PNB Housing Finance Limited (PNBHOUSING) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PNB Housing Finance Limited Q1 Financial Year '21/'22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Deepika Gupta Padhi. Thank you, and over to you, ma'am.

Thank you, Margaret. Good evening, and welcome, everyone. We are here to discuss PNB Housing Finance Q1 Financial '21/'22 results. You must have seen our business and financial numbers in the presentation and the press release shared with the Indian Stock Exchanges and also available on our website, www.pnbhousing.com. With me, we have our management team represented by Mr. Hardayal Prasad, Managing Director and CEO, Mr. Kapish Jain, Chief Financial Officer; Mr. Nitant Desai, Chief Centralized Operations and Technology Officer; Mr. Sanjay Jain, Company Secretary and Head of Compliance; Mr. Rajan Suri, Business Head, Retail; Mr. Jatul Anand, Credit Head Retail; Mr. Neeraj Manchanda, Chief Risk Officer; and Mr. Saurabh Suri, Head Remedial Management Group. We will begin this call with the performance update by the Managing Director and CEO followed by an interactive Q&A session. Please note, this call may contain forward-looking statements, which exemplify our judgment and future expectations concerning the development of our business. These forward-looking statements involve risks and uncertainties that may cause actual development and results to differ materially from our expectations. PNB Housing Finance undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. A detailed disclaimer is on Slide 34 of the investor presentation. With that, I will now hand over the call to Mr. Hardayal Prasad. Over to you, sir.

Thank you, Deepika, and thank you, Margaret, for introducing us, and good evening, everyone, and welcome to our Q1 FY '22 results. On behalf of PNB HFL, I extend a very warm welcome to all of you. and trust you all and your families are healthy amid the COVID pandemic, especially the second wave that we have just gone through and the third wave, which may hit us. As I talk about our businesses and financial performance for the quarter, I would like to apprise that in line with company's philosophy of peoples first, during the quarter, we started a vaccination drive, which resulted in 81% of our employees currently vaccinated each with at least 1 dose. This was essential as our staff interacts with the public at large and also the public -- the borrowers and the depositors, visit our branches and was essential, not only to protect our team, but also protect the customers who visit our branches or whom we meet. The company has rolled out this agenda in January '21, as all of you would be aware and had shared related monitorables last quarter to help achieve strategic objectives of being a profitable and a retail focused housing finance company, which is what the company aspires to become as a very, very strong retail focused company. The company also embarked upon its transformation journey last quarter and had named it as project IGNITE. This is a long-term project with over 12 months and diagnostic phase of the project is complete. We are entering the second phase in with the implementation and other things will start. During this phase, we conducted in-depth discussions, analysis and benchmarking to assess the current state and identify areas of opportunities across our verticals. We have identified a number of initiatives across functions, business underwriting, collections, costs, et cetera, that would increase our digital footprints across, grow business with efficient underwriting and collection modules, optimize our cost to create value for all our stakeholders. As part of our digital journey, we are introducing RPAs in our standard processes to reduce human dependency, automate our credit decisioning for salaried customers to start with and collection systems with rule-based engines and advance analytics. It's an ambitious project, and it is far reaching in terms of the way we are going to look at the business and the way we will deliver in terms of our digital footprint that the company would like to have. For pan-India, COVID wave 2 lockdown created extreme restrictions during the quarter, which impacted business and collections. The company dispersed INR 1,759 crores during the quarter with 94% of the disbursements in retail segment, in line with our corporate agenda. This is very critical from our perspective to make the company as a retail-focused company. Our focus on the affordable segment continues with Unnati business. This segment contributed 9% of the individual housing loan disbursement and is currently at INR 2,986 crores of AUM. The company has created a separate vertical for this segment and has identified 13 locations in Tier 2 and Tier 3 city to be operationalized during the year. The first 6 centers go live by September and these centers are over and above our regular, about 95 branches from where also, we do business at different levels. The collection efficiency during the quarter stood at 95.4% more because of the lockdown and major problems that India had encountered. The collection efficiency was the lowest in the month of May when the entire country was under lockdown. The efficiency improved in June and further in July. The collection efficiency for July '21 improved substantially to 98%. The company has taken various initiatives during the quarter, which include cross-functional allocation of cases and use of external vendors to increase customer interaction, addition of digital payment platforms to provide ease to the customers for making payments and updation of collection. I think this is one of the most significant things the way the company has been able to bounce back in terms of improving this collection efficiency especially after not only the lockdown of almost 45 days, but also a lot of intervention that the courts have taken during this period. During the quarter, the restructuring scheme by RBI was extended up to 30th September '21, as on 30 June 2021, INR 1,733 crores, which is about 2.9% of our loan assets has been restructured under the RBI resolution framework for COVID-19 related stress, this is OTR 1 and 2. There is no restructuring done during the quarter. Under the ECLGS for MSME customers, the company disbursed INR 315 crores up to 30th June 2021. As highlighted, by us in the last quarter, on the core lending opportunity, we have tied up with Yes Bank and are under discussion with other banks for expanding our reach on the core lending space. This we feel will help us in generating fee income and cross-sell income along with expanding our customer base in minimal capital consumption. The model will also help us in onboarding prime customers at market competitive pricing for better retention. This is especially significant for HFCs whose borrowing costs are very high and it becomes little challenging for them to match the lending cost of banks who offer at rock bottom rates these days because of their CASA and very, very low cost of borrowing. The company has accelerated digital transformation across its value chain. During the quarter, the integration of Ace, our online sourcing platform and LOS went live, resulting in smooth file flow in the system. This is a significant step and the logins to our digital platforms increased from 31% in Q4 FY '21 to 46% Q1. We now have some branches, which are 100% sourcing their applications through the digital platform. I think going forward, for this company, this is something that the company will continue to push and ensure that the digital footprint improves significantly. The company has also as part of the NHB's Automated Data Flow System project, which is currently under pilot phase is also implemented. The GNPA of the company stood at 6% as on 30th June 2021 on the loan asset basis. The net NPA as on 30th June stood at 3.6%. In a depleting loan book, which degrew by 19% in the last 2 years, the GNPA looks further elevated compared to a growing book. The company, as a prudent measure, has made adequate provisions and our total provision to total asset is at 4.47%. The retail GNPA stood at 3.8% as on 30th June '21 as compared to 2.5% as on 31st March 2021. The increase in the retail book to gross NPA is primarily emanating from the self-employed moratorium book, which we had communicated during the Q4 results and amongst all HFCs, we have the highest self-employed footprint. The team is closely monitoring the moratorium book to have faster and quicker resolutions. The corporate GNPA stood at 15.94% as on 30th June 2021, as compared to 12.7%. The increase in the corporate book GNPA is the movement from Stage 2 and SICR accounts only, which we had also discussed it in our last presentation that we had. On the corporate accounts, the remedial management group that the company had created has yielded good results and is relentlessly working towards accelerated resolution of corporate accounts. The resolution and few of our corporate accounts got impacted due to the COVID-19 second wave, and we expect few more resolutions within the calendar year. The 3 accounts, namely Supertech, Radius and Arena mentioned in the resolution hold aggregating ECL provision of around 70%. On an overall basis, as a prudent measure, the company carries 15.6% provision on the loan assessed in the corporate book. The coverage ratio of 55% in Stage 3 accounts. As per our stated position, we continue to reduce our corporate book. During the quarter, the company has sold and received accelerated repayments of INR 479 crores. This is due to the continuous engagement that the company is having with all the corporate borrowers, especially because of our very clear laid down strategy of ensuring that we will reduce our corporate book and improve or increase our retail lending. The corporate book has degrown by 39% in absolute terms in June '21 from the March '19 levels. Talking about the liabilities that the company is seeing a downward trajectory in the cost of borrowings quarter-on-quarter. The company during the financial year has worked aggressively on prepaying and renegotiating its high-cost borrowings. The company during the quarter received INR 490 crores as NHB funding and the incremental cost of borrowings for Q1 FY '22 stood at 5.74%. This is the first time that we have actually reached below sub 6%. This has registered a decline of 52 basis points from Q4. The company has maintained liquidity of approximately INR 7,000 crores -- INR 7,085 crores as on 30th June. I think the continuous engagement of the company and the treasury department, the CFO department with all the lenders has resulted into this kind of a reduction that we have experienced in our cost of borrowings. On the capital raise, as communicated from time to time, the matter is present sub judice before the honorable SAT and the company is awaiting the final order. However, we continue to operate in our business as usual manner and working on strengthening our position with gearing, which has further declined to 6.4x and with lower share of corporate, the CRAR has actually improved to 21.4% compared to 15% required by the regulator. I think these are some of the things that I wanted to talk. But as we go forward, the presentation has already been uploaded on the -- on our website. And therefore, I'd like to throw the floor open for your questions and answers. I have with me the whole top management team sitting over here. And I would encourage you to ask questions and the respective function head would be in a position to respond to you, which definitely would help you and actually help you in alleviating your questions that you are asking. Thank you very much. And once again, thanks for joining us. As I see right now, there are almost about 165 participants, which is very, very encouraging for us that the interest continues to be extremely high in the company. Thank you very much.

[Operator Instructions] The first question is from the line of Amit Kapan from Laburnum Capital.

Two questions over here. First of all, on the senior management team, should we assume the team is by and large in place and that this will be the team that will drive the new strategy forward? Or should we be expecting significant further hiring at the senior and possibly even the middle management level. So it'd be good to get Mr. Hardayal's perspective on how much is done and how much is left to do in terms of the overhaul of the team over here? The second question really has to do with processes. And in any sort of lending activity, it's only in a stressful situation that you actually understand how well the processes are working and what your cross-cycle returns are. If we look at our core sort of borrower base, right, which is in both salaried and self-employed, we gravitate to slightly higher risk than the absolute prime borrowers that the banks would cater to, not massively higher, but slightly higher. If we look at the yields we're getting from these guys at the actual credit costs that we're getting and the operating cost it takes to service them, are we confident that we can get to a 15% or 17% ROE from this base? Or is that kind of unrealistic to expect where you look at yields given the competition, normalized credit costs across the cycle and realistic operating costs it will be hard for us to cross 12%, 13%? So those were the 2 questions will be great to get your perspective on both of them.

Amit, in terms of the management team, the top team, more or less the team is actually intact. We have had 2 exits from the company. The Executive Director had left in March, actually in April. And subsequently, the CPO, the HR head, he also left because he had -- he got an opportunity to work in the central government, and he decided that he needed to move. We are in the process of filing a new CPO and we'll actually onboard them as quickly as possible probably in the next few months. Otherwise, if you look at the sales underwriting, the collection, the CFO, the CIO, the corporate team, this is the team which is going to drive the business. And there's going to be pretty good stability in terms of the way the business is going to be run. Obviously, we will continue to look for opportunities to augment wherever we find that there are either gaps or because of the environment, because of the conditions we need to actually strengthen it. For example, that we launched, and I mentioned to you on the project IGNITE, the project that we started, we wanted -- it could have been run internally also, but we decided that project running, project planning and everything is a completely different ball game. And therefore, we brought one of an experienced transformational leader who had proven ability to deliver in terms of project implementations and other things. So that's one thing that we will continuously look at it. Whenever we find opportunities and we find that we have the right kind of people sitting over there, we will bring them. I think I did mention -- I failed to mention the CRO part also. We have a CRO who was appointed last year. He continues to remain with us. And these are the internal audits, we did it last year. This is a strong team, which is going to have in my opinion. In terms of the second question was in terms of your lending processes, I think there is no problem in terms of our processes. We have done a fairly good job. We have tweaked our processes whenever there was a requirement. We have changed our standard operating procedure whenever there was a requirement, and it is not that we have done it recently. Whenever the company has realized that there were issues that were cropping up on the portfolio side, it has responded and it is tweaked its business model. Whether it was on the sales side, the kind of business that we source. Whenever we find that there are opportunities in new markets, we will enter over there. Wherever we find that there are stresses building up, we definitely will look at that, whether it is a systemic problem or it is otherwise. Similarly, if you look at the underwriting, the tightening of the underwriting processes, the collection mechanism, there is a massive amount of IT interventions that are being done with new rule-based engines, automated engines, the RPAs being brought in. Another one of the most important and significant thing that we have done is that we are actually building up a strong and a very powerful advanced analytics team. And that team, not only there will be people working under every vertical, but we will also be strengthening the arm of the CRO. So the CRO will look at the credit risk part and the analytics part across the organization to push information back over there. There's one more thing that is important is that the IT now remains a very, very strong bedrock of the growth engines. Digital, IT and IT is not going to just provide an infrastructure, IT is going to support the business that is being run. So in terms of repetitive processes and in terms of any other things, IT is going to come forward to reengineering everything. I think all these things, if you look at it, should enable the company to actually do a significant amount of savings in terms of the way we do business, recalibrate the strategies wherever it is, bring down the cost, improve the income wherever we find opportunities. And that is the only way we can actually add value to the share, to all our stakeholders. And we -- and right now, we are in a midst where we have done the diagnostic process. The complete diagnostics has been completed. And we are moving to a stage where we are in the implementation stage. All these questions that you talk about in terms of our business mixes, in terms of the way we deliver, in terms of the ROA, ROE, all this is part of the diagnostic and the results are with us. Now we are looking at setting up the vision statement and then what exactly are going to be the deliverables in the next 3 months, 6 months and 9 months' time. I think the results that are there are organic in nature the way we are looking at it. But the moment we put in place this implementation phase, you will find that the results will start delivering at a much faster pace. And obviously, right from the business growth to the revenue streams, which is interest and other income to the profitability and the ROE, ROA will actually form the complete cycle of the way we look at the business. Anything that you'd like to add?

So Amit, your question was on the ROE that we would like to look for and in terms of number of 15%. MD mentioned when he was speaking earlier on that we are operating in a BAU manner, but the environment in itself is not a conducive environment. We had lockdowns. Last quarter, we had lockdowns in the same quarter last year as well. So this is creating some challenges on the road. But our endeavor is, as you've noted, we reduced our loan book share on the corporate side from 21% as of March of '20 to around 18% now -- sorry, 21% as of June of '20 to around 18% now. And we reduce our share of corporate book, we would be better in position to enhance our gearing. In the finance gearing, I'll be able to tell, have a better ability to get capital expanded. The opportunity for us to get to that 15% ROE is definitely there in a steady state normalized environment where the credit costs do not really come and hit you hard, it's something that we will look for. And our objective for medium term perspective will be to touch upon to that ROE of 15% with a gearing -- with the largest share of retail and maybe a single-digit corporate share puts us to a gearing around 7, 8, and this is around 1.6 to 1.8 like what we mentioned earlier, we should be able to get to the 15% ROE. But I'm not saying that we have -- that this is something that we can achieve this year. This is something which we're going to plan for ourselves over the next couple of years to achieve that number because the book will also take some time to build in. We have got to a gearing of around 6.4x. So as we move higher with the larger retail book, that's what we would endeavor ourselves to reach. We are looking into other opportunities to enhance our revenue in the form of fee income, in the form of core lending opportunities as well, which gives the acquisition on our feet without stepping on our capital or other avenues, which will enable that to possible.

Just to take you a little back in the financial year '19, the company had an ROE, which was beyond 15%. I think if the company has demonstrated it previously, it is a cycle in which -- it all started at the company had some issues in terms of its corporate book and then the stresses that come up. But we can tell you with a lot of commitment and lot of authority that the way the company is actually shaping up, there is a strong possibility that going forward this year we should be able to reach that level.

If this deal gets approved, Mr. Puri coming and joining the Board, what -- you've been a CEO before, he has been a CEO before. What kind of guidance would you expect from him, which areas do you think he's likely to add the most value. And from what you said, I assume you don't expect to shake up the senior team very much. So it's still going to be very much this senior team. Have you had discussions around a potential change in strategy? And how are we going to leverage this individual who clearly brings a lot of experience and a strong track record to the table?

Amit, the matter is sub judice. We'd like to wait for the SAT result to come in and then we will -- then I would like we would go to the Board and sit down together to review what exactly is the SAT verdict. And I would like to comment only after that. These are conjectures. These are forward-looking, and I would not like to comment anything on either any individual or anything that the company would do. The company has a plan, has been doing on it. And that's the way it will continue to do. Obviously, with the guidance of the Board, we continue to actually operate. And that's the way we are going to do it

The next question is from the line of Amit Ganatra from HDFC Mutual Fund.

Just a couple of questions from my end. One is this your cost of funds has come down over the last 1 year. Have you passed on any lower interest rates to your customers because on reported basis or even on a calculated basis, your yield on advances continues to remain where it was 1 year ago. Whereas for many of your peers, it has come down very sharply. So can you highlight what has been -- has there been any reduction in the lending rate for you on your back book also? And what is the current interest rates on the back book on retail?

Our CFO will cover in detail. But let me tell you, in terms of the lending rate and in terms of calibrating the lending rate, the company is continuously going to look forward. The company looks at it and we are going to quote the rates that we are going to borrow, add whatever costs are required to be added to it on the borrowing cost, the cost of borrowing and then the lending rate is arrived. The company continues to look at those things in the last about 1 year, not 1 year, about 6, 7 months, the company has brought down the interest rates on 4 occasions. And these have been pretty well received because if you look at -- when the business was completely normal and we got the 90 days in the fourth quarter of FY '21, which is January to March, the company did significant amount of business. And therefore, there is significant -- big scope for doing good business. We'll continue to do good business at the cost at which we are offering the lending rates. So in terms of the rates, we look at it. The ALCO sits, ALCO decides on the rates, and we see what is the best that we could do. This is on the quarter. On the cost of borrowings also, the company has in terms of the cost of borrowing, if you look at it and cost of funds and other things, I'll leave it to the CFO to cover it. In terms of the cost of borrowing, we have renegotiated everything. Every bank and every lender we have gone and we have spoken to them and we have told them that there is a significant whether if it is a 100 basis point reduction in the REPO and other things. If there is a reduction of about 70, 80 in the MCLRs of various banks that you look at it, we have continuously got ourselves engaged. It is not just actually bringing down the interest rates on the MCLR just because the MCLR has come down, but it is renegotiating the spreads over the MCLR. I think that is one of the reasons that we had engaged with every bank, and fortunately for us, that everybody realizes that, yes, there is a big opportunity to reduce the interest rates and keeping in view the way the company operates under the umbrella of PNB name. So we have been able to negotiate, and that's one of the reasons why we have been able to do it. I think you can also cover on the spreads, the NIMs and other things on the cost of funds, et cetera.

So Amit, there are 2 parts of this. So one is on the new acquisition, yes, on the new acquisition, we have reduced our risk. As our MD mentioned 4 times we have done this. And as and when we get benefit on our cost of borrowing on the incremental long-term money that I'm borrowing, we try to see how we can be more competitive on the offering with regard to pricing to our customers and also maintaining a reasonable spread on the new acquisitions. So that's something we have done. So our new acquisition pricing has come down from what it was in last year same time to what it is today. On the old book as well, we have a board-driven repricing policy, which helps us in working with our customers, considering factors on their credit profile to pass on them on repricing benefits that they can take in under a defined policy which is approved by my board and in line with what the regulators prescribe. So taking that into consideration, we do offer repricing opportunity to our existing customers, both from a retention perspective. And on the new resolution, we have reduced our rates when I am acquiring customer to what it was last year, what it is now. On an overall book with regard to old book, we have not done any realignment across the board on the price.

It is something very important that the CFO mentioned that this is regarding actually incremental long-term borrowing. So I think we look at it very differently. I mean, I mentioned to you the incremental cost of borrowing that come down to 5.74%. But when we look at the lending rates and the stability of the -- and the long-term product that we have, we always look at incremental long-term borrowing rate and what is it that we are doing it. And that would always be different than the incremental -- I mean because the short-term rate that we would sometimes they're one of the best people get it. So I think those are very, very important things from the point of view -- from a profitability point of view, that the ease on advances as well as the spreads, other things we are able to control, net interest margin is maintained. I think these are some of the things that we are continuously looking at it.

Can I ask my second question now?

Yes, sir, please.

Yes. My second question is that, see, now what we have seen in last 1 year is that the mix that you have and the return ratios and NIM and all you are delivering, is based on a book which has gone down. Now I'm assuming that you will get growth capital soon. And once you get that and you start growing, I just wanted to know that the future growth when it starts happening, will the mix be similar in terms of your LAP as well as housing loan and also the mix between salaried and self-employed. Is -- I mean, the future composition of AUM, will it look similar to what it is currently or that is going to change meaningfully going ahead?

Actually, the portfolio has been rebalanced. If you look at it, the -- with the down selling and the faster repayment of the corporate book, the book as such is actually showing a completely different -- so the rebalancing will continuously take this. When we said in January that we are going to rebalance the whole portfolio by becoming a retail-focused organization, we very clearly mean that. And that's the way we are going to do it. So in terms of actually anything that we are going to do for building a new book and the other thing, we will continue to actually focus on that book. The corporate can give me a higher rate, but we are looking at a very stable book, extremely stable book. These are the books which will enable us to actually take care of the -- when there is economic bumps that keep on coming in. And that's the way we are going to actually respond to the whole business.

In, before I forget, one more element, why my yields are being where they are, maybe a peer brand, although my new acquisition was at the lower rate is also because I reprice my corporate asset in quarter 1 of last year and we across the board increased our rates by around 1% to 1.25% for my corporate asset. So benefit of that kept on coming into my book. And therefore, while I had reduction in the retail asset, the incremental new -- new earning that I got from the corporate is kept as vendor deal at a similar level with 10, 20 basis point reduction and that's it.

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

Quick questions. One is that given the fact that we're increasing our digital foray, what life stages of the credit is this going to affect? And what have been the budgeting exercises done for the OpEx decrease if you can guide for that. That's point number one. Point number two is sir, the LAP, I see a large portion of the book being more than 70 lakhs. So how many customers do we have outstanding for that particular book? And given the fact that we are talking about granulizing the book, what kind of proportion we can look at maybe in 2 to 3 years' time, what could be retail, what could be LAP and what could be nonretail? If you can please answer.

On digital footprint, can you please repeat your question so that I can give pointed response?

Sure, sir, what kind of OpEx decline are you looking at with the digital sourcing increase? And where -- which on parts of the life stages of credit is digitally going to effect? Is it only sourcing or there are various other life stages that you've also planned out because we also spoke about analysis. So what are the -- one is that life stages of credit is digital foray going to effect? Second, what is the OpEx decline one can look at, given the fact that digital foray is increased?

See, first of all, the digital footprint will be implemented across the life cycle of the loan, and it is not only restricted only to the underwriting process or a collection process. It is end-to-end. As you see our current initiative that we have just taken on digital sourcing and digital applying for a digital application for the customer to apply for the loan, it is gaining momentum. However, it is too early for any initiative to come out with a targeted OpEx reduction upfront because this increase into productivity also results into some kind of an augment of the staff required to process a similar amount of number. So those calculations will [ proptify ] only probably the digital initiative reached to its, I think, peak or it reaches to its stabilized mode.

Yes. Shubhranshu, on the digital side, right from the acquisition, which is I think I spoke about 46% is the acquisition right from -- and then what we are saying is, I mentioned to you about the rule engine. I mentioned to you about the business rule engines, which are important. The target is going to meet -- will go through the complete automated processes with completely new rules being written, automating the whole processes, duplicacy is being removed, redundancy being removed, RPA is taking over the repetitive work. Similarly, as it moves forward, it moved towards the disbursement leg and then it finally goes through the collection leg and papers filed, e-KYC, lot of work, which is repetitive and which is very expensive. So the acquisition cost comes down very, very critical for us. The acquisition comes down, sometimes it becomes self-servicing, then actually the underwriting cost comes down significantly. The collection is already we are working on it. But we at the moment we integrate it fully with our Tiger app that we call for the collection. All these things are significant in terms of bringing down the cost to income. We are looking at that in case we are -- or I would not say in case when we go ahead and fully implement it, the acquisition fully, similarly, the whole cycle is actually integrated, but the rule engine is going to come only after September, October. Once we have done it, it's the volume game that we are looking at. We should be enough with a position to improve the volume. And therefore, instead of saying that how much cost I will be able to reduce, and I think a good measure would be to understand that we should have a very, very controlled calibrated cost to income basis. The income can go up with the business volumes that we will generate and the cost can -- will not go up in the same proportion as the other things will actually grow. I think those are some of the very, very important things in terms of the digital push that the company is having. We'd like to record a strong digital company. On the LAP and other things, would you like to respond?

Yes. See loan against property, if you see that up to 75 lakh segment, there is an increase in portfolio and which you mentioned. Beyond that, you see a decrease because incrementally, and this has not reached last 4, 5 quarters, incrementally, the focus has been to up to funding the LAP cases around 30, 40 and even 75, not more than 75 lakhs. When we see this, our average LTV is less than 50% when we speak. And then on the LAP, we find that the sales -- predominantly self-employed portfolio with an average age of 40-plus years, these are second or third generation business profiles. So I hope I have answered anything.

The granular part and INR 2 crores and other things.

On NHS piece, where we are talking about the per ticket size, ticket size, we have considerably reduced more than 75 lakhs. If you talk about say 75 lakhs earlier, some 1 or 2 years back, we were around 14%, 15%. Now we have come down to 14%. If it were INR 2 crores to INR 5 crores, we have come down from 20% to 9%. And similarly, in INR 5 crores, we have come down from 16% to 3%. So that's where we are moving to a granular ticket size in terms of NHS business. And we are very -- as Jatul mentioned, we are very, very careful in sourcing these kind of businesses because almost every month, we get these advisories from underwriting team to pick up those cases, which are -- which have a good simple record and all those things. In CIBILs also, we are very careful picking up good CIBIL cases also. So that's where we are currently.

75 lakhs of exposure?

Sorry.

The number of customers outstanding with more than 75 lakhs of exposure in the LAP book, that was my question. I understand the granularity part of it. If you can just give me this number?

Shubhranshu as of now, we would not have those numbers handy, we will come back on that.

During the call, if we are able to get that, we'll just give it to you. Otherwise, we can go to the next question.

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

Sir, just one question on our credit rating update and any interaction with the credit rating agencies. So since our performance has been reasonably good, we have set our gearing, our back book seems to be very well provided. I think we are carrying the highest provisions as a percentage of the loan book amongst all the HFCs. So what credit agencies are waiting for to upgrade our rating, credit rating?

So Nidhesh, actually, we did have one conversation around with the rating agencies in the last quarter. One thing is that capital is not getting is not -- sorry, capital is not coming in as a real demand because they are drawing some comfort on the gearing side, and they are now looking into other aspects of the business as well to build the case for ratings. So they could see that our gearing has come down. They could also see that we have reduced the mix between retail and corporate. So those are our comforting factors. So the similar convention has been towards other assets of the business to enable us to build that case on a 2-step process. The first step would be to see our outlook change from current status to a stable or a positive state and then to have a next level conversation on the rating improvement as well. COVID wave 2 does bring in some stop to that process because they would now like to wait and want to see how things are stabilizing for players in the market to start any further conversation on the rating improvement.

Sure. But the current gearing from their perspective, so I want to understand that on a sustainable basis, is the current gearing a sustainable number from a credit rating comfort or they want much lower gearing from these levels?

Yes. So they're using words like the current gearing is reasonable. The current gearing is fair. So they're not giving us very strong thumbs up kind of a statement because of the environment, but there are not really any more concerns on the gearing because the corporate book has also come down and the gearing otherwise is also improved with internal accruals coming in as well.

Nidhesh, there is a disconnect between the gearing that they are looking at it and the gearing that NHB looks at. We have told NHB also to reconcile with them that why they are looking at differently. But anyway, they obviously are looking at in everybody because of the lot of capital that has been infused in many of the HFCs. They are looking at lower gearing. There is no second thought about it. However, 6.3x that we have achieved is a good gearing in terms of the reward and risk and the reward and other things.

Yes. Because we are required to further bring down our gearing that will mean that our ROEs will always be suppressed. So that is a bit of a concern. Second, sir, in terms of yields, if you can share what are the yield on our current book on the retail portfolio and on the housing portfolio?

Yields on retail, housing and nonhousing.

So yield on retail book for this quarter, it is 8 -- for [indiscernible] it is 8.73%

And on the housing portfolio, housing loan book?

For housing it is 8.41%

8.41%.

Nidhesh, you're talking about new acquisitions?

Yes. That's what he is asking.

These are the incrementals yields.

Okay. Okay. Can you share the book yields also, that would be useful.

So book yield for retail segment, Nidhesh is 9.87%. Within that -- sorry, 9.58%. Within that, individual housing loan book yield is 9.19%.

The next question is from the line of [ Omkar G ] from [ Sri Consultancy ].

Once this project is implemented, what kind of growth are you looking at?

I mean we have classified the last conference call also, where we mentioned that we will be targeting around 50% to 50% of growth. I mean, I'm sure on disbursements. So we will be carrying on with that, and that's where our endeavor is to reach. And we are focusing on that number correctly.

Just give a flavor of the disbursement that you made last year, so that they can understand.

Yes. So in the last year, we are pretty sure with this -- we are sure that we will be able to achieve these numbers because if you see in the last year quarter of Q4, we were able to get around INR 4,000 crores of disbursement in the quarter. And where in the month of March, we were able to do almost INR 1,500 crores of business. So if you see going forward, we have got all wherewithal and I think we will be able to...

I think INR 10,000 was what we get, I think from there. Omkar, we did 10,000 -- approximately INR 10,000 crores of disbursement last year.

Yes, last year, INR 10,000 crores.

I think that is what he was asking?

He was asking Q4.

So when he says 40% to 50%, we would look at this kind of growth. And it also comes from the -- on the assumption that there will not be lockdowns and other things, that is one part. And that is one we are baking in and do our -- they are going to bake it into our -- the MOU that or the budgeting that we are going to do. However, your question is beyond that, and I will let you know. What you are saying is that when I am going to be done with this project IGNITE with my consultant, what is the kind of growth I would be looking at it. Now this is something that will also flow in. Some of it will flow in this INR 14,000 crores, INR 15,000 crores that he is talking about. Some of it will flow in because of the changes in the processes into the territories, into the systems that we are going to introduce and some of the business is going to come because of those changes in the 1 year that we are going to have. However, the changes are going to be significant once we have stabilized the whole operation. And that is -- it's a 1-year project. So I would assume that after about 9 months and about 6 months from now, we should see some good traction coming in into the whole. And Rajan just mentioned that he is -- we are looking at that kind of disbursement improvement, which is, I think, in my opinion, we can very easily take it up over there, assuming that the COVID wave 3 is not there. There are no more lockdowns across India, and we are in a position to have businesses usually.

Yes, because this project, IGNITE is just not about as MD mentioned, it's just not about generating numbers. It's about having a complete overhaul of the systems, over all of the processes, having the digital footprint -- increasing the digital footprint across the organization. And I mean, there are many things which are -- will be taken care by this project IGNITE. And yes -- and obviously, we are pouring into, big time in now into affordable housing. So that's also a part of Project IGNITE, and we are picking it up very seriously. And this all this thing will add value there.

It would be stabilizing, right?

Your voice, we couldn't hear you at all. What was the question?

I was saying that just from the first question, which I asked, I was saying that whatever you have said, it means that from the next financial year, the project should start giving its results, right?

Yes, absolutely.

Okay. The second question is on the capital adequacy since you already have a 21% and with the new capital coming in, what -- I mean, what would be your target areas for the growth?

Omkar, with all target areas for growth, we would -- so obviously, we have made a statement that our endeavor would be to grow into the retail segment. There is a stated NHB directed as well that you need to maintain home housing at around, the individual housing at around 50% and overall housing at around 60%. So that's the broader framework for us is with regard to business mix. So yes, nothing really changes with regard to our new opportunities in terms of product segment, it would be retail driven, it would be individual housing and the LAP mix. The mix here would be in the range of around 70% to 75% of individuals and 35%, 30% of LAP. So that's the kind of mix which we have always maintained. And in the housing portfolio, we have the product Unnati, which is our focus area as well, which we would build up in a calibrated manner. And we did mention that we are talking about moving into 30 new locations as well. So that will give us an additional uplift on our rural yield as well, but we're not able to write them in a regular plan in that portfolio. It will be a very good gradual progression, making sure that we have the said infrastructure available with regard to collection recovery as we build their asset base. So the focus would not change anywhere. But it would be retail, it would be individual home loan, LAP developed a bit by Unnati as well and other aspects of the business, which will come in to bringing further revenue for us would definitely especially like colending. As MD mentioned in his statement as well, that co-lending gives me an opportunity to get that additional ROA uplift because I don't invest my capital, I get upward income in the form of other fees and revenues as well and I am able to target customers whom I otherwise may not have been able to if they are really being very, very strong segment customers. So with that kind of customer, I do make a decent spread as well as I do co-lending. So that's an additional aspect of the business that we have to work on.

Yes. So this -- whatever you have just said, this is irrespective of the Carlyle deal you are talking about, right?

We are talking about business that is one part, and we don't know -- the matter is sub judice, I would like to comment...

Yes, whether that goes to or it doesn't.

Not anything on the capital or anything, we'd like to wait for it. And we will be ready with it once we have some kind of a clarity that comes from the SAT, and we will go back to the board, discuss it extensively and come out with a strategy in terms of whatever the direction that we would like to make. And as part of our business, it's a large organization. So organization with about INR 70,000 crores, INR 75,000 crores of business. It has its own way of doing it and it has those strategies in place to grow. It knows what exactly it wants to do it. It's just a question of whatever new things that you have, you would like to tweak your strategy for optimum results. I think that's one thing that we would like to look at it given the circumstances, that we operate in.

The next question is from the line of Sumit Jain from Sumit Associates.

Yes, I have one question. Yes. So you have mentioned that you have raised an NHB finance of nearly INR 490 crores in Q3, right?

Yes.

And your cost of -- incremental cost of funds for the Q3 is 5.7%, something, right?

Yes.

The total borrowing, how much total borrowing we have done in Q3, sorry Q1?

So it was a misstatement, amount is INR 1,490 crores, not INR 490 crores We did INR 1,490 crores of NHB in quarter 1 and the total volume that we did in quarter 1, it's around INR 5,500 crores, it is all we did in quarter 1.

Okay. So out of INR 5,500 crores, you are doing INR 1,400 crores something from NHB finance, right?

INR 1,490 crores.

NHB refinancing is basically short-term liability or long term?

It's [ value ] money.

Okay, special limit.

It's a [ value ] money, but then I would also like to assume that NHB has been supportive of us and every year, we've been able to draw new tranches. So we should be able to get the refinance as well. So we should be able to get it refinanced and further extend it once this money comes to maturity.

The next question is from the line of [indiscernible] from ICICI Bank.

Yes. I just have a quick question here. So I'm trying to understand the rationale behind making it a retail-centric portfolio by January because as far as I can think increasing the exposure towards the retail segment will definitely increase the risk of the portfolio as well. So until the economy is performing perfectly in the distressed times, I think the loan-to-value ratio will decrease significantly because the probability of a decline in the value of Grade A properties, which are in the case of corporate borrowers, is very low when compared to individual housing margin. So I just want to understand the rationale behind making it a retail-focused portfolio by January.

I mean, [ Ghazi ], I mean if you understand this total breakup of how things are panning out and how things have been for us in the past also. So the corporate portfolio was not doing that great for us, and we categorically we started moving towards -- shifted our focus towards retail business. And the main purpose is that we were not getting too much into a bulk size business in corporate where we want to spread. We don't want to have a concentrated risk in our book. So the main purpose is to have a well spread out book and the risk is obviously been spread out in that way. And you understand the risk rates associated with that book. The risk rates associated with the book of corporate is pretty high in terms of -- yes, 100% is the risk rate associated with the book. And if you talk about risk weight associated with the retail book, it is in the range of 50%. So there also, we are able to deploy our money in a much more -- in a much more efficient manner where we will be able to get much more returns. So if you see all those aspects putting together, the risk, the capital, the return and everything, I think this makes a much more sensible proposition for us to be in a retail book.

And adding to what Rajan said that see real estate is always a cyclical business...

Sorry to interrupt you, sir, we cannot hear you clearly. Can you please some closer to the mic?

Just adding to what Rajan has said, real estate is quite a cyclical business and it has its own nuances. So management hear very well understands when the risks are enumerating in certain kind of a portfolio. And we are very, very proactive to understand that when to start and when to stop. And that's the most important aspect. We were quick enough to realize that there are systematic issues. And we were quick enough to react to it, bring down that part of the book very quickly. I mean somebody who's holding on to this book in the COVID times, this is one of the most impacted part of the book, I mean especially LRDs and everything. So we are very quick enough to shut off this part of the portfolio and save on our capital. And again, it's a cyclical business. As of now, our thought is that till the economy stabilizes, till the situation stabilizes, we would want to diversify on this, be more on the retail side. And we will see as and when the situation improves. As of now, we will be within the absolute correct strategy.

[ Ghazi ], the one thing is that on the consumption of the capital and obviously, corporate asks for massive capital and it's a capital intensive business also. That's one part of it. But please remember that whenever we are talking about the retail, we are simultaneously talking about creation of verticals, affordable housing. And I think the government of India is also very clear in terms of the affordable housing, and they are promoting it. Secondly, if you talk to any of the builders you realize that everybody is concentrating on building affordable housing side. So there is massive opportunity that is going to come up in India on the affordable housing side as well as loans, which are less than INR 2 crores also. I think it gives you a very, very large portfolio, which will become stable as we grow. A minimum mark of portfolio is going to be a very, very stable portfolio. And it is not vagaries of the economic cycle. It's not a cyclical business that today, suddenly one INR 500 crore account, it can actually create a little bit of a turmoil in the company, those kind of things. I think retail gives you a very, very good stability. And the moment you enter and perfect and you start doing a good amount of affordable, the overall yield on advances improves. I think that is very, very critical from our perspective, and that's what we are looking at it. That how do we manage it and how do we ensure that these NIMs and others are actually improving continuously. That's one of the ethos on which we are moving, and we are going to build on it.

We'll take one last question, which is from the line of Deepak Lalwani from Unifi Capital.

So I think you may have discussed it earlier, briefly, but if you don't mind repeating. Sir, you've done a disbursements of around INR 10,000 crores last year. So what is the target you're looking for this year and maybe the following year?

I think -- please go ahead, you can repeat the answer.

So Deepak, I think it's -- I'm just repeating it, I have done it again previously also. So we are just targeting almost 40% to 50% growth over INR 10,000 crores. So it is almost -- so that's the number that we are targeting currently for this year.

And maybe next year, do you have any target? Or is it still...

No, no. Next year, we'll see we'll get back to you on that.

Thank you. Ladies and gentlemen due to time constraints that was the last question. I now hand the conference over to Ms. Deepika Gupta Padhi for closing comments.

Thank you, everyone, for joining us on the call. If you have any questions unanswered, please feel free to get in touch with Investor Relations. The transcript of this call will be uploaded on our website.

Thank you for joining us.

Thank you. On behalf of PNB Housing Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.