Mahindra & Mahindra Financial Services Limited (MMFIN) Earnings Call Transcript & Summary

Thank you, [indiscernible]. Good morning, everyone, and thanks for joining the call. On the call, we have the entire management team led by Mr. Ramesh Iyer, and Vice Chairman and Managing Director; Mr. Vivek Karve, the CFO of the company and Group Financial Services sector; Mr. Rajnish Agarwal, Executive VP, Operations; Mr. Dinesh Prajapati, Head, Accounts, Treasury and Corporate Affairs; and Mr. Rajesh Vasudevan, Senior VP, Accounts. We thank the management for providing us the opportunity to host the call, and I now hand it over to Mr. Iyer, who will make his opening comments, and then we open up for Q&A. Over to you, sir. Thank you so much.

Good morning, everyone, and thank you for joining this call. Let's begin from where we left when we had a call in July, where we said that we do see buoyancy in the rural market and the sentiments are turning positive. Rural was a little better insulated from the COVID situation as compared to the urban market. And our branches were opening up and were able to mow on the marketplace, meet consumers. Consumers were visiting branches, dealerships, et cetera. And we continue to say so, and we continue to maintain that position. Definitely, while we are hearing that the COVID has entered some of the rural market. But again, to be more clearer, they are in the real urban centers of the rural market, not gone as deeper into the villages and things like that. And therefore, our people are able to go on the street, meet customers, are able to go to dealerships and the thing seems to be much more normal than what we see in the urban centers. So far as the demand for vehicle [indiscernible] we believe that the demand is still high, the people -- the consumers are visiting dealerships. The footfall is definitely high. And the OEMs have not been able to fulfill the demand because of their own supply constraints and there have been shortages of some vehicles. But as we speak now for the festival season, definitely, the OEMs have stepped up their supply position. And inventories have gone up. The demand is definitely picking up. And the retail deliveries are happening. And we do believe that the 2 festivals that is Dussehra, Diwali put together, by number should more or less be equal to what we saw in the last festival, that is, last October, November, Diwali, pre-COVID festival. There could be some volume increase in certain brands. But overall, my belief is that the numbers would possibly be similar to what we saw then. The sentiments continue to remain positive and the monsoons are definitely a great add-on to that. We had a good crop gone by that the cash flows did show substantial improvement, the farm cash flows did pick up well. Even the current monsoons are definitely a good sign of a good future. I think the water levels have gone up and not just it will support this crop, but I think going into the next crop, this will be of a great help and support. We do believe that the yields will be high and our own understanding is the government will also look at a decent support price, which should help the overall farm cash flow to be better as we move into the season. Similarly, we also think the infrastructure is opening up, though not very aggressively. But yes, in different states we do see mining opening up. We are able to see some coal auctions happening, road projects commencing to happen. And that adds to a good positivity to the rural market. And we definitely have been the beneficiary of these cash flows, and that is reflected in our overall collections during this period. If you recall, we had talked about the moratorium being offered to consumers was very high at about 75 plus percent. And we did see collections coming from those consumers. And we're happy to report that 70-odd percent of the consumers who are taken moratorium have serviced their loan. But just as a clarification, not that all of them have paid all installments between April and August. Some of them have paid maybe 2 installment, 3 installments, different installments, but definitely, we've seen movement in those accounts during this period. As we entered the moratorium in August, definitely even in September, we saw the collection efficiency is hold up, and we have seen collections from all these -- many of these customers during this period. There are certain segments which continue to remain under pressure, and we believe they will take longer to bounce back, and we have talked about it even in our earlier calls. And to remind that those segments are the taxi aggregator segment, the school bus segment, the heavy commercial goods carrier, trailer, container movers, as well as the vehicles, which are attached to hotels and tourism centers. These 4 segments, clearly, we see are under pressure and possibly will remain so for a couple of months, more at least, the school bus operations would start to commence only in the next academic year. So far as the aggregators are concerned, we do hear and believe that with airports opening up and some of the offices opening up, et cetera, these vehicles have started registering some revenue, though not at the earlier levels. Again, commercial vehicles, slow movement in terms of goods caried is concerned. It could take another 2 quarters before we can say that they are back to some kind of normalcy. The tourism center vehicles are redeploying their vehicles for alternatives wherever they can. And therefore, there is a pressure on their revenue. And those are the segments which have not been able to service their loan during this period. And probably -- and these are the consumers who may come up for even restructuring when we look at restructuring for these customers. But as of September, we have not done any restructuring. Even as we speak to you today, we are still not commenced any restructuring. We first engaging with the consumers, understanding their requirement. Based on their needs is what we will consider restructuring for customers, but we don't expect more than about a 1,00,000, 1,50,000 consumers who may ask for restructuring from our overall total base of about 20 lakh customers that we are servicing currently. We also think that the restructuring that will be asked for by these consumers are not something that they're asking for 2 years of repayment extension, et cetera, et cetera. Very interestingly, when we went across different states and understand what the customers' needs are. Some of them are just wanting that they be allowed to service their interest for the next 3 months or so, and then they can repay -- restart paying the installment. Some of them are saying we can start paying immediately, but bring down our size of the installment. Some of them are saying, give us another 2 or 3 months' time, and from January is what we will start to repay. And some of them are saying that overall extend our contract by 3 to 6 months and bring down the installment all through the period. Some of them are saying just reduce the installment for 6 months to 1 year, then on go back to the normal EMI side. Good news or anything on the wall of this is that there will be no major impact or deterioration to the collateral because the period of the contract is not substantially getting extended. While during the tenure of the contract, the installments are getting restated. These are our understanding after meeting the customers. As I said, not yet any restructuring is done. But once we embark on that journey, we don't believe more than a 1,00,000, 1,50,000 customers would come in for that. The second half for rural is always good, and you have seen our accounts historically. In the first half, if you are able to manage with good recovery in spite of moratorium between April and September -- April and August, we do think that we can see continuity of collections to remain buoyant because the harvest would come in maybe a little delay, especially with this untimely monsoons in Maharashtra, which would have impacted some crop. But good news, Maharashtra is very sugarcane dependent. And sugarcane has not been hugely impacted. So the harvest could get a little delayed, and the sugar factories could start a little late. So therefore, the cash flows may shift from October/November to maybe go to January types. But nevertheless, the money would come back, and we do think that we will be the beneficiary of the improved cash flows from the rural market in the next 6 months. I think in the same breath, we also believe that we don't, therefore, see any spike in the NPAs happening. But surely, the 3 or 4 segments that I talked of, barring the contract that will go in for restructuring, I think some of those contracts will show signs of non-payment and it will lead to some increase in NPA, which is why the company continues to have its overlay continuing and will make an aggressive stance of provisioning and can always try and keep the net NPA levels to be at around 4% or even below based on how the whole thing pans out. But surely, we want to confirm that we don't see a spike of NPA going forward from here. From a growth perspective, I think we are definitely benefited by being there in the rural market, while the volumes are yet to pick up, but we don't see any loss of market share. We do maintain our market share or even gain in some of the markets. But we are cautious in terms of lending is concerned, given Bihar goes for election. So you've gone a little slow in that market on how much to do, what to do. Similarly on the tractor front, while we see demand of tractors, but mainly driven so far by farm tractors and not driven so much by infra. And once that opens up, then that volume will pick up. As otherwise, we are cautious when a contractor wants to buy a tractor. We are kind of taking a little cautious steps around that. Pre-owned vehicle demand has been good, but supply side, again, is choked because there are limited repositions. No exchange program happening so the supply side is not very aggressive. But I would think that post festival, one would start seeing even that to begin to happen. But putting all of this together, do we see a substantial growth up to March in terms of disbursement? My answer would be, no. It will be a cautious growth. But definitely, we will see quarter-on-quarter improvement, though it may not meet or show growth over the previous year numbers. Maybe some months may show like October, November because of festival, the numbers will look similar or slight growth. But on an overall basis, having lost the first 6 months with low volumes. As we close the year, we would possibly, definitely see not a growth over previous year. But October to March, if you were to cut off and see, there could be some flattish approach rather than a degrowth this time. That is as well as the overall disbursement growth. I think given that situation, I think the AUM growth will be range bound between 8%, 10% kind of a situation because not too many contracts would also mature while a marginal asset addition does happen. But to get back to a 15%, 20%, 25% kind of a growth slowly, I think it will all go post March once we start seeing things to settle better and starts to improve. Our focus on cost rationalization continues, and we are very, very focused on each line item, and I explained about this even last time. While there are benefits because of the variability of the business volumes, et cetera due to COVID, but removing that apart, like mainly some traveling expense and some kind of people cost could be because of such variability. But even otherwise, on very, very basic fundamental line item like the security services, BPO services, advertising expenses, legal expenses, all of this have been revisited and rent for our branches. All of these have been revisited, and we do believe that whatever savings that we have got are sustainable. But yes, today, the cost would have -- to that it would have come to a sub-2% level. But as it speaks of the market picks up, the volumes begin to happen, et cetera. And if you start growing at 20%, 25%, maybe this 2% will also go up to 225, 240 basis points, which is what I've always said that from a 3-odd percent, we'll first come down to 2.5% before we can really go to a 2% level. But definite savings on the cost front has been a very focused approach of ours. So far as the margins are concerned, I think the yields are holding up. We don't need to really drop rates, and the product mixes are definitely better with increased tractor numbers and premium vehicle numbers. But we have resorted to storing liquidity, and therefore, the carrying cost is something which builds pressure on our margin. I think if I'm not wrong, Dinesh or somebody can clarify, but about 50, 60 basis point pressure would come from holding large liquidity for any eventuality. Fortunately, things have changed for good in a sufficient liquidity availability. When we took this decision in April, it was very unclear. And therefore, we did resort to storing. But now as we speak, we do see ability to raise funds from every source at a very, very attractive price. And therefore, we will now start relooking at how much we need to really, as of the buffer liquidity rather than storing large sums. And that could ease out and that margins will start to show some improvement arising out of that in the next 6 months. So that will be and as far as the overall margin is concerned. As I said, we do believe the collections will hold up, and we do believe that the NPAs will not show spike and we could see blunting of NPA and maybe if the crop cash flow does come the way we predict that if the yields would be good and the support price would be good, we can even see improvement to this number in March. So I think, overall, we think that things have gone well for us from every front, whether it is from some basic disbursement to ability, to raise funds, to be able to maintain margin, to maintain collections and asset quality as well as control cost. I think in every stage of a line item that we looked at what we need to do seems to have gone well for us. On this parallel side, we are investing adequately in our digital initiative and the data-based approaches. And we are giving alternate solutions to consumers for their repayment, not necessary that they need to come to the branch and pay. We have made arrangements for them at different pockets. On the branch expansion, you would have seen some contraction to our number. It's mainly coming from, again, rationalizing on our regional offices, not necessarily the branch office, which are customer-facing. So in every state, we had more than 2 or 3 regional offers, we have consolidated them, and we have created 1 service kind of an approach. And that has released to some of the large regional offices, which are not required, and we have redeployed the people across the country. I want to confirm to you that we have not reduced people in terms of the current situation in their number of count. But as I said last time, we are not adding people, and we are redeploying them more meaningfully, internally. And therefore, you would see some number being flattish. And if people who are resigning in this period are not being replaced. So you would also see some reduction to the number that has happened and people being deployed better and more logically across. On specifically on various NPA fronts, our actions have been that we have identified NPAs by product, by region, by branch location and by application of product. And a specific team of about 2,000 people being earmarked specifically to handle these contracts for the next 6 months. And we believe that, that approach of ours, like in the past, would substantially bring down the NPA by better recovery from these consumers. As I said, they are resorting to settlements and show repositions and therefore, that could happen. But what can happen post festival once things starts to improve, I think consumers will start to earn but are not able to service loans may either surrender or [indiscernible] those vehicles and settle them off. So we would maintain that aggressive stand in as far as provisioning is concerned and liquidating NPAs is concerned and bringing down the overall NPA levels. We are working hard to bring down the NPA at least by another 1 percentage point of gross and take the net NPA levels to sub 4%, and we believe that all actions that we take and the support of the market that we see from cash flow should enable us to reach those levels. So I would kind of stop there. I think I've covered on all the fronts. Just few lines on our subsidiary companies. In our rural housing, again, I have always believed that's our growth engine. We have started seeing improvement there. Even they have started taking some aggressive stand on provisioning. And Maharashtra has been one power market where they have had higher pressure points, but some improvements in Maharashtra also have already been registered, and we think that book will be a correcting book. They are cautious on their lending. They have, in fact, not lend during this period. They are focusing on corrections. And I would believe that as we close March, you would see good correction to the overall NPA numbers then and sufficient provisioning would be made to bring down the net. And then only they will commence their disbursement for that business. As far as insurance booking, again, it's a very synergetically related business to the business volumes of Mahindra Finance and rural housing, et cetera. And therefore, their growth has been very range bound on the basis of what's been the growth of [indiscernible]. But they remain profitable given that they are only intermediary, and they don't really need capital. But they are efficiently operating the business model to remain profitable. Asset management company, again, given what's happening in the marketplace, their growth has been very, very kind of muted and steady, but they have also been able to curtail their cost and bring down their losses, very marginal INR 2 crores, INR 3 crores kind of a situation. They are not overly putting pressure on us. And as you know, we got in a partner, and therefore, there is no need, really, to infuse more capital into that market. So this is about all that's happening out there. We do believe that while things are still not normal, while we think there is a lot of pressure at the marketplace, we do still think that consumers are a little confused over what to do now versus wait for little into future, et cetera. But when we compare with what we saw between April to June and what we saw between July to September and what we've seen now, we are seeing a remarkable improvement on quarter-on-quarter basis. And we do think that things are looking more positive, sentiments have turned positive. I think confidence of people, whether it's employee or consumers have sufficiently gone up for them to be able to take that necessary risk and come out to the market and transact. So I'll stop there and then open it up for questions. Thank you so much once again for joining on this call.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital.

I had a question on collection efficiency. So could you quantify the collection efficiency for September? And also quantify the number of borrowers who not paid a single installment?

Okay. Before I answer the question, can I ask you a question. How do you always win to be the first question raiser?

Sir, It's a trick.

I see. Okay. On the exact collection efficiency, Dinesh or Rajesh may want to answer, but I would think it is very close to about 80%, 77%, 80% or so for September-specific if I'm not wrong. Dinesh? Any...

82%.

So that is so far as the collection efficiency for September is concerned. As far as the number of accounts which have not been able to pay any EMI who had taken moratorium, I think it's about maybe 2.5 lakh to 2.75 lakh customer out of the 16 lakh customers.

Sorry, so it's 82% for September, is it?

Yes. Is that right?

Yes, yes.

Okay. And 2.75 lakh customers of 16 lakh have not paid a single installment.

That's right. And as I explained right at the beginning in the commentary, most of them would be in the segment of -- taxi aggregator will be about 30,000, 60,000 of them. The school bus operations would be some numbers, maybe commercial vehicles, the tourist operators. So some of this will come up for restructuring, I would think, out of this bunch of customers only.

Okay. And sir, just one more question. As per RBI requirements, you have given the table on the overview of accounts. So I just wanted to know how that sizing with your collection efficiency. So your overdue AUM was around INR 90 billion as of February, right? The outstanding balance as of September for the February over due is around INR 90 billion, so how does that tie into the collection efficiency?

Rajesh, you were explaining something in the pre call. Is that the same thing, 90 billion. Can you just explain to that?

Yes. See, this INR 90 billion, what you are telling is the exposure as of September for all cases, and any kind of overdue as of 29 Feb. And the next line are growth cases where we have continued a benefit of asset classification. So there are cases ahead these overall cases not paid anything, everything would have ideally moved to asset classification change. But here, there is a collection, so the value for which the asset classification benefit is limited to only INR 4,000 crores from the INR 9,000 crores. So there are recovery in these cases during the moratorium also. And hardly anything has moved to NPA. A very small number has moved to NPA.

The next question is from the line of Shanti Patel from SK Investments.

I just wanted to know the overall increase in our loan portfolio in Q2 as compared to last year's 2Q. Secondly, how much increase in the 2-wheeler loans in terms of percentage in Q2 as compared to Q2 of last year? And similarly for tax costs?

So Vishal or somebody's got a ready number, Q2 to Q2 on tractors?

We'll collect that data and share with in some time. We can...

2-wheeler, right? 2-wheeler, we don't do. I think you asked 2-wheelers. Is that right?

2-wheelers and tractors .

So tractors, they will share with you, but 2-wheeler, we don't do at all. So we don't have any major portfolio in 2 wheelers.

Okay. So far as tractor is concerned, what is the increase in the percentage?

Yes. I think in another couple of minutes, they'll just pull out the data and share with you.

Should I come back then later on? Or you will answer or...

If you can leave your number, somebody can write across message you also. Just state your mobile number, somebody will note down on message your part then.

I should just speak out my mobile number. Can I? 9892485457.

Yes. Vishal you've note that down right?

Yes, I noted it down.

Okay.

Sir, I had asked you the overall increase in loan in Q2 as compared to Q2 last year, overall increase.

I think the 12% increase was at what half year is it...

So if you'll see from the business assets has increased from INR 66,058 crores to INR 7,732 crores. So just message in tractor growth quarter-over-quarter.

Right. So I will be waiting for your message.

The next question is from the line of Amit Ganatra from HDFC Asset Management.

Just 1 question. How to view this INR 4,000 crores number that has been disclosed as per the table? Now does this become a pot, which potentially can either be restructured or can become NPA in the upcoming quarters? How to view this number of INR 4,000 crores?

No. So this 4,000 will have a combination of everything, right? Some of them, as I said, in those segment of about 1 lakh customer if they want out of the 16 lakh customer, if they ask for restructuring, based on their ability to repay, some portion may go to restructuring. Some may actually repay. Why will everything go to NPA. So some of them will repay. And some of them don't take restructuring, but are not able to service the loan, maybe we'll move into NPA before they can start paying in the fourth quarter. So this INR 4,000 crores possibly will have a combination of all. It's not any 1 particular aground the INR 4,000 crores. Rajesh, is that right?

Yes, yes. It will be in different stages also because here, we are taking February, and we are seeing as of September, 7 months. So not necessarily that they would be at the edge. So you might be able to collect also.

So they will have in all 3 categories. So the picture will become even more clearer in December because the moratorium has ended. And if they don't take restructuring, we will know how many of them are paying between October and December. And our belief is at least all those customers who are farm cash flow dependent like tractors and the local pickup vehicle and all that. We would see collections on all of them happening. Which, is why even the moratorium was taken by 16 lakh customer restructuring is coming down to as low as 1 lakh customer. So you would see a lot of collections happening around this between this and the next quarter.

Okay. Okay. And generally, when you said that September was 80% collection efficiency, typically, what is the normal collection efficiency for you during -- I mean, average 3 months?

I think if we take a very good period of -- see, normally, July, August, also because of monsoon, the collections are not very high. So maybe another 4%, 5%, it would have been better on a very normal condition.

So 85 -- sort of 85%, 86% is your normal collection efficiency, otherwise?

We are 82%, maybe 87%, 88%, yes.

Okay. So that is right now, the gap between what a normal year for you would look like and what the current year is tracking for you?

That's right. That's right.That's right. And because it's also the on 5%, 6% also comes from -- in September, normally, we would repurchase the vehicle, they will come in settle take back the vehicle. They will settle against it. So we have not resorted any of those measures. Whatever we have collected on an absolute pure collection to collection basis, I don't see the gap would be too much. But if you were to do various other actions to improve overall collection, we would not be able to do those actions in September.

The next question is from the line of Jiten Doshi from ENAM Asset Management.

Ramesh, congratulations, I think the results were good in the given environment. I just want to ask you on what is the competitive landscape looking like? And where do you see your average cost of funds probably in the next year? And how are you looking at the next year panning out? I mean, there is a lot of things which have structurally changed. So if you just give us some sort of color, this is a COVID year, so I'm sure that asking you much about this year when things are not in your control is not fair. But in a normal, steady-state environment, how are you looking at things in the next year? And what's the competitive landscape in the environment?

Yes. So as far as competitive landscape is concerned, I think what we see is new players like people who are more inclined to heavy commercial vehicle business, or loan against property business are currently struck not doing too much of business around that. So they are possibly looking at a tractor as one of the options possible. And therefore, we do see that in the non-Mahindra range of tractor dealerships, we do see more financials crowding up there. And you have seen some finance companies putting up their numbers have gone up and all that. Barring that, we are not seeing too much from NBFC space in all these places. But I think banks like State Bank, et cetera, are getting aggressive in the car segment to get some more volumes by giving long-term loan like 7 years loan, 9-years loan, low rate loan. But the good news is that the bank anyway, go to 1 set of customers that's not necessarily an NBFC space of customer. But I must admit that if we were speaking 1 year back, if we see the same aggression from some of the NBFCs in tractors, where we see the same aggression from some of the banks in the car business, I would say no. Is this permanent? I'm not able to predict, because once their prime business recommenced will they continue to do this product. If anybody is there because these businesses, especially tractor requires a very unique and special skill sets and willingness to run through the cycle, and it's not a normal kind of a car lending business equally. So -- but definitely, we do see [indiscernible] to NBFC. No NBFC on an all India basis, but definitely, NBFC on a regional basis is the increase that we are seeing. But no sooner volumes pick up, these competition also will become a little irrelevant because everybody would have sufficient volume. So far as the cost of funds are concerned, our belief is that possibly if it is Rajesh says now, we don't think that 1 should predict or forecast any further reduction in cost going forward. But at least for next 6 months, we don't see increase either. So I think given that we have resourced money on a little long-term basis, locked them well, the current cost would be something will do good for us for at least next 6 months to 1 year. After I finish, maybe Dinesh wants to or Vivek wants to add something to this, they can. But I don't think we are predicting a reduction of cost going from here. So for us, what do we see, let's say, 1 year from today, so up to March will be a different situation. Let's talk '21, '22. So how does it look like? I very strongly think that the government focus to improve the overall infra trend will be very, very high given they will also move into the election year, 2 years from now or 3 years from now, whenever the election is, but they will move into that speed. And you will see a lot of government spend going towards rural, which will absorb lot of these assets, whether it is pick up, whether it is tractor infra, whether it tippers, excavation units like the backhoe loaders. I think that segment will definitely buoyant. I have said this before, and I will want to repeat, which is if you see 2010 to 2014, when both farm cash flow and the infra cash flow did well. I think the rural cash flow was -- I mean, the rural growth was phenomenal. And given that the monsoons have been so good, the water levels are so good, even the next crop that is -- the next harvest will also be extremely good according to me, even if the monsoons were to be delayed next year. So the farm cash flow and government spent on infra, the two cash flows, will definitely drive the rural buoyancy. And I think that's what we are preparing ourselves to, whether in terms of deeper penetration, in terms of partnership. With this new announcement that RBM made about we can partner with banks and do coal lending, et cetera. We have already been approached by some very, very large banks, nationalized banks to see how we can partner them. And we do see that as an opportunity if we can zero down on dealerships and say, the 2 of us together, corner all business in rural. For some of these major dealerships can be a new approach, new strategy. So I think we are very buoyant of how things look between March -- post March '21, leading up to '22, '23, which is where our readiness, in terms of branch readiness, people readiness, digital investments, technology change, process orientation, training of people, that is where we are focusing on. And we know what we are doing now is sufficient and good to sell-through this situation, focus on collection, don't over focus on business growth, but ensure don't lose market share and maintain relationship but then get into the future which starts post March. That's what I would kind of wrap up.

The next question is from the line of Aditya Jain from Citigroup.

Could you give us the size of this stage 2 loans as of September end?

Rajesh or Vishal, anybody has the number immediately, should be there.

7.7%.

Okay. And there is no standstill or any classification thing to know here?

Standstill as per Supreme court, what we said, INR 335 crore is part of the 7.7%.

Got it. So there' is a 50 basis point inflation of this due to the standstill?

Yes. Yes. So it will take stage 3 and stage 2 together, all of that will come to the same number.

Understood. And the 4 segments that you talked about, which are under stress, in terms of percentage of AUM, how large would they be?

Sorry, I missed you in between.

The 4 segments, the taxi aggregate and so on. In terms of percentage of AUM, how large would they be?

Commercial vehicle will be 4%, taxi would be another 1.5%, so 5.5%. I think about 7%, 8%, if I'm not wrong? It should be around that 7%, 8%. Because within the overall commercial vehicle, heavy commercial vehicle will be about 4%, taxi will be 1%, 1.5%, about 80-odd thousand cases. The tourist, I think should be 7%, 8% maximum.

Got it. And Just lastly, the growth guidance of 8% to 10%, is that for FY '21

Yes, we are at 12%, I think, half year, and we don't see the asset that we would lend to and the contract that could mature should more or less [indiscernible] itself. So I think that's why I said 8% to 10% up to March.

The next question is from the line of Prasheel Shah from CapGrow Capital.

I had a question regarding your costs. So currently, in the first half, we are seeing a 2% overhead as a percentage of assets, which is, I think, one of the lowest that we have seen in the company. I understand that some of this would be because of the lack of business and some -- a lot of it may come back in the future when we are looking at growth again. But just wanted to get a sense of what is the sustainability of this low-cost scenario? And how much of it will come back? How much of it will not come back in the future?

So as I said, right at the beginning in the commentary that some of the costs like traveling, employee incentive, dealer incentives, these are variable to business to business growth. So let's say, if business was to grow at 15%, 20%, et cetera. To that extent, this variable cost will also go up. What we have done well to bring down overall cost is to revisit other fixed ones like the branding expenses, legal expenses, BPO expenses, a bit of branch rent, right, all of that. And some of the variables also have been reclassified in terms of the pricing. So I would think that if the business was to grow at 15%, 20%, 25% type story, the 2% may look like 2.40 %. The balance is a decent correction...

Sorry, could you -- I missed you for a bit over that. Could you just repeat the last thing.

I'm saying if the business was to go back to a growth of 20%, 25%, one would see the overheads going from 2% to 2.4% type level, which was 3% earlier, which looks to now, will go back to 2.4%. So what we have really effectively, permanently saved, I would think, is a 50 basis point, arising from those various heads.

And then one last thing, actually, sorry. So in your presentation, you also said there is excess liquidity, which is actually affecting your gross spread. So how much would that be? Like just a ballpark figure.

So exact number, Dinesh can say, I think it's about 50 to 60 basis points out of some INR 7,000 crores, INR 8,000 crores that we carry as excess liquidity. On a phased manner, we will bring it down maybe from INR 8,000 crores will first bring it down to INR 5,000 crores to INR 6,000 crores and then go gradually to INR 4,000, crores maybe. So maybe another 25 basis point savings should be possible around that space. Dinesh, is that right?

Yes, we are carrying more than INR 8,500 crores as of September 30, liquid in [indiscernible] pool. So as Iyer guided, they are in process of bringing down this liquidity pool based on our strategy.

Next question is from the line of Subrat Dwibedy from SBI Life.

First, on the collection efficiency front, you mentioned that it is 82% now. And it is 5% more than that on a normal course of business. September 2019, collection efficiency would be around 87%, 88% on an overall basis?

We can exactly check, but I guess it will be around that for September.

And within that, segment wise, are there any variation, any more color you can give?

I think normally, we don't have too much of product variation in the past. We normally have geography variations only. Like South would do a little less than West and Central or North, and that variation continues even in this time, except that the 3 or 4 segments that I talked on has added to the variability in terms of lower collection. That is the taxi aggregator segment, the school bus segment. This was not in the past. In the past, we always used to have geography variations only.

Understood. Understood. You also gave a number of 1 lakh to 1.5 lakh accounts out of 16 lakh accounts, which could come for potentially restructuring. In terms of value, where do you see this number as a percentage of [indiscernible]?

Of this 1.5 lakh customer. Sandeep, you have the number? We have worked on, 1.5 lakh customers, what does the value looks like?

This speaks around INR 6,000 crores.

INR 6,000 crores. Okay.

On [indiscernible].

okay. So when you said that the LTV will not be impacted, even if there is a restructuring. So how will this restructuring be done?

No. So here is the -- I think it's important to understand what the customers are asking for is 1 of the following, okay? Some of them are saying we just need additional 2 months or 3 months. That means from January, we will start to repay, right? So what typically happens is it's like a moratoria, right? October to December, we won't have any installment for them. And then the entire balance outstanding or future receivables will be divided by the balance of the contract period with additional interest that is chargeable and EMI worked out for them. That's 1 set of customers were asking. The other set of customers are saying, please reduce our EMI size for next 6 months and take us back to the current EMI size post 6 months, right? So therefore, whatever short payment that happens in this 6 months will get added to the future outstanding and then EMI will slightly go up for the balance period of there, right? So I want to be extremely clear that we are not giving them any additional money during restructuring to any customer. No additional money is being provided. No additional funds are being given. It is the same outstanding that is due from them and future due from them, is being given an additional time either by giving a moratorium or by reducing the EMI size, right, or extending the contractual period instead of 24 months expiry, it may expire in the 30-month period.

And any...

Sorry to interrupt Mr: Subrat Dwibedy, may we request you to return to the question queue for follow-up questions as there are several participants waiting for their turn. [Operator Instructions] The next question is from the line of Kunal Shah from ICICI Securities.

Yes. So firstly, in terms of the collateral value and once we repossess, do we see the risk of higher LGBs, maybe correctly, we are not very aggressive in terms of our repossession and holding -- and holding debt. But otherwise, going forward, when we do it, so do we see a higher LGBs out there?

Higher losses, is that what you're asking?

Yes. Yes. So the higher losses on the amounts that we repossess or [indiscernible] the that we have here.

No. See, I think we should understand, the loss is on account of 2 or 3 things, right? One, if the asset is misused and not maintained, you lose some value or if the asset is repossessed but not sold for long, then it loses value, right? Or if the asset is -- the model changes and the resale price dips, then you lose money. We don't lose money when an asset is not being put to use and when they commence to put the use or if they surrender on that day, will we lose value? We may may not. There is 1 positivity in the whole thing, which is when the vehicles are moved from BS IV to BS VI, if all the vehicles that you would repossess would be BS IV. My personal opinion is that they will all have a decent demand because they will earn the same revenue that a BS VI vehicle earns. And whereas BS VI vehicle will be priced higher. So there will be a large set of consumers who may look for a BS IV vehicle on a second-hand market, which they can put to use commercially and earn better money. Now that is 1 possibility, not tested or I'm not making a statement of an absolute fact that, that has happened. But definitely, that is 1 clear possibility. As otherwise, we don't see and also, we shouldn't forget that these are customers who are not general defaulters. They are customers who have repaid 10 months, 12 months, 8 months, even some of them 15 months plus. So why will they not want the vehicle to be retained or at least settled in the price? Because their equity in the business is higher now, having paid so much installment plus upfront, they have invested 20%, 25%. So I would very strongly think if we repossess customers who are serviced the loan well, they would have maintained the vehicle well. They would have repaid certain amount plus margin initial. So we don't think the losses should go up. If any, if any, the recovery, the resale price should hold up to an extent that we can even see the average recovery is better than what we would have normally got from a defaulting customer. Normally, we lose money, where we have done a wrong lending, and then we have to immediately repossess and try and sell or there, the customer has misused the product and not paying us. We don't lose money in good customer cases. And these are -- we are talking of good customers who are not able to service the loan because of circumstances. So they will not be misused products.

Sure. And secondly, in terms of write-offs, so what would be the outstanding 100% price of amount? And is there any scope of recovery out there? And maybe what would be the policy in current circumstances? I think this quarter also, it was largely right now similar to GNPLs coming down. And if we have to look at overall GNPL number earlier also, we were at 9, 10. So are we saying that even at post-COVID, there could be some movement from stage 2 to GNPL but we should be manage it to what we had in peak in the last 3, 4 years, it will not exit much of that.

I would very strongly think so, because even in stage 2, let's say, we talked about because of the Supreme Court judgment, some of the contracts are being stated in stage 2 instead of stage 3. But we have taken an aggressive stand that made provision for it like a stage 3 account. So even if they were to move towards stage 3, there will be no additional provisioning coming from there. So I think when I said that we'll be able to hold on to the NPA, I am also betting on the fact that we have sailed through the most difficult 6 months of rural market and absolutely poor market condition. What we are all entering into is an improved market condition with the second half for rural, which is normally good. So even if the recoveries are not as good and as aggressive as what we have seen in the past and if they are moderated, we still think that our NPAs are not likely to struck.

[Operator Instructions] This is the the last question for today which is from the line of [indiscernible] Engineer from Motilal Oswal Financial Services.

I just have 2, 3 data clarification questions. Firstly, have you given moratorium to your NPL accounts?

No, no, no. We have not.

No NPA accounts as of Feb 29 cost [indiscernible] also?

No, no, no, because I think the regulation itself does not allow that.

No. One of your competitors did that. So I was...

No, no, no. So I can confirm, Rajesh, please reconfirm whatever I'm saying?

Regulation doesn't allow, sir. Regulation doesn't allow.

Sir, my next question is your number of customers at 1.2 -- you mentioned 20 lakhs and on other point you mentioned 16 lakhs, I just wanted...

No, 20 lakhs is the cumulative live customer that we are servicing, maybe a little more than that. 16 lakhs is a customer who, by the RBI guidelines, were eligible for what you call the moratorium.

Okay. Okay. And when you mention...

And out of that, I think 14-odd lakh customers, Sandip, I'm I right? 14-odd lakh customers were provided or whatever.

Out of 16 -- gave moratorium to 16.7 lakhs.

16 point some number. Okay.

Sir, when you mentioned 2.5 lakh customers have not paid in the last 6 months, that those are standard asset customers, or does it include your 1 lakh GNPL customers also?

No, no, no. We are talking of standard asset customers who took moratorium. See, when moratorium was given, we don't expect them to pay. I think the question was that in September, have they paid? So we said, out of that, 2 lakh customers have not been able to service the loan even in September.

Okay. But sir, if your stress book is 7%, 8%, why is the collection efficiency is still lagging at 82%?

I didn't understand. Sorry.

The stressed portfolio, which is taxis and school buses, et cetera, 7%, 8%. Why the collection efficiency is still lagging at 82%?

No, no, no. But don't forget that the 7%, 8% is from that segment, right? But there will be others who are not suffering but not earning all their money, every month. So they will also have 1 EMI outstanding all that, right? See, everybody, if they were to pay their current demand on time, then where is COVID and where is the market problem.

Okay. So then in light of this, how should we think of credit cost for this year?

No. So as I said, right, we are entering the good phase of rural market. We do definitely don't expect NPA to go up from where it is. Because what we have gone through is the worst 6 months of not only the COVID impact but also rural market impact. Normally, if you look at our book for last 25 years, the first 6 months are always the toughest period for us, right? Now with the harvest money that will start to come in, the infra money will come in the settlement -- project settlements will happen. We don't see the credit cost substantially go up. And I said those 3, 4 segments, which are suffering, if we give them a restructuring, then that adds to the benefit of they not moving out.

[Operator Instructions] I now hand the conference over to the management for closing comments.

Sure. So just on behalf of everyone, thanks for joining the call, and thank you to Mr. Iyer and team for giving us the opportunity to host this call. And have a great day.

If somebody who couldn't ask a question, maybe they can post it to Dinesh, Vishal or someone, and we will make sure that they get answered, please.

Yes, I will take care.

Okay. Thank you. Thank you.

Thanks a lot.