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

Ladies and gentlemen, good day, and welcome to the Spandana Sphoorty Financial Limited Q1 FY '25 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 date of this call. These statements are not guarantee of future performance and involve risks and uncertainties that are difficult to predict. [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. Good afternoon to all of you. Thank you for your interest in Spandana and for taking time out to join us on this call. While the results have been uploaded, I am presenting to you the why of the results. Obviously, the outcome has been below par compared to the past 8 quarters of delivery. The team believes that collectively, they should have done better as it falls short of their expectations as well. However, the team is confident of a turnaround back to BAU and it would not take long. Let me start with the events in quarter 1. India, as a democracy successfully conducted the largest ever electoral process in the world to elect members of 18th Lok Sabha polls. While this 7-phase election was, by and large, normal, it disrupted our company's operations relatively significantly in key 5 states. We, as a policy, post our employees away from their base locations. Hence, we had to give them a holiday on the voting day in their place. Plus, we had to close down the operations in the locations where we had our branches. That's leading to effectively 2 days of holidays, which unsettled the center meeting schedule majorly. While we were grappling with the election disruption, the severe heat wave across large parts of India was a double whammy. That had a higher impact on the attendance, thus leading to an unusually higher absenteeism amongst our customers. While these were external factors, we were hit by unusually high attrition in 5 of our key geographies; Madhya Pradesh, Rajasthan, Gujarat, Maharashtra and Telangana. These geographies have a cumulative AUM, which is 32% of the country's portfolio. Our BM attrition for the quarter in these 5 states was about 10.5% versus 5.91% for rest of India, BM as in the branch manager. A branch manager, as all of us know, is a key stakeholder in running the smooth operations of the branch, and he is a 1 point single anchor masquerading his teams across. So that was a big blow in these 5 states in the quarter 1. Normally, if you see our figures, and we've been monitoring our figures, both for the loan officer and branch managers, we are relatively better than the industry. These 5 states, obviously, for quarter 1 was an aberration. And hence, we had an attrition of about 10.5% against the rest of the country, which was just 5.9%. These states ultimately led the drag on our portfolio quality, contributing 59% of the real bucket. That's why it is unusual and unfortunate that all these 3 major events converged in quarter 1. However, the fact is it did. While it did impact our portfolio quality significantly, our teams are back in full force to ensure regularization and bringing back normalcy to the portfolio collections. While the teams are working on the field to normalize, as a means of abundant caution, we have already done the following steps to ensure we tread cautiously over the next few quarters. The following steps have been taken. There is a slide. In fact, there are 3 slides that we have put in the deck. I'm just repeating it for the sake of reemphasizing the point. The first is we have -- at this point, we have stopped new-to-credit customers, stopped sourcing to new-to-credit customers. Number 2, we've paused new member acquisition in 14% branches across key states. There are about 230 branches where we are not doing member acquisition. These are the branches which have relatively higher challenge on quality compared to the country. So hence, this is the step that we've taken. Point number 3, we have restricted new center additions in about 40% branches, 39% branches to be precise. Point number 4. So one of the reasons -- and I'll cover it during the Q1 and even now, I can just give you a highlight. One of the reasons why we saw elevated branch manager attrition was the workload. Spandana has a -- so what we have done is we've -- as an immediate action, we have given them one down support at a credit level. So credit level resources have been put in about 20% of the branches. This will be scaled up to 50% branches by September 2024. What this will do is, one, divide the workload of the branch manager. And they will do the minus 1 resource or the credit resources will do all the controls and checks that are required more rigorously. Point number 5, the bench strength in 60% branches has been enhanced by 20% because we are just -- as a preemptive measure of attrition, we are just ensuring that we strengthen our bench strength, so that immediately, there is no disruption. And the last point is, and which is very critical is, our entire supervisors have been enabled or have been given a monitoring tool, which is a tech-enabled monitoring tool, which monitors all the quality parameters and they are visiting the branches, the customers and the centers. So our belief is that these 6 key steps are going to immediately ensure that the portfolio comes back on track. This was the point I wanted to highlight. This is covered, as I said, in the investor deck. Point number 6, the portfolio composition remains comfortable for us from an indebtedness perspective, as the following numbers will show. The reason why -- and again, this is a part of the deck, and I'm reemphasizing the point, because there is a lot of -- there are a lot of talks in terms of is the customer over indebted, et cetera. All of you are aware, and we've been bringing this point across over the past 9 investor calls that we've been doing or we have done. We, at Spandana, follow -- we monitor the indebtedness level very closely. Our current indebtedness level is INR 42,000, which is 76% of industry level. And in the deck, we've also given as per the new norms of the SRO which have been announced, we've given how does our flow of customers reflect. So we are comfortable on the indebtedness level, number one. Number two, of the total customers that we have, we have split the customers' indebtedness at all the -- across the MFI levels, and we've presented it in the slide for all of you to see. The last point in this, I would mention is with tighter control on credit and sharper monitoring, we expect to see an improvement in the portfolio quality. So we believe these challenges are transitory in nature and operations should normalize within the next 3 to 4 months. We have not come across any structural changes, be it in terms of rural demand, be it in terms of dip in income levels or macroeconomic outlook and hence, have reasons to believe that the normalization should happen during the period. With this, let me move to the regular updates for the quarter. During the quarter, we got 2 upgrades from the existing rating agencies. The first was India Ratings, which upgraded us to A+ Stable from A Stable. Then we had ICRA, which upgraded us to A+ Stable from, again, A Positive. This was on top of an A+ rating from CARE, which was a new rating, which we had announced last quarter. Meanwhile, on business front, let me start with update on the few -- 2 new businesses we had launched mid of last year in our subsidiary, which is Criss Financial Limited. LAP and Nano loans. The new book that we ended with in the quarter was INR 88 crores. In fact, happy to inform everyone that we've crossed INR 100 crores a couple of days back, which is a new book on secured and about 20%, 25% is the unsecured loans to retailers. But predominantly, it is a book which is biased on secured lending. The book is delivering a yield of 23.75%. While a small portfolio yet, however, is delivering a collection efficiency of almost 100%. On the business drivers, let me just quickly go through. Our disbursement for the quarter was INR 2,283 crores, which was a growth of 37% Y-o-Y over last year. Q1 is usually a lean quarter for microfinance industry and hence, our quarter-on-quarter disbursement declined by 42%. However, Y-o-Y at least the numbers are there, but we personally do not see any weakening demand because we ourselves tone down the disbursement because we felt it is very important that we ensure that the quality were restored in the branches. AUM at the end of quarter 1 was INR 11,723 crores, which was a growth of 72% (sic) [ 32% ] Y-o-Y. Customer acquisition continues to be our focus. We acquired about 200,000 customers during the quarter. For now, as I have covered, I'm just repeating, for now, we have stopped lending to new-to-credit borrowers. It's not that -- and I'll cover it in the question-and-answer session. But we've taken this practical step. Once things normalize, we'll kind of pick it up. Our LAP and Nano business under our subsidiary Criss Financial is growing steadily. As I have already told you, no, we crossed INR 100 crores a couple of days back. We have ambitious plans for this enterprise and this franchisee, and we are going on track. We expect these 2 lines of business to scale up to about INR 500 crores by end of the current financial year. On the portfolio quality for the microfinance business, we continue to maintain provisioning at 80%. The quarter saw a GNPA increase to 2.6% from 1.63% a year ago, which is an increase of about 97 bps. Sequentially, GNPA increased by 109 bps, which was reported end of March. Likewise, our NNPA for the quarter was 0.53%, up 4 bps over what was reported in the last quarter. On the liability and marginal cost of borrowings, while we've given exhaustive slides, just covering the high level, we borrowed about INR 1,554 crores, which was almost equivalent to what we borrowed last year in the same quarter. Sequentially, our borrowing was lower by 55%, and this is largely because of the seasonality of our business. Our marginal cost of borrowing for the quarter was 11.4%, which was 87 bps lower than 12.27% for last quarter and 50 bps lower than 11.9% reported for quarter 4. Likewise, if I look at the borrowing mix, we now have a more healthy mix with bank's contribution increasing to 59% at the end of quarter 1. We intend to optimize our borrowing mix with banks contributing about 60% to 70%, so as to place us in a good position at the cost of borrowing fund. On the financial performance side, the net interest income for the quarter increased 47% to INR 425 crores. The PPOP for the quarter was INR 287 crores versus INR 189 crores of the same quarter last year. This was up 52%. Yield on the portfolio continues to be strong. It was up 35 bps Y-o-Y to 24.4%. NIM for the quarter was 15.2%, which is up 91 bps Y-o-Y and 58 bps quarter-on-quarter. NIMs improved as a result of lower cost of borrowing. We are working NIMs to pass on the benefits of improvement to the respective stakeholders, which includes the customers. On the PBT and PAT, higher provisions owing to the transitionary challenges experienced during the quarter resulted in 53% Y-o-Y decline in the profit, in the PBT to INR 75 crores. PAT for the quarter was INR 56 crores, which was a drop of 53% Y-o-Y. Given the temporary disruption, we expect to close the financial year with an AUM of around INR 14,000 crores, and with a slightly elevated credit costs that we've been speaking about, where we could end of the year have a credit cost in the range of about 3.75% for the full year. Since the situation is evolving, we will revisit the numbers end of quarter 2. To sum up, we believe these challenges to be temporary in nature and expect operations to normalize in the second half of the current year. We have taken a number of steps to improve portfolio quality, which should help us course correct in the current quarter. We will be prudent in our approach to lending, ensuring that our portfolio is well diversified, while staying conservative on ticket sizes and customer indebtedness. The entire management team of Spandana is thankful for the consistent feedback that we have been receiving from all of you. We continue to focus on delivering on targets, which we set for ourselves and look forward to your continued support. So thank you very much. That was the script that I had. Happy to open this up for questions, so that we could answer all of whatever you would want to ask. Operator, if you would please, open the line from -- for the first one, is Renish.

[Operator Instructions] The first question is from the line of Renish from ICICI Bank.

No, this has been a tough quarter, but just 2, 3 questions from my side. So sir, one on this entire project Parivartan growing numbers. It looks like it is progressing well, especially when we look at the collection efficiency at 98% in weekly branches versus 92% maybe in monthly branches. But again, when we look at another data point, the 65% of the GNPA being contributed by the Parivartan branches, so what is the disconnect here? I mean, though at one end collection is significantly better; and then the other end, a large part of [ provision ] fee is still sort of contributed by the Parivartan?

This is Ashish. I'll just take this and then maybe Shalabh can also add. Typically, the Parivartan branches, I think the right way to look at Parivartan branches is these branches are not very different from non-Parivartan branches at this point in time, because what we did in the Parivartan branches was only change the date to a day. We have not yet initiated the weekly loans in these branches. So logically, all the issues which happened in the country, like we have explained in our script, whether it was heat wave or for that matter, the disruption in the center meeting because of lack of availability of, let's say, either the staff or the customers during the elections or because of the heat wave, kind of resulted into a lack of on-time collections, so to say. So there has been a disruption. There have been flows. In fact, if I have to look at the collection efficiency across the 2, there will be hardly any difference at this point in time between the non-Parivartan and Parivartan branches. So what we are trying to explain is, yes, Parivartan branches is something that was initiated earlier. But today, I think it is more about bringing the structural discipline across the branches in terms of whatever we have seen. And the 5 states that we have mentioned have a larger impact. And once we correct things in these 5 states, either by, let's say, balancing the load at a branch manager level staff by giving 1 more credit guy, or by creating a bench for all the attrition that we have seen, which disrupted the kind of center meetings, or by giving them a little bit of relief from customer acquisition or disbursement, just letting them focus on bringing the customer back into the center meeting and organizing those center meetings will be the focus for these branches, including the Parivartan branches should -- correct things on an overall basis. So Parivartan, yes, was a concern in the past, but to date across the board, I think we are going to focus on these pieces.

So Renish, let me just supplement what Ashish said. The Parivartan branches' gap between the Parivartan and non-Parivartan now is practically very slim now. So which is what if you remember about 2 quarters back, 3 quarters back, we had said that by end of quarter 1, mid of quarter 2, I think we should have normalized, which I think, barring a very small bps, some 50, 60 bps, I think both the branches are at par. The point Ashish is making is the disruption has happened everywhere. So that aside, let me also remember, and this is a number that I had said when I think in the quarter 2 call of last year. The problem with Parivartan, whatever historical legacy problem has now flown into the GNPA bucket. So 48% of the portfolio was the Parivartan branch portfolio, which is contributing to 65% of the GNPA. So yes, it was not accepted the way it should have been. Even though it was with the best of intents, but it didn't work. So that is the reality and the numbers are showing. Having said which, now it is practically Parivartan, non-Parivartan is all the same. It doesn't matter. The numbers have regularized. Right now, what we are doing is to ensure that across the 1,500, 1,600 branches, we regularized the disruption and normalized the disruption that had happened. So we've moved on from Parivartan and we are on to normalizing the disruption. The numbers that you see are the inherited legacy of whatever we had launched. So that's the supplement to what Ashish just mentioned.

Understand. So just to elaborate a bit on that. So let's say the Project Parivartan was all about moving from a monthly to weekly collection model, right? But when we look at it in the PPT, only 400 branches are on weekly collection. So when we are saying that we are behind the Project Parivartan, so still I'm not able to connect the dots over here, sir?

Yes. So let me explain. When I made that statement that we are behind, what I meant was that this whole differential and the fact that the flows are because of Parivartan, I was specifically mentioning about that. Now the original Project Parivartan, which continues to be, and we will drive that, was to convert the monthly to a weekly. We are still on it. In fact, this is the same question which was asked by somebody in the last call. We have not -- We continue to maintain that weekly is a good model. The only difference is that instead of the 48% of portfolio, which we attempted to convert into Parivartan, we will now go slow, step-by-step, center-by-center, branch-by-branch, district-by-district. And any new loan which is given, we will kind of ask, encourage the customer to move to a weekly. This is what was our plan. This continues to be our plan. We have not moved away from weekly into monthly, because we are very sure and we are convinced that weekly is a model to go. It is just that we will not really implement it at a wholesale level. We will go one step at a time. So instead of a 3 months, 6 months, it could probably take 1 year, 1.5 years. So be it. But obviously, at this stage, we cannot allow the wholesale conversion from a monthly to weekly. We will do it at a loan by level, center-by-center, branch-by-branch.

I'm just trying to sum up. Yes, Parivartan branches had challenges or whatever. But right now, the challenges are across the board in all branches and that is what we're trying to fix. And in the meantime, yes, Parivartan branches will not be done at that scale, but like Shalabh was explaining, on a smaller set, we will continue to approach. Because weekly, overall, if you would have seen our numbers, we have also given weekly branches in the INR 1,400 crores portfolio's performance is at 98% collection efficiency compared to 94% on an overall basis. So clearly, weekly model is much superior to the monthly model. And we continue to believe that, and experience shows that. So on a cadence basis, if you see, 25% of our disbursement is weekly. On an AUM basis, obviously, our AUM operates at a lag, it is about 15%. So this will continue, Renish. And in parallel, we will start moving the customers on weekly. However, not straight away at a wholesale 48% or a 50% type of a portfolio. We will move center-by-center, branch-by-branch, so that things remain under control.

Got it. Got it. And sir, just lastly, on the cost of fund and the credit cost part. So when we look at the margins, which is at 15%, and if we believe what is there in the media, et cetera, wherein RBI is still behind the companies for passing on the benefit, so do you foresee any risk to the 15% NIM? And any risk to the ROA after factoring a higher credit cost at 3.75%?

So Renish, 15% NIM is anyways a much higher number than what we have kind of communicated or guided for. We would like to be around the 14% number, 13.5% to 14%. And we have passed some benefits to the customers in April, starting April 1, where we have reduced 1% for customers who are in 6 cycle and above. And we keep reviewing this. This quarter from a cost of borrowing perspective has been very good for the organization at 10.7% (sic) [ 10.8% ] in terms of marginal cost. However, this is also something to do with the fact that we have done a lot many more PTC transactions. When you do some other kinds of borrowings, probably the cost may be slightly inching up in the coming quarters. It will be in between whatever we have seen last year and what we have seen for the quarter. And accordingly, whatever we feel that there is a benefit that can be passed back to the customer, we'll keep deliberating on that.

Yes. So Renish, let me just supplement what Ashish said. There are 2 vectors of the 2 variables that we're working on. First is the absolute cost and the borrowing cost, which is a factor of the mix that you operate, number one. Number two, whatever is the optimization that you get out of the mix or even otherwise, because we've got now 2 upgrades and 1 fresh rating, which is A+ Stable. So obviously, some of the impact will kick in by moving the cost of borrowings out. If that happens, as I said in my opening remarks also, we will kind of attempt to pass it on to the customers, which is the cost that we've already taken. We will continue to evaluate that position so as to ensure that we remain fair to the customers at every given point in time. Our stated position on NIMs has been that we will operate in a range of about 14%, 14.5%, anywhere around that range. You could see 1 quarter is not a reflection of either a good or bad. It is more a consistency which we are kind of wanting to deliver. With this, we'll keep on evaluating, and obviously, valuation happens once we see a stability in the movement across 2, 3 quarters. So that's how we would position ourselves when it comes to the NIMs and the lending rates.

All right, side. Sir, just last thing from my side on this collection efficiency or maybe expected at the industry level. If I were to just keep aside this project Parivartan and then when you look at the credit behavior, et cetera, at the ground level, is it fair to assume that the July collection or the July trend is better than April, May and June?

Yes. So trajectory wise, correct, and it will keep on improving is my belief, which is what we are getting to know from when we speak to our people on the ground.

Okay. Okay. So there is no further stress build up, right? I mean keeping aside the Project Parivartan at all?

Yes. So Project Parivartan also, I gave a very elaborate answer. So I think we've moved on, and we adjust on regularizing everything because we've had a year of Project Parivartan. Now everything is regularized, including the numbers. It is just the legacy, which is kind of flowing in, which we have to accept and move on. With respect to your specific question on the stress, we've laid out the indebtedness levels in the presentations that we've given. We are in a reasonably -- and I speak for our company, we are in a reasonable position. And as far as the customer indebtedness is concerned, in fact, we are in a better position. And most importantly, to your last question, are we seeing any specific stress in a specific geography, the answer is no.

[Operator Instructions] The next question is from the line of Aviral Jain from SG India.

I just want to understand so which way will [indiscernible] basically got over by 10 June. So are you seeing some signs of improvement in terms of collection efficiency across branches post that period? Because we have past 6 weeks after that? And it's quite concerning to know that there is increased attrition in 4 or 5 key geographies. What were some of the reasons for that? And how would you correct it structurally, because that is specific to the company and not specific to the environment?

Aviral, thanks for the questions. I will just take the collection efficiency piece and then let Shalabh kind of respond to the attrition one. I think this entire collection efficiency piece, yes, there have been green shoots, which we have seen during the month of July. So things have definitely started improving. Heat wave and all definitely reduced the participation from the customers, combined with the elections which were going on at that time. We have rolled out many branches in Northern India, where the heat wave was even more strenuous and that probably is seen in the numbers in the June quarter. But definitely, as we move forward, things will start improving. July has been -- there has been green shoots. I would say there is scope for a lot of improvement, which we will start seeing from August onwards.

Yes. So Aviral, let me answer the second part, and it's a very pertinent question, because it's a company-focused thing. So the 5 states that we've managed -- so let me just take a step back. Historically, when I see Spandana's attrition rates across the loan officer and branch manager level, we've always been doing slightly better than the industry. Our annualized attrition last year, for example, at a branch manager level was 2% per month, roughly about 24% for Spandana. At the LO level, loan officer level, we were at roughly about 40%, 38% to 40% when it comes to loan officer level. So this has been the historical trend. There have been always some spikes here and there in states, but never a convergence into a particular quarter. So this particular quarter, we had these 5 states, which we've articulated in the Slide #3, where we've said that compared to our standards itself, while they're everywhere, there was a bit of an elevated attrition, but what these 5 states kind of had almost, if not double, slightly less than double was the attrition rate. The reasons are as follows. The first is we were reasonably strong in these states. So there was an attrition because of an opportunity, because the market presents itself with opportunities. That's number one. Number two, we like it or not, but there is some bit of an additional workload, which a branch manager has to go through, more so from a structure point of view, because in our branch, we had a branch manager and a loan officer. That is why what we have immediately done is that we've put, as I mentioned in my opening remarks, in 20% of the branches, the branches which were big, at a pause and a customer strength level, we've added people. We've given support to the branch managers so that he is he is able to focus on the other things and not -- because right now, the administrative and the supervisory responsibility is with him. So that's what we've done immediately in the 20% of the branches as we speak. We already have people positioned. We've said that by September end, we'll have 50% of the branches have these additional support. So this will give some respite to the branch manager. The last one is, obviously, there is what we have done is at just a branch manager is not going to solve the problem. So we've already started putting people and creating an additional bench of 20% at every of the critical branches, which is almost about 70%, 75% branches, where we'll have additional bench strength of about 20% additional. So that if there is an attrition at a loan officer level also, we are able to address that. This is apart from the other engagement activities, recognitions, et cetera, that we are continuing to pursue and will continue to strengthen. So point is valid, these 5 states bore the brunt of the higher exodus. But we've taken the corrective measures and corrective steps the moment we kind of saw the data in the first couple of months itself. And I think the last month, which is July, while we're still not out of July, but we are seeing -- I mean, between July and August, I think we should be normalized on the attrition front. As an institution, we take pride in the fact that we've been able to hold on to our resources for the past 2 years. This was an aberration and it should be looked at in that light.

And my final question, as well as on these credit costs, you had mentioned that this year as of things that we see today, you are envisaging a 3.75% sort of a credit cost. Does that mean that there is further slippages that you are envisaging? Yes, we are at 80% PCR already. So any further incremental credit cost has to be driven by fresh slippages, which again looks -- if the business has come back to normalcy from a fresh slippages standpoint, then it's a very high number compared to the past 7, 8 quarters?

Yes, that's pretty accurate. Yes, it has been a higher number compared to the last 7, 8 quarters. Probably, we will see this kind of stabilizing towards August and September. And from Q3, Q4 onwards, it should completely be BAU. That's the expectation. So credit cost in that light, in the remarks kind of Shalabh alluded to, that we are likely to be around the 3.75% number for full year. Definitely, this is much higher than what we envisaged. In fact, our guidance was more like 2.5% when we had our call last quarter. But basis what we have seen in the first quarter, probably we are...

So Aviral, what happens is that on a distribution of 14,000 employees, INR 12,000 crores across 1,600 branches and about 3.4 million customers, when you have this kind of an impact, it will take at least 1 additional quarter to kind of come back to normalcy because what you're to do is to reinitiate the entire effort of reaching out to the customers and trying to clear off whatever went through the earlier buckets. So we will take about a quarter more, which is this quarter is what I'm saying, just to clarify. And I think Q3, Q4, and that's what we've said also, in H2, we believe will be normal. We will see some elevated costs because the flows are there, we are still managing. But a normalcy should be restored by end of this quarter. We will need at least those 4, 5 months of period to kind of come out of it.

Yes, I know, that is completely fair. My question was that would you see more incremental and healthy plus additions over this time, finally come back to normalcy in the next 3, 4 months? Because ultimately, I'm saying, the credit cost would be defined by how much provision coverage you need for each of the buckets.

Yes. So the credit cost for the full year, as Shalabh mentioned, was probably around 3.75%. We think there are going to be a little bit more flows in the coming quarters. But there is likely to be improvement in the 30 to 90 bucket where we have almost INR 160 crores of provision sitting right now. So clearly, it will be a bit of slippages, but some bit of upgrades as well when we are giving out a number.

Okay. Let's see. Maybe at end of the second quarter, we'll have better clarity as to how it looks like. And like, so it's just to complete, what I was saying was this looks like a temporary phenomenon given multiple factors, but then some of the credit costs could get as [indiscernible] slightly optimistic, again, on ground situation we'll kind of say, but this could be temporary in nature as well?

Absolutely. And that's our belief because see, there's inherently nothing wrong with the customers. See one should be worried when you see a spike in the quality -- when you see a spike in the so-called not-so-good customers, which doesn't look like. The issue with this whole model here is that if a customer slips, you have to work doubly hard to ensure and work with the customer to ensure you recover and ensure that she backflows -- her semi-bucket moves in the reverse, which is where the challenge comes. There's nothing inherently wrong in the customer in our belief. In the process here, something will flow. But as long as you are able to squeeze the fresh flows from a standard into SMA bucket, I think another 2, 3 months, we should be fine. And we believe that that's what the belief of the team that while this quarter could see some more flows, obviously, but not to the extent of what one would believe. So that's the reason why we came up with the -- when I said the 3.75%, that was the number that we said. And then Q3, Q4, I think we completely should be fine.

The next question is from the line of Ajay Modi from Piper Serica PMS.

Quickly, Shalabh, why in all the last questions, the response has kind of feels like this is actually transit driven? I would like to kind of rephrase and ask this once again. The slippages in 30 to 60 and 60 to 90 buckets have been very sharp. I mean, 0.92% to 1.68% Q-o-Q and 0.64% to 1.47% Q-on-Q. And this is at a time when like we've been reading about sudden telling the industry participants to go slow on -- or stop exposure to borrowers with more than 2 lakh of exposure, plus the industry kind of talking about setting up a so-called support fund of INR 500 crores. And at a time when there is loan reversal already kind of starting from states like Telangana. So does it get worse in Q2, Q3 before it kind of actually starts settling down?

No. So Ajay, I think if you go to our investor deck, Slide 5, we have put out our customers' cohorts across the various indebtedness level. If you see, only 0.7% of our borrowers are more than INR 2 lakhs. Rest everything is -- about 1/2 of them are under INR 50,000, which goes back to the point, and it has nothing to do with this specific quarter, for the last 9 quarters, we've been stressing on 3, 4 things, Ajay. The first is that we, as a company, we believe in muted -- we measure and focus and monitor customer indebtedness, number one. We believe that the ticket size is not a game to play. So we are always -- our maximum ticket size on our loan is INR 80,000, no more. Probably this would be the lowest in the industry, but then we are okay with that number two. Number three, Ajay, and this I did not mention in my earnings call, nor is it there on the slide. The rejection rates as a result of the fire, which is in existence at this point in time, our company rejection rates are about 51%. So what I source, I say no to half of them because of the so-called indebtedness. And that goes back to, once again, the shorter-tenure loans that we've been propagating all along. While our maximum tenor on the loan is 24 months. And we put it out in our slide, on the monthly loans, we are 12% -- 86% is a 24 months, rest everything is about -- 14% is 12 and 18 months. If you see the weekly loans, we are 68%, 12 and 18 months loan, and we have just about 32%, 24 months loan. So the philosophy of lending short, lending muted ticket sizes, focusing on indebtedness is what we are focused on, and we've put up the numbers that you alluded to, right here up front. So this is our spread. And hence, back to the previous question, which was answered, our confidence on the customers from an indebted point of view is high. If there are -- there could be other issues, there could be other reasons. But overleveraging, et cetera, does not -- at least the data doesn't suggest, nor does our interaction with the customers suggest. So that's the -- sorry, long answer to your question, but that's our belief.

Okay. So I have seen the slide that you are mentioning, too. And my question was more, I mean, just trying to understand more from an industry standpoint, while definitely for you about 48% borrowers are below INR 50,000. So that's very good as an industry number. What I'm simply trying to understand is, is there -- from a microfinance industry standpoint, is there a stress building up in the overall industry that we may kind of see in the coming quarters? But was Q1 more of largely taken the impact?

Yes. So Q1, I mean, my personal belief and having looked at multiple data points, I personally do not believe there is a systemic overleverage issue across the industry. I firmly believe that. There could be a few pockets, a few institutions here and there. But my sense is -- now, forget Spandana, my sense is that it will at best be in a single digit, cannot be more. So that's number one. Number two is when it comes to the industry, what are the issues the industry is facing today? The industry has to look at, and it is true of us as well, we have to ensure that we look at attrition and across the levels, particularly at the branch level for the widespread distribution that we have. So attrition is something that one should be looking at. And the controls and supervision to ensure that the instances of misappropriation/frauds are reduced. So these are the 3 things that one should be looking at. My personal opinion is that instead of overleverage, I think these are the 2 things every company should be looking at, and I'm sure every company is looking at.

Okay. One quick support question here. So the minus 1 credit officer that you've instituted in 20% of the branches. Can you give a little bit of profile of the officer, just for an understanding perspective?

We lost you for the first 5 seconds. So we picked you up from the minus 1, so if you could repeat the first one.

I was just asking the credit level resources that you put in 20%, I'd say the minus 1 to the branch managers, can you just help with a little bit of profile of these officers?

So these officers, so our criteria is that they should have -- so we have a performance criteria, we have a vintage criteria, and we are picking people from our company, people who've been with us for more than 2 years, vintage with us, number one; number two, as loan officer. So this is the front line, so they know exactly [Technical Difficulty]

Ladies and gentlemen, we have lost the management connection. Please stay connected while we reconnect them. Ladies and gentlemen, we have the management connection back on call.

So my sincere apologies. When there was some electricity interruption here, as a result of which, the underlying call dropped. So Ajay, I think we were on your question. Are you there?

Yes, I'm there.

Yes. So I think -- where did I lose you?

So you were talking about the profile of the credit officers, the minus 1.