintain on the fixed part. And the same goes with our wholesale, where we thought that when we are acquiring a customer between 15 to 17, we will work on the floating rate linked with the repo rate and 17-plus will still be at the fix. And especially on the wholesale, our average account rundowns between -- you can see on average 24 months. So it is not that we are having a customer which they are onboarded for 4- to 6-year kind of a loan period on the wholesale. And sometimes, you know to understand that keeping in view a little higher interest bracket, so the customer is a little more flexible and something he see the benefits, the company is giving me fixed rate, otherwise, they're giving floating rates. They increase sometimes beyond our expectations. So all those gives a little added feature to our products also. And we will like to remain with that and it is only a passing phase, maybe 6 to 9 months or 12 months. And when things stabilize and will -- the interest rates are going to remain higher then our -- slowly and steadily our portfolio will also align to that. But changing the -- moving everything to floating, we think, is not in the right interest at this stage barring where we are acquiring the customers at a little competitive rate, both on retail and wholesale.

Sure, sir. And sir, if the new lenders that we have onboarded, ICICI Bank, Kotak Mahindra, NBFC, Cholamandalam, at what rate of interest are we getting our loan, the short term borrowing from them?

Between, I would say, 9% to 10.5%.

Sure. And this is floating?

This is some linked with T bills, some linked with their MCLR, but very few linked with the repo rate. So what has happened? Repo rate have moved higher, but the corresponding increase in the MCLR is not at the same rate as the repo rate has moved. And the same goes with the T-bill. So most of our loans are linked with the treasury bill or with the MCLR.

Okay, okay. And sir, last question. How do you see disbursement on real estate and SME retail happening for your company in the second half of this year?

I'm not able to hear properly. Can you just -- yes, yes, so I have Chandan on with me. So he would like to add something and then...

Chandan this side. Actually, Ankit, the market is doing -- performing very well, the real estate scenario is also very much bullish. We expect much like quite good disbursement in the coming year. We had built our good pipelines into the coming quarters itself. And we see good disbursement in coming or later 6, 12 months, second half of the year itself.

Ankit, sometimes wholesale is a little lumpy. [indiscernible] disbursement and sometimes in terms of little collections also because when you work on a proposal, sometimes it will take a lot of time. And right now, so few you onboard or few you were looking at. So you will see that in a particular month, a lot of disbursement has happened. So that is a little -- go lengthy with that. And the first 3 months of a new financial year is always different though. So that was the case, and we are quite bullish that the next 6 months should be bullish.

Sure, sir. And sir, last question...

Disbursement, it is only that our collections were very strong. We have done a disbursement of more than -- yes.

Yes. And sir, last question on the employee expenses. We had almost touched INR 4 crore kind of employee expense this quarter, although in the call as well as in the presentation, there is a one-off cost of [indiscernible]. Now how do you see this cost panning out for us in the second half of this financial year? Employee cost, yes.

Very frankly, this is one cost, which has gone. And we think that now this cost will be justified by productivity, where our main focus is on, on the retail side and most of the costs have gone there. And we have been a little aggressive, as you can say, a more prudent what we were during COVID period or prior to that. And now we have fully moved to a new platform with all those processes. And now we don't want to work with a little -- so we had a full team on front, maybe operational, credit, sales and -- so though -- now -- so we have seen it and we had an appraisal in first quarter, a little bit, around INR 22 lakhs to INR 28 lakhs, I think is a use of expense in this one. And we see that now more or less, we will not see any major change in our staff strength -- the employee strength in coming 6 months to 9 months. And the focus will be improving the productivity, and that is where our major focus is now going forward. When you start and you do with a little expansion and all those open new branches. The numbers don't start coming up in the -- from the day 1, and when you hire a team, they also take time to understand the product of the company. So going forward, this cost will be justified and by the productivity only.

[Operator Instructions] The next question is from the line of Anil Desai from Turtle Capital.

Congratulations for decent numbers. Sir, first question is, so we have done around INR 420 crores, INR 425 crores of disbursement in first half, and we are trying to move mix towards retail. So incremental disbursement, is it safe to assume that 70% kind of a number is towards retail disbursement?

I can't put a number but it's a mix of 2 things: one, our ability to raise fresh funds at the right cost; and secondly, we have a very clear mindset that our first priority is to -- is on the retail, where we see that average is out now, we are doing between around INR 15 crores to INR 18 crores per month and which we hope to take it to around INR 20 crores per month with the existing -- on the retail existing setup. And wholesale is not an issue, very frankly because if you want to increase that portfolio, we can do that. So just sometimes we have seen a huge volume in real estate market in last 9 months to 1 year. Little bit become a little bit so let's see what things play out. So otherwise, increasing the portfolio on the wholesale is not a challenge for us.

Okay, okay. Second thing, we just noticed that last 4, 5 quarters, our yields both on wholesale and -- wholesale has gone down from 17.1 to 16-point something. And in the retail side also, the yield that either stable or going down. And you are saying that incrementally, we are also looking at 16% to 18% kind of a yield. So should we assume slightly lower yield going forward than what we have been doing so far?

Yes, definitely. No, we were working on a fixed interest rate method. And so that's why with increasing rates, we were not able to pass on. Now as I explained earlier, we have improved fixed rates with certain segments where the IRRs are comfortable and it is where we are pricing ourselves competitively, we will have floating rates. And going on the yield side, there is definitely the new calculation will take into account the rise in the interest rates and which we have already started doing it. So 50 bps to 100 bps, I would say not to put a figure here. But yes, definitely, we will be factoring in the rise in interest and to some extent, we'll be able to pass on to our borrowers.

Okay, okay. And any updates on the -- whatever provisions that we've made for the education segment and things are now back to normal. So any write-backs or are we recovering the...

We are witnessing write-backs every quarter, and we have already have a write-back of INR 1.61 crores, I think, out of a total bad debt of INR 6 crores, INR 7 crores. And the last quarter, also the March related recent write-back. So right now, 92% of the education sector portfolio, the customers are paying a lot of -- we had around 43 accounts in [indiscernible] and most of them were cool cases, and we have recovered or fully closed regular, 29 cases and is the deadline at the end of December barring 1 or 2 cases, which have gone into legal, we'll be able to regularize all the rest of them. So -- because until January '22, there was embargo by the Supreme Court not to take any legal actions. And now the schools have also opened up, the customers are paying up. Some are paying 1 or 2 EMIs every month. And for us now, the school portfolio, we have started again lending to the school segment. And what -- so COVID was an extraordinary period, we've -- since we have -- cities were closed for 18 months. But the portfolio did exceedingly good before COVID also. And we are still very, very bullish, seeing such a huge bad phase, which we don't think will come again. It has only strengthened our view that school segment is very good, provided you do within the parameters which we have laid down.

Okay. And last question, so I think we opened 4 new branches, right? And last time, I think you had mentioned that until INR 1,000 crores, we don't need any new branches or anything. Is this because we are trying to see the market to go beyond INR 1,000 crores that is thinking behind opening these new branches?

I would not take it as -- will never work, we have to keep this thing at any cost. We already seen the rationality and the confidence that, that segment and particular area gives us. So Rajasthan has been doing reasonably good, and even Amit also has -- Amit, who is our CEO on the retail. So Amit who is joining from own branch. So Amit you can explain more.

See, the idea of opening up these 4 branches is to -- when we saw the potential in the Rajasthan area, and it has been performing well over the years, like in my earlier career also and in the recent book size also. So we don't believe, like we have said, that we'll not be opening the branches. If we see the potential, we'll open -- make the -- go first with 1 or 2 RNs. And once we see the business is coming up, we try to set up the infrastructure when we touch crore of a book. So it's like that. So we don't want to leave the market, which is running to our branches also. So the idea is not only to penetrate the market but also to stabilize the state in terms of we don't want to lose on the opportunity. So that's the idea, and it is also for the building of future retail book in that particular area.

[Operator Instructions] The next question is from the line of Dhiraj Sachdev, from Roha Asset Managers.

I just wanted to know this aspiration that you mentioned about INR 1,000 crores. By what time you want to achieve the disbursement target?

We always refrain from giving any number or dates and all those, yes. As a company, when we see the potential, we will definitely like to grow ourselves and so now our confidence after COVID and all those changes which we have done on the retail side and is much more and we have added a lot of new lenders with us. And going forward, we are able to respond at the cost in which we have thought, definitely we'll be able to do numbers, but I don't want to give figures because that has been our policy because, yes, definitely, the last year has been good, and we see that it should remain good next 6 to 9 months.

The number that has already been given in your presentation. So I'm not asking for that. You've already claimed and given that number. I'm saying that if the disbursement note is about 20%, 25%, will you be achieving the target in less than 3 years' time?

I think we have not given any year or by which year, we will do it...

Yes. But it's on 1,000 crore aspiration. So I'm just extending my discussion on the INR 1,000 crore aspiration...

So it's a target. It's our first target to do INR 1,000 crores. And as a company, we want to do as early as possible, but we are always see the dynamics which have been playing in the market both in segments. When the market gives the confidence we definitely -- you will not see as a company that we are lagging from.

Yes. But I think you can always set you like that probably you will grow at 20%, 25% in terms of disbursement because I say the book size is small, we are underleveraged. We have attained some critical size right now and market segment is also recovering...

There's one thing, and that now the interest rate is rising in a great scenario. We already refrained from borrowing. We are just to increase our book. We want to increase revenue, profitable growth is reasonable -- so I just don't want to add by borrowing between 12% to 14%. And if I want to follow that route, then this would be much easier. So we still believe that we should stick to the [indiscernible] and we have been able to add borrowers and now we are very much proactive on building our liability. And hopefully, our rating is also under review -- will be reviewed in the next 2 to 3 months and will be able to do it. Now the team, the infra, the product, the processes are in place as compared to what we were in last 12, 15 months back. So both -- on both the front end and the wholesale, we are now going beyond our NCR region also. So the numbers provided that we are able to raise funds. We'll be able to do that.

Okay. So the incremental cost of fund, is it 12%, 14% since you mentioned that now or usually process fee...

Come too aggressive, start approaching NBFCs or -- our focus is always to go for PSUs and private sector banks, where we can target low cost and at the same time, in fact with a small amount and those are bigger banks and institutions where going forward, once you build a relationship, then leveraging on that is much easier.

Just wanted to know what the incremental cost of fund right now for us?

Right now we are raising between 9.5% to 10.25%.

And we are confident that we should be able to be within this band, even if it is 10.25% at the upper end?

If the repo rate increases, then definitely, it will change that metric. So things remaining constant, yes, then we will strive within that rate only.

But it still makes sense, right, because our spreads are 6% to 9% higher than the cost of...

I'm not saying that it doesn't make any sense, but sometimes you add a small lender at a higher, then everybody starts giving you that example. Here, you have raised at 12%, 13%. Why not -- so...

Right, got it. Fine. I think that answers my question.

The next question is from the line of [ Dharmesh ] an individual investor.

Sir, I just wanted to understand some of the risks associated with our wholesale segment. Sir, just in case if there is a -- we had this direction of Supreme Court about demolition of twin tower in Delhi NCR. Sir, what will we do if we face such situation? Because ultimately, it was the bank and customers who took the hit.

Yes. So I will just dig it. Chandan will explain more in detail. I will just like to add. Those are one of -- there is one-off kind of a thing. And now after coming RERA, most of the authorities have gone online, they are also more transparent in the last 2, 3 years. Processes are more and more transparent, DTCP, the UP government, the Ghaziabad Development Authority. Now every filing is online, most of their thing. So they are become much more transparent. So we have evolved from a very boom phase of 2003 to 2011, '12, or lean phase of 2012, '13 to 2020, I would similar -- so that -- and where everybody has evolved, builder also. We are -- when they thought that they have a strong arrangement with their local bodies and with the political parties. Now everybody has realized, lenders have also seen and the builders and every customer. So I don't think so anybody will dare to do those kind of things. And as a company, we don't -- we are very, very particular whether the builder is working as per the sanctioned layout plan. [indiscernible] originally there, is not doing things which is beyond the rule book. So that is -- we are very, very cautious and very, very clear, even if we don't have the business, but we don't take those calls. So it depends that is where I would say, because the real estate is very, very local, regional, I would say. And one has to have a very strong understanding of the local state bodies' laws, what is happening in their bodies. And that is where I would say a little knowledge make an edge. And with the companies, we are sometimes the senior team sitting in a particular head office and sometimes we are not able to fully accustom what is happening. And what is our risk appetite, and we are very clear, we have to only go with the customers, the borrowers, which follow the rule book. And we, as a company, it is -- we have to have fully aware, we should -- our knowledge should be there so that we are able to understand that. And Chandan, do you want to add something?

Yes. One more point. Think is that. We, as a company, have made a policy that we don't believe on the too much of the excess. Whatever instances which you are mentioning about that the risk associated in the real estate market has been, that is due to the exceptions taken by the lenders or the borrowers -- or the borrower that is not as per the market policies or the local policy this thing. So being a company of -- CSL as a company, we never took that kind of exceptions into our policies or we don't take those kind of deviations. So until now, we are very much prudent on that part. And too much away from these kind of risks, that is prevailing into this kind of real estate market.

But to rule out there can be any risk, yes, definitely productive belt, the end consumer demand is there, suddenly there is no sales for 12 months to 24 months. Things can be a little difficult. All of a sudden, any change, which never nobody thought, like out of the blue and of a COVID situation or -- but we are very, very prudent. And we always think that even if there's some problem in a project, we have something to call back on. And so because we are there in the -- for last 12, 13 years, and we work with small, midsize developers only. So it is how you're able to hedge your risk and take those accounts into your portfolio. So that is where, I would say, a little expertise is required.

Okay. Sir, there was -- second question from me. Sir there's always the risk of earthquake or natural calamity in Delhi or NCR region. I think I saw in BBC today itself that there were tremors in Delhi or NCR region. Since major part of our wholesale lending is concentrated in this region, how do we cope up with it if you see such a situation?

[Foreign Language] Little -- very fearful and speaking all those things. Most of all projects are fully insured...

I agree sir, they may be insured. But just in case if there is an event, all the things will come to a halt all of a sudden, for some time at least...

Ukraine kind of situation, all standing buildings will be blown up, CSL [Foreign Language]...

Actually, Delhi itself is earthquake prone region, everybody know that.

All those buildings are built as per the building guidelines. I think to -- I think 8.5 to 9 Richter scale buildings are capable of handling that kind of scenario. So all those guidelines are there and those guidelines are very, very strict. But if something out of blast when happens so nobody have any control.

And then sir, one more question I wanted to ask. So I think in the past, we have talked about the same model of Delhi NCR, we will be trying to replicate areas like Chandigarh, if I am not wrong.

Started exploring. We have already have a team there. They are doing recking, meeting possible borrowers, and we are understanding the market, doing meetings, and we have done one transaction. And slowly steadily we move out because to understand the market, meet those potential borrowers understand that it takes time. And we don't want to rush in.

How long will we be able to go over there and how long will it take to normalize transactions in Chandigarh like Delhi NCR, 1 year, 2 year or some...

Already passed through initial period. And yes, definitely, I think it should start materializing in this financial year itself.

The next question is from the line of Viraj Mehta from Equirus Portfolio [Operator Instructions]

Congratulations, Rohit. Rohit, when you open a new branch, I mean, how much expenses do you think we incur? And what is the breakeven -- I mean, I know you had mentioned that INR 20 crores is a good number for a branch. Is that number still correct?

Yes. I would say, look, the branch becomes decently profitable after INR 10 crore kind of a portfolio. At INR 20 crores, if the quality is good, the branch is being reasonably very good.

Right. And just a small thing I want to understand, there is a disconnect in the update you ad put on BSE and the presentation. In the BSE update you had put that loan book was 590 and in the presentation it was 602. So that was the disconnect...

No, no. This is a balance sheet figure you are taking [indiscernible]. It is net of ECL, we say gross -- it's an ECL provision of INR 8 crores and then we have IND-AS provisions where the unamortized PF and all those are not taken into account. But our actual book, gross book is INR 608, where it is INR 602 and it is -- we have an ECL provisioning of INR 8 crores, and we have an IND-AS adjustment of INR 8 crores. INR 6 crores, INR 6 crores, sorry. INR 6 crores.

The next question is from the line of Nikhil from SiMPL.

On the SME side, I say -- first of all congratulations on a good set of numbers and good growth. On the SME side, sir, just wanted to understand the disbursements. Generally, what is the nature of the end use of these disbursement? Is it like purely working capital or is it like more expansion-oriented?

Will add and it will just put 1 line before we [indiscernible] the day. We give it for business purposes. And -- but if anybody says that we can control then, yes, definitely, 20%, 30% sometimes go for repayment of some small loan or maybe renovation or putting up some additional expansion in his house. But mainly our effort and we give it to a person who at least put 60% to 70% for his business expansion. Yes, maybe a small CapEx, if it's a manufacturer, small machinery or maybe renovating his shop or putting up some additional stock into his business. So Amit?

So it is rightly given by Rohit, sir, that it is basically for a business expansion or working capital, which is required for the customers to multiply their businesses. So like in SME, we also see the underwriting trend, where what kind of business they are into, what they have done in the past 3 to 4 years, whether they have multiplied the businesses or not. And they intend to take the funds and to apply to increase the business, particularly the main focus of any underwriter, any crediting or any company is to fund those customers who are churning their cash, churning their business on a daily basis or a monthly basis, and they want to increase their productivity by taking working capital loan from NBFC. So that is the main idea. And also, we also believe in that if somebody is running small loans and they want to consolidate their debt. So that is also the idea. But yes, the prime focus is only for working capital and business expansion.

Okay. Just one continuation. Now you say generally like 60% to 70% of the loan is used for the business purpose, which may be like funding working capital and all or some of 20%, 30% may go for repaying of existing some other loan or CapEx. This question would be new, but if the purpose of the loan changes, won't your working of the EMIs or you're working of the -- of getting the money from that asset or from that business change? Because versus working capital loan where the turn would be much faster in 1 year versus an expansion which can take like 2 to 3 years to fully consume it. Once your own working of EMI change or how do you build in that change in your model or your EMI working?

Yes, just one thing, which then, Amit will come. Nikhil you have to understand the kind of segments we are targeting. They're very, very small kirana stores, [indiscernible] maybe running sheet shops, saloons, maybe small clinics. So these kind of customers, we are funding them. So when we fund them, we see their existing infrastructure and their requirements. And they -- whether these requirements is generally for business purposes and some other purposes. And they are very upfront and sometimes they tell you they partly want to use for higher studies of my son or any child or partly will go for business expansion. And they want in a single installment in most of the cases, INR 10 lakhs, INR 20 lakhs, INR 15 lakhs, like INR 10 lakhs, they don't want in stages where you can monitor and use that. And that is what the trend is. And so we have to see then whether that customer has grown and he has built up, whether his requirement, what he's seeing, whether it's actual end use of that. And our audit team also visit post disbursement after a few months to see that where the money has gone. So if any NBFC or any company says that they have 100% control in the segment where we fund in that is not possible. We are definitely -- because they are also want to utilize their money because in the business only then they can repay. So -- but we make the call on the basis of existing business itself, even if doesn't grow. So we don't take into account the future potential rules that will come out with a fresh cash flow. So Amit, anything you?

I will add that in these kind of customers, they are hardly been under financial inclusion, and they take loans -- small loans at a very higher rate to bridge the gap for requirement of the cash at that particular time. So these small loans are very at a high rate, at around 28%, 29% and they are bearing the brunt of high EMIs, which may be affecting their eligibility as well as now they have graduated from there and they want to consolidate into one EMI by taking it for around 5 years, 4 years loan from us. So it is always good for them to pay one EMI at one time rather than paying multiple of EMIs to different banks for NBFC. This may hamper their paying habit also, plus they may go for some kind of bounce in the track because they don't keep much of cash in the bank. So it is always to organize their system and bring it to a table where they can pay only one EMI. So that's our idea.

Okay. So the funding of the loan -- the repayment of the loan, a large part will depend upon the existing cash flows rather than the end use of the loan, would it be right? So when we are making assessment for the existing cash flows should be sufficient enough to do the repayment.

That goes without saying because unless until we see the cash flows, we'll not be able to make out the eligible, no matter we may be having a very good property. But the main crux of this SME retail lending is built on the cash flow analysis done by our credit team. So only debt consolidation happens only when the cash flow is good.

Okay. And last question. Now we are expanding so many branches and we've been on expansion phase. If I have to understand, what would be our rejection rate? So if we are getting 100 proposals, how much we would be rejecting based on our assessment and how many we would be passing in terms of end approval?

So on the base of 100, we see those 100 cases, we have a sanction of around 45%. And from sanction to disbursal, it goes for around 32% to 33%. So this is the rejection ratio, you can say, is up to around 50%.

Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Rohit Gupta for his closing comments. Over to you, sir.

Thank you, everyone, for participating in this call. Your questions are important for us, and we tried to be transparent in our investor communication. If there are any unanswered questions, please get into our Investor Relations team to take it forward. Thanks, again. Thank you very much...

Thank you, members of the management. Ladies and gentlemen, on behalf of CSL Finance Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your line.