Manappuram Finance Limited (531213) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Manappuram Finance Limited Q3 FY '20 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Prabhudas Lilladher Private Limited. Thank you, and over to you, ma'am.

Thank you, Nirav. Good evening, everybody. On behalf of Prabhudas Lilladher, I welcome you all to the Q3 FY '20 earnings call of Manappuram Finance. We have with us the management represented by Mr. VP Nandakumar, MD and CEO; Ms. Bindu A.L., CFO; Mr. Raja Vaidhyanathan, MD, Asirvad Microfinance Limited; Mr. Jeevandas Narayan, MD, Manappuram Home Finance Limited; Mr. K. Senthil Kumar, CEO, Vehicle and Equipment Finance; Mr. Salil Bawa, Head of Investor Relations. I would now like to hand over the call to Salil for further remarks.

Thank you very much, Shweta. Good evening, everyone. Thank you for joining us on the Q3 FY '20 results conference call of Manappuram Finance Limited. During the discussions, we will be referring to the Q3 FY '20 investor presentation uploaded on our website. Before we begin, I would like to state that some of the statements in today's discussions may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available on the results document shared with you earlier. With that, I would like to now invite Mr. Nandakumarji to begin the proceedings of the call. After his overview, we will have a financial update from the CFO. Post that, we will open the floor for Q&A. Thank you very much, and over to you, sir.

Thank you, Salil. Ladies and gentlemen, welcome to Manappuram Finance Q3 FY '20 Conference Call. I'm happy to report that our Q3 performance represents continued progress along our stated objectives for growth without sacrificing profitability or compromising on this. We have achieved good increase in business volumes and profitability, and we are well placed to keep up the momentum. Key performance highlights for Q3 are as follows. Our consolidated AUM has crossed INR 24,000 crores. Consolidated AUM is up by 35.5% year-on-year and 6.3% quarter-on-quarter, led mainly by gold loan. Growth in our main business of gold loans was better than prior guidance, as gold loan AUM grew by 7% on a sequential basis and 30% on a year-on-year basis. The growth was driven by a combination of increase in gold holdings, which grew -- up by 11% year-on-year and higher gold prices. We observed that customers are not necessarily borrowing the entire 75% against the value of gold holdings. Our average life of the loan is around 60 days only. So at 60 days average duration, plus the LTV of around 61% and the ticket size of around INR 36,000, we feel very much insulated by the price fluctuation. We have introduced digital gold loan, where the customer actually gets a facility to avail the loan and service the loan 24 hours a day. Even after office hours, we see transactions of millions of rupees happening. Even on holidays, sometimes it touches INR 100 crores disbursement. Our micro finance subsidiary, Asirvad Microfinance continued to be an industry outperformer, with its AUM crossing, INR 5,000 crores, an increase of 57% year-on-year and 6.3% quarter-on-quarter. Growth was driven mainly by new customers, as the average ticket size continues to remain close to its historical level of about INR 22,000. Significantly, all disbursements are being made in a noncash manner. So the strategy is focused on quality. Earlier also, we had a cap per state. The cap is 10%, while that remains at 10%. Now we have put a cap listed to it, which is 1% with the direction to the management to reduce that to 0.5% in a 3-year time span. Our diversification initiatives are going well. India's automobile sector has borne the brunt of economic slowdown. But our combined vehicle -- our Commercial Vehicles finance business has performed quite well with low early delinquencies and attractive unit economics. Our housing loan portfolio is relatively small and has been steady in terms of asset quality. During the quarter, the company consciously chose to reduce its on-lending portfolio that is launched to smaller NBFCs and MFIs. Given the stress in the macroeconomic environment, the on-lending portfolio has come down from INR 960 crores in March '19 to INR 667 crores currently. Overall, non-gold portfolio now amounts for 33% of the consolidated AUM. On the liquidity front, we have not faced any issues in raising funds for growth, even at the peak of liquidity crisis. On the liability side, we have raised USD 300 million through the issuance of medium-term notes with the objective of further diversifying our funding profile and bring down dependence on short-term sources. We don't expect any funding challenges to come in the way of our growth plans. And we are comfortably placed with our ALM, which is -- which we monitor closely. We are reporting a consolidated quarterly net profit of INR 398 crores and gross of INR 1,000 crores for 9 months period. Thank you, and now over to our CFO, Mrs. Bindu for a detailed look at the numbers.

Thank you very much, sir, and thank you all for attending this call. Let me take you through the earnings update for the quarter that has gone by. Our consolidated AUM for Q3 FY '20 was INR 24,099 crores, up by 35.5% year-on-year and 6.3% Q-on-Q. Consolidated profit after tax after minority interest was INR 397.8 crores, grew by 63% year-on-year, and our 9-month consolidated profit after tax stands at INR 1,069 crores. ROE on a consolidated basis was 30.4% and ROA of 6.3% for the quarter ended December 2019. Talking about the Gold Loan Business, which constitutes 67.4% of consolidated AUM. The AUM increased by 29.7% year-on-year and 7.1% Q-on-Q. Gold holdings stood at 73.5 tonnes as at December 31, 2019, and the tonnage increased by 10.9% year-on-year and 2.1% Q-on-Q. The total number of gold loan customers stood at 26.39 lakhs. The gold loan book stood at INR 16,243 crores. Auctions during the quarter were INR 14 crores. As you are aware, we follow the policy of making regular auctions on overdue accounts. Our weighted average LTV stands at INR 2,210 per gram or 61% of current gold price. Gold loan disbursements during the quarter INR 40,304 crores compared to INR 50,296 crores in Q2 FY '20. The online gold loan book is steady, which accounted for 44% of the total gold loan. Coming to Microfinance. Asirvad MFI grew the AUM by 57.2% year-on-year at INR 5,022 crores and delivered 26.8% ROE in Q3 FY '20. Asirvad MFI is now amongst the lowest cost providers of Microfinance loans in India. Asirvad has taken the route of multistate business operations to achieve this milestone. The company is rated AA minus stable by CRISIL, the highest credit rating in the MFI sector. For Q3 FY '20, Asirvad made a profit of INR 59 crores. In IndAS transition, we provided 100% for loans due over 90 days. We have provided INR 27 crores excess provision as compared to RBI Prudential Norms, thereby, following a conservative approach. 100% of disbursements were made in a noncash manner and Asirvad is having 2.1 million customers, 1,042 branches, 5,909 employees, and they are present in 23 states with now the fifth largest NBFC-MFI in the country. The company is having a capital adequacy ratio of 25%. Vehicle Finance business, we have reported an AUM of INR 1,397 crores, which is 6% increase Q-on-Q and up by 43.2% year-on-year and stable asset quality at 2.87% NPA. Business is now carried out of 214 branches across 22 states. The home loan business had a total loan book of INR 601 crores, which is up by 5.9% Q-on-Q and up by 25.8% year-on-year. It operates 46 branches and reported a profit of INR 6.2 crores during Q3 FY '20. Loans to corporates has reduced by 12.8% Q-on-Q to INR 667 crores. This book consists of loans to small NBFCs, MFI, HSEs, et cetera. The new businesses contributed 32.6% of consolidated AUMs and remaining 67.4% is gold loan. The total consolidated borrowings stood at INR 19,781 crores. Our average cost of borrowing in Q3 has decreased to 9.12% from 9.3% last quarter. To further diversify our borrowing profile, we would continue to raise funds through money market instruments NCDs, term loans from financial institutions and the overseas borrowing, depending on the cost. We have raised $300 million in the first tranche of our MTN program this month with the view of further diversifying our funding profile and bring down the dependence on short-term sources. The fund has been raised by way of senior secured fixed rate notes issuance for a 3-year tenure. The issue was placed with a coupon of 5.9%. UBS and Barclays, marketed the deal and there was a huge demand for the paper. We benefited from significant operating leverage, as overall OpEx has come down by 0.48%, while the AUM grew by 6.3% during this quarter. We expect it to continue to drive benefit of operating leverage going forward. Our employee costs increased by 4.4% Q-on-Q to INR 212.3 crores for the quarter. There is a rent reversal of INR 29.5 crores due to implementation of IndAS 116 leases in this quarter. Similarly, our finance costs and depreciation has gone up by INR 7.5 crores and INR 20.2 crores, respectively, during this quarter due to IndAS 116. The overall number of gold loan branches stood at 3,531. Provisions and write-offs for the stand-alone entity during the quarter were INR 15.4 crores. Our gross NPA was 0.5% as quarter ended Q3 FY '20 as compared to 0.55% as of Q2 FY '20. Now this is due to that purest gold, et cetera, only amount to 0.04% of AUM. The company's consolidated net worth stood at INR 5,413 crores. The capital adequacy at 23.4%. The book value per share at INR 64 of diversified business. The Board has declared an interim dividend of INR 0.55 for this quarter. We can now go for Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Manish Ostwal from Nirmal Bang.

Very good set of numbers, sir. My question on the MFI business. So our total MFI AUM of INR 5,022 crores. In the state of Assam, what is the proportion of that AUM? And what is the collection efficiency pan-India in Assam state?

Mr. Vaidhya?

Yes. Our portfolio in Assam is only about INR 43 crores. We have a very small presence in Assam, and we are not affected by all these problems there. So as of December 31, we have got about INR 47 crores, and the par is only about 43 lakhs there for us. So our NPA is only about 43 lakhs. So we are not -- we are only about 14 branches, and we've not grown this year in Assam.

Sir, any specific reason why we are -- your portfolio has not been impacted? What we have done differently there?

No, not -- we entered Assam only last year. And we were -- why we wanted to expand those issues came when we stopped expansion totally. And also, we are in the other part of Assam, lower part of Assam and not in the upper Assam where issues are there.

Sure. Sure. On the gold loan book sir, whenever the gold price rises and if we maintain our LTV at a particular level, so in a rising gold loan prices, do our risk management system increase -- decrease the LTV so that in a falling gold price scenario, we are well managed?

Yes. Our gold loan tenure, the contract it is only 3 months. I feel like that's the only -- our tenure is the shortest. I feel what I understand, the industry, others are offering the loan for a period of 1 year. This itself protects. And you see our average LTV is around 61%.

Yes. And secondly, sir, of our total loan -- incremental growth of gold loan portfolio, can you tell us in terms of end-user application of our funds, I mean, it's more business purposes or it also consumption purpose, also the gold loan funds raised by the customers?

In a survey, we have conducted few years back, what has come out is the use of funds is 1/3 for seasonal agriculture, small farmers use it as working capital for short duration, 2 months, 3 months, et cetera. Another 1/3 -- these are mostly used by cottage industries, the micro entrepreneurs, micro retailers, et cetera, again, for working capital purpose. And the balance 1/3 for what -- hospital purpose or children's education or consumption, it goes like this.

The next question is from the line of Utsav Gogirwar from Investec Capital.

Just a couple of questions. If I look at the Asirvad AUM mix, the share of AUM in North region has increased from 12% to 21% in just 1 quarter. Is this correct?

Mr. Vaidhya? Mr. Vaidhya?

Sir, I'm just answering. Our classification of north includes -- we have added Bihar also now, earlier it was not there. So we've added Bihar also, that's the reason this change is there, otherwise it's not.

Okay, okay. So the classification from East, you have moved it to north?

Yes.

Okay. Fine. Sir, second question is on the Vehicle Finance. If I look at sequentially, the Vehicle Finance branch has declined from 229 to 214.

Senthil?

Thank you, sir. Yes, we have -- like we've done a bit of consolidation in terms of branches. Wherever we felt that our operations have not been viable, so we've moved the accounts to the nearby branches. Hence, the number of branches have come down from 229 to 214 locations. We operate across -- we don't have stand-alone branches. We are present in gold loan branches only. So in that way, we have consolidated a few locations into a single branch.

So this location has some region-specific, south? Or is it on pan-India level? How is it?

Yes. On a pan-India level. There is no such regional specific focus on this actually. And mainly, these are all smaller locations for a better operational control and viability, we've managed these locations -- we've merged these locations.

Okay. And sir, just one more question. If I look at the operating expenses, it has been consistently declining and we are doing an excellent job on controlling costs. But how long do you think so this will continue? And how do we see the cost-to-income or OpEx-to-AUM ratio for next year?

For year-on-year, our expectation is it should come down by 100 basis points year-on-year. That's what we are targeting.

100 basis point you mentioned, sir, right?

Yes, in a year. This is possible with the growth of portfolio, both in gold loan, Vehicle Finance and other businesses, without much increase in branch count. So the reason the branch count is less, but the growth in the volume is higher. This is how we just started it, and we are at -- because of that, we are able to achieve this.

[Operator Instructions] Next question is from the line of Shubhranshu Mishra from BOB Capital Markets.

A few questions. One is that we've had very strong gold loan disbursements in the third quarter as well as the second quarter. This is almost as good as the 4 quarters before this. So how do we look at gold disbursements in the next 2 to 3 quarters, sir? That's the first question.

Yes. Tonnage is slowly increasing. This quarter, we expect that to grow by around 3%, 4%, tonnage growth.

Right. And how do we -- what is the control on the LTV? I missed out on that part. What is the LTV in this particular quarter?

61% is the average LTV.

61%?

Yes.

Right, sir. And sir, I just want to understand your risk management practices in your Microfinance business, given that we are now spread out into 22 states. Apart from the caps that you just mentioned, what are the other measures that we are taking for risk management in Microfinance, sir, especially because your provisions have increased in the Microfinance business in this particular quarter, they're pretty steep. So how do I look at the credit cost in Microfinance business going forward sir? And the risk management factors?

Mr. Vaidhya?

Yes. As the Chairman said, the biggest change we have made is we've moved to a district level risk exposure, that's the major thing, which affects the Microfinance. It's usually -- whenever there is an event, the district and some towns when districts get affected and some contiguous districts get affected. So most of the companies do not have this level of district wise exposure. We are -- in our Asirvad is about nearly 80% of our districts, we have below 0.5% of the AUM. So we are insulated from any major events happening in a particular district, the other districts are insulated, that's the first one. The second one is we have never increased our ticket size beyond a certain number. We still, even after 11 years of our operations, maximum ticket size is only 45,000. So we have not gone really berserk and increased to 60,000 or 1 lakh and all that. We still maintain that. And the third is every new geography we go, the first lending is always at 25,000 to 30,000. Although the person has Microfinance, we still want to try out our experience with the customer, and it is always at a 25,000 to 30,000. And these are the things and we go by a lot of analytics, we find out how the -- that particular geography has behaved in the past. Now we have so much of data from the bureaus. So it's a very -- the way we open a branch and the way we lend, it's all backed by a lot of data now.

Right. And what is the cap on the number of loans MFI customer can have, which is inclusive of MFI as well as any other financier?

We have also signed that code of responsibility lending. So it's 3 as of now.

This is inclusive of MFI or any other financier?

Yes, yes, 2-plus 1. Actually 2 MFIs and 1 any other bank we can have.

Right. Sure, sir. And my last question is for the liquidity management. We have gone out and borrowed from ECB. What is the exact issue that we are facing from banks right now, sir? Are we still facing some kind of liquidity crunch from the bank?

That's Manappuram, I think.

So we have -- we were having around INR 1,600 crores in liquidity as on December 31. But we want to diversify the borrowing profile and we want to test the overseas market. That is the reason we did this transaction. Domestic market is still supporting, we got enhancements from the banks, et cetera. But we want to test this transaction also.

So what is the price that you get an average risk premium over the MCLR from the banks?

So that depends.

Just a ballpark number. I understand it will be different for different banks, but a ballpark number would be very helpful.

That I will get back. Average the borrowing cost is 9.25%.

Sure, ma'am. And just one last data point ma'am, what is the accrued interest as of third quarter?

INR 512 crores.

Next question is from the line of Kunal Shah from Edelweiss Broking Limited.

Yes. Firstly, in terms of the gold loan, the strong growth, which we are seeing. If you can just highlight, is it more because of the demand itself going up for the gold loan? And how much would be the competitive advantage because one of the other players is facing issues in Kerala and they are slowing down. So is there -- the overall gain -- market share gain, which we are seeing for ourselves, so is there a component of some market share gain because of disruption in the peer?

See, we have both the advantages, one, tonnage group as well as the gold price, both have been advantageous to us.

Yes. But in terms of the competition, are we gaining because maybe the fear is facing the reception. So is that the reason that we are back to 30-odd percent or it's a genuine demand at the ground level, which is leading to this kind of growth and it's a sustainable one?

It is a genuine demand. The reason is, in Kerala, our exports is around 5% of our AUM. Similarly, for the other company also, their exports is very low. So with this low level of exports, I don't think that, that has been a reason for our performance.

No, sir. Overall, in terms of the INR 1,000 crores kind of an increase which is there, how much would be coming in from the Kerala as such?

It's very low. Our gold loan portfolio in Kerala is around INR 500 crores. It is around INR 500 crores of what our total gold loan AUM of INR 16,000 crores was.

Okay. It's only INR 500 crores?

Yes, the -- which is small.

Okay, okay. And secondly, in terms of Asirvad, so what's the exposure in Karnataka and the INR 16 crores, which we have taken for say some disturbances in Mangalore district. Are we through? Or we expect more provisioning to be done? So firstly, what is the overall book in Karnataka? And how much of that is already considered in terms of the provisioning?

This issue in Karnataka, Karnataka, we have about INR 400-odd crores in overall. But this is only in few districts of Karnataka, where Mangalore and Udipi districts we have this problem. It's a very political, localized political issue. And we have -- although it has not exceeded 90 days, we couldn't -- based on discussion with the auditors, we have taken this INR 15 crores and provided for this now. The total exposure in that area which might get affected is about INR 36 crores.

Okay. So of this INR 36 crores, we are already done with INR 16-odd crores?

INR 15 crores. Yes.

Okay. And lastly, in terms of CV financing, so our CV book has grown quite significantly over the last 3 years, maybe from INR 300 crores to INR 600 crores and now, almost like INR 1,400-odd crores. And given this kind of -- maybe the sentiments in the CV industry, how sustainable is 2.87% GNPL vis-à-vis where the entire industry is? And should we see the catch-up in terms of the GNPLs over the next 2, 3 quarters?

Mr. Senthil?

See, we've been maintaining this around -- our GNPL around 2.8% in the last couple of quarters. And I've seen some sort of green shoots in the last month or so, at least in terms of -- in terms of receivable wise, there's been a green shoot, probably the offtake of few new vehicles are yet to pick up. But in terms of receivables, I think I don't -- I have not seen any -- at least we have not seen any increase in stress. In that way, I think we should be able to maintain our GNPA at this level. I don't foresee a very big jump in terms of the absolute amount in terms of GNPA growing in the next few quarters. I think it should be at the same level.

Yes. So Kerala, we are having nearly 500 branches and the total AUM is around INR 970 crore.

INR 970 crores in Kerala. Okay. Yes.

Next question is from the line of Antariksha Banerjee from ICICI Mutual Fund.

Am I audible? Hello?

Yes. Go ahead.

So 2 questions. One is in the Gold Loan Business, can you give us what would be the book would be above 1 lakh ticket size? Or whatever you define as a ticket?

Above 1 lakh will be around 50%.

Maybe the second question, I can ask you if you can check the data. The second is on Microfinance.

It is around 50%.

5-0.

Yes.

Okay. And the second question is on Microfinance, per se, when we enter in new geographies, sir, is our strategy to spread across in districts in a particular geography? Or do we -- I mean, the annual ticket you mentioned about, does it -- I mean, are you down to a particular district and we just expand in that district? Is it clustered around a particular center? Or is it district specific?

Mr. Vaidhya?

Whenever we enter a new geography, we choose a district, which is the most beneficial for us. And then that using that as a hub, we have branches as spokes. So that's a more usual model. So what we now do is the -- there is a clear dashboard of how we are choosing the district, the district where it has the least disturbance in terms of political, in terms of natural calamities, in terms all the data is available. Based on that, then we -- around that, we have clusters and branches as clusters.

Okay. Okay. But it need not be contiguous. It can be one particular concentration in one state? And second, can be anywhere?

Yes. No, but that is true, but we don't -- there's also a distance criteria. We don't have branches spread to 100 kilometers and all that. So there is a method in which we open the district. So if the district has only potentially a few branches, we may not even enter that district.

Okay, okay. And just one question -- sir, can you throw some light on [indiscernible] composition, how much of [indiscernible] it's grown decently and what geography it would be mainly coming from?

Can you repeat the question?

In the Vehicle Finance portfolio, what is the broad product composition? How much would be used vehicles? How much would be cars or whatever you are doing? And the second part is what geographic split roughly it is.

Senthil?

Yes. So in terms of new and used, our used book should be around 86%, 87% of the portfolio. New book should be around 13% of the portfolio. And in terms of -- in terms of geographical spread, I think we are almost -- we have a slight concentration in south in terms of -- like we have around 35% of our portfolio in south. And in terms of north and west, we are almost around 27% in both the -- in both the regions, and around 11% in east. And see car like -- car is a very small portfolio, it's very nascent portfolio as of now. So it should be -- it is almost around 3%, less than 5% is our portfolio.

Next question is from the line of Nischint Chawathe from Kotak Securities.

My question actually pertains to your operating expenses. While your tonnage growth is close to around 11% year-on-year, your operating expenses are just up around 7%. And if I really kind of try to look at your operating expenses, net of Asirvad, then actually that number is sort of almost down 10% year-on-year. So I'm just trying to understand as to what is it that you're doing? And how sustainable is this?

So obviously one reason is the increase in the volume. And the second reason is, which we guided a few quarters ago, we were having around INR 45 crores quarter-on-quarter towards the physical security guards, the cost towards the physical security guards. And we implemented and improved the electronic security and the cellular safe, which we installed in all the branches, there by we were able to reduce the security cost, so that is the major savings we did. And rest everything is coming from the operational efficiency. We are maintaining a similar kind of branches, but the volume per branch is increasing.

[Operator Instructions] Next question is from the line of Arpit Shah from Stallion Asset Management.

I just wanted to understand why our provisions have jumped up. Even if I exclude the Karnataka impact, the provision in MFI has jumped largely maybe 2x to 3x, excluding the Karnataka impact. So where is this coming from actually?

No. In fact, the gross NPAs is, what, 1.12%. It has increased marginally, because [indiscernible] still it is lower than the industry number, it is increasing across India, the delinquency is increasing in Microfinance across India, for the various reasons, it could be political, it could be natural calamities, it could be lot of other issues. So what was earlier about 1% that new normal is increasing in this business, it's moving towards about 1% to 1.5% now. So that's the reason. And in Karnataka specifically, it is a very local issue. But the industry, about INR 600 crores, INR 700 crores is locked up in that, out of which we are less than 10% portfolio we have. Out of the INR 60 crores, we have only INR 36 crores is addressed for us. So it's -- but we expect this to be resolved, however, more as an abundant caution we have provided this. It's not as if the people don't have money. They have been withheld because of some other outside changes.

Okay, okay. And what are the kind of tonnage growth you're targeting, let's say, for FY '21, '22? What are the kind of growth that you're targeting?

Yes. Tonnage growth, what we target is around 10% to 18%.

12% to 18%?

10% to 18%.

10% to 18%.

Yes.

Next question is from the line of Ashish Sharma from ENAM Asset Management.

Congratulations on a good set of numbers. Sir, just first one on the medium-term note program. So we mentioned that we have based one -- the first tranche, so do we need to sort of go for another tranche? And -- because it's an expensive borrowing source. That would be the first question. And second, you mentioned a number on the auction in the initial remarks, I sort of missed that. Could you just give that again?

Auction?

INR 14 crores -- INR 14 crores during the quarter.

And for the 9 months, ma'am?

9 months, it is around INR 100 crores.

Next question is from the line of Kaitav Shah from Equirus Capital.

Congratulations on your good set of numbers. Sir, my first question is trying to understand your credit underwriting. What is the new to credit that we normally see across all businesses?

New to credit in -- you want all businesses, CV?

Yes, sir.

Yes, Senthil you can start. New to credit.

Yes. New to credit around 60% of our customers are -- they don't have much of bureaus records. So we term them as new to credit. We do have different parameters to underwrite these customers. In terms of -- for example, you take in terms of a 2-wheeler loan or even, for that matter, a commercial vehicle loan, we have other surrogate means of calculating income to surrogate means. And also, we have other -- we also identified other alternate source of data, through which we are able to assess the customer repayment capability. And we also tied up with couple of bureaus where using this assessment of alternate data where we assess and understand this capability, and we have benchmarked, like for example, we've collected data of similar type of profile of customers from the bureaus and where we've built -- like where we've built a straw man profile, based on which we are able to, like, to certain extent, control or assess the onboarding of customers. And in terms of commercial vehicle, specifically, like, it is a combination of both a scorecarding -- onboarding of customers through scorecard mechanism and also personal discussion with our customer to analyze as to where is plying his vehicle, and like what will be the operational -- like what will be the operational dynamics between -- if he's going to ply a certain type of vehicles between a couple of cities, et cetera. That is it in terms of credit assessment.

Mr. Jeevandas?

Yes, sir. Good evening. In fact, as far as the housing loan is concerned, the picture is slightly different, because in most of the cases, what we've seen is even though they are from the lower strata and -- within the affordable segment, most of them because it may not be the first loan that they are availing, most of them have a credit score. And also as a risk management practice, we've kept that, we need to have a minimum credit score. But nevertheless, having said that, it was around 20%, 25% of the customers will be new to credit, minus 1%, but we do have a multi bureau check, so that if it is not there, one, we will check with the CIBIL, if it's not there in CIBIL, we will check with Equifax, but also, if it is slightly less than the minimum score that we are looking for, then we also have a mechanism of a deviation metrics, we will look at other factors and try to see if the case would fit in. But what we have seen overall is that around 20% to 25% of the people and maximum maybe, not stretching beyond 30% on a ballpark basis, would be people who may not have a credit score.

Question is answered?

The second question I have is, so that -- now that we have been hitting ROEs of close to 30%. Is there any thought process on having a countercyclical buffer or excess provisioning that you would like to do, so that it mitigates some sort of risk that wherein MFI and used vehicle space on a consistent basis?

No, we don't follow that. We follow the -- our accounting policies which is already stated. So during good times, we don't do something. And in bad times also, we don't do something.

Okay, sure. But is it something under consideration? That was actually my question.

No.

The next question is from line of Kislay Upadhyay from Abakkus Asset Managers (sic) [ Management ].

Congratulations on a good quarter. Sir, pertaining to Asirvad, if we see right from Q4 FY '19, the NPAs number have started inched up consistently. And you mentioned that this is a new normal, could you throw some light on this? As in why is this the new normal?

Mr. Senthil?

Can you be loud. I couldn't hear the question properly.

Okay. Sir, so Asirvad, NPAs have actually inched up every quarter in the last 4 quarters. And you mentioned that this is 1%, 1.5% is the new normal. Could you explain that? Why would -- is there a change in credit behavior? Or what is it?

This is definitely after the demonetization itself, the credit behavior changed in the industry. What was 99% was based on due date was moved to 1 to 30 bucket. And this discipline and they are now slowly deteriorated, and that is the reason. But having said that, still, it is the industry which gives us still close to 98%, 98.5% to 99% collection efficiency. Coupled with that, there is always this natural calamity plays a big role in this. Somewhere, the most diversified MFIs get hit maximum in that area, because if there is a floods in -- there's a cyclone in Odisha, there's a flood in Maharashtra, there is a flood in Assam, so something keeps happening. And the more localized you are, sometimes you're insulated from all this, and you don't have this. The more and more you are diversified something affects, these are the things which affects your collections. So -- and the discipline in the industry and the number of new players, the bank, SFEs and all that. Overall put together, this is increasing, but it is not still with all this NPAs and provision, it is one of the best industries in terms of return on assets and return on equity. So we're not really unduly bothered, as the AUM increases, we feel that this will definitely come under control.

Right, sir. What is your exposure in Odisha and West Bengal and the NPA number there, if you could provide?

In West Bengal we have -- West Bengal is our second largest state for us, and INR 600-odd crores we have right now, I will give you the correct number now. It is not the highest NPA for us, the highest NPA is still for us is Karnataka and followed by Kerala that is -- West Bengal is fourth for us.

Okay. And the same is the case with Odisha?

Yes. Odisha also. Odisha is a problem because of the more the other players in Odisha, there was a problem with some other competition last year. So all of us got hit because of that, but it's stabilizing now. And we will grow in Odisha definitely more.

Sir, could you mention the NPA percentage number in Odisha or West Bengal?

I will tell you in, in West Bengal, we have par of about INR 10 crores on a total of INR 650 crores. Odisha, it's about INR 9.25 crores we have.

Okay. Great. Sir, also, the borrowing cost for Asirvad went up actually was very, very benign, have normally been benign. Anything that you could attribute this to? Because just up...

It has not gone up, the effective borrowing costs have come down, that is why the rate has decreased. We are -- at the beginning, we were at 21% -- 22%, then we came to 21.7% -- 21.6%, and now we are at 21.3% from January. So the rates -- we were at the margin -- cost-plus margin basis, 10%, it has come down.

Okay. And sir, lastly, on the digital gold loan part, do we have Fintech partners we used to source these digital loans from?

No, we don't have.

Next question is from the line of Shubhranshu Mishra from BOB Capital Markets.

I had a few questions with regards to your Vehicle Finance portfolio and your home loan portfolio. Wanted to understand the number of file log-ins that you get in each of the businesses? And the rejection ratios in each of the businesses, sir?

Mr. Senthil?

See in terms of -- we have 2, 3 lines of business. In terms of 2-wheelers, we have a login of around 6,000 files in a month, and the rejection percentage also should be around 20%, actually. And in terms of Commercial Vehicles, the number of -- since the ticket sizes are slightly larger, the number of files are slightly lower, it is around some 1,500 log-ins per month, and we have a rejection ratio of around 25%.

Okay.

Mr. Jeevandas?

Yes. We have around -- on average around 600 log-ins or so. But then the rejection ratio at that rate would be around 40% or so. And after that, once the sanctioned to disbursement also, there's around 20% is the rejection ratio because the legal and other issues when the property papers are taken would come in. So that is how it works.

Right. And sir, again, probably through a repeat of multiple questions, how do I look at the credit cost in Asirvad going forward in FY '21? What -- if you can give me the absolute number, it will be very helpful?

The credit cost, see, we always provide a standard provision of 1% and over and above that, I think we will provide another 0.75% to 1%. That'll be the...

So it's fair to assume that -- fair to assume a 2% kind of a credit cost for Asirvad?

If you take the standard assets provision also, yes.

The next question is from the line of Aarsh Desai from Vallum Capital Advisors.

Congratulation on a good set of numbers. My question was with regards to our gold loan growth, if I see year-on-year you kind of met your tonnage target in terms of 10% to 12%, tonnage growth. And we've also seen a 15%, 16% sort of ticket size growth, which is kind of influenced with gold prices. My question was in the year going forward, as in FY '21 we, again, going to target 10% to 12% tonnage growth. But assuming gold price remain flat, we shouldn't see any ticket size growth coming in? Is my understanding correct?

Yes. You're right.

Okay. And my second question was with regards to our cost of borrowings, with the new RBI regulation in terms of risk-weighted assets for banks lending to NBFCs -- gold loan NBFCs coming down, and we're still facing difficulty in kind of raising money from the bank. So why is it so? Specifically because it would be lucrative for our bank to lend money to us in that sense? And what is the incremental cost of borrowings coming in from banks?

So we are not facing any liquidity challenge. We are getting enhancements from the bank, and we did some few million CD transactions. So my incremental cost of borrowing around 9.4% because the reason borrowings we are more doing long-term borrowings like we did around INR 1,000 crores in CDs we did. So that is the reason the incremental cost is -- cost of borrowing is going up. But as a result, the banks are not reducing the rate, but I'm able to get the liquidity -- enough liquidity from the bank.

Okay. And my third question was with regards to Asirvad Microfinance. We have a very decent exposure in the state of West Bengal. So how do we plan to mitigate the risks that may arise due to the upcoming West Bengal state elections? And I mean, how are you setting up yourself for anything that may possibly occur?

In West Bengal, we have about INR 600 crores now, the market in West Bengal is about INR 18,000 crores to INR 20,000 crores, so we are actually a very marginal player. For us, the portfolio may look high, that's the first point. . The second point, West Bengal has traditionally behaved extremely well in terms of demonetization, it's one of the best states we've had. And the elections -- in the general elections, recent general elections it did not behave badly at all. So we do not expect any new thing because of elections in West Bengal, unless otherwise something major happens. Even then we have spread over 100 branches. We don't expect it across 100 branches in West Bengal, so we're very diversified in that state.

Thank you very much. Ladies and gentlemen, due to time constraint, that was the last question for today. I will now hand the conference over to Ms. Shewta for closing comments.

Thank you, Nirav. On behalf of Prabhudas Lilladher, we thank the management of Manappuram Finance. Thank you all.

Thank you very much. On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

Thank you.

Thank you.

Thank you.