Aditya Birla Capital Ltd

NSE:ABCAPITAL

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day and welcome to Q1 FY '23 Earnings Conference Call of Aditya Birla Capital Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Vishakha Mulye, CEO, Aditya Birla Capital. Thank you and over to you, ma'am.

[Vishakha Mulye, executive]

Thank you. Good evening, and welcome to the earnings call for Aditya Birla Capital for the quarter ended June 30th , 2022. I'm pleased to present the business performance and the financial results for Q1 FY 2023. And I'm joined by my senior members of the team.

Together, we will present the results and take any questions to my cart. I pick an office as a Chief Executive Officer, Aditya Birla Capital Limited, the effect from 1st July 2022. I'm delighted to be a part of ABC, a company that is uniquely positioned to capitalize on the opportunities in the financial services sector in India.

Before coming to our performance this quarter, I'd like to mention that the Indian economy has started on a good note in Q1 FY '23. This has led by a recovery in the demand to prepandemic level, which is in turn has to with industrial activity and service sector. This is reflected in the service sector of EMI at 59.2% and GST collections at an all-time high of $1.44 trillion in June 2022. However, the overall macroeconomic environment has seen headwinds in most over the past few months, led by in cashmere pressure and a slowdown in the global economy.

So continued concerns remain due to these segments. For FY '23, the Indian economy is expected to grow at about 7%, driven by the domestic demand. This core would put India as the fastest-growing economy in the world. This will create great opportunities in the Indian market. We at ABC believe that we're well positioned to leverage on these opportunities.

Now I'm pleased to report that Aditya Birla Capital has delivered a strong quarter with a INR 429 crores of consolidated profit after tax, a 42% year-on-year increase, driven by the growth across our platform. Let me quickly summarize the key highlights of our performance this quarter.

In our main businesses, the overall loan book grew at 22% year-on-year to close at about INR 70,000 crores, the insurance business, gross written premium grew by 53% year-on-year to reach INR 3,250 crores. with INR 3.6 lakh crores of aggregate assets under management across our platform, we're one of the largest fund managers in the country to date.

Our active customer base has now been 39 million customers, reflecting a significant 55% year-on-year growth. I'm also happy to say that with this foot, we are on track to deliver ahead of our previously stated FY24 target. Our customers are focused on customer acquisition, realization of portfolio, new products and customer segments as well as greater penetration in existing customers to enhance our market share by leveraging technology and data analytics has enabled us to deliver both growth and greater profitability across our platform. We have added about 4 million active customers in this quarter.

Though our continued and sharp focus on customer acquisition, both through our expansion and our branch network and our digital ecosystem strategy. Our physical footprint has now reached almost 1,100 branches, driving our presence at every town in India with a population of at least 3 lakhs. Our grant expansion and targeted at driving penetration into Tier 3 and CFO location and new customer segments. In addition, we have continued to drive performance on ABC transfer now with over 113 full-located branches now operational. In addition to expanding our physical footprint, we have also added new and customer products to update our product suite.

To give a few examples, in this quarter, we launched a co-branded credit card with SPI in our lending business, our fixed maturity product in our life insurance business and open products in our health insurance business. We will continue to drive new product solutions to serve the needs of our existing customers as we expand our target customer segment.

We continue our focus on providing better customer experience to a seamless customer journey, onboarding and personalized solution to digital offerings. For example, over 96% of our customers were onboarded digitally this quarter. We had over 10 million customer interactions on a digital channel and 87% of our insurance forces for the new visibility. We needed the analytics capabilities to increase the share of our wallet with our customers.

In this quarter, 35% of our life insurance individual FYP and 20% of our sales insurance retail fresh premium was driven by data analytics led upsell and cross-sell initiatives. Let me now give you a brief summary of our business-wise performance. Let me start with our NBFC business. The outstanding loan growth as on June 2022 has increased by 26% year-on-year and 5% quarter-on-quarter. Within that, the retail and SME loans grew by 39%.

Retail SME constitutes now 64% of our loans as on 30th June 2022 as against 56% a year ago. The improved mix has driven NIM expansion by 33 basis points year-on-year to about 6.5% this quarter. The quarterly plan for ADSL has increased by 43% year-on-year to INR 335 crores and ROA has increased by 46 basis points to 2.5% from 2% as on 30th June 2021. In the Housing Finance business, we continue our focus on the affordable housing segment. The outstanding affordable loan as on June 30th, 2022, grew 45% year-on-year.

The NIM expanded by 59 basis points year-on-year to avoid 4.6%. The PAT has increased by 45% year-on-year to INR 56 crores. ROA for us as on June 30th, 2022, was at 1.9%. Now let's talk about our mutual fund business. The average AUM in our JMC business has grown by 2% year-on-year. However, within that, our equity AUM has grown by 40% during the same period. The overall equity mix has grown from 27% in 41% as on June 30th, 2022.

Despite the challenging market, this business has maintained its operating PBT at INR 172 crores. However, the market volatility and the interest rate environment has impacted the overall profitability for the business. Taking into consideration the mark-to-market impact, the path for us for that business was 103% growth for Q1 FY '23. The growth momentum in our life insurance business continued a 26% year-on-year growth in retail poster premium and about INR 2 crores in our group businesses. The total premium and other business grew 49% year-on-year to reach over INR 2,600 crores.

We also continue to see the profitability profile of this business improving, and we are well on track to deliver the 17% to 18% net VNB margin is subsidies. In our health internet business, our unique and differentiated model has us to deliver industry-leading growth of over 70% this quarter on a year-on-year basis. ABHI was the fastest-growing health insurance player in Q1 FY 2023. With an increase in a market share of about 300 basis points. Our overall market share is now 12%. I will now talk about our key focus areas going forward.

One, we intend to leverage the momentum we have seen across other business to accelerate our group trajectory and continue to build in scale and drive market share in each of our key businesses. We will continue to focus on quality and profitable growth. Number 2, continue our retailization strategy by driving customer acquisition by building our direct channel partner ecosystem as well as by increasing penetration in the markets and customer segments.

Our branch expansion will be primarily driven by increasing the footprint of our lending and sales insurance branch network as well as the colocated one ABC branch. Number 3, drive steady increase in digital launches across our platform in detonating edge technology, analytics and digitization and centers to our approach.

We will focus on integrating and adopting new technologies to improve our customer experience and new customer acquisitions. Number 4, focus on extended ABG and ABC ecosystem to accelerate our growth. We will focus on building specific and unique reposition, including products and customer journeys for stakeholders within these ecosystems such as suppliers, distributors and in loss.

With that, I will now hand over the call over to Rakesh to take us through on lending business performance.

[Rakesh Singh, executive]

Thanks, Vishakha, and good evening, everyone. I will now walk you through the performance of our lending businesses, starting with NBFC and then housing. In our NBFC business, we had a strong start to the financial year. Our loan book grew 5% quarter-on-quarter and 26% year-on-year to INR 57,839 crores, with our NIM reaching another all-time high of 6.5%.

This was also aided by strong growth in our retail segment book, which grew 80% year-on-year and 15% quarter-on-quarter to INR 2,249 crores. quarter 1 PAT grew 43% year-on-year and 14% quarter-on-quarter, delivering an ROA of 2.5%. This takes our ROE to 14.3% this quarter, which is an increase of 300 basis points year-on-year and 127 basis points quarter-on-quarter. Not only are we going strong on profit delivery, we are also continuing to acquire customers at scale.

With 1.4 million customers acquired in quarter 1, our active customer base has grown 32% quarter-on-quarter to $4.8 million. We disbursed to these INR 8,039 crores in quarter 1, 3x of what we did in last year quarter 1. 73% of our disbursement was in retail and SME segment, which now comprise 64% of our overall loan portfolio. And we are already at our desired mix as per our guidance provided earlier. In retail, we continue to drive granular growth with portfolio average ticket size, reducing from INR 4 lakhs last year to 40,000 in quarter 1.

Our digital ecosystem strategy continues to fuel growth with 47% of retail disbursals coming from digital ecosystem in quarter 1. We focus on leveraging data analytics to leverage cross and opportunity on the large customer base we acquired. And we saw nearly 20% growth in our digital portfolio comes from cross-sell of personal loans on the customer base acquired through the digital ecosystem.

Further, on asset quality, our gross Phase III book is maintained at 3.2%, while our Stage 2 book has reduced over previous quarter. Our collection efficiency is at 99.3%, consistently better than the 3-colored levels. We have progressively increased our stage PCR or provision coverage ratio, taking it to healthy 48% in quarter 1. And I also want to highlight that 73% of our portfolio is secured in nature.

As of quarter end, we have only INR 500 crores of the initial restructured book, which is under moratorium, which is only 0.85% of the overall portfolio. On rest of the restructured book, we are witnessing a healthy collection efficiency similar to last quarter. With that, let me spend a couple of minutes on key developments in our growth strategy.

We continue to focus on 4 essential pillars: One, retail portfolio expansion with increased randomization; two, specific industry focus and digital platforms to drive SME and B2B segment; three, acquiring customers at scale using digital ecosystem and data analytics; and fourth, increasing direct sourcing through our branch expansion in Tier 3 and 4 markets. And I have strong outcomes to share in each one of these areas. Starting with retail.

This segment grew 80% year-on-year and 15% quarter-on-quarter to INR 20,249 crores. And in terms of mix, it is at 35% of the overall portfolio as of June 22, an improvement of 10% over last year. More so, the contribution from new products such as small ticket loans and digital ecosystems grew nearly 4x in the last 2 years. These products make up 32% of the overall retail segment, and this mix has increased from 15% in quarter 1 last year.

Similarly, in SME segment, we focus on specific industries, deepening penetration and leveraging digital SME platform to source from across the value chain. The SME business distribution footprint is now live in 25% of ADSL branch footprint as of quarter 1 this year, targeting SME clusters in chosen industry sectors.

When it comes to investment in technology, we have 2-pronged approach. We consistently look at enhancing our platform to onboard and underwrite customers faster, and we have shared a few key outcomes demonstrating strength of our technology capability, especially in 3 areas: customer acquisition, servicing and process automation.

Lastly, expanding share of direct sourcing is key to our retail strategy. We increased our branch count to 191 as of June 22 from 159 in March 22. We have also increased our sourcing from direct and digital ecosystem channels to 51% as compared to 21% 2 years ago. And our plan is to increase this further. While we grow our branch footprint, we have been successful in maintaining our cost-to-income ratio at similar levels as of last quarter.

Our financial numbers highlight our commitment to our strategy, and we are very pure to deliver strong growth momentum in FY '23. We set out our growth aspiration for FY '23 in the last quarter, and we are confident of delivering an overall loan book growth of 20% in this financial year. With our small ticket and digital ecosystems firing at scale, where we expect more than 2x growth by year-end. With our current growth trajectory and continued focus on key segments, our ROE should comfortably reach the guided range of 16% to 17% ahead of time.

Now I will shift to housing finance business. Coming to housing finance business. We had stated earlier that growth in affordable book is expected to drive superior returns. We have seen growth in disbursement in our target segment in the housing finance business as well. Quarter 1 disbursements were up by 170% over the quarter 1 last year. Of this, the affordable segment disbursement mix was almost 50%. This has taken the affordable portfolio mix to 39% from 29% in the previous year.

The shift in the segment mix, supported by the lower cost of borrowing has helped the organization to report the highest ever NIM of 4.59%, an increase of 59 basis points over the last year. Not only have our margins expanded, but our customer selection and calibrated underwriting strategy has helped risk-adjusted return, which is defined as NIM less credit costs to expand our 120 bps over the previous year.

With improvement in margins, opinion PAT for quarter was up 45% year-on-year, taking our ROA to 1.9% and ROE to 13.7%. Efficient collection management of 97.9% has led to a lower credit cost of 52 basis points compared to 1.14% last year. Only 3% of our portfolio is under moratoria, most of which is due for banking in quarter 2. We have created sufficient management overlay across all stages.

We also have very comfortable ALM and our capital adequacy is at very healthy 23.8%. Growing our affordable book continues to be our focus and to drive affordable penetration further, we have expanded our branch count to 121 branches with 76% of these branches are in Tier 3 and 4 markets. We target to increase our branch footprint to 200 plus by end of this financial year.

We have also augmented our frontline capacity to drive affordable volumes and create additional distribution capacity. Direct sourcing is already healthy at 72% in quarter 1 of this year, and this really ensures higher customer stickiness. Our progress in digital capability gives us the confidence of scaling of ecosystem partnerships and core lending as an alternate sourcing channel. On the technology front, we have made some good progress. Majority of our customers are onboarded digitally.

Overall, 92% of our customers are onboarded digitally. On service front, we have enabled multichannel servicing, which includes WhatsApp, EBO, Google Assistant and self-serve photos. This has led to 77% of our customer interactions coming from digital channels and over 98% of our housing collections are from digital deals.

With this, I'd like to sum up the housing finance business, a structured shift in our business mix, wider geographical footprint and increased distribution capacity, we expect to see 20% growth in portfolio and steady margins. We have already surpassed NIM and ROE targeted for FY '24 and the focus is now on growth as the operating leverage will now improve these metrics further.

With this, I will pass it on to Bala for our asset management business.

[A. Balasubramanian, executive]

Thanks, Rakesh and good evening, everyone. As I sensed the AMC analyst call, [ Gallo ] on performance. But total what the average assets under management for the quarter ending ‘22 at INR 29 crores with annual growth of 2%, continued to maintain our relation portion in the industry.

Our equity retailing year-on-year at INR 170 crores for the quarter kind of cut asset mix that's now by all-time high, but 40% of oral assets coming from equity. Not added close to about 2 portfolios in the current quarter, the last quarter. And over the book has also shown improvement, they moved from INR 860 crores as of June 2021, where INR 898 crores coming from July, [ 30 lakh ] So this is tenants as updated in the past that we upgrade a separate team of people who [ done ] in business. In fact, our passive product open grew and to INR 90 crores in June 2022.

Our empaneling PAT strategy also gained momentum by area of launch of more products to EDR, under funds, multiple index funds. Our existing path is key has grown company 2018, the arts are the pipeline to be launched this year. Customer base the [ alanine ] category, especially to the ETF has won about 4 lakh, 2 and 4 years with respect to offshore the personal activities, we receive see funding approval for Dedicated company launch.

With this, we will take this product with a more number of inversion global markets and look at more money in this plan. With respect the offering more back to NRI and reduce the other offering products in our LRS investors, we have planned some launches in this area. On the real estate front, the best round of subscriptions at a last principle funds about close to this quarter. And are multiple options at both for offshore opportunity as well onshore in the second launch. Going to the financial numbers.

Our focus continues demand achieving [ robust aememain ] equity and business comes high-margin focus. We have maintained our operating revenue and PBT even during the volatile ad product as Rakesh has mentioned. I believe Q1 ‘23, the pain market waiting the quarter revenue from operations remained as well as grow as compared to INR 105 crores, the similar quarter of last year.

And due to market volatility, we aim at tinfoil crores as in a mark-to-market impact, leading to decline in other income compared with various years. As a result of this, our overall profit of a tax, INR 253 crores in Q1 FY 2023, while maintaining water operating income class the previous quarter.

With this, I'll hand it over to Kamlesh on DSL performance.

[Kamlesh Rao, executive]

Thank you, Bala, and good evening to all of you. After going for the last 2 years, it's a heavy 30%, which was in line with the private industry growth. For the first quarter of this year, 26% in the individual large insurance business and 193% in its group life insurance business, it is of the chance, Slide 53. The good part about this growth is that it has been led by both productivity as well as the additional capacity that we created in the last quarter of last year.

The total premium by INR 2,620 crores for Q1 has seen a healthy growth of 49% Y-o-Y with a 2-year CAGR of 25%. The total premium growth is fueled by strong performance on renewals, where we collect 74% in value terms and close to about 88% in terms of OP digitally. And we have seen improvement in all cohorts of persistency with month persistency now at 85.3%.

On Slide #57 tells the story about our new products. So new product success continued that it has contributed to 57% of our business in Q1. We've launched an interesting product in July, which actually will compete with bank fixed deposits space, and our new power products will help us complete the suite of our product portfolio. Pre-approved Sum Assured called PASA, the success of that continues with 14% business contribution in Q1 and our relatively younger customer profile has allowed us to get 28% of our Q1 business from up-sell.

Our group business grew at 193% in Q1, and this is on the back of 74% CAGR for the last 2 years. And the AUM in this business is now at INR 16,000 crores. And in the profitable new segment, we continue to be the second largest player. This year, we are looking at more than doubling our credit-type business on the level of business of the year.

On Slide 58, gives you a secure of all our quality parameters, and we have done consistently well across all persistency in various parts, being 13 months, 1 month or 61st month, along with well-managed OpEx to premium ratio. The form now manages an overall AUM of INR 60,000 crores, and we've had a good year on our investment management doing better than the respective benchmarks across our various funds.

Our digital adoption across the various areas is visible on Slide 60. 97% of our new business is for digitally. And actually all of them come with an autopay mandate for subsequent renewals. In line with our guidance even earlier, 57% of the sourcing is now automated. 81% of all our services are now available digitally, and our self-service customer model alone now contributes to 68% of our overall connections.

On Slide 61 is the margins. So we have managed the cost positive net margin in the first quarter itself this year at 2.5% net VNB margins. We closed last year net VNB margins at 15%. And with the sales that we have had this year, we are on cost to deliver a net VNB of closer to 18%, which will again be 1 year ahead of our previous guidance.

And for the year ahead, we continue to maintain our guidance of doubling our absolute net VNB for financial year ‘25. The core claims now at subdued levels for 2 successive quarters. Our claims are in line with plan. We now that we continue carrying a core provision of INR 147 crores for the balance part of this year.

To sum it up, our performance has been one of strong growth with all our quality parameters growing better than last year. This momentum will help us grow this business in a value-accretive manner on both top line as well as products improved profitability for subsequent quarters.

Thank you, and with this I hand over to Mayank for health insurance business.

[Mayank Bathwal, executive]

Thanks, Kamlesh, and I'm happy to now present the performance of our health insurance business. We had a very strong performance in the quarter, enabled by the very strong foundation of adoption are health forth model. We have set over the last 5 years that we have been in operation. The part of the proposition, this is more inclusive, but more importantly relevant and engaging, leveraging the very powerful tenant of consumer health has found a lot of exceptions by consumers and intermediary port.

We had in the last quarter of FY '22 demonstrated the superior unit economics of our business model by bringing up one of the fastest at ran in the health insurance industry. Further, given the talent for the category and all the enabling steps taken by the regulator and the government in the last few months, we have given a guidance that we will now be taking a growth agenda and get the growth leadership back that we've enjoyed over the last many years.

We are pleased to inform that at 71% growth Y-o-Y in the last quarter. We were the fastest-growing health insurance company in the country relief the industry growth at close to 21% and SA growth at 29%. This was, of course, powered by a retail franchise growing at a healthy 37% Y-o-Y. In addition, our corporate business grew at 168%, led by a huge focus on cross-sell and up-sell and creation of a new category of offering corporate OPD, and these 2 together constituted 41% of our corporate business in the quarter.

We believe we have set up one of the most profitable corporate business in health insurance and the health industry. Overall, we acquired 3.7 million net new customers during the quarter, seeking our overall customer served to 22 million, a 57% Y-o-Y growth. This has helped us take our same market share to 12%, a 300 basis point increase Y-o-Y.

On the profitability front, our combined ratio came down to 109% for the quarter, a large reduction from the 154% in the same period last year because of the COVID issue. We brought down our quarterly loss to INR 71 crores from INR 128 crores in the same quarter last year. Higher scale will continue to create operating efficiencies as we move ahead, and we'll continue to monitor our claims experience very closely.

To take our differentiated model ahead, we continue to launch a new range of offerings. Apart from corporate opening, we also launched a one-of-a-kind retail pet offering. Our flagship product, active health, which gives 100% premium back to customers or good health, and it's one of its kind, not just in India, but globally, continues to be a huge success and was rated the #1 product in health insurance-wise and CNBC.

Our digitally enabled distribution mix is the most diversified distribution in the ups with agency being the single largest channel at 22% of our retail business. We now have more than 68,000 targeted advisers across 21st. We regressed our one ABC brand strategy to nearly double our branch network at a low COGS, and we're also synergizing with other deals in areas like common advisers.

We now work with 14 banks having added IDFC First Bank at PUB and in the last quarter. On the digital front, our own digital business and the alliance digital line partners business together grew 13% Y-o-Y, becoming a sizable 16% of our total retail mix. We continue to invest extensively in our tech and digital capability with a clear focus on superior customer experience and scale, hyper-personalized engagement given our health first model.

We continue to enhance our health and wellness ecosystem, which now has 60-plus partners and initial available. And we're now working with multiple insurtechs and healthtech plans to enhance customer value and operational efficiency.

At 94%, we have the highest game settlement ratio in the industry a testament to our focus on key move for our company. Our digital power scale engagement helps us to know our consumers better with much wider access to telehealth and lifestyle data. And they're using these through high-end analytics tools to create a much better business outcome across the life cycle, as outlined on Slide 21. Looking ahead, we will continue to grow the franchise aggressively in the clear eye on best-in-class unit economics.

We're now expecting to surpass our guidance of the 40% growth aspiration for the year as we gave at the beginning of this year, and this is powered by a focus on getting more out of what we already have, fresh capacity creation both in agency and other channels and also looking at exploring offerings, a large pool of wide space is not yet addressed by the end of. Thank you, and I'll now pass it back to Vishakha for the closing remarks.

[Vishakha Mulye, executive]

So once again, thank you all of you for joining us this evening, and we are very happy to take if there are any questions.

[Operator]

[Operator Instructions] The first question is from the line of Kunal Shah from ICICI Securities.

[Kunal Shah, analyst]

So shape on the strategic side. When we look at it as far as the entire Aditya Birla Capital is concerned. So maybe in terms of the priorities out there and any strategic changes that you are looking at? Or maybe what we are seeing in terms of retail plus SME, the targeted levels which are there within housing affordable that continues? Or there would be any kind of changes which you are looking at the strategic level? And what would be your priorities at the business level at the product level, at the team level, if you can highlight that?

[Vishakha Mulye, executive]

Yes. So Kunal, as I said in my opening, the amount that if you look at the franchise, we virtually have all the products across the customer segments starting from a retail customer going up to the large corporate. The second thing I would say is that each of our businesses have now demonstrated that the growth that we have seen is across our businesses. And I think that momentum will continue as we go forward.

My initial of each of our businesses, we are building stocks in place, and I think they are in that inflection point. So as still the momentum in the economy that all of us are extremely excited about, we will see this growth reflected in our performance as well. Now, what is unique for Aditya Birla Capital? In my mind is that the ownership of the customer. So we today have close to 39 million customers, as I said, which is a growth of almost 55% year-on-year.

And we expect that growth of acquisition of the customer continue as we go forward. So we will work on our One ABC strategy, which means one customer, the one ABC branches and so on and so forth to actually cross-sell and up-sell the product. We gave you the numbers as well, which are now reflecting and we will only accelerate that canal as we go forward, which will contribute to our bottom line as well as providing the complete solutions to our customers.

The second thing that we will leave it going forward is also the entire ABG ecosystem, which, of course, we have done more in the beginning, but we will continue to leverage that, whether it's the deals that the suppliers, the customers, the employees of the ABG again, they could be our customers directly. And we have already started that journey.

We will only accelerate our Pega, which will also help us to add more customers to our franchise, but we'll also have a profitable growth as we go forward. And of course, as you know, for doing all there's the technology and analytics will play an important role in order to have the seamless journey across products and customer sales.

[Kunal Shah, analyst]

And so this would be even in terms of the priorities if we have to set out maybe from the medium-term perspective and the longer-term perspective, like these are the areas, these are maybe some of the gaps, which you would want to see at the entity level? What would that be?

[Vishakha Mulye, executive]

So Kunal, continue to identify the gap, but I think we have articulated our strategy in each of our businesses. So there's not much of a difference. Probably what we need to do is we have to continue to focus on the execution of that strategy.

Then to give you an increase of an air, we have said that we will continue to realize our book. If you see 64% of us today, the book is coming from the retail side of the business. We will continue to focus on our SMB clients as well. We will continue to leverage our ecosystem within the group to acquire these customers profitably. And of course, we will be calibrated on our approach on the large class. And I think in each of the businesses, again, we have identified a specific focus area, and we will continue to go on to.

[Kunal Shah, analyst]

Okay. So broadly, maybe the existing strategy continues. The only thing will be some acceleration out there, much more focus on the execution and leveraging through the cross-sell and up-sell?

[Vishakha Mulye, executive]

Yes. Right.

[Kunal Shah, analyst]

Sure, sure. And one question for Rakesh terms of when we look at the restructured pool. So in fact, that's down quite substantially on a quarter-on-quarter basis from almost INR 1,700-odd crores to INR 500-odd crores. So how has been the moment? It has been largely the repayments, prepayments, have we seen any kind of a slippage because we are seeing some [indiscernible] in the retail in the SME side. So how is the movement from this restructure?

[Rakesh Singh, executive]

So Kunal, we had a total of INR 1,599 crores of restructured pool. Out of that now, only less than INR 500 crores is less, which is not open for repayment. Others are all opened up. And on whatever the accounts, which have opened up, we have a 91% plus collection efficiency on that pool. So quite a decent performance of the restructured pool, Kunal.

[Kunal Shah, analyst]

Okay. So INR 1,663 would be down to INR 1,599 as such in terms of the principle post the principal repayments. And out of that INR 500-something which is still under the moratory. And on balance, we are seeing like almost 91% of the collection efficiency.

[Rakesh Singh, executive]

Yes, Kunal.

[Operator]

The next question is from the line of Prashanth from SBI Funds Management.

[Prashanth Sridhar, analyst]

My question is around the digital reposition of products in the...

[Rakesh Singh, executive]

Sorry to interrupt, you are inaudible. Can I request you to speak a little louder over the handset?

[Prashanth Sridhar, analyst]

Yes. So my questions are around the digital ecosystem niche products. Are these BNPL products or what the typical tenure of these loans? And what is the mix of various products in this category?

[Rakesh Singh, executive]

So we have different products for different ecosystem. We have the NPLS. For the consumer segment, we have checkout financing. We have merchant loans. We have lifestyle loans. So the entire range, we have health care financing. So we have an entire range of offering, which we have and not only the NPL.

[Prashanth Sridhar, analyst]

Okay. And would you be able to provide the mix of the products in the...

[Rakesh Singh, executive]

Yes, I can provide you that for you. And for different products, we have different tenors are there. There will be a short-term loan for BNPL. But for education loan, it might be 18 months to 24 months for health care again 12 to 15 months. So different products have different tenors.

[Prashanth Sridhar, analyst]

Okay. And what would be the percentage mix of these products?

[Rakesh Singh, executive]

I can share that with you.

[Operator]

[Operator Instructions] The next question is from the line of Dipanjan Ghosh from Kotak Securities.

[Dipanjan Ghosh;Kotak Securities, analyst]

Just a quick question from my side. First to publish, if you can give some color on your wallet share across some of the banking partners and how they move from a polite aspects, if you can shed some light and also the product to suffer some of these partners. The second, on the margin front, the vote increase a fee, is it just led by the mix change and maybe some amount of operating levers been doing some amount of changes within the margins within the specific categories also.

Second, in to Myer question. On the health insurance business, since IDI has recently started publishing the retail renewal ratio number. So if you give some color on that, even FY '22 trends would work. Setting the customers who entered into the system around 2018 or 2017, the first customers into the ADH ecosystem. They have broadly completed 4 to 5 years now.

So how do you see the claims in those cohorts versus the overall sales on the book unless even compared to peers? And lastly, when you see a presentation, I see that there has been a strong uptick in originations to the digital with the system partner for ADH. So if you can shed some color on the operational trends like potency or claims or price sensitivity for the customer in the digital ecosystem [indiscernible] agents or let banking partners, okay? So a few questions at that.

[Kamlesh Rao, executive]

The margin combination, let me take your second question first. So on net margins that have gone up. Yes, I think it's a combination of more leverage that we are seeing in our proprietary business, on the business composition front, more leverage there.

That's partly the reason for net margin expanding. Being the mix, obviously, is a difference on the net margin. So if you see the unit contribution would have been being down as compared have done better than the plan. So obviously, the composition of the product that we sell as a composition on net margins, some part of the fact that the interest rates have been higher as compared to what they were.

So part of that contribution also comes into the net margin. So whatever it's a play that is there across some of these parameters that have helped us expand the net PMD margins, and that's what gives us the confidence that we will be able to deliver the net margins for the year, which should be, again, one year ahead of our guidance. On your question on composition that we have, we have about bank partners. We've seen growth actually across the entire -- and we operate actually in the medium bank space.

We operate in the small bank space, medium line and of course, we operate on HDFC, which is the large one. And we've seen across the board, we've seen growth rates coming in. In fact, some of the public sector bank that we have has grown by more than 100%. Some of the smaller ones that we have, the garner scale right now, they're growing at about 40%, 50%. And actually, HDFCs continues to give us a steady state growth year-over-year so think all of that is contributed to bet on the partnership side.

I think the question that you asked or anything else before I -- okay. Anything else I'll hand it over to Mayank answer the question that you ask them and then in as we come back.

[Dipanjan Ghosh;Kotak Securities, analyst]

No, Kamlesh, that's fine, just one. So I think you mentioned 40%, 50% growth apart PSU Bank of partners, around 50% through the PSU Bank of partners, is that are...

[Kamlesh Rao, executive]

Yes.

[Dipanjan Ghosh;Kotak Securities, analyst]

Okay. That will be for the quarter, right?

[Kamlesh Rao, executive]

Yes, for the quarter.

[Mayank Bathwal, executive]

So on your question on claims, yes, we have a of our business which have completed 3, 4 years and therefore, the waiting period. And the big statement is that our claims experience are broadly in line with what we price. And as you know, we always have happy ability to reprice our product, which is allowed in the regulatory regime, and we continuously monitor that about 1.5 years back, we keep on one of our products to take care of the emerging claims ratio.

The other thing is that some of the claims ratio today are emerging because we are just coming out of the COVID period and therefore to extend that the case we have had COVID cases embedded in it, we'll have to watch for the next about 6 months and see how the post-COVID claims experience is fully playing out and even the non-COVID claims, et cetera start to emerge fully because as you know that in COVID situation, some of the non-COVID claims get postponed. So we are keeping a close eye on how that trend is emerging.

Sometimes during COVID period with non-COVID claims, it is had callouts we have guided last year because of the additional testing, et cetera, that tended to happen in those. So all of those are now starting to normalize, and we'll continue to watch that very closely. And as the industry has done in terms of looking at repricing wherever required, we always have that opportunity, and we are well positioned in terms of the price range that our products have to have that ability to do as and when we as necessary.

On the digital business, there are 2 kinds of partners we have on is where the very regular offerings are sold through partners like Pontis and other such web aggregators. There our claims ratio are actually, again, fairly well in line with what we expect.

Typically, in health insurance, if you see the spread of agency as slightly higher. And then you see such partners like PSU in the bank. And the obvious reason is because of the way that the customer selection is done, the best selection happens to happen in the banks that you know the customer much better than let's see in an Indian environment.

Costs, all of that are also accordingly the lowest cost as spread out of initial fixed cost in agency. So I think now each channel has its own kind of profitability signature. There are other set of digital partners, which are selling what I call the non-traditional bite side, the textual in the context of the journey happening on their platform products, where again, we have had very, very good experience of claims well within what we have price side in some cases, better. In which cases, what we tend to do is to go back and make the product more kind of meaningful for the consumers while passing on some of the benefits and the way they replace the products.

Renewal ratio, yes, over a period of time, we have seen that the traditional channels, which have been in the business for long like agency, which really -- because Hill is a more high engagement business, you need the distributor to go and reset the product in the year 2 and year 3, typically, you see a bit of a fall in your 13-month persistency and then picks up fairly rapidly in the 25 and 27 months because once the [ Ulhas ] paid for dwell, they tend to stay with that product.

We have seen similar experience in our case in cans like agencies. Banks are now kind of finding lower process to become more mature because they have started selling health insurance more recently, and the engagement model is also now starting to emerge in terms of the way both the manufacturer and the bank net to work. And as we have seen the experience of life there as they start making the process more mature based on their experience that's happening in the bank also where they are now starting to catch up with the credit channel type agency. So overall, I think the experience is good and in line with what we see in the...

[Dipanjan Ghosh;Kotak Securities, analyst]

Thank you so much for the detailed clarification and all the best to the overall team.

[Mayank Bathwal, executive]

Thank you.

[Operator]

[Operator Instructions] The next question is from the line of Anuj Singla from Bank of America.

[Anuj Singla, analyst]

So the first question is with regards to the credit card partnership, which we have the co-branded card with SBI Cards. The 2 questions there. One, how is the data sharing arrangement with SBI Cards and who will own the customer? What kind of value do we see here if SBI Card is going to own the customer there? Secondly, as for the recent directors, SBI seems to be becoming more open to giving credit card licenses to NBFC. So why not are we exploring opportunity to issue a card going so low? Is that something on the cards as well?

[Rakesh Singh, executive]

So yes, we have started. We have been working on this for the last 7, 8 months with SBI in terms of co-branded card and which that is the one which we have launched. Yes, we are evaluating both the regulation which has come from SBI are evaluating in terms of can we do it ourselves. And we are in discussion with SBI in terms of our RM application for approval.

In terms of SBI co-branded, we are looking at distributing it to our customers. within the EDFL, within other cable capital customer base and also extending it to auditable group ecosystem. So that's how we are looking at. And also, we will look at in terms of open market sourcing for this card as well. So we are looking at this step by step. We have already launched it internally to our usable capital ecosystem, and we will extend it further to the group as well.

[Anuj Singla, analyst]

Okay. So on this, just to extend it, so we will just be getting the sourcing fee and SBI cards will have access to all the data on the customers. Is that correct?

[Rakesh Singh, executive]

These are our customers. We will have all the data of these customers. And once the credit history is built on each customer, we will have the ability to cross-sell any other lending products or insurance products from the Aditya Birla Capital. So we will be able to cross-sell to these customers as this as our customers as well.

[Anuj Singla, analyst]

Okay. Got it. And second thing is with regards to the capital requirements, like we have already outlined our growth for FY '25, and we are doing very well on the targets. When I look at the next 5 years, some of the businesses might need more capital, including the insurance and the fast-growing health business. So what kind of capital requirements do we see there? And is there -- are we confident of generating it through the internal cash flows? Or do -- will we be depending upon some kind of issuance? Will we need to depend on the market for that?

[Vishakha Mulye, executive]

So at the moment, actually, we did a capital assessment and our view is that all our businesses are well capitalized. As you know, we recently have infused some capital in both our life and health companies. As we go forward, we will keep calibrating the opportunities in the market and the capital requirements and its counsel to evaluate all the sources, which are available to us in order to raise that capital. But looking at our brand, looking at our positioning, looking at the parentage that we have, I don't see an issue in raising capital. That's on our business.

[Anuj Singla, analyst]

Okay. And is there a time line around that? Given the targets you have set, is it going to be a 2-year kind of time or maybe a longer period of time like 2 to 5-year time frame as per the growth outlook that you have?

[Vishakha Mulye, executive]

So looking at the -- that today's opportunities as we see it, I think all our businesses, we believe that we are well capitalized for the next 3 years growth. But as I said, we have to keep calibrating the opportunities in the market, our own position in the -- how we want to refresh those opportunities. And we will not scam our businesses to the one of capital as much as I can say. And you will agree with me that capital [indiscernible] not be a constraint because of the vision that they have. In the moment, we have looked at a 3-year horizon.

[Operator]

[Operator Instructions] Next question is from the line of Sahej Mittal from HDFC Securities.

[Sahej Mittal, analyst]

First, I didn't like claims ratio, I don't know if in disposing our series by in front of us. And secondly was on the license finance business. So given the kind of recent non-parties which we are seeing. So is there some reprice which have gone after the increase in the interest page across bank of partners?

[A. Balasubramanian, executive]

What was the first question? I didn't get it.

[Rakesh Singh, executive]

Can you repeat the question so that we can hear it properly?

[Sahej Mittal, analyst]

Yes. So my first question was on the health insurance business. It would give out a split of your combined ratio in terms of the plans and OpEx ratio.

[Rakesh Singh, executive]

Yes. So on the combined ratio, out of 109%, it's about close to 55% claims and 54% expenses.

[Sahej Mittal, analyst]

Got it. And what's the target for the full year? I mean, in terms of combined ratio for the health business?

[Rakesh Singh, executive]

Yes. This is something that we continue to monitor because there's so much of a growth tailwind that we have in the business that we'd like to participate and given our growth leadership, I think -- and especially now that the regulator is also opening up so many more opportunities. So I think that will depend on what and we take on the new opportunity that come out. But as I said earlier, we keep a very close eye to unit economics of everything and every new business or every new opportunity that we pick up as we have demonstrated in the last quarter when we most break even. So that's the overall focus we keep in the way we run the business.

[Sahej Mittal, analyst]

And do we think we are on the target to achieve 100% combined by this?

[Rakesh Singh, executive]

We had given the guidance last year that what was important for us to demonstrate is that our business model is unique and unit economics is much more superior than what you would do in the business there, typically, companies have taken 7, 8 years to break even and we demonstrated as much ahead of time.

Now that we have demonstrated at a unit economics level, we would like to fully participate in the growth opportunity because if you're writing on it at a unit level, profitable business, we will not like to yield a growth opportunity on the people, and that's the growth mandate that even the Vishakha was dropping to earlier. And with all the statements, I think it makes sense for the franchise to continue to build on this business because the rate at which new consumers are also being added can actually very value-creative to overall franchise as well.

[Sahej Mittal, analyst]

What is on the life insurance?

[Rakesh Singh, executive]

I got your question. You asked about the non-par and answer that. So basically, what we do is we try and focus on the mix of what we sell, and it has to be relevant on a point in time. So 2 questions you asked about the mix that we have in the non-par higher. I think higher interest rate scenario in the market provides an opportunity at the partly time I can say some of these products with your customers.

Similarly, also because the protection prices are significantly higher at this point in time. And the associated risk with that is not fully evident because we just moved out of COVID. We basically are playing loan on that. And as and when we want to get back to the trajectory, obviously, we'll get back to protection. From a response of view, we follow per strategy to say that 100% of our expected maturity benefits are fully hedged.

And therefore, we have a strategy which keeps looking at that at different points in time. Like I said, we've launched a very new innovative products on -- which will compete with the bank fixed deposits that is also on a guarantee on base platform. And some part of the mix, we like to make sure we get through the year because we are launching another product on par, which will complete our product suite. So it's a function of what we want to do at that point in time. So there's an opportunity, like I said, because of high industries, we place those products. And from a risk point of view, they are fully hedged 100% of our expected maturity benefits are fully hedged.

[Sahej Mittal, analyst]

Have you any reprice any of our non-par products? Have you increased IRR on any of the products?

[Rakesh Singh, executive]

Certainly, we cannot look at our previous products with rates changing at different points in time, life insurance companies are allowed to reprice the products to what they call minor modifications. And yes, in some of our flagship products on our core then, yes, we have repriced some of these products with industries moving up as offerings to consumers.

[Operator]

[Operator Instructions] The next question is from the line of Alpesh from IIFL Securities.

[Alpesh Mehta, analyst]

Just 3 questions. First is on the housing finance business, we are lagging higher than the guided range of margins and the ROE. And what I understand from your comments that as the growth will pick up, the operating measures will also play out. So would you like to revise the guidance on that front? That's the first part. Secondly, on the NBFC business, looking at the current state of the portfolio, including the COVID-related portfolio, which is coming out of the moratorium, et cetera. Do you like to offer some guidance on the credit cost side?

[Kamlesh Rao, executive]

So the first question was on the housing in terms of revising our guidance. I think if you look at on the profitability metrics, we have delivered what we had guided for. We are looking at getting to the growth metrics on the balance sheet, and that's what the focus right now is we will continue to focus on the affordable segment with the focus on growth. And if there is a need at the end of this financial year, we will relook at the guidance. On the...

[Alpesh Mehta, analyst]

Sorry to interrupt you on this in case you are going to grow on the code as the incremental mix is going to be higher on the affordable housing side. Where do you see the margin compression coming up for you in the sense for you to have an ROA of 1.5%, 1.6% versus currently at 1.9%. The only thing that I can think of would be the margins, right, since the credit cost has come more or less on a steady state basis now.

[Kamlesh Rao, executive]

So if you look at our cost income ratio because we have invested for growth, and that will start delivering. So we have increased our capacity. We have enhanced our branch footprint. And all this will start delivering in terms of growth. So as we get out of growth, all the investments which we have done on the cost side, that will start, I think you will see efficiency there. And that should help us improving or maintaining the ROEs, which you are talking about. So clearly, our focus is…

[Alpesh Mehta, analyst]

So sir, clear, in case the operating leverage is going to play out and your current ROAs are 1.9% versus the guided range of 1.5%, 1.6%. So the only thing that I can think of would be some compression on the margins as the growth will pick up. So is the understanding right?

[Kamlesh Rao, executive]

So margins, yes, if we start looking at the growth, there will be some segments which we were not focusing on and we start getting into those segments. You will see, but we want to really keep the margin in the same range, some data point here and there to keep the margins. We want the cost to really start. We want to leverage all the investments which we have done on the cost front. So that's how we look at it. Yes, we want to maintain and we are not guiding that the ROA will come down with an increase in the growth we want to maintain the guidance on the current ROAs, which we have, but our focus will be on growth going forward.

[Alpesh Mehta, analyst]

And which are the products that you are where you are not open and you would like to focus within the outing finance segment right now?

[Kamlesh Rao, executive]

So see some bit of time housing which we can do. Some bit of construction finance right now is a very, very small portfolio, so we want to look into that. Also, the distribution, which we have built from 62 branches last year to now 121 and our plan is to go to 200. That will help us to increase and improve our sourcing as well, and that should help our book growth. So all of this should combined should help us maintain the profitability.

[Alpesh Mehta, analyst]

Okay. Got it. On the NBFC side, the credit cost, any guidance on that?

[Kamlesh Rao, executive]

Sure. So long-term guidance we have been giving this. I think we will -- if you see last quarter, it was 1.13% was our credit cost. We will stay in this range as of now because a lot of retail growth is coming through. Yes, the credit cost will come down on the corporate side. But as we grow the retail segment, it will range in this 1.2% is what the guidance which we had given or we had discussed earlier, and we will stay in that range.

[Alpesh Mehta, analyst]

So even in case of NBFC business, we don't see any risk for the ROAs coming down from the current levels of 2.5%. I thought there would be some improvement with the operating leverage past.

[Kamlesh Rao, executive]

Yes. So we are looking at improving that. Now, the ROAs will come down.

[Alpesh Mehta, analyst]

Okay. Great. Just last question on the life Insurance segment. Since the protection, we have been guiding for around 12% to 15% kind of a mix. But currently, we are at around 3% to 4% kind of reduction mix, and there are some issues on the industry level as well. So any guidance that you would like to offer and when we are giving a net MP margin guidance of around 18%, what kind of protection mix are we factoring into that?

[Kamlesh Rao, executive]

Look, the guidance of 18% at this point in time doesn't have any indication of the protection business going up significantly from where we are. And the reason for that, like I said, is millions are significantly high pricing building in this. So it will look like a high-margin product, but today, the reinsurance pricing in this business is significantly different from what it used to be. And therefore, risk-adjusted and reinsurance adjusted. Is it as exciting as it used to look 1 year back, the answer to that is definitely no.

Like I said, as I mean, because we are in a port solar scenario, we are seeing prices even from our insurance point, a few moderate, say, in the group term insurance business now, not really in the individual life insurance business. And previously, when we used to be at 6% and we wanted to take that number to 10%, we were able to actually do that in about 90 to 120 days in the first quarter of last year.

So at this point of time, 2 things that you asked whether we see protection business will go up from here is the range on at about 4.5%. And our guidance of 80% is not dependent on production business going up significantly through the year. But if there's an opportunity and prices moderate, and it becomes an interest product book from risk, like I said, adjusted for the insurance side, we'll step up the later on that through in the second half or the last quarter of this year.

[Alpesh Mehta, analyst]

Okay. And just one final question on the life insurance. On the C&I business in the Group Life Insurance segment, do you expect the mix to remain the same or the mix is likely to change to in favor of any particular product?

[Kamlesh Rao, executive]

You're talking about the credit life insurance business right?

[Alpesh Mehta, analyst]

Credit life insurance, yes.

[Kamlesh Rao, executive]

No. I mean we are present across the Asian segments, be it MicroFinance, been [ horrible ] personal loans. And we created some products, which has given us an uptake. And in our area to grow that business, like I said, more than double the composition of mix is not changing to.

[Alpesh Mehta, analyst]

And are there any profit pressures into that business or the competitive prices coming up considering production is having commissions right now?

[Kamlesh Rao, executive]

You're talking about credit life business again?

[Alpesh Mehta, analyst]

Credit life insurance business, yes.

[Kamlesh Rao, executive]

I mean, like I said, the repricing has happened across the group term insurance business, credit like in individual life insurance. We are seeing that pressure easing out on the group OIT and credit life to some extent. There is no -- I mean it's more a question of the opportunity and the products that we have, which actually compete in the market slightly better, and you have the advantage of being able to find that product in various approval. So that's what is helping us drive it higher momentum on the trademarks.

[Operator]

The next question is from the line of Rikin Shah from Credit Suisse.

[Rikin Shah, analyst]

Just had one question for Rakesh. If I look at the NPAs across NBFC and HFC, the margin in sequentially. And I just wanted to check whether that was only due to slippage from the restructured book or there is more to it.

[Rakesh Singh, executive]

No. So Rikin, yes, there is some slippage from the restructured book and which we are looking at resolving in quarter 2, especially from the SME segment. So I think overall, the numbers and if you look at from a provision over also and also Stage 2 has come down for us. So collection efficiency is looking quite good. So it's just that the restructured portfolio has kicked forward. Otherwise, are the portfolio is looking in good shape.

[Rikin Shah, analyst]

And would you be able to quantify the slippage from the opening restructured book in this quarter? And did I hear correctly that the slippage has been in the SME segment?

[Rakesh Singh, executive]

Yes, SME and the retail segment, these are the 2 segments, the small ticket loans. So there is primarily the...

[Rikin Shah, analyst]

And the amount of slippage from the opening restructured in this quarter?

[Rakesh Singh, executive]

I can just share that with you retain offline. I don't have it ready available.

[Operator]

Ladies and gentlemen, due to time constraint, that will be the last question. I now hand the conference over to Ms. Vishakha Mulye for closing comments.

[Vishakha Mulye, executive]

No. So again, thank you very much for joining us this evening for our call, and we look forward to keeping in touch. Thank you so much.

[Kamlesh Rao, executive]

Thank you very much. On behalf of Aditya Birla Capital Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.