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Aavas Financiers Ltd
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Ladies and gentlemen, good day, and welcome to Aavas Finance Limited Q4 FY '21 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 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 Agarwal, MD and CEO. Thank you, and over to you, sir.
Thank you. Good morning, and thank you for participating on the earnings call to discuss the performance of our company for Q4 and FY '21.With me, I have Mr. Ghanshyam Rawat, CFO; and Himanshu Agrawal, Investor Relationship Officer; SGA team, our IR advisers. The results and the presentation are available on the stock exchanges as well as our company website. And I hope everyone has had a chance to look at it.I am happy to inform you that despite a very tough year, we continue to grow consistently and registered premium growth of 21% year-on-year as of March 2021. We had a strong quarter in terms of business and disbursement. We disbursed INR 10,127 million in Q4 FY '21. registering a 17% year-on-year growth and 30% quarter-on-quarter growth.In line with our expectations, 1 days past dues also showed continuous improvement during the quarter and reported at 6.37% as of March 2021, against 8.21% as of December 2020. Profit after tax for FY '21 increased by 17% on year-on-year basis as per Ind-AS accounting, and registered 34% year-on-year growth as per Ind-AS accounting, continuing with our belief of being transparent to our customers and passing on the benefit of lower cost of borrowing when stable.As informed earlier, we had already reduced Aavas Financial's prime lending rate by 10 basis points with effect from January 1, 2021. We have decided to further reduce Aavas Financial's Limited prime lending rate by 15 basis points with effect from April 1, 2021.Unfortunately, just as the broader economy was showing good signs of revival, COVID reemerged and spread at a very fast pace since the start of April 2021 across the country. This has resulted in localized lockdowns of varying degrees, being imposed by various state governments to contain the spread of the infection. We continue to comply by the guidelines being issued from time to time by the central and state governments.The widespread disruption to social and economic activities caused by the first wave of COVID in FY '21 has been a learning experience for us at Aavas. We had already been working on technology and cybersecurity for the last 1.5, 2 years. Along with that, for the last 1 year, we have been adopting various initiatives on technology framework to improve the day-to-day working efficiencies for our staff. This has ensured a smooth work-from-home transition to our employees during the current lockdown as well while ensuring data security and uninterrupted customer service.The resilience of our customers also got tested during the first wave and continuous improvement in their repayment behavior during the last 6 months has reinforced our belief that while there can be delays, the ultimate losses will be negligible. As I mentioned in previous calls, that we were able to interact with our entire customer base multiple times before, during and after the moratorium period to understand how they were responding to the crisis, all the knowledge that we gained from these interactions were also included in our analytics framework. We think this will further help to strengthen our underwriting practices and predict the customer behavior in the period ahead.Having successfully getting over the first COVID wave in FY '21, we are confident that our response would be even better this time around. And we would be able to tide over the second COVID wave as well based on the learning of last year.I would now hand over the line to Ghanshyamji to discuss various business parameters in detail.
Thank you, Sushilji. Good morning, everyone, and warm welcome to our earning call. During the quarter, the company borrowed an incremental amount of INR 7,290 million at 6.31% for 119th average tenor. As of March '21, our cost of borrowing stood at 7.40% on an outstanding amount of INR 82,740 million, with an average maturity of 130 months.Our long-term credit rating continued to be a with AA minus with a stable outlook from both ICRA and CARE. Despite the highest short-term rating of A1 plus, we continue to maintain 0 exposures to commercial paper as a prudent borrowing practice.During the year, company received a total tax refund of INR 227.3 million, including interest of INR 15.1 million for past few years. The provision for taxation for Q1 as well as FY '21 has been computed after considering the impact of tax assessment and the refund. IGAAP to Ind-AS reconciliation has been explained in detail for profit and the net worth on Slide number 31 and 33 of our presentation.A few important key parameters. As on March 31, 2021, total number of live accounts stood at 125,591, that is approached 20% year-on-year growth. Total number of branches were 280. We added 30 new branches in last 12 months. Employee count of 4,336 versus 3,564 as in March '20. It shows around 22% growth in this year. Assets under management grew at 21% year-on-year, presently INR 94,543 million as of March 31, 2021.Major breakup, product-wise breakup, home loans are 73.5%, other mortgage loans 26.5%. Occupation wise, salaried 39.6%; self-employed 60.4%. During the year, disbursement decreased by 9% year-on-year to INR 26,569 million for FY '21, but significant momentum was gained in Q4 FY '21, with the disbursement increasing by 17% year-on-year, 32% quarter-on-quarter to INR 10,127 million.Further, as of March 31, 2021, average borrowing cost 7.40% against the average portfolio yield of 13.16% resulted in a spread of 5.76%.Borrowing, we have access to diversified and cost-effective long-term borrowing, financing for various sources, a strong relationship with our development funding institutions and all large private and public sector banks in India. Overall borrowing mix as on March 31, 2021, is 34.1% as term loan from banks, 24.2% from assignment and securitization, 22.6% from National Housing Bank, and 19% from other debt capital markets.Provisioning. Total COVID provisions 19 -- total COVID-19 provisions stood at INR 190.3 million as of March 31, 2021. The ECL provisions including COVID-19 provision stood at INR 495.8 million as on March 31, 2021. Asset quality, 1 day past due stood at 6.37%. Gross Stage 3 stood at 0.98%. Net Stage 3 stood at 0.71% as on March 31st. Product wise, Gross Stage 3, home loan 1%; other mortgage loan 0.9%.Liquidity. We have liquidity of INR 28,360 million as on March 31, 2021. It comprises of cash and cash equivalent INR 11,140 million; unavailed cash credit limit INR 1,320 million; documented unavailed sanction from National Housing Bank INR 6,550 million; documented unavailed sanction from other banks INR 9,350 million.Profitability. PAT increased by 17% year-on-year, INR 2,903 million for FY '21 as per Ind-AS accounting. As per IGAAP, PAT registered year-on-year growth 34%, INR 3,078 million for FY '21. ROA 3.5%; ROE 12.9% for FY '21. ROA for -- ROA was 3.9% and ROE was 15% for quarter 4 FY '21. As on March 31, 2021, we are very well capitalized with a net worth of INR 24,014 million. Book value per share stood at INR 305.9.With this, I open the floor for a Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Abhijit Tibrewal from Reliance Securities.
Actually, what -- I mean, first, I wanted to congratulate you, I think, I mean, our disbursements in the first -- in the fourth quarter has actually hit the historical high, and I think for the first time, we have crossed INR 1,000 crores in disbursement. So congratulations to you and the team for that.My question was more around the fact that while the disbursements were very, very good, at the same time, the runoff on the book was also very high. If we look at the quarterly runoff or the loan repayment as a percentage of the opening AUM, despite our secret recipe of retaining customers who come for balance transfer. So I mean, is there more pressure from HFCs, larger HFCs and State Bank because of which you saw this kind of loan book runoff during the quarter? I mean, because of it, I think -- I mean, that the AUM growth that came was also slightly lower than expectations.
Abhijit, overall book rundown is as per budget and slightly lower than the budget. But yes, because of price reduction from the mainstream bankers, we have budgeted that way. And prepayment was almost in line what we have discussed. Yes, because of COVID, the analytics model, which we have developed over a period of past year, we have not utilized that way. And going forward, if that situation will remain good, we will again come back to our model. But I think more or less prepayments are in line what we have budgeted, and there is no extraordinary payout, which we have seen.
Okay. Sure. Sir, the other question that I had is, I mean, given that we kind of all know that, I mean, even though you have reported disbursements of about INR 1,000 crores in the quarter, you would not have really compromised on any of your underwriting. So I mean, why Q4 has always traditionally been one of the strongest quarters seasonally. Would it be fair to conclude that, I mean, during the last pandemic year, we have built up capabilities so that going forward, our quarterly disbursement run rate can now, let's say, improve to about INR 800 crore to INR 900 crore of quarterly run rate?
Yes, Abhijit, so we at Aavas continuously or on our distribution model, and increase the capacity of our business for next 2 to 3 years insight. If you see last year also, despite COVID, we have opened 30 new branches. And also increase our frontline sales team also. If you see, the number of employees are increased by 1,000 employees. So now we have capacity of delivering almost INR 400 crores per month, but we want to be consistent, and we will be conservative on our underwriting practices. And if the opportunity will be there, yes, we have sufficient capacity, which can serve for next 1 or 2 years in line. So they have built up the capacity on that line.
Sure. And sir, my last question is on your taxation. Were there any one-offs during the quarter because of which the blended tax rate is looking lower? And also loan -- I mean, provisions, you have not taken any additional provisions during the quarter. So will it be fair to kind of conclude at this point in time that whatever COVID provisions we are holding right now will hold us good even if there are any something we in case from the second COVID wave?
Yes. So taxation point of view, Ghanshyamji will explain, and then I will explain the provisioning part.
Yes. Abhijit, taxation, we got -- I think we mentioned in our presentation also as well as the result declare, we got a tax refund of INR 20 crores and a few amount is on account of interest on that amount. It pertains to financial year '17/'18 or '18/'19. So accordingly, the current year tax got recomputed in quarter 4 for the full year as well as the tax refund also got accounted in this quarter. That's why you see in the quarter 4, our taxation piece is lesser than what we have seen earlier 3 quarters.
Right, sir. So Ghanshyamji, I mean, if I understood you right, I mean the disclosures that we have given around income tax refunds during the quarter, they get accounted for -- or they get adjusted in the tax line item.
Yes. Correct. And so accordingly, next full -- this year, taxation also got recomputed based on assessment order we issued in the...
And Abhijit, on provisioning side, as a lender, we do assess our asset quality and relevant provisioning quarter-on-quarter basis. And we also further take inputs from our analytics model, if any stress is looking like on the balance sheet from next 6 to 9 months perspective. As you see, our 1 day past due has improved from 8% plus to now 6.37%. And our NPA numbers are almost in line, further not have aggravated. We have already had INR 19 crores of COVID provision, which we have not utilized and have kept as an additional provisioning in the balance sheet, which we have not used.And since last 2 quarters, we are -- any account, which is Stage 3, we are provisioning additional amount as a normal NPA on that. So looking all those measures, we are confident that as of March 31, 2021, for this quarter, we need not any additional provisioning at this point of time. And looking at the current situation also for next 1, 2 quarters, we don't see any stress on the balance sheet. But as a prudent practice, we, management, will continue to assess the situation. And if required, we will do provision because balance sheet and profitability is very strong, so there is no issues on that side.
Sushilji, and just one last question, if I may just squeeze in. Based on whatever collections that you would have seen in the month of April, would it be fair to conclude that the 1+DPD might deteriorate a little bit in the current quarter before we go back to our guided levels of less than 5% 1+DPD.
So Abhijit, first, that 5%, we have said that it will take 2 to 3 quarters after December quarter earning, and we have improved by 2% this quarter. But looking at the current lockdowns, and different states have different kind of lockdown scenario. So yes, our 1 day past due can again be increased by some percentages. The final number will come today evening.But now one comfort which we have is that all these customers behavior, they are resilient to market situation. Their property, their property papers, customer, the market and how 6 months lockdown has impacted their cash flows and how they have bounced back, all these data is account by case wise, we have put into our analytics model, and which has strengthened our firm belief that our customer has strong resilience. And if this COVID situation, I hope it will not worse than the Q -- first and it will not last long, maybe of the last period. So the customer behavior will be much better in next 2 to 3 quarters and bounce back. But still, we will keep on harnessing our analytics model. And if we will see something, we will update the entire investors.
The next question is from the line of Tejas Parekh from Citibank.
Sir, what has been your collection efficiency for this quarter? Last quarter, you had mentioned it was close to 99%. And also the write-offs for this quarter?
So Tejas, collection efficiency is almost more than 100% because 1+ has improved from 8.21% to 6.37% to almost 2% improvement on 1+. So collection efficiency is almost more than 100% for this quarter. Write-off number, give us some time, we will come back to you.
Yes. In this quarter, we didn't have any significant write-off. Full year basis, if you see, full year basis, in FY '21, we have INR 2.84 crores is the total write-off.
Against last year's INR 3.88 crores.
Against the last year INR 3.88 crores. I am talking full FY '21.
Okay. You said INR 2.84 crores, right?
Yes, full year, full year.
Against last year, full year, INR 3.88 crores.
Okay. Sir, the other question is on your yield. So on a quarter-on-quarter basis, this time around we have seen yield is declining by close to 25 bps. Can you throw some light on that?
AUM yield?
Yes.
Yes. So Tejas, this has 2 -- 3 points: one, we have reduced our PLR by 10 basis point, which we have already told; second, our lending rate, the salaried proportion has increased. So that has impact of 10 to 15 basis points, a reduction of 25 basis points. But despite that, you see our borrowing costs have significantly come down. Still our spread is, we are maintaining 5.76%.
The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.
Two questions from my side. Firstly, what is the difference in the yield between your salary portion and your self-employed portion? And given the increase in cases, especially in the second wave, what are the segments or geographies that you are at the margin more cautious on?
Karthik, salaried yield is 12.24% and self-employed yield is 13.75%.
Okay. And sir, given the case loads in the second wave, what are the segments or geographies that you are more cautious on?
No. So Karthik, as I told you, last time also, we have said that we have around 40, 50 profiles where we fund in our portfolio, and none of the profiles are more than a significant percentage in our portfolio. So we are taking the same approach, which we have taken the last time. And we are still seeing that because most of the segments -- the lockdown is only 15 days, but nothing is specific. Any state or any geography, wherever we are getting opportunity to open our branches and business operations, we are working.But right now, main focus is on safety of the employees and the customer base which we have. And we will continue to adopt the same underwriting practices, which we have improved and put our learnings of last year in COVID. So we continue to adopt the same for this year also.
Got it. Sir, as far as disbursements are concerned, I noticed that it is the home loan disbursements, which are actually growing much faster, and they have been kind of going slow on the other mortgage loans. But if I look at the ticket sizes and disbursements for other mortgage loans, they have risen sharply year-on-year. Now we are at about 710,000; a year back, in the fourth quarter of last year, it was INR 610,000. Given that we are cautious on the other mortgage loans, why is the ticket size rising so much?
Yes. Karthik, so other loan comprises of 3 segments: one is MSME loan; seconded is mortgage loan; and third is top-up loans. So top-up loan normally is from the range of INR 2 lakhs to INR 5 lakhs. Last year, because of the COVID scenario, as the management, we have taken a cautious call not to leverage our existing customers more. So that segment has reduced. So for mortgage and LAP customers, overall ticket size is fair. Because we have not done more top-up cases, so this number is looking like this.
Okay. Got it. And my last question, sir, is in this presentation, I noticed that there has been another new addition to the management team, which is the Chief Technological Officer. Given that we have already been investing a lot in analytics, et cetera, could you talk about what is the mandate of this role? And how we -- what kind of changes we should expect either on your costs or your underwriting or your loan segments going forward?
So Karthik, we continue to evaluate our management team and leadership team from the next 8 to 10 years perspective. And wherever we see that we need to strengthen our leadership team, we do that. As you know, we always emphasize technology as a key driver for our next decade journey, from 3 perspectives, making us more agile for competition, reducing our OpEx to make us more competitive, and third is saving us on the survival risk because technology, we see as a new -- will be the key driver for our next 10 years growth and survival.So that's where -- and our CTO left last year. So we run the process, and we have hired a new CTO. Technically speaking, on technology side, we have now the vision that all our technology and processes should be readily available for us, which can help us seeing through our next 10 years journey and scalability of the operations to that extent that technology will be a key driver of all the businesses, excellence, efficiency. And it should not be a hinderance for our next 10 years growth perspective.
[Operator Instructions] The next question is from the line of Udit Kariwala from AMBIT Capital.
Am I audible?
Yes, Udit.
Yes. So I had 2 questions. First is, for the direct assignment transactions, which you do, what is the discounting rate, which is used because the income is upfronted? So is it the average rate of the pool or is it the cost of funds for the company, or is it any other rate, which is used as a discounting rate for -- from the accounting point of view when you report your direct assignment income? That's first question. And the second question is, can you give some color around the ECLGS scheme? And what number in terms of count? And what is the absolute exposure on that front?
Yes. Your first question, on direct assignment, we do direct assignments from the last couple of years. I mean when we do direct assignments, we obviously you've rightly mentioned, it's a true sale. So obviously, upfront profit gets booked in the quarter or in the year. We discount the future cash flow at a full yield. Like in this quarter, we have done INR 160 crore assignment. Pool yield was 15.5%. This pool got assigned at 7.5%. So our effective excess interest spread was 7.5% and above. And that -- then we take not a contractual period of a cash flow, we take behavioral cash flow of that. So generally, we take 6 years as a behavioral life of a pool when we sell the pool. So it gets further compressed 6 years, then get NPV based on the pool yield.
So over here, in the example, sir, which you gave, what would be the discounting rate? Would it be 15% or that 7% number, which we're talking about?
15%.
15%. 15.6%, which you mentioned.
15.5%, yes.
Okay. Okay. Okay. And on the ECLGS?
Second question, ECLGS, we have -- didn't have a...
Udit, in ECLGS scheme, we have got ourselves registered after instructions from the regulator in the February end time, and have maybe 10 to 15 cases out of 125,000 live cases. Where we have given ECLGS, it is amount not even -- total amount is INR 54 lakh, very insignificant number.
The next question is from the line of Utsav Gogirwar from Investec.
Am I audible?
Yes.
So sir, I missed the employee number. Can you just help me with the employee number for the quarter?
We have given 4,336.
Correct. So that's roughly around 800 employees, which are added this quarter, so I have 2 bits on that. Firstly, what is the -- in which operations we have added these employees? Is it collections, underwriting, can you give some more color on that? First question. And second question, sir, such a strong addition of employees, and how do -- then how do you expect the operating leverage to play out in the next couple of years? Can you provide some thoughts on that?
Yes. So we have added frontline staff in sales and collections and underwriting thing. We have added -- as you know, we have added around 30 branches last year, out of which around 15 branches were in last quarter and even normal branches. And we have added some more employees on collection side because we think that there we can do a significant improvement still in our collection strength. Same way on the underwriting side, field staff we have increased around 50 to 80 people.So all put together, and this capacity announcements we have done from this year's perspective. So this year, apart from new branches, which we will open, we will not require any further manpower addition. Hope I have answered.
Sure, sir. And how do we look at the OpEx to AUM?
So AUM, we have continuos guidance that every year we can improve our OpEx to AUM by 30 to 35 basis points. Last year also, despite the difficult situation, we have improved it by 37 basis points. Prior to that, we have improved it by around 60 basis points. So going forward also, next 2 to 3 years, we can improve our OpEx to AUM by 25 to 30 basis points depending on the environment.
And sir, just last question. What is the 1+DPD for Maharashtra?
10.3%.
The next question is from the line of Piran Engineer from Motilal Oswal.
Sir, congrats on the quarter. Hope you all are safe. I have a few questions. First thing was the clarification on someone else's question on why yields fell sharply. By my calculation yields are down about 100-odd bps from third quarter to fourth quarter. So was there some interest reversal impact, as you have to refund interest on interest or something like that, whether one-off, because we've reduced lending rates by only 10 bps. And our share of salaried customers is stable Q-o-Q. So why exactly have our yields dropped so much?
If you see, let me first clarify how we disclose our yield and cost of borrowing in a month, quarter after quarter. What yield you see in our presentation, it is a month, quarter and some of the product of my all the loan contract outstanding. So I mean it, on the 1st of April at 13.16%, I'm earning interest on that assets, okay?You see, in last quarter, we have seen 20 basis point reduction in my yield. Sushil has already explained, 10 basis points got reduced because we have reduced PLR in the beginning, that was seen. Similarly, cost of borrowing, we declared the similar situation. What is my contractual rate on my all the borrowing liability on the quarter end, meaning on the first day of a quarter, what rate I will pay to the bank, we will show that rate.So this year, we're maintaining continuously our disclosing the same pressure everywhere. You might be more talking your own computed yield, which you are computing. It maybe, in fact, as we mentioned in our earlier call, there is -- we have a -- Sushilji, I think mentioned earlier, but I just want to again illustrate. There is -- what we do assignment earlier, that assignment goes reversal in the coming quarter. So certain impact is their on that account.This time, we reduced our 10 basis points beginning of the quarter, which has a full quarter impact on the overall interest income. Apart from that, on a prudent basis, we have done accounting prudent on -- by not accounting interest income on the Stage 3 assets from this quarter. So this means whatever income we have booked on account of the Stage 3 assets, on NP assets, which got reversed in this quarter. So on prudent and, let's say, conservative accounting policy, which we adopted in this quarter, which has impact on the top line of interest income.
Got it, sir. So 13.16% is the starting rate for the year, and then we cut it by 15 bps, so assuming no further changes to interest rates, we'll earn 13%?
Yes, it maybe -- it will have a reduction on the floating rate basis. Fixed rate will not get reduced. But overall, it will have an impact of 10 basis points in the beginning.
Okay. Got it. Sir, my next question is on your borrowings. Now you mentioned that we borrowed, I think, INR 700-odd crores at 6.3%. Who are these people who are giving us such attractive rates? And even our assignment of loans, when someone buys INR 160 crores of loans at 15.5%, I'm guessing these are LAP loans. Why are they buying it so cheap at 7%? Wouldn't banks want to negotiate with you and take your best-performing loans, which are at 10%, 11%, rather than these risky loans because in the end the banks will bear the risk in a direct assignment. So I'm trying to understand why someone would buy these expensive loans, and even though 10%, 11% loans will qualify for PSL.
So I think let me clarify this thing. It doesn't mean -- interest rate is 1% or 2% higher than the peer group, it doesn't mean that portfolio quality is weak. I think this is a myth in the market, which I think Aavas has proved in the last 10 years of performance. So I think we differ on that interpretation of AUM book. We are a purely retail mortgage-backed book. We book either in the home loan as well as in the LAP for MSME book. MSME and LAP were also secured by retail residential mortgage property with an LTV of around 50%. So that is also a very good property.We charge extra rate because of -- we believe in the risk adjusted pricing metric. We don't believe in our homogeneous product. We believe in the sector and geography specific rates we design in our system. Accordingly, we built slightly better margins on the asset side.Secondly, the restriction on the very competitive rate we borrow. I think that is the strength of Aavas and the team. We go and speak -- I think present company's case is very well in the market. We have tied up with a lot of DFIs like IFC, CDC, ADB. From there, we get a lot of funding from them.We get -- we become first in the queue with the NHB for any sort of special program, government approved, and NHB starts to disburse. So we also take a lot of funding from there. From bank, we take a very good funding. We generally pay MCLR plus 25 basis points, 30 basis points spread on the MCLR. So we'll be able to negotiate and mix market. We'll be able to raise a good fund from the banks' initiative.
Again, everything depends on the -- your past track record and the history, which you create. We are not given assignment from last 1 and 2 years. Now we have a history of last 8 years with more than 50 pools of assignment transactions with us. So we have a credit history with the financial institutions, which continuously work with us. And depending on the performance of our pool, because, say, every pricing is done based on risk criteria, past track record.And I think accordingly, financial institutions take the right judgment of pricing any specific portfolio. So I think you will give us that credit that based on last 8 years past track record, we have created that good credit history with the financial institutions on the base of which they behave and give very competitive pricing for our loans.
Yes, sir, there is no doubt on that. But in this quarter, it's 6.3% rate, we got it from DFIs like IFC and all or from domestic institutions?
There is, I think, a huge list of a borrowing, which we had done. I think it is not appropriate to disclose name on a lender institution. There is a huge list of borrowings. We have today relationships with almost 32 lenders with us basically.
Okay, okay. Sir, after a long time, we've opened branches in Rajasthan, I think 7 or 8 branches. So what is our thought process? Have you expanded into new locations, which were earlier untapped or have we just split one large branch into 2 because the demand was so strong?
We have a very consistent practice of branch openings. It has 2 parts. One is contiguous growth areas in market where we work, then we have to cover 50-kilometer, then we create portfolio of next 2 to 3 years. When we get the confidence, we further move ahead in direction. So Rajasthan branches are part of a strategy of our contiguous growth.And second is we do, on the analytics base, and wherever the low penetration of housing, so whenever we open the branch every year, we do take a summary of these 2 approaches. And accordingly, we open the branches, but this practice is consistent. So every 5 years, we open in 3 or 4 new states. We go to new geography also and existing geography contiguous distribution approach basis, we open the branches.So now we have 10 years, and we have almost 9 or 10 states penetration. So next 5 years, we will open another 4 new states, where we will have branches, and as per our metric, 30 to 40 branches every year, so after which around 40%, 50% branches will be in new states and 60% branches will be in existing states on a contiguous distribution basis.
Got it. Got it. That was helpful. Sir, just 1 last question. Just curious to know why are we not rated by CRISIL?
It's, I think, not anything of answer why we are noted, were not noted. I think we already have -- the 2 rating agencies are with us, CARE and ICRA. And both are, I think, work a lot towards affordable housing piece. And so I think there's quite a good amount of experience in that. We have the India rating also. They do also rating for short-term paper since, I think, last 6, 7 years continuously.
Next question is from the line of Bhavesh Kanani from ASK Investment.
My question again pertains to the interest income. I do realize that we have tried to answer that partly. But when I look at the loan outstanding, we see increase of 7% sequentially, whereas interest income has gone down by about INR 10 crore, INR 11 crore. And if we were to keep the yields calculated or competitively stable, the income would have ideally been around INR 260 crore and INR 262 crore interest income. So versus broad expectations, the income is down by about INR 15 crore, INR 16 crore. Can you help us understand, one, you have mentioned the reason, but if you can also quantify, let's say, interest income reversal impact in terms of numbers, rate cut and the other component, if you may?Second question was on our assignment derecognized assets. When we look at the income derived from assignment activities in context of loans assigned, the implied margin that we get has been pretty volatile if I look at last 8 quarters. So I would request your help in understanding that. And in the last quarter, you had mentioned something to the effect that even for the past assignment deals, when MCLR comes down or the discount rate is lowered, you derive benefit or income out of that. Now does that mean, going forward, when the rate cycle reverses, we'll see a negative impact on the past assignment deals? These are my questions.
We -- I'll take 1 by 1 questions. First is interest income, second one is an assignment, third one is, I think we need more clarity from your side. But let me first answer the 2 questions. I think we -- I already address this first question, let me further clarify a few more with the data point of the first question. As I mentioned, as Sushilji also mentioned, in this quarter, first day itself, we have reduced our PLR by 10 basis points. If we see last quarter to this quarter, overall yield has reduced by 20 basis points. And last quarter, it got reduced by 10 basis points.So this slightly more reduction of yield, keeping in the view of a market trend, and as well as the cost of borrowing is showing better reduction in that portfolio, so that single yield result came in the yield side also. It has an impact of around INR 4 crore to INR 5 crore, if we compare last quarter to this quarter result. This has a result of around INR 3 crore overall on that basis.I have mentioned one more thing, when we do assignments, then assignment get increased. And these assignments get restructured in every quarter. So this quarter, if you compare with the last quarter, that is around INR 4 crore impact at top line because if we see consistently, whatever we do new assignment, we show as a separate line item in our results published because this is on account of new assignment transaction, but our old assignment transaction gets restated every quarter, it is both shown in the top line basically. And my -- because interest income also comes there as well as whatever we book upfronting profit, that gets updated in that first line itself, basically. That's a simple accounting practice, which we have, I think disclosed. We have maintained continuously that same place.Third important thing I mentioned, income reversal. I mentioned that because of conservative and, let's say, prudent accounting system, we stop to recognize interest income on the NPA asset, on the Stage 3 assets, which we keep on doing before Ind-As accounting systems. So we have gone back to our old improve -- accepted prudent accounting system basically. So that -- on that account, it was reduced in this quarter around INR 10 crores. So if you put together all 3, 4 items, roughly, our impact is in the range of INR 16 crore, INR 17 crores.Second question you've mentioned assignment thing, different, volatile. It depends upon that -- what pool has been sold in which month basically, like if we sold a pool of LAP category of a pool, where yield is around 15% upward, pool gets sold around 7.5% and 7.75%. So it was a -- higher interest spread is there. It gives a higher profit in that quarter.In some quarter, if pure home loan pool gets sold to the ranking institution, the yield is less. So that pool, sometime my interest is spread roughly between 3% to 4%. Here, my spread is between 6.5%, between 7.5%. That show actual profitability may differ. Actual profit may also differ on account of volume also, what volume we have sold in that quarter.So we've mentioned -- every quarter, we show how much quantity we have sold in that category. So roughly, we are maintaining around INR 600 crore pool sold every year in last 3 years, similar, maybe INR 50 crore here and there. But generally, trend is like that. You can see INR 538 crore in FY '18; then '19, INR 680 crore, INR 664 crore; this year, we sold INR 550 crores.
Got it, sir. That's helpful. Just one further clarification. We have been prudent on almost all fronts, whether it is underwriting, provisioning and whatnot. Why not also recognize the derecognition asset related income also on an amortized basis? Because as an outsider it's extremely difficult to get a hand on quarterly numbers given the variance they show. In Q3, we saw INR 40 crore; in Q1, it was 0. So it becomes a little difficult...
I agree with you. I strongly believe in this thing, the income of -- when do assignment transaction, we should not book income. RBI brought a guideline in 2012. We -- everybody is following the same guideline. When the Ind-As on -- HFC and NBFC was moved on Ind-As accounting, Ind-As accounting said you have to book this income as upfront basis because this is a true sale transaction. Pool has gone out, risk has gone out, so you have to book upfront profit.There is always a challenge [Foreign Language]. So somebody adopt discounting at a G-sec rate, somebody adopt discounting at cost of borrowings, somebody adopted conservatively and full yield basically. Where we are basically discounted is a full yield basically. And I personally, represented this matter to, I think, RBI in -- sometime long back in the forum. Recently, I think, again, somebody has raised this issue to RBI so you give the directions not to book upfronting profit.
But Bhavesh, you will appreciate that as an organization, we publish both, and we give the bridge also of both the numbers, where it is not upfronting and where it is upfronting. Quarter-on-quarter or year-on-year, we are giving both the numbers, IGAAP number, where we don't recognize, so net worth also and income also, and PAT also, we do everything.
The next question is from the line of Bharat Shah from ASK Investment Management.
Sushilji, I have exactly the same questions to ask what Bhavesh just now asked. But just to add a point to that assignment income, so if there is an impact of the past reassignments on the current period, I think it can be shown as a line item separately in each quarter. And secondly, is this correctly discussed taking assignment income as an upfront full income is a bit of an incorrect thing to do. So irrespective of anything, why can't we show what is the profit belonging to the current quarter and what are the future profits book is a disclosure, so that these 2 line items stated on a quarter-by-quarter will give a true indication of the real profit.
Yes. Sir, we agree with your point. First of all, we agree that accounting should be done on a conservative basis. That's where -- at Aavas, we publish both the IGAAP and Ind-As numbers. In IGAAP, anyway, you know it's not upfronting. And we give the bridge of both the 2 accounts every quarter.Slide #31, whatever you are asking, we exactly do the same. We give line by line difference. [Foreign Language] maybe if you can see. And if you have further suggestions, we are ready to incorporate that.
No. Sure. Thank you, Sushilji. I missed going through the presentation upfront...
Slide #31, sir. slide #31, PAT Reconciliation, there we give exactly what you have asked for us. So every quarter, since listing, we are giving this number.
No. Thank you. This time, I missed going through the presentation, that's why asked.
[Foreign Language]
[Foreign Language]
Sir, as the management, we are always ready to improve our disclosure. So if you have any suggestions, we are ready to take it.
No, no. I think this is about all exactly those 2 questions. I think whenever there is unusual movement, like third quarter to fourth quarter, with the disbursements growing sharply, asset book growing nicely and the drop in interest income was not easily understandable why it has happened. So when there is an obvious something, which is not easily comprehensible. If a self-explanatory note is there, it will make just things easier, that's why you see people guess work here.
Sir, in our press release, also, we have given one statement there. But on this call, anyway, we have explained line by line numbers difference. Going forward, if there is anything of this, we will further improve in our investment -- investor presentation.
No, no. Thank you so much. Sushilji, always you've been very transparent, and these are just minor additional points.
The next question is from the line of Dipanjan Ghosh from Kotak.
Am I audible?
Yes.
Okay. Just one -- if I may, one question. So first is, I wanted to understand what will be the incremental contribution of the new states to your incremental disbursements or the incremental book, because the top 4 states still continue to remain high. And my understanding is that probably at the yield level, the penetration that -- the number you show probably in the top 2 states remains a little low from hereafter. I'm just trying to get a sense of how well your new states are contributing.
Yes. So Dipanjan, what happens whenever we open a new branch, a new state, anyway, we keep conservative approach for first 30 months or 36 months because we need to understand cash flows, geographies, income patterns, delinquency pattern. So in the new states and new branches, we go very slow. But yes, any branch, which opened more last -- before 2 years or 3 years, as to our distribution strength, right now, we have 280 branches, out of which around 100 branches are in new states and 180 branches are in old states.So these last 4 years, whatever 100 branches we have opened, this will add to our disbursement numbers for next 3 to 4 years. Same way in this next 3, 4 years, we will open another 100 branches, which will be feeder for growth of -- as next maybe 2023, 2024 onwards. So same way, we continue to build our distribution strength for future 3 to 5 years from first step there.
Okay. Just one more question. Sir, you mentioned that currently our capacity of delivering around INR 400 crore of disbursement per month broadly. So assuming you have to throw at 20% AUM downtrend for the next few years plus the repayment rates remain where they are, you'll probably be looking at around INR 5,500 crores of disbursements per year broad-broad. So that is around -- so the run rate that is -- the sort of capacity you have is probably 10% to 20% lower than what you will probably have to deliver by FY '23, '24. So is it safe to assume that you'll probably adding around 10% to 20% more sales people over the next few years?
So Dipanjan, I think I'm not understanding your conclusion. But for the things, which we pay 20% to 25% growth is what we are looking for next 3 to 5 years term. For that, on the business side, we keep a bench strength of around 30% to 40% more. If competition will come, if adverse situation will come, still we will be able to go firm. If adverse situation or competition will be less, we might overperform. And at the same time, higher capacity helps us picking and choosing, keeping our underwriting intact, and that helps us in maintaining our asset quality and portfolio.
Okay. I will get back. And just a related question. Can you give your NPA numbers and 1+ numbers, of course, self-employed and salaried?
NPA and 1+...
NPA -- yes, just give me 1 minute. So HL 1%; non-housing, 1.9%; salaried 0.44%; self-employed 1.3%.
Sorry, can you just repeat that? I missed it totally.
Home loan 1%; nonhome loan 0.9%; salaried 0.44%; self-employed 1.3%.
Okay. And can you also give the salaried and self-employed for the 1+DPD?
1+, right now, we don't have that number. It -- but I think there will not be much of the difference on that side.
The next question is from the line of Manan Tijoriwala from ICICI Prudential.
Sir, I just had one question related to the Pradhan Mantri Awas Yojana scheme, specifically the CLSS scheme, which has expired on March 31, 2021. And I understand the LIG EWS scheme has a date for March 31, 2022. So I wanted to understand how it affected your growth rate in the past, and how it will affect in the future as well?
Manan, I don't think so much of the impact on that side because as we told, as part of our management practice, we don't fund any lending, which is dependent on government subsidies or government incentives. We do assess each case on individual merit basis and accordingly we build. But if the customer get -- can get the benefit, in the government guidelines, we help him getting that credit. But our business, sourcing and disbursement and our marketing is not dependent on government subsidies and incentives.
The next question is from the line of Rahul Maheshwari from AMBIT Asset Management.
Am I audible?
Yes.
Hope all is well at your end, sir. Sir, just one question. Sir, on the -- basically, 2 questions. One, looking at the peers, how they in the sourcing pattern use the connector to tap the new geography or new state, what is your process of entering into the new states as you are already there in across 9 states. So any process where you can say that what time period you give for any state, or what is the benchmark which you are using because it varies from state to state. So any parameter which you would be using?And second question, sir, I know it's very difficult in such time to -- even for me to ask the outlook. But if the situation remains steady state or status quo as of April, no doubt you have tightened your credit lending in terms of higher rejection rate. But keeping this as a steady state, can we say that incrementally, you can gain the market share because the situation will be becoming bad for the other players? I mean, incrementally, it can be good where you have the capital appetite to serve.
So Rahul, when we enter into the new markets, first, we have the analytics, which gives us input about the geography, population, number of household, income levels; as of today, what is the portfolio, how it is behaving 1+, 90+. Then we have local teams, which we hire. And as a prudent practice, first we hire risk team, then we hire the business team.Third principle, which we adopt in new markets, we tell that first 3 years, there is no business targets. We will do whatever is as per our DNA, there is no pressure on the business team because it takes us 2 to 3 years to understand cash flow patterns, income, seasonability, asset behavior, judiciary behavior.And once we get confidence, then the expand in those market and improve our business numbers in those markets. So we are practicing this from last 9 and 10 years, and you can see the results. Last 5 years, 4 states we have opened and the asset quality is much, much better and in line with our expectation. So we'll continue to practice the same behavior in the new states when we go.
Sir, just to follow-up on this. Sir, in the current states where you are there, leaving apart the 4 states, which have recently entered in last 4 years, how much more capacity addition you can think is available for you? I mean, for a particular district -- just to give an example, a particular district, your on field force might be equivalent to what HDFC or LIC Housing would be gaining the files or the sanctions. Sir, is there any further increment or capacity addition you think is available or you have reached to where you thought of as -- in the blueprint?
No. So Rahul, we don't think that way. First of all, all the locations where we are, it doesn't mean that if we have raised some scale, that is a steady state or plateau. We take a 15-year approach when we open the branch. And we go by statistics and analytics data. So I will give you an example. Like if a city has for 4 lakh population, mostly, 85% of branches are there where housing loan penetration in the state -- district, I feel, is less than 5% and 1 day past due and 90 day past due is very reasonable.So 4 lakh population divided by 4, you have 50,000 households [Foreign Language]. So we take that in next 10 years or 15 years, we will try to touch base or incorporate 5% households for the income.So from that perspective, even for next 15 years, that city's penetration level will not go beyond maybe 10% or 20%. So from that perspective, we take a longer view for any branch we open. And I will give revised estimate. Even from the existing branches of past 5 years where we opened around -- which are 180, we can disburse around INR 50,000 crore, INR 60,000 crore in the next 10 years term from those branches.
That's quite helpful. And on the outlook on rejections, what is the rejection rate that has increased? Looking at what it was in January and today in April, if we keep such rejection rate, definitely, the quality of customer, which is adding that -- very high supreme quality after passing credits. So sir, but if it remains status quo, still confident to maintain such run rate, which is happening in April month, keeping the condition of status quo of April 1.
Rahul, so at Aavas, we believe in consistent growth, and we factor in competition, market dynamics, environment changes as a derail factor for that. So we keep a little bit higher capacity level than what we need to deliver. And in good times, that capacity gives us more leverage to pick and choose, but we don't want to have higher growth. We want to have a consistent growth in those markets. In the difficult time, that helps us maintaining the consistent growth and taking the impact of competition and market environment. So we'll continue to follow that same practice. And if the March 31st steady state factors, we will see. This year, we are in a much better position to deliver 20% to 25% AUM growth on a consistent basis.
Aavas is known for consistency and we hope the same remains, sir.
The next question is from the line of Amit Sharma, an individual investor.
Yes. Am I audible?
Yes, Amitji.
Let me congratulate you on the good results. I have one question regarding your underwriting and collection strategy. I mean, the one-off -- the analyst pointed out that your write-offs was nil in the last quarter and overall, also it is pretty low. So what is the success ingredients towards this underwriting and collections? I'm sure you would be going into Tier 3, 4 cities and there you'd be funding on a fixed income and gram panchayat properties and all that. So how come that the -- there have been no write-offs and your NPAs also historically have been very low. Just wanted to understand that.
Amit, it's not the outcome of 1 or 2 things. It's the outcome of overall approach and the choices, which we have made in our business over a period of last 10 years, starting from choosing the market where housing loan penetration is less than 5%, then 100% in outsourcing approach, then building the 4 pillars of underwriting: underwriting; mortgage penetration; securitization risk, fraud risk. Then creating a robust collection process around all the things. Then not doing the risky assets because we don't do land on, we don't do loan more than INR 1 crore, we don't builder financing, we don't do any under-construction apartment.So all those risky assets, in the past, we have not done. If you will see, our individual loan customer is 99.8%, our retail portfolio. We don't have any builder exposure. Average ticket size remains almost up INR 10 lakh. And when we started our journey, 70% customers were new to credit, still 40% customers are new to credit.And over a period of time, with the use of technology and analytics has helped us understanding our segment better. And we are incorporating learnings, like I have told you, last 1 year is a good learning year for us. We have assessed almost 25,000 customers, who have taken the moratorium. We have checked the properties. We have checked the assessment how we have done. We have met the customer. Again, analyzed the cash flow patterns; which customers have bounced back in 1 month; which customer has the tendency to bounce back in 3 months; which customers is taking 6 months' time.So all those things are further helping us standardizing our underwriting processes across branches. Earlier also, the main risk for us was we were good at 50. Can we remain so good again at? When we were good at 100, can we replicate this model at 110? Now we are 300, now the same challenge is, can we replicate this on 1,000? But technology and analytics now is helping us on that side. So all this in the event put together, I think, helped us.Second, we have 85% properties, which are individual houses, and 95% of people to whom we have funded home loan is living in that house. So all these things put together helps us creating the mix, which gives us confidence of consistent performance on the growth side as well as asset quality side.
Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to Mr. Sushil Agarwal for closing comments.
Thank you all attending the call, and patience listening of answers from our side. To summarize, while the times are very tough, but at Aavas, we draw comfort from the fact that 100% of our portfolio is secured against mortgages. Most of this is self-occupied residential properties, very general in terms of customer profile. We will continue our approach of consistent and sustainable growth by providing credit facilities to unserved -- underserved customers in semiurban and rural areas.We, at Aavas, hope and pray that everyone and their families are safe and keeping good health. I would like to thank all our stakeholders for their continued trust and support to us. Thank you so much for your time. For any further information, we request you to get in touch with Himanshu in our Investor Relationship team or SGA, our investor relationship adviser. They will be happy to assist you. Thank you very much.
Thank you, everyone.
Thank you. On behalf of Aavas Financiers Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.