Bajaj Finance Ltd

NSE:BAJFINANCE

Earnings Call Transcript 2023-Q2

[Operator]

Good day, and welcome to the Bajaj Finance Limited Q2 FY '23 Earnings Conference Call. This call is not for media representatives or Bank of America investment bankers or commercial bankers, including corporate and commercial FX. All such individuals are instructed to disconnect now.

A replay will be available for Bank of America investment bankers and commercial bankers, including corporate and commercial FX. The replay is not available to the media. This call will be recorded and the recording will be made public by the company pursuant to its regulatory obligations.

Certain personal information such as your name and organization may be asked during the call. If you did not wish for it to be disclosed, please immediately discontinue this call. [Operator Instructions]

I would now like to turn the call over to Mr. Anuj Singla. Thank you. Please go ahead.

[Anuj Singla, analyst]

Thank you, [ Neerav ]. Good evening, everyone. This is Anuj Singla from Bank of America Securities. Thank you very much for joining us for the Bajaj Finance earnings call to discuss quarter 2 FY '23 results. To discuss the results, I'm pleased to welcome Mr. Rajeev Jain, Managing Director; and Mr. Sandeep Jain, CFO and other senior members of the management team. Thank you very much, Rajeev, and Sandeep for giving us the opportunity to host you. I now invite Rajeev to take us through the key financial highlights for the quarter, post which we will open the floor for Q&A. With that, over to you, Rajeev.

[Rajeev Jain, executive]

Thank you, Anuj. Thank you, Bank of America for hosting us. I have a few other colleagues I have the Managing Director of BHFL, Atul Jain; Anup Saha, Deputy CEO; Rakesh Bhatt, Deputy CEO, BFL, both and a few other members. Wish you all a very happy Diwali, season is right on us.

Let me just -- I hope you -- I'm referring to the PPD that we have uploaded for investors, jumping right into -- on to Panel #4. Now overall, excellent first half, good quarter for the company across balance sheet growth, portfolio quality and profitability. All 3 metrics are looking quite good for first half and second quarter as well. I think the highlight is a pretty strong momentum across all lines of businesses with secular AUM growth in first half. I think that's the -- if I take away one big thing is that growth is very secular across all lines of businesses that we published to the Street.

Pretty confident of reasonably strong FY '23 now. On the going digital metric as we've started a transition from a plan into production, the total number of users now crossed on the app, 26 million. We're continuing to rank among the top 4 or 5 on the -- on Google Play store in the finance section. Phase 1 of Web 2 has gone live as planned, fully on track to go fully digital across all products and services, as we said at the end of Q1 by March '23, both on app and web.

Very quickly, financial metrics, AUM came in at INR 2,18,000 crores, up 31%. OpEx to NIM (sic) [ OpEx to NII ] came in at 35.9%. We've guided for between 35% and 36%. We continue to invest in teams, technology and payments businesses, still came in at 35.9%. PAT came in at INR 2,781 crores which is a year-on-year growth of 88%. ROE came in at just a tad below 23.6% despite the fact that overall capital adequacy remains at 25%, net NPA came in at 44 basis points.

So pretty good quarter, pretty good first half. Just to provide some texture on Panel #5. AUM growth came in at INR 14,500 crores -- that's a tad below INR 14,500 crores. As I said, secular across all lines of businesses, if you refer even to the press release or go to Panel number -- just go to Panel number of the investor debt. If you see the growth across -- one sec, that's Panel #47. You'll fundamentally see one, the growth is the third column, 29%. Other than 2-wheeler and 3-wheeler business, which is still in a degrowth mode, we're hoping that by quarter 4, even that business should be back to growth mode. Sales finance grew 29%, urban B2C 31%, rural sales finance 33%, rural B2C 34%, SME lending grew 32%, securities lending 67%, commercial lending 36% and mortgages 31% overall coming in.

So everything is between 31% and 35% barring loans against security, which had a very, very strong quarter. And if you look at the composition, remains virtually, if you look at year-on-year basis, plus/minus 1 percentage point, remains largely identical. I think -- and that's why I am saying that the highlight of the quarter or the first half of the year is that despite growing balance sheet, the broader mix remained same because that's directly tied to the overall profitability that we deliver as a company.

Going back to Panel #5 now. AUM was up 31%, as I talked about it, added, did 6.76 million loans. That is a growth of 7% on a year-on-year basis, overall [Audio Gap] disbursements grew 15% at just a tad below INR 14,000 crores. Added the -- new customer acquisition momentum continues to be pretty strong, came in at 2.61 million customers. We've added a new panel that I'll cover for a moment as I talk about it to provide greater disclosure on customer acquisition and what it means for the growth of the business.

And we provided a 5-year data on it to give you some texture. We're on track now. We think we'll get anywhere between 10 million to 11 million new customers is what we'll add versus 9 million to 10 million customers we forecasted in Q1. Customer franchise just a tad below 63 million, on course to get to 68 million, 69 million customers by end of the year. 99 locations is what we added, stood at just a tad below 3,700 locations and 143,500 distribution points.

Competitive intensity, pretty elevated. When I look at our B2B adds of retailers, 4 years ago, they used to be 4, 5 competitors. Now they have 17. We are continuing to protect our market share. Continue to hold on to the kind of madness we're seeing across products and services, continuing to protect our margin profile. As I've said many times in the past, between volume and margin, we protect margin.

That does not mean under any circumstances, we're going to lose market share as well, and that's representative of the fact that in the first half of the year, the balance sheet has grown virtually INR 28,000 crores, just a tad below INR 27,500 crores. Cost of funds because of strong ALM management came in at 6.91%.

There will continue to be sequential movement on that as we -- given the kind of how the rates are moving up, strong position in terms of liquidity, given that the [ systemic ] liquidity is now virtually running to below INR 10,000 crores at any point in time from INR 7 lakh crore that it stood just 7, 8 months ago. So continue to maintain a cautious stand on overall liquidity between BFL and BHFL.

Deposits, we continue to gather. I think there's a reasonable chance that we'll exit the year at a deposit book of just about close to INR 50,000 crores. It may be between INR 48,500 crores to INR 50,000 crores. We added just in the last quarter, INR 5,320 crores. If we stay with that momentum, that still will get us to INR 49,000 crores to INR 50,000 crores. It's now at 22% of our consolidated borrowings. We are on track for -- overall for that number to be 25%. OpEx to NIM (sic) [ NII ] I talked about, not much to talk about there.

We'll continue to remain between 35% and 36% and you're starting to see, as you will see, even in the second quarter results, NIM (sic) [ NII ] growth is stronger than OpEx growth. So slowly, we're starting to see the benefit of that flowing as we fully go digital, as the momentum improves, provided there's no event risk being external in nature. I think we'll start to see operating leverage definitely flow through given the kind of strong franchise and low wallet share of our overall versus the size of franchise that we sit on.

Loan loss and provisions have now normalized. In the last 2 quarters, they've been at between INR 725 crores, INR 750 crores. We expect this number to exit at between INR 750 crores to INR 825-odd crores on a quarterly run rate basis. Between 135 to 145 basis points. We continue to hold the management overlay, given the sustained inflation given rapid rise in interest rates, we -- at this point in time, are forecasting that we'll continue to retain the management overlay.

And would accordingly use it either to strengthen our overall ECL model or eventually release it, given that we're seeing strong credit performance across all portfolios. But we're just waiting for some of the clouds at a -- dark clouds that are gathering around the globe to pass away. GNPA, 117 basis points, we are at ever low 44 basis points net NPA. So very strong metrics on GNPA and NNPA.

Even on absolute basis, Stage 2 down sequentially, Stage 3 down sequentially, 10 portfolios are green. I could argue in the 2-wheeler and 3-wheeler portfolio in terms of current basis has come in better than where it was in February '20. However, the gross NPA and net NPA would still probably need 2 quarters before they're back, and that's why we continue to mark them as yellow.

As a result, overall profits grew by 88% to INR 2,781 crores Capital adequacy is strong. Total headcount, we added 1,600 employees sequentially between Q1 and Q2 in the quarter across all the 3 entities, higher addition in BFSL and in BFL. BHFL very quickly, balance sheet up 42% to just a tad below INR 63,000 crores, home loans grew 37%. Of course, [ base of each one is ] different. So keep that in mind, home loans grew 37%, loan against property 37%, lease rental discounting 72% and developer finance 68%. The mix is given below, as you can see, which is home loan is 60% of the balance sheet, loan against properties 11%, LRD is 15%, developer finance is 7% and rural is -- sorry, I'm missing a point, I think DF is 4%. DF is -- Sorry...

[Unknown Executive]

7%.

[Rajeev Jain, executive]

DF is 7%, rural is 4% and other 3%. Overall, approvals grew by 17%. So a little soft on approvals from a quarter standpoint, disbursements remained strong, however, came in at 32%. It had -- they had a very good quarter. Cost of funds continue to lag behind the BFL and that is really one of the objectives because eventually, that is one of the purposes that we see yield curves to be lower for mortgage companies versus nonbanks.

So you're beginning to see the benefit. You've seen that benefit over the last 4, 5 quarters play, and it continues to play. Cost of funds came in at 6.63%. The added liquidity buffer was just a tad below INR 1,800-odd crores. Borrowing mix remains steady. Capital adequacy pretty strong. So they also don't need capital. They are at 24.6%. They delivered a net profit of INR 306 crores, a growth of 84%. So overall, a pretty good quarter. Our loan loss and provisions given at 30% (sic) [ INR 30 crores ] versus INR 61 crores a year ago. They have a management overlay of INR 242 crores.

Of course, it's included in the consolidated numbers of INR 1,000 crores. GNPA and NNPA amongst the lowest in the industry at this level of scale at INR 63,000 crores, total gross NPA is at 24 basis points and net NPA is at 11 basis points. Stage 2, Stage 3, even here sequentially down. Headcount was down 450-odd people in the current quarter. BFSL, we are in a build phase. It still continues to be early years.

The way over the last 5 years, we built out BHFL, we are on track that next year would belong to BFSL as a company. Quickly, omnipresence update. I'll just -- I don't mean -- intend to read through the same. So on geography, we talked about 99 locations added on app platform, fundamentally on track to go fully digital, what we had planned for Sprint 1 of Phase 2 have gone live. Sprint 2 is on track. I think all products and services across -- [ 66 ] different products and services that we offer to the consumers, journeys will be available by March '23.

On payments, lots of work in progress. I think we'll have a much bigger update to provide you in -- at the end of Q3. So we remain on track for payments as well. This quarter is a big quarter in terms of what we are delivering in terms of capabilities for -- as a company for consumers. Web platform, on track for Web=App by March '23. Phase 1 has gone live in staggered release and Phase -- very similar, starts to look similar, start here/stop there, stop there/start here in the next 15 days' time as we finish the season.

And by March '23, both app and web will look identical and you'll be able to stop at one place and start another place and vice versa. So on track. These are metrics. All metrics are moving in the right direction. What we have just to help you -- Level 1, don't -- I'm not going to go through metric. The only metric that I'll go through is what we don't believe will meet our FY '23 estimates on.

Overall, the point I want to make is this is not a -- this is about -- this is the way we conduct business. So we continue to be highly disciplined about the execution of the omnipresence strategy. Point number one, rapid adoption of omnipresence across all processes of the company and continued progress on all metrics to make sure in production, we are achieving what we eventually build this out for.

And as a result, in Q1, we articulated that what we think this will deliver as estimates. What you see as green fundamentally represents that as of first half, we are on track to deliver them. So the only one on this panel that you see, we think the wallet accounts instead of 18.5 million, given that we may be just a tad 1 million lower accounts. It may be instead of 18.5 million, 17.5 million is really how it's looking like.

Otherwise, all the numbers are looking -- may probably are either going to be delivered or we may exceed those numbers based on how Q3 goes. Same point applies to Panel #13. We are on track. The only thing that you see is digital EMI card acquisition, we said we would get to 3.8 million to 4 million. It's probably going to look like 3.6 to 3.7 million. But I think even that will become much more clearer whether we're yellow or green as we exit this quarter.

But otherwise, I think we are pretty well positioned. These assets are in production. They are delivering to us what we would like them to deliver. They are delivering to the consumer in terms of service experience what it should deliver. And as a result, we are now on the app alone, the active consumer base is 26 million customers, we are organically adding on an average, anywhere between 4.5 million to 5 million downloads now a month. So not most or virtually all of it is organic. 90% is organic and -- 95% is organic as [ Kurush ] is confirming and 5% is what is inorganic.

So clearly, because we are bringing value to the table that we're seeing -- and have stitched all the processes in the company that we're seeing organic momentum build out on it. This is a new panel, Panel #14 that I thought I will just take 2 minutes to give you some texture. This is a -- this is fundamentally a 6-year data. That's on one hand. The first half data is the seventh metric. Principally, we thought we'll just give you some texture on how customer franchise is leading to AUM build-out and profit build out. And what does the cross-sell franchise, which we've been talking about to the Street for the last 15 years, principally mean.

So if you just focus on 2 columns, let's take FY '17 for the moment and FY '22. And mind you, FY '22 was not a full year, it was only 3 quarters. But just from a relevant standpoint, and hopefully, this will be first year -- first full year with no event, FY '23 should be that way. It will become much more relevant by end of FY '23. So if you see, we were booking in FY '17, 10 million loans. Last year, we booked 24.5 million loans. This year, we'll probably book 31 million, 32 million loans.

New customers, we were adding 4 million in FY '17, we added last year 9 million. As I said, we'll probably add 10 million to 11 million this year. Existing customer mix on the loans book used to be 60%, it's today at -- last year was 63.5%, this year so far is at 62.3%. The total franchise, which is gross franchise, was 20 million, is at 57.6 million, and first half is at 63 million, and we think we'll end the year at 68 million, 69 million. The cross-sell franchise was 11 million, is at 33 million in 6 years.

And mind you, one year was a gap year which is FY '20. And we foresee that the cross-sell franchise alone will be 40 million consumers, probably a little higher, 41 million consumers as we exit the year. We don't cover loans done. Products that we sell, like co-branded credit cards, we used to be doing no credit cards. We now -- last year, we did 1.36 million, as I said, because it was a 9-month year, we're already at a rate of 1.8 million, 1.9 million new cards for the current year.

We used to sell very little other financial products to existing customers. We last year sold 2.23 million various other products, which are what I would call non-loan non-lending products. This year already [indiscernible] at 1 million in the first half.

What all this means is how is AUM per cost sell franchise moving. It used to be at 54%. And mind you, we are only 6% of franchise is principally commercial. So 94% of the franchise business or even if you add let's say, developer finance for a moment. Even that leads to 35%, 40% of the business gets converted into mortgage loans. So I can argue you on that as a direct correlation. But let's say plus, minus 10% of the franchise is commercial in nature. 90% of the business has a direct correlation.

And if the -- if the mix has not changed, which it has not changed with FY '17 and FY '23 first half of the year, then all things being same, the average AUM per -- not average, AUM per client or cross-sell franchise used to be INR 55,000, is at INR 58,500, it is at INR 60,000 and the profit per customer, which used to be INR 1,700, is at -- last year was at INR 2,145 and if first half of the year and second half of the year, [ even if you ] keep them similar, it's probably at INR 3,000. I think I thought we'll just provide some texture to how the correlation between different metrics are moving to provide better clarity is all the purpose of this panel.

We'll publish this panel every half yearly because quarterly number may not make too much sense. So we'll publish them in March again. But just for continuity sake, we may publish the quarter, but relevance of this panel will be annualized or at the very least half yearly. That brings me very close, we'll just go to -- I've already covered the panel on the product mix, which was secular.

We'll just quickly cover, yes, on financials, that Panel 32. Balance sheet grew 31% -- AUM grew 31%, assets under finance grew 32%, total income grew 29%, interest -- NIM (sic) [ NII ] grew 31%, OpEx grew 24%, loan losses and provisions [ degrew ] 44%, but they are largely now annualized to what we see the number to be between INR 725 crores to INR 800 crores on a run rate basis at 135 to 145 basis points on an -- as average cost to AUM and profits grew 88%.

Just very quickly as to last 2 panels in terms of portfolio quality. We are -- we continue to look quite strong as is the case in Q1. Most of them are looking better than February '20. Not most, all probably other than -- even 2-wheeler, 3-wheeler, as I articulated, is looking better than it was in February '20. But because of the GNPA position still and NNPA remains elevated versus February '20, we've penciled it as yellow.

Otherwise, most portfolios are now in better place than they were in February '20. I think that's really from us for the quarter. Happy to take questions and respond.

[Operator]

[Operator Instructions] The first question is from the line of Hardik Shah from Goldman Sachs.

[Hardik Shah, analyst]

Rajeev, congratulations on a good quarter. My first question is how many employees are into recovery and collection channels out of the total 39,423 headcount that we have?

[Rajeev Jain, executive]

Yes. Okay. It's just about tad below 9,500 people.

[Hardik Shah, analyst]

Okay. And my second question is, with this inclusion in upper layer category of [indiscernible] what are the plans over the next year in terms of growth in listing requirements?

[Rajeev Jain, executive]

We don't foresee any change as a result of the [ map debt. ] We don't foresee any change in the growth outlook as a result of -- at this juncture as a company.

[Hardik Shah, analyst]

Okay. And in terms of listing requirements?

[Rajeev Jain, executive]

I mean on the face of it, it's still 3 years away, we'll see clarification, is what our view is and go by what regulator has to say.

[Operator]

Next question is from the line of [ Sourav ] from JPMorgan.

[Unknown Analyst]

Sir, just 2 questions. One is, have you seen your [ subvention ] market share? How is it behaving at the store? And the second is essentially on this -- on the Bajaj, on the mall side, what is the average ticket size of these loans that you're syndicating, this 2.6 million, 2.8 million loans that you're syndicating? What will be the ATS of these loans?

[Rajeev Jain, executive]

ATS hasn't changed. So overall, market share other than total credit and our total balance sheet, rest of the numbers are best effort basis. If the data is not a verifiable data, then that number is a highly subjective point, is the first point I must make.

So market intelligence can be -- is a matter of interpretation and perception. So whatever number I give you will be of as much my perception and interpretation is, as I said, INR 2,18,000 crores is real. Total credit is at, let's say, the regulator publishes is real. So that's our total market share. Rest of the number or wherever the numbers are published by verifiable data. Having said that, to just save the point, clearly, as I said earlier, I used to see 4 lenders and now I see 16.

And if I was to tell you that we are holding our market share, it may -- you may or may not agree with me. But we're doing everything we can to defend our market share. So it's point number one, I would make. Would I believe that we would have lost some share? The answer is yes because of the just -- versus 4 if the number goes to 16, and we are very, very dominant player at the store or in that line of business. It's like Maruti used to be a long, long time ago, and numbers had to go down from where their dominance used to be. So that's point number two. Specific market share, whether if a competitor gives me or I give you is of no consequence.

[Unknown Analyst]

Okay. Okay. And the average ticket size of these loans is 2.8 million, what should we assume, sir?

[Rajeev Jain, executive]

Digital estate, don't change, does not change. In fact. [indiscernible], we still don't offer, let's say, smaller accessory, which we intend to start offering in -- so let's say, iPods and so on and so forth, which is much higher velocity and volume, we still don't offer. Sometime by March, April, we'll start to see that. In a way, then ATS may be a relevant conversation, today the ATS versus ATS we do is higher.

[Unknown Analyst]

Okay. Okay. And just one follow-up, sir, the market share loss. You've seen more impact coming via FinTech or with banks like -- is it due to Pine Labs?

[Rajeev Jain, executive]

I don't see FinTech there. I see lenders really there mostly. If you pick up the paper, I mean, the I see 16 lender there. They may be working through an aggregator, that's possible, but principally I see lenders being there mostly.

[Operator]

Next question is from the line of Sameer Bhise from JM Financial.

[Sameer Bhise, analyst]

Just had a question on the ROE, ROE profile. I mean for last 3 quarters, you have been overshooting the guided range. So some thoughts on it on how sustainable and on the medium term, how does it look? Or you want to revisit that? Probably the ROE is highest in a decade or so. So just wanted some thoughts there.

[Rajeev Jain, executive]

Yes. Look, if you go to Panel #18, our long-term guidance on consolidated basis doesn't change. AUM growth of 25%, 27%. Profit growth of 23% to 24%, long-term guidance hasn't changed. We are obviously -- we had -- as you rightly saying, we had difficult time in COVID.

We are having a -- that was super normal negative, this is super normal positive. If you aggregate, as we say, we want to compound and deliver a 19% to 21% ROE on a sustainable basis. We've done that now for the last 12 years. So -- and we want to do that hopefully for the next 10. So I think that's really where the thought process is. We are clearly going through a super normal profitability zone, lower interest rates, now stronger momentum, lower credit cost.

[Sameer Bhise, analyst]

So then you are also spending more? So it...

[Rajeev Jain, executive]

We're also spending more. We are using -- In a way, I could argue we are -- this is a great time to invest because we are using that -- and bad times don't last, good times don't last, do whatever you will do in that time. So to that extent, I think as good times don't last, the operating leverage should start to play through. So there'll be a time when NIM will be moving slower, but operating leverage will move better.

There will be time. So very clearly, we were at 32.5%, 33% prior to COVID. We are at 35.9%. So there will be a time for it to go back to 33%, and there may be time where NIM will be softer. And as operating managers, we are responsible to ensure we provide that degree of flexibility in the P&L or management of P&L to ensure we deliver sustainable value to the shareholders, and that's really what we are up to.

[Sameer Bhise, analyst]

Fair enough. This is helpful, though. I just still wanted to probe you that given the share of mortgage in the consol balance sheet goes up, your ability to lever up probably...

[Rajeev Jain, executive]

Look at the last 4 years, it's at 32% only. And mind you, they are not -- they don't have a small base. Their aggregate balance sheet is INR 70,000 crores mortgage now. So it's not small by any means because you see [ 63,000 ] sitting in BHFL, another INR 7,000 crores is sitting. So when we give you 32%, it's on INR 70,000 crores. Neither INR 70,000 crores is small, nor INR 2,18,000 crores is, the -- it's very hard to move the mix.

And we are in a growth mode, if you go to Panel 47. In all lines of businesses, even 2-wheeler, 3-wheeler, hopefully by the fourth quarter should be in a growth mode. So I can't say -- I can say related to the previous question because I have a very dominant share in the sales finance business, so I will grow in line with the market, even that we have so far beaten because we've been expanding geographies. That geographic expansion, as I said earlier, will probably stop by March '24, most plus/minus.

So we're still maintaining share because of strong geographical expansion. But other than the 2 lines here, I would say, for a sustained long period of time, we should be in a very similar growth mode. In the process, the mix should not change. And in the process, hopefully, the overall P&L profile should not change.

[Operator]

Next question is from the line of Kuntal Shah from Oaklane Capital.

[Kuntal Shah, analyst]

And I have just 3 questions. One is on what are the key metrics?

[Rajeev Jain, executive]

Only two are allowed as per BofA.

[Kunal Shah, analyst]

Okay. What are your key activation, engagement and retention metrics which you are seeing in the Track One and which are the worrisome point out there? And many of the FinTechs are moving money, but they are not managing money or lending money well.

But at some point of time, you will have to also move money. So what are your thoughts on ability to move the money for the customer behalf and become #1 or #2 on the app metrics.

[Rajeev Jain, executive]

Kuntal, principally on point number one, there is a HEART framework, [ Kurush ] had talked about it. His heart goes out for those HEART metrics, we can publish them. They stand for happiness, engagement, adoption, retention and task success. It's a global framework. It's a Google framework. We can publish it.

But at a fundamental level, it will lead to more questions. It won't lead to an outcome. We are at -- so if you take happiness, we are at 4.2 on Google Play store from a rating standpoint and so on and so forth. I think what is happening, so we have hordes of data. We have hordes of metrics that are available. We are waiting for some degree of stability.

What I mean by that is that an existing customer, HEART metrics work differently from a prospect customer that I know and from an [ NTV ] customer that I don't know. And the mix shifts the HEART metrics. So there will be a point in time maturity where we are quite happy to publish these metrics. As I said, we have tons of data that we can publish.

But because of the mixed moment, it's not an appropriate time right now to publish them. Overall, however, we are giving you outcome metrics, that's Panel 12 and 13 and -- to give you say texture that this is not for happiness, but for business. So I think that's really -- we can give you input metrics leading to output metric because that's how we manage the funnel. We -- in marketing terms, they call it funnel or in management of funnel, but it may lead to more confusion, more data may lead to more confusion.

On second point, payments, or moving money, that's really what the objective of payments is. The principal objective of payments is one engagement and two moving money. And our [ 70 million ] franchise, hopefully, sometime in the near future [ 100 million ] franchise moves a lot of money. So we want a reasonable share of that money that they're moving.

And that's really why for the last 18 months, we are investing in payments. And next year, we are clear that maybe in addition to the B2B volumes we move close to around INR 50-odd thousand crores of [ GMV, ] we should be able to move in next year, which will be the first full year of the entire payment stack that we would have actually put on table.

It is very much possible we may beat those numbers. But we'll see. I'm not -- they don't make money that everybody knows now. So anyway, it will have no impact on what that means, but it only gives us greater share of the clients' mind and is wallet. And those data points are important. And will help us to lend better, do insurance better, do mutual fund better, which is -- which we understand fully well. So that's a response to your 2 questions Kuntal.

[Kuntal Shah, analyst]

I'll join the queue. I have one more question. I'll join the queue.

[Operator]

Next question is from the line of Umang Shah from Kotak Mutual Fund.

[Umang Shah, analyst]

Congratulations to the team for a great quarter. Two questions. One is on -- pertaining to Slide #14, right? I mean the metrics that you have provided, thanks for sharing this. If you look at the cross-sell of other financial products to existing customers, right. There is a marked shift in FY '22, now how should we read this in context of the fee income, which anyways is -- or a noninterest income pool, right, which is materially stronger compared to some of our competitors. How does -- how will it change this particular metric going forward?

[Rajeev Jain, executive]

As we go more and more digital, this will happen more and more. There are many more lines over the next 12 months where customer buys them because these are smaller value, he is buying an insurance, he is a mutual fund, he's buying a pocket insurance, he's buying them.

The only means to stimulate him is through notification infrastructure and through banner infrastructure on the app. He's buying them. That is really the overall objective of transitioning to fully going digital because we clearly believe that the customer has a very large wallet. Lending wallet, and insurance wallet, a payment wallet, a mutual fund wallet, a securities wallet.

These numbers would keep growing Umang. We ourselves are, I must make a point are surprised by the take-up, so it surprised us on the positive, I would say. And you should expect more of it to happen as we fully go digital or go fully digital.

[Umang Shah, analyst]

Understood.

[Rajeev Jain, executive]

What will that mean in number, it's a little early. But next time -- by next year, we'll provide that outlook as well.

[Umang Shah, analyst]

Great. Rajeev, second question is on -- clearly, I mean, we have been talking quite a bit about our omnipresence strategy and clearly going digital on all products, all lines. In that context, how relevant is geo expansion for us? And anyways, I mean, the other part of the question is that we are anyways fairly deeply present, right?

So incrementally, the geo expansion that we are doing, how relevant is that for our growth. I just wanted to understand that?

[Rajeev Jain, executive]

It's economic. I must make that point. It's very economic. So it's not for hobby. That's point number one. It's -- we've now reasonably perfected the frame. It's very linear, which means we know in the credit business that we're in, in the 7th or 8th it makes money.

So it's very economic, it's very hard. It's harder for anybody -- for most people to crack. So that's the second point. Third point, we will remain omnipresent only. We got -- customers still -- I mean the M3 money supply and the economies are ever high. That means customers still use cash, point number one.

It's doubled from, let's say, 2016. I mean that's the nature of the consumer. That's really how we're all brought up. So cash will remain important. That means branch will remain important. Two, debt management will remain important as long as credit exists. Three, service will remain important, but service, we are very clearly seeing is moving more and more and more digital.

So but the cash and the debt management infrastructure will remain relevant as long as we're in the credit business. Lastly, deposits, take all products and services, a branch provides meaningful trust and confidence to the consumer to do business with you. I think that's the third point I would make an important point. Anup wants to make a point.

[Anup Saha, executive]

I think as a key play from here, we take more products to more geography. I think that's another big play because as we look at a very well-diversified portfolio of products we have, the B2B and personal loan is where we are present in all the geography.

But from here on, where you really [ ride ] the velocities like as we start our open market 2-wheeler, gold loan. We take more products to more geography, and I think that's a multiyear journey of growth.

[Rajeev Jain, executive]

So the way -- I think it's very important point Anup is making that you've got boots on the ground, we still don't have all products on the ground. I mean -- and we will -- and between '15 and '20, let's say, '23 or '24 we would have completed what I would call, [ that's when we embarked on Break-to-Grow ] as a frame and got to Bharat.

The next phase is all products to Bharat. We don't have all products to Bharat or India. We will take all products in a templated, disciplined and rigorous manner to Bharat over the next 8, 9 years. That itself could be a 6, 7, 8-year journey for us as a company. So omnipresence will remain very important. Last point, we're in a highly regulated business.

Boots on the ground will be needed. They will become more productive, but they won't go away. They just -- result of automation, result of digital, they'll become more and more productive, more efficient, but not going away.

[Operator]

[Operator Instructions] Next question is from the line of Piran Engineer from CLSA.

[Piran Engineer, analyst]

Congrats on the quarter. Just a couple of questions. Firstly, what's the strategy in home loans because last few months, we've been 30, 40 bps lower than players like SBI and HDFC. So what exactly is the thought process of undercutting the market leaders? Is it mainly a market share gain strategy or how do we really read this?

[Rajeev Jain, executive]

Yes. I mean we've come to a conclusion that home loans is as much psychology business as its business, and we've seen that play. I think you will find that in certain pockets where we are very, very comfortable. As you can see, clearly, BHFL is beginning to -- their cost of funds have begun to be lower than structurally now over the last 5, 6 quarters than BFL.

Because as I said earlier in my opening remarks, that a mortgage company has a -- the interest rate curve is lower than non-bank. So we're seeing that benefit play through now as the company has completed 5 full years of operation. Very clearly, both in the bond market and otherwise, we're seeing that. And it helps that they have amongst the lowest gross NPA and net NPA.

So that benefit we are passing through to take certain positions in certain affluent spaces. So let's say, crore of home loan, we have taken a position that we want to be the lowest. Of course, mind you, the market doesn't sit there. The market remains -- continues to sit between INR 50 lakhs and INR 75 lakhs. But we do want to start to take a position in certain of these pockets and these cohorts to make sure we can create a space for ourselves in a market which is intensely competitive.

And the real big are playing on the strength of pricing and on the strength of distribution act. So -- but so there's no -- we're trying to make a space for ourselves, Piran. That's all we're trying to do.

[Anup Saha, executive]

If I may add, Rajeev, what -- would price and process are the 2 distinguished because generally, we talk about home loan market as a commoditized market. If it is a commoditized market, we believe we have a better process.

Then coupled with that price positioning in the premium segment of the home loan, we believe, is going to get us on a faster track to gain market size, both psychologically and then consequently, the market share. That's the strategy.

[Piran Engineer, analyst]

Got it. Okay. That's clear. And sir, secondly, and this is probably a bit more long term, like 4, 5 years down the line, where do we really see the customer count settling at today, which is INR 6 crores, INR 6.5 crores, and obviously, the [ TAM ] is something that most investors, including [ the struggle ] with -- is it going to be INR 10 crores?

Could it be materially higher? Because on Panel 14, you rightly stated that your AUM per cross-sell franchise is stable. So a lot of growth comes from growth in the franchise. And just want to get a sense of what that addressable pool really is in your view in the more long term, not next one or two years?

[Rajeev Jain, executive]

Bottoms-up is a better way to play India than top-down played by the year. We ourselves are surprised by -- or we have upgraded the guidance to 10 million to 11 million. We have an ambition to have 100 million consumers. Now as you rightly said, yes, I'm not chasing the number.

May we get there in -- as we fully go digital, it may happen in 2.5 years. It may happen in 4 years. It may never happen. I mean -- but we are playing this business bottoms up, the earlier conversation on omnipresence from geographic expansion to going digital, I think the opportunity is tremendous, but it's a credit business. It's credit and risk first. Otherwise, if that does not come into the way, the ambition is 100 million consumers is really what I would say.

[Piran Engineer, analyst]

Got it. Sir, just one last clarification on Slide 13. In your past -- your Panel 13, in your app business metrics, you got digital EMI card acquisition and then you've got a similar number on the last product, so I guess the first one is it the number of consumer durables purchased on the app, like the 100,000 number for Q2 FY '22?

[Rajeev Jain, executive]

So you're referring to Panel 3, the 3 lines, that digital EMI card acquisition in the quarter. This is what you're referring to?

[Piran Engineer, analyst]

Yes, which is 100,000 for this quarter. Is that a number of consumer durables purchased on the app?

[Rajeev Jain, executive]

No, no, no.

[Sandeep Jain, executive]

Great. So, 100,000 are the number of customers who have procured digital EMI card from us.

[Piran Engineer, analyst]

Sandeep, that is 664, right below.

[Rajeev Jain, executive]

[indiscernible] 100,000 came from [indiscernible] came through web just to give you -- it's all digital. So -- and in fact, it's an interesting point you make the point. When I was telling on this call 9 months ago that we think web will be -- web helps to discover, an app helps to exploit, this is really the point we're making that you see -- and you will see this play product by product.

We are reasonably clear because just the sheer scope of discovery of web is going to surprise even us. We are very clear that it will be bigger. App is to exploit, engage. Web is to discover. As you can see, 100,000 came in from the app, they came, they started from the app, completed the app, on the app got the EMI card. But 564 came on the web. We've different affiliate marketing channels and so on and so forth.

[Sandeep Jain, executive]

And incrementally, as we move -- yes, incrementally, as we move towards App=Web and Web=App. I think it becomes irrelevant whether the customer is starting the journey from app or web, it will get completed on either of the platform.

[Operator]

The next question is from the line of Nidhesh Jain from Investec.

[Nidhesh Jain, analyst]

Can you share the yield on urban B2C and rural B2C portfolios?

[Rajeev Jain, executive]

I mean we don't do segmental -- Having said that, I must make a point to you. It's all in public domain now, right? I mean it's on the app. You just download the app, put your location and based on if you're an existing customer, you'll get a price and so on and so forth.

I mean it's out there fully in public domain. Of course, there are different cohorts, as I keep making a point, we don't run one urban B2C, and we don't run one rural B2C. It's based on a 40, 50 cohorts at the very least, it may be higher cohorts on the other end. That's really how we do risk separation and price segmentation and price separation.

So -- but we don't publish that what the effective yield is because that may also change. At a fundamental level, if the mix change of the cohort, the net yield on that would change. So that's really how I would respond to your question.

[Nidhesh Jain, analyst]

Sure. So the second is, there is clarification for the Panel 14 existing customer mix 62.3% which means that out of the new loans booked, 62.3% of the loans has been given to existing customers? Is it right [indiscernible]

[Rajeev Jain, executive]

Yes.

[Operator]

Next question is from the line of [ Nikej Shah from Motilal Oswal. ]

[Unknown Analyst]

Just had 2 questions. One is on the fee income part, which I think in the previous participant, you did answer in the web and the app environment, the fee income would grow faster than the [ AUM ] growth. This would be additional lines of fee income? Or would there be some cannibalization?

[Rajeev Jain, executive]

No, we don't foresee cannibalization. Clearly, it's a wallet share conversation. As I said, from push we transitioned to pull. This is what he wants to buy because these are lower value, higher velocity, of course, stimulated, similarly being defined as banner. As I earlier said bannerization, notification infrastructure, nudges, end of journeys and so on and so forth, what are typical digital marketing infrastructure would do, but -- these are new lines.

And as I said earlier, for engagement or to meet the latent needs of the consumer, you're going to see more and more come to play.

[Unknown Analyst]

But how do we -- is there some way to quantify because it's -- there are multiple lines of fee income that you would be doing it, so.

[Rajeev Jain, executive]

As I said earlier, we'll provide an outlook on that by next year.

[Unknown Analyst]

Got it. And the second question, [ on the business, ] while we do understand you've made an application for the credit card license, when do we expect clarity on that? That will be all.

[Rajeev Jain, executive]

When we get clarity? So when we get it, we apply it. Yes, when we get clarity, we'll provide you clarity.

[Operator]

Next question is from the line of Shweta Daptardar from Elara Capital.

[Shweta Daptardar, analyst]

Congratulations on great set of numbers. So 2 questions. On the rural business side, if I look at Stage 3, sequentially, there has been marginal spike. So what usually would attribute for [ the TAM. ]

[Rajeev Jain, executive]

So actually, you will see spikes, not even just in rural, you'll see across. And at a fundamental level, they're all still below. We'll publish, just too many columns, so we didn't publish, but as we published in the graph behind, they're all still significantly below Feb '20.

So numbers movement is marginal, number one, but it's still significantly below Feb '20. The right way to look at this would be December '19. So -- that's how you should read these numbers. So we plot against 31st March '22, got one more column of December '19, the numbers would -- you would make -- because we don't want to leave -- see, this is -- as I said, we were at 130 to 140 basis points, average credit cost to AUM.

We are not guiding that it will be 1%. I mean we don't want to leave money on the table. We are a growing company. We manage risk well. We manage risk consistently well over long periods of time. But this is not the new normal that we want 100 basis points credit cost. As long as it remains in a corridor of 130, 140, 145 basis points, we are very comfortable with the profile.

So it's by design. And you will see these numbers still move until each of these lines, principally if they're worse off, go back to, which is the case of 2-wheeler and 3-wheeler. Until then, we will keep stamping as yellow, and others will remain green until they go back to pre-COVID, which is December '19. Whenever [ they bust ] December '19, we will change the color coding to a yellow, red based on our management assessment.

[Shweta Daptardar, analyst]

Second question, if I look at gold loan franchise, I think should -- we're putting up on an average 20-odd [indiscernible] can you just give us color on the entire modus operandi? How is the market positioning? How do you win the competition and where do we see this business growing as an overall book?

[Rajeev Jain, executive]

We are very small to give you guidance on that. Only outlook I can give you is that you should expect to see more infrastructure rollout in this space over the next 6 to 8 months. Is the only point I would make. We are -- we will see greater momentum in physical infrastructure, which means growth in business over the next 9, 12 months.

It's growing even now, and that's why we're investing. But we intend to invest lot more as over the next, as I said, 6, 8, 9, 10 months. Because we've come to just -- and the last point I would make, we've come to a conclusion that fundamentally reached a point where principally, it cannot sit in the existing branch. It's a lot more, it's viable. We've now -- we understand how a stand-alone gold loan branch works.

So -- and we are clear that it's not serving the needs of the consumer in the branch that it sits in. So if it sat independently, distinctly in -- on a ground floor infrastructure, consumer facing, it's a lot more viable, profitable effective -- so sorry, and dedicated teams as well. So you will see a lot more action here over the next, as I said, 6 8, 9 months. It's a fair question you asked. You asked the question because you will see more movement here in this line.

[Operator]

Ladies and gentlemen, we'll take the last question from the line of Param Subramanian from Macquarie.

[Parameswaran Subramanian, analyst]

I have a few questions. Firstly, on -- if you look at the digital transformation.

[Rajeev Jain, executive]

As I told Kuntal, Param, you can ask 2.

[Parameswaran Subramanian, analyst]

Okay, okay, okay. Sure, Rajeev. I'll limit to 2. So first question, firstly, sir, if you look at -- if you are talking about digital transformation, whether we like it or not, we all appreciate you're working on a very large base of customers, but the volume of loans booked were still flattish compared to, say, 3 years ago.

The reported customer franchise has increased significantly. So if we're talking about digital transformation, don't you think on a volume basis, we should start looking up and there is -- the reason I'm asking is there is a big divergence now between the volume of loans that you're booking versus the value growth that we are seeing in the AUM that you've highlighted before as well. So your thoughts on that, Rajeev, firstly.

[Rajeev Jain, executive]

So you go back to our 2 years ago transcript. You'll find -- we used to do wallet loans, 200,000 a quarter. We stopped doing them. You will find that we were doing retail EMI purchases loans, 220,000 a month, which means 700,000 number, I think, by the time we exited in Feb '20, it was 650,000, 700,000 a quarter.

That number is at 200,000 because we -- so both these contributed to in a quarter 0.5 million additional loans. Okay, we walked away from wallet loans clearly, one, we lost money. Two, RBI new guidelines came in, and they're in the right direction. Two is [indiscernible], we came to a conclusion that at a fundamental level, it's only at INR 14,000 plus in retail EMI card spend that we are viable over cycles. In the cycle, in an up cycle, we were in money, but in a down cycle adjusted for both, we were not in money at less than INR 14,000.

So the call was that rather than doing 225,000 loans, we are now doing 70,000 loans, but we make money and that's really what the purpose is. So apple-for-apple, new loan book is not a metric incrementally increasingly. And that's why it's relevant, Param, you're asking the question, we thought we will start to talk in addition to new loans book, AUM because what have we said always, it's acquired to cross-sell. The means of cross-sell over the last -- means of acquire over the last 15 years are also changing.

Mind you, go back to -- let's stay with the -- go to [ digital guys acquired ] -- okay, that -- actually, we don't have FY '17 data. So 664,000 digital EMI guys acquired, in '17, they didn't exist. And as -- we still don't publish mind you new payments customers, we've not started to publish. Sometime by quarter 4, we will start to publish them. And we've taken a call, we'll only publish those who are full KYC since we're discussing [indiscernible] will discuss that as well, right?

So we'll start to publish that number, which we're not publishing as yet. So -- and we don't want to deal with -- don't want to count a non-KYC customer as KYC. So the means of customer acquisition are changing. The means of mining are changing. Important is Panel #14 is AUM per customer changing and its profit per customer growing. If we are growing, that's really what should matter.

And digital transformation, as I have said, remains a means to an end. It should mean stronger growth, sustained momentum, growth in customer wallet and hopefully, higher profitability. That's really all it is.

[Parameswaran Subramanian, analyst]

No, I appreciate the mix shift away from [indiscernible]. It's even adjusting for that because if I'm not wrong, it was less than 10% of the -- on a volume basis. So that's why I was asking that. But moving on, if I could ask on the ticket sizes in the personal loan business, how has this moved over the last 3 or 4 years, if you could highlight that?

Because some of our channel checks seem to indicate that it's gone up significantly. So if you could give some color on where the ticket sizes on the personal loans are on urban B2C and the rural B2C business? And how it used to be, say, 3 or 4 years back.

[Rajeev Jain, executive]

The mix has not changed. I go back to your point. The mix is the same. See, this is the point I keep making. If the mix is not changing, nothing else is relevant. The mix of the business is from -- go to Panel 47, so let's say, urban B2C 20%, 21% I don't know if I have older presentation. And a year later, it's 20%. I don't think this number would look between 19% and 20%.

If you open even 2019. So you should -- so as the mix is not changing, that means the overall business model is not shifting in any given manner. Whether for high risk or for lower risk, mind you. The earlier question was for lower risk that if mortgage grows, risk would be lower, what would happen. Your question is on a higher risk.

[Parameswaran Subramanian, analyst]

No, no, it's not on risk, Rajeev, you -- so basically, I'm asking on ticket sizes, how much headroom more do we have to expand ticket sizes because if we -- the movement over the last 3 or 4 years, could give us some color on that?

[Rajeev Jain, executive]

Param, what happened is we are very clear, inflation in India is under 7%. Every year, annually, we principally track only inflation. On January 1, we had inflation as a growth in a personal loan business and run with it. Fundamentally, it will run with inflation plus 2%, 3%, depending on if you're doing well, plus 2%, 3%. If you're doing badly, minus 2%, 3%.

That really was inflation plus 2%, 3%, inflation minus 2%, 3%, so that's really how -- the ticket sizes don't move. Having said that, last point I must make, at a fundamental level, as you go down and down into India, clearly, affordability is an important dimension. By design, it's more low and grow. Okay, by design. So India in [indiscernible] so we break in India into 23 different Indias. And those 23 different Indias is how we then run the model.

[Parameswaran Subramanian, analyst]

Got it. If I can ask one last question since I am the last person in the queue. Yes. So you mentioned that at the margin, you might be losing the market share at the store in terms of financing consumer durables. So this has been the key customer acquisition engine for you. Do you see this impacting the cross-sell franchise in any way if this sort of competitive trend persist because like you highlighted, there are 16 lenders at the store now.

So does that affect you in the cross-sell journey, say, 3, 4 years down the line when you're cross-selling a personal loan, because the acquisition franchise could be impacted because of that. That's my last question.

[Rajeev Jain, executive]

So fundamentally, Param, on a lighter way, and I published Panel #14 for you only, 14 -- 13, which Panel is it, 14, Panel is for you only. And I can't foresee 4 years because I didn't foresee COVID, I didn't foresee where interest rates are headed. So I can't foresee 4 years, we'll build micro up. We will take year at a time. As management, we still take quarter at a time because we have a quarterly test. So channels are changing. Business has not changed, means are changing.

And I think digital transformation is delivering to us at a means level more opportunities than challenges because the consumer has changed. We're all paying for our coconut water on UPI, we were not doing that. So the consumer has changed. The means business has not changed. We are in the credit business. If the means don't change. So means are representing more opportunity rather than challenges because consumer would go to those who are meeting his means because he's gotten used to those means.

You must, of course, understand business because if you give money against your coconut water, you're going to be in trouble. So that's a different point. But -- so I don't foresee challenges, I see opportunity.

[Operator]

Thank you very much. I now hand the conference over to Mr. Anuj Singla for closing comments.

[Anuj Singla, analyst]

Yes. Thank you [ Neerav. ] Rajeev sir, any closing comments before we conclude?

[Rajeev Jain, executive]

No. Wish you all a very happy Diwali, go shop, it's raining heavily across India. So -- and raining every day in the evening, hurts business more. So please shop during the day. Thank you. Thank you. Have a good year ahead. Thank you. Thank you all. Thank you, Anuj for hosting us.

[Anuj Singla, analyst]

Thanks to you, sir, for giving us the opportunity to host you. Thanks everyone for joining. This concludes the call for today. Over to you, [ Neerav. ]

[Operator]

Thank you very much.

[Unknown Executive]

Thank you. Thank you all.

[Operator]

With this, we conclude today's conference call. Thank you for joining us. You may now disconnect your lines. Thank you.