Ujjivan Small Finance Bank Limited (UJJIVANSFB) Earnings Call Transcript & Summary

Good evening, everyone, and thanks for joining the call. From Ujjivan Small Finance Bank, we have the entire top management team, Mr. Nitin Chugh, the Managing Director and CEO; Mrs. Upma Goel, the Chief Financial Officer; Mr. Rajat Singh, Business Head, Micro Banking and Rural Banking; Mr. Murli Manohar, National Manager, Financial Planning and Analysis; Mrs. Sneh Thakur, Head of Credit and Collections, Micro Banking; and Mr. Deepak Khetan, Head of IR. I would hand over the call now to the team to make the presentation, which will be followed by a Q&A. Thank you very much, and over to you, Nitin.

Good evening, ladies and gentlemen. This is our first earnings call after we got listed. So that really was the highlight for the last quarter. I think we complied with the licensing conditions of listing the bank. And as you know, the IPO was hugely successful, oversubscribed 101 times. Obviously, the next set of things that we are required to do is to also find out a way of diluting the promoter shareholding, which, after the IPO, has now been reduced to 83.3%. So we would need to bring it down to 40%, and we have stated this in the past that we would like a reverse merger, but we have to yet start that dialogue with RBI. And in addition to that, we would also be examining multiple other options of bringing down the promoter stake. And -- after the IPO, because we have a promoter shareholder lock-in of 1 year, we have enough time at our hands to examine all kinds of options. And I think we would be sharing those details in due course with all of you, but we are working very seriously on examining all the options. Coming to the quarter that went by, Q3, I think we had a fairly good quarter. We had a remarkable set of numbers, considering that some of the challenges that we did face, especially in microfinance business, in some parts of the country. I think we've come out stronger. We've sustained and maintained the levels of growth that we displayed in the first 2 quarters. And I'm sure you've gone through our numbers. Our Y-o-Y disbursements were very healthy at 18% and the book grew by 46%. I don't want to go through the numbers because I'm sure you have access to the numbers right now. So I'd rather focus on what our thinking is and what we're planning to do. We did have some bit of a slowdown in micro banking, and that was a cautious stance on our part. It was a deliberate strategy. We were watching a whole lot of incidents that were unfolding, especially in Assam, and I will cover Assam in a little more detail just in a couple of minutes. But I think because we kept our focus on a lot of other things, like our efficiency, our investments in technology, which we have done over a period of time, we have been able to improve our NIMs, which have sequentially improved from 10.5% in Q1 to 10.9% in Q3. And our cost-to-income ratio, which we had earlier guided at 72% for this year, we are well within that. For the first 9 months, we are at 69% and for this quarter we are at 71%. Our credit quality continues to be very robust. Our GNPAs were at 0.9% and NNPAs at 0.4%. Our PAR has obviously increased because we did have this issue in Assam, which, again, I'll cover a little more in detail. But we have also on -- just to be on the conservative side, we have provided for about INR 5 crores for the Assam portfolio. We also continue to focus on making sure that our customers use our digital applications and, as you would know, our mobile app is now in 9 languages. So we are making a very concerted effort in user adoption and focusing on digital transactions, which have gone up from 16% in the last quarter to 25%, and the same time last year, I think we were at around 8%. We have also been able to reduce our turnaround time for most of our lines of businesses. So in effect, I think we have retained our sharp focus on efficiencies and cost optimization wherever we had a chance to and, at the same time, keeping a very sharp eye on our portfolio qualities. Now coming to Assam, I think the background all of you are aware, but just to set the context, I think we did see first Assam was partially impacted by floods in the first half of the year. Subsequently, we did have some protests in Upper Assam, largely against the microfinance institutions, largely to do with coercive collection and overlending. And this led into kind of larger protests -- organized protests against the institution. So we had kind of looked at the Assam market almost a year ago, and we also believe that there were some overheating happening in those parts. So on our part, we had slowed down. We were maintaining a very cautious stance. And just to let you know, our portfolio in Assam is barely 3.5%. And in the impacted areas, the areas where the protests were going on, the Upper Assam area, it is 1.5%. We have only 7 branches out of the 574 that we have at the moment. So while it was a small portfolio for us, it is a small portfolio for us, I think we are still maintaining a very cautious stance. We are not adding new customers. We are servicing our existing customers. And at the same time, we're also working very closely with the local administration, the state government, with the MFIN and the rest of the people in the industry, and we are trying to come to an early resolution, which we are very, very hopeful that we would be able to. But at the same time, we've also provided for another INR 5 crores for just the Assam portfolio in this quarter. Our repayment rates also in Assam on a cumulative basis are at 98%. So that also tells us that things are actually improving on a daily basis, and we see that on the ground. But despite that, I think we will maintain a bit of a cautious stance in Assam. And like I said earlier, we will -- we are hoping that we will get to an earlier resolution on this whole issue. Now coming to the assets and liabilities side of the business, I think we continue to diversify our asset book. So our non-microfinance book is now 22%, largely driven by affordable housing. We are seeing good demand in affordable housing. We are going to be adding more branches that we have in our network offering affordable housing. Today, we offer that to half our branches, and we would be covering most of our branches in the next few quarters. We are also going pretty healthy in the MSE side. We are only doing secured MSE, and both these books are going on a very healthy basis for us. And the GNPAs are completely under control. On the deposit side, our deposits grew by 98% year-on-year. And the share of retail deposits now is about 43%. Our branches are now fully operational, the ones that we had planned for this financial year. So with 574 branches now kicking in, we are getting very good traction on retail deposits and on CASA. Our CASA ratio is steady at 12%, and it has started to move up. And on our part, we are focusing on the mass market, like we have stated earlier in a lot of other calls and our media interactions, that Ujjivan's purpose is to serve the mass market. Within the mass market, which is the lower income group or the aspiring middle class, as we call it, we have for now identified about 7 segments, and these 7 segments are the youth, the senior citizens, the salaried workers, small traders and retailers, the smaller institutions and our micro banking customers and their families, and also to an extent the marginal farmers in our rural branches. Now with this sort of a focus, our approach is that we are going to all these customers with all kinds of banking products that we have to offer right now. And I think we have the complete set of products and services which are required for these customer segments. And to support that, we are also investing in enhancing our tech capabilities, our analytics capabilities and also making sure that we have a good relationship ownership program, which is a combination of how we onboard customers, how we maintain their transactions and their relationships with us, also through very high levels of service quality. We are very confident that our deposit base, like we stated earlier, is going to be very broad-based and granular. We also introduced digital savings and digital fixed deposits in the last quarter. They are doing extremely well for us. And we are seeing extremely good, encouraging results, both in terms of new customer onboarding as well as the balances that customers are maintaining because we are focusing on making sure that customers transact through these accounts and this over a period of time becomes a primary relationship so that we have the ability to sell other products also. On the other asset products, we are still in the pilot stage of testing personal loans for the salaried employees as well as vehicle finance. In vehicle finance, we are largely positioning ourselves for the 2-wheeler and the 3-wheeler segment, and we also want to dominate the electric 3-wheeler mobility. And to that extent, we have signed MOUs with the electric vehicle manufacturers. We are getting very good reception from the manufacturers as well as the dealerships. And in the next year, we have plans to scale up the vehicle finance business in a very methodical manner, continuing our focus on the mass market because we believe that these vehicles will eventually be used for livelihood and not so much on the aspiration side. So we want to cater to the same segments that we've identified on the deposit side. That said, I think a few lines about -- a few things to mention about how we are looking at future. So we do want to focus on predominantly 3 or 4 things. The first one is to build a strong liability franchise because now we have the network in place, we have the teams in place, we have the technology in place, and all the branches have been opened in the right sort of markets. We will also continue with branch expansion in a more calibrated manner. We are yet to finalize the plans for next year's branch expansion. We will share that with you as and when we are ready to. But we do want to keep a very diversified liabilities portfolio. And over the medium term, we want all our assets to be funded by deposits and to the extent of about 75% to 80% being funded by retail deposits. We also expect our CASA to go up to 25% in the medium term. Right now, we are at 12%. And because we are focusing on granular, stable CASA, we do expect that to take a little longer because we are not going after the hot money, so to say, or the large chunky CASA deposits where we may not have control on the average balances. At the same time, our commitment to stay invested in technology and bringing out new ways of using technology, I'll just cover that in a couple of points. So firstly, I think our technology is all contemporary. We don't have any legacy issues. Our API stack is completely ready, and we're just putting our framework in place. And that is going to give us an opportunity to expand our digital ecosystem with a good number of partnerships and the ecosystem players and the platform companies. And we do expect -- like the way we've tested our digital savings and the FDs, we do expect a fair amount of scale to come from our digital capabilities with -- through our API banking practice that we are unfolding now. We will continue to invest in analytics. We want to really expert ourselves in data science, both on the credit side as well as on the marketing side. And I think we will continue to focus on making ourselves more and more cost efficient. I think our cost-to-income ratio like we guided earlier is about 72% for this year, but we actually hope to finish around 70% by the end of this year. And then from there on, we are also hoping to be able to reduce it substantially year-on-year and come to a level where we are in a position to recalibrate it all over again. We are also very optimistic about the mass market, and I think we should spend a minute explaining why we think we are optimistic about the mass market. So there is a slide in the investor deck which tells you that the overall demographic pictorial representation of India is changing from a pyramid to more like a diamond and that's really because there are a lot more people who are coming from the bottom and joining the middle income group. And by sheer numbers, this is going to be a very large addressable market. We have also said that there is room for a lot of players. So we also believe that the industry on itself should be doing a good job and should be able to grow and do a good task at serving these customers. On our part, we committed -- we stay committed to serving the unserved and the underserved. And we also believe that because most people are banked, but they are not necessarily served to that extent partially because that market which was served by NBFCs is kind of vacated right now to some extent, we want to use this opportunity. But at the same time, I think we are also very extremely committed to our purpose of making sure that we stay focused on the mass market. With that, I'll just conclude by saying that we will stay focused on creating a technology-led mass market retail bank and continue to serve the unserved and the underserved. And with that, I will stop here, and we'll open this up for questions. Thank you very much.

[Operator Instructions] The first question is from the line of Nishant Shah from Macquarie Group.

Congratulations on a good set of numbers. Just 2 questions from me. On this slide, say, Slide #9, you mentioned the CRR, that's cumulative repayment rate, is at 98%. Is this for the State of Assam or is it pan-India?

This is for the State of Assam.

Right. Okay. Just a quick follow-up on that. Are you seeing any spillover of -- or any of the operational challenges in the neighboring states?

We have a lot of background noise, Nishant, so can you repeat that question?

Am I audible?

Yes, yes, much better. Go ahead.

So any spillover at all in any of the neighboring states of the operational challenges and the protests in Assam?

No, no. No, not at all.

Not at all? Okay. Perfect. And just one last question on the vehicle finance piece that you mentioned, the tie-ups you have with the e-rickshaw manufacturers. Could you talk a little bit more about it, what are the yields like? Is this, like, going to be on a subvention model? And just like what kind of underwriting capacities do we have in this new segment?

So like I mentioned, Nishant, we are in the pilot stage right now. We are doing a couple of hundred loans a month for the last 3 months, okay, to be precise. This is a very small book to tell you whether we perfected this or not. Obviously, we haven't and that's the reason it's in the pilot stage. But the encouragement that we're getting from the manufacturers is that they are taking us very seriously. In fact, some of them have approached us rather than the other way around. And we do see a paper demand for these vehicles in the market that we want to cater to. So it's natural for us. Now the underwriting skills are going to be a combination of the technology that we will put in use, and we have a road map for introducing a full front-to-back digital workflow for vehicle finance as well as the other lines of businesses also, which we do partially today. Now with that, I think we will use a whole lot of capabilities of underwriting, which could be through partnerships and, at the same time, we've also hired our teams on the credit side, on the collection side and on the business side, which are in the pilot stage. But I don't think that is something which we are at all worried about. We are getting the right kind of skills and talent, and we will have the best-in-class practices on the underwriting and portfolio management side. So I am not very sure whether we will go the subvention model or not because it's too early for us. But I think we can give those details as and when we scale the business.

Fair enough. Just one last question on this point. Would you be looking to hire someone from outside to lead this segment? Or is it going to be filled internally?

We have hired a fair number of people. Now whether we hire them to lead a specific function or the business, I mean, those calls we will take over a period of time. We do have enough and more of good quality talent within the bank already. And at the moment, we don't need to. But yes, if we do require to, we will do that as well. We are not running this idealism, I mean, if that was the question you wanted to ask.

Next question is from the line of Manish Ostwal from Nirmal Bang Equities.

My question on the microfinance book. So apart from Assam -- excluding Assam, what is the collection recovery rate for the portfolio?

It's steady at 99%.

Steady, 99%? And sir -- madam, during the quarter, from October, November, December, can you share the collection trench in the Assam book?

In terms of?

I mean monthly collection rates, because I believe one of the players reported a sharp drop of collection mid of December and then recovery. So I would like to understand how much decline we have seen in terms of collection efficiency during the quarter and from there they have recovered?

Till December, I know what you're referring to. But in December, I think everybody was impacted because of the temporary disruption that happened on account of the anti-CAA protest and also because of what was going on in Upper Assam. But like we mentioned earlier, we don't have any significant exposure in all of Assam and especially in the Upper Assam. So in that period of time, obviously, we also got impacted, but we've recovered and that's why the cumulative collection rate for us is at 98%.

Sure. On -- and we have made a provision of INR 5 crores on 10% of standard book, 1 to 90-day DPD. So in the coming quarters, what is our assessment of the provisioning on this portfolio? Whether we need to provide more? Or what is our best assessment currently on the book?

So as far as Assam is concerned, we are working very closely with MFIN and the state government there. And we are definitely going to take stock of the situation depending on how the environment evolves this quarter. So while we expect that we do not have to provide for more, this is something to wait and watch, and we will be taking this call this quarter.

Next question is from the line of Viraj Mehta from Equirus Portfolio Management Service.

Congratulations. Sir, just wanted to understand what we are hearing on the ground is that the recovery at the ground level, especially in Upper Assam and in Lower Assam as well is that significantly improved in last 1, 1.5 weeks. Can you confirm any of that?

See, if you look at the middle part of December, which is when we had heightened disruptions, from that point of view, yes, if you roll it back by a few weeks, you will see improvement because that was a sharp dip that happened for about a week or 10 days, okay? But in our case, we did not see too much of a deterioration, to begin with. I mean we obviously had a minor deterioration in Upper Assam. But at the same time, in the last not just 1.5 weeks, but I would say maybe 3 weeks or more, 3.5 weeks, things have improved, and they continue to improve.

Okay. Okay. And my second question was regarding your PAR is now -- and your provisioning, both. So your PAR is 2.1%, but your provisioning you have reduced it to 60%, which actually incidentally is even lower than what you provisioned during demonetization. Even during demonetization, Ujjivan as a bank had a very high provisioning, which wrote off, which is a good practice. But this time, I see the color of provisioning and the amount of provisioning far lower? Or how does it -- can you just throw some light on that?

Okay. So as far as the provisioning coverage ratio is concerned, it is taken only on the nonperforming assets and not on the standard book. So if you look at the entire provisioning that we have on the book, it's obviously more than 100% of the nonperforming assets that we have as of December. But as far as PCR is concerned, we've been consistently maintaining a 60-plus percent PCR over the last 2 quarters. And the drop, as we also explained during the last call, was only on account of the write-offs we made on the fully provided old micro banking assets, which were on account of the demonetization portfolio and where we were making efforts of recovery. So the PCR has basically dropped only because of write-offs and not because of a change in the provisioning policy or deterioration in the provisioning that we are carrying on the nonperforming assets. Also, to just give you a perspective, after demonetization and basically in 2019, we have seen that the overall portfolio quality has been better than during the last 2, 3 years post demonetization. And that also adds to how the PCR moves over the last few quarters.

Also, the book has shifted. That time, after demonetization, we were 98% unsecured. Right now we are nearly 20% secured. So that doesn't require us to also provide for that kind of PCR. And this will continue to change as we add more secured assets.

[Operator Instructions] Next question is from the line of Rahul Jain from Credent (sic) [ Credence ].

Congratulations, team, for a good set of numbers. Sir, I understand you've been taking a good number of initiatives with regards to the liability side of the book. Just needed 2 things. One, what I can see is your CASA as far as quarter-on-quarter has not been -- or is almost similar, like INR 1,200 crores has gone up to around INR 1,237 crores. Prior to that quarter, it was almost around INR 830 crores. So the CASA buildup this quarter doesn't seem to be there. So just needed to -- I understand your long-term objective of going up to 25%. But if I look up to, say, next year or so, how do we see the CASA buildup? And if you could just share details about new initiatives which you have taken, and what kind of confidence you have in building up this CASA.

See, I think the first thing is that CASA cannot and should not be on a quarterly basis. It cannot tell you whether it's good or bad because you will have these quarterly situations, which sometimes because the reporting is on an end-of-period basis, it can change, okay? So like I mentioned earlier, we are focusing more on the granular CASA, and we do expect a slower buildup. But that said, while the medium-term plan and medium-term is really around 3 years or so, we expect the CASA to be at 25%. We do have milestones along the way also. Like for this year, we do expect to reach at least 14% by the end of March 2020, okay? Now again, we don't want to get into lumpy CASA. We don't want to get into volatile CASA. So our focus will stay on retail granular level and small ticket because that is where we are seeing a fair amount of traction, including the new digital savings account. But we are very keen that our CASA is well distributed. We don't have any concentration in deposits because that was also a question all of you like to ask that why are our deposits concentrated or at least they were when we started off as a bank. So we are mindful of that. And at the same time, because we also want to do many more things with these customers, including the new products that we are piloting, we do want a fairly long-term relationship view with these customers and give them the time to build the confidence and trust with us. And therefore, the use of analytics, the use of data science, the use of all portfolio practices, these are the larger areas in which our initiatives are running. So since you asked what kind of initiatives we are taking, let me highlight a few. The first one is that we've put out a 90-day onboarding program for customers, okay? So from the time we onboard them, we get them activated on our mobile app, okay? That's how the digital transactions have moved up very sharply for us, and they will continue to move. We are making sure that they deposit money in these accounts even if they are micro banking customers. We are doing a whole lot of literacy programs and education programs with our micro banking customers so that they understand the value of keeping money in a bank account, which helps them both from a credit point of view and what the bank can do with them over a period of time. Likewise, for our business customers, we have kind of combined our MSE thrust, along with our current account strategy. So we are getting the relationship on both sides for a lot of these customers, which is the liability side as well as the asset side. So a large part of current account business is now being fueled through our MSE business. Similarly, for affordable housing, we are trying to disburse the loans into accounts that customers would open with us. We've made some progress on that. But the whole theme really is about only the relationship of the customer, making sure that we have the ability to do as many products which are relevant for the customer over a period of time, but starting with a gradual buildup in the transaction bank -- on the transaction banking side, which is the account that we open. I hope that answered the question that you asked?

Sure. Sir, if you could share some more granular details in terms of cost-to-income ratio. How are we planning to get it down? In the current quarter, we are at around 70% -- 71%. For 9 months, as you say, it is around 68%. Any specific newer initiatives being taken to get it down apart from the growth in your income side?

No, there is -- I mean initiative-wise, if you ask me, there'll be hundreds of those, okay, small ones, big ones, all kinds of ones. But the real theme is about building the economies of scale because our distribution is in place now. So the only theme that we are following is the scale-up of business. We also want to use as much as the digital platforms and technology so that the cost of onboarding is near 0 or as low as that. And likewise, even on the asset side, with the digital workflows not just improve turnaround time, but also the cost of acquiring the customer and onboarding the customer is going to be substantially lower for us. But what is also important to highlight is that we have more or less upfronted a lot of these investments, both in infrastructure and technology and our teams, okay? So the real way of extracting the economies of scale is to grow the business, which is where we are focused on, okay? We will continue to obviously keep rationalizing our cost. We will continue to work on efficiencies, productivity, wastages, contract renegotiations, all those usual things that are required to be done. But I think it's suffice to say that cost management is one of our key priorities across the bank, and we are completely committed to delivering a much better cost-to-income over the years.

Next question is from the line of Gurpreet Arora from Aviva Life India.

Am I audible?

Yes, Gurpreet. Please go on.

Yes. My first question is on the probability of any contagion effects of the Assam crisis. We have a significant experience in a neighboring state of West Bengal. The state elections are also due in a couple of months from now -- or a year from now. So what are the risks of contagion to -- especially to West Bengal?

See, the first thing is that if you look at the borrower level data, West Bengal is right at the top in terms of the outstanding per borrower, okay? Second highest is Assam. But if you compare West Bengal and Assam, there is a stark difference in the overall size of the market, the depth of the market and the width of the market, okay? So it's a healthy market. I think everybody has continued to grow in a responsible manner in West Bengal. We are not expecting any contagion effect on West Bengal. But at the same time, we can tell you that we are maintaining a very, very alert and a cautious stance even on our West Bengal portfolio. And we have in a manner slowed down new customer acquisition over the last few months. Not anticipating any kind of issues, but the concern that you have, we also have it somewhere that we should be watchful. But at the moment, all the indicators are looking extremely positive, extremely healthy. We have no reasons for concern.

Sure. My second question is with respect to RBI annual inspection. Has the annual inspection especially for FY '19 commenced?

No, not yet. It is expected in this quarter.

Okay. A follow-up to this, the previous FY '18 observations. So let us say, if there were stern observations...

We clarified all that, that time itself.

Okay. Okay. Sir, my last question is on the liabilities side. What would be the composition of deposits from top 20 depositors?

We'll let you know this. I don't have this off-hand. But it has reduced over a period of time. I mean -- I'm sure you're also referring to the RBI observation from the same media report that you started to refer to. And the response to that was that we had reduced this to 30% over a period of time -- in 1 year's time, and it continues to go down. And we can come back to you with the exact numbers. You asked for top 20, right?

Yes, top 20 and, I mean, in addition to that, if you can also help us with the deposits from the promoters and key managerial personnel.

I don't think we track it separately for key managerial personnel because we expect everybody to keep their banking relationship in Ujjivan itself. So whatever comes is welcome. But I think the promoter share of deposits, Upma can tell you a little more about that.

As far as the deposits from the key managerial personnel, that is being -- we have shown it as part of our half yearly results. The data is available as part of the notes to accounts. But it is not very significant that can be pulled out. Again, in the March, we will be doing it. That's the normal deposits which key managerial personnel, they have been keeping it with the bank. As far as top 10 clients' concentration deposit percentage is concerned, it's 19% of the overall deposits of the bank.

And top 20 would be how much?

20, we don't have off hand. We can get back to you...

20, we will share it with you.

We thought you will ask for 10, so we kept 10 ready, but we can come back to you with the 20...

We'll share the details.

Next question is from the line of Amit Bhatiani from Canopy.

I think my question is probably exactly the opposite to what an earlier questioner asked, which is about the cost. As long-term shareholders, we'd like to maybe see costs go up rather than down, at least in absolute terms. But I would like to understand kind of what the trajectory of these costs are, if you will, going to be. We see costs kind of going up post IPO, which kind of is also natural. So just describe over the next 2 years, Nitin, kind of how you're thinking about growing the bank, what kind of the major heads of costs are. You kind of started to get into it a little bit with kind of infrastructure technology, branch opening, obviously, personnel. Just a little more granularity around that would be great in kind of how you see that trending, not over the next quarter or 2, but over the next couple of years.

See, at the headline level, I can tell you, we expect to finish this year around 70%. Thereafter, we would like to reduce this by 5% every year for the next 3 years. Now that should take us to about 55% in the next 3 financial years, okay, by 2024, all right? The things that will really go into making that happen are going to be a combination of the scale-up of business and scale-up of business using the digital workflow, so that the cost of onboarding and the cost of service is low. It will also be a function of improved efficiencies, productivity. And at the same time, I think the larger investments that we were required to make in technology, most of them have been done. There will be, obviously, a few more, like we still need to invest in a data warehouse to support our analytics practice. So some chunky tech investments would be required. But I think, as the scale would also continue to go up, those would be far more affordable for us and we would be able to provide for those costs. So we don't see any large costs. The branch expansion is more or less -- the first wave of branch expansion is also done for us. And after this, we would not be adding as many branches as what we have right now. We would probably be more calibrated in that approach. So we don't expect the expenses to be going up substantially. On the personnel side, I think the larger focus is on efficiency, productivity, use of digital workflows. So I also don't expect the need to be adding too many people in the same lines of businesses other than wherever we go to a new geography or a new market or we open up a new location altogether.

Right. Actually, my question was, Nitin, slightly different, but thank you for that detail. It's almost like divide the Ujjivan of today into steady-state bank and growth bank. You're in kind of a high-growth mode. You've kind of outlined in your kind of opening remarks that there's kind of a vacuum with all the -- with maybe perhaps many of your NBFC peers absent from the market. Why not in the next 18 to 24 months not worry about cost-to-income going down, not try to be on the right path that's kind of 5% a year as you outlined. I mean that's good. That's great. And I'm sure you -- there's all sorts of cost discipline that can be brought in. But why not go out there, take more market share, not worry so much about cost-to-income. Cost-to-income is a random number that has a denominator, has a numerator. Just worry more about building the bank on the highest possible trajectory you can build it, it is still very small.

I really wish. All our investors asked us this question the same way. But I think we have a responsibility to also display that we are an efficiently run bank, not just a bank which is aspiring for market share. And we have stated this in the past that we would like to grow 10x in the next 7 years. So we are completely aligned to dominate the mass market, okay? That much I can assure you. And that is the reason we have picked these few segments where we really want to do a good job and dominate them rather than spreading ourselves thin or even going into any kind of an affluent segment or the most tempting business like wealth management, et cetera. Now I think the important thing is that it's how the scale can -- scale-up can happen between spending more money versus using -- making use of technology. So I think we are happy to spend money on technology if it gets us the scale, which is what we strongly believe in. And those are the things that we've tested, and we do believe that, that's probably one of the right ways of scaling up. But at the same time, I think it is our responsibility that we also display a fair amount of efficiency. But I agree with you, I mean, at some point in time, maybe our early years, that is really what we thought that we should not worry so much about cost and we should set up the right set of practices and go to the right market. But that phase is over for us. We would be going into new markets on a very calibrated basis. So there is some cost to be taken care of, but not in the same proportion as what we would have done in the first 2 years or 2.5 years. So it's just a philosophy -- difference in philosophy, nothing else. I mean there's no right and wrong, quite honestly.

No, no, there isn't. I mean I think -- you're absolutely right. I mean I think our point here is, as we sit and think about the next 5 years, you've got a great opportunity to grow the bank digitally, data-led, given especially your background. There's such an amount -- there's such a vacuum in terms of building the next data-led lender. And I fully expect you to do that. So I mean we wouldn't get too worried about focusing on a numerator and a denominator that shows up in a quarterly financial statement.

But I'm sure you'll be happier if we achieve that scale without having to spend too much money?

I would love it.

Next question is from the line of Gaurav Jani from Centrum Broking Limited.

Congrats on your performance for the quarter. Firstly, Nitin sir, I just had a question on the disbursement trajectory. That seems to be sort of tapered. And you mentioned in the beginning of the call that you're sort of slowing down the MFI. And my first question would be, in which states are we actually slowing down? And if you could just give some color on why are we doing that? Of course, Assam is one of them, but...

See, we are -- the slowing down is not because of any other reason other than our own conservative approach to some of these markets. And they may not be in the entire state also. It could be in some places in some states. And we do keep taking these kind of calls on and off. It's not like we have taken these calls only now. So just to highlight and answer to the point to your question that you asked, we are trying to maintain a cautious stance in West Bengal, like I mentioned earlier; in parts of Karnataka; in a couple of districts of Tamil Nadu; in a couple of districts of Maharashtra; and to some extent in Chhattisgarh. But nothing to be worried about because these are very small markets for us, and we don't -- at a granular level, and this is just our own conservative approach.

Sure. Sir, also on the JLG mix right now, which stands at about 68% versus 74% the last quarter. So where should I actually see this number going forward? I mean any thought to that?

You meant the mix between micro banking and the other businesses?

Yes, yes. So I look at the -- again the microfinance portfolio itself, it's 67.6%, to be precise.

78%.

74% last quarter...

79% last quarter. Before that, 78%.

He is only referring to group loans...

Okay, you're talking about the group loans. Okay.

Yes, the JLG portfolio. Yes.

Yes. So -- I mean this is in line with our stated objective of balancing the book by growing other businesses faster. In micro banking business, we have dominant products: one is group loan and another is individual loan. So at this time, we are graduating more and more customer to individual loan, and that's why you will see growth in individual loan being slightly higher. But in this segment, we want to keep it at 50% in long term so that other business can contribute other 50%.

So at a bank level, we do expect to establish a 50-50 sort of a mix in the medium term, 3 to 5 years. But within microfinance, I think we are seeing very good traction on individual loans and that's also in line with our overall relationship ownership strategy because with the whole transition of micro financial to micro banking and the same customers also giving us deposits and the rest of the work that we're doing, it makes perfect sense for us to also graduate a lot of these customers wherever we have the comfort and the credit history to individual loans. And then in some manner, this portfolio also gets insulated from the other trials and tribulations of the micro finance, group loan issues that we come across once in a while here and there.

Right. Sure. Just last, if I may squeeze in one. What would be the unsecured book overlap with other segments particularly with JLG because the secured is 21%, if I'm not wrong and the JLG is 68%, so there is some gap. So if you can just throw some light.

So individual loans are also unsecured, right? So at 78%, micro banking is all unsecured, all right? Our MSE, like we said, we are only doing secured, so there is a very small book of unsecured, which is running off on its own. Affordable housing is all secured.

Okay. Okay. So micro individual loan is what is unsecured is what you mean?

Yes.

Yes.

Yes, yes.

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

Congrats on great set of numbers. Sir, couple of questions. So one is on the -- our branch banking piece. So what is this broad strategy? I mean -- so we -- of course, we have a detailed road map to improve the efficiency at branch level. But if you can just throw some light on how we are -- what initiative we have taken to increase our wallet share on the only liability customer so that's how we'll actually increase the branch profitability? So if you can just throw some light on that, on retail customers' mining?

See, the first thing is that branch banking alone cannot increase the wallet share unless we offer those products on our branches. So that is the first thing we're trying to do, that we make all our products available from all our branches, which I stated earlier. The second thing is that we don't want to go all over the place. We want to retain our focus sharply on these 7, 8 segments that we spoke about, which are generally in the close vicinity of the branch so that we don't have to go very far, considering that we don't have off-site ATMs, we have mostly captive ATMs, even though we are trying to move customers to digital transactions. But the cross-sell pipeline that we want to build is going to be led through a systematic way of onboarding customers, getting them to transact, and then by very heavy-duty use of analytics to be able to recommend the right kind of products for them. Now this is a long-term strategy. In the short term, you can go to a deposit customer who is probably banking with us for the last 3 months and offer a personal loan, for example, a salaried customer. But then the ability to underwrite that customer differently from an open market customer is not very clearly established unless we have enough and more transactions. So we want to focus on building their transaction behavior. We want them to use our digital channel so that we have enough and more rich data to run the data science and then come up with all kinds of variations of preapproved loans or -- and because we'll have digital workflows, it will be far easier for us to serve those kind of products also at a much lower cost. But the whole relationship ownership happens over a period of time. And right now, we are in a phase where we are building the first set of the levels of comfort with our customers by making sure that they are given the right kind of service, the right kind of experience, they're onboarded in the right manner, they start to use our app, we take their feedback, we give them all the relevant products, we get them onboarded to use UPI, we get them onboarded for bill payments. So these are the easier things that we are trying to do as part of our onboarding framework in the first 90 days. And there we are seeing good success, and we are also seeing a very clear correlation between the balance buildup and these interventions that we've kind of programmed. Over a period of time, the cross-sell strategy will also fold into the same road map. So when we go beyond 90 days into 180 days, 360 days, there will be many more things for us to offer these customers based on the data science.

Right. So just to follow up on that. So basically, as and when we start our cross-selling exercise, do you think the competition on the retail asset side, where all the large banks and all other players, specifically PSBs also, would be pretty much aggressive on those segments also. So on retail liability side, it is understood that because of the higher rates or a better doorstep services, customer might prefer us over others. But when we start cross-selling the asset products, where we'll see higher competition from the larger players? So what is your thought on that? I mean does interest rate matters to those set of customers where we have our niche? Or how it could play out, sir?

See, it's a very simple thing, actually. The reason why we want to focus on building their transaction behavior with us is so that the customer doesn't need -- doesn't have to look at any other option, and there is enough and more trust and confidence built in our relationship, okay? Now as far as pricing is concerned, I think for the segment of customers that we want to focus on, the pricing is not very different from the larger banks or the public sector banks. Everybody more or less operates in the same price band in terms of the rate of interest on the asset side. So we don't believe that we will have any significant competition. In any case, with our focus on overall liabilities buildup, our cost of funds are also going to be lower progressively. Now when that happens, the ability to use the digital workflows and the ability to serve the same product through the cross-sell mechanism in a much faster manner as compared to somebody else will also be a strength for us that people have the transaction behavior. So yes, there is going to be competition. There is competition even in the affluent segment today. There are always parts of your portfolio which unbundle and like to deal with other players, and they want to go and do different things with different players for different considerations. But I think we will -- we are mindful of that fact and that is why we want to keep a very, very clear long-term focus on owning the relationship. In fact, we have launched something called a life event-based program for our customers, and that is our entire -- the customer management policy and the whole program and the portfolio management has also got aligned, that how do we actually manage the customer for the entire life, not just from the point of view of opening a deposit relationship and then doing a few cross-sell interventions and then leave it at that. So we are looking at a very long-term relationship context. And from that point of view, I think we will stand out, one, in terms of the tech superiority, the turnaround time, we will be competitive on rates, and we will certainly score very high in terms of our transparency and our overall service quality with our customers. So yes, we would like to see what competition does. But it's okay if there's going to be competition. We will try and protect our portfolio to the extent that we can.

Right, sir, just a last question on the growth side -- on the loan side. So sir, of course, I mean we have been hearing very sluggish start of commentary all over place, right from RBI to newspapers. So sir, just wanted to -- your sense on what is the ground reality in terms of where your people go to the market. Is there a real credit demand is happening or it is just the market share shift which is helping a smaller player to grow their book much, much faster than the industry growth?

See, you have to slice it into various parts of the economy. The large parts of the economy are obviously slowing down. We are not present there. The affluent parts of the economy are sitting on cash. So that is again a segment we are not present in, okay, we don't aspire to be present in also. But the segment that we want to operate in, there is no significant change in demand, okay? So let's start with micro banking. Micro banking, there hasn't been any change in demand. If at all, the lenders have become cautious and more conservative, but from a demand point of view, there is no issue. It doesn't even get impacted with any of these macro issues that keep happening. Look at MSE. I think the demand is always there. And there is good quality credit also available. It's only a matter of who has a better way of underwriting good quality credit versus somebody else who doesn't have that ability. I think we have the ability to underwrite very good quality credit. So we have a clear view that there is no problem with the demand on the MSE side as well. Affordable housing. There hasn't been any slow up in demand. In fact, there is a consistent demand, and we operate in Tier 2, Tier 3 cities. We don't operate our affordable housing business so much in the metros. And we are seeing actually a stepped-up demand for ready purchase units in the affordable housing segment, at least that's what our portfolio shows us. So even there, we believe that there is a lot more to be done, lot more can be done. There is no problem with the demand. Now if things change after 3 years or earlier than that, we will have to take stock. But right now, we are not worried about any change in the demand.

Right. So basically, the customer segment where you guys operate is kind of immune from what we are hearing...

Not immune -- I wouldn't say it's immune. Like, if you are down-the-line supply chain fellow, third level, fourth level, connected to a large enterprise in the MSE segment, there is an impact. It's not to say that nobody is getting impacted. But we are taking those careful decisions to say that, okay, which are the pockets that we don't want to operate in. So we have a cluster-based approach even to MSE business, where we try and understand the nature of business in a cluster and then try and see if that business is lesser or more impacted by any of these macro things. For example, the favorite topic for the last 3, 4 quarters has been the automobile industry. As the automobile industry is showing any signs of contraction in demand at the headline level, the last fellow in the supply chain is also getting impacted. So we are staying away from that segment, even though there is demand.

[Operator Instructions] Next question is from the line of [ Abhilash Hiran ] from Purnartha Investment Advisers.

Sonia this side from Purnartha. Sir, sorry for harping on the same question which the earlier participant asked for the disbursement, but would really like to know why the disbursement growth is really slowed down. I mean the states that you mentioned, so these are the most important states for us. So why -- what exactly are we seeing? Why are we slowing down? What is the stress that is being seen in Karnataka, Tamil Nadu, Maharashtra, et cetera?

See, like we mentioned, Sonia, slowing down doesn't mean shutting down, okay? So we are not slowing it down to a closure. We are slowing down temporarily because we are trying to either react to a situation like in Assam or we are trying to preempt a more cautious sort of an approach to some things that we are observing. They may be in control right now, but we just don't want things to go out of hand. So now since you brought up Karnataka, Karnataka, there is a problem only in a couple of districts, okay, not all of Karnataka, okay? Now we are just maintaining a cautious stance there, so we slowed down new customer acquisitions. We take a more tighter credit underwriting approach to even the repeat loans, okay? We step up on our collections effort, okay? Now these are the logical ways that you would want to be -- on a proactive basis want to address something, which we -- for right or wrong reasons, we believe is a potential problem in the future. Now we hope we are proved wrong and it is not a problem, but there is no harm in recalibrating on a temporary basis. So slowdown doesn't mean a permanent slowdown and a permanent shutdown. It's not like we're exiting those markets. But I think it is prudent on our part to maintain this sort of a stance and that is also a good strength that we have that we are so diversified that we have the chance to keep switching off a few buttons and switching on a few buttons at will because there's so many on the dashboard for us. So even if it's a couple of districts in 1 state, it can always be made up from another state and another set of districts and in other market. And it's not like we're not seeing demand go up where we are also willing to step up, there are so many states that we are willing to step up, and we are not seeing any problem at all. I can give you examples of those states also which are high-growth states. So it's not a [ holistic ] view that we are trying to convey. Things are looking up. But given our track record in managing credit costs and the credit quality, we do believe in maintaining a bit of a conservative stance, which I think we are pretty happy with.

Okay. So sir, how are you seeing these states shaping up in this ending in January as compared to December? Are they -- are you -- have you increased your disbursements? Are you now okay with whatever happened in December? Or is there any improvement, I mean, at this point?

We'll tell you at the end of the quarter. But January, since almost 22 days are over, I think we're having a good month. There is no problem. But I think we'll share those numbers with you at the end of the quarter. But this quarter, we are very optimistic.

[Operator Instructions] The next question is from the line of Jignesh Shah, an individual investor.

Congratulations on good set of numbers. Just -- you have already thrown some light, but just wanted some more granular outlook or what you can say on the CASA ratio, as you said, you will be targeting 25% in the next -- in the medium term and by, let's say, 15% by the end of the year.

14%.

So how is the -- 14%. So what is the customer -- what is the base actually we are targeting? Or some more light can yow thrown on that?

Okay. I should have probably answered that in a more descriptive manner. So there are 4 -- we have a full grid between our segments, our channels and the product offering, and it's like a 4 by 4 sort of a grid. So we have a combination of segments which are addressed by branch banking, by the task channel, by our FIG business and also by our micro banking. And outside of this is our digital capabilities, which I explained, that we launched the digital savings account. It's doing very well for us in the pilot phase, and we want to scale that up. So the new customer acquisition is going to happen from the mass market and the identified segments using up all these channels. At the same time, we have the right kind of products fit for each of these segments, whether it's the current account variants or the savings account variants or the salary account variants. So I think from a product point of view, we are all covered. From a portfolio and customer life cycle management, that is where we are going to be using and we already have started using a lot more data science so that we balance this in a very calibrated, reasonable manner so that they stay sticky with us and they don't -- they are not volatile in nature. And at the same time, just to make sure that we have a good way of wrapping this together, especially for our customers on the micro banking side. We are also doing a good amount of -- there's a lot of effort on the whole financial literacy and how we are helping these customers come up on the financial literacy and digital literacy side. So a combination of all this is really why we are confident that the number of customers will go up across all the segments, we will have good quality transactions, we will make them and we would be able to make them use our digital channels. And at the same time, with our focus on the entire life cycle, we would have very meaningful interventions, both using data science and technology and our channels, which will help us own the relationship over a period of time. So this buildup from 14% or whichever number to 25% is very well calibrated. And we will -- we have plans by segment, by channel, by product category, by geography, by region, whichever way you want to cut, and those are giving it shape.

Okay. And sir, one more question. On the ROE front, so I think the ROE quarter-on-quarter has gone down. So what will be the target for the year and what will we be targeting going ahead with the medium term?

It's gone down because we raised capital. So that's the reason it's 28.3%. We believe this capital is good for us for 2.5 years. What we have indicated in the past is that, in the medium term, again 3 to 5 years' time, we should be in the range of 17% to 18% ROE. One is -- it is a little difficult to predict right now.

Ladies and gentlemen, I will now hand the conference over to Mr. Nitin for closing comments.

Thank you. Thank you, Abhishek. Thank you, everybody, on the call. It was great talking to all of you.

Thank you, Nitin, for the opportunity. It's been a pleasure. And best of luck for the following quarter.

Thank you very much.