Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shriram Transport Finance Q2 FY '21 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Umesh Revankar, Management Director and CEO, Shriram Transport Finance. Thank you, and over to you, sir.

Thank you. Good morning, friends, and good evening to those who joined from western part of the world. A warm welcome to all of you who joined this call. I hope all of you are healthy and safe. Joining with me today are Mr. Parag Sharma, CFO; Sunder, Executive Director; Sanjay, who is our IR Head. The government has -- I'll start with the economic update and environmental update, then we'll go into results. The government started unlock from July 2020, with the successive unlocks each month. Under the Ministry of Home Affairs and National Disaster Management Authority guidelines, lockdown measures were continued only in containment zone. Curfew was imposed only at night from 10 p.m. to 5 a.m. in all areas. State borders were reopened. Interstate and intrastate travel were permitted. Shops were permitted to allow more than 5% at a time. Most of the activities were allowed in noncontainment zones, except entertainment, recreation, gathering and education institution. In August, the night curfew were removed. And in September, metro rail services were allowed and social gathering with some limitation were allowed. The government continued its -- the reform measures to ensure the Indian economy pick up pre lockdown pace. The government helped rural economy through various packages. In August, 8.5 crore farmers were paid around INR 17,000 crores under PM Kisan Yojana. The Parliament passed 3 agriculture related bills, which included several reforms, including unrestricted sale of farm produce, enabling contact farming and removal of stocking limits on traders for a large number of commodities. These bills are expected to boost agricultural productivity and increase transport of farm produce both at the interstate and intrastate level. The private corporate sector participation would bring in fresh capital for cold storage and entire supply chain part of it, which shall give boost to rural infrastructure and income [ intimating ]. The agriculture sector posted a growth of 4.3% in Q1 FY '21 despite overall negative GDP growth in the said quarter. In manufacturing, the pace of contraction in Index of Industrial Production, IIP, moderated compared to previous months, being a minus 10.4 and minus 8 in July and August, respectively. However, optimism was witnessed reflecting this restart, on account of which, several numbers turned positive. The manufacturing Purchasing Managers' Index, PMI, reading in August and September rose above the expansion mark of 50, being 52 in August, 56.8 in September, which was highest since January 2012. The GST collection for the month of September 2020 saw positive Y-on-Y growth of 4% to INR 95,480 crores. The recent amendment in labor laws is expected to help manufacturing enterprise to scale up their productivity. The government also announced tax incentive scheme amounting to INR 5,600 crores to government -- central government employees to buy specified goods in lieu of LTC till March '21. It also provided state government an interest-free 50-year capital expenditure worth INR 12,000 crores. Further, it increased its own FY '21 tax target by INR 25,000 crores on road, defense and urban infrastructure. The RBI took forward-looking approach in its amendments, announcements and policies under revised priority sector lending guidelines. It announced higher PSL weightage to incremental loans disbursed in low credit flow districts. The targets for lending to small farmers were increased and new categories of renewable energy plants used in agriculture were included in PSL criteria. The [ food bin ] production for -- the [ food bin ] production of our [ carried ] crop estimated to be higher by 0.8% at 1,445 lakh tonnes till September 2020 due to increase in 4.6 in overall area zone. Overall, agricultural activity looks quite vibrant in India, and especially since 58% of the population, their livelihood is dependent on agri and allied activities. It is also among top 15 leading exporters of agriculture produce across the world. Now I come to auto industry. The commercial vehicle sales fell by around 20% to around 133,524 units in Q2 FY '21 on year-on-year basis, a smaller contraction compared to 85% fall witnessed in Q1. LCV had a smaller fall of 3.5%, whereas M&HCV had higher fall of 40%. Overall commercial vehicle industry is expected to contract by around 27% as per the estimate for year 2021. The small road and individual truck operators, which formed major portion of the truck operators, they're able to restart their business and conduct their operation in a stable manner on account of their focus on essential item transportation. The CVs have a multiple application like transportation of agri produce, both perishable and nonperishable, poultry, fisheries, FMCG, consumer durables, industrial goods, both raw material and finished goods, mining activity, infra and construction. All of these activities have begun the operation. We are able to witness that in the month of September. Most of them were able to operate, earn and make the -- even make the payment. The only segment that is still not fully operational is passenger transportation that is basically city transportation, travel tourism and staff transportation and school transportation. These are a very minor portion in our overall book, which is around 3%. We have identified this for restructuring. However, we expect the total restructuring by December would be around 2.5%. Now I come to the operations, business operations of Shriram. On the operation front, all our branches continue to operation -- operate peacefully. We did add 26 branches, which were kept pending due to lockdown in the month of September. So the total number of branches now stands at 1,784. The urban branches are 223, semi-urban 585 and rural are 976. The rural definition, we have gone by RBI definition, which is less than 1 lakh population. And the semi-urban is between 1 lakh to 10 lakhs. So around 12% of our branches fall in the urban. Rest everything is either in semi-urban and rural, which has a strong agri connect in their economy. The disbursement were quite good, I should say, compared to Q1 because September, our disbursement were on par with the pre-COVID level. So total disbursement were INR 6,463 crores for the Q2. And 90% of the disbursement were in the rural and semi-urban area. Coming to the key performance number. The AUM was INR 113,345 crores against INR 108,000 crores, which has increased by 4.5% on a year-on-year basis. The net interest income was INR 2,021 crores as compared to INR 2,056 crores in Q2. Profit after tax at INR 684 crores compared to INR 765 crores. However, when we take the previous year's figure, there was a tax advantage that is a reduction in tax by the government so we could add the Q1 and Q2 advantage into Q2 of last year. So the -- I should say that the PAT numbers were on par with last year's second quarter number. The EPS was INR 27.79 as compared to INR 32.86. The net interest margin expanded by 24 bps on a Q-on-Q basis to 6.66 from 6.42 of Q1. The ROA improved to 2.22 from 1.06 on Q-on-Q basis. And year-on-year basis, it was 2.67 the last year in the second quarter. ROE is 14.24 against 7.09 on a Q-on-Q basis. The credit cost improved in this quarter to 2.12 from 3.52 on Q-on-Q basis and 2.31 on year-on-year basis. Overall, collection improved in Q2 with total number of customers paying either full or part EMI, being 78% in August and 95% in the month of September. On NPA classification, the honorable Supreme Court in a public interest litigation, write an interim order dated September 3, 2020, had directed that accounts which were not declared NPA 'til 31st August, shall not be declared NPA 'til further orders. So gross NPA, net NPA as on 30th September stood at 6.42 and 3.64, respectively as against 8.8 and 6.15 as of 30th September 2019. However, certain accounts have been classified as Stage 3, and provisioning has been made accordingly. If the company had classified borrower account as NPA under 31st August 2020, the gross NPA and net NPA would have been 7.26 and 4.51, respectively. Our liquidity position stands at INR 10,891.47 crores as on August 28 as compared to INR 9,686 crores as on August 12, 2020. Hope you have already received investor update. Now I request Parag to give update on liability side followed by Sunder on accounting part.

Parag here. I'll be covering liquidity and the fund position. So for the quarter, total fund mobilized by the company is INR 7,200 crores, out of which INR 1,500 crores is by way of term loans and INR 4,000 crores by way of securitization and assignment. The rest will be some capital market improvements and retail deposits. Thanks to the liquidity and the several schemes announced by Reserve Bank of India and government initiatives, overall funding support had been good, be it partial credit guarantee, TLTRO or special liquidity window infused through institution. Overall, funds mobilized under partial credit guarantee scheme has been in excess of INR 2,000 crores coming from around 4 banks. And SIDBI liquidity facility, we mobilized INR 350 crores. And under TLTRO, mobilization has been slightly low at around INR 200 crores only. When it comes to the cost of fund, the incremental borrowing rate is around 8.75%. But since we are largely dependent upon long-term funding source, the blended cost as of September will be in excess of 9%. It will be around 9.2%. With collections improving now, that is adding to further liquidity buffer. And disbursement will pick up. And at that point of time, we'll be looking at further borrowing. On ALM front, we have been very comfortable. We don't rely on short-term sources, and all buckets, up to 1 year, have been always positive and continue to be the case even in September. We have activated our branch network team now for retail deposit mobilization, and that has picked pace. We are now getting around [ INR 250 crores ] net accretion to our deposits from our -- in our deposit front. And that is likely to go up. We do target to touch retail deposits of 20% of our liabilities over a period of time, currently we'll be at around 13%. With incremental borrowing costs coming down, we do expect that by March '21, overall costs will come down by around 25 basis points. I think that is all from my side on the liquidity front. I'll give it to Sunder for the accounting update.

Good morning. A couple of data points, which I thought is relevant to add to what Mr. Revankar and Parag has already spoken. One is on the interest income, there is an upfront the booking of income on one particular assignment amounting to INR 68 crores, which was not there in the previous quarters. Previous quarters, it was more of a deferred income of INR 4 crores. And the operating expenses, it has gone up compared to the previous quarter by around INR 100 crores, primarily because of the incentive being provided for the staff based on the performance, which was not there in the June quarter. And also due to opening up of most of the -- all the branches, the expenses have gone up. However, the cost-to-income ratio continues to be low at 21.7% compared to 23% in the previous year. And as Mr. Revankar already has briefed on the gross Stage 3 being reduced to 6.42, thanks to the Supreme Court decision interim order. However, even if you remove that and see the gross Stage 3 has improved compared to the previous quarter of 7.98. So it has come down to 7.26. On the PD LGD numbers, on Stage 1, the PD that we are currently recognizing is 7.48% as compared to 7.5% in the previous quarter. And on Stage 2, the PD is 23.19% compared to 23.8% in the Q1. And the LGD that has been applied, factoring all the COVID-related things are 39.45% compared to 39.22% in Q1. And the company also has -- is currently ascertaining the impact on the difference between the compound interest and the simple interest, which has been announced by the government on Friday. And we feel that there'll be no impact on the financial as the same will be fully reimbursed by the government. And coming back to that Supreme Court order -- interim order, we have taken an additional hit of INR 300 crores in spite of that not being classified as an NPA. However, we have considered that as a Stage 3 and have taken a hit of INR 300 crores. And these are the few points that I thought was relevant. We'll...

Yes, now we will take the questions.

[Operator Instructions] The first question is from the line of Sanket Chheda from B&K.

My question is on collection efficiency number that you just spelled out, that 95%. So is it 95% by number of EMIs or it is just against the billed amount and whatever you have received? What I mean to say, some customers may have paid more than 1 EMI, and hence, the actual nonpaying pool could be higher. How to read this number?

It is purely billed versus collection. So the collections will include previous arrears, opening arrears also. But that's how we used to look at the numbers even before the pre-COVID level.

Yes. So can you provide me the number in terms of the customers who have not paid a single EMI for the first 6 months and then September also. So how much that will account for as a percentage of our AUM?

See, during the 6 months moratorium, as you are aware that we had offered close to 90% -- more than 90% of the entire customer base. And out of which around 4.5% of the customers however had not paid even a single installment during that moratorium period, which contributes to around 1% of the AU. However, some of them have started paying in the month of September, October -- September and October. But during -- if you go by the 6-month moratorium period, 4.5% of the customers had not paid.

Okay. So right now, also, the pool remains about 4.5%, wherein there is no EMI?

No, some people have paid in September and October out of that, 4.5%, some people.

Okay. So it is even reduced from 4.5%. Okay. And sir, on growth front where we see ourselves for FY '21 in terms of disbursements, that currently just fell below 50%. Pertaining coming 2 quarters, how do we see growth momentum?

The disbursement should be at the previous year's level, so around INR 12,000 to INR 13,000 per quarter should be disbursement for next 2 quarters. That should result in AUM growth of around 5% to 6%. So it will be almost on par with the last year's growth. And this growth also includes the postponement of the EMI because when there is extended -- because of moratorium, when it get extended, the AUM does not come down. So to the extent, there is a growth that is coming out of postponement. So overall, it will be 5% to 6%.

Okay. And lastly, sir, do you see the need of any elevated provisioning in Q3, Q4? Or do we feel that whatever we have provided so far is adequate?

It's quite adequate because we have provided a little more. Even when we take that Supreme Court order into consideration, there also where it has moved to Stage 3, even though we have not classified that as NPA, we have already provided. So I don't think we need to provide anything more.

Okay. So our Stage 2 assets have always been on quite a higher size, and against that, the nonpaying pool which you mentioned seems quite low. So it's been not wrong on FY '20 annual report, your Stage 2 asset were about 11%. We don't disclose in 1Q. So where it stands now, Stage 2 assets?

Stage 2 as on September 30th is 11.65%. If you go strictly based on the Supreme Court order, the breakup I'll use, Stage 1 is 81.93% of the assets; Stage 2 is 11.65%; and Stage 3 is 6.42%. Supposing if we don't consider the Supreme Court order, the Stage 1 will be 81.58%; Stage 2 will be 11.15%; and Stage 3 will be 26 -- 7.26%.

The next question is from the line of Alpesh from Motilal Oswal Financial Services.

[Technical Difficulty] Sir, just a clarification, Note #10 regarding this hedge accounting. So it has no impact on the reported margins, right? And this quarter, there is a mark-to-market gain of INR 27 crores, which has been routed through OCI.

Correct. So the hedge accounting does not have an impact in the P&L. It is routed through the OCI. So across quarters also, you will not find that movement because of these hedging instruments.

And it has no impact on the reported margins which has gone up by around 25%.

Correct. No, it has got no impact.

Okay. That's first. Secondly, now, what's the view on the liquidity because we, for a long time, we have been carrying excess liquidity on the balance sheet. So now do you plan to reduce it to 5%, 6% normalized level or do you plan to keep it at around 12% of the borrowings?

Liquidity, we'll be keeping at higher level until March because that's what the Board has suggested us. So we'll be a little cautious and as things pan out, then we'll reduce excess liquidity.

Okay. And how about the securitization, this securitization plus assignment around 23%, do you plan to increase it to whatever, 27%, 28% in the coming quarters or remain at same parameters?

No, we are not look at increasing that. That was largely to do with the partial credit guarantee schemes and all, so because of which there was more mobilization. The private sector benefit is available for regular lending term, lending by the banks also. I think it should move to regular term loans rather than securitization when it comes to fresh borrowing from public sector banks.

Okay. And the last question, does the QIB plan still stands because the asset quality has panned out much better than the expectation. So what we were expecting for QIB in the second half of the year. So does this thing stand or we may look at in the future quarters?

QIB, we may not be rushing into it anytime now because we also would like to see the sign of growth in the economy. So if the growth expectation is very high and if the GDP growth comes back positive very fast, then we will look at the further increase in equity. Otherwise, we are not rushing into it.

Okay. And if possible, there is a statement in the presentation I think you have given the month wise collections from the number of customers. If it's possible, can you give the same number in terms of the value or the value or the amount that you have received on a month-wise basis in terms of collection efficiency?

Collection efficiency.

That we have already shared, if you recollect, in the month of August, it was 59%. In the month of July, it was 53%, and June, it was around 50% in value terms.

So the same number you are mentioning right now is around 95%, but that would -- it would include the 1 or 2 -- 2 EMIs may have been paid by the same customer?

But it will be very, very less people. So approximately, if you look at volume-wise, it will be almost similar lines. Volume and value-wise, it will be similar in the month of September.

Okay. So 95% people have already started then coming [ third quarter basis ].

Yes.

The next question is from the line of [ Manish Jain ], an Investor. [Technical Difficulty] We take the next question from the line of Oon Jin Chng from HPS Investment Partners.

Good quarter. Quick question for me. Just to understand, I see that you've taken additional provisioning for the COVID-19. Your numbers are pretty strong, especially the collection is improving, as you mentioned. So can you give a little bit of color in terms of the rationale or the thinking, why did you increase the provisioning in this period? And if I heard you correctly, you don't see additional provisioning required in the coming quarters, is that correct?

Yes. We don't really anticipate further provisioning requirement. This additional provision we have done as abundant caution. And we feel that we are fully provided for the -- our business as of now. Because unless there are some changes in the COVID situation, we don't really anticipate further provisioning. Meanwhile, I would like to also inform that Board has recommended interim dividend INR 6 per share because since we have come back to the business as usual, and we expect a normal disbursement and collection in the next couple of quarters.

Noted. And just on that note, you -- if I heard correctly, the disbursement in the Q2 was about INR 680-plus crores, is that correct?

No, INR 6,486 crores. It is around 50% of what it was last year, INR 6,486 crores.

INR 6,400 crores. And the normalized level is INR 12,000 crores to INR 13,000 crores?

Yes, you're right.

Crores.

And you and you're expecting to achieve this in the coming quarter?

Yes, we expect it to come. And we are have enough liquidity, and we also have a good pipeline for raising resources.

The next question is from the line of Rikin Shah from Crédit Suisse.

Just some data keeping questions. Number one, you did mention the Stage 2 and Stage 1 percentage of loans. Can I also get the coverage on the Stage 1 and Stage 2? Second, I also wanted to confirm what was the Stage 2 PD now and what it was earlier?

Stage 2 PD was -- immediate quarter you're saying, previous quarter?

Yes. Current quarter or earlier?

Okay. Current quarter was 23.19%. And in Q1, it was 23.80%. And coming to the provisioning, so we have a coverage of 39.71% on the Stage 3 assets. And on Stage 1 assets, we have coverage of 3.18%. And in Stage 2 assets, we have a coverage of 9.88%.

Okay. Got it. And just 1 more question. What would be the incremental cost of borrowing by different instruments?

See, done 2 large borrowing. One is securitization, which is at around 8.75%. And the term loans because it is still from public sector banks largely, the rate has been between 8.5% to 9%. Retail borrowing rates have been low. We have brought down the rates there. So a 3-year rate will be 8%.

Pardon?

Retail.

Yes, barely 8%.

Will be less than 8%, 7.75%.

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

And congratulations on a good quarter. I just wanted to check on one thing. So as you clearly mentioned that incremental COVID-19-related provisions may not be required, and we are already holding about 4% Stage -- non Stage 3 provisions. So in Q3 and Q4, should we assume that the overall credit cost normalizes to pre-COVID level? Or we might see a little higher elevated level of write-offs compared to last year?

The last quarter, credit cost was 2.12 and -- against 2.31 last year. First quarter, it was 3.51. Cumulatively, if you see in the first half, it is 2.81. And we expect it to further come down in the next 2 quarters. If the -- both quarters hold good and if there is no further -- any COVID-related challenges, so credit costs should be much better than earlier guidance which we had given. So we had given a guidance of less than 3, and it should become much better. That's what I should say. We don't -- otherwise, we can't comment beyond this at this stage now.

Sure. That's helpful. My second question is on the OpEx part. So in the opening comments, we mentioned that there was some bit of a onetimer in the employee cost. Now I also noticed that the headcount, actually, this quarter has gone down by a couple of thousand employees. So if you could just split how much of this is nonrecurring in nature? And going forward, how should we look at OpEx or statistically, a 21%, 22% cost-to-income ratio is -- should be a more sustainable number?

The next couple of quarters, we would be adding 100 branches because conversion of some of the rural center, which has reached a particular level of efficiency, we need to convert that into branches. So we would be adding around 1,000 people. You are right that a number of count has come down to around -- by 2,500 numbers. And we need to strengthen the branches. So we will be adding the 1,000. But overall cost of -- how much is...

See, there are INR 240 crores of staff cost will continue to be there. Even see, when I say onetime, it's not actually onetime compared to June quarter. June quarter, we had a total freeze on incentives. And hence, it was a onetime benefit, I would say, in June, rather than a onetime hit in this current quarter. This is a normalized [ position ] that we are coming back into. And we are confident that this cost-to-income ratio will hover around 22% to 23%.

Okay. Sure. And last data point question. What would be the overall sanctions and disbursements under the ECLGS scheme for us?

Overall, cumulative disbursement, as of October, it will be INR 570 crores.

Okay. And sir, what would be the sanction?

Sanction is INR 2,800 crores. But many of the customers are not really seeking it. they do not really require it. So -- and people who are -- who would be opting for restructuring, they will not be giving it. So I think we may add another INR 100 crores by December 31.

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

This is Vivek. I had 2 questions and 1 bookkeeping question. One question is to Umesh. In terms of repossession and price on secondhand trucks, given the economic activity, do you expect that to be firm because your loss-driven default is still pretty much the same. Let me just ask the questions in sequence. In securitization, the question is to Parag. I mean, given the fact that the cash flows are uncertain during the pandemic, did you have any innovative structures with the interest-only and so on? And in terms of the old pools, how have you managed it? I mean, has it been pushed forward -- outward? And the last question is on ALM. I -- which is on Slide #19. The first month outflows are high compared to the rest of the period. Is that one-off repayment that is there? And has it been refinanced out?

Yes. Coming to repossession. We have not really witnessed any increase in repossession. So the resale values, as of now, the LCVs -- resale values of LCVs are higher than the pre-COVID level. So -- but the heavy vehicle transactions are not seen, not -- neither there are buying or selling or there is a repossessing. So it is too difficult to make a judgment on the same. But my feedback from the people is that the resale values are stable. It has not really decreased. So maybe this quarter should be a right time to understand the resale values because as the -- what you call model changes from 1 year to another year, then only we will know the resale value further drops or not. So as of now, there is not much of risk of resale value coming down. Parag?

Yes, the securitization front, most of the lenders agreed for providing moratorium to the customers. So it is timely interest and ultimate principle for tenure to did get extend, just for that period. Your most of the securitization in this period, as I mentioned, was under the partial credit guarantee schemes. So lenders were well aware of the cash flows and the moratorium offered. I think the second question was on ALM. Yes, there will be first bucket larger outflows because of some WCDLs, working capital demand loans, taken for the cash card facility, and that would have a 1 month -- largely because of that.

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

Congratulations on what looks to be a very good quarter. I just wanted to understand a little better, the 5% noncollecting -- nonpaying customers, do they largely belong to the 3% group that needs to get restructured? If you exclude that 3%, would this 95% almost be the same as pre-COVID levels?

Yes, yes. Listen, most of these people who are not able to pay, they are in the -- that segment only, which I briefly mentioned that taxi aggregators, school buses and staff transportation. That's the major chunk of people who are not able to pay because their business is not operational yet. They are coming under the restructuring plan. So we may be giving some smaller EMI to them for next 3 to 6 months. Then, extending the tenure, we may give them a restructuring option.

The next question is from the line of Nishant Shah from Macquarie.

So fantastic set of numbers, sir. Congratulations on that. Just wanted to understand this, I'm sorry for the repeated question, 95% collection efficiency, what is this number adjusted for all the areas of advanced EMIs which are collected? You said it's roughly the same, is that right?

See, what we have taken is that the monthly demand, whatever is there, against that, in value terms, we have collected 95% of the money. So if 100 is the due for the month, we have been able to collect 95, that might include the area for the earlier months also. And in terms of number of customers, roughly around -- less than 5% has not paid in last 7 months or so, 7 months.

Yes. Fair enough. But could you quantify what would be the collection efficiency [ injected by moratorium ] because what might happen is 5% of your customers are paying 2 months EMIs because the business is back to complete [ normalcy ] you are probably seeing, it kind of masks the pain which is there in the part paying customers or something like that?

See, we don't have that. If you look at -- we have mainly the owner driver, small truck owner first-time user. Even the environment is not that where the people will pay more than 1 EMI at a shop. So there could be 1 -- or maximum 1% or 2% who have paid more than 1 EMI. Otherwise, most will be either part of full EMI.

The next question is from the line of Sumanta Khan from ICICI Prudential Pension Fund.

My question is on the liability side. You talked about how your base funds this quarter, mostly it has been on deposits and combined. And so when do you think you'll be able to -- because the [ CPL ] grew the book from here onwards, [ and they were ] able to come back to the market, the LCV market. So by when do you see a better environment where you can raise money on a sustainable long-term basis?

I think 2, 3 things there. One is securitization, the normal volumes as of now, we have been looking at only the several schemes announced. The regular securitization should start now because earlier, the lenders were worried about the moratorium being offered to the customers and cash flow being uneven. So that will pick up. When it comes to the capital market, I will not be commenting on the market per se because there were liquidity concerns initially with some of the funds, and the AUM also were not growing. Now that has picked up pace, the liquidity is good. We had some concerns reaching out to larger capital market investors, which has been addressed now, and we have started in a smaller way now raising NCDs that should again, come back to normal levels within a month or so. We have done some transactions now, market-led debentures, and that should put to rest any concerns regarding whatever concerns investors had. So that volume should come back to normalcy. We have around 20% of our liabilities from capital market, and we don't expect that to come down. That should continue to be at 20% level. So it has been slow, but I think it is picking up, and it should be coming back to normalcy now.

The next question is from the line of Udit Kariwala from AMBIT Capital.

My question was, if I heard you correct, that there are around less than 5% of customers who haven't paid in the last 7 months, and the total exposures for these customers is around 1%. But if I corroborate this with the 95% collection efficiency number and expectation of around 2.5% to 3% of restructuring, so if these customers only represent 1% of the total exposure, what is the remaining 2%, 2.5%, and then why does the collection efficiency is 95% and not higher, if this is at 1%? So that is my question.

It is 5% -- less than 5% of the people who have not paid even a single installment was during the moratorium period, March to August. And some of the customers had started paying in the month of September and also in October. The October collections also continues to be robust. It is in similar pattern of the September, and we expect to close this month, close to 95%, 96% of the demand. And coming back to your question as regards the restructuring. Out of this 4%, 4.5% who had not paid even a single installment, after considering certain people who have started paying, the balance maybe around 2% -- 2.5% people will opt for restructuring. And what was your final question?

So my question was that if the collection efficiency has improved even further in September and October, then -- I mean, it was mentioned that the total exposure for these people is around 1%. So why would 3% go to restructuring? That is my question. If this exposure is 1%, why would 3% go to restructuring? And the second part to it is, if this is 1%, then why is your collection efficiency only 95 and not higher?

See, there are customers who have started paying. However, since the -- their segment of business is still affected because of COVID, pertaining to those sectors who are related to either school operators -- school bus operators or staff bus operators or Ola, Uber, those people had sought a request for restructuring, even though they are able to pay some components. They may not be fully able to pay. And hence, we are considering a onetime resecuring option to those customers also so that in the next 3 to 6 months, they will be able to service only the principal -- only the interest cost and some component of principal, and it will be staggered for the next 1 or 2 years for those customers. And hence, you can't correlate this 1% with the 2.5%, 3% of the restructuring that we are talking. And coming to the 93% of the demand in pre-COVID levels also, we used to have 97%, 98% collections coming as compared to the demand in certain months. So similar trends are there. It's nothing alarming. And we feel that in the next couple of quarters, we should go towards the 100% collection on the demand.

Okay. And sir, on the last extension to this question is that the provisioning in this quarter is around INR 410-odd crores, if I'm not wrong. While INR 300 crores is assuming that the Supreme Court directive would not have been there, the remaining INR 110 crores, if you could give some color around that? Why is -- I mean, is it an additional provisioning from what management is taking? Or where is it coming from?

Yes, it is the additional provisioning that we are considering, this is the COVID scenario.

Okay. And at that -- and incrementally, now you're saying from here on, it should be the normal flow and not COVID-related provisioning, which you will add?

Yes. As things stand today, yes, that's what is our belief.

The next question is from the line of Rohan Mandora from Equirus Securities.

Sir, if you could share during the month of September, what percentage of customers by value had made fully EMI payment and part EMI payments?

We don't have the numbers. You can touch base with Mr. Mundra. He will be able to help you.

Sure, sir. Sir, second question that I had was that since 90% of the customers were under moratorium. So if they were making some payments during the moratorium period, those receivables, were they adjusted against the principal or was it considered as a normal EMI payment? How is the accounting treatment done for those customers EMIs at that point of time?

It was considered as a prepayment of the principal. It was a portion towards the principal number.

Okay, okay. That's helpful. Just given the fact that in the press release that had come out from [ TFTRT ] at the end of September, they had broadly indicated that in the M&HCV segment, the feedback that they are getting is around 60% of the collections would have -- 60% of the truck operators would have made payments of the September EMIs, whereas we are reporting a very good number. So if you could comment like what led to such a strong collection numbers vis-a-vis the feedback that we were getting from the market?

See, basically, let us understand that many of these large fleet operators, they operate in a long distance. So like Mumbai-Guwahati, Mumbai-Delhi, et cetera. The long distance transportation is still not normal. It has not come to the pre-COVID level. But within the state, transportation has come to normalcy. And we lend to only the small route customers. 90% of my customer would be running between Mumbai to Nagpur, Mumbai to Nashik, Mumbai to Galapur so they don't go because most of them are used vehicle. They don't go beyond the state. So our customers are now operational, fully operational. But some of the long distance transportation, where they are dependent on driver or even they are dependent on the overall economy, that is not fully the same. Like if you look at the port activity, it is not the same. So therefore, there is some anomaly between what the [ TFTRT ], which is from Pune, which they are reporting numbers and the customers what we have because they normally represent the large fleet operators. And our customers who are unorganized, they don't get reported or they don't get -- or what we call same mileage like the large fleet operators. So therefore, there is always a difference. So all our customers, I can say that they operate in a smaller distance. And therefore, there is enough business, and they are mostly into day-to-day essential transportation, like perishable, nonperishable, agri and FMCG these are running quite well and normal.

Sure, sir. And sir, if I may be able to stir in 1 last question. Sir, on behavioral aspect of the customers that we are lending to in a pre-COVID environment, whatever savings that they would have had. So typically, where do they deploy those things? Is it towards purchases of new consumption products? Or do they actually make some financial savings? Some color on that would be helpful. What is your observation in terms of the customer profile that we are having?

Our customers normally not into savings because whatever they make extra earning, they would either convert that into prepayment or they convert that into maybe some physical asset. The saving habit is not really large among our set of customers. So -- that we don't really expect them to save in a financial instrument. It could be in some physical assets like gold or maybe land or maybe additional vehicle. They may go for a second vehicle, something like that.

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

And congratulations for a really good set of numbers in difficult times. Just 2 questions. One, I want to reconcile this number of nonpaying customer. If I recollect after the Q1 call in August, that number was, what, about 19-odd percent, and this is now about 5%, right?

I didn't get you. What was the 19%?

The nonpaying -- the customers who have paid 0 EMIs, I mean, no EMIs, that number was about 19%, right?

No, no, we have not given any numbers at that point of time. We were saying that in April, the total number of customers who had paid was 25% and gradually, it had increased month-on-month and increased the peak of 78% in August, I think, the number of customers.

Yes, it's positive July.

Okay. Okay. And second question was on provisions. You highlighted that versus earlier assumption about -- or earlier guidance of about less than 3%, this number would be lower. But just to a bit grill on this. Do we still continue to expect that as we go forward towards Q4 there might still be write-back from the provisions that we have done until now or that assumption now is no longer there in the credit cost number?

See. As things stand, we expect that there will be no further COVID-related provision, but things are dynamic and then not fluid, I would say. And hence, we are not really able to confirm whether Q3 and Q4 will not have any COVID-related provision. Having said that, supposing if there is an improvement further in the credit quality of the assets, then there may be a potential write-back. But whatever COVID-related provisions of INR 2,200 crores that we are holding as on September 30, that we will continue to hold till 31st March. That is for sure.

The next question is from the line of Aswin Kumar Balasubramanian from HSBC Asset Management.

I just wanted to -- this is, I think, touched upon by the previous participant as well. The difference, which you've taken due to the Supreme Court judgment, comes to about 0.8% in gross Stage 3 assets. Now this would be the -- basically, the Stage 2 assets as of March '20, which have not paid any EMI, is that the right way to look at it?

No, no. See, the right way to look at it is post-moratorium, that is 31st August, who have not paid, so Supreme Court has said that those cases, you should not consider it as NPA. You should have a standstill for those cases also. So those are the 0.8% of the cases.

Right. So these would have been Stage 2 as of like February 28?

Yes, correct. Supposing it had been moratorium, then those cases would have been Stage 2. Yes.

Yes. So I mean, if I just look back at your annual report, that number as of March 2020 was about INR 12,000 crores. So -- and I mean, out of that, only about INR 1,000 crore wouldn't have paid any EMI after that, right? I mean, is that...

Correct. That is fair to assume, yes.

Okay, okay. But -- so I mean, is this the kind of normal roll forward rates -- I mean, a rollback rate that you see? Or in Stage 2 assets? Or like -- I mean, is this -- was the normal or like better than normal?

It should be that 11% to 12%, 13% will be the normal debt going forward also.

Okay. Okay. Got it. And secondly, I mean if I look at your [indiscernible] balance, this number of about INR 5,000-odd crore where it's mentioned that the moratorium is extended as of September 30, 2020. So -- but you mentioned a number of about 1% something, right, by value. So I mean, just trying to reconcile those 2 numbers?

So that is as per the RBI requirement, IRAC requirement, wherein they had said that this is a disclosure norm that they had in all the indices and banks to work. Whatever was the moratorium extended to nonstandard assets, on that, whatever is outstanding as on 30th September is that 5,000 number. It will not be really easy for you to interpret this and reconcile this and that number, but we can have it post this call, maybe you can just touch base with Mundra, he will be able to help you out.

Sure. One last question. In terms of the disbursement of about INR 6,400-odd crores, like what would be the nature of these disbursements, I mean, in terms of new and used, then, let's say, between HCV, LCV and also like between like refinance and like fresh sales and or fresh resale and so on?

No. See, the new vehicle advance is around INR 150 crores. And rest of it is used vehicle. And the working capital loan would be around INR 600 crores out of it. Rest everything is for used vehicle.

7,200.

And this used vehicle would also have that -- I mean, element of refinance also, right? Or is it like purely new purchase sale transaction, which should be there?

The refinancing may not be large. It's mostly purchasing because our business is basically financing used vehicle, which is being purchased. The existing customer after repaying going for a refinance would be much lower.

Okay. And this would be primarily LCV type or the used?

The demand right now is across all, but yes, LCV and tractors are a little higher in this quarter.

The next question is from the line of Aditya Jain from Citigroup.

I just wanted to confirm, the entire size of exposure to the 3 relatively affected segments, taxis, school buses and staff transportation, the entire size of this exposure is about 3%. And this is what we are calling the potential restructuring requirements.

Yes, you are right. So those people who are in -- who feel that they need a support, we made an assessment because there are some cab aggregators who are able to pay, even during the last 3, 4 months. Other than April and May, people have started paying some cab aggregators, some Ola, Uber operators are able to pay. But some of them said they are not able to pay, and some of them are paying part. So people who are paying in part and people who are not able to pay, there, we have offered them.

Got it. Okay. So the ones which will need out of this is 3%, so is it possible to share the size of AUM to these segments the entire, even including those which are not...

We will give the detail. Mundra will be able to give the detail.

Got it. And one clarification. So the denominator in the collection, it includes the entire customer base, including NPA or excluding NPA.

Demand will be for all the customers, including NPA. We don't exclude that.

Okay. So the collections you mentioned pre-COVID would have been 95...

There again, the denominator would include NPA cases.

The next question is from the line of Piran Engineer from Motilal Oswal Financial Services.

I just have a couple of clarifications. Firstly, when you mentioned you're targeting INR 250 crores of net deposit accretion, that's on a monthly basis, right?

Yes, it's a monthly basis, net accretion.

Okay. Fair enough. And most of these are retail? Or what is the percentage of...

Entirely retail. Entirely retail. We don't have a strong corporate deposit ICD, what you call portfolio. So all our deposits will be retail only. And the average tenor is 3 years.

3 years. Okay. My second question is that -- and this is sort of similar to a question asked previously, our Stage 2 as of Feb 29 was 11.5%, and even today it is around 11.5%. So if customers were given morat and very few have not paid, most of them would have paid at least 1 or 2 EMIs, ideally, they should have come out of Stage 2 and into Stage 1. But that has not happened. So what exactly are we missing here? Because the Stage 1 people could not have slipped into Stage 2 if they [ were in ] morat. So not -- how do we reconcile this data that...

We'll get it done through Mundra. You can just contact him. He will help you out in this.

The next question is from the line of Swarn Agarwal from Max Life Insurance.

I have a few questions. So the first one is what was the collection efficiency in September, excluding prepayment? Second is, on your passenger vehicle book, can you give a broad share for taxis, nontaxis and buses? And third is some flavor on collection efficiency of passenger vehicle vis-à-vis MCV vis-à-vis HCV vis-à-vis tractors?

See, the breakup is like that. Totally, we have around 20% of our portfolio in passenger. And out of that, 11% is the private passenger. That is private -- for private purpose. And 9% is for public transportation. Out of this 9%, the cab aggregator is around 2%, including taxis. Here Ola, Uber and taxis are included. Then another 2% is staff transportation and your school operators. And rest is rural transportation, the rural passenger transportation, that will be the rest of it. And other question was?

Collection.

Prepayment, it will not be significant. So that will not change that collection percentage per se.

Prepayment is not significant.

Okay. And collection efficiency of passenger vehicle versus CV versus tractors?

See, if you look at the behavior-wise, the LCV customers have been paying growth because their business never stopped. M&HCV they had some challenge because the interdistrict was also not allowed in the month of April and May. But they have been start paying as far as heavy vehicle is concerned. The 1 segment that -- the another segment that were in challenge was people who are in infrastructure and mining because most of the government payment got delayed in the month of May, June. But they all have start paying from August onwards. I think from July, the payments have been reasonably smooth. Some of them were able to pay part. Some of them are able to pay full. So the segment, which never got much impacted were tractor and LCVs. Others got impacted, but they got -- it got recovered from July onwards.

Any broad numbers which you can share in terms of collection efficiency of passenger vehicle?

Right now, I do not have. We'll arrange the numbers through Sanjay.

The next question is from the line of [ Kimberley ] from Value Partner.

Congratulation on your good result. So wondering check one thing is related to our S&P credit rating right, because they still put us under like the credit watch negative. So wondering like when will you expect the rating to stabilize a bit? And how's your conversation with them?

I think S&P and even Fitch has been slightly negative on the Indian economy. And that was one of the reasons why we are put on negative watch. And because moratorium was also announced that further added to their concern. Now that moratorium period is over and collections are back to normalcy, we will be in touch, we'll be in discussion with them to look at removing this negative watch or outlook. We'll actively engage with them now. And not only the September result, but also the October performance continues to be promising. Disbursement coming back to normalcy. I think within a month or so, we should be looking at them to review their decision on the negative watch.

And so you expect the time will be like December, like probably next quarter, right?

According to us, it should be immediate now because we have come out of moratorium, and September numbers are there with them now. But they, I think, they would like to see consistency of collections continuing for 1 or 2 more months. We do expect it to have -- their decision to be immediate. But according to me, realistically, it will be around December time.

Operator, can we have a last question?

Sure, sir. Ladies and gentlemen, we'll take the last question from the line of Jehan Bhadha from Nirmal Bang.

My question is on net interest margin, which is down around 60 basis points year-on-year. So what is the reason? And what is the outlook going forward?

It is primarily because the negative carry, as we are holding more than INR 10,000 crores of funds in the last couple of quarters, that is a big drag.

Okay. Okay. So that should come back to previous level, right?

Maybe it will take a couple of quarters at least. Maybe for next financial year it may.

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

Yes. Thank you. Yes. In the opening remarks, I missed out that we have declared a dividend at INR 6 per share. The Board felt that business has come to the normalcy, and shareholders need to be rewarded. And last year, interim, it was high. But this -- since there is no dividend tax at company's level, it is -- we have made it INR 6 per share. And as far as the business is concerned, we are quite hopeful that business will be as usual. We should be able to disburse at the same level as last year and may improve further as the COVID situation improves across the country. And we also expect the collections to improve further. Because we -- as not many new vehicles are added, the demand for existing fleet will be much better and utilization level will go up significantly. And that will give a better revenue to our customers. So overall, we feel that the situation is under control and improving. And in the next couple of quarters, we should come out with a much better result and also, hopefully, we need not make further provision -- COVID-related provisioning. So friends, we'll meet again next quarter to discuss our numbers. Thank you. Thank you very much.

Thank you very much, sir. Ladies and gentlemen, on behalf of Shriram Transport Finance, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.