Suryoday Small Finance Bank Limited (SURYODAY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Suryoday Small Finance Bank Q3 FY '22 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pritesh Bumb from DAM Capital. Thank you, and over to you, sir.

Hi. Good morning, everyone. On behalf of DAM Capital, I would like to welcome the MD and CEO and other senior management members of Suryoday Small Finance Bank. We will have brief remarks and presentation from the management team, followed by Q&A. Now I would like to hand over the call to Baskar sir. Thank you.

Thank you. Good morning, everybody. On behalf of Suryoday Small Finance Bank, I extend a warm welcome to everyone to this Q3 and 9-month ended December '22 -- '21, FY '22 earnings call. At the outset, I hope that all of you and your loved ones are safe and doing well. During the quarter, we saw a stable business recovery and are hopeful that it will progress to exceed pre-COVID levels in the coming quarters. The company is optimistic about growth due to tailwinds, coupled with opening up of the economy and believe that the worst is over and things will return to normalcy from Q1 of FY '23. I hope you all have received our revised investor presentation and had the chance to go through the call. I will give you a brief highlight of our performance for the quarter and for the 9-month period ended. The bank disbursed INR 1,121 crores during Q3 FY '22 compared to INR 1,066.9 crores in Q2 and INR 785 crores during the Q3 of FY '21. The cumulative disbursements for the 9-month period stood at INR 2,547.6 crores, up by 119.7% on a Y-o-Y basis. The company employed a cautious and calibrated approach in disbursing loans to new customers throughout, emphasizing more and disbursing loans to existing customers with regular repayment cycles with us and also with a healthy credit history with other lenders. The focus is on retaining the finance clients for exhibited good repayment behavior, while also onboarding new customers in the micro as well as non-micro loan segment and specifically expanding the affordable home loan portfolio and secured business loans. On the collections front, for the month ended 31st December, the bank's one EMI adjusted collection efficiency was 84%, marginally higher than 83% for the month ended 30th September '21. In December 2021, overall collection efficiency was 109% compared to 108% in September '21. Our gross advances grew by 25% to INR 4,872 crores on a Y-o-Y basis. At the end of December, inclusive finance constitutes 67.3% of the book, while affordable home loans, commercial vehicles and secured business loans comprised of 8.4%, 6.8% and 4%, respectively. In the next 2 to 3 quarters, Suryoday maintained -- will plans to maintain a portfolio mix of 60%, 40% towards inclusive finance and non-inclusive finance loan segments. We are targeting a growth rate of 25% during this financial year and targeting a growth rate of 30% to 35% in FY '23. Our total deposits declined marginally by 5% to INR 170 crores as on 31st of December. While there was a degrowth, the granularity in our deposit base increased significantly. Retail deposits from 88.4% of the total deposits on 31st December compared to 72.4% during 31st of December 2020, the balance comprising of bulk deposits. Furthermore, 100% of our bulk deposits are noncallable in nature. Our CASA improved to 19.2% as of 31st of December as compared to 13.3% during the same quarter previously resulting in steady improvement in line with our strategy. Retail deposits grew by 15.7% in Q3 on a Y-o-Y basis. Similarly, bulk deposits have reduced substantially by 60% in QY FY '22. Savings deposits increased by 38.9% and current accounts balances increased by 18.5% during the quarter. Our borrowings as of end of December constituted 31.8% of our total liabilities, majority of which, which is 87% was on refinancing institutions. Our bank has also drawn down SLTRO limits to an extent of INR 750 crores for a 3-year tenure at 4% per annum fixed rate of interest, which will further reduce our cost of borrowings. At the end of December '21, we had a total branch count of 564 branches, out of which 97 branches were primarily liability focused, while 360 branches are primarily asset-focused branches and the balance comprising of rural centers. Through this branch network, the branch with the bank services, 18.5 lakh customers, of which total asset customers are 16.2 lakhs and the total liability customers are 11.6 lakh and the balance being customers. G&P as of 31st of December stood at 10.5% compared to 10.2% as of 30th September. Our net NPA stands at 5.6% as of 31st December. Net NPA excluding ECLGS loans stand at 4.8% as of 31st of December. Our vision coverage ratio for the quarter ended is at 67.9%, including tech write-off. Delinquency in the portfolio marginally increased due to the impact of the third wave of COVID during the month of Jan -- the month of December. Collections were difficult. However, customers are in touch despite the COVID wave. Our 90-plus portfolio as of 31st of December stood at 4.6% of the overall loan book. Our total standard restructured currently is at 11.9% of our advances. The collection efficiency on the restructured book currently stands at 62%. We continue to monitor restructured portfolio for our clients. On the earnings side, our net interest income increased by 52.6% year-on-year to NR 167.3 crores, and net total income increased by 37.6% year-on-year to INR 193.4 crores. Our NIM currently stands at 9.9% for the quarter ended Q3 FY '22 compared to 9.1% for Q2 FY '22 and 7.4% in Q3 FY '21. Other income mainly included income from sale of investments of INR 8 crores. Our cost of funds reduced to 6.8% in Q3 FY '22 compared to 7.1% in Q2 FY '22. Cost to income during the same period moderated to 66.6% compared to 65.7% in Q3 FY '22, which was primarily due to rising income, coupled with the lower cost of borrowing. The company incurred a profit of INR 4.7 crores in this quarter as against a sequential loss of INR 1.9 crores in Q4 FY '22. Our PPOP increased from INR 48.2 crores in Q3 FY '21 to INR 80.5 crores in Q3 FY '22, a 67% increase. Excluding MTM with the PPOP of INR 365 crores in Q3 FY '21 increasing to INR 91.2 crores in Q3 FY '22. As of December '21, we continue to hold 14 provisions for INR 91 crores. On the capital adequacy, we continue to maintain high capital. As of 31st December, our capital adequacy of our bank was 41.4% compared to 41.1% as of Q3 FY '21. Our Tier 1 comprises 37.8% and Tier 2 comprises to 3.6%. We have managed our liquidity prudently, and from steak liquidity of INR 1,684 crores in June '21, down to INR 650 crores as on 31st of December 2021. There is a significant trust on the digital front with launch of technology transformation program, Pragna, which we are migrating to our new CBS platform, Infosys Connectors. We are planning to complete this exercise by FY '23. We have done a collaboration with fintech companies to digital partnerships to provide value-added products. And currently, we have lending programs with Paytm and Lending Card. The overall digital transactions have been increasing sequentially with the rise in UPI transactions as well as online transactions through net banking. Just to summarize, the business has witnessed a moderate impact of Omicron variant of COVID. However, we see a clear indication of stability and growth and reached pre-COVID record levels. Our endeavor is to maintain a consistent 25% growth, which you'll see in the year FY '22 and marginally increased in FY '23. The company plans to scale up our affordable home loan and MSME book in the future, specifically secured business loans. So we plan to achieve INR 400 crores to INR 500 crores of monthly disbursement run rate from Q2 of FY '23. On the deposit front, we foresee great opportunity in leveraging our JLG customers, and offer them on liability products. We would expand our branch banking network meaningfully. Suryoday aims to expand its business cautiously in new states and strengthen our support in existing states. Going forward, we plan to target INR 40 crores of PPOP on a monthly basis from Q2 FY '23. Funding has been rationalized to SLTRO lines borrowing and cost of funds is expected to go down further in this quarter. No impact of legacy portfolio is likely to be carried forward beyond Q1 of FY '23. We are confident that with the focus on good governance and solid regulatory compliance, both in and spirit and with customer focus including deepening our relationship beyond micro finance loans to our core micro finance was a customer segment and impactful digital initiatives build a very respectable and sustainable, profitable company. Thank you, and over to take questions.

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

So sir, just a couple of things. So one is on the par portfolio. So industry has been now sort of approaching towards the sort of 10%, 15% kind of a par 1 plus portfolio, wherein we are still at 22%, reflecting marginal sequential improvement. So sir, what are the primary reason for such a sticky par 1-plus portfolio for us?

As a policy, given that majority of our segment is in the inclusive finance portfolio, our approach to collections right from since inception has been in terms of being in touch with the customer and enabling the customer to pay without exerting any pressure. This is not a commentary on the competition. And with this, our focus has been, by and large, even including the severe COVID wave 1 was to be in touch with the customer and tell them that we have that we have their backs. And that kind of we are continually kind of there to enable them multi-things. So overall, including in our own collections policy is that the intent is to get the customer paying on a month-on-month basis regularly. And to that extent, the par 1 may look higher. But on an overall basis, in terms of portfolio, we measure our quality of the portfolio in terms of expected credit loss by the number of customers as well as the portfolio, which is making payment on a continuous basis. Sometimes when the customer makes a partial payment, it will spill over into 1 plus. But nevertheless, they are not customers who either by intent or ability are like to slip into credit loss.

Got it. So sir, this 22% plus par portfolio, what could be the customer activation rate in that portfolio separately?

I would -- specifically on 1 plus, we don't have numbers. But overall -- on our overall portfolio, approximately close to INR 450 crores for customers, which includes customers which are accounted for GNP have not made payments in 2 sequential months in terms of November and December. Our intent is to really reduce this INR 425 crores to INR 450 crores of portfolio not made payment to it is accounted for in GNPA or it's already in 120 plus, to reduce this amount of kind of over -- specifically in this quarter, spillover in the next quarter by approximately INR 100 crores to INR 150 crores.

Okay. Okay. And sir, what is the write-off we took in this quarter?

I'll hand it over to Kanishka.

For this particular quarter, we have taken a write-offs of INR 93.4 crores.

INR 93.4 crores?

Correct.

Okay. And if -- sir, what is the total provision number for this quarter? I'm sorry, I just unable to recall that number?

So the total technical write-offs end of December 31 is INR 288 crores.

And the total provision this quarter we made is how much, sir?

Total provision for this particular quarter has been -- yes, so we have made a provision of INR 75 crores for the quarter, incremental.

Got it. Got it. So that's why there is a hike in net NPA?

Yes, there has been a marginal increase in the net NPA, right? But overall, I think we have tried to be within the 5.5% number.

Correct. And sir, what's the, let's say, a sustainable PCR you would like to maintain on our kind of mix?

I believe we would like to be closer to the 70% number, right? And that's what we would try to achieve definitely by Q1 2023.

Just to add for the question that in terms of activation rate, 71% of our delinquent customers, which includes 1 plus. Our activated customers are paying customers, which I think is...

[Operator Instructions] We have the next question from the line of Deepak Agarwal from Axis Mutual Fund.

Am I audible?

Sorry, Deepak your voice is breaking. I'll request you to come in network area, please.

Is it better?

Yes, slightly better, please go ahead.

Yes. Sir, basically, I wanted to understand now how should we look at FY '23, one is in terms of growth? And second, in terms of the credit cost, maybe we are seeing growth coming back. So any broad numbers we should work with kind of growth and credit cost?

So Deepak, we're kind of seeing a pretty strong growth for this year. And based on our own detailed analytics and drill down, around closer to 25% of the micro finance customers are very strong, good customers for other secured packs and where at least the lady of the household herself is a co-applicant. And many of the products like two-wheeler they may not be on be the co-applicants. So our focus for FY '23 is to deepen our relationship substantially with our very good micro finance customer, who have been with us for more than 2 years, which numbers are around closer to 6 lakh customers, displaying clear and solid intent as well as ability to all the 3 COVID waves and are current with us. Based on -- and we're also growing our affordable home loan and secured business loan portfolio, both to our existing customers. Existing customers customer could be customer, inclusive finance customer, could be MSME customers, increase the base and as well as having target new customers through our branch network. We have not activated our entire branch network for retail assets. The intent is to really take it at least to 100 branches during FY '23. So being the current run rate of around close to INR 350 crores to INR 400 crores which is good clocking and likely to be at around the same number or a little more for this quarter. We project a growth between 30% to 35% in terms of assets. As far as the sticky portfolio is concerned, it was very pretty volatile for a few quarters back. We clearly see a lot of stability and activation happening out of customers who will not paid even for a period of 90 days or 120 days. The intent during this quarter is to activate furthermore of closer to INR 100 crore to INR 150 crore worth of portfolio, specifically from inclusive finance segment, who have been for either paid to us a couple of months back or currently paying to other lenders in the market through the credit bureau data, which is available with us. Probably, we have not been inactive in touch with them because it probably happened to be in centers where these customers -- whether the centers have become inactive and the customers are few in number and the reach probably has not got missed out in the last couple of months. So we do not see any increase in the nonpaying customers beyond what we have, which is around closer to INR 425 crores to INR 450 crores, and intend is to reduce it by at least INR 100 crores during this quarter. And we would also make provisioning as required for this quarter. And as guided last time, we expect the provisioning to be fully complete by -- in this quarter as well as our response to be lower going into Q1 of FY '23. FY '23 is a year of -- we see it as a year of enterprise profit, and we are kind of guiding ourselves to INR 40 crores of PPOP from July. And with broadly the provisioning near complete, we would expect a substantial piece of this PPOP also to translate into PBT starting from July, August of FY '23.

Okay. Got it. Sir, anything on the -- I appreciate anything incremental to share. Obviously, we have shared in the past, anything more, sir, on that -- on this impact, sir?

We're kind of growing our -- there are 2 sets of fintech partnerships which are growing. One is the -- on the lending side, which currently we have with PayTM and lending card. On the other side, we are working with a few fintech partners to really fructify into a relationship, which will be on substantially on the deposit mobilization side. So given the changes in the overall regulatory environment and also the expectations from the regulator, specifically to comply clearly as a bank with KYC as well as in terms of creditization, we are making our process far more robust to comply with the existing regulations, both in letters and spirit. And we believe that we activate it and the run rate from these partnerships is very strong during the previous quarter. This quarter, we are really relooking at it to strengthen it further and we'll activate during this quarter and next quarter. But however, as a cautious strategy our overall portfolio from these partnerships, specifically on the lending side will be not more than 5% to 10% until we really have a full-fledged experience in terms of at least a cycle going through what happens. But however, overall, at this point of time, the portfolio behavior as well as our own has been reasonably good. I think, as of December, we have done close to around INR 60 crores through this partnership in terms of our assets.

The next question is on the line of Varun from Dimensional Securities.

Sir, I wanted to know that your other expenses jumped around 15% quarter-on-quarter, around 10% year-on-year. So what has led to that increase? And secondly, how are the disbursements panning out in the Q4 because a major portion of third wave impact was for January. So are you seeing further pressure on the NPAs in this quarter?

I'll answer the second question first, and then request Kanishka, our CFO, to answer on the other expenses, the reasons for the increase. So in terms of the COVID wave, the impact was marginal as we speak now. Specifically in terms of Jan, around a couple of 10 to 15 days where we are kind of clearly impacted both due to our own employees getting infected as well as a little bit of a small scare among the customers during that period. But however, as a month down, the impact was very, very marginal or I would say that we are close to 0. As a strategy, it is given the little uncertainties of what could be the impact even in terms of an unlikely further waves, we are deepening it specifically in micro finance segment to our existing, well-paying customer who have been with us for more than 2, which is a very large number, around closer to 6 lakhs. So based on all of that, and we have not been very aggressive in terms of increasing our disbursements. Our run rate has been steady at around INR 12,350 crores, INR 12,400 crores for both for Q2 and Q3. We would see the similar momentum for Q4, marginally may be higher, but around the overall INR 1,200 crores or INR 1,400 crores is what we're really looking at. The specific focus would be in terms of increasing our non-micro finance book. Even at the continued run rate of 70% in micro finance and 30% in non-micro finance, given that the door-to-door of the micro finance is only 2 years, and the rest of the loans is minimum of around 4 to 7 years depending on the product, so the tilt will be in favor of non-micro finance even at this to closer to 60% to 40%, 60% in terms of micro finance and 40% in terms of non-micro finance specifically secured assets by around Q1 and beginning of Q2. And the intent is to take it closer to 50%, 50% probably by end of FY '23.

Okay. And about the other expenses?

In so far as the other expenses are concerned, increase has largely been due to payouts to our partners like PayTM as well as servicing of collection service points with our partners.

So this run rate would continue going forward? Or will it go up from here?

We expect a uptick in the partner programs, especially with PayTM. So there is likely to be an increase, but the deal will be commensurate with the increase in the fees that we earn from these programs.

Our next question is from the line of Rajat Bansal from Low Capital.

Sir, my question is on the secured book that we have, primarily HL, small business loan and CVs. Can you talk a little bit about what are the customer segments we're going after here? What is typically the LTVs on this book? And what is the competition you're seeing on the ground?

Yes, specifically -- on the books, in terms of home loans, we have 2 separate verticals, one focusing on micro home loans, which are similar to our micro finance segment book, which has got a total household income of anywhere between INR 30,000 to INR 50,000. One of the family invest maybe kind of formally or semi-formally engaged. That ticket size is around INR 5 lakhs to INR 10 lakhs, and that is mostly self-construction, where the LTV will be in the range of 60% to 70%, considering that they already own the land, only for the construction in majority of the cases. In terms of the other regular affordable home loan portfolio, the average ticket sizes now varies between INR 12 lakhs to INR 15 lakhs on average, but the range of disbursement is from around INR 10 lakhs to around INR 30 lakhs, INR 35 lakhs. And above INR 15 lakhs is a very, very small sequel. And LTV is anywhere between 80% to 85%, depending on the quantum of the loan. And in terms of secured business loans, we target to kind of have around 60% to 70% max LTV. However, for existing customers with various other relationships or substantially proven track record with an underlying established business as an MSME, we go up to even 75% to 80% in terms of secured business loans, where -- and our entire secured business loan underwriting is predominantly on the underlying cash flows of the business and partially on the security. It is not the security first and the underlying cash flows next. And we have clearly implemented it and intend to kind of continue the same.

Sir, how about competition in these segments? Are you seeing more players getting into especially the small business loan segment?

Very true in terms of competition. But the fact is that based on our own, a substantial percentage of our existing customers, either liabilities or inclusive finance or assets are customers for secured business loans, including in terms of a takeover. On a targeted basis, if we are able to reach out to the customer where we are originating rather than getting originated by the DSA, which means it's not just one DSA, it could a couple of DSAs taking then the pricing becomes a primary point of negotiations. So currently, and also our cost of funds, we have brought it down as you kind of would have seen to 6.9%, which makes it meaningfully competitive to play by and large, the entire amount of spectrum starting from if it's loan against property we offer only even 10%, who are very well established with a solid track record and very good underlying cash flows to operating at around 14% range, currently in terms of secured business loans is between 10% to around 14%. In terms of regular affordable home loans, it's from 9.5% to around 12.5%. In terms of affordable home loan, it's between 14% to 17%.

Got it. And the experience on LGDs for especially the micro affordable home loans, affordable home loans?

We have just started with a very, very small piece of portfolio. But the clear learning, if we have to migrate our experience from inclusive finance, it is and clear intense collection focus on a month-on-month basis. It cannot be treated like a retail asset where we expect 80% check clearance. So here, the check clearance initially will be around 55%, 60%. But if you match them and create that behavior, since majority of the households, which where we are doing micro home loans have gone financially digital, not necessarily just the moreover the lady would happen to the spouse, but their sons and daughters have moved on. So our focus is to really kind of make it as meaningful as in terms of repayment to the digital form, right from the beginning. It's a question of in terms of creating that customer behavior right from beginning. We do not see anything substantial beyond probably 1%, 1.5% NGDs because it's not sprinkled -- maybe it's not across the segment. We do a clear-cut analysis and then only fund and the size is between INR 5 lakhs to INR 10 lakh. We've done well. I think it can be less than 1% credit loss product.

Our next question is from the line of [indiscernible] from Old Bridge.

Just a couple of questions from my side. So basically, we have seen your bulk deposits decreasing almost 60-odd percent.

[indiscernible], your voice is breaking. I'll request to please use headset.

So just a couple of questions from my side. I just wanted to get a sense on our deposits. So basically, your bulk deposits some declined by 60-odd-percent. Any particular reason for that?

It was an articulated strategy. We have called out much earlier even before we reduced it. So we wanted to increase our granular sticky deposit. Actually, they are a little more expensive than bulk deposits. Bulk deposits current for a similar tenure of 1 year, we'll be able to mobilize at around 100 to 125 basis points lower than the granular retail deposits. But it is a conscious strategy we wanted to really move into granular smaller deposit, which is pretty hard to kind of want to lay the tracks in terms of increasing the momentum. And mobile deposit, we believe that as and when required, purely from a cost management perspective, we'll be able to kind of accelerate as it required. So hence, we wanted to increase our retail consciously. And also given our substantial excess liquidity, which we're carrying at close to INR 1,600 crores in June of last year, we wanted to reduce it even as part of our liquidity management strategy. surplus liquidity management strategy.

Okay. Secondly, on your CVP, so the gross NPAs over there is quite sticky or almost 14-odd percent, remained largely flat this quarter. So how -- what's the sense on the asset quality there and on the customer behavior in that CG segment are facing? Since we have already seen the cycle of starting to pick up, so just want to get a sense on how you're looking at it and what's your customer of feedback on this particular segment?

Yes. As you know that while amount was some segments which were deeply hurt have not really recovered and part of our NPAs on account of a few transactions to very well established on the state robust operators. So that, I think the reason why it is being sticky. The good news is that there has been no addition -- any meaningful addition to the GNPA accounts in terms of CV. And somehow, we are able to also see a pullback, specifically, we saw during the last quarter. We tend to kind of see the similar pullback. And some of the restructuring which we did in IRAC is also classifying GNPA. Some of them have paid out for the entire year one specific account, large account. Clearly, kind of the which will come out of a GNPA during Q1 of FY '23. And we have moved away from doing a large ticket CV transactions, which is what we wanted to build to make sure that no further -- loss ratio is a substantially lower. COVID really changed that. So we've moved into only granular funding, specifically looking at refinancing small funding at this point of time. The white space we see in CV, where we're opening our product, is working capital for mid-sized fleet operators. The large fleet operators have substantial access to working capital funds from banks by established -- by public sector banks or large private sector bank. The segment between 3 to 15 vehicle fleet operators do not have access to regular working capital except through refinance mechanism. So we did introduce the product. We have around 200 to 900 customers, around close to INR 7 crores of outstanding at this point of time. We're working in terms of making it, while we are -- since we are doing digital -- transformation to a new IT system, that will be completely will be digital, and that will be a focus area where in the white space, very well a track record established customers, and our pricing also could be in the range of around 14% to 15%. That will be the focus. And other than that, it would be in terms of refinance, small portfolio. Currently, our run rate at this point of time, cautiously, we have reduced it to around close to INR 10 crores to INR 15 crores per month, some peak quarter at around INR 30 crores to INR 35 crores per month.

And lastly, just I want to get a sense on -- basically our asset quality and unsecured segment has almost improved half the gross NPAs and what it was in last quarter. So was it on account of collections or it's written-off like -- what was that?

Both. One is that the collection we have been continuously focusing in terms of customers who have paid in 1 month, not paid for the subsequent month or subsequent 2 months. So as we said that we have in the portfolio remains same, which has not increased, there has been no spillover. This quarter, as kind of guided earlier, is to pull that down by at least by INR 100 crores in a minimum, but we are targeting around close to 150 crores of customers getting activated. So around close to around INR 425 crores to INR 450 crores of customers, specifically in the JLG segment has not paid for 2 consecutive demands in terms of November and December, INR 40 crores of that are paid in the month of January. So our intent is to really accelerate that to around INR 150 crores. So what we are seeing at the overall broad level to kind of say that from a GNPA point of view, is a time stamping, the customer has not paid 90 days and gets stamped. Even if they pay 1 installment, it is not possible for customers in the JLG segment specifically to repay all the 3 installments and come back to standard book. So while it will linger on as part of the GNPA, a core focus in terms of customer behavior and as long as the customers are continuously paying even that the overall tenure of the loans are only 2 years and nonrepayment of a month and then after 2 months, 1 more month, while it will gets stamped as GNPA, they will be -- for us, they are regular paying customers. And the intent is to really pull back from close to 70% of the customer in the current bucket, marginally increase it at least by 5% by the end of this quarter. What we are seeing in a broad level is that we're seeing far more stability than we saw about 2 quarters back when even internally guiding our sales was not very easy. So we see that we are stabilizing and improving. And we've also seen collections coming from customers who are not paid continuously 90 days and 120 days, it is not probably just a change in customer behavior, it is kind of planned strategy to reach out to the customer on a continuous basis. For a INR 2,000 outstanding or active customer is not going to be reaching out to the institution to repay, and we'll have to kind of take all the efforts with each out. That, I think, has been for Q3. And specifically in the month of Jan, we started focusing on activating, which is clearly reflected in INR 40 crores worth of customers who have not paid previously for the last 2 months paying in the month of January.

Sir, how much of our customers in the JLG business would be linked -- the income will be linked to essential services?

All low-income households, by and large, have multi-streams of income were severely impacted when cities in Bombay, Pune, where there is a lockdown in terms of train services getting kind of suspended for a very, very long period, so people in the outskirts, like Paramba, Kalyan, where their livelihood -- substantial livelihood dependent on coming to work into the city was impacted. And that's the reason we saw a little higher stress comparatively in these places. Other than that, in the lower-income households, it is just the uncertainty, which led to -- apart from income loss, the uncertain also added to the compounded the lack of payments coming in from these segments. I think that's fairly stable now. There is no scare in terms of health. But from an economic point of view, majority of them are tied to things which are essential in nature, majority.

Just last one. So basically, as other income has declined Q-o-Q and Y-o-Y. So any particular like lumpy on the base or it's steady, sir?

One, I think to the extent I know is obviously the treasury income, requesting Kanishka to address this one.

The movement has been primarily on account of the mark-to-market on the AFS portfolio and the yields have been fairly volatile, and we have had about INR 12 crores of it that we had to take this quarter and that was the primary reason driving the movement.

We've also given separately that fee operating profit excluding the MTM, which is kind of not close to INR 90 crores.

[Operator Instructions] The next question is from the line of Nishant from Invest.

I had a question on -- again, on the par book going back to one of the questions asked earlier. Sir, in the first quarter, the par book product increased on a sequential basis. I'm just trying to understand that third quarter was one of the best quarters on the pandemic and the movement of people and revival in terms of livelihoods, then logically, things should have par book and the sort of one with the other which reported a decline in the par book -- the 2 reasons, either organic collections or write-offs. But if you can share your thoughts here, sir, what really happening in operating geography?

I was not able to kind of hear -- clearly hear you, but broadly whatever I heard right but the question is in terms of par...

Yes. Yes. Yes.

So it did kind of -- there was certainly a little bit of an But clearly, as I said, what we're really looking at as one of the core is that the headline GNPA, NPA is extremely important. The percentage of the portfolio, which has not paid for 2 consecutive months, is the target. And as I said, that it's inclusive finance, it's kind of not on close to INR 425 crores. And we activated around close to INR 40 crores of customers in the month of Jan. That's customers who didn't pay in the month of both November and December started paying in the month of Jan is around INR 40 crores. The intent is to really increase out of this from INR 425 crores to closer to around INR 150 crores activation. INR 40 crores has been done in the month of Jan. The focus has to be kind of a reactive -- I mean, continue to collect from them even in the month of February. The spillover happens on a continuous basis and inclusive finance as you would saw which is now stabilizing. There is customer paying in 1 month, they did not really pay in the next month and then coming back and paying the third month and the fourth month, which then takes the customer to 3 EMIs outstanding, gets stamped as a GNPA. So the better picture would be to see our own par 90 and the percentage of customers who are paying from the delinquent portfolio. 71.2% of our customers in the 1-plus bucket are paying customers. The remaining 30% is what is not a nonpaying customer, which is what value I give you, which is what we are really working in, in terms of reducing it by 1/3 during this quarter. Part of that has been done. Of the INR 150 crores what we wanted to activate, INR 40 crores has been done in Jan. The intent is to really to do another INR 50 crores, INR 50 crores in both February and March.

And Baskar sir, did you see any impact to the third wave in January? How are your par members tracking in January?

For a few days, it got impacted, clearly, around 10 days, specifically in terms of both inflection of our own staff, so -- as well as in terms of not really reaching out to the customer very intensely. So I think the 10 days between 5th of Jan to around 15th of Jan did really impact, but it came back to near normal towards the end of the month, yes, there was a small impact.

All right. And out of your disbursement in the segment third quarter what proportion would have been into a new customer acquisition here? Is that just sort of reviving?

Around 1/3 of our disbursements is currently going to new to bank customers. Now again, we are there and saying that no at least we'll reduce our reliance on new to credit at this point of time at least for the next 2 quarters. The book is very well 30% of it will come from new to bank. Predominant of that even be now around 60% of that is not new to credit, only 1/3 of 30% is -- around 10% or less and a little less than 10% is NPC. Cautiously, we want to kind of slow down on this NPC customer into the inclusive finance, at least for the next 2 quarters, this quarter and next quarter before we see full stability.

Understood, sir. And just lastly, on the PayTM relationship, sir, I just want to check with you on underwriting and the loans being originated for you. Is there a rate sharing arrangement with PayTM?

No, the payouts that we make to them is dependent on the collections that we make. So clearly, we are never -- did not go into any arrangements in the past or now or not likely to go into the future as well, where our comfort will be based on the FLDG or the performance guarantees. But the payouts in terms of the portfolio generated to the partnerships would be dependent on the collection efficiency over the period of time, not just on a month-on-month basis. So to that extent, a tax is a cushion. But clearly, the underwriting and the credit decisioning will be with us. So we kind of own the portfolio and do not do any underwriting. They're purely based on the comfort of -- don't intend to do so as well.

If these payouts are linked to collections ultimately, then some form of performance guarantee in PayTM is expected.

Yes. Even it is not a performance guarantee, it kind of gives you a cushion in terms of the collections, not where you have a targeted collections of 98%, where the collection efficiency have to be 95%. So to that extent, we have payouts will be lower, to the extent the earnings will be higher. And hence, you can say that it kind of absorbs the loss it's not a performance guarantee. Performance guarantee would be kind of committing upfront a percentage of the portfolio, which will be returned directly or indirectly by the partner. In our case, obviously, the excess income, which we get retargeted income is X, and we are getting a little more than that purely because of reduced payout, which will cushion in terms of any credit losses. What it does is that it kind of makes you take a portfolio which you are really comfortable with. And even in terms of cycles, which kind of happens, we are also making sure that we are kind of in funding only in cities where we have our own infrastructure, our ability to create an infrastructure as required.

Right. Sir, in that context, the reduction in payout to PayTM will be over 100% of your loss on that portfolio repayment?

No. To kind of order to get back what you are kind of going to know, is no. The underwriting is on us, we kind of have our own parameters to do it. And the reduced payout will only absorb part of the credit losses that you will kind of undertake. So it is not anything closer to what we are really talking about.

The next question is from the line of Manav Vijay from Deep Financial.

Am I audible?

Yes, please.

Okay. So sir, I just have one question, basically. So for the current run rate of PPOP, monthly PPOP of around INR 35 crores to INR 40 crores that we are at, so for next, let's say, 2 quarters, quarter 4 and quarter 1, so you will use that money to basically make provisions for the INR 450 crores or INR 445 crores of the portfolio that you have, where you have delinquency. And then from quarter 2 onwards as cost stabilizes, a large part of that PPOP will start to slow down to PAT. Would that be a safe assumption to make?

To put this way, currently, if you look at our gross NPA to net NPA, the portfolio which is not provided for, is approximately around INR 257 crores. The percentage of portfolio out of the GNPA paying is approximately around INR 200 crores. So in some sense, it kind of -- hopefully, which is paying is equal to the portfolio -- the unprovided for portion of the GNPA. The next one is the restructured portfolio. About 60% of our restructured portfolio is paying and the intent is to take it to closer to 70%, 75%, which you called out. And 60% kind of not paying, but not necessarily on a consecutive basis on month-on-month. The one that gets activated to 75%, which the standard restructured portfolio currently stands at 10%, 11% of our book. Around 30%, 40% of that use 4% of our overall book is what we'll have to kind of manage and increase the collection efficiency or eventually kind of part of that will transit into credit trust. The PPOP that we are making now, which are employed to run rate of around INR 30 crores, not including the NPM, which we took a INR 10 crore hit in the quarter is around approximately -- net of that is INR 80 crores, gross of that is around INR 90 crores. Around the current run rate of disbursements, we expect that it will be in the same range, around INR 90 crores to INR 100 crores. So we'll have to make provisions out of that probably for this quarter. And part of that will spill over into Q1 of FY '23. And FY '23 as a whole year, specifically starting from Q2, we see it as a year of enterprise profit. How much would be, yes, mathematically speaking, there were substantially lower provisioning should lead to straight PBT and PBT lead to PAT. So we kind of first focusing in terms of reducing this portfolio, which is nonpaying and kind of looking at pre-operating profit of closer to INR 40 crores on an organic growth, not accounting for into treasury profits or other ways.

So sir, correct me if I get your number right, so roughly 4% of the current AUM, which is approximately, let's say, INR 200 crores kind of a number, is not -- is where the problem is. That is what you have to provide for over next 2 quarters, quarter 4 and quarter 1. And then from quarter 2 onwards, it will be normal story.

I don't want to kind of go ahead so much for -- so much of -- the question is that out of the 200, the focus is in terms of activating part of that, substantial part of it. How much will it be? We'll kind of get a full clarity in the month February and March. So not all of the 200 need to be provided for How much of that exactly the number kind of we've put in all the execution efforts things that are far more stable now, we're able to connect the customers, we're able to reach it to the customer. Yes, I would say that a part of that 200 has been provided for, which is what we have kind of -- we have said even in Q2, will be done in Q4 -- Q3, Q4 and a small spillover into Q1. And hopefully by Q1, which would have kind of provided for comfortably. And from Q2 onwards, I mean, obviously, the businesses don't really operate in a purely near manner. Barring any other thing than our own organic profit should be higher, closer to INR 40 crores plus from Q2, which the substantial piece of that should translate into PBT and part of that, obviously, is PAT.

Okay. Sir, my next question is, so regarding the growth rate that you are saying for FY '23, you're saying 30% to 35% kind of AUM growth. If correctly in quarter 2 call, you were mentioning -- you're actually guiding for around 25% to 30% kind of a growth. So actually are you upping your guidance for next year? Or -- so basically, since the environment has become more conducive, you are getting more confidence with your team, so that is the reason why you are upping for next year?

Partially, yes. And also, what we've done, kind of we invested in a very intense analytics platform, which gives a view in terms of our customers, in terms of exposure to various other products, including the track record. That gives us confidence in terms of deepening relationship with our existing customers. One, the touch point is a lot more easier. The comfort is substantially higher. So we are -- the strategy is to really increase the non-micro finance secured business to our existing well-paying micro finance customer segment. And given that the small base on the infrastructure, which you created even pre-COVID, which were not really switched out during the last 2 years except for using it for the collection machinery, the growth in business organically should really be a little more higher than what we are clocking for this year. And that leads us to the 30%, 35% ratio.

Sure. Okay. So -- and the last from my side. So if I look at it -- at the quarter 3 balance sheet, you are approximately around INR 2,400 crores of cash plus investments that you are sitting on. If you can help me with the excess cash plus investment but you are sitting on basically the cash that is as of now giving you low yield and which you intend to shift to other high-yielding portfolio to basically improve the NIMs without having any kind of impact on the cost of funds?

I was requesting Kanishka to answer.

We have, over the last 9 months, rationalized the amount of free cash available down to INR 600 crores from a peak of INR 1,600 crores. The natural growth that we are targeting in our loan book will help us reduce this number over the next couple of quarters.

The next question is from the line of Abhijeet Sakhare from Kotak Securities.

First is a clarification on Slide 21, where you've given a number of 6.4%, which is 90 plus. But on the next slide, on the moment of par, that number is 4.6%. So just trying to understand if these are 2 different numbers that we're reading here?

Abhijeet, I'll come back to you. We just kind of look at the number and come back to you.

Sure. Sure. No problem. Sir, secondly, just to pick up on Nishant's question earlier, the recovery on seems to be somewhat more gradual even when we look at the one EMI adjusted collection or paying over the customers. So just if you could break it up in terms of -- is this geographical or a state skew or is it an urban versus rural skew, if you could give us some broad indicators on that side? That would be helpful.

Abhijeet, predominantly, we are an urban and semi-urban player. But however, in a smaller towns, outside in terms of the 5-kilometer area itself will become semi-rural and then it will become rural. So around 70% of our portfolio is urban and semi-urban, around 30% rural. And hence, the rural behavior and the probably will not be very divergent from what we have in the urban, semi-urban. Similarly, restructure the loans and only around 60% of them are kind of paying customers. The spillover happens after the moratorium is lower when they come into it is steady at around 83%, 84%. As we activate more, there's 1 EMI adjusted correction is likely to kind of increase. I won't really guide out for how much would that be? But what we have seen certainly in the last 3 quarters is that there is absolute volatility in it. The 84% was not constituted by even 90% of the same customers paying month on month, which trend is what we have started seeing around close on INR 10 lakh of our customers continue be in current. And we are trying to pull in as many customers back into at least current or 1 to 30. So we'll see an increase in terms of this 84%. And the intent is to do what -- while it's not a guidance, the intent is to really take it to around closer to 90% by Q1. And some of -- the most -- but majority of it is also the legacy pre-COVID portfolio and acquisition piece of that will increase the collection efficiency.

And just secondly on this one, what's the normal policy on customers who remain on overdue, but ultimately kind of reach the end of their loan durations? So do we look at their near-term track record and renew the lines, how do we kind of treat them? And what happens with the overdue amount, which is still left?

The challenge specifically comes in where the entire center and the customers have become inactive, which means that all their installments are fallen due and then there is no regular installment, which is kind of happening. That's a very small piece of the portfolio, but we'll have to be very, very conscious of that, that number cannot be come higher because the touch points then diminishes substantially. So we'll have to keep the customers even before they go out of it, activated or we'll have to have a special focus in terms of what we call as a term closed centers, which is that all the customers in the center have -- do not have any installments, which is falling due. As of now, it's a very, very small piece of the portfolio. But as it goes one, we are targeting the existing good customers, which means the centers will continue to be active and which makes it a lot more convenient for us to keep intact even with the customers who are not active, but belonging to those centers. So that's what we're kind of planning to do this quarter, good question.

Got it. Got it. sir, second one is on PayTM, is this a merchant loan, if you could just tell us what sort of a loan are we sourcing to them?

It's merchant loans for customers who have been having relationship with PayTM for a period of at least 6 months and they are all for business purposes, and we are not into any consumer lending to them or we are not just with PayTM with any partner, we are not into BNPL or consumer loans. They're only business loans for merchants. And average ticket size is around closer to INR 2 lakhs.

INR 2 lakhs. And what would be the yields, the broad rate on the customer product?

The net of payouts, the rates will be around closer to 12% to 14%, depending on the size of the loan, the credit score of the customer, factor, but the range is 12% to 14%, net of payouts.

It's a fixed rate loan for the...

They are loans. Yes, they are EDA loans, equated daily installment loans.

Understood. So just to understand this better, so the customer -- so the loan is sourced on the app, right? So you've reached an agreement with PayTM, where they are able to pick up customers in your geography and kind of offer them a loan, where you are the lender at the back end because it may not be a pan-India relationship, right?

No, it is not a pan-India relationship. It is for specific cities. Majority of the cities were operations, some of the cities where we are not fully operation, we have the ability to put in the collection network as and when required. Currently, the entire servicing, sourcing, partial servicing and collection happens through our partner. But as in when and we also visit those customers as a sample 15% to 20% of customers have met post funding just to align that what we are intending to do and what we are doing is exactly on the same page. done. They do the shortlisting, listing, the final credit selection based on the credit scoring is done by us. So there is a limited balloon which we give new to credit, but that is suffered by the tracker of the customer, including quite a few of them even unsecured loan track record. So they are not necessarily new to bank, majority of them or a partial of them are new to credit, which means they're new to the banking system.

Sure. And sir, finally, on this one, like we had unsecured business loan product, which has like a 30%, 35% delinquency. And this one probably has a similar customer profile. So do you think having a payment relation materially changes the tendency of default, if you have any thoughts on that, please?

See, the measurement of delinquency on a rundown portfolio will not be a reflection of the quality of the portfolio. So this stuff can now put it on pause during the pandemic that we didn't want to increase the portfolio, hence what's the number. But on an ongoing basis, what we saw at that point of time was around close to 10% delinquency. Had we continued on an overall basis, the credit losses in that business will be around closer to 5% to 7%. And there, obviously, we started the product new, there's quite a bit of a learning. One of the key learnings is that in terms of the stability of either the residents or the shop, if there is an ownership offered, then the track record is very different. There is a delay, but there is not a credit loss. But if both are kind of on the rented and they are new to credit, that I think is a risky segment, which we don't we are restarting it with our own experience in terms of when new digital, but in a specific geography. Also, it's very important that we are doing on our own with our own collection machinery. The geography has to be sharp. It has to be deep, but then spreading outside even a city like Mumbai. We can't say that we are operating in Mumbai as an entire city. We have to pick the pockets because the potentials are so large. Done well, I think the credit losses will be in the range of around 5%, 7% max.

The next question as a follow-up question from the line of Renish Patel from ICICI.

Before that, just kind of clarify Abhijeet's question in terms of 90 plus, over to Kanishka, please.

The differential that you observed between the 2 numbers is largely on account of the INR 93 crores of write-off that we have taken in this particular quarter.

So we're not adjusted anymore. Yes, thanks Abhijeet for pointing out, we'll do that. That's a correction. Over to you.

Yes. Renish, please continue with the question.

Yes. Thank you. My questions has been answered.

We take the next question from the line of Pritesh from DAM Capital.

Sir, one question on the restructured book, we seem to have a 25% type of provision coverage, any plans there to increase the coverage ratio? And second, how much do you feel that will not slip into NPA?

See, we are not -- these are all reschedulements done in touch with the customer. The question where the customer, and we also did where at least they paid 1 out of the previous 3 installments. So touch points established, behavioral pattern reasonably established. So intent, even when we were doing, was to really kind of activate at least closer to 80% of the customer -- 80% to 90%. Across, the industry also we're seeing the range of around 70% to 80% of the restructured customers have started paying, not necessarily on a month-on basis. Currently, we are at around 60%. The intent for this quarter with a focused effort in terms of getting them back to because there is a moratorium, the slackness would have in terms of touch points and then following with the customer. As it gets activated and installments are falling due, the intent is will really take it at least closer to 70%, 75%. We will have full clarity -- visibility of what we have to provide for in RC by end of March.

So that is when the majority of the portfolio starts paying, right? Because I assume that restructured would have ended at March 31 last year?

No, we did restructuring even in September.

Okay. Sure. Sure. And second question basically was on the borrowings, I see the borrowings being a little bit higher this quarter. Any specific reason?

We have borrowed INR 750 crores in SLTRO window, which is a 4% fixed for a 3-year period. Since we had excess investments, we leveraged that to reduce our cost of borrowing and consequently the cost of funding, which is where you see the drop from 7.1% was the cost of funding and cost of deposits last quarter. Currently, the cost of deposits continues to be 7.1% on an overall portfolio basis, but our cost of funding has come down to 6.8%.

What is the tenure average on this one? 3x?

3x, yes. 6 to 4%.

Sure. And so this was one-off opportunity from -- so how do you feel on the deposit side, especially the CASA. I mean the CASA is slightly slower, do you feel that we'll see some more traction on CASA going forward?

Articulated CASA strategy is in terms of focusing on granular CASA, specifically on the piece and not really kind of no price that anywhere closer to our fixed deposit rates. So we did kind of have been reducing the rates to ensure that what we get is accounts which are kind of having flow, which is leading to float. And we also kind of said that we see a CASA increase happening gradually quarter-on-quarter. And our target one is to really kind of increase it by 1%, 1.5% on a quarter-on-quarter basis. So what we are aiming to in terms of build on the platform, predominantly is in terms of retail, granular, which will lead to a reduced cost of deposits rather than increased cost of deposits or We've again, reduced our pricing effect in January. Our current overall, I think, cost of CASA would be less around 5%.

Ladies and gentlemen, that would be the last question for today. I now hand the conference over to the management for their closing comments. Thank you, and over to you.

Thank you for joining. As said that we are kind of glad that we are able to have a lot more visibility and stability coming in back into the sector as a whole and specifically for us as a bank, we have seen a good traction in retail liabilities, our cost of funds coming down and our overall cost of -- cost-to-income ratio is stabilizing and we see that coming down in the quarter. Our focus will be in terms of strengthening our relationship with our large customer base who have exhibited excellent repayment behavior and the ability to manage the cycles through COVID 1, 2, 3, which gives us hope that we'll be able to maintain, build a very substantially good sustainable portfolio, and we should be back in terms of reasonable profitability track starting from Q2, and we see FY '23 as a year of meaningful enterprise profit. Thank you for your support. Thank you very much. Have a great day.

Thank you very much. Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.

Thank you.

Thank you.