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Can Fin Homes Ltd
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Ladies and gentlemen, good day, and welcome to Q4 FY 2022 Earnings Conference Call of Can Fin Homes Limited 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 Capital Services. Thank you, and over to you, sir.
Thank you, Rihaan. Good afternoon, everyone. Welcome to the Q4 FY '21 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 today Mr. Girish Kousgi, MD and CEO, Can Fin Homes; Mr. Amitabh Chatterjee, Deputy Managing Director; Ms. Shamila, Business Head; and Mr. Prashanth Joishy, CFO, Can Fin Homes, along with other members of the management team.
I would now like to hand over the call to Mr. Kousgi for his opening comments. Over to you, sir.
Good afternoon to all investors, and welcome to the earnings call of quarter 4.
We had a very good quarter, and if you have seen after COVID from October, the demand picked up. And quarter 4 of last year, we did pretty well. I think we clocked all-time high for most of the parameters. And since we had dropped rates, I think we had some impact in terms of spread and NIM for some time. And then quarter 1 of this year, there was an issue because of COVID second wave. After that, I think the next 3 quarters have been pretty good. The last 5 quarters, 4 quarters have been very good, I think all times high. Sequentially, every quarter, now we've been doing pretty well.
So I think you know the numbers. And also, I would like to clarify today I was on CNBC, there was some rumor about my exit. So, I've categorically clarified that I'm with the company, and I've not resigned. I don't intend to move out. I think that's -- I've made it very, very clear. And there is also some rumor about the audit. So we had an audit from NHB and that is not complete, so we have the discussion next week and nothing abnormal has come out until now. And this part, we also keep having the regular audits and nothing abnormal has come out. Whatever we have found is in the normal course of business.
Now coming back to quarter 4, I think quarter 4 was really good for us because it was all-time high disbursement in the history ever, both in terms of disbursement and also in terms of book growth. NIM was 4.15%, last quarter was 3.74%. Last quarter, it included 9 bps because of LCR investments. And this time, because of LCR investments, it is over 12 bps. So net of that would be 4.03%. That's the NIM. And the spread improved to 2.55% from 2.49%. So I think all the parameters we have shown good performance. And last year, we had provided for COVID about INR 87 crores at one point in time as a fee.
So since we started, I had told you about the trend reversal of margin because whenever we drop rates, that will have a lag effect. And after a couple of quarters, you will see margins are shrinking because the entire portfolio will get repriced. And therefore, there is some pressure on margins. But from April last year, we had increased rates twice, so that had a positive impact. And therefore, we saw spread increasing and NIMs increasing. So I had told that quarter 4 is a time where everything will be back to steady state, and I think quarter 4 that has really worked out to be all the parameters in line with what I had mentioned earlier.
In terms of cost of funds, there was a slight increase in cost because the rates started moving up in last quarter. However, even at [indiscernible] and therefore we were able to increase our spread to 2.55%, so incremental cost has gone up slightly. At a portfolio level, our cost of funds is 5.56%, and incrementally, it is 5.03% and incremental yield is 8.07% and portfolio yield is 8.11%.
In terms of asset quality, I think we've been seeing the NPA levels coming down, at one point in time, it was almost close to -- [indiscernible] density was close to about 1%, then we saw 0.91% to 0.9% to 0.78%, to 0.71% to 0.64%. So as of last quarter end, our NPA was 0.64%. Net NPA, which was 0.61%, has come down to about 0.3% now. Our PCR, which was 33.47%, I think over a period of quarters, it has now -- we have now increased about 52.69%.
In terms of book growth, I think we've got close to about 21%, in terms of book. Disbursement on, if I have to compare to the whole year, it's about 90% growth over the previous year. And if it is Y-o-Y quarter 4, then it's 35%.
In terms of liability mix, nothing much has changed. I think the CP share has come down to about 11%. NCD, we raised a lot of funds last year because it was a mandate. Whatever incremental borrowings we do, 25% will have to come by way of NCDs. The NCD share went up to 14%. Deposits remained at 2%, NHB, 22%, and banks, 51%. So in quarter 4, we raised INR 3,215 crores.
In terms of liquidity, we are holding about close to INR 4,300 crores. These are bank sanctioned, which is -- which we have not availed.
In terms of portfolio mix, HL is 90%, non-home loan is 10%. In non-HL, top up is 4, lap is 4 and site loan is 1%, and others is about 1%. So total, it comes to about 100%.
In terms of profile mix, salaried is 72%, SNP is 28% at a portfolio level. SNP incrementally had come on to about 1%. I think over a period of time, I think the confidence came back and we could see a lot of demand coming back, economic activity improving. So now, SNP has come back to about 28%.
In terms of the ticket size, not much of change. More than INR 50 lakhs, we have about 3% of the portfolio. We significantly increased our other income and that is also one reason why our NIM went up. We are focusing on insurance income. So that, I think quarter-on-quarter, that is increasing. As far as the focus is, our focus is on affordable housing. I think that is where we've seen success in the past many years, and that's even continuously increasing.
I'll be open for any questions.
Rihaan, can you open the floor for Q&A?
[Operator Instructions] The first question is from the line of Shreepal Doshi with Equirus.
Congratulations on the great set of numbers. Sir, my question was, with respect to the growth that we have delivered within this quarter, so any particular geography or even states that we are seeing the demand is relatively strong?
I had mentioned this earlier also. So I think across the country, all geographies we are getting good demand. Only thing is we had slightly slowdown in NCR Delhi, NCR region, so I think that is continuing. Otherwise, we are seeing good demand from Karnataka, TN, Andhra, Telangana, that is south, Maharashtra, Gujarat and [indiscernible] and other places. So only in Delhi NCR is slightly low, I think. But for that region, we are seeing demand from all other regions.
And sir, is it in line with our thought process to relatively grow in the non-South geographies? So is the growth momentum that you are getting, is it in line with that thought process?
Definitely, yes. Even today, we are present in 22 states, right? The only thing is the concentration on South is slightly more because that has helped us in -- even our salaried is quite high, it's about now the 2%, right? So we are open as long as we're able to build quality book. So we are open to increase our share in other regions as well.
But as it seems now, I think I could see maybe 65% and 35%. 65% from South and 35% from other regions.
Got it.
Sir, second question was with respect to the increase in provisions during the quarter. So if you look at the coverage that we are having this last quarter, it was 45%. And this quarter, we've inched that up to almost 53%. So why like -- I mean at 45%, it was probably at a comfortable level. Why this thought process of increasing the provision buffers?
See, what happened was, at least last year during COVID, we had provided close to INR 87 crores. So that we had utilized in the subsequent quarters. And there was a reversal in the margins, and now you could see that now, it is back to steady state. And we have made a good -- I think the overall performance is really good, and so we thought that's -- because we are not very sure about COVID fourth wave. And we thought so that when we are doing well, let's create some amount as provision so that we might take a call in future. I think that's the idea because whatever we had created last year, I think everything was utilized in the subsequent quarters.
Got it.
And then the absolute GNP number has come off. So have you seen some resolution? Or is it more of upgrade?
No. Basically, upgradation is very low, to be very honest with you. But what we have done is from the NPA pool, we have resolved. If you look at last one year, the GNPA number, which was about INR 200 crores, has now come down to almost about INR 170 crores.
So this is because of 2 things. One is there have been some additions, but there has been more recoveries in the NPA pool. So overall, NPA has come down. It was 0.71% in quarter 3, it has come down to 0.64%.
So is it more of -- because from the evaluation are just surfacing, location would have got smoothly incorporating with it?
Exactly. It is basically surfacing action OTS and very few reversals from NPA, which is early buckets, to regular. Because now after the new guideline, RBI guidelines, we had to collect all the EMIs, what is overdue.
Right. And good luck for the next quarters.
Our next question is from Abhijith V. with Sundaram Mutual Fund.
Congratulations on very strong set of numbers.
First question, sir, I just wanted to follow up on Shreepal's question. Has there been any change in LGD calculation for, because if you are -- you are taking it up to 50%? I understand that you want to have cushion, but how is the LGD behaving for the portfolio?
There is no change at all.
Okay. What would be the LGD, sir, for the portfolio?
Yes, please go ahead and come back. I'll just tell you the exact numbers.
Okay. Sure, sure.
And a follow-up question, sir, is what will be the excess provisions you are holding, which is outside ECR and outside standard asset requirement? Do you still have any cushion, like you mentioned the INR 87 crores which you had during COVID time? Do you still hold any cushion apart from ECR and standard asset provision?
No, we are not holding any provision. Only the INR 15 crores what we provided this quarter, that is the only addition. The rest all is either NPA or standard assets or restructure pools. Restructured provision holding is about INR 67 crores, and standard asset is about INR 98 crores, and the rest is for NPA.
So LGD for Stage 1 is 1.33%. Stage 2 is 0.18% -- 0.76%, and 0.17%.
0.33%, 18% and 79%. Stage 1, 2 and 3. That's the break up.
Rihaan, can we take the next question, please?
So our next question is from Rahul Maheshwary with AMBIT Asset Management.
Am I audible?
Yes, you are audible. Please go ahead.
Yes, yes. And fantastic delivery for the quarter.
My 3 questions, first on the -- for the entire year, if you look at the kind of OpEx growth that is taking place, and that is a common phenomena for the entire banking industry. Can we expect the same run rate of OpEx growth that would be taking place? And what are the levers that will be -- that will lead to the such higher OpEx growth for the upcoming year? Can you give some color on that? That is the first question.
Second question, as in last quarter, we had witnessed you had the balance transfer out just dropped to just INR 78 crores. And new normal, which you guided that it would be in the range of INR 100 crores. So what is the current quarter's balance transfer out? And going forward, how you see the scenario?
And the third question was on branches. Can you throw the branch productivity currently, which shows in terms of the business and in terms of the employees, is that optimum level? Or how far we can gain the productivity in terms of the branches, so that we can come to know that what is the scope of branch addition that would be taken from the going perspective. These are my 3 questions.
So on the BT, if you look at last year, was INR 543 crores. And for the year, which just went by, it is INR 293 crores. So it has practically come down. So as I had mentioned in the earlier calls also, BT has come down because we were able to put in the team, strong team to retain customers, and we had an aggressive customer retention strategy.
And in terms of potential with respect to either employees or the branches, I think we still have the scope. I think it's the continuous process because we constantly work on branch productivity and employee productivity. And therefore, we feel that, for example, if you look at quarter 3, the average business per employee was INR 27.6 crores, which includes INR 29.97 crores in quarter 4, and average business per branch was INR 127 crores. Now it's improved to INR 136 crores. So I think there is enough and more scope to work on efficiency of branches and also at employee level.
With respect to OpEx, I think cost control, cost optimization is continuous effort. And we are working on this since last 2 years, and this effort will continue. So it will be in line with the business as well, but yes, it will be understatement.
So just a follow-up on this. Can we expect the OpEx growth in line with the revenue growth that will be taking place? And also on branches, let me keep it in this way that out of the 187 branches, how many branches of that where you find the productivity? Or there is a scope of -- in terms of the old vintage where there is other scope of the productivity go to INR 136 crores which is shown on an average basis? So that we will come to whether there is a serious branch expansion needed because as -- earlier also you have guided just a branch expansion of 15, 16 branches you will be adding on. So if you can pour some light, it would be very helpful that why isn't the markets are strong?
So obviously, my revenue growth has to be higher than the OpEx growth, so that is something we should always manage. But having said that, as we are working on the entire IT infrastructure, and therefore, that will be one component in the OpEx. And number two, when we intend to go business, you have to hire people as well, so employee cost also would increase in that proportion. And number three, CSR. So that's a normal spend every year. So our OpEx also would increase in same line but maybe slightly lesser than the revenue increase.
And also, when we do more business, one is employee cost because you have to hire employees. And number two, we have to also pay DSA commission. So it will be in line with that.
With respect to brand expansion, as I mentioned, because of COVID, we had planned for 6 branches. And in the next 12 to 14 months, we'll be opening another 10 to 12 branches.
Best wishes.
Sure.
Our next question is from Nitin Jain, who's an individual investor.
Congratulations on a great set of numbers.
Sir, on one of your slides, you have spoken about digital transformation within the company, so it's not quite clear as to what initiatives have been taken. So if you could list out like the top 3 initiatives, that would be very helpful.
And also, in one of your media interviews, you mentioned that the NIMs are expected to pull off. So like going forward, we are expected to see the Central Bank to increase rate. So do you see NIMs cooling off because of your cost of funds going up or increased competition? If you could clarify. These are my 2 questions.
So as a company, we are working on more of atomization and less of digitalization. I think both are used. So the only thing is for a product like home loan, we work on automation. So this is in terms of, one, we are changing the entire IT infrastructure in terms of entire systems, lending then deposit, everything we are changing. So we are now strengthening our IT infrastructure. And number two, we will integrate with various APIs to try and do a faster decisioning, so this will be used for front end, for sourcing and also protection.
So overall -- and also we will be -- we'll work on scan-based approval and we'll use intelligence to try and decision, so before someone could actually eyeball and then take a decision. So basically, it's part of digitalization and to a large extent, automation, which will be our [indiscernible] so that we can try and crash the TAT.
Okay. So just a follow-up on that, sir, if you could, yes.
Yes. In terms of NIM, so in fact, earlier, I used to say that for a profile like Can Fin, spread of 2.4% and NIM of 3%, but yes, you've seen that NIM is inching up quarter-on-quarter and now with 4.15%. That's also because of some support from NCR investments. So this is because we have drastically increased our other income.
So on a steady state, I mentioned, so it's not that next quarter, NIM is going to drop substantially. What I meant was on a steady state, the spread will be around 2.5% and NIM will be about 3.75%, so now it is 4.15%. So if you have opportunity, definitely, we'll always try and keep it on that level and a bit slightly increase as well, but on a steady state, I think we would be in the range of 3.7% to 3.75%.
Great. So just a follow-up on the digital transformation, so is it possible to provide any numbers in terms of what is the benefit you're seeing in terms of sourcing or operational efficiency because of the automation?
It's on a -- for example see earlier -- see now we are -- whenever you are using [indiscernible] hours, now earlier, to analyze one self-employed balance sheet, we were taking about 2 hours. So now we'll take 3 minutes, right?
So now, if you see the overall TATs, the processing TAT will come down by at least 50%. I won't be able to quantify in terms of number of man hours saved or number of people -- number of people reduction, but definitely yes. In the long run, definitely, it will give us a lot of value add.
And as of now, we are in the process of transformation, IT transformation, so it will take about 12 to 15 months' time, so we are trying to rework on the entire IT infrastructure.
Our next question is from Devansh Nigotia from SIMPL.
Sir, if you can just help us understand how is the restructured book behaving? And out of the provision for standard assets, how much of that would be towards the restructured book?
Restructured book provisioning is about INR 67 crores.
Now from the total restructured book, INR 42 crores, it has come down. These customers have -- they have either repaid or yes, basically repaid, right? And out of whatever emails have fallen due, as of now, the collection is 100%. And what we have written back this quarter is about INR 1.69 crores from the provision amount.
Okay. Okay. That's very helpful.
And I'm just a little confused. You mentioned that incremental NIMs are at 3.75%?
No, no, 4.15%.
Incremental NIMs.
No, no. NIM is 4.15%, I told going forward on a steady state, NIM should settle around 3.75%.
Okay. And what is our outlook on the credit cost for the next year?
See, as of now, it is 0.4%. So it will be in that -- it will be at that level only.
Okay. 0.4% for the full year.
Yes.
Okay. But if you look at -- in comparison to our pre-COVID level, isn't that at a very elevated level? I'm just trying to understand where is this elevated credit cost coming from, because our mix between Salaried and Non-Salaried is still the same, so.
No earlier it was 0.36, earlier it was 0.36%, now it is 0.4%. Our P share is increasing, so that's the effect.
Our next question is from the line of Umang Shah with Kotak Mutual Fund.
Congratulations on a good quarter. One is on our liability mix. If you could just help me, what the residual maturity of our commercial papers?
See, commercial papers maximum is one year, so it will be on a rolling basis. So we take CPE starting from 3 months right up to 1 year. It's on a rolling basis. Only thing is in quarter 4, we reduced CP, which was about 16% to about 11%. Peak was 19%, we brought it down to 11%. And NCD went up because we had to leave NCD last year based on the incremental borrowing.
Sure. Sure. And sir, the second question was regarding the capital raising exercise. So if I recall correctly, in the previous quarter, you had mentioned that at some point, you might look at an option to raise equity capital in the current fiscal. Any plans that you have formed up around those lines?
Yes, we will raise capital. We have enabling approval from our shareholders to raise up to INR 1,000 crores. So we will raise a part of that amount in the next 2 to 3 quarters' time. We will raise.
Okay. Understood. And sir, last data point. What is our outstanding restructured book as on March '22?
It's about 7 -- INR 676 crores.
INR 676 crores. And we are carrying INR 67 crores of provisions around it?
Yes. 10% of that, yes.
Good luck for future quarters.
Our next question is from the line of [indiscernible] with Edelweiss.
Congratulations. So I had a couple of questions. My first question is what was your incremental cost of funds during the quarter in Q4? And any fillers on what it is in 1Q so far?
Incremental cost of funds was 5.03% and at portfolio was 5.56%. So I think in next quarter or 2, no rates will inch up. So we feel that in the next 1.5 years' time, rates might go up by 100 to 125 bps.
Got it.
And thirdly, are there still all of -- what is your average ticket size now?
21 lakhs.
And what was it last quarter?
No, it was -- it used to be 18 lakhs earlier, then it went up to over 21 lakhs, so it's quite stable at that level.
It's stable looking because I was just wondering what gave the update in NII other than cost of funds this quarter?
No, because...
If your ticket size has reduced, if you have one more affordable.
No. Ticket size has not reduced, okay? Our rates have increased because we increased rates twice from April, so the yields have gone up.
Right. And sir, the insurance income that you gave, that's moved away?
That is for the quarter, INR 6 crores.
How much?
INR 6 crores.
INR 6 crores. Okay. And that would be part of NII or other income?
No, it is the other income part of NIM?
Part of NIM. Okay, got it, sir. And what was it last quarter?
It was from INR 3.6 crores to INR 3.7 crores.
Our next question is from the line of Ankush Agrawal with Surge Capital.
Congrats on the great quarter.
So again, on this link, so if I checkup Q4 of last year versus Q4 of this year, our spreads are actually lower, right, but our NIMs has still expanded. So based on what you've told until now, obviously, there's some effect of the LCR investments and then the insurance income. So -- but still, the NIM is slightly higher. So can you just explain a little bit on what's affecting it?
See, last year, other income was quite low compared to this year, number one. Number two, last year, the yields are higher and we had dropped rates, and we again increased rates. So the increase -- what increase we have done is much lower than the drop what we did last year. So therefore, you will see the difference.
Right. But the spread is like 2.78% versus 2.55% this quarter?
Exactly, correct.
Got it. And in terms of insurance income, do you believe this will be the sustaining number, it will grow from here? Or is like more of one-off thing?
So it will grow from here. Because it is directly into the disbursement growth. So as long as you grow disbursement, even this income also will grow.
Okay. So it's like it's part of -- it's the product that you're selling against your home loans.
For us, it's a bundle product.
Okay, it's a bundle product. Got it. Secondly, sir, again, on the capital raise, you mentioned INR 2,000 crores is the approval that you have, right?
INR 1,000 crores.
INR 1,000 crores. So any specific quantum that you might be looking to raise?
We have not decided, but it will be part of INR 1,000 crores, not the entire amount and then the first tranche, it will be part of INR 1,000 crores.
But you will do it in multiple tranches, is it?
No. What I'm saying is at the first tranche, we will not raise entire INR 1,000 crores so we will look at some amount part of INR 1,000 crores in the next 2 to 3 quarters.
Okay. Got it. And sir, lastly, on the core OpEx. So the last 3, 4 quarters, OpEx and the cost-to-income ratio is increased constantly to north -- close to 20%, right? So what are your thoughts in the medium to long term? Would it start trending lower to the pre-COVID levels of 15%, or out of it?
You are talking about cost income or OpEx? Cost income, yes?
Yes.
Cost income will be on 17% to 18% [indiscernible]. Now, we are investing on so many things, right? And therefore, you will see that cost of -- you see cost income slightly higher. I think it will get moderated.
Okay. So on the IT transformation that you're doing, that would not help much in reducing cost income?
No. Initially, obviously, we have to spend. I think over a period it will start [indiscernible].
Sir, lastly, just again, one feedback that I gave last quarter as well. I mean, it would be very helpful if you can increase some kind of -- some levels of disclosure on percentage. The basic metrics of average book, average borrowing for exit equity. If these 3 metrics are available, it would be very helpful.
Okay. Sure.
Our next question is from the line of Shweta Daptardar with Elara Capital.
Congratulations the quarter. A couple of questions from my side. Sir, last time I remember you mentioned that your CP has been on the higher side because of NIM management. So now that you have multiple levers on NIM accretion, so where do you see the CP mix going? I mean, will it go down further? Or there is some feelings which internally you have decided that you would not surpass the same?
We have a limit of INR 4,000 crores, okay. So as of now, it is 11%. So we will see, depending on the lead. Now, it will be about 15%, 16%. It's there we will try to stabilize because that is only for managing the cost, so it is not for funding purpose. And in quarter 4, we had the need to raise increase, and therefore CP share went down and the NPC shares went up.
And this would continue in a few quarters from now as well. So we will try and balance so that we keep our cost low. At the same time, comply on the NPC requirement, what is required to be raised depending incremental borrowing in the year.
Understood. So in terms of disbursement, so each quarter, you've been surpassing the previous quarter levels, and you've put up historically high number each quarter. So where do you see this number settling down once the pent-up demand sort of settle? So is it going to go beyond INR 27 billion? Or how is it like?
See, it's a growing concern. Demand is quite robust, so I think during every quarter, we'll try to put up best performance compared to the previous quarter. So let's see where it ends up.
Sure. Sir, last from my side. A couple of quarters ago, you had also highlighted the aspirations to move into higher ticket side. So what is the thought process there? What is the strategy? Like, are we sort of already getting there directionally? And I always wonder why this sort of decision, especially in a market which is also seeing competitive intensities flaring from the bank side as well?
Yes. We -- what we were doing probably a few quarters back and now there has been slight improvement. That is why you'll see our ticket size also going up to 21 lakhs, which was 18 lakhs earlier. I think from now onwards, there is less scope for us to invest ticket size, so it will be around 21 lakhs, 22 lakhs going forward as well. So that is where we will stabilize.
Our next question is from the line of Miti Gupta with IIFL.
Congratulations for the good numbers. I just wanted to know that whether the NPA number is including the IRAC now numbers or it's excluding those numbers?
It's IRAC only.
It's IRAC only?
Yes.
Our next question is from the line of Pavan Kumar with RatnaTraya Cap.
Sir, so our spread guidances going forward would be around 2.5%. Is it, sir? That's what I heard?
Previous, you are right.
Okay.
And what are the kind of growth rates that we should expect in FY '23 as per the conditions now?
18%, 20%.
Okay.
And due to this sampling duty cuts being rolled back in some states, would that affect our growth rates as of now?
No, no, not much. Demand is quite robust, so 18%, 20% growth is very much achievable. So it won't impact.
Okay. Okay.
And any reasons why you expect the spreads to actually roll back as of now?
See earlier -- no, we're managing spread of slightly higher number. And when COVID started, we had a lot of competition from banks, and therefore, we had to drop rates. So the entire portfolio has repriced. And now even today, as we speak, I think home loan rates available in the market is quite low. It's in the range of 7% to 7.5%, right? So if you have to be competitive and this is more of a balance between profitability and growth. And that is the reason why we have slightly moderated on the spread.
Okay.
And on the incremental capital that you plan to raise, have you decided on how much you want to...
Raise, no, no, nothing.
Our next question is from the line of Manuj Oberoi with Yes Securities.
This is Rajiv here. And congratulations on strong numbers.
Sir, 2 things. Firstly, in terms of if you can give some color about how incrementally is that portfolio changing? So maybe if you can just give more color on the quality of incremental portfolio being onboarded? Because we are at a different rate at this point in time, say, say when we -- then we were about 12 months before, and even pre-COVID in terms of our relative positioning.
So then have we kind of slightly kind of relaxed in terms of customer profile or property profile? If you can just kind of give some update about the quality of new portfolio being onboarded at 8.07%?
Actually, we have not changed any policy in last 2.5 years, 3 years or even the process. We've not changed anything. Now because of COVID, there were 2 changes. One, in terms of we had slightly tightened and we then restored it back, especially for SNP, and this happened long back. So we had done this for about 6 to 7 months' time, and effectively, this happened in only 3 to 4 months' time, right?
So as of now, I think there is no change at all. What happened was due to COVID, the SNP which was 30%, incrementally also had come down to about 12%. So now, that is back to about almost 28-odd percent. So I think a quarter or 2, it will be back to again 70% Salaried and 30% Non-Salaries. So this is the profile side.
In terms of product, we have increased non-home, which was 9% to about 10% in the last few quarters. So this was the [indiscernible].
Sir, maybe within, say, salary and within self-employed risk categories, have you seen any shift or any change out there within Self-Employed and Salaried? And second level could be also in terms of, say, property profiles. So has kind of incrementally property profile slightly changing in our portfolio?
Not really. We've not seen no changes.
Got it. And sir, one last thing was, again, on the project...
The only thing is that demand from Self-Employed came down because of COVID, and now, slowly, it is coming back. So otherwise, we have not seen any change.
Yes, yes. And sir, one more rumor that I wanted to clarify on because we've been hearing that some people have been kind of reputed or have joined from Canara Bank at the operational level. So is this true? And if they've come, then what role you'll be playing? And how should we read this?
So basically, I think there have been 3 people from Canara Bank. So one would be part of Risk team, assisting the Risk team, and the second person has joined the Audit team, will be supporting the Audit team. The third question will be in HR and other administration role. So 3 people have joined from Canara Bank, yes, on reputation.
Okay. Okay. And they are for a long-term assignment, or they just come for a short state?
So they just came a couple of months back, and generally, when they come, their term is for 3 years.
Got it. Got it, sir.
Our next question is from the line of Tejas Mehta with Omkara Capital.
Just a few questions. One is, can you give us a sense for the quantum of the portfolio in and around Bangalore?
Bangalore I'll tell you. Incrementally, Bangalore does about 23%, 24% of the business.
And on the book?
Book will be about 25%, 25.5%. Which used to be 33% a few quarters down.
Yes, yes, correct. We will follow to check.
Because now, dependency on Karnataka has come down because other regions are contributing well like Telangana, AP, then Tamilnadu, Rajasthan, Maharashtra, they are all contributing. So earlier, the dependency on Karnataka was almost 1/3, so now it has come down. Actually, it's started coming down more than 15 months back only.
Got it. Sir, can you help me understand, this movement of cost, the spend in the P&L like employee costs dropped to the Q-on-Q basis, but then there was a very sharp jump in other operating costs. What's the reason for that?
No. See, if you look at the employees, it's basically -- one is new hiring. Actually it's not come down, it's gone up. One is new hiring. And second is the increment, what they got, if you're talking about the whole year. Otherwise the OpEx has gone up because of our IT spend, second is CSR. And third is DS commission because we are increasing our disbursement. So in line with disbursement in the DS commission also will increase.
Yes, because costs is shot up to INR 193 crores, which on a Q-o-Q basis, it's like what, from INR 84 crores. So that is like INR 110 crores increase in the cost. We didn't understand that how can such a massive cost increase -- increase happens in one quarter?
See, I'll give you the breakup. Actually, when -- see, we did salary revision, which was -- which happens once in 5 years. And that call we took a little late, and therefore, we had to pay the arrears also. So I think this was clarified earlier but again, we'll be able to give break up on that.
Right. Even with an employee costs, is it actually stable at INR 180 crores to INR 88 crores. Last quarter, it went up to INR 214, and now it has again come down. So -- All right, I'll later on will talk to you personally to get the breakup.
Yes, yes. Sure.
Got it. Sir, on the capital adequacy, what's the capital adequacy that we have today?
So as of now, it is 23.3%.
And Tier 1?
I think [indiscernible] everything is Tier 1 only.
Sir, 23.3%. If that is the capital adequacy, then why do we need to raise more equity then?
It's a good question. I think the only reason why we are contemplating is to -- because of DER.
Because of what?
DER. Debt equity ratio.
Okay. So you don't really look at debt equity ratio in the -- in this kind of business?
I understand we've been engaging with all the bankers. So obviously, we also were pretty comfortable DER of 8.5x, and therefore we also had a plan, backup plan. One is, yes, if you look at capital adequacy rate, we are at a comfortable level. But we thought of raising capital thinking in mind that, one, it will help us to be efficient in terms of growth; and number two, also to try and bring down DER.
Because the thing is that if you say, issue the INR 500 crores to INR 600 crores of capital, and you are on INR 3,000 crores of equity today. So that's a 20% dilution on the equity. And on the market cap, of course, it will look lower, but on the current equity, it will look much larger. So basically, existing equity investors will actually kind of suffer because the ROEs will drop, and as well as -- so there are other things as well. So I'm not able to understand why they need to raise equity.
The reason why we've been talking about this for the last few quarters. That's the reason why we had deferred.
So whenever we raised, there will be some impact on ROE for that particular year. And from next year, I think it will enable to improve the ratios. So that -- this is true for any company at any given point in time, whenever they're going for equity raise. So I think that is in-built, I think we look at all the numbers before we take a decision.
Got it. And for next year, can we expect a INR 10,000 crore plus kind of disbursement number for FY '23?
Yes, you can expect.
Our next question is from the line of Chandrasekhar Sridhar with Fidelity International.
Can you just say what is the LCR at this point in time?
Sorry, come again?
What is the LCR at this point in time?
I didn't get you. LCR?
Yes.
See, the requirement is about INR 350 crores, but we are holding more than INR 1,000 crores.
Okay. Okay. And what is the drag on limits? You said there is a...
No, no, there is no drag. It's a positive carry as of now, which is why I told that 4.15% NIM is not sustainable because today, the rates are favorable. As of now, we are holding more because it's helping us, so -- and also, the rates are fluctuating. So as of now, it's a positive carry. And therefore, out of 4.15%, 12 bps is because of LCR investments.
Okay. Okay. Can you just remind me why are you guiding to 40 bps of credit costs next year? What's the logic behind this, especially given the -- your asset quality is so good?
I'm only saying that to see -- I mean, we are pretty confident of the restructured book and the book order we are building. I only am just saying that there will only be much changes. As of now, this 0.4%, it will continue at 0.4%, maybe it could be 1 or 2 weeks here and there, that's fine.
Yes. But that's still much, much higher than the history. And I mean, we have already passed with COVID waves. We have done that with reasonably well. So I'm just trying to understand logic of having 40 bps when historically, we've been at anyway between 15 to 20 bps.
See, the PCL today, what it is 53%, maybe going forward, it has slightly come down because it's -- we should do the balancing act. So from the 0.36%, we went up to 0.4% grade costs, PCL, which is about 33%, now it is about 53%. So PCLs going forward will come down because as of now, we've just created, right? Going forward, we might draw that.
And I said 0.4% because currently it's 0.4%, and there won't be much change in that. Maybe we put all the [indiscernible] 1 bps or 2 bps.
So is this -- I mean, are the NPD estimates now higher than what we've had historically?
In terms of credit cost?
Yes.
Not really. Nothing has changed, nothing has changed. Even today, I think 0.4% is quite low, very low actually.
No, no, absolutely. I'm just saying this is our own history, it's still higher. We used to run maybe 18 bps to 20 bps. Just trying to understand the logic of...
No. At that point in time, the portfolio had not matured. Now we are seeing a mature portfolio. And over a period of time, it has settled down a bit, from 0.3% to 0.4%.
Right. Can you help us what's the Stage 2 number as of the end of the year?
Stage 2 number, just a minute. INR 1,270 crores Stage 2 number.
Our next question is from the line of Abhijit Tibrewal with Motilal Oswal.
Couple of capacity questions. Firstly, I mean, I joined the call a little late, so excuse me if some of these are reputations.
So what's the stock of your borrowing number as -- at the end of the quarter?
I did mention this in quarter 4, we borrowed -- just a minute. Incremental borrowing is INR 5,000 crores.
So you mentioned that in your opening remarks. I was asking what's the stock to be as of March 31? What is the outstanding borrowing, yes?
INR 24,600 crores.
Great. Secondly, I mean, somewhere during the call, you mentioned that other than INR 67 crores of OTR provisions, you are carrying about -- about INR 90 crores of NPL provisions and around INR 116 crores of standard asset provisions. So will it then be fair to say that the total ECL provisions that you are holding today is about INR 273 crores?
See today what we are holding is totally INR 270 crores of provisioning. INR 98 crores is standard asset. Then NPA is about INR 90 crores, then restructured pool is about INR 68 crores and additional is INR 15 crores total is INR 270 crores.
INR 270 crores?
Yes.
All right. And sir, I mean, sometime back to the previous participant, you mentioned the Stage 2 number, it was about INR 570 crores. What is the provision that we're carrying on the Stage 2?
On Stage 2, we are carrying 34.33%.
Okay. So sir, would it be fair to say that, I mean, last part of the increase that you've seen or rather the 40 bps of credit cost that you're guiding for, is partly driven by the fact that you now want to increase the provision cover on your standard risk, given that we suggested that PCR on Stage 3 will incrementally come down?
You are partly right. And also if you see -- when we -- where we are growing the book, our provisioning on standard risk goes up.
Right, right. Sir, the other question that I had is, I mean, you had suggested during this call itself that you increased the interest rate by about, I think, 2x during the course of the last year. And if I recall from our past earnings calls, as we suggested that there is an annual reset on the interest rate that you do. So does -- are you kind of running the risk that given that there will be an annual reset on some of the customers that you would have probably lent at lower rates about a year back, that could be higher balance transfer request going forward?
No, it's a balancing act. Yes, that do happen. But to manage that, we will probably drop rates or keep the card rate lower. So it's a balancing act. The end of the day, we need to work on is the yield, the spread, right, and the cost of funds. So it's more of a balancing act.
Okay. Just one last question here on your liability mix. So I mean, obviously, the CP has declined to about 11% in this quarter. And like you explained earlier that this was to do with the fact that there is a requirement to borrow in the form of entities, a proportion of your incremental borrowings in the quarter. But then you subsequently also suggested that you would be looking to maintain CPs at around 15% of the liability mix.
Sir, don't you think, given that -- I mean, a lot of questions -- I'm sorry, all investor impressions as well hover around the fact that you are running a higher proportion of CPs in your liability mix? Don't you think, I mean, it will be, I mean, better if you kind of maintain CP at maybe these levels rather than looking to increase it back to 15%, 16% levels in the next year?
And sir, I mean, probably one more question here is that, I mean, to the earlier participants, you guided for disbursements of about INR 10,000 crores, if I recall correctly. So just wanted to understand, I mean, I'm seeing our branch network has been fairly constant for a long amount of time for the last at least 3, 4 years. So sir, what is leading to this better disbursements? Because typically, either better distribution, deeper penetration or improvement in efficiency that enables lenders -- I mean, scale up the disbursement. What is it that -- our secret sauce here, sir?
Okay. So in terms of CP, CP is not for funding. CP is only used as a tool for cost leveraging. So if you see a couple of years back, CP was very, very high, so now we brought it down. And what happens is that we need to also manage the cost, right? And therefore, we will definitely use CP as a tool to ensure that the cost remains low. And there is no risk because CP will be only against now backup, which means the sanctioned term loan limit, which is undrawn or against available OD limit. So to that extent, the CP of 14%, 15% or 16%, I don't think so. It's a risk because it is not for funding purpose.
In terms of disbursement, if you look at the growth from last year to this year, I think the growth is not very substantially. It will be about some 20-odd percent. And that is the guidance what we have given as well. And I also mentioned that we are opening branches and we will open branches this year as well. Only thing is, due to COVID, the pace of opening branches came down. And therefore, if you see last 2 years, not too many branches are open.
Now having said that, we are also working on deeper penetration and working on employee productivity. So there, we feel that enough scope is there, and we can take our book to -- close to about INR 40,000 crores with the existing federal grants. Having said that, we will also open branches and try to increase contribution from the new branches as well.
Our next question is from the line of Viraj Gandhi with SEMCO Mutual Funds.
Most of the questions are answered, just one final clarification on my side. You started this call saying that the NHB audit is going on. Just wanted to clarify your comment on this. It is it not a special audit and only a general audit, which happens with most of the housing finance companies?
NHB, they do 2 types of audit. One is on the -- which is central system audit and second is credit order. So one audit is over and that discussion is pending, and another audit is yet to start. It happens every year. And this apart, there will be internal audits which would be happening. I think the special is what you're referring to is the internal audit, so this happens on a continuous basis.
Okay. And from the provisions that you have made this quarter, there is nothing allocated for this particular audit, correct?
Whatever observations we have received so far are general in nature and in the normal course of business.
Our next question is from the line of Gaurav Jani with Prabhudas Lilladher.
Congrats on the good set of numbers. Just a clarification first. For the investment income, I mean, the impact on margins is 12 basis points. Would it be safe to assume it will be about INR 8 crore on the NII?
It's about -- for the quarter, it's about INR 18 crores.
INR 18 crores. Okay. And that is on the NII, right? I mean, not the interest -- I mean, the net effective [indiscernible]?
NII only.
Okay. Got it. Sir, secondly, the NPA numbers that you have mentioned this time around. So have you reverted back to the previous recognition or this is basically daily NPA recognition?
See, rolling back to current, if you're talking about that, I think that is very, very less. This is basically through legal action and [indiscernible] and OTS from the NPA pool. There have been some flow from SME to NPA, but the recovery is much higher, and therefore, the NPA has come down from 0.71% to 0.64%.
No, sir, what I wanted to ask you is the 0.64%, is basically the daily NPA recognition or is it as per as the previous guidelines?
This is as per the new regulation only.
Okay. As per the new regulation.
Yes, November 12, RBI circular said 2 things. One is NPA tagging, NPA tagging has to happen on the 90th day. So earlier, every month was taken as 1 month. For example, in a month, let's say, for example, if you take quarter 1. So quarter 1, Jan is 31 -- sorry, April is 30, May is 31 and June is 30. So it is more than 90, right? So the recognition has to be on the 90th day, and we should not go by month-wise. That's number one.
Number two, once the account becomes NPA earlier, we could have upgraded. Suppose, let's say, an NPA account, if you received 2 EMIs, that account could have come to SMA-2. But now, we have to collect 4 EMIs so that from NPA, it will directly, it will become current. So these 2 are the changes.
Now, this 0.64% is as per the new guidelines.
Okay. Okay. Yes, sure. Because there was a relaxation, and that's why I thought of asking the time to [indiscernible] answer.
This -- we implemented from that month only. From November only, November of last year.
Got it. Sir, I mean, coming back to the provisioning guidance number of about 40 basis points. So I mean, could you sort of say that we have been a bit more conservative out here? Because frankly, assuming a 20% growth in sort of a 40 basis points, [indiscernible] versus provisioning, we're looking at INR 20-odd crores and you already have a 50-odd plus percent of a PCR. So I just wanted your thoughts on that. Have you been much more conservative about that?
Maybe you're right, we will try and moderate this looking at a couple of more quarters.
Sure. Got that. Sir, also just 2 more questions from my end. One is the repayment rate for the quarter per se it seemed a bit elevated, although obviously, the disbursements were pretty strong. But on an annualized basis, it was about 20%. So anything to read out here? I mean, suddenly [indiscernible], go up from banks, or...? Basically, how should we sort of look at it?
No. For 2021, it was INR 543 crores and '21, '22, it came down to INR 293 crores. So what peak we saw out of this, if you take, on an average, BT out is about INR 50-odd crores, and this is part payment and foreclosure. All put together, it's INR 293 crores.
Okay. Okay. So nothing specific for the quarter, right?
It is normalized. It is back to pre-COVID levels.
So, I, sir, missed your answer on the breakup of CET 1 and Tier 2. Sorry, sir, could you repeat that?
Tier 2 is only INR 100 crores.
Okay. Got it. And sir, finally, the total employee number as on date?
About little over 900?
Our next question is from the line of Ayushi Shah with Affluent Shares & Stocks.
Yes, please go ahead, ma'am.
Yes, so my question is on the macro level. So I think everyone here is aware of the fact that the company is like one of the greatest beneficiaries of increasing demand in the affordable housing segment. So what I would like to know is like the hindrances or the programs you feel that the company is facing, especially an increase in disbursements to the various geographies that we have?
And sir, how are we dealing with the increase in competition in the segment? Because like the company has previously adopted like a low interest rate strategy to protect its market share. But do you think it is sustainable? And if not, what are the other methods that we are adopting?
Actually, competition was there always. Only thing is during COVID time because there was a certain constraint on mobility of people and before, business was not coming through. And therefore, a lot of banks became aggressive on BT, and therefore, there was heightened activity of it. So competition was much higher than what it used to be.
Now from January onwards, it is back to normal. So from January, competition is back to normal, which is the business as usual for us. So it's almost what -- I think 5 quarters now, so we are not -- we do have competition. We're able to manage that. So the competition, what was there in COVID 2 quarter and what we see now, there is a huge difference. At that point in time, there's huge competition, no competition has come back to normal level. And therefore the kind of growth, what we are looking at is quite possible.
Okay, sir. Sir, and are there like any new products that we can launch in order to like include a spread that we have going forward?
Yes, we'll have to think about it. But yes, if there's an opportunity, we'll definitely look at it.
Our next question is from the line of Gaurav Kochar with Mirae Asset.
Sir, sorry for persisting on this, but the credit cost guidance of 40 bps. If I look at FY '21 and '22, the 2 years of COVID, our credit cost was up 30 bps in each of these years. And even if I look at the net NPL number, it's 30 basis points, so nothing much to talk about. So what's underlining this 40 basis point guidance? Are you seeing anything on the credit cost side or an asset quality side that you believe -- maybe the restructured book or the Stage 2 assets which is leading you to guide for a 40 basis sort of credit cost? Because...
Not at all. For all you know, this 40 bps will come down. Because we have increased the PCR, so it levered impact, so we are not seeing impact from the restructured book. INR 42 crores, the book has come down by INR 42 crores already. And out of the EMI, which have fallen due, I think all the accounts are regular.
So we don't see -- initially, I had mentioned out of the restructured pool, about 7% may flow to NPA, which is about INR 49 crores. So I think there is no change in the plan. Probably that number could be much lower than what we had anticipated earlier. So this 40 bps will further come down.
Sure, sure. So this 40 basis point is only a conservative number. And based on experience in COVID, I mean, one can easily assume that credit cost should be 30 basis points or sub 30 basis points?
It could be -- it could come down from 40 bps, yes.
Okay. Okay. Sure, sure. And sir, sorry if this has been answered earlier. You mentioned that there's an NHB audit going on. But any other investigation internally or by an outsider done in the last quarter or so, apart from the NHB audit that you're talking about?
So, basically, I'll tell you what, these kind of audits keep happening. So whenever there is a complaint, obviously, the audit happens. So that means in that audit also nothing has come out, which is -- other than what comes out in the normal course of business. What has actually come out is some kind of irregularity in one branch, which is Bhilwara. So there, we have identified about INR 3.93 crores of fraud with municipal's irregularity where the income tax IT returns is fake. So this happens at any given point in time during any audit across any branch.
So this is what has come down -- it is what has come up. Apart from this, there is nothing which is abnormal which has come up.
Okay. So this audit was conducted by your own internal team? Is it?
With a regular audit, every quarter, in fact, every month, every quarter because it's more of a concurrent kind of audit what we keep doing across the country. So this is a regular.
Okay. Okay. Understood. Sure. Sure, sir. Got it. And sir, last question on margins. When you say the spreads will go down to 2.5% and margin on a sustainable basis, 3.7%, is it more to do with funding costs moving up? Or you believe yields could also be under pressure given that currently our marginal yield of 8.0%. So do you see that as a risk, or the funding cost at 5.5%, that as a risk when you say the spreads will come down?
See, yield will go up, costs also will go up, so we will protect margins what we have mentioned. It is basically a balance between profitability and growth. If you have to grow at that level, then we need to take a slight risk the margin. And therefore, I said 2.5% spread and about 3.75% NIM would look as appropriate in the steady state of business.
Okay. Okay. Understood. You're seeing 18% to 20% growth in order to maintain that, maybe some bit of margin compression might happen in the next?
True. Correct. Correct. Yes.
Our next question is from the line of Dhaval Gada with DSP.
Congrats on the good set of numbers. I just had one question on the insurance attachment. Where would we be on the insurance attachment in FY '22 compared to pre-COVID, and your expectation for next year?
No, we are also looking at some 20-odd percent growth in the insurance income.
In terms of attachment rate, it would be like 50% attached or higher or lower in the qualitative or quantitative number if you look to?
See, insurance is something which is optional to the customer, right? And therefore, we will -- on a best effort basis, we'll try to grow at about 20-odd percent. Because we track based on value penetration, and for certain products and number penetration. So we will try to grow at about 20%.
And the value penetration is more than 50%?
No, no. Both 20% only.
20%, okay, fine.
Our next question is from the line of Franklin Moraes with Equentis Wealth Advisory.
So I just wanted to confirm that the volatility in rates that we had seen in the past year or so and even the borrowing mix where in the CP volume increased and then reduced. So this kind of volatility is not likely to or it's likely to moderate going forward, right?
See, in terms of the liability mix, I think this is quite normal for us. What we saw abnormal in last 2 years is only COVID. So other than COVID, everything else for us is quite normal. So the CP fluctuation also is well within the limit.
So this 10% to 20% range of that CP fluctuation, we can assume a similar kind of range happening in going forward, right?
We will keep it at 15% plus or minus 2%.
Okay. Okay, fine. And what is your average tenure of the book, both on origination and on closing out of the loan?
So average is about 8.5, 9 years. On origination, it will be about 20 years. On -- if you look at the average loans on book, it's about 8.5 to 9 years.
Okay. And what the average LTV?
Average LTV at the fourth quarter is about 67%.
Sorry?
67% on portfolio.
67%. So is there some scope to increase this LTV, or we are happy with the current level?
It depends on the need of the customer. So if there is a need, we'll increase by 1% or 2 percentage. Otherwise, we'll go with the flow. As of now, it's about -- it was 65%, now it is 67%, so we will keep at that level unless and until we need.
Our next question is from the line of Miti Gupta with IIFL.
Sir, can you please confirm the numbers of Stage 1, 2 and 3 for this quarter?
Just a minute. So Stage 1 is -- Stage 1 is INR 25,268 crores, Stage 2 is INR 1,270 crores, Stage 3 is INR 170 crores.
INR 25,268 crores for Stage 1?
Come again? INR 1,270 crores. That's Stage 2.
Okay. And Stage 3?
Stage 3 is INR 170 cores.
Our next question is from the line of Manoj Oberoi with Yes Securities.
Sir, just one number. I wanted a Stage 2 number for December quarter, for the previous quarter ending.
I'll come back to you, just give me some time.
Our next question is from the line of Gaurav Jani with Prabhudas Lilladher.
So quick questions. One is, incrementally, what will be the cost of CP versus NCD for you?
In CP, the last NCD, what we raised was 6.8%, and the CP depends on tenure. One year CP comes at about -- now it's about 5%.
Okay. Okay. Sure. Sir, secondly, on the OTR pool, basically the restructured pool. So now, how should we look at FY '23 and '24? How much of it will become due in '23 and '24, and so on?
So this year, about 10% would become due, but we are seeing increased closures happening in the restructured pool.
Okay. Sure. Sure. Got it. Sir, lastly, just a number, the total risk-related asset number, please?
Sorry, come again. Which number?
The risk-related assets number please, as on date?.
I'll just tell you what is the blended, just a minute. It's about 50%.
50% of the including year, you mean?
Yes, book.
Our next question is from the line of Ratik Gupta with Guardian AMC.
My questions have been answered.
December Stage 2 numbers are INR 1,652 crores.
That was the last question for the day. I would now like to hand the conference over to Mr. Girish Kousgi, MD and CEO, for closing comments.
Thank you, all the investors. We look forward to your same support in the future aspects. Thank you so much.
On behalf of Investec Capital Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.