Shriram Finance Limited (511218) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Shriram Transport Finance Q3 FY '21 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Umesh Revankar, Managing Director and CEO, Shriram Transport Finance Limited. Thank you, and over to you, sir.

Yes. 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, Accounts Head and Executive Director; Sanjay, who is our IR. Let me first start with economic and industry update. The government started Unlock 5.0 in October 2020, with lockdown being only in containment zones. A high recovery rate of 96% and India's good fortune of avoiding second wave of COVID-19 meant that economic recovery continued. The government continued its calibrated approach towards relief and stimulus measures to help the Indian economy back on the growth phase. Some of the measures that really helped the industry are, the income tax relief was provided to real estate developers and homebuyers in the form of widening the difference between circle rate and actual sale rate. INR 6,000 crores was infused in infrastructure debt platform. On agriculture, INR 65,000 crores of fertilizer subsidy was announced to the farmers for forthcoming crop season. INR 143,000 crores were sanctioned to the farmers through Kisan Credit Card. INR 25,000 crores were disbursed for providing capital funding for farming through NABARD. INR 3,621 crores were sanctioned to 11 states as interest-free loan towards capital expenditure. In addition to that, INR 300,000 crores existing Emergency Credit Line Guarantee Scheme, which was announced earlier, was extended till March 31. The government also approved a PLI scheme, the performance linked incentive scheme, at the cost of INR 146,000 crores to boost economy, and some of the major industries that involved are pharma, medicine, electronics and mobile. Then PM Awas Yojana for help -- building 12 lakh houses by spending INR 18,000 crores. So these were the measures by the government. And RBI also adopted a very constructive approach in its announcement and policies. RBI released a draft discussion paper on revised regulatory framework for NBFCs. However, the same is not expected to materially impact STFC as we are already well above the minimum compliance measures with the proposed quantitative norms, including capital adequacy ratio, standard asset provisioning and NPA classification. In manufacturing, the industrial output remained volatile with the index of industrial production showing 4% rise in October due to festival demand, minus 2% in November due to increase in virus in certain states. However, manufacturing -- manufacturers are speeding up production as witnessed by the PMI index, reading in November being 56.4, indicating future expansion. The GST collection was robust, which is sustained above INR 100,000 crores and recorded 10%, 1.4%, 12% increase over October, November, December, respectively. The acreage under Rabi crop was higher by 1.6% at [ 651.9 ] lakh hectares on a year-on-year basis, that is, on the bumper crop we received last year. The reservoir level stood at 68% of their full capacity against 56% of the capacity in the previous year, indicating that agri would perform much better than previous years. Now coming to the auto industry, the commercial vehicle sales recovered to pre-COVID levels. Almost it is equivalent to the previous year at 193,043 units against 195,211 units in the previous year. The intermediate commercial vehicle and tippers witnessed bigger demand. In fact, the heavy vehicle witnessed increased Q-on-Q by 26% and mostly the demand was for tippers. And LTV is showing growth, including the ICV. All our branches are operational now. And now I come to the -- our quarter performance. We clocked a disbursement of INR 12,606 crores, including INR 332 crores of new vehicles and INR 12,198 crores of used vehicles, which, as I indicated, was on par with last year's quarter. The AUM was INR 114,932 crores as in December compared to INR 108,931 crores previous -- December 2019. The net interest income was INR 2,148 crores in Q3 against INR 2,114 crores in Q3 '20. The net interest margin was 6.88%, which is 20 basis points higher than previous quarter as against 7.34% in the previous year Q3. The profit after tax was INR 727.72 crores compared to INR 879.16 crores in Q3 '20. EPS stood at INR 29.54 against INR 37.76 in the previous year. Collection was consistently good in the last quarter, recording 97% in October and November and 104% in the month of December. The Stage 3 NPA stood at 7.11 as compared to 8.71 in the previous year. Overall credit cost now for the quarter was 2.15. And for -- as on 31st December, it's 2.59. Since all the macro indicators remain constant, we expect that we are well within our overall guidance of 2.7 to 2.8 range given in the beginning of the year. Our liquidity position stands at INR 13,429 crores as compared to INR 10,891 crores as on October 28, 2020. I hope you have received the investor update. Now I request Parag to give a highlight on the liabilities side. Parag?

The overall fundraise has been good. For the quarter, we raised close to around INR 12,000 crores through various instruments. This is -- compared to the previous quarter, we raised close to around INR 10,000 crores, INR 2,000 crores more. And in January, we have also accessed the overseas market and completed a successful dollar bond for $500 million. Dollar bond received a good response from investors, the order book being more than $1 billion. So that will add to further liquidity. As mentioned, the liquidity is around INR 13,000 crores, which is covering easily the next 6 months' liabilities. Coming to the liability profile as such, we have been focusing upon retail deposits, which has grown year-on-year from 13% to 14.76% now. And securitization is marginally down from 24% to 23.71%. Bank term loans constitute around 16%. Capital market instruments, domestic, is around 21%. Overseas bonds constitute close to around 13% of our liability as of December. And loans, overseas loan is close to around 4.2%. This is broadly the breakup of liabilities, total liabilities being [ INR 96,000 crores ]. Interest cost has come down marginally by around 20 basis points in December quarter, given that the bank borrowing rates have been much lower. On the ALM side, cumulative surplus up to 1 year is around INR 8,500-odd crores, INR 8,696 crores, to be precise. And all buckets, the shorter buckets, are also positive. I think you are aware that we did a rights issue in August for INR 1,500 crores. With that, the debt equity stands at around 4.7%, as it was running at around 5.2%. With the rights issue, it came down to 4.7%, and we're confident this will maintain at around 4.7% level for this year. There have been some rating -- positive rating actions by both domestic and international rating agencies. India Ratings have made from negative outlook to stable outlook. S&P and Fitch, which had a negative watch, have now removed that negative watch and it has become negative outlook. We are still engaged with rating agencies to ensure that the negative watch is also reversed. But I think rating agencies did mention about seeing performance for 1 or 2 quarters. We'll be in constant touch with rating agencies to ensure that rating is restored to the earlier levels. I'll hand over to Sunder now for accounts update.

Good morning. The employee count as on December was 24,670. It was down from 25,893 in September 2020. We have recently started the process of adding new employees. And hence, the employee count should go up in the next couple of quarters. The cost-to-income ratio remained stable at 22%. It was 21.83% in September 2020. Primarily, the increase in the expenses was on account of CSR expenses, which was not done in the previous 2 quarters. That had contributed to the increase in the overhead expenses. And during the quarter, the company had credited the accounts of eligible borrowers an amount of INR 231 crores towards ex gratia as notified by the Government of India. The same is expected to be reimbursed by the Government of India through State Bank of India. And hence, we don't expect any impact on the P&L of the company. As regards the [ new ] collection cases that we had discussed in the previous call, there were around 1,000 -- 1 lakh customers having an exposure of INR 1,200 crores who had not paid even a single installment during the moratorium period. Subsequently, most of them have started paying. And as on date, there are still 9,600 borrowers who have not paid even a single installment since March 1, 2020, and the exposure to these cases is INR 112 crores, which has been classified as Stage 3 and appropriate provisions have been held. And as far as the ECLGS is concerned, we had extended it to 77,000 borrowers amounting to INR 694 crores. And we also had -- given the option of onetime restructuring as per the RBI notification, we received a total proposal close to INR 3,000 crores, out of which we have invoked INR 2,267 crores worth of proposals as on 31st December 2020, which was the last date, and out of which we have already restructured INR 310 crores to -- which comprise of 11,570 borrowers, and the required provisioning as per the Reserve Bank of India guidelines has been maintained on these loans. When we come to the asset quality, as mentioned by Mr. Revankar in the earlier [indiscernible], the Stage 3 was at 7.11%, gross Stage 3, and the net Stage 3 was 4.31% as against 7.26% gross in September 2020 and net Stage 3 of 4.51% in the same quarter. Had we -- but -- however, as per the Supreme Court direction, we have not considered the cases which were not an NPA as on 31st August. Had we considered those cases, this would have been the level. But following the Supreme Court order, our gross NPA was 5.33% and 3.22%. However, in our books of accounts, in our financials, we have provided for all those cases, even though we are not required to provide. So we have been conservative in that count. The coverage ratio as on 31st December 2020, was 41.20% as against the coverage of 39.71% in the previous quarter. The Stage 1 as on December was 80.78% as against 81.58% in the previous quarter, and Stage 2 assets were 12.11% as against 11.15% in the previous quarter. We have maintained a coverage ratio of 3.23% on the Stage 1 assets and 9.99% on the Stage 2 assets, and the probability of default for Stage 1 was 7.4% and for Stage 2 was 23.12%. And loss given default was 43.08% as on December 31. We have continued to make a COVID-related provisioning in this current quarter also, which amounted to INR 225 crores. And the cumulative provision, which we are holding as on 31st December, was INR 2,507 crores. The company has also followed the RBI guidelines as regards the provisioning of assets, wherein it required that the company needs to maintain a minimum of IRAC, Income Recognition, Asset Classification, and provisioning norms of RBI, which was INR 6,164 crores as on December 31. As against that, we are holding, as per the Ind AS, INR 7,746 crores, meaning we are holding an excess provision of INR 1,582 crores over and above the RBI requirement. And the capital adequacy continued to be good, Tier 1 being 20.51%. That's it from me. So...

Over to Q&A.

[Operator Instructions] The first question is from the line of [ Abhiram Iyer ] from Deutsche Bank.

Yes. First of all, congrats on the results. I had sort of a bookkeeping question on the cash flow. If I look at the reduction in cash, that's somewhere around INR 8 billion cash and investments. And if I look at the increase in debt, that's around INR 3.5 billion, so a total of INR 11.5 billion. The operating profit is somewhere around INR 16.5 billion with another INR 2.5 billion of taxes, so give or take, INR 14 billion of cash coming in from operations, which is roughly INR 25 billion in cash incoming, whereas the change in loans is around only -- on balance sheet, loans is only around INR 18.5 billion. Now I understand you paid dividends of around INR 1.5 billion. So that still leaves sort of a hole of around INR 5 billion in terms of cash charges. So could you just let us know if there are any sort of noncash components in the income statement or noncash charges that have -- noncash inclusions that have been made?

There are no noncash charges that have been made in the financials. So what I would suggest is that we'll take this question off-line and provide the reconciliation to you through Sanjay Mundra.

Got it. Got it. Let me follow up on that. The other question that I had was the fall in securitization of assignment loans. So is this something that the company is sort of strategizing? Can you just give us a reason for this? Because it seems -- the fall seems kind of steep for this quarter.

Yes, but RBI permits even the normal loans to be classified for priority sector classification in the bank's book. That is the reason why banks are happy to give loans rather than doing securitization. Having said that, some of the banks, foreign banks and some of the private sector banks, do continue to do securitization only. So there has been -- okay, last quarter we did INR 3,500 crores of securitization, and this quarter we have done INR 2,700 crores. So there has not been -- there has been debt, not substantial debt. We -- I agree that we should do around INR 5,000 crores of securitization prior to March. But I think the classification only is the only reason why there is a shift from regular loans rather than doing securitization.

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

Congrats on the numbers. So I just had a couple of questions. First around, how do we think about [indiscernible] defaults in the current environment? So Stage 3 provisions that you hold are roughly around 40-odd percent. For the accounts that are [ one of the defaults ] at this time, do you envisage there will be either an upside or a downside to the actual crystallized losses that we see once we repossess the vehicle or however else we [indiscernible]? How do you think about those aspects in the current environment? So that's the first question.

See, this ECL model takes into account all these factors. So it is primarily the historical data that we look at and also the current economic scenario. And basis that, we come out with that LGD of 43% -- 42%, 43%. And hence, there may be cases wherein there'll be 100% write-off. There will be cases wherein there will be 10% write-off required. So a combination of all these things put together will be 41%. And hence, we are not unduly concerned whether it will be overshooting the coverage.

Okay. Got it. And second, just a small [ bookkeeping ] question. You've mentioned Stage 1 and Stage 2 assets in the open remarks. I missed it. Could you just repeat that, please?

Yes. Stage 1 assets was 80.78% as against 81.58% in the September quarter. And Stage 2 was 12.11% as against 11.15% in September quarter.

Correct. And these are the numbers which are ignoring the Supreme Court judgment?

Correct. Correct. Ignoring the Supreme Court judgment.

The next question is from the line of Shubhranshu Mishra from Systematix Shares.

My first question is with regards to the employee count, which has been falling for over a year now. If I look at the employee expenses, they have been falling commensurately. So how do I read into that -- those numbers, sir? If you can explain that. That's the first question.

The employee count has come down year-on-year, and there has been a visible decline in the employee cost in the first couple of quarters. In fact, in April, there was a substantial reduction. Then as the business started picking up, we started compensating those employees who are currently working with us. And now we -- a few -- a couple of months back, I would say that we started the process of, again, starting recruiting new employees. And the numbers will reflect in the -- maybe in the March quarter or June quarter. So we expect the employee count to come back to the pre-COVID levels by 2022 March. And yes, so any other thing you wanted to clarify?

No. Here, the employee count...

My only thought here is that we had a substantial change in the employee count by roughly around 3,500 employees. And I don't see a similar commensurate change in the employee expenses. So what am I missing here?

See, the fresh recruitment we are doing through apprentice scheme. So they do not come as employee immediately. So we actually have another 600 people as apprentice and going forward -- because there are state-to-state various Minimum Wages Act -- there are changes in Minimum Wages Act. So till we get harmonized, we felt that it is better to absorb people under apprentice. So therefore, the numbers, it is not reflected, but actually, we are adding -- in the last 3 months, we have been adding, and we'll be adding more people going forward.

Sure, sir. And my second question is with respect to the restructuring, sir. What amount have you provisioned for? And is this the -- and we have only accounted for roughly around INR 3 billion. So how do we look at the rest of the restructuring going forward?

See, we have restructured INR 310 crores worth of assets as on 31st December. And on that, we are holding the provision of 10%. So INR 30 crores provision is being held. And we have also invoked, apart from this INR 300 crores, INR 1,900 crores worth of assets, which is likely to be restructured in the March quarter or maximum June quarter. So having said that, we also expect -- believe that the quantum of restructuring will be much lower than what has been invoked because normalcy is coming back in certain sectors. And hence, the borrowers may not actually opt for restructuring in the next couple of months also. It's possible.

Sure, sir. And sir, why are we not dialing down the liquidity given the fact that there's so much of liquidity around -- we are still sitting on roughly around 10%, 12% of the balance sheet. So why are we being so conservative? Is it for the bondholders? Is it for the rating agencies? What are we doing this for?

No, I think it is a conscious decision. We had -- we'll continue with higher liquidity until maybe next 3 quarters and then take a call. So this has been consciously done.

Sure, sir. And my last question is with respect to your collection team, sir. If you can give me the strength of the team. And what is the cost that has been budgeted for the collection team in FY '21 as well as any ballpark number for FY '22, sir, for the collections?

That I would suggest that you contact Mr. Sanjay Mundra who will be able to assist you. And coming back to your first question that there is no significant dip in the employee cost, see, if you see the 9-month employee cost, it's INR 739 crores in the previous year. Current year, it is INR 658 crores. So there has been a dip of around 10%.

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

Congratulations on a good quarter. Sir, I have 3 questions. The first one, how should we look at the credit cost getting into FY '22? We are maintaining substantially good coverage on Stage 3 assets and even had about 4% on Stage 1 and 2, which is higher than what we typically maintain. So how should we look at credit cost getting into FY '22?

Credit cost should slowly go back to our long-term average of 2%. This year, we had given a guidance of around 2.7% to 2.8% in the beginning of the year. So we are well within that as of now, and we are confident of managing it within or much -- maybe lower than that by the year-end. But going forward, next year, since the economy is likely to do very well and the opportunity for the growth will be there and also the revenue earning capability of our customers will be much better, so we expect it to go back to our long-term average of 2%.

Okay. That's great. Sir, my second question is on disbursement. And clearly, this quarter, disbursements have picked up pretty well, and we are kind of tracking a little ahead of what we had guided in the previous quarter. So how should we look at growth? Would you like to upgrade your full year growth guidance for FY '21? And a related question that -- as you already mentioned in the previous point that growth outlook is only getting better, would we like to look at raising equity capital for the residual portion of the approval which we had taken?

The -- as far as the growth is concerned, we -- in the beginning of the year due to COVID, we said there is a flat growth. Now we expect growth of between 5 to -- around 6% AUM over the previous year. Next year, it should be a double-digit growth because opportunities are much better. And if we feel that this increased growth requires a growth capital, then definitely we'll come to the market. But it all depends whether it requires growth capital or current capital position is more than sufficient. So we'll take the call maybe in a couple of months depending upon what kind of growth we can expect. If it is with just a double-digit growth or it is more than 15%, 20% growth, that is something which will be clear by -- maybe in a couple of months.

Okay. Great. And sir, last question is on -- I just wanted to get your views. Do you really believe that there could be any impact of the proposed green tax that the government is looking to impose, given the fact that the most -- marginal player in the ecosystem gets impacted the most because of this? Do you really think that will have any meaningful impact on our business?

See, there's no official announcement as of now. But only one official announcement that is there is government is going to scrap its own vehicles, central government, more than 15 years old vehicles. They're going to scrap in March' 22; not this year, next year. So other proposal or other, what do we call, unofficial statements are more than 15 years old vehicle, when they go for fitness certificate, they may ask for additional levy of tax. But there is also one more line which has appeared in some newspapers saying that more than 8 years old vehicle, they may ask for a green tax of approximately 10% to 20% of the existing tax. That means it works out to around INR 2,000 to INR 4,000 per annum. So it is not going to make any big difference because the per annum around INR 2,000 per vehicle, depending upon the size and capacity of the vehicle, I think it will vary. So I think it is not going to make a big difference for the owner. If it is -- because having an asset -- buying a younger asset, if it is costing much more capital to him, he better pay additional INR 2,000 or INR 3,000 and retain the existing vehicle. So we do not know the economics of it. Unless we have a specific -- very clear government guidelines, then only we can calculate the economics. But I don't really think it will deter customer to hold on to older vehicle unless there is some incentive for him to change into newer vehicle.

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

Congrats on the dollar bond issuance, a very successful one. My question, sir, on the customer behavior. What is the freight capacity utilization? Are the freight rates going up because fuel prices have been going up? Have they been able to pass it on? And the number of customers who are on -- who are actually started plying the vehicles, it was low previous quarters. Do you have a sense of how much it is? That's the first question. The second question is, during the downtime, people put a lot of effort on collection efficiency. How are you looking at putting -- balancing growth versus concentrating on collection efficiency at this point of time? Since I think you don't have a separate team for both. Those are my 2 questions, sir.

So basically, there is no idling of the vehicle now. I don't see any kind of idling, neither from the individual operator or large operator. Earlier, what we observed was, the single operators were able to run their vehicles because they are the owner operators. They are not dependent on the drivers. But even in the large fleet operators today, all the drivers are back. So we are not seeing any idling of the vehicles. Vehicles are engaged. As far as the fuel price is concerned, the freight rates also have gone up. That means they are able to pass it on to the end consumer. And therefore, the freight rate -- sorry, fuel price increase did not have a negative impact on the operators as of now. So I think they are able to manage, they're able to pass it on to the young customers. And the only thing is there will be inflation because of that. So we are seeing food inflation only because of the fuel price increase. So how that part of it is going to be addressed over the period by the government and RBI, that we need to see.

Sir, also on the collections and -- sorry, one more related question was, we're talking about secondhand trucks. And when you repossess, is there demand for secondhand trucks now given the optimism that you're seeing on the ground?

See, the demand for secondhand trucks is very good. In fact, the MCVs are selling at around 20% premium than what it was in the previous year. Only heavy vehicle, the resale prices have not gone up, but it has not come down also. In few pockets, there will be some differences. But generally, overall, when I look at, there is not much of a difference in the resale prices. As -- what happens is a used vehicle gets used for multipurpose application unless -- only the new vehicle, when the people buy, they buy it for a specific application. But the moment it becomes a secondhand, then it gets used for everything, whether it is for sand, cement, grains, for everything it gets used. So in India, most of the vehicles are not specific vehicles, they are all open vehicles. So the application -- the usage of the used vehicles are general application. So it gets used everywhere. So we don't really see a big challenge. So collections are quite good, and our people are able to meet customers as frequently as it was in the pre-COVID level. So there is absolutely no, what you call, laxity from our side or from the customer side. So we are back to the business as usual.

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

I had 2 questions. The first one was on the Stage 3 ratios, where even in the absolute terms, it is down almost 15% year-on-year. And even in terms of the Stage 3 ratio, it is down almost 160 bps versus a year ago. The collection efficiency is also higher than our normalized run rate. A part of that can, of course, be attributed to lack of collections in the -- during moratorium, but now it's above that. So just trying to understand it does seem like the COVID never happened for us. And how should we think why our customers and why were we able to deliver superior asset quality performance here?

See, what I'm trying to say -- what I'm trying to convey is that most of our customers are owner-operators. So being owner-operator, the advantage is the ability to earn and operate the vehicle is his own wishes. He's not dependent on any driver or other external factors. And demand for transportation actually went up. See, when the supply of new vehicle comes down, automatically, then existing vehicle gets used almost fully. And last couple of years, the new vehicle addition to the Indian fleet has come down substantially. So utility and usage of the used vehicles have gone up. And small operators are having advantage because of having no overhead cost on them. They're not employing anyone. They themselves are operating. That was an additional advantage. Plus, if you look at the rural and semi-urban, what you said is right. You can go to any of the semi-urban, rural area, you feel as if there's no COVID. Only in the urban city, the people are operating from home, what do you call, the executives who have an option of working from home, they have been working from home. But in the smaller towns and in the villages, there's no such option. They have to go out, and they have been working. So you will never see a COVID-related impact in any part of semi-urban, rural area. So 90% of our business being in that particular area, we are quite comfortable and customer also is comfortable.

Okay. That's helpful, sir. And just a follow-up on that. Earlier, you did allude that the capacity utilization overall has gone up. But would you be able to share a number for the industry as a whole where the capacity utilization rate is now and maybe how it's compared versus pre-COVID?

See, pre-COVID to now, I do not have the -- because this is a very unorganized sector, I will not be able to give you the exact numbers on how the utilization levels are there. But I can only tell you, number of days vehicle runs because we track with the customer how many days his vehicles are running. So pre-COVID level, the -- because the economy was slowing down, it was around 21 days on an average vehicle running. Today, the vehicle running is between 22 to 24 days. So to the extent, we can say that there is increased utility -- utilization of the vehicles. But beyond that, we may not be able to substantiate with industry numbers.

No, I think this is very helpful in itself, sir.

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

Hello?

Yes.

Hello? Yes, sir. Am I audible?

Yes. Yes.

Congratulations for really great numbers in testing times. I have just one question, which is on your external commercial bonds and borrowings, which is about 17% of the total. If you could throw some light on how they have been hedged. And do we carry any risk? Is there any significant adverse movements in the currency?

As a policy, all...

I understand that we do full hedge at the beginning itself, but if you could explain that bit in detail.

Yes. As you rightly mentioned, we -- as a policy, we hedge all overseas borrowing, both principal and interest for the full duration. So there will be no unhedged position, and there will be no risk. So the cost -- overall cost for overseas borrowing is known upfront, and there will be no additional cost. Supposing we do -- now what we have done is around 4.4% level, a dollar bond. On completely hedged basis, whatever would be the cost, around 9, 9.2, whatever it comes out to be, will be known upfront. And there will be no other cost in spite of whatever -- whichever way the rupee-dollar moves.

And in the intermittent quarter, any charge to the P&L because of the movement in INR will be only notional, and through the life of the bond, it will be 0.

Yes. See, we follow the hedge accounting. And so whatever is the intermittent fluctuations in the currency is taken below the line, and it does not impact the quarterly profit.

The next question is from the line of Shweta Daptardar from Prabhudas Lilladher.

Congratulations for a good set of numbers. So I was looking at the borrowing profile. So while the interest rates have turned benign, even the securitization has dipped quarter-on-quarter, year-on-year, why aren't we taking the benefit of lower rates and tapping the term loan side of the borrowing profile? Is there some inertia from the banks? Are they expecting more? Because since a year, the mix has remained steady state at 16%.

In fact, that has been the focus. So term loans have gone up. Even if you look at this quarter, the term loan was -- the quantum raise to term loan was the highest compared to any other instrument. So that would be the focus. There have been maturities of the earlier loans. We were not able to access much during the moratorium period until August, September, maybe the borrowing was slightly lower. It was more to do with the schemes which were announced. The banks were more comfortable to provide liquidity through those instruments, be it direct assignment, be it TLTRO. So that loans per se was slightly lower in the earlier quarter. And for the maturities, the percentage didn't move, but now it is picking up. In fact, the loans will be the focus area and that continues. I think it is around 16% now. We do expect this to go up for 20% in the next 2, 3 quarters.

Sure, sir. Sir, my second question is, sir, you alluded to the fact that operator profitability has not impacted much, that there has been COVID impact pretty negligible on the rural side. Now the collections, which are showing 104% of the demand, so the underlying understanding is that -- so people as in the borrowers opted for moratorium, but now they are suddenly fine and they're okay, so our collections have gone up, and even on the billing date, the collection efficiency is as healthy as what we are reporting as a percentage of demand. Can you just throw more light on this?

Basically, what happens is, our customers every month, they do not pay the full EMI. And sometimes, they pay 90%, sometimes they pay 104% or 105%. And December is the month every year, not only this year, every year, it is a harvesting time, and there will be more cash in the rural in the month of December because they get the cash against their crop. So generally, December collections are good. So it is every year same repetition. I don't see it as exceptional. And the only thing what we can say is, as far as the rural and semi-urban is concerned, it is a pre-COVID situation or the no-impact situation. So that's what we can say. But as far as urban is concerned, there are some challenges where things are not as smooth as it was in the past. So maybe urban transportation is still not normal. The school transportation is still not 100% normal. There is some normalcy, but not 100% normal. So I think this -- what I can tell you is, the COVID has had a very little impact in the semi-urban, rural area. And only during the lockdown, there was some restriction. But now since there is no lockdown, this business is back to normal.

Sure, sir. Sir, last question from my side. Sir, do you have anything to elaborate and throw light upon the RBI discussion paper? So I heard you on the media mentioning that you might even opt for banking license and that the merger talks are on the back burner. So would you like to elaborate on this and as against the contours of the RBI discussion paper?

No, we are still discussing on the same. We have not really come to any kind of a conclusion on the same. But as far as the banking is concerned, we are very clear on a few things. Being NBFC, you have certain advantage. You can run a company with a lean management and minimum expenditure. But if it is a bank, then you have multiple functions and your cost goes up. And also, you have additional disadvantage of having a CRR and SLR. That is -- and for a large balance sheet, converting into bank, there are some challenges. So these are the few things which we have been debating and discussing internally, and we also expressed very clearly to the regulator. So as of now, there is not much of change in our stand.

The next question is from the line of Amit Ganatra from HDFC Mutual Funds.

Just one question from my end. See, your disbursement growth is around 11% year-on-year, right? Can I know that what is the new customer acquisition that you must have done this quarter versus what you did pre-COVID, just to see the growth there?

See, new customer acquisition is a continuous process. So we keep -- now if you look at the number of branches, we have added 85 branches -- added 85 additional branches compared to that of previous year. So the new branches gives us a new destination, new reach. So ultimately, it is a reach that is very important in this kind of business because most of our lending is by meeting the customer, knowing the customer. And the -- we don't, what do you call -- we don't really take the customer or onboard the customer on a digital platform. So it is more of a physical work. So it is -- the reach only is creating opportunity for us to service more number of customers and more number of geographies. So we feel that, that is a continuous process.

No, my question was more from the perspective that out of these disbursements, how much of it would be to existing customer base and how much would be to new loans altogether?

See, new -- the existing customers keep coming back to us is one part of it. New customer acquiring is additional. That's why I'm telling, new branches are giving us new customers.

We don't have the numbers off hand, so you can contact Mr. Mundra. He will be able to help you out.

Okay. Okay.

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

Congrats on the quarter. Actually, I had the same question as Amit as to what percentage of our used vehicle disbursements are for purchase of vehicles and what percentage are top-up?

Okay. So there's nothing called top-up here. Only when a customer completes his previous loan, he gets fresh loan. So that also after reinspection of vehicle. And depending upon the LTV, we give loans. So we don't give a top-up on existing loan. That's one thing. And as far as buying/selling is concerned, we are the probably largest company. Whenever there's a buying and selling happens, Shriram is the first on anybody's mind because we are the largest lending company for anyone who buys. So typically, you can say, around 60% of our loans is to our existing customers, but that need not be on same asset. Our existing customers will keep buying new assets. They'll keep selling some existing assets. They keep buying new assets. They also keep adding more assets. So the -- around 30% to 35% of the customers will be totally new to the Shriram, but they would be introduced by existing customers. So we insist that any new customer walks in, they need to be introduced by existing customers. So we network and get the new customers inside the -- in the -- our fold.

Okay. Okay. That's good. And sir, second question, did you mention you raised INR 12,000 crores of debt in the quarter?

Yes, yes.

Okay. So what is the incremental cost of this debt? So the INR 550 million will be at 9.2%, 9.3%, but the domestic debt that you raised is at what cost?

Varies between 8.5% to 9%.

8.5% to 9%? Okay. That's all from my end.

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

So I have just one question. I'm not sure if I missed this earlier. What is -- what percentage of your customers have not paid a single EMI, say, since June end?

Can you just repeat the question? Yes. So as on date, the number of customers are 9,600 who have not paid a single installment from March 2020 to current date. And the exposure amount is INR 112 crores.

INR 112 crores? Okay. That's it from my end.

The next question is from the line of Abhishek Murarka from IIFL Capital.

Congratulations for the quarter. Sir, just a few quick questions. One, this restructuring of INR 2,200-odd crores. Specifically, any particular segment that this has been given to? And last quarter, you had sort of indicated that overall restructuring could be around 2.5% to 3.5% of AUM. So is it likely that another 1%, 1.5% gets restructured going forward?

No. See, totally, we indicated, it can be up to 3%, but when we started working on that, we came down to the amount of INR 2,200 crores, which is around 2% of the portfolio. But again, there, we have completed only INR 300 crores till now. And rest of the customers, they have an option of restructuring before March 31. So it was specifically directed towards passenger segment, especially school transportation and the office transportation, that is, office transformation and to aggregator vehicle, Ola, Uber vehicles, where the income has dropped. But as of now, the aggregator model, the Ola, Uber, they have bounced back to some extent. Nearly 60% to 70% of them have started repaying. And they said we don't need restructuring. So we did direct towards this segment, but the response, as of now, has been a little slow because [indiscernible] have revived. The tourism industry has fully revived. Almost -- most of the tourist places in India, there's no rooms available. And to the extent there is fully occupied and the activities are in full swing. And even the city mobility has improved. So we will just wait and see whether others, they come forward for restructuring or whether the number of restructuring would be much lesser than what we anticipate.

The maximum amount that can be the done is INR 2,267 crores, not beyond that because the deadline was December 31, which is already over.

Okay. Okay. Perfect. And the follow-up on that is, basically, you had also indicated that about 1% of your AUM were customers who have not paid a single EMI. Now suffice to say that most of them have been recognized in your pro forma GNPA and, therefore, nothing else remains. Is that -- should that -- would that be a correct assumption?

Yes. See, as we mentioned earlier, out of the 1 lakh customers who have not paid during the moratorium period, still there are 9,600 customers who have still not paid. The rest of the customers have started paying, and they have been classified in the appropriate stages. And these 9,600 cases have been classified under Stage 3 and 40% provision has been taken.

Okay. Okay. Sorry, if I missed that. And the next question is repossessed vehicles, could you share the value number this quarter and last quarter? Just what is the value and volume of repossessed vehicles?

You can take this number from Sanjay offline. He will provide you.

Okay. Perfect. And just lastly on this additional provision. So now you're carrying quite a bit of provisions, your commentary is positive, and you're talking about largely having done the restructuring, et cetera. So on an incremental basis, would provisions normalize from the next quarter, from 4Q?

Yes. As things stand as on 31st December, we are adequately provided, but we need to take quarter-on-quarter. So more or less, we are coming to the end of the COVID provisioning, I would say.

And any understanding on when you'll start utilizing this? Or will you carry this as a contingent buffer?

The discussion is still on. So we'll come back to you on that. We've not decided as such.

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

One question on the Stage 2 loans. The number today is much below the pre-COVID level. I think it used to be around 20%. So how will this -- maybe -- do you expect the normalization in that? And how will that shape out? So would -- in terms of maintaining the overall provisions, would that lead to a lower probability of default in Stage 1 loans? Or we will have a temporary increase in provisions to account for increase in Stage 2 loans?

Stage 2 couple of years back, if you go back, it used to be around 12% to 14% level. It had shot up to 20-odd levels one year back. And December 2019 onwards itself, it has started coming down because more focus was given on these stage 2 assets. And this 10% to 12% is the normal, I would say, going forward. And the requirement of PD and LGD, it is a continuous process. Every year, we revisit the numbers and then add one further year and then remove the earlier 5th year. So that will be a continuous process. So even if there's a decrease over a period of time, that will happen gradually. It will not abruptly happen.

Got it. And on the Shriram Group, this merger talk, if you could just tell what is the thinking on that right now?

There's no further talk on the same. It is in the back burner now.

Back burner as in is it paused for now? Or is the thinking that it will not be done?

No, that -- I cannot -- we cannot talk -- tell now because we feel that right now the focus should be on the performance, what we call, strengthening the company. So we don't -- we are not really looking to it immediately.

Right. And there is the last thing. If you could quantify how much was the CSR part? Sorry if I missed it. And the INR 231 crore amount, which is transferred and the government will reimburse, how does it play in the P&L, if at all?

The INR 231 crores has been credited to customers whose accounts are still live. And some customers have already settled with us and closed the contract. We have transferred to their respective bank accounts. And this INR 231 crores is supposed to be paid back by the Government of India through State Bank of India. And we already lodged the claim on -- before the deadline. And they've started asking certain further additional details. And we expect that it should be credited to our account maybe by March 31, before that.

And the CSR amount?

CSR amount was INR 37 crores in the current quarter.

The next question is from the line of Radhika Lohia from Mirae Asset.

So just one data question from my end. So you had given the number of probability of default for Stage 2. Could you please repeat that?

The probability of default of Stage 2 was 23.12% as against -- 23.12% in the current quarter and the previous quarter was 23.19%.

Okay. And for Stage 1 is 7.4%, right?

7.4% as against 7.48% in the previous quarter.

Sorry?

It was 7.4% in the current quarter as against 7.48% in the previous quarter.

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

I just wanted to know what is the trend you're seeing in terms of like resale values of the vehicles? And secondly, we've seen a fairly significant improvement if you look in terms of proportion on your M&LCV side. So just wanted to understand like what's kind of driving that because -- I mean if it's used vehicles, what is driving that? Because the new vehicles still seem a little bit muted on the M&LCV side versus the LCV side. So if you can give some color on that.

Yes. As far as LCVs are concerned, the resale prices are up by 20%. It is -- you can straightaway link it to the increase in price because of BS-VI. The BS-VI base vehicles are priced 20% more in LCVs. Therefore, the used vehicle resale prices have gone up by around 15% to 20%; in some categories, even up to 25%. As far as the heavy vehicle is concerned, the resale prices have not really gone up significantly mainly because the new activity, new economic activities are not really robust. And there was an excess capacity in the system because 15% additional axle weight was allowed to be carried in the heavy vehicles. So there was excess capacity being built. And therefore, the resale prices on the heavy have remained same as what it was in the previous year. But we expect the situation to improve mainly because the -- some of the main application of the heavy vehicles are your movement of cement, steel and some -- your, what you call, commodities like the mining products. So these activities have not resumed to the fullest level. So once these resume, especially we expect the government spend on infrastructure will go up substantially post budget because government has outlaid INR 111,000 crores to be spent in 5 years, and 1 year is already over because the plan was -- the outlay was announced in the month of April last year. But because of COVID, most of these are postponed. So we expect, post budget, the government will push on infrastructure. And that will create a demand for all bulk transport materials. And therefore, the heavy vehicle demand will come back. And definitely, the used vehicle price also will bounce back. So as far as the used heavy vehicle is concerned, typically, used heavy vehicles are used for multipurpose because in India, most of the vehicles are open vehicles, and it can be used for anything, including -- whether it is poultry, whether it is vegetables, whether it is grain, whether it is sand or cement, anything. So used vehicles get application, which is universal. But when we buy a new heavy vehicle, it normally gets used for specific applications in the first 3 to 5 years. So the used vehicle demand and movement and the earning have been reasonably good. So that much I can say.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Umesh Revankar for closing comments. Over to you, sir.

Yes. Thank you for attending today's call. It was a reasonably good quarter for us, and we are quite confident this fourth quarter also will turn out to be a good quarter. The collection trend seems to be reasonably good, on par with previous quarter. And we feel that growth will come back in the coming year -- next year, especially, as I was just telling you that the government is likely to spend reasonably large sum on the infrastructure. And that should lead us for better growth and better utilization level, and we should continue to perform as good. Thank you. Thank you very much.

Thank you. On behalf of Shriram Transport Finance, that concludes this conference. Thank you all for joining. You may now disconnect your lines.