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

Good afternoon, and welcome you all to the Q1 of FY '21 financial and business update call of Spandana. My sincere apologies for the delay in doing this call. Unfortunately, I and Satish, our CFO, had very bad viral. So we are back to the full-fledged work in the last 10 days. As we all know, we faced a turbulent times in the recent past for margin and to -- are not able to even gauge the magnitude of the problem. It involved lots of hard work that was to be put in to get back to the current situation where we are in today. It is so refreshing to shape and hats off to all the microfinance borrowers for their understanding of how critical microfinance is in their lives and how reliable we are in serving them. It gives me immense confidence that we are having the most resilient industry and that we have ever witnessed in the last 2 decades. They recognized us as most reliable for their timely need. In my last 2 decades, this is the first time that we did not go to clients on our own suspended collections for more than a month. While we all had concerns that the business is so fragile, any deviation to the routine process would result in borrowers taking big time advantage. Whatever happened subsequently is a pleasant surprise. It shows enormous maturity of the industry, so relieving that it is not fragile to feel, and it is run out of the people's needs and they're satisfying them from time to time. From April 20 since we started assuming business post lockdown, all our focus has been in terms of bringing back the business to pre COVID. By June 2020 though like we were allowed to resume business like from 28th April, it really took time for us to have all 1,013 branches to become operational. So we were able to open all branches by June end. Though we were -- yes, a few states really took time with staff not being able to travel across borders and trouble faced with landlords of branch offices enabled stripping entry of staffing branches. In several places, like we were to do mix of arrangements. Quickly like opening a new location in a place like which is not really restrictive. I guess like we were to find like close to 150 new locations as a mix shift arrangement in some of the states. Collection efficiency since then has been increasing, and the great news to see the collections amount exceeding the demand for the current month and cash terms. So if I look at April, of course, like it is absolute 0, I think like a very, very few dissident payments that like we were able to collect only in Hyderabad City. So that was just 2%. And then, again, having understood that like our clients do not have the ability, so we did not even make the kind of like deliberate effort in terms of doing that. But ever, it was as small as 2% in April. In May, I think like we were able to open only like 35% to 40% of the branches. But again, we did 23%. And June, it went up to 60%. July, like it is 75%. August like it was 95%. I'm so glad that like as a base like we hit 110% of whatever is the demand till date, like this is from 1st of September to 13 September. And it's a demand like we collected 100% till date. Absolute value collected has been increasing despite of course, like sensitive, there was no much of portfolio growth, the demand has been coming down. But again, the absolute amount collected has significantly increased. So while it was INR 14 crores that we connected in April, and it went up to INR 133 crore in May. And in the last 13 days from 1st September to 14 September, we collected INR 350 crores. I think like this month, it's not that like we are just getting back to our original numbers, but like we have been collecting like all the April and May what would use. So far, in cash terms, we collected INR 1,766 crore, a total demand of INR 3,193 crore, which is equal into 55% of cumulative collection efficiency from 1st April to till date. Excepting 13.5% of customers who have fully availed the moratorium, of course, like they all started this month. And this is like till August, all other borrowers, either they have paid full installments, are like they paid partly a few installments. What is noteworthy is that -- noteworthy that collections are not managed through simple cash flow smoothening activity by widely doing loan disbursements to the borrowers. If I look at like what is collected and what is disbursed, so particularly from April to July, we collected INR 930 crores, while we discussed INR 240 crores. And we were pleasantly surprised, such as see borrowers, like when we went back to them in May, June, we though that like everybody would ask for your loan. That was not the case at all. And even our own staff like they're centered like let us take time. Now like we need to really test like the real intentions of our borrowers. So we went very, very slow. Like absolutely, there was no disbursement from April, May, June, July, 4 months like it was just INR 240 crores. But we collected INR 930 crores. As on date, of course, now like with increasing confidence, so we are getting back to normal disbursement, August to be disbursed to INR 520 crores. And September 10 till date, like we disbursed about INR 378 crores. However, the total investments are still INR 1,138 crore as INR 1,766 crores collections. And borrowers like because they were also not very sure in terms of how well they could utilize the loan, and it was not really making sense for them just to take cash and keep with that. So week-wise collection efficiency for the last 3 weeks has been doubly encouraging. So August 24 to August 30, we collected 154% of like whatever was the demand. And followed by next week, like August 31 to September 6, it was 103%; and September 7 to September 13, it was 122%. So this year -- sorry, this -- in the last 3 weeks, the collection efficiency went up to 120% in terms of cash. So southern states, particularly EPTS, were on the forefront of recovery. By May end, we could hit 98% collection efficiency in this state. Gujarat, MP and Rajasthan very quickly gotten into over 90% collection efficiency. It's just a few states troubled us with random containments announced in between in specific districts, creating entry issues into the villages and not letting people go for book. So Kerala and, yes, it was more in Kerala and Orissa what I said that, we witnessed these experiences. And let me get into the financial numbers for the quarter 1. On a year-on-year basis, during the quarter, we recorded strong growth and continued to break, of course, that is always there with us, continue to break our own cost of efficiency and profitability parameters. Their AUM grew by 37% Y-o-Y from INR 4,974 crores to INR 6,835 crores. The AUM grew by a CAGR of 41% from FY '17 to FY '20. The book grew by more than 5x from INR 1,300 crore to INR 6,835 crore from FY '17 since we exited corporate debt restructuring. We were 8th largest in March 2017 when we exited from CBR. And in 2 years, we are the third largest. State-level, district-level diversification is very much intact, and we have opened one branch in Haryana recently. This is a new expansion, and that branch has been requiring new clients in the last 2 months. For operational efficiency, we split a few branches in Orissa, like they're having over 4,000 borrowers. And as a result of that, like from April, we opened 18 new branches. And of that like 15 are split and 3 are brand-new branches in AP and Telangana. Our fund base ability during lockdown was the real testimony, not just postpone the numbers for the whole industry. While all our branches were closed with no outlook of when we are going to open them. No visibility on the magnitude of the problem. Collections were near to 0. We did INR 500 crore direct assignment with State Bank of India on March 30, 2020, after they have lockdown. Day after, while the situation continued, we reraised INR 300 crores from NABARD and regular funding in June. By then, still like some of the branches were not even open and, subsequently, INR 200 crore against TLTRO. Bandhan Bank, which itself is deep into this business and have the insiders. After they do open INR 500 crores allocation towards TLTRO, we got INR 100 crores from them. All existing lenders in the last 2, 3 months, such as Kotak, IDFC, IndusInd Bank, InCred, Stan C, MAS, Equitas, they all renewed their limits. This was a real testimony for the credibility we enjoy with our lenders, and we did not have any moratorium on any equipment made principle or interest since lockdown. Well, a few lenders, they offer moratorium to all their clients, we did not evaluate rather sit every single rupee demand. We have been servicing all of our DNPT transaction very well long time. In September, it was heartening to see that we could correct more than the demand, and we passed some 112% of high demand to State Bank of India and all other banks. State Bank of India is the largest balance sheet lender for us. Borrowers clear that April and May overs, and we could pass on to the banks. Lenders are at to begin our balance sheet transaction, and we just shared pools with them, and we're hopeful of executing you by the end of this quarter. Till date, from 25th March post lockdown, we raised INR 1,545 crore debt from 9 lenders. Operating cost reduced by another 120 basis points from 4.3% to 3.1% Y-o-Y. I think like this is an international benchmark so that like no microfinance organization ever had this kind of operational excellence. This is lowest across the industry, and it is a new benchmark that the company has set for itself and for the industry. Cost-to-income has further improved from 23.2% to 21.5%. Gross NPA and gross -- net NPA stood at 0.64% and 0.12%. In this quarter, we provided INR 89 crores towards provision towards COVID. So far, we made 4.9% provision towards COVID. We have been making these high provisions as a prudent measure and, of course, the collection efficiency is far, far superior and we are sure that we would write back some of these by year-end. Cost of borrowing declined by 100 basis points from 12.2% in Q1 FY '20 to 11.2% Y-o-Y, and marginal cost of borrowing reduced from 12.7% to 10.6%. Cost of funds on AUMs reduced from 8.3% to 7.5% Y-o-Y. I think this is the first time that like we hit 7% in terms of financial cost ratio. This is on the portfolio. Net interest margin decreased by 100 basis points from 16.5% to 15.5% year-on-year. Net interest income for the quarter grew by 37% Y-o-Y to INR 264 crore from INR 193 crore. Operating profit before provisions for the quarter has been INR 190 crore as agonist INR 166 crore. In the most difficult environment, we still were able to up the operating profit from INR 166 crore last year to INR 190 crore. Pre-provision profit grew by 15% compared with 37% growth in the portfolio. Normalized PBT for the quarter increased by 17.5% to INR 167.7 crore from INR 142.7 crore. And the normalized PAT has been INR 148 crore agonist INR 93 crore, which is 58.7% growth. So normalized pretax ROA for the quarter is 9.8% post-tax ROA stood at 8.7%. Capital adequacy ratio further increased from 39.2% to 53% year-on-year and leverage reduced from 1.7x to 1.16x. I think like we are the better-placed NBFC with like less than 1.5x leverage, while we all know like we're in the leverage business. Free cash and liquid investments as in June was INR 764 crore. So with this brief overview, now I open the floor for question and answers.

[Operator Instructions] The first question is from the line of Nishant Shah from Macquarie.

So if I'm looking at Slide #7, which shows me a 92% collection efficiency, along with Slide #5, which says that 87% of borrowers have resumed payment, meaning that 13% have not. That is very -- it's becoming very clear that this 92% number includes some additional or back payments for previous months, done in the month August. So could you probably quantify what would be the collection efficiency defined as collections pertaining to the month of August divided by the billing for the month of August?

Yes, Nishant, you are 100% right. Like as I mentioned that the collection efficiency is like comparison of cash, like in terms of what is to be collected and what is collected. So whatever is collected has included like all the overdue collection. But if I don't really consider -- like if I just consider only for that particular month demand and that particular month recovery, so for the month of August, like it was 78.83%. However, when you calculate collection efficiency, would you -- of course, like you are taking overdue -- I think, like we have not taken overdue demand into the demand, but like we have taken overdue collections into the recovery. So we collected 80% in the month of August.

Understood. Understood. And this 80%, do you have any visibility or any like kind of on ground some awareness about how soon we can see it getting up to, say, 95%, 96% kind of levels?

You could see, right, like while it was 22% of the borrowers like who -- while the moratorium, that has come down to 13%. So 9% of the borrowers like in a month like they have come back and they have paid. And again, whatever like had been done, so like the press was so aggressive, like because there are a few people like they had a time line, right, like till August. So they can restart in September. That was one thing. And then again, like in some of the places, particularly Orissa and Kerala. So like there were interim, like the local franchise offices were delegated in terms of announcing containment unless we could not even reach out and the problem is like these borrowers like particularly, in Kerala, they were not allowed to go for book. So like they had genuine problem. But now, I think like some of the states like they're also looking it, like they're also learning it, like how the progressive states are behaving, for example, Gujarat. For example, like Bihar was a surprise. So I was really worried that like how Bihar is going to behave with reverse migration that has happened. But again, I think like it's dairy like -- which is very prominent out there, and most of the borrowers, like they have the buffalos and all. So -- and then again, more than anything, the Gujarat was a real surprise. So wherever -- and what happened was like in April and May, particularly, because of this reversal migration, there was so much of demand for the agriculture labor because that was the harvest period. I mean from my own village like I was getting reports that while the agriculture laborers like before that they were getting INR 300 during lockdown in April and May. So they were getting like INR 550 to INR 600. So like when we got back like, yes, in June, like we thought that like every MFI for that market like because they were ready with a loan. I was like people were struggling for cash flow, unlike they will ask for your loan. But like it was very, very different. So I think like from September, as I already mentioned that like we are correcting, exceedingly well, like it's more than 100%. But however, to the back to 90%, 80% of the borrowers bring all their installments on the same day. I think at least like internally, we are planning to achieve this by October end.

Fair. And just one last question for -- see, some -- as you mentioned in September, there's already been some improvement. But for the 13% borrowers who have not paid you anything since April, obviously, some of them have now come back. What can you tell me about them in terms of, say, geographic concentration or nature of employment? Or is there any kind of friend visible? How are you tackling the situation per se?

So for example, like the state where I mentioned that the response has been tremendously good. For example, we do not have a single forever. Like all put together. For example, in EAP, we have less than 200 borrowers who have not paid installment. So some of these southern states, like where we are -- we already got back to 98%. But again, like this overall 13% is coming from some of the geographies, for example, like Bihar. So Bihar was doing good, but it in the last 1 month, almost like every 10 days, every 15 days, like there were floods. There were heavy rains. Like every time, like there was a natural calamity. So that was one problem that we faced in Bihar. And then Orissa, I think like multiple things because Orissa, all of a sudden like we realized that it was a kind of like highly leveraged. But however, whatever like the initial disturbances, now like it is more peaceful. And then again, that was intermittent. Like every -- you never know actually go to your village life, they will say that like, "Oh, it's all fenced, and you are not allowed to come. So Orissa behavior a little different. So today, like we still have like 78%, 80%, 85% of the borrowers paying in Orissa. So as such like today, we are -- our focus -- 70% , 80% of the focus in terms of time spent by our CTO, Amit, like he's there, he's stationed in Orissa. So it's just like Orissa and Kerala that's more because of like how the state governments have acted upon.

The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.

Yes. Thank you very much, madam. I do have to 3 that. Firstly, out of the 30% of the borrowers who are still in moratorium, how many of them would have borrowed from more than one lenders or more than 3 lenders?

So as a hole like we have 40% of the borrowers to whom we are the sole lender. So on the remaining 60%, like they have 2 MFIs and 3 lenders. But again, so you know this industry, right? Like this is regulated only, mostly for NBFC MFIs. And again, like it's just a kind of whatever understanding. Beyond that, like we still have like NBFC, small finance banks, banks operating in this phase. And then like there is no regulatory restriction. But however, like when I look at the analysis, so it was not bad, like because there are about 5% to 6% of the borrowers who have more than 3 lenders. But 94% of the borrow -- 94% of the players, they are picking. So out of this 13% borrowers like who have not paid, so 40% of them, we are the sole lenders.

Okay. Got it. Excellent. And the second question is about the funding that you have been able to raise, which is actually quite credible. The funds that you are raising by TLTRO, for example, you singled out to INR 200 crores from, let's say, Bandhan Bank and ICoTA Savings Limited. What would be the rate of which you are able to borrow these funds?

So TLTRO, Bandhan, it was 12%, right? So Bandhan, we raised at 12% since it was TLTRO. But again, whatever INR 500 crore direct assignment that we have done in March, it was as low as 8.6%. And again, like 200 -- INR 300 crores what we raised from NABARD, it was...

[Technical Difficulty]

First year like it was 7% because like they got that money from RBI. And subsequently, like it is 10%. So we have not paid higher cost. So in terms of numbers, so, SBI it was 8.5%. NABARD, it was 11% and 7%. And Bandhan, it was 12.75%. And MAS like it was a 12% and all existing relationships they are between 11% and 11.5%. And then again, like this is the usual rate that like to we borrow on term loans. The only reason is like in a normal course of time, we have done multiple balance sheet transactions, while like because the lenders were not getting like whatever 100% of debt collection. So that is taking time like the review in the current portfolios. But I'm sure that like they started asking for goals. And if not by September, but definitely, like October, we will be doing some of these outbalance sheet transactions. But otherwise, like overall, whatever the money that we raised, it is -- on an average weighted average was 9.95%, INR 1,489 crore that we raised from 25th March. So it comes to 9.95%. It's well below, whatever, 10%. And then term loan or on balance sheet, right, with 9.955% was not high at all.

Excellent. And my last question, ma'am, is in terms of the sales which are moderately singled out, Kerala, Orissa for a lot of admin-related distraction issues, et cetera. Specifically, how is Maharashtra doing because they have the highest COVID case load intensity. It is also the third largest geography for us. And the commentary we hear from some of the peers, NBFC is that Maharashtra seems to be lagging on the collection efficiency front. So how is Maharashtra is doing for you?

I think somehow like I'm not able to bridge any connection between the COVID incidence and also the collection efficiency. So like because how each state government has behaved and how people responded to that has really made a difference. So it is Maharashtra and then like Andhra Pradesh, right, in terms of it is like the states where we are present. So even today, like every day, is having like almost like 10,000 COVID cases. But again, like the progressive thought process like our in the state. People also understood, like it's a viral. So it will come -- it will go like because these are the precautions that we have to take. And then again, for example, like Orissa, Kerala, where we were facing some troubles. So like they were not hypo with incident places. So for example, like if you travel today like in Gujarat, you feel that like because there is no COVID, like it happened, maybe I don't know, like 5 years ago, 6 years ago, it's like an one attitude. So like there is no correlation. For example, by May end, so we got back to 99% recovery in Andhra Pradesh. And Andhra Pradesh was always -- like after Maharashtra, Andhra Pradesh was always like the kind of like very badly hit state. And some of the places like Hindupur, Kurnool, Narasaraopet, Guntur, Vijayawada, Mangalagiri, they were like very, very, very bad. But again, it just depends upon how good teams that you have, like how well that like they are able to explain to people. And then again, I have never seen like this -- whatever proportion of COVID incidence with the collection efficiency. And Gujarat, for example, Ahmedabad. Ahmedabad, I still remember, like by 10th June, like we were at 95% collection efficiency. We all know like how bad Ahmedabad was.

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

Ma'am, 2 questions. Firstly, this 13% borrowers within pay till august, I suppose they'll resume payment in this month, that's correct? So they had a moratorium and since the moratorium has ended, they would start paying in this month?

Yes. So I think like in September alone, like we have over 120,000 borrowers who did not pay till August like they started paying.

Sure. Sure. And secondly, if you could throw some light on Abhiram Marketing, like why it was not made in 100% subsidiary? And what are the arrangements over the profitability or the fees that we get for Abhiram Marketing? Please highlight what had?

Yes. I made it clear, like multiple times, but I don't mind repeating the same, Sanket, like an interest of every one. So basically, like, this is a whole practice that every MFI follows in this industry. So like we have manufacturers, and like there are third-party organizations. So these third-party organizations help procuring goods from manufacturers and like they deliver products to MFIs. So whereas like what we are doing is, we don't have any dependency on third-party agency, rather like we have our own group companies, which is called Abhiram, which procures all these products from different manufacturers. Unless -- Abhiram keeps these products in our branches, and Spandana gives a loan. Like earlier it was Abhiram, which was selling product directly to the borrower and, again, when Katara invested like we told them like this is arrangement that we had, and we wanted Abhiram to make a commitment in subsidiary of Spandana. So that like there is no conflict of interest. And like no shareholder is getting any benefit out of this. But again, unfortunately, we realized a set like Abhiram is doing multi-brand retail business. And the company, which is doing multi-brand retail can't be a subsidiary of NBFC. So as such, like there was a clear arrangement that we agreed upon. So Abhiram will continue to offer its services. But Abhiram will be a cash-neutral, profit-neutral company because Abhiram is best acting as an intermediary. And if we adjust using an available structure, like if Abhiram is not there, whatever the profit that Spandana is additionally making today, should you have been passed on to some third party, which other MFIs do, for example, Indhri. Indhri Like one intermediary that helps on other MFIs in terms of pursuing products from manufacturers, and they deliver stock, which Abhiram is doing for us. But today, Abhiram is not left to be the single rupee profit. It's a cash-neutral company. And every single rupee that Abhiram makes will pass on to Spandana as commission. But however, while like Abhiram was doing this business, and Abhiram was only funding the product. So we realized that we can further reduce dependency in Abhiram. So we decided that like Abhiram will be restricted only to supply of product, and the funding can be done by Spandana. So like we were to work on that functionality, the software functionality, and we did that from first April onwards. Today, all the consumer loan products that like we are leading to, Spandana is funding. So Abhiram's role is very, very restricted. So it will just buy and they gain supply products to us. So while Abhiram was even doing the credit sales to borrowers. So the receivables are in Abhiram books till 31st March. So subsequent bookings are now in Spandana. So there is no exposure in terms of receivables on Abhiram like from 1st April onwards. But however, till last year, as long as Abhiram was selling and Spandana is servicing, so we were getting 13% commission on all the sales and collections done by Spandana. Abhiram was paying 13%. And after paying 13%, had we agreed upon cash neutrality, profit neutrality of Abhiram, any money that has some additional -- has always been transferred to Spandana as an additional incentive at the end of the year.

The next question is from Deepak Poddar from Sapphire Capital.

I just wanted to understand first on station part. Now, we are very close to normalization. As you mentioned in... [Technical Difficulty]

We seem to have lost the line for Mr. Poddar, we'll move the next question. Next question is from the line of Nidhesh Jain from Investec Capital. .

Firstly, ma'am, can you share the state-wise collection efficiency for the top 5 states? And adjusted for the -- if we take only the collection for the month, I'm not considering removing overdues from that number for the month of August, ma'am.

Yes. For the month of August, right?

Yes.

For the month of August like Karnataka, it was 123% that we collected and that our 5 states that I'm giving, 139% for Telangana, 113% for Andhra and 110% for Gujarat, 115% for Tamil Nadu and 102% for MP and [Technical Difficulty] when it comes to Bihar, but Orissa and Kerala, it was 70%. It was just 70%.

Ma'am, I'm not able to hear clearly. I'm not sure whether that is the case.

Sorry let me repeat that. Karnataka was highest in terms of August. So we collected 123.4... [Technical Difficulty]

Ma'am, I'm sorry to interrupt, but there's a lot of disturbance from your line. Let me disconnect your line and reconnect you. [Operator Instructions]

So highest was in August like it was Telangana. Again, like this is to say that like there is absolutely no correlation in terms of COVID incidents. So like most of our branches in Telangana in Hyderabad city, and the Hyderabad city was so badly affected. And then again, like we were all worried that like how urban is going to behave. It was like very interesting to see that there was absolutely no difference between, of course, like rural was doing so well in terms of agriculture, but again, small businesses like because which are more retail-based, family-based, so they were able to quickly restart. And then again, till the 8 like from the day, Telangana is the best-performing state for us. So we -- in August like it was 139% that we collected, which was top, followed by Karnataka 123%; and AP, 113%; and Gujarat, 110%; and Tamil Nadu, of course, like it's very, very small for us, 115%; and the MP and Rajasthan 100% and 102%. So it was -- Orissa and Kerala, like we were able to collect only 70%. And Chhattisgarh, it was 88%. And of course, Haryana, like it was 98%. And Maharashtra, it was 91% that we collected in August itself. And then we have already hit more than 100% collections in Maharashtra. Because like some of the statement, we have present there for the past, whatever, 15, 18 years, I think like the teams are very, very strong. The relationships are like very, very deep with our clients. That's where I think like irrespective of whatever the local problems, for example, like Maharashtra, we never felt like any pain in terms of doing good in Maharashtra. Because like we have been operating in Maharashtra from 2,000 onwards, like it's 20-years-old relationships that we have out there. And without whatever considering the overdue recovery, so I think like without considering Tamil Nadu, Telangana, Andhra, Pondicherry. So Haryana, Gujarat like we had over 98% recovery. And Karnataka, it was 90%, and the remaining states like they are between 65% to 75%. If I just consider like just the demand for that month and whatever the actual recovery as again is that demand, not considering the overdue collections. But budget was 80% overall in August.

The next question is from Nikhil Rungta from Nippon India Mutual Fund.

A couple of questions from my side. First is, you mentioned that the -- from Apple onward to whatever consumer loans, which we are giving to our customers are being given from Spandana. Basically, the products are being sourced from Abhiram and funded by Spandana. So this funding is being done in the form of MFI loan or consumer durable loan?

You are right, like we -- from April 1, like we are giving these loans from Spandana's balance sheet. So like -- because if you look at like whatever qualifying asset criteria, so let these loans can be classified as qualifying asset. So we don't have to treat them. Like, for example, some of the products that we give to these borrowers, so it's not that like they're all whatever smart mobile, like we give them sewing machines. Sewing machine is used for their own tailoring and income-generating purpose. So within whatever the RBI qualifying as a definition, so we are not classifying them as consumer loans. It's just that like instead of cash, like here, the borrower is taking the product. And again, like if they have to buy the same sewing machine in the market, they have to spend like INR 5,500, while we buy in bulk and like we get 30% to 40% discount, and we pass on some of this discount, so like they get a benefit. Like because the same INR 5,500 sewing machine that they have to pay in the market like this is available for at least like 10% to 15% discounted price. So as such, like because if you go by the real spirit, so like they are not pure consumer loans. So we don't classify them as consumer loans. So depending upon the purpose and whatever, like how many lenders that they have when they have taken this loan, so within -- sticking to the qualifying asset criteria, either like we classify these loans as qualifying or nonqualifying, but they are not classified as consumer loans. Because the difference is like it's cash versus product. That's all.

Correct. Correct. So this thing goes as add-on to the -- I mean, basically, a top-up loan to the existing loan or it goes as an additional loan to our customer?

Not really, like if you see in terms of quantum, so at any given point in time, like we have less than 6% or 7%, like it's 8%, I guess, like if I -- I don't have numbers handy. But like it's 8% of the borrowers like who are having consumer loans. It's a thought that like every borrower has like whatever this -- we call this as a Blue Lemon, like not that every borrower has this product. So it's just like 92% of the borrowers like they don't have. So it's just like 8% of the borrowers.

Right. Right. And ma'am, you have indicated and you've given that...

It is optional. These products are available in the branches. Like when the loan disbursement happens in the branch, they come and see, and like if they feel any interest, so like they just avail that.

Got it. Got it. And ma'am, you mentioned that 13% of the customers...

Remember these are restricted. One borrower simultaneously can have only one product. It's only like if this is repaid, like she can take next one.

Okay. Okay. Got it. Ma'am, 13% of the customers have not paid anything as of now. So what's the feedback which we are getting from these customers? Why are they not paying you? And do we also have information on those customers whether they are paying to other MFIs or banks?

In the first place, like we were not able to reach out like each one of these borrowers because some of the places, so like strict containment, strict entry norms. And then again, particularly like this is what I have seen in Kerala, intention was right. But again, if people were not allowed to go for work, so they could not even attend like whatever household work also in the local places. Like just the containment and restrictions were so strong. I think like I have not really seen much of intentional problem. But again, having said that, like, I'm not seeing that there will not be any borrower like who is not going to use the current situation to the advantage and the credit losses are going to be, again, like 1% or 1.5%. I'm 100% sure that as an industry, we may have to absorb like between 3% to 4% in whatever like this year and next year. But again, mostly like because lack of cash flows. And again, from our side, like it was as good as like almost like we were opening -- like reopening branches, and there was a gap, right, like because the staff discipline. Some of them like initially, like they just give you a call, like they will talk to the borrowers. Because like when they first met, like the borrowers were not very clear, we were going and we were restarting collections. So -- and again, rebuilding the whole discipline. So like because in a normal scenario, then we expect 100%. Without 100% recovery on the same day, they don't come back. But again, initially, like when it was 30% ,40% when there was a kind of tolerance, so I don't attribute all these to borrowers' lack of intention to repay. But again, like it was a kind of like rebuilding the entire discipline within us also. Like because we started talking that like, please understand how important in microfinance to get back on the same day. Like we were going back to fundamentals. Because like -- there is a flexibility, like there is a gap that has happened in the entire system, right? If a loan officer has to meet like 150 borrowers, there is no way that he could really come back like without even meeting one borrower. But again, the system goes like such some time. So the staff also, okay, like I don't have to really -- like if the borrower -- and then again initially, like because on our own, we were telling them like don't gather like in large groups, center meetings are not required. Like because small, small group meetings will do. And again, like if the borrower was not coming back to the center meeting. Because like in the normal process, we spend less than a minute per borrower to do the collection. Why? Like because our staff were to really go, meet individual borrowers because everybody was not coming to the center meeting. So when somebody is not coming to the center meeting, then like the group has to call them, like the group has to find out like where they are. So it was not like just the intention, but again, it's rebuilding the whole thing. So -- and again, like [indiscernible], right, like the staff not meeting every single borrower because like there was a tolerance. So there was, like it's a lockdown. Like there is a moratorium. So borrowers have excuses like we are not able to meet. So it's only like once we start insisting that like no, no, like microfinance doesn't work this way because like -- it's not like what the amount we are collecting is important, every borrower has to really get back to the old discipline in terms of paying the loan on the same day. So these things are taking time. Like we just cannot attribute everything to the borrower relational issue, but like more in terms of setting right the internal things and again building -- getting back to the normal process. So there was a kind of like more lenience, like it was a kind of restart. The staff like because they just go meet like whatever low-hanging fruits who are willing to pay and again, not really meet like every borrower.

Got it. Got it. And ma'am, just last question from my side. We have seen like during demonetization, the industry moved from cash disbursement to digital disbursement and with every crisis or pandemic, the industry has learned something or the other. Do you think that because of COVID, industry might move to digital collection because a few of the other MFIs and banks in MFI sectors are using this digital collection methodology? But given the nature of the industry, do you really think that we might move toward digital collection?

Not very sure, like by when like we'll be able to really do that. Because having said whatever, so today, like we have 7 lakh villages, and we still have 1,25,000 or 1,50,000 bank branches and BCs and all like they are not very well set up. And then again, like the economy is cash. Like today, who are our borrowers? Our borrowers are agriculture wage laborers. Our borrowers are like dairy farmers. So like they get all their cash, they get all their income in cash. So if they have to pay some money, like for that reason, every month, like every 15 days, if they have to go to a bank branch and put their money into the bank, so that like they can do a digital payment. To me, like it looks like little far. It's not going to happen. And then again, so there is no consolidated and calibrated effort. Be it like some service providers or service receivers like we as an NBFI. So like individual experiments and all. And these experiments, like they're still not very cost efficient. So during demonetization, like we moved from cash to cashless, like because there was a specific problem that we identified, so we felt that like during demonetization, some of the ringleaders who have taken multiple loans like by cheating other borrowers, they were creating so much of disturbance and the only way that we could really make sure is like the borrower should not be getting cash in her hand. So that like somebody else, like immediately after leaving the branch, she is taking that cash like from the core borrowers. So there was a problem that we understood that like how ringleaders were playing out of like the cash disbursements and we addressed that problem. But now like, which is the problem, because like microfinance runs out of connect, relationship, going there, meeting borrowers. And again, time and again, like every -- throughout loan period, like telling her that we have given you out of a promise, and the promise has to be kept and we are always there to service you. So like, I don't know, like through digital, like if we lose this connect, if we just become one more fintech company, I'm not saying that like that's not going to work out, but at least like we are not -- like we are still waiting and taking time to understand this.

[Operator Instructions] We take the next question from the line of [ Muthukrishnan ] from Sundaram Finance.

Hearty congratulations to you and the team. Hello?

Yes. Yes. [ Muthu, sir ].