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

Ladies and gentlemen, good day, and welcome to the Ujjivan Small Finance Bank Conference Call. [Operator Instructions] Please note that [indiscernible]. I now hand the conference over to Mr. Abhishek Murarka from HSBC. Thank you, and over to you, sir.

Thank you, Rutuja. Hi, good morning, everyone, and thanks for joining the earnings conference call. We welcome the management team of Ujjivan Small Finance Bank, which is represented by Mr. Nitin Chugh, Managing Director and CEO; Mrs. Upma Goel, Chief Financial Officer; Mr. Ashish Goel, Credit -- Chief Credit Officer; Mr. J. Srinivas Murty, Head, Liabilities; and Mr. Deepak Khetan, Investor Relations. We thank the management for giving us the opportunity to host this call. The call will begin with an opening remark by Nitin, and then we will open it up for Q&A. Thanks, and over to you, Nitin.

[indiscernible] quarter for this financial year, and thank you for joining us this morning. I do hope all of you are safe and keeping healthy. I'll cover the brief about the first quarter and get into some details of the important elements, and then we'll try and keep sufficient time for Q&A as well. So quarter 1 expectedly was a challenging quarter as all of us were impacted with the second wave of COVID. And a lot of our own staff was also infected. We also checked with our customers through our internal survey, and nearly 54% of our customers reported between partial to total loss of income during that time. Our collections dropped to less than 70% across the industry. But now we are seeing quite a good improvement. We managed to get to 78% in June and July has been a remarkable recovery to 93%. The states and the regions, which were more impacted than others were South, where we had stricter and lengthier lockdowns, the 3 states that we operate in, Kerala, Tamil Nadu and Karnataka, and partially in West Bengal also, where there are still restrictions on the suburban trains, which are not functioning as yet. So the recovery is better, but it's taking a little time. And Assam, as you know, has already been impacted for a very long time. And while there is improvement, but it continues to lag. In June, in South and East, collections were at 63% and 78% versus 92% in north and 83% in west. So that kind of highlights the difference between the different regions. And since we have a larger portfolio in South and in West Bengal, our collections were impacted accordingly. So we've been taking multiple steps to handle the situation and minimize the impact on our portfolio and also keep preparing for growth. So the first one is that we stepped upon collections significantly. On the microfinance side, we use a multi-pronged sort of an approach with a very strong field mobilization with field staff, collection agent, off-role collections teams, and also supplemented with increased digital prepayments and the fintech touch points that we have through Airtel payments bank at PayNearby. In June and July, our collections efficiency was ahead of the industry or probably a lot better than the rest of the industry despite having the significant exposure to south and east markets, which are trailing the national average in terms of collections. Our collections from the digital means was about 16% and another 35% came through our fintech partnerships where we don't need to handle the cash. So roughly 51% to 52% of our collections happen through these alternate means. And this has been very helpful for us because we set up this infrastructure -- or started to set up this infrastructure in Q1 of last year. Now we are in the process of also launching some innovative ways of repayments, such as WhatsApp-based collections, which will help our field staff, and that will also help us in strengthening the overall repayment mechanism. On the secured book side, we have really beefed up our legal framework and expedited all the legal recourse processes, and we do expect to improve collections and bring down the GNPAs on the secured book also in due course. On the provision coverage, in our last earnings call, I did mention that we will take necessary provisions once we are able to ascertain the impact of the second wave and we were somewhat in the middle of the second wave when we had our last earnings call in mid-May. We've done a full detailed analysis based on how the book has been performing and how collections have got impacted. And on that basis, we have beefed up our provisions by taking an extra INR 250 crores of COVID-related provisions, which is about 1.8% of our total outstanding. With that, our book coverage now stands at 8.2% and PCR is 75% against 60% in the previous quarter, and I'll discuss this in detail when I discuss the NPA and the credit quality. Also, the Resolution 2.0 framework, which RBI announced on the 5th of May. We started working on this to help the borrowers, who were struggling due to loss of livelihood, which I just mentioned the extent to which we saw the damage. And we did see a large base of customers also becoming delinquent who were repaying regularly until March. In Q4, we had seen a very good recovery, but they obviously struggled to pay us in Q1. So we kicked off the whole resolution framework in June, and our plan is to restructure about 7% to 8% of the book to support these customers who were not delinquent as of March '21. And we mentioned that in a lot of detail in our Investor Day also. We also had, unfortunately, 1,370 employees who got impacted, many of their family members, and we also lost 9 of our colleagues. And while this has been very, very unsettling for us, but I think we've shown the resolve to rebuild the business and support our customers rather quickly. We continue to take care of our employees by encouraging all kinds of safety precautions by -- through vaccination camps and making sure that their families also get vaccinated, and also supporting the infected employees and their families to the extent that we could when the second wave was at its peak. So as of end July, 72% of our staff has been vaccinated by at least 1 dose. And considering that we have a much younger population, most people became eligible for the vaccination much later. And we are now making all efforts to cover all our staff, which will not just take care on the health side, but I think it will also help us prepare better in case there is a third wave. On the regulatory side, there were developments in the quarter rather in the month of July. And RBI informed the association of small finance banks, which we are a part of, on 9th of July that the small finance banks can approach RBI 3 months prior to completing 5 years of operations from date of commencement, in case we wish to merge the bank with the promoter holding company. And what we plan to do is that we would apply to RBI sometime in early November, just 3 months before our fifth year -- when we finish our fifth year, and then go through the whole process of the approval, the procedural approvals that are required. And we do expect that the whole process of the reverse merger can take up to 12 months to get completed. And we are working on all those procedural steps already. Now coming to the key highlights of the quarter. In mid-April, of course, we witnessed lockdowns across all the states and disbursements, therefore, were impacted because we barely had 1/3 of the quarter available to us between the first probably 15 days of April and the last 15 days of June in some parts of the country. So disbursements were about INR 1,311 crores, which was down 69% from Q4, which was, of course, an exceptional quarter for us. However, this is 175% year-on-year growth over the last quarter -- first quarter of the last financial year, which is not necessarily comparable because it was kind of a washout, but nonetheless. In microbanking, we largely disbursed to our existing customers who were nondelinquent and have maintained a good repayment track record. And Q2, of course, has begun on a much better note, with July disbursements being at INR 974 crores as the restrictions started getting opened up. In June '21, our nonmicrobanking book is now at 32% versus 28% in March. Secured is now 30% versus 27%. While this is in line with our strategy of the diversification of the asset book to steadily increase the proportion of secure, part of the reason also is that the microbanking book has also degrown. So I would attribute this to both our stated strategy and the way we are working around it and the quarterly effect of the reduction in the micro banking book. We did very well on the deposit side. Our deposits grew by 24% to INR 13,673 crores, and retail continues to contribute to 48%, much -- as much as what it was in March. CASA is also unchanged at 20%, 20.5% was in March and 20.3% is in June, and we grew very strongly by 77% on a year-on-year basis in CASA. Our branch banking is really driving the growth in retail deposits, and now also has a large share of the overall retail deposits. Our branch banking CASA actually grew by 130% year-on-year to close to INR 2,000 crores and now comprises almost 71% of the total CASA. So effectively, we are making sure that the CASA is led through retail new customer acquisition and the retail franchise through our branch banking channels. Just like assets, July has also been a good month for liabilities. The contribution of retail deposits has moved up from 48% to 50% with a healthy growth in CASA as well. We acquired 1.1 lakh new liability customers, despite all the restrictions that we had in Q1. Total acquisition was about 2.1 lakhs, of which 1.1 lakhs were new to bank customers. We continue to focus on our digital initiatives on improvement in productivity, cost optimization. Those were themes that we had started working on the last financial year. There is a whole lot of detail on our robotic process automation, digital collections, which we mentioned in the Investor Day, and I would urge you to go through that as well. Our noninterest income also remained an area of focus to supplement the interest income, and PSLC income that we booked in Q1 was INR 27 crores. Treasury operations were very healthy. Net trading income of INR 40 lakhs, and we also benefited from the shift of -- from HTM to AFS portfolio by realizing about INR 11 crores in the P&L in the first quarter. Our capital adequacy of course, remains high, and the LCR is also very healthy. So on the fundamentals, I think we are absolutely fine as strong as ever. On the customer-facing channels now, while we've been working towards providing multiple [indiscernible] to provide them better proximity as well as convenience, our digital platforms like Internet banking, mobile banking are finding very good usage. We've covered that in a lot of detail in our's investor presentation also in terms of kind of penetration we are seeing. Now within the small finance banks, we are ranked #1 in our number of transactions on mobile and Internet banking, and we believe we command a share of nearly 45% to 50% amongst the SFPs and consistently for the last 12 months. Now there are some 407 banks that report their mobile banking transactions to RBI. This is a publicly available report. We are now ranked 32nd in March '21 versus 37th in March '20, and we are obviously increasing our ranking even out there amongst all the banks present in the country. Our branches and our phone banking channels are now contributing to cross-selling in a very meaningful way. We've seen improvement in cross-sell productivity across our phone banking channel also. It's nearly double of what it used to be about 12 months back. We continue to expand our reach in the form of tie-ups with fintechs, both for acquisition as well as collections that I mentioned across all lines of businesses. In the MSE business, we are Tier 4 supply chain finance, which went live in Q3 of last financial year has scaled up in the last 2 quarters and nearly INR 100 crores was disbursed in the last 6 months. The personal loan also went live in March and May, and they are gradually scaling up. We are working with 2 fintechs right now, and we do have plans to engage with many more on the back of our APIs. I have mentioned that we are increasing the proximity touch points for our customers for collections and through our tie-ups with Airtel Payments Bank and PayNearby. We were able to add nearly 1,600 plus outlets in Q1. So the total number of outlets is about 11,000. We will continue to add many more outlets based on where we have a need to provide this proximity location. Again, coming back to liabilities. While we are working towards building a granular deposit base with a rising share of retail deposits, driven by the right sourcing mix, quality of accounts and improving sales productivity, our total deposits, like I mentioned, grew by 24%. The retail book now stands at INR 6,515 crores versus INR 4,929 crores a year ago in June '20. We are now offering also a fairly competitive rates, much in line with the rest of the cohort that we -- the participants in the cohort that we operate in, the small finance banks and some of the mid-sized banks. And that is also helping in our CASA growth, which is now at INR 2,773 crores, up 77% year-on-year. However, due to lower disbursements in our microbanking book, CASA was impacted. The CASA book in microbanking is largely linked to disbursals because customers like to keep their money after the money is disbursed into their accounts. So that did see a reduction because of the muted disbursements. So really speaking, the right way to look at it is to look at the branch banking contribution to CASA, which grew by 130% year-on-year, which I've mentioned briefly, is now close to INR 2,000 crores and 71% of our total CASA. We've also introduced fairly good number of value-added products in our liability franchise and have been focusing on improving the product mix with the objective of increasing and improving the quality of average balances, so that we create a liability base, which can be cross-sold to over a period of time as we introduce more and more products. And there is a fairly detailed mention of the new products that we are launching even Investor Day, and I'll also cover that very, very quickly later. Our retail branch banking average balances on the savings account has moved from -- moved to 18,000 in June '21 to 11,000 in June '20. So that's also a fairly large improvement in the overall portfolio level balances. However, if you look at the new acquisitions that we did in quarter 1, the new acquisition average balances were at 42,000 versus 16,000 in Q1 of last financial year. So there is a remarkable improvement in the -- both the quality and the quantity of the balances, largely because we are focusing on better quality customers since we are very keen to build a long-term franchise, which keeps enhancing -- the relationship value can getting enhanced through cross-sell. Excluding salary accounts, which has again been a very good story for us, and there are details of that also in the Investor Day. The average balance of retail branch banking account is 20,000 as of June '21 and 53,000 for the last quarter, which if you include salary is 42,000. Our improved productivity levels are also reflected in the 2.1 lakh customers that we acquired on the deposit side, of which 1.1 lakh I mentioned were new-to-bank customers. Also important to highlight that the cost of deposits is continuing to trend lower at 6.4%, declining by nearly 110 bps since Q1 due to a higher proportion of CASA. And in July, our cost of deposits has come off by another 10 bps. So I think it's a trajectory, which is very clearly coming down. And we do see the benefit of that in our overall cost of funds as well. On the third-party product side, which is largely our strategy for the noninterest income, we -- it is becoming gradually a good contributor to fee income for the bank. Most of it is coming through our distribution branch -- our branch network on the distribution side. And what we did focus on in the last year was to increase the number of people who were certified to source our market insurance, and that number has gone up to now 3,056 people who are IRDA certified. This number was closer to 400 something at the beginning of last financial year. So we've really stepped up on this. We are also now working on distributing this through phone banking and the other digital modes. We did introduce a lot of new life insurance and term plan products in the last year, which is again gaining good acceptance. We again introduced 6 new participating insurance products in the last quarter in Q1. While this quarter was subdued with fee income declining as compared to the previous quarter, largely because of the insurance income that comes from the credit life product, which is bundled with insurance and linked to disbursals. I think we managed to generate additional business of INR 40 lakhs largely due to the newly introduced products that I just spoke about and an overall income of over INR 3 crores, which was up 86% year-on-year. In July, we are seeing, again, very good traction in third-party products. The [indiscernible] has increased by 67% over what we did in the month of June. And as we mentioned in the previous earnings call, we plan to launch mutual funds. We made a mention of that in the Investor Day again. We have shortlisted 7 AMCs for partnering, which will be completed in the next couple of weeks, and we do expect to launch this by the end of August. On the CSR side and on the employee side, as a responsible citizen, we continue to extend our helping hand to the needing in these times in the last quarter, especially. And while adhering to our usual CSR practices of community development and disaster relief, we also distributed beds, oxygen cylinders, extended support to COVID centers and hospitals. And in that process, we spent about INR 80 lakhs during the full quarter on the CSR side. Along with this, the employee welfare was obviously prioritized, and we made sure that we vaccinated as many employees, which I just covered to the extent of 72%. Some details on our digital initiatives. Our digital framework is now completely aligned with our business processes, beginning with lead generation to customer sourcing, loan generation, deposit mobilization, handling collections digitally, and all of these are giving us very good and healthy results. In Q1, our digital efforts have resulted in some of these following outcomes. First of all, on the API side, the strategy and the fintech outreach program with our 159 APIs is in place for fintechs to build prototype. And there is a dedicated portal, which has been established for single-window clearance and you can check that out on our website. So in future, we do look at creating a sandbox also for prototyping with fintechs. And this is something that we are now taking out through an outreach program to partner with as many as possible like-minded fintechs. As of now, we have 3 live fintech partnerships for repayments and 3 on the lending side for personal loans and MSE. On the process side, which has largely led to robotic process automation, we have now 16 processes across business verticals, which are automated through RPA, of which 2 are completely unattended and another 15 are in the development stage to be automated in Q2 of this year. And we have many more lined up for the rest of the year. We do expect to automate nothing less than 120-odd processes by the end of the year. The good thing is that the RPA set of processors are now handling a lot of transactions. So nearly INR 1 crore transactions per month is what we've reached and we made -- again, made that mention in the investor deck. This is really helping us in making sure that there is business continuity at all points in time. We have a multilingual bot, which is being made for the even more intelligent and this would help us not just in lead generation that it does right now, but also in handling some kind of basic and, to some extent, even complex queries from customers and even employees. Employees will also stand to benefit from this when they want to access any information about products and services of the bank. We are also in the process of strengthening our analytics practice, which is, again, a place where we've really invested in the last 1 year. And we do plan to transform all our businesses through data and insights in the next 12 months. A fair number of customer profitability scorecards, collection scorecards, underwriting scorecards, a lot of them were already in place, and we have developed and defined quite a few of them. And this will help us in making sure that we have the ability to offer personalized sort of products to our customers, and also -- and make sure that we move towards better profitability at a customer level. And even in underwriting, we are now gradually moving towards more of scorecard-based processes, and this will always keep getting refined. With our AI stack in place now, we do have plans to also use AI for our underwriting and customer acquisition. We also have a framework for marketing to customers and engagement, which we had launched a few months back. That is also helping us with all kinds of digital campaigns, both on the portfolio side as well as acquisition side. Now coming to restructuring 2.0. We kicked off the framework in June, like I mentioned, for the nondelinquent customers as of March and largely who were regularly paying us in the first phase. These customers were personally met to discuss the situation on the ground and provide solutions. Like I did mention, 54% of our customers were only impacted through either a partial or a total loss of income during that period. So EMI holiday or a principal holiday or a tenor extension or a combination of these are being used to restructure. And the whole process of restructuring and the workflow were also digitized so that we make sure that there is nothing which is grown to any kind of human error, and we are able to also do it in a more efficient and a broad-based manner. And I think, we restructured 16,138 accounts, about INR 39 crores in June, including INR 8 crores from the Resolution 1.0 bucket. Another INR 750 crores to INR 800 crores of potential restructuring by 30th September is pipelined and may include INR 100 crores to INR 150 crores of restructuring from the first bucket. In MSE, 165 accounts to the extent of INR 20.7 crores was restructured. And I think another INR 78 crores is planned to be restructured by end of September. Likewise, in housing, we restructured 126 customers amounting to INR 10.6 crores. And we expect another INR 94 crores to INR 100 crores to be -- our plan for restructuring by the end of this quarter. In July, we have overall restructured INR 501 crores of the portfolio, of which INR 480 crores is microbanking and the balance is MSE and affordable housing. Collections, like I mentioned, we witnessed very encouraging improvement in July. South had a remarkable pullback. And across all the states, I think we have seen a remarkable improvement with the exception of Assam, which also did improve, but continues to lag behind the rest of the country. So our overall collections improved to 93% from 78% in June. And the collections from the restructured portfolio was at 50%, which had dropped to 37% in June. We also saw a good traction in the early delinquency buckets, nearly 1,50,000 customers who were NPA as of June 21, started paying us in July. And we saw an overall upgrades of nearly INR 300 crores, excluding restructuring. And the PAR now in June, which we mentioned was at 30%, 31%, has now been reduced by nearly INR 800 crores and is now at about 25% as of July. So there is consistent improvement now both on the back of collections, restructuring and the customers, who have now started to pay us who were earlier NPA as of June. Credit costs, I'll cover quickly. So while the collections went down to 72% in May from 94% in March, and they have indeed recovered in July, like I just spoke about, it will take some time for us to go back to the normal pre-COVID levels of 98%, 99%. However, we have witnessed a good base of customers who were not delinquent in March -- as of March, who struggled to pay their EMIs. And for such customers, we had launched this restructuring program. And we -- like I earlier mentioned, we will have roughly about 7% to 8% of the book, which would get restructured by September. I would also like to highlight that the tightening of the credit policy framework and the underwriting standards, which we took as -- on the basis of a fairly cautious and conservative stance in the last financial year, the new book that has now got built to the extent of nearly 56% of our overall outstanding is behaving extremely well with very high collection efficiency. And with GNPA in this book is just about 0.4%. So really speaking, the pain is coming from the book, which was prior to March '20. And this is actually a very good positive sign. And as the new book replaces the older book and especially in the business of microbanking, I think the portfolio quality will only become stronger and better for us. And I think this also reflects our conservative posture in terms of new business, and we will make sure that we are not taking on any unnecessary risks just to grow the top line. So based on all of this, our estimate is that -- I know all of you would like some kind of a guidance on the credit cost. Unfortunately, we do not have a way to do that because things are still evolving and things are playing out every month, while they have indeed improved. But we do expect to be able to at least manage in a similar or a better range, provided we don't get into any other unpredictable and uncontrollable set of external circumstances like a third wave and also not for too long. I had mentioned in my previous call also that if we get 3 clear quarters, we will have a very strong recovery. I also mentioned that we are looking at a growth of 20%, 25%. We are sticking to that. It could be closer to 20% rather than 25% as things change, but it would also go back to closer to 25%, if things actually pick up a lot better than what we are estimating. We are also -- since we are vaccinating our people, and there is a large vaccination drive across the country, I'm sure all of you are following that. We do hope that the impact of the potential third wave is going to be a lot lesser and restricted as compared to the first 2. We also think that we would be able to afford the provisions through the operating profit, and we will not have to dip into the balance sheet. I mean that is one thing that I think we have been clear about even in the last financial year. On the financials, I think we have -- especially on the cost side, we are focused on making sure the costs are in check, and we are continuously improving on them through various cost optimization initiatives. And despite the increase in NPAs, which has affected our income recognition, we have been able to reduce the cost to income to 65% from 67% in the previous quarter. The yields and the NIMs were also affected due to higher NPAs and all those details are mentioned in the investor deck, so I won't spend too much time here. We do plan to open 40 branches. Our original plan was 55 that I spoke about in the last quarter, but since we've lost quite a good amount of time in the first quarter, we are rationalizing that plan, and we do expect to add at least 40 new branches in this financial year, and at the same time, also keep investing in the API-based distribution infrastructure through our tie-ups with fintechs. At the same time, on the tech side, we will have a lot of new initiatives and investments, especially analytics, data lake, artificial intelligence, and capacity augmentation and network optimization. So all those decisions on the investment side are also being taken, some of which we had held back in the last financial year. Now coming to some of the new products that we do plan to launch and this is really the last part of what I want to talk about. The whole philosophy is that we should be able to give meaningful and relevant products to our customers, which help us in building long-term and profitable relationships with them. So that really starts with a good liabilities franchise, or on the other hand, a good asset franchise where we have the ability to cross-sell liabilities and other third-party fee-based products. So the first one that we are going to be launching in this year, which we've spoken about, and we made some progress on that is our credit card product, where we have finalized a tie-up with a fintech partner, and we would be sharing details of how that whole arrangement will work and when we are going to be launching in due course. At the moment, I can tell you that through our analytics score card modeling, we do have substantially large customers of customers -- large customers on our books who we believe are going to be eligible for providing preapproved or some kind of cards which also can -- on the new acquisition side in the future, we would have the ability to bundle with our savings accounts. All of this will also happen -- going to happen through a seamless digital onboarding workflow, so we don't expect costs to go up in this business because of customer acquisition, which is largely the largest cost in a business like credit cards. In microbanking -- within microbanking, we were incubating the gold loans business. We had skilled -- we had tried this whole pilot in about 5 branches. Now we are in the phase of scaling it up to 25 and then to 100 in rest of the year. On the ECL GS scheme, we have begun disbursements in July. The ticket sizes actually are very small, especially in microbanking. So it doesn't make too much -- it doesn't appeal very much with our customers. Nonetheless, we are trying that on our best effort basis and making sure that whichever customers are willing to and are eligible, we are offering them the ECL GS as well. In MSE, our micro and small enterprises business loans, we launched term loans, overdraft and cash credit facilities under the credit guarantee trust scheme, the CGT MSE scheme, and this will also be our first cash credit product under the MSE. We are working on term loans, overdraft and cash credit for the healthcare segment. You will remember that RBI when they announced -- the guidelines that were announced on the 5th of May, there is a provision to create a COVID loan book by lending to health care segment. So we are -- we have prepared ourselves for that, and we should be launching that very soon in this quarter itself. Mutual funds, I've already covered. So I'll skip that. Personal loans, again, we are introducing a few variants, largely on the back of digital preapproved loans, which will give us a far better turnaround time with our customers and also greater efficiency. And we will also be launching products like bank guarantees for our capital commodity market clients, cooperative banks, et cetera. And a few others, of course, include used car loans, the WhatsApp-based EMI repayments, paperless Hospicash cash, our digital FTEs through our partnerships and foreign exchange products. So I think there is a lot that we have for the rest of the year, both on the collections as well as on the business side. But the way we have seen the month of July play out, we are extremely confident. We will continue to remain cautious. And since we are operating in a fairly evolving dynamic sort of environment, also under the threat of a potential third wave, our efforts are going to be largely targeted towards improving collections and minimizing slippages and continuously enhancing our products and services to make sure that they are relevant and they food our target customer base, in digitizing our workflows for better efficiency and productivity as much as also focus on crop cost optimization, and increasing our reach with the balance of physical and digital touch points. In the end, I would just say that we remain our sharp focus on improvement in earnings and quality of the balance sheet, and maintain our conservative positioning related to provisioning. I'll stop at that and hand it back to Abhishek for opening this for Q&A. Thank you very much for your patience here.

Yes. Thanks, Rutuja, can we open up for Q&A, please?

[Operator Instructions] The first question is from the line of [indiscernible] Capital.

So I have a question for Mr. Chugh. Sir, I'll just put a few numbers. So in Q1 FY '21, we took a INR 140 crores of COVID provision. And you mentioned that the provision was taken after 3 weeks of analysis done by the deal. In Q2 FY '21, you again took INR 100 crores of COVID provision, and you mentioned that basis your analysis and analytics as management overlay, you have arrived to that number. And you quoted that I can only tell you of that 3.4% of the book is reasonably comforting. Then Q3 FY '21, you took a massive INR 550 crores of provision. And you said that we believe that we have taken this bold call by, one, acknowledging the fact that it could take longer to resolve the impact and also to protect the P&L from any seen or unseen future damages. In Q4 FY '21, when the results were announced in -- during the second wave, you did not take any provision when obviously the other banks and NBFCs and MFIs were adding to the provision. So -- and in Q1 FY '22, you have again taken a very big provision. And now you're on a defensive plan saying that it is only for the near-term slippages. So sir, I just wanted to understand that was the -- did the analysis go wrong somewhere? Or do you misunderstood the pulse of the business since -- and looking at the stock prices also, each and every BFSI or MFI has recovered from the 2020 lows, but given somewhere in the similar range. So can we expect some logical move from the management on this?

Yes, Harsh, let me explain that clearly enough. So in Q1 of last year, we took INR 140 crores based on our estimates of the things that we're playing out at that point in time. We supplemented that by another INR 100 crores in Q2. By Q3, I had also very clearly mentioned that the impact of the moratorium having got over in August and since we did get 3 clear months after the moratorium, we were in a better position to estimate not just for Q4, but also to an extent for Q1. However, there was no inkling offer through same wave at that point in time. I think we have mentioned that in the previous earnings call also, right? Now when the second wave came in April and in May, you mentioned that we did not take any provisions in Q1 -- for Q4, sorry, we were carrying INR 172 crores of provisions even at that point in time. The estimates cannot be determined in advance all the time. And to the extent that we could, we have to also assess the situation as it is evolving. And on that basis, you take a call. So I don't think our estimates have gone wrong in any manner, but you need to be a little more dynamic in taking your decisions to decide as to when you want to take those provisions. And since we were carrying INR 172 crores of provisions in Q4, which we carried over in Q1, there was reasonable comfort that, yes, we would be able to take more provisions if we have to. Now this INR 250 crores of provisions, of course, we are taking as a conservative posture, okay? And I am just saying I agree with you that we are saying taking a bit of a medium-term kind of a view or a short-term kind of a view, but things are evolving and things are only improving. So we -- I think that is the reason I also did say that there is going to be a difficulty in terms of estimating the credit cost for the entire year. We will have to make sure that we are generating enough profitability and income to supplement, but at the same time, also respond to the changing market situation. Things do look like they're improving as they are in July. And we do hope that things will continue to improve. But none of us know that whether there's going to be a third wave or not. And I think that was perhaps one of the things that nobody estimated when we were talking about our Q3 numbers because we were in the middle or the beginning of Q4, which was looking extremely promising, and nobody anticipated. The second wave has taken everybody by a surprise. Now coming to the stock price, I really can't comment on that because these are market movements and there is nothing that I can say more or less on that, and I really don't want to compare ourselves on that basis. But what we can discuss in a very, very clear and transparent manner is what we are doing, what we have done and what our thinking is.

Great, sir. Sir, the second point I want to make is that -- I read a post on social media yesterday a couple of days back that the team flew to Pune to meet a portfolio management company, which what I think it does not have a very significant stake in the bank. So my question here is that -- are you trying to raise money from them or you're meeting such PMS and HNI otherwise also?

No. See, these are regular investor interactions, okay? The company that is mentioned, and we are aware of all of this, is a long-time investor with Ujjivan through their clients, all right? And this is not the first time that we are interacting with any investor or an AIF for that matter. So this is pretty routine for us. So we are not going out in the market to raise money. If we were going out in the market to raise money, we would have obviously notified that through many other ways and that would have been a normal conversation in the market, okay? So I don't think there is much to read into all of that. This is a very, very normal, usual business operations that we have as part of our communication and interaction with investors. And yes, because it's come out in the social media or whatever is, there is some bit of examination that is being undertaken at the bank.

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

So a couple of questions. So one on this entire MFI group loan ecosystem. Since we are now collecting almost 50% of the money via a third party or, I would say, a nontraditional Ujjivan channels, so how you are sort of maintaining the relationship or the communication with the customer in the same effective manner, which we might be having actually a year back?

See that is a very simple thing to -- let me explain that. So 16%, like I said, is coming through digital where customers are using one app or the other to make those payments, right, Google Pay, PhonePe, Paytm, whatever else, okay? And these customers obviously have been onboarded and trained by us. So we haven't lost touch with these customers. We still meet them at the center meeting. It's just that at those center meetings, we encourage them to pay digitally rather than handing over the cash to us. So the interaction is not going away. The second part, which is the balance, 34%, 35%, which is coming through the touch points, there are 2 ways that work here. One is that customers have a proximity point, so they are free to go and deposit cash, but this usually happens when we are unable to meet them. Okay, so if we are unable to meet them because of lockdown restrictions like we've had for the last 15 months or 18 months, that is when that is very, very helpful, where we urge customer that there is a store next to you, 100 meters away from you, where you can go and deposit your repayment, okay, and it's all tech-enabled. However, a large part of that is our own people who go and collect cash at the center meeting and rather than coming back to the branches, they will go and deposit this cash after payment outlets, right? That helps us in making sure that we are handling lesser cash. Our people free up a lot of productive time and they are able to spend more quality time with their customers. And in any case, if there is a situation where the -- our person is unable to go and meet these customers for whatever reason or this inter-meeting does not take place, you have the option of the customer also walking up to that payment point and making the payment. That is step one. In the long run, our plan is to also use these points for distribution. Today, we are only using them for collections. But in the long run, we also want them to be distributing for us, and that is why we have done a tech integration on the back of our APIs. This is not a manual process. Everything is real time, right? And we have continuously improved on that. So it is a fairly long-term thing. And this is in no manner going to in any manner or impact the discipline that people talk about of center meetings because center meetings are taking place. And when they don't take place, like they were not taking place during lockdowns, et cetera, or customers were unwilling to turn up or we were required to go and meet them door-to-door, then obviously these outlets help because then it saves a lot of time for us.

Got it. Got it. So Nitin, is it fair to assume that in the quarter, ideally would be meeting 100% of our customer base, of course, not considering the second wave, but let's say, between October, November till March?

Yes, yes, yes. I don't think that has been a problem. We don't have a problem of non-contactable customers in our portfolio.

Got it. Got it. Okay. So second part, of course, some sort of reconciliation. So you did mention about PAR zero in July sort of falling to 25%, wherein our collection in July has sort of improved significantly to 93%. So I mean, logically, then the collection is ideally coming from the regular customers who were paying in June and the customer acquisition from the delinquent pool is still sort of challenging. Is that the fair assumption?

We only think collections has improved across all our buckets. I mean I can't think and can't see any single bucket where our collections haven't improved, including the NPA buckets, okay? Okay, so it's fairly well distributed. Yes, the non-default accounts, NDA as we call them, that went up to -- I mean, that was holding up in any case. So that also went up to nearly 99%. So it's fairly evenly distributed. There is no such thing that it's only coming from the early buckets and not from the -- I mean, the base can be different. I mean let's say, 1 bucket in the later stage was at, let's say, at 20%, improvement from 20% to 30% is as good as improvement from 85% to 95% for another bucket. But it is improvement all across.

[Operator Instructions] The next question is from the line of Pratik Chheda from IIFL Securities.

I just wanted to understand, you've disclosed your portfolio at risk around 3.8% on an overall level. Can you break this down on a segmental basis? And given this portfolio risk at 31%, what sort of slippages are you expecting in the next quarter? I mean the long-term view is difficult to give or what sort of your expectation is there for the next quarter? And secondly, the microfinance book has been running down. It has run down quite a bit in the quarter. Where do you see the microfinance book settling by the end of the year, the mix of the book?

Okay. Let me just answer the part that you asked, and this is data that I'm sharing for the month of June, not for July. July, I have shared the overall numbers at 25%. So in June, while at a bank level, we were at 30.8%, microbanking was at 37.1%, housing was at 16.6%, MSE was 29%, personal loans was 15%, and vehicle finance was 16.6%, okay? So that's broadly the PAR zero for all our businesses. However, PAR zero actually makes sense only for microbanking business. I mean most of the discussions and the correlation really is established around PAR zero for microbanking, not so much for the other businesses. But nonetheless, we're not sharing this with you. On the second question that you have, where do we see the slippages in this quarter? I don't think we have a good way of answering that in a very affirmative way. We will have to keep updating you on our earnings calls quarterly. And you have to kind of estimate from the improved collections to begin with. And as we think -- see, in August, things are looking better than July also, at least in the first week of August. So there is a lot of optimism that we believe that we will be able to have a much better quarter in Q2, both on the business side as well as on the collection side. The book on an overall basis, like, I did mention, we do expect a growth of 20% to 25%, and we are sticking to that guidance. And therefore, the microbanking book would be a subset of that. And since it's also our stated strategy to grow the other businesses a lot more than the microbanking business, microbanking business will also grow in a certain range as compared to the other businesses, which would be -- have a larger growth over their base as of March '21.

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

Sir, my question was with respect to restructuring. So in the MFI look, like what kind of restructuring are we doing? And what is the maximum monthly holiday that we are doing with the customers? And the other -- like other question with respect to saying aspect is that if you look at the collection efficiency for the restructuring move, even in January, February and March was very low. So just if you can just throw some light on that aspect also.

See, very low is relative because if you look at the nonrestructured standard book, then obviously, it is low, but we had restructured a set of customers wherein collections efficiency before restructuring was 49%. That went up to 75%, okay? So it was a very good recovery on that basis. Yes, it has come down to -- it went down to fairly low levels in June and then it has improved from -- that to 50% in July. But see, all those customers who were impacted in the first wave, a lot of them or I would think most of them would have been impacted in the... [Technical Difficulty]

[Operator Instructions]

Yes, sorry about that. So I was saying that the restructuring -- the customer who we have restructured in the first wave, I would think all of them would have been impacted by the second wave also. So when people get impacted by 2 consecutive waves, obviously, it is going to show up in collections. I think we are not surprised with that. Now the only thing that we can do is that we can provide for a higher coverage, which we have indeed turned for the restructured book to the extent of 35%. Now what you -- the other thing that you asked was that to what extent do we expect restructuring in microbanking. I did mention in my opening remarks that we have an estimate of about INR 750 crores to INR 800 crores of potential restructuring, of which we have completed INR 480 crores in July, and roughly about INR 39 crores in the month of June, okay? And this will also include maybe around 100 to 150 of customers from the first round of restructuring.

The next question is from the line of Tushar Sarda from Athena Investment.

My question pertains to credit cost again. What I find is that total collections for microfinance is around INR 11,560 crores, the amount due for FY '21. Against that, what you've reported is collection of INR 8,600 crores. So there is a deficit of INR 3,000 crores, against which provision last year is only INR 800 crores. So are we under providing for the credit cost?

Collection dues from day 0 onwards, okay? We don't...

Yes, I'm taking the month-wise figures that you provided in the presentation.

No, I am also coming to that only. So nobody starts providing from day 0 because you have time to collect from customers and because of the situation that was there in all of last financial year, continuing into this financial year, I mean nobody starts providing on day 0. There are norms that we are required to follow for provisions. And at a certain stage is when you start providing, provisions again, are to a certain extent of the book that you estimate to go into NPA. And that is the whole reason why a metric like PCR is used. So I don't think they have underprovided at any point in time, and I did clarify that to the first speaker also, who asked the same question. And it is mentioned very clearly, and that is the stance that we have maintained even in this quarter. We are -- we have taken accelerated provisions only on a basis of a conservative provisioning.

No. Now if you take month-wise, let's forget the full year, Q1 FY '21, the amount short collected is INR 2,256 crores, right? INR 3,000 crores was due to collect at INR 700 crores. So INR 2,256 crores is the short collection. After that, the additional collections which you reported month wise comes to only INR 600 crores, INR 700 crores. So there is INR 1,500 crores, which is due from Q1 FY '21.

See, Q1 FY '21...

Which is almost 9 months, right?

No. I'm sure you will remember that in Q1 of FY '21 and 2 months of Q2 of FY '21, there was moratorium. And we had offered a blanket moratorium to our entire portfolio, much like the rest of the industry. So there was no demand only to begin with. I mean this is a demand only on paper, but if you offer moratorium to your entire base, there is 0 demand, then you are not collecting against that demand. Whatever is coming in is over and above what is the demand generated for that month because the portfolio is under moratorium. So it has to be seen in that context also, sir. And when the moratorium got over in August and then how many customers were able to pay or not able to pay, that is when we did restructuring in the third quarter. On that basis, we decided to take accelerated provisions in the third quarter. The only thing that we did not know at that point in time was whether there was going to be a second wave or not. And that is indeed that which is again cause damage. And that is, again, the reason why we are taking more provisions. It is reasonably simple in our head that way.

No, no, sir. What you are saying is that what was due in April, May and June and because moratorium was there, you didn't collect it, but it obviously becomes due when the moratorium is over, right?

Yes, that's what I said. So in September, October, November, after the moratorium got over in August, we saw how many customers were unable to pay, how many customers needed assistance through the restructuring framework, which was again announced in August of last year by RBI, which we implemented in Q3 on that basis, okay?

But do you have a figure of what is due in Q1 or when the moratorium ended, what was the amount due and how much have you collected against that?

See, the dues are always on the monthly basis. If you have offered moratorium, then nothing is due. When the moratorium gets over, then you start the whole process for that month, which happened for the month of September, so you will have to look at the demand for the month of September, which would be in the range of INR 1,000 crores or thereabout, similar numbers for any subsequent month. And during that time, in August, September, October and November, when we had a good estimate and a good view of how many customers were able to pay, how many were not able to pay, that formed the basis of both restructuring as well as the provisions.

The next question is from the line of Krishnan ASV from HDFC Securities.

I just want to understand, first, Nitin, just from the severity of the second wave and how it has affected lives and livelihood, what might be the permanent impairment that might have taken place in the customer base? Need not just be your customer today, but also the potential, I mean, addressable market that you had as a small finance plan. What is your assessment of, say, the permanent impairment that may have happened?

I think our view is not going to be any different from any economists that you talk to. There are people who are saying on one end, only in the -- because of the first wave they are not taking into account the second wave, there were people who were saying that 20% of population will slip into poverty, below poverty line, all right? There are estimates of x million jobs that have been lost, x million of income that has been lost. So when you cut through the whole clutter and when we look at our portfolio, there are certain occupations, which we have been highlighting even in the past, which have indeed had a permanent impairment. However, these people don't get impaired to the extent that they don't have a means to come back because most of these people on the marginal side, they're also very quick to go back to some other occupations. That is number one. Number two, many of these people have multiple sources of livelihood within the family, okay? And when we assess them also for loans, we look at the household income, right? And that is also one of the things that this harmonization people also talks about from the RBI, household level income assessment. So when you're taking a household level income assessment unless all the income earners in the family have been impacted equally and at the same time, the impact of impairment is a lot lesser severe. However, in the second wave, the one different thing that we did see very clearly was that even if people had the money and we did this through a customer survey, and that's why I'm telling you very clearly that 54% customers did report partial to total loss of income. Even if they had savings of money, they were holding on to it because that was also a time when we had shortages of all kinds, shortages of beds, shortages of cylinders, shortages of ambulances and people just didn't know where they would have had to pay in black for whatever, and everybody was worried because COVID second wave came very close to all of us. So we did see that sort of a behavior also getting displayed during the second wave. However, like I said, permanent impairment does not happen to the extent that the person will be dependent only on government grants and subsidies. Permanent impairment can happen for a shorter period of time. The loss of livelihood or a loss of a certain occupation gets replaced through something else, it may not be as income earning to begin with. But I think all these people are resilient enough to resurrect rather quickly. Now unfortunately, because it's been one event after the other, almost in quick succession with just to break up maybe 3 months in between, people who have been impacted have been impacted very deeply. So we just need to be patient with them, give them all the support through the restructuring framework, otherwise, and just make sure that we help them to get them back on their seat, that's it. So I think permanent impairment, I would argue that we should wait for this SME to come out only by the end of this financial year at a country level, not even just at a portfolio level.

Ladies and gentlemen, this will be the last question for today. This is from line of Abhijeet Sakhare from Kotak Securities.

First question is -- so there's one other MFI-focused bank, which indicated that there is a central comment guaranteed fund where losses more than 3% are kind of absorbed to the extent of 75%. Have we also evaluated something similar for us?

Yes, yes. So we have indeed evaluated that, and we are in discussions with a fair number of MFIs. And I think in due course, as we feel comfortable because we also need to have that kind of comfort to be able to extend any kind of credit to these entities. But we are in discussions with a lot of the long-tail MFIs, just one. And periodically, we are taking those calls. Most of those calls so far have been on the side of caution. But at the same time, I think we are fairly open-minded about examining each and every proposal.

No, Nitin, this is something different. What they said is that the losses on their book, about 3% can be absorbed by this central government fund to the extent of 75%, and this is available for the MFI book as well, the non-agri part of the MFI book?

ECL GS, right?

No. There is something called as the credit guarantee fund for micro units.

Yes, that is the CGTMSE. I did speak about that, that we are -- we have launched a certain category of product players. And even more than that, now we are also looking at the whole COVID portfolio health care kind of books that we are planning to introduce. So that one we are on. I mean I don't see too much of a problem with that.

But there's no guarantee cover that is available for our MFI book, the book that is sitting today in our book.

See, the MFI book can only get covered through the ECL GS, right? And that is -- the limitation there is 20% of the outstanding. And when you look at a microfinance category of borrower, that 20% is not a very meaningful amount. If the outstanding, let's say, at that point in time, INR 25,000, I mean what will INR 5,000 make a difference to those kind of customers. But nonetheless, I did mention we are trying to even work on that scheme. However, the response is not something that people are running to come and ask for it.

Sure, sure. And just one number question. What is the NPL ratio in the microbanking vertical?

In microbanking, I think it's 11%.

11%.

11%.

11.6%.

11.6%.

Yes, yes. And last one, what would be the NPL and restructured numbers look like across the top 3 states that we have, West Bengal, Karnataka and Tamil Nadu?

I don't have that handy, quite honestly, Abhijeet, for the state and for the restructured book. We can come back on that one.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management of Ujjivan Small Finance Bank for the closing comments.

Thank you, [indiscernible] and thank you, everybody, who joined us on this call. I'm sure we were not able to answer many of your questions. Many people might have asked. So please do reach out to us. You have our coordinate for the IR desk. And do reach out to us, and we will take them off-line. We will try and answer as many questions as you might have. But thank you once again for joining us today.

Thanks, Nitin. We thank you for giving us the opportunity to host the call, and wish you all the best for the coming quarter. Thank you, everyone. Have a great week.

Thank you.

Thank you.

Thank you. On behalf of HSBC, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.