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

Ladies and gentlemen, good day, and welcome to the Spandana Sphoorty Financial Limited Q2 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shalabh Saxena, MD and CEO of Spandana Sphoorty Financial Limited. Thank you, and over to you, sir.

Thank you very much, and good evening to all of you, and thank you for joining the call and investing time in understanding the journey of Spandana Sphoorty Financial Limited. Friends, it has been over 6 quarters that the current management has been handling the business under Spandana 2.0. Over the past quarters, we've collectively focused on the following priorities: number one, people, which is reinforcing the middle and senior management team with professionals. That was number one. Number two, the second priority was strengthening governance risk and control with added focus on refining the processes; number three, focus on customer acquisition led business growth; number four, technology scale up; number five, customer-led initiatives with emphasis on product services and meeting their life cycle needs. These were the priorities, if I may, just refresh, which were the ones which we had set out when we had come out with the Vision 2025 document on the 11 July, 2022. While the agenda is still work-in-progress, suffice to add, we have made significant progress on each of the items. At this stage, we can say with reasonable surety that the company is on course to becoming a process-driven and stable enterprise with professionals manning their respective domains. We are taking all the steps to ensure the company becomes future-ready to capitalize the opportunity that exists in the environment. Before I go on to the results, let me also articulate the broad changes we have made over the past to make the company future-ready. The first is people-practices and communication. Number two, cultural changes. Number three, process improvements. Number four, a completely data-driven approach through the organization and number five, distribution initiatives. They are in no particular order. Each of them is as important as the other. On the 5 topics that I just covered, let me just elaborate. We have rolled out employee benefits like Mediclaim, life insurance, formalizing performance management system, institutionalizing long service awards, greater focus on training and development of our team members, organizing town halls every quarter, which is a 2-way communication with employees to communicate the progress of the company and vice versa taking feedback. We believe that in a large distribution as us, it is important that we overcommunicate with our teams so that the thought process and feedback, both are well cascaded and received. Specific to distribution; we have taken the following steps, which are very important in our considered opinion for defining the future of the company. The first one is customer acquisition-led growth. Second is moving to weekly [Technical Difficulty] mandate. Number four, branch expansion. On the branch expansion, I would just want to [Technical Difficulty] during the course of the have operated 292 branches already. There are branches which are ready to be operationalized over the next 3 months, totaling to over 1,500 branches. This completes our plan of having 1,500 branches by FY '25 as articulated in the Vision Group [Technical Difficulty] so it had a plan of 1,500 of FY '25, but [Technical Difficulty] No [Technical Difficulty] And the way we were progressed, we thought that it is important 12 months for all the 1,500 brands to deliver over the next year, that is FY '25. So we have planned with impact [Technical Difficulty] in the short run. However, in the longer significant upside [Technical Difficulty] profitability plans. We will now have the full 12 months of next financial year to deliver growth from the branches. Number five, we focus on JLG. Joint Liability group is something that we, as a team, believe in, and we are passionate about it. So the [Technical Difficulty] of 5 center meetings, which is Monday to Friday with 5 groups in a center and 5 members in a growth is something that we [Technical Difficulty]. Number three is focus on operational efficiency, like distances traveled by a loan officer, geotagging of customer homes, et cetera. While I have listed the focus areas, I have to admit that we are not there yet. We will take about 3, 4 quarters to reach the desired levels. But as they say, the continuous work in progress for [Technical Difficulty] If I were to kind of give you a gist, our belief and philosophy remains -- number one, acquire more, which is the customer acquisition rate. Number two, lend shorter tenures, which is 12 months and 18 months is what we've introduced and accordingly, we see a significant movement in those portfolios. Number three is muted ticket sizes. Personally, as a management, we feel that it's always good to be short on ticket sizes, not really aggressive on ticket sizes and which is what we are progressing on. And number four, weekly repayment. We will continue to pursue this path. If you remember, we had said that all the new branches that we are going to open will be weekly branches, and we have a plan from now until end of FY '25 of converting the current monthly branches into weekly. We can safely say that end of FY '25, about 80% from a show will be weekly. Coming to collection model or project Parivartan here, I would want to spend some time. Project Parivartan - So just to give you a background, in our company, the first 10 days of the month, first 10 days, calendar days of the month, were reserved for collections and the balance 20 days was for disbursement, customer acquisition, et cetera. This has -- this was the model of the company, which we've tried to rework under the project Parivartan, and I'll just get into the details. To ensure -- so fundamentally, we believe that under microfinance, we should be doing all the 3 things, which is acquire customers, disburse customers and collect from the customers. All the 3 things at the same time. So while we had a model, we thought that this was the time, which was quarter 2; because we couldn't have done it around quarter 3 or quarter 4. So quarter 2 was a time when we said we will modify the distribution model. This was to ensure that the distribution model remains scalable, and we continue to do all the 3 things, as I said, on all the days. So we changed the model in quarter 2 in 700 branches, which covered about 1.5 million customers. So what did we change? First of all, we moved the customer repayments from the dates that is first to tenth, from the date to weekdays, which is Monday to Friday of the month, with Saturday and Sunday being a low customer operations Day. This led to a change in repayment days for most or for almost all the customers which were there in these 700 branches, which was the 15 lakh customers that I just spoke about. The reason why we did it was, while I said we had to do all the 3 things, acquire customers, disburse to the customers and collect from the customer on all the days. This also gives our employees 2 Saturdays to do training, administrative work. We spent significant time in communicating the changes to the customers, obviously, with a base of about 1.5 million and initiatives of this mega scale, there are bound to be disruptions. There were many instances when our team members reached to conduct center meetings, but the customer is probably missed coming, because their schedule was slightly different from what we would have articulated. On the contrary, there were many instances, where are team members, because of the change, reached at a different time of the meeting, thus missing a customer who came and went away. The above also has led apart from the bit of a disruption in the field, it has also led to an increase in the flows in the buckets, as you would have noticed in the presentation. However, we are very confident that this is temporary. And in the next 3 to 4 months, we will stabilize and even out the variances. Not really ideal; however, we did anticipate this. We had to bite this bullet, had to go through the temporary inconvenience and disruption for a better tomorrow. And we walked the path. We are seeing normalization. And by next quarter, we should have regularized this. Now to go to the highlights of the quarter. New customer acquisition. The results were already uploaded on the BSE and NSE. But however, I'll just quickly go through the results. New customer addition during the quarter was 3.5 lakhs, a Y-o-Y growth of about 183%. Last quarter, same year, it was last year, same quarter, it was 1.2 lakhs. So from 1.2 lakhs, it has moved to 3.5 lakhs. Quarter-on-quarter -- last quarter, we were at 2.6 lakh. So there is a quarter-on-quarter growth of 34%. So Y-o-Y growth 183% quarter-on-quarter growth of 34%. We have acquired 6.1 lakh customers in the first half of the year, well on course to cross 3 million customer base by end of the year. We are currently at 2.7 million customers, a growth of 24% Y-o-Y and 12% growth over the previous quarter. The AUM end of the quarter is INR 9,784 crores, a 69% growth Y-o-Y and 11% growth quarter-on-quarter. Geographical concentration risk in MFI is the biggest risk. Beginning of last year, when we presented the Vision ‘25 paper, we had identified 7 focus rates where we would grow our business to mitigate this. Those states now contribute 22% to the AUM. By end of the year, we should be 26% and end of next year, this will be in the range of 41% to 44%. End of next year, our endeavor is to ensure no state is more than 12% of the total AUM. This is a big step that we are taking. Currently, our biggest states are in the range of about 15%, 15%, 15.2%,15.3%. However, we have another 6 quarters to really moderate these and get the big ones down to 12%. We are comfortable with a single state contribution of about 12% or below. On the disbursement, disbursement for the quarter was INR 2,513 crores. This was a Y-o-Y growth of 81% and a quarter-on-quarter growth of 51%. Last quarter, we disbursed INR 1,000 crores, quarter 1, we disbursed INR 1,664 crores. On the asset quality, the current book is at 96.7%. This has seen a bit of a dip because of the project Parivartan that I mentioned. The GNPA, however, has gone down. It has fallen 23 bps to 1.4%. And this is quarter-on-quarter. If I look at Y-o-Y, it was 7.37% as on 30th September of last year. NNPA again, has seen a reduction of 7 bps over previous quarter. So we are at 0.42%. -- without confusing on too many numbers, the GNPA in the current quarter is 1.4% and NNPA 0.42%. We continue to maintain a PCR of 70.26%. Our CRAR is at a healthy 36.6%, indicating the good balance sheet position. Collection efficiency, I've already mentioned, net collection efficiency was 97.7% versus 98.1%. So that's where a minus 0.4% for the reasons that I mentioned, project Parivartan. The gross collection efficiency, however, which is collection with the lag is at 100.3%. On the borrowing bit, it was a good quarter for us. We mobilized INR 3,191 crores in quarter versus INR 1,080 crores last year same quarter, a growth of about 195%. Happy to inform all that we've added 3 big lenders in the quarter, State Bank of India, NABARD and [indiscernible]. You would have seen the presentation; our cash position also was very healthy. End of quarter, we were sitting on a cash, the balance sheet had a cash of INR 1,850 crores. Coming to financial performance. The total income was INR 630 crores, which was a growth of 106% Y-o-Y and 21% quarter-on-quarter. Net income was INR 412 crores, a growth of 89%. The yield has gone up quarter-on-quarter, and while the same quarter last year was 19.5%, but even on a quarter-on-quarter, it has gone up by about 0.45%. So it was about 24% last quarter. We are at 24.5% this quarter. The NIM of the portfolio is 14.1%, an improvement of 113 bps over previous year, however, down 0.11% over previous quarter. This has been because of increase in the leverage, which has gone up from 1.98% in previous quarter to 2.31% in quarter 2. So we will see some compression as we continue to increase our leverage. We've made this position earlier that [indiscernible] of 4x was something that we would be comfortable in, so anywhere 3.5% to 4%. And once we hit that, we start looking for growth capital. As of now, that distances some bit away. On the PPOP, we reported a INR 258 crores of Y-o-Y growth of 134% and a 36% increase over quarter 1. Consequently, our profit after tax this quarter has been INR 125 crores, which is a growth of 127% Y-o-Y and a 5% growth quarter-on-quarter. During the quarter, we also received a rating upgrade from ICRA. Our credit rating was upgraded to A stable from A -, positive earlier. So now the 3 rating agencies, all of them are at par. To summarize, we will end the year at about INR 12,000 crores of AUM. We are -- we ended the last quarter at INR 9782 crores. So we will end the year at INR 12,000 crores of AUM, which is exactly what we've been saying over the past few quarters. This will entail disbursing about INR 3,000 crores and INR 3,500 crores in Q3 and Q4, which we are confident of meeting. All distribution-led initiatives will be completed by end of Q3, beginning of quarter 4. These are predominantly opening of new branches and entailing the cost of opening those branches and manpower because it takes about 60 days to operationalize a branch. We did this so that we could prepare for a clean 12 months of growth next year. So the next few months will all be about stabilizing. Next year, which is FY '25, we'll be all about focusing on growth and most importantly, focusing on efficiencies and productivity. We have mentioned the Vision ‘25 and the reference to Vision ‘25, it was essentially a 3-year plan, which we had come out on the 11 July, 2022, giving details of where do we want to take the company over the next 3 years, which is until FY '25. Happy to inform all of you that we started working on the Vision 20, 2028 plan. This is the plan we are because -- when we came out with the Vision ‘25, it was a 3 years plan, we are already midway -- we've initiated the planning excise for the subsequent 3 years. We should be able to share the plan by end of the year. Suffice to add, we are usually optimistic of what the future holds for Spandana, and the same should find its way in the plan. I thank all the stakeholders of Spandana. The Board our lenders and our colleagues in Spandana, who pooled in their energies during the year. A special note of thanks to all the branch staff or loan officers, branch managers under entire field staff who are slogging out to deliver the results. Thank you to all of you who are on the call. You've been a constant source of encouragement by giving us positive advice, feedback and, of course, support during the year. We look forward to receiving similar encouragement in the future. We have the entire management team with us and are ready to take questions. Thank you very much.

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Shreepal Doshi from Equirus.

So my first question was pertaining to the customer addition. So we had guided for almost 1 million customer addition during this year, and we've already added 0.61 million customers. So in second half being a stronger half, do you believe we'll be able to surpass that guidance and do much better customer acquisition, which will lead to further better loan growth?

So we've done about 6.1 lakhs in the first 2 quarters. So theoretically, what you're saying is right. But however, what you do also keep in context is the INR 3,000 or INR 3,500 crores that we will do. Within that, yes, the 1 could become 1.1, maybe could stretch to a point could be about 1.5 lakhs as well. Beyond that, so there's a certain mix that we have in mind, which we have kind of executed. Plus we have a lot of unfinished work on the distribution side that we had. So yes, there is opportunity in the market. And what we've also observed is that post the release of the pent-up demand about 6 to 8 quarters back, now the demand is pretty stable. So we will measure and calibrate our steps shaper. Our focus on customer acquisition will remain 1.1 million against the 1 million guidance is possibly a doable thing. But broadly speaking, we will remain within our INR 12,000 crores kind of a number and utilize the time to kind of do other distribution initiatives that we have on our agenda.

Second question was pertaining to the credit cost. So during this quarter, we have seen that increased to almost 3.9% on an annualized basis. So could you please throw some light on that? And will this run rate lead to any change in our guidance of 2% for the year?

Shreepal, this is Ashish this side. So if you look at the credit cost, we have given the breakup, what is coming from the BAU is above 1.2%, we did have some updated provisioning that we have done, which is another 2.6%. In my mind, the other items, the ARC and some correction that we had to do on the assignment portfolio that we have is largely addressed we may have some more flows, but that will be calibrated in the period of time. What is important is to look at what is coming from the BAU or the book that we have created in the recent past or the book, which is going to continue in the balance sheet. And that is stacking at about 1.4% right now. And I think this can be improved from here on.

And any -- sir, like as you add to the collection efficiency -- as sir or highlighted that the collection efficiency was affected because of the project Parivartan right? So can that also lead to an increase in credit cost requirement for the year or increase in flows from here on?

So whatever is currently built and does have some bit of impact because of the Parivartan as well. So we're already taking into account. Going forward, we believe that things will improve from here on. It is the initial hiccup, which has added to the floor, and that is reflecting in primarily 1 to 30 and 30 to 60 bucket. But I think further flows into 90 plus, whatever the natural flow will be there, that would definitely happen. But the ones which are primarily because of administrative issues should be correct in the coming few months. So Shreepal, let me also add. Will there be an impact? There is already an impact. Will it flow? Yes, a little bit will flow for sure. There is no doubt about it. However, will it kind of significantly impact the guidance, no chance. -- we had said that it will be sub of 2%, we are well below that. This is a pain of 1 quarter, which we had to take because the model in our wisdom had to be made scalable, which we kind of walked that path. Once we are there, now it is -- we've kind of said right about 15 lakh customers and about 730 branches. -- rest obviously, the 300 branches are functioning as is. And this year, we have no plan to do anything on those 300 branches. The new branches are either way weakly. So that part is sorted already. So we are -- all these initiatives in our wisdom have to be taken, if you really want to take those Spandana to a INR 17,000 crores. And a stable and a robust model is what we've kind of planned for, and this is a step in that direction. Yes, we will have an impact probably in this quarter also, but then that's all temporary because these are customers who were with us. It is just that the entire disruption in terms of our schedule and their schedule has kind of not really aligned well. And with a 1.5 million base, these things are anticipated. So hence, we chose July and August months to kind of execute this so that we can cover up by the month of March of this year.

Just one last question was pertaining to the collection efficiency again. Sir, have you seen any impact in collection efficiency in Bihar, UP, sort of states wherein there was derailment in collection efficiency because of rainfall or monsoon?

So we did our analysis, our Chief Risk Officer, we did a detailed analysis on both the drought, which is a short rainfall and wherever there was excess rainfall. What the impact of both, which is deficient as well as wherever there was higher, was about -- the total portfolio impacted about 2.5% or 3% of our entire book. So per se, we -- and this exercise, we did just about, I think, about 4 weeks or 3 weeks back when this thing was very right. So immediately, we are either where we don't have a book -- we have a book which is reasonably manageable. We are -- we are doing a very, very calibrated approach in each of these growth states, and we are fine. We have not seen any drop or any stress, if that is the question.

So the collection efficiency would broadly be like, what, I mean, 94%, 95% for those -- for that 2%, 2.5% portfolio? Or would it be even lower than that?

So specific question to be, the collection efficiency actually is better than the national [Technical Difficulty] Country level. [Foreign Language] because this is a very standard question which gets asked. We have not experienced any stress specific stress in any of the states that you are talking about. Wherever there are issues, they are more internal than market or environment. So hence, that is a matter of color for us and everybody in the industry. But yes, of course, we would be very careful when we lend that we have to be, as I said, then short than muted.

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

Congrats on a good set of numbers. Sir, just 2 questions from my side. One on the customer acquisition side. So in this quarter, the new customer addition is actually at par with the industry leader in fact is higher than that. So just wanted to understand what percentage of this customer are, let's say, unique to us? And maybe if you can just further share whether we'll be what the second, third lender or will be, let's say, first or second lender?

So Renish, I will give you the stats. Customers and this is not just specific to 3.5 I'm just giving you a flavor. So it will be slightly more because it becomes a more slightly wider answer. 33% to 34% of our customer base, it was about 36% last quarter. We are 34% is a single lender relationship with Spandana. Another 33% is 1 plus 1, which is apart from Spandana, there is one more. Then there is a -- so this takes it to about 68%, 69%. We have about 19% with a 1 plus 2. And then the others are, once they take a loan from us, when they go and kind of borrow from somewhere else. But what we have also been observing Renish, are doing a lot of analytics in terms of is there a correlation of either a ticket size or a number of lenders to the repayment behavior of the customers. Until now, we've not really seen any. That's number one. Number two, our focus will be on moving into geographies where we increase the single lender relationships. Because a single lender relationship also is a factor of our existing customer base and how much did they want. So given the fact that we have normalized our operations, you will see a lot of these things, the 33%, 34%, touching the 38%, 39%, 40%. If you go back to my quarter 1 earnings call, we had said that our desire is that single lender and a 1 plus 1 should be a 38, 39, 38, 39 equivalent. So about INR 78, 79 should be 1 or 1 plus 1. So that is the distance that we have to travel, and we are walking that path. That will obviously, in our wisdom, weekly kind of helps us weekly repayment and seen in that plus now out in the market from a customer point of view, Spandana is acknowledged as a stable lender, which when they need there is a credit demand. And this is a credit, the need of periodic door of capital for their running their regular businesses. Once they have that confidence, you will see this number increasing. So that's how we are going to we are approaching the business.

And just a follow-up on that. So let's say, the customer pool wherein the lender relationship is 1 plus 2 and above; what could be the industry level outstanding for borrowers?

So we will have to -- we'll get back to you. We don't have it off... [Foreign Language] I mean, it doesn't really ring a bell with us. So we will continue to acquire more and more customers, which is the earlier question Shreepal asked. So we will continue to focus on that. And hence, our experience is on our customer ticket size, we are very well entrenched, and we are very well in our capacity to ensure that we are able to hold on to our customers, which is our customer as well. I mean, right now, we have about 2.7 million. So that is what it is. What is very critical is that we -- the share of wallet increases and to the extent possible, if required, if we have to -- so we are even now after -- even if a customer has a window of 7 years or 8 years, we are still stuck at our Maxim ticket size of INR 80,000 not more. So we are continuing to follow that philosophy and I think we'll progress...

I'll just add, Renish, our exposure at a customer level is 36,800 thereabouts. If you look at the industry average should be hovering around 40,000 to 43,000 -- so if you add my borrower my loan plus another loan, we are talking about 80,000 or somewhere there. If -- unless and somebody has given loans which are like 3 years and all, then this number can increase, but otherwise, this should be hovering around. So given that we don't do 3-year loans, we have all 2 years at best -- and I think our kind of customers should be in that range of 70,000 to 80,000 maximum exposure in that 1 plus 1 that you talked about.

So you asked a very important question, Renish, and I'm just adding on one to it. What we track is not the ticket size. What we track is the indebtedness level. Our indebtedness level today is today is about 36,000. And this, I can say with reasonable surety we'll keep on -- either will remain static at this number or will keep going down, which is exactly the opposite of what the industry, how the industry is moving. But we are very comfortable with this position. Our philosophy remains that for the customer, and this is what we believe in. You will never lose a customer either on interest rate or ticket size. You will lose a customer on your conduct on your -- the way you kind of approach the customer, the way you deal with them. If you are transparent, if you're honest, if you are -- if you maintain a cordial relationship with them and ensure that the credit supply is taken care of, their credit demand is taken care of; you are there.

Just again -- so sorry to follow up on that. So let me put it this way, what is our credit filters wherein if the system-level indebtness of the customer goes, let's say, about 1 lakh or above 80,000 will not line, I mean, does we have that kind of trade filters in our process or no?

It works the reverse. Given the foyer and the INR 1.5 lakhs, that is automatic seal. My rejection at this point in time is 45%. And we have the only way to reduce that rejection is to increase the tenor from 24 to 36 or 48 which either we don't have -- so as a policy, we are rejecting a higher number for the reasons that I said because we think this is the right way to do.

And just add on that, the way you can disburse a loan is maximum tenure can be only 2 years and within that foyer eligibility. So your -- either your amount will go down or the loan will be rejected altogether. That's how it works.

And just last question from my side on the credit cost. So Ashish, you did mention that this INR 58 crores in this quarter is related to the ARC book. But let's say, in next 2 quarters, what kind of impairment we still expect from the ARC book? I mean, all this is the last leg, and we are completely done with the past impairment.

So there are 2 pieces to this, Renish. One is ARC book that we have on the balance sheet. The total outstanding on the balance sheet is about INR 164 crores. We carry a provision of INR 34 crores, which emanates from the ratings that are given by the trustee and the rating agency. So the provision is driven by that. We are confident that we'll be able to collect most of the ARC pool. So further provisioning may not be required in my mind. But if it happens, it should happen gradually over a period of time. That is part 1. The other part is more about the assignment transaction. And it's a calibration that we've been doing around this. What we have on the balance sheet presently uncovered or let's say, what we have already paid as advanced to the banks and needs to be addressed in the balance sheet is about INR 16.6 crores, INR 17 crores roughly, let's say. Having said that, we are in a business where we need to keep taking the interest from the bank's perspective as well and keep having a resolve around this. So if one can expect another, let's say, I'm just estimating a INR 40 crores to INR 50 crores kind of a number over a period of time, not necessarily immediate or whatever. But I'm just doing future gazing here, in a way. That's the number I have in mind, and we'll be comfortable with that, if at all, that happens.

Got it. But sir, again, I mean, if we have only INR 17 crores, INR 18 crores there on the balance sheet? And why we are saying INR 40 crores, INR 50 crores?

No, this is Renish, this is future. This could happen is what Ashish is saying. He is defining the scope and the limit towards the discussion that we are having at this point in time. So it is not that this will happen next quarter or say the next 3 quarters or 4 quarters. We are saying that is the total quantum of issue to be addressed while our effort on the fleet continue, that is a max that we are talking about. That is the point Ashish was mentioning.

The next question is from the line of Sagar Shah from Piper Serica.

First of all, congratulations for such a healthy set of numbers. I just had one question actually. Basically, that was related to on this Slide #8 actually. So my query was that when I'm seeing your from 1- to 30-day bucket and from 31- to 60-day bucket, I'm seeing a little bit devaluation in your asset quality. The 1- to 30-day market is -- has gone up for the first time from 0.55 to 0.85 and 31 to 60 has gone from 0.42 to 0.50, and it has increased over the first time in the last 6-odd quarters actually. So -- my query was that we see have we actually started seeing some stress, which we haven't seen actually for the last several quarters in this microfinance space in these years when can you give some color on that, please?

I think this is partly covered in the opening remarks made by Shalabh.

Sorry, joined the call out on late...

Not an issue not an issue. I'll try to explain this in a little more detail. The movement that you see in the SMA buckets has primarily can be attributed to the Parivartan project that the company has taken up. We have moved almost about 700 branches in last quarter from a monthly kind of an exercise where we used to collect between first and 10th of the month to a weekly kind of a setup where we are asking customers to make the payments in the first week of the particular month, which is Monday to Friday. So in this, there is an administrative issue where the customers are still not aligned to the new thought process, and that is what is creating a little bit of slipovers so if you see our overall collection on the gross basis is still 100.3%, which means people are paying with some lag, and there are some miss outs that have happened, which will catch up as we progress. And I think what we believe is in another 3 to 4 months, you could see this, again, normalizing and going back to the levels where we were in the past...

So Sagar, quickly, while we covered this at a very, very length at a length in my opening remarks. But broadly, our company used to follow a collection cycle of 1st to 10th, which was a date and the balance 20 days was for our disbursement and member acquisition. What we have done is we thought it was not really the right thing to do was to do all the 3 things, which is collect, disburse and acquire new customers every single day of the 20, 21 days that we work. So we've moved in 700 branches covering 1.5 million customers from the date to a day, which is instead of 1st to 10th, now we are saying Monday to Friday. We came out with a schedule to the customer saying about or [Foreign Language] for a scale of this, obviously, there was to be a disruption. That is why we chose this quarter. We were fully aware of the risk. But then as I used the line in [Technical Difficulty]

And my last question, sir, was related to credit costs. As you already highlighted, there was a one-off in the quarter related to restructuring. So that's credit cost was a little high at INR 90 crores. So can you give a guidance of our credit cost for FY '24 and for FY '25 also?

[Foreign Language] that is towards the FR and the some assignment transactions that we have done. So I don't want to really take up the time of the others, but you can separately you know us, you can separately reach out to us and then we'll kind of...

The next question is from Rajiv Mehta from -- Yes Securities. Seem to have lost the line for the management. Please stay on the line while we reconnect the line for the management.

Sure. Sure, sure, sure.

We have the line for the management reconnected. We have a question from the line of Mr. Rajiv Mehta. Please go ahead.

Congrats on demonstrating significant scale of the franchise. So first question is on the portfolio yield. So portfolio yield has improved from 24% to 24.5%, but the interest income has grown exactly in line with loan portfolio, guidance by 10%, 11%. So does it imply that a good part of the growth that we saw in the quarter was slightly back ended and a true reflection of the higher yield will come in Q3.

Hi Rajiv. So I think the entire growth is in line with the portfolio growth. And the reflection of the yield is nothing but whatever the top line growth has been. What however, happens is we had done a DA to DA transactions, which will move some of the income for the related to the quarter as well into the other line item apart from the preponing of the income because of the DA transaction, which is almost about INR 42 crores, which has gone into the other income line item. That has -- that gives you some [Technical Difficulty] in terms of the portfolio yield as far as portfolio yield is concerned, I think we are very much there. maybe another 10 to 20 bps is what you can see...

Sure, the history is, Rajiv, we increased post the March regulations. We increased the interest rate the first time around in June of '22. And then -- so we have taken up our IRR from 21.97% to 24% in October, which is 12 October 2022, which was last year, we took it up to 25%. So for the past 4 quarters, we've been stable at the same interest rate. So the yield on account of the delta on interest rate has, I think, kind of come on full year on a portfolio point of view. So now what you will see is not the delta on account of the increase in the rate, but more on account of the denominator increasing which will kind of progress as we know.

And just to cover the question in 2 numbers, 7% was the increase in the average AUM. The increase in the top line has been interest income has been around 10%. So these are the numbers for you, Raj.

And Shalabh also said that customer level indebtedness will remain static or maybe will slightly come down. So when you speak about indebtedness, you're talking about our average outstanding per customer borrower?

Correct, correct.

So then does it not imply that customer retention or also your vintage will not improve? Because I mean, naturally, as your processes, your things are becoming much and much better. The customer sticking the customer retention should improve and the migration into subsequent cycles will lift the overall blended outstanding per borrower. But I agree that you will also add new clients. But can it not improve on this half?

Yes. So what you're saying is right. However, for the next 1 year, -- so there are 2 parts here we are discussing. We are discussing numbers, we are discussing philosophy. From a philosophy point of view, we will always be on the lower end of the ticket size, we will not go and which is out in the early part of the corn, which are maximum ticket size, you're operating at is 80,000, which is substantially lower than the industry. What you are saying is right. However, for the next 1 year, when we continue to pursue our customer acquisition that growth, that is going to -- by design is offer our -- we offer our customer of our cycle loan at 35,000. So you will see that number being stabilized at a 36,000 or thereabouts, 1 year hence, when currently our proportion of new versus vintage customer is about 50-50. The day we start coming down to a 30% new and a 70% existing. That is when the 36 will move, start inching up. But -- and that will eventually play out, say, about 6 quarters from now. But however, the 36 is unlikely to become a 46% or 48%. At best 36 will be at 37%, 38%, 39%. That's the range that we are comfortable in some-40,000 indebtedness even for an existing customer base is a number that we should be comfortable with.

So what is your thoughts about one office or your optics asset ratio maybe in the medium to longer term, when can we reach from where we are?

So we are currently -- so we've done this benchmarking. We are at the -- at a company at an enterprise level, we are currently at a 347 here at on account – borrower - 318. So we are -- at an AUM product currently is 1.2 excluding [indiscernible]. And we are handling our customer -- our loan officers are adding 317 borrowers per loan officer. However, 317, Rajiv is a number that -- and this 317 because we've added a lot of branches and loan officers, et cetera. This will immediately in the short term hit in the neighborhood of about 300 to 400, 400 borrowers per loan officer, which next year, we are targeting a 440 to 450 number. On the AUM side, we are currently at a 1.2%. We are targeting 1.4 to 1.5 over the next 3 to 4 quarters. That's the number we are targeting. On the AUM side, 1.4% to 1.5% is a number that I foresee stabilizing and on the borrower to loan count, the borrower to a loan officer, I think a number anywhere between 450 to 480 is a number that we'll be comfortable with. Our -- we have been our best of times done 600 also in our previous company, but those they are different to. So now anywhere 450 to 470 is a good enough number with a INR 1.5 crores of corresponding portfolio. Sorry for the long answer.

No, no. Just a couple of observations and then I would like to hear your comments on to my last question. we have seen some additions even in the monthly collection model branches. There has been slight addition and guidance one observation. And second is the growth in loan officers sequentially as to as 4%, while we have added significant number of branches. So is this because of...

Sorry, sorry, what... I understood the first question. What was the second question?