CSL Finance Limited (530067) Earnings Call Transcript & Summary

Ladies and Gentlemen, good day, and welcome to the CSL Finance Limited Q2 FY '24 Earnings Conference Call hosted by TIL Advisors Private Limited. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Sayam Pokharna from TIL Advisors Private Limited. Thank you, and over to you, sir.

Thanks a lot, [ Rohit ]. Hello, everyone. Wishing you all a very happy Dhanteras and greetings of Diwali. Thanks for taking out the time today to join this call. The results and investor presentation for Q2 and H1 FY '24 have been intimated to the stock exchange and on the company website. In case someone does not have a copy, please feel free to write to us to be added to the mailing list. To take us through today's results and update us on the business overview for the quarter and half year, 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, Whole-Time Director. We will be starting with a brief overview of the quarter from Mr. Rohit Gupta, followed by a Q&A session. I would like to remind you all that anything and everything that is said on this call, which can represent any outlook for future and can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks have been detailed out in our Annual Report. Over to you, Rohit, sir.

Thank you, Sayam. So first of all, I would like to wish everybody a very happy Dhanteras and a very happy and a prosperous Diwali. And I welcome you all to the quarter 2 and first half year earnings call of CSL Finance Limited. Thank you all for taking time to attend this call. It is a pleasure to address you all today and walk you through our performance for the quarter and for the half year ended of this financial year. So first of all, I will start with an update on our balance sheet. Our loan book stands as at highest ever at INR 858 crores at the end of the quarter 2, an increase of 43% year-on-year, and 20% quarter-on-quarter. Further, we have also built an additional INR 32 crores off book AUM as on quarter 2 going forward. This number should scale significantly and eventually, our off book AUM will strengthen our fee-based income. Loan book growth has been underpinned by strong disbursements, both in our -- in both of our verticals. CSL has reported its highest ever quarterly disbursement of INR 296 crores, a significant increase of 30% year-on-year and 58% quarter-on-quarter. While wholesale disbursement tend to be a little lumpy, our SME retail disbursements are growing every quarter, and we expect to continue on this path for the SME retail vertical. Our AUM mix stands at 55% wholesale and 45% retail portfolio. We have witnessed a change of 8% in favor of SME retail mix over the last 4 quarters. We are anticipating to close this year around 50-50 AUM mix. Further going forward, as we achieve the 50-50 mix, the company will channelize all additional funds towards the SME retail vertical only. And the wholesale disbursement will be financed via its own collections and profits. Our ultimate objective is to achieve a majority SME retail mix in our loan book over financial year '25, aimed at a higher granularization and strengthening of our book. Collection efficiency has been over 99% of the overall portfolio, a trend persisting for the entire financial year. We have a healthy liquidity of INR 41 crores on books, coupled with undrawn credit limits of around INR 53 crores. This, along with the new debt raise, will take care of our disbursements in the next financial year -- or the next half year. On the leverage front, we are carrying a higher debt in absolute terms over the previous 2 quarters. However, given the equity fund raised in the previous quarter, our leverage ratio has remained the same, a little less than 1. We aim to increase the overall leverage in the rest of the financial year and coming year. The latest 4 lenders added to our portfolio are Bandhan Bank, Poonawalla Fincorp, SIDBI, and Orix Leasing. Existing lending partners have also provided us with new sanctions thus strengthening our liability mix. Asset quality continues to improve. We have reported a further decrease in our GNPAs and NNPAs by 20 basis points quarter-on-quarter and 29 basis year-on-year. Our current provisioning stands at conservative 1% of the loan book as against the regulatory requirement of 0.4 on the standard assets. We continue to see good traction on the recovery side as well. Now coming to our P&L side. Our total income stands at INR 38.5 crores for the quarter, an increase of 41% year-on-year and 23% quarter-on-quarter. Total income growth has led to net interest income of INR 28.8 crores and PAT of INR 14.8 crores for the quarter. Overall, yields have remained consistent in line with our quarterly trends. We maintained an ROE of around 14% and ROA of around 18% for the quarter. Now coming to our strategic update on our new product launch. As you are aware, in quarter 1, we launched our new product for the steel tube fabricators under the banner of Suvidha Loan. This is the first dedicated unsecured product launched by CSL Finance. The product is unique in nature as it aims to address the working capital needs of the buyers of steel tubes that is fabricators. So we aren't lending to dealers and distributors, but to their end customers. As communicated, we have received a collaboration of India's leading player in this industry, APL Apollo Group. This product has built in subvention clause to that extent, courtesy of our collaboration. At present, the product is in its pilot state. We have built a dedicated platform for the entire life cycle of this product. Even we are lending to end customers and not channel partners, the tech platform is also complex in nature. Based on the initial feedback and learning curve, we are making necessary adjustments and upgrades to the platform. So far, more than 340 cases has been disbursed as on date within average ticket size of 1.26 lakhs, and with a cumulative disbursements of around INR 3.5 crores. As you can see that to build scale in this vertical, we have to work on significantly higher volumes and so the platform needs to be robust, which is where we are focusing all our energies currently. We'll keep you appraised on the progress in this product segment going forward. Now coming to the operational update. Operationally, we have seen a net addition of 4 branches this quarter. We are targeting a few more in the next -- in the half year 2. With the growing branch network and new geographies in pipeline, our team's strength has increased, both on branch level and feet on street. Further, we have built a dedicated team of 30 people for Suvidha loans, and we'll be adding more people in the coming 2 quarters because you can see an increase in the team's strength this quarter. Going forward, looking ahead, outlook for the company remains robust with a loan target of INR 1,000 crores for the financial year '24, with an AUM mix of 50-50 in wholesale and retail partners. So this was a brief initial update, and now I welcome all with any inquiries or any observations they have.

[Operator Instructions] The first question is from the line of Dhwanil Desai from Turtle Capital.

Congratulations for a very strong performance. Sir, my first question is, if we look at overall disbursement of INR 296 crores, I think it's probably one of the best we have done. So currently, we stand at INR 850 crore, INR 860 crore kind of a loan book and I assume that similar kind of disbursement momentum will continue. So given that, don't you think we should be able to achieve INR 1,000 crore easily? Or you are expecting very strong collections, if you can throw some lights on that?

Yes. So there are 2 factors for the wholesale, our disbursements is a factor of our collections also. And in the last 1.5 years, 18 months, we have seen higher collection as this is our scheduled repayments and the collections have been more than 175%. As these are scheduled repayments and we have a mandatory escrow mechanism where we capitalize based on the receivables, which we keep on getting on every day and every month from the projects that we have funded. So -- and moreover, we have also envisaged that we would keep our AUM mix of 50-50. So keeping in view, we have targeted ourselves to do INR 1,000 crores. As retail is a more granule play where right now we are doing a disbursement of INR 30 crores to INR 35 crores per month. And -- so keeping in view so we have kept the target of INR 1,000 crores. And at the same time, we'll be doing higher disbursement in wholesale also, but the focus will be to downsell and to join hands with more players on the co-lending side. So on the absolute terms, the assets under management will definitely increase. But we have to maintain this mix on our book, we may be limiting our disbursements on the wholesale side.

Okay. Got it. So maybe can we...

And we may exceed our target, but on the conservative side we have kept this INR 1,000 crores.

Okay. Got it. Got it. And this INR 32 crore of downsell, you indicated that we should be able to increase that number significantly. So are we looking at INR 60 crore, INR 70 crore of downsell by end of the year, any number around that?

So definitely, I think we should be able to do it, or otherwise, around INR 300 crore book is on the co-lending side, which there is no recourse to us. So a mix of both. Where we get an opportunity, our effort is to do the downsell first and then the co-lending. And -- so combined basis, we have targeted ourselves to do INR 400 crores to INR 500 crores off book combined on the co-lending and the [ DA side ]. And we have also started taking in on the downsell, we have done our first downsell on the retail with the IOB. And going forward, we are looking with more options for more private -- public sector banks.

Okay. So is it safe to assume that when you do this downsell, without taking significant risk, you will be able to make almost similar IRR? How do you guys look at it?

Yes, definitely. So when we are down selling, we are down selling at a little lower rate than what we are able to get on the term loan side. So -- specifically on the retail part. On the wholesale, the margins are a little lesser because on an average, we're down selling the wholesale at around 13% to 14%, and t vis-à-vis our retail, which we are down selling between 10% to 10.5%.

Okay. Got it. And last question from my side and then I will come back in the queue. Sir, I think you also mentioned that we are kind of repricing our books and that journey is going on. So can you give some color on to both wholesale and retail side? What percentage of book is yet to be repriced? And any timeline for kind of doing the complete repricing, whatever we can, some color on that?

So I'm not able to understand. Can you just repeat your question fully?

Yes. Yes. You said that we are repricing our book kind of because to kind of adjust with higher borrowing rates, and we are passing it on. So that pass-through process, how much is complete both for wholesale and retail? And to completely do the pass-through, how long will it take? Will it take time, by end of this year we'll be able to completely do the pass-through or not?

Yes, yes. We have already started that process 6, 9 months back, and the wholesale and new accounts, which are being getting boarded, we are trying to pass on it at 100, 150 bps more than which we used to do 18 months back. And on the retail side, also, we have increased our lending rates between 50 bps to 150 bps depending on the product, which we are funding on. And so I would say, not fully, but I would say 50% to 60% we have passed on the increase in rates, which we have witnessed in last year. And going forward, with the unsecured product, we'll get the IRR little higher. So that effort will be there. But at the forefront for us, the quality is the foremost. And so we don't want to compromise on that just to increase our IRRs.

[Operator Instructions] The next question is from the line of Sanjay Ladha from Bastion Research.

Is my voice audible?

Yes, yes, absolutely.

Yes. Congratulations, sir, on the good set of numbers. I have a couple of questions. So, sir, in the past, we are doing the wholesale segment lending, which has yielded us very good in terms of asset quality. But today, our focus has been changed to other segments. And just wanted to know your thoughts on that. And as we have more -- because we have more expertise and knowledge in the domain of wholesale segment, why are we not growing this segment like we are focusing on SME? Your thought process on that?

Yes, yes. First of all, we are not degrowing our wholesale book. If you see year-on-year, our absolute disbursements are increasing. And if we take into account the off book part also, so the increase is significantly higher. So to have a, I would say, right mix on both on the tenures and the granularity where wholesale sometimes disbursements have become lumpy and sometimes collections also are very high certain quarters, which we have seen in last 2, 3 years to have a right mix of both segments, and we feel that it's a very good combination. And this combination also helps us to -- it never gives a challenge on the ALM side also because retail is one which the granularity has to be maintained and the wholesale, where, to some extent, we can control our -- the disbursement for the coming quarters or months if case any need be. So we think that our retail is a tenure of around 6 years and this year, at the wholesale, which average tenure is around 3 years. So on the tenure side, on both the mix and the lumpiness where sometimes the wholesale gives you in terms of disbursements or even some collections are being taken care of by the retail. And thirdly, sometimes little apprehensions previously used to be there on the wholesale part also from the lenders or the other stakeholders and to build a company as a whole and to have larger products. And foremost, as a company, we do believe and very strongly believe that we will be present only where we are able to build our domain knowledge around that product and make our presence felt in the areas we are present. So in the SME side also, we are only limited to a segment, which I would say not even SME, micro SME, very small self-employed businesses working in Tier 2, Tier 3 cities. So the focus is to build domain on few products and build our presence and domain knowledge -- build our domain knowledge for the company in those products. So coming to your question, again, that we -- why we are going to -- to have a right mix, both on the tenures and the granularity and to -- so we have build 2 products in our portfolio.

The other would be, so we have introduced the Suvidha loan with APL Apollo. Can you also share what percentage of our AUM we are targeting in the next 2, 3 years? And are we looking to add other companies in the same loan book?

Yes, definitely because this is our first foray on the unsecured side and focusing on this particular industry that is the tube segment and working with a very small customers at the large net side, the fabricators. We will definitely look for other companies also in the same product and for other industries in the coming year. We have just launched in the month of June and done a pilot across our existing branches. And now we are working on this product, both on the technology side, on building our team, training our team and growing all geographies. Amit is also there. I think he will also add a few on this part. And so -- yes, definitely. But first, in the next 9 months to 12 months, our focus is to strengthen with this company only, and then we will see as the new opportunities come, we will definitely look at that. Amit, anything you would like to add?

Yes. Focusing on Suvidha has been there since June. And since like Rohit, sir, has said that is in initial pilot phase. So we are looking into our existing branches. From there, we are doing all the businesses. And in the coming months, we will be looking after the trends also what kind of businesses is there and what kind of collections we are looking into. So probably, the focus will be again partially on the Suvidha side and on the SME secured from the branches. And as and when we grow, we have a focus to target those customers where APL Apollo is strong enough, and we'll try to get into those geographies with the new manpower, feet on street, and try to capture those markets. So in coming months, it will be a testing time for us to how the book is behaving and what kind of technology platform we are going to incorporate by using integration so that the TAT for this particular loan reduces from 48 hours to 12 hours. And then the team will be able to do much more business in the coming months to come.

Sir, to follow up on...

[indiscernible] which you have said because this has 3-month tenure period, our focus is on the -- building the numbers rather than in the first 6 to 9 months on the portfolio on the AUM side. And so our target is to do anything between 500 to 750 loans per month. Currently, our run rate is around 100, 120 loans per month in last -- so the focus will be to increase our number of disbursements per month to 500 to 750 in next few months by adding more feet on the street on the existing branches and then expanding those geographies. So -- and in this segment, it's a repeat customer, so the effort will be on first 1 to 2 years and -- because it's a 90-day product. So the 50% to 70% of our business will come from the repeat customers. The effort initially will be higher and, going forward, it will be much lesser.

And I would like to add here that within the past 3 months, we have been getting very positive results from the market because this is the last line of the fabricators to whom we are funding. And they are really not been tapped by any other company. And this is one of our kind of a niche product, which we have gone into market. And we are really hopeful that with the potential of our team as well as the market, which is untapped, we'll be able to do good numbers in coming months.

Sure, Sir. To follow up on this side. So sir, since we are focusing on unsecured loan, how we are making sure ourselves to maintain our asset quality on that side? Because we have seen that in the unsecured loan book side, the asset quality gets deteriorated over a period of time. Now just a thought process on your -- how we are making sure that this product -- the asset quality of our, which is right now at 0.5, 0.6, will maintain going forward as well?

So I would like to add here that we -- like you rightly said that in unsecured, the quality of asset has to be maintained, and we have taken care of this because we are not funding to any people who is in the market. We are only funding to fabricators who are taking APL Apollo product. So one thing is there that if they have been tested by the retailers, and we take retailer recommendation before funding to these clients. Plus, we also take their CIBIL Scores, so the proper underwriting is there in place. And it says that they have to have one collateral, which is either the shop or the residence of their own, so that in case of any eventuality we are able to go there. And if you can see, we have built a very robust platform where all the pics of the visiting done by our internal team is there. And also, the most important thing is the retailer recommendation because these people definitely go to these retailers only to buy the product. And by that way, we are safeguarding our asset quality. Till now, we haven't faced any challenges in the collections because people are looking into the opportunity of getting loans from us and they have good orders in hand, they are making it. And there are around 60% to 65% of customers who have repaid their loan within the stipulated time. So I don't see any challenges. By the way, we have safeguard ourselves.

[indiscernible] within the 2 months, our tenure period is 90 days. So there's a potential only for 2 months. After that the interest starts kicking in. And when -- Amit has said, it is a stipulated period within the 60 days. And as of now, we have done a disbursement of around INR 3.5 crores to INR 4 crores across 340 loans. I would say roughly INR 8 lakhs to INR 10 lakhs of our portfolio is in DPD. Amit, these are the right numbers, I think?

Yes, sir. This is right number. And these are the people who are delayed and they are ready to pay the interest also because you can see it's a complete life cycle where the fabricator is also dependent on the money received from their -- the person who has given the order. So mostly, it's only INR 8 lakhs to INR 9 lakhs and people are there. My team -- our team, definitely go and visits them on a monthly basis because they are our repeat customers as well. So we need to handhold them, and we also tell them, we educate them the benefits of this loan. So we are very, very confident that it will be maintained throughout the life cycle of the loan.

Sure, sir. My last question would be, we are seeing very good traction on fee income due to the off balance sheet AUM growing. Can you please explain in detail how this off-balance sheet model work? And you have also shared tie-up with Kotak and TCI. How this model works? What percentage of AUM we are targeting? So is the risk on the AUM is with us or on the party which we are sanctioning the loan? How the model works?

First thing, there is no risk to our -- on our books. So whether we are doing in DA, DA, there is no risk as per the RBI norms. And on the co-lending, there is no recourse to us. Whereas the onboarding, the customer management, the daily basis, we are getting the MICs, we are admitting the customers, evaluating them, doing site visits and handling collections on daily basis, capitalizing them is falls on us. And even in case of any eventuality on taking the legal side, all those rights are with us. So there is no risk to us. And how it will play out, yes, definitely, in the last 12 to 13 years, we have built a domain knowledge around this product. And I would say it is also limited to geography. And I would like to say the dynamics change from geography to geography. Sometimes our credit rating agencies keep on telling us to move to other geographies. We have been telling them keeping in view of the size. So it is better to that we have -- we remain in our existing geography where still there is a lot of scope to grow ourselves and instead of venturing out for small numbers in new geographies. So in the -- we are looking for as of -- for more relationships with more lenders, maybe NBFCs and banks. And seeing our track record, we are very confident that we'll be able to build relationship with more companies. Sometimes, the larger banks the TAT is very, very low that we are not able to do it, and I mean -- Chandan is with me, and he will like to add more on this part.

Thanks, Rohit. Yes, coming back on your question or to add some points on the Rohit's part. The model works on -- actually, there are 3 major components on this off-book income. That is the monitoring our kind of differential rates of interest fee-based income that we receive PF and the legal part, that we receive at the time of boarding of the account itself. So whenever we do a kind of a co-lending or kind of a DA kind of a structure, so there would be a differential ROI kind of thing that we used to get on that customer -- on the account, which we are boarding or doing assignment to other banks. So in that case, there would be a differential of around 1 or 2 bps or 1% or 2% ROI. That's built up as a fee-based income on our part. And we see -- and from coming down the line we are -- within the like 1 or 2 years, we are seeing a good opportunity in this. So we are very much hopeful. And this comes back on your first question itself that defocusing on our wholesale book it would be here where we are focusing that we are building up our wholesale book and main focus is on downselling the wholesale part so that we can increase our off-book income simultaneously and gradually.

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

So out of the 29 branches, can you talk about how many branches are above breakeven and operating at optimal disbursement level?

Yes. Amit?

Yes. So out of 29 branches, we have around 12 to 13 branches, which are there into breakeven. And if you see the ages of the total span of the branches, we have started doing business for around 2.5 years. And 13 to 14 branches are on a breakeven. And there are around 6 to 7 branches, which is on the verge of breakeven. So almost 70% of our branches are on the breakeven. And we are looking forward for -- by end of this financial year, almost most of the branches, around 90%, will be working on a breakeven model. That's the reason we can grow, and we can add up new branches in the entire company. So currently, we have added 4 branches, which is based out of Karnal, Shree Madhav Karnal is in Haryana and then Shrimadhopur Rajasthan, and 1 or 2, again, in -- 1 in Agra. So -- and we don't intend to add another more branches looking into like other companies add in a very faster manner, we look into the cluster-wise approach. And whenever we find the penetration is required in that particular area, so we back up with an older branch. So we intend to open 1 or 2 branches in Rajasthan, 1 or 2 more branches in Punjab, Chandigarh, Haryana, and 2 branches in UP, which is -- includes Mathura and Roorkee. So this is the way we plan to go ahead in next, H2.

Okay, okay. My next question is slightly more medium term. But -- so we'll be crossing INR 1,000 crores or touching INR 1,000 crores this year. Now moving from INR 1,000 crores to the next level, whichever is our aspiration, what are the things that we need to do, to, let's say, move from INR 1,000 crores, INR 2,000 crores, INR 3,000 crores, and both from organization perspective, product portfolio perspective? So if you can kind of lay out a journey for the next 2, 3 years, what are the things that you plan to do?

Yes. So for the last 1.5, 2 years, a lot of effort has been there on all parameters where maybe building the technology platform and building our team. In COVID times, we were around 130, 140 people. As of now, we have 358 people. So adding team, training them and the earlier at the senior people at -- in the SME side were missing in few of the -- our departments. So we have strengthened that. So now we are -- we have geared ourselves to grow in the next coming years. And the focus on the capital adequacy side, we are very, very strong, still our debt-to-equity ratio is less than 1. And in terms of number of lenders, we have added from 4 to -- 4 lenders, which we were at the time of COVID to around 20 lenders as of now. So yes, the 1 major focus is on improving our rating, and we are at BBB+. And we are anticipating that in the next 3 to 9 months, we should be able to have A-. That will help us to bring in a few of the PSU banks, which, because of only the rating constraints, they are not able to come. So that will help us to build our liability. And now, granularly, our month-on-month retail business is also growing and wholesale is not a challenge and with the third quarter kicking in, so as a company, we have built ourselves for growth. And in terms of the platforms and the operating system, which we required to a larger extent, the first phase has been over and a few of the -- this is an ongoing process, which we'll keep on doing it. So some total now the focus on the company, which for the last 1.5, 2 years was building those platforms, now the focus is towards growth. And we envisage that we'll be able to do it. And all our, I would say, in terms of capital adequacy and in terms of number of lenders and all those, we have been able to do it, and there's a lot of scope for us to go on both the sides.

Okay. So given all this hiring...

I want to add here that on the SME front, in coming 2 to 3 years, we are very mindful of what kind of portfolio we are going to make by -- we have certain plans already in place, how we open the branch, what is our cluster approach, what the competition is doing, how to optimize our cost? So we are looking forward for that, and we are working on those parameters by strengthening our technology platform because, in coming days, it's always the technology, which is going to help us in growth of this SME portfolio. Along with that, we are also doing a lot of trainings, a lot of investment is going into human resource because wherever the branch is there, we need to see the sustainability of that employees. So we are working a lot of employee engagements so that they remain with the company. And primarily now focus will go to the credit growth because there's a lot of gas in the system throughout the industry. So we want to go ahead with the scoring model as well. So once we have stabilized with our platform, which we have been building up for the past 1.5 years, we'll get into a score model where everything will be through system oriented and more penetration will be done by appointing more FOA's rather than putting a lot of efforts into manning credit resources at a branch level. So the idea is to build a robust credit platform so that everything is visible and everything is looked into before giving any loans.

Okay. So given all this, I think targeting 25%, 30% growth will not be a challenge. Is that something -- and again, not a guidance, but I mean, is that directionally how you are thinking?

Yes, very true. Currently we have been touching INR 25 crores to INR 30 crores. And the idea is to make my 4 zones, a zone of a INR 10 crore zone so that in coming months, we should be touching INR 40 crores from 4 zones. And then we get our platform to open and look into a new geographies. Because unless until my 4 zones are strong enough, we cannot -- we don't want to move into a new geography to test the water. We don't want to go there because there is a lot of potential into the zones where we are present, and we want to grow there. So an approach is an organic growth rather than going into a faster mode of opening branches and incurring cost. So that's the idea.

And last question. So a bookkeeping one. What is the current cost of borrowing, both blended and incremented?

Can you come again?

What is the cost of borrowing for the quarter?

Our current cost of borrowing is around 11%. And 9 months back, I would -- 12 months back, we were around 10%. So we have seen a rise of 100 bps to 120 bps in the last 12 to 15 months.

And this now is stabilizing at around 11%?

Yes. Now for the -- the last quarter was the quarter where we have seen the maximum sanctions in any of the quarter. So we are roughly -- so we have not seen any pressure on the cost of borrowing. So they have stabilized, which were there in March. And -- so that will be in line with the industry standards, and I would say, keeping in view of the ratings and the size of the company, which we are in and the cost of borrowing, we are very, very cautious and focused ourselves so that we are able to see that our cost of borrowings are at lowest end. And that's why I told you earlier, so rating is also will be a 1 big help and jump for us where it will help us to bring big PSU banks on board, and will help us to reduce our the cost of borrowing.

[Operator Instructions] The next question is from the line of Rajesh Gupta from SBI Securities.

Sir, just wanted to ask you your recent comment on the opening of the branch in the highway -- on the upcoming highway projects. If you can just give us some update on that? What is the model out there? And what could be the reason behind opening such branches?

Yes, yes. So first, last 15, 18 months post-COVID, we have -- we will be spending in a cluster approach, wherever earlier, there were 2, 4 branches, which was, I would say, a stand-alone branch, we have shut down those branches, not because of the quality of the portfolio was down, but the operating cost and managing and monitoring from the HO and bringing the productivity on those branches were a little lesser. So why we have bought it, if you see, in Punjab and Haryana, we are present on the national highway that is only -- I would -- not say Express Highway, but National Highway, GT Road they call it, starting from Sonipat, Panipat, Karnal, Kurukshetra, Samalkha and Rajpura, Patiala and Ludhiana. So that has been the approach. And now on the Mumbai corridor opening, we already have few branches on that corridor, Vadodara, Surat and then Jaipur also we have 3 branches, which near to that, Udaipur. So the focus will be to build branches in that corridor, maybe in few patches, first in Rajasthan and Gujarat and then the patch of MP that comes in between that. And the same way we have on Uttaranchal now, the Uttaranchal Expressway will also be ready in next 9 to 12 months, we have opened. So it'll increase our connectivity from our HO also and the economic activity also increases in that radius, 30 to 50 kilometers. The small villages, the small Tier 3 cities, because of the connectivity with the NCR, that brings a lot of economic activity to those regions, a lot of industry starts going to those areas. So -- and we feel that it increases economic activity. The cluster approach, the monitoring from the HO. So keeping in all those views. So that has been our -- I would say, strategy for spending our SME going forward in next 2 to 3 years. And it will give a lot of scope to open a lot of branches, I would say, in the next 2 to 3 years. So -- and that is the reason behind that.

And I would like to add also that this particular area, the strategy, what we make goes through a lot of thought processes. Because this will see a major transportation growth connecting 2 major cities, which ensures the high volume of traffic, potential clients, emerging market, it will be there to -- first, we want to approach those clients because it has a large customer base. It will expand our lending business to it because these are the people who are business travelers, maybe a small-scale entrepreneur, who want also enlarge their businesses in this particular corridor, and we are already present in 2 to 3 cities. So why not exploit that and earn the best rewards out of it. Because they will also require financial assistance or maybe investment opportunities so they will require small ticket loans, so for that reason we want to be there.

And sir, if you -- I mean, if I ask you a question regarding this wholesale and the retail mix, what is the exact profile of this wholesale and retail borrowers volume? And how you look to further granulize the overall the retail and wholesale mix going ahead?

Yes, the wholesale borrowers, these are small, I would say, builders on the group housing side, maybe the builder floor, which is very prevalent in NCR part. So I would not say these are the frontline top 10 builders, and these are those builders which are working on 2 projects, much more focused, focused on customer satisfaction, delivery timeline. And so -- and we also feel much more comfortable. We have much more control over the borrower over what theme envisaging in coming years, his plans for his growth. And monitoring is much more strong rather than, and our leverage and our hold is also much more stronger on these borrowers. So we have always tried to limit ourselves to small and midsized borrowers in this segment. And secondly, so -- and we are also able to have a little higher IRR, which the larger ones are being targeted by the larger banks and the larger NBFC's. On the retail side, our focus is on the small, I would say, micro SMEs, who are having reasonable businesses where value addition quotient is higher. But their, I would say, ITRs, their banking or GST returns doesn't fully reflect the true state of affairs. And how to fund these businesses, how to see other qualitative parameters and how to build in those parameters in the operating system in terms of analysis apart from CIBIL and other things. So that will help us where you build a domain knowledge by limiting in your particular product. And that will also be a product, I would say, which will not be able to be penetrated by the larger banks. And secondly, by the fintechs and the emerging larger fintechs, which are coming. Because for them, the data in terms of GST and ITRs and banking is very, very important. And mostly the target audience -- the product is unsecured, whereas, on the micro SME product will be totally secured. It is only a fabricator part, which are very small loans, a 90-day tenure loans that will remain as the unsecured part.

Can you give me the average outstanding loan for these 2 segments, wholesale and retail borrowers?

Our average -- you are asking a number of accounts or AUM?

No, I'm asking average AUM per borrower in wholesale and the retail.

In wholesale, we have categorized among wholesale large and wholesale small. And the wholesale large average is at INR 16 crores and then wholesale small average is INR 6 crores.

Okay. And the retail segment?

And the retail is INR 13 lakhs on an average and Suvidha with the fabricator unsecured, the average for whatever loans we update till date is around INR 1.3 lakhs.

Okay. And sir, any plan to further, let's say, diversify our business into, let's say, a vehicle financing, the other highly secured segment, which can give you a better business visibility going forward?

First of all, I'd like to say our most -- both our wholesale and retail SME is highly secured in terms of asset quality. The kind of collateral we are taking, we are doing a complete 13-year chain, the legal and the technical. We are very, very cautious both on the retail and the wholesale where we are sitting on very good collaterals, marquee collaterals with onetime receivables on our book. So in terms of asset quality, it's fairly good on both the segments. And what's your second question, sir? Okay, expanding into other products. Going forward, in the next 12 to 15 months, we would like to focus on our existing, these 3 products, focus more on fabricator loan, focus more on the retail and the wholesale itself. As a company, we would like to build our presence. If we go into too many products, our presence will not be felt. And as a company, we strongly believe that unless until we build our domain knowledge around the product we are doing it, and we have a presence felt in the area where we are. So the 2 are very important criteria for us. And given the size we are in as of now, it doesn't make sense to go into too many products. As we grow, definitely, the other -- more products will come into our portfolio as we have seen that the fabricator loan is a result of that. And so -- but as of now, our focus is to build these 3 products in next 1 year.

And, sir, in the overall outstanding book at present, what percentage of your loan book is under the unsecured and secured category, if you can just give us some sense on that?

I would say 99% book is secured. Fabricator loan is only around INR 1.8 crores, out of which 58. So you can say, 99.5% book is secured.

The next question is from the line of Sanjay Ladha from Bastion Research.

Yes. So as we said, going forward, we are seeing a traction on fee income and co-lending. So do we see our net interest margin to increase? And also since we are targeting new branches and employee costs, so the cost-to-income ratio, which is at 26% in H1 FY '24, so what is the comfortable range we are -- we will be looking at in the next 1 or 2 or 2, 3 years?

So what will be -- the cost, especially on the employee cost has been increasing, primarily, for 2, 3 reasons. I would say, first, there's been a lot of team addition in the last 18, 24 months. Secondly, as you know, the industry is doing reasonably good and the attrition is also higher. And that -- I would say that is 1 big -- little risk for the whole industry in itself where the whole industry is seeing attrition of between 30% to 50% on the lower and middle level employees, especially from the branches. And so to retain the people and to -- employees, which are good, who have been a vintage with the company, so to retain them and the appraisals are reasonably good in the last 2 years. So -- and on the fabricator loans, where a lot of team hiring and a lot of team will be hired in the next 3 to 6 months. So -- and initially, the revenue will not be commensurate with the cost that we'll be incurring. So I would say, we will -- still we will be in a comfortable zone of 26% to 28%, 29% in costs, so yes, the percentage of total income.

And sir, on the net interest margin side?

So net interest margin, we are definitely -- if you see in last quarter, it has grown. And in the coming quarters also, our focus has been there. It is only, I think, with interim 2 quarters for December and March -- December '23 and March '24, where, I would say, we little split and the focus we were not able to pass on the cost to our borrowers and we've primarily one reason that our most of the book was on the fixed basis. And in the last 9 months, we have moved the wholesale to a larger extent on the link with the repo rate or SBI rate. And so -- and even on the retail side, we have increased our lending rate by 50 bps to 150 bps depending on the product and the customer. So the NIMs, I will say -- and with the increase of our AUM increasing quarter-on-quarter, the NIM should improve in the coming quarters.

So sir, to follow up on this side, can you also share what percentage of our book is fixed and what percentage is floating? And how will we progress going forward? As you rightly said that you are moving towards -- the incremental loan is moving towards floating rate.

No, that is on the wholesale. Our retail is still fixed. Because, retail, we don't want to go into floating the kind of segments we are targeting. So if our tenure changes or our EMI amount changes, they will not be able to understand, and they will start asking questions about the integrity of the company. And that is a segment and we think that over a tenure of the loan, yes, for last 12 to 18 months, it is a little bit hitting us. But going forward, we would like to -- still like to retain that segment on the fixed side. On the wholesale, I don't have the exact numbers between a mix of floating and -- 75% is on the fixed and 25% is on the floating. But in fixed, where we are able to get reasonably higher IRRs, fixed IRR to 17%-plus, we have kept those accounts, the newly boarded accounts on a fixed basis. And otherwise, we have -- where we are competitively priced, we have moved that account to the floating rate. Chandan will add, yes.

Further, I just want to add that on your question part, that we all understand that the NIM is the function of all 3 major components that is your cost of borrowing, your absolute interest income and the other income of the book income. As Rohit has rightly said that we are majorly focusing on our book income side also. We are increasing our fee-based income. And apart from that, the portfolio is growing, that's why absolute income is also increasing. Going forward, if our rating improves, we are focusing on our rating improvisation. If we get a good rating upside also, we would be able to decrease our COB by 100 bps to 150 bps. So definitely, the NIM margins, going forward, in the coming quarters is going to be improved. And we are seeing a positive side on the NIM part itself.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Rohit Gupta for closing comments.

So I will again like to thank all of you for participating in the call. Your questions were important to us, and we strive to be transparent in our investor communications. If there are any unanswered questions, please get in touch with our Investor Relations team to take it forward. Thank you very much. And again, wish you everybody a very Happy Dhanteras and a Happy Diwali to you and to your family. Thank you, everyone.

Thanks, again.

On behalf of TIL Advisors Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.