UGRO Capital Limited (511742) Earnings Call Transcript & Summary

From SPA Securities, I welcome you all to the Q1 FY '21 earnings con call of Ugro Capital. I also take this opportunity to welcome the management team from Ugro Capital. Today, we have with us Mr. Shachindra Nath, MD and Chairman; Mr. Abhijit Ghosh, CEO and Whole-time Director; Mr. Kalpesh Ojha, CFO; and Mr. Vivek Seshadri, Head of Strategy. We would start the con call with a brief opening remarks from the management followed by an interactive Q&A session. Before we start, I would like to add that some of the statements that are made in today's discussion will be forward-looking in nature. Now I would request Mr. Nath to make the opening remarks.

Thank you. Good morning, everyone, and many thanks for joining us for our Q1 FY '21 earnings call. Like most other firms and certainly all other lenders, the central story for us this quarter has been the coronavirus and the associated lockdowns. Across the NBFC space, all lenders have broadly had a dual focus: evaluating and working to minimize portfolio stress while exploring the full extent of the liability available to them to ensure a comfortable liquidity position in these trying times. I firmly believe that we have demonstrated outperformance to the market on both counts. And we find ourselves in a much more comfortable position than almost any other player in the market with the right opportunity to rapidly grow in the coming months. Given the major macroeconomic challenges we have successfully dealt with in our nascent journey thus far, I think we have demonstrated ourselves to be an extremely nimble organization. That is exactly what is required during this time. Before getting into the numbers for this quarter, I want to start by talking about the pandemic itself and its economic ramification. While the consistent lockdown has certainly had a large negative effect in the short term, we have seen the resolute spirit of our nation represented beautifully by small businesses across the country. Despite the operational disruption and challenging financial situation faced by most SMEs, they remain a vital cog in the Indian economy and have critically not folded under the pressure. The government's strategy of channeling liquidity to small businesses primarily via lenders has meant that fundamentally strong business will be able to weather this storm and thrive after. Our operational response to the pandemic has been continued to prioritize the health and well-being of our employees above all while greatly expediting our digitization process to ensure that we are now capable of working at 100% operational efficiency despite all employees working from home. The major concern regarding a fully digitized underwriting process has always been that it would come with a compromise on traditional checks and balances that we value highly. Quarter 1 has seen us take multiple strong steps in the right direction on this front, particularly with the introduction of personal discussion by video and digital document submission to maintain the sanctity of our conservative underwriting process while fully eliminating any requirement for physical interaction between the customers and our credit managers. In addition, we have integrated an advanced rule engine with machine learning architecture into our banking segmentation process. On the distribution side, we have further expanded our group partners' network to 393, which is an 11% increase on quarter 4 figures. As of July 2020, full lending operations have recommenced at all Ugro locations, and we have also accelerated the ramp-up of our partnership-driven channel at this time. As an organization that prides itself on being nimble, our emphasis on disbursing via our Sanjeevani program for a provider of essential goods and services and also the emergency credit line. With regard to disbursal numbers, all lenders were severely hampered between April to June. Due to the pandemic, we disbursed approximately INR 10 crores a month over these 3 months as compared to around INR 120 crores per month immediately before the lockdown. However, we have adapted superbly to this limitation and, in July 2020, we disbursed over INR 93 crores, which sees us disbursing at around 80% of our pre COVID levels. We fully expect to continue our positive disbursal trajectory and to re-achieve and exceed our pre-COVID levels in the coming months. We have reached a total of INR 1,397 crores of disbursal in our business to date, and our AUM at the end of Q1 was INR 847 crores, with a blended yield of 14.1%. Our AUM is spread across 7,343 live customers for a highly granular average ticket size of INR 11.5 lakhs. Our portfolio remains well diversified by sector and geography and the secured portion of our book is just under 70%. Our portfolio has a GNPA of 1.02% and NNPA of 0.57%, both of which are reasonably -- reasonable figures as our book has started showing some vintage. As I mentioned earlier, estimation of portfolio stress is critical at this juncture. We have taken strong steps to make sure that our portfolio quality is maintained as much as possible. Since the lockdown has started, we have been in regular contact with our customers to monitor any stress effect on our portfolio. To this end, we have conducted 3 highly comprehensive customer sentiment survey as leading indicators of our portfolio stress. We have also led a deep-dive study alongside CRISIL of macroeconomic impact at the sector and subsector levels to fully assess our risk exposures. Based on these studies and our ongoing internal risk evaluation, we have increased our provisioning for -- to INR 4.5 crores of COVID-19 specific provisions and INR 11.6 crores of overall provisioning. Given we had already taken a large COVID-19 provision in Q4 FY '20, our provisioning expenses for Q1 FY '21 was INR 1.15 crores. The liability side is where we have made most progress in Q1 FY '21. Since IL&FS, there has largely been a liquidity crunch in the NBFC space with inadequate capital access for all but a few lenders. However, government-driven scheme as the PCG scheme and TLTRO 2.0 have really served to alleviate this pressure. For well-run NBFCs, this has been a huge boon, as it has allowed us to secure our liquidity position for the foreseeable future while borrowing costs have come down significantly, solidifying margins across the industry. As at the end of Q1, we had a total of INR 387 crores of sanctioned liabilities, over INR 100 crores of which we have not yet drawn down. We have added multiple public sector banks to our liability book this quarter. With sanction received under both PCG and TLTRO schemes, July 2020 also saw us issue our first commercial paper at a face value of INR 10 crores. We maintain an extremely healthy liquidity position at present, with over INR 300 crores of immediate liquidity on the balance sheet, not including the sanctioned liabilities that we have not yet drawn down. This has meant that we have a CRAR of 99.42%, far higher than industry average. Our liability pipeline is also very strong for the foreseeable future with over INR 200 crores of incremental liability. Our financial performance continues to be strong given the circumstances, and it is underpinned by a set of cost optimization measures we have taken over the last 2 quarters. We have declared a profit after tax of INR 3.73 crores with a total income of INR 30.79 crores. Our OpEx light business model has allowed for us to maintain profitability even in these difficult times. Our net worth at June 30, 2020, stood at INR 926.1 crores with a book value per share being roughly around INR 131. In closing, coronavirus has given us and, indeed, the nation a monumental challenge. However, our nation has great spirit, and no group exemplifies this more than the small businesses. I have full confidence in the age old adage that this too shall pass, and we shall forge onwards from strength to strength after this crisis is finished. The government's strong support for MSME through the channeling of liquidity via lenders is certain to pay dividend, and fundamentally sound businesses will only emerge from this crisis stronger for having survived it. With our strong liquidity position and greatly strengthened liability book, I firmly believe that you can expect great things from Ugro in the coming months as we expand our aspiration to solve the unsolved. Thank you all, and over to the SPA team.

Sir, should we start the questions and answers?

Yes, we can go ahead.

[Operator Instructions] The first question is from the line of [ Jenny Shah ], individual investor.

Sir, I had one question. How has been the collection efficiency for the book, which has come out of moratorium?

The collection efficiency for non-moratorium book is roughly around 98%.

Sir -- and one more follow-up I had. How do you look at the revival of sectors such as hospitality and education, which have been affected most during the COVID time?

So our -- as you know that we are especially sector and subsector small business lending platform, and we have this great advantage of looking at the macro data and also, as I have alluded to in my opening remarks, that we have a bottom-up customer engagement survey. And we have taken a view by every sector and subsector for next 24 months. In terms of the -- and we have tested it on the basis of whether businesses are operational or nonoperational, which is the ground-up, and also we have taken a macro view. I think so the 2 subsectors which you talked about, on hospitality, which is, again, subdivided into multiple underlying customer type, so banquet hall, fine dining, restaurants, so on and so forth, within the hospitality, broadly, I think so, for next -- up until FY '22, we see a severe stress and, what we call, they continue to be -- from an operational performance perspective to be in red. But within that, there are white spaces, which is fast food, home delivery kind of businesses. Education, actually, it is a very contrarian while the -- they are not -- most of the K-12 schools, which we operate in, are nonoperational at this point of time, but their cash flow is not that severely impacted because as you differentiate, hospitality is a discretionary spend; K-12 and education, to some extent, is a nondiscretionary spend. It is compulsion. So while the revenue has got reduced in terms of the allied services most of the K-12 school used to make, but it has not that -- got severely impacted, but both would be operational at a full flow at much longer delayed tenure.

Okay, sir. And just one last question I had. Is that -- are you looking at expanding the focus sectors, as many of the sectors like auto components and all are not performing as well for a longer period of time?

So as you know that we have made this -- disclosed -- we have discussed this around 4 quarters back, auto components we have stopped around 4 quarters back itself, much before the pandemic, and that was more a call which you took on the basis of how the economy was performing. Hospitality also, we are very slow at this point in time. And -- but we -- on a long-term basis, we are quite focused on our sectors. We do health care, but within the broader spectrum of health care, pharma we were not doing. We have added a few components of pharma, and we will expand into the pharma as a sector for us -- for now.

[Operator Instructions] The next question is from the line of Shreepal Doshi from Equirus Securities.

I had a question with regards to the sectors that we cater to. And since we've done 3 customer survey also, so what has been some of the, say, similar or key takeaways from your interaction with your customers in, say, sectors like light engineering, electrical equipment, as you discussed about hospitality also? So what would be some of the similar takeaways or the key takeaways from your customer survey or your discussion with your customers?

So I will give you a broad answer, and Vivek, please feel free to add. I think so, between manufacturing to services, we have seen the revival of the manufacturing sector to be far superior than the services sector. That's point number one. Within the manufacturing, to give you an example, we are seeing the electrical equipment manufacturing, chemical and few others, to come back to now almost 70% normalcy. But the problem is what we call -- not -- is a trend which is very difficult to predict. So for example, a manufacturing unit. And what we service is the allied ecosystem, right? The MSMEs who are either supplying to a manufacturer or the distribution channel, which is buying from those manufacturers. But those -- some of those factories, sometimes which was a green zone, all of a sudden became a red zone and the production just goes down. So having -- those are the continuing challenge, but otherwise, the manufacturing sector is reviving better than the services sector.

Okay. Okay. And sir, like, some other -- I mean as in -- if you talk from the perspective of the utilization levels or production levels like some -- what was it in, say, May, June versus in July, some data point sort of a scenario there.

We have it. So look, you have to appreciate that -- what you're looking at utilization level is a mid- to large manufacturing sector, right? We service customers which are either micro SME or SME, and within them, which are services and manufacturing. We have seen -- but within those sectors, the -- wherever we have seen that the lockdown is a little lesser and if they are manufacturing and if they are not suffering from the problem of the labor, those have started reviving back quickly. But Vivek, do you have other data points which you can give to Shreepal?

Yes. So again, one of -- so we have been in constant communication with almost all of our customers now. We have, since the lockdown started, spoken to them 3 times, right? And each one, obviously, has its own set of questions that we're asking. What we understand is that at least 70%, 75% of the customers, except maybe in a couple of centers -- sectors like, I think, the previous question alluded to, education, hospitality have started operations, right? In fact, in sectors like food processing, which we -- it's almost 80%, 85% of people are now open. And what we also understand is, in most of the sectors, except for the 2 sectors, around 60%, 65% are operating at a 50% odd capacity utilization for our set of customers, right? And the idea is that as months go -- I mean as the lockdown eases out in most of these places, the level of operation also increases. So I think that's fundamentally the key takeaway from the survey that we conducted.

And sir, any trend that we are seeing with respect to our geographical split as in -- I mean we have decent, say, split in Gujarat, Rajasthan, Maharashtra and also in Karnataka. So any geography-specific challenges that we are sort of getting to know from our interactions?

So geographically, I think, 1, 2 places that are seeing a higher moratorium are, I think -- actually 3 places are actually Mumbai, Pune and Chennai. And these are the places that have been hit by the lockdown the hardest, right? I think there is a direct correlation between the lockdown and the impact on the customers.

Okay. Sir, one last question. Like we have started disbursing, which is, I mean, not so high, but this we've gradually started. So in what segments are we looking to sort of do disbursements or sort of expand our loan book?

So as we have announced, we -- first of July, we launched a program called Sanjeevani. So this is a unique program which we built basis -- so as you know, we are a very highly data-driven analytics company. And prior to COVID lockdown, we had multiple -- beside our sector and subsector, we had a multiple program approach. So we have a program like banking, program based on GST, program based on normal income, program based on multiple other things. So as an SME customer, you could have come with just your 12-month of banking data basis that our system used to analyze your cash flow and we were giving eligibility sanction and then doing the full underwriting process. Now we realized -- but it was -- largely, our underwriting was driven by historical cash flow available to a small business and its ability to pay a future loan, right? What we realized that, that factor of doing underwriting on that basis is severely hampered because now you have a 5-month lag from there. And we worked very hard in using our analytics technology in underwriting. And we combine 2 things for our Sanjeevani program, banking and GST, wherein we now take 12 months of data, both of the banking and GST. Our system bifurcates the data between pre-COVID and post-COVID, and wherever it sees that there is an uptick, that customers become eligible for a loan, and then basis the sector and subsector, our underwriting team do a probability analysis of what cash flow he will go back. So if you're -- even if we are seeing an uptick in, say, if you're in hospitality, the normalcy factor or mortality rate applied to your future cash flow would be lesser versus a food processing. And basis that, we are coming up with an eligibility, and we have started this Sanjeevani program. I think it's a very unique program wherein we have -- we used 3 months of lockdown and utilized all our strength [indiscernible] analytics technology, underwriting, distribution, and rolled it out, and it has been very well received and appreciated in the market.

Okay. Okay. Sir, if I have more questions, I'll come in the queue.

The next question is from the line of [ Swapnil Sagar ], Individual Investor.

I have a few follow-on questions to the sample survey that you had conducted. What was the size of the survey?

So we reached out to almost 95% of our customer base, and we do it digitally and then verbal communication. So we created a digital platform wherein every customer was touched through that, wherein there were a set of questions which were filled by the customers. And basis that, our underwriting and sales team spoke to those customers.

Okay. And what would be the -- you have certainly added some liability side recently, right, from PSU banks and all. Can we know how much was the amount in terms of sanctioned liabilities that you have which can be disbursed?

Yes, we have already given that in our investor presentation. I think so COVID era has been very, very strong for us as far as liability franchise is concerned. As you know, pre-COVID, we were largely funded by equity because we were disbursing out of that. And we were not in a great rush or need to incrementally raise too much of liability. But during this period of time, what we realized that -- or what we benefited from that one, obviously, within the large framework of public sector bank, there was a need, and there was also a direction or what you call, there were -- banks were being motivated to provide more finances to NBFC. And within the universe -- and especially the lower-rated NBFC or -- but within the universe of A-rated NBFCs, we stood out given that -- our high capital adequacy, very strong GNPA performance and no legacy. And that's why we saw that there is a host of liquidity. So as of today, we sit on almost INR 300 crore plus of cash. But -- and we think so that among the universe of almost 12 public sector banks, by end of next month, we should have relationship with 7 of them. So I think it's a very strong founding for a company of our size.

Yes. That's great to hear. One more question. Sir, I have observed there is some off-market transfer by the promoter, Poshika Advisory. Any particular reason?

This has been very well explained in our public market disclosure. So Poshika Advisory Services LLP, which is defined as the promoter entity, at the time of the acquisition of the erstwhile promoter shares, which was Chokhani Securities, Poshika LLP had investment from me, and also, there were other financial investors at the LLP level. None of them were more than 10% of the LLP total capital. In some of the recent sanctions received from the banks and financial institutions, these banks have put condition of either a personal guarantee of me as a promoter, but some of them also put restriction of Poshika as an LLP divesting its shares. So given that -- because they were external investors at the LLP level, those chose to retire from the LLP and consequently, their number of shares were transferred to them so that I, without any problem, can commit to these banks for nondivestment of shares held by me.

Okay. And sir, last question. The reason for the auditors' change, have we opted for the other big 4s also, quotation? Or the evaluation in terms of -- I know it is a Board decision. I just wanted to be understanding as to what was the reason for changing auditors. I know that you have mentioned that fees is the concern for Deloitte. Any particular other big 4 that we have approached or there were multiple people we have approached and we finally selected...

I think so, look, you will see this trend, which is across all listed companies. I guess large audit firms are under severe pressure in terms of the time involved by completing and conducting their audit because the regulatory requirement and pressure of how the audit has been performed over a period of time across all listed companies is -- the cost of that is going upwards. To be fair to them, that's why most of them are given, especially the big 4, their cost is going up, and they are asking their underlying companies to bear that cost. And obviously, we were -- for a company of our size, as you know, it has already been provided in our articles that the audit firm for our company can either be a big 4 or a firm which has got an international affiliation to maintain certain level of standard. This is provided in our article. And given these circumstances, Deloitte was -- their requirement was to increase their fee on the audit significantly. And we felt that given the size, construct, the circumstances of the market, there is -- for us, it was difficult to accept that. And basis that on a very, very good terms and Deloitte -- continued to support us for other advisory thing and services. We decided to accept their resignation and change the auditors. And we have taken BDO, which is a similar firm. It went through the entire evaluation process of our Audit Committee Chairman and the entire Board, and we selected BDO out of 5 different audit firms. And the reason we did that because we liked BDO's financial services team. They are now auditors of banks like HDFC, Ujjivan so on and so forth. So we felt that we are better in their hands.

The next question is from the line of [ Bhavesh Jain ] from YES Bank.

Sir, if you can just provide some light on the current percentage of your book, which is under the COVID moratorium? And also, how it has progressed in both the phases of COVID, moratorium?

Okay. So as you know that when COVID started in the month of March, given that unlike other NBFCs are similar size, most of the NBFCs were suffering from severe impact of liquidity for themselves. When we did our first survey to customers, we realized that most of the customers actually needed some form of the moratorium. In fact, we reached out to RBI asking that we should be allowed to provide moratorium across all customer segments before RBI's first circular on moratorium came. So having realized that need and with no liquidity problem for us, we offered 100% moratorium to our customers in moratorium 1, which was an opt-out scheme. So any customer who didn't want moratorium could return to us. And basis that, 20% of our customers opted out of the moratorium in second -- in the moratorium 1. In moratorium 2, we said that we will give moratorium only basis recredit exercise because we didn't want it to be negatively selected by a borrower wherein he is paying other lenders and not paying to us. And that's why we asked borrowers to ask for moratorium. And any borrower which asked for moratorium, we took their entire banking and GST and did the recredit exercise. And basis that, we have offered roughly around 60% -- Vivek, correct me if I'm wrong. I think it's around -- 58% or 60% of our customers are under moratorium -- in moratorium 2.

That's right. The first moratorium was closer to 81%. The second one has come down to around 62%.

And non-moratorium, our collection efficiency is almost 100%.

Okay. And sir, any ballpark figure where we are looking at the AUM level by the end of the financial year? Any internal target that we plan to achieve?

In terms of the AUM?

Yes, sir.

So look, we cannot give you a forward projection number, but I think the way to think about it is that we exited our Feb end at a run rate of INR 120 crores of disbursement. We were at a path of growing from there at that point of time. And when the shutdown and everything happened, we restarted in July -- 1st of July, and we ended July with INR 96 crores of disbursement, so which means we still believe that it will take another few months to get back to our February level. And from there, I think so, if things start getting to a little bit more normalization, we should grow -- we should surpass our Feb levels within the next few months and that would give you a number of what -- where we would end up.

Okay. And sir, just one more point. On the -- regarding the 60% of -- close to 60% of customers which are under our moratorium, I'm sure the management and the team would be in touch with most of them. Sir, any signs of further stress in any specific sector or geography which, once this moratorium ends, anything that has come out with this survey or your study?

So I just would like to clarify. There is a general trend or this perception that moratorium means stress. I think so that is -- in our thinking, that is not the right way to look at it. Moratorium -- customers, where cash flow is getting affected, take moratorium to go through that process of their business getting operational again, right? Second, so when we did stress testing for the purposes of our COVID provisioning, we did it not just for the moratorium customer, we did it for the entire portfolio, and that exercise was done basis the 100% of customer connect. Second, we did it on the basis of the recredit exercise, which has been done on the customer either for moratorium or for emergency credit line. And third, the macro sectoral view which we had taken. And basis that, we have created what could be the stress. Stress is nothing but delayed payment or delinquency. It is not an absolute loss because that is a function of the kind of collateral which you hold. Given -- more than 70%, 75% of our portfolio is secured. Large number of that portfolio is secured by physical collateral of residential or commercial property. We don't see a much challenge for us.

[Operator Instructions] The next question is from the line of Krishna Upadhyay from Abakkus Asset Management.

This is Kislay Upadhyay. Congratulations on strong liability holdup in these times. I wanted to get your thought process behind the disbursals of INR 22 crores in June and INR 93 crores in July. So is it -- so what is our thought process behind it, as in were we getting limited inquiries? Or Sanjeevani scheme and emergency credit scheme limited us with only these many options? And how do you see it going ahead?

Sure. So June disbursement was largely nothing but restart of supply chain financing business which we have because in our supply chain business, wherein people have taken the moratorium, some of the manufacturing unit restarted. So their previous bills got paid, and then we started discounting the fresh bills. So I think the June quarter -- June disbursement was largely limited to that. In the month of July, after a hiatus of 4, 5 months and the work which we did around Sanjeevani, we started the disbursement on the Sanjeevani program, which is both secured and unsecured, which is just assessment of customer bases, their banking, GST and future projected cash flow defined by the macro analysis and view which we have, coupled with deep underwriting at the front end level. So the July disbursement was a combination of roughly around 40% in Sanjeevani and balance is on our revival of supply chain financing business.

Okay. So will it be right to assume that essential services will continue to be our dominant share of our disbursal at least for a few months?

So I -- start -- post July, we -- except certain few sectors, we are -- our business is open for everything what we used to do prior to the lockdown. Because -- but if you look at within our universe of sector and subsectors, by natural selection, most of it continues to be essential services. And we don't do discretionary spend. We don't do infra. We don't do road transportation, so on and so forth. So that's why we are now starting across all segments of the markets within our sector and subsector. Except few, we are cautious. So for example, dental, right? So dental is a segment of the market. which we think so that the restart of dental clinics would happen much later, but it doesn't mean that it would not start. So as I said that the metrics in our Sanjeevani program is, what we have done is either a mortality rate or a revival rate by defining subsector. So when we will see the last 12 months of cash flow and the turnover data and divide it pre-COVID, post COVID, and even if we see a little bit of uptick, the presumption or the underwriting presumption in the system which underwriters put in for a dental clinic would be a 12-month period versus for a food processing, which would be a 3-month period. So by designing that, the eligibility available to the customer for dentist would be far lower and probably negligible versus our food processing would be higher.

Okay. Got it. Sir, also, could you share your thoughts on capital raise that you mentioned, the reason behind it and...

Capital -- no -- so I think you should take this -- as a listed company, we always keep this enabling resolution for INR 500 crore, which was approved last year, and this is just a renewal of that approval. As you know, we are very, very heavily capitalized with 99% capital adequacy. We see no reason of -- and especially given that now we are getting a good amount of liquidity from the financial institutions to ourselves, our objective is to make sure that we service our existing equity base as quickly as possible, get to the relative -- come out of the build-out period, which we have done over the last 2 years, we have been operational only for 1 year, and start servicing the return on equity versus raising more additional capital, with just a caveat to that, that we still believe that all our equity investors are our long-term partners, and there are certain investors who bring massive amount of strategic value to businesses, whether they can be a multilateral institution, a large DFI, so on and so forth. But then we keep receiving inbound queries, and we keep -- it is our job to explain our business to them. But we are not proactively looking for infusion of equity into our business at any point of time.

The next question is from the line of [ Rajesh Shah ], individual investor.

Sir, my question was on the co-origination part. Sir, just wanted to understand, have we started disbursals to this channel?

Not yet, sir. So co-origination, I continue to believe we will continue to hold this position that co-lending for NBFC -- between NBFC and bank is a long-term solution for liquidity problem. It is very value accretive, both for the bank and the NBFC. I think so we were at the verge of starting a few programs within the universe of already signed banks. But because of the COVID pandemic, it has come to a complete halt. But having said that, I think so there is some fundamental problem to be resolved. And let me give an -- explain and narrate this to you. Within the universe of public sector banks, who have signed co-lending arrangements, I think so there is a systematic flaw in the arrangement wherein public sector bank, given their size, architecture and governance methodology, believes that the co-lending by the NBFC should be done on the basis of the parameters which they have defined for their existing SME borrowers and customers. You would appreciate that the small MSME or SME come to an NBFC because for some or other reasons, bank is unable to lend to that unit. But if the large lender in a co-lending format again focuses on their own underwriting parameter, then obviously, it's a nonstarter. We have been at it, and we have been making different kind of presentations, so on and so forth, to both of our signed up partners, which is Bank of Baroda and SBI. And as much as I know, they are also actively looking at revitalizing and rethinking about how they start the co-lending, but those are Board level decisions for these banks. So that would take some time. Within the universe of private sector bank, I think so that would start faster as soon as the normalization come. But simultaneously, we have also started looking at co-lending with outside the big banks, right? So as you know, we have signed a co-lending arrangement with Poonawalla Finance, which is an another NBFC owned by Poonawalla Group, which obviously they have massive advantage of capital -- cost of capital. So we are doing with them, and we are now having conversations with others. Obviously, as you know that we are sitting on a significant amount of cash on our balance sheet at negative carry. So that's why we are also a little soft in terms of pushing very hard on our co-lending.

Right. Right. Got it, sir. Just a couple of follow-ups on that part. So how much can the company leverage on the current book? And also what kind of LTV are we taking in the current scenario?

How much we can leverage is a function of regulatory capital. Theoretically, we can leverage up to 5x. But as you know, that's not practical. Post IL&FS, post YES Bank crisis and post COVID pandemic, and what we have seen multiple large NBFCs defaulting into the market, I think so financial institutions and lender would like to see a lower leverage for NBFC so they are safe and secure. So that's part 1 of the question. I think so LTV, there is no one single rule for our different type of program. We are not driven predominantly by LTV. While that's a comfort and we would like to keep it in the range of not more than 60% to 70%, but we have different programs which analyze cash flow of the customers. And we have different collateral types as well. So for example, we are now starting machinery loan. We are a financing platform for small businesses for their need while securing our portfolio through multiple type of collaterals. In our initial first year, we have focused on collateral, which is either residential property mortgage or a commercial property mortgage. But having now done this for almost 1 year and having serviced almost 7,500 customers and the kind of ecosystem which we have built, we are gradually open and creating programs for other what we call productive asset financing as well.

Right. Got it. And sir, lastly, just wanted to understand what would be the average approval rate for the files that we have received in the last 2 months or so.

So that's a challenge for us. We continue -- so we continue to be very cautious and conservative in our approach of approval rates and file and all that. And that had 2 parameters: one, because we were young and a new company, and we wanted to be very cautious in terms of selection of our customers, borrowers and portfolio; and second, the kind of customer segment we chose and which were a little competitive than what normally NBFCs do. So the combination of that, we are at a 25% login to approval rate, but it is now -- given that the -- unique program which we have built and given that we are now entering into newer geographies and building different product program, I think it will gradually improve from where we are.

The next question is from the line of [ Swapnil Sagar ], Individual Investor.

My question has already been asked by Rajesh. Just one follow-up on that. What is the self-sourced book? And how do we -- is it our own channel? Or is it -- I thought it is a co-lending partner balance, but you have mentioned that you have not yet started co-lending.

Sorry, I couldn't hear you, sir, which -- what you -- which group you're asking?

I'm saying self-sourced book. There is a bifurcation of loan book in terms of self-source and overall in the investor presentation.

Sure. Self-source book is that book which is generated through all our physical branch infrastructure and through the intermediary partner, which we call Gro partner. So that is our self-source book. And non-self-source book is wherein we have -- so we have 2 parts of co-lending: so co-lending for the liability side where big banks have signed up with us, and then we have a co-lending partnership with other smaller NBFC, fintech partners and aggregators who source business and where we do co-lending. So non-self source means that there is an underlying small NBFC partner for a particular geography wherein they benefit from our underlying technology, underwriting process, and we depend upon their local origination and sourcing.

Who would be the partner in terms of smaller NBFCs and all?

We have relationship with now 21. A few of them, we are now integrated well, and we have started the business. I would not like to give you the names, but that's...

The next question -- [Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Yes. So thank you, everyone, for taking out time and joining this -- our Q1 FY '21 conference -- investor conference call. If you have any follow-up questions, please feel free to reach out to Vivek Seshadri, who is our Head of Strategy and Investor Relations. On behalf of the entire management team, our CEO, Mr. Abhijit Ghosh; CFO, Mr. Kalpesh Mehta, we are thankful for you to taking out time and listening to us. Thank you.

Thank you.