Utkarsh Small Finance Bank Limited (UTKARSHBNK) Earnings Call Transcript & Summary

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

Good afternoon, everyone, and welcome to Utkarsh Small Finance Bank Q4 FY '24 Earnings Call. On behalf of ICICI Securities, I would like to thank Utkarsh management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of Utkarsh represented by Mr. Govind Singh, Managing Director and CEO; Mr. Sarjukumar, CFO; Mr. Alok Pathak, CRO; Mr. Trilok Nath, Head Microbanking; Mr. Umesh Arora, Head of Assets, Retail and Wholesale Lending; Mr. Sanjay Sharda, Head of Consumer Banking; and Mr. Puneet Maheshwari, Head of Finance. I will now hand over the call to Mr. Govind for his opening remarks, and then we'll open the floor for Q&A. Over to you, sir.

Thank you. Thank you, Renish. Good evening to all. Thank you, everyone, for taking out time to attend our Q4 FY '24 earnings call. Quarter 4 has been a strong quarter for us with good business growth, healthy trend in asset quality and strong profitability metrics. Overall, FY '24 has also been good business growth and profitability. This shows continuous strengthening of franchise and adequate growth opportunity for our business. Our loan book has grown by around 31% during FY '24 in line with our expectation of 30% growth. This is despite relatively slower growth in H1 FY '24 on account of technological changes introduced in Microbanking business in beginning of FY '24 and relatively lower pipeline for subsequent cycle loans in quarter 1 FY '24 as it was discussed in quarter 1 and quarter 2 earning calls. In the microbanking lending, we continue to witness healthy new customer acquisition, subsequent cycle disbursement has also been good. New technological initiatives that is e-KYC and e-Signs have stabilized. Our microbanking loan portfolio has grown by around 23% during FY '24, largely in line with our expectation. We continue to believe that digital experience, which we have brought in the form of complete digital onboarding for loan as well as savings account, e-Sign, e-KYC, digital collections through customs specific QR code, micro-ATM, video PD and other offerings will be backbone for us to build a strong and sustainable franchise with cost efficiency. Our individual loan product, MBIL to existing matured JLG clients continues to see good traction with year-on-year growth of almost 100% with good asset quality. We see significant growth potential towards MBIL lending considering large base of our existing and matured JLG clients. We have seen healthy trend in efficiency and asset quality from micro banking loan portfolio. Collection efficiency improved to 97.6% for quarter 4 FY '24. Margin is better than our guidance of 97% to 97.5% for FY '24. And as a result, NPAs and credit costs both declined during the quarter. We saw collections coming back to normalcy as we came out of higher number of holidays periods in quarter 3 FY '24 and strengthened collection focus. From the current quarter, we are planning to introduce a differential rate of interest for our JLG customers basis asset quality, vintage curve etc., which will help us implement risk-based pricing in micro-banking lending more effectively. We have seen steady growth across our secured retail lending portfolio, MSME, Housing and CE/CV. We have disbursed close to INR 100 crores across these 3 products in quarter 4 FY '24, almost 50% higher than quarter 3 FY '24 disbursement for the 3 products put together. On asset quality of retail loan book, we have strengthened our collections team by adding more manpower as well as separate team for bucket-wise and vertical-wise collection. We have also implemented EBIX collection application for better tracking of our collection efforts. These are yielding good results. Furthermore, wholesale lending book remains tightly controlled, we had nil NPAs in wholesale lending. Our overall gross NPAs declined by 50 basis point during quarter 4 FY '24 to 2.51% from 3.04% as in December '23 on gross advances including IBPC book. Gross NPAs was 2.3% as in March '24. Overall credit cost declined to almost 1.7% for quarter 4 FY '24, well within our guidance -- guided range of around 2%. Overall, credit cost for full FY '24 at 2.2% was little higher than our guided range of around 2%, but we are confident that we will be able to reduce credit cost to our original guided range of around 2% in FY '25. Nevertheless, credit cost for FY '24 included additional floating provision of around INR 56 crores excluding this credit cost was around 1.8% for FY '24. We will continue to build floating provision further in FY '25 to strengthen our ability to withstand any unforeseen event impact better. On the liability side, our deposit growth is led by retail term deposits as we continue to focus on strengthening the deposits profile through broad basing of depositors. Our retail term deposits grew by 42.9% year-on-year while bulk term deposits grew by only 12.3% year-on-year. We experienced relatively tighter environment for CASA deposits growth and CASA percentages on account of elevated interest rate environment which kept depositors' presence preference towards term deposit. Our CASA ratio was 20.5% as on March 31, 2024. We will work to strengthen our CASA deposit growth and CASA percentage significantly over FY '25. We have been able to diversify our funding profile through tapping lower cost IBPC borrowings as well as refinance borrowings at competitive rates. We are maintaining comfortable liquidity position with surplus liquidity of around INR 2,500 crore at the end of March ‘'24, and LCR ratio of 166%. Our CD ratio declined to 93.7% as on March 31, 2024, and if we net off refinance borrowings from advances, CD ratio declines to 84.3%. We don't have any short-term borrowings on our balance sheet. While on overall basis, liquidity and interest rate environment remains tight, we expect deposit growth to be tagged higher than loan book growth for FY '25, which would also help us moderating CD ratio further in FY '25. We continue to build our banking franchise and opened 8 new branches in quarter 4 FY '24 and 15 branches during FY '24, taking total branch network to 888 branches. We also implemented new lead management system, (LEMS) which will help us in cross sell as well as improve new sourcing across products. We are also undertaking technology and business transformation project to strengthen our technology architecture to make it future growth ready. We believe there are significant growth opportunities available in our core geographies given the good growth potential and relatively lower financial penetration. We will continue to strengthen our franchise and presence and explore significant growth potential through our relevant and suitable product offerings. We have been constructive about passing on increase in cost of funds and as a result we maintained our net interest margin well -- which improved to 9.9% in quarter 4 FY '24. Furthermore, we have reduced credit costs, including floating provision to 1.7%, well within our guidance of 2%. Overall, we had a healthy financial performance as reflected in our highest-ever annual operating profit (pre-provisions) of INR 997 crores and PAT of INR 498 crore for FY '24. Our ROA and ROE was 2.4% and 19.5% respectively during FY '24. We will continue to build our own strategies of creating stronger franchise for our Microbanking business as well as for MSME lending, housing loans and wheels lending and more granular liability franchise. We will continue to build floating provision further in FY '25 to strengthen our ability to withstand any unforeseen event impact better. We will strengthen our positioning, franchise and product further in FY '25 and years to come to build a stronger banking platform. Our guidance for some key numbers for FY '25 are as follows: We expect gross loan book growth of around 30%, deposit growth to be higher by at least 3% to 5% [indiscernible] loan book growth with the target to reduce CD ratio further in FY '25, focus on maintaining strong asset quality with nil net NPAs and credit costs at around 2%, credit cost guidance including additional floating provision which the bank will build in FY '25. On profitability –return on assets of more than 2% and return on equity of more than 18% and cost income ratio in the range of 54% to 57%. I now hand over call to Sarju, our CFO for taking you through financial performance for the quarter.

Thank you, Govind ji, and good evening friends. Actually, this earnings call is the first call where we are going to talk about the full year performance and of course we have been speaking with you even prior to IPO during the roadshows telling about company story and trajectory of growth and we also spoke with you during the September and December quarter results. Let me reflect on the rear mirror and recollect the conversation that we have had. The banks yield on advances has been 19% through and through in spite of the mix having changed. We ended Q4 with a yield on advances of 19.46% and for the full year, our yield continued to remain at 19%. On NIM with the reason of our good business model, we have seen that our NIM has been upward 9%. We ended NIM of 9.86% for Q4 and for the full financial year our NIM was 9.44%. We have been talking about our cost income ratio to be in the range of 54% to 57%. We ended Q4 with our cost to income ratio at 57% and for the full year our cost to income ratio was 56.38% and our ROA has been upwards 2% and this conversation, as I said, we have been having through and through for last 6 to 8 quarters before IPO and during the subsequent IPO calls that we have had, Q4 ended at 2.91% and for the full year, our ROA is 2.45%. ROE as you know, turned out to be 18% with a high range larger capital through which we raised through IPO, our Q4 ROE has been 22.26% and for the full year, our ROE has been 19.54%. Now, let me quickly go to the results per se and put numbers to what Govind ji just spoke about. For the March 31st financial year ended, we reported a gross loan portfolio of INR 18,299 crores against INR 16,407 crores on the immediate previous quarter, which is a quarter-on-quarter raise of 11.5% and if I were to compare with gross loan portfolio previous year end at INR 13,957 crore on a gross loan portfolio which is at INR 18,299 crores is registering a growth of 31%. The total deposit we closed at year end was INR 17,473 crores against INR 15,111 crores, a quarter-on-quarter rise of 15.6% and on a year-on-year basis we were at INR 13,710 crores. Today at INR 17,473 crores deposit, we have registered a Y-o-Y growth of 27.4%. Largely, the composition of deposit has been growth in retail term deposit exceeding 42% year-on-year from March '23 to March '24. Now coming to the P&L. We have registered a rise in net interest income, our net interest income for the quarter was INR 540 crores against previous quarter -- previous year corresponding quarter rise of 32% and on year-on-year basis, the net interest income was INR 1,886 crores against INR 1,529 crores, a Y-o-Y rise of net interest income by 23%. Our total operating income was INR 661 crores for the current quarter compared to the previous year corresponding quarter FY '23 at INR 479 crores. Operating income has gone up by 38% quarter-on-quarter and if I take the full year operating profit, we have done an operating profit of INR 2,286 crores against INR 1,828 crores, a growth in operating income by 25%. If you look at our operating profit, we had INR 282 crores for the current quarter and INR 208 crores immediately previous year quarter Q4 FY '23, registering a growth of operating profit by 35% and for the full year, our operating profit is at INR 997 crores against INR 838 crores for the previous full financial year and 19% growth in operating profit. In fact, both operating profit and I am just going to talk about PAT has been highest in couple of years of history of Utkarsh. Our PAT for the quarter was INR 160 crores against INR 134 crores immediately previous year’s quarter, a rise of 19% and for the full year we ended -- reported PAT of INR 498 crores against INR 405 crores, a growth of 23% Y-o-Y. Just a few more matter to say like we continue to create floating provisions and the number of floating provision that has gone into the financial year '23-'24 is INR 56 crores which was at 1.5% of JLG book. We intend to continue this provision and inch it up to 2% this year. On the closing portfolio of JLG book, I think this obviously is with a expectation to strengthen the balance sheet and make provision for any unforeseen circumstances and we have spoken before that this floating provision is a straight-line accrual in accounts month-on-month and quarter-on-quarter and this floating provision is used only eventuality of some unforeseen circumstances. That provision we generally would want to make at times when profits are available, and the business model is giving good return. So we continue to work on making floating provision on the prudency basis. I think credit cost Govind ji mentioned at 1.75% in Q4 with collection and efficiency and better collection from write offs. This year credit cost is at 2.2%, but the trending at the Q4 beginning at 1.7%, we are hoping to keep that around 2%. On the asset quality side, gross NPA is 2.51% against 3.23%, it has improved and net NPA is almost 0.03% inching to the three-digit 0 figure very soon, against 0.39%. I want to say that this year's strong financial performance for the quarter and for the full year is largely in line with our expectations. We look forward to answer your questions and queries and speak about it, while I just spoke about rear mirror, I think Govind ji has already spoken about the wider windshield and opportunities that we have and he has already given the guidance on some of the KPIs. Thank you.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Rajiv Mehta from Yes Securities.

Congratulations on the strong performance. Sir, I have a few questions. Firstly, on the strong growth in disbursements of micro-banking JLG, can you split this growth between volume and ticket size and what was the average disbursement ticket size in Q4?

Okay. I think I will just pass on to Trilok, but I want to make one mention that our ticket size has not gone up in quarter 4. In fact, it has not gone up at all in the entire year also. So the entire growth is on account of more number of new customers and disbursement to subsequent customers. But Trilok can speak a little more about this part.

So our ticket size has not gone up as MD said, but new client acquisition it was almost 50% in H2, 50% of our entire disbursement. So basically, we produced the growth on that side and then we have the subsequent cycle disbursement in geographies like Odisha, Rajasthan Jharkhand and of course in UP and Bihar. So we have not disbursed -- means, for last two years we have problem due to COVID. So we have not disbursed too many clients neither have subsequent cycle nor are on fresh center or fresh client. So basically this growth came from the subsequent cycle disbursement and this new client acquisition. Also, we added clients at the existing centers. It's not only opening up the new centers going to the new villages and new basti or mohalla, but also adding clients at the existing center, so that has driven the growth basically.

So that means, has there been any change in customer retention rate in the main market for Bihar and UP which can may be due to increase in competition or leverage of the borrower, or it remains the same?

So the 2 aspects we mentioned that one is that we have got more and more new customers now. Post COVID, there is growth of flow in terms of adding new customers. That is one part. And second we had told in the previous earning calls also, we had some challenge because of the COVID you can see the next 1- and 1.5 years time, we had very limited number of subsequent customers because we were not adding customers in '22 and '23. So, in the H1, we had very limited number of subsequent cycle customers. So in the H2 you can say both have happened better. We could acquire more and more new customers as well as our subsequent cycle. The base number of customers was much higher for this period. I think maybe Puneet have the exact number also.

Yes. So if you just look at the JLG growth, which is about 20% for full financial year, our average ticket size between March ‘'23 and March ‘'24 has gone up by about 4% and balance 16% growth has come on account of new customer acquisition and dropout has been largely same between quarter 2, quarter 3, quarter 4. So there is no material change in the dropout ratio.

And this significant improvement in collection efficiency in microbanking, 98 versus 96, last quarter with this factor of more holidays, but can we -- so from a sustainability perspective, can the current collection efficiency of 98% and are about to sustain in the coming quarters at best?

So we have tried to create a structure around collections because in Q3 we have too many slippages due to holidays as you said. Then we have tried to create structure around collections and we tried to follow up from head office levels, from the zonal offices and regional offices. The collection in each bucket, so the slippage was there, but sometimes when collection is up, here sometimes we follow only 90 DPD or 88, 89 DPD. So instead of that, we kept following each bucket, so 1 to 30, 31 to 50, 51 to 90. So that helped us a lot. Again, we have driven these collections of written off accounts. So there also we have good success in quarter 4 specially. So all these efforts put together, this improved the collection efficiency. And we hope that it will continue because now the structure is in place, so it will definitely continue what we experience in this quarter 4.

Got it. Sir, one last question on the deposit side. What is the current cost of retail term deposit and what is the incremental cost and what is the maturity profile?

So cost we have given on the presentation as well. So from a term deposit perspective, the average cost is about 8.5%, 8.6% for us. And if you see the highest rate what we are offering is 8.5% for a regular customer and 9.1% for senior citizen. So that is how we are placed. Tenure, I will just tell you one second. So in terms of tenure also, we are seeing incrementally more longer tenure deposits coming in. So now in terms of breakup, if I just tell you, so right now reposits which are 2-year plus are about 12%-13% of our total deposits, which earlier actually was much lower percentage. If you see, it also a function of the rate of interest, I mean in terms of which bucket has the highest rate of interest. Now if you see, the highest rate is between 2 to 3-year bucket and that is the bucket we are seeing a sizable deposit accretion.

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

Sir, 2 questions. One is, if you have mentioned anything about margins, they have been a little bit higher, is there any interest reversal or interest booking because of recovery and all, can you quantify if there is any?

So -- I mean, it is not much, only impact from our net interest margin perspective is the lower fresh slippages versus what was the case like say in quarter 3. So in quarter 3 we had fresh slippages of around INR 135 crores and this quarter we had less than INR 100 crores. So that is the only additional impact from an NPA perspective. Otherwise, the net interest margin is also positively impacted by the repricing of the microfinance loan book which we had highlighted last time, so that is also in a way supporting the interest margins.

So can you give how much is the disbursement yield, the outstanding yield on microfinance book as well?

So microfinance disbursement yield is 25% and on portfolio basis yield is 24% now for the quarter 4.

And how much will have that changed in last 6 months?

So in quarter 3, we were close to 23.5%. In quarter 2, we were at 23%. And before that, in quarter 1, we were at 22.7%. So it has been increasing by 30 to 50 basis points quarter-on-quarter. Obviously, it's the benefit of -- this quarter both benefit. One is lower NPAs and the fact that repricing is also happening.

Second question was on OpEx. It looks like a little bunching up in this quarter. What is the trend going ahead? And anything to look into this quarter? And what will be our cost to income thought process basically?

So cost to income Govind sir had initially also talked about. So cost to income, we think would remain in the range of 54% to 57% for us on an incremental basis and quarter-on-quarter, at times expenses are also like basis the activity level. So as business activity or some other ground-level activity picks up quarter-on-quarter, expenses may be a little higher than certain quarters depending on the activity level and that is what we have seen in this quarter. And on overall basis, we expect cost income ratio to be in the range of 54% to 57%.

The next question is from the line of Aman Gupta from [indiscernible].

Yes. So my question was on the merger, and what is the time line we are expecting?

So if you remember that we had discussed earlier also in the previous call, and now we have got a formal approval from both the boards that we could go ahead with the process. And we have initiated the process in getting the people -- when I say consultants and those will help us in the whole process. And so that process has already commenced. It's very difficult to pinpoint the overall time taken, but we have seen in other cases also, it takes around 12 to 15 months' time. And we expect it should be -- in terms of timeline, it should be in the similar range. Maybe around 12 to 15 months from now, we should be able to complete the whole process.

And also, what could we expect about the reverse ratio like because I'm asking will it be given at a discounted rate or a premium rate?

It's too early to talk about that. It is -- we have not discussed also. So maybe as and when if this discussion happens and it is closed, we will certainly come back to you. But it is not yet discussed also as of now.

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

Congratulations on the strong numbers for the quarter. I have a few questions. Firstly, on the recovery income from written-off assets, that was very strong this quarter. What is the outlook for that going forward, given that we have also written off quite some INR 90-odd crores in the fourth quarter?

So our assessment is that -- obviously, we have seen very strong in the case of quarter 4. But on a regular basis, when you look at, we expect that may be around INR 6 crores, INR 7 crores on an average on a monthly basis. That is the trajectory we are expecting this year. So overall, maybe in the range of, say, INR 65 crores to INR 80 crores is what we expect overall write-off collections will happen. Again, as I mentioned, it is indicative guidance from our side. That is what we expect.

Okay. And secondly, on the cost of funds side, that has gone up by only 10-odd basis points for the quarter. What is the outlook on that? Would you say that the repricing on the deposits is largely complete now?

So as far as repricing is concerned, it's almost complete, maybe around 10%, 12% of deposits where the repricing is yet to happen. So from now, as you may -- I mean, we can say from system angles, the rates are not going up. Obviously, there was, you can say, liquidity crunch and you must have seen we have very strong liquidity base rates right now, almost INR 2,500 crores at the end of March. So our perspective maybe it can go up at the most, maybe 10 to 15 basis points, not more than that. During this financial year, if markets remain the same level where it is today, it might go by around 10 to 15 basis points, not beyond that.

Okay. Sir, on the OpEx front, it has been a bit higher in this quarter, both on the staff side as well as non-staff side. What is leading to it? Is it also related to the higher amount of focus that we have on collections starting this quarter?

No, fairly we can say it is both and largely a variable cost component which has driven, which is both, you drive let's say some collection efforts and it is also little bit -- so variable component largely. And on other operating expenses, as I said, you see -- specifically, if you see last 3 quarters and in between quarter 2 to quarter 3, our OpEx is largely same. So this is also dependent on the activity level. So some of the expenses like let's say, repair and maintenance, printing, et cetera, were a little higher in this quarter. Some bit of the legal and professional expenses, et cetera, is higher in this quarter. So essentially, let's say, from a quarterly trend perspective, what we can say is -- I mean, it is largely depending on the activity level, both the business level activity as well as the ground level activity at times. And from an overall outlook perspective, you can say from an OpEx cost metric perspective, whether it is OpEx by ATA or cost to income ratio, we would be largely in a range in financial year '25, where we have been financial year '24.

Just one large data keeping question. Can you give a breakup of the slippages for the quarter across segments? And specifically for the Microfinance segment, can you give me the slippage for the past few quarters?

Yes. So for this quarter, we had total fresh NPA generation of INR 93 crores, of which Microbanking is INR 65 crores, MSME is INR 11 crores, CV and CE is INR 12 crores, Housing is INR 4 crores, and others are INR 2 crores and for the last few quarters, Microbanking in quarter 3 was INR 98 crores. Before that, it was INR 75 crores and before that it was INR 71 crores in quarter 1.

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

Just 2 questions from my side, on the non-MFI book. So when we look at the MSME lending book, there has been a sharp jump in the disbursement during Q4. So when we look at the last 4 quarters, the disbursement has been range around INR 300 crores to INR 350-odd crores, but that has suddenly gone up to some INR 550 crores in Q4. So what is leading to that? I mean, it is just because we might be expanding our distribution network? Or is there something else to read into it?

So Renish, it's a combination of 2 factors. One is you mentioned expanding the distribution network because we have -- wherever we have general banking branches, sometimes even the micro-banking branches, we expand our MSME, housing and wheels in network. So that is one part for sure. Second, I think during the last few years, we have been able to have a stable team also because it normally takes around 2-3 years's time to reach that level. So at least in MSME, we can say that we have a stable team now. And the trajectory what we have seen in last year, that will continue next year also. That is for sure from the MSME. Not only in MSME, but even the other products also, MSME or wheels and housing and retail LAP also, the trajectory will continue. One factor certainly happens and quarter 4, I think there's a greater activity level that goes up. So around 10% to 15% increase because of that also happens, for sure. But overall, trajectory for next year will remain in the same range. I am talking growth trajectory will remain the same range what we have seen in FY '24.

Got it. And sir, related question to this. On the yield side as well. So when we look at year back in Q4 last year, our yield was some 11%, which went up to almost 11.8% in Q3 and which sort of moderated by 40 basis point in Q4. So this is, let's say, a general interest rate movement or let's say, we have changed our segment -- target segment from high ticket to low ticket or anything like that? I mean, is there something to read into the disbursement yield movement?

Yes. Certainly, I think when you talk of disbursement yield movement, we are focusing more and more on the lower end of MSME. Our focus area -- I mean, I'm not saying we're don't do transaction of a crore plus, but there is more focus on the INR 25 lakh to INR 50 lakh type of bracket, where we can do a lot of work in our -- some of our core geographies as the yields are better. I mean we might have done more transactions and with competition also it gets intensified in quarter 4. That's why a little lower yield in quarter 4. But whatever, we just saw the trajectory and yield in till quarter 3, maybe around 30 to 40 basis points higher the yield for FY '25. That is what we can guidance today.

Got it. Got it. And then secondly, on the housing loan side, so when we look at the average ticket size at around 20%, 25%, certainly not the segment where most of the affordable housing finance guys are operating, those are at around 1 million odd. So here, who are our competition in this segment? I mean, do we compete with the banks and hence the rates are at a 10.5% versus 13% to 14% for the peer NBFCs? How one should look at this segment? What is the strategy?

Yes. So, as you rightly said it, our ticket size is ranging between like INR 20 lakh to INR 25 lakh. There are competitors like our peer banks and other small finance banks and some big like NBFCs. So now here we want to see that the quality of the portfolio and at the same time, we are able to gather like 1% to 1.5% higher rate of interest from the Universal Bank. So we -- as you know that our presence into Tier 2 and Tier 3 and specifically in UP and Bihar, and we want to leverage our footprint in those locations. And that is like we are able to garner higher rate of interest.

I want to add one thing on this part. So the moment you go from INR 25, INR 30 lakh to, say, INR 10 lakh to INR 15 lakh, I think team is not aligned to that. That is our experience, the same guy doesn't do that part. We can say to take care of that part what we are doing? I think we mentioned in our last earning call also, Micro LAP is one product which we intend to focus upon. We have already got a team, and obviously, we expect some good traction during this year. It takes a little time to completely make the team and generate volumes from there. So that is one part. And we'll also be considering rural housing type of things. But for that, we require a separate team. So there the yields will also better and ticket size will certainly in the range of INR 7 lakh to INR 12 lakh type of thing. So further, we need to create a separate team and especially in our core geography, Uttar Pradesh, Bihar, Jharkhand, in that area, the opportunity is quite high. So our idea is that FY '25 should see some good traction in this and maybe some better yields also because of that.

Got it. Just wanted to understand that in housing loan segment, we will continue operating this INR 20 lakh to INR 25 lakh ticket size? Or do we intend to get into the rural housing loan wherein ticket size will be done at like, what the strategy in FY '25?

So in short term, we will continue with this segment as well as build our Micro LAP and rural housing both and maybe after a down the line, 1 to 1.5 years down the line, we can review that whether we -- what makes sense in long term for us or not. Today, we intend to certainly build this portfolio as well as create 2 new segments where the yields will be much higher, but the segments are different and the teams are also getting created separately for that purpose.

So we have already started investing to build a Rural Housing?

We have already started for Micro LAP for sure. We have around 50-odd people team which already in field and they have started getting trained and product has been launched and some sourcing has already started in the beginning. So that has already been done. And rural housing, we will see next 2 to 3 months' time, that will also get launched in -- by end of quarter 1 or maybe beginning of quarter 2.

Got it. And just the last clarification. So when it comes to the non-MFI book, it is right to assume that broadly we'll start with our core geographies, which is Up and Bihar an then maybe after stabilizing process, a bit of handle on asset quality, et cetera, then we'll take the other geography?

Yes. That remains the thought process always. And in this case also, we'll start with our core geography only.

Next question is from the line of Shailesh Kanani from Centrum Broking.

Yes. So a couple of questions from my side. But sir, can you give some color on in terms of AUM breakup for the next year, where you said that 30% growth would be envisaged, how would that mix look like? And what does the management team of corporate loan or 10% or 11% wholesale funding, what we do? So what is our view on that?

So maybe I will ask Puneet to give the breakup for next year. But broadly speaking, our though process is we've done corporate lending for this. The corporate lending are not the way Universal Bank does. Our ticket size will be INR 10 crores to INR 30 crores, largely average around 15-17, when we do NBFC and HFC type of book. So our idea is not to grow that book. Whenever we are -- there are maybe around 3%, 4%, 5% growth not more than that. That is what even internal plans and even the Board guidance is not those lines, that you be there, but don't try to grow this far. So that is one part of the NBFC space. On the other book is what we call the Business Banking Group, BBG group, where we try to give largely working capital or sometimes term loans also to smaller entity that is technically SME space for us, where we normally do around 3 crores to INR 10 crore type of segment and average would be around INR 4 crores to INR 5 crores for us. And till date all the cases are 100% plus hard collateral loans we have given. So that segment, we certainly intend to grow because that segment comes with all other businesses also to us. Normally we will be preferred banker for them or sometimes we will sole banker for us, not in all cases, but in most of the cases. So that is the segment that we intend to grow. We have grown well. I mean, we are around INR 500 crores plus right now and our idea is to grow by around 40% to 50% in that segment for next year. And that will be on a long-term basis because the customer will be with us. I think that the way we mentioned that growing together type of things. So that is what happening for BBG, but I will ask Puneet to give.

From a portfolio composition perspective, if you see micro-banking is a March '23 or 66% for us, which has come down to 62%, 4% in terms of share. This is our expectations for financial year '25 as well, so maybe share of micro-banking will come down by 3% to 5%, anywhere between 57% to 59% for financial year '25 and businesses. I mean, in terms of, let's say, MSME, Govind had talked about Micro LAP, housing and wheels are the businesses which will increase in terms of size. Wholesale lending, which is at about 10% now would remain at about 10% to 11% in terms of portfolio composition.

Fair enough. Sir, a couple of more questions. One is on noninterest income. This quarter, we had a very good jump in that. So what is on the sustainable basis, how can we see that noninterest income because the fourth quarter was excellent. So can you throw some color on that?

Noninterest income, obviously, we had seen a good write-off collection this quarter. As Govind had said right of collection, obviously, let's say, may not get repeat, let us say each quarter, something like that. At the same time, if you see the PSLC income was much lower in quarter 4. It was only about INR 7 crores. For the full year, we have booked PSLC income of more than INR 100 crores. So on an overall basis, we think noninterest income would remain, let's say, largely at a similar level in terms of ROA metrics or marginally lower depending PSLC, demand supply dynamics and the write-off collection selection level. But otherwise, overall other income should remain strong. I mean, other streams, let's say, either the sale of third-party products or the transaction income, et cetera, should remain healthy and should increase as we are penetrating our liabilities account better.

Okay. Sir, last question from my side. On credit cost, are we seeing -- so obviously, fourth quarter has been excellent for us in terms of collection efficiency. But overall, on the MFI book, are there any pain points or pressure in general we are seeing or how are you seeing FY '25 in that case for us?

So generally, I think we've not seen any specific issues at a larger level, but sometimes we do face some local issues, in some of the geography, some of the branches. And that keeps happening and as a MFI player, we have been handling those in past also. There is nothing which is very specific to us. And as we mentioned earlier also, our trajectory for the collections, which were in the range of 97.6% or so. We expect that this will remain here or maybe a little better in FY '25. We don't have any specific issues in any of these places. But there might be some time some of the unit level issue or some plans level you should do drop in, but not otherwise. Trilok, want to add something on this?

We don't have any specific area but we have few districts few states like there are 2, 3, districts in Jharkhand. There are 4 to 5 districts in UP, again 2 to 3 districts in Haryana. Otherwise, we don't have any specific geography where we are facing any such problem which can affect our credit cost.

The next question is from the line of Sarvesh Mutha from Antique Stockbroking.

Congratulations on a great set of numbers. My question would be on margins. So somewhere like that steady state margin should be around somewhere between 9.2% to 9.3% and plus minus 10 basis points. We exited at 9.7 -- 9.9%. So where do you see margins going forward? And how much -- I mean how much of these margins are getting -- I mean are led by the JLG repricing? And how much of that has been done?

So margins is a combination of multiple factors, as you are aware, and it was certainly much better in case of quarter 4. But the way we discussed in the last earnings call also, if you look at the medium-term scenario, we mentioned the next 2 to 3 years horizon, I think margins NIM will always be of 9%. That is what we have given guidance earlier also and that remains today also. Yes, obviously, 9.9% will not be sustainable. But if you look at next year, maybe 9.4% or 9.35% type of margins are certainly there and in medium term, it will be always be 9% plus. Medium when I say 2 to 3 years' time. Any specific points you want to add, Puneet?

From a repricing perspective, I just want to highlight right now, I mean, sitting as on March '24, there is about 20% book which is yet to be repriced fully. But at the same time, Govind had talked about the differential rate of interest, which we plan to implement. So our though process is that these two would offset each other incrementally for financial year '25 and hence from a microfinance yield perspective, we would remain where we are in quarter 4.

And this differential rate, how much of difference would that be?

So that is what I said. Roughly, our sense is that on account of this repricing, we would have gained an additional 20, 25 basis points. We think probably this will be, let's say, the decline in yield on account differential rate of interest and broadly, these 2 would offset each other in financial year '25.

No. So your current disbursement on MFI would be around 25%. And if you plan to do differential disbursement yields, so how much of a difference would be in the yields?

So what we are planning and we are still assessing, but our sense is that we would be doing, let's say, 1% to 2% lower than our card rate for select better quality customers, better vintage customers and so on.

Okay, okay. And also on CD ratio, you had said that you plan to get it down further. So any broad range that you intend to get it down to?

So I think in last earnings call, I also mentioned that on a year-on-year basis, we are round 3%, 3.5% decline in the CD ratio for next 2 to 3 years' time till we say, 85% and below. And that trajectory for FY '25 will continue.

The next question is from the line of Vinay Nadkarni from Hathway Investments Private Limited.

Yes. I have just 2 questions. One is the CD ratio last year was -- you gave 2 numbers. One was for the year as a whole, 93 and then 84. What was the 93 number?

So 93% is our CD ratio, which is coming at from the face of the balance sheet and 84% is because we have refinanced borrowing from our balance sheet. When we reduce refinance borrowing like from our loan because those borrowings are taken to refinance amount and then if we calculate our CD ratio, it is 84%.

And lastly, on the number of branches that you expect to open in FY '25?

So this year, we have a plan for opening around 150-odd branches. I mean the number could be plus, minus based on getting property, getting property in time and those type of things. But 150-odd branches we expect this year. Out of that general banking branches around 60-odd will be general banking branches and next 90 will be our microbanking branches across the country.

As there are no further questions, I'd like to hand the conference over to management for closing comments.

Just one more clarification. I mean, on data points with respect to the deposit tenure, which we had shared. So I mean basically let us say deposits more than 3-year category is about 11%, 2 to 3 years is about 20%, less than 1 year is about 6%, the balance is largely 1 to 2 years ahead.

And you also clarified on the ticket size of microfinance, it has gone up by 4% during last year. And the rest of source is on account of new customers. Thank you very much for coming and joining this call. And you have been always supporting us, and we look forward to continued support. I think you have seen the results. Last 2 points which were not discussed. I just want to highlight 2 points. One is that we have started dividend -- paying dividends from this year. So we'll become a dividend-paying company. And that is what is a small beginning from our side. And second, I want re-emphasize on the floating provision. This year, the Board has directed us or guided us to make 2% floating provisions on our JLG book. And the way we had told in the past also we intend to create a sizable floating provision, so that any issue we are able to withstand. And the way we have guided also, 30% plus growth in the overall assets and overall advances. And 3% to 5% higher growth for deposits for this year. That is what we are aiming at and other -- some of the ratios like ROA of 2% plus and ROE of 18% plus and cost income in the range of 54% to 57% and NIM being above 9% in the medium term, not for this year alone, but for the medium term. We have some of the guidance from the management, from the Board discussion. So again, thank you very much for joining this call and look forward to your continuous support. Thank you.

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