Satin Creditcare Network Limited (SATIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Satin Creditcare Network Limited Q3 and 9 months FY '20 Earnings Conference Call. On the call, we have with us Mr. H.P. Singh, Chairman and Managing Director; and the management of Satin Creditcare Network Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. H.P. Singh, Chairman and Managing Director. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and I thank you for taking out time and joining us today to discuss our Q3 and 9 months FY '20 earnings performance. Before I provide a brief update on our quarterly performance, I would like to take this opportunity to share that our company has been certified by Great Place to Work for building and sustaining high-performance culture. Coming to our Q3 performance. I think we had a fairly good quarter, considering several macroeconomic hurdles, coupled with certain unrest in the microfinance industry. Despite these odds, it has been our constant effort to sustain and set up the right processes, which will help us strengthen and streamline our operations in the coming future. Technology has become a vital part of any business to scale its operation and achieve new highs. We have been the pioneers in successfully bridging microfinance through technology, which has helped us leverage our strong foundation and further improve our portfolio quality. In line with these efforts, we have undergone several transitions of process reengineering and have adopted new initiatives, which has armored us to face upcoming challenges and grab the ocean of full of opportunities going forward. At Satin, we have always adopted a holistic approach with our customers being at the epicenter. This approach has helped us to secure first place amongst all MFIs in Customer Service Index evaluation conducted by MFIN for fair practices code, policies and processes. Over the years, we have developed and designed unique loan products for maximum inclusion of the unbanked and underbanked population. We further endeavor to bridge the socioeconomic well-being of the low-income households by financing them on a sustainable basis in order to improve their livelihoods, establish identity and enhance self-esteem. Before sharing the numbers, we would like to highlight that we have reduced our net NPA by 50 basis points as compared to last quarter by write-off and increased provisions. This has been on account of write-off of about INR 25 crores and additional provisions due to Assam amounting to INR 26 crore. This impacted the profit for the quarter to some extent because of the increased credit cost. Now let me run through the financial and operational highlights of our company. Our AUM has seen a growth of 17.3%, which stands at INR 7,284 crores as compared to 6,288 -- INR 6,208 crores a year ago. As of December '19, we have a customer base of 35.6 lakh customers, which is one of the highest in the industry. Our disbursal for the quarter stood at INR 1,904 crores as against INR 1,338 crores a year ago, which is a strong growth of 42.2%. NII for the quarter stood at INR 230 crores, while we reported a PAT of INR 47 crores. ROA for the quarter stood at 2.8%, where ROE -- whereas ROE stood at 13.6%. Despite several external and internal challenges hovering the microfinance industry, we have been able to maintain our collection efficiency at 99% while having seen an improvement by 10 basis points in our GNPA. We are happy to share that NNPA has reduced by 50 basis points during the quarter from 1.4% to 0.9%. Our GNPA for the quarter stood at 3.1% as against 3.2% in quarter 3 FY '19. Highlights of the quarter. We had a decent quarter considering some parts of the country were disrupted due to unrest and nationwide protests. Also, several concerns in few districts of Assam have compelled us to adopt a cautious approach in this State. We are well equipped to deal with such challenges and thrive for our next level of growth in the coming future. I'm happy to say that our process reengineering is complete, and we are confident of reaping its benefit without compromising on customer experience as well as meeting stakeholders' expectations. Our real-time credit bureau checks and instant account verification for our customers have significantly reduced the disbursement time line without compromising on quality. We have adopted 100% cashless disbursements across all our branches, which has significantly reduced our turnaround time. With this successful implementation, we are now aiming to implement cashless collections, and we have achieved cashless collections of 27% in December '19. This measure would help us move an end-to-end transaction, optimize costs and improve productivity for employees. In December quarter, we have added 55 branches across regions, which takes our total branch network to 1,354. Our strong branch network is spread across 391 districts in 22 States and Union Territories. In continuation of our digital initiatives, all our branches and centers are geotagged, which has significantly reduced our dependency on loan officers while optimizing the day-to-day activities. Our branch network addition grew 4% sequentially and 21% on a year-to-year basis. We have a strong business and risk team in place, which follows a very cautious approach in selecting the newer geographies and opening up a new branch. Our diverse presence across districts and states, coupled with well-penetrated branch network, has helped us emerge as a stronger pan-India microfinance player in the industry. Our scattered presence across districts has also helped us mitigate portfolio risk to a large extent. During the quarter, we expanded our operations to 14 more districts, bringing our total district penetration to 391. Today, 96.9% of our districts have less than 1% of portfolio exposure, which we aim to bring it down further in the coming time. We have seen a significant reduction in our portfolio risk in terms of average exposure for districts, 0.26% in 9 months FY '20 versus 0.50% FY '16. Exposure to top 10 districts, 15% in 9 months FY '20 versus 27% in FY '16. Exposure to top 4 states continues 57.5% in 9 months FY '20, down from 85.9% in FY '16. Further, it has been our constant effort to bring down AUM per state to nearly 20% to reduce concentration risk. We are aware that this might have had impact on AUM growth in the short term. However, we feel that this is the right strategy which enables us to have a right balance between growth and portfolio quality. Our large customer base, well-penetrated branch network across states and 76% rural exposure helps us leverage our ideas of cross-sell products via product financing. In 9 months, we have been able to disburse more than 1 lakh loans, which include loans for bicycles, solar products, home appliances, consumer durables and water and sanitation. On asset quality, we have a strong internal process. Coupled with stringent audit process, it has helped us monitor our portfolio quality on a regular basis. During the quarter, several districts or Madhya Pradesh and Maharashtra got impacted due to heavy rains, while Delhi and NCR regions were affected due to extreme climatic conditions. With respect to Assam, there was an unrest in a few districts of Upper Assam by some organizational protest thereafter, which impacted the operations in northeastern districts of Assam. Due to these factors, our collection and loan disbursal in these geographies got impacted as our borrowers were not able to do business as usual. Despite the challenging situations, our collection efficiency continues to be about 99% on an all-India basis. With stringent screening in place, our CB rejection rate has gone up from 16% in Q3 FY '19 to 18% in Q3 FY '20. We have also seen an improved 10 basis point in our GNPA that stood at 3.1% in Q3 FY '20 versus 3.2% in Q3 FY '19. We have successfully implemented Centralized Shared Services to ensure uniform process across branches and back-end support for credit appraisal, quality and customer support, along with post disbursement monitoring. Recovery against the write-off for the quarter was INR 3.5 crores and INR 14.2 crores in 9 months during this financial year. Our capital base has been further strengthened with CRAR of 32.17%, with Tier 1 comprising more than 24%. Our ratings are, long term Credit Rating IND is A-; positive from India Ratings; and A- stable from ICRA and CARE ratings; short-term rating A1 from ICRA, CRISIL and CARE; grading of MFI 1 from CARE ratings. Liquidity has never been a barrier for us, as the company has access to diversified lender base, 70 active lenders. We continue to maintain a healthy balance sheet liquidity with INR 18,075 crores -- sorry, INR 1,875 crores of surplus funds as on 31st December 2019. We have undrawn sanctions worth INR 831 crores. Our reliance on NBFC funding has also further reduced to 7% from 25% last year. Structurally positive ALM also adds to our advantage. An update on subsidiaries. We are looking forward to grow our secured lending portfolio through our subsidiaries, thus diversifying risk while achieving a better product mix to achieve next leg of growth. All our subsidiaries have been making good progress. We infused INR 30 crores of capital in Satin Housing Finance Limited during this financial year, which has now reached an AUM of INR 130-odd crores with nil delinquencies. Satin Housing Finance Limited has 100% retail book comprising of 87% affordable housing loans and 13% of LAP. During this quarter, our disbursement through Satin Housing grew by 44% to INR 26 crores. Satin Housing has successfully raised -- started raising debts with 9 lenders, including refinance facility sanction from NHB in H1 FY '20. We also successfully raised subdebt of INR 20 crores from IFU, the sovereign fund of Danish government. Satin FinServ Limited, our MSME arm, is also taking good shape post commencing operations in March '19. AUM of SFL has reached INR 109 crores. SFL's business aims to focus on secured retail MSME lending, wholesale lending to smaller NBFC, MFI and others. The equity capital stands at INR 102.5 crores. Our business correspondent services under Taraashna Financial Services Limited has reached an AUM of INR 646 crores. As of December -- 31st December 2019, the company operates through 213 branches, has more than 3.6 lakh active loan clients. It will take us roughly 5 to 6 years to achieve a balance between microfinance and non-microfinance loans. We expect 1/3 of our portfolio comprising non-MFI loans by then. Thank you so much, and I would like to open the floor for questions.

[Operator Instructions] We take the first question from the line of Sangeeta Purushottam from Cogito Advisors.

I have 3 questions. Firstly, I wanted to understand on what has happened to the NIMs. Is it true that we've seen a decline in our NIMs, which has been higher than the decline in the cost of funds and, therefore, NIMs have compressed? And do you see this as a trend going forward? Or how should we really look at it? That's question number one. Second is that at the operating level, the profit has actually decreased by 9%. Is that something -- when do we see operating profits start to rise again because since you've been building out on technology and other things, your operating expenses have been rising faster than the revenue. The third question really pertains to Assam, where you've said that you have a INR 250 crore AUM and the provisions made in the third quarter are INR 26 crores. Now that's really high. It's like you're almost 10% of the book. Why is it so high? And what kind of recoveries do you actually expect over here? Could you just give a little bit of more granular understanding on this?

So if I look at NIMs, technically, I think we've been mentioning since the last 3 quarters, we've gone through process reengineering to a large extent, through CSS, psychometric and all the other stuff. Thankfully, that is all over by the December quarter and as -- what I have been saying it earlier also. So our NIMs, once we start picking up -- and technically, the last quarter is where our growth will now really pick up. So that is also one of the reasons where it's technically a flattish NIM or maybe a slightly lower NIM than what it was. That's one. On the OpEx, technically, if you really look at it...

May I just interrupt you because I didn't really quite understand this. The NIM actually has declined by, I think, almost 254 basis points in this quarter. And what I wanted to understand is what is the reason behind the decline in NIMs? Because it is substantial. What will happen? Do you expect NIMs to pick up? And why is it that your yields have declined faster than your cost of funds?

So if you compare the NIM for 9 months versus what it was there in the first half year or in the second quarter, we are broadly at -- as against second quarter of 12.32%, we are at -- in the third quarter at 12.86%. So quarter-on-quarter, there has been an increase in NIM. So comparing it to last quarter, when the direct assignments started happening and then there was a little bit of increase, but now when the DA income is more stable and all that, so the right comparison would be Q2 versus Q3, which is marginal improvement in the NIM. So that is the right way of looking at it on the NIM side.

Right. But since I've not looked at it from last year, I just want to understand what were the reasons that you saw such a sharper fall in your yields versus your cost of funds?

No, as I said that if you are comparing it from Q3, so if you see it from Q2, our NIMs were at 12.32%, while in the Q3, it is 12.86%. So to that extent, there is an increase in NIM from a quarter-on-quarter basis. You are comparing it probably from Q3 of FY '19.

That's right. Yes. So even if I'm comparing from Q3 of FY '19, what led to a sharper fall in yields versus the cost of funds? Was there a change in mix? What actually -- there must have been some business change happening which led to a fall in yields, right, which was faster than the cost of funds. What actually happened? I'm just trying to get a glimpse of what is -- what lies behind the numbers.

As I said that in Q3 of FY '19, the portion of direct assignment was increasing quarter-on-quarter because that was the time in the second quarter last year and third quarter last year when public sector banks started giving money through direct assignment route rather than on an on-book funding. So that is why the yields were higher in the third quarter. But it is now stable over a period of time, so when -- in the second quarter this year and the third quarter when the composition is broadly stable now. So the -- we have 10% margin that we are getting, and NIMs are also now comparable between Q2 and Q3.

Yes. So just to add up, Sangeeta, it's -- the spike has been on a quarter last year basically when the direct assignment income came in. Now it's far more stable. If you look at the quarter-on-quarter basis, in fact, there's been an increase in the NIM from the last quarter.

Right. So are you including the direct assignment income in the top line and, therefore, the NIMs are inclusive of the direct assignment income? Because I thought you're reporting that separately.

So that's a separate line item in the reporting number. But when we are reporting gross yield, it is the average of our total top line to the average AUM.

So you -- if -- okay. Let me just summarize this so that I've understood it. You're saying that last year, the NIMs were unnaturally high because there was a higher proportion of direct assignment income included, that has normalized, and that's the reason the NIMs have come down?

They've become more stable now, basically. If you have a certain income, which -- due to assignment, which just came in at that point of time, so there will be a spike. But now -- including the assignment income, now the NIMs are fairly stable. In fact, there's been an increase in the NIM from the last quarter.

Right. So these NIMs that we're talking about, 12.86%, includes assignment income?

Yes.

And even the 15.4% also included.

Okay. So this will now -- so are these the kind of NIMs we should expect going forward in this range?

So our 9-month NIM is about 12.25%. So I think that is a better reflection of how it'll remain going forward.

So it'll be range-bound within this range.

Okay. Okay. Okay. Fine. Got it. The second thing is, if you could throw some more color on actually in -- what happened in Assam? And, a, why have your provisions shot up so much, both for Assam, where you said you provided for INR 26 crores in Q3 out of INR 29 crores? And also, your total provision is about INR 61 crores compared to INR 10 crores last year. So could you please explain why this is so high and how should we look at it going forward?

So on Assam, I can give you an update how it is panning out to be. So INR 250 crore worth of portfolio, technically, I think the collection efficiency dropped to about 50% while the Citizenship Amendment Bill and the various other protests and everything were going on in Assam. We are back now close to about 75% to 80% of collection efficiency post all this happening across over there. Our total AUM book, which is our own book over there, is about INR 250 crores. This is as per the ECL method, which we've been able to provide INR 26 crores, and that is where it is. But the latest update over there is that it's slowly -- the collection efficiencies are increasing from the down of about 50% now to close to about 80% or so. And we further hope with now everything having slightly settled down from there, I think they will start coming back in real later. And just to give you, this is also only concentrated towards the Upper Assam region. We have a portfolio in Guwahati, which is still at about 99% collection efficiency.

Right. So when you've provided for INR 26 crores, do you expect to -- are you being cautious? Or you expect to lose INR 26 crores?

If you look at our ECL, the dynamics as such, we have probably been cautious as well as been very prudent enough in doing higher provisioning during this time. So when there is a certain anomaly which comes in, I think it takes a while before finally things start coming back to normal, and we've probably reiterated it and shown it during the demon effect. So I think maybe the initial thrust -- yes, there will be a slight spike in our -- this thing, but we are very hopeful that I think things will settle down, and we'll come back in the real space, maybe in a quarter or so.

Right. So in your business, these kind of shocks keep happening at some point or the other, right? In some States, something or the other may go wrong. And you've been through the whole demon process. And in this particular case, in Assam, how do you expect things to pan out? That when people stop paying, do you expect to go back and collect most of the money with a lag? Or does it get written off? And it would really help actually if in your presentation we could have a little more granularity on how the provisions and the bad debts are moving because there's very little information on that. So it's -- there's just -- it's a very long presentation, and there's just usually one line on the bad debts, so -- which is unlike many of the other NBFCs, where you get a sense of how the slippages are moving, what has been collected from past provisions, what -- how the provisions are made. So it's very hard to figure out what's really happening behind the scenes here.

Sangeeta, I really don't think so that probably we can look Assam the way we can probably look at things which happen in the other -- yes, you're right, things do happen in states across over there. But I think when the majority of us -- all our states were probably demon'ed, it came with a lag. We were -- our collection -- sorry, our PAR numbers in terms of our borrowers were about 12,50,000 out of about 24 lakhs during that time. But ultimately, it settled down to about 2.5 lakhs at the end of it. So there will be a lag. But definitely, yes, and you can't say that whatever is there now, which is not coming, it will never come in. Basically, there is always a hope. There is a motivational factor. There is credit bureau checks, which probably gives them that -- this thing that if they do not repay, this will probably be -- they will not get a next loan. That's a significant deterrent for them to really repay and have a good credit bureau track record. So our sense is that there will be a lag. There could be slight write-offs, which we've already done right now. But my -- our own sense is that things will come back into shape because this is an ongoing business for microfinance all across everywhere in India.

Right. No, I understand that. See, what I'm really trying to understand is, you've made a huge provision. It's like INR 26 crores or 10% of your portfolio. You've -- more than 10% you've provided for, right? Now is that the loss you are expecting? Or do you expect to write back some of this as you go forward? So when a situation like this happens, what is the effective credit loss that you experience? That's number one. Second -- of course, the second part of my question also is that...

Sangeeta, can I take one-by-one, basically. So on this thing -- so you look at us, we are the only company in the MFI space which has write-backs from write-offs. As I mentioned in my earnings call speech, INR 14.2 crores even existing after demon after demon, we've still been able to get money back. I eventually will not be able to tell you what the real loss would be, but it will be much better off than what it is -- what you can see probably across looking at numbers. And 4.2 -- I think INR 3.5 crores, which also came in during the last quarter amongst write-offs. So I think management technically has probably been resilient and this thing to bring back even things which have probably been written-off for so many years.

So just to add, we have explained that our net NPAs have gone down by almost 50 bps in this quarter. We have made adequate provision on Assam. Given the whole challenge on the ground, things are taking shape. The problem is only there in Upper Assam. The Lower Assam is doing well. So I think we will take whatever corrective actions are required going forward, and we'll sort of demonstrate that and it will get reflected in the financials going forward.

And sorry to interject, Sangeeta, I think there would be other participants. If anything else there, we can take it off-line from you. Absolutely no issues at all.

More details on how your provisions and NPAs...

We can give it to you off-line. Whatever your requirement is, we can definitely do that. We'll ask someone to get in touch with someone. We'll give you all details in off-line.

[Operator Instructions] We take the next question from the line of Sudhir Bheda from Right Time Consultancy.

The -- as rural economy is improving because of various other factors, like increase in food prices and all and rain is supposed to be good, so now -- and you also said just a while back that from Q4 onwards, we will see a good growth. So how do you think that next year would shape up in terms of disbursement and growth?

See, I can only tell you this thing that -- and we've been saying it consistently across for the last 3 quarters that our process reengineering will definitely -- will not lead to an increased disbursements for at least about 9 months of our life. And I have told you that process reengineering and everything is over by December '19. You will have -- you can see for us, in terms of growth, we definitely will have a good quarter and, going forward, probably have a very good disbursement across the next year. That is something which I can probably say for -- in certainty.

Can you quantify the guidance for next year in terms of disbursement growth and the profit growth?

So I think we'll do that by the time -- after our March financials, and we'll do that -- we'll do budgeting for next year, et cetera. And as Mr. Singh said that whatever process reengineering, et cetera, was going through, we have done all that. So maybe we'll come out with...

I can -- we can give you a guidance when we give our March -- quarterly numbers definitely will be there. But the only thing which I can say with certainty, definitely, you'll have a good quarter for growth and a good year next ahead for growth.

We take the next question from the line of Amit Premchandani from UTI Mutual Fund.

We have been doing process reengineering and spending a lot on expansion of branches, et cetera. When do we see this expansion phase coming to an end? You've mentioned that December is the end of process engineering. But if you look at the on-book AUM growth, it is really disappointing. So when do we see that entire investment getting paid out through balance sheet growth?

So as I said, for us, the phase of 9 months, which ended December '19, was reengineering and expansion. Expansion, Amit, definitely for us, is going to be there, but it will be on a very slow keel because whatever major we had to do, we had to finish off in these 9 months of our life. And this is what I told the earlier caller also, that is for sure that our growth on both AUMs as well as geographically everywhere, I think the growth will start coming in and, in fact, it will be there in this quarter. So whatever expectation in terms of growth, definitely, yes, it is going to be there from this quarter onwards.

If you look at microfinance, the number of loan officer has increased by 18%. Even the AUM has not grown by 18% in microfinance. So where -- we expect some operating leverage in the system. Otherwise, it's a very low ROA, ROE benefit. There's no operating leverage. So when -- do you think this 7,000-loan officer can generate, say, INR 15,000 crores of AUM for microfinance? Or this growth will need to be continued to generate AUM on the microfinance side?

See, Amit, again, the increase has been in the last quarter. So whatever expansion and whatever reengineering we said we've been doing, the final push came in, in the last quarter when our loan officers increased. I think it was in the middle of the last quarter when we've been able to finish up all these. And that's what I said, look at the full quarter this time and look at the future disbursements and the growth in the next year.

But do you think in terms of number of management layers that you have in the microfinance business are more than what is required? And also, if you have so many employees catering to only INR 7,000 crore of AUM, why is the credit cost still relatively higher than some of the peers? It should lead to better underwriting, better collection. Why is it not reflected in numbers?

So Amit, I think you have to probably also look at the differentiation between what you are comparing with our peers and us. To be very honest, I think -- and I don't want to repeat it over and again the overhang from demon. Assam is now a recent phenomenon where probably, I think -- since we were there, I think that is what we -- is there. And technically, if you really think that my credit cost probably is a fallback of only by increasing the number of feet on street, I think that can probably be demonstrated also with the write-backs. I think that is something which I've been touching for a very long time. But in terms of our portfolio quality, Assam is something which probably you have -- how many feet on street does not affect how the credit quality will pass out because of external factors, which is not in the control of anyone. So you'll have to look at all these points put together rather than isolate them so that you're not able to have a complete picture. Assam is there. Our thought process is that, as I repeated in the earlier statement, definitely, yes, something has come up, and we are very confident of having -- navigating this earlier also, and we have -- we are very confident on navigating this also during this regime. But definitely, yes, our focus has been still on write-backs from write-offs. We still haven't relented. Even after 3 years of demon, we are still going ahead with it. And probably, whatever would be left off in Assam also, we'll probably also go forward and try and see if we can bring it back from write-offs across over there.

This INR 250 crore Assam includes Guwahati portfolio?

Yes, includes Guwahati portfolio also.

And what is -- are you getting funding to -- are you getting balance sheet funding? Or are you still getting funding through assignment or securitization?

No, it's a combination of both. Never have we ever stated and never it has been there that for us getting funding for our own balance sheet has ever been a concern. It's not been there. But yes, DA, for us, we feel, is probably something which is -- if you look at the pros and cons, I think the pros are far more outweighing than what the cons are. But nowhere has it ever occurred that we have even a stress a little bit on raising funds for our own balance sheet. Absolutely no.

We take the next question from the line of Agastya Dave from CAO Capital.

Sir, I had a very similar question to the one already asked about the NPA and the provisions and how they're moving. So I would also request one slide on that in the presentation. The presentation generally is very good and detailed, but a little bit more granularity on how the NPAs are moving and how the provisions are happening, that would be very useful. Sir, I -- most of the questions have been answered. I had just 1 question. This direct assignment strategy that you were just discussing, would we see some tweak there also going forward? Because now the atmosphere is much more better with respect to liquidity. And you also have a strongest amount of liquidity on your balance sheet. So in the ALM slide, you guys are -- like you guys will be crossing INR 2,000 crores of liquidity over the next 3 to 4 months. So what is that strategy? What are the benefits? You said that direct assignment even now is a net-net beneficial thing. So can you just quantify that? Because as of now, it seems that you have so much excess liquidity, and DA is happening, and the AUM is not growing. So things are looking worse than they are, actually. So if you could just throw some light on that.

Yes. So DA, as this thing, we have our internal benchmark of limiting it to a certain percentage. We will not go beyond a certain percentage. That's our internal this thing. Our thought process is, again, the DA income, which had a spike earlier on when we started the whole journey with DA was probably higher, but now it has petered down that my runoffs and my runoff incomes and my new fresh income from DA probably have stabled down and there is probably no unnecessarily spike, which is there as seen in the -- in my revenue projection. That's one. The other thing is, I think, for us, the benchmark has been that this has been a product which has been devised by a lot of public sector banks in terms of how they fund the MFI space, and this is where it is. But we are cognizant of the fact that we are within the realms of how much DA income should we really bring in and how much DA should -- we should do it. We are very clear about it. And definitely, any further spike or anything which -- will not be seen in our revenue growth. And again, on the growth, for us, it's been flattish. The reason why it has been -- it's been demonstrated earlier in our earlier calls as well as in what we've been telling. But I think from this quarter onwards, this question probably will have no relevance in terms of being asked once you look at the growth coming in from there.

Right, sir. Right. And sir, another question was on the product financing business. So what are the trends there? Do you see higher credit cost there, but also higher interest rates that you get? I mean what's the trade-off there? And how do you see that business growing? Is it like riskier than the normal business or not?

So just to give you a broad flavor, the cross-sell business is far, far more better than the -- than what our core business could be. But having said that, it is not basically what we're trying to do. We are having a product mix where we feel that this cross-sell business also gives us an additional leverage in terms of building up a rapport with our existing customers. That's one. Secondly, I think it is good for our P&L and our balance sheet to do cross-sell. And then definitely, yes, I don't have the readymade numbers across, but if you want, we can probably have it off-line. But my portfolio in this is far, far superior than what -- even if you consider looking at microfinance to that extent. So it's not riskier.

Right. Right. And sir, one last strategy question, if I may, which is, the gross NPA number of 3.1% and net NPA of 0.9%, so is there a sense of now writing down the entire thing? Because demon -- I mean there were quarters where you had like huge recoveries. Now it is -- I believe the number which you have given is INR 14 crores. But is there a sense now to just write off that amount and then like have a clean slate for next year? I mean what are the pros and cons for you? I mean do you still expect some recoveries to continue. Why not just write it off and then just take it forward? That's it from my side.

Yes. So let me just clarify this thing. I think from the last quarter of 1.4% net NPA, we brought it down to 0.9%. So I think that is something which probably we would love to be appreciated upon, and we just can't clean up in 1 day. And we've taken a very conscious call of doing this in spite of the fact that it did hurt our profits. Going forward also, definitely, yes, our endeavor is to bring down our net NPAs down to probably what people consider is to be a fairly reasonable level or something which is probably far more better than what it is right now. Definitely, our endeavor is to do that. And just to give you a piece on write-offs and the write-backs. Last year, total for the one whole year, our write-backs were INR 21 crores. We've already reached INR 14 crores in the last quarter. Our sense is, we still will be somewhere close to that by the quarter end. We will not relent till our last penny. That's what we've always believed in, whether we get it or we don't get it. But the thought process and the endeavor is always to bring back from write-backs -- bring back as write-backs whatever we can from this thing. And we have been relentless for the last 3 years doing that. We will be relentless doing it for the next 3 years also.

Great, sir. So you've put in the hard work in, like, creating an infrastructure, which is superior to others. I just hope that the operating leverage growth and credit costs now start playing out. Good luck, sir, for the next quarter and the year ahead.

Thank you so much.

We take the next question from the line of Aarsh Desai from Vallum Capital.

Sir, my question was with regards to the INR 55 crores provision that we've done this quarter, INR 26 crores in Assam. The balance provision that we've done, is it specific to some particular state or something? Because it's higher than a normal run rate of INR 10 crore a quarter that we usually do? Or is it just to bump up our provision coverage per se?

So it's a combination of provisioning and write-off. So that is why our net NPA has come down. So I mean, that process has started all across, not for a particular state. Of course, INR 26 crore additional was coming from Assam. But barring that, portfolio quality has been stable. Our collection efficiency on 96% of the portfolio that we have generated post March '18 is 99% including Assam and 99.4% excluding Assam. So that shows the kind of portfolio that we have created, which is almost 96% of the portfolio.

Sir, going forward, there are no specific provisions, like Assam or something, that you would have to incrementally create, right, as of what the situation stands today?

I think we've done whatever we could do looking at the numbers and the whole process of getting back money and whatever is going to be lost during that in the initial phase. I think we've made sufficient provisions enough to take it during this quarter. We've done that.

The situation in Assam is also improving. And as we said that the collection on a day-to-day basis is about 75%, 80%. Out of that, Guwahati is absolutely normal. The Lower Assam is -- the problem is not there. So I mean, we feel that we have adequately provided for whatever was required as of now, and we'll keep a close eye on the situation and take the necessary action.

Sure. Sir, sequentially, our cost of funds has come down. What is the reason for this? And should we see our cost of funds stabilize at this level? Or we can see 10, 20 basis points further reduction in cost of funds going ahead?

So cost of fund, as the rates are slightly stabilizing, the benefit is getting passed on partially to us. It's not being in line with the reduction in overall MCLR cuts, et cetera. But we are accordingly passing it on to our customers. We have 10% margin cap. So our endeavor is to keep getting the best rate and then pass on the benefit to our customers.

All right. All right. That's it from my side. I think we're structurally working very well. I hope we see a little more growth come in the coming quarters.

I've given my assurance. Definitely, it will be there.

[Operator Instructions] Next question is from the line of Gaurav Jain (sic) [ Gaurav Jani ] from Centrum Broking.

Firstly, on the -- some clarity on the Assam portfolio, if I may. I mean what's the breakup between the Upper Assam tea estate and the rest of the state? I believe we have a total INR 444 crore exposure out there.

So I can just -- I have brief numbers on the tea garden workers. So the total tea garden workers exposure was about customers with about INR 14 crore portfolio, which was technically majorly impacted also. Out of that INR 14 crores, I think for us, if you really look at it, we have a collection efficiency of about 70%, 80%. That's the only granular detail I have [indiscernible] which I have at the back of my hand. But the Upper Assam numbers and the Lower Assam numbers I probably would not be able to give, but we can it give off-line. But I think it will not be -- I really don't know what the number would be, but I can take it off-line. We can give you those numbers also.

Sure. Sir, secondly, if I may just ask you, what's your PAR 180 portfolio as of now?

Sorry?

PAR 180 portfolio?

PAR 180, again, I think we'll have more granular details outside. Gaurav, my thing is, we can just take it off-line and share the details with you. I don't have it readymade right now.

Okay. Sir, lastly, you mentioned in your opening remarks about some bit of stress because of floods in Madhya Pradesh and Maharashtra. Just wanted to understand, in terms of pipeline, going forward in the coming quarters, what sort of a stress do we see pan-India, I mean, also relating to these states?

See, Maharashtra, our portfolio is very limited, and it's still in Amravati. I think we are literally at the far end of our -- finishing off in Maharashtra. Rest of the states, I -- my own sense is, I think, barring Assam, we have seen practically no stress in our repayments right now and even in the external environment across anywhere. We are not there in Karnataka. We are probably -- we have still our handle on other states across very well. We have seen no stress in our repayments. So my conjecture right now is probably that we don't see any kind of an immediate stress which is there in probably any state.

We take the next question from the line of Ritesh Gandhi from Discovery Capital.

I just had a question with regards to, obviously, the -- I mean if you look at any of the key metrics of the number of -- actually centers you have versus AUM, more effectively, the number of employees, you guys, obviously, are slightly on the kind of lowest side of things. And I guess this is because of a diversification strategy which you have taken. But just to understand this growth which you are saying is going to kick in, is that going to be a reasonable degree of operating leverage where effectively we aren't going to have to increase our kind of cost of centers and just have increased AUM with the same cost basis?

See, broadly, Ritesh, what I can give you. If you look at my 9 months cost-to-income ratio as compared to the 9 months previously, I think there has been a fall across over there. So the leverage which probably is going to come in and going to kick in is going to be better than what -- when my portfolio grows again. And this has been on a flattish 9 months. So I think if you really look at the fine print and the numbers, the numbers are very positive if you look at our cost-to-income ratio and my OpEx down from our previous this thing. This, based on no growth technically. So if the growth kicks in, definitely, whatever advantages we've kicked in with our reengineering or whatever we've been able to do, I think that will be significant enough to look at in line of our growth. So that is the only thing which I probably can leave it with you. Center and this thing will probably -- will be a fall out of my OpEx ratios, and my cost-to-income, definitely, you'll see improvement once this is also improving.

Got it. And is there any risk -- so off the off-book loans in Assam, do we have any effect in TG at all?

No.

So effectively, the entire exposure which we have -- so the incremental INR 200 crores is actually in these direct assignments or securitization, where we don't have any risk. So it's the only INR 250 crores which we have at risk?

Yes, absolutely. You got it spot on. Basically, for us, we don't have any risk on -- because of direct assignment, we don't have any risk on the additional INR 200 crores.

Got it. And off the INR 250 crores, 10% provision we've taken, is this as high as we would expect in [indiscernible] situation? Or you think there could be potential incremental, actually, write-offs that you need to take?

Yes. So Ritesh, my own sense is, look at from a longer holistic view. And even if it could be a slight spike right now, I think the lag will finish off because I've -- as I've told you, we are now looking at how to bring it back to that 99.5% collection efficiency. And believe me, it will be there.

Got it. And as we look into Q4, where you've been indicating since the last, actually, 12 to 18 months, that the growth is going to kick in. We are already halfway through the quarter. Is there clear visibility that the growth is kicking in and that we will see an improvement across ROE, ROAs, and all of that? And is there any incremental slippage risk that we see over the next few quarters based on the visibility that you have right now?

So on the visibility right now, where I sit, I can only say it with certainty on the growth, absolutely yes. On slippages, till now, I think we have fairly been okay all across India. I'm not talking of Assam. Basically, we've been fine. So there is no technical slippages across anywhere else in India. So that's the only thing which I can leave you with.

Next question is from the line of Rajiv Mehta from Yes Securities.

I have a few questions. Sir, firstly, on the discrepancy between disbursement growth and AUM growth. So last 3 quarters, consistently, we've been clocking 40%-plus disbursement growth. But sequentially, AUM is not increasing much. And AUM growth has been below 15-odd percent. So it's a large divergence and which also means that there is a high amount of portfolio running down every quarter, which does not allow the AUM to go up. So is it a function somewhere of duration of loans shortening? Can you please explain or reconcile?

A simple 2-sentence answer on this. The whole process of reengineering, which we've been in, was also done on the product. And I'm -- we really found out that the churn was far higher than what it really should be. And that we've plugged in. And definitely now, I think that gap will probably reduce to a very large extent.

And sir, with regards to, again, the employees addition in this quarter. And what I see is that a large amount of employee addition has happened on the non-loan officer side. About 1,000-odd people, as I can see in the SCNL employee numbers, X of loan officers, about 1,000-odd people were added in this category of employees, whereas this category of employees has been actually coming down in the last 2, 3 quarters and wherein I was assuming that it is related to the back-office engineering and the centralized services that we have taken up. But again, this quarter, it's a significant number increasing in that non-business employees, if I can call it. So what explains this sudden 1,000 people increase in that base?

So again, I can't give you the real -- exact details of how we've been able to do that. But these 1,000 additions are also there on the field. So for us, it's not that they are back end, which has probably been very flattish, and we are, in fact, trying to see how we can actually bring it down. And we have -- we've got blueprints ready which are getting implemented now and the results which you've seen. But the 1,000 numbers, which you see increase in terms of non-loan officers are also part of our process, which we've been able to do in the reengineering -- in the operational field space also. So this will actually start contributing towards whatever growth and leveraging which we are talking about definitely from -- again from this quarter onwards.

Sir, what was the block of gross NPLs that was written-off in Q3? Because we did about INR 25-odd crores provision towards the write-off, as you said. So this will be the residual provisioning number. But what was the overall number of gross NPLs which went out because of write-off?

So we have taken additional debt of about INR 25-odd crores in this quarter for the Assam thing.

No. So I'm asking about the non-Assam provisioning. Is -- sir had highlighted in the initial remarks that INR 25-odd crores provisioning was for write-offs and INR 26 crores was on the Assam portfolio. So on the write-off, what was the block of write-off in Q3?

Sir has said that we have written-off about additional INR 25 crore in this quarter.

[Foreign Language], full INR 25 crore is the write-off number. Okay. Okay. And sir, with regards to the interest income, typically, BC income, which is through IndusInd BC, which is within SCNL and Taraashna. This BC income will have -- how is it kind of recorded in the P&L? Is it the net spread, which gets into the interest income line? Or is the gross number in the interest income number and then there is an expense on the interest expense line and then the OpEx flowing through? So how is this reported, the BC and Taraashna numbers, in the consolidated -- yes.

No. The BC income will get only the net sort of payout as our income, which is a top line. We don't record the entire gross receipt because that's not to our account. The net margin thing is reported as top line.

So this top line will be part of the interest income that we report in the regulatory format?

It's part of the fee income and...

Fee and commissions income? Okay.

Yes. And in the presentation, we have given a separate line on BC.

Okay. And sir, with regards to West Bengal, because there has been a lot of noise in that state as well. But as sir said that, apart from Assam, no other state is witnessing any kind of a social unrest which is impacting the operations. So West Bengal also we have got a material exposure out there. So West Bengal collection efficiencies and the trends that you see on the ground are pretty much normal right now?

Yes. So when we checked out the details, basically, it's 99.4% collection efficiency without Assam, which includes West Bengal also. Yes.

And sir, I also wanted your comments on the IndusInd Bank BC because now for 2, 3 quarters in a row, that book has been coming off. Is it a transient phase of low disbursements right now? And then again, with our overall disbursements picking up, even IndusInd BC branches will also start to disburse more and that portfolio going up in the future?

We might. But I think, the overall percentage what we are looking at is how does the DA and BC look together. So I think we are all at a certain percentage. I think, for us, on an overall basis, we do not want to breach those percentage marks to a large extent. So within the realms of that whole block of percentages which we are looking at, I think BC will also be fitted and whatever increase will come, it will come across.

And the last question, Jugal, about this operating expenses. So there was a 7-odd percent decline in absolute number. So we were at INR 132 crores Q2. There is INR 122 crores in Q3. And despite adding more branches -- adding more employees as I was discussing before, there was a significant fall sequentially. So any one-offs that you would want to highlight here? Or what can be a run rate that one -- that we can model basically?

So I think 9-month number is a better reflection of how the OpEx you should consider in your model, et cetera. So we are taking whatever corrective actions are required. And -- I mean there might be some one-off in previous quarter or going forward. But 9-month number probably is a better reflection of how the OpEx is behaving.

We take the next question from the line of M.B. Mahesh from Kotak Securities.

Just a few questions, again, on Assam. If you could just kind of give us what is your PAR 0 -- or PAR 1 portfolio which is sitting in Assam as we see?

PAR 1, I think, we really don't have the real numbers of PAR 1. Can you just take it off-line, basically?

Okay. Perfect. Second question, qualitatively, there's been a fair amount of difference in opinion as to what seems to have happened on this -- in that specific state. If you could just kind of give your opinion as to, is there -- apart from political tension which is kind of rising in that particular place, is there a leverage issue as well in that particular portfolio? Second, when you look at your portfolio of customers who have defaulted, is there a fair amount...

Can I answer one-by-one, basically. So on your first question, I think overleverage, I think, definitely not from our side. I can't speak about anything else besides this. But definitely, yes, there's nothing in terms of overleverage from our side. And then if you look at probably the granular details, I think if you look at NBFC -- composition between NBFC and MFI, in fact, even in yesterday's report by one of the journalists, which has come in ET, NBFC, MFIs technically do not have overleveraging. The percentages are still not there for NBFC, MFIs. That's the only thing which I can probably leave it to...

Yes, so -- no, no, the comment was more specifically at an industry level when you're looking at the portfolio because there seemed to be an aftereffect of the default which has happened on all the players in the industry. It was more from that angle.

Yes. So I told you, if you look at that granularly, basically, that where is the overleveraging, the data says it all.

Okay. Second one, when you look at your own portfolio of the customers who have defaulted, would you see that -- is it customers who are new to credit who have defaulted? Or is it customers who've got a fair amount of overlap with some of the other lenders who have created a problem for you?

See, we've not checked that in detail. But I think our customers are our customers. I think that's more important for us to really look at. There could be an overleverage. I don't know how -- you have the numbers of portfolios of the other players also. So you can probably see how much would be the overlap. I probably will not be the right person to give you a comment on. But just -- I can just leave it on the table for you that for us, Assam is also the way we've been able to deal with a lot of crises which have come in our life. And we definitely are looking towards motivating our customers and building up that rapport with our customers through whatever ways we are able to really do that, certainly the workshop, CSR activities and all that stuff. And we are very hopeful that we'll be able to bounce back whatever numbers are there in terms of the portfolio in Assam.

Sorry, and just one final question again on this. Is there a difference between -- because one of the other players had kind of put in this data that the repayment rates have kind of moved almost closer to normalcy. Is there a difference between the repayment that one is seeing in the market, either in the form of what kind of meetings one is able to do or what kind of repayment that one is able to see?

I think -- again, I'm probably not the right person to comment on somebody else's collection efficiency rates. Our collection efficiency is at about 75% to 80%. And this is what we -- is there with us. Fair not for me to comment on anyone else.

No, no, the idea is to understand your portfolio, just to understand, is there a difference between why is -- why have you seen this kind of repayment rates? Or is it just a trend that is a difference of about a couple of quarters? That's the only reason. We're just trying to understand, is there a difference which will emerge between one player and the other in a specific market in terms of repayment rates in that particular portfolio?

You can't expect me to comment on someone else. I can only give you a comment about mine. Not fair for my part to probably give a comment on this. We've given you our numbers. It's your judgmental call how you really look at it.

We take the next question from the line of Rahul Picha from Multi-Act.

Yes. Sir, my question is again on Assam. I just wanted to understand the main reason for the issue there. Was it the MFI protest? Or was it the CAA agitation that happened later on?

It was a couple of organizations -- associations which actually started the whole trigger process sometime in October. From there, it actually jumped on to the CAA agitation and this thing across over there. And now, finally, I think all that probably -- to the extent it was, it probably has died down to a large extent. And that -- these were the 2 factors which probably was the reason for the Assam unrest.

Okay. So when you talk about the collection efficiency dipping in those regions, so the dip came in sharply during the protest pertaining to the MFI industry? Or was it later on when the CAA agitation happened?

So this was -- the dip was when the CAA agitation happened.

Okay. Okay. And sir, when you talk about the collection efficiency, so what do you exactly mean by that? Is it the percentage of the portfolio that is paying as on date? Or is it for the entire quarter?

No, it's on the monthly basis, then the entire quarter basically. So even if we extrapolate the demand in collection, this is how it would be extrapolated from a month to a quarter. Basically, it's across the quarter.

It's across the quarter. Okay. So when you say that the collection efficiency in Assam has improved from 50% to about 75%, 80%, so by the end of the quarter, about 75% to 80% of the portfolio has started paying. Is that what you mean, right?

Yes. So if there was a dip basically, that has also been factored. That is why the overall total is about 80% now.

Okay. So in terms of number of accounts or percentage of portfolio that has started paying would be much higher than 75%, 80%?

Yes, to a certain extent. Yes.

We take the next question from the line of [ Vivek Poddar ] from [ SL Investment ].

I just would like to know the figures of PAR trends.

Can you be a little bit more explicit in...

PAR 0, PAR 30 and PAR 90?

So we don't have granular figures of PAR 30. For PAR 90, we -- our GNPA we've given at is about 3.1%. You can extrapolate it with our portfolio basically and arrive at the number.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you, everyone, for sparing the time to come on the call today. I hope we have been able to address all your queries. For any further information, kindly get in touch with us or Strategic Growth Adviser or Investor Relations Adviser. Thank you, everyone.

Thank you. On behalf of Satin Creditcare Network Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines. Thank you.