Home First Finance Company India Limited (HOMEFIRST) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Home First Finance Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Kayal, Investor Relations Head. Thank you, and over to you, sir.

Thank you, Kedar. Good morning , everyone. I hope that all of you and your families are safe and healthy. I'm Manish Kayal, and I head the Investor Relations for Home First. On behalf of the company, I extend a very warm welcome to all the participants on Home's First Quarter 3 FY '22 Financial Results Discussion Call. Today on the call, I am joined by Manoj Viswanathan, our CEO; and Nutan Gaba Patwari, our CFO. I hope everybody had a chance to go through our investor deck and press release. We have also uploaded the excel version of our fact sheet on our website and request you to have a look. With this, I hand over the call to Manoj.

Thank you, Manish. Good afternoon, everyone. If there's one phrase that all of us are being eager to use in the last 24 months, it is BAU or business as usual. We are pleased to use this phrase with respect to our quarter 3 performance. Some of the highlights being, highest ever disbursals of INR 570 crores, it's 11% higher than our quarter 2 disbursals, which was the previous highest. In December, we also saw the highest collection efficiency in the past 12 months, leading to a significant improvement in 1 plus and 30 DPD levels. The 1 DPD improved to 6.5% from 7.6% and 30 DPD improved to 4.7% from 5.2%. Our gross stage 3 stands at 2.6%, and these Phase 3 includes NPA of 339 million, which is actually not in 90 DPD, but it has been included due to the asset classification norms as per the RBI notification dated 12, November '21. However, the said change does not have a material impact on the financial results for quarter 3. The comparable gross stage 3 figure as per the previous classification is 1.7 itself. Physical branches have gone up to 76 this quarter, and total distribution points have gone up to 187. There is no incremental restructuring that we have done in quarter 3. Immediately, following the strong quarter, we saw the third wave hitting the country in January. We are still in the midst of it in some parts of the country, while it is tapering off in some of the markets. However, now the number of new cases per day have gone below the weekly rolling average, and 67% of the population has taken at least 1 dose of vaccination and 50% are fully vaccinated. Lockdowns have been restricted to weekends and night times. So all of this has actually helped in reducing the impact of Omicron wave and ensure that the economy continues at an almost BAU level. At Home First also, the impact of the Omicron wave has been minimal and the business momentum continues. We are pleased to announce that our AUM has crossed the INR 5,000 crore mark in January. We are grateful to our employees, customers, business partners, regulators and shareholders for placing their faith in us and encouraging us through our 12-year journey. In December, we entered into a strategic co-lending partnership with Union Bank of India, to offer home loans to customers at competitive interest rates. This partnership aims at leveraging the strength of both entities, to provide a seamless experience to retail home loan customers. We are pleased to report that the initial response to this program has been encouraging. Digital initiatives continue to see further progress. During quarter 3, we have added biometric authentication in our customer app. Our customers app continued to enjoy high usage with 76% of our customers registered on the app compared to 72% in quarter 2. Payments and service requests made via the app quarter 3 FY '22 have gone up by 114% and 88% respectively, on a year-on-year basis. Our 48-hour turnaround time for our loan approval improved to 90% from 88% in quarter 2 FY '22. Our key onboarding initiatives have been received well, with e-stamp option at 55% of loans, eNat in 50% of the loans and esign in 18% of the loans in quarter 3. I would also like to share that we have further strengthened our Board of Directors with the addition of 1 more independent director, taking the total number of independent directors to 4 out of total of 9 directors. Based on the recommendation of the Nomination Remuneration Committee, the Board has approved the appointment of Ms. Sucharita Mukherjee as an Independent Director, subject to shareholders' area. Ms. Mukherjee's vast experience in financial inclusion and developing mass-market financial solutions will hugely benefit Home First. With this, I would now like to hand over the call to Nutan to take you through the financials. Nutan, over to you.

Thank you. Good afternoon, all. I will take you through our performance in quarter 3 FY '22. We continue to stay focused on our operating matrices, with an intention to deliver mid-teen ROEs in a couple of years. Our NIM has expanded from 5.2% in quarter 2 to 5.7% in quarter 3, coming mainly from sustained spreads and optimization of cash on the balance sheet. Net interest income has gone up by 36.4% on a Y-o-Y basis and 3.8% on a Q-on-Q basis. Operating expense has been stable this quarter. OpEx to assets stands at 2.8% for the quarter, flat on a Q-o-Q basis. As guided earlier, we expect this ratio to remain around 3% to 3.2% going ahead as we focus on expansion. Cost to income was 33% in quarter 3 compared to quarter 2 of 35.2%. PPOP stands at INR 65 crores, growth of 9.2%. This is coming from expanding NIM base as well as continued focus on OpEx. Credit cost was a range bound at 0.5%. Our ECL provision stands at 1.2% of the total principal outstanding. We continue to be conservative with the provisions. PCR stands at 46% prior to NPA reclassification as per RBI circular. PCR stands at 69% versus 77% in quarter 2. Our reported PAT of INR 46 crores grew by 6.6% on a quarter-on-quarter basis. On liquidity and borrowing, our long-term credit outlook was upgraded by ICRA from A plus to plus stable to A plus positive. The company continues to have diversified and cost-effective long-term financing sources. Total borrowings included debt securities are at INR 3,024 crores as of December from INR 3,075 crores as of September. We have a healthy borrowing mix with 45% of our borrowings from banks, 25% public sector and 20% private sector, 23% from NHB refinance and 25% from direct assignment. We continue to have zero borrowings through commercial paper. Our cost of borrowing increased by 3 basis points to 7.2%. Our Q3 cost of borrowing stood at 7.2% increased from 7.1% in Q2. Our marginal cost of borrowing for Q3 was 7.6%. Moving to capital. Our total CRAR is at 59% and Tier 1 CRAR is at 57.8%. Our December '21 network stands at INR 1,510 crores vis-a-vis INR 1,381 crores as of March '21. Our quarter ROA stood at 4% higher from 3.9% witnessed in quarter 2. Our annualized ROE stands at 12.4%. Our book value per share is [indiscernible] as of December. With this, I open the floor for Q&A.

[Operator Instructions] The first question is from the line of Karthik Chellappa from Buena Vista Fund Management.

Congrats on a very strong quarter. I just have 2 questions. The first one is, if we were to look at the RBI classification per se, it is well appreciated but excluding that, the gross Stage 3 hasn't changed much. But I'm just curious, why not allowed the coverage ratio on Stage 3 to actually dip, which was around 29%, 30% for the last few quarters has now gone below 23%. So what was the thought process behind not keeping the coverage ratio steady?

So Karthik, the current Stage 3 that you're looking at is a combination of the prior Stage 3 as well as the less than 90 DPD in line with the RBI circular, which has been provided at 18%. So the composite number is at 23% and not this pre-RBI circular classification, that remains high.

If you look at the PCR as per the earlier method, it is about close to 70%.

So basically, on the incremental NPA of the 339 million, you have just provided 18%, which is why the blended looks at 23%, is it?

That's right. That's right.

Okay. Got it. Got it. And going forward, will there be any initiatives on our part to also convert the daily reporting of NPA to our regular NPA? Or we will just let that run its course?

This is what we have done. So this 2.6 million reflects the daily reporting of NPA. This 2.6 number that we're reporting now is, as per the new guidelines, we have just provided the 1.7 number, which is as per the earlier method of calculation. But going forward, we are going to -- we'll have to report a new number, which is 2 points, which is in this case, 2.6% for this quarter.

Got it. The second question I have is, if I look at the write-off for this quarter, I think it's at about 80 million-ish or so. On an annualized basis, it works about 60 to 70 basis points, whereas historically, it was much lower. What led to the high write-offs this quarter? And what -- how should we think about write-offs on a more sustainable basis, given that we are reaching a business as usual kind of a scenario?

So Karthik, we are still disposing of properties there, which were COVID-impacted and we still have some -- we can take a ground to cover on that. So this quarter, we have done probably 200-plus properties. So each property, there is some residual write-off impact, which is what we have taken. And I think, we will have to be ready for maybe a couple of more quarters, because as we try and get that 1.7% number down, it will basically involve selling off of properties and squaring of the account. So there will be some residual write-off in each case, which we will have to take.

Excellent. My last question, which is more of a clarification. If I look at our restructured book, about 943 accounts have been under the restructured book, which is basically the resolution plan frame of 2.0 adding up to about 360 million, but that represents only 314 customers, which is basically 3 accounts per customer. Any reason why we actually have 3 accounts per customer for restructured?

Yes, I think. This is -- so historically, we have been -- there is an insurance which is provided for each case, right, for covering the loan. So as per normal industry practice, we also provide a loan for the insurance premium. But from day 1, we have actually been booking that as a separate loan. That is -- that was a recommended practice. And so we from the time we started, we decided to follow the recommended practice, which is booking a separate loan to the insurance premium. So practically, every loan comes with an additional loan, which is the insurance loan. Plus, all of these customers, which we are talking about restructured customers are people who had taken a moratorium last year in the first -- during the first wave of COVID. So there, again, we decided to provide these customers rather than adding that principal to the original loan, the customers request at that point of time was that we would like to treat this as a separate loan and pay it off at our own convenience. So we have again provided the moratorium as a separate account. So which is why there are 3 accounts for each of these customers.

Okay. Got it. Got it. Okay. I'll come back in the queue for more questions, if any. Wish you and the team all the very best. Thank you.

The next question is from the line of Rajesh Kothari from Alfaccurate Advisors.

. Congratulations for good set of numbers. I just have 2 questions. So one is how do you see the net interest margins from current level considering that our NIM has improved quite a bit in the last 4, 6 quarters? How do you see that from here?

So I think this year, we have enjoyed, we can say, good spreads because the cost of borrowing has come down. And our correspondingly REs have not come down and they have held up, which is why our NIMs have gone up. I think going forward, I would say, I mean, further improvement at in the immediate future will be difficult, but we would try and sustain the NIM -- sustain the spreads that we have been holding so far. There may be a slight rate compression next year because we can see that rates are tending to go up. So we are expecting maybe 20, 30 basis points of spread compression. But otherwise, we should be in a position to at a ballpark, maintain the current NIMs and spreads.

So when you say current means -- see 1Q was 4.9%, 2Q was 5.2% and 3Q was 5.7%. So when is the current means, can you clarify?

Yes. So we have maintained -- we'll be able to maintain spreads in the region of around 5%. So that we should be comfortable to maintain going forward.

Okay. My second question is if I look at from the competitive intensity perspective, what is on ground, from where you are seeing the competition? Is it from the new fintech kind of form, which are into started the housing finance? From which part you are getting primarily competition from?

Competition is there in multiple fronts. So if you look at urban markets, these, we can say, banks, commercial banks as well as small finance banks are -- some of them are also providing affordable housing loans. And if you go a little more to smaller towns, et cetera, you have the traditional housing finance companies and affordable housing finance companies, which are competing over there. So it depends on the market, that are -- the competition varies. So this level of competition has always been there in our segment. And we don't see it as a new phenomenon. I think, this level of competition in affordable housing has been there.

Why I'm asking this question is basically from the yield perspective, if I look at many of your competitors, of course, on a blended basis, they have a lower yield. So I'm just thinking from that perspective, do you think your yield can be at risk for the same quality of underwriting?

See, historically, we have always competed in some of the larger markets, where the competition has been intense. And we -- since we were we also have a reasonable play in the apartment segment, that is a segment where there are larger players, banks are also competing. So we are used to that level of competition. Now, frankly speaking, as we go into smaller markets, as we are also doing more of self-construction cases, et cetera, the -- you can say competitive intensity or the pricing pressure is a little lesser than what we have faced in the past.

I see. And one more question is, from the digital perspective, what kind of [indiscernible] that you've taken to improve the productivity, to improve the cost-to-income ratio, to improve the turnaround time. Any major new additional steps which would have taken in the last 3, 6, 9 months? And also, in terms of the -- your spend on such technology, from the platform perspective, what kind of spend you are doing that? And what kind of resources, if any, if you've added on the same?

So we continue to invest on technology. And for us, investment is largely in terms of getting technology specialist on board. A lot of the technology that we use are not very expensive. It's more about adapting the right type of technology and putting it to use. So some of the things that we introduced are basically the electronic or eOnboarding initiatives, which is electronic stamp paper, and the eNat process, as well as electronic signatures, e-signature process. So this helps them basically saving time for the customer because the customer can do these processes remotely from his or her residence. And for us also it saves time and effort because we don't have to spend that level of time with the customer at the branch. So it helps us to access our process more customers. So that is -- these are the initiatives that we have taken. And we have -- as we mentioned, the penetration of these initiatives as well. For example, electronic signatures, we have had a penetration of about 18%. So 18% of our customers started using e-signatures. And that number is likely to keep going up and will obviously result in a lot of saving products in terms of manpower, time consumed, et cetera.

The next question is from the line of [Subhash Mishra from Systematics].

Couple of questions. So I just want to understand, what could be the average work experience of the salaried customer? And what does the onboarding FOIR? And the second question I want to ask is a slightly more quantitative that -- what is the second line of management after you? So how do we look at the second line of management if you can speak on that, qualitatively? Those are my 2 questions.

Yes. So I actually didn't get the first question. Can you just repeat that? Something on salary, customers, I couldn't hear it clearly.

And within the salaried customers, what is the average work experience onboarding FOIR?

For salaried customers. Okay, okay. So salaried customers, typically, we onboard customers who are 25 years plus. So the experience, overall work experience, generally tends to be at least 3 years, if not, more. Our average age is in the region of around 35 to 37 years. So generally, I would say on the book, the customers would have an average work experience of over 10, 12 years at least. As far as the FOIR is concerned, we have a cut of 50% and -- so generally, the FOIR average comes to around 40% or so for most of our customers. And as far as the second line of management is concerned, after me, we have that in our -- in the deck also. So we have a management team or management committee consisting of 10 members. One is myself and there are 9 other members. So that would be, I would say, the second line of management. And as you can see from the profiles that we have put up, these are all professionals from very good backgrounds and very good industries and companies, and pedigree that we have taken the management team from. So that's the, you can say, second line. And even below the management team, we have a strong, you can say, a strong line of people who are in the senior leadership level within the company. And we also have a program where we kind of groom them for larger roles, et cetera. So I would say, depth of management, that top leadership in the company is very strong.

The next question is from the line of [Sanket Chheda] from B&K Securities.

Congrats on good set of numbers. My question was that we, in last 1 year, we have beautiful amped-up our ROA profile from 1.7%, 1.8% to now, 4%. But now going ahead, how do we see this panning out for the next couple of years? So any thought process on that? Any further levers that you see? Or you would be happy to maintain it in the range of 3.5% to 4%?

Yes, yes. So ROA, I mean, see, it's a function of leverage also. So as we leverage the ROAs, probably it will trend down. But we are -- we have to look at a combination of leverage and ROA. So -- and as we had mentioned in the past, the coming year that is FY '23 and maybe part of '24 are going to be growth years for us. We are going to do a lot of investments. So from that perspective, our costs are likely to go up a little bit. And -- but yes, we should be in the ballpark of between 3% to 4% ROA as we leverage the leverage further up.

And sir, as far as the previous question was concerned, maybe competition from fintechs and everything, as far as I understand, maybe mortgage or higher ticket size lending would be a large piece that of fintech would look like? Maybe, currently, all the fintechs who have started some lending business, they are all operating between 5,000 to 10,000 average ticket sizes. So what's the thought process on that? Unlikely to face any competition, at least mortgage as a piece, I believe would unlikely to -- would never face such competition from fintech players or new age fintech players.

So we are actually -- we are actually in touch with a number of fintechs and frankly, that is part of our strategic alliance initiative, where we partner with fintech and online aggregators to acquire customers. So I think, one common thread that is running across is that, yes, it's easier to do personal loans and BNP, et cetera, to the fintech model, where there is probably just one level of check and a lot of that verification can be done online. In the case of property and specifically, housing loans, et cetera, the process is a little more elaborate and the customers have to also go through a lot of decision-making process at their end and arrangement of initial down payment and so on and so forth, which adds to the complexity of the process. So practically, all these players, the fintechs or large aggregators have also been kind of going through the struggle or journey of converting customers. We are actually partnering with a number of them and trying to assist in the journey and trying to kind of build the journey together. It's going to be a slightly complex process and maybe, a longer journey. But eventually, through a collaborative process, we intend to kind of address this conversion problem. And the fintechs will probably have to partner with companies like us to ensure that the customer gets a seamless experience. Because on their own -- and they don't also have large balance sheet sizes and the asset liability match that is required, which is for a product like housing loans. So it will be a partnership or collaborative effort with fintech, but it will happen gradually.

Right. So in the absence of maybe, having a meaningful capital access at a cost that makes some business sense, they are just likely to be enablers, at least as far as your segment is concerned, and not lenders. Is that correct?

That's right.

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

Congratulations on a good quarter. So 2 or 3 questions. One thing -- I mean, during the quarter, have you received subsidies under the [indiscernible] ?

No, this quarter, we did not receive any subsidy.

I remember, sometime last month, you had given out a disclosure to the exchanges around the co-lending partnership that you talked about in the [indiscernible]. Firstly, can you talk about you retaining a minimum 20% of the loans and the remainder with the bank. Can you give some more color around what is the rate at which you will be kind of, let's say, giving these loans to Bank of India? So what are the effective yields or spreads that work out for you? So at least, my understanding is, compared to the direct lending, this co lending model should lead to better ROAs for you, right?

So I think, I will break this into 2 parts. I think, some of the transaction details with the banks, et cetera, are a bit confidential. But broadly speaking, the idea is to offer the loans at a competitive rate to customers. So typically, our affordable housing in the affordable housing segment are in the region of between 11% to 13%. But the idea is to offer these loans at a much lower levels, closer to the prime rates that are prevalent in the market. The exact information is something that is the confidential between us and the partner bank. And so the idea is to -- we can say address a different segment, a segment which is more formal and probably looking at slightly higher size or high ticket size property. But of course, subject to the priority sector definitions, which are applicable to this co-lending program. So that is really the objective behind this. Yes, to say -- I mean, to talk about the ROA, et cetera, yes, this is definitely an ROE accretive program, because the 20% that we are keeping on our books will obviously be -- I mean, the way the co-lending program is structured or recommended by RBI, it will be running at a higher rate. Whereas the part that is the partner bank will be at a lower rate, and there is a blended rate that is offered to the customer. And as per the terms that we have now with our partner bank that we have signed up with the asset will be -- it is an ROE accretive model.

Okay. If I understood you right, I mean, this partnership should be both fee income as well as NII accretive. The net interest income to also benefit from the co-lending partnership. Because sir, like you said, lender rate at which you're offering it to the customer by you will be kind of parking it with the bank at a lower rate.

That's right.

Other question that I have is on this liquidity rationalization that you have now started [indiscernible]. Is it also kind of feeding into the NIMS that we have reported during the quarter? In terms of the [indiscernible] coming down and to that extent, benefiting you on the NIMS?

Abhijit, can you repeat your question?

Yes. So I think, I mean, you've already started the journey towards rationalization of the excess liquidity on your balance sheet?

Right.

Is that also feeding into -- I mean, the kind of NIMs that we are seeing now?

Definitely. So at a spread of 5.6%, our NIMs -- the same spread for last quarter, our NIM has gone up from 5.2% to 5.7%. A large part of that contribution is from the cash optimization and, of course, from the growth also, coming from leverage. So those 2 are the contributors, but a large contributor is also the cash optimization.

Right. And lastly, is -- I mean, if I might ask -- I'm sorry, I joined a little late, so this might sound like a repetition -- but we've taken write-offs of I think, about INR 8 crores during the quarter, right?

Yes.

And earlier in the year, you had already taken write-offs of another INR 12 crores.

That was in quarter 1.

Abhijit so in quarter 1, we had taken the onetime write-off because there were some sticky accounts which we had mentioned, right, in the NCR region. So we had taken that as a onetime. This time, it's more of a BAU because we are -- as I mentioned, we are disposing of a lot of properties to square off the COVID impact. So as a result of each property, there is some loss that we are incurring and -- which is the reason for the write-off.

I mean, what I was trying to understand here is -- I mean, let's say, if you tick in write-off of INR 8 crores during the quarter, I think it would be fair to assume that, I mean, it would have been at least 50% provided before we choose to write it off. So I mean, if I just do this math that we have reported a gross fee of INR 102 crores after including those [indiscernible] million of assets, which were classified in the stage 3 because of RBI. Even if I remove that, that works out to about INR 68 crores. And then, if I were to maybe just add, let's say, INR 16 crores because -- and please correct me if I'm wrong, I'm doing a simple math that if you have taken write-off of INR 8 crores, assuming -- I mean, those loans were worth something like INR 16 crores. So what that means is -- I mean, there have been...

Abhijit let me do the math for you. So the loans were worth INR 8 crores. And the P&L impact is INR 2 crores. So you're right, if you remove INR 102 crores of NPA, you remove the INR 34, crores, you get a INR 68 crores. So that is essentially what we have from our 1.7% equivalent number.

Pre-RBI classification number is INR 68 crores. Basically, that's correct.

The write-off of the loan has been INR 8 crores, which is the principal outstanding value and the impact of that in the P&L is only INR 2 crores because we were already carrying the provision.

The next question is from the line of [Suthmit Patodia] from Motilal Oswal.

Wishing you a very happy new year and congratulations on the results. My first question is if you could tell us when do you think the check bounce rate comes back to your old levels of 10%, 12%? Or you think this is a new normal?

No, it should come down. I think we are just also dealing with some new phenomenon as far as check bounce is concerned, which is a lot of customers now have multiple accounts and -- some of them prefer to pay through online methods post the date or post the date of electronic debit. So that is something that we are -- that's a new phenomenon that is now taking place. And we have to, I think, address that separately to also bring down the bounce rate. But yes, we are working on it, and it is something that is there on our radar. It will come down.

So Manoj, actually on this, I was wondering if you have explored open -- and if you can push our customers to go and open the banks, the respective bank that they have, I understand that SBI is very soon coming on it. Have you thought about this, whether you would go on and have you done any hackathon, any API testing?

Yes. So we will eventually go [indiscernible]. It will help us to understand the customer profile better understand -- I mean, at least some of the digital imprints that they are leaving, we will be able to pick up, et cetera. But it's still very early days. Even the account aggregator network is not fully settled. And we're still work in progress. So I think it will take some time for the [indiscernible] network to kind of start giving results.

Right. Okay. And the second question, one is with the whole daily stamping while it's still a little confusing for us because -- please correct me if I'm wrong, GS2 doesn't have daily stamping correct? So it's only the NPA recognition, which got daily stamping.

Yes. So yes, so let me maybe explain what the daily stamping is all about. It is basically, the new rule is that -- the new rule is that once the customer crosses into 90 days past, you see, our reporting date is generally the end of the month. right? So -- and typically, the presentation or the check clearance date is on a particular day in the month. So let us say 4th, as we are concerned. So on fourth of the months, if the customer, let's say, bounces his fourth payment, he basically steps into steps into the 90-plus territory, right? Because he has crossed 90 days from his earliest payment. So historically, we still had another 26 days to collect the payment from this customer. And the customer would have then come back into the less than 90-day category, which when we were reporting the numbers at the end of the month. But with daily reporting, what happens is that on the fourth of the month, the customer has already crossed into 90-day past due. So we have to continue to keep them at 90-day past due, even if we pay one more payment, and comes below 90-day past due. So that is the rule. So now, as of the end of the month, even if we have managed to collect one payment from the customer, we will still have to report them as a NPA or potential NPA. So which is the increase that you're seeing. So about 90 basis points. Those are the customers who would have normally paid in installment and paid out of being an NPA. But now, as per the new rules, we have to also classify them as NPA.

Okay. So the only thing from an analyst point of view and somebody who is sitting outside, is then the relevance of GS2 will not be that important anymore, because the measurement of GS2 is different from the measurement of GS3 number.

Yes, it is different. But yes, to that extent, the GS 2 is obviously a much higher quality than a GS 3. I mean, a GS 3 -- or rather, we can say GS 3, you have to look at GS 3 split into 2 parts. So who is a chronic customer who is continuously in GS 3.

And will be available to us, right?

Who is kind of borderline. I mean, yes, I mean, yes. Right now, the data is not there, but that's something which we can look at to analyze that bucket.

And just the last thing on this, Manoj. Will you gear the organization now towards the strict daily stamping 90 DPD ? Or do you think you're comfortable with the current situation?

No, no. We have already. So see, we were anyway a very early bucket focused organization. As you can see, from our 1-plus and 30 plus numbers, our 30-plus is only 4.7% and 1 plus is 6.5%. So we are very early bucket focus. That is basically collect from the customer as soon as possible so that he doesn't step into 30 days past due et cetera. So this is in a way for us step in the right direction. So it brings more focus on collecting from the customer before he hits the 90 day barrier. And his -- those steps have already been taken on the ground. People have been more sensitized now more towards the 60, 89 customers that we have to collect before they hit the 90-day mark, et cetera. And it's likely to be good for us in the long run.

Got it. Got it. And just last question from my side is -- can you share what would have been the LGD on the recent write-offs?

On the recent, I mean.

This quarter's write-off.

About 25%.

Only 25%?

About on an average, that will be the number.

The next question is from the line of Kunal Shah from ICICI Securities.

So sorry, again, touching up on Sushmit's question. So when do we actually see the convergence of -- maybe the currently recognized norms to the early stage 3, which used to be kept below 1.7%, 1.8-odd percent. So how much time is it going to take, okay, once we gear up the entire organization towards this kind of a collection and the daily stamping mechanism?

Actually, Kunal, it's difficult to -- it's a little early days. We'll have to see how the flows are -- how the flows are moving for a couple of months to make a proper prediction. Plus, we also require a decent period of no COVID and sustained collections or good collection period to kind of predict better. So I think maybe in a couple of months, we'll be able to give a better number, a better idea of how that trajectory will move.

Okay. And given this kind of a scenario maybe in the normal circumstances, should we then ideally see our 30-plus DPD, okay, which on an average say, would have been less than 2-odd percentage, very low, maybe less than 1-odd percent as well in March '18, '19, '20. Do we see it somehow getting towards that number broadly, maybe at least in terms of the Stage 2, excluding the Stage 3? So would it really help in terms of focusing on such early bucket will get the numbers down structurally?

Yes, internally, we are very focused on that. Our idea is that our 1-plus and 30-plus should go down. And as you can see, 1 quarter of good collections or even 1 month, actually, December being a great month for collections resulted in a good significant decrease in 1-plus and 30-plus. So I think all the need is a sustained period of, you can say, normalcy without any COVID day or any disruptions due to lockdowns, et cetera, which will basically help us to then bring our numbers back to pre-COVID levels. And in this segment, anyway, that is what is required because once the customer slips into 30 plus, then he -- the customer also struggles to make more than one payment. Then he continuously get stuck in that bucket, and it becomes challenging for the customer as well. So it's better to encourage the customer in the early buckets to make one payment and stay out of delinquency, which has been our focus, and we continue to remain focused on that.

Sure. And the entire INR 34-odd crores, that would be purely because of daily stamping or there would be some accounts wherein maybe because of the upgrades not allowed until they clear the entire overdue, there could be some sticky buckets, okay, or customers in some sticky buckets who are now getting recognized? or this is purely daily stamping that maybe if we would have recognized it on a December end number, then this INR 34 crores wouldn't have been there. How would we just split between the 2 upgradations and maybe the daily stamping?

Which is why we've given both the numbers. So if you ask, this is purely on because of the upgradation issue, right? Because as per the earlier method, if we were to look at it, it's 1.7 only.

No, no. I'm saying, maybe apart from the daily stamping, okay, somewhere there would be some customers who would always be sticky and say -- and say, 31 to 60 or 61 to 90-day bucket, okay? So is there any recognition which was done for those accounts as well? Or this is purely a daily stamping one?

No, this is entirely daily stamping. But sorry Kunal, I don't think I understood your question as well.

At the stage 2, is there a sticky bucket in that? Or it's just a full rollback issue. It will be a mix, actually.

1 This should be entirely because -- without the reclassification, it's 1.7. Because that means all those customers would have paid at least one [Indiscernible] So yeah, that 90 day [Indiscernible], all those customers would have already paid installment during the month, which is why they have -- as per old method, we are still at 1.7.

And one last question in terms of balance transfer out. So gradually, it's moving up. It's now 5-odd percent. Should we consider it to be more businesses, maybe it's a normal course, and we would not be too worried or maybe it's been cleaned up all through over the last 4, 5 quarters. And we would be taking maybe the measures in order to reduce this BT out from 5% currently?

No, I think it's range point. I would not put it -- I would not get alarmed by it. I mean it's generally in the 3% to 5% range, not I would say...

Yes. So 3% to 5% is now getting towards the higher end of the range, okay? And that's the reason maybe anything which we have maybe any initiative or measures which we are taking to ensure that okay, now it doesn't cross 5-odd percent, the way the treadmill trajectory has been upward although over the last 3 quarters. Yes.

There are the usual engagement processes that we have with customers, et cetera, which we are doing. And we are confident that we'll be able to stay in that range.

Okay. Okay. So the only -- maybe the context was, would we ever look at maybe lowering the rate in order to maybe manage this at a lower level? Would that be one of the requirements or not at this point in time?

No, Kunal. Actually, we have done that analysis. And frankly speaking, the balance transfer rate at lower rates is higher. So if you look -- if you plot the balance transfer rate, right from, let's say, 9% customer rate, interest rate to 14%, it generally tends to be higher in the 9% to 10% or less than 9% range. So the lesser the customer is paid upfront, he is more sensitive to the rates. So that's -- I mean, so reducing the rate by 20, 30, 50 basis points, it doesn't generally help.

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

Can you speak about the expansion in branches and employees that we are talking about? And which will lead to our OpEx ratio increasing to 3.2%? Can you speak of that? What is the number of branches and which locations we are adding? And what is the quantum of number of employees that we will be added and time frame as well?

Yes. So we have prepared a plan for the next 3 years, and we are in the process of rolling that out and implementing the plan on the ground. It basically involves a deeper presence and distribution in our 6 chosen states, which is Gujarat, Maharashtra, Tamil Nadu, Karnataka, Andhra and Telangana. We are looking at -- over the next 2 years, we are looking at doubling our sales workforce on the ground. So that plan is again underway in whole hiring, training, et cetera. We have identified a set of close to 350 towns where we want to be present in the next -- by FY '24. Part of which we have already covered about 180 of them, and there is another 180 to be covered. So we have a quarterly plan for those -- for the rollout of distribution in these remaining 180 towns. So all of that is underway. So every quarter, as you can see the number of towns that we are present in the distribution points are getting added. And that is all basically the implementation of our, you can say, distribution strategy for the next 3 years.

And in that context, our ROE target of mid-teens will get pushed to some couple of years or it will remain over the next 2 years, we expect to reach [indiscernible]?

Yes. The target is to get to meeting in the next couple of years.

The next question is from the line of Chandrashekar Shridhar from Fidelity International.

I have a few questions. One is, you have said that, I think at the end of the first or the second quarter is that if you are BAU that you typically focus on reducing your NPLs by about 10 bps per month so that the exit under the old norms would be about 1% by March. We're at 170 under the old norms, are there any reasons why we are still not bear just from a target perspective? Then just related to this, you did say that the LGD on the apartments was -- what you wrote off was 25%. I thought you did say that you sold about 200 apartments in the route of INR 8 crores. It seems like the LBD was 40%. So just trying to understand that. Third was, where are just we in conversations on a rating upgrade? And given where our cost of borrowings, will that result in any meaningful change in the cost of funds? And this last one is, given where our yields are currently , can we -- do we have the ability to price up, keeping the similar business mix to keep spreads with these levels or if cost of funds go up, that there will be maybe a slight downshift in spreads?

Sure. Okay. On the NPL side, I think I will probably talk about the 1-plus and 30-plus metrics, which are significantly improved. So we have actually focused on improving our early delinquency, because eventually, that is what will be. I mean, the flows close will come from there -- the NPA flows will come from there. So this quarter, there has been a lot of focus on bringing that down. And I think that improvement, which we are -- there is more than a 1% improvement in 1-plus, for example. So all that improvement will flow through. Plus, the talking about the 10 basis points of the reduction back to pre-COVID levels. It will require a stretch of period where there is no disruption. Unfortunately, again, we have had COVID wave 3 , and we'll have to see how that plays out. So a stretch of 6 to 9 months or 12 months is required to get things back to a pre-COVID level. So we are hoping that now going forward, we will -- hopefully, this year, we will have that, let's say, continuous stretch. Coming to the NPAs and write-offs. So yes, if you take it as a clear, I mean, as a state percentage, you're right, there is -- it works out some 40% -- but this is largely what Nutan was mentioning is that out of the 200 properties that we have sold, predominantly, the properties have been sold at 20% to 25% kind of an LGD. And there are a few properties where we have, let's say, poor chances of recovery, et cetera, where we have taken a larger write-off or written it off. So I think as a combination, you are seeing a larger number. But predominantly, I mean, the 200 properties that we have sold, we are in the region in the ballpark of around 20%, 25% LGD. I think your third question was on the pricing, our ability to price, the pricing power and the commentary on cost of borrowing. So let me take the pricing power first. See, we have historically competed in very competitive markets, larger towns, in the apartment segment, et cetera. And we have doubled competitive advantages in that segment, which allow us to still get us good pricing from the customers. Now today, at the juncture, we are at -- we have the distribution that we are planning is in urban periphery, smaller towns, et cetera, where the ability to price is much better. So the 180 towns that we are now planning to go into are -- you can say a relatively less competed or less competitive towns and hence, the ability to price is better. Similarly, our -- so far, our exposure to LAP, et cetera, has been fairly low. That's another area where there is a headroom for pricing. So we are still at about 10% penetration on LAP and high-yielding products. So there, again, there is some headroom where we have ability to price. So the pricing, our ability to price will be strong going for the next couple of years, as we go into smaller markets and do a bit more of LAP, et cetera. On the cost of borrowing side, yes, we have enjoyed very good cost of earnings this year. And some of that is likely to -- I mean, the cost is likely to tighten over the next few quarters and some of those gains may go down. But we'll have to wait and see. As of now, it's still early. And last quarter, we have only -- I mean the cost of borrowing has increased only by 10 basis points.

So you're saying that, I mean, cost of borrowing goes up, is a possibility. While the cost of borrowing goes up, you can maintain this level of pricing, but you can't sort of -- you may not be able to up yield beyond a certain point, which is why maybe they could be from where the price are right now, there will be a 50 bps downtick over maybe the next couple of years?

Yes, that's right. So if we are going -- if you're going to see a continuous, let's say, period of cost or borrowing increase of, let's say, 40, 50 basis points is, we may be able to claw back some of that, but not entirely.

Sure. Can this be elevated by if you were to get a rating upgrade and the impact of cost...

So Chandra, as you would have seen with ICRA, our rating outlook has got upgraded. So I would give it a time period of 6 to 12 months, assuming that we continue to perform on all parameters. So the conversations are going in the right direction. So I think that's the time frame we are putting, 6 to 12 months.

Sorry, just to -- does this result in cost of funds dropping here on? I mean, relative to where we are?

Marginally, it opens up more opportunities from a liquidity standpoint, let's say, the insurance companies and a deeper bond market. So those are the bigger benefits. If I have to look at from an ALM perspective, a 7-year -- the pricing will change meaningfully, may not be, maybe 10, 20 basis points, but not very meaningfully.

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

Congratulations to you and your team for the good set of numbers. Sir, my question was with respect to what would be the incremental yield in the housing and in the LAP segment currently for the quarter? And what was it during 2Q FY '22 through 3Q FY '21? And the second part of the question is that you've seen a share of LAP inching up marginally. So would it be a thought process that we would take the share higher of the LAP to support NIMS going ahead?

Yields are in the region of 12 -- 13%, 13.1%, I think the yield incremental -- incremental yield for quarter 3. And I think -- sorry, was there a question related to that?

Is that for the housing and what will be for the LAP?

So LAP yields are generally in the region of 14.5% -- 14.5% to 15% and housing yield typically between, say, 12% to 13%. And since about 10% of the -- 8% actually of the AUM is LAP, I would say, housing yield would have been about 12.7%. Yes, 12.8%. So the housing yield for the last quarter is 12.8% and LAP yield, as I mentioned, 14.5% to 15%, giving the overall blended deal of about 13.1%. So we have always guided that there will be some creeping up of LAP because as we increase distribution points and we have a more mature presence in our existing markets, there is a lot of demand for LAP product. And as we also understand the market is better, we don't say no to customers. So it's likely to inch up, but not -- we're not looking at some dramatic change or increase in LAP. It's likely to inch up and we are comfortable up to a 15% or 20% kind of a number on an overall basis, which will probably take a few years. So as you can see, it's probably inching up by 1% every quarter. So to get from the current 8% to even 15% will probably take us 8 quarters.

Got it. And what would be the -- like if you can give some color on the LAP loan book? When you track the end, would it be more for the business purpose? Or would it be more for the personal use of the people?

It actually falls in 3 buckets, the LAP loans that we do. A large part of it actually about 40% of customers who have recently built a house. And when they were building the house, they decided to borrow from friends, relatives, et cetera, and then once they have completed the house, they realize that some of the money has to be returned and they take a loan against the property to the refund or reimburse the relatives, et cetera. So that is a big chunk of LAP that we do. It's really housing finance, which comes at a lag. And it's just classified as LAP. The other 2 buckets are consumption and business. So about 30% of the business, 30% of the LAP business is for business use. Businessmen who want to increase the inventory and things like that. And another 30% is consumption. So medical expenses, educational expenses, marriage expenses, et cetera, things like that.

Got it. And there was a discussion with respect to co-lending. So what is the -- what is your thought process? Like what percentage of our AUM would we want to limit that channel of business in our overall AUM?

So again, we have to see how this pans out. And maybe I'll start with the objective of this whole program. The objective of this program is to leverage our existing distribution. We have a strong presence in the apartment segment, and even in the self-construction, we work through channel partners, so connectors, et cetera. So every day, we come across customers who are rate sensitive, who are more formal customers, who have proper documentation for income, et cetera. And we have to let go of such customers because they are rate sensitive. So the idea is to leverage our distribution and also onboard some of these customers under the co-lending program. So that way, it improves our -- improves the productivity of our own network and our branches and allows us to leverage our infrastructure better. That's really the objective of the program. How much to do is a function of -- how much we can do without disturbing the existing business. So we don't want to cannibalize the existing business. We don't want to lose the focus on the existing business. So we will tread very carefully in terms of how we implement it on the ground. And maybe to begin with, I can -- since you're asking for a number, I would say maybe 10% of our business is something that we would experiment -- maybe we can experiment with. And then we will see how it goes. We are -- like I said, we absolutely don't want to lose focus on our affordable housing, which is our strength in the market.

Got it. So basically, it will be for the same -- I mean, for the rate-sensitive customers who are in the same ticket size? Or will it be focused towards relatively higher ticket size?

Tickets size, there could be a slight uptick in ticket size because actually, the customers who are rate-sensitive and whom we lose are also looking at a slightly higher ticket sales, but within the priority segment. Because anyway, this program is applicable only for priority sector. So the highest ticket size is that we can offer under this program is only INR 35 lakhs.

Right. Got it. Sir, one last question was, that we brought down the liquidity on balance sheet to almost 11%. So will this be -- is this the level that you will be maintaining at BAU level?

That's right. Yes, we'll maintain about 1 quarter of disbursal approximately as balanced sheet would have be.

The next question is from the line of Karthik Chellappa, Buena Vista Fund Management.

Just 2 quick clarifications. On the co-originating model, so basically, the arrangement is that 20% of the loan stays on the balance sheet, and we also get a loan servicing fee. And if I contrast this, let's say, with our direct assignment, where 10% of the loan actually stays on the book, based on what limited business you've done with Union Bank till now? How does the yield on securitization compare is the NIM plus fees that you are earning on the core lending model?

So I think the difference will be primarily the fee that we are earning, Kartik. And maybe a slightly better spread.

So can we say that the core lending model on an ultimate spread level, including the fee is actually better than securitization from a yield perspective?

Yes, you're putting us in a spot, but yes, mathematically yes.

Okay. Mathematically yes. Okay, that is useful. And the second one is, if I were to look at the 6,000 odd cases, which have been directly assigned so far, of which 10% you have retained on the balance sheet, the holding period after origination was about 20 months and the remaining period is about 207 months, which adds up to about 227 months or roughly 19 years is the total duration of the loan. This seems to be slightly on the higher side because I thought usually the loan tenure is something like 13 to 14 years with the actual duration being somewhere between 67. This 18 to 19 looks to be on the higher side. Is that the case? Or is that pretty much the total duration for most of the loans.

So Kartik, I will get started on this. What you're looking is at the disclosures in the financials. So the holding period, the residual holding period is coming to 19 years. It is -- so as contracted, tenure is 20 years or 25 years. So that's what you are seeing. On behavioral, it will end up being 7 years, which is what is the real performance and on the book.

And [indiscernible] is what you will use to complete your NPV for our securitization case, right?

It'll be behavioral tenure, not this tenure.

Behavioral tenure, 7 years, okay. Got it, this is very clear, Nutan.

The next question is from the line of Abhijit from Sundaram Mutual Fund.

Congrats on a good set of numbers, sir. I just have one question. What is the outstanding restructured book as on date.

Outstanding?

Sorry, outstanding?

Restructured book.

Restructured book. Restructured book is same, INR 30-odd crore or INR 30 crores or so, which is about -- right now, it stands at about 0.76% of the year.

Sure. Is the momentum in disbursements expanding in Q4? And what -- if you can -- without telling us what numbers, what do you see on ground?

On ground, demand is very, very strong. Actually, between the 2 waves, I managed to travel to quite a number of places across the country and also speak to customer, connectors, et cetera. Demand is phenomenally strong in this segment, and it's a constraint is only how much we can kind of take in and how much you can process of these loans. So very, very strong demand, and we are seeing that. So we are kind of implementing our distribution strategy. We are focused on getting deeper into the focus states that we have and build up the distribution. So very, very strong demand on the ground.

And this is without even diluting any underwriting requirements, which you...

Absolutely, yes. Without diluting without -- I mean, without considering new segments.

The next question is from the line of Pooja Ahuja from Monarch Networth Capital.

Congratulations on great set of numbers this quarter. I just have one question. So this quarter, we've seen some level of branch expansion and employee addition. And we have guided a 3.2% or -- 3.2% OpEx to AUM. But our OpEx this quarter has largely been under control. So do we expect -- are we still maintaining that 3% guidance for this financial year? Or are we expecting -- and so then we are expecting a bulk of these cost sort of come in the next quarter?

So quarter 4 is what we're expecting 3% and going forward as well.

Yes. So I think the number of people addition, et cetera, was still not very large this quarter. As those numbers start increasing further, you will see the impact on OpEx.

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

Yes, just one may follow-up. [indiscernible] when I asked you -- and when I'm going through the notes through the financial statements, [indiscernible] -- the P&L impact of write off side.

Abhijit, say again?

[indiscernible] during the quarter.

Let me explain this for benefit of everyone. So the P&L is INR 6 crores. The write-off impact is INR 2 crores. For new growth, which is essentially sitting in Stage 1, that is approximately INR 2 crores. The NPL reclassification, which has moved into GNPA or Stage 3, the reclassification impact is INR 1 crore. And the balance INR 1 crore is, some slippages from 1 bucket to the other. So that's the total of INR 6 crores that you see on the P&L. Against this INR 2 crore of write-offs, the loan value of the write-off is INR 8 crores and there are approximately 200 accounts where we have had to take a write-off. There are also some loan accounts, which we closed, which we did not need to take any write-off. So that's the full mathematics of this number, I just thought I'll spell it out.

The next question is from the line of Rahul Maheshwary from Ambit Asset Management.

I had just 2 questions. In the -- just recent remarks, you had said that for loan against property, the 40% of the nature of the transaction is towards those who people take and repay to their own relative, so the loan against property, the collateral is the same house property. So what is the -- how the LTV moves? Because while giving the home loan to that same the LTV would be generally at 55%. And then when the loan against property, a small portion is given how the LTV moves for that same property or is there a different property you take as a collateral?

No, it's the same property. So customers, when they construct a house, typically, the construction stages. When they start many customers sometimes want to do it with their own funds. So they start by doing with their own funds, but they realize in between that they have to borrow. And many of them are not aware that housing loans are available, et cetera. So they end up taking some friends, relatives or even local money lenders and so on and complete the house. So after completing the house, they go through a phase where somebody wants the money back and so on. So that's when they realize that, yes, I can take a loan against this house and they come to us. The LTVs generally are as per the loan against property product, which is generally, we do about 40% to 50% max. So typically, it stays in that range only. So we don't do -- I mean even though it's the actual, you can say, product or actual requirement is to -- is to own that house, we don't take the LTV up too much, generally in the 50% range only.

So, Manoj, the same customer who has taken the initial home loan, how many are the overlaps taking the LAP also with you? Or they are...

These would be customers basically -- see, what we're talking about is these are customers who would not have taken a home loan in the beginning. They are basically trying to manage with their own funds or borrowed from rents, et cetera. And they don't have -- there is no loan against that property.

Okay, okay. And that's very helpful. And second thing, can you give some sense on the recent write-offs that had taken place? No doubt, Nutan has explained all financial details everything. But going forward, are you finding such a stress which you had witnessed in NCR where you had sold off the property? How the ground level activity is taking place? Or still you are finding such instances can take place where a few of the properties can be written off until and unless [indiscernible]?

So this is more of a COVID impact or COVID stress. And as Nutan mentioned, we had already -- I mean, since we have been last 4 quarters, you would have seen we have taken a lot of provisions. Even today, our provision stands at 1.2% of the AUM, which is fairly high, right? So as a result of that -- and this is just the process of now liquidating these properties, right? So while we have liquidated a large number of properties, there's still -- and we have -- we can say, written off a large number of -- I mean, settled or sold a large properties, the P&L impact is only INR 2 crores, as Nutan mentioned. So which means we are obviously -- we are carrying a lot of provision against those properties already. So we are likely to see this for a couple of quarters as we dispose of more and more properties. Because we are still, at the end of the day, we are sitting on INR 68 crores or rather right now, INR 100 crores of NPA. So as we try to bring this NPA number down, we'll have to basically sell these properties, and there will be some loss that we'll have to take in these properties. Because as you can see in the market, there are a large number of entities, which are also trying to sell properties. So there is -- especially in NPA properties, there is some loss that we'll need to take. So this is -- that is where this is coming from.

So basically, the [indiscernible] 25%, and you are taking a write-off for those properties because of the COVID impact that is taking place. So on P&L impact, the 20%, 25% of the provision will definitely get build up. So rest 75% is at least the recoverable value. Am I going right or...

No, you are absolutely right, but in many cases, recoverable value will be even lower because -- especially because there's a dumping of properties in the market, right? So because of that, we'll have to take some write-off in all of these cases.

Okay. And in your loan mix, how much is linked to floating or fixed? Any such nature? Can you give a highlight?

It's largely floating only. So -- except for a small portion of loans that are linked to an NHP scheme, where we are supposed to offer a fixed state to the customer, rest is all floating. So 90% plus would be floating. Yes, in those loans or those fixed -- those loans fixed rate loans, we also get a fixed rate from NHP. So in effect, it is back to back fixed.

And just last question, Manoj. On a strategic level, as you have -- you are going slow on the state expansion, whichever state you are going, you are more deeper into that. But any going forward in next 2, 3 years, which are the new states which you would be panning out to expand your branches, et cetera? I mean, how the network expansion is in the radar for you?

So all of these 6 states, which are mentioned are focus states for us as far as the network expansion is concerned. Gujarat, Maharashtra, Tamil Nadu, Andhra, Telangana and Karnataka. So we are at varying stages in varying or varying levels of distribution or penetration in each of these states. So for example, in Gujarat, we have very strong and deep penetration. And so we -- our attempt is to kind of take that -- or take it to that level and all the other 5 states as well. So all these 6 states -- at the end of maybe 2 to 3 years, we want to kind of be at a fairly deep level of penetration in all these 6 states.

The next question is from the line of Dhruvesh from Mirabilis Investments.

So I have 3 questions. So firstly from the connector front. So if I look at the sourcing mix, so roughly 65%, if I include the micro connector, comes from connector. So like, what this number would be as of now? And like, since it's like 2/3 of the business coming from connector, so fundamentally, like how do we see this? Are we comfortable with this? Because -- like, I'm trying to understand why -- fundamentally, why would a connector set for us if we were some competitor. I mean, what if the competitor raises the payout to the connector. So why would we have a reason to stick with us? So that's the first question.

So it's -- if we want to get into, let's say, a very deep level of penetration in the states where we are present, we need a local connect with the customer, because we are talking about customers who are probably building or buying a house for the first time in their lives. And you need to reach out to the customer at that -- you can say a specific moment when you he is thinking about purchasing the property or building the property, which a local person will be able to do better, right? So in each of the market, you need somebody who is locally connected, with the local, you can say, ecosystem and who knows immediately when a customer is looking to purchase a property. So that is the connector network. And just like any other dealer network or distribution network, we will have to engage with them. We will have to provide good service and have a method of kind of developing or nurturing that network, which is what we are doing. It is not entirely about payout, because payouts are fairly generic in nature. There are no players who are offering substantially high payouts, et cetera. So there is generally 20 to 40 basis points, 50 basis points kind of a payout that is a norm that is there in the market. And generally, everybody practices is the same. So like I said, it is like any other distribution network, where you have to nurture the network using both qualitative and quantitative methods, which is what we are doing. And technology helps to some extent, plus our let's say, focus on turnarounds, et cetera, to some extent. So we are able to engage these people on mobile apps, provide them various promotions on mobile apps, et cetera. So that is how we nurture that network.

Okay. So like do we expect this number to remain stagnant? Or would it come down gradually, like disconnect the network or concentration?

No. I think in some form or the other, the connector network will be there. So which is why we have kind of also divided into different categories. So there is a builder ecosystem, there is a financial connectors, there is construction community, micro-connector, et cetera. So while one goes up, the other might come down kind of a scenario, right? So -- but ultimately, there has to be a local connector or a local person in the market in the ecosystem with whom you'll need to have a tie up to understand who in that market is interested in taking a loan. So that's really how we are seeing it.

Okay. And my second question is with respect to the branch target for the next 3 years, like you did talk about doubling the sales force -- ground level sales force in 2 years. But like fundamentally, I'm trying to understand how do we expect the AUM to double from your -- like would it majorly come from the branch network? Because right now, we are at some INR 66-odd crores that is a loan per branch. So do we expect that to go up substantially or the substantial increase in AUM would come from the increasing number of branches. So some -- your thoughts on that?

So both will work in supporting each other. So our branch network also, we are looking at increasing it from the current 76 to about 140 in the next 2 years, right? So that number is also almost doubling. Plus the number of distribution points are also going up from about 180 to 360, we are planning. So both new locations, as well as the existing branches, physical branches are going up. From the existing branch network, again, we will get some throughput, because some of the digital branches are serviced or [Indiscernible] the large existing branches. So it will be -- it will be both. Existing branches have to go to the next level, and there will be -- currently, about 25% of the business comes from new distribution expansion, but then, that is a rolling number. And so we will be in the 25% to 40% ballpark number for new distribution expansion or loans coming from new distribution expansion for the next couple of years. And the balance will be coming from our existing branches.

Got it. Okay. So my next question is on the -- you talk about the [Indiscernible] rate in the floating. So is it only linked to repo or -- and when the repo gets repriced, in what time does the repricing happen to the customer in the time frame?

It's actually largely linked to the MCLR of banks, which are lending to us. That's what it is linked to. So our internal PLR or lending rate benchmark is linked to our borrowing rate, which in turn is linked to the customer rate. So if the MCLR changes, then our internal benchmark also will change. When we pass on, we normally have some threshold after which we pass it on. So if it is only 5, 10 basis points, we normally kind of absorb it. Because the cost of passing it on, the logistics, et cetera, will be challenging. Plus, it also makes it very unpredictable for customers. But if the change is more in the market, then we will be able to pass it on. So since it's all floating, and we have done this in the past, it's not a challenge. We can pass it on to the customer.

Okay. Okay. And my last question is on the LTV. So like, the LTV on [indiscernible], on a blended basis is on 47%. So theoretically speaking, like on INR 100 crore exposure when we have just given an INR 47 crore loan, then theoretically, we don't expect a write-off. So like the write-off, which we talked about earlier, is this because of that COVID impact? Or do we expect some miniscule write-offs to continue going forward as well? So...

Miniscule write-off will be there because of COVID impact. So out of the INR 100 crores, let us keep aside the INR 33 crores, which are there because of the classification. Because those are most -- those are high, better quality customers who are paying some installments, et cetera. So let us talk about the INR 68 crores, which are more chronic NPA. So out of INR 68 crores, let us say our attempt is to bring that down over the next 1 year. So whatever properties we are disposing, we are likely to take some -- there will be some impact of selling those properties. So that is the write-off that we can expect going forward.

Got it. Okay, and just one data keeping question. So the NCD, which we recently issued to from ICICI Prudential, the INR 99 crores. So I wanted to understand the tenure and the rate of this again.

So it's a 2-year NCD, it has a structure around the put option at the end of 1 year and the pricing is 7%.

[Indiscernible]

7%.

Okay. Okay.

The next question is from the line of Shubhranshu Mishra from Systematix.

Just a few follow-up questions on previous comments. You mentioned that we'll have this -- we are trying to have this LAP uptick in Tier 2, Tier 3 cities. Is this more to do with a longer time frame for the home loans to breakeven? Also, how do we manage the liquidity risk of the LAP itself, as we go down in the tier of the city, the liquidity of that property also comes off? So that's the first question. Second is on the insurance attachment. We mentioned that we have 100% insurance attachments, which are the insurance companies will work with or we give the customer a freedom of choice. And is insurance part of the same home loan or is it a separate loan?

Yes. So first question was related to liquidity of properties in smaller towns, right? I mean, across both home loans and LAP, or was it specifically to LAP?

Why are we more inclined to increase the proportion of LAP? Is that more to do with the breakeven time of PHL, has the breakeven time of PHL gone up?

See, what happens is because we are dealing with external channels, and we have our own branch distribution also. So generally, in the market, people see LAP as a related product. And if a customer wants a LAP, he walks into a housing loan company. Similarly, our channels, connectors, refer LAP cases also to us. So while we are not actively pursuing a LAP number, 10% -- 10% to 15% of the loans that come through come for loan against property. And if we find that the profile is good, if we find that the loan is a doable loan, then we go ahead and approve it. So which is the reason our LAP number is where it is. So we are not really actually pursuing our target or a number for LAP. And as far as properties are concerned, smaller town versus larger -- things that are -- has its own pros and cons. So when we say smaller town, we are not really going very remote. And there -- there is a very thin population or whether it's a liquidity issue. I mean, these would be reasonably large towns and where there is a vibrant market for property. So I mean, just to put things in perspective, for example, we are currently present only in about 150 towns. Whereas, if you look at Domino's or McDonald's, they are present in 300 plus towns. So I mean, simple benchmark is that any town that we go ahead, there will be a vibrant market for a house that we are financing. So that's on the liquidity side. As far as the insurance question is concerned, we work with Bharti AXA as the insurance carriers. And we have been working with them for a while. And it is -- we finance the premium, and we book it as a separate loan. So it's not part of the housing loan, it is a separate loan. We -- I mean, all the clarity is given to the customer that there is a separate loan that is being booked to finance the premium of payment of the insurance. If we have done on it that way because some customers prefer to sometimes pay of the insurance loan faster when they get some extra funds. So we have kept it for convenience. Plus also, as per the income tax rules, your housing loan benefit cannot be extended to the insurance loan. So which is why we keep it as a separate loan.

Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

Yes. Thank you, everyone, for joining on the call. I hope we have been able to answer all your queries. In case you require any further details, you may get in touch with Manish Kayal who heads the Investor Relations function or you can get in touch with Orient Capital, our external Investor Relations advisers.