Poonawalla Fincorp Limited (POONAWALLA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Poonawalla Fincorp Limited's Q3 FY '22 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Kunal Shah from ICICI Securities Limited. Thank you. And over to you, sir.

Thank you, Denise, and good morning, everyone present on the call. Today, we have with us Mr. Vijay Deshwal, Group Chief Executive Officer; Mr. Sanjay Miranka, Group Chief Financial Officer; Mr. Manish Jaiswal, MD and CEO for Poonawalla Housing Finance; Mr. Rajive Kumaraswami, MD and CEO of Magma HDI and Mr. Mahender Bagrodia, Head of Collections from Poonawalla Fincorp, to discuss their third quarter as well as 9 months FY '22 earnings. So over to you, sir.

Good morning, Kunal, and good morning, everyone. I welcome you all on behalf of the Poonawalla team for joining the Q3 investor call. I hope and pray that you and your loved ones are safe and healthy. The management team here at Poonawalla Fincorp is excited to share the updates on an eventful quarter gone by. We continue to look forward to building a long-term and sustainable relationship with the capital market community, analysts and all our shareholders. We will take it up into 2 parts. First, I will share with you the major updates related to business and our transformation journey. And then I'll hand over to our group CFO, Sanjay, who will discuss the financial results for the quarter in detail. And thereafter, we will request you to take up any questions. Let me begin with the economic background prevailing during Q3. While we witnessed the Indian economy gaining momentum in October and November, the same was challenged a bit due to the rising COVID-19 infections towards the end of December, prompting the authorities to bring back some restrictions. This created a little bit of uncertainty regarding the growth. However, the good news is that the new wave has turned out to be less threatening than the previous one. The GDP growth forecast for FY '22 has been packed at 9.5% by the RBI, which is well supported by all the macroeconomic indicators like GST collections, which have been clocking about 1.3 lakh crores every month in the last 4 months, the CD sales and the others. In light of the above, our business continued to gain traction during the quarter, with organic disbursements growing by 28% year-on-year and 19% quarter-on-quarter. While we consolidated our AUM, it remained flat due to rundown of the discontinued portfolio. Our focus book grew by 6% quarter-on-quarter. As highlighted previously, our focused lending segments continue to be consumer and small businesses. Our current offerings consist of secured products, including pre-owned car loans, SME lab and affordable housing and unsecured products, including personal loans, loans to professionals and business loans. Even as we continue to sharpen our branch and digital distribution infra, during the quarter, we entered into multiple fintech partnerships to enhance our reach and ability to build our quality book. We also added small ticket labs and medical equipment loan products to our portfolio. Within our overall customer segment, we will keep evaluating new products and partnerships and launch them at an opportune time after evaluating these on our defined metrics of scalability, operating profit and credit costs. Earlier, we decided to discontinue some products in the previous forms for specific reasons that we had explained earlier. The discontinued book now forms about 24% of our AUM and is expected to run down substantially over the next 24 months. Our endeavor is to continue to build a portfolio with a healthy mix of secured and unsecured products, giving us superior risk-adjusted return. Let me now give you some updates on the key operating levers that we have defined in our strategy and that I talked about in our previous calls. First and foremost, our brand equity capital and cost, we continue to benefit from the brand and backing off a strong growth, coupled with our strong capital position. I'm also pleased to inform that during the last few days, we have received a long-term credit rating of AA+ stable from CRISIL along with reaffirmation from the other rating agencies. This is followed by a AA+ stable credit enhancement from CARE in the month of August. This has enabled us to further diversify our lender base and keep our cost of funds highly competitive. We have diversified our fundraising from the banks, which was largely earlier within the PSU banks, to now a range of fund banks and private sector banks with very large clients coming through. We'll continue to strengthen our liability mix with the bank debt capital markets, long-term finance institutions, including refinance and continue to optimize our cost. The second lever is the senior leadership team. I am happy to share with you that entire senior leadership setup is largely complete. Given the rich experience of the team, we are confident of delivering the ambitious business plan that we have envisaged. The third, which is our distribution infrastructure, we continue to leverage on our pan-India branch infra, along with enhancing our digital capabilities. The process of branch rationalization is in alignment with the new product strategy, and it has continued. For the newly launched SME LAP product, we have operationalized 38 out of 65 identified locations and have onboarded 600-plus channels. We have also expanded our presence in the unsecured businesses, which are personal loans, business loans and loans to professionals, to about 97 locations now, up from 59 in quarter 2. In affordable housing, as said, we have expanded our footprint to 113 in Q3 from 103 in Q2. This apart, we have enhanced our reach through various fintech partnerships, as I mentioned, which went live during the quarter. In terms of our digital strategy, which is another pillar of our growth, it's at the core of our overall business strategy where tech and analytics will drive product innovation, direct customer acquisition, improved tech and provide data for analytics to further such the customer better. We continue to develop end-to-end digital journey for our products. I'm happy to share that our unsecured products, which were already on an end-to-end digital journey from onboarding to disbursements, now a similar digital approach for our newly launched SME LAP product, has been kicked in and is making rapid progress on all other products. Our tech architecture is gearing up towards supporting multiple products and integrating with partners in a seamless fashion. On the analytics front, we continue to develop tools for sourcing, credit underwriting, risk monitoring and collections. We expect all these to bring cost efficiencies, expand our reach, improve customer experience, make our credit decision consistent and collections more efficient. On asset quality and credit costs, I'll now maybe share a little bit about how the quarter has gone by. Our collections efficiency continued to witness improvement during Q3 across all the products. During the quarter, we sustained a healthy collection efficiency above the pre-COVID levels and achieved above 99% for the month of December. We continued our efforts on collections, and we were able to reduce the Stage 2 and Stage 3 book quarter-on-quarter. We continue to make significant recoveries from the [indiscernible] and are adequately provided at this stage. In November 2021, all of you are aware that RBI notified revised NPA recognition and upgradation norms for NBFC. It was more of a clarification than revised norms is I would say. The impact of this for Poonawalla Fincorp will be an increase in GNPA by about [ INR 552 crores ] compared to gross Stage 3 at a confirmed level. It's worth noting that this pool of assets registered a collection efficiency of about 107% in December, and we continue to follow the India provisioning, and the same remains higher compared to the requirements under IRAC. Also, pleased to share that our bucket movement, which is a real factor, are showing the economic value of the assets, which has improved consistently. So therefore, we don't see any impact of these norms other than regulatory reporting on the asset quality and provisioning. Credit costs for Q3 have reduced substantially both quarter-on-quarter and year-on-year due to a combination of lower slippages, write-backs due to improvement in bucket position, some release of the COVID provisions due to improving collection efficiencies. Moving on to key highlights for Q3 performance before Sanjay takes you through it in detail. Our consol AUM remained at about INR 15,228 crores. The AUM of focused products grew by 6% quarter-on-quarter. Disbursements witnessed healthy traction across all active product lines aided by improving macros. Book growth had an offsetting impact due to the rundown of the discontinued product book. NIM improved by 25 basis points year-on-year aided by a sharp reduction in cost of borrowing. This, coupled with very sharp reduction in credit costs, led to a healthy growth in PBT from our lending businesses which came in at about INR 138 crores. I'll now hand over to Sanjay, our Group CFO, to take you through the financial updates in detail. Thank you.

Thanks, Vijay. Good morning, everyone. I'm pleased to share the update on the financial performance of Poonawalla Fincorp Limited for the third quarter, which has been an eventful quarter to say the least. Our consolidated AUM was at INR 15,228 crores, staying at a similar level on a quarter-on-quarter basis. However, the AUM of focused products grew by 6% quarter-on-quarter, which is encouraging. We saw good traction across all our active product lines, with organic disbursements growing 28% Y-o-Y and 19% quarter-on-quarter. Quarterly NIM improved by 25 basis points Y-o-Y to 8.8%. Our normalized NIM was 9%. We continue to engage with banks and achieved repricing of all eligible term loans. We have continued to expand our lender base, with majority of the incremental borrowing in Q3 coming from foreign and private banks. We also tapped the capital markets and raised funds through issuance of commercial paper. We are raising funds at one of the finance trades in the industry. Further assignment of AA+ stable rating by CRISIL to both PFL as well as PFSL is expected to strengthen our capital market presence. Since our last call, we have received fresh term loan sanction of about INR 4,000 crores at an average rate of 6.3%. On quarter-on-quarter basis, our normalized cost of borrowing declined by around 100 basis points in Q3 to 8%. On the OpEx front, there was an increase to 5.1% compared to 4.8% in Q2 on account of capacity building tons in line with the growth strategy. The OpEx is likely to normalize with growth in business over time. Talking about our ALM and update on liability management, we have an extremely comfortable liquidity of over INR 4,500 crores and surplus ALM across all the buckets as on December 31, 2021. The growth rate declined sharply by 340 basis points Y-o-Y and 60 basis points quarter-on-quarter to 3.5%. On similar lines, the net treasury book declined by 270 basis points Y-o-Y and 20 basis points quarter-on-quarter to 1.8%. The credit cost stood at nearly 0, [ 473 ] basis points lower Y-o-Y and 100 basis points lower quarter-on-quarter basis. Our restructured portfolio improved to 5.7% of in December '21 vis-a-vis 5.9% in September '21 aided by recoveries. The collection efficiency continued to surpass pre-COVID levels and was above 99% for December '21. The bucket position of the book also improved with Stage 1 proportion improving both Y-o-Y and quarter-on-quarter basis, indicating overall improvement in asset quality. As on 31st December '21, our provision coverage on Stage 3 book stands at over 50%. We are also carrying a provision cover of about 16% on Stage 2 book, which is quite healthy. As on 31st December 2021, we are carrying about INR 134 crores of specific COVID provision. There has also been some recovery from write-off pool during the quarter. Our conservative provisioning basis device policy sustained improvement in the collection efficiency, reduced slippages and further expected recovery from write-off pool provides enough cushion and help bring down the credit cost for the rest of the year. We will strive to achieve net stress 3 percentage of less than 1.5% by the end of financial year. During quarter 3, PFL accepted binding offer for sale of its shareholding joint venture company, Magma HDI General Insurance and Jaguar Advisory Services Private Limited, which has been approved by the Board of Directors on 2nd November 2021 and also by its shareholders on 13th December 2021. The sale transactions are subject to requisite regulatory approvals. Accordingly, as required by IndAS 105, these investments have been presented as noncurrent assets held for sale, and share of profit of the joint ventures have been considered up to the relevant date. Consequently, we are highlighting profit figures for the lending business, along with our consolidated figures. For consolidated PBT for the lending businesses in Q3 FY '22 was at INR 136 crores against INR 17 crores achieved in Q3 FY '21 and INR 124 crores in Q2 of FY '22, witnessing a significant 700% Y-o-Y growth and 10% quarter-on-quarter growth. The profit after tax for the lending business has increased to INR 102 crores against INR 13 crores in Q3 FY '21 and INR 93 crores achieved in Q2 of this year. Our ROA for lending businesses increased to 2.7%. Thank you. Over to you, Kunal.

[Operator Instructions] The first question is from the line of Kunal Shah from ICC Securities.

Yes. So with this rollout of new products as well as maybe in the existing one, if you can just highlight in terms of how the initial experience has been both in terms of the acceptability. And even in terms of scaleup, some of the product segments would have surprised positively. And you have highlighted, right, to win. So any -- what is the key differentiation which you are seeing in the market with respect to those products? So if you can just give some granular detail on the focus product segment, that could help, yes.

So Kunal, thanks for the detailed questions, and I'll take it up into 2 parts. First, on the specific focused product segment. as we spoke about preowned cars, we got into some partnerships, and we also revised our branch distribution engine. So we have reached a run rate of about INR 110 crores per month on the preowned car, which is almost back to pre-COVID levels. We have defined that some partnerships, we aim to have a contribution of about 10% to our total distribution engine. I'm pleased to share that only with the first partnership, which is CARS24, we are able to clock in almost INR 7 crores per month in a very short span of time of 1 month. The positive thing here was that we were geared up with our tech stack. We were ready for integration. And we have ensured that the entire process is end-to-end digital as we have committed to ourselves and also to the entire process and to our customers. So this is what worth highlighting. In terms of other relationships there, we are at advanced stages of discussions with various other large online aggregators on this product, and our aim is to have a contribution of 10% to 15% of the business coming from these channels. I mean it may actually come sooner than later in terms of overall composition, and we are very confident of that. Looking at the other products like personal loans, business loans and the unsecured piece of it, we partnered with Paisabazaar in the last quarter, and we are seeing a good traction in terms of whatever fits our credit filters. So what we have made sure is that whatever partnership we do, the BRE remains us. So we don't dilute the credit underwriting standards. We'd rather create an STP process which helps in a reduced debt and helps in terms of overall delivery of the product in a faster time and with the preapproved credit metrics. In terms of our loan against property, the SME LAP, which we launched in the last quarter, initial 2 months have gone by. I'm happy to share that out of the 65 locations, more than 50% have been activated with over 600-plus channels, which have been activated now. And the traction for the business is gaining momentum. As you know, that when you start any new business, the market also tests you, so we are going through those tests, and we are building up a business which is quite sustainable. If I share some numbers, I mean, we have reached a number of almost about INR 40 crores a month in terms of run rate within a short span of time of about 2 months on this business.

Sure. Yes, this was helpful. And in terms of the differentiation and maybe the distribution, apart from the online, if you can share a bit both internal as well as the outsourced channels and the acceptability of that.

So differentiation, both when I talk about partnerships and our own channel distribution, we are endeavoring that everything happens end-to-end paperless. So while you'll appreciate that in an environment of credit underwriting of collateral properties, which is less, the physical properties continue to be sort of evaluated through the legal and technical framework on a physical basis. But the entire application right from the channel, channel onboarding, application login, credit assessment and disposal, everything happens online in a digital format, which we feel is giving a large comfort to our channel as well as the partnerships that we have engaged with. So that's a small differentiation, if we may call it, is what we have look forward to.

The next question is from the line of [ Chirag Sureka from DSP Mutual Fund ].

This is [ Vivek ] [indiscernible]. I had a few data-keeping questions and one rather strategic question. In terms of how do we see Poonawalla Fincorp in terms of geographies going forward, you mentioned about products. Because the NBC space seems crowded space, and many of the players seem to be doing the same thing, would your cooperative driven by the fact that you have a strong backing, low leverage and low cost of funding? Or what would be -- if you look at it 3 years from now, what would you say Poonawalla Fincorp would be? That would be the strategic question. In terms of the data-keeping questions, if you could give us the discontinued products in the restructured pool as well as the write-off pool, what is the quantum that is there? And how much recovery did you expect from them in the next few quarters? Are the customers be able to pay at least EMIs at this point of time?

So Vivek, I'll take the first question in terms of the overall strategy and how do we see -- or how will one see Poonawalla Fincorp emerge over a period of time. And then in terms of the numbers, I'll request Sanjay to dabble a little bit more into that. So we have a stated objective of being a diversified tech-enabled NBFC focused on risk-calibrated growth with customer-centric approach of providing a growth-oriented environment for its people and creating value for the shareholders. That's the largest secure objective. You also had another question inviting to it within that how do we see the geographical expansion because we spoke about products, we wanted to understand a little bit about geography. So as a baseline, I'll share something with you that over the last number of years, while we were strong in northern part of India, we were also strong in the central part of India and in south. Other than Chennai, we were good in Andhra Telangana, Karnataka and Kerala. So the markets which where we are focusing more and we intend to build or rationalize our geographical expansion will be Tamil Nadu, Maharashtra and Gujarat. And on a steady state, maybe over a number of years, the way the market opportunity offers itself, our share of market also will be something similar, what is there for the larger players which, if you look at east, east will be contributing less than 15%. And there will be almost an equal distribution between north and west, followed by south. This is how we look forward to our future. And Vivek, pardon, but we missed your second part of the question, if you can repeat that, Sanjay will answer specifics on the numbers.

Sure. So just one add-on question to the first question. Sir, it will be like a semi-urban Tier 2, Tier 3 cities would be the focus for you?

So we will have urban and semi-urban focus, Vivek. We do not have too much of a rural focus. So this is how -- and that's in line with the customer segments that we have defined in the geographies.

Sure. It makes sense. Sorry, the second question, I'll repeat again. In terms of the restructured pool that you have, how much of it is part of the discontinued pool. And the same question is also in terms of the write-off pool. What is the write-off pool that you have? And what can we expect as recoveries from this pool going forward? Are the customers at least be able to, if not for a one-time settlement, be able to pay single EMIs and they won't become current but at least your money will come back?

Yes. So our write-off -- sorry, our restructured portfolio is 5.7%, okay? This number was 5.9%, so it has come down and which obviously reflects that, okay, there are recoveries happening even on the restructured pool. The second question you had on the write-off, so in fact, on our write-off book also, we recovered INR 230 crores in the past 9 months. And the largest part of the recovery obviously has been in Q2 and Q3. So because we have gone for quite conservative and stringent provisioning in write-off policy, yes, obviously, the recovery, okay, tends to be quite different. And as we talked about in opening remarks, even go forward, we expect write-off recovery, okay, to remain robust.

Sure, sir. What is the quantum of the write-off pool? That's what I wanted to know, still remaining, where you can recover?

So we'll come back -- I don't have that number handy.

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

Sir, my first question is you target to grow AUM about 3x by FY '25. So right now, we are almost -- March '22 is completing, so '23, '24 and '25, and correct me if I'm wrong, it's a 3-year target, correct? And March '21, our AUM was roughly about INR 14,000 crores. So from INR 14,000 crores to INR 45,000 crores, roughly INR 42,000 crores to INR 45,000 crores. So can you tell us from where this -- how do you see your AUM mix over a period of 3 years? And how should we look at your company, because [indiscernible] the explosive growth, correct, what should be the milestones, which we'll need to look at it, say, by March '23 and then '24 and '25? Can you just take us through that? And consequently, as you grow from INR 14,000 crores to INR 45,000 crores, your ROE from current level, depending upon what kind of mix you are targeting, how do you see that to move over the time frame?

So here we are looking at our growth is on a steady state after 3, 3.5 years, you will see a secure to unsecured mix of 65 to 35. So we'll be having a book of about 65% secured book, which will constitute SME LAP, our housing book, our small ticket lab and our pre-owned car finance, and maybe a little bit of the machinery and the medical equipment sales. On the unsecured side, we will have business loans, personal loans and loans to professionals as a large category of the unsecured piece. So this is how the mix would really look like. If you look at the AUM numbers picking up and how do we traverse the [indiscernible] of current [ INR 15,228 ] to, say, about INR 40,000 crores plus over the next 3 years. So next year, FY '23, we should be closing the book upwards of INR 21,000 crores. And thereafter, you can take the trajectory at a 30%, 32% CAGR. The one thing we need to understand that, even as we speak today, we have reached a number of about 55% to 60% of desired monthly run rate in terms of disbursement. And we are looking at almost 80% by the month of March. However, because we still have almost INR 3,600 crores of book, which will continue to run down, and that business, we are not doing any more, so that does not allow a significant ramp-up in the initial year or so. However, subsequently, as the new business line taken, these are the numbers that you can look forward to. In terms of ROA, we are at about 2.6% right now. We have stated that we will strive to achieve an ROA anywhere between 3% to 3.5% on a steady state over the next 3 years.

So you mentioned that you are at roughly -- I make that number, 60% of your desired monthly disbursement.

Yes.

So that date monthly disbursement is basically you're saying target for FY '25 -- or I mean target for FY '24 or '23? I mean what is the -- when is the desire means -- can you elaborate on that?

[ '23 ] is what I would expect you to know.

So for a '23 AUM of INR 21,000 crores, which would also there's a rundown impact and all the stuff, what would be your target disbursement for FY '23?

We can safely assume somewhere around INR 12,000 crores for the full year.

INR 12,000 crores. And what was your -- sorry, I don't have presentation in front of me, what was your third quarter disbursement?

[ INR 50 crores ].

Sorry?

INR 1,545 crores of organic disbursement and total of INR 1,845.

Okay. So total of -- so basically, you're saying full year, you are looking at INR 12,000 crores but, of course, there would be also loan repayment as well, right? So this would be on the gross basis disbursement, what you're talking about?

What we'll do is we engage more in person if you want to go through more of the details given you is directionally because it will be unfair to really get into micro calculations on a monthly basis. So in fact, we are targeting a monthly run rate of INR 1,000 crores per month by the month of April. And as we've told, which is demonstrated in the numbers itself, we are already at about INR 550 crores to INR 600 crores.

Okay. Sir, my second question is with reference to the digital and the technology enable kind of thing, so can you tell us that total how many people are working under the digital, what I would say, the technology division of your firm? And how you plan to further enhance the resources in this space?

On the tech team, we have about 75 people who are deployed right now. On the digital piece, we have about 25 people. And these numbers on the digital may double from here. So we may have a team of about 50 over the next 3 to 6 months. And on tech also, you can see that it's about 125 to 150 engineers working on building a very strong tech stack. So that work has already started, and that's the numbers.

And do you outsource a lot of technology development, et cetera? Or do you primarily do more of it in-house?

Yes, everything is opportunistic and through the measure of go-to-market. So whatever we need, and we need to definitely develop in-house, we are working on those. But if there is a need to outsource something to reduce the go-to market, we will continue to evaluate that and do it.

The next question is from the line of [ Harshvardhan Agrawal ] from IDFC AMC.

Just one data keeping question. I wanted to understand, is there any overlap between the restructure book that we have and the RBI GNPA book that we said of INR 550 crores? So is there any overlap between the two?

No.

Okay. So these 2 books are mutually exclusive?

Yes.

The next question is from the line of [Tejas Mehta] from [indiscernible].

Number 1 question is, if you can give us a breakup of the entire loan mix segment by segment.

So if you look at, okay, the slide, just a sec, in Investor deck, we have included a slide, Slide #20. It talks about the segment-wise, basically, security-wise mix of the book. So our book which is secured by hard collateral book secured by global collateral was [ 31% ] and unsecured portion was 16%. And as you can see, the book which is secured by hard collateral has been going up, okay, over the last 5 quarters and also [indiscernible] is unsecured.

Yes, yes. So I saw this slide, but I wanted to understand how much is LAP, how much is home loan, how much is preowned cars, all of those segments, if you can give a breakup of that.

Yes. So maybe we can connect, okay, later. We are able to kind of address, okay, larger questions, okay, in this quarter.

The second question is, you mentioned that your discontinued book AUM is about INR 3,600 crores.

Yes, that's correct.

What is the NPL on [indiscernible]?

So the good part is that our discontinued book is behaving, okay, pretty well and, okay, with the 24% of the book being discontinued. Otherwise, we would not have seen the kind of collection efficiency and bucket improvement, which has been visible across last few quarters. So even the discontinued, okay, it is behaving quite well. I hope that it would be, okay, suffice to say. I won't have specific GSV numbers for discontinued book, but the collection efficiency even of discontinued book is quite healthy.

Got it. And the last question from my end would be on the tech and the digital platform, now every lender these days talk about the tech and the digital platform that they have built, including the fintech as well as players because the bigger players [indiscernible]. What is it that you are doing differently versus the other players?

See, I'll share what is the mission that we have in terms of digital then what are our foundational conditions and what exactly we are really doing, and I'll try to see if I can do justice to this question. So we are looking at building digital and tested for delivering digital first. That's the clear vision. That was top quartile cost-to-income ratio by using digital. Digital has to eventually result into lower cost of acquisition and improved ROA to help a branch-light customer model that we have very clearly stated, which eventually also dabbles into a digital collection infrastructure. And we deliver a top 10 digital cost. That's our ambition. Then what are the foundational principles of this? So first and foremost, through digital and tech stack, as I said, our cost of acquisition has to be low. It can only happen if we achieve a significant decongestion in the processes. And by decongestion, I mean that we target almost 100% stay through processing for the onboarding of customers led or backed by automated VRE for prospection. And we also look forward to, therefore, engage with the partners who are equally sharp on the digital stack and to invest in the customer success. Overall, if we really look at it, it will help us deliver the risk-adjusted growth that we have really taken an ambition of. Now to build a complete tech stack and our digital capability to deliver 100% STP will be a journey. However, what we are seeing are initial experience in terms of rolling out of 100% VRE across all the products, we are seeing a significant traction, a significant reduction in tax and improvement in terms of the decongestion that we really talked about. So this is the overall thought process on our tech stack. Of course, again, it will be a journey from where we are and to what we really aim at. So basically, we are looking at optimizing and automating through the STP, as we spoke about, to support the new product lines that we create and also to integrate seamlessly with the partners that we intend to. And this will cut across not only sourcing, not only acquisition but also to underwriting and to connections. So that's the overall ambition we have and the journey has already started in [ that event ].

Just one last question. Where do you hire your talent for the tech and the digital team?

See, we have actually see a little bit difference between the core tech stack team and the digital. The digital is more from the ecosystem of digital, which is there, how the markets have evolved over the last 4, 5 years. And you know that most of this talent right now is sitting in the fintech and the like. If you look at tech, we are looking at hardware engineers who have experience in product development in the large IT companies and also who appreciate the banking and finance part of it. So that's how -- and also, I mean, we encourage people who are at the beginning of their career and who want to make a long-term career into a meaningful tech engagement. So that's our approach, and we are getting a good response in terms of hiring and scalability.

The next question is from the line of Prashanth Sridhar from SBI Mutual Fund.

Am I audible?

Yes, please.

Sir, on the various partnerships that you entered, I wanted to understand 2 things. One is how do you differentiate yourself? Because every NBFC would be looking to partner with somebody like a Paisabazaar, for example. And number two, generally, do these partnerships come with some sort of [indiscernible] arrangements, if you could highlight those?

See, our idea of partnership, Prashanth, is as I mentioned earlier, is to reduce the cost of acquisition and deliver a risk-adjusted return, which is superior to our normal channel and also become complementary to our branch distribution network. Now in terms of how do we really identify or differentiate ourselves, so we'll have 2-way approach. One is that we are also clear that which are the partnerships that we want to enter into. We want to get in partnerships with the players who have almost similar reports like us, who have -- in our opinion, while we may not be experts to comment on that, but we make our own investment that what is the longevity of this business model and what is the sustainability of this business model or the company that we are partnering with. But in terms of our own ability and how do we differentiate ourselves, it's the speed of integration with their systems. So that's where the largest differentiator, if I may say, in the success of any partnership will be, how fast one is able to integrate, what are the, basically, credit underwriting teams on both sides, whether they are on the same page; and the SOPs defined upfront to deliver almost 100% STP, if I may call that. So these are the differentiators that we are looking at, and we continue to -- I shared with you that the very first partnership that we started has given us very good results. So this is the principle of operating.

Sure, sir. No, that was pretty helpful. And what about the FLDG portions?

I would not want to comment on FLDG and all that. We have to make sure that we -- okay, let me tell you something else. We evaluate every partnership from the perspective of whether it is giving us a desired ROA or not. So that's a single metric on which we measure any partnership.

Sure, sure. Fair enough. And just one data keeping point. If I look at the organic disbursement of around [ INR 15 crores, INR 45 crores ], which product would pick up majority share? And is there any disbursement to the discontinued segments?

No. As we said, the focus -- then we don't disclose, right? So that's very clear. The second part of the question, actually, the disbursement ramp-up has been pretty secular across all the segments. Whether it is preowned cars, whether it is personal loans, business loans, whether it is affordable home loan, everything has been growing at an update what we had anticipated. So there is no disproportionate growth and as we have defined ourselves and what Sanjay mentioning in terms of a mix of secured, unsecured, we also calibrate that, irrespective of what could be the opportunity available at a certain point in time.

Sure, sure. And lastly, on the management front, are you like now done with the hiring? Or should we still expect some more hiring to happen?

For the senior management, hiring is pretty much complete across Fincorp and housing. The middle management strengthening with the ongoing exercise, which will continue to happen depending on what opportunity, what kind of business do we [indiscernible] in various geographies and various products. So that will be an ongoing exercise. But for the senior leadership, you may assume that it's largely complete.

The next question is from the line of [ Tushar Sarda ] from [ Athena Investment ].

Can you hear me?

No, sorry, audio is not audible now.

Hello, can you hear me? Hello?

Yes. Yes, we can hear you, [ Tushar ].

Yes. So on Slide 7 of your presentation, you have given a vision to reduce cost of funds by 250 basis points. So would this result in increase in NIM? That's question one. Second is, what is your current cost of borrowing and average in loan assets?

Yes. So as far as the 250 basis point reduction, okay, is concerned, a reasonable part of this has already been -- already happened. So about [ 180 basis points ], okay, across term loan and city lines put together, the reduction is already there. Now obviously, whatever reduction, okay, was carried out, say, in Q3, the full impact of that will get reflected over a period of time. So we expect another 20 basis points of reduction in cost of borrowing in Q4 over and above 100 basis points, which has happened in Q3 on a normalized basis. The cost of borrowing, okay, like you said, it was 8% for Q3. The incremental borrowing, okay, which is happening, is happening at 6.5%. We have about INR 2,000 crores, INR 2,200 crores of earlier borrowing in the form of instrument, so that will run down over the next 2 to 3 years period. But I think the amount will incrementally will become insignificant with the growth in book and incremental borrowing, okay, taking the larger share. In terms of NIM we talked about in terms of yield, [indiscernible] steady state, our yield should be between 13.5% to 14%. And NIM should be okay in the range of 8.5% on a steady state basis.

And I saw that you've not given quarterly balance sheet. Any reason for that?

So no, I think, basically, in NBFC, the lending business, the book and all the numbers, okay, which are important, the parameters have already been captured. So there is no specific reason, okay. It was just to kind of be [indiscernible].

Also in case you want to understand more, [ Tushar ], we can engage on a one-on-one or in case there are still any questions around that.

Yes. I've been trying -- and I've been traveling actually. I know Sanjay for a long time. So I've been trying to visit, but unfortunately, it's not happening.

We take the next question from the line of [ Agam Shah ] from [ Raj Trading ].

I just had a simple question. On the Slide #22, you say that as per the RBI circular, an amount of INR 550 crores would be added to GNPA. So the number we are seeing right now, is it added? Or will it be added in the next quarter? How do you see this number?

It's already added in the GNPA reporting, which has happened to the regulator. But we have to differentiate between bucketing and GNPA to the regulator. See, for the NBFC index is the guiding accounting methodology. So GS3 is a number, okay, which you can look at from the health of our book, yes. The GNPA number is also given, okay, in line with the circular.

Okay. So INR 492 crores is the GNPA is on the current book as per your slide?

Our growth, Page 3, yes, is INR 495 crores, yes. That is the [indiscernible]. Because of the circular, okay, the GNPA number would go up -- so the INR 552 crores will get added to this number to [our added] GNPA. However, this INR 552 crores book is also behaving pretty well. If you look at even Stage 1 book, a part of that Stage 1 book is also featuring in the INR 552 crore. And the collection efficiency of this INR 552 crore is 107% in December.

So what would be the correct number to look at it?

So see, we have given all the numbers. We have given GS3, given GNPA. As far as the economic impact of delta increase, okay, because of the circular is concerned, there is no economic impact. We continue to carry provisions which are far, far higher as compared to IRAC provisional requirement.

Ladies and gentlemen, due to time constraint, we take that as our last question for today. I would now like to hand the conference over to Mr. Kunal Shah for closing comments. Over to you, sir.

Yes. Sorry, just to add to the closing comments, I want to touch upon this last question. On the regulatory norms, so when do we see it converging with the Stage 3, so maybe it's like 3.8%, 3.9-odd percent extra GNPA. So how much would -- how much time would it take to convert? And are we realigning the business processes and the ground staff to [indiscernible]? These are more technical and we should be okay with this kind of a collection efficiency, which is there.

So there are 2 ways to look at it. One is that these are basically a regulatory reporting long term. These are 2 different accounting standards. So staging and bucketing has moved from an economic impact on the asset. And the IRAC trading consider about a certain way of classifying the assets. So if we look at really converging, it may take next 1 year, 1.5 years to even see that if there is any converging but as long as the accounting standards where we are forming our [ NDF ]. So frankly, there will be always a certain difference in terms of GS3 or the GNPA numbers that you look at. However, what we have started doing and that is irrespective of the RBI clarification on harmonization of norms. In fact, we are anyway looking at 0 bucket collection efficiency and that continues to improve, and that's what we will continue to focus. That will help a little bit on the regulatory reporting as well. And as the product mix also changes, there will be some movement towards harmonization of these 2. But really, you cannot ever compare these, Kunal, you'll not be able to compare these and say that they need to necessary converge.

Yes. The other thing was maybe almost [ 30% ] of Stage 2 is there, okay? So now when we look at Stage 2 at [ 30-odd percent ] and this is 3.9-odd, so that is almost 30% of Stage 2 still getting classified as GNPA.

So we -- and that for I think Sanjay mentioned that we carry almost about 16% of commissioning cover in the Stage 2, which would be safely assuming that is the highest -- among the highest in the industry. So we follow completely the process of expected credit losses based the [indiscernible] and we follow it to the T. And therefore, we are confident that the economic impact of any of these things will be negligible.

Sure. Yes. That helps a lot. And thanks for patiently answering all the questions and articulating the medium term to the longer-term strategy. And thanks all the participants for being there on the call.

Thank you, Kunal. Thanks, everyone, for a keen interest in participating in our analyst calls and look forward to a continued engagement with all of you through this forum as well as whenever there are any individual requirements on the normal. Thank you so much, and have a good day.

Thank you very much. On behalf of ICICI Securities, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.