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

Ladies and gentlemen, good day and welcome to Ujjivan Small Finance Bank Q4 FY '24 Earnings Conference Call, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rikin Shah from IIFL Securities Limited. Thank you. And over to you, sir.

Thank you, Muskaan. Good morning, everyone, and welcome to Ujjivan Small Finance Bank's Q4 Earnings Call. I'm delighted to welcome the entire management team of Ujjivan Small Finance Bank who will discuss the earnings and the business performance, followed by an interactive Q&A. The management team is represented by Mr. Ittira Davis, MD and CEO; Ms. Carol Furtado, executive director; Ashish Goel, Chief Credit Officer; M.D. Ramesh Murthy, Chief Financial Officer; Martin P.S., Chief Operating Officer; Vibhas Chandra, Head, Micro Banking; and Sanjeev Barnwal, Company Secretary and Head of Regulatory Framework. With this, let me pass on the call to Mr. Ittira Davis. Over to you, sir.

Thank you, Nitin. And good morning and welcome to our Q4 Earnings Call. I'm pleased to announce that Q4 has been another strong quarter for the bank, closing the financial year on a strong note. The bank has raised the bar to improve benchmarks, which is evident through its healthy growth and strong profitability. There were several developments post the book closure. As you know, we have received RBI approval for the appointment of Mr. Sanjeev Nautiyal as the Managing Director and CEO of our bank, with effect from 1st July '24. He will join us on the 1st of June as President in the interim. He's a seasoned banker with over 3 decades of extensive experience in retail, SME, financial inclusion, operations, HR, international banking and treasury. Previously, Mr. Nautiyal held the position of deputy managing director in State Bank of India, handling financial inclusion and micro markets. And also he was, earlier, Managing Director and CEO of SBI Life Insurance. I will be stepping down from MD and CEO position, with effect from June 30, 2024, but will continue to be associated with the bank as an adviser. With the approval of the RBI, Carol Furtado has taken over additional responsibility as whole-time director. She is now an executive director of the bank, with effect from 1st of May 2024. We have successfully completed the merger process between the bank and the holding company. The shares will be credited to the shareholders of UFSL, and trading is expected to start this week. Here I would like to highlight that the merger has benefited all our shareholders. The book value per share has increased by INR 2.6, resulting in a book value per share of INR 29.06 as of March 31, 2024. Additionally, owing to the strong profitability of the bank for financial year '24, the Board has recommended a final equity dividend of INR 1.5 per equity share. This will be subject to shareholders' approval in the ensuing AGM. Speaking about business. We continue to expand our presence geographically. We have added 123 branches during the financial year, taking the total branch count to 752, spread over 26 states. We aim to add around 50 more branches during financial year '24, '25. During Q4, our loan disbursements stood at INR 6,681 crore, growing 11% over the last quarter. This resulted in full year disbursements reaching INR 23,389 crores with a registered increase of 17% year-on-year. Our gross loan book grew by 24% year-on-year and 10% Q-on-Q. Customer acquisition remained strong. And we have acquired around 2.7 lakh new micro-finance customers in the last quarter, taking the total count of newly acquired customers to 10.5 lakhs for financial year 2024. This is around 12% higher than what we acquired in the previous year. This increasing acquisition reflects the untapped potential of the customer segment. We have graduated about 1.4 lakh customers from group loan to individual loans in financial year '23, '24. And the individual loan growth will continue to outpace group loan growth. More than 80% of the current IL customer base are from our existing GL customers who continue to have good record and thus graduated to the individual loans. We see strong demand and believe this trend should continue in financial year '25 as well. The growth in affordable housing, including micro mortgages, continue to be strong. We disbursed INR 730 crore for fourth quarter and INR 2,284 crores for the full year, witnessing a growth of 45% on a year-on-year basis. And our book is now a INR 5,000 crore book on the affordable housing. We had piloted a new LOS for the affordable housing vertical in Q4 '24, which was successfully launched across the country in April this year. This will help us improve efficiency, reducing manual interventions, enabling digital onboarding of customers; improve productivity; and streamline the approval process. We have added prequalified top-up loans to the product suite for our existing customers, and a number of our existing customers are already eligible for this loan. Similarly, our micro mortgages book has grown well. We see this momentum to continue in the next year as well. With regard to the MSME business, the transition is nearly complete. We disbursed INR 128 crores in the fourth quarter, which is a significant improvement from just 24 crores in the first quarter. Our new pan-India MSME book largely comprises of LAP products. The LOS for the same is planned to be launched in the first quarter. This will lead to significant improvement in critical metrics such as productivity, turnaround time et cetera, helping us scale the product much faster. Financial year '25 will also witness country-wide launch of fund-based and nonfund-based working capital offerings. To further augment the product offerings, we are closely working with 4 fintech partners, of which 2 are already onboarded in the fourth quarter. And as supply chain finance business from fintech partners gains traction, it will add to the growth of the MSME vertical, as this is a high-yielding book. Our FIG business continues to contribute to our secured base, with quarterly disbursements of INR 546 crores in the fourth quarter. We continue to invest in our emerging businesses such as Gold Loans and Vehicle Finance business. Gold loans will now be offered from 250 branches by the end of financial year '25, up from 60 currently operating branches. And Vehicle Finance will deepen its presence in the existing 8 states, to more traction to grow their business. We will continue to invest in technology and human resources to make products readily to be scaled up. In line with our long-term objectives, we continue to grow our secured book, which increased to 30.2% as of March '24, up from 28.3% in the previous quarter. Q4 has been a strong quarter on the liabilities part as well. Total deposits have grown strongly to INR 31,462 crores, registering a 23% year-on-year growth and a 6% quarter-on-quarter growth, reaping benefits from our increasing branch presence, enhanced service levels and improved business productivity. Additionally, our focus towards retail deposits has helped us garner INR 778 crores of CASA this quarter, registering a double-digit growth of 10% sequentially. Our total CASA book now stands at INR 8,335 crores. Our CASA ratio improved to 26.5% against 24 -- 25.5% in the last quarter. The benefits of brand campaigns and introduction of value-added products during the year has also fueled this growth. Our retail term deposit growth continues to outpace bulk term deposits growing by 7% and 36% for the quarter and the year, respectively. We have recently increased our term deposit rates by 25 basis points for the 15 months deposit bucket, to offer a more competitive rate to our customers. We believe the key to expand our customer base and reaching a diverse set of customers lies in embracing mix of physical and digital journey. Two digital liability products, namely fixed deposits and savings accounts, were introduced during the second half of the financial year, mobilizing 75 crores of deposits. During the first quarter of this financial year, we will be introducing digital initiatives such as smart statements, video banking and WhatsApp banking. Furthermore, we aim to offer end-to-end digital services experiences for our customers in select areas. In financial year '25, we will continue to invest in targeted brand campaigns. The focus towards building retail and granular deposit base and leverage our digital channels will continue. Additionally, our MSME business will also contribute towards building current accounts, as the asset product suite is designed towards meeting our customers' requirements. We will also offer escrow accounts to our current account customers. Our, Hello Ujjivan application is gaining acceptance among our customers, with total downloads reaching around 7.8 lakhs. The loan acknowledgment from our repeat and top-up group loans has also started to pick up. A total of 1.28 lakh loans were acknowledged this quarter, which forms 33% of total repeat and top-up group loans. We are also exploring offering insurance products via Hello Ujjivan, currently offering one insurance product, but we hope to add a few more in the future. I'll look at the financials and margins. This quarter, we were able to benefit from our past efforts, resulting in expanded margins. The expansion was a result of 3 factors: improved cost of funds, optimal system liquidity and continued benefit from asset book repricing. The resultant NIMs for the quarter was 9.4%, against 8.8% in Q3 and 9.1% for the full year '24; and this is in line with our previous guidance. While the asset book repricing will continue to benefit us, the cost of funds will stay elevated as a result of our recent hike in the 15 months deposit bucket. The cost of funds for the quarter was 7.2%, against 7.5% in the last quarter. There is also a onetime benefit of 17 basis points in cost of funds due to interest reversal on the term deposit post the reverse merger. Currently, around 75% of the book is in the highest bracket, while around 15% of the book sourced between September '22 and February '23 and 10% of the book sourced between -- sourced pre September '22 is yet to be fully repriced. The cost-to-income ratio for Q4 '24 remained at 56%, slightly elevated, as investments in infra and technology continue. Going forward, we believe it will remain at similar level as investments continue to form a strong base for the bank. The pre-provision operating profit remained strong at INR 519 crore, growing by 26% year-on-year. Coming to asset quality. The collections continue to be strong around 99% levels. The credit cost continues to move towards normalized levels. Credit cost for the quarter is INR 79 crores versus INR 63 crores in the previous quarter. Our asset quality remains robust, with GNPA at 2.1% and NNPA at 0.3%. Slippages for the fourth quarter were at 175 crores, against 140 crores in the third quarter. For FY '24, slippages are at INR 480 crores, with upgrade and recoveries of INR 224 crores. Bad debt recovery remained strong at INR 141 crores in financial year '24. We have written off INR 65 crores during the quarter. We have guided for a credit cost of sub-100 basis points for the last financial year, and the bank remained well within the guidance. During the second half of financial year '24, we have seen credit costs normalizing. This includes an external factor of loan waiver campaigns in some specific pockets of Northern India. Further, as the book vintage increases and with credit costs normalization continuing, we expect credit costs to be in the range of 1.4% to 1.5% for financial year '25. During FY '24, bad debt recovery was INR 141 crores on the back of strong collections, a strong collection team and intensified legal activities. We will want to continue these initiatives during the current year as well and expect to recover around 100 crores. PAT for the quarter was INR 330 crores, resulting in a full year profit after-tax of INR 1,281 crores, growing by 17% year-on-year. This has resulted in a healthy return on assets and return on equity of 3.3% and 24.8% for the fourth quarter. For the full year, return on assets is a remarkable 3.5%, and a very good 26.1% for ROE, for the financial year '24. RBI has recently outlined the eligibility criteria for qualifying to apply for the universal bank license. We are pleased to confirm that the eligibility criteria will come out as planned, basis the Board's guidance. Now a guidance for the current financial year. We estimate our gross loan book to be growing between 20% to 25% for financial year '25, while deposits will grow in line with our asset growth. And our CD ratios will maintain those of the financial year '24 levels. Later in the year, a firmer number will be given on the exact growth, whether we are on the higher end or the lower end of the 20% to 25% growth. Financial year '24, '25 will be a year of sustained business performance and profitability. We expect NIMs to stay around the 9% and the ROE at around 22%. These are early indications, as I said, with firmer guidance to follow at the half year mark. Thank you. Over to you.

[Operator Instructions] The first question is from the line of Rajiv Mehta from Yes Securities.

Congrats on good quarter. Sir, my first question is on the asset quality. So while the slippages run rate was slightly higher in the quarter, it could be because of Punjab, but the upgrades and recoveries quantum was quite lower in Q4. Any specific reason why upgrades and recoveries were lower? And second associated question is we are continuously seeing reduction in on-roll and off-roll collection team in micro banking. Can it have any future bearing on collection efficiency? Maybe OD collections or maybe in-field recoveries and upgrades.

I'll answer the first question, which is our slippages. So if you have noticed, our slippages have consistently been in the range of 0.5%. There was a minor reduction, I would not say a reduction, in the fourth quarter. And there is no specific reason for that. It has been more or less flat. And as far as the team size is concerned, we had actually increased the team size in Q3. And we brought it back to the normal level in Q4, so you will see a Q-on-Q reduction, but the team has been based on our assessment of the overall book to be recovered. So we see that this number will continue, so this, the collection teams trend, is expected to continue during this financial year.

Okay, so you are implying that this credit cost guidance of 1.4%, 1.5% kind of captures a very usual steady-state slippages as well as upgrades and recoveries run rate going forward, right?

In fact, we had even last year said that we will be seeing normalization of the credit cost, and we saw that the credit costs were normalizing quarter-on-quarter. And we expect that this will be a steady state going forward into FY '25.

Okay. And just on the average ticket size across products when I look at affordable housing excluding MLAP, when I look at MSME excluding fintech channel, there has been some increase in ticket sizes when I look at Y-on-Y comparison. So anything specific which is driving here? That's number one. And second is, this cost of deposit, which fell this quarter. And yes, there was a onetime benefit of interest reversal, so excluding this, how would have cost of fund moved in this quarter?

Okay, I'll take the ticket sizes, first. The average ticket size in group loans has gone up marginally. New customers contribution reduced from 43% to 39%, and we saw increase in the repeat loans from 32% to 39%. The increase in ticket sizes in group loans is -- in individual loan ticket sizes have increased across, as we are graduating group loans to individual loans at a higher ticket size. This increase was about 3%, so it's not a very significant increase in the ticket size of individual loans.

No, no. My question was on the ticket size of affordable housing ex of MLAP and MSME ex of fintech, which we show in the presentation. So they have gone up.

See, affordable housing, the ticket sizes in last year was about INR 12.6 lakhs. And we have seen a 14 -- so that's a marginal increase. The INR 14 lakhs is what we're normally underwriting these days. The range remains, however, between INR 12 lakhs to INR 15 lakhs. Most of our business is coming from that business segment of 12 lakhs to INR 15 lakhs. Now it could be slightly on the INR 14 lakh range or the INR 13 lakh range, but that's not a significant movement. The bank remains the same. The customer segment remains the same. On MSME, yes, we have seen a slightly higher ticket size. We launched the LAP product in Q1, and that has stabilized over the last 4 quarters. In the last quarter, we saw significant traction. And we want to be in that range of INR 14 lakhs to INR 15 lakhs. So that's the segment in which we have started to see the scale-up happening. We see that we will continue to operate in the range of INR 14 lakhs to INR 15 lakhs.

Yes. Thank you for the...

We see that we will continue to operate in that range of INR 14 lakhs to INR 15 lakhs.

Sorry, I just missed it.

We see that we will continue to operate in the INR 14 lakhs to INR 15 lakhs average ticket size for LAP loans.

[Operator Instructions] The next question is from the line of Nidhesh Jain from Investec.

Firstly, on MSME loan, can you explain -- can you give some details on the fintech partnership that we have? What is the book size that we have from that partnership? What are the yields, et cetera? And what is the customer profile that we are targeting on the MSME fintech vertical?

From a fintech -- we recently started this portfolio and we have already tied up with 2 partners, and there are 2 in the pipeline. And the book size is very small. We are also hoping to grow this through the fintechs and also on our individual capacity.

Okay, sure. And in the MSME vertical, what does -- about your business' strategy, how are we originating these loans?

So this is a combination. We are doing the semiformal LAP. We started this portfolio -- restarted the portfolio sometime in May of last year. And our strategy is to get customers from the semiformal -- semi-urban areas and grow the portfolio there.

Okay, okay. And how should we think about the cost of funds going forward? This quarter, there's one-off -- so adjusted for one-off, probably the cost of fund is 7.4%, roughly. How should we project cost of funds in FY '25?

Monthly cost of funds will see a marginal uptick because we have recently announced a rate hike. TD rates have increased by about 25 basis points in March '24. However, when compared to -- compared Q-o-Q, we have seen a substantial reduction in cost of funds. We have earlier said that around 17 basis point reduction is due to interest rate reversal on the holding company deposits and while the balance 8 basis points is due to improved CASA and retail deposits. So our view is, until the repo rate starts coming down, we assume the cost of funds to remain elevated. We don't wish to predict, as several external factors come into force on the cost of funds here.

But from a modeling perspective, we should start with 7.4% as the starting number. And there should be marginal increase in cost of funds from that number in FY '25. Is that right?

We're somewhat closer to around 7.3% because of tighter treasury management.

The next question is from the line of Pritesh from DAM Capital.

Just 2 questions. One is on the FIG lending, which we have seen a very strong growth. So if you can give some color what comfort we are having there? Was it just a liquidity deployment? Is it short term, long term? If you can you give some color on that.

So the FIG lending is doing well for us. We have grown substantially there. Our portfolio size is around INR 1,730 crores. We will be taking this up a little further to balance our secured asset book. And the customer segment would be the NBFCs that we are targeting and the A-rated companies and AA-plus rated companies.

Sure. If you can just mention what kind of yields we will be getting there. And is it short term? Or is it like a sustainable -- as you said, you'll increase it, but the lending, which has happened is short term in nature or decent tenure?

So on the FIG portfolio, we have exposure coming in from NBFCs lending to MSMEs, vehicle finance, education sector and gold loans. So these are the 4. The tenors on all these 4 segments are different from each other. MSMEs are a slightly higher tenor and gold loans are much on the lower side. The yields, again, are risk calibrated because 95% of our portfolio remains in A and above. So therefore, the yields are slightly on the lower side, but it is risk-based pricing. And we've not diluted the portfolio. It continues to be in the range of 93% to 95% A and above.

Got it. Second question was on other OpEx growth. We've seen this high growth this quarter. Any one-off there? And will we see such run rate because suddenly this quarter has, I mean, seen a sharp uptick?

Yes. I think, the other operating expenses, there has been HR costs which have been slightly higher because we have made some adjustments, and also the premises costs because we opened quite a few branches in this part of the year. So it is something that is there. And the OpEx costs for the branches will continue primarily by way of rents and the salaries will remove. So it will continue also because that's part of the process. We have also had some IT expenses, which are project-related. Some of the IT expenses will continue as we upgrade because, as you know, the regulator is now very, very keen to make sure that the technology is in line with what you're offering and the customers benefit from that and not lose out. So we are ensuring that our technology is state-of-the-art and will come up to the regulators' expectations. So yes, going forward, these are things, which I think all banks, the whole industry has to take note of. And then I think it is something that is very important, so we will be investing in that.

Got it. Lastly, we mentioned about liquidity usage this quarter. How much, going ahead, we tend to use more? I mean the LCR. So what will be the best case scenario, we'll keep -- or we'll not breach that number.

Breaching LCR is not a question. We cannot afford to breach it, so...

But in sense, if we have 130% something right now and will it be at the similar levels or will it go a little bit further down? Or we'll increase the LCR, what is the stance on that?

Our average is to maintain it around 140%, 150%. That's -- so 134% is good. 140% is good. That's the level, not too much liquidity, but at the same time something which is reasonable and good and safe.

The next question is from the line of Ashlesh Sonje from Kotak Securities.

Congratulations. Two questions from my side. One is just a data-keeping one. Can you share, what is the outstanding technically written-off book as on March '24 and also on March '23, if you have the number handy?

Sorry...

If you have the technically written-off book available as on March '24 and March '23.

Yes. In March '24, it is in the range of about 1,100 crores. That's the total book, for example, but this consists of what we have done in the last 2 years plus what we had done during COVID time.

Understood. Would you have the number available for March '23 as well?

I'll just come back to you...

Okay, sure. And secondly, the secured book is now at roughly 30% of the overall advances. How do you expect this to trend over FY '25 and '26?

So the guidance given for the 2 years is around 60-40. 60 would be in the unsecured and 40 would be secured. We would be meeting that guidance in the next 2 years. We've already reached 0.2 and we are seeing an increasing trend there. We've also introduced 2 secured as verticals like gold, vehicle finance, MSME, and Advise Strategy doing well for us.

Understood. And if I can just squeeze in one last question. How are you accounting for the income from the off-balance-sheet book, the IBPC and securitized loans?

On securitization, we take it into income. IBPC helps us in containing our cost of funds.

Okay, but the interest spread from the, well, off-balance-sheet book, would that be booked upfront? Will there be a...

It's on a cash basis. We don't [indiscernible]

Okay, but you book the interest spread of the entire interest income and interest expense separately.

We're paying for this. IBPC is a source of fund for us.

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

Just 2 questions from my side, 1 on the individual loan side. So we have been growing this piece at pretty accelerated pace from last 5, 6 quarters, so can you just throw some light on, let's say, the PAR portfolio or maybe some sort of asset quality indicators in this book?

For individual loan, these are customers who have mostly graduated from group loans. We do about 10% to 12% of open-market acquisition on the individual loan side. Most of these customers have a 2- to 3-year track with the bank, so the asset quality for individual loans is better than the group loan asset quality. And that's also given us the confidence of growing this at a rate of 40%.

Okay.

So in terms of PAR, it is [ lower ] than the group loan PAR. Our average remains to be in the range of 1.3, 1.4.

And what are the yields we charge under this one?

Yield. It is, again, risk-based pricing that we do. The yields would be somewhere in the range of the group loan rates, marginally higher footprint, but probably in the same band.

Got it, got it. And my next question is on the NIM guidance which we have given of 9%. Now given we intend to grow our secured book at a faster clip over next 2 years, so -- how do you see this NIM behaving over next, let's say, 6 to 7 quarters? I mean naturally, your yields under secured book will be lower, so how one should look at the NIM's trajectory going ahead?

Yes. As the secured book increases, NIMs will come under a little pressure, but recently we have got an upgrade on the asset -- on the rating from the rating agencies. So we will be using that to manage our cost of funds, and also using treasury to manage the fund process. So hopefully, it will not be much lower, but it depends on how fast the secured asset book is building up. So we'll keep the market advised as to and -- if we see any changes coming up, but for now go with the guidance of 9%.

Okay, okay. And lastly, on the deposit growth run rate. So in PPT, we did mention about our deposit growth rate will broadly track the loan growth, but when we look at the CD ratio, which is still at 94%, 96%, does it -- doesn't it calls for an accelerated deposit growth than loan growth in the near term?

Yes, in the fourth quarter, our deposit growth was quite good, and we see that continuing into the first quarter. So yes. I mean our intention is to make sure that our CASA ratio et cetera moves up. Our target internally is towards the magic number of 30%, but yes, in terms of the CD ratio actually, based on the -- I think it was 87%. Of course, if you adjust it for the IBPC, then it's slightly higher, but for all practical purposes, IBPCs are used to manage CD ratios, so I think you should look at the 87% rather than the 94% because that's how the regulator looks at it.

The next question is from the line of Sukriti Jiwarajka from Laburnum Capital.

I just wanted your overall view on the MFI cycle. Are there any early warning signals you are seeing in any geography? And even the loan waivers that you spoke about, was it contained in particular geographies in Northern India or you see -- saw it spreading out more than what you'd initially thought?

Can you kindly repeat the question? The voice was not very clear.

Can you hear me?

Yes, a little better.

Yes, I wanted to know your view on the MFI cycle...

Sorry, ma'am. Sorry to interrupt. Can you speak a little louder? Or you can use handset, please.

Better?

Yes.

That is a little better.

I wanted to know your view on the MFI cycle, if you're seeing any early warning signals in any geographies and even the loan waivers that you spoke about in Northern India, was it contained in particular geographies? Or did you see it spread more than what you had initially expected?

Yes, okay. In some pockets, we have seen, especially in Punjab, Haryana, as you mentioned, that the portfolio, to some extent, is impacted due to Karja Mukti Abhiyan in the second half of financial year '24. We expect this to subside by Q2 onwards. Our portfolio overall is performing well, as we are mostly into urban and semi-urban, but seem to be a temporary thing.

And apart from these loan waivers, you don't see any signs of -- any early warning signals in other geographies or for some other reasons.

So apart from there, we -- our portfolio in Kerala has a little underperformed, and it is at industry level as well; and to an extent, in Tamil Nadu as well. And we have slowly -- we have a little slowed down also our MCA strategy here to contain our repeat loans and repeat customers, but it is something, which again I would say that it is kind of temporary in nature, but we need to take cautious steps to ensure that our portfolio is safe.

Can you sort of pinpoint a reason for Kerala and Tamil Nadu underperforming? An industry-level reason maybe.

So there's no specific pockets. It's Kerala that is -- we have limited number of branches, a limited presence in Kerala. And at industry level also, we feel a little stressed and kind of a little over-borrowing. And as a cautious step, we have a little slowed down in Kerala, but as far as in specific pocket we have concerns raising out, there is no specific pocket.

Got it, right. And my next question is on other income. So we've done really well on other income. There's been sort of a catch-up with more focus on cross-sell treasury has done well. Going forward, do we expect this line item to continue outperforming in the next year? Or do we now think it will grow in line with the disbursement for NII?

Other income will mostly be in line with our business growth. And we see insurance as an area where we could do well, including the PSLC. And maybe a few more third-party products would come into the picture. This is a line item that would continue doing well for us.

I think there was -- in terms of the full year, there was a onetime effect in the insurance income. That will not be there in the current year. That's about INR 30 crores.

Got it, got it. If -- can I just ask one more question? If you expect any operating leverage to play out in the next financial year because I think you have upped the -- I'm sorry, what was the number you had given for the number of branches that you want to open in FY '25? And then related question on operating leverage, if it's going to play out this year.

Number of branches next year is -- FY '25 is 50 additional branches, 5-0.

Got it. And overall, operating leverage at the company level, do we expect in FY '25?

What is...

What is your definition of operating leverage? Sorry.

If cost-to-income will fall below 55%.

Yes, cost-to-income may pick up a little bit. As I said, we have got additional costs, which we have put in place because of the manpower requirements and the competition in the market. And the market is a bit heated. So that will have some impact and also the premises costs, which will be slightly elevated compared to the previous year. However, you can be rest assured that we are currently among the best in terms of cost-income in the small finance bank industry. And we hope to remain in that position or near the 1 or 2 in terms of the best in terms of that ratio.

The next question is from the line of Shailesh L. Kanani from Centrum Broking Limited.

So all my questions are answered. Only one question. Sir, on the recovery front from written-off accounts, we had guided during the start of the year that the number would be lower than last year, but this year, we have done well. So any guidance on that front? How would be the recovery from the written-off accounts?

Last year, we said that we will probably try to achieve about 120 crores, 110 crores to 120 crores, but during the year, we found that we had a very favorable environment in terms of the intensified legal -- that we had planned during the year. So on the micro banking side, we had Lok Adalat, so there was a really supportive environment there. And most of the recoveries that we have got from the written-off pool has been from either micro banking or from the affordable housing segment. So it is because of the traction on Lok Adalat and sale of possessed assets, yes, on the housing side that we were able to get a slightly higher number than what we had previously thought. This year, again we are saying that we -- this year, we are talking about anything between INR 100 crores and INR 110 crores. The earlier pool, which we had written off during COVID is now quite aged, so we expect much lower recovery from there, but from the written-off pool, which is immediately in the last 2 years, we will probably get much higher recovery. So something in the range of INR 100 crores to INR 110 crores is something -- is what we'll target this year.

Okay. That's useful. Sir, just last question on my side. Since our individual lending book has grown very smartly this year and some of our peers have taken CGFMU cover, so is the management contemplating anything on that side? And any views, if you can share with us?

We have had meetings to understand the entire CGFMU, the product, the entire offering. We are continuing our discussion with them, but we don't see that happening in at least the first 6 months. If at all we decide to take the CGFMU cover it will be in the second half, but nothing decided as of now.

The next question is from the line of Rakesh Kumar from B&K Securities.

Sir, the question was related to the refinance that we are availing. Number has slightly come down, so if you can elaborate on that, what is the plan that we have on the refinance settlement? Yes.

Yes, the refinance that we are taking from the various agencies. We are in discussion with the National Housing Bank and a few others. So we expect, during this year, the -- there will be an increase, but our loan book is also growing, so if you look at it as a proportion of the loan book, you might think that it might be coming down, but absolute numbers will be increasing. And wherever it is advantageous for us and where it makes sense, we will be looking at a refinance, but the refinance doesn't come cheap. It's quite expensive, so we have to manage the cost as well, but it's a good source to have as a backup.

And so just to get a different -- like a differentiated view that -- what is the, like, cost of borrowing that we have excluding refinance and for the refinance itself? If you can provide us the figure, the borrowing cost for both these things.

We'll take that offline, and my colleagues will get back to you.

Sure, sir. Just a related question, sir. Other than big lending, we have almost all the loans against which we can get a refinance, so is there any issue that we are not going ahead on this front? Or if you can tell us because we -- I'm not able to understand that why we are not going ahead with this refinance thing so much. So if I add your IBPC, I don't know like because the number is clubbed. IBPC and securitization numbers is clubbed. So if I take the IBPC number and your refinance number, as a percentage to your assets, basically your loans against which you can take this refinance, that number looks quite low as compared to other banks, other peer set. So just to understand that slightly better, sir.

IBPC, we have around INR 2,500 crores, so INR 2,360 crores to be precise. And from other sources, it's not very much, but as I said, it's the costs, which we have to consider. You see the thing is that we are very highly capitalized. So the thing is that with a 24% CRAR and all that, we don't really need this refinancing as a source. Because net-net, it's a bit expensive. As I said, we have to look at the cost of funds. We cannot just do refinancing for refinancing sake. It has to make sense. And also, when there is an asset-liability mismatch, yes, some of these refinancings are useful and we will do. So as we grow our MSME book and our housing loan book, yes, we will revert. We will be looking at these refinancing to take care of the maturity mismatch. So yes, going forward, you will see more utilization of those sources, but for now with our present level, we are quite well funded.

Just another point here, sir, just -- sorry to extend this further. So it can also help you in the LDR number basically. So the more refinance that you take, it will help you at that front also, I think.

Which number? Sorry.

So the higher refinance number can also help at the LDR level, right, LDR calculation. So actual LDR which, I think, regulator will consider, as considered to what you report in general. So higher LDR, it will get -- like, to that extent, your LDR will also look lower.

No. Okay, we take your point. We'll have an internal discussion with the treasury and others and see whether it really will help us, but yes, good point.

The next question is from the line of Mahesh Kabra from BSK Group.

My question is about the dividend. We are distributing almost this quarter's profit as dividend. And with the growth that we are projecting, soon we will need probably more capital to raise. My question was about dividend, what is the idea there?

Our profitability has been good. In fact, if you see the level of profitability, the CRAR has been able to keep up with the profitability levels and take care of the asset growth. Now in -- recently, the RBI had asked for additional capital to be put aside against some of the consumer lending, which is why there has been a slight adjustment in the CRAR, but we have enough profit generation in order to take care of the growth in the balance sheet. And we don't anticipate, based on our current growth expectations, to be coming to the market for any additional capital in the near term. Regulatory requirement is 15%. Internally, we have kept a guideline at the Board level of 20%. We are at 24%, so I think there is adequate cover there. And during the '24, '25, we don't need any additional capital, which is required for building the balance.

Yes. I get that probably we won't need capital even in '25, '26, but 25% growth in loan book and approximately 15% growth in net worth with 20% ROE and dividend distribution, probably 2.5, 3 years down the line, we will again have to raise capital, right? Am I right here?

3 years down the road, yes, that is on our target. So from time to time, we will have to raise capital. So are you suggesting that we don't declare any dividend?

I mean, a banking company growing at 25%, I thought conserving capital would be better, but I'm -- you're expert. I'm not. I'm just asking, understanding your thought process here.

No, but the industry is giving a reasonable level of dividends. We have to also -- our profitability is good. We are not giving exorbitant dividends. We are giving something reasonable. Maybe, on the higher end, people do it between 12% and 15%. We are on the 15%. But that is an annual feature which the Board has to decide from an annual basis. So this year, it's the highest profits, so 15% was decided.

Yes. And congrats on the good set of number.

Thank you.

The next question is from the line of Yash Dalvi from Systematix Group.

So I have 2 questions. So since we have recently added 2 fintech partners for MSMEs and 2 in pipeline. So assuming both of them are added, how do you expect the MSME book to grow? And second would be that any expected date by which we can expect the shares to be credited, if you could guide on that.

So MSME, through the fintechs, through our revised strategy, we will be growing as expected. And the last year, we did a lot of strategy relook at it, also on our customer segments and all that. And we've opened up a lot of product lines. We should be able to see good growth happening in this financial year. And so this would also be a good enhancement to the growth of our current accounts book. So all in all, we are seeing a good uptake in the MSME book this financial year.

And regarding commencement of...

Pardon...

Regarding the commencement of the trading...

Okay, the share trading. Just one moment. Go ahead.

On the commencement of the trading, we are in receipt of the in-principle listing approval from the exchanges. Last Friday, we received it. During -- as we speak, we are initiating our corporate action documents with CDSL and NSDL. We are very positive, by tomorrow, you will get the shares credited into your account. And the trading approval will be received in a day, so possibly, by Thursday or Friday, it -- we are very positive that the shares will be available for trading.

The last question is from the line of Sandeep Pangal from Psion Capital.

Can you hear me?

Yes.

Yes, yes, we can hear you.

So I think, first, great results. A couple of things now that the merger is done. If you look at Page 37 of your presentation. The post-merger shareholding has a lot of retail investors. I'd just like to understand what's the strategy of the bank and the management with respect to sort of making this more institutional over time? I know that there will be roadshows et cetera, but some flavor on that would be helpful.

Some of the shareholders of the holding company are institutional shareholders. We have people like IFC, et cetera, who are there. And those will continue to hold these shares in the bank, but having said that, yes, you're right. We would like to increase the number of institutional shareholders. We have talked to a few people and we hope that some of those discussions will fructify. Right now we have about 33% to our institutional shareholders. And we'd like to see that go up to a better number, but yes, that is the objective of the management to make sure that we get long-term institutional investors to take a reasonable share of the shareholding.

Thank you. As that was the last question, I now hand the conference over to the management for closing comments. Over to you, sir.

Thank you, Muskaan from Chorus, for your support on this call; and also, more importantly, Rikin Shah who has been from IIFL, who has been supporting us. As this is my final session with you guys in the last 8 quarters, thank you for all your interesting questions and also being part of the journey. I wish you all the best. Over to you.

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