Muthoot Capital Services Limited (511766) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Muthoot Capital Q2 FY '23 Earnings Conference Call hosted by Antique Stockbroking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mrs. Vidhi Shah from Antique Stockbroking. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone. Today, we have with us the management of Muthoot Capital Services, represented by Mr. Madhu Alexiouse, who is the Chief Operating Officer; and Mr. VinodKumar Panicker, who is the Chief Financial Officer. Without further ado, I shall now hand over to Mr. Vinod for opening comments. Over to you, sir.

Thank you, Vidhi. Good afternoon, friends. I'm very happy to be with all of you once again. And this is the accounts which was approved by the Board last -- late last evening, we're presenting the financials to you. I'm sure most of you would have seen it in the published accounts and also seen the presentation on the website. But we -- like usual, we would want to give you a broad highlight and then attend or address any queries that you would have in relation to the financials and the business. Maybe to begin with, we are extremely happy to actually point out in that slide we uploaded about the rating upgrade, we have been able to speak to the rating agencies [indiscernible] and that should not vary that way, and it should not be seen as the continued the future. And this is that we have been able to show whatever we have been doing in the current financial year, we have shown for the first 6 months, and then we have been able to convince them on a rating upgrade with the entire group got, and we're grateful to get that we have also been considered for the rating upgrade. So we have been upgraded to 8-plus stable by resin. We are sure that it will help us get more funds from the lenders and other investors as we go forward and definitely lower our cost as we go forward.  That's the one thing that I wanted to put out. Apart from that, we continue to be in about 20 states with an AUM of about INR 2,042 crores. I will comment about the about the AUM shortly. In the second quarter, we had about 36,000 customers. We have been able to bring down the NPA to about 23%, 26%, down from about 25.5%, and have been able to bring down the net to 4.5%. We have a provision coverage of about 84.8%, which we believe is very really comforting to any lender or an investor that the balance sheet is pretty strong. Overall provisioning impact on -- across the interest of 21.3%. Capital dicey has gone up from 20% to close to 24%. Net equity continues to be at about 3.7x. Return on asset is positive like the [indiscernible] at 3.5%, and the return on equity is close to about 18%. As in factor, let me try to give you a broad detail of the financials. -- in the current quarter, the quarter is well by, we have been able to do about INR 298 crores of disbursement, which it is lower than the indicator preceding quarter, which was INR 325 crores in the same quarter last year, there was a drop of 4% versus same quarter last year. It's a lot to do with our own uncertainties on further tightening the credit norms to ensure that the last year, the increase in NPA will get repeated. And therefore, we felt that we need to tighten the credit norms, and even if it means that inventory from the regular business volumes do drop, we can cover it up through other loans and the other coal ending. The INR 298 crores actually includes about INR 8 crores of colending, which we have started in the -- towards the end of August and a little bit in September, the real numbers would start coming in the current quarter over year basis, we could get the total AUM of INR 436 crores, which is higher than the same quarter last year, though lower than the immediately preceding quarter. But then this quarter, this INR 236 crores is after a write-off of about INR 38 crores, which we will talk about when we get into the loan of position, we'll speak about it.  So this is that net EBITDA that it is about INR 2, crores the interest income basis that was at close to over INR 110 crores, about 10% increase over the same quarter last year and our 2% to 3% increasingly preceding quarter. Calix finance expenses at about INR 35 crores was higher than the indicated preceding quarter by about INR 3 crores or by about close to 9%. That's got to do with 2 things. One is because of a certain higher amount of funds that we had borrowed, number one. Number two was to do with the interest cost price, which we have faced insure most of our surface because of the increase of the changes that RBI brought in. It is the same quarter last year, there was a drop in finance expenses, but then that was because there's a lower utilization of close to INR 195 crores of funds. The operating expenses at about INR 51 crores is lower than the immediately preceding quarter but slightly higher than the same quarter last year by about 4%. Loan loss provision has been lower compared to the immediately preceding quarter from about INR 9.4 crores. It has come down to INR 8 crores and significantly lower than the same quarter last year, but the last year to the first and second quarter, we were all struggling to fight with the COVID-- and then we normally like tenants up as a lease.  So the -- versus the same quarter last year, there has been a big reduction of close to 20-odd percent. In the low loss provision, there are 2 significant things that I would want to point out, one is definitely there has been a write-off the normally attractive write-off accounts of hyperfusion loans, which are in the 3 discussed by RBI, which was about INR 114 crores. And apart from that, the other loads where we are 100% provisioning, that also was written off. And apart from that, because we felt that we need to reduce the net entity further to ensure that the lenders are far comfortable, we believe that we need to make extra provisioning. We made extra provisioning of about INR 107 crores in the current quarter, taking the total additional provision between last quarter and this quarter to INR 13.75 crores on an overall basis. All this leading to a profit before tax of INR 24.4 crores versus a negative INR 10.6 crores in the same quarter last year, definitely a 330% pick. -- and slightly higher than the immediately preceding quarter, which was at a cost of INR 1.8 crores. Net profit after tax has been at about INR 18.3 crores, that's met due to gross growth and efforts that the team has put up versus a negative INR 8.1 crores in the same quarter last year and slightly higher than the INR 14.3 crores that we reported in the immediately preceding quarter. After to come down over 55.4% versus about 60% last year at quarter and 66% versus the same quarter last year.  The same quarter last year was 6.5%. But last -- same quarter last year, it had got a lot to do with the lower income, which was because of the huge NPAs and the reversals of income which had happened that in the particular quarter. Return on assets has been reasonable at about 3.5% net of -- and earnings per share of about INR 11. On a half-year basis, the disbursement has been out about INR 625 crores higher than the first half of last year, really comparable was but in time last year, roughly about 1.5 months or close to 2 hardly the business that we had. So the 40% growth I would not -- I would not scarcity, there is a growth, which will help us grow the readiness. INR 216 crores was the revenue in the first half of the year versus INR 198 crores -- INR 91 crores increase of 10% in finance expenses are lower at about INR 68 crores versus INR 7.5 crores, which is a drop of 15%, leading to a net interest income of INR 148 crores versus INR 117 crores, definitely, a good jump off of to 86%. Operating expenses are higher in the current half year, main line item could be collection cost because last year, for a couple of months, there was no bigger collection happening on the ground. So that is where the cost increase is up roughly INR 8 crores, R19 crores out of the total increase is due to the increase in collection costs. Loan loss provision, it's at INR 18 crores versus INR 81 crores. But then periods are not comparable, but thing event. And we are keen that we take benefit of that. Overall, profit before tax at about INR 44 crores versus negative or active growth and profit after tax of INR 32.6 crores versus a negative INR 2.8 crores. So all in all, we believe that the things have started improving, things would continue to improve. NPAs would go down. disbursement per started collections would improve our authority imbursements would improve even more as we go forward with apart from the regular business, a significant amount of volumes having or increase happening through the Bottine and the co-lending that we have started and other loans that we do or put together we definitely ensure that the revenues -- the disbursement will go up, the AUM will go good-quality portfolio will remain on the books. Therefore, the revenues will increase and the profitability will grow significantly. I would now ask Madhu to speak about the business, and then we will address any separately any of the queries that you will have.

Yes. Thanks, Vinod, and good morning to -- good noon to all of you, and thanks for joining this call. I think Vinod's covered things very elaborately. But briefly, let me run through what is happening in the industry and our business and collection perspective, and then we can open up for Q&A. I'll keep it as brief as possible so that we can have more Q&A, and we will be able to answer more precise questions that you have got. From an industry perspective, I think -- there has been pressure as far as 2-wheeler sales is concerned, the continued cost of ownership of 2-wheeler that continues to be on the higher side, the rising fuel prices besides inflationary pressures on the customer cash flows. We had been seeing rural sentiments improving, but it would be an important factor as we go for the rest of the year. But the early signs are that it would improve this year. And given the fact that industry wheeler sales had been at the dismal level for last many quarters. I think it is -- and it should be bouncing back like we have seen in the passenger car.  Retail sales had been at 30-plus 30 lakh plus quarter-on-quarter. So that is another encouraging factor. The wholesale dispatches during Q1 23 was about 82.5 lakh. And the retails were lower at 66.7%, that's how it is actually and the stocking of vehicle happens for the festive season. If you look at the current quarter, that is Q2 '23, the retails were about INR 31.4 lakhs in comparison to about INR 35.3 lakhs during Q1 '23. So clearly, there was slightly decline in the 2-wheeler retail as far as Q2 is concerned. But broadly, what we believe is 30-plus lakh 2-wheeler sales in a quarter is a good sign. It is a positive sign in the sense that, that is the base level where the industry is now operating. I mentioned about cost of ownership for the 2 year and that had kind of increased last couple of years, 3 years back with insurance cost going up and things like that. But -- and post code hitting, I think we are at a very good base right now. And the wholesale of 82.5 lakh unit in the H1 is also a very encouraging number in the sense that the yearly projection that we were seeing about INR 1.7 crores sales that would happen in Indian market is something which is a real possibility. And so we believe that Q3 and Q4, definitely, there would be a jump as far as retail is concerned. From MCX perspective, I think H1 '23, we mentioned, we had grown about 38% from a disbursement perspective. But Q1 versus Q2, I think we were declining. We mentioned that we had been taking a slew of measures to improve our portfolio, including improvements in our credit and risk norms, which had a marginal impact on our disbursement. But as we go forward, we do not see that as an impediment because our commitment to improve the portfolio and the assessment of our post-COVID portfolio is excellent. We believe that this kind of portfolio is where the profitability would come for us and the legacy portfolio, that is the -- before the lockdown portfolio that would run down substantially, and there is action plan on reducing those portfolio, especially from NPA perspective. We don't mention that NPA is going down. Specific questions we'll address when that need to be discussed. One very important thing that we've been telling was about our flagship company, that is MotoPinkof Limited. We had been sourcing business through their branches. While our disbursement has been flat overall, but from MSL branches, we have seen a substantial growth of about 20% quarter-on-quarter -- and we are committed to grow that.  We would like to grow that and that should become a significant portion of our overall disbursements. From improvement across all of our sites, especially the software buckets and 0 bucket efficiencies had been 95% plus. There's a clear plan of action to reduce NPAs. As I mentioned last time also, there is a targeted customer connect program, a lot of collection dealers across the country is happening every month to reduce the NPAs hard bucket collections. And at the same time, from the collection efficiency perspective, and one of the key achievements is it had been more than 100% for last at least 2 quarters. That is the positive sign. So we believe that as we go forward, collection would improve, and that is one of the signs that the customer's cash flow is improving, and that's why we are able to recover from them. So this is a basic perspective that I think I should share right now and then specific questions we can take up so that we'll be able to give you specific figures to address your queries. Over to you, Vidhi.

[Operator Instructions] The first question is from the line of Rahul Jain from Credence Wealth.

On good set of numbers. So if I look at the disbursements, of course, in your initial commentary, you have spoken on PAT. So we are at the lower than the average of almost 16 to 18 quarters the past 16 to 18 quarters that the imbursements are lower than the average. And the new customer addition, which is around 36,000 is also lower than the average of almost last 4 years, 16 quarters. So going ahead, given our target or guidance of about INR 1,750 crores of disbursement. How do we take care of this? And what do you expect in the second half? What will drive the growth you hear on -- what kind of changes would you be doing in terms of your strategy to drive the growth compared to what has been seen in, say, last 2 quarters?

The intention is definitely to grow but then grow quality portfolio. And that is the reason somewhere in the mid of August, when we did see things improving, we will is that no growth is necessary, but then it should come -- quality should be good. And then we started tightening the credit norms further and which effectively meant that divestment did take a bit of waiting, but we are fine with it because what is coming out is good quality portfolio. And we were comfortable with that because like Madurai release commentary saying that we -- the disbursement from the troika branches are going up. And we also were to start coal and D. So back in if we said that no, we will get to the volumes after latest years co-lending will also start delivering. And these numbers have to go by, which I can't possibly currently share with you because there is a current quarter number. What we thought would happen has actually happened. So we are comfortable with year... You mentioned about INR 17 crores, INR 50 crores. So we believe that we will grow in this quarter and the next quarter, we are fairly confident that the growth will happen basis the regular portfolio, the business that comes from topical answers the other loans had also got a co-lending portfolio. All this will definitely add up, if not INR 1,750 , it could be, let say, 1750 INR 10 crores, INR 50 crores lower. But then we will definitely speak about this, maybe a couple of hundred cores lower. But definitely, we'll speak about quality portfolio on which is, I would say, of the limited delegate maybe like the precipice that we have the kind of portfolio. Maybe we'll go back to that. You will see that possibly the team, when you speak to the credit team, we speak to the collection team and the business team, they are fairly committed to this is something that would need to happen and which will last.

So I do appreciate the management thought process of building a quality portfolio, and we would always be happy with that.  So sir, given the current situation, you said we can do a shipment of around INR 1,600 crores, INR 650 crores. And thereby, we can probably reach around INR 2,500 crores of AUM for the current year. And for the next year, you had guided on AUM of about INR 3,400 crores. And the current year guidance for credit cost was around 1%. Do we stick to that kind of numbers for guidance?

Current year, it could be slightly lower than the guidance that we had given, maybe by -- again, by about INR 200 crores to INR 250 crores lower. But then I would say that whatever is lower, that will get definitely just covered up fruits and lower provisioning, it will get covered up through higher revenues because otherwise, pointless having a portfolio on our books and then deciding that the 25%, 30% of that doesn't yield remain come -- so bottom line is something which we are looking at, in fact, -- when we speak to when against constant query has always been that ROA, ROE, they will be, that will be a credit cost. In fact, the last couple of quarters, the credit cost has been in check. So 29%, we have now come to roughly 15 1.5%. So I would say that those metrics maybe size may not be there, but then definitely, the other -- the more important part, that is the bottom line capital adequacy, the credit cost, the DMP, and NPA, that would be looking for superior to what it was maybe a year back or a couple of years then.

Given the current interest rate scenario and the competitive in the segment in which we operate, what is your conference level in terms of gaining more markets? So basically, just trying to understand where did we drive the growth from. The growth will be typically, are you trying to see better welcome numbers and the growth, better market share? And typically, the strategy behind that, how do we drive the growth, basically, the strategy for the growth?

I request Madhu to answer that. And I will add to whatever I believe needs to be added.

Yes, yes. So Rahul, when we say we have taken stew of credit measures to improve the quality of the portfolio, 2-wheeler industry, a 2-wheeler finance business typically has mostly new to credit customers, okay, like around 60%, 65% is new to credit customers, and you will be aware that our focus had been bottom of the pyramid of the customer, okay? And so the thought process is that how we move towards people with credit track record where we can -- we are very sure that how the portfolio is going to perform. And that is specifically because of the black swan event that has happened and the portfolio feedback, and the current customer profile that comes to us for credit. We learned that it has impacted the creditworthiness of the customer cash flow of the customer. So it was logical for us to be careful. And from that perspective, we are directionally moving. I'm not saying that fully we'll move into it. But directionally, we are moving towards customers with proven track record, okay? And that's why we say that. We look at the portfolio quality. So my business from the bottom of pyramid may slightly get affected and that's affecting the volume. But from where we get the load, yes, we'll move -- we'll grow from a segment, which we were not earlier competing there. At the same time, if you look at our geographical structure, we would like to grow beyond certain areas where we were kind of dominating the market. So there are a few states which we have identified beyond Carla, we want to disproportionately grow our numbers. I'm not saying that it would start happening from tomorrow. But that's the strategy. That's the process. These specific states. Already, we are there. We know this market very well. And we see that we have upside in these states and our portfolio has been also behaving. So we have identified certain states where we'll grow our business and grow the business with the segment that we are mentioning that will kind of change our direction a bit towards a better quality. So markets are identified strategies identified, and that's what will drive. And that's the confidence that we have got that we have set our set of formula right in terms of customer profile, segment of customer that we'll drive. And also, we have [indiscernible] specific markets that will drive our numbers. So rather than going [indiscernible] carpet bombing, we'll do a very selective attack on the market segments.

Maybe to Ralph, just to add on to what Madhu said just now, our promoters have always believed that the growth should be -- without too much of increase in infrastructure, and that's exactly what we are trying to do. Madhu mentioned about areas that we are currently not present and were trying to go into those areas and do the business. Definitely, Rutuilcor branches, we did mention about in retail. Coalmine another area. Another active thing that we have started in a big way, it will be the areas where we currently don't have volumes. So the growth will happen both will happen without infrastructure and we deal with the people who are, I would say, well entrants on the ground. That is what we lead to growth and debt to profitable group.

Sure. Just one last thing. If you could share some targets with regards to core lending for the current year and the next year? What kind of target are we...

My request is since we have just started it. And 2 of the people are on board as they have started disbursing my request is, let's not put the target, but then I would -- we are fairly confident that over a period of time, the volumes will be substantial, that let me put it that way. So we would want to see a quarter before we start giving a target to it because these are early days. We have got into its first sent, not want to put the number. We gave an overall number saying that you said 150, we said it a couple of hundred of crores here and -- so we believe that it over here right now, maybe end of December, maybe when you do the call, I'm sure the team will tell what is the expected target for the next 1 year or so because there is 2 lending we have started already. Hopefully, a couple of couple more will also start -- so let's take the test.

The next question is from the line of [ Sameet Desai from Sikom Advisors LLP. ]

Just one quick question. So you mentioned of moving towards the proven track record of customers. So just wondering how you see -- we are seeing an impact on net interest margins in terms of a lower yield that you're already giving out to customers with a proven track record? That's the first question. And the second question, in terms of the new investment you have made in the Nucleus Sinan software. Just wondering how that is integrating with the team, and in terms of the loan sanctioning going forward, how would that work out?

So -- can I take the first part?

So Sameer, when we talk about moving towards a better segment of customers, we already have schemes where we have done a sizable portfolio with this segment of customers. And I think it compensates with the collection cost with the other follow-up costs that we incur in the new to credit portfolio. And we are also working on analytics where the new to credit customers right now, whom we get a majority of the customers whom we serve. We'll have a very good profiling of these customers. We'll be able to create a personality, this kind of partiality is of this particular customer segment or this particular customer and serve them. So from the existing portfolio of existing set of customers also, we will be able to select the right set of customers. And at the same time, when you go slightly above that, let's say, lower middle-income class or middle-income class customer when we move towards that, yes, there also, we'll have a good set of customers who will come into our portfolio. for the higher segment of customers, definitely, there is an impact on the margin. And I mentioned that it is compensated to various other costs, including the credit cost. So that's the experience we have already gone through last 2 years, we have worked on that portfolio. We are very confident that, that kind of portfolio would remain profitable for us. There structure of what kind of interest margin, overall, let's say, ROE from that segment would be profitable enough for us to chase that particular segment. On the second piece, on the Finland software already, it is implemented and all integration has happened. The data migration has happened, and it is up and running. We are -- currently, we are working on the LOS. We already have a very good LOS. And then, as we go forward, we are exploring other possibilities that is there, which is right now not in the picture, but maybe at some point in time, we'll let you know. As far as LMS, Finn is concerned, it is up and running and absolutely entire organization is on that. Vinod you want to add on that?

I think you have covered everything. So I think there's nothing much for. I think you've covered everything.

The next question is from the line of [ Ankit Gupta from Bamboo Capital. ]

Sir, in the last con call, we had given on target of around INR 2,700 crores to INR 250 crores by end of March 31, 2023. And next year, we are targeting INR 3,400 crores, INR 3,500 crore of loan book. So what has changed now in 1 quarter that even you're lowering your guidance we are becoming -- we have become more conservative on our lending. Earlier also, we have had no issues of higher gross NPA we took as we win during Q3 -- for Q3, Q4 of last financial year. delinquencies were even more than any macro finance company. So -- but we then in Q4 and Q1, we change that will come back to growth and grow but now suddenly in Q2 call, you are saying that we are -- we have become conservative and now want to grow or book in a good manner. So if you can talk about it so...

Yes. I'll keep that for raising this point. I think it's a very valid query you have, obviously, we need to be addressing it very carefully. Let me take it this way. The intention of what we presented maybe at the beginning of the year was definitely something which we thought was doable and should be done. Actually, go vented as the things started improving. I think I mean we believe that we need to be concentrating more on part on the volume definitely, but more than the volume, I would say, on the quality quantity you can get the quality is the key because having a book and then you will end up bearing cost on it, Madhu mentioned about collection costs and credit costs. Obviously, the interest cost is a bigger burden. So I would say that instead of doing those things, that was a conscious call, which is taken by us in the second quarter being the notation since we are opening up other revenues maybe through the Resonance through the coal lending and other things, should we be [indiscernible] conservative in booking or doing transactions? And the tacit reason you will see in the current quarter, there has been a drop in the disbursement. We have gone down to the INR 278-odd crores about or lower than the same -- if it did the Pacific gotten. But we believe that volume and everything assets to own tale, but then we believe that the quality of the portfolio profitability as the bigger role, and that is what would get appreciated in the long term. And that is the reason why we took this call saying they may even if it means that the book goes down as tilted, it is worth looking at better quality and growing book without increasing the cost. While you did mention about the volume being lower, my request is look at the credit cost also which has gone down significantly. In terms versus the 2.4 manuals has come down to 1.54% while we have given across the -- so as an organization, we have taken certain decisions, which is for the long-term good of us as well as the shareholders.

So how much loan book growth are -- how much loan book are we targeting by the end of this financial year?

I think when my other friend actually spoke, that time I actually responded because he was asking about 2,600. I said that it could be a couple of hundreds here and there. So my belief is that we could be in the INR 240 crores, INR 40 crores, INR crore crores, that does not believe. My request is if you should bear with us and wait for us to do profitability to the people.

Sir, we are talking about focusing more on quality but that doesn't actually reflect in the kind of slippages that we are seeing this quarter also. This quarter also, we had INR 65 crores of it on a loan book of INR 2,050 crores, which is extremely high despite focusing on quality, nongrowing indoor slippages continue to remain on elevated levels. And we talk about platform that slippages continue to remain high. And in the first half of this year, our slippages are almost INR 112 crores. And this is -- and despite the entire financial sector, if you look at the entire vectors whether it is macro finance other factors who are relatively unsecured compared to us are showing very low or delinquencies or even less, you could just ask you to this continue to remain at elevated levels. So on one hand, we are talking about not growing our loan book and despite that, our slippages and credit quality continue to remain like not that good. So what is your view on that? And when do you think that slippages will come down?

[indiscernible] We have put up a -- we have put up a slide when we have put up the stages over the last 6 quarters. It is not doing but it is there in the-- you will actually appreciate that over the last 5 to 6 quarters, the slippages have actually started coming down. So since we went into -- from the third quarter, we were following the norm of you go to 90 plus. And then when you go down, you have to go down to 0 DPD. Then only you are treated as being out of NPA. So sites have been hard to be higher. But then in the Q1 and Q2 of last year, it has to do with it being normal 90 plus NPA. From Q3 onwards, we are talking about NPAs, which are -- I mean course, they're gone due 90 days and then gone out. So out of the total NPA of about INR 480-odd crores that we reported at the end of the year, roughly INR 130 crores, INR 115 crores is on account of accounts which are -- in the past, I would not have called it as NPA, I would not have call it a scale. So our -- we are now too, I would say, reporting in a different manner compared to what we were doing possibly 4 quarters back. That is the reason why the slippage of the mini go to 90 plus, obviously, the seller has gone to 90 because we cannot pay one installment. Getting into installment is possibly expecting a bit towards from this. And we deal with the bottom of the pyramid. We deal with that kind of customer. So when we are dealing with that kind of customer, it is -- we need to understand very clearly that we will not be able to pay for installment. And that is the reason you will see -- see you're referring to the slide, Slide 2, please look at it something I'm collecting close to INR 30 crores, INR 35 crores from a on a quarter-on-quarter basis from this customer. So they are a one installment at that time. 37,000 customers have -- 139,000 customers have paid me something but they have not gone out of NPA. So I'm saying that dictates look to be bigger or [indiscernible] rights, I can possibly work out my colleagues to work out something and say, what are the ones which went to beyond 90 days and then came down that should not be called a footage because then now realize that the excesses are significantly lower. So any of them have not actually added to that so far. I think most of them will start entering to it for the 1st of October. So we have added to it from last -- for the third quarter last year. So my request is slippages could be there, but whether collections are happening, that is it was a collection for [indiscernible].

But sir, on this -- the INR 17 crore provisioning that we took in last year, -- how much of the recovery do you expect format of the provisioning write-back that you are expecting in this financial year. You were expecting in the Q1 call, you were expecting substantial write-backs from this provisioning in Q2, which has actually not happening. So do you expect any significant write-back to the provisions?

Yes. Well, again that some bit of reversals are happening. In the second quarter, the collection has been in the 15% rate. We won the to go to 15%, 20%. And that is the time when the reversal will start happening. Now if I want it now, let me put it differently, let me throw that something like you. Some other 5.5% or 5.7% of NPA, we brought it down to 4.5%. The intention was to show -- to reduce the NPA so that we can keep in comfort to the renter. If I have not done that, I'm sure I could have reversed a lot of it. We didn't do it. See, people have done that. I would have possibly [indiscernible] INR 25 crores. We didn't do that because we try to get giving comfort to the lenders is equally important. -- defect, investors are somebody who are one of the base stakeholders, but lenders are the ones who actually make a frontwoman -- so definitely, we need to ensure that we give them comfort. -- anything close to 4% NNPA or less than that is what will give them a some of number. So we need to look at that. I could have record the lot of INR 20 crores, INR 25 crores to a reverse and paying at the same event that I was a pop at the at the end of the last financial year. But we didn't do that. We steadily brought down the net. So my request is to go the company a couple of more quarters for them to show some vector or some bit of reversal. Right now, reverses have not been done. It has been only in fact, like I said sometime at the beginning of the call, that INR 13.7 crores additional provision paratha reduced by inventory. I have not reduced or not reversed.

[Operator Instructions] The next question is from the line of Viraj Mehta from Equirus PMS.

Sir, I have essentially the same question. Just as an outsider, it's just very difficult to understand that when the environment is getting better for almost all kind of members, be it your microfinance or corporate or 2-wheeler lenders. Suddenly in the middle of August, after being in this business for 10 years, I realized that our practices are not correct. I just find it extremely difficult to fathom. How and when has this change happened? And what has led to this realization.

So it is not certainly that we have decided that we'll look at more customer -- better customer segments. It is not like that. I mentioned that primarily, we have a segment, a better segment of customers, we serve them as well, but not the portfolio size is not that big. And a few of the questions -- previous questions that I heard what happened in Q2 or that certainly, we are talking about credit quality and things like that. After a black swan event, we had certain assumptions, okay, this is what is going to happen. And let's say, the basic thing is how the customer's cash flow is behaving. And what kind of profile is coming to us, what are the rejection rates, what is our credit metrics that we are measuring on the business we have done recently? So a lot of parameters are reviewed. One of the things is that customers' cash flow, whether it is improving or not, new people are in the market, you bit know much better. In the lower segment customer, the cash flow has not improved substantially from what it used to be precoated, okay? So we need to give some more time for these customers to bounce back to what their cash flow used to be at earlier levels, which means that should we go on into this market go very aggressive in the market? No, that time has not come.  So during the start of the year or during the Q4, our assumption was, yes, we can go aggressive given the market situation and things like that. And now people know what is happening in the global market front and how that is impacting the customers ultimately. They are also impacted by their interest costs and things like that. So we said it is not time that we should go aggressive. We should continue some more caution until we are very sure about the customers' cash flow is improving and things like that. And so whatever customer does cash flow is stable, the people who are having regular income, people who are having -- who are more of a bankable transaction, and I can have collection to the -- without any follow-up, I can have the connection. So that's the whole perspective right now. It is about being cautioned, -- it is not about changing the direction. So time to time, you have to keep on assessing. Shall I go full-fledged aggressive? Or shall I continue my caution? I'm seeing that right now, it is about being cautioned at the bottom of the peramiat the same time, go to customer segment where we are very sure that portfolio is going to behave on the assumptions on which you are going to do that business. And meanwhile, we also explained that how we'll grow. It is not that we are saying we don't want to go. We are saying we'll grow, but there are various other revenues that have been put in place so that the numbers that we are saying we achieve and deliver that by the year-end.

Maybe to add to what Mads saying, there are the one thing which I wanted to tell you is that it is not something which we have started in the current quarter, something which we start. This is something which we started immediately after COVID. In test, that is the reason maybe if you strip my book into 2 parts as to pre-COVID and post COVID, post COVID, you will find that the NPA, gross NPA, not even net gross NPA would be in the 5% range. So this is the exercise that we are -- we took up immediately after COVID, and then we constantly keep improving we possibly have one more round of improvisation in the second quarter in the current year. So my request is to give the company that kind of time so that growth to be -- we have not said not will not happen, like Madhu is saying, we are saying that we will ensure that it happens over a period of time. And it will have -- all the other numbers are, I would say, looking to reasonably good. This will also come. Volumes will come. Please give the company some time.

Sir, a couple of bookkeeping questions. Your employee expense this quarter, quarter-on-quarter, has fallen from INR 18.2 crores to INR 15.7 crores. In an environment like this, I mean, can you grow some light why did we saw such a shrinkage in employee...

There was certain reversal that provision, which was there of the previous year, which in the current year, we felt it is no longer needed.

That is not what got egos. So this is one-off.

Your on average cost will still be in INR 18 crores, INR 19 crores a quarter. 18%, 18.5%, that range is INR 6 crores a month roughly.

And sir, the last thing I wanted to ask is, if you can -- like if you said you did INR 280 crore to INR 90 crore disbursement in the last quarter, but you majorly did post-August, is our monthly run rate in the range of INR 125 crores, INR 130 crores in October or INR 120 crores or it's not even there.

Yes. I normally don't give us numbers in the middle of the quarter, but then you are broadly correct. Let me look at it better. And normally, after the Board approves the numbers on the numbers. So I'm sorry, I can't say... But you are broadly or October, your broadly correct number will be better [indiscernible]

The next question is from the line of [ Ankit from Alfa Capital. ]

Sir, my question is on the collection efficiency. So you are saying we had 15% collection efficiency in Q2, thanks to the big numbers that we wrote off last year. So how long do you think we will have this above 100% collection efficiency? How long will we take to recover the amounts that we had to write-off last year?

The collection at about 105%. In fact, I think at the beginning of the call, I did mention, he is good, but it is not giving us comfort. We believe it should be higher than that. We believe that it should be much more than that because, obviously, that is what will help one of my front, sometimes that said the provisioning reversals have to happen. So obviously, when the collections improved further, which we believe third and fourth quarter will show that kind of number because second quarter was at about 15% of the current building. Third quarter will be more than that in fourth quarter should is normally the best quarter for any company, and I'm sure we will not be an exception. So that is when the numbers will go up. We will -- the rand will definitely go up.

So you think 105 can go up to 120 over the next of the second half?

Should go to 150, 100 techs.

And sir, just collection, all collection will be done this year only. And can we get some correction over next year also? Or this year is the period where we think everything book will be clean, fully recovered?

I don't see that. I think in a different context I said that about INR 150-odd crores is on account of soft NPA or NPA, which are less than 90 days. So this kind of collection, they continue to pay 1 installment 1.5 installments per month. So that would continue maybe after the end of the tenure, they will complete their repayment in 3, 4 months from then. If we have got about 25 months left, it could happen over the next couple of years. So I would say the recovery process be something which should be -- would see over a period of time -- some of it in the current year, a lot of it in the subsequent year. Next year, definitely. That is the reason in the equal provisioning also, we have -- when we look at the headcount closing, we look at the collection over the next -- over the next 2 years, be what is the likelihood of the account to get closed. If you look at the past history, saying that from the time the account closed or the account became fully enter installments got over, and I was not paid by the person, but the due date is over between 2 years after that, how much got paid. So we look at it that way. So definitely, for the kind of customer base that we work with, we work with the bottom of the pyramid, they would definitely pay but they would pay in a staggered manner across the next couple of years.

Sure, sir. And sir, and you're saying we are focusing a lot on profitability now and not so much on the loan book. So what is the kind of ROE guidance we are looking for, for the full year?

I believe that 3% should be a reasonable 1%, 3%, 3% to 5% is a good one. I will -- let me look at that. I think that has been what we used to do recover, and I'm sure we'll go back to that.6 months 1 second. 6 months, I think we are at about 3.1%. So I would say that 3.25% is a reasonable assumption to have.

Okay, sir. And you're saying loan book as it will maintain -- or we will be at INR 20 crores, INR 400 crore tax. I hope we are not planning to reduce it any further because this quarter was a bit of and you want to go for quality, [indiscernible].

The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, firstly, if you could indicate on the cost-to-income ratio for H2 FY '23 and next year going ahead?

Starting of the coal as to income for staff is at about 58%. I believe that it should hopefully be in the 55% kind of 2% to 5% range, I would... That's not ready.

That this was second half and next year if you could indicate?

Maybe a couple of percentage points lower.

Okay. And sir, on credit cost for H2 FY '23 and FY '24, if you could indicate this?

I said for the full year, roughly 2.5%. So I think we are currently for the first 6 months, my belief is it could be in the range of 2%. So what I'm saying that let's assume it's going to be 25%. Any reversal which will come from the additional provisions that we have done last year, that is separate. I'm talking about the noble business roughly to 2020.

Okay. So net-net, what credit costs are we expecting?

Net I would -- because of my intention get company significant intention is to ensure that the net NPA goes down, RBS put a limit of 6%. The company internally believe that distributes to below 4%. So we would want to -- if we have provisions, we would want -- not want to revert it, we will want to use it for reducing the net FDA. So I will right now not want to give any numbers on the reversal of provision. But I believe the substantial amount should come in the third and the fourth quarter.

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for the closing comments.

[indiscernible], once again. I think we have been doing this kind of calls over the last several quarters. And we have been trying now just to address most of the queries. Somewhere, we paid something would happen sometimes, it has not happened. Obviously, it not depends on not only a first but depends on the market factors somewhere we would have slipped in the past. But I believe that things are safe things are for good. Things are returning back to normal or it has returned to normal in most of the -- and we believe that going forward, the volumes should also talk rather -- right now, our -- we are talking only quality. I believe volumes will also start speaking. And we should continue -- I mean, the business volumes should continue, the business profitability should improve. And I would say that all footage the organization will continue to do well. And we need your support players and best wishes for the organization. That's all. Thanks a lot everyone.

Thanks, Vinod. -- and thanks to every one of you for joining this call, and thanks for all the encouragement you people give. I want to just reassure all of you that there is no change in the vision of the organization of the group of the strategy that we are doing. It is certain changes. And you should believe us that it is for the benefit of the organization and the benefit of all our shareholders and investors. We are very highly focused on giving those ROE, ROA that we are committing to you. And it's very important that whether we have taken important learnings and as we put certain steps to correct the problems that we have faced earlier, yes. There's an increased focus. And as a team, as a KMP and the promoters, the directors, everyone, we are working very closely to take this organization back to the levels which we used to be earlier. So please be rest assured. It is work in progress. And definitely, the progress is yet to come, but we are committed to ensure that organization is back to the expectation level that all of you believe that MCL should deliver. Thank you once again. Thank you very much, and all the best to all of you.

Thank you. Ladies and gentlemen, on behalf of Antique Stockbroking, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.