Aditya Birla Capital Ltd

NSE:ABCAPITAL

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of Aditya Birla Capital Limited. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [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.

[Vishakha Mulye, executive]

Thank you. Good evening, everyone, and welcome to the Earnings Call of Aditya Birla Capital for Q1 FY 2024. Joining me today are senior members of my team, Bala, Rakesh, Tushar, Pankaj, Kamlesh, Mayank, Panki, Baja, Ramesh, and Sandeep. I will cover our strategy and approach across businesses, and Richard will cover key financial highlights, followed by a discussion on the performance of our key businesses by the respective CEO. The Indian economy continues to remain resilient amidst the slowing global economy. This is reflected in various indicators such as increasing manufacturing and services PMI, real estate buoyancy, resilient urban demand, and continuing government-led CapEx. We had net FDI inflows of about USD 12.5 billion in Q1 compared to the outflow of USD 5.9 billion and FY '23. Indian financial sector remains healthy and stable. [indiscernible] policy tightening in India, then the net inflation needs to be monitored closely. We expect these positive strengths in the industry to continue and the Indian economy to perform well in FY 2024. At Aditya Birla Capital, we follow on APC 1 P&L approach to focus on quality and profitable growth by leveraging data, digital, and technology. This approach has helped us accelerate our growth trajectory, the scale and increase our market share across businesses. I'm pleased to share that during the quarter, our total lending portfolio of NBFC and HFC businesses has crossed INR 1 lakh crore. We follow an omnichannel architecture for distribution and provide complete flexibility to our customers to choose the channels to which they wish to interact with us. We had 1,331 branches across all our businesses as of June end. We have 621 co-located branches across 182 ABC locations that customers receive assistance to achieve their financial growth. We will continue to increase our presence of one ABC location. We follow our BTK cost approach for product innovation, customer selection, seamless onboarding, and improving service delivery. We have seen a strong response to our comprehensive B2B platform that MSMEs [indiscernible]. There have been more than 58,000 registrations and more than 13,500 loan applications since its launch. We have recently launched sub payments launch. This is an omnichannel collection platform for Moshe. It can be integrated with e-commerce platforms and digital platform promotions, enabling them to make collections, seamlessly. During the quarter, we raised equity capital of INR 3,000 crores, including INR 1,250 crores via preferenced allotment to Apramotors and INR 1,750 crores via QIP. The QIP saw participation from market foreign portfolio investors [indiscernible] and domestic institutional investors. The proceeds from the fundraise will be predominantly utilized for augmenting the customer base and improving the solvency margin and lease ratio, meeting the growth and funding requirements based on the opportunities across businesses, and strengthening our IT infrastructure and digital platforms. We are deeply honored and grateful for the incredible support and the phase report announced by our promoters and investors, we emanate their full confidence in the strength of the franchise. Looking ahead, we see a favorable prospect for the Indian economy in the near and medium term. We expect India's domestic consumption and investment drivers to pile to support healthy GDP growth. Our top parentage provides us seamless access to capital, both ETP and debt, and our extended BTG and ABC eletrosystem gives us multiple opportunities to accelerate our growth. Going forward, we will follow 1 EPC 1 P&L approach to continue to grow and hold scale in each of our key businesses. Now I request we try to briefly cover the financial performance of our 3 subsidiaries for the quarter. Over to you, Vijay.

[Vijay Deshwal, executive]

Thank you, Vishakha, and good evening, everyone. Coming to the financial performance. Consolidated profit after tax grew by 51% year-on-year to INR 649 crores. The total revenue grew by 39% year-on-year to INR 8,144 crores in Q1 of FY '24. In our NBFC business, we continued with a strong momentum of disbursements and granularization of our book. Disbursements for the quarter grew by 65% year-on-year to INR 13,237 crores in Q1. This helped the loan portfolio to grow 49% year-on-year and 7% sequentially to INR 85,891 crores as of June end. The NBFC business had a healthy ROE of 2.54% and ROE of 17.89%, respectively, in Q1 FY '24. Coming to our housing finance business. Disbursements increased by 83% year-on-year to INR 1,620 crores during Q1. The loan portfolio grew by 19% year-on-year and 5% sequentially to INR 14,509 crores as of June end. The ROA stood at 1.9% and ROE was 13.23% in Q1. Coming to our A&C business, the mutual fund average AUM increased by 8% sequentially and 5% year-on-year to INR 296,937 crores, of which equity AUM was approximately 40% in the current quarter. With our continued focus on growing passive and alternate asset segments, the passive AUM reached INR 2,675 crores as of June end. This is about 2.3x the same period as of June end last year. In the Light insurance business, we were among the fastest-growing life insurance companies in terms of individual first-year premiums with a growth of 32% year-on-year. Group new business premium grew by 20% year-on-year in Q1 FY '24. Our net VNB margin was 11.8% in Q1 of FY '24. In our health insurance business, our unique and differentiated Healthfirst model helped us to deliver a growth of 22% year-on-year in Q1 of FY '24. The market share of ABHI among stand-alone health insurers stood at 11.6% in Q1. Combined ratio was 117% in Q1 FY '21. With that, I will now hand over the call to Rakesh to take us through the NBFC business performance in detail. Thank you.

[Rakesh Singh, executive]

Thanks, Vijay, and good evening, everyone. In our NBFC business, we saw a sustained momentum across all our segments in quarter 1, contributing to 7% quarter-on-quarter and 49% year-on-year growth in our AUM, taking it to INR 891 crores. Our Retail & Ethanol segment AUM grew 56% year-on-year and now stands at INR 57,518 crores, contributing to 67% of the AUM mix. Our active customer base grew to $6 million compared to $4.8 million last year, a 25% growth year-on-year. New business sourcing was strong in quarter 1. We disbursed INR 13,237 crores, which is 65% higher than quarter 1 last year. All product segments supported this growth with our business loan segment being the highest contributor in terms of disbursement mix at 40%, followed by Personal and Consumer Loans segment at 36%. 88% of loans in person and consumer loan portfolio have a trade bureau score of 700 plus, which speaks about our strong sourcing quality in this segment. Our net interest margin expanded by 43 basis points year-on-year to 6.98% in quarter 1. Also, while the OpEx ratio stayed flat year-on-year, our cost-income ratio reduced by 224 basis points year-on-year to 30.48% for the quarter. And this is despite us adding 141 branches in the last 12 months, increasing our geographical presence to 332 trounces. Our profit after tax for quarter 1 was INR 516 crores, growing at 54% year-on-year. As a result, the ROE for the quarter expanded by 441 basis points year-on-year and 134 basis points quarter-on-quarter to 17.89%. The asset quality has shown a consistent improvement over last year. Stage 2 and Stage 3 book has come down from 8.9% in quarter 1 of last year to 5.46% in quarter 1 of this year. Gross Stage 3 book has dropped to 2.8% from 3.7% in quarter 1 last year. I also want to emphasize that more than 2/3 of our portfolio is secured. As I had mentioned in the last quarter earnings call, we launched Udyog Plus, our unique and differentiated unified platform for MSME customers.It is built to cater to the holistic needs of MSMEs through a complete paperless digital journey. In addition to financial assistance, Udyog Plus also offers a host of value-added services for MSMEs to manage and grow their business. Through this platform, we are now in the process of integrating with digital public infrastructure, such as OCN and ONDC as well as our wider ABG ecosystem. In a short span of 3 months, we have over 48,000 MSMEs registered on this platform as of day. We will continue to scale this platform as well as invest in strengthening our distribution capacity in this financial year to propel our next level of growth. To conclude and reiterate our performance, we had a strong quarter in terms of growth leading to a return of assets of 2.54% in this quarter. Going forward, we will continue to build a granular portfolio and enhance our retail and SME segment mix. As we forge into deeper customer and product segments, strengthened distribution capacity, and invest in technology, we remain committed to deliver sustainable returns in the forthcoming quarters. With that, I will now hand over to Pankaj Gadgil for housing finance revenues.

[Pankaj Gadgil, executive]

Thank you, Rakesh, and good evening, everyone. I'll cover the performance of ABFL in quarter 1 FY '24 now. ABFL has achieved a consistent growth in our loan book, profitability, and asset quality as well. We continue to invest in the areas of technology, digital reinvention, and analytics for superior customer experience and customer advocacy. Just to give you Q1 key highlights. First, disbursement of INR 1,620 crores, which is an increase of 83% Y-o-Y. Loan book as of June 23 is INR 14,059 crores, an increase of 19% Y-o-Y, and now a customer base of 56,000 customers. Net interest margin is 5.9%, an increase of 34 basis points Y-o-Y and our profit before tax for the quarter is INR 84 crores, which is our highest ever in a quarter, which is an increase of 18% Y-o-Y. Very importantly, on asset quality, Stage 2 plus Phase 3 has reduced by 21 basis points Q-o-Q and 41 basis points Y-o-Y. The PAT for Q1 FY '24 is INR 65 crores, an increase of 17% Y-o-Y, and ROA for the quarter is 1.9% and ROE is 13.3%. You can refer to the retained financials on Slide 26 of the presentation. During our previous earnings call, we introduced our new Sibos. I'm happy to share that we have successfully deployed Sibos in 33 branches as of June 2023, and our plan is to implement it across all branches by the end of August 23. Sibos clearly embraces a low-touch digital-first approach, supported by advanced Ameritech, bringing better efficiency and depth to our processes. Put simply, this means a higher baseline, accelerated ice-making accelerated disbursement, and [indiscernible]. Furthermore, the platform further streamlines the onboarding process for distribution partners and integrates real-time dashboard and verification modules delivering a truly seamless experience to all our stakeholders. We are building up analytics capabilities in the areas of data engineering, data science, and digital science, where they're integrating applications forecast for customer onboarding and AI and ML behavioral scorecard for portfolio management. We now have a nationwide presence with 130 branches across 20 states, covering about 85% of the total addressable market of the housing finance industry. We witnessed 30% growth in channel partners Q-o-Q. ABG consistently now accounts for 6% of our new disbursals and we have maintained a very granular ticket price of INR 2530 lakhs. Coming to portfolio quality, our approach comprises 3 primary components: risk control at Origin, pre-delinquency management, and an in-house collections team, which is supported by decision fans. The focus on quality of origizations, 95% of our disbursements in Q1 FY '24 are towards 700-plus or new to bid. The contribution of 730 plus ability origination is now at 74%, which is significantly higher than the industry average of 50%. Our dosage 3 has shown significant improvement, decreasing from 3.67% in June 22 to 2.67% in June 2023. We are maintaining Stage 3 CR of 23%. The details of the same are provided on Slide 24. Lastly, moving to treasury management. We've maintained an average cost of borrowings of 1.6% for the quarter, prioritizing diversified borrowing mix. The contribution of NHG total borrowings has increased from 14% in June '22 to 20% in 2023. In summary, we are focused on ensuring risk-calibrated growth, healthy profitability, all while maintaining customer-centricity at the core. With that, I now hand over to Pankaj, MDL GO of our Asset Management Company.

[Pankaj Razdan, executive]

Thank you, Pankaj, and good evening to everyone. So I'd like to share some highlights of ABS performance as to present the analyst call. [indiscernible] total average AUM, including alternate assets for Q1 FY '24 stood at INR 380 crores, showcasing quarter-on- growth of over 8%. And within this, our [indiscernible] AUM was about INR 190 crores. As part of our customer acquisition strategy, we added approximately 1.2 million folios. Our overall full-year count as of June '23 was about INR 79 lakhs. Our SAP book sales has witnessed about 10% year-on-year growth at about INR 90,000 or 80,000 crores as it stands today. We have strengthened our sales ecosystem and the distribution network is bringing [indiscernible] the key levers like virtual relation managers, [indiscernible] and digital distribution to some of the overall retail initiatives that we have. On the passive front, our product offerings grew by 2x to INR 2,678 crores as on June '23. We have expanded our [indiscernible] 40 products, attracting and growing customer base of around 5 lakh full year. On the PMS front, we successfully raised the commitment of INR 890 crores in India equity service fund is the CAF, elevating our multicar distribution footprint. This is the first factor we have now got in on the AIS side. In addition, I'm sitting at the [indiscernible]. We have launched the ADSL Global Emerging Equity sign, which credits the Arga emerging market fund, providing our investors access to opportunities in emerging markets, tap investors who are looking for [indiscernible] overseas market.With respect to financial numbers, our revenue for Q1 FY '24 was at INR 380 million crores versus INR 274 crores in June FY '23 last year, with [indiscernible] year-on-year. Profit after tax grew by 79% to take INR 185 crores as against 160 last year's comparable quarter. With this, I'll hand over to Kamalesh Rao, [indiscernible] and CEO.

[Kamlesh Rao, executive]

Thank you, Bala, and I'll give you some highlights of the life insurance business. The consistent growth journey of BHL, both individual as well as group life insurance, which has continued in the first quarter of the financial year 2024. Industrial life insurance grew by 32% compared to the private industry growth of 8%, making us the fastest-growing work insurance company for the quarter in the top 10 rank player. Our success in launching new products was key to our growth with the new products launched in the last 12 months, contributing to 44% of our individual business for the first quarter of 2024. The third quarter, we launched 2 new succession products under our [indiscernible]. [indiscernible] combined with park-activation of 19% for the hallmarks of our business in Q1 '24. The individual business had a -- with a healthy product mix of 81% traditional business resulted in strong gross margins for the for the quarter. Group Life Insurance segment, the private industry saw a growth of 13% in Q1 FY '24, while ABSLI registered a growth rate of 20%. We continue to remain #1 in the group unit business with a growth of more than 100% over last year's base same time. Our total premium of INR 3,105 crores has registered a growth rate of 19% over last year with a 2-year CAGR of 33%, demonstrating our consistent business growth. This growth came from new business growth as well as renewal premium growing at 12%. Our digital collections now account for 79% of our renewal premium, and this growth is seen across persistency buckets from the 13th month right up to the 61st month, with the 13 months now at an industry best of 88% and the 61st month at 57%. Our assets under management now stand at close to INR 74,500 crores with a Y-o-Y growth of 23% with a 74-26 composition of debt versus equity. Our investor performance has been better than expected benchmark across all 3 categories of equity, debt, or even balanced funds, either from a 1-year or a 5-year perspective. Market adoption across various areas is demonstrated in like 100% of our new business customers are onboarded digitally. 83% of all our services are now available digitally, covering 56% of our customer transactions and our customer self-service ratio now stands at 86%. We continue to manage the net margin story well. Last year in Q1, we achieved a VNB of 2.5% and ended the year at 23%. For the first quarter of this year, we are reporting a net VNB margin of 11.8%. We have shown a growth of 935 basis points in our net margin compared to the same time last year. Our approach will be to continue the growth trajectory of this business ahead of the industry backed by both productivity and capacity. Our forward guidance is that the quality of our book will get better across the [indiscernible] from current levels. Growth will come from a diversified mix of both proprietary as well as partnership channels, and we will continue to be best-in-class in our digital infrastructure, starting across prospecting and onboarding in sales of the funding, underwriting in the middle and all customer touch points in service as well as claims. With this, I'll hand over to Mal for details on the [indiscernible].

[Mayank Bathwal, executive]

Thanks, Kamlesh, I'd now like to present the performance of our health insurance business. In quarter 1 FY '24, we registered a gross prime growth of 22% year-on-year compared to industry growth of 21% FY at 27%, slightly lower because of the large base effect of a 71% growth in the last financial year. We saw good growth in our larger retail channels with the proprietary channel growing at 21%, backed by the capacity additions over the last 12 months and a focused geography strategy. Our corporate business grew at 37% year-on-year, driven by a strong focus on cross-sell and upside and the industry-leading OPD business enabling higher margins for our business. We continue to focus on mid-corporate and SME segments to create a sustainable and profitable corporate and affinity business. [indiscernible] add new capacities in the bancassurance channel with the activation of ESB and ucoBank and onboarding of India Post and Payment Bank. I'm very confident that as we fully activate these new PSU bank partnerships, we will be able to serve a wider customer segment across the deepest part of the country. With the new expense of management and commission guidelines, we have made some strategic choices in terms of customer segments and channels to further consolidate our retail strategy. We expect growth to normalize in the coming quarters. By prioritizing both growth and profitability, we are building a resilient franchise. Our net loss has reduced to INR 62 crores from INR 71 crores in the same period last year. Against the challenges that we saw in retail claims last year, we are seeing some positive outcomes in both claims and expense ratios across both retail and group businesses have trended very well overall at a company level. Our combined ratio for the quarter FY '24 is slightly higher compared to the same quarter last year, mainly because of the impact of seasonality of growth that we saw in the last 12 months. We expect this to normalize very well in the coming quarters again. With tech and digitally enabled data-driven health insurance business, we remain committed to investing extensively in our tech and capabilities. Our digital part has work personalized engagement that allows us to gain deeper insights into our customers, accepting our wealth of health and lifestyle data. In the last quarter, we launched first of its kind digital face scan base self-assessment feature to augment our customer health data gathering -- working with our health tech partner, now work with over 60 digital health and wellness ecosystem players across both physical and digital platforms. 27% of our customer interactions happened digitally self-served for the customers. Investment in building analytics capabilities has helped us increase opportunities for better customer selection, increase in the size of our relationship with existing customers by way of [indiscernible] that we've already demonstrated in our corporate business and is underway in our retail business as well and our health management interventions for our high-risk customers. Finally, our strong machine learning-enabled models to help us managing of fraud and abuse in the claims continue to give us good results. Looking ahead, we remain highly optimistic of the opportunities in the health insurance industry, and our vision is to expand our franchise aggressively while maintaining best-in-class unit economics. Thank you. And I'll now pass it back to Vishakha for closing remarks.

[Vishakha Mulye, executive]

Thank you, Mayank. And this concludes our comments on the FY 2024 Q1 performance, and now we will be happy to take any questions.

[Operator]

Thank you very much. [Operator Instructions] We have a first question from the line of Anuj Singla from Bank of America.

[Anuj Singla, analyst]

Vishakha, congratulations on the quarter. A very strong performance. So 3 questions on the lending business first. We have seen 5% to 7% sequential growth across the businesses. And this does not even include the contribution from Modiolus which will ramp during the course of the year. So when you look at the growth target for FY '24 and beyond that, what kind of number should we be looking for?

[Vijay Deshwal, executive]

We have stated that we will double our book in the next 3 years. And so that means 25% plus the kind of growth is what we are strategically looking at.

[Anuj Singla, analyst]

Okay. And given the strong performance, is it fair to assume it can be more front-loaded with the higher in FY '21 and then tapering down to maybe 25%, 26%? Is that trajectory something we can look at?

[Vishakha Mulye, executive]

Absolutely, it is always a function of the opportunities in the market and our aspiration. So B, as Rakesh said, that strategically expects to double our lending books in the next 3 years. So on an average, of course, one expects the book to grow at around 25%. In Q quarter, depending upon the opportunity, it could be slightly higher into core terms but we believe that over a period of time, next 3 years, we should double that book.

[Rakesh Singh, executive]

And it will be risk-calibrated growth. So that's the reason why we are saying we will double it in the next 3 years.

[Anuj Singla, analyst]

Got it. The second question is on NIMs. So again, a positive expansion there despite the funding cost pressures across the 2 businesses, 8 to 10 basis points Q-o-Q. Can you talk about the factors which have supported this and during the course of the year, do we expect this NIM levels to sustain at the current levels despite the funding cost pressure?

[Rakesh Singh, executive]

If you look at our launch last quarter, our cost of funds went up by 19 basis points. Our yields went up by 30 basis points. So that is the reason you see the expansion of around 10 basis points on the NIM. Again, as stated, we have stated that we are looking at expansion of margins to 7.5% over the next 2 to 3 years with the change in the product mix, we will achieve that. In terms of -- yes, most of the cost in terms of cost of funds have already been factored in, but there will be some marginal increase in the cost of funds in the coming quarters, but that will be mitigated through the change in the product mix and the higher yields coming from the retail and SME segment.

[Anuj Singla, analyst]

Got it. And lastly, on the asset quality, while the overall GNPA has declined for the NBFC side, the forward flow seems to be strong in personal and consumer loans, where GSIs combined has gone up by 50 basis points Q-o-Q. So 2 questions there. One, is it possible to give some kind of color on the customer cohorts which are driving this? And secondly, is there also possible to give some color on how the sourcing done through digital partners is performing versus the direct and the DSA channel? If we can share some details here.

[Rakesh Singh, executive]

So in terms of if we look at the forward flows, I think it's very stable, and it's in the range which we have guided. It's within the guardrails or the rates which we have really defined. So even if you look at GS3, is 2%, which is where I think a best-in-class compared to the personal loans in the NBFC industry. So it's quite -- yes, it's gone from 1.7% to 2%, but it's depending on, I think, just some pool moving in certain quarters. We are very confident that we will be able to maintain this quality, and it will be in the same range. So we are not seeing anything which is at this point in time, the bounce rates and everything else is looking quite stable and quite good. In terms of performance, the partners and our performance no, again, we acquire customers on a similar forecast, whether it comes through our channel or through the partner. So the policy is the same. The credit bureau, which we have mentioned here is the same for both our direct channel and through the digital partners. So we don't see too much of a difference between -- and we review this on an ongoing basis. And if we see anything, any partner, which is -- if it's going up, we really tighten it, control it, or if we have to stop it, we do that. So we are not seeing too much of a variance between the 2.

[Operator]

We have our next question from the line of Abhijit Tibrewal from Motilal Oswal.

[Abhijit Tibrewal, analyst]

My question is also on the portion on the consumer book. Understandably, Rankesh answered what I was trying to ask. But sir, I just wanted to understand, I mean, incrementally, what we've been seeing over the last 2 quarters and more particularly this quarter in terms of some of your peers who have reported there is some anxiety around personal loans. There are peers who have started talking about the sale arrangement now kicking in recovering and belt arrangements now coming in. So have we also had similar experiences where arrangements are getting triggered? If at all they are getting triggered, I mean, what are you seeing being covered under FLDG? Or is it also coming, and getting your balance sheet is the first thing that I have tried to understand?

[Rakesh Singh, executive]

So your first question on competition and players getting -- see, today, our personal consumer book is only 20% of our overall portfolio. A lot of the players is much higher at 50% and higher. So we are still much within the range which we have defined for ourselves. I had mentioned in my initial comments also that more than 2/3 of our portfolio is secured. And so it's still within the range which we had defined, and we track it very, very closely. In terms of your question on FLDG, yes, we are evaluating. We are discussing with our partners, and we are reviewing with all our partners in terms of leveraging the FLDG, which is now being provided by RBI. So yes, for sure, we are discussing and evaluating, and we will leverage that.

[Abhijit Tibrewal, analyst]

No, still speaking right now, whatever arrangements we have with our digital partners, we don't have [indiscernible].

[Rakesh Singh, executive]

No. Right now, and we have not dipped into any FLDGD. We didn't have any FLDG. The guidelines, which came in December of '22 by RBI, did not allow the digital lending guidelines, which came in December did not allow any FLDG. So we haven't dipped into any FLDG at this point in time. Right now, it's all the commercial arrangement, the sourcing arrangement which we have with the partners, and the credit cost. The actual credit cost is sitting in our balance sheet. So yes, as I said recently, RBI has come with the guidelines and allows 5% FLDG, which we are evaluating and assessing, and we are discussing with our partners.

[Abhijit Tibrewal, analyst]

Got it. Glad to hear that. And just a follow-up question, why do you mean in your opening remarks, we'll kind of share that first to 2/3 of the book is of the portfolio secured? But very clearly, I mean, if I look at the disbursement mix, right, I mean the proportion of personal and consumer loans has been increasing very, very strongly from March 22, where it seemed to be 15% of the investment mix. Today, it's almost 35% of the disbursement net. So maybe clearly, in terms of your loan mix as well, right, I mean, maybe 3, 4 quarters back at 15% of the loan mix is to be close to 20%, 21% of the no mix. So what is the comfort level where you want to keep personal and consumer loans? And maybe just another question on housing loans, understanding you've kind of gone through the transition where you have implemented a new element, so now is it now time that we passed those sticking issues and loan growth even in your housing business can start exerting this like it has done in the NBFC business.

[Rakesh Singh, executive]

That first question on consumer and then I will ask Pankaj to address your housing question. But if you look at still yes, 35% of the person in consumer, and I will throw some light in terms of -- these are small ticket short in our product on the consumer side, which we acquire customers at scale, we see their performance over a period of time, and then only we cross-sell our personal loans to these customers. So clearly, not only looking at the credit performance in the marketplace through the credit bureau, but also the performance with us. And that gives us comfort in terms of the growth in this segment. Also, if you look at our secured business, also is growing the same. So if you look at 31% of the mix on disbursement mix is coming from retail secured business. And then the corporate also is completely secured. So if you combine the 2, our still secured stated strategy is that we will continue to be in terms of -- there will be a cap in terms of how much of unsecured business which we will have. So clearly, the secured also has grown quite well in the same period.

[Vishakha Mulye, executive]

And your ultimate product mix question today, retail and retail consumer and SME is around 67% of our portfolio balance is cost rate. Going forward, and within 67%, around 50% is SMEs and small business loans, and the balance is consumer and personal loans. We believe going forward, this segment, which is consumer personal loans and SMEs of the small business loans, will be around 75%, and the cost rates will be around 25% over the next 3 years. So that's the final thing that we would expect the product mix to be.

[Pankaj Razdan, executive]

In the housing loans, I concur. I think over the last few quarters, you would have seen that the loan growth has been picking up. And in fact, the last financial year, we grew at a 14% Y-o-Y, which was slightly higher than the overall housing finance industry growth, which was about 11% Y-o-Y. I think the first quarter has been more promising as we've touched a 19% Y-o-Y building inventory. Your point whether the elements, yes, it does on very, I would say, it's the fastest implementation of loans system that we have done in the housing finance space and having been in the space for some time. We've done this in 6 months. And this is just not a stand-alone LOS. It's the engagement platform that we are trying to create, which has the entire CRM also in build, and we've had a sentinel which ensures one experience, one customer, which we have been populating as ABC as a platform. So it allows our distributors, our connectors, our relationship partners, our invoice, all to come on one senior platform and log in their cases. And most importantly, the anxiety of where the case is lying. I think that anxiety is kind of felt because the dashboard is very intuitive, and interactive, which allows the customers to check where is he or she, an entire low life cycle. That's stabilized 3 branches, I already spoke about it, and have already gone live with the platform. And by the end of August, we should be going live in India. And also, you spoke about the ramp-up of distribution that we are seeing. Obviously, interest levels are being created in the channel fertility and going about 6% of our investment now. So yes, looking forward to a healthy growth in times to come and leveraging the opportunity with the entire housing sector.

[Rakesh Singh, executive]

Vijit, if I can just add on the secured, unsecured in the business loan, unsecured business loans, if you refer to Slide 12, there is INR 8,524 crores. Out of that, 21% is supply chain, which is in a way receivable and if there is an underlying trade which is there. But the remaining INR 5,000 crores, I think the business loan is all backed by the credit guarantee provided by [indiscernible]. So that also, in a way, is secured. So I think just keep that in mind.

[Operator]

We have a next question from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

I have a few questions. First one would be on the NBFC, if you can just help with some kind of data around your disbursement mix via direct and ecosystem, particularly in the retail and consumer and unsecured SME. So that's on NBFC. On housing, the question would be that, I mean, in your strategy, you have stated your sort of ambition to have a balance to affordable as well as, I mean, the prime home loan. But if I sort of look at your bureau score mix, that is more or less suggesting you are more going towards prime -- I mean mostly going towards a prime customer. Then the question is how are you going to sort of maintain your profitability here because I mean housing to prime is a very, very kind of a thin margin business and there is enough sort of balance cans for that keeps happening because banks are also aggressive One more question on the capital you have raised INR 3,000 crores, what sort of a deployment plan. Of course, the 2 lending businesses will require. But like health interests, the business will also require some capital a year or so. So I mean, is there some sort of a plan for you to again find an outside investor for health issues? And if you could just provide some broad color around the decline of the INR 3,000 crores of capital.

[Rakesh Singh, executive]

So if I can start by giving you on the sourcing mix. If you look at our direct sourcing at a company level 45% is direct. 23% comes through the DSA, and 42% of the business comes through the digital. So this is the mix at the company level. In terms of personal and consumer, 11% comes direct, 10% comes through the DSAs and 79% comes through digital channels. So if I would have answered your question.

[Avinash Singh, analyst]

An unsecured business, if you can.

[Rakesh Singh, executive]

So on unsecured business, 60% comes through DFS. 35% comes through digital, and 6% direct. And as we mentioned in our opening remarks, once the [indiscernible] is, I think once we have started, we have many more registrations on these platforms and MSMEs start coming on this platform, we expect that the direct sourcing to go up in this segment.

[Avinash Singh, analyst]

I think the second question, Pankaj was on housing actually. And I think you made the observation on the mix.

[Rakesh Singh, executive]

So if you see the slides also which are there in the Investor Relations, you will see the mix that we have kind of got today. So at the end of quarter 1, we have 50% of our book was -- about 42% is affordable in formal, and 8% is here. So we have been leveraging opportunities across all the segments is checked that we are going to grow in the most meaningful way and leverage opportunities across the segment. I think the strategy that we have kind of article earlier also is to maintain the right mix, and we've been speaking about the right balance of the value segment and the growth segment. And to be fair, I think with Isabel as a group, I think we are amongst the top quartile, and the cost of borrowings also, you will see a tip rate. I also spoke about the NAV refinancing. The percentage of the book borrowings has moved up from 14% to 20%. So I think the real crack is balancing the mix there. And very surprising when you are speaking of Buracos. The book is 700 plus, but we'll be surprised also within the affordable segment, which is, I would say, slightly higher than the informal segment, which is about lifework, there are customers who have [indiscernible] very surprisingly. And the new scrap, you find out that they are very conscious also on the credit score. So we're actually finding out in our portfolio also given the retail breakup also of what bands of but we have got today. So we have only 7% at a need to get 88% customers or turns. So that's the shift which is happening in the country. That's real. And especially even in the metros and outcomes of metros, people are conscious. So it's -- I would say, judicious mix. And last but not least, again, when you're speaking about prime, I think there are internal sourcing also which happens, which is in the prime -- it could be the impose of ABCL. It is also the large distributors that we have only mutual for life insurance and also in its insurance, able to leverage the customers that also really helps us a little bit in the price. So it's going to be a judicious mix of all the segments, leveraging all the positives with this caliber and both segments.

[Avinash Singh, analyst]

I mean in your dispersions, what have been sort of any balance offering?

[Pankaj Gadgil, executive]

Balance offering is always going to be there. It comes in on 2 counts. It may be situations that somebody is giving you a higher limit, somebody's taking higher projects, and sometimes it also happens to rate, but what I can say very confidently as I spoke about customer advocacy. I spoke about super customer experience. We are also seeing the process is improving with the turnaround times improving and with the overall, I would say, milestone improving of customers of one finance in the last 10 to 12 months, I am seeing that trend also going down. So I think that's very clearly coming in. And we are in the business, and there will be also better transfers in the business as well. So it's a part of the business that you have to focus on both for the business.

[Rakesh Singh, executive]

Housing, I think your next question was on capital allocation how do we look at the deployment of the capital that we have raised? So first thing that the majority allocation of capital will help towards the lending businesses depending on the market opportunity. Secondly, whatever growth capital requirement will be there from our LI and HI businesses, we will provide that. We'll not starve any business for capital. That's our stated policy. In terms of getting an outside partner for health insurance, see, right now, we already have 2 strong JV partners in NMI and D, and we feel that they will support all the growth capital requirements in their proportion whenever it is required. That's how we plan the way forward.

[Avinash Singh, analyst]

And just if you can give some -- I mean a question for insurance. What is driving -- I mean, if you can just give the breakup of 117% in terms of the cancelation OpEx?

[Rakesh Singh, executive]

Avinash, we don't discuss the breakup of this in terms of we can maybe subsequently look at addressing it.

[Operator]

We have a next question from the line of Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

Firstly, 2 questions on the health insurance business. First, if you can quantify your retail new business growth on a Y-o-Y basis. That would be great, arduously between the new business uses annuals. Second, you mentioned that you have made some strategic charges post the change in expense of management guidelines. So if you can give some color on how has the payout strategies changed across different channels and how are the distribution -- or how will the distribution mix incrementally change based on that? Or what are the parameters based on which you kind of made the strategic choices? Maybe we can answer this, and then I'll have 2 questions on the life insurance business.

[Pankaj Razdan, executive]

Yes. So I think our overall retail business grew at about 17% Y-o-Y and business, as I mentioned earlier already. The choices was about some of the segments that we said we need review in terms of neuroeconomics seen from our numbers that our rural have come down, and there are some parts in the retail booking side that we sell that we need to review. Otherwise, we remain optimistic on all the other channels, especially proprietary. Our agency channel is going very well. We gave you -- we have grown about 31%. Our bancassurance channel continues to grow. We are adding new capacities there. Artialliances businesses, we remain optimistic, which will grow well in the future. So there were some segments which we felt that looking at -- given our experience over the last 5 years now and where we forecast future economics where we feel that it may be a good idea to review our strategy. And we will continue to explore that opportunity because we feel that some of these opportunities remain large, but we go into that segment once we have finalized our approach.

[Dipanjan Ghosh, analyst]

Sir, a just a follow-up on the first question. I wanted to like if you can split the growth between new business versus old ones.

[Pankaj Razdan, executive]

I would not have that data completely ready. I can come back to you separately on that.

[Dipanjan Ghosh, analyst]

Sure. And just 2 questions on the life insurance business. If you can give the work of your VNB margin movement over the last trailing 12 months between product mix and volumes or assumption changes or something like that. Second, on the product mix, if you can kind of give some color on the traditional nonlinked business and the mix within that and how the guaranteed written product has been doing on a Y-o-Y basis or even in July for that matter? And lastly, I think across one of your major bank assurance partners, which has now kind of most first trial parent. The sister concern things to be suggesting continued countersue gains at that particular content. On that context, do you see any volume pressure from a medium-term basis on those metric patients?

[Kamlesh Rao, executive]

Let me answer your last question first. We spoke about the Banca partner. If you look at the numbers for the first quarter, in fact, as compared to last year, we have gained a little bit of mindshare in the counter. In that counter, obviously, the size of the premium is so high, and there is an aspiration for that line to grow on a consistent basis. At this point in time, we are not seeing any change in approach. It's a function of how good your products are and processes are and whatever has been there for the last 3, 4 years, we have not seen any change in stance over the last 3 or 6 months. And therefore, like I said, we registered about 30% plus growth rate there in the first quarter in that count. So that's come to your last question. The answer to your question on traditional products. So we have used the interest rate scenario during the period of time that it has remained stable and benign for increasing the share on our guaranteed savings products. But the average guarantees that we have in all our products put together, are roughly about 5.1%, 5.2%. And we follow a very dedicated, focused mitigation strategy through France, where 100% of our expected maturity benefits are fully hedged. So once we keep looking at the opportunity of the directing products, we also make sure on the risk side, they are fully taken care of. During the period in the quarter, as I said, when the interest rates started going down, we repriced some of our guaranteed savings products downward, which is in line with a bulk of what the competitors have done, and therefore, we haven't seen much impact in the area. Your first question on the bridge, I mean, normally, we give a bridge on embedded value movements and give some components of that. But I think you're focusing on the net VNB margins [indiscernible] came largely out of our net VNB margins as well as all our operating assumptions were positive, and that's the reason we added about INR 800 crores of net VNB margins last year and are embedded 9,000 crores. But for the VNB of the first quarter is largely driven by a product mix strategy. Also, it is driven by our strategy of significantly larger productivity, which is coming across our various channels. So our proprietary business grew at about 30% plus. Our direct business grew at about 40% plus. Our Banca business grew at about 35%, 40%. So a combination of roughly productivity-led growth as well as the product mix has actually contributed to the expansion of margins in this quarter on the same quarter.

[Dipanjan Ghosh, analyst]

Sure. Just if I can just squeeze in one small question. Similar to the health insurance business, have you taken any strategic calls on the life insurance side also with respect to the year-end guidelines?

[Kamlesh Rao, executive]

Actually, on the guidelines that came in for whatever business that we were doing through our various channels, we only capitalize on that more. Some of these channels like Mayank mentioned, we never did a large amount of business. So there has not been any need for any change of strategy for us as far as that insurance.

[Operator]

We have a next question from the line of Subramanian from JP Morgan.

[Subramanian Iyer, analyst]

I just 2 questions. So one is what will be your target mix of this unsecured business? I'm just asking because an incremental disbursement is something nearly... [Operator Instructions].

[Operator]

I'll take the next question from the line of Renish from ICICI.

[Renish Bhuva, analyst]

Just 2 questions, first on the NBFC. So if you look at the credit provisioning, that has been a little steeply around 1.5% of the lending book, despite the fact that Phase 3 of the leading caters out there called to market on improving on a quarter-on-quarter basis. So it is fair to assume that given the book mix change, the 1.5% rate cost is the new normal for us?

[Pankaj Razdan, executive]

So credit cost, yes, we have said that it will be in this range with a change in the product mix and unsecured business, which has grown over the last couple of years. Yes, we expect the credit cost to be in this range. But as we mentioned, we will evaluate the FLDG, and we are assessing that, and we'll come back in terms of how do we leverage that.

[Renish Bhuva, analyst]

Got it. And secondly, on the housing finance piece, okay, if you look at the asset yield, which has been increasing over the last 2, 3 quarters, again, despite the fact that, let's say, the customers of more than 700 SML score are getting acquired incrementally. So what is driving this high heels in home finance?

[Pankaj Gadgil, executive]

Yields. So the portfolio is also a function of what have you been able to pass on in the last year. So last year, the reporting a 2 basis points we had the ability of passing the rate to the customers there. As you will note at the borrowing rates, there's always a trailing impact of how the borrowing rates increase. And now you are sent in Q3 and Q1 specifically. The reason why we've been able to hold the MAU, obviously, like I mentioned, it has been a very, very sound treasury management that we've been able to do. So the cost of borrowing is really top quartile of the normal that we have got. And maintaining the right mix on body on the affordable informal CF portfolio with the prime segment I think has been able to get us the requisite net interest margin and also [indiscernible].

[Renish Bhuva, analyst]

So fair to assume that this 12% blended yield on let's say the effective interest rate, what we are seeing in the PPT is more or less sustainable going forward?

[Kamlesh Rao, executive]

We had mentioned this last time as well that [indiscernible], it has also been close to 5% at the end of the year. It will be a rebound. But I think you will see that range anywhere looking about 40, 70 points that we should be able to see in times to come as the cost of bodily keep moving up to the term loan percentages..

[Renish Bhuva, analyst]

Got it. And just last question on the gain Interline. So this substantially, we have seen the cost to income as well as the OpEx to AM increasing very sharply, almost 40, 5 basis point on the OpEx TVM side. So of course, we do understand that we'll be investing on the tech side. But in terms of the incremental investment towards the franchise build-up, why do we trend as in the June quarter?

[Pankaj Gadgil, executive]

I think that's the right observation. I think we have spoken about this earlier as well. I think we are making investments on technology, digital, and analytics, and the contribution of our expenditure obviously disproportionate in these 3 areas. And in my assessment, as the book size will keep growing, the operating leverage will kick in and you will see that showing up in times to come. So I think that is where the investments are actually doing. We have added 2 new ranches, 130 branches. But within the location, I think we expanded the locations. And now we are present in a significantly higher number of imports that gives us access to a very large opportunity in the housing finance space, which is a standardized form.

[Renish Bhuva, analyst]

So it is fair to think that this 3% and 3% to affect its peak level?

[Rakesh Singh, executive]

That's right. That's right to say.

[Operator]

We have a next question from the line of Subash Mishra from Philip Capital.

[Subash Mishra, analyst]

So 2 questions, first one on the personal loan and [indiscernible], do we onboard customers for the Paytm postpaid, what is the run break on a monthly basis or maybe on a quarterly basis, we can speak on that and make any kind of PM on that particular piece. Second is thanks for the update on how we onboard customers according to Sitel. But is there any specific rules around having any customer onboarded who has done more than 30 DPD across lenders at any point of time in a credit history? And the third is that we see the 3 as well as the uneven for the personal loan as well as [indiscernible] loan. And especially with the ticket sizes, we operate along towards various fintechs, that is a cause of concern, which has been highlighted by various industry leaders and as well as credit there. RBI has put out a cautionary note on it. So what are we going to curtail that? So these are the 3 questions.

[Rakesh Singh, executive]

Quite a few questions. So let me just recollect. In terms of sourcing through partners, as I would have mentioned earlier also, we showed small ticket loans, short tenor loans. And once we published their performance on our portfolio, then only we go and give a personal loan. So that's what our sourcing strategy is with our partners. In terms of your question on certain partners with FLDG, I had mentioned it earlier also. Right now, we don't have any FLDG because the decamp guidelines of RBI did not allow FLDG. Recently, the FLDG has come in. So we are evaluating, we are assessing and we are in discussion with partners in terms of leveraging the FLDG.

[Subash Mishra, analyst]

What is the run rate?

[Rakesh Singh, executive]

We don't discuss individual-specific partners' run rate as -- I mean, Raki mentioned that's a part of the overall strategy and we onboard customers through this channel. And then once the credit history is established with us, we look at expanding the relationship.

[Subash Mishra, analyst]

And I've got 2 more questions. The second one was on the onboard customers who have done 30 DPD across several platforms.

[Rakesh Singh, executive]

No. So sorry Yes, sorry, I missed that. We never onboard any customer who has DPD. So if they have and their DPDs are seen in the credit bureau, we never or in their bank statement, if we see anything, we don't onboard any one of these customers.

[Subash Mishra, analyst]

Right. And my third question is still on [indiscernible]. What are we doing to curtail the person and the kind of ticket sizes that we operate in and [indiscernible]?

[Rakesh Singh, executive]

So completely, if you look at -- and I think I will just refer to a slide, Slide 12. If you look at our portfolio, which is there in person and consumers, 77% of the customers is in person and 23% of the customer is in consumer. And I think in the consumer segment is a small ticket and short-tenor loan. We onboard customers through that. We established their credit behavior and then only on a slightly larger ticket and longer tenor. So it's quite well calibrated in terms of after looking at the performance of these customers is what we are. As I mentioned earlier also, we review these customers through the door in terms of any bounces, it starts with onboarding through the over-analysis and the bound trend, what is causing that? And if we find any cohort or any product or any partner where it's beyond the threshold, we take immediate corrective action. And we will -- and that's the reason we mentioned that we want to grow in a risk-calibrated manner. Even though currently, our growth is much higher, but we are giving in terms of direction that in the next 3 years, we will double our books. So I think all the growth will come on the back of risk-calibrated growth. Understood.

[Operator]

Ladies and gentlemen, due to time constraints, we'll take the last question from Sanket Chira from Dam Capital.

[Sanket Chira, analyst]

Yes. Sir, just wanted to know the sourcing mix again on the personal and consumer and unsecured rate.

[Rakesh Singh, executive]

Sanket, I will again give this at a company level, 45% of our sourcing is direct. 23% is through the DSAs and 32% is through the digital channel. In terms -- within that, the personal and consumer 10% is through BSA, 11% is direct and 79% is through the digital journey. Unsecured business, 16% is DSA, 6% is direct and 35% digital, and as we build and enhance and strengthen our view, the 6% direct on MSME business will go up, and that will be our direct acquisition for MSC customers. Secured business, 46% comes through DSAs and 54% comes directly.

[Sanket Chira, analyst]

Sure, sir. That was helpful. And just one question on the day think that you alluded to that as of December 22, based on the RBI, we've been used to having FLDG. But is it right to assume that in terms of the pricing we offer, there will be a markup to begin to take care of the delinquency rate? So to put it another way, if somebody offers the FLDG, the pricing would be lower compared to what you rate in a year?

[Rakesh Singh, executive]

So Sanket, the pricing is determined that customer profile, credit history, cash flow, everything, and we have built scorecards on the basis of which we price our customers. So this is the product in terms of whether it's secured, unsecured, whether what is the credit profile of the customer, the pricing is a range bound. So that's how we price the customer.

[Sanket Chira, analyst]

More towards a price for the sourcing done to ecosystems or digital partners.

[Rakesh Singh, executive]

Again, the basis projected the credit risk of that customer profile, that customer cohort, we price to the customer.

[Operator]

I would now like to hand the conference over to Ms. Vishakha Mulye for closing comments. Over to you.

[Vishakha Mulye, executive]

So thank you so much to all of you. And if there are any pending questions, and Vijay and [indiscernible] are available. Of course, I'm also available. Please feel free to contact us. Thank you so much.

[Rakesh Singh, executive]

Thank you.

[Operator]

Thank you, sir. On behalf of Aditya Birla Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.