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

Ladies and gentlemen, good day, and welcome to the Spandana Sphoorty Financial Limited Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. A standard disclaimer. 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 the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Shalabh Saxena, MD and CEO. Thank you, and over to you, sir.

Thank you very much, Sagar. Good evening to all of you. Wishing all of you a very happy and prosperous New Year and a very happy, in advance, the 76th Republic Day. The management team at Spandana is thankful for your interest in Spandana and for taking time out to join us on this call. Most of you would have gone through the quarter 3 results that have been uploaded on the stock exchanges a couple of hours ago. All of you are aware that since the beginning of the financial year, the microfinance industry in India has been going through a slightly difficult operating environment, owing to a multitude of factors. However, before we dwell on those factors, let me take a step back and give you a context of what was the strategy we, at Spandana, adopted and what were we trying to deliver through it. And then we'll come to the results. Way back in July 2022, when we presented our vision document, we had identified a few key levers which we felt were important for the company to grow sustainably. The first was geographic concentration. Spandana's portfolio was concentrated then in a few states, which was a key business risk. To address this, Spandana expanded its presence in predominantly northern states, like Bihar, Uttar Pradesh and Rajastan, where we did not have a meaningful presence. As a consequence of this expansion, the share of top 4 states in our portfolio reduced from 57% then to about 50% by end of December '24. So hence, we tried -- as per the articulated strategy, we tried reducing the concentration and spreading it across to the regions that we were not present, which was predominantly the Northern region. Point number two, we are a firm believer that weekly is a better microfinance model, given the organization opportunity to engage 52 times in a year with the borrower. In times of stress, it is easier for the borrower to pay a smaller installment. All new microfinance branches, hence, which we opened during the past 2 years, have had repayment schedule, which was weekly. And by the end of December '24, these branches contributed about 14% to the AUM. And on a regular basis, about 20% to 25% on new disbursements. Parallelly, we also launched project Parivartan, which was to move the existing borrowers who were in the monthly branches from monthly repayment schedule to a weekly repayment schedule. However, we have identified and we have been informing you that there were implementation difficulties on the field, which resulted in elevated flows from these branches. We have paused project Parivartan now. In fact, we did it a couple of quarters back. However, we will pick this up in the next few quarters when the business stabilizes because we do believe that weekly is the right model to go in the future. Point number three, muted ticket sizes, shorter tenures and customer acquisition-led growth were the cornerstones of our growth strategy and have been the cornerstone of our growth strategy over the past 2 years. The maximum ticket size that we offer is INR 80,000 and the maximum tenure that we offer is 24 months. We don't offer any loan beyond 24 months, and we do believe that in the microfinance environment, this is the right thing to do. While we added about 9 lakh new customers in FY '23 and about 14 lakh customers in FY '24, respectively, in the current financial year, and we've kept you updated as well, we have slowed down our customer acquisition, owing to the industry challenges, and have added only about 3.3 lakh borrowers so far this year. This is a part of design. This is a part of the articulated strategy that we have for this year, given the situation that the industry is in and we are in. Now that brings me back to the challenges that the microfinance industry in India is going through in the current financial year. As we had alluded to in our previous earnings call, there are a number of factors that are playing out simultaneously across the country. The first is branch level -- branch staff level attrition across the industry. It continues to remain elevated. Point number two, with easy availability of credit, many customers, many borrowers had availed loans from multiple institutions causing stress in their financial position. This has resulted in increased delinquencies across. Point number three, post-COVID, there has been erosion of discipline amongst borrowers with fewer of them turning up for center meetings as compared to earlier. So there has been a drop in the center meeting attendance over the past couple of years. Group cohesion has suffered as a consequence, resulting in individual door knock for collections, thus substantially increasing collection pressure on the branch staff. Slide #4 is the external influence, which is a mix of various localized as well as national level occurrences, which have happened over the past 3 quarters. This also includes the debt waiver movements, and there are some local challenges in pockets -- in small pockets across states, like Karnataka, Bihar, Madhya Pradesh, Orissa, Uttar Pradesh and few other states. If you look at Slide 5 of the investor presentation, we have dissected the microfinance portfolio into zones, and clearly, South India appears relatively better than North India. Most of our expansion over the last 2 years was in North India, and this has added a dimension to our current performance. Having said so, we do see green shoots emerging in December '24. We have a slide on this in the investor presentation, but I'll kind of elaborate. Our current book, which is a customer who was standard or not in arrear, the net collection efficiency has shown a trend reversal in December. In December, we saw 2.2% of flows from the X bucket, which is the current bucket into arrears, which has improved from 3.6% in November. So 3.6% flow has gone down to 2.2%. Any improvement in current book indicates a smaller pool which flows into the subsequent buckets. As this trend solidifies, we expect delinquencies and forward flows to reduce. And while we are already 22 days, today is the 23rd day of January, we continue to see the same trend as we saw in December and probably slightly better in quite a few geographies. So if this solidifies into a proper concrete trend, then I think we will be sure that the reversal has happened. Point number two, efforts on the field to engage with branch staff has shown some improvement in attrition rate during the quarter. Our annualized LO and BM attrition was 60% and 30%, respectively. While I'm cognizant of the fact that a 60% Loan Officer attrition is way beyond the expectation, where in a normalized scenario, we were anywhere around 40% to 45%. However, we are taking steps to ensure that the Loan Officer level attrition is curtailed. The Branch Manager attrition at 30% annualized is more or less very near to the normal, which was about anywhere between 25% to 29%. As we've highlighted in our previous calls, attrition leads to a disruption in the center meeting and borrower discipline because it's the Loan Officer and the old seasoned Loan Officer who is able to drive all these initiatives, and any new person taking this initiative, they're taking charge, obviously takes his or her own time to come up the curve. So that was the disruption that happened. We were impacted by this. However, things are improving now. This should hopefully have a positive impact in the coming quarters. Point number three, we've added a control layer in 75% of the branches and are seeing strong action in branch process hygiene factors like center meeting monitoring, customer engagement, following up for missed payments on due dates, checking the CGT, GRT process, et cetera, are some of the many things that the control employee who stationed at the branches is supposed to be doing. We've been -- we've hired this layer for the last, and we've kept on increasing it for the last about 5 months, 6 months, and we are seeing good results of it. We'll continue driving this, and we will ensure that, say, in the next 1 quarter, we will have all our branches manned by the branch quality manager. The green shoots are encouraging, and we are doubling our efforts to strengthen business -- strengthen the business fundamentals, thus setting up the organization for future growth. Another point which is very critical is the recovery from the delinquent pool. Recovery from delinquent pool is one major focus area, where we believe borrowers will repay as the stress abates and once the industry adopts the slightly tighter credit rules. On analysis of the delinquent portfolio, which is the GNPA pool and upwards, we have seen that a large portion of customers are seasoned and vintage customers, who are probably not currently in a position to pay. However, their intent is okay. It is an ability issue, it is a capability issue. We believe that a separate team engaging with them would help us get the results on this pool. Hence, a dedicated recovery team of 600 has been following up with the borrowers to recover dues. The team of 600 has just been beefed up and has been increased. However, we are seeing an encouraging trend over the past 3 quarters with about INR 21 crores recovered in quarter 3 alone. The trend has further continued in January, where the recovery so far has been equivalent to the full month of December. So we are on track, and this is something that we will pursue for the next, minimum, 4 quarters. We plan to take the count of dedicated recovery team to about 1,000 by March '25. The team is actively assisted by the various telecalling infrastructure who encourage borrowers to repay their dues and improve their credit record. While we had a team pursuing this portfolio until now, we are increasing the team size as we see more potential in the recoveries from this pool in the coming quarters. As the external situation improves, we want to be ready with enough capital to drive future growth. We have been maintaining about 17% of assets as cash and equivalents, which provides us with enough liquidity to meet all the organizational obligations. The capital position of the company is strong as is evident from the CRAR of 35.7%. The Board, taking in view of future growth, has given an approval to raise up to INR 750 crores of confidence capital. While we are in no immediate need of capital, however, considering the market conditions, the company will raise the said confidence capital at an appropriate time, and we will initiate the efforts and initiate the steps now. Now over to the results. The current trends, while they are encouraging, and operations should normalize, hopefully, by end of quarter 2 of next year because we have not come across any structural changes, either in the rural demand or long-term dip in the economic activity or the macroeconomic outlook. Let me now move to regular business updates. Business drivers. During the quarter, the company adopted a cautious approach to lending. We followed a cautious approach because of the fluid situation in the market and, hence, had curtailed our disbursements considerably. Our disbursement for the quarter was INR 1,443 crores, a Y-o-Y decline of 43% and a 5% quarter-on-quarter decline. AUM at the end of quarter 3 was INR 8,936 crores, registering a decline of 14% Y-o-Y. The AUM is an outcome of disbursements, as all of us know, and we're confident that once the dust settles, we'll be back to driving growth. With the pause in customer acquisition in almost about 800 branches and pausing onboarding new to credit borrowers, our total customer acquisition for the quarter was about 47,000 customers. The new business that we had launched, our LAP and Nano business, which we started a year ago under our subsidiary, Criss Financial, is growing steadily. During the last quarter, we crossed the 10,000 borrower milestone and an AUM of INR 180 crores. These products are offered in 6 states and across 105 branches. The portfolio quality under both these products continues to be strong. We continue to believe in the strong market potential of these products. Now we move to portfolio quality. We continue to maintain provisioning at 80%. We believe this is among the highest in the industry. GNPA at the end of the quarter was 4.85%, an increase of 324 bps Y-o-Y. Sequentially, the GNPA was flat. Likewise, our NNPA for the quarter was 0.98%, flat against September of '24. On the liability and marginal cost of borrowing, including the borrowing mix. During the quarter, we borrowed INR 872 crores. The borrowings were calibrated, keeping in view disbursements and the organization's liquidity requirement. All of you are aware of the qualifying asset criteria that has to be maintained and, hence, more prudence on the borrowing side. Our marginal cost of borrowing for the quarter was 12.2%, which was about 8 bps lower than the previous year and about 41 bps higher than the previous quarter. Likewise, if I look at the borrowing mix, we now have a more healthy mix with banks contribution increasing to 55% at the end of quarter 3. The quarter 3 FY '25 financial performance. The net interest income for the quarter was INR 265 crores over INR 309 crores reported for quarter 3 of last year. NII was lower by 22% over the last quarter. PPOP for the quarter was INR 78 crores, which is down 67% Y-o-Y. The decline in PPOP was largely on account of shrinking loan book and increase in the OpEx because of the branch bench strength that we've created. Yield on the portfolio was down 291 bps Y-o-Y to 21.1%. Yield declined by 128 bps over the previous quarter. And we'll cover in the various questions that we get asked on the details of the yield and... On the NIMs, NIM for the quarter was 11.3%, down 195 bps Y-o-Y. NIMs declined as a result of decline in yield and increase in the cost of borrowing. We are consistently working towards improving our cost of borrowing. The company reported a net loss of INR 440 crores for the quarter on account of higher provisions. We will once again, in the -- during the call, we'll break this INR 440 crores to you so that you have a better sense of what was the contribution into this INR 440 crores. Given the challenges, we'll continue to maintain a cautious stand until the green shoots solidify into concrete trends. We are optimistic that the situation should normalize by end of quarter 1 or beginning of quarter 2 of FY '26. We are maintaining an agile approach and are implementing steps where necessary. We are also closely monitoring outcomes thereof. We continue to 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. This brings me to the end of my commentary. We look forward to your continued support, and we are ready for the questions. So Sagar, if you can just start asking questions.

[Operator Instructions] Our first question comes from Mahrukh Adajania from Nuvama.

So I just had a couple of questions that -- the new guardrails and one will be implemented in April as well. How will that -- so that will -- will that put further pressure on asset quality in the first quarter? So you're talking about things speaking out in the first quarter, right? Does that include the impact of any guardrails? Or how do we view it? That's my first question. And secondly, that growth will slow down. This was a discussion at another call also. Growth will slow down post new guardrails. So what kind of AUM growth can we build for FY '26? I know longer term, it would pick up across the cycle. But just for FY '26, because already, this quarter, we -- in the fourth quarter, we won't expect much growth. So on the exit AUM, what is the kind of growth that we could build in? That's my next question.

So thanks, Mahrukh. Your first question was around guardrails. As we speak, we already, as an industry, have implemented the guardrails 1, which came into effect from July where the -- there were various criteria which were laid down on the guardrail 1, of which the primary one was the number of lenders, which was restricted to 4. So you can be the fourth, you cannot be the fifth. So while, yes, in the short term, it does create an impact because if you go back to post-COVID for the past 2 years, there have been instances where there were customers who were arrear and delinquent with somebody else, still getting loans with some companies where they were -- either they had a relationship or they didn't have. So that was the environment which the customers had gotten use to, which now obviously with the guardrail implementation and stricter enforcement of the -- what kind of customers you can acquire at from a delinquency or a dpd bucket level. I think it kind of, in the long term, helps restore some discipline across the industry, including the customers. So it was a good thing to happen. And in spite of that, you are seeing that uptick, as I mentioned in December. And when I say uptick, it is, of course, the industry. And I've spoken to a few people, everybody has experienced this trajectory going up. So yes, Mahrukh, and then there is -- in April, there's a guardrail 2 coming where the number of lenders comes down from 4 to 3. Will it have an impact? The answer is, yes, in the short term, 110%. In the long term, however, you are back to the -- back to bringing discipline to the customer. And the customer -- what it also does is that across 2 enterprises, if a customer is current with somebody and not -- and a delinquent or an arrear customer in somebody else, she will have to ensure that her arrear account is clear for her to be eligible to borrow from somewhere -- from any entity. There are rules in terms of the customer should not be more than 60 dpd if you have to give a loan, et cetera. We've gone slightly ahead from -- instead of 60, we are saying we are getting it down to 30. And then I just answer this as to -- and I'll qualify why. What happens, Mahrukh, is that in a situation as this, it is better to err on the side of caution rather than really kind of going overboard when it comes to deciding as to which customer to lend. And hence, to your second question on the growth and what will be the AUM. My guess is year '26 will be a mix of consolidation, discipline and growth. It'll not just be a growth, number one. Number two, because the first quarter, second quarter, there could be an impact. Either way, Mahrukh, you are also aware. First quarter is typically a very mute quarter because companies -- lenders do get into the groove. There are -- the situation is such that the first quarter is never high on -- from the lender side as well. So it's a good time to kind of enforce this and while we've kind of taken that extra step in terms of doing it now. But the industry, when it happens in April, probably at best, well, the customers will take about a quarter to kind of settle, post which then all customers will have to do is to be prudent and they'll have to balance their portfolio in terms of where to borrow and where to -- which one -- which loans to kind of conclude. So yes, long answer to your question, but the answer is we will, as an industry, we will have to kind of take it as it is because this is a marathon. This is not a 100 meters or this is not a T20. So yes, it could impact 1 quarter even a 2 for that matter. But then long term, it's good. It'll build sustainability in the business, and it will help us. To your specific question in terms of what are we targeting, I think we should -- I mean the year end is -- the year is still -- has still not ended. But I think a growth of around 15% is a good number to target from our year-end numbers. That's a good number. And then we'll see how the year progresses, because when this year started, we did not know how things were moving. We did not know what was coming. FY '26, obviously, we're better prepared. And it's always good to kind of be cautious. And if things improve quarter 3, quarter 4, we will kind of relook at it. But at this point in time, I think a 15% exit number FY '26 of about INR 10,000 crores of AUM should be a good number to target.

In the next quarter -- I mean, in the current quarter, the AUM will consolidate, right? Because the focus is still on cleanup. Is that a fair view?

Yes, it's a -- because, see, Mahrukh, what -- yes, it's a fair, your answer -- I mean your question is right. And the answer is, yes. Because right now, we are not looking -- I mean, while one should look at all the ratios. But the current focus of our company is to ensure we'll get the portfolio right. We will -- this will also -- this year also has taught a lot of lessons to everybody, including us in terms of how much to grow, where to grow, which areas to target, which pockets to target. A bureau check at the time of loan is not the be all or end all. You have to keep track of the customer and so on and so forth. So the -- a lot of realignment will happen in terms of geographies. I mentioned in my commentary that south behaved slightly better than north, but does not mean it'll behave every time the same. So you have to calibrate your strategies, behave -- basis -- the customer experience and the customers' repayment behavior over these last 3 quarters. Once that -- once we have that, we will know exactly where to grow. But as I say, the environment also has to kind of warm up to this whole new world. And I think I'm reasonably confident that 1 quarter of -- at best, 2 quarters is good enough for things to stabilize and then we kind of move on.

The next question comes from Shreepal Doshi from Equirus.

My question was on the X bucket collection efficiency for states like Bihar, Karnataka and MP, which happens to be the key states for us. So if you can just highlight this kind of trend for these states.

This is the X bucket collection efficiency, the 97.8%, that is in Slide 5 or 6. That's the one you're talking about, right?

Yes, yes, that is for the whole company, right? I mean I'm talking about these [indiscernible].

Yes, yes, yes. I got it. I got it. So Bihar is about 30, 35 bps lower. Karnataka this month -- last month was okay. This month is experiencing a bit of -- and you would have read news about whatever is happening. But that should settle because there is a lot of interventions. So that should settle, hopefully, by end of this month. But Karnataka this month is clocking slightly about 30, 40 bps lower than the number that you see. What were the other states, Bihar, Karnataka and...

MP and Maharashtra.

Maharashtra is okay. MP is okay. Yes, MP, Maharashtra are in -- I mean, give 5 or 10 bps here and there. They are almost clocking at the national average.

Got it. And sir, while you did -- yes, sorry.

Yes, Shreepal. Yes, just a second. Bihar is trending a bit lower. That is very, very clear. The teams says that this month, they should catch up with the country. Currently, they are at a lower number. The Karnataka last month was okay. This month is about 30, 40 bps lower. The other 2 states are just around the national average. Nothing of concern.

Got it. And sir, just one question was on this flow rates. So when do you see the flow -- so basically if you could highlight the PAR 0 number or PAR 1 to 30 dpd number for us for this quarter and for the last quarter because you highlighted 31 to 180 dpd, but if you could also give details about 1 to 30 dpd's number.

You have the numbers, 1 to 30 dpd, last quarter, this quarter. Just a sec, Shreepal. So Shreepal, just continue any other question you have by the time we pull out. Because we don't want to put on hold everybody.

Yes, yes, sure. Sir, one question was while you did give a very detailed like commentary basically, but...

So Shreepal -- yes, 1 to 30 number last quarter was about INR 527 crores. This quarter, the closing number was about INR 348 crores. So that number has been coming down.

Got it. That is helpful. Sir, second question was on this -- we've not been able to meet the RBI requirement of 75% for microfinance loans. If you could just give some clarification on that particular aspect?

Shreepal, the qualifying assets is a metric which needs to be met. I'm sure it's -- on the balance sheet level, you have to have 75% of your lending to be qualifying assets. Now in the current situation, we had deliberately slowed down the disbursements. That had an impact on the qualifying assets. Plus, we have been holding cash on the balance sheet, which, obviously then as a percentage, became higher than whatever the threshold could have been at the end of this thing. So these metrics, in the current situation, go for a toss up for a little bit, and we are already working with the regulator on the aspect.

Got it, sir. Got it. Sir, just one last question was on branch expansion side. So while we are going through turbulent times on maintaining our books, what is the reason or what is the thought process behind adding these branches even during this quarter? And I see that the branches that you added, large number is in the -- based on monthly collection model.

Yes. So Shreepal, we -- these branches that you're talking about are split branches. They are not -- I mean, while they are technically new branches, but when a portfolio grows beyond INR 10 crores, INR 12 crores, that is beyond the threshold of our comfort because it becomes difficult to manage. So all the new branches that we have opened this year, this entire year, not just this quarter, are all split branches. This year, by end of the year, I think we should have about 105 or 106 new branches, but all of them will be split. They are not absolutely brand new. They come with the portfolio already.

The next question comes from Abhijit Tibrewal from Motilal Oswal.

So my first question is given that there are green shoots now in December and you said that things are looking similar in January, based on your conversations, do you think is there an outside chance that the implementation of the MFIN guardrail 2.0 can be permanently deferred?

Will be what? Permanently, sorry...

It can be permanently deferred rather than being implemented from April onwards?

No. So Abhijit, look, I can't speak for MFIN. We have given our position clearly, and there is no reason to not believe whatever deadline that MFIN has given. So it has been deferred from January to April. As far as we are concerned, we've gone that extra mile. I think we've put it out -- put out a slide and we have a section in the slide where we say that we will restrict ourselves to 3 lenders. Obviously, it's purely internal and voluntary because we do believe that it's important to take these slightly more tighter norms. I know there will be an impact. There will be a higher rejection. But at this stage, I think we have to ward this time by being overcautious rather than going the other way. So as far as we are concerned, we are already in line.

Got it. And then a related question on one of the slides. You've given out the lender overlap, one the Spandana + 1, 2, 3, 4. So intuitively one would have thought that given that guardrails 1.0 have already been implemented, the customers with Spandana plus 4 or Spandana greater than 4 could have come down. Is there a denominator effect that we are seeing that 13.8% in October has moved to 15.8%?

Yes, absolutely right, Abhijit. So there are 2 metrics which are pushing this number higher. One is the denominator because the customers who are paying off -- falling off from the numbers clearly impacts this. The second is if you know our existing customers who are there at, let's say Spandana + 3 or whatever and have taken a loan, then probably there is another reason why the numbers will slip from the higher rows into the lower rows.

Sir, but now that, as an industry, no one is giving loans to the customers who have 4 loans already, right? Then how are some of these customers able to get a fifth loan.

Able to get what?

Able to get fresh loans.

Able to get fresh loans. No, no. So you are -- if you are following guardrail 1, you -- and you -- what is the guardrail 1, you cannot be the fifth lender. You can be the fourth lender. The entire industry, still not every customer has already reached the brim. So there are customers at various stages, and they will progress towards whichever way. So the loans are there. It is just that -- see giving -- this is a segment which is -- will always have -- it is a credit demand, high-demand segment, where the day you want to switch on the loan tap, it'll start coming. At this stage, obviously, in spite of the eligibility of the customer, there many -- I mean, at least I speak for ourselves, we are being cautious. And likewise, there are few more who are cautious. So it is not about whether customers are able to take a loan or not. It is about how much is the willingness of the lender in this situation to kind of go overboard in the lending -- on the lending side. So it's a tough one, Abhijit, but I guess this should be -- we have to wait it out for 1 quarter, 1.5 and then let's see how things go.

Got it. And just one last question for you and Ashish, sir. Sir, I mean you said that by end of 1Q or early 2Q,, things should normalize. Given that -- I mean, we are seeing some green shoots in the sector, add to that the fact that maybe April onwards when MFIN guardrails 2.0 get implemented. So next 6 months, how should the trend be is what I'm kind of trying to understand? Have you been able to get some handle on what could be the credit cost now over the next couple of quarters? And for you, Ashish, sir, I mean, while we've managed to keep our GST/GNPA number at almost same levels as last quarter, except GNPAs, have there been any other covenant breaches that you have seen?

So I'll answer first. There have not been any other breaches that we have seen. It's all related to quarterly profitability that we had and the tangible net worth bit, which is obviously records, even the write-offs, is taken into the consideration. So that is how those are the 2, but otherwise, nothing else.

And Shalabh, sir, first question where I asked how the next 6 months are going to trend, given what we've seen in December and January and if we are...

Yes. So Abhijit, I was just in the process of -- and after I finish your question, there was a question that Shreepal had asked, which I kind of given an approximate answer. I have the answer. So I'll give that answer after I'll give -- finish your question. So the next 6 months, I'll just stretch it 2Q, which is this quarter and the Q1, and I'll add the Q2 as well of next year. My guess is that one should kind of just hold the fort on the ongoing -- the disbursements have to start. The disbursement story has to start, goes without saying because you have to meet the customer demand, whichever are the past. But you have to do cherry picking as far as your customers are concerned. That's number one. Number two is the portfolio quality and driving the discipline. This is, in fact, should have been number one, which is driving the center meeting discipline in the JLG model that most of the industry follows. It is extremely critical that this door-knock model, which is the customers being difficult in terms of attending the center meetings, has to be kind of curtailed and we have to ensure that the customer comes and turns up at the center meeting because door-knock is a very inefficient way of operating this model. And frankly, for the number of customers that all of us deal with, we are at about some almost 3 million customers. Even a 10% is a good, good number, which is very difficult to manage. So not a viable model from an employee stress perspective and even operational efficiency. So -- because right now, we -- while we are preparing our powder for the next 2 quarters on the growth side, however, this -- the OpEx, et cetera, and the cost to income have to kind of size down to more manageable levels and better levels. So the -- my sense is next 2 quarters, 3 quarters, at least, we will try to ensure that the current center meeting attendance of about 55% to 60% or 55% to 59% has to go and go back to about 70%, 75%. And then from there on, we kind of take it forward. That's number one. Number two is the portfolio quality, which is the customers in arrear, have to kind of be brought back to the current levels. And the customers, the sizable number of customers who've flown into the GNPA bucket for whatever reason, for the right or the not so right reason, we have to ensure that the recoveries fall in line, which is the one of the slides that -- or one of the graphs that we put out in the investor presentation. So that is something because when we look at the profile and the demographics of the customer, we are talking of customers with significant vintage, who for -- who are obviously hard pressed on fulfilling their liabilities across all financials. So they pick and choose. For example, we have a good set of customers who pay only to us but don't pay to somebody else, and likewise, it's the other way around as well. So the customers also in these times when they are short on money, they are sequencing their payments, probably loans where -- which are shorter and where their loan termination is around the corner. They will first clear off that loan and then move over to the next financial. So that is what is happening at the customer side. But just to give you a softer input, post around November is what we sought from a trend point and a -- customer from a trend and a customer engagement point of view. Customers have started coming back in terms of engaging with our loan officers and branch managers in terms of when is the center meeting, when do I come, when -- how much is my arrears. So they have started getting into those conversations because the new loans, obviously, they are finding it difficult to get. So that's a good development, and that is where back to the guardrail 1 and the guardrail 2, which is going to come in April. Yes, initially, it is a bit of a -- because they are used to a particular way of operation, which obviously no more exists or that environment does not exist. So 3 broad things before I conclude. First is discipline, JLG discipline, number one. Number two, employee welfare, very, very critical. You have to ensure that the employees are taken care of so that they hang around to lead your revival. That's number two. Number three is complete focus on portfolio quality, which is making the customers aware about how they need to kind of ensure that the credit worthiness is restored and maintained. And the fourth is taking care of the disbursements and the needs of the customer to ensure that they are able to fulfill their business requirements. This is -- this should -- or this is our focus and our priorities. Depending on companies, the 1, 2, 3, 4 can be 3, 2, 4, 1 or whichever way.

Got it. This is very, very useful.

Thank you. And Shreepal, I know you are on the call. You asked for that -- those questions. I have the numbers now. So our national average is 97.84% on the X bucket. Bihar is 97.55%. Karnataka is 96.37%. Madhya Pradesh is 98.42%. Maharashtra is 98.84%.

The next question comes from Renish from ICICI.

Sir, my first question is on the net collection efficiency, which stood at 90.7%. If you can give some insights on how this net collection is moving month-on-month and maybe December how it is and can -- maybe first 15 days, so if you can just share qualitative comments on that.

So Renish, so December number, like Shalabh said, is 97.8% and it was disclosed...

No sir, I was talking about the net collection efficiency, not X bucket.

Yes. So the X buckets also, while we will give you -- from a trending point of view, we are seeing while the -- there is a good movement of about 10% to 12% on the 1 to 30. That's number one. What Renish we are also seeing is, and it is actually a little bit of it, while it's good, the customers who have moved into GNPA, this month, the net collection efficiency has really gone up because the customer has started paying back. While they will not come out of that GNPA bucket unless they clean up their loan, but that is another one. Specifics we can give. Specifics, if you want, we can kind of get into the buckets. But from a trending point of view, Renish, what we are looking at is squeeze of the complete X bucket, which is what -- take this to 99 and then you have the flows of 1% and then target of around 40% to 50% of recovery or collection in the 1 to 30. And then the others or other -- the balance 50 bps kind of flows through or you make efforts to hold. But then that is something that you're going to afford to kind of just live with. That's part one. Part two is, there is a lot of meat in the GNPA book at this point in time. We have a good about almost -- we've done the analysis. We have about -- for the book that we have, we -- even if we target a good number, and we are targeting quarter 4 and quarter 1, a decent number and we've given trends in the investor deck as well, that is something because we've either written off or they're in GNPA. So GNPA is 80% provision. Written off is 100%. So whatever comes is obviously a straight addition to the bottom line.

Got it. Okay. So sir...

Want anything specific? Yes, [Foreign Language].

No, sir. So I was just coming back to that point. So let's say, the net collection efficiency, which is 90.7% in this quarter. In a normalized scenario, ideally, where should this settle, around 96%, 97% or?

Yes. So 97% is a good number to target and 97% in the short term. And then ideally company should try to go anywhere between -- operate anywhere between 97% to 98%. But that 97% to 98% is probably 2 or 3 quarters away. Even if we are able to take this number to good in the short term, from the current 90%, 91% to about 94%, 95% in the, say, next 2 to 3 months and then take that 95% to 97% by, say, end of quarter 1 of next year, I think that will be a good trajectory to maintain. And then we hold on and then that's how with a slightly more calibrated disbursement approach, I think this is a doable number for the team that we have on the grounds.

Got it. Okay. I'm just, again, hopping back on this question is since you are mentioning that we'll have a normalized quarter by Q2, which means this 91% should reach 97% by Q2, and hence, there should be at least a percentage point improvement in net collection efficiency over the next 6 months. So are we seeing that kind of improvement in Jan or maybe the bulk of improvement will happen back ended?

So Jan is stable. December, we have seen some improvement. Jan, we're seeing improvement in 1 to 30 bucket as well as the NPA bucket, like Shalabh was explaining. Other buckets are more or less flat. But if the current bucket starts improving, starts going to 99%, then what you have to deal with is a finite bucket in the bottom that can be addressed with the measures that we have taken on increasing number of people for the collection.

So Renish, let me just get into the specifics. Your question is a valid number. Instead of -- which are the states which are kind of dragging this and which are the states which are kind of pushing the numbers up? The states like, say, Maharashtra that I think Shreepal spoke about, states like -- we are hardly there in Haryana, but there are -- Bihar also for that matter. Bihar is pulling the average down. Karnataka is pulling the average down at this point in time. Maharashtra is trending very well, which is much, much above the national average. So the approach that we are taking is obviously take every state one at a time because new things come up every time. For example, you would be reading things about a particular state, which has just kind of happened in the next 2 -- last 2 weeks. It will take another 2, 3 weeks, hopefully, to settle. But broadly speaking, slowdown in Bihar from a lending perspective for various reasons that have been discussed. UP is pretty okay. Maharashtra is okay. Karnataka should be okay in the next 3 to 4 weeks at best. Rajasthan is trending okay. These are the numbers that we have -- they will start hitting the 98 point -- the X bucket will start hitting the 99%, if not this month, the next month. And once that happens, Renish, then it is a 3-month window where you kind of get the other buckets up. It is always the 2 or 3 states, which I have mentioned, which we'll keep an eye on and then let's see how this goes.

Got it. And just last thing from my side, on the Criss Financials. So I think in notes to account, you have mentioned that we have written off some INR 50 crores. So I'm wondering what this write-off pertains to?

This is the individual.

So Criss has a -- total INR 750 crores of individual lending, where it's unsecured lending. The borrower profile is just a notch higher than the microfinance borrowers. Largely, the business is in Andhra Pradesh and Telangana this year. And as all of us are aware, Andhra actually had a major flood situation. And you've seen some slippages there. And thus, there is a write-off that has come in.

So the LAP and the Nano that we launched about a year back is INR 180 crore book. That's almost a 7% book.

The next question comes from Rajiv Mehta from Yes Securities.

Shalabh and Ashish, appreciate the company maintaining strong provision coverage on stage 2 and stage 3 despite the higher flows. My first question is, with the significant increase in loss in Q3 and the sustained covenant breaches, would it force us to raise capital in the very near term, disregard of the market conditions, so as to get the confidence of the lenders back? And what are the ways of capital raise being evaluated and whether a promoter fee would commensurately participate in it?

So Rajiv, I'm not sure. I think you missed my commentary. And in fact, there is a point in...

Sorry, sorry, I joined the call late, sorry.

Yes, yes, yes. No, no, no. Fair enough. So I'll also give a reference to the -- to Slide 8 of our investor presentation. Nevertheless, I'll answer your question. We had a Board today, and the Board has approved of equity raise of up to about INR 750 crores, which is the confidence capital that you spoke about. At this point in time, we are at about 35%, 36% of CRAR. So technically and practically, the balance sheet does not need capital because it is a very fortified and very strong balance sheet. However, from a confidence of all the stakeholders, not just lenders, it's always good to kind of sit in a good position -- in a comfortable position. And hence, equity raise of up to INR 750 crores has been approved, that we will evaluate, we will -- it's an enabler. The mode, the time, et cetera, obviously, has been left to us and/or as we start our journey, we'll kind of assess the situation and move accordingly.

And then Shalabh on the promoter contributing in that?