Equitas Small Finance Bank Limited (EQUITASBNK) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the earnings call of Equitas Small Finance Bank Limited financial performance for Q4 FY '23. We have with us today, Mr. P. N. Vasudevan, MD and CEO; Mr. Sridharan N, CFO; Mr. Murali Vaidyanathan, Senior President and Country Head, Branch Banking, Liabilities, Product and Wealth; Mr. Rohit Phadke, Senior President and Head Assets; Mr. Natarajan M, President and Head Treasury; and Mr. Rahul Rajagopalan, DVP, Strategy and IR. As a reminder, there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. P. N. Vasudevan. Thank you, and over to you, sir.

Good morning, and thank you for dialing in on a Saturday morning. At the macro level, in many parts of the world, we are witnessing turbulence in the financial sector. However, the Indian banking system seems to be far more resilient and outlook as things stand today looks quite positive. The banking sector credit growth has been on a high at around 15% last year, while the deposit growth has been around the 10% level. Clearly, the scramble for deposits is set to increase in the current financial year. Moving on to Equitas. I believe that the initial years of building a brand, raising liabilities, building systems and working on technology journey, adding people all have come out well and we feel that we are on the right path in our journey of building a stable, sustainable and scalable bank. On asset quality, I'm happy to share that the overall asset quality has improved significantly over the last year. Our GNPA as of March 23 at 2.6% is at the same level of pre-COVID days. Last year, we had guided for a 1.5% credit cost and the actuals has turned out to be at the same level. Since our opening GNPA for the current year has come to a normal level, we believe credit cost also would get back to its normal level of around 1.2% to 1.25%. On Advances growth, we had recorded 35% as of last year. For the current year, we expect Advances to grow around the 25% to 30% level. We have not been guiding on RoA, but since we became a bank, we have been saying as a model, Equitas should be geared for a 2% to 2.25% RoA, assuming that there are no heavy headwinds from the market. We became a bank in September '16 and the demonetization happened in November '16, which led to stress in the micro finance book. It took us nearly 3 years for this to come to an RoA of 2.1% for the quarter ending December '19. With COVID hitting us in March '20, we faltered on the RoA again, and it took us about 1.5 years to come back to the 2.2% RoA for the quarter ending December '22. After beginning a bank 6 years back, this is the first time that we have been able to deliver an over 2% RoA consecutively for 2 quarters. I hope that we've got grace, we should be able to maintain consistently on this front going forward. Our balance sheet continues to remain robust, and we are well capitalized with capital equity at 23.8%. I'm also happy to report that the Board of Directors of the bank has recommended a maiden dividend of INR 1 per equity share for the financial year '23. Our landed cost of money has been coming down over the years after becoming a bank. For the next 5, 6 years, we expect this to play out further because of the kind of robust retail liability franchise that we have been able to build over the last 5, 6 years. This should help get our cost of funds very close to the larger bank as we move into the next 5, 6 years phase of the bank. The full benefit of having become a bank would be visible over these 5, 6 years. With a good retail liability franchise built up, a wide range of retail lending products in place and probably the best of governance standards in the industry, I believe we are entering into the best phase of the bank. And in this journey, I look forward to all of your continued support to the bank. We look forward to you -- we look forward to your support and your regulating journey. I thank you once again for dialing in on a Saturday morning. Thank you so much, and I now hand the call over to Rohit.

Thank you, Vasu, sir. And a very good morning to everybody. Advances have grown by 35% year-on-year and 12% quarter-on-quarter to INR 27,861 crores. Quarterly disbursements at INR 5,917 crores grew by 80% year-on-year. This is the highest ever quarterly disbursement. Collections, too, have been strong. And the GNPA in absolute terms has come down from INR 837 crores in March '22 to INR 724 crores in March '23. SBL advances have crossed INR 10,000 crores. Buoyed by strong demand in the retail sector, small business loans lead pipeline remains strong. SBL disbursements grew by 56% year-on-year. Quarterly disbursements of SBL proved [ to be ] ever highest disbursements in the quarter. Merchant OD disbursements continue to get the momentum and, the portfolio is showing an increasing trend month after month. Ex bucket collection efficiency in SBA continues to be at 99.6%. CV sales have grown by 38% year-on-year on the back of strong demand, load availability and higher freight rates. Passenger vehicle sales have hit an all-time high with sales of 36.2 lakh units, a growth of 23% year-on-year. Vehicle Finance also delivered their highest ever disbursement in the quarter. Improving cash flows of customers have resulted in improving collections. Expected collection efficiency for vehicle finance was at 99%. The overview pool, GNPA and [ 1 to 90 bp ] for the vacant finance businesses all have reached pre-COVID levels. Microfinance has also seen a strong comeback with growth in Advances and improving collection efficiencies and GNPA reduction. Ex-bucket collection efficiency in microfinance was at 99.6%. Affordable home loans continue to gather pace. In addition to Gujarat and Maharashtra, affordable home loans are now operational in Tamil Nadu, Andhra Pradesh, Telangana and Karnataka. Based on the strong demand from all sectors and improving cash flows for customers, I do see a good momentum building up for a quality growth in Advances. Thank you. Over to Murali.

Thank you, Rohit. Good morning, all. I think like Mr. Vasu clearly mentioned, credit growth going across is a very welcome sign, and there is a squeeze of liquidity we are seeing it across. And despite that, we can happily say that we have grown on our deposits by 34%. It has been a continuous journey for us as we are looking up to enhancing our acquisition through our sales as well as specialized digital channel through B2C and B2B2C. I'm happy to say that all those 3 cylinders are firing adequately. And we have introduced something called VRM 1 year back and virtual relationship managers are helping us and that portfolio has grown significantly. So is the physical RM channel. So relationship management is helping us to grow the core, which we call it as a program book. Now any book has crossed INR 11,500 crores [indiscernible], thanks to family-based banking concept. So close to 68,000 families are banking [ business ]. That shows the insight of it. Second thing is we are seeing a good green shoot on current account. We are getting into transaction-centric approach. And current account has been backed up by our acquiring business, where we are, like Rohit rightly mentioned, Merchant OD on one side. We also have [ post ] machine QR code and payment and transaction solutions. We are there in top 25, and I think single largest SFB at this point of time in terms of machines as well as transaction value. So that's one good value proposition, which is working. On the issuance side, good to see that our debit card spends in terms of e-comm as well as offshore, we are actually making good industry benchmark, and we should continue to focus on that side. RTD is looking up. Since favor is a key concept for us, we are getting into favor more and more. As we get deeper and deeper, shifting of money for temporarily should happen because that's the best value and best emerging need, which is happening. So overall, domestic side, we have consolidated and grown well. On NR side, the growth has been very encouraging. We are now present in close to 100 countries across where we have customers and our book has crossed INR 1,400 crores of NR book. And that's another healthy sign of creating a channel and going detailed into it helped us. In terms of PPP, that is third-party income, our insurance, mutual fund and our third-party distribution of broking accounts and all in all put together is showing up very good traction, and that is helping the customers to expand their investment as well as trading requirements. So increasingly, we see that our continued focus on CASA to gain the acquisition penetrating through RTD as a key approach. And with that note, I hand it over to Mr. Natarajan, Treasury, to take over, give us the treasury overview.

Good morning, everyone. FY '23 has been a challenging one on the market center as the Russian invasion of Ukraine made things worse for central banks globally and the fight against a higher non-transitory inflation levels. Cryptocurrency and crypto extend meltdowns bank or assets in the U.S. and Europe and economic collapse of small countries where second derivative effects of steep interest rate hike cycle that led to disruption and high time volatilities in markets across the globe. For FY '24, inflation appears to have peaked out globally, but continues to remain elevated. This is resulting in interest rates remaining higher for a longer period and the disrupting growth. Global consumer sentiment continues to remain strong. And outside of tech, global [indiscernible] continues to be robust. With falling energy prices and the reopening of China, global slowdown is not expected to be as severe as feared earlier. India continues to remain better positioned both structurally and cyclically and is expected to be one of the fastest-growing economies in the world with the [indiscernible] GDP growth of 6.5%. This is supported by India's high pre-country data indicators such as sustained GST collections, strong manufacturing and agricultural activity output, moderating inflation and the credit growth all pointing towards elevated activity levels. This signals confidence in the Indian economy. Markets continue to look for central banks for the [indiscernible] interest rates, and the volatility may remain innovative till clarity emerges on the direction of rates as central banks continue to fight inflation. Coming to Equitas treasury performance for last quarter, this has been another stable performance. Profit on sale of investments was INR 2.9 crores and MTM depreciation for the quarter stood at INR 1 crores. Our funding profile has been quite stable with the opportunities available to raise funds, both in the form of rebrands as well as IBPC. With this, I hand it over to Sridharan.

Good morning to everyone. We had a good quarter on all fronts, including growth in advances, deposits and profit. Our net interest income for the quarter came at INR 707 crores as compared to INR 552 crores during the same quarter last year, raising a growth of 28% Y-o-Y. Other income for the quarter came in at INR 215 crores as compared to INR 105 crores, a growth of 104%. Other income for the quarter includes INR 70 crores of income received from sale to ARC. Net income grew 32% year-on-year to INR 922 crores as compared to INR 658 crores during the same quarter last year. The total operating expenditure came at INR 533 crores as compared to INR 374 crores during the same quarter previous year. Cost to income moderated to 58.09% for the quarter. Excluding the impact of income from the ARC sales, the cost to income would have been 62.87% for the quarter. Core pre-provisioning operating profit grew 11% year-on-year and 13% quarter-on-quarter to INR 316 crores. Core PPoP assets expanded to 3.79% for the quarter from 3.62% of last quarter. PAT for the quarter came in at INR 190 crores as against INR 120 crores during the same period last year, registering a growth of 59% Y-o-Y. And the annual PAT showed a growth of 104% to INR 574 crores from INR 281 crores in FY '22. As indicated earlier, the bank has completed the sale of microfinance loans through an ARP amounting to INR 581 crores, out of which loan amount into INR 500 crores are already written off and balance 100% provided. Out of the sale proceeds of INR 80 crores, the bank has recognized INR 70 crores as other income and reversed the excess provision on NPA assets sold to the ARC amounting to INR 11 crores. The bank has also provided INR 40 crores against the security receipts it held as per the RBI guidelines. Now moving on to asset quality and provisions. The bank carries a total provision of INR 549 crores, NPA provision of INR 412 crores and provision on standard asset of INR 137 crores. In order to strengthen the PCR, the management made additional provisions of INR 90 crores and total provision for the quarter is at INR 85 crores. Detailed findings are given on Slide 10 of our investor presentation. GNPA improved by 147 bps year-on-year and came in at 2.6% in quarter -- Q4 FY '23 as compared to 3.46% in Q3 FY '23 and 4.06% in Q4 FY '22. The NNPA came at 1.14% in Q4 FY '23 as compared to 1.73% in Q3 FY '23 and 2.37% in Q4 FY '22. Provision coverage ratio improved to 56.9%. As of March 31, 2023, the total CRAR at 23.8%, comprising of Tier 1 at 23.08% and Tier 2 at 0.72%. With this, I would like to hand over to operator and we'll be happy to take questions from your end. Thank you.

We will now being the question-and-answer session. [Operator Instructions] We have a first question from the line of Darpin Shah from Haitong India.

Congratulations to the team for such a wonderful numbers. So my first question is on cost to assets. We are -- we ended the year FY '23 at approximately 6.3%. So where do you see this trending over the next couple of years? And what do you see the drivers for it?

Yes. Cost assets will come down over the next few years, but it will come down very slowly because cost of assets is going to be a factor of the product mix that we have. The existing products that we currently are lending and having they are all generally very high touch, I feel kind of credit processes that we have. And the ticket sizes are at a lower level. In fact, the average disbursement value per account, if I remove microfinance and the NBFC lending, then the average ticket size comes to anywhere around INR 640,000 to INR 650,000 per customer. So the current mix is that we have that kind of a mix of portfolio today, requiring high touch and feel credit process and our current cost assets is where it is today. This is going to come down over the next few years as we introduce newer products where the touch and feel might be a little less required. The ticket size might be more than an average of INR 600,000 lakhs, all that will lead to a reduction in this. But that is going to be a very slow process. It's not going to happen in a hurry. So over the next maybe 3, 4 years, we might see it coming down slowly and marginally.

Okay. So can have to put any numbers for FY '25, FY '24, '25, both the year?

I don't have a number for FY '25. FY '24, though, I think you can broadly take it that it will be remaining very much close to what it is today because the new products that we'll introduce is largely going to be the personal loan, but it will come only in the second half of the year. And so it will not have a material impact for the current year. So it may not change. The current year may not change much. But the '25 maintenance would be very marginal. I don't have a number, but it will be marginal.

Okay. And the second question on growth trends. So you already mentioned about 25%, 30% kind of growth. So your micro finance again will be the -- will be forming the same proportion as it is today? Or we see some trending down?

Yes. Microfinance is currently around 18.7% or so. And over the next 5 years, we should see that coming down by maybe approximately about 4% to 5%.

We have a next question from the line of Shreepal Doshi from Equirus.

And congrats to the holding for the great quarter. So I wanted to understand firstly that the additional provisions that we have taken for the purpose of strengthening, it also states that there was some change in policy. So what is this amount?

Can you repeat that? It was not quite clear.

We have taken an additional provision of INR 90 crores during the quarter. And it is mentioned that this was due to change in policy, the provision policy for March '23. So what is the tweak in the policy? Just wanted to understand.

Okay. So these are basically some kind of provisioning changes on the various NPA buckets. So when the NPA is 90 days, it becomes NPA. And at various stages of the NPA, we have certain provisioning percentages. So we changed some of that by increasing the percentage of provision at an earlier stage of the NPA. So it's basically that. And this has to be consistent. So whatever we change will remain consistent going forward.

Okay, okay. But this isn't really...

The policy refer to the Q4 presentation of last year, you will get the details.

Okay. I'll take it offline in that case. Sir, just wanted to -- during the last 12 months, we've added 3,000 employees. And so just wanted to understand what function or business segments this recruitment would be in? And going ahead, what is our branch expansion strategy because we have not really added many branches in the last 2, 3 years. So from that point of view, I wanted to understand this aspect.

See, on the branch part of it, we do have a pretty good network of branches today. And the first focus is going to be to leverage the existing branch network. There will be approximately an addition of maybe about 15 liability branches and maybe another about 30 to 40 asset branches for the current financial year. But by and large, the focus will remain leveraging the existing branch network that we have. In terms of the staff, I'll ask Rahul to brief you. Shreepal, from last quarter to this quarter, roughly around 550-odd employee additions have happened. From this, 300 is on the asset side and 200 is on the liability side. And from this 300 again, 50 is largely towards selection, so rest all our business. So it is still strengthen roles, even on the liability side, yes, relationship management.

Got it. Got it, sir. And do you still have this approach of having a certain liability branches. We don't have -- I mean, don't we just have 1 branch wherein both of certain liabilities will be done, right?

So those are things which will evolve over a period of time. As the customer segments become common, then the servicing outlet also will become common. So that's something that will evolve over a period of time, but it's going to take time.

Got it. Sir, one last question. So the next project that is in pipeline is to -- is the aspiration to become a universal bank. So what's the timeline for the same? Or what are your thoughts for the same?

So we have completed the merger of the wholesale of the bank. That was an important milestone that we had to achieve to meet the licensing condition that we had from the regulators. So that just got completed in the last quarter. So we are in touch with the regulators. And as and when they give us a green signal that we can apply for universal bank, we will do that.

We have our next question from the line of Savi Jain from 2Point2 Capital Advisors LLP.

Yes. Can you hear me?

Yes, we can.

Congratulations on the numbers. One question I had was on the asset fee income that has not tracked the disbursement growth, which is typically has tracked in the past. So it is a little muted. Can you explain why it happened this year?

Can you please repeat?

So asset fee income, ex of the one-off ARC other income, if you remove that, the asset fee income growth Q-o-Q has been tepid despite the significant growth in the disbursement number. So typically, there is a correlation between the disbursement and the asset fee income. So I just wanted to know why this quarter has been tepid?

Yes. So it has gone from INR 95 crores to INR 102 crores. So it has increased.

No, no. If you look at the disbursement growth has been significantly higher, right? So 4,797 has gone to 5,917 Q-o-Q. .

That's a 23.3% Q-o-Q growth in disbursement.

I'll come back offline on this. I don't have a ready answer as of now.

Okay. And another question was on the OpEx, especially the other OpEx, which is the one beside employee cost. That has gone up by 14% Q-o-Q. Is there a one-off there? Or what exactly has led to such a large increase this quarter?

There is no one-off, actually. Is there more of an increase in the employee expenses, actually. No [indiscernible] No, see, there's no one-off or something. It is because of the increase in the business actually, growth.

Just to give you detail, our switching costs as well as our interest cost, net of digital expenses is also [indiscernible]

It's only a growth in... Yes. So the other expenses growth is normal only. It's normal business expenses. Along with the business growth, it happens. And as I mentioned earlier, there will be some level of investment that we are committed on the digital side. So this also includes that cost.

So next year, will there be a higher than -- the asset growth, will there be a higher OpEx increase? Or will there be a negative operating [indiscernible]? Because I think the trajectory is quite steep for the other expenses.

Yes. See, our OpEx growth will continue to remain on the higher side fundamentally because of 2 factors. One is that our business model is a high touch and feel model. And so to that extent, the cost will remain sticky. Second thing is that as we have been mentioning earlier, there are 3 factors on which we keep investing. One is in terms of our digital. Second is in terms of our brand awareness. We have to put money behind our brand awareness campaign. We have not been able to spend much in the past, but that's something that we'll probably increase. And third is that new product rollouts. We are looking at a personal loan at some point in time. We will look at a credit card at some point in time. And now the category -- one license has been given to us on ForEx. So there is some amount of investment that we'll do on this 3 new products going forward, as well as on the branding and in terms of digital, which I mentioned earlier. So cost to income, I mean, people have been asking us whether our cost to income will come down from 63% or 64%, will it come down at some point below 60% and all that. But our response has been generally that we should be kind of looking at the cost income at a similar level towards where it is today. fundamentally because whatever benefit we are able to get out of leveraging our existing investments in various resources, we'll get used to support the future of the brand in the areas that I just mentioned. So by and large, you can expect our cost to income to remain at similar levels to where it is today, which means that the OpEx cost increase should be fairly similar to what they are seeing presently.

Okay. And on the ARC sales, the income that you have recognized this quarter. From what I understand, there's not going to be any further provisioning on this in the future, right?

Yes, there will not be any further provisioning because the security receipts have been 100% provided for. So any collection which has come on [indiscernible] basis as well as realization business will be accounted income.

We have our next question from the line of Renish Bhuva from ICICI Securities.

Congrats on a good set of numbers. So just 2 questions from my side. So 1 is on the margin side. So if you look at the trajectory, margin has been stated around 9%, 9.1% despite our cost of fund increasing quarter-by-quarter. Even this quarter, yields are flattish, but the cost of fund has went up almost 20 basis points and margin has still remained where it is. So what is the disconnect here, sir?

See, the cost of funds have gone up by 20 basis points during the quarter. But we are also able to recover part of that in the form of increased lending rate and partly in terms of some level of operating efficiency, which comes in the system. So while the NIMs are more or less flat, just marginally higher than the last quarter. Going forward also, we should expect that maybe in the immediate term, when I say immediate term, maybe the next 2 to 3 quarter kind of an immediate term, we should broadly expect to see the NIM around this same 9% level, give or take 10 basis points this year or that [indiscernible]. But as we have been always saying earlier also, the NIMs will go down over a 3-year, 4-year period, as both new products get launched and they start taking up a decent size of the book, which will come at a larger ticket size, which means that it will have a lower operating cost, et cetera. So as those kind of get rolled out and they start contributing more, the NIM should start coming down. But I think that's at least 1 year plus away.

Got it. So sir, I mean, is it fair to assume that incrementally, whatever pressure we might face on the cost of fund side, we'll be able to pass on to the customers?

It's a combination, as I mentioned, of passing on a part of that to the client by way of increased lending rate. and also partly in terms of some level of efficiency that we will -- we continue to see in the system.

Got it. No, sir, because I mean, when we talk to peers, the commentary has been that it has been challenging to pass on the higher lending data, especially in the Vehicle Finance business. So I just wanted to get a sense what is our stance.

By and large, see, we are not talking of a very large increase being passed on to the clients. Because last quarter, the RBI rate did grow by 25 basis points. But subsequently, in the last review, it remained flat. So we don't expect that from here on, there will be too much of requirement to increase the lending rate. And these marginal increases that we might have to do over the next 2, 3, 4 months, it may be very marginal, frankly. It may not be very high with what we believe.

Got it, sir. And sir, my second question is on the Retail TD share. So of course, more than 90% is noncallable. But if you look at the trajectory from last 6 quarters, the share of Retail TD actually went down to 60% from 80% 1 year, 1.5 years back. So despite in -- how most of the calls you've been highlighting that we are focusing on Retail TD. But ultimately, our Bulk TD proportion is going up quarter by quarter. So I mean, how one should read this data concern?

Yes, there are 3 fix to it. One is Retail TD. In terms of number of customers we are adding into the book has gone up in last 6 months, which means average ticket size are common and then granularity has gone up. That is one side. Second thing, individuals opting for Bulk TD has gone up. Earlier, it used to be only institutions. For example, we have a new segment where NR and individuals has also started giving. See, for us, we classify exactly what is given to us by the regulators, INR 2 crores and above, we categorize it. So even if you come with, say, INR 2.1 crores, it makes a sense to take it into a multi-DRO. NR has helped us. And similarly, individuals have helped us. Third thing is there was a base available in the last quarter where we could get noncallable with a reasonably high duration of 1 year and 1 year plus. So we went on to that. So increasingly, we'll see Retail TD in terms of individuals growing. And in bulk also, individuals as well as NR is coming in. One of the reasons is the present different taxation also. So we are seeing a trajectory picking up there. And in bulk, we predominantly don't focus on INR 100 crores to INR 200 crores between INR 3 crores to INR 10 crores as a specific bucket, which gives us that arbitrage of costing as well as spread of number of accounts.

And sir, what is the rate differential between retail and Bulk TD?

See, Retail TD is published straight, right? Bulk TD is based on DAP. So we normally push for Retail TDs only and Retail TD rate.

Okay. But not materially high rates?

Today, actually, bulk is cheaper, too, at the industry level.

Got it. Got it. And sir, just last question, again, it is on the participant which [indiscernible] clear, then if we look at in conjunction with the asset fee and the OpEx part, so let's say, with the business growing, other OpEx is growing, but that is not sort of offsetting by the higher asset fee. So I mean, of course, it means that we are paying higher on sourcing. And at the same time, they are not able to charge the same fees to the customer. Is that the right way to look at it? Or is there some other things which are still happening there?

So on the fee part that you're asking, one is as you keep building the portfolio, operating efficiencies will come into play. And as operating efficiencies will come into play, that you take care of the increased costs that -- the variable cost that will incur. Secondly, you said that the sourcing costs, I know. In SBL, 92% of our sourcing is direct, only 8% is through whatever connectors or intermediaries. Outsourcing is not the issue. On the fee part of it, what has happened is we have also gotten into other segments. Not merely our traditional segments, but more credit-tested segments where there was an opportunity last quarter, CVs have gone up. So Prime CV is a segment. In SBL, secured business loans, which is a slightly high ticket size customer, that was an opportunity. And that is why the fee income has not grown in proportion to the disbursements. The disbursement spike is very high. So the customer interest income and the operating efficiencies itself will take care of the increased disbursement. It will not lead to a negative cost.

We have our next question from the line of Abhishek Murarka from HSBC.

Congratulations for a fantastic quarter. My question is, first, on credit cost guidance. What do you see it as for FY '24, especially within this new provisioning policy. So there's some guidance around that would be helpful.

So as I mentioned in my earlier remarks also, for the current year, we should be budgeting a credit cost of between 1.2% to 1.25%.

Okay. Okay. Perfect. And my second question is just some color on the business side. So in vehicles, how much increase have you been able to take in the last, let's say, a year. And currently, how are you finding it to pass on? I know you said that the competition would apply to [indiscernible] also. But just some context in terms of the business dynamics, what's happening in terms of ability to pass on rates?

So in vehicles, 50% of our book is on the Used CV. Yes, only about 35% to 40% is on the New CV and the remaining 10% in Used Cars. So the pressure on margins is primarily on the New CV, which is a limited book. See, we intend to -- we have scaled up for Used Cars in the last year, and we intend to scale up Used Cars further. So Used Car and Used CV is a high-margin product where we don't see a pressure on margins as of now. And the New CV piece is very small. So the product mix will work in favor of Vehicle Finance.

What would be the blended yield right now for Used versus New?

So currently, the blended yield for Vehicle Finance is 15% -- 16%.

16%. Okay. Okay. All right. And just some similar commentary around SBL. What would be the yield and how much increase has been taken?

SBL blended yield is at 16.5%.

Sorry, could you repeat that?

About 17%.

We have our next question from the line of Nidhesh Jain from Investec.

So firstly, on the liabilities. We have seen a bit moderation in CASA on a sequential basis. So how should we think about CASA growth in FY '24? And secondly, when do we see CASA cost -- cost of CASA for us to trend downwards? Because that still remains quite sticky. When do we -- will get comfort to reduce the SA rate products?

Murali here. First, your question is very valid. See, at this point of time, the arbitrage between SA rates and TD is very welcoming for a long-term [indiscernible]. So if you look into the segment which we operate [indiscernible] as a segment, a number of people opting to go for TD within the book taking existing money and bringing in new money. Both are going up. So I think at this phase, we should leave it to the deposit because it is part of consumption cycle, and we should be optimally priced. Today, on SAR rates, there are already -- most of the banks have crossed 7.25% also. And there are banks which have crossed 6% also. So the optimum pricing will start seeing once the interest rate starts dipping and giving us a favorable term. So at this point of time, if you see our laddering in terms of pricing, I'm sure you are aware, up to INR 100,000 bucket, it is 3.5%, INR 125,000 , it is 5.5%. If you see these 2 buckets are growing because the compulsive proposition of spend, which we have put in with debit card has gone up. So actually, the higher bucket where you have 7%, those are the people actually shifting towards TD and getting the arbitrage out. So effective cost of ,till keep growing the 3.5% bucket and 5% bucket for us. It will help us to bring the cost of funds down. And CASA, the only way to pick up now is getting the new customers to a continuous opportunity which is available in the market, then keep cross-selling TD for a longer duration. That is going to be our approach, and we are continuing in that direction.

Okay. So can you share some data on what percentage of our SA is from connecting customers?

In the presentation on slide number... Savings slab wise '20 -- '23, we have up to INR 100,000 is 6%. INR 100,000 to INR 1 crore, 63%. So 70% of the bucket, okay. Between that [ INR 1 crore to INR 5 crores ] will be another 8% to 9%. So top 15% of the book, there is up to INR 100,000 and [ INR 1 crore ], it's contributing 15% of the book. So we need to keep expanding the pie to get the cost of funds down. We need to expand the INR 100,000 to INR 1 crore bucket to get this out. This is the 2 strategy through which relationship banking is working for existing book. Digital banking is working to source customers and sales channel is there to get the effective penetration.

Sure. And how is our success in getting salaried accounts in the market?

Salaried. Salaried, there are 2 sets of salaried. We have created -- one is you create a corporate code and specifically target. We have close to 1,800 corporates with 30% of the employees going through us. We also do a unitary basis. Because our proposition is for savers. We don't have the range of consumer products. So in our SA book today, 38% to 40% -- 38% to 40% is salaried individuals who are holding balances with us because of the proposition. So our focus is to get individual targeted. Second is to [indiscernible] to get the [indiscernible] on. Third stage work in progress, which UAT has done. We will take through a digital route to target specific corporates of CAT A and CAT B, that work is on.

Got it. And secondly, on the asset side, we have written off almost INR 1,000 crores of loans over the last 3 years, FY '21, '22, '23. So if you can share some breakup, how much is macro finance and how much is non-micro finance? And what will be the strategy to get recovery from these written off tools?

One sec, let them get the data on the breakup of written off assets. But Rohit, meanwhile, can talk about what we are likely recovering.

So I'll just give you a sample example of the restructure [indiscernible] to understand how it has behaved. In the opening balance, we had INR 1,881 crores of assets restructured. Out of those INR 881 crores -- INR 833 crores worth of customers foreclosed or settled their accounts. So the live book there is only INR 726 crores. And about INR 491 crores of customers have been -- who are either written off or in Vehicle Finance, repo sale has happened. Out of this microfinance, INR 123 crores has been written off. And vehicle finance, INR 153 crores of customers have, the vehicles were repossessed. And current NPA is INR 219 crores. So 73% of the customers have really been normal. It's only about 27% of the restructured book customers who have not been able to pay.

This is on the return of process. If you look at the microfinance close to INR 535 crores, of which we have sold INR 500 crores in the last 3 years [indiscernible]. Last 3 years, around INR 400 crores in microfinance and INR 150 crores in CV, and [indiscernible] INR 51 crores. That's the [indiscernible] INR 600 crores.

In the last 3 years, we have written only INR 600 crores.

Yes.

Not more than that. Technical. Okay. Right. Nidhesh, you got that?

Yes, yes. So okay. As far -- I think I've included both written off and technical write offs that was amounting to around INR 1,000 crores in like last year.

[indiscernible] The technical write-off is what we write off fundamentally arising out of micro finance most of them. The other written off is basically in vehicle finance, when we refocused the vehicle and is sold and there's a shortfall, that is written off in the same quarter. And second thing is that in Vehicle Finance, when the NPA bucket crosses a certain level, like, let's say, 2 years or 3 years, and we have not been able to repurpose the vehicle even after that. Then after that point in time, we do again a technical write off impact vehicle finance portfolio also. So that's how it grows normally.

We have our next question from the line of Aravind R from Sundaram Alternates.

I am at a business, but I just wanted to understand the growth trajectory in credit in different segments and what value that you're seeing different segments in proportion, like vehicle finance, [indiscernible].

Sorry, can you use your handset, please?

Can you hear me now?

Yes, Aravind, now you're audible. Can you please repeat what is -- what's the question, please?

I just wanted to understand credit growth expectations in the next few years. And what is the mix you are expecting in each of the segments? I just wanted to understand that.

So as Vasu Sir mentioned, we expect growth to be between 25% -- Advances growth to be between 25% to 30% this year. And I think we'll maintain that pace. On the mix between different segments, I think mortgages will be at about 50% of the book. Microfinance will come down from 19% currently to about 15%. And vehicle finance will be at about 20% to 25% of the book. So this is what the current scenario is, and this is what we are looking at as of now.

We have our next question from the line of Manish Agarwalla from PhillipCapital.

Just 1 question on RBI draft on charges. So any thought how does that impact the Equitas?

If you recall, we have been consolidating in the past, NBFC EHL with the recent circular on [indiscernible]. .

I don't think we'll have much of an impact.

Okay. So despite being the fact that we are in a segment where the overdues are on the regular criteria. We don't see any negative impact in our numbers?

Hello, can you repeat? You're not audible.

Yes. So the point I was trying to make is that in the segment, which yourself assist, and the overdues in that segment are very regular in nature, though ideally it might be very low. So we don't have -- we don't see any impact of this draft regulation on [indiscernible] charges. That's what you want to confirm, correct?

Yes, yes. That's what we are saying here. There won't be any impact on us on the circular -- the circular comes into effect.

Okay. The other data keeping question I had. Can you confirm what is the outstanding standard asset provisioning and contingent provisioning in the book right now? Outstanding standard asset provisioning and contingent provisioning, if any, in the book?

The non-NPA provisioning is INR 412 crores. And INR 136 crores is on the standard provision and research standard provisioning. So totaling to INR 548 crores.

Okay. And finally, the restructured book, which we have. Does it entirely pertain to SBL or we have some portion of vehicle there?

It's across the bank. The number which we have quoted, [ INR 234 ] crores across the bank.

Can you quantify between...

It has become 0...

Do you have the breakout?

One second. See, we have an SBL, INR 109 crores, CV, INR 80 crores and MSE, INR 46 crores. Entire microfinance moved up. So the 3 totaling to INR 235 crores.

See, basically, on the restructured book, there was a certain level of worry in the market in terms of the size of our restructured book. When we initiated that in December of '21, we have the 10% of our book restructured, 9.7% or whatever, around 10% of our book was restructured. But the reality is that it's played out fairly well. And today, at the end of March '23, we are left with only about INR 235 crores of restructured book. And against that restructured book, we have an NPA funds of INR 177 crores, which is all put out in our presentation at Page 11. And against this INR 177 crores of NPA in the restructured book, we have an 88% provision coverage in the system. So I think we are fairly well covered on the restructuring, and it's actually played out well. And a bank like ours, which is focusing on a certain segment of borrowers who are from the very, very -- the low-income segment, we just got to be a lot more humane and consider it an empathetic to our client base in terms of stress like what we saw in the last 2 years. We can't just be like any other bank trying to keep our restructuring or moratorium, et cetera, low. We can't do that. We just got to be supportive to these customers because the message that we keep giving internally also to our sales staff and our credit staff, when they do a transaction for a customer is that, if they make a mistake because the customer doesn't be on a point, he doesn't even know how much he is actually making out of his business. We got to sit down and create a kind of a balance sheet or a P&L for the customer to determine his level of income and then remove something for his expenses and say what's the balance available for an [ EMA ] repayment and use that to calculate the loan that he can actually be able to borrow and service. So we do that kind of calculation for the customer. And the message to the team is that you guys make a mistake. What happens is a bank will have a small write off. The bank will get on with its own life, we'll never be impacted. But for that individual customer for whom our stuff makes a mistake, at the end of the process that the bank will roll out, the customer loses property, and that property is probably the only property he has in his life. And he lose his property. So we just got to be very careful, very sympathetic and very empathetic with the kind of segment of borrowers that we deal with. And so we did go for a very large level of restructuring in 2021. But it's played out well. And the bank has actually come out very strongly after that. And today, the restructuring is mostly completed in terms of either payment or in terms of closure or in terms of NP right now or whatever. Similarly, I'll just give you 1 more data point. I mean, just to refresh all of your memories. In 2020, when RBI came in a moratorium, 90% by value and 97% by number of customers took the moratorium in Equitas Bank. Just can you believe the number, 90% by value took the moratorium, 97% by number of customers took the moratorium. But at the end of 2 year of COVID, the bank is absolutely back to a very strong financial position. Our gains are absolutely back to our pre-COVID levels. Collections are very robust. Customers have been able to come back very strongly and repay their loans and to save their property and protect their security, whatever they have given to the bank. And so it's really played out very well. So this kind of an empathetic approach is something that a bank like us will have to keep in mind all the time. So I just thought that I'll just give you that background because quite often, we tend to, in our own analytics on financial numbers, I think sometimes we tend to forget the kind of customers that we service. And when you forget that, then I don't think you are doing the right business at all.

We have a next question from the line of Ashlesh Sonje from Kotak Securities.

First question is on the slippages front. We have seen a meaningful sequential decline on slippages. Can you give some color on what is driving this decline?

So slippages were down to INR 190 crores from INR 286 crores. So I think slippages are improving because there is enough cash flow with the customer now. Collections are improving in the field. And I think this will -- this trend will be maintained.

You expect the number to decline further from here during FY '24?

It will definitely improve. It will not be bad. That much I can tell you 100%. It will definitely be better than INR 190 crores.

Okay. Okay. Perfect. And secondly, on the cost of funds front, we have seen a sequential increase of about 20 basis points. But looking at the liabilities build that we have today, how much -- if we assume no further hikes on the term deposit rates and the SA rates which we offer, what is the amount of increase on the cost of funds that we are likely to see in the peak?

See, it is directly proportional to the product mix. Today, we are at CASA of [ INR 80 crores ], last quarter, INR 42 crores. And that has actually, cost of SA is 6.2% or 6.3%. Incrementally, as you saw, TD, the incremental cost of TD is closer to 8.5%. So which means there is an arbitrage of 23 to 30 bps to be very precise. So if we continue to get CASA 45% as our total composition, we can maintain the CASA costing line. TD is market-driven. TD, which was 7.1% has moved up to 7.5%. So 40 bps increase is what has happened in last 3 quarters, if you see. So in order to sustain that, we need to increase the CAR to CASA ratio, CASA ratio and importantly, getting into the TD mix. So TD is market-driven. TD, despite that 250 bps of RBI, we have still not gone up to the 250 bps. We are at 150, 160 bps at this point of -- 175 post this hike. So I think today, we don't see an increase in SA rate, so which means SA book can be -- as we grow, we can maintain the cost of fund on SA. On TD, we are going on duration centric. So we are looking at certain buckets only. So that is directly driven by the prices. So I think 3 to 4 bps hike per month over the next 6 months is seen, when asset cools down, we need to bring it back.

Understood. So when you say 3 to 4 basis points is the high call cost of funds on a monthly basis?

That is proportion of 55%, yes. Yes.

Is that because of the TD is getting repriced or you are talking about hike in the...

In the existing TD, see, there are 2 talks of TD. One is you get from the market, which is open market sourcing, which is directly. Second, you are replacing on maturity a lower-cost TD with the higher cost one because that is market driven, again.

We have a next question from the line of [ Manoj Oberoi ] from Yes Securities.

This is Rajiv. Congratulations on very strong set of numbers. Just a few questions. Firstly, SMA wanted to provision as of December. What will that be?

SMA-1 and 2?

As of December?

That's basically a talk of standard provisioning.

No. I'm saying SMA-1 and 2 portfolio as of -- as at the end of December. So you have given as at the end of March in the presentation.

Okay. Okay. Okay. You're talking about Slide 11, where we have given you March '22 and March '23 data. So what's the December number of SMA, the total of SMA-1and 2 in December. Okay.3.88% is the total of SMA-1 and 2 in December. And in March, that has come down to what, 3.19% or something like that.

Yes. And sir, what happened to those INR 60 crores of restructured standard provision, which we were planning to utilize? So have they been fully consumed in the current quarter in the form of additional provisions?

See, this quarter, we have consumed INR 11 crores, which has been returned back. So over the period, no, actually, depending on the collections subscribe with a [indiscernible], that's still utilized.

Yes. So what is the residual balance of those provision now, which can be written back maybe?

We have balance of INR 6 crores last -- in Q3, we utilized INR 30 crores, actually.

Yes. Got it. So only INR 6 crores now. Yes. And just last thing. So I see you holding PCR of 88% on the restructured NPAs, which is significantly adding the overall PCR on the NPAs. So why so?

I mean, these are restructured assets because at some point, the customer was under stress. So basically, we have a policy of having a higher provision for restructure. And so that whatever trouble that might arise in future out of that should be reasonably covered up. Our overall PCR on the entire NPA book is 57% as of March. And so we should be looking to increase that 57% over the next few quarters. And our target is clearly to go to the 70% level in the next few quarters.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. P.N. Vasudevan for his closing comments. Over to you, sir.

Yes. Thank you. Thanks, all of you for dialing in and keeping us on our toes with all your questions. We really appreciate that you are taking your time out and to help us improve our business and keep it going forward. So we look forward to your continued support. Wishing you all the very best. Bye-bye.

Thank you. On behalf of Equitas Small Finance Bank Limited, we conclude today's conference. Thank you for joining us. You may now disconnect your lines.