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

Ladies and gentlemen, good day, and welcome to the Q3 FY '25 Utkarsh Small Finance Bank Conference Call, hosted by ICICI Securities. [Operator Instructions] I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you.

Thank you. Good afternoon, everyone, and welcome to Utkarsh Small Finance Bank Q3 FY '25 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. Pramod Kumar Dubey, Executive Director; Mr. Sarjukumar Simaria, CFO; Mr. Amit Acharya, Chief Risk Officer; Mr. Alok Pathak, Head, Assets; Mr. Vivek Kashyap, Head, JLG - Sales - Micro Banking; and Mr. Puneet Maheshwari, Head, Strategy and IR. I will now hand over the call to Mr. Govind for opening remarks. And then, we'll open the floor for Q&A. Over to you, sir.

Yes. Thank you very much, Renish, and good evening to all of you. Thank you, everyone, for taking out time to attend our Q3 FY '25 earnings call. As you are aware, operating environment remained challenging for microfinance sector in quarter 3 FY '25 on account of higher borrower level -- leverage and credit supply tightening for underlying borrowers following guardrail norms. While at the same time, we continued to see good traction on our franchise expansion, healthy growth in deposits as well in the secured loan portfolio. In terms of business performance, our deposits have grown by around 33% year-on-year, in line with our plan, to INR 20,172 crores. Deposits growth was led by growth in retail term deposits, which grew by 41% year-on-year. Our CASA deposit ratio was 19.7% as on December '24, largely at the same level of 19.6% as on September '24. And CASA plus retail term deposit ratio improved from 68.4% as on September '24 to 70.1% as on December '24. As for outlook on growth, we expect deposits growth to remain higher than credit growth and expect consistent decline in our CD ratio. As regards to JLG book, we are seeing stabilization of collection efficiency in X bucket. Overall stress level is also peaking out, and we expect environment to improve further in current quarter and first quarter of next financial year. Overall assessment of JLG portfolio and operating environment is as follows. Collection efficiency stabilizing in X bucket. It improved to 98% in December '24. And in current month till February 15, it is closer to 99%. Trend in net increase in PAR level is declining month-on-month. And in current month till February 15, there is no increase in net PAR 1. It was declined marginally from month-end January '25. We expect PAR level to start declining firmly in next 1 to 2 months. On account higher SMA buckets as on -- on account of higher SMA buckets as on December '24, fresh slippages could remain high in quarter 4 FY '25. However, as regular bucket collection efficiency is stabilizing, we expect SMA book to normalize in quarter 1 FY '26 and fresh NPA generation would reduce meaningfully then. We are seeing improvement in collections from OD book, expect meaningful improvement in collections from OD buckets from quarter 1 FY '26. While we continue to focus on collections in current environment, we expect JLG disbursements to normalize by quarter 2 FY '26. Micro banking individual loan comprised 8% of our micro banking loan book. It is focused on graduating better-profile JLG customers with good repayment track record. This portfolio is behaving much better on collection efficiency and asset quality. Disbursements in quarter 3 FY '25 were higher by 7% quarter-on-quarter and 9% year-on-year. Individual loan portfolio is expected to grow faster. As for quarter 3 FY '25, microfinance disbursement remained lower in quarter 3 FY '25, as we continued to focus on collections. And as a result, micro banking loan portfolio has declined by more than INR 1,200 crores vis-a-vis March '24. Growth in non-micro banking portfolio, which is primarily secured lending, continues to remain healthy, in line with our expectation at 42% year-on-year. MSME loan portfolio has grown by 58% year-on-year to INR 3,453 crores. Disbursement yield has also improved by 130 basis points over same quarter last year. Within this, we are also seeing traction in micro LAP portfolio, wherein disbursement yield is around 18%. We see good growth potential for this product in our geographies and given our strong franchise. Housing loan portfolio has grown by 36% year-on-year to INR 855 crores. Disbursement yield has also improved by 50 basis points over same quarter last year. CE and CV loan book increased by 35% year-on-year to INR 1,134 crores. Within this, we are focusing on increasing share of used vehicles, which has increased in disbursement from close to 5% earlier to 20% now. We are strengthening our presence in BBG lending. Entire portfolio is secured against immovable collateral. This book has grown by around 60% year-on-year to around INR 800 crores. We have also launched a secured credit card, which is progressing very well. Overall, we are also seeing much better traction on cross-sell on both sides, asset products, that is MSME, housing and micro LAP through our liability-focused GB branches, and deposit account for our asset customers, essentially more products per customer. On account of decline in disbursement in JLG, overall gross loan book growth moderated to 16.2% year-on-year as on December '24. As for outlook on loan book growth, we expect JLG disbursement to normalize sometime around quarter 2 FY '26, expect good growth in MBBL portfolio, that is individual loan. We are expecting healthy growth trend to continue for non-micro banking portfolio, which is largely secured loan portfolio, in quarter 4 FY '25, as well as FY '26. In line with our strategy, share of secured loans in our portfolio has been increasing. It increased further from 34% as on March '24 to 41% as on December '24 and is likely to increase further. We continue to build our banking franchise and opened 61 new branches in quarter 3 FY '25, overall 140 new branches in 9 months of FY '25, taking total branch network to 1,028 branches as on December '24. With current year expansion, we have significant large franchise, which is adequate for our growth target, and hence, we may not need much expansion of our branch network in FY '26. From asset quality perspective, key factors which impacted collection efficiency and asset quality in micro banking -- microfinance segment currently included over indebtedness level of borrowers, restricted credit supply in JLG lending segment and bandwidth issues on account of higher overdue buckets. We are strengthening our collection team, as well as efforts, and expect collections trends to improve. We have added around 350 more people in our micro banking team in quarter 3 FY '25 and almost around 2,000 people in 9 months of FY '25. We are reducing case load per staff, as well as we have collection team of micro banking with more than 800 people. We are also focusing on improving critical processes like center meeting discipline and other processes. Additionally, on an ongoing basis, we continue to split our large MB branches to maintain better control. As I mentioned earlier, we are seeing stabilization of collection efficiency for X bucket, as well as improvement in net PAR accretion. This is likely to improve further in current quarter and quarter 4 -- and FY '26. Overall, primarily on account of weakness in JLG book, our gross NPAs increased from 3.88% s on September '24 to 6.1% as on December '24. In near term, our primary focus area include: maintain X bucket collection efficiency at around 99%; net reduction in PAR level; activate maximum OD clients, even if these clients remain in OD, but should remain paying customer; bring center meeting and other discipline back in JLG lending; and improve on our customer connect and overall improvement in collection efficiency and asset quality of JLG portfolio. We have also registered with CGFMU for credit guarantee for unsecured JLG portfolio, further optimization of disbursement yields and profitability in non-micro banking portfolio. We have set up system processes and people and are well placed for healthy growth in non-micro banking businesses as well, building a more granular liability franchise and further improve on CASA plus retail term deposits. Our profitability during the quarter was impacted by stress in JLG book because of which credit cost was high, as well as there was higher interest income reversal. Profitability is expected to remain under stress in quarter 4 FY '25, while we are seeing peaking of stress in micro banking. We are not giving any specific guidance on profitability and asset quality in current environment for quarter 4 FY '25. However, we will share our outlook, as well as guidance, on both for FY '26 at the time of our quarter 4 FY '25 numbers. We are holding floating provision of INR 190 crores as on December '24, of which, INR 173 crore was created for unforeseen risk in JLG portfolio. We have requested Reserve Bank of India to allow using this provision in current stress time. As on December 31, 2024, we had surplus liquidity of more than INR 2,500 crores, which is higher than our usual liquidity requirement. In line with our strategy, we have been reducing our CD ratio, which declined to 92% as on December '24 from 99% as on December '23. And if we net off refinance borrowing from advances, CD ratio declines to 86%. We don't have any short-term borrowing on our balance sheet. We expect our CD ratio to decline further. We are also undertaking a business transformation project to our -- to make our technology, architecture and business processes future-ready for our growth plans. As far as reverse merger part is concerned, with the holding company with the bank, we are on the track. With this, we can move to question-and-answer section. Thank you.

So, would you like to begin the QA session?

Yes, please.

[Operator Instructions] We have the first question from the line of Deepak Poddar from Sapphire Capital.

Yes, am I audible, sir?

Yes.

Yes, we can hear you.

So, I just wanted to understand first up, I mean, you mentioned in your opening remarks that overall stress level has peaked out and we do expect -- even you are seeing some stabilization in collection efficiency in regular buckets, as well as overall. So, can one assume, I mean, in terms of your credit cost of provisioning, which we did about INR 400 crores -- INR 420 crores this quarter, is that the peak? And going forward, quarter-on-quarter, one should see reduction in your provisioning?

\yes, it's going to be around that. That's what our presumption is. It will not increase from here.

Okay. So maybe fourth quarter, it will be around that. But from first quarter, we expect some significant reduction?

Yes. That is what is anticipated. That's where all the efforts are going to see that this number obviously is on a downward trend.

Okay. So from first quarter onwards, we can expect some significant reduction. Fourth quarter would -- around same level is what one can expect, right?

Yes, it's very difficult to give the exact number, but certainly, yes, it will start reduction from quarter 4 itself because we are seeing good stabilization, but it may not be significant. And as you yourself mentioned that quarter 1, we should see a much, much bigger, you can say, decrease in this number, the way we have seen trends in the last few months now.

Understood. That's helpful. And my second question on your growth, what sort of -- I mean, credit growth we are looking for this year with just the fourth quarter left?

So, as you mentioned that we have -- this time, we are not giving any specific guidance for a simple reason that JLG growth is -- currently is not certain right now, and we have seen that happening. We are seeing a good growth in the non-JLG business, and we are -- the way we have seen around 40% to 50% growth in the non-JLG. So, that will remain on the same trajectory. But JLG growth is right now uncertain, so we are not able to give any specific guidance for quarter 4.

Understood. And JLG forms how much percentage of your MFI book?

So JLG will be close to around 51% as far as -- of the total portfolio. JLG is around 51% of our overall portfolio.

51% of overall portfolio, not the MFI portfolio?

Correct, yes.

Okay. So majority would be JLG only, right? Because 60% of your portfolio is right now MFI only.

So, within MFI, about 92% is JLG and 8% is individual.

Fair enough. And are we focusing towards this shift towards more individual and reducing JLG?

Yes, certainly. In fact, we started this journey a few years back, obviously, because microfinance was there with us for a long time. So individual within microfinance and the non-microfinance book, I think both are growing well, and we have seen good growth during last few years. That trajectory will continue. So bank will keep focusing on the non-JLG businesses and the other business segment as far as the lending part is concerned.

[Operator Instructions] We have the next question from the line of [ Kiran ], an individual investor.

So, I'm an individual investor. So, my question is, now that we understand that people had overleveraged under the microfinance business, so what are the precautions that we are taking to prevent this in the future? Because I'm sure a lot more number of small finance banks are coming up, so people now can get loans with the mobile apps where they distribute the loans. How are we going to prevent this that has happened in the future? What has happened has happened. But I have been on the call for even the other small finance banks like Equitas and Ujjivan. Every other small finance bank is facing the same problem. But what are the precautions is what I want.

So you must have seen the biggest change that has happened during last few months is the -- there are new guardrails given by the industry SROs. And as per that, currently, you can't lend more than 4 loans -- 4 lenders can't -- there can't be more than 4 lenders to any borrower. So, that is the new guardrail from the MFIN. And in fact, from 1st April, they are moving to 3 lenders overall. In past, though there was a guidance which says that you can't lend more than this amount, but number of lenders was not restricted. So now, there is restriction and that restriction is in place. It was put from 1st of August, and you must have seen that stress has built -- started building from 1st of August because you can't lend the way it was there. You can say overleveraged is no more allowed. Everyone does do a credit bureau check and then sees that this is not the situation. And it is being monitored by the SROs. There are MFIN and Sa-Dhan, there are 2 SROs, which normally all the people who are working for microfinance sector, they adhere to. So such situation is not expected to happen in future, the way it has been -- I can use the word regulated or the way it has been protected now. So such issue is not likely to be there in future, this level of, you can say, overleveraging part. And I must tell that I think all the players are following this, and Sa-Dhan and MFIN are very closely monitoring this, not only them, even the RBI, whenever they are talking to banks and NBFCs, they are also monitoring this closely.

Okay. So I have a follow-up question to this. So basically, do you have a setup where -- when you want to lend money to somebody under microfinance, do you have a setup where you can actually see how much has this person borrowed or from how many banks, what is the amount? Is there any setup? Or do you coordinate with other small finance banks on this?

No, certainly, it is there. See, the current setup is that for any disbursement, you have to check the credit bureau record of the borrower. So, as I mentioned earlier, people were not checking how many people have given loan to this person. That has been restricted, and that is being checked by each and every one. In fact, this is through a system check itself. There's no manual intervention and most of the players, including us. So if the person has taken, say, 4 loans and he comes to us for fifth loan, the system itself rejects the borrower for next loan. So, that system is there. And it is across in fact -- I mean, when I -- across means all the people who are into microfinance lending space, they are adhering to that and they are submitting that data to the credit bureaus. So, that system is there and it is being used by people. And now, norms are also tightened so that these are adhered to 100%.

So, one more question is, I mean, there was a talk in the -- in some of the previous calls. I don't remember when exactly this was. But then, there were talks that Utkarsh might apply for a universal banking, right? Is there any progress on that? Or are we even pursuing becoming a universal bank?

So in past also, we have mentioned that, yes, obviously, universal bank makes, I can use the word, more sense because there are some benefits which are available to universal bank. Having said so, I think as a small finance bank, you can offer all types of products and services and you are -- there is no difference per se for the end customer angle. So, as and when we become eligible for this, I think we certainly would like to evaluate that for sure. But as of now, that is not on card right now.

We have the next question from the line of Ashlesh Sonje from Kotak Securities.

Sir, a data keeping question first. Can you share the total percentage of your microfinance portfolio where the borrower has borrowed from more than 4 lenders in total and more than 3 lenders in total?

So we had shared this last time as well. So in terms of borrowers, roughly about 13% is 4 or 4-plus, basically, Utkarsh's plus-4 or more than 4; and Utkarsh's plus-3 is close to about 12%.

Okay. So 13% and 25% by borrower count?

Yes. Put together, yes.

Okay. But can you share the same as a proportion of portfolio?

So proportion of portfolio is largely similar, Ashlesh. It is not materially different from, let's say, share in terms of count.

Sir, and a qualitative question now. If I look at the slippages, especially in the last couple of quarters, they have been quite elevated. When you go and try to collect from these borrowers, what exactly is preventing you? Are you firstly able to locate and meet these borrowers? And yes, what is preventing you from collecting?

So normally, what is happening, Ashlesh, because the numbers are large right now, so it is taking extra efforts. And generally, the design is for center meetings. The moment you have to go door to door, it takes much more effort and much more time. So generally, customers are available. I still feel that -- I mean, in some cases, obviously, you may not find the customer, but largely, customers are available. It is, you can say, inability of the players to reach out to all these people in time. That was an issue. And gradually, if we start having -- one, that center meetings become more regular, that is easier, that we have been making efforts to -- it's very difficult to say exact number, but at least 70% to 80% center meetings are happening regularly. So we are able to meet large number of customers at that place itself. And gradually, we are seeing that more and more customers are starting paying. So 30%, 35%, 40% customers are paying regularly. Sometimes it may not be the full installment or full overdues. So I think they are also gradually becoming regular in that sense, regular in payment, may not be regular as far as their account is concerned. So gradually, this number will come down, and I think it will become more manageable to meet these customers on a regular basis and do it. I'd still want to mention that we don't foresee much challenge that customers are not available. There may be a few -- some small percentage of customers who may not be available or who might have migrated, but it's very, very small segment. I think large segments -- because of our own inability to reach these people in time was an issue, which is getting addressed by more and more discipline, at the same time, enhancing our own teams also. As I mentioned, now we have 800-plus team only for collections, which looks into 61-plus buckets. And also, we have got close to 400 people as our general or normal center meeting people. So actually, our number of clients has come down, but our employee base has actually gone down by close to maybe 1,000 to 1,200 during this period.

Understood, sir. Sir, a few more data keeping questions. If you can share the slippages for the quarter by segment? Secondly, if you can share what is the current PCR in the microfinance book and the provision policy in microfinance? That is the second one. And lastly, if you can share the trend of X bucket collection efficiency in 2Q, 3Q, December, January, February?

So fresh NPA generation overall were about INR 738 crores, out of which INR 650-odd crore was micro banking and balance is non-micro banking. In terms of provision cover, overall provision cover is -- I mean, if we see for unsecured, it is about 46%. And for secured, it is about 38%. I'm talking about excluding floating provision. And from a provisioning policy perspective, so we start for unsecured -- or, let's say, for our microfinance portfolio, we start with a 40% provision cover and once the account becomes NPA and then, every quarter, we increase it by 15%. So by the time an account remains in NPA for a year, we would have 100% provision cover.

Understood. And the last one was X bucket collections in 2Q, 3Q December, January, February.

Your voice is feeble.

Yes. Can you just talk a little louder, Ashlesh?

Yes. Sorry, sir. I was saying, if you can share the trend on X bucket collection efficiency in the September quarter, December quarter and the last few months?

Yes, Puneet, go ahead.

Yes, just one second, Ashlesh. So if you see X bucket collection efficiency, as Govind sir said, in month of February, we were close to about 99%. If we look at January, we were still more than 98.5%. December, we were close to about 98%. And September, October, November, we were close to -- in a range of 96% to 97%, 97.5%.

We have the next question from the line of [ Mayank from EnCap ].

I have one question. Like we are seeing that continuous provisioning is happening from last 2 quarters. So is this going to continue in future? Or why can't we do all the provision in 1 quarter so that in future, like we must be ensured that we don't -- we are not going to see that type of provision in future?

As we mentioned that we are making a provision, which is higher than the IRAC norms, and we have bucketing provisioning norms, both Board approved and which is, as I said, accelerated in any case. So we have to be in tandem with the slippages and the natural behavior. I think probably in a fairness point of view, well, you may seem to be sounding being conservative and prudent, but I think it is also appropriate to do that as it matches the reality. And there is always efforts to get the collection, to get the recoveries. So in any case, to assure you, one, that we already have a grade of provisioning, which is higher than the IRAC norms.

If we are moving from microfinance to non-microfinance, definitely, in future, we are going to see like yield would not be that much because in microfinance, we see a lot of -- like company used to earn a lot by interest and everything. If we move everything from microfinance to that particular banking and secure part, so in future, like are you planning like -- if situation improves in future, so are you planning to move again to microfinance or your future will be in the secured part only?

No, there are 2 aspects. One, our microfinance will remain there. It's not that we are completely moving out of microfinance. The share of microfinance will come down. And you must have seen during last 4, 5 years also, each year, the share of microfinance comes down by around 5%, 6%, 7% each year, and the share of the secured and the non-microfinance book has been increasing. And I think the way we have been talking, the same trend will continue because during the last 4, 5 years, we have got a new -- a number of new verticals as far as lending part is concerned. I do take your point that the yield for JLG is certainly higher than when you talk of secured book. But at the same time, in terms of provisioning requirement, in terms of my overall cost of fund will also come down by -- there will be efficiency of overall operations of the bank also. So I think these will also play in the whole thing. In fact, obviously, currently, we are passing through a very different type of situation. The entire industry is passing through a different situation. Otherwise, there are no -- there are not large dips in the NIMs and other ratios while we could reduce our JLG share by around 6%, 7% on a year basis. So we don't expect there will be much difference in that. In fact, we are also looking at some of the high-yielding products like Puneet mentioned about the micro LAP, where we are able to get around 18%, and it's a secured type of product. So I think in mix and match, plus our operational efficiency will go up, our cost of funds will go down. The difference may not be that large. Yes, certainly, there may be some, you can say, decline in the NIM over a period of next 2 to 3 years' time, but this will get offset by other positives, other operational efficiencies.

We have the next question from the line of [ Mohan Raj ], an individual investor.

So there are 2 questions from my side. One is like can you give me the -- I mean the state-wise situation because there are news that in the South side, especially in Karnataka, there is a new ordinance, which is impacting the customers' sentiment to repay the loans. And so, will there be any spillover effect on that on the portfolio when we go into the next financial year? And the second question is, so you have mentioned you have registered with this CGFMU. So can we expect most of your unsecured portfolio will be covered under that? Or -- yes, so what's your plan there?

Yes. As far as the first part is concerned, so we have seen Karnataka situation, and you must have seen the ordinance also, which excludes all the banks, all the REs. Actually, the Regulated Entities of Reserve Bank of India have been excluded from that. And yes, there was some temporary challenge there, but it has been amicably or properly resolved. And we have not seen any after effect or any such effect of that situation across the country. Incidentally, we are not in the Karnataka belt. We have a very small portfolio through our BC partner. But otherwise, we are not in South -- largely in South right now. It is through our BC partners only. We are largely -- we are in the Northern and Central belt from the JLG perspective. But we have not seen any after effect or any effect of what happened in Karnataka. So, that is one part. Secondly, yes, our large portfolio will get covered under this guarantee scheme. We are just evaluating each and every unsecured book that we have got and which are covered under this scheme because we have registered recently only. And most of the book, which is unsecured and which is eligible under this guarantee scheme, we will try to cover. But I think we are in the process of doing that right now. But most of this will get covered, sir.

We have the next from the line of Vinay N from Hathway Investments.

Can you hear me?

Yes, we can hear you. Please go ahead.

A couple of questions. One was just to take the same point what the earlier questioner had asked, which are the -- because you have nearly 70% lending in Bihar and Uttar Pradesh, now are there certain districts there which are causing a problem? Or how -- where is it NPA suddenly hit us so badly in the last 2 quarters?

Okay. Just to talk about this -- I think Vivek can also add. But from the way we have seen, whenever such things happen, it hits in some of the pockets. So we saw some of the pockets, and our core geography got hit more than what it challenged in other places. So like in some of the pockets like Bhagalpur belt of Bihar, you can say where it was a bigger hit. Similarly, in Gorakhpur belt of Uttar Pradesh, where we got a bigger hit. Similarly, some pockets in Odisha and some pockets in Jharkhand also, where the hit was a little higher than other places. So these 4 states are quite large states from our JLG portfolio angle. As a bank, may not be that those large in terms of overall lending book. But from the JLG, from the microfinance book because historically, we started from these geographies only, there the hit was a little higher. And as I mentioned, to counter that, we have already put things in place, and we do expect that the way the normalization is happening, it should happen much faster. And we don't expect at least this to go beyond this now.

My second question is, what was the reason why there was such a large default? Was it something locally in those areas? Or was it our collection efficiency that has dropped?

No, this is largely -- as we all are aware that this happened from the beginning -- in the first week of August when the new guardrails of MFIN got implemented, where the people who are having more than 4 loans were not eligible for any further loans. So I think there is a scarcity of credit. People are not getting credit. At an industry level, there may be around 13% to 15% such customers who are not eligible, and there is an impact of that. The impact was higher in some of the geographies and lower in some of the geographies. That does happen sometime. So that's the only reason. I mean, you can say that's a trigger. Before that, the heat wave had a big impact this time. And even in these states, especially Uttar Pradesh and Bihar, the elections also -- because elections happened in 7 stages -- unlike in most of the states where it happens in 1 or 2 stages, in UP, as well in Bihar, it happened in 7 stages. I think there was a prolonged period because of that. The field operations got a little disturbed during that period. Then there's a heat wave, and we had some flood situation also in some of the Bihar pockets. So, that happened before 1st of August, and that got, you can say, further triggered or further aggravated by the guardrails from the 1st of August 2024. I think these are the reasons, and that's why it has taken a little longer time. We had seen a situation in past also, but that used to come back to normal very quickly. This time, there are a series of reasons or a series of things that happened. So it has taken a little longer time this time.

And you see these reasons now going away? Because the guardrail is further getting tightened from 1st April. But will that have a significant impact in the FY '26 numbers for provisioning? Or you see some relief there? Because more than 25% of your portfolio is with Utkarsh plus 3 lenders, is it?

Yes. So, as Sarju, our CFO, also mentioned that whatever is the -- our stress currently, obviously, will have an impact on quarter 4 also because of the impact of that. But going forward, that should not be the case. And second, the change of guardrail will not have major impact. There will be minor plus/minus can be there, but not a major impact because -- see, earlier, what was the case? When we say 4-plus, sometimes there may be people with 6, 7 or 8 lending also. In this case, the number is specific and people are aware. And you must have seen the disbursement have gone down significantly during last almost 6 months now. From 1st August, I think every -- all the players are experiencing a 40% to 50% disbursement rates than the earlier rates, in fact. Everyone's portfolio has degrown. So I think the further tightening of guardrails, whatever was to be done from 1st January, that has already been done. You are aware of this that -- so for example, voter card is mandatory for each and every borrower. So, all those things have been implemented by the industry and by us also. The only change which will happen from 1st April, pan industry, will be not more than 3 lenders. And we don't foresee much impact of that.

Yes. My last question is, basically, now going forward, as far as growing your revenues, yes, while this stress will be there, and I'm sure you have a team who will be focusing only on that, but would you also have a team which will be focusing on growing your revenues? Because your cost of funds has really come down quite nicely. If your yield on advances also go up now, you would have a much better cushion to bear these losses going forward. So is there any attempt to increase that? And how is it that you are planning? Is it geographically, are you wanting to expand in some other states where there is better credit quality? Or what is the strategic thinking for FY '26 and beyond?

Certainly sir, we'll come back, obviously, our guidance for '26 in our next call. But the way you mentioned, we have also strengthened our various non-JLG verticals also. JLG, we don't intend to extend too much. There will be a very moderated growth as far as JLG is concerned. But we have other verticals also. And there are some verticals where we are able to get good yields also. For example, we mentioned about the used vehicle. So used vehicle gives me much better yield. And from 5% disbursement, we have already moved to around 20% disbursement in last 4, 5 months' time. Micro LAP is giving us 18% plus, and this is a product apt for our geography. When I say our geography means our core area where we talk about UP and Bihar, Jharkhand and that belt. So I think we have also identified these products, which we are focusing upon, and we expect these, we will be able to expand and grow much faster in days ahead. So book will be secured more. I mean, this proportion of secured will be much higher. The yield -- the blended yield will be -- obviously, it will be a little lower than what we have been doing in the last few years, but it will not be significantly lower than what we have done in past. And the credit cost or the credit quality is expected much better. And at the same time, our operating cost structure will also get much better. So I think overall, in next 2 to 3 years' time, we should see a much, much better traction and trajectory.

One last thing. What about gold loans? Are you into that also?

Yes, we have started gold loan, and we intend to increase the disbursement and the book in next financial year.

How much would it be as a percentage in this -- the results?

Currently, it's negligible. Maybe by next year, we would like to make a book of INR 100 crores plus.

We have next question from the line of Shailesh from Centrum Broking.

Sir, I just wanted to understand, first, on the collection efficiency front, you said the Feb number is 99%. So can you just define that collection efficiency and also reconcile the collection efficiency number what we have mentioned in the Slide 26 for the third quarter? That would be helpful to understand.

Okay. So the collection efficiency number which we have given on the presentation, that is collection efficiency for entire book. So, that is for X bucket, SME, as well as for NPA, so total collection during the month against the total demand. That is the collection efficiency, which we have put in the presentation. The close to 99% X bucket collection efficiency is basically, let's say, accounts which were there at the end of the previous month, regular account. This is the X bucket collection efficiency for those accounts. So when we are saying, let's say, till February 15, we had a 90 -- close to 99% X bucket collection efficiency, this means that whatever accounts were regular at the end of 31st January, collection efficiency for those accounts is close to 99%.

Does that collection efficiency include any prepayment, the 99%?

No, none of the 2 includes prepayments. Basically, it's all regular or OD collection.

Okay. So if 1 EMI is due, 1 is EMI paid, so that is 99%, right? That understanding is right?

That's correct.

Okay. That's helpful. Continuing on this collection efficiency front, we have seen certain players changing the collection methods from -- they are going from monthly to fortnightly or weekly. Any plans from Utkarsh's side to do this as we have beefed up the collection team as well?

So I can take this question. So we moved from weekly to fortnightly long time back based on -- you can see the efficiency -- overall efficiency, operational efficiency, as well as customer convenience. And you are aware that in JLG, we are largely a semi-urban/rural player. Almost 80% of our portfolio comes from there. So our idea is to continue with this fortnightly. This is the most balanced way of doing it. So we don't have any plans of changing it from currently, which is almost 90%, 91% is fortnightly. We intend to continue with fortnightly only, not to move to monthly or to weekly.

Okay. And sir, in terms of a bookkeeping question, what are the current yields on the disbursement of the JLG fund and individual loan fund, if you can give that number?

Sorry, I couldn't hear properly.

Sir, I was asking, what are the yields on disbursement for the JLG and individual book?

Yes, Puneet, you can take this.

Yes. So for both individual and JLG, disbursement yield currently is 24%.

Okay. The last question from my side, any timelines in terms of reverse merger? We have earlier guided about first half FY '26.

So we are on track there to be -- the fact is that we already got an NOC from RBI. I think that's a good development. We also have got almost green signal from the 2 exchanges who have, in turn, send it to SEBI, and we are just now waiting for them to give their NOC. As far as the readiness to file the petition, I think everything is just on the table for a day or 2 or 3 at best after we receive SEBI. The way I look at it is that we are, in fact, on track to do this before March. It could be even earlier, before end of March. And therefore, our anticipated date of completing the consummation of the reverse merger process of early Q3 FY '26 stands.

Fair enough. And sir, anything on the valuation, how the valuation will work out?

Sorry, can you just repeat? We couldn't hear properly.

On the reverse merger, how that valuation will work out? Any numbers on that?

We have already announced the valuation number.

6.99x, it is 6.99x actually is the valuation. It's already in public domain now.

Okay. Sir, just last one question. This current collection efficiency of 99% for the month of Feb, how does that stack up, say, to Feb 2024? Is it in line with what we were earlier before this current crisis?

Just one second. Puneet...

Can you come again? Shailesh, can you come again? Sorry, I couldn't hear you properly.

Yes. So basically, the collection efficiency for the month of Feb is around 99%. How would that be, say, 1 year back in Feb 2024?

So I don't have the precise number for Feb '24, but it should be closer to this level, right?

It was closer to same level.

So, basically, I wanted to...

Somewhere around 99.2%, 99.3%, something like that.

Okay. So we are reaching a normal collection efficiency in steady state of business, that is what I wanted...

Yes, for X bucket, yes, for X bucket.

Correct, correct. Absolutely.

We have the next question from the line of [ Purushotham ], an individual investor.

Sir, I'm having only a small question. This -- your list -- though you are a private company for last so many years, now the listing in NSE and BSE took place just 2 years back. I think it is January '23. So this visibility of huge NPA successive quarters provision and all -- is it -- it was not anticipated during your IPO issue because most of the public investors are feeling like this NPA -- am I audible, sir?

Yes, we can hear you. Please go ahead.

This visibility of getting too much impacted by NPA was not -- are you not aware of at the time of IPO? Because many have taken share at the price of INR 50 and above INR 60 and all and thinking that your EPS posting and normal metrics, we were thinking, by this time, share price would have shot up above INR 100, so now -- whereas it is hovering around INR 23, INR 25 now. So is it not a hiding game you are playing? No, I am putting it in a blunt way.

No, absolutely, sir, absolutely. I mean, so I just want to clarify, one, that we are in public domain for a long time. We may be a listed company for recent time only. And you must have seen the track record of Utkarsh. And yes, there has been a situation in the past also when the -- when suddenly, the credit cost goes up. We have seen in de-mon time, we saw in the COVID time also. And as we just mentioned on this call and if you see all the newspaper also, all the players, it's not specific to Utkarsh. It is specific to the -- it is for the general industry, in fact. All the people who are into unsecured or in microfinance space...

My question -- sorry for the intervention. My question is, these successive 2 quarters...

I will tell you, sir, I will tell you. I will complete, sir. Just give me one minute.

All these NPAs become maybe successive 2 quarters, or it was accumulated from so many years, people might have defaulted so many -- even beyond...

Sir, let me just complete.

So that visibility you may be having, so that clarity -- and when we go for an IPO, you should have cleared the book in a proper transparent way before IPO. See, IPO, you are tantamount to something you are hiding your NPA. Your asset quality is not 100%. Am I right?

No, no, sir. That's what I'm trying to tell you that there is nothing of that sort. This is what industry -- entire industry is facing. It is not only Utkarsh. If you look at all the people who are in the JLG or microfinance space, they are facing this issue, and this got triggered from the 1st of August. So you see that there is a decline in the asset quality from 1st of August because of the changes the way regulations or the SROs brought in. Even if you look at our March '24 numbers, our net NPA was very close to 0 actually. And our...

Is it that your deterioration of collection efficiency and all is a recent development? Or all these INR 400-odd crore you wrote off for in the Q3 is not an accumulated thing, right, 2, 3 years back.

Not accumulated at all. In fact, if you are aware that our -- even the overall tenure of our loans are -- especially for the JLG, the microfinance loans are 14 months to 24 months. So they are actually short-term loans only, 24 months and 14 months. So the entire stress was built up during last 6 months only, and this is what is happening across, and we all are coming out of it. So there's no question of having any stress earlier which was not disclosed. There's no such question. And if you see our results for previous years and even March '24 also, there were no stress. This has -- this got caused from 1st of August because it changed the way -- the lending was changed, and we are -- must be seeing in other players also that there has been little stress in the system for unsecured and microfinance lending. Rest assured about that part, sir.

The point is, when the people to whom we have lent are defaulting, is it you are just leaving them away and detaching the compartment and moving? Or you are making an effort to still -- maybe your Asset Reconstruction Company, you may be auction. That is one part. But why don't our internal arrangement itself to poke and try to extract maximum before auctioning the Asset Reconstruction Company and all. So our collection efficiency improvement, what action you are contemplating now?

So we mentioned, sir, that we have strengthened -- normally, in JLG or the microfinance, people normally do not have collections teams. So now, people have also put their collection team in place. We have also put a specific collection team in place. Even the portfolio that has been sold to ARC, we have taken the collection responsibility for that. And whatever are the benefits, that will also accrue to us. So it's not that the benefits will not accrue to us. So there has been a big focus on collections. And obviously, we are aware of this fact that wherever there have been delinquencies or wherever there has been stress in the portfolio, that remains our top priority. And that's why you must have seen the growth rate has -- at least for the JLG, has come down. And that is what we have been talking for some time that we are -- now there is a significant improvement. Obviously, it is yet to normalize. It is taking a little longer time. And those are the efforts. And I think we all are committed to that.

Sir, one second. The growth rate -- degrowth rate is understandable due to some RBI decision, more than 4 lenders cannot take loan. Those are all understandable. But the thing is, all of a sudden, the NPA increases in successive quarters. See, what general investors think that once you have a massive NPA provisioning you make, so that means relevance. So then, further 2, 3 years, nothing will happen, so significant provisioning may not be there. That will be the general perception. But here, successive quarters, you are making means something is rotting. That's what I feel. This question, I would not have asked had you been a listed company for so many years. If you are listed just 2 years back, so your asset quality should have been -- you should have cleared your book and came for IPO. See, IPO is a point where anybody begins, right? So, with a [ gaseous ] book, you can't start with IPO. So I think this is an accumulated effect much before the IPO happened. If that is the case, you kindly -- don't need the people -- see, it's like somebody take maybe small -- I mean, underprivileged [indiscernible] but still nowadays, Aadhaar and everything, that identity is a proven identity. People only -- collection efficiency, you find out some mechanism and try to collect the dues. Why I am -- it is paining. I am holding 1.43 lakh shares. Originally, 71 lakh at, say, [ INR 54 ] average I bought. Now, again, I have [ INR 29.42 ], another 71,000, 72,000 I added. Now I am having 1.43 lakhs at the average of -- so something like that. So it is really paining. I'm a small investor. That's why I'm telling you the -- tell me, sir.

Sir, as I mentioned, this is not specific to Utkarsh. It is industry-level problem. And rest assured that we are top of it, and the full focus is right now on the collection and improving the collection efficiency.

That should be your prime focus because degrowth due to RBI new regulation, this thing and all is understandable. But leaving the people aside for nonpayment and you are just leaving the compartment and rest of the compartment you carry means finally, you will be left with engine, okay?

I can only assure on behalf of that we are -- it is a recent pain and the industry level pain, and we all are working towards it. And you'll see -- you can see that there are certain improvement, and we'll see further improvements in that.

We have the next question from the line of Ashlesh Sonje from Kotak Securities.

Sir, one question on the operational side. When you do the KYC for the borrower, what are the different identification documents which you collect as of now? And has there been any change starting from January because of the new guardrails?

Yes. So there are -- in case of normal banking, there are what we call OVDs, officially valid documents, given by -- as per the KYC norm. Specific to JLG customers, there are 2 documents which are mandatory. One is the Aadhaar card and second is the voter ID card. And the important part from -- what has happened from 1st January, in fact, because of that some clients may not be able to get disbursements also, these are validated from the back end in both the cases. From the system, these are validated that these are correct ones. So now, we are using -- or that is again as per the industry. Everyone in the industry is using 2 documents. One is Aadhaar and second is the voter ID card, and these are getting validated also.

Okay. And what is the change which has happened specifically in the case of Utkarsh from January?

So voter ID card was not mandatory earlier. It has become mandatory, and not only mandatory, but it is also being cross-checked from the system that this is a valid one.

Understood. And what would be the incremental drop-offs because of the voter ID and its validation becoming mandatory?

Vivek, you've got any specific number with you? I don't have exactly with me, but Vivek, it's a broad number?

It's a broad number. It's not a very calculated number, but roughly around 6% to 8%, we are seeing additional increase of dropout.

Understood, sir. And just lastly, when you submit the -- when you try to assess the borrower's leverage using data from the credit bureau, how does the credit bureau identify the borrower, as in based on what unique ID?

So basically, credit bureau identify the borrower basis the voter ID card, which we are submitting to the credit bureau. So since the Aadhaar card number is not submitted to credit bureau, so they cannot identify the borrower through -- on the basis of Aadhaar card. And that's why across the industry, MFIN has implemented that voter ID card is mandatory, and everybody is required to verify that voter ID card is valid, and obviously, they have to submit also to the credit bureau.

Understood. Okay. Sir, it's a little confusing because then, if we were not taking voter IDs earlier, then for our customer set, if the voter ID is not available with us, how does the credit bureau end up identifying that borrower if you are not submitting voter ID or Aadhaar till December?

No. Earlier also, we were taking voter ID card, but we were not validating or it was not mandatory. As per the RBI OVD rule, we are taking the documents. Obviously, Aadhaar card was there, and other OVD documents, we were taking, and numbers were there. But since it has been -- post the implementation of Guardrail 2.0, we have made it mandatory and we are collecting and we are validating through back end also.

And Ashlesh, if you see, usually, the way bureaus run, it's not just, let's say, a voter ID number or Aadhaar number, it also run with multiple matches. So basically, there are multiple primary matches and secondary matches, which include name of the borrower, date of birth, father's name, mobile number, and so on. So basis all of that also, they basically, let's say, see whether the borrower profile is matching to get the bureau report.

Okay. So in summary, it seems like the borrower identification process at the bureau level has become a lot better now starting January and that can lead to incremental rejections starting January.

It's become more stronger and stringent actually from that angle.

Yes. But for us, actually, the -- let's say, because we were already doing e-sign and e-KYC, Aadhaar was one mandatory document. Now, voter ID validation is also mandatory.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you, Renish and team, for hosting this, and thanks, everyone, for joining our call. You have always been supporting. And yes, one of the segments of the bank, because bank has multiple segments, but microfinance is passing through a tough phase right now, and we have seen suddenly some improvements in the overall -- the way things are happening for microfinance also. And you have been always supporting Utkarsh, and you'll see that we are able to improve things much, much better from there. And once again, thanks for attending this call and always your support.

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