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Aavas Financiers Ltd
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Ladies and gentlemen, good day, and welcome to Aavas Financiers Limited Q1 FY 2021 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve the risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Sushil Kumar Agarwal, MD and CEO of Aavas Financiers Limited. Thank you, and over to you, sir.
Yes. Good afternoon, everybody. Thank you for participating on the earning call to discuss the performance of our company for Q1 FY '21. With me, I have my team: Mr. Ghanshyam Rawat, CFO; Mr. S. Ram Naresh, Chief Business Officer; Ashutosh Atre, Chief Risk Officer; Himanshu Agrawal, Investor Relationship; and other senior member of the management team and strategic growth adviser sic [ Strategic Growth Advisors ], our investor relationship advisers. The results and the presentation are available on stock exchanges as well as our company website, and I hope everybody has had a chance to look at it.I am happy to inform you that company is consistent in delivery of its operating metrics with AUM growth of 25% year-on-year; PAT growth of 11% year-on-year as per Ind-AS accounting and 33% year-on-year growth as IGAAP accounting; and gross NPA of 0.46% as of June 2020.COVID-19 pandemic continues to spread across the globe, resulting in disruption to social and economic activities worldwide. India is not an exception, and while a phased reopening was announced by the central government and some local and state authorities have continued to impose localized lockdowns on a temporary basis to contain the spread of outbreak. As a result, it is difficult to predict by when full normalcy in life and business operation will be restored.In accordance with RBI guidelines of 23rd May on COVID-19 regulatory package, the company has also extended the moratorium offered to our eligible borrowers for a period of further 3 months till 31st August 2020. But like earlier, we continue to actively engage with all our active customers on a regular basis.Now coming to some details on moratorium. Exposure under moratorium has reduced from 24% as of April to 17.8% as of June. Self-employed customers loan moratorium reduced from 27.7% as of April to 20.2% as of June. Salaried customers loan moratorium reduced from 17.2% as of April to 13.3% as of June. Home loan moratorium reduced from 23.1% as of April to 17.0% as of June. Other mortgage loans moratorium reduced from 26.9% as of April to 20.3% as of June. Exposure under moratorium for 4 months from April (sic) [ March ] to June is 3.7%. Exposure under moratorium for 3 months from April to June is 7.7%.To mitigate the impact of economic slowdown on our profitability metrics, we continue to defer the discretionary expenses and variable nature of expenses till business returns to normalcy and rationalize the fixed salary for the next few months.I would now hand over the line to Ghanshyamji, CFO, to discuss the various business parameters in detail.
Thank you, Sushilji. Good afternoon, everyone, and a warm welcome to our earning call. During the quarter, company has borrowed an incremental amount of INR 7,160 million at 6.02% for 43 months. As of June '20, our average cost of borrowing stood at 8.10% on an outstanding amount of [ INR 7,19,669 ] million with an average maturity of 127 months. Our long-term credit rating continued to be AA- from CARE and A+ from ICRA. Despite the highest short-term rating of A1+, we continue to maintain 0 exposure to commercial paper as a prudent borrowing practice. IGAAP to Ind-AS reconciliation has been explained in detail for profit after tax and as well as net worth on the Slide #33 and 35 of our presentation.Now I'll cover a few important key parameters. As on 30th June 2020, total number of live accounts stood at 1,07,300 plus. That is 27% year-on-year growth. Total number of branches was 251, 14 new branches added in last 12 months. Employee count is 3,536 versus 2,385 in June '19. Assets under management grew 25% year-on-year to INR 79,353 million as on 30th June 2020.Product-wise breakup: home loan 73.4%, other mortgage loan 26.6%.Occupation-wise breakup: salaried 35%, self-employed 65%.Disbursement decreased by 68% year-on-year, INR 2,130 million for the Q1 FY '21.Spreads were maintained above 5% at 5.53% as on 30th June 2020.Our borrowing cost of -- is 8.10% against the average portfolio yield of 13.62%.Further more detail on the borrowing side, access to diversified and cost-effective long-term financing. We have very strong relationship with the development financial institutions. 36.4% are term loans, 23.7% from assignment and securitization, 20.5% from National Housing Bank, 19.2% from debt capital market and 0.2% from cash credit.Some details on provisioning. Additional ECL provision of INR 46.2 million created to consider the impact of COVID-19 during this quarter. Total ECL provisions, including the COVID-19 provision, stood at INR 268.7 million as on 30th June 2020.Assets quality, one day past due stood at 1.50%, gross NPA stood at 0.5 -- 0.46% and net NPA stood at 0.32% as on 30th June 2020. We are constantly in touch with our customers, doing daily monitoring of collections and assets quality.Product-wise GNPA, home loan 0.52% and other mortgage loan 0.28%.Liquidity. Liquidity as on 30th June, INR 23,620 million. Breakup of that: cash and cash equivalent of INR 15,050 million; unavailed cash credit limit INR 1,270 million; documented, unavailed sanction from National Housing Bank INR 4,000 million; documented, unavailed sanction from other lenders INR 3,300 million.Profitability. PAT registered 11% year-on-year growth to INR 501 million for Q1 FY '21 as per the Ind-AS accounting. As per the IGAAP, PAT registered a year-on-year growth of 33% to INR 601 million for Q1 FY '21. ROA was 2.55% and ROE 9.43% for Q1 FY '21. We endeavor to maintain ROA of 2.5% and above. As on 30th June 2020, we are well capitalized with a net worth of INR 21,506 million. Our book value per share stood at INR 274.60.With this, I open the floor for Q&A.
[Operator Instructions] The first question is from the line of Aditya Jain from Citigroup.
Just a couple of questions. Sir, one, could you tell us the gap between the 17.8% moratorium and the 7.7%. So is it that 17.8% is based on the latest month and 7.7% are people who have not paid even once over the past 3 months?
Yes, Aditya. So 17.8% is, you can assume 1 plus on 30th June, means 82.3% customer has paid the installment and 17.7% has not paid to whom we have given the moratorium. 7.7% is customer who has not paid April, May, June installment.
Okay. So the gap of around 10% has paid at least once in the past 3 months?
Yes, one and more.
One and more.
Yes, at least one. Correct. And for the new borrowing cost this quarter, the 6% average in incremental cost of funds. So obviously, there would be some one-off items in this. So, one, could you clarify what are the components of this which have come at such a low cost? And what are your thoughts on whether they could sustain?
Yes. In this quarter, one important item, as you know, Government of India has given a INR 10,000 crore to National Housing Bank. We, as Aavas, got fortunate. We got the first sanction from National Housing Bank and we got immediate disbursement from them also. INR 366 crores got disbursed at 4.95%. Rest money, we got at a commercial rate from banks. One paper, NCD got subscribed in the market, where we're able to get a very good price because liquidity -- has good liquidity in the market. That was -- I think 2 major components are there.
We'll move on to the next question that is from the line of Abhijit Tibrewal from ICICI Securities.
Sir, we wanted to understand this INR 64 crores that we have disbursed in Q1, what proportion of that will be top-up loans to existing customers?
Abhijit, Q1, we have disbursed INR 218 crores.
INR 213 crores.
INR 213 crores.
I'm talking about the other mortgage loans where we disbursed about INR 64 crores.
Yes. INR 31.5 crores.
So out of INR 64 crores, INR 31.5 crores was in the form of top-up loans?
Yes. So if you will see quarter-on-quarter number, so Q4, it was INR 65 crores; Q3, it was INR 55 crores. So this quarter, this number has -- last year, Q1 was INR 96 crores, this number. Against INR 96 crores, this is INR 31 crores. So 1/3 of, if you will see, quarter-on-quarter.
Right. Right, sir. Right. Sir, you just mentioned that you got some lines from the NHB. Did I hear it right that it was INR 366 crores at 4.95% from NHB?
Yes.
Yes.
Yes. Very well. You're right.
Okay. Okay. And then Ghanshyamji, what is the pipeline looking like? Just trying to understand incrementally where can our cost of borrowings move in terms of -- if there's anything more other than the INR 400 crores undrawn lines from NHB, is there anything more in the pipeline? And how could our incremental cost of borrowings move from there?
Yes. Abhijit, we appreciate your question. We -- as we mentioned, we have enough liquidity. Right now, INR 1,500 crores plus is lying as a cash in hand in the form of the fixed deposit, which is already borrowed and come -- already taken care in the -- my weighted average cost of borrowing which we have, 8.10%. Apart from that, then we have undrawn NHB line also and then undrawn banks funding also. I'm quite confident fresh borrowing will happen around or even lesser than what we have today average cost of borrowing.
Okay. Okay. Which would mean, Ghanshyamji, that our cost of borrowings could come down further from the 8.1% that you have reported?
As -- Abhijit, we generally don't give forward-looking statement, but we already, as I've mentioned, INR 1,500 crores will take care of another, let's say, 3 quarters major -- my funding. Why? Because I don't have any repayment obligations. Major repayment obligations already discharged to all the banks and institutions. So mix of bank borrowing, mix of NHB, mix of lending from banks. We are hopeful the current average cost of borrowing will be definitely maintained.
Sure, sir. And my last question is to Sushilji. Sir, I mean, now that you have already reported something like 82% collection efficiency as on June, and I'm sure, I mean, given that lockdowns are now opening, economy is recovering a bit, I'm sure these numbers would have gone up further in July and August. But now if you were to look at these collections and kind of try to give a qualitative color on how could credit costs move in the remainder of this current fiscal year?
Abhijit, right now, on the debt side, we have done the detailed exercise as we have told and we do a detailed exercise while -- when we do provisioning also. So I think whatever provision we have done as of 30th June, it is looking appropriate for the balance sheet number which we are saying because this we have arrived by categorizing the portfolio into high, medium and low category and then the profiling of customer and we have fixed income to obligation ratio. Further, we have reduced this by value of mortgage property in a stress scenario. And third is observing the behavior and assessing the cash flow stress of customer during the moratorium period.And one exercise which we did in July that any customer who had asked for moratorium, we physically meet all those customers. So in July, we have met 20,200 customers. We have done the detailed profiling. What was the customer scenario when we have apprised them at the time of giving the loan and what is the current position of them, impact of cash flow for them on medium term, short term and long term. Then further, we have profile-wise analysis, and we have seen that the difficult profile which is hospitality and other segment, that constitutes only 2.99% of this segment.So we are hopeful that we will be in a much better situation going forward also. Collections will further definitely improve in the coming months. So I think, right now, whatever we have done the ECL provisioning is sufficient for the kind of asset quality which we are forecasting for this year.
The next question is from the line of Piran Engineer from Motilal Oswal Financial Services.
Sir, congrats on the quarter. I just have a couple of questions. Firstly, our mortgage loan average ticket size has dropped sharply from INR 4 lakhs -- from INR 6 lakhs to INR 4 lakhs. Is this because of the top-up loans?
Yes. Yes, Piran.
Okay. Okay. And sir, this quarter, how much interest was capitalized?
Sorry?
How much interest was capitalized, wherein we -- the customers under moratorium, we didn't collect the interest that we've capitalized within the loan book?
Yes. Yes. Yes. As Sushilji mentioned, in April to June, we have seen a decline in our moratorium, 26% to 17.7%. Accordingly, capitalized interest also got reduced. So in overall full basis, we have capitalized INR 44 crores in this quarter.
Okay, during the quarter. Understood. And sir, just last question, I want to understand this correctly. Our moratorium rate is 17.8%, and Sushilji said that, that means 82.2% of the customers are 1+DPD as of June 30. So that means...
No, no, no. 82.2% customers are...
Sorry -- I mean -- are less than -- I mean, are 0 DPD, sorry. So that means these 82% have paid all 3 installments, right, so April, May and June?
They have paid 1 and more. So 1, 2, 3. Some of the customers -- mostly customer has paid all the 3, some customer has paid 2 and some customer has paid June installment. So that is the correct understanding. April, this number was 24%; and now, it is 17%. Gap is 7%. So the customer which has paid less than 2 is 7%.
We'll move on to the next question that is from the line of Karthik Chellappa from Buena Vista Fund Management.
Sushilji and Ghanshyamji and team, I have 3 questions. Firstly, on the self-employed customer loans, who are about 20% still under moratorium, and the other mortgage loans, who are still 20% under moratorium. Sir, what is the profile of the businesses that these customers are in, just to gauge the kind of difficulties they're facing? Have you done any sort of analysis from that? And any color you can give us on the same?
Yes. So Karthik, we have detailed sheet. I will tell you some of the profiles. So around 21 plus 15.62, so 36.62% customers are cash-and-carry business and essential services; then traders are around 5%; fabrication and small manufacture units are around 7%; doctors, engineers and educational professionals are 2.41%; rental income, FMCG good traders are 2.4%; and yes -- and this hospitality segment is around 2.99%.
So the biggest segment is still the cash-and-carry segment, basically?
Yes. So that's where -- so I want to update one more thing that in the last 45 days after quarter end, further 40% customers, we were able to brought it down from the typical one who has not paid April, May, June installment. So that number is down by 40% in last 42 days. So it's a significant recovery because these customers anyway were having the money and their cash flows are generating. Just because they were having the apprehension that what will happen in future, they hold that. And now the clarity is there that further anyway this will not be there, moratorium. So from a management perspective, I see it's a significant improvement number of 42% -- 40% collection in the last 42 days over 30th June sticky customers.
So which means this 17% moratorium or 20% moratorium would have gone to about 10% to 12% as of now?
See, that is normal customer, anyway they were paying. I am saying that 7.7% is picky customer. Out of that -- those were the difficult ones. Out of that, 40% customers, they have already got their money.
Okay. Excellent. That is very clear. Sir, my second question is on the top-up loans and where the ticket sizes in other mortgage loans are also being down drastically. How are you ensuring that this loan does not go to repay loan of some other financial institution or does not go to evergreening, while it actually goes genuinely to make sure that the business is up and running. How are you able to safeguard that?
So Karthik, we are doing this business for the last 10 years, and we have a clear-cut defined policy that top-ups are given to those customer who has clear track record of at least 18 to 24 months without a single bounce with us. Secondly, we, at the time of top-up also, we do the full assessment of the customer, take their latest CIBIL scores, reports and where they have -- whether they have loans from somebody else, whether -- in those loan also, whether they are defaulting or not. If they are defaulting in there also, then customer again is not eligible for it. Then -- and then this customer has not taken moratorium either on our loan or any other financial institution loan from where they have taken the money. And then in this case, funding, most of the time, customer defines for what purpose he is taking. And to the extent possible, we do the post-disbursement verification also, that money is going to be utilized for the purpose which they have stated.
Okay. Great. Excellent. And my last question Sushilji is, out of your AUM book in Rajasthan, what percentage of the AUM will have ticket size above INR 10 lakhs?
Just -- we have the letter, in the Rajasthan? So overall -- Karthik, for specific Rajasthan, we will come back to you. But for -- so just give me 1 second.
Sure. Sure.
So Karthik, we'll come back to you on this by the end of the call because...
Sure. It's not a problem, Sushilji. Basically, the number of cases where you have the ticket size greater than INR 10 lakhs, overall, if possible to Rajasthan. That will be all from my side.
The next question is from the line of Mayur Patel from IIFL AMC.
I don't know, I joined a bit late, whether you answered this or not. What percentage of your book do you expect to go into restructuring, if at all?
Mayur, I don't think so we are considering any case for the restructuring in our book at this point of time.
Okay. Even with this closer to 20% kind of moratorium book, you mean that simply you don't think that you will require restructuring?
I told that from 30th June also, right now, we have already 42 -- 40% success in taking the money from the customer and -- because most of our customers are small ticket size having 200% security, average loan installment is around INR 12,000, we don't think so there is a requirement of restructuring. And we have not received customer requests also till now for any of the customer.
Okay. And are you guiding on overall credit cost for this year? What should be the range or anything?
No. So I have given this answer in the last question that, as a management practice, we have a detailed exercise on the basis of which we do the ECL -- LGD, PD and ECL calculations; and profile-wise, FOIR-wise, risk-wise, low, medium and high; then loan-to-value ratio in the distant scenario. And accordingly, whatever is coming out, we have provided in the balance sheet. So as of now, I think we are in the right direction and the money which we have provided, I think, is sufficient for the risk which we have on the balance sheet.
The next question is from the line of Aakriti Kakkar from Goldman Sachs.
Sir, can you hear me?
Yes. Yes.
The morat percentage that you've specified, is this moratorium overall or does it include part payment as well?
No, no. So it -- can you clarify your question because, say, like you were asking this 18.3% loan or 17%?
17%, 17%, yes. Does it include part payments with the EMIs as well?
No, no. It's full 100% EMI recovery.
Okay. All right. All right. And my second question is on the bounce rate, sir. What is the bounce rate for July that you've been seeing?
I think it has improved by 8% to 10% over June. Exactly, numbers are -- I need to check, but it has improved from the June 8% to 10%.
Okay. All right, sir. That's helpful. And one last quick question, sir. What is your view on the restructuring guidelines, if you can share that with us? Also this 7% loan book that you've specified that has not paid any installment, would that need to be restructured?
No. So I have told, Aakriti, that out of this 7.7% also, we have got almost 40% money -- in 40% of the cases, customer has paid money in the last 42 days to us. And as of now, we are not seeing that any account to be restructured and we have not received any requests also from the customer. Given the average ticket size of INR 9 lakh, 200% of security levels and average installment of INR 12,000, we don't see that there is a requirement of restructuring in our book.
We'll move on to the next question that is from the line of Saurabh Kabra from Nippon India Mutual Fund.
Congratulations on the good set of numbers. I just have 2 questions. When we say 82% collection efficiency, what all do we include in the numerator and denominator?
Saurabh, this is not collection efficiency. This is actual portfolio. Collection efficiency is much better than this number. And -- so this is like if you have 100 accounts live, 83 account, we have money recovered and 17 has not been the installment.
So this will not include the overdue amount received in the month of June? It will include the current month collection versus current month installment due?
No. So it's like anything which is due in the account have got collected. So collection efficiency, it will see, say, this 83% customer, out of them, somebody can pay 1, somebody can pay 2, somebody can pay 3 installment also. So if you will go by that way, I think the collection efficiency will be much better than this number.
So this is like 1 installment per customer collected in the month of June, if I understand correctly?
As of June, 83% customer have no due in their account.
I hope so, Sushil, you got clarified. Otherwise, I will add one line here. Like, there is a confusion in the market, but we run our books of account every month and we close the books of account every month. Like, we mentioned April month 24% of our moratorium. So April month got books closed with the 24% moratorium. If any customer comes in the month of May, out of moratorium customers, then he has to pay installment for the month of May. Then, if he want to pay month of April, then he has to do part payment to me. We are not keeping our books of account open for moratorium. It gets closed every month. Now in this -- the June month, 17.8% books got under moratorium. Rest of the customer has paid their EMIs.
Full EMIs.
Full EMIs.
Even somebody has paid part EMIs, that is part of moratorium automatically.
Okay. Okay. And sir, another point, how would this number look in the month of July?
So Saurabh, I have given one number that the sticky account which has not made any money in April, May, June is 7.7%. Out of this also, 40% customer has paid in the last 42 days.
The next question is from the line of Bhavesh Kanani from ASK Investment Managers.
Sorry for harping on the 7.7% again. But just to get clarification on the same. So when we are saying 40% of this exposure has started paying, essentially we are talking about them picking the past due also or they have paid the July installment only?
So it's for July only.
Okay. And second one was really on the liquidity position. Most of the indicators like moratorium and your view on credit cost seems to be implying that situation is improving for us and for economy, in general. So in that context, what is our take on liquidity? Are we going to maintain the same kind of liquidity over the quarters to come? Or there is a plan to not kind of raise more money and start using this for disbursement?
No. Like, I will cover this in 2 ways. Disbursement, we already maintained our -- started our disbursement April -- last week of April. May and June disbursement picked up every month. July month, again, disbursement has picked up when compared to June. So disbursement, we have, I think, enough liquidity on the balance sheet. There is no constraint -- or liquidity constraint on account of disbursement. In that liquidity, INR 1,500 crores, we -- already we maintain our books of account. Last year, we have around -- by this time, around INR 800 crores plus. But by seeing certain other -- some large -- NBFC, HFC issues were there and some liquidity constraint was there, so we raised some more money on the balance sheet keeping that thing in the mind.We discussed in the last Board meeting and ALCO Committee. I think Board has -- both have advised us to maintain similar liquidity for at least 1 or 2 quarters. After that, we will again review with them. And I'm -- we're personally hopeful that in after a quarter or, let's say, maximum 2 quarters, I think we will start to reduce this liquidity at the balance sheet level. That's, I think, I hope the answer to your question.
Yes. Yes. That's helpful. And just to again get clarification on the provisions. Sunilji mentioned -- Sushilji mentioned that whatever is required on COVID front is largely done. So for the remaining of the year, should we expect the old provisioning levels to return?
I will -- I think further clarify this thing. When Sushilji clarified this thing, I think he mentioned everything in the detail how we have created this provision. I think some of the -- we want to -- I want to say it in the beginning one thing, we didn't go at a thumb rule or, let's say, the add of provisioning while during the COVID. We have calculated very detailed manner, classifying the portfolio in various profile-wise, then categorized them as high risk and medium low. And we are consistent what we have done in the March. Similarly, we -- again, we have completed in the month of June. We had further refined the data based on our April, May, June moratorium behavior of the customers.So based on this data bank or their reassessment of portfolio, till June, we have provided our COVID provisions in the books of accounts. We will again review in the next quarter because August is the moratorium end. September will be the first month where the real collection will happen. And December -- by the December, almost 4 months will be covered for any slippages. Everything will happen by this time. So we are quite hopeful by seeing the granule book, till now whatever provision required, we have built up. We didn't see any major challenge, but we will keep on reviewing this portfolio -- this provision requirement every quarter.
Let me put it this way, sir. So we did a review. We have certain assumptions in the last review as well as this review. Certain assumptions have changed which required additional provisions in Q1. From this point on, what are the areas or what are the risks that can reemerge or new risk can come up, which can still require us to keep providing higher incoming quarters as well? Is there anything that is kind of keeping you more alert?
As of now, no. But future is uncertain, how the month go forward, let's say, this August and September.
Okay. And if you can just talk about what was the change in the 2 reviews that you mentioned?
Yes, I will -- yes. Yes, I will update. When we have a risk classification in the month of March and then we've given them a high, low, medium risk categories, it was based on our presumption that hospitality sector will have the highest risk weight and this government salaried will have the lowest risk weight. We have tested the entire portfolio, because on the self-employed, we have around 17 major categorization in that portfolio. Similarly, salaried, we have the 3 major categorization in that portfolio.Based on our past experience, we have given them a low, medium and high. But based on the now current moratorium, how the customer behaved in the 3 months, we have done a recategorization of that portfolio. Accordingly, we have recomputed our provisioning requirement for this quarter by seeing the true experience of that.Second thing, like Sushilji mentioned that, on LTV front, when we computed LGD, whatever 80% above book on the LGD at March '20, we have given them a higher loss given default. And accordingly, we have provided higher provision in the March '20 accounts. But in June, we brought down 80% to 75% because a few interest was capitalized on those accounts. So further we brought down 80% to 75%. We become a little bit conservative on providing that LGD on that portfolio also. So 2 major changes have happened based on the experience on the April, May, June portfolio behavior.
We'll move on to the next question that is from the line of Aravindan Jegannathan from JK Capital Management.
Hello? Sorry. Hello?
Yes, sir, please go ahead.
I just wanted to clarify something on your salaried borrowers. You said 35% of your borrowers are salaried borrowers, and they're also having some moratorium, which is actually smaller than the self-employed, and they have 17% moratorium, which has come down to 13%. Can you explain why there is a -- I feel like this moratorium is still a little bit high for salaried class. So why would they go for moratorium if their salary levels are safe? Or do you think it's due to their risk of losing job or anything like that? And what is the loan yield on these borrowers compared to the self-employed?
So Aravind, there are 2 things. So first, I will reply. So we have around 100 to 150 basis point difference between the salaried and non-salaried portfolio on the pricing side. Again, coming back to the reason that salaried customer, why they are taking moratorium, so certain -- so when we fund salaried customers, we take 50% FOIR, fixed obligation to income ratio, normally. In some cases, people have either salary cuts for some percentage, or even in government department, the salaries are getting delayed. So these customers are, say, out of 3, they have paid 1 installment; out of 3, somebody has paid 2 installments. So that's where these customers are also taking moratorium. Some of the customers are keeping cash because of the uncertainty for future. But the job loss for this kind of customer is very minimalistic because we have checked every customer who has asked for moratorium. So we are hopeful that they will come back to normalcy in next 1 quarter itself.
Can I ask you one more follow-up on this? Hello?
Sorry, sir, but we're not able to hear you clearly.
Can you hear me now?
Yes, much better.
So can you hear me now? Sorry.
Yes.
Yes, please. Yes, please go ahead.
Okay. I'm sorry. I was working from home and I was like switching with some kind of speakers for Bluetooth. I apologize for that. Okay. The question I wanted to ask is, you said the differential between salaried and nonsalaried is 135 basis points. I guess your nonsalaried -- the salaried class yield also is in double digits when current market rates are quite low. Could you explain like why would that be the case? Like if a salaried class can borrow home loans around 7% or 8%, what is your driving factor? Like, what is your edge in terms of feeding loans to salaried class at a slightly higher rate?
Yes. So Jegannathan, as you know, our company, we work mostly in Tier 2 to Tier 5 cities. And in Tier 2 to Tier 5 cities, certain times, customers don't have the access to formal income sector banks. Second, most of the time, it will go our database, we have around 40% to 45% of customers, which is first to credit. And these customer doesn't have the CIBIL scores. So at the time of borrowing, ones whose CIBIL score is not there, so it's -- I think we are the preferred choice for them for getting the funding in Tier 2 to Tier 5. I think that's why these customer choose us.And secondly, we are mostly in self single unit -- or not in apartment properties, where customer has the property and land and they try to construct the house. And there also, it's a stage-wise construction. So in Tier 2 to Tier 5, ticket size is low, around, say, INR 10 lakhs and INR 15 lakhs. They are -- most of the formal income sector banks doesn't have the preference because for every INR 2 lakhs, you'll need to go to customer's place, do the visits. So they tend to fund mostly more of the middle income and upper income side of customers. For these low income customer within LIG, we have created our niche with the service request and the kind of in-house risk model which we have created.
Okay. Understood. And how much of this salaried class is private sector versus like government servants?
So I think around 35% to 40% are government salaried customers and rest of them are private salaried customers.
The next question is from the line of Sunesh Khanna from IIFL AMC.
Most of my questions are answered. Just a couple of them. On the securitization side, it was, for obvious reason, we have not done during this quarter, but any sense you can give in terms of what's going to be the quantum this year, maybe similar to last year or lower or slightly higher?
Yes. As we always mentioned this thing on the various con call, assignment is one of our funding instruments. We always look for the competitive long-term funding instruments. Like in this quarter, we got more funding instruments, much cheaper rate from National Housing Bank because Government of India has infused fund to them to lend -- onward lending for NBFCs and HFCs. So it overall depends on what rate we get from banks and institutions.So in this quarter, definitely, we didn't done any sort of assignment because other funding we got at a 6 -- less than 6% overall weighted average cost of borrowing. Fresh borrowing was just a 6% for this quarter. So in future also, it will depend upon what rate we get on assignment and securitization with the banks and institutions. Obviously, in this quarter, other reason was, obviously, banks are not able to depute their official to do an assignment transaction. But that was the secondary reason. First reason was is -- main reason was the other instruments are very cheap available to us, which we have borrowed. Yes, going forward, as we found good liquidity rate from bank side to buy our retail book, definitely, we will do the transactions.
Right. And sir, on the branch opening and employee addition, I mean, things are like status quo? Are we going to open like 40 branches, which normally 70%, 75% we do it in the second half. So that plans, any change or everything is intact?
So I think in the -- we have opened 1 branch in first quarter -- one this quarter and around 5, 6 branches will -- 7 branches will open in this quarter. And rest 23 -- say, 20 to 30 branches, we are on track. If this situation doesn't get worse from here, we are on track.
Right. And sir, sorry to ask this question again, I know you have partly answered it. But just on the 7.7% people who have not paid, but 40% of them have paid in first 40 days of July. So even, let's say, assuming 4%, 4.5% people by the end of this quarter are left who are not able to pay. So I mean, are we going to let them flow through NPAs? Or how are we going to treat them? Or are we going to look at restructuring in some manner?
So I will tell you. See, this 40% is just indication. I'm saying that of this quarter, 42 days has now happened, and 40% of this customer has paid. So we are optimistic that most of these customers will pay.
So second, as per the RBI freezing guideline, they will open on the 1st September as a 1+DPD. So still we will have 90 days in our hand to connect with the customer. And we see, as Sushilji mentioned, the visibility is strong, their business will revive, and they will start to pay back to us. Most of the customers will start to pay back to us.
Got it. So we are hopeful that by December, this number will be negligible or minimal.
Yes. The number is a minimal number.
Yes. And one more data point, Sunesh, on this. After this pool also, again, 60% to 65% consumer are more than 650-plus CIBIL scores. So I think they are up -- they are knowing that they are good customer, and for future also, they want to maintain this. So there is no logic that why they will not pay it.
Got it. And sir, these 7.7% customer, most of them are -- what would be the proportion of salaried and self-employed within this?
Yes. So...
25% are salaried, 75% is self-employed.
We'll move on to the next question that is from the line of Shreepal Doshi from Equirus Securities.
Sir, my first question is with regards to our collection efficiency. Sir, last quarter, you had indicated that our collection efficiency in March was 95% and in April was 76%. So if you can give the number for May and June, how would that look like?
June, customer which has not paid a single installment is around 17%, customer who has paid 2 installment is somewhere around 8,000 to 10,000 customers. And if you will go by that number, so 83% plus around 10%, so around, I think, 89% to 92% is collection efficiency.
Okay. That is for June?
Yes.
Okay. Okay. Okay. Sir, the second question is like, how -- what kind of changes have you sort of brought in your underwriting process? Because we cater to self-employed category wherein there is less documentation and less numbers that we have to evaluate. So how -- and also with the lockdown, how are we sort of bringing in changes in order to underwrite these customer profiles? Or what kind of challenges are we facing? And what strategy have we got to overcome them?
We have clarified on this in the past call also. So after this, we have reviewed our entire system, and we have seen great poise. So earlier, there was negative view that these new customers, we will not fund, and rest of the profiles were okay. Now we have made it positive side. So we will fund only these 10 profiles which are less effective. And rest profiles, we will not see or we will see with more improved filters.And then further, we have introduced video personal discussion with the customers, time stamping, there's analytics model of checking their cash flow for last 36 months. So we did a lot of job on analytics side to give us more insight. We have used technology more, and then further refined our credit parameters to make it more stringent. And accordingly, we are seeing. And one more thing also, whatever disbursement we are making from this till 31st March, we have put the continuous monitoring mechanism every month and for these customers through analytics through this team which is dedicated for this so that if anything wrong goes on the assumptions, we immediately correct into our underwriting model.
Okay. Okay. Sir, why was our tax rate in 4Q and in 1Q, like why is the tax rate low for us?
Tax rate for which quarter?
For 1Q FY '21 and also for 4Q FY '20, if I see, that was close to 10%, and for 1Q, that was close to 20%, 21%.
Yes. I will cover both the quarter. In this quarter, you know the gross tax is around 25%. But as per the income tax and Ind-AS accounting, we are allowed to transfer certain funds to a reserve account to that extent we get a benefit. So generally, our tax expense will come for the full year somewhere 20% to 21%. But in the Q4 of the last year, if you recall our con call after the rate reductions in last year in the July, when we mentioned that we have a substantial deferred tax liability that got benefited, roughly INR 17.5 crores full benefit on that deferred tax liability that get -- we had took a benefit of that liability in 3 quarters -- individual quarters. So INR 6 crores got benefited in the Q4 also on that account. And then one benefit was there, 80JJ, which also come -- generally comes in the last quarter because we have to complete -- employee continuation is required till last year -- till the year completion. So that benefit also come in the last Q4. So both benefit has given roughly INR 7 crores, INR 8 crores tax benefit in that quarter. If you add that INR 8 crores in that quarter, we will get 20% ex gratia.
Okay. Okay. Okay. So for FY '21, we should look at 20%, 21% tax -- effective tax rate, right?
Yes. Yes. Yes.
Ladies and gentlemen, that -- due to time constraint, that was our last question. I now hand the conference over to Mr. Sushil Kumar Agarwal for his closing comments. Sir?
Yes. Thank you all for attending the call. To summarize, at Aavas, we aim to be one of the key enablers in broadening and deepening our credit facilities to unserved and underserved customers in the semi-urban and rural areas. We feel we are on the right track with our approach of consistent and sustainable growth added by our in-house execution model. True test of any business model always happens in tough times, and we are confident that like in the past, we will be able to successfully navigate the current crisis also.Thank you so much for your time. For any further information, we request you to get in touch with Himanshu Agrawal, in our investor relationship team, or SGA, our investor relationship advisers, and they would be happy to help you. Thank you very much for your patience listening and continued support to us. Thank you.
Thank you. Ladies and gentlemen, on behalf of Aavas Financiers Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.