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Can Fin Homes Ltd
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Ladies and gentlemen, good day, and welcome to Can Fin Homes Limited Q3 FY '23 Earnings Conference Call hosted by Investec Capital Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nidhesh Jain from Investec. Thank you, and over to you, Mr. Jain.
Thank you, Nirav. Good afternoon, everyone. Welcome to the Q3 FY '23 Earnings Conference Call of Can Fin Homes Limited. To discuss the financial performance of Can Fin Homes and to address your queries, we have with us Mr. Amitabh Chatterjee, Deputy Managing Director; Ms. Shamila ma'am, General Manager; and Mr. Apurav Agarwal, CFO of Can Fin Homes Limited.
I would now like to hand over the call to Mr. Amitabh Chatterjee for his opening comments. Over to you, sir.
Good afternoon, all dear investors, and welcome to this Q3 earnings call. And just to start with, our company Can Fin Homes has completed 35 years of existence. And during this year, we have reached a milestone figure of INR 30,115 crores. We have crossed the INR 30,000 crores figure, registering a 9-month growth of 20% Y-o-Y growth and our disbursement in these 9 months from INR 5,500 crores, this has become INR 6,410 crores, registering a 15% Y-o-Y growth. And our income has risen by around 38.65% from INR 1,427 crores to INR 1,978 crores.
Our operating profit has also shown an increase from INR 487 crores to INR 644 crores to around 32.13% growth. And our PAT from INR 348 crores, it has become INR 455 crores, registering a 30% growth. Gross NPA has been well contained against -- we are now around 60% gross NPA and net NPA is around 30%. So our asset quality has remained stable. So pardon, that's 0.30% net NPA.
So with this, I request the investors to ask any questions they have.
[Operator Instructions] The first question is from the line of Abhijit Tibrewal from Motilal Oswal.
I had 2 questions. The first one on, how are you looking at the demand environment right now? Y-o-Y disbursements were largely flat in the third quarter. So is there some sluggishness in demand, which has started coming in because of the high mortgage rates? Or would you say that 3Q was more of an aberration and you can again expect buoyancy to be restored from the fourth quarter onwards? So that is my first question, sir.
Just to answer your question, the demand is intact despite the rise in prices or rise in the cost of the building, demand is still there. And going forward, I think that desire to have an ownership of house in the affordable segment is quite good. And demand will be remaining intact in the coming quarters. Coming to Q3, I think we have disbursed more than September. It is registering around 9% growth is there as far as disbursement is concerned. And as far as book is concerned, it is around 4.4% growth is there. And I think whatever we projected, 18% to 20% Y-o-Y, both in terms of disbursement and book growth, we are maintaining that trend.
Got it, sir. Sir, the second question that I had was on the liabilities side. Just trying to understand, I mean, maybe 2 subparts to this question, what was the total borrowings number as on December?
Total borrowings were INR 27,800 crores.
INR 27,800 crores, okay. So sir, on the liabilities side, I wanted to understand that, I mean, how much did you borrow from NHB during the quarter? And are there any current undrawn sanctions from NHB, which maybe you're looking to draw down in the fourth quarter? And sir, what we have seen that during the quarter, you have borrowed, I think, more extensively in the form of NCDs, commercial papers, basically from the debt market. You've also drawn down from NHB during the quarter.
So wanted to understand, I mean are these loans, NCDs and CPs kind of coming effectively, I mean, lower priced versus bank term loans and which is why you are moving there? Or is the idea that given that 25% of the incremental borrowings during the quarter has to happen through debt market instruments, which is why you are maybe kind of borrowing through that instrument in the first 9 months of the year. And then maybe in the fourth quarter, where we'll see more borrowings from the bank.
And sir, related question again here is that if I look at the margins, given that you have an annual reset on the loans that you have given, homes loans that you have given to the customers, is there a reason to believe that margin compression will continue for 1 or 2 quarters depending on the trajectory that repo rate will take. And then from there on, we can expect some improvement in margins or some stability in margins?
To answer your first NHB question, I think we have borrowed around INR 900 crores during this quarter. We have got a sanction of around INR 1,500 crores from NHB. Out of that, INR 900 crores we have borrowed. And it currently constitutes around 23% of the total borrowings as of now, total outstanding from NHB is around 23% of the borrowings, that is one point.
And why we raised NCD, because we find that during the end of the year, there is a lot of demand for NCDs from the market. So that time, we are getting high rates. So we thought it, let us span it out throughout -- over the year. As a prudent decision, we have taken this, which was later borrowed throughout the year to get NCD at cheaper rate. And commercial paper is -- we are -- what we were 1 year ago, I think commercial paper has not come down. It is mostly a cost management tool. And whatever commercial paper we have borrowed, it is backed by bank borrowings on the way in limits. So we feel that at that date, commercial papers are ruling low than what bank has to offer. So we decided to go for the commercial paper. When they mature, if we find, it is prudent to use bank borrowings to liquidate that, we'll liquidate it.
And sir, on the margins?
Margins, see now around 72% of -- we have raised the rate of interest twice in this 9-month period. And 72% of our book is yet to be repriced, and it is going to happen in the next 3 to 6 months' time. So I think we have already bottomed out as far as margin is concerned. Now what we foresee that going forward, our NIM and spread should increase because a major portion of the book will be repriced at higher rate.
What -- sir, I mean, by how much have we increased our lending rate in these 9 months since repo rate hikes have started?
We have increased it at 145 basis points.
145 bps already, great sir. And just one last question. Last quarter, you had guided for about, I think 12 to 14 basis points of credit cost, given that we have already seen the first 9 months of the year. Is there a reason to believe that credit costs this year could be actually lower than that 12 to 14 basis points that you had guided?
See, our incremental credit cost during this year was 0.06%. And going forward, our credit cost will remain in that range only, our incremental credit cost, because our book is -- our asset quality is going to be stable in the coming quarters.
Next question is from the line of Dhaval from DSP.
Sir, first question, just to sort of complete the point on margins. So you talked about that the spreads should have bottomed out. I just wanted to understand this repricing, what's the reason for the delay? Like, why do customers take -- like the reset rate takes time for these customers. You said that it will take another 3 to 6 months, so just to understand that part. And do you intend to take further price hike or this is basically the peak level where you are at this point of time?
See, our -- we are following a method of annual reset. So all our loan books at the date of their disbursement, they get reset in the same date in the next year. So that's why I told it will take around 3 to 6 months to get the major portion of the books reset at a higher rate of interest. But our borrowings get reset at T+2 days some borrowing, some borrowings get reset at a quarterly intervals. So this is the reason for the margin compression.
And as far as rate of interest, peaking of rate of interest is concerned, I think now that inflation is almost controlled, and growth is the -- now government is thinking about growth, so we do not foresee a major jump in hike in rate of interest in the coming future.
Understood. And sir, just to sort of complete the point on rate of interest. So if I look at from the lows that you had in 4Q '22, the cost of funds were 5.56% at that point of time. Today, they are about 6.63%, so there is a 107 basis point increase till December. How much more increase do you see from the current level, let's say, in the next 6 months based on the current rate environment? Any color around that? Just trying to think the 135 bps, would it be adequate enough to offset the impact eventually?
So I think we can expect another 20 bps increase in the coming days, max to max around 20 bps increase. And at every 15 days, we have an ALCO meeting within our company, and we review what is the position. And if required to get the required marginal spread, we may go for another hike in the rate of interest.
Understood. Understood, sir. So that's very clear. Sir, the other question is on the loan side. So you said that you maintain the 18% to 20% disbursement guidance that we gave in the previous quarter. Just in terms of the ask, so right now, we are about 15-odd percent disbursement growth for the first 9 months. I mean, in terms of ask rate, that would translate to about like close to 24-odd percent growth in the fourth quarter on a Q-o-Q basis and in absolute terms about INR 3,350-odd crores. So just -- I mean, I just wanted to get your thoughts around it. I mean, what is the kind of growth do you expect for the full year on disbursement?
See, generally fourth quarter is better than third quarter and third quarter is better than second quarter. It is a trend which is followed over the years. So Q4 also, we are expecting a good growth in numbers. On the conservative side, we are maintaining a 20%, but we may end up in a higher growth.
Did you mean on the loan side?
Yes. Book side as well as disbursement side.
Understood. Understood. Sir, just one last data keeping question, relating to provisions. Could you give the stock of specific plus general plus restructured provision? Last quarter, that number was close to INR 280 crores. Where are we currently?
No, restructured provision, again, RBI restructuring, in second phase, we are around INR 67 crores, we are holding as an additional provision as per regulatory norms. Other than that, we are holding around INR 221 crores on a total book.
Next question is from the line of Shreepal Doshi from Equirus Securities. Shreepal, we are unable to hear you. May I request you to unmute your line please.
Am I audible now?
Yes, you are.
Sir, just wanted to understand what are the current card rates that we are offering to our customers?
Card rate currently what we are offering is 9.6%, and new customers onboarded, we are offering 25 bps concession.
All right. And sir, so 20 basis points, so we would be giving them loans at 9.4%?
Yes, that is to the prime customers.
Prime customers, okay. And the higher range would be?
It depends upon the risk rating. And on an average, we find it should be around 10%.
All right. Sir, just one other question was on this yield calculation side. So while -- when we calculate it on the basis of average AUM, or average gross loans, and the reported yields that the company gives, there's a constant difference which is increasing. So just want to understand the calculated yield side of the things that you guys work out with?
Joishy ji, could you answer this?
Yes. Shreepal ji, the interest calculation yield is on the basis of each loan what is its earning and the interest earned on the each loan for 9 months. So because the rate of interest will depend upon -- each loan, it depends upon the credit scoring, risk factors and all these things, even though the bank rate was 7.6% or anything, the end up rate will be a bit higher as of now. So that is why the yield what we are calculating on the straight line method and on the loan-wise method differs with a gap of around 15 to 20 bps.
Okay. So you are doing it on advances, gross advances or net advances, like...
Gross advances only. This is what we are earning on the loan amount what we have granted.
Got it. And sir, with respect to NIM, so like we -- during the quarter, we did a decent job there. So what is it that we work with respect to liquidity? We brought that down in the balance sheet or what is that we did differently that we were able to manage the NIMs so well, while the spreads have come down below 2.4%, which we've been guiding that will we be able to defend?
See, the NIM is -- as explained earlier, the NIM is totally dependent upon the borrowing costs and the lending cost, as I explained earlier. With that rate being firming up, 6.25% is the repo rate now and another 25 bps also hike towards the end, the lending it may end up at 6.5%. Factoring this and taking into consideration the overall revision what we have done and the annual reset of the existing book and the incremental lending what we proposed in Q4, put together is going to give an anticipated NIM, which is higher than the present one. So virtually, we are at the bottom of the reverse bell curve. Whatever is going to happen going forward will be an upward trajectory only.
Okay. Okay. Sir, one last question was with respect to the provisions. So if we look at the provision coverage ratio on Stage 3, it has been quite volatile over the last say, 2, 3 quarters. Like earlier it was 53%, then it came down to 43%, then again, this quarter it is up to 50%. So what is the thought process there? What is it that we're trying to maintain here?
Actually, we migrated from the IRAC to the Ind-AS concept as per the regulatory guidelines from Q2 onwards. So going forward, we have to maintain the provisioning as per the Ind-AS or ECL model, whereas the standard assets also requires the provisioning at the rate of delinquency of SMA-0, 1 and 2. So because of that reason, in the IRAC, you may have to make the provision at 0.25% plus 0.40%, whereas if you factor that into percentage, the provision requirement may come up to actually 0.78% to 0.98% and 1.10%.
Because of that reason, the provisioning even for standard assets, ensuring that the NPA will not move, the provision coverage ratio will be going up because of the ECL model. That is why what you are seeing the volatile, it has come down and it is going up now. And going forward, any incremental lending, which is of standard nature, demands more provisioning and provision coverage ratio also will improve going forward.
Okay. But your credit cost guidance remains intact as what you've guided, right, irrespective of these changes?
Absolutely.
Next question is from the line of Ankush Agrawal from Surge Capital.
So my first question was on the 72% of the book that you said is yet to be repriced, what is the delta on the yield that you can expect on this book?
See, the main thing is what the reset is going to take place on an annual basis. That means that these loans are holding the rates what it was granted to them at the time of lending. If I say January lending of last year, the bank rate was somewhere around 8.25% and discounted rate what is given to the class A lenders, borrower, is around 7.75%. Now this loan is getting to reset to the card rate, which is going to be 9.60%.
So that means there is going to be an impact to the positive side in the yield by nearly 2%. This is the delta impact and the revision what will happen. That's why that 72% is going to get repriced over a period of Q4, Q1 and Q2. So this is presently 1.9%; going further, it will come down because June, we have revised, so that means Q1, the impact will be somewhere around 1.5%, and when we come to the Q2, it will be around 0.75%.
Got it. So it is like it will decrease from 2% to about 0.75% quarterly. And in a down trending interest rate environment, this reset would again follow the annual one, right, it won't accelerate?
Sorry, I think you were not clear.
So like in a downward interest rate environment, I believe we would be on the gaining part of it because same thing will happen that the annual reset would happen, and we would be having a higher yield loan because it would be again a 1 year lag by the time that the yield gets repriced to a lower level.
That is exactly what we have told. When there is a downward revision in rate of interest, we plan to benefit immediately on that.
Right. And sir, is there a possibility that in the case of any situation, like if you want to reprice the book in between, is there any understanding with the clients that in a situation like that, we can do it?
That clause is always there in the agreement. But we seldom use it because we want not to lose our good customers. We want to...
Right, right. But we do have an option there?
Yes, yes. We are having that option.
Got it. Got it. And lastly, sir, on the capital raise, any time line or any thoughts like if you're looking to do it because I think we are approaching that 8x debt to equity that we have always kind of maintained as a hurdle. And if you say that you can do at 20%, so probably Q1, we would be needing some capital. So any thoughts on that?
See, every year, this position is reviewed by the Board with regard to capital position and the projected profitability and other things. We are already having enabling clause. We may raise the capital in coming 2 to 3 quarters, if required.
Nothing has been decided as of now?
No, no. As of now, nothing has been decided.
Next question is from the line of Shweta Daptardar from Elara Capital.
Couple of questions. Sir, you mentioned that as against the 20 bps spike, which you're anticipating in cost of funds, you would see somewhat asset repricing going forward? But at the same time, given that your card rate currently stands at 9.6%, so how much incrementally you see you have that leeway to increase this rate ahead?
See, down there, increasing rate of interest, we decide certain factors, what the competition is offering to our customers and what is the targeted NIM and spread we hope we give to the investors as a reference point. All these things are taken into consideration. Book growth is there, AUM is there, everything. Then we can also raise the rate of interest at any point of time. So maybe we may increase another 25 bps to 30 bps, if required so.
Okay. So against this backdrop, and you also mentioned in the previous question, that your disbursement run rate of Q4 is always better than Q3, but the momentum definitely has come down. So any slowdown or sluggishness in disbursements will be observed because of the higher rates that we'll come to see going forward?
No. See, while it depends upon the affordability factor, whether higher -- whether customers are ready to take that higher rate or not. Now the property prices are shooting up. Rental incomes are also going up. And what is the surplus income that customers will be -- the income levels are going on. And depending upon the surplus level available to the customer, I think they can take another 25 bps to 50 bps hike.
Understood. Sir, one last question. Is there anything on the audit front that is going on internally or from the regulator front? Any observations or anything that is pending? Also internally, have you changed your audit policy or some reviews which have -- wherein the frequency has increased now? Anything on that front, if you can give some color?
See, our audit policy is drafted in line with the RBI audit policy. Apart from that, internally, we are auditing our branches once in a quarter. And all ALVs and other branches, big branches, top 20 branches there, we have introduced a system of concurrent audit. So if anything is noted, the corrective measures can be taken at an earliest date. So these all changes we have brought.
And apart from that, we are also imparting trainings and other inputs to our staff who are working in the field to be more vigilant and to be more -- have more due diligence. And as regards to the regulatory audit, I think we have not heard anything so far. We have not been intimated. And we feel as such at present, there is no trigger to have such audit.
Next question is from the line of Sarvesh Gupta from Maximal Capital.
Sir, one question is on your disbursement rate. So obviously, if you look at it Y-o-Y or even sequentially, while there is some growth, but Y-o-Y, it's been flat. So what are the trends that you are seeing amongst your customer base, given that in the last 9 months, 10 months, we have seen almost a 200 basis point increase? So if you can throw some light on how your customers are taking this interest rate hike and how it starts affecting their purchase decision and financing decision?
See, customers so far, they have not reacted adversely to the whatever hike of rate interest we have passed on. Our BT are under the controllable level, and people have accepted this rate of interest hike. And we do not foresee that any slowdown in disbursement or retaining the book is a concern with the current rate of interest.
And the 78% of your book, it is yet to be repriced. So what is this annual reset date, number one? And what can be the -- once your customer sort of get this sort of a onetime hike of almost 2-odd percent, so what is the expected sort of reaction from the customers given this because they would -- they might want to sort of shift to other lenders for getting better rates or something like that when they see such a steep hike in one go?
See, one thing that -- first of all, that 72% of our book is yet to be repriced. That is one thing. And if they think of going to new banks or some banks, there also they will face a similar rate of interest because whatever bank they go, they will be getting that lending at the current rate. So it is not a problem. I think we have been able to control our BT, balance transfer. And we do not foresee as a challenge to our disbursement as well as book growth.
[Operator Instructions] Next question is on the line of Dhaval from DSP Mutual Fund.
Just a couple of follow-ups. One is on the new MD and CEO appointment. Any time line around it? I mean, could you just update on that, that would be very useful.
See, the person who has been selected is expected to join in this financial year. So no date has been so far finalized, but the person is going -- will be joining in this financial year itself.
Okay. And sir, the other question is relating to the restructured book. So I understand bulk of the restructured book was supposed to come out of moratorium in the last few months. Could you just update us on the behavior of the restructured book? How many percentage are paying regular, or some more data around that would be useful. And lastly, the data keeping question on gross Stage 2 asset. What's the number as of December 31st, and the provisioning on Stage 2 assets?
See. As far as the restructured book is concerned, that repayment has not yet started. It is going to start in a staggered manner. But since we have formed a team and that is following up of the restructured accounts, so though the repayments have not started, but in 30% of those accounts, we have started receiving the repayments. And in some, accounts are also getting closed also. So going forward, I think we will be handling this restructured book in an efficient manner. And against that, we are holding around INR 67 crores provision.
Regarding the Stage 2 accounts, the amount is the same as INR 1,000 crores. It remained same in Q1, Q2 and Q3. It may just go up and down here. And we had more -- last quarter also, restructured accounts have moved to Stage 2. So with INR 700 crores of restructured accounts put together, INR 1,700 crores is there in Stage 2 against which the provision held in the books is around INR 48 crores.
Sorry, what is the provision number you said? Sorry, I missed that.
Provision is INR 48 crores. This is excluding the provision what we held under RBI direction of INR 57 crores.
Okay. So just to be clear, on the INR 1,000 crore, you have INR 48 crores. On the INR 700 crores, you have INR 67 crores.
Yes, correct.
Next question is from Shreepal Doshi from Equirus Securities.
Sir, actually, my questions have been answered. It was with respect to the new CEO, which you just answered. So thank you.
Next question is from Shubhranshu Mishra from PhillipCapital.
Just wanted to know the number of loan accounts that we have underwritten in this quarter versus 2Q? That's the first question, sir. The second question is, is there a plan in place for -- will the parent to be selling off certain amount of stake in Can Fin Homes? If yes, what's the plan or what has been the Board's discussion around it? And the third question is, what would be the top 50 branches amounting to the total of book, sir? What proportion of book is coming from the top 50 branches?
See, as regard the new sanctions, what you asked, we had new approvals of around close to INR 2,600 crores during this quarter.
No, sir, not the amount, sir. I'm asking about the loan contract sir, volume -- the number of loan contracts?
He wants sanction numbers, total sanction amount. It is around INR 2,400 crores.
Sir, I am asking for the number of loan accounts. This is the value, sir. How many loan accounts have we disbursed, sir?
Okay. Around 12,000, 12,000.
And what was this number last quarter, sir?
It was around 10,500, you can say.
Sure, sir. And the rest of the 2 questions that I asked, sir, the stake sale by parent and top 50 branches as a proportion of your AUM, sir?
I think at present, there is no talks about stake sale by the parent. There is no discussion in it. And I think Canara Bank is making adequate profit and they have got good capital adequacy. So what we feel from our end at Can Fin, there is no reason for a stake sale at present. And as regard to this top 50 branches, it will be somewhere around 40% of the total outstanding.
Of the total book, sir?
Total book.
And the same proportion of disbursements, sir, top 50 would accrue to how much percent of the disbursement, sir?
Top 50, I think it will be to the extent of that only.
40% of disbursement well, sir?
Yes. Around -- not 40%, around 35%, you can tell.
Next question is from the line of Jigar Jani from Nuvama Wealth.
So firstly, on your guidance, would you be maintaining similar guidance of 18% to 20% loan growth for FY '24? And on NIM as well, we generally are guiding about 3%, maybe you said about 2.4% spreads in the past. Do you think in FY '24, once you have majority of the reset done, we will be coming back to at least 2.4% or above spreads for FY '24 as you told? That is my first question.
The second question I have is, in your presentation, if you look at the Slide 12. On September '22, cost of funds is about 6.19%. But if you look at the pie chart wherein you are giving the borrowing mix at the bottom, the cost of funds for September '22 is 5.57%. So could you just highlight why there is a difference there? And thirdly, I think we have reduced the number of branches by about 5 branches when compared to Q-on-Q. So any update on that, why there has been a reduction in branch count?
So branches, we have opened 5 branches during this financial year. And we are going to open around 5 to 7 branches every year. And as regards the projections for the next financial year, this NIM and spread, it will -- our guidance will be around 3.5% NIM and 2.4% spread.
And sir, on growth?
Growth, it will be around 20%, book growth.
Right, sir. And on the cost of funds difference?
Yes. Cost of funds, what is mentioned in the funding basket is 5.57% is YTD, whereas 6.19% what has been shown is incremental for the quarter.
Okay. Understood. And sir, one more query. Just structurally, what we have seen is -- what you have mentioned is your incremental housing loan ticket size that you mentioned in your PPT, that has been going up from Q1 to Q3. So Q1, it was INR 21 lakhs and now it is INR 24 lakhs. So is it that we are structurally targeting more higher ticket sizes or it is just a factor of prices going up and essentially your loan amount effectively going up? What is the LTV increase? What is driving that increase?
It is a combination of both because that all those big branches, we are headed by experienced and senior level persons. We are encouraging them to give a higher ticket size loan. And in Tier 2, Tier 3 cities, we are focusing on more on affordable sector.
Right. But there is no LTV increases associated with this?
No. LTV is the same. We have not changed our any policy with regard to LTV. It is same as it was before.
Next question is from the line of Ashwanii Agarwwal from Edelweiss Mutual Fund.
Just some question on BT out and BT in. If we see in the last 1 year, the interest rates have increased by roughly 190 basis points. And in last 3 to 4 months, the increase has been roughly 85 basis points. In the last 3 months increase, the banks have only passed on roughly 20, 25 basis points. The home loans, which were up late 8.2%, 8.3% has gone up to 8.5%. They have not gone up to 9.3% or somewhat. So for your customers, when the rates increased by 2%, do you think that they will not move out because the banks are currently giving loan at 8.5%?
Correct. See, whatever that has been in the public domain about rate of interest, it is for the prime customers. But when a customer reaches any financial institution, rate terms are believed to be based on his risk rating and his income levels and various other risk factors, and every bank and every financial institution have their own risk-rating metrics.
So though it appears at 2%, but I think that is not going to harm us in any way. And so far, we have not faced anything. And our BT in and out is, we have controlled it to about INR 100 crores per quarter. Two years back, it was INR 300 crores when our rate of interest was much higher. So we have taken a conscious decision to lower our rate of interest during last 3 -- 2 to 3 years ago. And now we have controlled that BT out.
Okay. So it is quite possible that you may not pass the entire 200 basis point hike to the customers and to retain them, the hike may be lower. You will decide that at that point of time, right?
See, as regard to passing of interest rate, it depends on 2 things, what is the rate prevailing at that point of time and how the risk rating of customers are moved during that 1 year. So if a customer has moved from a higher bucket to lower risk rate bucket, his rate of interest will automatically come down. Similarly, if a low risk customer has moved out to a higher -- high risk or medium risk bucket, then the rate of interest will go up.
Okay. So it is not an automatic reset. It happens with -- after a discussion between the 2 parties, right?
No, no. It is an automatic reset. It is automatic reset. Before reset, we send the message to the customer.
Okay. And sir, what is the expected NIM next year, as you said? I didn't get that number exactly.
So expected NIM next year will be around 3.5%.
Okay. 3.5%, that's a good number. And similarly, when we come to the new CEO, it has -- there has been quite a lot of delay in hiring the new CEO. So what are the chances that the current person would join in and there would be no hiccups later on?
I cannot comment on this. See, this is a process and it is a listed entity. We have to follow certain norms. We have to find a suitable person to head this institution as there are many stakeholders. So I think that has taken time. And a person who selected, he or she needs some time because he must be working somewhere, some period is there. So taking into account, I think it is not a delay. It is a usual thing which happens.
Next question is from the line of Jagadish Sharma, individual investor.
Sir, what is the borrowing cost which you just mentioned?
Sir, our borrowing cost is now 6.63%.
6.6%?
6.63%.
Okay, 6-3, okay, okay. So total borrowing, sir?
6.25%.
6.25%. Okay. In terms of amount, sir?
Pardon?
Like total amount, like what is the total amount?
Total amount borrowed is INR 27,800 crores.
INR 27,800 crores, okay.
Next question is from the line of Mahek Talati from YellowJersey Investment.
My question was regarding how much of our book is currently from Bangalore or Karnataka?
From Karnataka, if you say, it will be around 20% to 22%.
And from Bangalore?
Bangalore, it will be around, say, 17%.
So my -- which are the other markets which we are currently focusing on where we see good growth in terms of disbursement except for this Bangalore market?
See, Telangana is there. Then also we are getting a good business from Tamil Nadu also. Then we want to increase our business in Maharashtra, Rajasthan and Gujarat, these 3 states.
Okay. So how many new branches are we planning to open in these new markets of Maharashtra, Gujarat and Rajasthan in order to increase our focus there?
See, in coming year, we are going to open maybe around 2 to 3 branches in these 3 states. And as of now, we are having branches in all the major centers in these states.
Okay. So what is any target to reach, like how many percent of we want -- we are targeting from new markets of Maharashtra, Rajasthan and Gujarat? Any target, which we have shared?
See, we want to increase whatever that outstanding in Maharashtra, Rajasthan and Gujarat is there. We want to increase outstanding to around 30% in these states, in the coming year.
Out to 30 -- by 30%. Okay. And sir, just might be a repeated question. How much rate hikes have we taken in this quarter?
This quarter means last quarter or this current quarter?
This -- last quarter, in Q3.
Q3, we have taken a 50 basis point increase. And this quarter, we have increased around 35 basis points.
Next question is from Ankush Agrawal from Surge Capital.
Sir, firstly, when you say that selected CEO is expected to join by the end of financial year, so do you think that the person is already selected and the proceedings are already complete and is yet to announce?
Pardon, I think, you are not clear, I think some...
What I mean that you said that the selected person would be joining by the end of financial year. So do you mean that the person has already been selected and you're just waiting for him to join?
Yes, yes. The person has been already selected and we are waiting for him to join.
Okay. And would it be possible for you to share some more details like around the person?
See, he is from the industry and he's an experienced person.
Okay. Okay. Secondly, sir, just a clarification on the branch count. So the third quarter slide shows that we have 187 branches. Is it a misprint or like we have closed branches?
No, no. We have not closed any of our branches. We are now having satellite offices and branches put together, we are around 205 now.
Okay. 192 plus 12 -- 13 satellite branches.
13 satellite.
Okay. Okay. So there's a misprint in the presentation of this call.
Thank you, thank you. We will get it corrected.
Next question is from the line of Gaurav Jani from Prabhudas Lilladher.
Firstly, if you could just quantify the investment income or the treasury income in Q3?
Sir, you were not clear, sir. Can you repeat that?
What I was asking is, can you quantify the investment or the treasury income in Q3, please?
Sir, we will get it. Meanwhile, we can take another question.
Sure. Sir, just to follow-up also on that, so on a 9-month basis, we reported a margin of 3.46% versus 3.44% in the last 9 months. So if you could strip off the treasury income and then please lay out the margins. So that's on the treasury.
Secondly, you mentioned that about 28% of the loan book has already been repriced with 72% remaining. What would this number be on the borrowing side as to what proportion of borrowings have already been repriced?
Borrowings...
The borrowings are linked to 3 factors: one is T-bill linked; second is repo rate; third is MCLR; whereas T-bill stretch is around 4%, which is getting reset as and when the T-bill rate is changed. And most of the borrowings are linked to the 3-month T-bill, so it is getting reset at the end of every anniversary quarter. Whereas repo rate also, we have gone with the anniversary concept, that means as and when repo changes, it will not change the rate. But on the anniversary quarter, it will get changed. That means there also we have a leverage of some time to get calculated and adjust.
And MCLR also is on the quarterly MCLR basis. It will get changed only at the end of the quarter. That means virtually, the borrowing book is getting repriced at the end of anniversary quarter. And we will be knowing the applicable rate of interest while we can so that we can do the back calculation, assessing the impact on the NIM and spread and reverse the lending activity as such.
So as to what is explained, I want to just add on some more things. During this financial year, 2.25% is the increase in the borrowing cost. And because of the lag effect as well as this anniversary reset, we have passed on this load to our customer to the extent of 1.6% only during this financial year, 135 -- 1.35 bps we have passed on. That means, if we compare to the other banks, their lending rate as of 31st of March to 31st of December, what the hike has taken place, and what is our lending rate from 31st of March to 31st of December, there is a huge gap.
So this is only a clarification given to the earlier questions also that whether you have an ability to increase further, to take care of your NIM as well, yes, there is a scope because we are still -- incrementally, we are there when the increase has been taken place. The banks have increased on a phased manner month-on-month, but we have not done like that, right? So that is why we have a scope to see that. NIM and spread is not compromised in the next -- this quarter as well as coming years. I hope I answered what you want?
Yes, I appreciate your input, sir. What I was only trying to ask is of the INR 27,800 crores of borrowings, what proportion has already been repriced?
That is 28%. 72% is borrowing.
Overall borrowing book is linked to T-bill, spread as well as the -- T-bill, MCLR as well as the repo. But for the NHB, leaving the NHB. If you want to see exactly, NHB INR 6,500 crores is out, which is a separate rate of NHB. EPM is already issued another INR 6,000 crores, which is a fixed rate of interest. So out of INR 27,000 crores, INR 12,000 crores is out, the remaining INR 15,000 crores has already got repriced.
Understood. Understood. Really helpful. Just a slightly different way of asking you in terms of margin guidance versus the 20% AUM growth for FY '24, what is the likely NII growth that we would look at?
NII growth what happens is, what we have told, the NIM and spread is maintained at the guidance of 2.4% and around 3-ish. Keeping that as the base, we are doing the reworking. On the same lines, what you can see on NIM, the same will be continued. When NIM is derived, the book loan is derived, you can to the reversal calculation and divide what will be the NII. So our calculation is on the basis of guidance, 2.4% of spread and around 3-ish. That is 3 plus is going to be NIM.
Sir, no, what I was just trying to understand that, sir, whether the NII growth would be more than 20% or not?
It will be, by default.
Understood. Understood. Please if you could give me the data points I had asked you?
Your earlier question regarding the income from the -- treasury income you are asking. The investments are held for the purpose of SLR as well as the LCR purpose. And the LCR purpose, they have invested to the extent of around on book, you can see the expenses, investment is around INR 1,200 crores, which was earlier lesser than that one. So current year, for the 9 months, the interest earned on investment, what we call as the treasury is around INR 79 crores. The same period last year, it was around INR 13 crores.
Next question is from the line of Jyoti Khatri from Marian Capital.
I just missed on your credit cost guidance for the next fiscal. What's the number that you put up?
Credit cost is around 0.06%. And going forward, it will be around the same range.
Okay. And sorry for being repetitive, again. On the margin side, given all the inputs that you have given so far, don't you think that margins of 3.5% and spread of 2.4% is still very conservative. You can out beat that by a very big margin or that's not the case?
Just to add to what we said, we are mainly -- our book is almost totally retail. So we -- it is very sensitive -- rate of interest is a very sensitive matter as we deal with the retail customers. And we have to see what the other banks and other HFCs are offering. So based on this, we have given a guidance of 3.5% in the near future.
Okay. And what outstanding provisions that you're holding total provision of INR 1,000 crores restructured book, that is INR 67 crores plus INR 48 crores?
Restructured book is only INR 701 crores, ma'am. Provision is -- restructure book is to the extent of 10%. RBI guidance is clear. We have to hold 10% of the restructured book as a provision, which is over and above the provisioning what we are holding in the book, in the normal course, either as per IRAC or ECL. So that is what we have told. We have INR 67 crores of additional provisioning, which is as per the RBI guidelines.
And as per the ECL, these loan accounts are classified as Stage 2, even though they are Stage 1. And against this one, we are holding a provision of INR 48 crores. So restructured, stage 2 is having INR 48 crores; Stage 1 is also having the provision. Put together, the provision held in the books of the company as on date stands at INR 290 crores.
Next question is from Rohan from Multi-Act.
Sir, my question was on the annual reset that comes up. Is the default reset option, a tenure increase or an EMI increase?
It is a combination of both. Wherever possible, we give for a tenure increase. And wherever the scope is not there as per our guidelines, we give for an EMI increase. And it is automatic.
Sir, but based on -- I mean, the scope being there or not being there, the 72% of the book, which is going to come up for annual reset, a large part of it, there would be scope for tenure increase or not?
Going by the previous experience, yes, last quarter, there will be a tenure increase.
Sir, and in terms of disbursements in Q4 to have the 20% Y-o-Y run rate being maintained, we'll require like a INR 3,000 crore plus disbursement. So you are seeing that kind of pipeline, sir?
Yes, sir. We are targeting on those lines also, and we are working towards that one.
Next question is from the line of Rahul Maheshwary from AMBIT Asset Management.
I just had 2 questions. One, can you give what is the kind of rejection rate that is taking place. And looking at, as you mentioned that you want to enter into new geographies and go into Rajasthan states and et cetera, Maharashtra, I just wondered why, as a strategy, we are just restricted with 4 to 5 branches opening. Does it mean that there is a very much higher scope in terms of the branches in terms of the loan per branch and the employee per branch? And if that is not the case, what is the maturity limit where you expect that per branch loan disbursement can go to? Because the rest of the peers when we look at even the large banks or the NBFCs, the kind of branch expansion is phenomenally higher. Why we are just stick with our 5 to 6 branches?
See, we have got around 13 satellite offices, those which we are planning to upgrade it to be a fully fledged brand because those were opened some 5, 6 years ago. Now we see that the link -- the branch to which they are linked, they are able to source from their own side. So these branches we'll be upgrading into full-fledged branches. Apart from that, we are targeting around 5 to 7 branches every year.
And second thing, we are going for an IT overhaul where we find we leverage technology to bring in more customers. So that is one thing. And also as regard that Maharashtra and other states, we feel that the branches which they are there, they are in the major cities, where we will be increasing our efforts to increase the business there.
So just to ask, current INR 147 crores per branch, the business, which has been doing, how much more lever per branch can go up to?
See, in the near future, we are thinking of increasing it to INR 160 crores. So apart from that, in coming days, we see around INR 200 crores per branch.
And this is why you are not very much aggressive of opening the branches because there is still a lot of juice left from the existing branches? Or there is some other reason?
See, we have done the ABC analysis of all our branches. We still feel that around 25% of our branches, they are underperforming. We want to upgrade those branches and make efforts so that these branches also contribute optimally to the loan book growth and disbursement.
And in terms of underperforming, what is the benchmark that you are keeping, 25% branches which are underperforming?
These under-processing branches, we are giving around 40% growth, both in disbursement and book growth.
Okay. Okay. And first question, on the rejection rate, what is the rejection rate currently?
Rejection rate is around close to 11%.
Sir, this 11% is the moment it has been sanctioned till the disbursement or it's at the point of sourcing, this 11% rejection rate?
At the point of sourcing only. At the point of sourcing where due diligence and other income and other things are being checked. At that point of time, it is getting rejected.
But as per industry's benchmark, your rejection rate is quite low. I mean any particular reason, sir?
See, generally, prima facie, when you do some checks, that itself we can come to know whether it is doable or not doable. That is at the time of PD itself, we see that whether this customer can be further progressed upon.
And sir, you also talked about that you would be doing IT investments, et cetera. So have we -- have any systems on the early warning signals being established? And due to that, you can do a back tested, et cetera, mechanism?
See, we have got certain OTMS reports generated and based that -- from those, we see any early warning signals are there or not. But since the present IT setup is more than 10 years old, so we thought to migrate it to new IT sector, where that book growth can also be taken carry forward.
Sir, how much of the spending would be, IT spending, for the next 2 years?
So it is around 7 years project. It will be close to around INR 200 crores.
And this will be spread across 7 years, you're saying?
Yes.
And this, once the IT spending has been done of INR 200 crores, how much loan book capability on overall basis it can handle up to?
We have -- it will be handling around INR 1 lakh crores of business. And it can be further scaled up to 2 lakh crores of business.
Next question is from the line of Shubhranshu Mishra from PhillipCapital.
Just wanted to understand the average duration of the liabilities, if you can mention that?
The borrowings what we borrow from the banks will range from 5 to 10 years, and the average tenures is somewhere around 78 months.
And what was this last quarter, sir?
What was...?
What was the same number -- average duration of liabilities last quarter, sir?
Same thing. The borrowings are fixed at the rate of your -- the tenure of the borrowings is fixed at the time of documentation only because the sanction letter will contain the tenure. And on the basis of that only, it is matched with the tenure position. And it has been accordingly which has been borrowed. See the NHB borrowings are ranging from 10 to 15 years, bank borrowings for the long term are around 8 to 10 years whereas some short-term borrowings are ranging from 5 to 8 years. It is the total mix. The average tenure when we call for is around 78 months fixed count. It is on the same line as that of last quarter or before last quarter also it was somewhere in the same range, that is 6 to 7 years is average tenure that is going to come.
Sure, sir. But I was asking about the duration sir, not the tenure. I get the point on tenure, sir. Duration is something different. Maybe I can take it offline. That's fine.
The next question is from the line of Bhaskar Basu from Jefferies India.
I just had one question, I think it's a repetition. Just wanted a clarification around the repricing of the liabilities. It was not really clear. When you say MCLR -- sorry, the repo reset and the T-bill, could you just explain that once again?
See, certain borrowing, we have got different arrangements with different banks. MCLR, some banks reset the MCLR on the date of their changing the MCLR. Some banks, they do at the end of the quarter and some treasury linked borrowings, they reset at T+2 days. So it is a mix of all. But as you see, you can find out during a quarter, whatever change of rate of interest is there, it gets repriced.
Okay. So I mean it's more or less done in the same quarter itself?
Yes, yes.
Most of them are short cycle resets.
Yes, yes. By the end of the quarter, everything gets repriced.
So ballpark speaking, like given that your cost of fund has gone up by about 100 bps, if I look at between 4Q to 3Q and given that 51% of your book is basically bank borrowing, is it a reasonable assumption that 200 bps roughly give and take of the lending rate -- of the interest rate hike has got factored in?
Yes. Because 23% is of NHB borrowing is there of the total book, which is coming at a contractual rate because NHB rate is some has couple of bps, 200 points below the market rate. And then the EPM entity is there, which is around INR 6,000 crores, which is at a fixed rate of interest. That cost is around 24%. So virtually, nearly 47% is almost at a lower rate or a fixed rate. So the only thing is only it is getting repriced and then it is getting repriced every quarter as and when the repo rate changes. So that means it is not reset with Q1, Q2, Q3 and an ongoing basis.
Right. So incrementally, just to take this to -- so basically, the asset side is yet to kind of reflect the reset -- the hikes which you have taken?
Yes. The full impact of the recent what is going to happen is not going to appear in the asset side over a period of remaining 9 months, whereas the other side has already got impacted.
I now hand the conference over to the management for closing comments.
I will request our GM ma'am to offer closing comments.
So I hope we have clarified all the questions, I mean answered all the questions. So as you just said, we're looking for a very good quarter, the JFM quarter, and we've already given our guidance range. So we're very confident that we will be able to live up to the expectations of one and all. Thank you.
Thank you very much. On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.