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

Ladies and gentlemen, good day, and welcome to the Satin Creditcare Network Limited Q1 FY '21 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I would now like to hand the conference over to Mr. H.P. Singh, Chairman and Managing Director of Satin Creditcare Network Limited, to give his opening remarks. Thank you, and over to you, sir.

Thank you. Good morning, everyone. I warmly welcome you all to the Satin Creditcare Network Limited earnings conference call to discuss the operating and financial performance for the quarter ended June 30, 2020. I hope you are all doing well and staying safe during these testing times. To start with, during the quarter, the Board of Directors of the company considered and approved the fund raising by way of the rights issue of 1,99,82,667 equity shares of the company, to eligible equity shareholders of the company in the ratio of 48:125. The issue was priced at INR 60 per share, with INR 15 per share to be paid at the time of application. It gives me great pleasure to share that our issue was oversubscribed, and the proceeds will be used by the company to strengthen its capital base, and is the confidence capital to all the shareholders. Now coming to the microfinance industry, the industry has witnessed healthy growth over the years notwithstanding issues like liquidity crunch, heavy floods in some states, nationwide protest, Assam crisis and now the pandemic. The quarter gone by has been challenging for all microfinance players, and we being part of this ecosystem also witnessed challenges. Across the industry, disbursement and collection activities were majorly at a halt for the most part of the quarter due to nationwide lockdowns until May 2020 when things started to stabilize with staggered lifting up of lockdown restrictions. Despite these challenges, we have managed to grow our AUM by 14% to INR 8,119 crores Y-o-Y. We acknowledge these unprecedented situations. But despite these testing times, we have kept our fundamentals strong and are focused on setting up right systems and processes. We have adopted this new normal and have undertaken several new initiatives to adopt newer technologies and digital solutions in all our function for more efficient and effective working environment, which in turn will help us provide higher customer satisfaction. One such initiative is the launch of our new customer service app, which will help us increase digital and financial awareness among customers and help them connect with brand Satin while enabling cashless collection. We have also launched a new product called Pragati Loan, where the main purpose is to rebuild borrowers' income generation activities, impacted majorly due to COVID-19. We are continuously engaging with our customers, employees and field staffs, and now with lockdown restrictions being lifted in major parts of the country and economic activities progressing towards normalcy, we are getting progressive responses both on collection and disbursement activities with each passing day. As we are aware that conducting center meeting for collection activity was majorly at halt due to lockdown restrictions in major towns and cities of the country, customers were encouraged to pay their installments through various digital apps like Google Pay, Phone app and Paytm. Also, our staff are in touch with our borrowers, and we are undertaking telecollection activity by CSS in COVID-19 containment zones. In addition to this, we are nearing to add Satin on Bharat Bill Payment System, which is a one-stop solution by NPCI for recurring payments and also under process of taking customer activation for regular collections via NACH and eNACH through bank accounts. We expect coming quarters to be much better and robust, both on financial and operational aspect. On the asset quality front, too, we have showcased improving trajectory and have delivered a quarter-on-quarter improvement of 90 basis points on our on-book GNPA, which stood at 2.4% as of June 2020. We had a year-on-year improvement by 150 basis points with on-book NNPA at minus 0.8%. Going forward, we continue to remain focus on achieving steady growth without hampering our portfolio quality. PCR for the quarter was 130% against 60% in Q1 FY '20. Let me go through the financial and operational highlights of our company. Our AUM has seen a growth of 14%, which stands at INR 8,119 crores as compared to INR 7,139 crores 1 year ago. Assigned portfolio is INR 2,009 crores, and BC book with IndusInd Bank at INR 519 crores. As of June 20, have our customer base of 33.20 lakh customers. Our disbursal stood at INR 54 crores for the quarter. Disbursement growth was severely impacted due to nationwide lockdown during major part of the quarter, which caused halt in operational and financial activities. Also disbursements are majorly done to existing customers with strong repayment history. Net interest income for quarter 1 FY '21 stood at INR 150 crores as against INR 199 crores for quarter 1 FY '20. Our preprovisioning operating profit stood at INR 50 crores and PAT for Q1 FY '21 stood at INR 13 crores. Our cost-to-income ratio stood at 63.34%, primarily impacted due to lower income in the quarter due to COVID-19, while our OpEx to GLP ratio stood at 4.7% as against 6.1% in Q1 FY '20, on stand-alone basis. As of June 30, 2020, our ROA stood at 0.72%, whereas ROE stood at 3.52%. Coupled with halt in business due to lockdown restrictions, our operating costs have gone up, which have impacted our return ratios. However, going ahead, we expect our costs to normalize and reap significant benefits to improve our profitability and return matrix. With each passing month, we have been seeing an improving trajectory in our collection efficiency, as majority of our borrowers are engaged in essential services, thus recoveries from them are expected to be much faster. The collection efficiency trends are April, 3%; May, 17%; June, 62%; July, 85%; and August, 85%. Our GNPA at an AUM level stood at 2.4%, while we have made adequate provision of 2.2% to bring our net NPAs to 0.2% from 1.1% as of quarter 1 FY '20. Our net NPA has seen a reduction of 19 basis points on a year-to-year basis; while on a sequential basis, it has come down by 60 basis points. On-book NPA are at minus 0.8%. An update on moratorium. As of June 30, 2020, 11% of our borrowers have opted for full moratorium, while we have activated 89% of clients and 98% of lenders. Our well diverse presence across 23 states and UTs have helped us emerge as a strong pan-India microfinance player in the industry. As on June 30, 2020, 96.4% of our districts have less than 1% of portfolio exposure, which we aim to bring it down further in the coming times. We continue to be one of the leading microfinance players in terms of customer base, well-penetrated branch network across states with 76% rural exposure. Our well-thought diversified customer base has helped us leverage our ideas of cross-sell products. Until now, we have been able to disburse loans under the product financing category close to INR 100 crores. Portfolio quality. We have believed in continuing our growth trajectory without compromising on portfolio quality. Our strong internal control coupled with stringent audit processes has helped us monitor our portfolio quality on a regular basis. We have made COVID-related additional provisioning of INR 90 crores, which is 2% of our on-book portfolio. Our team constantly monitors all our back-end support for credit appraisal quality and customer support, along with post-disbursement monitoring through our Centralized Shared Services, which ensures uniform processes across all our branches. On liquidity and capitalization, our capital base has been strong with a CRAR of 31.09% and well above the regulatory requirements. We have a healthy Tier 1 capital comprising of 23.67%. Our ratings are CARE A-minus stable and ICRA A-minus stable for long term. CARE A1 and ICRA A1 for short-term credit. Liquidity has never been a barrier for us as the company has access to a diversified lender base with 61 active lenders. Leverage now is 3.6x. We continue to maintain a healthy balance sheet liquidity with INR 1,652 crores of surplus funds as on June 30, 2020. In addition to the above liquidity, we have undrawn sanctions of INR 1,006 crores as on June 30, 2020, with additional sanctions in advance stages. Our structurally positive AUM also adds to our advantage. The rights issue will add INR 120 crores to the capital base. We have received INR 15 per share along with the application aggregating to INR 30 crores. An update on our subsidiaries. We are looking forward to growing our secured lending portfolios of our subsidiaries, thus diversifying risk while achieving a better product mix to achieve the next leg of growth. Satin Housing Finance Limited has now reached an AUM of INR 144 crores and having a presence across 4 states with 1,305 customers. Satin Housing Finance Limited has 100% retail book comprising of 87% affordable housing loans and 13% of LAPs. Satin Finserv Limited, our MSME arm, has an AUM of INR 118 crores. Total equity stands at INR 102.5 crores. SFL business aims to focus on secured retail MSME lending, wholesale lending to small NBFC MFI and others. SFL too has brought in-house software now. Our business correspondent services under Taraashna Financial Services has reached an AUM of INR 677 crores. As of June 30, 2020, the company operates through 208 branches, has more than 3.6 lakh active loan clients. Thank you so much. With this, I would like to open the floor for questions.

[Operator Instructions] We take the first question from the line of [ Dwanith Savla ], individual investor. As there was no response from the current participant, we take the next question from the line of Agastya Dave from CAO Capital.

Sir, am I right in doing the following calculation, that if 85% is the collection rate, 11% is the morat. So effectively, you are at 96% collection rates, if you like ignore the fact that some people in morat actually won't be paying. Can I add these 2 numbers and then say that 4% people who are not in morat are not paying, is that a...

No. So the way we have calculated the number is whatever is our monthly demand for the month of July and August, we have been able to collect 85% of that.

So -- okay. So let me ask you directly rather than calculating it. So as in the non-morat...

No, one minute. Let me clarify. Both are 2 different things. So when we say 85% of our collection means that month's demand and collection is about 85%. 11% who have taken full moratorium is that they have not even paid a single installment for the moratorium period. So which is the way we are calculating, and which is the way it has been shown that 11% of the customers, since they have not paid any single installment are taking complete moratorium.

So that's not even included in the demand for any of these months, right?

No, it will be.

Demand -- it is included in the demand. So demand is for all the customers whether they have paid, not paid. And against that, we have been -- and this is the month-to-date figure, not for a particular week or day.

Got it. Sir, another question. So if I look at the morat book and if I look at the non-morat book, what would you say would be the upper bound to the gross NPAs that you can expect? I listened to your interview on CNBC, and you were saying that you expect 250 to 300 basis points of credit cost? So can you just tie up everything? If you can bifurcate that into the morat book and non-morat book, what are the trends you are seeing? And another related question. You said that 11% of the people, you are defining that as those set of people who have not even paid a single month's worth of repayments, right? So those people who have initially who are part of morat but are no longer part of morat, what is the asset quality looking like in that cohort?

So the way I have defined it as, we've looked at the history. So when we started the lockdown and when we started our collection, people who have not paid started from about 30%, 35%, which is now down to 11% who have not paid a single installment. And this has been cleared off on a day-to-day basis. So technically, what we are clearing off is out of about 30 -- out of about close to about 4.5 lakh -- 4 lakh customers, we have people who are paying out of this, about 6,000 to 7,000 customers on a daily basis who are now coming back and repaying their -- have started keeping their installments. That's the reason why I think that from -- out of 4 lakh customers, which is 11%, every day, about 6,000 to 7,000 customers have started -- out of these customers started paying their installments. So that is the reason why I said that out of this 11%, the final tally which we see would be close to 2.5% to 3%.

Right. And the non-morat book is behaving pretty nicely?

Yes, yes, yes.

The next question is from the line of Shreepal Doshi from Equirus Securities.

Sir, could you please throw some light on the state-wise collection that you will be having for some of the larger states, like for us during -- like say, versus the 85% collection efficiency that we have for the entire book?

So when you look at 85% for the entire India, for our heavier states, which are, let's say, UP and Bihar and Punjab and MP, so UP, till our last days of August, was clocking close to about 100% plus in terms of their demand and collection for that month. The lower states, which were there, which have a very small portfolio of ours, was typically Assam and Maharashtra where we have a very small this thing. But all the bigger states, Bihar and all they were clocking 90%, 95% plus from there. And UP, as I said, was clocking 100% plus.

Okay. Sir, just one doubt, I mean, so if -- when you are saying UP was 100% plus, I mean, that is also because the customer will be paying some of the older EMIs also. That is why it is higher than the demand, right? But if you were to calculate only for that particular month EMI versus that particular month demand, what would that number be for UP, Bihar and Punjab?

No, no, that is what I'm saying. For that month's demand and that month's collection, UP was 100%. So whatever the demand for that month was there, we collected 100% of that. It could be a fallout of the previous installments also. But for that particular month, the demand and collection was 100% for UP.

Okay. Okay. And Sir, for Bihar?

Bihar is close to, I think, 85% to 87%.

Okay. Okay.

Sorry, it's about 90%. Sorry, sorry, it's about 90% plus.

In the month of August, right?

August, that's right.

Yes. And sir, so I want understand like how -- will -- the morat book that we have of 11%, that will be from what sort of geographies? Like would that be -- like if you can through some light on those states or those geographies?

So no granular detail as such, but it is spread all across everywhere. So it's not like 1 state could be significantly higher than the other, but this is the total what we've got.

Okay. Okay. But it would not be from states like UP or Bihar for us? I mean, because we are seeing the collection efficiency.

No, I think everybody will have some representation in it. So it's not like [Foreign Language] state [Foreign Language], but thankfully, UP and Bihar have lesser amount. UP has a lesser number as compared to that.

So how are we seeing the collection trend or say, the overall effort that we need to put in, in states like Assam or Orissa, which were already seeing stress even before COVID happened? So what sort of your interaction or your sort of understanding is in those geographies?

See, the geographies remain -- whatever has happened because of the agitation and the floods earlier and the cyclone and everything. After the COVID and everything, it is probably behaving in a much better fashion because a lot of our clients who were in par 90, they have started paying. Clients who were there in the buckets of 1 to 90 have started paying. So I would say it's a very positive sign both for Orissa and Assam looking across post the COVID.

Okay. Okay. Okay. Sir, 1 last question. So what is the write-off strategy, like, after how many sort of DPD do we deploy writing-off of the loan book?

So our policy is that we decide it on a case-to-case basis and wherever we feel that the chances of recovery are not there, we write it off. And over a period of time, we are taking aggressive stand wherever there is a remotest chance that the customers, et cetera, are not reachable and all. So that is why you will see our gross NPA numbers are consistently coming down, especially if you see the Slide 35 in our presentation, so our on-book gross NPA has come down by -- from 4.4% in September '19 to about 2.4%. So we are writing it off wherever we feel that the chances of recovery are less. So this is the policy we have opted, and you will see a consistent drop in gross NPA over a period of time.

[Operator Instructions] The next question is from the line of Nidhesh Jain from Investec Capital.

Sir, just one clarification on collection efficiency data of 85%. In the numerator, if we take this collection for the month, what would be that number of collection efficiency?

Sorry, I didn't get your number -- question, but the way we have calculated, as we explained earlier, that whatever is the total collection for the month, that divided by the total demand of all the customers whether they have paid or not paid for that month. [Technical Difficulty]

Mr. Nidhesh Jain, I am so sorry to interrupt, but there is a lot of disturbance from your audio, sir. We're unable to hear you well.

Yes. Yes. Is it better now?

Yes.

Yes. So I was asking that if we just take the collection for the month and not the overdue collections from the previous month, what would be the number corresponding to 85% that we have disclosed?

That is not the right way of looking at it because practically the collection was almost 0 in the month of April and also people will first pay for April, then for May, then for June. So at some point in time, every customer has missed some installment during April-May. So that is not the right way of looking at the number because people will not be able to pay everything in one go for the last 5, 6 months. So we feel that the right way of looking at it is what is the demand for the month from all the customers, whether they are paying, not paying versus what we have collected and this is what we have shown here, which is 85%.

Sure. And if you can share the data, what percent of customers under month of August have paid full EMI? What percentage of customers have paid partial EMI? And what percentage of customers have not paid anything in the month of August?

So most of the customers are paying full EMI either we are collecting or not collecting, in case that is the question. So we do not generally collect partial repayments. So whosever is paying, paying the full installment.

And that number will be 85%, right. That 85% of the customers have paid full EMI in the month of August?

So we have 11% of the customers who have not paid us anything during moratorium period. So broadly, it means there are very few customers who are paying more than 1 installment, so people are trying to pay whatever is due. So broadly 86%, 87% of the customer have paid, 85% of the collection is the broad number.

The next question is from the line of Riddhesh Gandhi from Discovery Capital.

[Technical Difficulty]

Mr. Riddhesh Gandhi, I am sorry to interrupt, but there is a lot of disturbance from your audio, sir. We're not able to hear you well.

Hello? Is it clear? Is it clearer?

[Operator Instructions] We take the next question from the line of Deepak Poddar from Sapphire Capital.

I wanted to understand more on the credit cost. Now since the high credit costs, like we have done additional provision of INR 90 crores and credit cost this quarter has kind of normalized. So any comment on going forward, how do you see your credit cost in coming quarters and FY '22, when it gets normalized, so do you expect a higher credit cost base or some comment on that would be quite helpful?

So as I indicated earlier, right now if you really look at the pool of -- technically, the credit cost, which you're looking at is somebody who's not paid us in the last 6 months, technically is what we're looking at the larger pool. But as a matter of the fact that we have a larger pool of, let's say 11%, out of that, we said that 4 lakh customers, we are getting installments from about 7,000-odd customers on a daily basis. Our sense is once this pool gets finished off technically because rest others are paying. So whatever they're paying, if somebody paid us 3 or 4 installments, he is paying the fifth or the sixth installment. Our own sense is that the credit cost technically, which I had mentioned earlier during the day in my interviews also is that this 11% we finally boiled down to -- this is what our estimate is, it could also possibly go down lesser than that. But we feel that about 2%, 2.5% is where we are looking at maybe credit costs right now. But FY '22, definitely, once the normalcy returns and everything goes back to this thing, which we hope would be being optimist about everything, the credit cost would be lower than about 2.5% also.

No. So basically, pre-COVID, I think we were -- credit cost were in the level of around 1%, 1.5% kind of that. So do you intend to go back to that kind of level?

See. We would definitely -- but it, again, depends on the external circumstances, how this -- the pandemic is really going to stabilize at what time. So we are 6 months -- 7 months now into the pandemic, but there are no real signs where we can say that it's back to pre-COVID levels. Definitely, yes, the collections are improving. Disbursement has started improving. But my own sense is another 6 to 8 months is going to take before we finally settle down and say, okay, fine, we're back to the pre-COVID levels. So that's the reason why I gave you an additional heads-up on maybe another 1% higher this thing for FY '22, but it could be at the pre-COVID levels also. It all depends how this thing pans out.

The next question is from the line of Malavika Tandon from SBI Ven Capital.

I have 2 questions for you. The first question is, I understand that Satin has slowed down the disbursement due to COVID. So we would like to understand when Satin is going to start increasing the disbursement. And the second question is regarding collection efficiency and NPL. How is Satin's collection efficiency and NPL compared to the industry or other competitors?

So in the case of disbursement, I think it is increasing on a monthly basis. But I would say that we are not still back to the pre-COVID levels of the disbursement. But we are seeing an uptick. Technically, if you look at the disbursement in the June quarter, it was about INR 50-odd crores. But we've increased our disbursement 3x more than what it was in the June quarter, for July and August, if you really look at it. And maybe another couple of months before we are fully back to the pre-COVID days of our disbursements. So that's one. In terms of collection efficiency, I think what I can understand, I probably cannot comment on what my peers would be, but I think everybody is probably in the same range, give or take, a couple of percent up and down. But our own sense is that this is where the collection efficiency is for the entire sector, basically. It is, I think, range bound between 80% to 90% is where the range bound is. This is what my own estimate is. I probably could be wrong, but this is what my estimate is for the other players also.

All right. Okay. So I understand that estimated collection efficiency is 80% to 90%. How about NPL?

NPL, right now, I think we cannot have a correct NPL figure to be very honest. Again, as I stated earlier, this 11% moratorium book which we have, we'll see how it pans out in the next 2 months from now, September and October. These are 2 months where we are really looking at how does it pan out. Our sense is, we will have a fair estimate of our correct NPL maybe in a couple of months, but not right now. I think this is what -- but on a longer basis plan, in FY '21, we think -- what we stated earlier, I think it will be range bound between 2.5% to 3% at the maximum the NPL levels.

The next question is from the line of Rahul Picha from Multi-Act.

Sir, I wanted to understand on disbursement. So right now, are you giving any additional loans to your existing customers to restart their business?

So what we're giving is a Pragati Loan. Pragati Loan is only being given to a customer who has paid -- repaid all his installments, and he needs money to refinance his income-generating activity. So it is being given to existing customers and only to those customers who have fully repaid their installments. And if they have any installment, which is not repaid, we are not extending a loan to them.

Okay. So basically, you mean that, that customer needs to be current as on date of disbursement?

Absolutely correct.

Okay. And what percentage of your customers you would have given these loans to?

I don't have a number, but in terms of -- I think we've done disbursement worth of about...

INR 54 crores in the month of June.

INR 54 crores in June. And July, August, I probably cannot give you a number because of being a listed entity, but it will be 3 to 4x more than what we've given in June. So that's an indication.

Okay. Okay. And sir, can you talk a bit about the geographies which are still lagging in terms of collection efficiency trend right now in -- post Q1?

I probably will not be able to give you a fair comment on this. Because if the earlier geographies were lagging behind in the COVID-19 -- pre-COVID levels, they are probably at the same level where they are. So if you look at deterioration, which you feel that would happen to any geography, that has not happened. So whatever the efficiencies were pre-COVID level, the efficiencies are, in fact, the same, or in fact, maybe slightly better than what it was pre-COVID levels.

Okay. Okay. And sir, specifically on Assam, is it possible for you to give the collection efficiency for Assam?

Collection efficiency for Assam will be close to about 65% plus.

Okay. And that is showing improvement?

Yes. That is showing improvement. That's what I said earlier that even in DPDs 1 to 90 and 90-plus DPDs people have started repaying now post the lockdown easing off.

Okay. Okay. And sir, any geographies where you are facing any difficulties from local political interference or any disturbance of that sort?

That's a natural course of business. I think this happens across everywhere. Nothing which is significant, which is impacting our collection. Otherwise, this average would not have come out if there would have been any particular state with that. But these are normal -- our business hiccups, which we always say. So nothing significant which probably can affect our collection efficiencies.

The next question is from the line of [ Keshav ] from [indiscernible] Investors.

Sir, I have a sort of like a big picture question. Sir, if I look at the data for past 6 years, I see that we have -- like we have made around INR 470 cr, and we have lost about the same. And if I compare that to one of our competitors, CreditAccess, they have lost 1/3 the amount of money they have made. So sir, what are the structural differences by the way we are acting, the way we are running the business? And like the way forward, how do you see could be improvements -- structural improvements, specifically, which could lead to a better return that way, so that we don't lose as much money?

I think it's not fair to discuss one competitor on a public call. Well everybody has their own strategy of growth and this thing. Some of the key factors I can speak in generally not about a direct comparison to one specific institution. It all depends on the capital structure, geographical spread, growth strategy, so on and so forth. So I think it is not fair to discuss our number with CreditAccess on this forum. We can do a detailed analysis, have separate discussions. But broadly, we have to see how our numbers have grown over a period of time, we were more impacted in demon as compared to some of our peers or industry in general. But if you see our performance over a period of time post demonetization, at some point in time, 70% of our portfolio was impacted. We have large exposure in UP, Punjab, Uttarakhand, MP, et cetera, which was severely impacted and then we have come out of that, and the portfolio is growing. We have structurally corrected things, changed our system processes, technology, so on and so forth. And all said to, so to say, grow, our gross NPA numbers are coming down. Our provision coverage ratios are improving over a period of time. So these are -- I think you have to see we are going in that direction.

So if I may add just maybe the big picture the way you said it, I can give you the big picture. The big picture is that in spite of whatever jabbing we've had in terms of demonetization, Assam agitation, pandemic and everything, if you look at our numbers, collection efficiency, we are probably also amongst the best right now. In terms of our NPA provisioning, we did lose so much of money, but we've still been able to bounce back and come back on to the keel. So that is what the big picture is that in spite of the fact that we've been hurt the most, for us, the come back and the bounce back has been far more better and bigger than the rest of the industry. That's the only thing which I can probably give you as a big picture.

And we are diversifying into housing finance business, MSME business, where, as on today, we are investing, the returns will take some time to come, but we feel that it is important to diversify the portfolio. Our housing finance has taken good shape now, growing -- almost breaking it quarter-on-quarter basis. It's a long-term business, but we feel that these kind of investments are important and essential from a long-term growth perspective. So that also, in short term impact return ratios, but are important and we see it as an important strategy.

All right, sir. That's really reassuring. But sir, the reason why -- I'm not trying to draw any parallels between competitors as such. But I'm just trying to understand because, sir, we are, again, in a situation that is unprecedented. It could be like we have navigated through demonetization and other crises. But still this is a very, very tough situation for everyone. And if I see then like I'm -- I have to sort of understand what is not going our way vis-a-vis competitor because we lose more money on a rainy day than them. And it is concerning especially because of the COVID, how it has happened and how it's panned out. So sir, how do you see yourself navigating through this crisis?

So let me give it to you with my experience of 30 years in this industry. We've navigated more crises than anybody else. That's a reassurance, which you probably can have. Maybe you should probably look at that, maybe not in a silo, but in the complete this thing. We navigated at least 5x more the crisis which anybody else in our peers would have done. So when this COVID or this crisis is there basically, our only way to tell you is that remain optimist, as we are optimist to navigate this crisis again, not by losing money, but by navigate it far more better than I hope -- I won't say that I will pitch it against someone else, but we will navigate it much better than anticipated by probably a lot of the people.

The next question is from the line of Agastya Dave from CAO Capital.

Sir, could you -- I mean you have partially answered this question. But in terms of trends in NII and in terms of trends in GNPA, so can you just give a broad idea if there are no further disruptions, no nationwide lockdowns or something like that, some Six Sigma event, how do you see those panning out, the NII and the gross NPA? I mean will we see a dip next quarter and then recovery after that? Or will we see continuous recovery? And also on the gross NPA side, when do you see maximum spike happening? And can you also correlate the gross NPA with the net NPA number that you have? So as of now, you have more provisions. So I think this is the first time I've seen on your balance sheet, a higher provision than on-book gross NPAs. But where do you see the net NPAs peaking at? And then subsequently, what would be your policy on provisions? Because when the demon happened, you carried the gross NPA -- higher gross NPA number for a long time. I grant you that there were recoveries. But what is your sense this time? Would you like to do an upfront provisioning or carry them like this?

So let me first answer on the margin. So we have a 10% margin prescribed by RBI. We are working broadly on the same. Means our lending rates are not drastically different than industry. So we are not seeing any pressure from that perspective from the market. So margins will remain intact at broadly 10% level, which is permitted. So there, we don't see any pressure. On the gross NPA, as you can see the trend, it is consistently coming down and we have taken an aggressive approach in terms of write-off. Wherever we feel that there is a lesser chance of recovery, we are sort of writing it out, but making effort on the ground to recover. We collected around INR 19-odd crore last year out of the written-off amount also. But from accounting and reporting perspective, we have taken aggressive stand in terms of write-off. As we said on the call earlier that we are anticipating roughly 2.5%, 3% kind of a credit cost because of COVID for some time. But going forward, in a stable state, we feel that credit cost of 1% to 1.5% should be there on a stable state. And to take care of that, we have worked on that over a period of time on our OpEx, which has come down consistently over a period of time, we reduced it by roughly 0.5% last year. We feel that we still have lot of scope to bring it down. So even if there is a little bit of spike in overall credit cost structurally, that will be offset by improvement in operating efficiency. And to that extent, I think we'll be able to absorb that. But our credit cost, considering all the system processes, improvement that we have done over a period of last 1 year or so, we don't see that as drastically different from industry averages.

Sir, my question on NII was not with respect to the spread. Spread, I understand is the 10%, but the absolute number itself. Because the disbursements were low and we don't have long duration product set, these are not multiyear loans. So there is a natural runoff period also. So I was just wondering the NII number, absolute number, will we see a dip next quarter and then a recovery? Or will we see recovery from now onwards? I was also trying to understand the operating deleverage, which may play out over the next couple of quarters. That is why my question was more on the absolute NII number.

So we are going conservative in terms of disbursement. We are sitting on a good amount of liquidity. But considering the market situation, we want to see how the things are panning out before we -- so that we go back to normal disbursement. So probably there may be some impact for next quarter or 2. But things are very, very dynamic and may change with all the efforts done by the government and RBI in terms of supporting the industry. We are getting mixed response, how fast the recovery will happen in the overall economy, and then we'll take call accordingly. But yes, it'll have some impact for a quarter or 2 before we can say that the disbursements are back to normal. And to that extent, there will be some impact on absolute NIM numbers.

The next question is from the line of Shreepal Doshi from Equirus Securities.

So my question is on the, say, 11% of our customers are under moratorium, and you said 76% of our customers are in the rural geography. So any split between, say, what percentage will be from rural and what percentage will be in the urban geography? And what sort of customer profiles will this be like? Like, what will be their, say, sources of income, if you can give some color on that?

See, if I give you a very true picture of it, 76% or 78%, which we say officially is within the municipal limits, what we call as complete rural. But if you look at the balance 24% or 26%, that is, if not pretty rural, it is like a semi-urban kind of thing, but still has a lot of rural settings to it. So when we look at our complete book, it is practically, if you really look at me, if I look at from -- not from the technical standpoint of view, but I look at from the operational standpoint of view, practically about 98% of our book is all rural. So when I do a bifurcation of 11%, this is technically the 100% would be if I would give you this thing the color of operationally looking at it, it will be all rural. There's no urban space in it. So I won't talk of a major town like a Delhi or a Mumbai or like even a town like Lucknow or Kanpur be included because we don't work even in the surroundings of that. We work only on the surroundings of all these major towns also. Let's say, for example, if you are present anywhere we say, Lucknow, it is not main Lucknow, it is going to be the periphery of Lucknow, which extends into the semi-urban and kind of a rural setting. So for me -- for you to really look at it operationally, it is about 100% all rural settings. So 11% is practically all rural, which we are saying.

So then what would be the customer profile that have got impacted on their sources of income and which is why they are availing moratorium?

So there could be any profile over there. But it is -- if you look at the baseline, again, the baseline is again, agri and agri-related activities. But there could be smaller -- small cottage industries, which probably -- because homemade industry, which would be there, which could be impacted. But no bifurcation which we've been able to do to say that, okay, fine whether this industry has been repaying or maybe the customer belongs to this industry has not been able to repay. I don't think so it will be. And also maybe certain extent, maybe a behavioral pattern also, which could be there. A customer, even though having a cash flow would not be paying during the morat period, they wait for the morat period to end and then they'll start paying. So you can't have a handle on everything which is probably there. But overall, I think the handle should probably be looked at that, okay, 11% is the complete morat book. And 6,000 to 7,000 out of that 4 lakh customers have started repaying from -- on a daily basis. So that's the heartening sign which we should look at.

Okay. Okay. Sir, 1 last question was on our OpEx front. So like if you see at industry level, the OpEx upon AUM is broadly in the range of 4% to 4.5%. Whereas we are almost 150 to 200 basis points higher. And I think that is what is reflecting in our lower ROA profile also. So how do we see like that moving down? What are the kind of strategies that we are sort of implementing to bring that down?

See 2 factors which you have to consider when you look at OpEx also. We are practically far more diversified in terms of geography and states when compared to maybe a large part of our peers in the industry. So that also has maybe a bearing on the OpEx cost as compared to what you said, 4.5% or whatever the ratio is. But we've gradually been bringing it down. And whatever measure we've taken on in terms of technology enhancements, in terms of bringing our operational efficiency to a level, I think we've been able to achieve whatever downward trends we've been seeing in our OpEx cost. And going forward, all these processes and things, both on technology and operational efficiency, I can't probably list out granular detail. But yes, we are working on all these details and we'll have lesser amount of OpEx to GLP now when we go forward. And that has constantly been demonstrated in our quarter-on-quarter, if you look at for the last 1 year or so.

The next question is from the line of Shubhankar Ojha from SKS Capital.

So basically, I wanted to know the time frame for this rights issue to be -- when does it become fully paid up? And when does it become tradable?

Partly paid would be tradable, I think once we finish off the allotment, which probably would happen maybe my sense is in another couple of days. We get a window of about 1 year to get the -- fully all the calls in and including the application, which has come in now. So we've got a window of 1 year, let's say, but we can say that probably will take us about 1 year when this fully gets -- the money gets fully in there.

Tentatively about 1 year, you said, right?

Yes, that's the window which we get. So it could be earlier, but that's the window which we have.

The next question is from the line of from [ Dwanith Savla ], individual investor.

I actually tried asking a question earlier. So I had a 2-part question. Firstly, the rights issue which we are making, what is this impact going to be on our Tier 1 capital? And thereby, are we be able to disburse more than what we will be if we have not done the rights issue? And secondly, going by the current GNPA and net NPA trend, is it -- is there a vision which we have for our, say, FY '22 or maybe beyond that, wherein we can get this -- the gross NPA figure probably below 1%?

So I can't get your second question. The first question, you've talked about the impact on Tier 1 capital. This will be about 8%, 9%. So our Tier 1 capital will go up about 8% to 9%. So that is the impact which is going to have on the CAR.

Okay. My second question was, is there any chance that our gross NPA number can go below 1% in -- maybe in the FY '22 or '23? Or is it too farfetched to look at right now?

I think it's slightly, so to say, farfetched because as we have shown it on Slide 35 in our presentation, our gross NPA number are consistently coming down and our provision coverage ratio is increasing, so we have 130% provided as on today. We will take a call as soon as we feel that the chances of recovery are not there, and we write it off. So we'll adopt this strategy, but in case we are making a provision, that should give comfort to investors is our thought process. So we are, so to say, consistently following the rules and taking a conservative approach in our provisioning policy and write-off policy, and we'll go ahead with the same strategy.

And to just to add, so we've increased our provision coverage ratio this time. As somebody said that they had never seen this kind of aggressive provisioning. So we are on that course. But the only answer which I can give you is things stabilize and we're back to normalcy, I think we'll have a far more better look at the numbers rather than having a say of it right now. So stability returns, definitely, I think the numbers will also improve significantly.

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

I take this opportunity to thank everyone for joining this call. And I hope we've been able to answer all your queries. However, you -- should you feel you want to discuss something else, you can all get in touch with me. My name is Aditi Singh. I look after the Investor Relations for Satin Creditcare. My details are there on the presentation as well. And you can also get in touch with Strategic Growth Advisors who are our IR advisers. Thank you.

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.