Spandana Sphoorty Financial Limited (SPANDANA.NS) Earnings Call Transcript & Summary

Good morning, and welcome you all to the Q4 and FY '20 financial and business update call of Spandana. Apologies for starting the call late. Due to some technical issues, there was a delay. During the quarter, we recorded very strong growth, and we have set new benchmarks and made many breakthroughs. The AUM grew by 56% Y-o-Y from INR 5,879 crore to INR 6,829 crore. In absolute value, the portfolio grew by INR 950 crore in the quarter. We continue to be the third largest microfinance institution in terms of AUM. The AUM grew by CAGR of 74% from FY '17 to March '20. The book grew by more than 5x from 1,300 crore to INR 6,829 crore from FY '17 since we exited from corporate debt restructuring. We were eighth largest in March 2017 when we exited from CDR. And in 2 years, our position in the market moved from the eight largest to third largest. We disbursed INR 2,324 crore in this quarter. This is the highest ever that we have disbursed in the quarter. Disbursements grew by 61% Y-o-Y from INR 1,390 crore. We opened 85 new branches in the last one year. By the end of year, we had 1,010 branches. Number of borrowers increased by 5% quarter-on-quarter from 24.5 lakhs to 25.7 lakhs. We expanded to 3 new districts in the last quarter, thus, making the total number of operating districts to 280. Employees increased by 24% Y-o-Y from 6,655 to 8,224. The top 3 states exposure has further come down from 56% to 46% Y-o-Y. District level diversification is very much intact with 211 districts out of total 280 districts having less than 0.5% of the total portfolio. Except 13 districts, all other districts have less than 1% of the total portfolio. These 13 districts also have less than 2% of the total portfolio. In fact, no district has more than 2% of the total portfolio. State level, district level and branch level diversification helped us to do more and more assignment and securitization deals, and we raised INR 3,777 crore through PTC and direct assignments in the last one year. Assigned and securitized portfolio increased from INR 804 crore to INR 2,407 crore. As a percentage on total portfolio, DA plus PTC portfolio increased from 18% last year, 2019, to 35% by 2020. We continued our stellar performance on efficiency, profitability and productivity parameters during the quarter. We achieved a number of breakthroughs, and we have set many benchmarks for the industry. Operating cost further reduced by 70 basis points, from 4.6%, it has come down to 3.9%. This is sub-4%, and this is lowest across the industry. It is a new benchmark that the company has set for itself and for the industry. Cost to income tax further improved from 24.9%, it has come down to 19.9%, this is, again, sub-20%. Gross NPA and net NPA stood at 0.36% and 0.07%. In this quarter, we have provided for INR 188 crore towards provision and write-off, of which INR 59 crore is normal provision and write-off and INR 129 crore that we made towards COVID and other provisions. For full year, the provision and write-off is INR 274 crore. Total write-off for the year has been INR 125 crores. Portfolio impacted in a few districts of Karnataka, the Udupi, Dakshin Kannada and [indiscernible]. So we have completely cleaned up that portfolio. And also a few districts of Maharashtra, Kolhapur and Sangli due to floods. So that portfolio has been completely cleaned up. These 2 states, the written-off portfolio accounts for almost INR 64 crores. Average AUM per branch increased in a year from INR 4.7 crore to INR 6.76 crore Y-o-Y. Average AUM per employee also increased. This is not for loan officers, this is per employee. It increased from INR 80 lakhs to INR 1 crore. This is still lower than our peers. In this quarter, we also raised INR 1,409 crores through DA and INR 533 crores through term loans. Total borrowings raised in the quarter were INR 1,942 crore. Cost of borrowing declined by 160 basis points from 13.5% to 11.9% Y-o-Y. And marginal cost of borrowing reduced from 11.3% to 10.2%. Cost of funds on AUM reduced from 9.6% to 7.8%, so this is Y-o-Y. Net interest margin further increased by 70 basis points from 15.9% to 16.6% Y-o-Y. Net interest income for the quarter grew by 56% Y-o-Y to INR 263 crore from INR 168 crore. Operating profit before provisions for the full year has been INR 892 crore as against INR 519 crore for FY '19. Preprovision profit grew by 72% compared with 56% growth in portfolio. So this is much higher than what we projected, and what we shared with the market. PBT for full year increased by 31% to INR 618 crore from INR 473 crore. This is after making INR 129 crore additional provision towards COVID. PBT would have been INR 747 crores without COVID provision. Tax reported after adjusting PBT is INR 352 crore as against INR 312 crore, which is up 13% growth. Pretax ROE for the quarter is 6.8%, which is down from 10.2% Y-o-Y, and this is purely because of INR 129 crore additional provision we made towards COVID. Post-tax ROE stood at 5.2%, which is lower by 180 basis points Y-o-Y, and this is again because of COVID provisions that we made. Capital adequacy ratio increased from 40% to 53%. This is again because of the profits that we added to the network and leverage further reduced from 1.6x to 1.1, and this is again because of our balance sheet portfolio that we have. Net worth increased from INR 1,889 crore to INR 2,626 crore Y-o-Y with an increase of 39%. Free cash and liquid investments as on March stood at INR 547 crore. On-time collection efficiency for the quarter has been 98.52%. So with this, like I will move to the COVID stuff. So we gave an update to analyst, like in terms of what happened, like till 25th March. And I will take you through in terms of what has happened subsequently. So starting from 21st March, 2020, in light of the increasing cases of COVID, we stopped loan disbursement as a precautionary measure. Following the central government's announcement of a complete lockdown from 24th March, '20, we also closed down all our branches and head office operations, suspending collections and also other operations. So communication via text messages and calls have gone out to all our borrowers about the ongoing lockdown situation and our inability to reach out to them and conduct center meetings until the lockdown period. So we implemented work from home for all the head office staff due to Spandana's flexible cloud-based IT architecture. This shift has been seamless and all our operations continue to function effectively during the lockdown period. And subsequently, pursuant to the order issued by the Ministry of Home Affairs on 15th April, 2020, we resumed our operations in a phased manner from 20th April. Based on the initial assessment of our branches in COVID zones, we started operations in almost 790 branches and Spandana was at the forefront in terms of resuming operations and the first MFI to have such a large proportion of its branches active by 25th April. So by now, all our branches commenced operations with more than 92% of the field staff reporting to their respective locations. All our branches started collecting installments from the borrower who did not wish to opt for the moratorium. Since we resumed operations on 20th April, the traction in selections till date has been very encouraging. However, our loan officers were not able to meet each and every borrower scheduled for the week or day. This is because of our loan officers meet our borrowers in center meetings, but due to COVID, the distancing norms that engaged in group-wise collections and, in few cases, individual collections compared to center-based collections earlier. Also travel time to each borrower's house and additional time spent to address each of the borrower's queries reduced the number of borrowers a loan officer could meet in a day. However, there has been significant improvement in the collections from the first week that we resumed operations to now. We so far collected INR 165 crore, and we are expecting to collect over INR 300 crore in the month of June. So we have 91% of our borrowers and 90% of the total AUM in rural area. Fortunately, COVID impacted -- COVID impact in rural areas has been very minimal so far and has hence not impacted our borrower base in a significant fashion. Even if certain pockets of COVID do emerge, our extremely diversified footprint has less impact on our entire portfolio. Moreover, most rural microfinance borrowers engage in agriculture activity and dairy activity. These 2 activities were very much intact. And dairy, alone, accounts for 56.7% of our borrower base. Since both these are essential items, income continues to flow to the rural household. As that income is largely unaffected, their ability to pay is also not impacted. Additionally, the government also announced a series of economic relief measures for rural India, which will further support our borrower's repayment capacity is what we are envisaging. Finally, considering many of our borrowers are in the third or higher cycle, we have strong confidence in their ability to withstand any impact from COVID and manage the household cash flows as well to repay the loans. And we also believe that like Spandana, with its 16 years of microfinance experience, has withstood multiple crises in the microfinance space across its journey. And, hence, it is uniquely experienced to navigate the current situation. Starting from 2010 Andhra crisis, Spandana demonstrated its operational excellence by being 1 of the only 2 MFIs to come out of CDR and the only MFI to have selected a substantial portion of its AP portfolio since 2010. We are the only MFI that has selected over 45% of AP portfolio. So during demand as well, the company demonstrated its strength in terms of asset quality versus the industry. Our PAR 0 was 60% lower than the industry average. So this also enabled us to resume our business operations strongly, recording a strong 144% growth in AUM in the year following demonetization. Spandana also has navigated through multiple smaller political interventions and natural calamities very successfully in the recent times to record a stable and industry-leading profitability. So we continue to receive strong support from our lenders during the quarter 4 and March 2020 as well. So during Q4, we raised the total amount of INR 1,942 crore, of which INR 1,262 crore through assignment transactions and INR 147 crore was raised through securitization transaction. So during lockdown itself, so we raised INR 848 crore. So -- and again, of this, 31st March, we did a direct assignment with State Bank of India. We raised INR 490 crore. And again, we raised another INR 300 crore from NABARD in the month of April. So we are super confident in terms of getting support from all other lenders. And so we also got moratorium from 68% of the lenders. But however, we repaid all the installments those are due in the month of March and also in April. So we just availed to the extent of INR 30 crore in the month of May, so -- however, like we are current to all the lenders and we repaid every installment even to the lenders who have given us moratorium. So I think, in the month of April and May, till date, like we repaid over INR 600 crore to all the lenders. And as we have a significant portfolio, which is our balance sheet, whatever the collections that we are doing, to the extent of our balance sheet portfolio, we have been transferring to the lenders. So with this overview, now I open the floor to questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Dnyanada Vaidya from Nirmal Bang Securities.

I had just one question. It was regarding the net gain that you have mentioned. It's a pretty high amount compared to the past quarter. It's about INR 108 crores. So could you give me a breakup of all this or an explanation regards this big amount, please? Because that's the reason the PBT is also pretty high.

Sure, sure. So the reason why the upfront income on day recognition of financial instruments is high because of the high DA volume during Q4. Like we had guided back in Q3 during the investor call, Q4 is the highest quarter in terms of the value of DA transactions that we did, which is INR 1,262 crores. The previous quarters, we had looked at -- we had bought -- we had completed transactions worth INR 500 crores to INR 700 crores only, but this quarter was high. And generally, about 9% of the DA value transaction gets recorded as an upfront income. This is the -- based on the discounting and all of that. And the requirement for why this appears in the P&L is because of the NDA requirements. Where and when we sell the DA portfolio, the excess interest spread that we earn on the portfolio from the lender, for example, if the portfolio is yielding, let's say, 24%, and we are able to do a transaction at 10%, the remaining 14% comes back to Spandana. And that 14% will come over a period of time, which is -- it could be about 21 months. However, NDAs requires us to discount this entire cash flow over the 21 months to the current present value and then recognize that in the P&L and recognize that as an asset in the balance sheet. As and when we recognize this cash over a period of time, it gets offset from the asset.

The next question is from the line of Anand Trivedi from Nepean Capital.

My first question is that your cost-to-income ratio of the fourth quarter has come down substantially. And this is despite the fact that you have grown your business quite smartly. So can you explain that a little bit, please?

If you could notice, the growth has come from the existing branches, and the growth has come from existing districts. So we have not really grown into new geographies. And we have not really expanded to new states. So we have not opened many new branches. And, again, even the growth has come from existing borrowers per se. So as such like there was so much to leverage in terms of existing branches, existing borrowers. So as such, proportionately, if you look at, the portfolio grew by -- how much? The portfolio grew by 56%. So -- but again, like if you look at -- if you see, the growth in operating costs last year to this year...

[indiscernible]

Not percentage, absolute value. So like -- and again, employees. The growth in employees is 24%. So that's where like you can make out. Employees grew by 24%. Portfolio grew by 56%, which means like by increasing -- employees by 24%, we are able to grow portfolio by 56%. So which means the growth has come from existing branches, the growth has come from existing borrowers.

And is this a sustainable cost-to-income ratio in your opinion? Or you think there's more room for downside or -- sorry, upside in this?

I will be [indiscernible] asking like if it doesn't go down further. So if you just look at like the average portfolio per branch, so it is still lower. So there is further room to increase the loan outstanding per branch. So if we compare our numbers with the industry average, the industry average is like around INR 8 crore, INR 9 crore, so for example, Bharat Finance, for example, CreditAccess. Their average loan outstanding per branch is like INR 8 crore, INR 9 crore versus our average loan outstanding per branch is like INR 6.7 crore. Once like our average loan outstanding per branch increases to INR 8 crore or INR 9 crore, I think like it will further go down.

Okay, fine. And my next question is, if I understand correctly, you've come up with the press statements in that your CFO and your Company Secretary have resigned. Could you explain that? What is the reason for that?

So what is being stated to me, he is sitting next, he can better answer that question. So like basically, he is not comfortable in terms of spending time in Hyderabad. So basically, like he has friends, family, everything in Bangalore and Chennai. So like he is in the process of having -- like wife is expecting. So like they're planning to have -- yes, maybe, Satish can answer?

Yes. Due to the personal reasons that ma'am mentioned, so we are preferring to go back to a city where our parents are based. So that is the reason that's why I'm leaving. There is no other issue.

Okay. And what about Mr. -- sorry, the Company Secretary. Yes. Rakesh is actually getting married and so he's moving cities to moving closer to his parents who are based in [indiscernible].

[Operator Instructions] The next question is from the line of Lalitabh Shrivastawa from Sharekhan.

Congratulations on a good quarter. Two small questions, ma'am. First of all, your percentage of borrowers under moratorium, how that percentage has moved over, say, last 15 months -- 15 days or 1 month? And secondly, your run rate breakup, which you have provided on the provisions, apart from the COVID-19 provision as well, we see the provisions for standard assets, et cetera, also going up significantly on a sequential basis. So if you can please help us understand what went in there?

0.4% to 0.9%.

I'll take the second question first. So as per the NDA's requirement, we will have to update the ECL model year-on-year once we complete a financial year. So till December 2019, we had used the model in which the losses till FY '19 was considered. And when we finished March 2020, then we had to consider the losses if they were any or excess or lower for FY '20 as well. However, because of flood incidences in multiple states during 2019 and 2020, the provision requirement in stage 1 increased from 0.4% to 0.9%. However, at the same time, in stage 2 and stage 3, the state -- the provision requirements came down because even though the portfolio moved to stage 2, for example, our stage 2 is 31 to 90, because of flood, a borrower would miss 2, 3 installments. So she moves into the stage 2 bucket. And then eventually, the losses would come down because she will start repaying with a lag. So that got reflected in stage 2 and stage 3, where the provision requirement, for example, in Phase 3 came from 89% to 80% and in stage 2 from 59% to 50%. So it is only an inter-stage movement and a temporary increase in provision. However, we are comfortable with the provision requirement shown by the model for stage 1 as well.

And again, one more thing. Like as per the model, as per the ECL model, like we don't have to write-off more than 60 days. But however, like if you see more than 60 days like we have completely written off. And again, the -- as I mentioned in my earlier note that Karnataka portfolio, like, which was impacted due to external interference. And again, Maharashtra portfolio, which got impacted due to floods. So that itself is like about INR 64 crores. So that was completely cleaned up. So even like the standard provision was -- as you rightly mentioned, it was a little high. And again, the bucket 1, like it's almost 0.9%.

Provision got double.

Yes, provision got more than doubled. And in terms of borrowers, what was it? Like I did not understand.

So ma'am, the percentage of borrowers under moratorium? And how that number has behaved over the last on, say, 15 days or a month?

Basically, like, I think rural, it was only like the borrowers that we were able to meet. So in our experience, it's like 80% of the borrowers that we were able to meet like they were -- they preferred paying their installment. So in the -- as I said, that like we started meeting borrowers and collecting installments like from 20th April. So we were able to meet over like 6 lakh borrowers. And out of that, like by now, like 550,000, 560,000 borrowers like they paid their installment. So 80% of the borrowers that we are meeting, so they're paying their installment. So but again, the difficulty is like in down some meeting each and every borrower. So one like the center meetings are not happening. So as such, like either group meetings are like we are meeting borrowers on an individual basis. This is really taking lots of time. Initially, like there were trading issues and logistics issues because there were many, many problems that we faced in terms of resuming branches. There were issues in terms of landlords. So there were like problems in terms of like the neighbors not letting our staff to enter into the branches, like because they were coming from containment zones, they were coming from red zones. And again, like, initially, like the staff had issues in terms of crossing the borders. So like it took it's own time like for the staff to report in the branches in the first place. Now as for the process like per day the loan officer is scheduled to meet like almost 150 borrowers. In a normal course of time, as for the center meeting process, we spent like a minute per borrower. But now like to meet and, again, convince the borrower and explain and answer all her queries, it is really taking such a long time. So we are not in a position to meet like all the borrowers as per the schedule. So that is real like we are not able to meet all the borrowers as per the schedule. But however, 80% of the borrowers, if we are able to meet them, and if we are able to address all their queries, and once like we explained to them that like if you opt a moratorium like this is the scenario, so there is an additional interest like that is payable. To that extent, there is a delay in terms of getting the next loan. Most of them like they are preferring in terms of repaying the loan and getting the next loan on time. And that is how they're able to collect INR 165 crore till date.

[Operator Instructions] We move to the next question that is from the line of [indiscernible] from [ Carpediem Capital ].

Just a couple of quick questions. One is that on the collections that we have seen from our borrowers in this past 15, 20 days or a month, are we taking one EMI or are we taking more than one EMI [indiscernible]? And the second question is, how are we seeing disbursement since COVID? Have we started disbursement?

So there are a few borrowers like who have paid all their installments that are due from 1st April. So there are few borrowers like who have just paid only one installment, depending upon the cash flows. So we started disbursement from yesterday. So we, however, collected loan applications since the last one week. So we are expecting to disburse almost like INR 150 crore to INR 200 crore this month. But so far it's just a disbursement to loan [indiscernible] property, but microfinance loans, we have still not started.

The next question is from the line of Nidhesh from Investec Capital.

When you are expecting INR 300 crores of collection in the month of June, what is the collection efficiency we are building?

That's about 50% to overall. But again, like that's very, very conservative. So yesterday, for example, like some branches like they reported 100% collection efficiency. And if we stayed like all branches in April, they reported 85% collection efficiency. But however, like some of the states, the collection efficiency is a little low. So but again, like to be on the safer side, so overall, like the collection efficiency, with INR 300 crore collection is 50%.

Sure, sir. And as you mentioned that almost 80% of customers who are your meeting are able to pay. So remaining 20% of the customers will avail additional moratorium? Or do you expect them to start [indiscernible]?

Basically, 10% of the borrowers are in urban areas, so they might.

Okay. And just lastly, one observation, which RBI has made on the interest rate, and you mentioned that in the footnotes that you have addressed that by reducing the interest rates. So what is the interest rate now we are charging to the customers?

We are now charging 21.55% interest rate. So -- but however, like this is till December, like we had AP portfolio on our balance sheet. So it's only in December like we completely wrote off the old AP portfolio. So till December, so we were without generating any interest income on old AP portfolio. So we were, in fact, even servicing the corresponding debt related to AP old portfolio. So -- but however, like in December, we were able to write-off the complete AP portfolio. So it's only in the last quarter, January, February, March. So we had 100% into the interest generating portfolio on our balance sheet. So with that ability in terms of 100% portfolio generating interest so we reduced the interest rate for the first time. So now we are charging 21.55%.

[Operator Instructions] The next question is from the line of [ Rajiv Mehta from Yes Securities ].

Again, with regards to this pricing reduction. So ma'am, are you saying that it will not affect our profitability or NIMs after having reduced prices -- pricing as per the RBI's observation?

Not really. To that extent, like if you see our cost of borrowing has been coming down significantly. So in 2017, like if you see our cost of borrowing was as high as 14%, 15%. So today, like it has come down to almost like 9% and 8%. And that, too, like while we are doing significant -- like we are raising so much of borrowing to our balance sheet. So -- and that is like at 8% and 7.5%. Over a period of time, like the cost of borrowing has substantially come down. And again, like EBITDA leverage, like with the average loan outstanding increasing at the branch level, so the cost -- operating cost is also reducing. So I don't think that like -- and if you see like the NIM has further increased.

Yes, ma'am [indiscernible] -- yes, sorry. The question was, since you have to price your loans based on the cost of borrowing. So if any which way, the top-up on the cost of borrowing was as per the guideline, so what did RBI has an observation about, or had a view on? Because I believe that we had a similar -- or would it be right to put in context that there was an observation by RBI even in 2018 -- in FY '18 with regards to pricing? Are both the observations similar in nature in terms of pricing differences as per their interpretation?

Yes, there is no conclusion on that. So RBI has finally written to the pricing division -- sorry, policy division in corporate office. So they're waiting for a [ report ] from Mumbai on that.

Got it. And any assessment of the impact of Cyclone Amphan impacting Orissa? And we have a significant portfolio in Orissa. So any assessment and whether there's COVID provisions, because it says that it's for COVID and for other write-offs. So does it include an element of this cyclone impact as well?

It has not impacted Orissa that badly. I think like that Cyclone Amphan has impacted the West Bengal, but there is not much of impact, fortunately in Orissa.

Okay. So that is good to know. And ma'am, just last one question was, with regards to collecting from individual group members, so how are we approaching this -- such type of collection? Because is it still approaching at a group level that the group knows that the -- every individual is paying the installment individually with the loan officer going to him? Or -- so that the discipline or the entire group pays, if somebody doesn't pay in a group at a time in one installment. Because you said that somebody is paying few installments together, somebody is paying one installment. So is it disturbing the group coherence or group working there in that case?

So basically, like instead of conducting center meetings, what we are doing is like we are conducting group meetings. So like, for us, like a center was always an administrative unit, but we never have taken center guarantee. It was always group guarantee. So it's only like 3 groups were coming together as a center. But in terms of giving guarantee and in terms of cohesiveness and all like it was always a group. So -- but right now, like because 30 people coming together and, again, like it will unnecessarily create a kind of visibility issue and all. So we are not conducting center meeting, but we are conducting group guarantee -- sorry, group meetings.

So would we continue with similar methodology when we assume...

But in the group like, for example, if the group has 10, if 5 of them are availing moratorium and 5 of them, like they have a better cash flow, they want to repay, we are fine with that. Like we are taking installments from 5. So that should not be an issue at all. And again, like there is an understanding within the group that if these 5, like they can avail moratorium, these 5 can repay. So that's a group decision.

[Operator Instructions] The next question is from the line of [indiscernible] from [ Alkaline Wealth Adviser ].

I just have one question actually. As far as our cost of borrowing goes, going ahead due to our credit rating and due to as a, I guess the bank, all banks including private and public banks are decreasing their lending rate. So do we expect our cost of borrowing to come down even in the next year?

So we have banks, and we are also borrowing from NBFCs. And right now, like we are also raising money through NCDs. So -- and again, if I see the borrowings through our balance sheet, yes, like it is going down. But again, if I see term loans and if I put like all the cost together, so there is a cash deposit. And there is a processing fee. There is an interest. Like all [indiscernible], it is still working out to almost like 11.5% to 12%. And again, if we look at like NBFCs, like we have substantial portion to NBFC. So there, cost is like almost like 12% to 12.5%. And again, if I look at like the cost of NCDs, so it is very, very high. And again, like we -- of late, like we have been working on some offshore funding. The cost of offshore funding is very, very high. So they are quoting anywhere like [Audio Gap] on LTRO, like which is linked to [Audio Gap] options. So it is lower, but other like there is no substantial reduction in [indiscernible]. So it is [Audio Gap] and, again, there is a way in terms of our balance sheet, like in any case, when it comes to pricing our loans, we don't have to consider that. So that benefit is always there. So that is coming at a lower rate, and we don't have to consider that while pricing our loans.

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

Just one question. Based on your interaction, you said that 20% of the borrowers might need extension of moratorium, right? Like there is just one confusion there. You said 80% of the borrowers that you are meeting are showing that they will be repaying so there's just that confusion. So what percentage of the customers would be needing the extension of moratorium basically?

[Audio Gap] so for example, Ahmedabad branch, also [indiscernible] branch. So we could not even go and meet these borrowers. Like Ahmedabad, the situation is very, very bad out there. So the entire region, like our borrowers, like it's still in a containment zone. And again, like till 10 days ago, like the situation in Bhopal was like very, very panic. So same as like in Indore, and again like Pune. So some of these places, like we were not able to go and meet our borrowers. So we are just assuming that like these borrowers would want to opt moratorium. So the thing is like, we were not able to go and meet these borrowers.

Okay. But ma'am, we are able to contact them over the telephone, right?

Yes. Yes, we were able to contact them. But again, like, in terms of like they don't have access to digital payment options. So like they did not -- at least like even to ask them to pay their installment also. So like they are not involved in agriculture activity, they are not involved in dairy activity. They're self-employed, like because their husbands are working as taxi drivers, auto drivers. There are some of them like they are involved in carpentry, some of them are involved in construction labor work. Their economic activity got completely impacted. So we very clearly know that like they are not in a position to pay their installments, all these urban borrowers.

Okay. Okay. And then one question with respect to our Abhiram Marketing related. What percentage of our branches are offering the consumer-durable product? Like as on March, what percentage of our branches were like distributing those products?

Almost like 80% of the branches. I think like any branch, so once we open the branch like after 6 months of opening the branch, like it will start offering the cross sale.

And what percent of our customers would have taken consumer-durable products from us?

I think at any given point in time, like 5% of the borrowers will have a consumer loan. So we have 1.5 lakh borrowers out of 25 lakhs borrowers who have consumer loans at [ 2% ].

The next question is from the line of [ Ibeto Sobrata ] from [ Soraya Capital ].

So first, I wanted to understand on -- you mentioned collection of about INR 450 crores and disbursement of only INR 150 crores. So there will be some principal repayment as well in that INR 450 crores, right? So we do expect maybe our AUM to go down in the first quarter by about INR 200 crores to INR 300 crores. So any comment on your growth outlook and when do you look to resume growth in the coming quarter would be helpful.

Okay. Okay. Like this quarter, basically, like the April-May like we -- so April like there was no business. And May like we did only collections. And of course, like there was no disbursement. June is the month like we started collecting applications, and we are also doing disbursement. But again, from July onwards, I think like the disbursement will pick up big time. So by September, I think like we will get back to normalcy. So we are projecting almost like INR 600 crore kind of disbursement from September onwards.

Okay. So this INR 150 crores run rate you're expecting to go to INR 600 crores from -- by September, maybe? Yes?

Yes. Sure.

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

Congrats on a very good set of numbers. Again, my question was on this cost of funds and yield. So let me know if I understand this correctly, in FY '17, our cost of funds was around 20% and yields was around 29.5%, which was what the regulatory requirement is. The spread should not cross 10%. And since in FY '18, our cost of funds fell sharply, but the yields were not down to the commensurate levels. So this ongoing conversation with RBI is just to align this cost of funds with which cost of funds have been very volatile. So as far as it would remain on a lower end or keeps coming down, our yields will also keep adjusting to that. There is nothing much to read into that conversation with RBI. Is that understanding correct?

Right now, like what we are charging is 21.5%, right, which is comparable with all other large players, large MFIs, right? And even if we go by whatever that are basing despite site like which is cost of borrowing plus [ 1% ], which is in line with that. So even if we consider that like going forward, of course, like on the existing portfolio, which is INR 30,000 crores, like we will continue to get 24% for the next 2 years because like we charge it on multi-purpose. But assuming that, like I will get like only 22% for the next whatever years, okay? So -- and my yield will be 22%, okay. And then I will get 1% processing fee. So then the yield will be 23%. 23% yield, and again, like we would say 2%, other income. So whatever the yield is also like earned and the commission income cross-sale item, that is 2%. 25% is like my overall yield, so 25%. And again, like what is my cost -- my actual cost on the portfolio. So it is 7.8% -- 8%. So 25% minus 8%, like I have 17% NIM. So 17%, then like I'm taking 2% credit cost, okay? So then I have 15%. 15% and 4% operating cost. Again, I'm levering although it is like sub-4%, so 11%. And so my pretax ROE is 11%. And so here, like I have taken 23%. Look, though like I'll be getting like 24% for the next 2 years because my INR 7,000 crore portfolio, I have landed at 24%, 24.5%, so my pretax ROE will still be like 11% for the next...

And sir, ma'am, on the cost of borrowings, which was about 11.9% in FY '20, has that come down incrementally in the 2 months of FY '21? And do you expect it to come down for FY '21 as a whole? Or you expect it to remain at those levels?

This 11.55%?

The cost of borrowing.

No, like because if I don't want that to further come down, like because if I ask any lender to target like he'll be more than happy. That is always like, in my hands, right? Like because if I want to pick up, like I will not be able to bring it down. Like if I want to really up the -- so I can always make it up, right? Like because it's a kind of like a discussion with your lender, right? With the same lender like for COVID or loan, with the same lender like we were also doing whatever our balance sheet, so while you are taking an exposure, so you can always discuss, right, like because you are giving me INR 500 crore term loan. So like you charge me 200 basis points higher then unlike you charge it 200 basis points lower here, because I get the benefit like I can transfer that there. And here, like I don't have to transfer to the borrower. So it's a negotiation that you do with the lender.

And as far as what you're seeing in the cap, that includes the PTC cost also. And this is the cost for the year, not the margin cost of borrowing. So if you were to look at the margin cost of borrowing, which also includes assignment transactions, right, I mean where we have done sub-9% kind of transactions that -- including that, it was 9.4% for Q4. Now in Q1 so far, we have taken 1 term loan, and there are multiple others, which we will be drawing down in the next few days. We expect that to be around 11%.

And the basis, like your cost of borrowing is 11.55%. But again, in your financial cost ratio is, here, we have taken 8%. This is only possible for MFI who are doing higher our balance sheet transactions. And again, like why we are able to do 35% -- today, we have 35% of our total portfolio towards our balance sheet. So like...

And capital adequacy.

And the capital adequacy. So to be able to know like that kind of huge balance sheet transactions, one, you should have capital like -- free -- you need to have free capital to be able to generate portfolio and then sell that. And again, like you need to also have super quality portfolio because the lenders, like they will cherrypick the portfolio. And again, like you need to have fully diversified the portfolio because like the lender will not take like more than 5% from each district. He will not take like more than 10% from each state. And again, like you need to have like 100% collection efficiency at the branch level, at the district level, at the state level. So like this is coming from that kind of capability that you are able to have 35% of your total portfolio that you could securitize. So the total cost of borrowing is 11.55% but on the entire portfolio, my cost of funding is only 8%. So that's the way like I'm getting 11% what is like ROE.

[indiscernible]

I don't mind it for my NBFCs like because as long as I am borrowing from NBFCs, so it is next to impossible for them to charge anything like which is lower than 12%, 13% because they are in term borrowing from banks, and they are lending to us. And again, like we are also borrowing from the market so in CDs and all. And then again, like when it comes to offshore borrowings, so like that is also very high.

The next question is from the line of [ Mon Panarama ] from [ Data Opportunities Fund ].

Firstly, congratulations on the great set of numbers, phenomenal growth. I had a question related to the [ provisioning ]. I was just trying to understand how are we evaluating the potential losses. I presume that like banks that is looking at the other companies in the MFI business, there's been increasing, say, to the 1% where we're all through AUM for our -- for the provision when we have been more aggressive at 1.8% to 1.9% of our portfolio. I just wanted to understand, is this the way to look at it? The precise way to understand the provision in this environment?

So I think like if I understand the question right, like what kind of impact that we are seeing because of COVID on the overall portfolio, right?

Yes. Yes. And I'm just comparing it with other peers. I'm trying to understand that you're provisioning higher. So what's the understanding behind that?

I think our overall provision for the year, like it is about INR 275 crores. And out of that, like whatever the provision for the year, the standard provision for the year is...

INR 96 crores.

INR 96 crore. And COVID-related provision...

INR 129 crores.

INR 129 crore. INR 129 crore on INR 4,800 crore. In terms of percentage, like it was out to 2.7%. So towards COVID, like our on-balance sheet portfolio, we made 2.7% this year itself. So if I look at like the overall impact of COVID, so if I compare this with demonetization, so what happened during demonetization, the impact of demon was in very few states. So if I look at like, for example, starting from [ Jatik ] -- so [ Jatik ] and Jharkand and again, Orissa, Bihar. So there was absolutely no impact of demonetization that time. These states like we had 100% on-time recovery. The impact of demonetization was limited to very few states. So it was in UP, the impact was very high. And again, a few districts of MP and few districts are from Maharashtra. So -- and having said that -- and during demonetization, we did not suspend collections. So we were able to go for -- we were able to conduct center meetings. We were able to do collections. And so what happened differently from a normal time was -- so at that time, like RBI gave a forbearance, and the media came up with the news that some like they -- like there was a kind of misunderstanding that like it was not a forbearance, like it was a kind of waiver. And again, like it was treated as a kind of loan repayment or holiday. So that created a lot of confusion. And again in the industry, they -- so if we look at the losses that the industry has taken, so it was almost like 4% to 5%. And that too, like to buy MFIs, like we were able to really handle well and who are able to manage the situation extremely well, and who had a kind of like very diversified operations and who did not have significant exposure to the states that -- in the states like those got very badly impacted because of demonetization. And again, like these MFIs had like very good exposure in the states like where we got 100% recovery. So contrary to that, like if we look at today, so we were to suspend operations almost for the 2 months. And like there were no central meetings. All the central meeting concept got about completely disturbed. And again, like after 1.5 months like resuming business, like it really took its own time. And even till now like we got only 92% of the stock reported back in the branches. So another 8% of the staff like they are to come. And again, like in terms of replacing 8% of the staff, whether like they have to come back or like they're hiding and all, it's going to take its own time. During demonetization time like we never suspended loan disbursement. This is the first time in the last 20 years, like I have seen micro-finance organizations completely suspending disbursement, completely suspending collections. So I say that like the impact will be much more higher, much more significant than what we have seen during demonetization. So that is why like we have taken higher provisions.

The next question is from the line of [ Sri Singh ] from [ Goshein and Company ].

So I just had, I think, it gets partly kind of answered. But now if you could please give some sort of guidance on how do you see the percentage in terms of credit cost play out with regard to the above example. I know you mentioned you have already taken 2.5% to 3% above funding on booked portfolio. But are we seeing any kind of incremental force on the basis of whatever has happened since March in terms of having additional credit costs for this year? And then probably, second extended question would be because of the moratorium, understanding your buckets, in terms of the customer, was in the 30 dpd bucket, and we have to be at the 40 dpd bucket, even closing moratoriums. So in terms of sales, ability to take further loans, is that kind of baked in terms of the visibility of further loans from either us or from other investment MFIs?

So that is why like while calculating the normalized ROA, so as we missed like 1% credit cost, like I have taken 2%. When I was arriving at like 11% ROE for the next 2 years, if you would have noticed, I have taken 2% credit cost. So I would prefer taking 2% credit cost for the next 2 years instead of 1%.

Sorry. Can you comment again on the second question, please?

Sure. So the second question more on -- from a customer's viewpoint -- for the customer who will be in moratorium, I am -- I understand that the delinquency bucket does not shift during the moratorium. But in any which ways, does this impact their ability to take future loans in the sense that does this show up in your behavioral checks? For example, they want to avail a kind of your loan of some other kind and then pass on the burden with the MFI. Would this become odd or a decrement in terms of their own credit quality?

Yes. So since there is a moratorium, too, which is available now, like we cannot show them as overdue borrowers. So as such, I don't think that like it will affect the variability in terms of taking loans from other MFIs. But however, so given the choice to any borrower, whether like she wants moratorium or like she wants a loan, I think any borrower at this point in time in terms of restarting our income-generating activity, she prefers like taking loan and again, moving on in life. I don't think that like MFIs would give both. So for a borrower like taking moratorium and again like giving loan, it doesn't really make sense. Maybe like -- at least like she has to show us a willingness and intention by paying at least like 1 or 2 installments. It's not like clearing all the overdues. So I don't think that like the borrower can never like a blanket moratorium, not pay even 1 installment but still take a loan. And these borrowers, they understand this, rather like they will take fresh loans and again, restart their incomes and rating activity.

Our next question is from the line of Renish Bhuva from ICICI Securities.

Congrats on the great set of numbers in during the most challenging time. Ma'am, a couple of questions. One is on our existing borrower base, which is roughly a [ INR 26 lakhs ]. So how much of this borrowed base are unique to us? And if you can highlight how much of this borrower base would be having more than 1 lender?

So when we look at this particular data last time, like around 36%, 37% of the borrowers are unique to us. So -- and again, yes.

70% to 75%.