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Aavas Financiers Ltd
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Ladies and gentlemen, good day, and welcome to the Aavas Financiers Limited Q4 FY '23 Earnings Conference Call.This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and the 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, this conference is being recorded.I now hand the conference over to Mr. Sachinder Bhinder, Managing Director and CEO of Aavas Financiers Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. Thank you for participating in the earnings call to discuss the performance of our company for Q4 and FY '23. 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. As you're all aware, former MD Sushil has decided to step down from the company for personal reasons. Sushil has helped create the foundation for the next phase of growth with significant investments in people and technology.On behalf of the Board, we want to put on record that we deeply appreciate his contribution to Aavas and wish him the very best for his future endeavors. I want to reiterate that the Board and promoter shareholders are committed to build a long-term institution and we are confident of executing on a strategy with their support. We'd also like to place on record that our promoter shareholders continue to be committed to supporting the long-term Aavas 3.0 vision. They have not sold a single share in nearly 2 years and they have reaffirmed that they do not plan to sell any at all in the coming year either.The key driver for the company's continued success is a deep and talented management bench at Aavas, many of whom have been with the institution since its early days and remain committed for the long-term journey ahead.We have with us today Ghanshyam Rawat, President and CFO; Ashutosh Atre, President and CRO; Siddharth Srivastava, Chief Business Officer; Surendra Sihag, Chief Collection Officer; Ripudaman Bandral, Chief Credit Officer; Jijy Oommen, Chief Technology Officer; Anshul Bhargava, Chief People Officer; Rajaram Balasubramaniam, Chief Analytics and Strategy Officer; and Ghanshyam Gupta, our Investor Relations.Q4 FY '23 is the first quarter completed under the new Aavas 3.0 framework and I am happy to report that it has been our strongest quarter ever. For the quarter, we disbursed INR 15,818 million registering a 23% Y-o-Y growth. This is the highest quarterly disbursement in the history of Aavas.For the year, we have disbursed INR 50,245 million registering 39% Y-o-Y growth. We continue to borrow judiciously and have raised INR 47,631 million at 7.25% during the year. As on 31 March, 2023, we maintained a sufficient liquidity of INR 32,747 million in the form of cash and cash equivalents and an unavailed documented sanction. We have also gone live on our industry-leading implementation of the Salesforce platform and are now working on the next step of our technology evolution. The entire organization, at all levels, is extremely energized and look forward to our next phase of growth.I will now hand over the line to Ghanshyam, President and CFO, to discuss the financials in detail.
Thank you, Sachinder. Good afternoon, everyone, and a warm welcome to our earning call. As on 31 March, 2023, average borrowing cost of 7.61% against an average portfolio yield of 13.12% resulted in a spread at 5.51%. As on 31 March, 2023, total number of live accounts stood at 187,149 that shows 24% year-on-year growth.Total number of branches was 346. 32 new branches added in last 12 months. Employee count 6,034, 16% year-on-year growth in anticipation of additional 20 to 25 new branches in Q4 FY '23.Assets under management [indiscernible] 24.8% year-on-year to INR 1,41,667 million as on 31 March, 2023. AUM has an impact of subsidy receipt of INR 2,800 million during FY '23 versus previous year INR 1,080 million. Therefore, AUM growth is 26.1% excluding the impact of subsidy.Product-wise breakup home loan 69.9%, other mortgage loan 30.1%. Occupation-wise breakup, salary 39.9%, self-employed 60.1%. During FY '23, RBI hiked the repo rate by 250 basis points. Consequently, we have also increased our prime lending rate by 160 basis points during FY '23. And a further increase of 40 basis points with respect for 5 April, 2023.During the quarter, company borrowed an incremental amount of INR 15,816 million at 8.07% as of March '23. Our average borrowing cost stood at 7.61% on an outstanding amount of INR 1,25,209 million. [Indiscernible] to India's reconciliation has been explained in detail for profit after tax and its network on slide number 34 and 36 of our presentation.Borrowings, access to diversified and cost-effective long-term financing. A very strong relationship with development finance institutions. During the year, borrowed INR 47,631 million at an average rate of 7.25%. Overall borrowing mix as of 31 March, 2023, has 45% from term loans, 22% from assignment and securitization, 20.8% from National Housing Bank and 12.2% from debt capital market.Lender support continues to remain extremely strong as Aavas evolution continues. Liquidity of INR 32,747 million as of 31 March, 2023. Cash and cash equivalent of INR 13,687 million. Unavailed cash credit limit of INR 1,100 million. Documented unavailed sanctions from other banks of INR 17,960 million. Profitability, profit after tax increased by 19.8% year-on-year to INR 4,282.8 million in FY '23. ROA was 3.51% and ROE was 14.09% for FY '23. As of March 31, 2023, we are very well-capitalized with net worth of INR 32,697 million and capital adequacy ratio at 46.94%. Our book value per share stood at INR 413.6.Now I would like to hand over the line to Ashutosh ji, President and CRO to discuss the assets quality.
Thank you, Ghanshyam ji. The key portfolio risk parameters, asset quality and provisioning 1 plus days past due stood at 3.3% as against 4.05% at the end of last quarter. Gross Stage 3 stood at 0.92% and net Stage 3 stood at 0.68% as on 31 March, 2023. Gross Stage 3 of 0.92% includes 0.11% of up to 90 DPD assets, which have been categorized as GNPA following RBI's notification dated 12 November, 2021.During FY '22, the resolution plan was implemented for certain borrowers' accounts as per RBI's Resolution Framework 2.0 dated 5 May, 2021. Some such accounts with an outstanding amount of INR 885.2 million as on 31 March, 2023, have been classified as Stage 2 and provided for as per regulatory guidelines. Out of 885.2 million, INR 675.7 million is into 0 to 30 DPD bucket.Total ECL provisioning including that of for COVID-19 impact as well as Resolution Framework 2.0 stood at INR 716.1 million as on 31 March, 2023. As shown by the strong work done this quarter, Aavas is well-placed to continue its industry-leading asset quality.In the No-deal Roadshow presentation, we have also shared the performance of Aavas across the COVID period from FY '20 to FY '23. This was a time when the asset quality was really tested. Our average credit cost in the period is 0.23% and INR 174 million of cumulative write-offs. This is driven by our DNA of end-to-end in-house from sourcing to underwriting, to collection as well as risk containment, legal and technical evaluation.With this I open the floor for Q&A.
[Operator Instructions] The first question is from the line of [ Hirenkumar Thakorlal Desai ], an individual investor.
Yes. I have two questions. Can you hear me?
Yes.
My question is regarding cost of deposit. Do you have an estimate or some ballpark number where it might peak and around what time?
Sorry, you are asking about cost of borrowing?
Yes, yes, yes.
Ghanshyam, you go ahead, please.
Our cost of borrowing is on the basis of full year total borrowing and it is computed on the basis of year-end various products we borrowed and it is some product basis 7.61% and as we've seen, RBI has increased the rate in past 8 to 9 months and thereby banks have increased their cost of borrowing MCLRs and other product also increased in the last 2 to 3 quarters, thereby we have also seen some impact on our cost of borrowing, but still we have fully -- that is we have borrowed at 7.25% and for the quarter we have borrowed at 8% for this quarter borrowing. That gives us confidence, we're able to borrow to feed our increased growth at a very competitive price.
Do you have any assessment as to overall blended cost of borrowing, around what number it might peak? Because see some of your borrowing may be still up for either renewal or further...
As you know, borrowing is a mix of term loans from banks and institutions. Then we have a long-term borrowing from development financial institutions like Asian Development Bank, International Finance Corporation, CDC London-based government agency, so those funding we had borrowed. Certain lot of borrowing is on our fixed rate contract. NHB, we have borrowed around INR 3,000 crores. Out of that INR 2,000 crores is a fixed rate borrowing for the 7 years, which is a very competitive price, less than 5%. Obviously, which money borrowed from banks which is linked to MCLR it comes for reset on frequency of their annual reset, so last 6 months whatever loan come for reset, which reset has already happened, but some borrowing will also come for reset in another 6-month time frame that will come as and when happens.
Okay. So we still expect the overall borrowing cost to rise a little bit, right?
Yes, there will be no doubt, RBI has paused. That was a very positive impact for the market for us also. April commentary came a little bit pause or they see how the data comes at the regulator end. We have seen softening on the G-sec rate. We have seen softening on the bond rate, so we hope that now further banks will also be considered that aspect and much increase MCLR rate, but older contracts definitely will come for the repricing in the first 6 months, so we can see some impact in cost of borrowing in next 2 quarters.
Okay. The second question is regarding growth. So -- okay, some of your peers who are actually smaller in size, they have been growing and they are kind of guiding AUM growth in the vicinity of 30%. I think you are guiding somewhere around 22% to 25% kind of a number. Is it because of higher base or there is some other reason that...
If you compare, let's say, as you rightly mentioned in your question, the smaller companies which are in the size of INR 4,000 crores, INR 5,000 crores, if you compare Aavas at the same journey in 2016 or '17 in time frame and then later on the '18, when we have a similar size, we are also growing 40% to 50% at that point of time. Obviously, now base has increased so that higher base, obviously, will have that growth impact you'd see, but if you refer the new business during this year, new business we've done more than INR 5,000 crores versus last year INR 3,600 crores, which INR 3,600 crores which is around 39%, 40% growth in the new business and AUM basis we have grown 26% during FY '23 and we have invested also in the various branches and product, process, policy, technology that give us a comfort and opportunity also there in the market, so that will add our future growth trajectory going forward.
We have the next question from the line of Renish from ICICI Bank.
Just a small correction, this is Renish from ICICI Securities. Sir, 2 questions. One is on the slightly strategic one. So of course, earlier you have been guiding at 20%, 25% kind of a growth number, but now since we are investing into tech, we are investing on branches and plus we are introducing new products, so on blended basis, how should one look at the AUM growth trajectory? That's point number one.Secondly, let's say, even if we are comfortable growing at a faster clip, does that mean that we have to introduce new products? And if yes, then maybe near term what should be the ideal loan mix in terms of home loan versus non-home loan portfolio?
I think our secular growth has been overall in the range of 20%, 25%. And I think this is a mix of one has to look at from a granularity perspective, both from geographies and the product lines. I think for the geographies where we are already present, I think we are going a little deeper into those markets, much more than the normal average. And where we have invested, we actually follow our normal DNA of staying port invested, learning the markets and understanding and then stepping up and accelerating. I think that the 2 parts which are there, which constitute our individual self-construction of home loans.On the other product lines, I think the product lines which we have invested in have started really firing. And I think they are all engines firing, helping us to really build in and scale up on a granularity basis across the product lines. So these are the 2 parameters which are there, which are contributing to the one.And on the mix, I think on the mix which are regulatory-guided on a home loan, non-home loan ratio, we will follow what is guided as per the regulatory mix. And as the mix of the home loan increases, we'll have the MSME or the LAP portion which is there to be sequentially increasing in those lines.
Okay. So broadly you're saying even if, let's say, the new products grow at a faster clip, the blended growth will still remain at 20%, 25%?
See, you have to look at growth from 2 perspectives. One is you have the existing geographies where growth would be much more deeper, which would be above the average growth. Whereas the new territories which you enter, like for example, Karnataka and Uttar Pradesh, which we really want to step up, I think there we have been very conscious to have a moderated growth as a result of which the average growth comes to a level of 20% to 25%.So some of the regions, some of the geographies, which are deep invested in grow at a faster pace. The ones which are where we want to accelerate would be at a medium pace. And where we have invested, we will really look at how it spans out and then really step up on it. So I think case in point are the 2 geographies which I talked. And I'll have my CBO, Siddharth Srivastava talk about the 2 geographies, typically the Uttar Pradesh and Karnataka. Sid, over to you.
Yes. See, if you look at on the terms of sizes, Karnataka is almost similar to what Rajasthan is. And we have, we always, every year -- every 2, 3 years, we identify certain new geographies, Karnataka, Odisha, Uttar Pradesh are the few geographies which we identified to grow. And we will continue to grow deeper into our existing geographies. And this will bring us the required growth, which we are looking at around 20% to 25%.
Got it. Got it. And so my second question is slightly on the qualitative side. So of course, there is a top management change. But do you foresee any attrition, let's say, at 1 or 2 levels below the CXOs?
So I think, as management strength, which is there as part of the CXO levels and they're deeply committed on the side. So I think that's already there. And we have a good amount of bench strength, which is there. And I think over a period of last couple of years, what we've really done is we had multiple products, product lines along geography. So I think what it really helps is one is to monetize on the customer side, and be to help us really help the manpower portability. So if any of the attrition hits, actually we are really safeguarded, because we have at least the buffer and the bench strength, which is already available. We really play that and really mind the opportunity which is available in a period of time.So I think we are very well-capacitized if I were to put across on those lines. So I think a), the geographies, b), the product verticals and a deep investment in the people side, I think is the one which is there. And on the people side, I would really like to reiterate that we have invested in re-skilling and up-skilling. And we have a curated program with [ I am Ahmadabad ] and where we send across select staff to really work on the live projects which will help us in our field. And then this is one part of our training and development and we're developing the leadership bench, which really helps in the future course of work.And the second enabler, which has been technology. I think we are moving towards institutionalization and when we say so we say that we would be more on process policies and technology is one of the major facilitators. Continuing with our touch and feel of assessment, credit assessment, what really technology helps is to increase the productivity to be more predictable and help us in overall managing the stuff. So I think that helps us in managing the overall stuff which you referred to.And on the technology side, I think implementation, once again, we'll see the real jump in the productivity and the other metrics, operating leverage really kicking in. So I think overall, we are very poised to take that as a matter of what comes in, in the coming times.
The next question is from the line of Raghav Garg from AMBIT Capital.
I have broadly 2, 3 questions. So one is on the home loan portfolio. When I look at the implied value of home loans disbursed during this quarter, there seems to be a sharp deceleration in growth. It seems to be about 12% Y-o-Y for this quarter. And then when I also look at the implied disbursements as well as the exercise data, it seems to suggest that there's been some kind of decline in terms of volume of loans disbursed in the home loan segment compared to last year. So could you just help us understand what kind of slowdown are we witnessing in our home loan portfolio before I proceed to my next two questions?
If you see in overall number, this quarter, we have disbursed much higher number and ever best quarter in the compared to last year, quarter 4. You are talking particularly one segment where you find, this year we found very good pace to do our assignments of MSME and LAP portfolio. If you see other peer groups, they struggled in that piece. We have a good amount of portfolio LAP and MSME got assigned. We got extra, let's say, buffer in overall book, continue to lend our MSME, LAP portfolio. So that's way, in proportion, you found that the home loan and non-home loan mix is not different than what you see mixed in a quarter 4 of last year, basically.This goes, let's say, recognition of Aavas credit policy underwriting norms where banks are from [ HHC ] not only looking for home loan, but they are looking for non-home loan or MSME book from us basically. In last 1 year, we have done INR 1,000 crores assignment. INR 900 crores MSME, LAP book got assigned to them, basically. That's the creditability of Aavas book, Aavas credit culture, which is getting recognized with the large public and private sector bank.
So sir, if I understand this correctly, you're saying you prioritized the MSME and LAP segments over the home loan segment. Is that how we should understand why there's been some...
No, no, no. Yes. No, no, no, please. Let me again clarify the matter. If you see, we as a housing finance company has certain restrictions to do non-home loan business, basically. So during this quarter, during the full year basis, we have churned out a lot of MSME and LAP book from on book to off book. So we got extra cushion to absorb MSME and the LAP book also during the quarter, during the full year basis. That's why you've seen quarter 4 mix is getting a bit different than what you've seen a mix of the quarter 4 of last year. But overall, as a business strategy, we will remain at 70% to 75% home loan, 25% to 30% non-home loan book on the long-term basis.
I'm not sure if I understood this, but the only point that I was referring to that there's been some kind of deceleration in terms of the value of disbursement. And if you look at the number of loans disbursed, then there's been a degrowth in just the home loan segment. So that is what I was trying to understand. But I can take this with you offline.My next question is, in terms of margin. So while the share of the higher yielding non-home loan book has been decreasing and we've also taken about 160 basis points PLR hike during this year and as I see, we also have a 60% floating rate book now. The spreads have come down in this quarter. And in fact, if I look at the spreads up till the last quarter, they were stable. So can you explain what kind of pricing pressure or competition are we witnessing in our home loan segment, if at all? Since we haven't really seen spreads declined at all, despite the share of high-yielding book going up and also the company has taken PLR hike?
I think in the spread side, there is a marginal reduction we have seen on the spread in this quarter. It's primarily on the true account. We have seen post-stock borrowing get increased. And similarly, it takes on time to pass on the increased rate to the assets, new generation assets, basically. So there is always demand, some gap on the translation on the new business than the cost of borrowing, we borrow fund from the market. But overall basis, we are confident to maintain our spread, which is given our long-term vision, 5% and above spread continue to maintain in that bucket.And we have seen, as I earlier mentioned, we have seen RBI has given some relief commentary in the April policy. I think that will also help in both the sides. But as a competition, we are not seeing, I think, market is such a huge in rural semi-urban area. I think long-term perspective, in earlier calls, we have given this commentary a number of times. In a geography where we work, household unit versus home loan penetration is not more than 2% to 3% in those markets. So we have enough spaces there to grow our business.
Sure. And sir, why have staff costs come down quarter-on-quarter? Yes, that will be my last question.
No, I think you know in India's accounting system, we grant ESOP schemes, 2, 3, 4, 5 ESOP schemes are there. Certain older schemes are getting matured during this quarter. So whatever has been ESOP not exercised, not wasted, got a reversal of expense in this quarter. So that's why you see slight manpower cost in this quarter is lesser than last quarter on that account.
The next question is from the line of Shreepal Doshi from Equirus Securities.
So I wanted to understand this transition at core management level from you being appointed as CEO last quarter to Mr. Sushilji resigning within 3 months. So while we have seen some of the founding members of a company moving out due to personal or professional reasons, but it's usually done in a transition and planned manner with investors also being on all the same. Just to understand was the Board and core management aware about this move well in advance?
So I think from this perspective, we have embarked upon the Aavas 3.0 journey and Sushil has been there since the founder and set up the franchise right from the day 1. And I think from a perspective of institutionalization where we embarked on a journey on people, processes, I think it was his personal decision to take a call. And I think we respect his decision and he left a franchise which is sound on rock solid foundation to really build upon and to embark upon an institutionalization journey. And as a part of Aavas 3.0, I think we delivered as a team the best of the quarters on all the matrices. And we really want to build across various small centers across India as a pan-India institution, which has a sustainable growth with quality as the key metrics and really have a right footprint, which is really we all are proud of the franchise which we developed.
Sir, but I get that point. So you mean the Board was aware about this move during last quarter itself? Is that a fair conclusion to make?
No, I think in the last quarter Board meeting and let's say before that Board quarter meeting also I think we had in a plan to invest for Aavas 3.0 in which 2 strategies were planned, investment in the tech field where we thought the next 10 years journey, that investment in technology will help the next 10 years journey.Second thing was planned to enlarge the management bandwidth to capture next 10 years growth, available growth in the market in a home loan space. So management bandwidth got enlarged. Accordingly, there was -- Sushilji was an earlier entire day-to-day activity strategy, everything PC is looking. So a number of times it got chopped in that system to manage the entire volume of a business. So there was a strategy to separate day-to-day business and strategy tech transformation separately.It was announced and moving ahead to implement that strategy. Obviously, going forward, by close to next Board meeting, I think he found to have his move on and want to move on in his career and choose a different path. So I think we discussed with the Board members and Board members as Sachin ji mentioned, recognized his contribution in Aavas journey and that's all we are looking forward for support from all the shareholders, stakeholders to take Aavas to the next journey.
Got it, sir. Like, but still the exit was little surprising with the founding member in Board meeting. So the second was respect to the strategy. So in the newest stage that we have ventured into in the last couple of years, would we still be focusing on going at C level and this rural focus lending is what we will be doing or we will want to be little more semi-urban focus in the newer geographies?
I think in the new states, the same strategy continues of focusing on Tier 3 to Tier 5 towns and the cities which are there. And again, on the self-individual construction loans to be really focused and where our core area of expertise and our DNA lies. And I think in that journey, what we've done is to have people with the underwriting experience, the distribution experience, the homegrown talent from Aavas to really go across and set up and scale up in those geographies. So I think it continues with the same pace, same growth and in a much more contiguous manner, what we've been doing as a franchise and as a institution.
The next question is from the line of Umang Shah from Kotak Mutual Fund.
My question is related to what Shreepal asked in the previous question, right? Now just wanted to understand a little bit more from the strategic direction perspective. I mean, last quarter, clearly there was a strategic decision, which was being taken about splitting the MD and CEO roles and it was made us to believe that that was probably the right way to go ahead in terms of forging the next 10-year growth strategy.Now clearly what has happened in the past quarter is there to see for all of us. But do we anticipate any further changes in the leadership team or is there a need to further expand the executive committee or the core executive committee or new additions in the team that you are looking at?
I think from the perspective of there is a sufficient amount of bench time which got created as a part of Aavas 3.0. And as I would say that the CFO, Ghanshyam Rawat has been with the franchise for the start -- since its inception. Ashutosh Atre completes 9 years this month and he's been right from underwriting to current CROs. Surendra Sihag is there as a part of [ non-comm ] as a part of collections. He's been there for a long period of time. With me about 40 months in the franchise being there. And the new CXOs who've been there actually really helped to build the right kind of management bandwidth and depth which is there. And below them, I think as a layer goes, I think we have sufficient amount of bandwidth which is available with homegrown talent which will help to scale up sustainably and credibly with which our DNA is strong. And in a much more laminar fashion, I would put across.So I think the franchise and the institution is poised for good growth with the kind of foundation both on financial capital, human capital and technology as one of the key enablers to take the momentum forward. So just to give an outlay, we have a very strong middle-level management of more than 100 people on the organization side, which consists of NHB, circle heads, general heads and state heads. And then the risk and credit side, we have more than 234 people which have been there, and 71% of them have been with Aavas for more than 3 years plus. And in collections, we have 54 of them, which is more than 78% of the employees are there with 3 years plus of experience.So I think that is a detailed experience which is there. And I say that the continued management, the bandwidth which is available as far as the transitioning is concerned, I think is already available. And it's been demonstrated. And I think the Aavas 3.0 first quarter results bear the testimony to the foundation, which is set for the journey going forward, keeping the core DNA of risk architecture intact and building the franchise on risk-adjusted returns and much more stronger, sustainable, quality growth, which is driven by governance and quality and with the continued Board support over a period of these years.
Sure. The other clarification which I wanted, during your opening comments, you did mention that the promoters are committed to the business. They haven't really sold any shares in the past and they don't intend to do so in the coming future. Is there any time line to it that you can specify?
I think you will see that since the last share sale was in 2021, they have not sold a single share in the last 2 years, and they have reaffirmed that they do not plan to sell anything at all in the coming year either. I think that's the comforting factor, if I were to put across. I hope that answers your question.
Okay. Okay. And just last question is, the presentation deck has mentioned about management employees and Board members owning about 3.9% equity in the company and I'm assuming that this would include some of the new equity or ESOPs allotted to some of the new joinees who have recently joined the company, maybe in the last 1 to 2 years. Is that a fair assumption?
3.9% of management employees and Board members. Obviously, this is as of March 31, 2023. ESOPs, which has been given recent grants in the last 2 schemes, obviously is not included here. Recently, in the last 2 years, we have given almost 14.50 lakhs of ESOPs shares out of the total 3 schemes. Obviously, that is not included here. But this is on March 31, 2023, a number as on that date.
Sorry, Ghanshyam ji, the number you mentioned was 14.50 lakh shares, right? 14.50 lakh options?
Yes, options. So this option is given to, let's say, all MCOM members, and below it, going up to 3 levels, we have gone down to those employees at that level basically. So that will give us a lot of confidence. Value creations will happen in coming years.
We have the next question from the line of Nidhesh Jain from Investec Capital.
Sir, with the new tech rollout and the Aavas 3.0, do you see any changes to the underwriting model that we currently have? We have largely a decentralized underwriting model. Do you see any changes to that?
So underwriting model, meaning, see, there is the core of underwriting is actually touch and feel where we go and do the assessment of the client, typically self-employed non-professionals. But there are various checks and balances, validations of documentation and a lot of clerical stuff which is to be done by the underwriting team, which will be taken care by the new technology tools. And then -- our CTO to add on to what --
Good evening,[ Ram Desai ]. So with this new technology transition which we are going through, it will add efficiency and economies of scale. So there is a lot of work which we do in different platforms which would get joined into one. So we'll be able to take a decision which would be much faster and more accurate. And of course, we've been spreading 346 branches and our core is touch and feel, which we will continue to do. And we will take the help of technology to the most which we can. I hope this answers your query.
Sure. So there's no fundamental change in the underwriting model. Technology will be much more enabler in the way that we are doing the business?
Yes, but just to add on to that on the model which we have developed, which are more descriptive, I have Rajaram Balasubramaniam, who has joined Aavas from Citi, New York, to underlay what is that it helps in the entire thing and what this technology and this model could really help. Raja, why don't you share? He comes directly from Citi, New York [indiscernible].
Hello, Sachin. Thank you. Good evening, everybody. I think just to add to what Sachinder said, I think if you look really at what technology has done for us today, it has taken away how much time it takes for us to receive information from the front end, process that, use our intelligence and go back at the point where the customer is being met to give them enabling decisions. So to add to what Ashutosh and Ripu said, the fundamental model does not change. But what we can do now is have a better vision of how we can use that data to make a more calculated decision. So I think that's the objective of using models to get that consistency and reliability in every file that we process. So the fundamental building blocks remain the same. The fundamental strengths remain the same. We just use technology to leverage that and use data to give us an insight into it. That's in short.So we're kind of building it in 3 ways, right? So we're building the skills, we're building the technology, we're building the culture to embed the analytics into the system. And in terms of analytics itself, all of the types of analytics that you already know, whether it's descriptive, whether it's descriptive, predictive, we have a plan to build that into the entire customer experience to leverage technology. I hope that gives you a perspective of the technology and data integration and how we plan to do that.
And just to add on, I'll have Jijy to talk about what is the layer of technology which really helps. And Jijy has a deep down experience of having helped technology to build syntax over a period of time. Over to you, Jijy.
Yes, thank you so much. Good evening, everyone. Good to have this conversation with you all. So when it comes to the technology transformation, we looked at 3 important pillars. One, of course, how technology can help us become more efficient faster. At the same time, how it can help us scale what we do in a much more efficient, faster and accurate way. And then third is, of course, how do we give a great customer experience, right? So when we look at, in the Aavas 3.0, how do we take our journeys to the next level and make it a great experience for our customers? And of course, one of the biggest objectives that we have laid down was how do we make the system efficient in such a way that the turnaround time, right, is enhanced significantly. And by doing so both operational efficiency and customer experience, both the pillars will be taken care of.So with this objective, a year back, we have brought on board Deloitte to help us through the digital strategy roadmap exercise, looking at the next 10-year vision of the organization. So we have then, chosen to go with best-of-the-class technology tools like Salesforce, Viewsoft for doing the entire orchestration of the ecosystem to connect with the Aavas and then which is blended with the analytical models. So this will be a front layer of the systems. We are glad to share with you that we have completed that first phase of the rollout and as of April, we have rolled out Salesforce to the entire organization and April month has been closed well in the new system.Of course, currently, we are undergoing another big transformation on our back office and middle office systems and we are implementing Oracle Flex Cube and Oracle Fusion on Oracle Cloud. So this is to make sure that our systems are much more scalable and robust. So I think, the great work that we all have done in different phases, these technology solutions are going to make it much more scalable and give better experience to our customers.
Sure. Secondly, if you can share at what level our branch tends to mature, if you can share that 3 year-old or 4 year-old branches, what is the AUM of that branch or disbursement per month of that branch? The cohort of branches which are 3 years of vintage?
Sorry, if you can repeat, we just lost your -- yes.
Yes, so like, yes.
Can you repeat the question?
Sure. So if you can share the AUM of branches which are of 3 years of vintage, the branches that you have opened 3 years back, what is the AUM per branch on an average of those branches or disbursement of those branches on an average?
Yes, we will, these data points we will share separately or publish it for everyone. But as the branch maturity, see, in the Tier 2, Tier 3, Tier 4 town, our branches are very low OpEx model branches, where we take a branch rental is a roughly INR 20,000 to INR 25,000 per month branch rental, then 4 or 5 employees remain there. Branches within a 6-month -- because we have a contiguous approach, we don't go open a branch and new immediately. It's a contiguous approach. We keep on doing some business from that branch. So we open a branch at that place, so that day 1, the branch starts to give us a business. Within a 6-month time frame, our 90% branches has a break-even. Today, we have almost 1-year-old branches giving us a ROE 12% upward, 3-year-old branches giving us a roughly 20%-odd ROE branches, basically.
Sure. And lastly, if you can share the AUM breakup, that would be -- a geographical breakup of AUM, that would be useful. And any comment on how the AUM in Rajasthan is growing, has grown in FY '23?
Rajasthan, I think during this year also Rajasthan, our most of the oldest state has grown new business perspective around 25% to 30% growth we have seen in the Rajasthan during this full year basis. MP has also grown better. Gujarat and -- State Gujarat and Maharashtra has also grown around 25% plus.
These are on disbursement basis, right?
Yes. Disbursement basis. Yes.
The next question is from the line of Piran Engineer from CLSA.
Yes. Congrats on the quarter. Just one question. We've hiked PLR by 160 bps, but when I look at your yield on Slide 22, it has improved only 50 bps Y-o-Y from 12.6% to 13.1%. So is it that we are hiking PLR but reducing the spread above PLR for our existing customers?
Yes, we have increased 160 basis point in the full year basis. You see on assets and liabilities, both sides, we have very good mix on interest rate scenario risk basis. My liability is around 50 basis point around fixed rate borrowing we have done, I mentioned earlier in another question. Asset side also we have around 50% around the fixed rate asset we have basically. When we increase our rate, almost 50% increase happens on a total AUM basis. And remaining 50% fixed rate contract has a re-pricing power after 3 years, every 3 years basically.So we can't correlate 160 basis point 100% will have an impact on overall AUM base because my liability is also not increasing in that session basically. You will see that positiveness is there in ALM, not only tender basis, but ALM interest rate scenario basis, it has a perfect match, perfect match is there basically. So that's the one thing.And second thing, yes, we agree, new business -- translation of rate increase in a new business takes some time. Laggard impact comes after a quarter basically. So that has also gone a little bit in our overall AUM yield is not showing a complete increasing trend, what we have increased our PLR.
Sir, let me ask another way, after disbursement yield in March, March 2023 versus disbursement yield in March 2022, what would be the increase? Or if you can give the actual numbers, 13 point something, 12 point something?
I think we will come back on this exit number, how that numbers are there basically. But as I mentioned, translation of interest rate rising takes its own time on the new business.
Okay. And when we do a PLR hike, it gets transmitted on the spot or with 1 quarter lag, 2 quarter lag?
No, no. Interest rate when we increase our PLR, we disclose in our website when it is effective, like last year our increase happened on the 5 of April 2023, whatever contracts are at a floating rate that got impacted on the same day.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal Financial Services.
Apologies, I joined in a little late, there was a overlap with another earnings call. So just in case you've answered any of the questions which I'm about to ask, please let me know. I love this. I can always listen to the recording. So first things first, I mean, what I heard in the last 15, 20-odd minutes, you talked about technology and how it's kind of going to help us.
Sorry to interrupt -- but the line for you is not very clear, sir. I request you to please...
Is it better now?
This is much better, sir. Please go ahead. I request you to please repeat your question, right?
Yes. So I mean, in the last, I would say, 15, 20 minutes that I heard, I think we talked a lot of good things that we've done on the technology side and which will maybe help us accelerate growth over the next 2 years. I think, I mean, I think you also heard we talk about this technology investments that we have done, bring down the TAT. Just wanted to understand, is it a fair understanding that TAT, which is about let's say 10 days now would come down to anywhere around 3 to 4 days once you have implemented all the technology changes that you want or the technology improvements that you want?
Yes. If you see our average lead time is around 11 to 12 days. Before we go live on the Salesforce, we go on as a pilot project on the Salesforce in the March. We have launched full-fledged from the April. It is under hyper-mode for the 3 months where it will get stabilized. Then after that, we will start to see the real result of how the TAT will get reduced. But our envision statement, as when we took a Salesforce, our targeted that we will bring down between average 6 to 7 days.
Got it. So the second question that I had was on, I think we briefly also mentioned that we very recently in April deployed Salesforce. So I'm sure there would have been some teething issues in terms of training your credit officers to the new systems. Just wanted to understand by when can we expect these teething issues and the new deployments that we are doing in our back office and middle office of Oracle, FlexQ and Oracle Fusion, by when can we expect these teething issues to be settled? And more importantly, I mean, looking at the last quarter where you did about INR 1,600 crores of disbursements, which broadly translates into INR 500 crores, INR 600 crores of monthly disbursement run rate, exit run rate, what is the target that we have in mind once these teething issues are behind? And once you have implemented these softwares that you're intending to, I mean, should we now start expecting that the disbursement run rate will start moving towards that I would say INR 800 crores to INR 1,000 crores?
So I'll just answer about the teething issues. So any new thing will definitely have some kind of a resistance in the training curve. Okay? And every day there is a resolution of the teething issues. But just to confirm that the Salesforce will never be the hindrance for doing the business for us. If it is a teething issue, if it is a training issue, we might have to work harder to clear the cases. So yes, it is going to get resolved. So we have completed 1 month. So we are wiser now in terms of how to handle the Salesforce. Maybe in this quarter, by the end of this quarter, it will be completely up and running, but definitely nothing to do with the business. It is not going to be hindering the business.
Do you want to comment on the monthly disbursement run rate that you have in mind?
So we have a plan for the year and accordingly, we will be delivering the numbers in terms of monthly. So quarter-on-quarter, we are going to achieve the target as we have planned and budgeted.
We have got time for the last question. So now with -- I would say, Mr. Sachinder kind of heading this franchise. I mean, is there going to be a change in the beginning of the organization? What I mean essentially is we were always reckoned as an affordable housing company doing lower ticket size loans. Over a course of time, do you think that there is a change -- there will be a change in thought process they would want to also start doing slightly higher ticket sizes as well?
Easy to answer the question, I think the core DNA continues to be the same. And our DNA of -- it is more of deepening the management team, retaining their original DNA. Evaluating hard to underwrite credit in SCNP and SAP customers that buy more goods. I think it's more to institutionalize to scale up with sustainable quality and which with the franchise is known for over a period of 11 long years.And have used it to really scale up on that, so our focused Tier 3 to Tier 5 markets, sales individual construction, home loans, serving the unserved, underserved and unbanked, continues in the same momentum, in the same breadth, and the same with the risk architecture of risk adjusted returns. And with growth, first comes the governance, then comes quality, and third comes growth. So I think that those overlying factors of DNA as a part of the core DNA does not change at all.We'll build on the sustained DNA, which has got the franchise to the current level with the fundamentals with the store right in place and build on that with sustainable scale and quality over a period of coming years. So Abhijit, I think I hope that answers your question.
What Sachinder said, I think let's on the behalf of the entire management team who are here at this moment, and I am a -- let's say, oldest member in the entire group like there and on the behalf of promoter, shareholder, we assure you all the company's DNA, company's credit underwriting principles, governance sector, those will be topmost priority in Aavas 3.0. We will keep governance at the topmost, credit quality, culture, has remained as the same what we have seen in last 10 years and will be similar in the next Aavas 3.0 journey.
The next question is from the line of Mona Khetan from Dolat Capital. Please go ahead.
Yes. So we have seen about 160 bps PLR hike in last fiscal. So what I wanted to understand was what percentage of AUM has seen rising EMI after you've exhausted the teller increase?
We -- different point of time, we increased 160 basis points in FY '23. Roughly, 90% odd book we are seeing has increased in our tenure because generally our tenure was not so large in our customer segment. So there is enough scope where we have increased the tenure. Around 10% sort of customers has bought a re-priced, their EMI got increased and they are serving their increased EMI going forward.
And if I may try to understand to what extent the EMI has increased in terms of percent, whatever was the average EMI and to what extent has it increased for these 10% of customers?
It depends -- I think -- it depend the key customers -- customer or at what rate and what tenure customer is there basically. If it's a customer is average rate is a 12%-odd or 13%-odd, his EMI got increased by around INR 500 to INR 1,000 per month.
Okay. And what would be say the average EMI in your case about INR 10,000 or more?
It's INR 12,000.
Okay. Okay. Got it. Secondly, in your -- both your HL LAP as well as the SME portfolio, incrementally, what are the rates that we are onboarding new customers at?
Non-HL -- and if you look at non-HL, it ranges between 13% to 15%. And home loan, we will be around 10.5% to 11.5% -- 10.5% to 12% approximately.
And if I may try to understand what was this year back when you were onboarding customer? Especially the HL, if you could just mention? So today it's 10.5% to 12%. What was it say a year back?
I think I mentioned earlier that there is a transition in interest rate rising period time-to-time basis. Roughly, we have seen on a different product segment increasing trend in this 50 to 100 basis points, depending upon the product, depending upon the customer geography. Yes, I mentioned in earlier also rising interest rate takes its own time to pass to the new customer acquisition basically. But now that we'll see in the coming 2 quarters move, a better transition will happen.
Okay. So just to understand it better, this -- the 160 bps hike, we have not seen a similar hike when it comes to onboarding new customers. Is that a fair understanding?
Yes. That's the natural. That's the natural. That's not Aavas and that's not the -- it's the natural happen in the entire lending business. What they increase in the MPLR and PLR rate, new business transition takes its own time in every way.
The next question is from the line of Sanket from DAM Capital.
So my question was on this corporate share...
Sorry to interrupt, sir, but the volume for you is very low. I request you to please speak closer to the mic.
Is it better?
Yes, this is much better, sir.
Yes. So my question was on Corporate, which used to be like 0.1% of the book this quarter. The exact increase was 0.3%, so about more than INR 30 crore something has been increased. What was the nature of this?
I'm sorry. Actually, we're not able to hear. It's not audible. Can you repeat the question again?
Yes, I was saying that in the split that we give, retail and corporate, corporate as of last quarter was 0.1% and this quarter, it has moved up to 0.3%. So more than about INR 30 crores of increase, it is there. So just wanted to understand the nature of this loan.
It is normal. I think you -- it's not in one quarter impact. It's a full year basis. Last year, we were at the 0.1%. This year ending we're the 0.3%. So in overall basis, it is just a INR 22 crores-odd increase on this segment. Keeping in the overall our volume and overall AUM basis, it is not that big amount basically.And in lot of -- what happened is a smaller town, smaller town, cities, lot of [indiscernible] is a director of a small company, they take and come a home loan. So that company also come as a co-applicant and main applicant in our case. The loan -- as per regulatory compliances, the loan get tagged as a corporate basically. But as far as business model is concerned, we are not in the -- we are not in the business, not in plan to go in the business of a builder lending or let's say large corporate loan lending, we are not.
You can maybe check I am seeing it increase -- Q3, it was 0.1% and in Q4 it has moved to 0.3%. But anyways, your -- I'll select that if that is wrong in the last presentation. The other question was maybe on LAP and the pure home loans, this year also on incremental disbursements, 35% of the disbursements were 2 layers. So going ahead, maybe how do we see this mix moving? Can it become 35/65? Or we are comfortable giving it a 30/70 LAP and pure home loans?
As you know, as per our compliance perspective also we need to be remained between 30% to 70% or 35% to 65% in that range. It's very difficult to have -- comment on 1%, 2% here and there, basically, depend upon business opportunity. It depend upon what are we able to assign it to the make open to -- from the balance sheet size basically. But overall basis, we want to be remain between 30% to 35% non-home loan mode or 70% to -- around book is a home loan book.
Okay. So 30% to 35% is 5%. Okay. Okay. And last question was there on provisioning. So we are probably the only HFC which has say increasing 90 plus DPD this year, point-to-point. But we have been too tight on say providing as a result of it, say, on standard, I said, we just have about 23 weeks of provisioning. And very low provisioning on Stage 2 as well. So how do we see the trade cost going ahead? And why is there some reduction in the prudence on having the provisions on the book?
No, I think point-to-point basis, our growth NPA is lesser than last year, is basically different in own account of we -- as we mentioned in earlier sometime back, updated to all the investors or the shareholders. This year, we changed -- like -- till last year, we acquired under some PC assets that asset get classified as assets acquired for sale and not as a loan asset basically.This year from April 1st onwards, we are not classifying that asset -- that loan asset, asset acquired for sale, but we are treating as a NP assets there itself basically. So that's why you see some marginal change in that account. If we exclude that amount, then our gross NP will fall to 0.7% basically. That's apple-to-apple comparison of a 2 period.Secondly, our provisioning, I think we are very well-covered on the provisioning. We have fully India-compliant, we do historical our assessment or our NPA provisioning, what asset -- when asset goes in NPA, how much amount we recover from that asset, how much time it takes, accordingly, the provision get built in the balance sheet. We are fully covered as far as the assets provisioning is concerned.And let's say 1 of the data points which -- let's say I want to share here, in last 12 years, we disbursed almost INR 22,000 crore disbursement. Our total write-off is just INR 25 crore, which is just 11 basis points on the write-off. So that give us a confidence our provisioning is well covered our NPS.
Okay. And then lastly, on the management question that you said augmenting the management bandwidth. Maybe and to capture, let's say, next 10 years growth. So at our side, even if we say, growth 20%, 25% will still be below INR 1 lakh crore. The many companies which do have 1 MD and CEO till they reach that size. Maybe one could have a Deputy CEO. But as far as the key position is concerned, we have many examples. So maybe that reasoning made a little sense. So any greater understanding on that would be helpful.
I think we noted your suggestion. But as a long-term growth, I think management team bandwidth has been I think -- as Sachinder mentioned, CTO, Chief Strategy Officer, CFO, and Chief Collection Officer, Chief Business Officer. And 1 below -- 2 level below, we have 7 to 8 and some -- in the business side. We have at this side too, we have number of NCM basically who can underwrite that put.So we have, I think, good management bandwidth created for next 10 year growth which we see in the market. As we mentioned, we don't give much forward looking our numbers. But we see good opportunity there in the market as low housing on penetration. We see another growth of housing loan upgrade is happening because of GDP growth and income growth. We see housing upgrade and aspirational house need will also emerge in Tier 2, Tier 3 downs. That will also help us to our growth -- better growth in the coming years.
And just to add on to what Ghanshyamji said, I think from a middle layer management which is there, so I think we have robust strong middle layer management, whereas in business origination, we have 43% plus of people on the team side, which is more than 3 years vintage.On credit interest, we have 71% of employees, which are 3 year-plus vintage. And on collections, we have 78% employees which are 3 year-plus vintage. So I think that talks about the depth of management and the strength of management fitted on the right and strong pillars so to say.
I understand layers below the top guy, but my question was more on the top position. But anyways, yes. So those were my questions. And I wish you all the luck.
Thanks.
Thanks.
Thank you. Ladies and gentlemen, that will be our last question for today. I now hand the conference over to Mr. Sachinder Bhinder, MD and CEO of the company for the closing comments. Over to you, sir.
Thank you all for attending the call. As mentioned last quarter, we will be hosting an Investor Analyst Day on May 24, 2023, in Bombay to give you all a chance to spend time with the broader leadership team. A formal invite will soon follow. We look forward to hosting you all. For any further information, we request you to get in touch with Ghanshyam Gupta and our Investor Relations team or SGA, our IR advisors and they would be happy to help you. Wish you all the best and God bless you.
Thank you. On behalf of Aavas Financials Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.