Repco Home Finance Limited (REPCOHOME) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of Repco Home Finance hosted by Yes Securities. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Rajiv Mehta from Yes Securities, thank you, and over to you, sir.

Thanks, Jacob. Good evening, all. Welcome to Q1 FY'24 Earnings Call of Repco Home Finance. Firstly, we thank the management for giving us this opportunity. We have the top management team along with us, Mr. K. Swaminathan, Managing Director and CEO; Mr. T. Karunakaran, Chief Operating Officer; Mr. N. Balasubramanian, Chief Development Officer; and Ms. K. Lakshmi, Chief Financial Officer. Now, I would like to hand over the call to Mr. Swaminathan for his opening remarks on company's performance and the outlook. Post this, we'll open the floor for questions, over to you, Mr. Swaminathan.

Thanks, Mr. Rajiv Mehta. Thanks, Mr. Jacob. We would like to welcome all to the earnings call of RHFL for the quarter ended June 30, 2023. Thank you all for joining us in this call today. As an interaction, we are happy to announce that we are on the right track to continue the momentum of the previous quarter. The company… [Technical Difficulty] We are on the right track to continue the momentum of the previous quarters. The company is steadily progressing on its business parameters and is confident of meeting its clean numbers. The company is in the cost of making structural changes in the organization, the results of which would become visible in the coming quarters. As regards business updates, we were able to achieve a disbursement of INR 684 crores against INR 642 crores of Q1 FY '23, registering a growth of 7%. Our sanctions stood at INR 726 crores as compared to INR 691 crores of Q1 FY '23, recording an Y-o-Y growth of 5%. It is worthwhile to note that the sanction disbursements in Q1 of last year included a DA pool purchase of INR 70 crores, while there was no setup purchase in the quarter. Q1 of 2024. Our AUM stands at INR 12,655 crores increased by around 2% Q-o-Q and from the previous quarter of INR 12,449 crores. The ratio of exposure between non-salaried and salaried segment stood at 51.8% and 48.2%, respectively. The share to non-hosting loan that is home equity stood about 23.1% of loan book and housing loans contributed about 76.9% of the book. We were able to reduce the GNPA from INR 719 crores to INR 695 crores, which is 5.5% of the AUM and the NPA stood at INR 338 crores at 2.8%. We have a total provision of INR 524 crores with a provision coverage ratio of 51.4% for the Stage 3 assets. As of June 30, 2023, we hold INR 600 crores of restructured portfolio, of which approximately INR 200 crores in Stage 3. Our NIM for Q1 FY '24 was at 5.1% as again 4.6% in Q1 FY '23. We have been able to successfully transfer the increase in our borrowing costs and also improve our margins. We continue to operate at a spread of 3.3%. Our average yield on the incremental loan sanctioned rose to 11.56% in Q1 as compared to 11.08% previous quarter. The profits grew 8.5% Q-o-Q and 43% -- 43.5% Y-o-Y, amounting to INR 89 crores as against INR 82 crores in Q4 FY '23 and INR 62 crores in Q1 FY '23. Our ROA and ROE improved to 2.8% and 15.8%, respectively, in Q1 FY '24 as against respective figures for Q4 at 2.7% and 14.4%. During Q1 FY '23, we were a little aggressive in recovery actions and more than 1,340 [indiscernible] notices have been issued during the last quarter. Similarly, we are also happy to announce that the company has implemented a salary revision of all the staff members, which effect from January 2023. These 2 measures might have contributed a little increase in our total cost, but we are confident that the pay package as well as the recovery efforts will give good results for the company in the coming quarters. We also expect a drop in our attrition ratios. New software as indicated in our previous meet, the new software package is already in place in all the outlets. Besides mobile application center Phase 1 of the project is in the verge of completion and shall be rolled out immediately post performing security check. Certain add-on functions to this particular rollout mainly to facilitate decision-making head office would be implemented in the coming months. Branch network as of June 30, 2023, we have 193 touch points across 12 states and 1 duty, completing of 159 branches and 34 satellite centers with additional asset recovery branches. In the month of July 23, that is in the current quarter. We have already upgraded 7 of our sat centers. We will also be opening 3 more set centers this quarter. By year-end, we will be having more than 200 outlets. To summarize, the key financial highlights for the quarter are the loan book standing at INR 3,655 crores, registering 7% year-on-year growth. PAT at INR 89 crores. ROA and ROE at 2.8% and 15.8%, respectively, the core profitability has remained strong with a solid spread and margin of 3.3% and 5.1%, respectively. The gross NPA stood at 5.5% with coverage of 51.4%, net NPA is at 2.8%. For way forward, for FY '23, we plan to stick over guidance numbers of 20% growth in sanctions and disbursements and 12% AUM growth from FY '23. The GNPA numbers are planned to be brought down by at least INR 100 crores, out of which we have already reduced INR 24 crores. Thank you very much for the opportunity, and we are open to questions by all the people in the -- thank you. Thank you very much. Thank you, Rajiv, once again.

[Operator Instructions] The first question is from the line of Amish Thakkar from Siguler Guff India Advisors Private Limited.

Congratulations on the kind of number. Just want to get some clarity on your disbursement growth, so any guidance on full year and by when do you expect to get to about INR 1,000 crores per quarter? And if you can just break it down by of new branches that you're planning on and break it down by at also because the AUM grade in your home market is in single digits, while a couple of other markets are growing at double digits. At the same time, Gujarat has been negative. So what is the issue Gujarat because as an like filling out the portfolio, if you can just give a broad perspective of high level on this market in [indiscernible].

Okay. Thanks, Mr. Amish. I think if you see -- if you exclude the INR 70 crores of BA book, which we did last quarter, that is year-on-year, I think we have grown by around 30% as far as disbursements are concerned. That's why we plan to maintain the same as far as disperse numbers are concerned. Going forward, especially the first quarter is normally a lean quarter. That's why we have grown 20% year-on-year, so in the current year also, we are planning to increase the total disbursement number from around INR 3,000 crores last year to around INR 3,600 crores in this current year, so we are on track. We will be -- we are confident that we will be able to achieve the numbers as far as disbursement numbers are concerned. As regards to AUM, I think we were around 12, 600 -- 12,400 in the beginning of the year. We plan to reach somewhere around INR 14,000 crores by the current year-end. That is our plan of action. Hopefully, when the increase happens when the momentum happens, especially the second and third quarter are normally the peak quarter for the company, so during the second and third quarter when the increase, the momentum picks up, I think definitely, the book growth also will be more than the 9% growth that we did last first quarter, May. So definitely, I think we will be able to reach the number of around INR 14,000 crores, that is our plan of action for the year-end.

Is there anything on branch expansion strategy going forward and what's happening in Tamil Nadu while million growth there is 7%, 8% versus double-digit growth in some other markets? How do you see the market in Tamil Nadu playing out there 56% of AUM is selling the crores?

Frankly, Tamil Nadu is doing well. That is -- see, you on display the repayments, we are able to maintain the share of Tamil Nadu bill book, which in place that it is also giving us new businesses. And we are opening -- I think I told you in the previous quarter, so we are opening a satellite center in Tamil Nadu because these centers that we are opening these centers are mostly in Tier 2, Tier 3 centers, so we are happening in the form of sat centers in Tamil Nadu, whereas in other places, we directly go for branch opening. Tamil Nadu contributing a bulk of our business, more than 50% is being given by Tamil Nadu, -- and we plan to maintain that same ratio. As far as numbers are casino I told you in the initial moving itself we will be somewhere around 200 plus by the year-end. Tamil Nadu itself we will be opening another 6 or 7 sat offices before the year-end and other places, at least some 10 branches will be opening at a time Tamil Nadu. So, but year end, I think we should be somewhere around 200-plus branches.

And you seem to be actively running down our portfolio in Gujarat. Can there only 3% of your book, but have you stopped new disbursement completely there? And is it like the same issue that industry is in revenue? Or is it something else here?

Nothing that, see, comparatively, we are not all the popular in markets in this compared to South. So that is why there is a slow pickup SRS market like Gujarat as you are saying, and we are not -- we are positive. In fact, we will be opening some of the branches in Gujarat. Some of our branch expansions are in Gujarat only. Once the infrastructure including the human capital is in place, we will be opening branches in Gujarat, and we want more growth in wider because that is an improved growth market for us.

Okay, and this INR 14,000 crores target you are factoring in any BTO that happens...

What are the BTOs as well as the normal rundowns have all been factored in our INR 14,000 crores which is normal thing, and to answer your question specifically on BTOs, I'm happy to announce that BTOs are relatively less compared to BTs, which is -- there is a reversal in trend that we have noticed in the first quarter. Hopefully, if this continues in the coming quarters also, I think we will be able to handle these BTOs, which was one of the problem areas of this company last year.

And any guidance on this portfolio purchase that you did in Q1 and Q4, will that be continued in this financial year as well?

Frankly, as an organization, we want to grow organically, let's be very clear. But the opportunity comes as a DA is concerned, definitely, we will look into action provided. It is profitable. It gives us volumes.

The next question is from the line of Aniket Kulkarni from BMSPL CapitalQsquare.

So during the initial commentary, you spoke about some structural changes, which the company is going through and you said the effects of this will be seen in the coming quarters. So can you just give some more detail on what are the sorts of changes which you're doing? And how will it affect the business going forward?

Thanks, Mr. Kulkarni. This company was not having any sort of verticalization in place in non-lease years. Okay. This sort of actualization we have started doing, and in the last call also, we had talked about collection vertical that was implemented. In the current quarter, there is we have also started a sales vertical separately. Going forward, we will also be adding credit vertical, so this collection vertical is more or less stabilized, even though the results are up to coming. Sales vertical leasing process, it is just 1 month over. Going forward, I think sales vertical also will be giving us more volumes, so this is what normally we are talking. In addition to that, I think we are also doing some such changes as far as our software is concerned, which I mentioned in the opening mimic, so all these are just a brief, in each and every department, something around is happening. But basically, some sort of verticillation has started happening in this company. And we are confident that this is going to give us results.

The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

Sir, I just wanted to understand if you could first give a data point. If I look at your disbursements, have you already shared the split of reimbursement between home loans and LAP?

Yes. Home loan and home equity, we have given, no.

So has that already been provided?

Yes, I think it's already been provided. I can give you once more. One minute I'll give you. You have given the percentage, I'll give you the number. See, as far as home loan is concerned, it is INR 9,735 crores and home equities to the INR 2,990 crores.

This is the mid of your loan book, right?

Yes, loan book.

No, sir, I was asking actually about disbursements, so for this quarter and maybe the last 2 quarters, if you could give the split of our disbursements between home loans and LAP and home equity to home loans available.

I am not readily available. I will see whether I can give you before the end of the call.

Sure, sir. Sir, the other thing I was wanting to understand is while very clearly we have started to demonstrate some growth in your advances now, which is probably around INR 12,650 crores now. What is a little worrisome here is if I look at home loans, right, home loans has grown by just about 2% year-over-year, while your LAP book has grown by about 28% year-over-year. So I understand, I mean, the things that we've been through. But sir, historically speaking, also, LAP centered self-employed segment has been a problem area for Repco. Even if I look at the gross NPA numbers that we share basis product segments, there also, if you look at it in the home equity LAP, right, we had a peak NPAs of about 10% or most about 7, 8 quarters back, which is now 7%. So why is it that we continue to do well in LAP there, we are not seeing a lot of BTO as a matter of fact our book has been growing 28% is very strong growth, while housing loans, which are more safer there, we have just seen a 2%, 2% kind of a Y-o-Y growth.

Abhijit one clarification I would like to make, it is not exactly LAP book, it what we call that home equity, so it is not that entire non home loan or LAP. LAP, this open home equity consists of 2 or 3 segments. One is, of course, the LAP, which is may be a major thing. The other thing is on a commercial, even a commercial real estate one. Second, let's say, home loan with 3 kitchens. We call it as home equity, so all these come under home equity portion. And you may also be remembering recently RBI came up with a circular. -- wherever some reimbursements happen even in case of a home loan, it is not to be contend as a home loan, so all these put together come under a non-home loan portfolio, so even though we would technically speaking, these may be home loans, they are classified more from a super base point as a non-home loan, so that's why I'm saying as far as the non-home loan portfolio, I do not want to take it entirely as LAP book. Second, to your question, yes, LAP is giving me some margins, and we are very, very clear even in case of a lab, whatever be the portion, even get flat all our normal requirements like CIBIL score or the quality of the client all these are taken into consideration before we sanction the loan. The entire risk parameters are all parameterized in our LMS itself, so all these are taken into consideration. So let us not have a view that all non-books will be riskier. Of course, because by the nature, NPA percentage of home equity will be higher than their home loan, and second, in home, there's a steep competition compare it to my home equity, so my growth is also happening this way. In this particular quarter, it is more because of the change in the nomenclature due to supervise editing. There is an increase in a non-home loan portfolio. And to compare your, I think we have now got the disbursement for the current quarter, it is INR 410 crores housing and INR 274 crores for home equity. Previous, let us say, INR 480 crores in June 2020, it was INR 480 crores and INR 162 crores and March '23 is INR 555 crores to INR 280 crores, so it is happening home -- always the home housing portfolio is more than home equity portfolio, and I again repeat, it is not that all non-housing on portfolios or LAP.

Okay, sir, and sir, this thing that you explained the change in product mix, start change in product mix that we've seen this quarter, where the home equity portfolio has moved up from 20.7% to 23%. This is purely a reclassification or the change in guidelines and moment retire is what you talked about.

Should be, It should be mostly because of that reason. Because we have taken all that. Nearly, I do not have the exact number, but post to the circle, we have reclassified all our reimbursement loans as home equity portfolio. Of course, there may be an increase in the home equity portfolio in the current quarter. I'm not denying that, but it is mostly because of the reclassification.

Got it, and the last question is, I mean, how should we now kind of look at the asset quality, obviously, under your leadership, I mean the asset quality has continued to improve. During the opening remarks, you also talked about the guidance here for the full year, you talked about bringing north NPAs by about INR 100 crores, almost 1/4 of that you've already achieved. So how should we look at asset quality going forward? You talked about initiating a lot of SAFC. So that's all my question. I mean how should we look at asset quality and also credit costs for the full year?

As far as asset quality, whatever INR 100 crores we have given is really a conservative estimate. We want to be especially conservative as asset quality is concerned. Mainly because of the restructured portfolio that is still there in our NPA as Stage 2 number, it is because of that reason. But as I mentioned in the opening remarks and as you have mentioned, we are going slightly aggressive as far as recovery actions are concerned in the our NPA portfolio, the stage portfolio. We are confident that all these efforts will bring the NPA numbers still down, and we may even better our guidance as far as NPA numbers are concerned. We continue to monitor almost on a daily basis, on a monthly basis. Definitely, we will be in a potion in my view, we will be in a position to contender something drastically changes.

The next question is from the line of Anand Mundra from [indiscernible].

Sir, I wanted to check with you how do we plan to grow our business by increasing the ticket size or in given branch productivity or opening new branches? Because when I was doing test, it looks like branch productivity is already very good.

I have a different opinion, Mr. Mundra. There is still scope for improvement in productivity. That is what we are driving. Of course, we will be opening more branches. These branches also will give a business, no doubt about it. But the vertigration that I was talking up of that is only for improving the productivity of our staff. Because some portion of our existing terms, we are going to earmark exclusively for selling to our customers, approaching new customers, so more and more customers need branch out and get it rather than working customers. I think with all this, we ought to improve the first half product here or branch productivity. I think that would be the main source of the growth for the current year as well as for the coming years.

Sir, I visited a few branches. So I realize that we don't work on feet-on-street model. Is that correct? Or it's -- because I visited branches in Western India, so I wanted to confirm that.

We were not at least to a certain extent, I can agree, we were not feet-on-street model, but that is what we are changing. Now with almost all the brands having an exclusive sales staff at least 1% will be industry throughout, and we are monitoring is our super performance on a daily basis. How many new log this particular segment is bringing us. This is in addition to the other medicals like a DSP or a bucking model, so the exclusive person who is earmarked for sales is supposed to bring in fresh business. That is the expectation. But that is still a process which has just started 1 month back. So going forward, maybe if you see the same just 2 or 3 quarter sense, I think you will see a change.

Yes, yes. Definitely, sir, I saw a lot of changes in stars were really motivated. I was just talking about the branch productivity. Sir, second question which I had was what about the portfolio in Stage 2 and Stage 1, only a portion of 0 to 30 days, so 0 to 30, 30 to 60 and 60 to 90, what percentage of portfolio is there, sir?

Okay. This is -- I agree with you, sir, because of the software that is changes taking place, we are unable to zero in on the correct numbers as well as Stage 2 and Stage 1 are concerned. Definitely, going forward, maybe in the next 1 or 2 quarters, we'll be giving you the precise numbers. Because that still there are some number of issues definitely in the next 2 or 3 quarters, we will be able to give you the exact numbers since Stage 2.

Okay. Sir, one more question. What is the actual credit loss which we have - which we actually suffered in the last 5, 6 years, whatever you can recollect?

Maria, I'm just 1 year old. Anyway, I'll try to give you.

In the last 3, 4 years, yes, whatever number you have, sir?

I don't have exactly... Anyway, I'll try to give you before the end of the quarter. Okay. Is there a last year, I can tell you. Last year on the current year, see, this particular quarter, we did only around INR 5 crores, less than INR 5 crores credit cost. I think last year, we did around INR 25 crores matter?

No, I'm not talking about the provision, sir. I'm talking about the actual credit loss which we have suffered because you have auctioned the property at a lesser value than the loan outstanding.

That will be very, very less. Right from inception of this company, the actual rate will be around INR 10 crores to INR 15 crores.

INR 10 crores to INR 15 crores.

Actual rate-off. Maybe another maybe INR 10 crores or INR 15 crores may be there, which we have to write up that may be there, net-to-nets is through the history of the company.

Okay. Nice to know that Sir, coming back to the first point, you are saying that we will be adding feet-on-street in every branch, at least one employee.

Yes.

Okay. So -- and that person will manage any DSA, outsourced DSA or he will so [indiscernible]?

No. Our direction to that particular employee is other than DSA. That should be -- this is -- we call it as a direct channel. An employee channel. These details should be different.

The next question is from the line of Aviral Jain from Siguler Guff.

I have 2 questions. One is, if you can quantify the BT-ins and BT-outs for the quarter? And what has changed on ground so that you are attracting BT-ins. That has been are -- had been our constant ask from the previous management to focus on BT-in and also reduce BT-outs, so where are you seeing these BT-in, so on if you can quantify both these numbers? And consequently, is there a fundamental borrower profile change that you are observing given yields are improving, the market as still very competitive? So those are my 2 questions.

Okay. As far as BT-ins are concerned, we got a BT-in of INR 70, INR 80 crores in the last quarter. BT-out is relatively difficult to measure because we do not know what are the exact BT-ins. But approximately, we can say that it should be around INR 44 crores to INR 50 crores. So I can say confidently that in first quarter, our BT-ins were more than BT-outs. To that extent, I can be confident. As far as Borosil is concerned, we have not seen much of a change at just in the last 1 or 2 quarters, we are not seeing much of a change. Our existing borders or existing clientele remains the same. But going forward, if we are slightly aggressive in the salaries segment or in the documented segments, maybe we may -- our home loan portion, housing portion may really go up. These BT-ins are mostly from other housing finance companies whose interest rates are slightly higher, so if you completely aggressive in our interest rates, maybe we can -- we will be seeing an increase in the home loan portfolio compared to the home equity portfolio.

And the BT-ins are a mix of both home equity and home loan -- housing loans?

Yes, because normally, they can not only for taking over, but also for giving some add-ons. Normally, they come with an additional to the loan propose -- existing on quarter, so that is also being given by us only for that reason, they are coming. That is [indiscernible] interest rate. Second, we are also seeing tracking the movement of our customers, wherever we are seeing an indication that some of our customers may move, we try to contact them and see whether BT-outs can be prevented.

So there is a central monitoring to checking CIBIL hits and other hits, all your existing borrowers. Are you putting something like that in motion at a branch level or at the central level?

At head office level, we are monitoring to our links with the central agencies who like CIBIL, who give us reports about a likelihood of our customer moving out.

Yes, number of hits, correct.

Yes, we tried to contact them so that we prevent such BT-outs.

And our BT-ins, the average yield on the BT-ins higher than the overall portfolio, like-for-like product or that is in line with your overall book?

BT-ins, if it is higher, they do not move it not naturally, they will come to me only if there is some concession or some reduction to them, so it will be online. Of course, we do not sacrifice -- that's because of BT-in, we do not reduce our normal interest rate. So the moving if it is favorable, if it is competitive compared to their existing portfolio they move here.

Let me ask you this question -- Yes, sorry, let me ask you this question differently, so we are seeing tremendous growth in affordable housing finance companies like an Aptus or [indiscernible] FFC, -- they have much higher yields. The average yield is going around 13.5%, 14%, and even for a an Aptus, it's much higher, and they are showing interesting asset quality. So is that a big hunting on that, that the target where seasoned borrowers you can actually attract at 11%, 11.5% sort of ore.

No, we don't target any specific company or specific things. People come based on our rate, maybe word of mouth publicity growth, we see what is on interest rates and on. Other people, when they move out, they find out what is our interest rate, so such things coming in the natural fashion, it is not because of any access to posted to any particular company or sector. This sort of BT-ins moved mainly because of our interest rates vis-a-vis the competitors.

I agree. This is completely agree with you, so with this verticalization of sales, there could be a situation where you will have a lot more focus and a lot more effort by your team on ground, the tenet channel. You would want to bring in cases, it could be a fresh liasicant or it could be an existing borrower to some other houses and on something, so we should be seeing some healthy traction there, right, given the verticalization that you talked about?

Definitely, there is one thing that may happen in the future. Of course, this I would like to repeat, as far as the sales vertical is concerned, it is still in a nascent stage, okay? We need to train them. We need to tell them how it has to happen and on that. Maybe 1 or 2 quarters down the line, the sales vertical will bring in enough business to us, which will save our costs as well.

And curiously, so how are leads being generated earlier? It was people walking into brands, and there was no outreach as such? Just as...

There were outreach, but it are more informal. Now we are standardizing the so-called outreach. Earlier, if you recall some years back, we used to have some sort of credit camps. But these credit camps are no more happening. It is not popular everywhere because of the competition that is there. So slowly, it was more, especially in the South, our popularity, our brand value itself was bringing in business. But now that competition is becoming intense, we need to go for outreach. So that's for we have done this well, and earlier, let's say, 1 year or 2 years back, not only our route rates, not only our publisher or Brad, some sort of an informal I think from our existing customers also brought in new business. But now we want to be more neither to the customer, more near a pretty prospective customer. I think the sales is going to help us in that price.

And sir, aspirationally, 2 years down the line, would you aspire to outgrow the 20% target that's just for this year in terms of disbursement growth, organic imbursement growth, given so many building blocks have been put in place that should...

Who will say a... Of course, I have to grow. But more than 30%, I will be too happy.

Okay.

Once I see the momentum I think we will be resetting our own hurdle.

The next question is from the line of Sarvesh Gupta from Maximal Capital Private Limited.

Sir, this change in the mix in favor of home equity has been very sharp from 20.7% to 23.1%. In that part of it might be due to some changes in the classification norms, which would have happened during this quarter, and what is that, sir, that is an important input number that you would want to?

Sarvesh, we do not actually target for non-home loans, so what of this don't we take? It is not that -- the growth is happening only in the non-home loan segments. One of as you, yourself mentioned, it is because of the change, so some recessions happened. But some of the home loans we ourselves have classified as I was telling, it will be a pure housing loan, but when we noticed that there's more than 2 pitches, it may be a place where he will be being held. In addition, he will also be considering a small shop in fact of resorts, such as things we classify under home equity. These are the reasons why this home equity portion has gone up. There is nothing -- and I want to assure that we are basically a home loan company, and you will also be knowing that we can go even up to 40% of non-home loan portfolio. We are earlier and 23%, so we are very much within the supervisory now, and we are not actually aggregative. I do not have any such a notion that we are slightly aggressive in non-home loan on our portfolio. No. It is happening, whatever is coming to our resulting we take, and it is a classification as well as especially in the new software, we are very, very clear. Unless it is pure home loan, we cannot clasp under any other category, so all these are coming into picture only because of this sort of a reclassification there is an increase in the home equity portfolio. Otherwise, we are a pure housing loan company, and we will continue to be a major housing loan company.

Understood, sir, but it would still be prefer to get that number. So maybe after the call, it can be shared off-line, so that is one. Second is, sir, if I look at your employee cost on a Y-o-Y basis and Q-o-Q basis, it is up 17% and 0%, and the numbers are up only 2%, so does it mean that on an average 15% inflation in salary has happened from last year to this year?

Okay. See, I told in initial sales, so we have -- we did a revision in salary, which aid from January 2023. In fact, we paid out to the employees during the first quarter. That is we played in June, along with the area summer we have paid, so this is one of the major reasons why there has been an increase in the thing, and you should also factor that there has been increase in the cost of living over a period. So that has also been factored. All this, we are hopeful, one, the productivity of staff should increase based on this because we are also going to ask our staff numbers. And second one is, there was an attrition of around 18% last year. We are quite confident that with the revision in salary, this attrition number will definitely come drop, and we will have more people who are well trained with our company who will be there in the company, and this will really best better productivity. That'll when we are going for vertical end, it will help us because the train start will be in the street that will help us increase in the numbers. And despite all that, we are also keeping an eye on the cost-to-income ratio. It is somewhat under control, and going forward, also, this will be the same thing, and we do not expect any major increase in the coming quarter because already these things have been factored. We have the establishment cost is increasing by around INR 1 crore per month, which has already been factored by us, and we are confident that our increasing income will take into account this establishment cost increase.

And what is your -- I mean, your NIMs have also spiked up in the last few quarters [indiscernible] the NIM percentage has also gone up relative to the earlier levels, so what's the sort of the levels that we want to maintain? I mean, if we are going to be very aggressive on the non-home loan segment, then maybe NIMs can be maintained, but then you might see more gross NPAs stress building up later on, so how are you thinking about the NIMs as such?

Okay. See, I would like to repeat, we do not want to be aggressive in any one segment or on non-housing not segment. We want to be asked like what we had as far as book growth is concerned, both home loans and home equity should grow in data. This is our expectation we want to do the same thing. Maybe in the first quarter, you would have seen some increase in this. One thing we want to be very clear, whatever is the cost increases, we want to pass it on. We do not want to embed the cost increase. That is one thing that we are conscious. Otherwise, I think going forward, it will be the same. We have given guidance of around 4.7% or 4.8% of NIM. Even though in first quarter NIM slightly more than our guidance, I think it will stabilize around 4.7%, 4.8% in the May year-end. Also, we increased our own loan portfolio, especially to the salary segment, which is slightly competitive where I have to give some concessions to get the customer.

Understood, and finally, on the credit cost, I think this has gone down a lot and maybe because of the reduction in the gross NPA numbers, so maybe in case you are targeting another INR 100 crore decrease this year, then they will continue to be subdued. But what is the sort of realistic steady state number in terms of the credit cost that you are looking at?

We have given that INR 25 crores, I think, right? So we have given a INR 25 crores I think for the current year. We would like to maintain that. We do not want to increase.

Sir, this year is fine because this will still is coming down from a higher base, but then maybe going down 2, 3 years down the line, how are you looking at the credit costs, given the kind of profile that you are lending at?

Okay. See, we are monitoring it is be very clear, sir. We are monitoring whatever is the loans we are giving. So the early mortality or the early overdue on are getting monitored. So competitively, we are confident that we will be able to maintain the same level of GNP and NAP numbers are it will be going -- the trajectory will be downward shifting going forward, and we are confident that going forward, too, these credit card number would be maintained or even -- can even be reduced.

The next question is from the line of [ Rajagopal Ramanathan from Sadakush ].

Yes, a few questions. A couple of them are data-specific. One is do you have a stock of or a quantum of loans that have been written off completely, but you hope to expect to recover over the next, say, 24 months or so? That is the first one. The second one, to direct assignments wherein you've indicated numbers for Q1 FY '23 and Q4 FY '23, so I presume some DS, which were probably on boarded in Q1 FY '23 and the balance, which was outstanding in Q4 FY '23 but you've not stated what is that concern in Q1 FY '24, so I believe that either suggests that those direct assignments are completely repaid or you've got to indicate what that is so that you can make an appropriate comparison. Apart from that, a couple of other questions related to any specific reasons why you're being so conservative with respect to growth? Because as one of the other analysts pointed out, you have a lot of other housing finance companies, which are comfortably able to achieve 20% plus growth in their entire loan book, and we are sort of -- we are wanting to sort of constrain ourselves at levels of around 12% to 15%. So is there any specific management thought behind that? And lastly, if you do prefer to be so conservative, then what is the rationale in having a capital adequacy of 36% then? Because you will never be in a position to treat your capital if you're going to be operating at such growth rate, so you shouldn't, therefore, be distributing more dividends. Because clearly, if you look at payouts, your payouts are very, very limited, and therefore, it actually calls for you to increase your payouts to improve capital productivity.

You done, sir?

Yes, done.

Okay. Thanks, Mr. Rajagopal. See, as far as write-off is concerned, I think we have answered earlier, see, throughout the history of the company would have written up, maybe INR 10 crores to INR 15 crores, not much as a trash is concerned. Today, maybe in the taking rate of book, we will be having around INR 40 crores, INR 15 crores of assets which we have already sold, but still something is outstanding. But these have been technical crop. We are also seeing whether some strategy can be ordered to recover even the amount. Okay, this is first step. As far as direct assignment is concerned, I think we want to be very clear. We put the INR 70 crores or INR 66 crores of direct assignment within the disbursement of Q1 of last year as well as Q4 of last year. In Q1 of 2023, '24, we did not do any direct assignment, so which means in the disbursement portfolio, there is no deal. As far as book is concerned, yes, whatever we have already sourced, that is still remain. To give question, specific question, we can say that, I think it is around INR 11 crores. It is still line, right? It is around INR 112 crores, it is still laying in our book out at is INR 12,655 crores. There is around INR 112 crores, which is a DA book that is still prevailing. But during the first quarter, we did not do any [indiscernible]. That's what I want to be very clear. AUM book, Mr. Rajagopal, I think maybe you were a new investor. This company was not doing all the telecos somewhat negative. If you remember, 2 or 3 years continuously because somewhat negative or we were not growing, so from 2023, '24, we wanted to be conservative mainly because we wanted to change the curve. So from a negative percent, we wanted to do something different, and that is why we have given a thing of 12%. Maybe going forward, when we see the momentum, definitely, in the next year, you will see that our growth rate also will be on far with the industry, but anything not to understand. We are now 23 year old the company. Naturally, there will be repos. -- normal repayment itself will be there. Compared to some of our other people were relatively new. So that is also to be factored in as far as AUM growth is concerned. That is the only thing. As far as capital, yes, we want to use as much as possible. You will be seeing the change in the coming year. Let us say very clear, this company is making a slow turnaround. I think we need to be a little patient. This is a [indiscernible] I'm requesting to people. You must please see a little patient you will be seeing the results in definitely in the coming year.

Sir, I have actually looked at the last 10 years in terms of repayments as a percentage of your opening loan book, and it has tended to average anywhere between 15% to 20% of the opening loan book, so if I were to look at this that, it tells me that irrespective of whatever era or whatever management has been or whatever sort of cycle the company has undergone, this number has not changed much. Whereas what seems to have happened is the disbursement growth which happened between, say, 2013 and 2016, which was significantly higher, anywhere between, say, 25% plus, that seems to have completely collapsed. And now you seem to be trying to sort of bend the curve, so what I'm essentially saying is the home loan business is a capital-efficient business, and if you're actually going to be very, very conservative with respect to the growth, you will only be sort of making yourselves more overcapitalized in the process. And why I say that is if you look at your valuations, and I'm not necessarily saying you should be compared with any other housing finance companies. But even for you to command a book value multiple, you have to clearly -- investors have to be able to see that capital productivity improves or your growth needs to sort of meaningfully move up. My point is, look, I'm not dissatisfied with what you're doing. But I'm saying that this is one area where you need to start working on because there is no point in holding capital when you're not expecting to utilize it in a foreseeable period. That's my limited observation.

Okay. Thanks, in your observation, sir. See, you will be seeing the booking. As far as valuation is concerned, you will agree that the valuation is not in my head. It is in your heads.

No, sir, that was actually completely in your hands because if you decide to pay out dividend, there is no reason why equity holders are going to complain. Please try to understand tomorrow when you need capital for growth, equity shareholders will give you capital for growth if you are able to make your capital productive. It is not in our hands. It's completely in the company's hands.

So I do not want to get into any borrowers of you. I fully appreciate. I'm very, very happy that you have analyzed very well. Definitely, you will be seeing an increase in the dividend pay-out, but dividend pay-out alone is not one of the valuation criteria. I think you will agree for that. Okay, that's [indiscernible] you'll be seeing. Going forward, there will be an increase in number. There will be more utilization of capital that will be seen. Once the growth picks up, we will also see increasing the capital growth in this world profit effective utilization of capital is second, we will also be seeing definitely when I borrow more, then you spend more on this when the book increases, and definitely, this capital adequacy also will come into picture.

I wish you all the best, sir. But please don't misunderstand what I have tried to put forth here because when you have excess capital within the system, it also creates a false sense of security, saying that how does it matter? I have all the capital I can do whatever I want, so it's just to ensure that the company does not become -- does not take capital lightly and ensures that it works towards making it more productive. That's my limited point. All the best.

Thank you very much, sir. I'll take your advice.

[Operator Instructions] The next question is from the line of [ Akash Jain from Moneycurve Analytics ].

I think company obviously had some a long way in the last 1 year underleased I think numbers are there to see. I have a couple of questions, sir. One is, I think last quarter, there was a discussion around Stage 2, where you said that clearly, the focus for the last 1 year has been on GNPA I think successfully, the GNPA has been controlled. But I think you also mentioned that your focus will now move to Stage 2 because Stage 2 looks a high number, and we have to get collection process in place to train Stage 2 inter control. So just wanted to understand from you where are we in terms of our strategy for controlling Stage 2. I understand you were not able to give recap between stage 1 and stage 2 this time. But from a strategic point of view, are we from a focused perspective on Stage 2?

Thanks, Mr. Akash. As you have said, yes, we are now focusing more on Stage 2, in fact, more than even Stage 3, we are focusing more on Stage 2. And the collection vertical is more or less getting stabilized. We as of now, we have 85 people exclusively on collection to recovering 120 branches being covered under Stage 2, and on a daily basis, this we are monitoring. Of course, we are unable to give you specific numbers because of the change in the software. Going forward, we will be able to give you even specific numbers on stage. We are slightly aggressive on Stage 2. We have been coming to the branches also on an early mortality, bringing to the numbers, following up on check return, and so on, and I'm confident that in the next 2 or 3 quarters, the Stage 2 numbers will be less than 10%, which is our cadence. We are confident that we should be in a position to bring down the Stage 2 to stand 10%.

Sir, the other question is on slippages. So clearly, the number on provision is very low, so I'm assuming there's not too much of slippage into Stage 3, but can you just give us some number in terms of what was the slippage for this quarter? And what was the recovery?

The slippage actually was INR 56 crores, but we could recover around INR 80 crores this quarter. So net is, there is a reduction of INR 34 crores. Moving forward also we expect, since we are monitoring almost on a daily basis, going forward too, we expect the numbers to come down. To that extent, there will be releasing our provisions, which will help us in containing the provision requirement.

And is it fair to assume that most of the slippage has come from the restructured book? Or is this Stage 2 non-restructured book slippage as well?

Yes, you are perfectly right, sir, most of the slippages are out of this INR 56 crores, nearly 50% is from a restructured book. This may continue also because there is still around INR 150 crores to INR 200 crores in stage 2 as far as this restructure book is concerned. But they are slipping in a slow fashion, but I'm also glad to inform that we are also recurring from the restructured book even in Stage 3. So those some INR 25 crores to INR 30 crores have slipped in the first quarter. We have also recovered a similar quantum from the restructured book even in Stage 3, so to that extent, we are confident that this will remain.

Sir, one last question, see, like you said, there is a very strong legal process that we have started on [indiscernible], so my assumption is that what will be the -- can you give us a sense of what is the time line typically, for example, if you initiate a [indiscernible] process, then some people may pay up or you may have to take position and sell the property and recover. So given the fact that we have already provided 50% our coverage is on GNPA, and given the way real estate prices have gone, my sense is that when recovery happens, we will probably recover significantly more than what we have provided, so there will be probably right back if I'm not mistaken. So just give us a sense whether there will be write-back if my understanding is right, and just a broad time line perspective on renders recoveries start flowing in from the time line from the time we start the [indiscernible] process?

Technically, within 6 months, FRT process should be over. This is a normal norm. But you will understand that it is more a threat, which is given to the customer, which helps recovery. So once the FRT notice is issued or position OTC issued or even an option OT is issued, we do not expect that it will succeed, then only we will recover. It is more from that, that the customer comes to us, he talks, he comes with some multi-solutions around that. I think more than the actual surface, it is a threat or treat that we are giving to the customer, which brings us a recovery. That is it will speed up. It is not from pure surface action. Pure FRT, okay, maybe some INR 20 crores, INR 30 crores every quarter, we may get. But it is more from the threat of a notice that people come to us, come for discussion, and we get our commission.

And do you expect write-backs to come because we obviously provided 50% and definitely, all these resolutions will end up being significantly higher recoveries than what we have provided for, right? If my understanding is the fixed, right?

Definitely, some rate back will come, but that write-back we have not started in the current year, again being contributing.

Eventually, given the fact that so much of provisions have happened in the last 2 years and continuing to happen because of the restructured book, et cetera, over the next maybe 1 year or 2 years, we will see significant recoveries and write-backs. That is at least possible or my assumption is right in that case because revolutions are going to happen in the next 12 months, 18 months, right?

It is possible to Mr. Akash, but I don't know what to give you any specific numbers, it is possible because as you say, since we are providing more, that gives us a definite cushion for the future.

Okay.

Responding -- before I go to the next question. See, as far as this home equity portion is concerned, it's a mixture as I was still in -- the LAP book is only 24%, okay? There is a CRE residential that is around 11%. There's some commercial construction that is also happening, that is around 2%, so the entire book is not lapped -- that is only around 34%. Just for clarity, I think another analyst asked for it.

[Operator Instructions] The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, what -- how many branches are we looking to add in FY '24 and FY '25?

FY'25, we do not have the numbers. FY'24, I can tell you on that. FY '24, we will be opening -- already we have opened 4 centers. I will not say branch. That will happen outlets. 4 outlets we have already done. 3 more, we will be doing this quarter. Another 8, we have already got the approval from board, and maybe some more also we do another 5 to 6 we may do, so at the end of the year, definitely, we'll be 200 plus.

Okay, and also, I missed the number of credit cost. What credit costs are we guiding for FY'24?

'24 INR 25 crores, sir.

INR 25 crores? INR 25 crores, and same INR 25 crores, we are saying for FY '25 also more or less, right?

'25 at [indiscernible] '25 we have not so far given any guidance.

Okay. But we expect the credit cost to be benign in FY '25, too?

Should be Mr. Rishikesh, I do not want to give a guess, but it should be or even less.

Okay.

So as per our trajectory, I think it should be even less.

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

Well, thanks. I think we have covered all the areas. I thank all the people who are in the conference call. I thank everybody. I thank specifically Yes Securities for attending all this conference call. Thank you very much.

Thank you. On behalf of Yes Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.