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

It's basically like Orissa, which has higher contribution in terms of write-offs. So for example, out of INR 220 crores -- yes, about INR 220 crore, like what we have written off in Madhya Pradesh that is INR 34 crore. And our overall portfolio of MP is 17.33%, and when it comes to write-off, so it is 18%. But whereas Orissa, it has 17% of the overall AUM. But what we have written off like that forms part of almost 26%, so it's basically Orissa like where most of the portfolio that was written off and followed by Chhattisgarh. So if I look at like the percentage of Chhattisgarh portfolio and what we have written-off, like it is much higher. Chhattisgarh like as a percentage of the portfolio, it is 7% but what we have written off out there from the overall portfolio, it is about 12%. So it's Maharashtra, Orissa and Chhattisgarh, these 3 states. In terms of amount like MP, we have written of INR 34 crore, Orissa is INR 51 crore, Karnataka INR 14 crore, Maharashtra INR 42 crore and Chhattisgarh INR 20 crore, all other states like it's less than INR 8 crore.

Ma'am, I missed the number for Chhattisgarh.

Chhattisgarh, it is INR 20 crore.

INR 20 crore, okay. Yes. And just if I can just squeeze in 1 last question on the provisioning part. So ma'am, so we carry around roughly INR 400 crore on balance sheet provision, against which we have almost 2.2% of the customer who have not paid us and another 1% on the net NPA side. Plus, I mean, if I look at the PAR 60 number, which is roughly 6%, and I'm assuming that 2.2% who have not paid us will be part of this PAR 60-plus. So what sort of incremental provisioning requirement, ma'am, you foresee in Q4? Or maybe you feel that from Q4 onwards, the credit cost will normalize?

So we have like 50,000 borrowers, like who did not pay any amount from September till January 15. Like those loans outstanding was INR 220 crore, like which we have written off. Apart from this, like we have another 55,000 borrowers who have not paid their installments in full. So -- but again, like they are not 0 paid borrowers, like they're partially paid borrowers. These 55,000 borrowers, like they have another INR 230 crore loan, which is outstanding. So as against this, like we have INR 411 crore provision on the balance sheet.

Got it, ma'am. And what about the net NPL pool? Because I mean those guys are already 90 days dpd. So maybe we have to written off them in Q4. I think by that time, it will be 120-plus dpd.

Renish, whatever, 90% dpd you are referring to and whatever ma'am told INR 230 crores, which is one or the same set. So because we are not getting regular collection from these borrowers, that is into the 90 days, and accordingly, we have made the provisions.

Got it, got it. So okay, there is overlap between PAR 60 and net NPL portfolio?

Yes.

Okay. And -- okay. So this 5.7%, I mean, we are assuming that the 4% sort of number we'll be able to recover in Q4. And then maybe 2%, 2.5% we have to ultimately write-off. Is that the fair assumption, ma'am?

Sorry, 5.7%?

60-plus.

Yes, 60-plus.

I mean our PAR 60, yes, PAR 60 is 5.7%. So maybe looking at the current collection trend, we might be able to recover 4%, 4.5% from that pool. And ultimately, we have to write-off what INR 230 crores you have said would be around roughly 2% or so. Is that the fair assumption? I mean is this fair assessment what you might have done internally?

The 60-plus borrowers like who have not paid in September, October, the full installment, but again, subsequently, from October onwards like they started paying. So I don't think that like the 60-plus borrowers will move to 90 or 90-plus bucket. So for example, like in a few places, if you look at Puri in Orissa, so the temple was just opened 15 days back. But again, like we already see like significant improvement in collection efficiency of Puri in the last 15 days. But whereas 15 days prior to this, it was like very, very low. And then again, like 3 months back, like the collection efficiency in Ganjam and if I compare the collection efficiency of Ganjam today, like when there was so much of in migration, all the construction laborers like went back to Orissa, the collection efficiency was as low as like 60%, 65%. But again, like in no time, like in the last 2 months, like the collection efficiency in Ganjam has increased. So it does not mean that like borrowers who have not paid for 2 months, like they are not paying at all. So most of the borrowers, like they could not manage to pay. And again, like the information that like they received was so it's not that like they could understand that, yes, like moratorium is only till August from September, that moratorium, we have to start repayment, unlike we were literally educating every borrower that like they cannot take that kind of excuse in terms of moratorium from September onwards. That took time. And again, like for example, most of the tourist places. So Goa, like it just picked up like last month. And again, same as Shirdi, same as Mysore. So some of these places, like the borrowers could not manage to pay their installments for 2 months. But again, like once they started paying from November onwards, they're quite regular. So I don't think that like this 5.8% of the portfolio, which is at risk, like the 60-plus, that we have to write-off.

Got it, ma'am. Got it. Thanks a lot, ma'am, for such a detailed answer.

So at the most like we have this 2.7%, like which is in 90-plus. So that we might have to write off. But however, like to that extent, like we already have INR 411 crore provision, there will be a provision write back.

Got it, ma'am. Got it.

[Operator Instructions] The next question is from the line of SivaKumar from Unifi Capital.

Yes. Ma'am, just to reiterate, so 50,000 borrowers who are not paying at all, INR 212 crores you have completely written-off. Another 55,000 partially paying borrowers, about INR 230 crores, against them, you have a provision of INR 411 crores. So the rest of the borrowers are all paying on time, right?

Yes. Rest of the borrowers like, for example, like 60-plus borrowers, they were paying from November onwards. But again, like we were to still make additional provision for these borrowers because like the portfolio got into 60 days. And as per our provisioning policy, it attracted provision.

Okay. But subsequently, you're saying that collection...

The outstanding of 50,000 borrowers like who are paying partially and like who crossed like 90-plus, so their outstanding is INR 220 crore. But again, if you just look at the provision, provision is almost double. So -- but why we have made extra provision is like, that is towards -- so even like 30-plus, 30-plus to 60 and 60-plus to 90. And all these buckets, like as per our provisioning policy, of course, like they have been paying from -- paying for the last 3 months, consecutively, November, December, January. When we looked at information on 25th January, we have -- what we have seen is like the 60-plus borrowers, initially like they paid less or they did not pay for 2 months. But again, from 3rd month onwards like they started paying. But however, as per the provisioning policy, technically, we were required to make provision. As such, like the provision what we carry is almost double the 90-plus PAR like, which is 2.7%.

Got it, ma'am. Ma'am, so, can one say that come Q4, there's a strong possibility that there might be write backs from the excess provisions you are carrying, which is double the required provisions for partially paying borrowers? Can one say that?

My understanding is like this 2.7% GNPA, so we might have to write-off. So that will be like INR 230 crores. But again, when we write-off like it doesn't take any hit on P&L so that extent we will write-back the provision. INR 411 crore.

Okay. So you still have INR 200 crores of excess provisions after the write-off, right?

Yes.

Okay, okay.

Which includes the standard provisions in any case.

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

So a couple of questions, more on the industry. One, if you can give an update of what is the current dialogue or situation about the Assam MFI bill between RBI, MFIN and the government? So in terms of whatever is the current situation regarding the bill? Second question, ma'am, is about West Bengal. So you've written in your presentation that you pulled out because you saw that customers were overleveraged. I just wanted to ask, what is it that you saw, what's changed in the last 3 or 6 months? And what are the data points? Or if you can share anything specific that you -- that made you believe that now the situation is overheated, our customers are overleveraged? Yes. So those 2 were my questions.

I had somebody seen our business plan like for 4, 5 years back, like we always kept Assam as a next stage for expansion because we were present in all states like around Assam. So it was a kind of natural progression like to Assam. But however, like year after year, when we started looking at like the portfolio numbers for Assam. So at one point in time, like Assam had almost INR 16,000 crore portfolio. And again, the population of Assam, like it's a less than 3 crore. So if you try to recollect, in 2010, like the AP, that time like it was a unified state. So Andhra Pradesh and Telangana were together. And all MFIs put together, like we had more than 1 crore borrowers in Andhra Pradesh. But again, that point in time, like the portfolio of all MFIs put together, it was just INR 7,500 crore. So when I looked at like these members, so Assam, like which is 1/3 of like Andhra Pradesh, but again, like it was already having almost like double the portfolio. So I was not comfortable. And then again, if you look at like the macroeconomic indicators, like be it per capita income, our GDP, our market potential, like it's not that like Assam is a great state. And even wages, like daily wages, like Assam doesn't really qualify to have like the best kind of portfolio. And then again, like there were so many micro financial organizations. And again, like per borrower outstanding, all MFIs, all lenders put together, it was like very high. So it was in 2015, '16, like it was almost INR 40,000. So as such like we decided, and again, maybe like this comes from our UP experience, so we decided not to really start operations in Assam. So as far as bill is concerned, like it be more or less like replicated AP bill. So -- but again, certain areas like in Assam what we don't have exposure in Assam. So I don't have direct information in terms of what is happening. But again, like every MFI, like which has portfolio out there, they're really feeling the press, so in few places. And then again, what was different in Assam was, in AP, like there was a political interference like bureaucrat did not want microfinance organizations to operate. But again, borrowers always supported microfinance organizations. They never came out. They never agitated against microfinance organization. They never said that right, they are not able to repay the loans. But again, in Assam, like the situation was a little bad because the borrowers themselves, like they started agitating against microfinance organizations and some more like they toned very, very negative. And again like today the government like being very well aware of the NBFC MFI regulation, like the Finance Ministry has been even dropping saying that like Assam's per borrower loan outstanding is higher, 5% higher than the national average debt. So -- and again, like they were questioning in terms of like there is a regulation that only 2 or 3 lenders should give loan to 1 borrower. But again, like we have seen 5, 6 lenders giving a loan. So as such, like, there was no much -- that like Janssen could really do about this. And again, like the government said that, yes, like we are passing the bill. And this is something like -- which is a political decision, and we cannot go back on this. I think -- but however, our experience, like per se in Andhra, was good. Like after 2 years, we got Supreme Court judgement, like we continue to open all the branches. So we collected like almost INR 1,300 crores from Andhra Pradesh, and we have been still collecting like the loans that we disbursed 12 years back. So it always depends upon like the kind of relationship that you have and how the borrower perceives each micro finance organization. But again, the positive impact during that time was like this AP crisis did not impact like other states, like to some extent, it has impacted the neighboring states. For example, like certain areas in Tamil Nadu, who speak Telugu, like they were able to really understand what happened in AP. But again like a few parts, for example, Bellary in Karnataka, they got impacted. But overall, like, there was no impact on any other state. So I don't think that like whatever has happened in Assam will impact other states. I think that problem, I don't really see. And again, West Bengal on like we started operations. But again, we -- when we do credit bureau check, so in some of the parts, places like when we were doing credit bureau check, every day loan was getting rejected. Because like most of the borrowers, they have already taken 2 loans, and their debt outstanding is already higher by INR 1 lakh. So almost like you could expect like 20% to 25% rejection. But again, when the rejection was as high as 70%, it took no time for us to understand that like this particular state is highly leveraged. Every borrower has taken 2, 3 loans. And here better not we really expand. We are not required there. So we pulled back and we did not open even single new branch in the last 3, 4 years.

Great. And ma'am, just squeezing in one more question. So in one of your slides, you've shown how your collection efficiency on a monthly basis is actually better than a weekly center meeting. But I just wanted to understand, ma'am, even if the borrowers want to do monthly meetings, why should the collection efficiency being lower on a fortnightly basis? Traditionally, what I understand is that if you have more regular meetings, the collection efficiency is better. So just trying to understand why this collection efficiency is better for a monthly meeting cycle versus a fortnight?

I think here, like the simple reason is like all the recent loans that we disbursed are monthly, and again, like most of the monthly loans that we disbursed like post-COVID. As such, like we have 100% downtime repayment. So overall, like monthly is doing better. But again, like I'm not advocating that like monthly repayment frequency will have higher collection efficiency over biweekly. And again, it is not true to say that it's only like if you collect installments on a weekly basis, like you can do better; if it is monthly, like you will not be able to do good. I think gone are the days like where borrower doesn't want to really spend so much of time like she is almost like every microfinance borrower while she is getting only INR 30,000, INR 35,000 from each MFI, she is definitely borrowing from 2, 3. So if it is weakly, like she has to literally attend 15 center meetings in a month. And it is next to impossible for her to attend these many center meetings and manage her cash flows and everything. So I think like whatever product that we were talking to the borrowers are very well educated, and they understand the credit bureau, they understand the implications of non-repayment. So I think like they don't want to spend like lots of time in terms of attending center meetings and managing this loan and all that. So you ask any microfinance borrower like in terms of what she wants, I think the first thing that comes to her mind is like I want to repay loans on a monthly basis. So but again, repayment frequency doesn't really determine the collection efficiency. In our case, it is higher just because like all the loans that we dispersed post COVID are monthly.

Okay. But then in fortnightly, your collection efficiency should be the same as the collection efficiency that you are reporting for the pre-COVID portfolio, isn't it? So basically when you -- your pre-COVID portfolio should also be at 90% collection efficiency.

No, no, no. Now -- so pre-COVID, like every loan was performing. We were getting 99.8% recovery.

Ma'am, sorry. I mean the pre-COVID portfolio, let's say, the portfolio before March, that portfolio's collection efficiency today, should be 90%. Is that a fair assessment?

Yes, yes, yes. That is correct.

Right, right. Okay, ma'am.

And since we have 100% collection efficiency on all new loans that we disbursed, like, the average overall collection efficiency increased to 97%.

Yes, yes, I understand that, ma'am. Now it's clear.

[Operator Instructions] The next question is from the line of Vibha Batra from FairConnect.

This is on the disbursements to existing borrowers, and you said most of the disbursements are to existing borrowers. So is it possible that a borrower runs 2 loans? Or she has to pre-close the existing loan and then take a new loan? How does the policy work?

So basically, like from April onwards, we have not disbursed like top-up loans. So we are only disbursing loans to borrowers like who can pre-close existing 1 or 2 loans. So about 15% of the borrowers like by 31st March had 2 loans. And in case the borrower has 2 loans now, in order to be eligible for the next loan, like she should either close or pre-close all her 2 loans. And we are not giving any top-up loans. At this point in time, like all the borrowers who got loan, subsequent to April, they have only 1 loan active.

Okay, okay. One loan active with you.

Yes. yes, yes.

Okay, okay, okay. And what is the average ticket size on disbursements now?

On disbursements, like it is INR 38,000. But again, average disbursement -- average portfolio for customers is loan outstanding...

INR 34,000.

INR 34,000.

Okay. And what do you think where on this level go from INR 38,000? Do you think it will go up further?

No. But again, what is important here to see. So when like in a normal course of time, when you are acquiring clients, every branch acquired like about 100 to 200 borrowers. When you have like 1,000 branches, you will add like almost like 2 lakh -- 1 lakh to 2 lakh new customers. So and when it comes to first cycle borrower, we give -- we start with INR 20,000 or like maximum that we can go up to INR 30,000. But average ticket size for first cycle borrowers will be INR 25,000. With 60% of the loans going to first cycle borrowers and 50% of the loans going to the existing borrowers, I think like it gets averaged out. On the ticket size, we will not see significant increase. But right now, what is happening is like it's -- as it is like 2 lakh borrower -- 2 lakh, 3 lakh borrowers that we acquired in a quarter, like last quarter, we just acquired 60,000. So out of 3 lakh loans that we have given in the last quarter, it is only 20% of the loans have gone to first cycle borrowers. So 80% of the loans have gone to existing borrowers. And again, like when your borrower is moving from second cycle to third cycle, third cycle to fourth cycle, it's not that like each and every case, there is an increase in the loan size, but at least like 70%, 80% of the borrowers, they always look for a larger loan size. Because they keep understanding their own cash flows, and they know better the -- understands of what they can re-pay. So it is because like the sub-cycle clients are a few existing borrowers -- and we are not increasing the cycle cap per cycle. That like we have kept as it is. So even today, for example, second cycle borrower, we are not giving more than INR 50,000. And for the third cycle borrowers, we are not giving more than INR 55,000. There is no increase in the cycle-wise caps. It's only borrowers who are graduating from second cycle to third cycle and third cycle to fourth cycle.

Okay. Got it. So ma'am, just average ticket size has gone up because of this composition where more of second cycle borrowers have gotten a loan, but as cost-to-income ratio has gone up despite the increase in ticket size, which means the number of transactions would have been lower. So do we assume that this cost-to-income ratio I know part of it is because of the income reversals you did, but it's 23%. But on -- going forward in your plans, how does it look? And another added question on P&L is this provision, what we see from your collection efficiency, why have you taken so much provision in this quarter? And why hasn't it been normalized so that at least there was no loss in a quarter?

Yes. First question, I think like you might have seen that like we have almost 600 staff increased compared with the previous quarter. So as such like the salary cost has increased. And again, like the previous quarters, we were not acquiring new clients. Once we started acquiring new clients, the incentive has increased. So there is an increase in the employee cost. So that is one. And again, like, as I mentioned, that we derecognized INR 22 crore interest income, which was recognized on these loans, which were written off. So as such like the income got reduced by INR 22 crore, and there is an increase in the employee cost to the extent of 600 employees joined in the last quarter. That is why like there is a slight increase in the cost to revenue, the cost to income, sorry.

This is the operator. Ms. Batra, may we request that you return to the question queue for follow-up questions. We'll take the next...

Yes. And to answer the other question, if you see, for example, like we made, in January, February, March, like JFM 2020, we made INR 129 crore. By then, like there was no classification of NPA, like even pro forma because like at that time, moratorium was available, and we had no clue in terms of like how the collection efficiency is going to pan out. But still like on a safer side, and again, like the company was highly profitable, so in JFM, when we did not have any clue, like we made INR 130 crore provision. And again, when it comes to Q1 of FY '21, so where we got some sense in terms of like what is the collection efficiency. But however, during -- in the quarter 1 also, there was no requirement in terms of making provision because none of the loans slipped to 0-plus dpd. So like moratorium just got over. We still made INR 90 crore provision then. And next quarter, like Q2, so that was the time like where we could see, like since the count started from 1st of September, like we could see like some of the borrowers not paying in the month of September, and we again made INR 114 crore provision. So like for all these 3 quarters, the provision was not on the basis of like the dpd, but like it was more in terms of looking at like how the future is going to be and a prudent to measure like we were very -- so conservative in terms of making provisions. And such, like we already made INR 362 crore. And this quarter, so we just wrote off, and like there was no further provision made other than standard provision.

We'll take the next question from the line of Nikhil Choudhary from Credit Portfolio.

Ma'am, I had one question. Like, is there a change in our provisioning policy? Like earlier, if I recollect, we used to write-off any loans which were dpd 90-plus. We have written off around -- written off INR 220 crores, which are 120 dpd, but we still have 2.7% 90-day dpd. So just wanted to understand, like is there any change in our write-off like policy or something like that?

So all the -- this is Feroz here. All the loans which were written off are 90 days per December, but few loans, which we have not written off because we were seeing some collections in this zone. So we wanted to observe those loans and how they are performing. Based on the performance, we may take a call in March.

Okay. Okay. But usually my understanding is correct, right? We usually write-off anything that is 90-day dpd, right?

Yes. You're right.

Yes.

Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to Ms. Padmaja Reddy for closing comments.

So thank you all for your time and patient hearing and look forward to meeting you in the next quarter.

Thank you.