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

Ladies and gentlemen, good day, and welcome to the Ujjivan Small Finance Bank Q2 FY '21 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Abhishek Murarka from IIFL Securities Limited. Thank you, and over to you, sir.

Thank you, Janis. Good evening, everyone, and thanks for coming on your conference call today. From Ujjivan Small Finance Bank, we have the entire top management team representing the bank. The team is led by Mr. Nitin Chugh, Managing Director and CEO; Mrs. Upma Goel, Chief Financial Officer; Mr. Rajat Singh, Business Head, Micro Banking and Rural Banking; Mr. Kalyanaraman, Chief Credit Officer; Ms. Sneh Thakur, Head of Credit, Micro Banking and Rural Banking; Mr. Murli Manohar, National Manager, Financial Planning and Analysis; and Mr. Deepak Khetan, Head of IR. I will now hand over the call to the management to take us through the results, and then we'll open the call for Q&A. Thank you, and over to you, Nitin.

Thank you, Abhishek. Good evening, everyone. Thank you for joining us this evening. And sorry for the short notice between our posting on the stock exchanges and this call. We'll try our best to cover all the important aspects of [indiscernible]. First of all, I think we are still battling the pandemic while things are getting [indiscernible]. Our thoughts and prayers are with all the people who are fighting this out. And I think by now, each one of us have come to at least know [ a few people who ] got affected or in some way have got impacted. In our bank itself, we have had 975 of our colleagues. Unfortunately, we've lost 2 of our colleagues, [ Vinod ] and [ Hemavathi ]. While we are trying to extend all possible support to their families, it's also heartening that 875 of our colleagues have also recovered and operations are mostly back to normal across all the locations and branches. On the overall situation, as we've seen over the last few months and what we are seeing. [Audio Gap] based pick up in the economic activity, which has also not just picked up, but it has also held up over the last few months. So the overall environment for livelihood restoration has improved. But at the same time, there are different -- amongst all the parts of the economy, rather, I would say, there are some slivers, there are some segments which are still continuing to feel the pain. And maybe they'll feel the pain on a little more [ forward ] basis. For example, even if, let's say, the malls have opened or the [ schools ] have opened or restaurants have opened, not everybody has called in their entire workforce. Even if people are making road trips, the people who are [ depending on public ] transportation, they are not getting the same number of trips that they were getting in January and February. So I think there are going to be segments of all kinds of parts of the economy which will go through some more pain, and we also deal with some of them. We have been seeing that on a very close basis since we've been in touch with our customers all through. But on an overall basis, there are far more positive things. The kind of work that's happened over the last few months in the last quarter, and we will also touch upon October as a key -- set of key indicators for you to look at. We believe that things are a lot better. I think things are a lot better than what we had anticipated getting into this crisis. And I'm sure you'll remember that we had maintained a fairly positive sort of an outlook, if not necessarily exactly optimistic. So we remain positive. We remain optimistic. But obviously, there is a lot of caution to what we are doing, and we'll cover some of these things in a lot more detail. In general, I think what I do want to talk about, there are 5 or 6 broad themes. We will talk a lot more about collections. We will talk about how the new business is getting restored, how the things is taking shape in the new business pickup. We'll also talk about our liability side of the business. We will talk about digitization. We will talk about a few things that we have taken care to make sure that our cost structures are run efficiently and all the initiatives that we have done around those, and maybe spend a little time towards the end in sharing our views about how we see the whole situation evolving from here. So jumping straight into collections and the post-moratorium situation. While the moratorium did end on August 31, and we started our full-fledged collections effort from thereon, our focus had been even during the moratorium period to restore as much of collections as possible, and we had reported those outcomes in July as well when we last spoke. We continue to improve every month. And we were able to restore most of our field operations other than in branches where our own staff was getting infected. And because we had almost 1,000 people getting infected, there were situations where the entire branch would get infected, a lot of people in the same branch would get infected. So those were minor setbacks that [indiscernible] was also a worrying situation for us wherever it happened. We had focused on also developing and making available alternate ways of collections or repayments for our customers, mostly through our partnerships and the digital ways. We have made a lot of progress on that. I'll cover the numbers also on that account. Importantly enough, 91% of our borrowers have paid us after the moratorium got over, so which is very heartening for us. And on overall basis, our collections in the month of October are at 96%. We have also this time in the presentation, you would notice, have made a mention of collections on 2 different parameters. One is the one EMI collection, the full month EMI collection, which we have reported as 88% for the month of October. And for all the other collections that we have also brought in, the overall collection goes up to about 93%. We just wanted to keep that very, very transparent. Our workforce is predominantly -- or, I would say, was predominantly engaged in collection. We will talk about disbursals when we come there, but we had to strike a balance between serving the demand, which is coming back in from gradual manner. But predominantly, we were focused on collection. So in all about 7,000-plus people were engaged in meeting customers and making sure that where ever the customers have the ability and the willingness to pay after the moratorium got over, we were at least available. And in addition to that, we also made available all other kinds of options for customers to make their payments for us. So just on the alternate sources of repayments, last quarter, we were able to get to 16% digital bulk collections. We had a remarkable bump-up in July, went up to 37%. But as more cash started to come back in the system, the denominator impact obviously started to come in play. And we saw the proportion of noncash or digital payments coming down. But on an absolute basis, it kept going up every month. So for the quarter, last quarter, 28% of our collections have come through digital channel. On the same period of time, we have also enabled some other alternate ways, notably enough our BBPS platform, which we enabled through a fintech partnership. So we are seeing very quick climb up in repayments coming through Google Pay and PhonePe and MobiKwik. Paytm was already there, but Paytm on the BBPS platform is also giving a different color to the whole thing. We also brought about collections with customized payment link. It's a small number in the overall context, but nonetheless, it's giving an option to the customers to make the payment to us, in addition to our tie-up with Airtel Payments Bank, which is working out really well. So nearly 7,000 of the Airtel Payments Bank outlets are now active with our branches, and we have a plan to scale up to as many as we can manage optimally. So our overall efficiency for 1 full month EMI collected, like I said, for the month of October was 88%. And I would think that this is easily the best perhaps in the industry. Because if you cut it by a full month EMI collection for the demand for that month, I think it does stand out, and 93% on the basis of all the other collections that we have picked up from customers. In the other businesses also, our MSE and housing, we have seen good climb up in collections. MSE Secured reported 86% collections for the [ month of October ]. We also saw improvement in unsecured, even though it's a very small [ portfolio ], just about INR 70-odd crores. And in housing, we reported 93% collections. FIG, which is a relative [ smaller ] book for us, the lending that we [indiscernible]. We have been at 100% collection after the moratorium got over, so we have no issues on that account. In terms of regions, there was a different mix. The last time around, last time around, hope, I think South was trailing behind some of the other geographies and South has really picked up well. And that's followed by West and the East. East has been a little slower, while in West, Maharashtra collections are taking a little more time to come back to normal. So effectively, if you look at a little more in detail, we have reported that in our presentation also, there are 4 states which are reporting lower collection efficiencies, slightly lower than 80%, in the higher 70s. These are Maharashtra, Assam, West Bengal and Punjab. And in each of these states, we have different reasons. West Bengal, of course, there are multiple issues. There are also some localized issues of protests, et cetera. But the large part of our customer base, which lives and operates from the suburbs of Calcutta and go to work to Calcutta for their livelihood, have been impacted because of the nonavailability of the local trains, which we believe are now getting restarted from next Monday. So we are pretty sure that people, once they are able to commute, they will also be able to restore their livelihood. In Maharashtra, while the early impact was on account of the high spread of COVID cases all across, and we have large portfolios in Mumbai and in Pune, amongst all the cities in Maharashtra that we operate in. Pune, as you know, was the top most city after we in Bangalore took that over. Bangalore is now the highest city with COVID cases. But nonetheless, I think Maharashtra, a little longer to recover, considering that the early setbacks, what happened in that, and there has also been some influence from the local political relations that we are seeing there. And Assam, I think there is a continuing improvement in the collections efficiency. We reported about 74% collections efficiency for overall Assam. The upper Assam area continues to be a little more impacted since it was already going through all the turmoil from last October itself. It's nearly a year that we are dealing with that. And also not helping the fact that unions or parties are also getting involved after the pause of maybe about considering the COVID time. So we're watching that closely. Assam is anyway a small portfolio for us. Punjab, again, we've got some localized protests, but a lot of disruption has also happened on account of the anti-farm bill protests, which have taking a little more scale than what was anticipated. In Punjab, while overall, they are a little better [indiscernible] states, but it should have been [indiscernible]. But we have plans to make sure that these states are worked on, on a very focused basis. And we are hopeful of improving on a month-on-month basis in all these 4 states. But we have to exclude these 4 states for the 1 full EMI collection of October, which otherwise we are reporting about 88%, I think we go up to 91%. So it does show that in all the other parts of the country, things have improved substantially. We've also improved our -- increased our COVID provisions by another INR 100 crores. You might have noticed that, only for micro banking. We haven't taken provisions in any other business. We don't require them to. As a result of that, our total COVID provisions are now at INR 299 crores which cover 2.3% of our micro banking loan book. And at an overall bank level, the total provisions on the balance sheet are now INR 470 crore, which covers 3.4% of our book, which, again, I would believe is amongst the best and highest with a PCR of 86%. So we've improved that from 82% in the last quarter to 86%. So our stance has been fairly conservative. We have been improving our PCR from the Q4 of last financial year when we went up to 80%. We took it to 82% and now at 86%. So it's a little comforting for us as we deal with the situation. Our overall outlook on collections is that of improvement. We believe that things are improving. We are in touch with all our teams on a daily basis, and there is a whole lot of other back end work in the head office that we are making use of. But more importantly, we're also augmenting our overall collections capabilities by adding more people. Just in case you think that why didn't we do that earlier, because some people had done that earlier, it's just that we were trying to strike a balance between new business and collection. And since we had assigned all our people into collections, we didn't feel the need to. But now that the business demand is also coming back in some manner and we need to cater to that, we need to free up our own bandwidth to be able to also equally focus on collections. And therefore, we are augmenting that whole workforce on the field of collection so that we can have a balanced approach to both new business as well as collections. Now coming to new business and disbursements. We'll have to break this into different businesses that we work in, but let me cover micro banking first. Micro banking, we have maintained a cautious posturing. You'll remember that we had signed up for the CRL also early this year. It is helping us in taking a lot of measured calls in terms of who we deal with and who we don't want to. The other fact is that it is also subdued as the borrowers [indiscernible] and part of them deal with multiple lenders. I think it is prudent on their part also to not overextend themselves, and we are seeing a compression in demand. People want to show normalcy in their cash flows before they'd take on any new liabilities in terms of new loans. On our side, because we have tightened our overall credit policy framework across all the businesses, we are also seeing rejects going up more than what they used to be earlier. But we are okay with that because it just tells us that we are taking a very cautious view on the new customers that we're bringing in. And I think it's also important to highlight to you that the new loans that we [indiscernible] financial year. We are reporting a collections efficiency of 99.5% plus, which tells you while the demand is high and even though we are serving almost [indiscernible] almost 92% of that is going to repeat, thus only 8% is [indiscernible]. But even the new loans that we are distributing, [indiscernible]. So for micro banking, we will have a cautious approach. We want to grow this a little more methodically, a little more deliberately. And we will keep taking calls based on specific geographies, et cetera. So we have been growing our disbursals by roughly about INR 100 crores every month, more or less, and we do hope to continue with that without actually thinking of when and how we were going to be back to pre-COVID levels. It could take us a few months. It could take us lesser than that. Not very sure about that, but we do want to do it methodically. Now as far as MSE and housing is concerned, our login levels of business are back to pre-COVID levels. In fact, if you compare some of the businesses like housing with exactly what they were in the same time, September of 2019, they are probably at the same level or slightly better. Okay. But if we average out the whole year for an average disbursement for housing and for MSE, we are more or less there, almost at 90% levels of what we were in pre-COVID or, let's say, average of last financial year. So again, here, we had mentioned in the last earnings call that we have tightened the credit framework. We are changing our mix towards more formal segments, both in housing and MSE, and we are pretty happy with the outcome because the business is growing. We haven't had the need to add people. In fact, our headcount in both housing and in MSE is significantly lower than what it was at the same time last year. And if you are able to get to 90%, 95% of the pre-COVID levels of business with lesser people, I think that also talks about far improved efficiencies that we have been able to bring out in new businesses. So we are quite confident of growing our MSE and housing business. Now coming to personal loans and vehicle finance, our view was that we should first make it available through our branches, focus on our internal teams rather than deal with open market through DSAs, et cetera. So we have made a complete channel shift there. We have enabled all our branches for originating personal loans and [indiscernible] [Technical Difficulty]

I'm sorry to interrupt, but we couldn't hear you for a few seconds.

Okay. So I was starting to talk about personal loans and vehicle loans. And what I was saying was that in these 2 businesses, our first priority was to change the channel mix and make sure that our branches start contributing to this business because that's an investment cost for us. And we have been able to activate all our branches for personal loans and vehicle loans. It's also the fact that we've made a lot of workflow changes by bringing in tie-ups with fintechs that has helped us in significantly improving our overall processing workflows. But it was sure that we want to do this in a more methodical manner through our own proprietary channels rather than going to open market, DSAs, et cetera, which we had started out doing when we launched these businesses last year. So net-net, these businesses are now coming in a far more controlled manner, and we are growing the book in personal loans and vehicle finance pretty methodically, largely focusing on our own channel origination and our branches, much of which are contributing substantially now to these 2 businesses. Now coming to liabilities. Liabilities, we have all our branches in place. Like we had mentioned the last time around, we had finished launching all our branches in the last financial year itself. We had the required distribution in place. Most of this year, we have been focusing on trying to reduce our cost of deposits by trying to bring in [indiscernible] customers. And really speaking in liabilities for the last quarter in specific, what we tried to do was to retain the deposits at a headline level. You might have noticed that our deposits have [ grown ] nominally over the last financial year, but that was a deliberate call that we have taken, and we want to replace or substitute the bulk projects with retail. So the focus has been on new customer acquisition. We are acquiring probably highest number of new customers to our branches every month now, bettering it every month or every alternate month. And we are focusing on making sure that we are able to build balances through these relations. At the same time, we also activated our assets channels to bring in CASA. So the focus all across in liabilities has been on CASA and retail deposits. And that is how our CASA has also been able to move from 14% in the last quarter to 16% in this quarter, slightly more than 16%, which otherwise, we were going rather slowly, even though we thought that we would finish the year by -- with about [Audio Gap] But more importantly, the proportion of retail deposits now has climbed up significantly from 45% in last quarter to 49%. So we're very happy with that, and that's helped us in reducing our overall cost of deposits. And the cost of funds has come off by nearly 30 bps over the last quarter, which gives us the flexibility to also deal with more formal segments in some of our businesses, especially MSE, housing, personal loans and vehicle finance. So it's making good sense for us. The whole equation is falling in place just the way we had anticipated and planned. And we are really focusing on making sure that we keep improving our productivity in our branches. That's helping out in a big manner. We've not had the need to bring in new people for the customer acquisition. Customer acquisition has been on an uptick in general. 5.5 lakh accounts were sourced in the first half of the year. And like we had mentioned the last time, we had introduced our digital workflows for liability origination. That is helping us to a very large extent because now our -- a lot of our new accounts are coming through digital workflows. And I think we might be the only bank which is insisting on initial funding with digital accounts also because we want to bring about a very good quality in our liabilities portfolio. Now while we focus on substituting bulk with retail, the one other good outcome of that is that the proportion of our top 20 deposit customers which used to contribute substantially about a year back is now down to about 21%. So that's, again, a pretty healthy proportion of bulk deposits that we're looking at. And as a result of all of this, our cost of funds has now come down to 7.4% from about 7.7% in Q1 and 7.9% in Q4 of last year. It also helped us that we have taken those refinance options from the DFI, which we have picked up largely in the first quarter, but this has also helped us. The next one is really on our cost to revenue. You might have noticed that we've been able to hold up to the same cost to revenue that we had reported in the first quarter. There's only been an increase by 70 bps over the last quarter. And one of the questions that did come to us in the last earnings call was that, how much of this is going to be permanent? And how much of this is going to -- is temporary? And is it only because you are not spending is while you're saving? So I think now we can tell you there's a lot more confidence, while we had said that the last time also, that a lot of this is going to stay. A lot of this will come back. But I think we have figured out a way through our improved efficiencies and productivity changes and the other measures that we've taken to optimize our cost. I think we are in better control of our cost-to-revenue as an outcome, and in general, our overall cost efficiency. So if you compare just this quarter over the same quarter for the last year, our cost-to-revenue has dropped by nearly 12.5%, okay, which we are very, very happy with. In terms of our digital initiative, like, we had covered the last time, we were very, very focused on bringing out a lot of things for our customers, a lot of things that we needed to do in the bank. So we have been able to successfully roll out quite a few of them, including our tie-up with fintechs, which a lot of workflow was put in, such as KYC or ID verification or e-stamping, e-agreements, which again, we've started to use within the bank also, not just with customers. A lot of that has our document verification. These are also fintech tie-ups, which are helping us not just in reduction of turnaround time, but also reduction in the cost. At the same time, a lot of new channels have been made available to customers to interact with us, which I explained earlier. And some of our experiments have also not worked the way that we expected, for example, loan on phone that we were very, very hopeful about. I think we need some more reengineering there because our customer segments are not taking -- probably not responding the way we had anticipated earlier. But we are still hopeful that it's a good proposition in due course. And at the right time, this will also start making sense to our customers. And once that starts to build up some scale for us, we will be looking at providing other alternatives to disburse preapproved loans to our repeat customers, especially in micro banking. So quite a lot of work under the digital side. Within the bank, we also put out a road map for AI, road map for RPA. We enlisted a whole lot of projects, almost 120 projects were enlisted. We've completed almost 10 of those which are live, which are resulting in substantial savings in costs and in fees for us. We have another 25, 30 in work-in-progress, and there are quite a few more which we will add to this list of 125. So there is a full road map that we have on the internal digital transformation of the bank. At the same time, some of our digital workflows for our front office staff in the other businesses, some of them have got rolled out, especially in vehicle finance. But the others, for example, in MSE and housing, have taken a little more time than what we anticipated. They're expected to go live any time now. So overall, I think we have a strong story on digital. We have a strong story on our partnerships through our API. There is a fairly detailed mention of that in our investor deck also. Equally enough, I think we are focused on building the transaction sets with customers. So our digital transactions that we reported 56% for the first quarter, we did have this in mind that maybe this will shrunk or reduce or -- let's say, because of the reduced ATM transactions, this will be lower in the next quarter. But while the transactions have gone back to similar levels as much as they were in Q4 of last financial year, we have been able to deliver 56% again, the same number of digital transactions, which does say that this migration of customers from physical to digital is really sustained and customers will hopefully continue to use the digital channels for day-to-day transactions. Now these are long-term gains that we will experience on the cost-to-revenue structures. I'm sure you will agree that these are not maybe immediate gains, but they will help the bank on a long-term basis because these are more structural in nature than anything else, especially since they involve behavior. Likewise, all the other transactions on the digital side, whether it's UPI transactions or POS transactions or our Internet banking, mobile banking, all of them have reported substantial growth on a year-on-year basis. That's all covered in the presentation. Lastly, on treasury, we have a fairly active treasury now for the last few quarters. There is good -- reasonable trading income that we are also making. We are also making use of the market opportunities, or wherever we can book income through our portfolio, we have been able to do that. In the first quarter, we had decided not to book the PSLC income, which was a deliberate call. Normally, like last year, we had taken all of that in the first quarter, almost INR 42 crores, INR 43 crores of income. But we did not do that in the first quarter of this year. In the second quarter, we took a view to partially monetize that. So we were able to book about INR 24 crores of PSLC income also at a fairly good set of rates that were available in the market. Now coming from the financial performance, while I talk, I just want to quickly highlight [ certain things ]. One is that, our PPOP has grown by 64% on a year-on-year basis, which is something we're absolutely happy with. And as a result of that, our ROA on a PPOP basis is at 4.9%. I think that just talks about the overall profitability of the business and ability to generate the kind of cash. And also the fact that it is -- the business is being run on a very, very [indiscernible] and if not for the provisions, I think our ROA [indiscernible] But in any case, we are maintaining a conservative posture. So we have taken some more provisions. Objectively enough, you might be thinking if we need to take more provisions. I think those calls will be taken in due course. Like we had said the last time, [indiscernible] quarter-on-quarter basis rather than estimating that [indiscernible] to the extent of 3.4% of the book, and we have taken nearly INR 470 crores of total provisions. Depending on how the situation is [indiscernible] we have the ability to take those calls. The other interesting thing that's also worth reporting to all of you, I'm sure you noticed, is that our capital adequacy now is at 31%, very, very healthy. So that's also comforting for us. Our LCR has been at 177%. So that's also been pretty good. We were carrying fairly excess liquidity to the extent of almost INR 1,500 crores on the balance sheet, which is now 8% of the balance sheet. Our deposits now cover almost 77% of our advances. The balance sheet is very well funded, and we have a fairly good and a high liquidity buffer also. Capital adequacy, I've already covered. So on fundamentals, I think we are probably as strong as what we were in the past. And the overall shift in the deposit mix moving more towards retail has given us the ability to also reprice our deposits, and that's helped us in lowering our overall cost of funds. So there is a very clear focus on making sure that we retain the profitability of the business to the extent that we can. And of course, the overall focus on the quality of the portfolio, like I mentioned, with the example of [indiscernible] and the collection efficiency of 99.5% plus is a way to explain that our view on the overall portfolio, incrementally also, will remain cautious. We will remain [indiscernible] of the demand, and we are going to be gradually climbing back, especially in micro banking. Maybe the other businesses will go up in a probably a faster manner. In fact, if you look at the year-on-year growth in the overall asset book, if you exclude micro banking, where we have taken deliberate calls starting with December of last year after the whole Assam situation started becoming a little difficult, if you have to exclude micro banking from the overall assets, our overall assets, ex micro banking has grown by 26% year-on-year. So I think it needs to be contextualized also to the extent that [indiscernible]. So in summary, in the end, what I would like to say is that I think we've used up this time, past 6 months, both to stay in touch with our customers and try to look after our employees to the best of our ability. We've not had a reason to let go, and we've been able to retain our headcount in a fairly range bound manner. Most importantly, we've been able to bring back and scale up the efficiencies in collections and in disburses pretty quickly. We had always told you that we are preparing ourselves for all kinds of possibilities. And our preparedness levels would be very, very heightened as we come out of the whole pandemic. Now the only unknown is that whether this is the only wave that we are going to see or is there going to be a second wave, is there going to be a third wave, we don't know that. Hopefully, enough, as we are hearing now, we should have the vaccine probably in Q1 of next calendar year. But it is also to be seen whether how much time it's going to take for everybody to get vaccinated. So we will need to maintain this posture for a few quarters. But at the same time, since overall set of things are looking positive, we are hopeful, we are confident, and we remain prepared for all levels of -- for all kinds of possibilities. And to the extent of covering our book, we have taken those conservative steps as well. And I think now we have a clear mind in terms of being able to strike a good balance between collections and growing our business, and we are completely prepared to be able to do that. And since we have completely positioned ourselves as a mass market bank, I think that, that category of customers is probably going to be a little more than what we saw before the pandemic hit us. So we are even more determined to serve this segment of customers, even more determined to make sure that technology is at the forefront of whatever we do, digital, especially. And on that basis, we do see ourselves becoming a large and a reasonable -- a bank with a reasonable impact in the mass market as we go along from here. So I'll stop here, and let's open the call now for questions and answers.

[Operator Instructions] The first question is from the line of Manish Ostwal from Nirmal Bang.

Sir, this is Manish Ostwal for Nirmal Bang. I have a query on our disclosure about the 4 states where our collection efficiency on a weighted average basis is 78%. And our overall collection efficiency is 88% for the month of October. So -- and when I compare this thing with the peers' collection efficiency, broadly in line with our peers in those states. So what is our best assessment of those states where we are have a collection efficiency lower than the company level? So what is the ultimate credit cost we are envisaged for the business? Can you guide us on that?

See, credit cost I'm not going to be commenting on. It is still evolving. But did you ask that we are lower than the peers in this market? Is that what you said?

No, no, no. I'm saying we are broadly in line with the peers.

In line. Okay, So our view is not going to be at a company level only, probably [indiscernible] sharing. See, these are -- if you get deeper into markets, there are very, very specific reasons that you can attribute, okay? Let's say Mumbai, where a lot of you are calling in from. The local trains are still not available for everybody or people are not preferring to travel. So it is going to take some time for people to come back to the real levels of normalcy that we have seen in Mumbai. Pune has been so badly impacted that the scars are going to remain for some more time until the whole situation evolves. Fortunately, for a city like Bangalore, which also went into a similar situation, it came a little later when people were prepared and at least the fear had gone away. But in cities like Mumbai and Pune, it's going to take some time. On top of that, there is intervention. There is interference from some of the political groups in these markets, which we are seeing on a localized basis. So we have to tread this carefully, and it's going to be hard to say whether it's going to take x amount of time or 2x of the time. But we are just saying that if you look at the month-on-month data for these states, they are remarkably improving every month. And while the other states might have improved substantially, they have lagged behind. But that doesn't mean that this portfolio is going to remain bad or will become bad. I think we just need to give it some more time. In any case, we will also have the option of providing a restructuring framework to some customers, which can give some more time to the people who are impacted. We are not seeing issues of intentional nonrepayment as yet, okay, which should be alarming for us, but not as yet. But wherever we are seeing some prolonged pain, which I kind of qualified in my opening remarks itself, we will have to provide assistance to those customers, and we have those options available to us as well. So I think we just need to wait and watch for some more time. On our part, we are prepared. We have localized plans. We have our teams in place and we have everything else that is required to make sure that we keep improving. And we'll keep reporting back to you.

And our COVID provision of INR 299 crores and the currently quarterly provision of INR 100 crores. So till the time things improve further, this kind of run rate, the INR 100 crores run rate should continue, how to read that thing?

There is no run rate of provision. Last time around, we have taken INR 140 crores, okay? So the quarter before that we taken INR 70 crores. I don't think we are targeting the run rate on the provision, sure. Those are calls that we take on the basis of the data that's available to us. So it is a lot analytically led. And then there are obviously some management overlays like I explained the last time also. So we don't want to comment on whether this is going to be the run rate for x number of quarters in future. Let's see 1 quarter at a time as far as provisions are concerned. And certainly, credit cost is something we should talk about only at the end of the year, not even before. But I can only tell you that 3.4% cover on the book is reasonably comforting, or I would say it's very comforting, 2.2% cover on the micro banking book with the kind of provisions we've taken. 2.2%?

2.2% is the core provision, but total book has 3.8%.

3.8%. So that kind of provisions that we've taken, I mean, it's comforting. But if we have to take more, I mean, we'll take those calls later in the quarter like we said last time also.

The next question is from the line of Renish Patel from ICICI Securities.

Congrats on great set of numbers. So sir, just 2 questions. So one is on this digital collection side. So how do you read this customer behavior on a steady state basis. Since under JLG model, if borrowers start paying digitally, so is there any risk of this whole JLG culture start impacting the normal collection ongoing basis? Yes, so just wanted to hear your thoughts on this thing, sir, first.

No, we don't see a change in the culture or change in the credit discipline. This question keeps coming very often. Every time you want to make any kind of a change or any transformation to the business, I think these questions are logical. It happens with all of us. So when all of us started to move from physical to digital transactions, this question also came that we will stop going to branches. We will stop dealing with them. So branches will shut down. This will happen, that will happen, well, nothing happened. So I think we as a bank, as a provider of service to customers, we have to make sure that we are giving them all the options. We are not denying them of all the options that they are required to have. At the same time, because it is our model that we will serve them on a door-to-door basis -- at their doorstep basis, rather, we will continue with that support also. So we are not going to lose touch with our customers. It's not like we will stop going to the field and only ask customers to make payments digitally. The second thing is there's also inertia, right? There's inertia which has to be -- has to be taken into account when you are making such kind of things on a transformation level with customers. So it's not easy for customers to also switch to such new ways of repayment. I mean if you have an office that somebody will come and collect it from me versus I have to go out, go, let's say, 500 meters and then deposit it somewhere, you'll probably prefer that somebody comes and collects it. So all of us would do that. So these customers are no different. And as far as the JLG model is concerned, I don't think there is a problem with that. It's a moral framework more than anything else. And that in smaller groups or smaller communities, in any case, it works, irrespective. The word of mouth travels faster than anything else.

So it is right to assume that if there is a digital payment option has been availed by the borrower, it will be ideally from the entire center or it might different within borrowers of the same center?

Sorry, can you repeat that? I didn't quite understand it.

So basically, let's say, in a typical center, if there are 5 members. So how we, as a company, sort of try to, let's just try this digital payment so maybe out of that 5 member, 2 might have availed the digital payment option, and 3 would still continue to be on the cash mode. So do we force the rest 3 to switch to digital payment or we will -- or take it as per their comfort?

We -- like I said earlier, Renish, we have to give all options to the customer. Let's say we have 20 customers. 10 of them want to pay digitally, 10 of them don't digitally. We have to serve that requirement. We have to serve them in the way that they want us to serve them, all 20. This is all you can do it. Not like you are selectively telling 10 people and not telling 10 others. And it doesn't break the group discipline or any other kind of those notions that we have. What can happen is that when people start paying [indiscernible] other ways, maybe they find [indiscernible] help the other 10 to also convert, more than our own effort. It's a thing that you have to work on for years. This happens -- just because -- I mean we were thinking that because of lockdown, things are not moving around, so this is the only option that they can pay, of course. But like all of us, we are also starting to do so many things after we have been able to move around. So it's the same for our customers also.

Got it. Got it. So sir, second question is on the [indiscernible]

[Operator Instructions] The next question is from the line of Utsav Gogirwar from Investec.

I just want to understand your thoughts on the West Bengal geography, although you have touched base in the initial comments on that. But my question specific to understand how we should look at from the collection efficiency point of view or as a geography from the microfinance perspective. So we have one of the largest players who is reporting 90% plus collection efficiency. And other players, they are reporting in the range of a similar level of 78%, 79% or less than that. So why there is such a divergence, difference in the collections efficiency? And secondly, is it more to do with the size or underwriting? Or -- I just want to understand that part, sir.

We can't comment on anybody else's collections efficiency. I think it's best that the outlier should have the ability to explain, if there is an outlier. If we were the outlier, we would have certainly explained to you that why we are different from the rest of the industry. We are more or less in line with the rest of the industry. So it's easier for us to explain for ourselves rather than for anybody else. So I don't want to comment on anybody else in any market for that matter, not just West Bengal. Now especially with West Bengal, you have to break this up into various parts of the whole state. The larger portfolios, at least for us, are the ones which have -- are impacted because of the restrictions in mobility. Earlier on, they were impacted because of the extended intermittent lockdowns, okay, which were prolonged as compared to some other states which had completely unlocked. West Bengal continued with this alternate day or twice a day -- 2 days in a week sort of a lockdown, especially in the month of August and maybe in September also to some extent. Unlocking has been differently paced in West Bengal as compared to some of the other states. I'm sure they have their own reasons to do that. But one of the big reasons that we have come across, and by the way, we've heard this from the other earnings calls also, at least for the listed people who are there in that market, that the nonavailability of suburban trains has really impacted the livelihood of people who were dependent on trains to go to Calcutta to earn their livelihood. Okay. And we know this exactly. We have been talking to our branches pretty regularly. So as and when things get restored, it's only a question of things getting restored. In general, if you look at West Bengal as a market, it has always behaved very well for everybody. These questions have come to us even last year. There was a heated -- or heightened, I would say, interest in West Bengal that everybody had last year between July and, I think, December. Everybody wanted to do [indiscernible] roadshow to know this exactly, where every single fellow we met asked us this question, that don't you think West Bengal is overheated. By that logic, every market is overheated. Bihar is overheated. Maharashtra is overheated, UP is overheated. Every place you go, it's overheated to some extent or the other. But that is not perhaps the right way to look at it. The real way to look at it is that is there potential in the market, is there headroom available and how has the portfolio behaved for all these years. West Bengal has been amongst the most disciplined behavior in the portfolio that we've seen all across the industry. So that is what gives us the belief that as and when some of these things are restored, where people are dependent on, things will improve. But it's hard to say how much time. I think we need to give it our best every month, which is what we've been trying to do. And just on that basis, we are hopeful and confident.

Sure, sir, just one related question. So what is the underwriting philosophy we have, like do we refinance customer or provide top-up loans? Or until and unless we receive all EMIs, we don't provide next loan or -- so just want to understand.

Yes, I already explained that we are taking our disbursals very, very cautiously. Okay. It's not very, very difficult, go and find ways and means of [ popping ] up. Okay. We haven't done that. We have done that only to the extent of the portfolio, customers who we are comfortable with. On the contrary, we have tightened the whole credit policy, okay? We have also signed up a CRL which makes sure that we are bound with some self-regulatory framework also, okay? So we are taking those calls. Let's look into West Bengal, since this question was coming to us even the last year. We had very explicitly said that West Bengal is a place where we are not excessively aggressive, or we are not aggressive at all, for that matter. We are maintaining our cautious stance in that whole state, not for the fact that there is a discipline issue or what people believe that's overheated or anything of that kind. We just thought that because our portfolio was reaching a threshold where we would be comfortable with, which is around 15% of our total book, we wanted to take those kind of calls to be a little more conservative, okay? So we have maintained that. And that is why I think our underwriting only reflects the current environment, information that we have on our portfolio for all these years and our ability to understand these markets very deeply. And we understand West Bengal and a lot of other markets where we've been present for a long time extremely well. So there is no question of being influenced by some overall industry-level narrative or some overall perception that gets built on the basis of 1 or 2 conjectures here and there. We have our own methodology, our own data science, our own ways of making our mind, and that is how we go. Our credit policy, without getting into how is our credit policy different for West Bengal, I think it overall reflects our posturing. It reflects our data. It reflects our portfolio quality. It reflects overall on the [indiscernible]

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

So just a couple housekeeping questions. What would be your 0-day PAR at the company level and for the state of Assam? And again, the question for Assam is quite specific because like you -- it's not only like some local politicians doing it, it's even some of the leading national parties presidents doing it, like announcing [ some ] loan waivers. So any comments around that as well? I know you touched upon it in the opening remarks, but like the situation seems a little bit more serious. So any thoughts you can give around that?

Yes. See, Assam has been easy for the last 1 year. So every time something like this happens, we were actually pretty engaged with the bureaucracy and the government. I would say until January. February and March had started to look up. We had improved substantially in the month of March also until we went into lockdowns and stuff. But after a pause of whatever happened during the lockdown and whatever else happened in that state, I completely agree with you that there has been an increased interest by mainstream political parties also to -- who have commented on this whole issue, and we are completely aware of that. We are trying to address that issue more as an industry rather than individually. Individually, we have much lesser to worry about because our portfolio is reasonably small. But I think it is a cause of concern when a political party, a mainstream political party starts to make announcements like these. And we have discussed this at depth in our industry association, more specific to Assam. And I think as a collective group, we are going to be taking those kind of steps to make sure that our interests are also protected as much as we are trying to protect the interest of the customers. But if you just look at the numbers, Nishant, the numbers have -- the overall collections efficiency in the state of Assam has improved by -- to double of what it was 4 months ago. Now if we have to only believe that everything is going wrong there, yes, we can take that view. But I think there are enough and more people also trying to make things work in a manner that we come out of this whole thing because finally, that state does need credit. Okay? It's not going to be a situation where everybody walks away from that state and says that I don't want to deal with this whole state ever again. The government also understands this, the bureaucracy also understands this, and at least in our interactions until the month of January and February, they were completely appreciative of this fact. Okay. But things change. Things change when the priorities are different and when the context is different. Fortunately for us, for example, when Bihar went into elections, and today was the last phase of voting in Bihar, we didn't see this becoming an election issue in Bihar. And Bihar is, again, one of the states where everybody has a meaningful presence, all the banks and MFIs have a meaningful presence. It's a very large market for microfinance. But we didn't see that issue and the discipline, in spite of the flood, in spite of 3 waves of floods in some parts of Bihar, things have not really gone bad. They've only improved every month. Now that gives us the hope that these are issues. Some of them might have stayed for a longer time. But since all of us are working towards them, I think we should come out of that. From our point of view, specific to Ujjivan, we have taken a cautious view right from the last, I would say, 15 months now, not even lesser than that. And just for that reason, I think we have very carefully looked at and worked on our portfolio, and we have stayed in touch with our customers. And as far as these political issues are concerned, we are trying to deal with them more as an industry rather than individually. But the other question that you asked, in terms of PAR, I'm afraid we can't comment on that. That is something because these -- I mean they can be computed. All of you can compute that. But I would refrain from commenting on PAR.

The next question is from the line of Sameer Bhise from JM Financial.

Just quickly on the OpEx side, I think encouraging signs. Do you think there's -- I mean there's always room to improve, but how do you see the trajectory here on?

See, there are 2 ways of looking at this, Sameer. One is the absolute OpEx. Absolute OpEx can keep changing depending on the -- which expenses come back or [indiscernible] investments we need to make, and we have to make investments. We have to make investments in processes, we have to make investments in technology. Digital requires a lot of investment. So there is going to be expenditure, okay? But the important thing to look at is that as a proportion of the overall book, the overall assets, as a proportion to the revenues, because we are looking at substantial change increase and with -- over the last few months in our productive [indiscernible] efficiencies and all the other things that we try to do in terms of optimization, as a proportion, OpEx can be range bound, and we do have hopes to continue working on it to improve -- continue improving on it. And which is what was a lot of things that we worked on in the first quarter, a lot more things that we worked on in the second quarter. So I would just say that our interest is to make sure that OpEx reflects the nature of the business, the nature of investments and expenditure that we need to incur. But at the same time, we keep building back the efficiency and productivity in a manner that we keep improving on that. So I don't want to put out any kind of guidance on this. If you remember, during the time of our IPO, we had said that we will bring down the cost to revenue to 55% in the next 3 years. We have been able to do that in the last quarter itself, and we are holding it at that level. It gives us a hope that we can do better than that. I mean if we can bring forward a plan which was 3 years down, I'm sure we can do a lot better in future as well.

Right, right. So that's helpful. Can I just squeeze in one data point question?

That is for the moderator to tell you, but I'm okay.

What -- can you comment on what is the differential between institutional TD cost that you're paying versus retail TD on a blended basis?

At the moment, it is about 100 bps -- a little less than 100 bps. I think 5.65% is what we pay on bulk for 1 year, and 6.50% is what we pay for retail. Our bulk has actually come off by 225 bps in the last [indiscernible] quarters.

Yes. Okay, the bulk costing.

Yes, the bulk fixed deposits.

The next question is from the line of Rohan Advant from Multi-Act.

Sir, my question is that you have given the collection efficiency in value terms. Can you give us how many borrowers are paying full, part and no EMIs. And a connected question was, sir, regarding the calculation of PPB or part-paying EMI borrowers, so say a borrower had an EMI of 100, but since September, she is paying 50 and becomes overdue on September 1. And even if she continues to pay 50 regularly, will she become an NPA on December 1? Or would it be only 45 days overdue on December 1 because you've actually collected half, and thus, on an amount adjusted basis, overdues are worth only 45 days. I think there is some discrepancy on the way NPAs are classified at banks and MFIs, so some clarity on this will help.

[indiscernible] anybody who's making part payments and doesn't come back to paying full payments, doesn't normalize, will obviously go into -- sorry, Sneh wants to explain that a little more.

I mean taking your example only, if someone is making INR 50 out of INR 100 EMI, they will be in 1 to 30 in the first month. But if someone is making INR 50 again in the second month, so the September EMI, for example, gets covered, it gets paid, right? So on and so forth, the movement won't be based on INR 50 payment per month. If she continues INR 50 for a very long time, yes, she may get into NPA, but not by the end of December, maybe some time during quarter 4.

Okay. So it is like on first -- FIFO basis, where the amount will get allocated to the last due EMI.

Yes, first due or the original. So if September was due first, all the accounting will happen against the September EMI due first and so on and so forth.

So someone paying 50% will become 90 DPD actually after 180 day -- I mean [indiscernible].

If she continues to pay INR 50 every month, but if she repays more than INR 50 and starts to pay INR 100 in due course, then she will continue to be an SMA customer even in Q4.

Okay, got it. And just on the first question, where if you can break this down?

So, your question was on the full payment and partial payment, right?

Correct.

Yes. So 86% of the customers have made full EMI payment, 2% is partial. That takes it to the total of 88%. And the balance is on account of future payments made by customers.

[Operator Instructions] The next question is from the line of Abhijeet from Kotak Securities.

Just a couple of quick questions. One is on cash collections, do we really charge the borrowers because of the extra convenience?

No, we don't.

Okay. And second one is, after the moratorium, what would have been the average extension of the tenor in terms of how many months by which the tenor would have gotten extended?

On an average, 3 months.

Okay. And sorry, one last one is, when you're saying you're kind of comfortable with the current level of coverage, and against which we have close to 90% of customers paying. So are you sort of indicating that this number can kind of trend upwards of 95% in the next couple of months. With the level of comfort, I mean how do we read the 2 indications?

See, I'm refraining from giving any kind of numbers for the future. Like we said last time also, that time, I think we were at 63% collections efficiency. Okay, we've gone to 93%. Okay. Things are looking better. Okay. We are hopeful, we are confident. Things are looking up. Difficult to say that it's going to be 95%, better than that, a little lower than that, we can't say. But we'll keep you all updated. I mean this is not the only call we're going to have for the next 3 months. We will keep you updated.

The next question is from the line of Suraj Subramaniam from Airavat Capital.

Nitin, I wanted to get an update on your long-held objective of reverse merging at the promoter holdco. I think your guidance prior to the SSB IPO was that you might be asked to meet the 40% threshold by Feb '22 before the reverse merger proposal is entertained. I believe a report by the RBI working group under Dr. Mohanty is imminent. So in that context and just given the passage of time, I wanted to get a sense of your latest thinking overall on this matter.

So our latest thinking is not very different from what it was the last time around. We still hope that we will get the permission to reverse merge, not having to go through the dilution process. But because that is what the present set of regulations ask us to, as part of the licensing conditions also, we are preparing to -- for a possibility in case we have to reduce the promoter shareholding to 40% before the reverse merger has to happen, we're prepared to do that. So I also agree with you that we are also awaiting any kind of an outcome from the working group that was constituted. We still don't know as to what was deliberated and what the recommendations are. As and when they are out -- I also don't know when they're expected to be out. But like you said, it's imminent. So we are also hoping that it should be out any time now. But if that provides any more clarity from our credit position, I think we'll make changes to our plans on that basis. If it doesn't, then in any case, I think we have to work towards making sure that we are in a position to also dilute. But at the same time, keep trying to have a dialogue with RBI for allowing us to reverse merge. We have also tried to make the representation at the association. I think the dialoguing is going on from all possible ways and means. At the same time, if the situation changes based on the recommendation of the working group, then we will alter our plans suitably.

The next question is from the line of Darpin Shah from HDFC Securities.

Sir, you have given a detailed disclosure on 4 states. So if you can highlight on Karnataka as well because we heard that there are a couple of cases in Karnataka where collections efficiency was impacted due to floods.

Karnataka?

Yes.

Karnataka, we don't have an issue in fact anymore. Karnataka, of course, had -- yes, it's at 92% from what I'm seeing here. And this is again for the 1-month EMI. So total collections put together would be higher than that.

And just like to add, I think the Mangalore belt in Karnataka has issues where we have no presence. We don't have an asset portfolio there, unlike the industry. So that problem doesn't hold good for Ujjivan.

The next question is from the line of Shreepal Doshi from Equirus Securities.

Sir, my question is with regards to the -- I mean our strategy or our thought process on the restructuring of book debt to -- the debt book that would require restructuring? And what is our policy or what is our thought process on that aspect?

So I mean we don't have any different sort of approach from the rest of the industry. I mean it is as simple as saying that customers who will need any help with restructuring, we will do that. To the extent possible, we are trying to make sure that, that is minimized, but we don't have a clear view on that. We are still in the process of dialoguing with our customers, and that activity is likely to be -- that -- it's going to continue until the end of December. So I think we will probably have some sort of a picture emerging only then. But it's too early to put out any kind of estimates on that. So our policy will reflect exactly what the framework allows us to do. Nothing less, nothing more.

Okay. So we haven't identified, say, some customer profiles or some segments which would require higher sort of restructuring of the book?

Yes, I'd just like to add here. We are in the process of identifying customers who will need to be put under this framework. What I would like to just highlight here is that it is important to note that demand for goods, services, our spend on festivals, occasions, travel, tourism hasn't reached the pre-COVID levels yet. So to that extent, borrowers may need some support under this framework because their income levels haven't reached back to the pre-COVID levels. And this is generally across the board and specifically for customers who are directly or indirectly dependent on the demand. So to that extent, we will support customers to this -- through this framework, but that will not be a very significant number, and that will be restricted to geographies where the collection efficiencies are low, as also reported in the present.

And if they don't improve.

We take the last question from the line of Gaurav Jani from Centrum Broking.

Sorry to hear about your colleagues, and congrats on a good set of numbers. Sir, just one question from my end. If you had to sort of look at demonetization and the way this segment bounced back. And we are probably about 7.5 months again within -- or recovering from the pandemic. So how would you sort of tie both of them up more sort of from a ground level, especially interacting with customers? That's it.

See, this reference to demonetization keeps coming up, Gaurav, all the time. But I think these are different events and different time zones also. In our context also, we were a different -- the kind of organization that we were during that time, just having converted to a bank and now 3.5 years into our life cycle, things are very different for us as well. So I don't think it is comparable. But as far as the customer portfolio is concerned, I think there is a natural tendency to revert to mean rather faster as compared to some of the other parts of the economy, which can take longer, and we have seen that in the past. We also know for a fact that there is usually short-term pain and then things get better. What we are only qualifying right now is that we had anticipated the recovery to be a little more prolonged. But what we are seeing in the numbers that we have put out today and what we have seen for the rest of the industry, and generally the narrative in the industry is that things have recovered better than what they were earlier anticipated. Okay. So specific to microfinance, what we've been maintaining is that it is subsistence business. People are unlikely to stay out of their livelihood for too long or for a long period of time. They were forced to do that during the period of lockdown. Now it's only a question of their own demand coming back to the same levels as what it was earlier. A lot of parts of our economy, in any case, were slowing down even before all of this happened. And we have been discussing this for the last few -- several quarters now in terms of the overall change in the economic activity or the slowdown. So this segment is not going to be any different. But like I said in my opening remarks, like with everything opening up and performing or starting to perform, there are parts which are still experiencing pain. And we just need to work with those segments of customers for a little longer period of time. Fortunately for us, we have a framework available to us. We had the moratorium. We have a restructuring framework available to us. And on our part, we have made enough and more provisions, and we are fairly lean and mean to be able to take those kind of calls as and when we are required to. So I don't want to generalize. That's really the whole summary.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.

Thank you, everyone, for joining us. And we do hope to keep all of you updated until we meet again. Take care. Stay safe. Thank you very much.

Thank you. On behalf of IIFL Securities Limited, we conclude today's conference. Thank you for joining. You may now disconnect your lines.