Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Shriram Transport Finance Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Revankar, Managing Director and CEO, Shriram Transport Finance. Thank you, and over to you, sir.

Thank you. Good morning to the participants from India, and good evening to those who are joining from western part of the world. It's a tough time as mankind has observed various pandemics throughout the history, where some were more disastrous than others to the humans. We are observing a very tough time once again fighting an invisible enemy, the novel COVID-19 coronavirus, initially observed in the Wuhan province of China, now fastly spreading around the world. On 22 March, India observed 14 hours voluntary public curfew at the insistence of Prime Minister Narendra Modi. Further on 24 March, Prime Minister ordered nationwide lockdown for 21 days, affecting entire 1.38 billion population of India. On 14 April, PM extended the nationwide lockdown till 3 May, which was followed by 2-week extension starting 3 and 17 May with substantial relaxation. Beginning 1 June, the government has started unlocking the country, barring containment zones in 3 unlock phases. Let me begin with brief overview of macroeconomic scenario and on-ground development before I cover performance for the quarter. Amidst slowing global growth, India's GDP growth decelerated to an 11-year low of 4.2% in 2019/'20 according to data released by National Statistical Office. Although the budget estimate for GDP growth in 2019/'20 had been set at 8.5%, in the final quarter of the year, that is Jan to March, growth rate of GDP fell to 3.1%, reflecting impact of first week of COVID-19 lockdown, which began on March 25. Although this is lowest growth rate in the last 44 quarters, it is still higher than 2.2% growth predicted by most economists and rating analysts. Agriculture and mining sector picked up steam in the fourth quarter, growing at 5.9% and 5.2%, respectively, even while the manufacturing sector contracted further, recording a negative growth of 1.4%. The public administration, defense, other services grew at 10.1%. Agriculture and government expenditure had been the savior. However, the most disturbing news is that 3 components of the demand have fallen. They are consumption demand has slowed down, while investment and exports are both in negative territory. There is a piece of good news for Indian economy, which is battling COVID-19, and its after-effects of gloomy scenario, that is India is likely to have normal monsoon this year. As announced by IMD Monsoon, showers are expected to be 100% of long-term average. India's food grain production is estimated to touch a record 295.67 million tonne in '19/'20 crop year. This is up by 10.46 million tonne from previous year production of food grain of 285.21 million tonnes achieved during '18/'19. Record output is estimated in rice, wheat, coarse cereals, oilseeds, cotton during '19/'20. Rice, wheat production is estimated to be record 117.94 million tonne and 107.18 million tonne, respectively, this year. In view of COVID-19 pandemic, the Central Bank had advanced its monetary policy committee meeting. The RB of India has reduced repo rate by 75 basis points to 4.4% from 5.15% on 27 March. Further on May 22, the policy committee met in emergency meeting to review current economic outlook and impact of COVID-19 and reduced the repo rate from 4.4% to 4%. It has reduced reverse repo rate to 3.35%. On March 27, RBI had provided a 3-month moratorium on all term loans, allowing borrowers more time to repay. The RBI on May 22, 2020, has extended the moratorium on EMI payments by another 3 months till August end, taking total moratorium period to 6 months. Coming to the commercial vehicle sales data. There are lower volumes, both in HCV and LCV, on a year-on-year basis. In case of HCV, volumes have been impacted by higher capacity due to axle load norms last year; extended monsoon, which delayed the construction and mining activity; and also due to clarity on the extent of discount around BS-IV as well as pricing of BS-VI vehicles. For LCVs, last year base was incredibly very high and had moderate fall compared to HCVs. Overall, vehicles catering to essentials are faring better than those catering to industrials. Prebuying of BS-VI, which was delayed in Q3 due to a lack of clarity on pricing and discount, didn't kick off in Q4 in spite of expected price rise, as at least price rise expectation was between 12% to 20%. As the COVID-19 scare was looming by the end of February, the sales, which were supposed to be picking up towards the end of the year, that's in March, did not pick up. The M&HCV vehicle sales for the year fell by 42.47% from 3.9 lakh units to 2.24 lakh, and LCVs fell by 20.06% from 6.17 lakh to 4.93 lakh units. On liquidity, in terms of COVID-19 regulatory package announced by RBI on March 27, 2020, in accordance with the scheme approved by Board of Directors of company, the company has extended option of moratorium for installments falling due between March 1 to May 31 to all eligible borrowers. Further, pursuant to RBI notification dated May 20, the moratorium given to the borrowers are being extended to eligible borrowers for further period up to August 31. Most of our customers are SRTOs, individual owner operator, and they earn on their vehicle, equipment, tractor and pay. They do not have fixed monthly income or long-term contracts. It is very heartening to inform you that in spite of moratorium, the company has been able to collect from 84%, 23% and 52% of borrowers in the month of March, April and May. However, many of the customers preferred to make part payments and retain part with them to manage uncertainties in the month of April and May. Company had liquidity buffer of INR 10,422 crores and SLR investment of INR 1,824 crores as on March 31, 2020. That liquidity buffer and SLR investment as on May 31 was INR 5,724 crores and INR 1,801 crores, respectively, as we did not seek back-to-back moratorium from the banks and institutions. Coming to the headline numbers for this quarter. AUM grew by 5.04% year-on-year to INR 1,09,749.24 crores against INR 1,04,482 crores in Q4 FY '19. Net interest income stood at INR 1,917 crores compared to INR 1,902 crores in Q4 and increased by 1.98% from INR 7,762 crores in 2018/2019 to INR 7,916 crores for '19/'20. The interest margin in Q4 '19/'20 stood at 6.76% compared to 7.14% in Q3 FY '20. And for the full year, NIM stood at 7.06% against 7.41%. Profit after tax stood at INR 223.38 crores against INR 746.04 crores in Q4 '18/'19. The company had made a provision of INR 909.64 crores related to COVID-19, and hence, the full year profit stood at INR 2,501.84 crores against INR 2,563.99 crores for the full year '18/'19. EPS stood at INR 9.85 compared to INR 32.88 in Q4, and for the full year, EPS stood at INR 110.27 to INR 113.01 for the previous year. The Stage 3 NPA stood at 8.36% in the Q4 FY '20 against 8.37% in Q4 FY '19. The overall credit cost, which stood at 1.92% in Q4 FY '19, came down to 0.74% in Q4 FY '20, excluding COVID provision and 3.82% after COVID provision. The full year credit cost stood at 1.64% as against 2.16% for the year '18/'19 excluding COVID provision and stood at 2.43% including COVID provision. So that brings end to my opening remarks. I have with me Mr. Sunder, Parag and Sanjay to answer specific questions. Now I request moderator to open the floor. Thank you.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara.

Sir, I have a couple of questions. Firstly, what would be your incremental borrowings from banks in April and May? And would you have borrowed from the TLTRO?

Yes. We had a TLTRO sanction of INR 200 crores. Then incremental borrowing...

Incremental was around INR 800 crores.

Around INR 800 crores we have borrowed in April and May.

Okay, sir. Sir, any new borrowings lined up in terms of either bonds from banks or...

Yes. Pipeline is quite long. We have a good pipeline. We should be able to get something in this month and maybe in the subsequent quarter. Most of the banks are working with very thin staff in Mumbai. And that's the reason the processing has slowed down. But we are confident that by this month end, we should be able to complete a few transactions.

In addition to this INR 1,000 crores that you've already raised?

Yes, yes.

Okay. And sir, what would be your debt repayments in the first quarter and -- sorry, in the second quarter and in the third quarter, that is July to September and then right through to December?

Parag, do you have the numbers?

Yes, I have. It is around INR 4,000 crores.

It is around INR 4,000 crores.

Right through to December? So from now to December?

No. Next quarter, up to September.

Okay. And up to December?

Another INR 4,000 crores.

Another INR 4,000 crores, so you can take a run rate of INR 4,000 crores per quarter.

Okay. And sir, just one last question. What would be your moratorium by value up to end May? And what do you expect it to be in the second phase?

Sunder, do you have a number?

It will be -- for the quarter June, it will be around INR 10,000 crores will be the moratorium that we are given and maybe a similar amount for the next quarter.

Sorry, how much? INR 10,000 crores?

Yes.

The next question is from the line of Kashyap Jhaveri from Emkay Investment Managers.

My first question is on your -- in your press release with respect to SEBI circular dated May 20, line #5 B says that we have applied for moratorium from banks for the loans that we have taken. Some of them are granted, and some of them probably we'll receive consent in some time. Whereas if I look at your presentation, the COVID-19 update says that we have serviced all interest and principal payments to banks and financial institutions on time. So is there a disconnect here? Or how should [indiscernible]?

In fact, when it came to the first moratorium announced by RBI, we didn't avail any moratorium, we had sufficient liquidity. So up to 31 May, we have not availed moratorium from any bank. When the second moratorium was announced for another 3 months, that is the time we thought we'll approach banks and seek moratorium. That is for the next 3 months up to August. So that -- then only we started approaching banks and around 8, 9 banks have given their consent for moratorium. So if -- up to 31 May, all liabilities have been met. Going forward, to the extent moratorium is granted, that will be further liquidity buffer which we'll be able to create when banks give their consent.

And let's say, even if the -- most of them, let's say, give a consent, do we still intend to sort of keep making payment despite having availed it? Like some of our borrowers, despite availing moratorium, have been paying us, right? So do we also intend to do the same?

Yes. So we will keep connecting to customers on a very regular basis. We are in touch with all customers. And as -- because vehicles are running, around 65% of the vehicles are running. And as and when they earn, they'll pay. So ultimately, it is earn-and-pay model. So they'll -- the moment they earn, they'll pay. So we'll keep collecting it. And it will remain as a prepayment in their account. However, all the settlements when the customer closes the loan, it is done on the IRR basis, contracts are IRR-based.

No, sir. Sorry to interject, but my question is different. My question is that like our customers have availed moratorium, but they are still paying you. You have availed moratorium from banks, but would you still be paying those installments to your banks in terms of [ excess liquidity ]?

I think that is some call we'll have to take in case the liquidity is good. As of now, many measures have been announced, and some measures are yet to take shape, particularly the partial credit guarantee, which has been announced, some of the SIDBI scheme, some of the MSME liquidity window, which have been announced. But if the liquidity comes out to be good under all the measures announced, then we will look at it, because as of now, we have liquidity buffers, which has taken care of liabilities till September. If liquidity further is good, that is more flow -- inflow is there, that time we'll take a call whether -- because anyway, there will be interest accrual from bank side also.

Okay. Okay. Second question is on your quarter-on-quarter drop in margins. What would have contributed to that drop?

It's mainly because of the derivative treatment of the -- for this overseas borrowing that we have done, wherein in the previous quarters, if you see, there has been some gains on the fair valuing of the currency. However, in this current quarter, if you observe that the dollar movement is -- has gone up substantially and we could not get any gains in accounting terms, and hence, we -- the interest cost seems to be artificially high compared to the previous quarters.

Okay. But we have this -- as I understand, our overseas volumes are completely hedged, right?

Entirely it is hedged. However, in accounting, there is some treatment which needs to be done, which has impacted the interest for the current quarter.

And the full [ 35 ] basis points impact will be this only?

Pardon?

The whole impact of -- on the margins on quarter-on-quarter basis will be explained by this currency movement only? Or is there anything else?

Yes. Apart from this, there is no other thing.

Okay. Okay. And one last question on the moratorium side. Can you help us with how many -- so you have already given data as to what percentage of people are already paying you, which is 52%. But if you can help us with how many of our customers have paid, let's say, more than 2 installments, 2 installments, 1 installment and 0 installment.

We don't have that off-hand. Maybe you can connect with Sanjay after the call. He will be able to help you.

And just one clarification on the previous question where you said moratorium by value of INR 10,000 crores. This is additional moratorium versus May 30?

Pardon, can you repeat the question?

There was one question on moratorium, where you said the additional moratorium will be about INR 10,000 crores.

Correct.

That is over -- that is incremental moratorium versus May 31 data?

Correct. That is the incremental moratorium. Even though we are [ giving ], it's likely that because the vehicles have started plying, so we should be getting a substantial amount of collection in the next 3 months also.

So on May 31, that amount was 50 -- sorry, 48% of the total loans. Is that -- or that was only in the terms of number of customers?

That is number of customers, 52% of the number of customers.

In terms of value, what would...

Value will be around 15% in the month of April and 30% in the month of May, which should substantially increase in the month of June.

So on May 31, 30% of our loan by value was under moratorium.

No, no, no.

70%.

No. See, we had extended this moratorium to the entire set of customers. However, we have been in touch with the customers, and we have been advising them if they have surplus money with them, they can pay the company so that they will save on the interest component. And heeding to our request, around 25% of the customers paid in April and the 50-odd percent paid in May. That is the number of customers that we are talking. Some people have paid part payments, some people have paid full payment. And in absolute amount terms, around 15% of the pre-moratorium demand was paid in value terms in the month of April and pre-moratorium due for May, around 30% was collected in May.

The next question is from the line of Sanket Chheda from B&K Securities.

Sir, my questions were answered.

The next question is from the line of Aakash Dattani from HDFC Securities.

Sir, I have a couple of them. If I look at, say, the split of your AUM over the last few quarters, so 2 trends, I sort of want -- if you could just elaborate on them. So it seems in absolute numbers continued to grow, although at a very slow pace, and tractors have dipped substantially. So could you sort of -- because we see other -- some other players, HCVs have degrown and people are talking about stress in that segment. So could you sort of explain your views on the same?

No. See, the tractors, we had around 3% to 3.5% of our total portfolio in tractor. That has not grown faster. In fact, we would love to grow faster in the tractor segment. And LCV, again, we are growing. In HCV, it's mostly because the ticket size being larger, it remains at a higher percentage in our total portfolio. The ticket size of HCV is 3 to 4x of the tractor or LCVs. Overall, the -- we have maintained the, what you call, segment-wise growth in similar way. Only in LCV, because of the higher agricultural activity, LCV is growing. And we intend to grow more in tractor also. Probably next year, we'll see some growth.

Okay. And so another trend that's visible, say, over the last few quarters is your increasing reliance on overseas borrowings. So do you sort of -- why would you -- so I think what would be the driver for this? And what is your sort of strategy hereon?

The foreign borrowings, earlier, it was for the minimum period of 5 years, it was relaxed to 3 years. And NBFCs are not allowed to borrow from the overseas 3 years back, and it was allowed. So once it is allowed and also when the minimum year -- term brought down from 5 to 3, we felt that that's a good opportunity for us to diversify our source because diversification is very important when we are -- you're quite large. And so we felt that as a part of diversification, even if it is a little expensive, we need to be there in the international bond market. So that was the reason we went ahead and borrowed from the dollar bonds.

I think one -- 2, 3 more opportunities also came up. One was reaching out to multi-let institutions. So we had borrowings from 3 of them, IFC, Proparco and OEB. That was apart from dollar bond graded, and also some ECA transactions, those export credit agencies from different countries, where we had the opportunity to borrow from them also. We will continue our dialogue with multi-lets and other agencies apart from dollar bond, which will be 1 or 2 in a year. But the other development institutions will definitely be engaged for our kind of customers what we deal with, which are fulfilling their norms of social objectives or ECG -- ESG norms. So wherever there is an opportunity to reach out to multi-lets, we'll keep our options open.

Okay. Sir, you mentioned 2 other organizations after the IFC, I didn't quite hear those actually. So if you could please repeat them.

One was Proparco and other was OEB.

Okay. Sir, and you mentioned also that you'll borrow from export credit agencies. So how would that exactly work?

So if you are doing a particular asset class of a particular country, that the agencies look at growth of their companies, export that come to India, and they fund that. So that has been a feature with many of the agencies. One transaction which we did was with an Italian manufacturer for their assets in the country. And incremental borrowing also can be there from them based on volumes what we do for Piaggio and other Italian.

The next question is from the line of Umang Shah from HSBC Securities.

Just a continuation on overseas borrowing, what's the headroom that we have on borrowing in FY '21?

In fact, RBI permitted limit is $750 million for a financial year. That is -- for every financial year, you can borrow $750 million. The entire limit is available for the current year. But in the past, what we have seen is if you're able to exhaust this $750 million, this is automatic, I mean you can always approach RBI for further limits. And based on RBI's permission being granted, you can actually then borrow more. But $750 million is a limit what RBI has fixed for any corporate.

All right. Sir, my next question is if you could just share your outlook in terms of regions where we have opened up our branches, some initial feedback from customers or the kind of inquiries that we are seeing because in general, the view is that the demand for used vehicles may remain a bit resilient compared to other vehicle segments. What would be your view on the same or some initial feedback?

You're right. In fact, the -- all the demand or inquiries today are coming from the rural market. And the rural market people normally prefer secondhand vehicles. And therefore, the inquiries levels are high. Even we have seen some, what you'd call, vehicle exchange that has happened recently, buying-selling activity. Most of the buyers are from the rural market. So there's a good demand from the rural market. And we also feel that harvest being the highest in the last year -- last harvesting period and the state governments and [ central ] governments have purchased most of the -- procured most of the food grains, and they released only part amount. The other part of the amount to be released yet. So once the government releases the full amount, people would have reasonably more cash and their ability to buy and own the assets would be much better. So the tendency will be more towards used vehicle and rural market will be the first to start buying the vehicles. Post September, once the infra activity starts, I think the urban market also will start improving.

And sir, lastly, we have built up a good buffer in terms of our Stage 1, Stage 2 provision cover. We are already at 3.1% of our non-Stage 3 assets. Would you have any outlook on how the credit cost may look like in FY '21? I know it may be a bit early, but any early assessment that you would have done on your portfolio?

See, we have already factored it in our ECL calculation. So it's already moved to -- from average of 2% to 2.43% in the last quarter itself. Further increase, we don't really foresee much, but if the COVID-19 continues to remain and activities remain a little subdued, it may go up -- maximum up to 3%. It is what we feel. Then it will come down again because if you see in the past cycle also, it has gone up beyond -- near to 3% and come back to 2%. So we should be able to maintain in the long run average of 2% credit cost, even though temporarily, it may go up from present level to maybe up to 3%, but we are confident of maintaining -- containing it at around 3%.

Great. And sir, last data point, what quantum of your loans securitized in 4Q?

INR 2,369 crores.

INR 2,369 crores.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

To start on an optimistic note, it's good that 65% of the customers are on road. I've also learnt the art of grouping many questions in the 2-question list. So first, I'll ask on liquidity. You had said about the number of customers who have -- who are paying, like 52% was a number, but let's say, you were to receive INR 100, how much are you actually receiving in terms of amount? And the related question is on the liability side now. In terms of FD, because your SLR book is the same, does it mean that the FD is still at around INR 11,000 crores which we saw as at March end? Or has the FD amount decreased or increased?

Now fixed deposit is around INR 11,000 crores, and 15% of it is the SLR. So the first question, I did not get fully. Okay, 52% of the customers, on the value terms, it would be around 30%.

Okay. So if you are to receive INR 100, you're receiving INR 30. Would that be a rough...

Yes, yes, INR 30 to INR 40, around that, yes.

Okay. Excellent, sir. The second question is around capital. And the most often stated is -- statement have said, never use -- waste a good crisis. You were looking -- your capital adequacy actually already looking quite strong at 18%, but yet you're raising more capital. Alternatively, there are also plans of merger with SCUF, which is sitting on excess capital. Is there any chance that you would look at that or strategically look at a strategic investor like you've done in the past, including maybe even conversion into a small finance bank or a bank?

See, none of those bigger plans are discussed now because we want just to go through or sail through this phase. So all other plans are in the pause. And we never had a banking ambition. So we have not discussed anything as far as banking is concerned.

Okay, sir. But the capital raise is something you'll go through with?

Capital raises, we have not discussed this in this Board meeting. It was not a part of the agenda.

The next question is from the line of Saurabh Dhole from Trivantage Capital.

A couple of questions. Firstly, under the ECL methodology, I wanted to understand this a little better. When you do not have a precedent for such an event and there is no past history of a portfolio performance under such circumstances, how do you then arrive at the PD and LGD assumptions that you have used for this quarter?

See, there are certain models given by the rating agencies that we have factored and also based on the moratorium -- and there are other international reports also which we could get access to. So those have aided in our decision making. Plus at the ground level also, we saw the customer behavior even in spite of the moratorium, how many people are paying and pre-moratorium, what was their stand. So all those factors are built-in in the logic for increasing the PD and LGD.

Okay. Okay. And sir, secondly, are there any -- so you said that in the first round of moratorium, about INR 10,000 crores was the moratorium by value, right?

Yes.

So when you say that incrementally, INR 10,000 crores gets added in the second round, are there any borrowers who are coming out of the first moratorium who have not decided to pursue or go for the second round?

See, some people have communicated that they are not interested in the moratorium. And even many people who have taken the option of the moratorium, in fact -- see, we didn't have the concept of opt-in and opt-out, which other companies and banks are giving. We had en masse given to almost all the customers. However, we're again in touch with the customer -- borrowers, and then we have been advising them that in their interest, if they have got surplus funds, it is better to part those funds and repay the borrowings so that they save on the interest cost. And taking into account all those things, as we said, around 52% of the customers have paid in May, and we are hopeful that this percentage will further improve. And similar trend will be witnessed in the next quarter also. So even though the INR 10,000 crore moratorium has been given, we expect that many of them will not be exercising it.

But that time period for -- by which they had to inform you whether they want to go for the second round or not is already passed, right, because it starts on 1 June?

See, it is not -- see, even if they avail also, they will repay the installment. And it will get -- they -- according to [indiscernible] concept. So even if they pay, it gets to the creditor's account and they save all the interest. So ultimately, they will not lose anything.

So let us understand our customers. First of all, we have to understand our customers. If a customer is buying a vehicle for making his livelihood, he also is making an investment into the vehicle, and he would like to earn on the investment. If somebody is taking a INR 5 lakh -- vehicle worth INR 5 lakh, he invests INR 1.5 lakh and borrows INR 3.5 lakh, and he would like to repay in 3 years. And at the end of 3 years, his expectation that vehicle value from INR 5 lakhs would have come down to between INR 3 lakh to INR 3.5 lakhs. So he would sell it. That means on his investment of INR 1.5 lakhs, after repaying the loan, after making his livelihood, he will make a profit of INR 1.5 lakhs. That vehicle value is INR 3 lakhs, his investment is INR 1.5 lakhs. That is how the calculation is made by each and everyone who comes into this business. Sometimes he may earn a little more or sometimes he may earn a little less if the maintenance is more -- diesel value is less. Instead of selling the vehicle for INR 3 lakhs, he may sell it for INR 2.5 lakhs. And again, that INR 2.5 lakhs, he'll reinvest into the business. Every 3, 4 years, they keep buying, and they reinvest into the business. While reinvesting in the business, he may buy 2 vehicles or he may buy 1 vehicle, which is of higher value. That's how the individual operators come into the business, make his livelihood and repay the loan. So his interest would be always to repay the loan as early as possible, not to delay as much as possible. Delaying and keeping the cash with him is not going to help him at all because paying it fast and realizing the value of the vehicle is the interest on which he comes into the business. And since we know our customer well, we keep advising him, whenever you have money, keep paying, whether it's a part or full. So that is the encouragement we give. Ultimately, he wants to clear the loan as early as possible. That is the fundamental of our customers.

Right, sir. Got it. And just, sir, one last question. If you remember this, would you know what was the ultimate write-off of the portfolio which was made because of delinquencies arising out of demonetization?

Demonetization, we don't have numbers right now. Sanjay will give you the numbers.

Any rough number would also do.

See. If you look at our credit cost, our credit costs had gone up by around 50 basis points around that time. And that is the estimation I can give you.

The next question is from the line of Rajeev Agrawal from DoorDarshi Advisors.

My first question is you mentioned that company has extended moratorium to eligible borrowers. Now what does company define as eligible borrowers?

See, it has been given to almost everyone but for certain chronic defaulters or willful defaulters. So we have identified certain customers and we have removed those customers from it. And other than that, we have extended it to almost everyone.

And so what percentage would that be approximately?

Around 95%, 96% should be the customers to whom we would have given.

And would you be able to give a sense of what is the LTV of the portfolio, especially by different categories that you give out...

LTV is -- see, we were lending at 70% LTV till 2018. Post 2018 October, our LTV reduced to 65%. So we have a portfolio which is between 70% to 65%.

70% to 65%. And this is across all the used as well as the new? Or...

It is mostly for used. New, the LTV will be a little lesser. It will be around 75% to 80%. It can be higher.

Okay. Got it. And what percentage of our customers actually are able to utilize their vehicles now? So would you have the utilization rate at this point for our customers in May? And how has it changed in June?

See, to start with, it was around 30% of the customers who started operating the vehicle even in the month of April. May, it has increased to 50%. And by the end of May and beginning of June, 70% of our customers are able to use the vehicle. The only interstate vehicles are not being able to operate fully because long distance vehicles, there are some challenges because, one is they are not sure about the wayside facilities in case of emergency requirement. Therefore, there is some reluctance, and also the industrial activities are not fully started. And therefore, not many freight also is available. And the other segment which is hit badly is passenger transportation, especially the taxi segment, which is around 3% of our total portfolio, Ola, Uber taxis and city taxis, there has been challenges. But the other passenger transportation like rural area local transportation, that has operated. Green zone has been allowed to operate. So there, the operations have started. And nongreen zones, there are some restrictions. From June 8, from this Monday, I understand that they have allowed Ola and Uber to operate in many of the cities. Mumbai, it is not fully operational, but still 30% to 40% of the vehicles are running now in the city for passenger transportation. I feel by June end, all vehicles should become operational as the activity picks up.

Got it. Got it. And given that the rural economy is doing so well, I could not understand why your tractor portfolio has not picked up. Can you explain that again, please?

See, tractor portfolio -- no, no. See, tractor portfolio, what we have, when we are talking about growth in portfolio, it is about the full year performance. And the agricultural activity has picked up maybe in the last 7, 8 months. So we are witnessing demand coming from the tractor. But as a portfolio, it will not make a big difference because out of 100, 3% is our tractor portfolio, and it is remaining around 3%, maybe plus and minus 10 or 20 basis points because the tight -- the ticket size being small. We finance only used tractor, not new tractor. Therefore, the ticket size is only INR 1.5 lakhs per tractor. Therefore, we had to do lots, many numbers of tractors to increase their percentage in the overall portfolio.

Okay. So when I see incremental, it has come down from 3.1% in Q3 to 2.9% in Q4...

I agree. It will do well. It will definitely do well.

Is there any sort of structural reason why it has not grown? Or it's just one-off, there is no specific reason for it?

There is no reason as such. But the -- I feel the -- if we had focused on new tractors, probably we would have -- ticket size would have been larger and would have grown. But we have remained on used tractor only. We have not gone into new tractors. That could be the reason.

Okay. Got it. And then can you talk a little bit about your incremental cost of borrowing? And also if you can break it down by public deposits, securitization and bank volume? How is the cost of borrowing moving across those 3 segments and overall?

On public deposits, we have activated all our branches now. Earlier, branches were not sourcing deposits. And we hope that public deposit will grow in the current financial year. And rest of it, Parag will answer.

For deposit also, we have reduced our rate. So retail deposit also, rates have been reduced by around 30 to 40 basis points. And when it comes to borrowing from different sources, banks have also reduced their lending rates. So incremental cost is between 8.5% to 9% when it comes to 5-year borrowing what we have done, which used to be around 9.25% to 9.5%. So there is some savings there. When it comes to securitization, the volumes have been -- it has been low because now on-lending is permitted as priority sector shortfall can be fulfilled by banks by doing on-lending. So that banks will take that as a preferred route rather than doing securitization. And that will be equivalent to the regular term loans what banks used to offer. So securitization because of credit enhancement and [indiscernible] will be slightly lower. It should be at a slightly lower rate. On-lending will be a regular term lending rate, which will be between 8.5% to 9%.

Got it. And public deposit is less than 8% for you?

Yes, it starts from 7.6%.

And sir, just one clarification I had was, given that you have a good brand image, why won't you want to raise more money through public deposits and keep the rate a little high? Anyway, many of them, we have seen they're struggling raising money. So why wouldn't you just want to raise more money through public deposits?

Yes. As I said in the beginning, that is the plan. We did have separate output and outsourced activity, deposit. It was not done internally at the branch level. Now we have trained all the branches, especially during the COVID time, we have trained the branches on deposit product. And we have relaunched it in all the branches as we opened all branches. And we expect the deposit to gather momentum. And you are right, we should be focusing on our deposit. And as far as the cost of deposit and the distribution costs, earlier it used to be a little higher compared to the wholesale product rates. So now the rates are better because banks have lowered the rate, so we can also lower the rate. Now it's very competitive. So next 1 year, we should be able to see good progress in our deposit portfolio.

Got it. And then my last question is, if you can just break down your assets between Stage 1 and Stage 2, how much of Stage 1 and how much of Stage 2?

As on March, the Stage 1 percentage is 80.43%, Stage 2 is 11.21%, and Stage 3 is 8.36%.

The next question is from the line of Vibha Batra from FairConnect.

Actually, my question is on this emergency credit line guarantee scheme. What's your view? And are you planning to avail that, sir?

That is 3 months, very short. So it is -- I don't think we'll be able to -- well, that even if we avail it, we don't have product which is for the short period.

No, no, no. The scheme is for your borrowers -- sorry, I put it wrongly. So basically, you can extend working capital loan to the extent of 20% [ on ] loan?

That is -- you're talking about MSME loan, INR 3 lakh crores?

Yes, yes, yes.

Yes, yes. That we are applying. And we are looking at the fine print and guidelines. And already, we have approached the SIDBI for that and also put through some banks. We should be able to avail. We have some application already in the pipeline. We should be able to have something on that.

And what percentage of your borrowers would be eligible for this scheme?

Around 20% to 30% of customer would be eligible for working capital.

Okay. Shouldn't it be higher because as long as that loan is in the name of company -- okay, so most of your loans will be in individual's names?

Individuals, yes, yes.

Okay. And I had a particular question, maybe your team may have applied, that in terms of recovery, because your loans are all secured against the vehicle, that working capital is unsecured. And it's a 4-year tenor loan with a 1-year moratorium on principal. Looks like that it will give some relief to the borrowers. At the same time, recovery, whatever you get through the sale of vehicles, if it goes to repo and other things, it should possibly be yours and not delegate it to government. But there is a lot of confusion on priority of claims. So any thoughts on that?

The repossession is the hardly 1% of our portfolio. We have not applied our mind on how it will think because when only 1% of our portfolio is repossessed, how to share it with government is something which is too early to decide or discuss.

Sure. Sure. And your Stage 3 coverage, you've not really changed, it's 34%. So does that mean that from harder assets, your assumption on recoveries remain the same despite this very challenging time?

See, every year, we reassess the LGD and PD numbers in the month of March. And this time, when we were doing it, we generally take this exercise in January, February. And when we had assessed that, in fact, it had a positive impact in both PD as well as LGD. However, taking into account the COVID-19 situation, we again reassessed, and there was a marginal increase in spite of COVID. So whatever, 10% -- 10% to 15% was increased in -- because of the COVID, some component was offset by the positive trend that happened till February.

Okay. Okay. But the situation is quite unprecedented. So I think what you get out of models, they may not be very relevant and the judgment that you have on the ground, which has been your strength, I think that needs to be mapped.

What you say is correct. However, we are confident that whatever we are providing is more than adequate at the current point of time.

The next question is from the line of Love Sharma from Lombard Odier.

I just wanted to have a quick follow-up on some of the questions. Can you elaborate within some of the AUM segments that you have, specifically the passenger vehicle segment, you elaborated about the taxis being about 3%. The remaining is buses, I would believe. And if you can give a sense of what kind of capacity utilization you see there. First question. And secondly, I think on -- can you give a broad sense of where do you see pain points within the asset portfolio? You also have some of these working capital or short-term loans to some of your customers. And like you mentioned, the interstate vehicles are still struggling. So is that something which you expect to persist given the slowdown in the economy? Or do you expect it to recover almost fully, let's say, from June, July onwards?

Yes. The passenger segment, the taxi segment in the red zone areas are still not operational. So that is some area where we feel it will take some time. But however, now the government has announced -- so they have announced that only 2 passengers can travel and the pool taxis are not allowed. And that will create -- as economy starts picking up and all the offices start working, people may prefer more of, what I should say, the individual transportation rather than the public transportation. So therefore, I feel that portion will start improving in the month of June, maybe towards the second half of June. And other passenger vehicles are factory buses or rather the company buses or the school buses. Schools are opening from July. So we feel that the school buses, even though there's not much of a payment issue with the school buses, that will again start improving. And we -- again, as far as the staff transportation, we, ourselves -- Shriram, ourselves, are using around 14 buses every day for transporting our staff instead of using the mass transportation. That was not -- [ metros ] are back working. But even we would like to continue the use of buses for our employee transportation for the sake of hygiene, and many of them will follow. So that will create a bigger demand for passenger transportation. In the rural area, green zone, there is no challenge as far as the passenger transportation is concerned. I don't think there will be any challenges there. The other pain points would be interstate, long distance truck movement. That is to pick up for the fullest extent. But I think as the -- all manufacturing and factories start opening up with more than 50% staff, then automatically, the demand for the trucks would improve. And one advantage our customers would have it, they are not dependent on drivers. Most of them drive themselves or their own friends or relatives. So the shortage of drivers, which is one of the reasons for many of them not operating, is not the reason for our people -- our customers not operating. So they should be in advantageous position as far as the operation is concerned. So I think by June end, we should see every one of them start operating. And once they operate, we are confident of the collection being good.

I understand. So on the intercity vehicles who ply interstate trucks, what would be the proportion of the total AUM?

That will be for us around 10% of total portfolio.

Of the total portfolio. Understand. And how about the working capital loans, et cetera, business loans, if you can throw some light there, what do you see?

Yes. The working capital loans are basically given for running of a vehicle, if somebody wants to replace tire or fuel credit, so they all actually have security. They are not unsecured in that sense because it is given for operation of a vehicle. So only the business loan, business loan is also secured by mortgage of property. So none of the business loan is without any mortgage. So overall, all our portfolio are secured, and unsecured portion is negligible.

Understand. And could you -- just last question, in terms of the collections you're seeing currently from your -- the business loan, working capital loan customers and also these interstate vehicles, could you give some granular details? How much of collections have you seen so far from these customers?

See, basically, the customers who are able to run their business on essentials and perishable goods, they were quite comfortable. They could easily pay both in April and May. And others where you have some credit period for getting money, even though you get some advance, balance amount is paid after a credit time of 15 days to 30, 45 days, that takes a longer time. So I understand that many of these manufacturers or shippers, there are some delay in payment because they are not fully operational. Their offices are not working fully. So therefore, the long distance transportation has certain challenges. But I think once the activity picks up, once all the people -- all employees start coming, all these will be addressed. So I think by June 15, we should see a fair amount of good activity. And by June end, we should see that all bottleneck goes away -- go away.

Understood. And just one more, I think, on the liquidity side. You mentioned INR 4,000 crores of debt, which is due in the second and third quarter going forward. Does that include any expectation of moratorium, which you have requested from the banks? Or is it the total liability...

This is total liability.

Okay. And in terms of -- you mentioned there are 8, 9 banks who have sort of given the consent for moratorium. Could you elaborate what kind of amount would that lead to?

No, no, I don't foresee a reason why others will not agree. It's a matter of time. I think everyone will agree. All banks will agree. In value terms, it will be around INR 2,000 crores, which is falling due, which -- where we should be able to get moratorium.

Okay. So INR 2,000 crores for the next quarter?

Correct.

Ladies and gentlemen, that is the last question. I now hand the conference over to Mr. Umesh Revankar for his closing comments.

Thank you. As we discussed, we are in one of the difficult phase of the -- our, what I should say, economy and plus overall on health and activity-wise. We hope that now onwards things start looking better as country has already opened up in most of the location other than containment zone and restrictions are removed and shops are allowed to open. I think the activity will come back soon. But most of the activities would be resumed in full operation by August and September. Thus, the monsoon being predicted normal, we should see a good demand coming back for credit and also improvement in collection in August and September. So we are confident and hopeful that next quarter, that is the July to September quarter, would be a strong quarter. But March to June may be a little slow and weak quarter, but we have made enough provisions and enough precautions to manage the current quarter. Thank you very much. See you again.

Thank you. Ladies and gentlemen, on behalf of Shriram Transport Finance, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.