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CreditAccess Grameen Ltd
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Ladies and gentlemen, good day and welcome to the CreditAccess Grameen Limited's Q1 FY2021 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Murarka of IIFL Securities Limited. Thank you and over to you, sir.
Thank you, Ayesha. Good morning, everybody, and welcome to the 1Q FY '21 Conference Call for CreditAccess Grameen. We are thankful to the management for giving us the opportunity to host this call. And we also congratulate them for the hard work and the great disclosures they have provided this quarter and the great results as well. From the management team, we have Mr. Udaya Kumar Hebbar, Managing Director and CEO; Mr. Diwakar B.R., Director of Finance and CFO; Mr. Balakrishna Kamath, Deputy CFO; and Mr. Nilesh Dalvi, Vice President, Investor Relations. I would request the management to give their opening remarks, after which we will open the call to Q&A. Thank you, and over to you, sir. Thanks a lot.
Thank you, Abhishek. Good morning to everyone. Thank you for taking your time and joining us today to discuss our first quarter FY '21 financial performance. The COVID-19 pandemic has caused the business environment to become very challenging and volatile. As the number of COVID cases keep rising, every district is behaving in a dissimilar manner depending on where it is placed on the COVID infection curve. Lockdown rules and restrictions have got highly localized in every state, every district and every village. Given such highly evolving scenario, we, as an organization, have been focused on dual responsibilities of "Stabilizing our present" and "Preparing for stronger future." Customer centricity is the most important pillar of our business. In today's challenging times, we are trying to make our business processes and field operations as agile as possible to safeguard our customers' interest. Continuous customer connect and strong customer relationships have helped us to make an accurate assessment of our customers' repayment capacity. While moratorium 1.0 was extended to all customers, moratorium 2.0 was extended only on need basis. Additional funding support was extended to customers with prompt repayment track. Customers were also provided with cashless repayment options. Our collections resumed from June 1, and the collection trend was largely in line with the customer survey conducted in May. We recorded collection efficiency of 74% in June, which reflects the collections received in June against the demand raised in the -- June. Around 67% of customers paid all installments, 16% made 1 to 3 installments and remaining 17% customers didn't pay any installment. We accordingly extended partial moratorium for 16% customers and full moratorium to 17% customers. Similarly, we recorded collection efficiency of 76% in July. We are expecting collection efficiency to touch 80% in July. However, we -- it remained at 76% primarily on account of extended intermittent lockdowns, localized restrictions at village level and district level, primarily in Maharashtra, Tamil Nadu and Karnataka. If we exclude Maharashtra, then our overall collection and collection efficiency is around 80% in July. Our strong customer relationships, deep rural presence, majority of borrowers being engaged in essential activities and highly motivated field staff helped us to record relatively faster recovery in collections. We are working on further improving the collection for August and September. We are posting additional experienced senior staff in low-recovery regions, reassigning old staff wherever necessary to closely engage with customers opted for moratorium. And additional moratorium support is provided by quality control, audit and risk teams along with plenty of back-office support from RPC teams. In these uncertain times, it is very critical to maintain high employee morale and provide them with sense of security. Our employees have continued to receive their monthly incentives since our incentive structure is around customer service and process controls. Further, we have also protected their bonuses and increments based on annual performance. We are ensuring that regular sanitation of local -- and the local (sic) [ social ] distancing norms are strictly followed at branches and during center meetings. We are supporting our employees with additional paid leaves, offering monthly salary, in addition to health insurance covers, if any unfortunate COVID positive event. We gradually resumed the disbursements in case of customers who display their payment consistently over initial 2 to 3 installments. Hence, we disbursed around INR 46 crore during the last week of June, followed by INR 527 crore in July, which was around 72% of disbursements compared to July 19. All the disbursements were done in cashless mode only. Our last 4 months -- over the last 4 months, we have been taking all necessary measures to strengthen our liquidity position. While we are witnessing improved -- improving collection trend, we are focusing on engaging with our lenders to mobilize fresh funds and manage everything debt repayments. We raised around INR 1,400 crore during April to July, this along with the improved collection, helped us to increase our overall liquidity position to INR 1,172 crore by June, which was 12% of GLP. This further increased to INR 1,420 crore by July 30. In these uncertain times, it is always prudent to build sufficient risk profile in place. Even in normal times, we have always taken a conservative approach with the early recognition of delinquency and building adequate provisioning coverage. Based on risk profile of our borrowers and their current repayment behavior in June and July, we decided to set aside additional COVID-19 provisions of INR 140.6 crores in Q1 FY '21. Our total COVID-19 provision buffer now stands at INR 224 crore, which is 2.39% of loan assets. Our overall ECL is at 4.42%. If we exclude GNPA of 1.63%, then overall standard asset provisioning, that is including COVID buffer, is 2.79%. This enables adequate provisioning cover against the moratorium book. Our moratorium book in value term was around 24% of GLP as on July 31, 2020. Our total ECL of 4.42% now covers 17.7% of moratorium book as on July 31, 2020. We are currently well placed and adequate risk -- well placed with adequate risk and capital buffers in place. Our Tier 1 capital is at 22.4% as of June 30, after having already built a standard asset provisioning buffer of 2.79%. This should be sufficient to achieve our growth plan for FY '21. However, we are in the process of determining the capital raise timing and quantum, primarily to safeguard our growth for FY '22 and further. We shall get back to you as soon as we finalize our plan. Taking briefly -- talking deeply about MMFL performance, MMFL displayed very good improvement in collection efficiency in July compared to that in June. We recorded collection efficiency of 54% in June and 64% in July, despite increased COVID cases and increased local-level lockdown. The number of nonpaying customers significantly reduced from around 40% in June to around 22% in July. We disbursed only 12% -- INR 12 crore in July. With this encouraging trend, we will now scale up disbursements in August and September. The liquidity position in MMFL also significantly improved to INR 204 crore as on June 30, amounting to 10% of GLP. We also created some COVID buffers by setting aside INR 11.9 crore additional COVID provisions in Q1 FY '21. The total COVID buffer now stands at about 1.25 -- 1.12% of loan portfolio. Total ECL stands at 3.18%. If we exclude GNPA of 1.58%, then overall standard asset provisioning, including COVID buffer, is 1.6%. This enables adequate provisioning cover against moratorium book. MMFL's moratorium book in value terms was around 36% of GLP as on July 31. Overall ECL is of 3.18% now covers 8.9% of moratorium book as of the July 31. We are taking necessary measures to improve collections, liquidity position and provisioning coverage through ensuring continuous management support. We will begin the integration process, and we expect the ECL policy converging over coming quarters. Now I shall quickly brief on our quarterly results, then we can proceed to Q&A session. On stand-alone basis, our gross loan portfolio was up 27% Y-o-Y to INR 9,680 crore. And borrower base was up by 12.2% to INR 28.76 lakhs. NII grew by 30.6% Y-o-Y to INR 322.5 crore. NIM was at 12.6%. Cost-to-income ratio stands at 31%, and OpEx to GLP at 4.1%. PPOP grew by 37.2% Y-o-Y to INR 224.5 crore. PAT was down 33% Y-o-Y to INR 63.6 crore on account of accelerated provisioning done during quarter as discussed before. ROA was 2.2%, and ROE was 9.4%. On a consolidated basis, our gross loan portfolio was up by 53.9% Y-o-Y to INR 11,724 crore and borrower base was not -- was up by 56.4% to INR 40.11 lakh. NII grew by 55.2%, and the PPOP grew by 56.2% to INR 255.6 crore. PAT was down by 22% to INR 74.6 crore on account of accelerated provisioning done during the quarter. ROA at 2.2%. ROE at 10.3%. Our consolidated result reflects the benefit of MMFL, though it is for one quarter because this is not exactly comparable since we acquired Madura in the month of March 2020. Our FY '20 financial performance will -- just witnessed the benefits of both organic and inorganic growth. With this overview, I would now like to open the forum for questions -- Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Deepak Poddar from Sapphire Capital.
First just to -- that our morat book is about 25%, 26% as of now. So how do you see that trend over the next 1 to 2 quarters? Some comment on that would be helpful.
Yes. Our morat book as of -- for July 30 is 24%, whereas 83% of customers are either fully paying or partly paying. That means only 17% of customers are, at this point of time, not paying and who have taken full moratorium. This is applicable until August 31. Next one month, we will be connecting with them with -- regularly, and we believe that most of them will start paying from -- for September because moratorium expires from there. There was genuine requirement of moratorium for such customers where economic activity would have started a little late and yet to start in some cases, and we understand that very well, so we believe these customers will start paying from -- that 17% customers start paying from September.
Okay. So you expect your basically moratorium to become 0% or maybe low single-digit kind of value for September? Is that -- would be a right -- a fair assumption to make?
Definitely, it will be single digits. I can't say 0, but it should not be more than 4% to 5%. It will be less than that.
4% to 5%. Fair enough. I understood that. And my second query is on your like medium term, like we have been talking about 25%, 30% growth, right? So because of this, has there been any change in trajectory in terms of growth over the medium term? So any kind of comment on that would also be helpful.
I think it is fair to assume that there will be a medium-term implication because of COVID. So I think that the growth for anybody in this sector will be -- I think every sector will be challenging in this year. But still, microfinance, per se, it normally grows almost 60% in the second half. So if the COVID situation improves quickly in the next 1 to 2 months, we should still believe that we will be able to grow double digits.
So double digits. So maybe 12%, 15% would be a more fair -- kind of?
Yes. Let us see this for next 2, 3 months, actually, that's most important. That's most important because if I say COVID improves in 1 month, I can grow more than 15%, for example. But if COVID improvement take 2 to 3 months' time, we'll have a little more challenges. But still, we need to -- because a lot of things are -- I mean not lucid right now, fluid right now, I think -- which it should be fair, we should talk about double-digit if COVID improves further from here. Considering that -- 3 factors. One is 60% growth happen second quarter. If we get even 5 months growth opportunity, we will be growing double digit. Two, we don't need to open any branches. We have sufficient branches in sufficient places. We opened higher branches last year. We have fully trained employees available. We have 100% employees in place. We don't even need to recruit many people for this purpose. So we have sufficient funding. We have sufficient capital. So nothing will stop us if we get 5, 6 months of, I mean, appropriate time to grow.
Okay. So this double-digit growth that you're talking about, that is for this year. But over the medium term, is there anything that you can share?
I think that will impact. If you remember, I mean, the industry should grow between 25% to 30%. I think -- I mean, the -- when you say 5 years, maybe 6 years next up, so it should be able to grow.
Okay. So the industry growth, at least, you would be targeting for the medium-term rate, that would be fair to assume?
The demand for this industry is quite intact, considering that we have over [ 90 billion ] unbanked households in this country, which would only -- low income also number would increase because of this COVID situation, it will not come down probably. So due to this situation and the demand that exists there, we don't see a, what we call, overall futuristic demand, I mean -- but -- for this pandemic situation at this point of time.
[Operator Instructions] The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.
Two questions from my side. What would explain the sharp divergence in collection ratios between CreditAccess and Madura, both on a state-wise, even with respect to states like Tamil Nadu and Maharashtra as well as in the 100% full payment bucket?
Okay. You said 2 questions. I thought you will have one more.
Okay, okay. The second question is based on your feedback from your loan officers from the customers, in July, what percent of your borrowers would have got top-up loans, not just from CreditAccess, but probably even from another bank or NBFC-MFI?
Okay. So divergence is between MMFL and Grameen because these are 2 different models, actually. One is -- Madura is a monthly model, where normally collection happens with a bit of lag, actually, whereas Grameen works on a weekly collection model. Always, there is a kind of difference between these 2 models. But because of our support and management support to them, they're able to increase from 54% to 64% in July when we expect it's improving much more because we're actually coordinating to support them from our management and our operations channel. So we expect to improve more. But if you compare the Madura, which is much better than the industry also, I mean, as of now, we don't see Madura collection as low. When we compare to CAGL, that will be different, but that is fair enough actually, a fair point. But whether Madura [ vertical ] performed, [ it called more better than ] industry is important to see. So we believe it is either equal or better than industry in every state. For example, if you pick up Karnataka, they performed better than CAGL. They performed 89% collection compared to CAGL collection of 77% collection. So they have done better than the industry, actually, so we are quite happy with that. With our more support, it will actually further improve going forward. And on your second question, we really don't have an idea about who gets the vertical top-up loan or something. We don't know. We are lending. We started lending, as I said already in the earlier question. In July, we started lending to all the customers where the group is fully paying. And wherever the center is fully paid, the repeat loans, we are already providing to them. And then because when the loan is [ closed, then a fresh loan they ] need. They have a business prospect [ we have to give ]. We are already at 72% equivalent of July 19 level at this point of time, and we believe this will only increase for the next months. It is important, and our responsibility to provide liquidity for our customers also, which we are doing.
Okay. Sir, just one clarification. So the INR 500-odd crores that you disbursed in July, how much of -- how many customers would that represent roughly? To how many customers would you have disbursed the loan?
Yes. I may not have right now that number, maybe you can reach out to Nilesh when -- later, he will give that number.
[Operator Instructions] The next question is from the line of Renish Patel from ICICI Securities.
Congrats on the set of numbers. Sir, 2 questions. So one is on the collection. So though we have seen a pretty sharp improvement in June, but July remains static at around the same number. And in normal circumstances, that should be improving considering the recent trend. So what explained the static collection number in July, sir? That is question number one. And question number 2 is the nonpaying customer was -- still at 17%. If you can throw some light in terms of -- is there any particular geography, district or economic activities you know of which is causing that 17% customer base that are not paying at all even now?
Thank you, Renish. The July was more, what I call, impacted by COVID in most of the geographies, actually. If you see start of July, the COVID numbers are quite controllable. And suddenly, there's a surge in the numbers, which actually, I mean, made the administration to make many lockdowns in district levels. For example, from second week of July, many districts in Tamil Nadu, many districts in Karnataka, many more districts in Maharashtra got locked down, which impacted the temporary collections. So it is not that the collection is reduced, actually. Collections still gone up from 74%, 76% and almost 83% of customers paying. Probably they are not able to pay the full value because they have to skip 1 or 2 installment because there's a lockdown. Either we are not able to reach or they are not able to pay, so that's the situation. Only that's the reason, which probably there is a temporary slowdown of 1 or 2 weeks in many of the districts, particularly about 7, 8 districts in Tamil Nadu, about 7, 8 districts in Karnataka and some districts in Odisha and Maharashtra. Okay. So we believe that all -- by July 31, most of these lockdowns are over. August [ plus downwards ], we expect this to improve. So -- I mean, still, while we have done better in July, we would do much better in, I guess, now because of the lockdowns have been lifted in many places. The geography which really impacted, if I say, is Maharashtra, which is still at 65%. That's, for me, is much above the industry, 65%. If I actually keep Maharashtra separate and the entire other states separate, we are actually above 80% collection. So that is actually the actual numbers. And in case of nonpaying customers, so largely in Maharashtra, actually, so largely in Maharashtra. And the COVID numbers are high there, and the collection is only 35% -- sorry, 65%. So largely in Maharashtra, which are still -- which still had more restrictions in the -- in most of the southern part and around Pune, so -- which is impacted. And from Bangalore, some places around the city, wherever we have an urban area, the lockdowns and containment zones are higher where there are some cases. And some of them are ecosystem related, like the beauty parlor or connected to travel, tourism, temple, that kind of ecosystem-dependent customers will need a little more time to get back to normalcy, so those have taken the moratorium. So total 17% comprises of these kind of customers.
Got it. Got it. And sir, just last question, actually, this is to Diwakar, sir. So sir, so we have a goodwill of around INR 317 crore on balance sheet. So sir, what is the amortization policy? And what sort of P&L impact we foresee for the next 3 quarters because of the amortization?
Renish, as I mentioned in the previous call -- previous quarter's call and immediately after Madura, this is going to amortize for a very long period of time and the impact of this in the balance sheet for the next 3 to 6 quarters or even 2 years is actually negligible or minimal. So there is not going to be anything. 10 years.
Okay. And sir, just last question, if I may, just squeeze in. Sir, so I heard your disbursement number of INR 600 crores, which is in July. So how do we see that trend going forward, I mean, per month basis? Let's say, second half where -- which is generally a good period for MFI industry?
Yes. We expect the disbursement will go up from here slowly because as the number of full paying customer increases, obviously the repayment fully and [ relay of them ] will start as and when they close the loan. Two, we will start the new customer acquisition as soon as a little improvement in COVID situation because at least we want to see a little flattening of COVID going down, we'll start acquiring new clients. So as I said for earlier questions, normally, the growth comes in the second half for microfinance, and we still believe that we'll get 5, 6 months of growth period. So that is why we believe that the disbursement will start going up from September, October onwards.
The next question is from the line of Akshay Ashok from Dalal & Broacha.
Sir, congratulations on a good set of numbers. So I just had a couple of questions. Like, for example, Karnataka, for the past few weeks is -- in the news channels, we can see that it's becoming a hotspot and the number of cases are going up. In terms of collection efficiencies, do you think that will be affected because of that? What is the situation on the ground? And then the next question I have is about this commercial paper we have raised for 3-month period. So this, what was the necessity to go for the short-term funding because this has to be done only to repay the deals, right? So what was the sudden -- because we don't have enough liquidity, why did you guys look at raising money via CPs, that's INR 200 crores? That's it for now.
Okay. So thank you, Akshay. Karnataka, yes, there are increase in COVID, but predominantly in Bengaluru. District-wise, it's not too heavy. They have done some lockdowns last fortnight. It is one of the reason that a little decrease in collections in July or which is not increased too much from June to July. But now they lifted all lockdowns in all the places, so we believe our collections should start improving in Karnataka. Already, it is quite good, over 75%. We expect at least 4%, 5% increase in Karnataka in this month because most of the lockdowns have been removed completely in Karnataka now. So on commercial paper, yes, it's important to go for commercial paper because -- maybe Diwakar will tell this because it's important to start the new instrument and understand this well. Diwakar, please.
Yes. So as I briefly said, for us, it is not a quantum or amount or anything like that. We are getting a good amount, sizable amount at the same time, start a new instrument, the first CP and also the first MFI. And during these COVID times, when the industry is trying to -- everyone is getting back to normal, it's important for the leading entity like CreditAccess Grameen to access all types of sources. And INR 200 crore is actually not a substantially large amount at the same time, and we can absorb this comfortably. And it's a 3-month paper, and we are getting at a very good rate. So for us, it is more of diversifying our resources as part of our strategy and getting back to normal debt capital markets in a manner where MFIs can tap all sources. So this is more of a strategic inflow rather than any core hang on liquidity, while we are comfortable.
Okay. The INR 1,000 crore NCD allotment has been done for all the -- you were allotting INR 1,000 crore worth NCDs also, right?
Yes, yes. We did take a substantially large level of TLTRO funds. So the INR 1,000 crore approval for us was essentially to ensure that we are in a position to have the approvals in place as and when we take the TLTRO funds, which have come through in the months of June and July, that is one. Also, we have taken this approval essentially to be in readiness for our PCGS as well, which we'll tap in the next quarter, which will also be through the bonds. And so...
Sir, I didn't get you. What is starting in the next quarter?
Yes.
PCGS. So the new facility on Partial Credit Guarantee Scheme released by the government is also by way of bonds, the NCDs. So we have taken approvals in advance of what these funds are going to be raised, while you have utilized half of it through TLTRO funds in June and July. The remaining part will be accordingly assigned to the new facility that we will raise through PCGS.
The next question is from the line of Nidhesh Jain from Investec Capital.
Congratulations for a great set of numbers.
Thank you, Nidhesh.
17% of our customers in CreditAccess are not paid. And you are saying that, that number will decline to 4% to 5% in the month of September. So sir, what gave us confidence that these customers, almost 60%, 70% of these customers, will start paying in the month of September? When we are speaking to those customers, what is the feedback we are getting and what gives us that confidence?
Yes. Nidhesh, we are in touch with the customers. If you'll see in our presentation, 98% of our centers, we have visited and we have access to them, we have connection with them. So at least their feedback is that they will start after the moratorium. They have taken moratorium because they don't have sufficient capital or economic activity at June and July point of time. Some of them will start in August itself, actually, because we are also giving partial moratorium also. So at least, the feedback, what we get is that -- from our customers and from employees is that -- so many of them will start paying in August and September.
Sure, sir. And sir, when we are collecting our EMI, a large portion of that EMI is going into interest -- accrued interest, right? So what is the accrued interest that we are carrying as of June '20?
See we are -- so I'll tell you, we have actually collected the first 60% of the interest accrued for the first moratorium already because whoever started full payment have already paid the interest for first 3 months. So now only they had to do normal EMI. Only who have taken partly or a full moratorium only for that part interest is pending, which will actually further accrue for next 3 months, and together they have to pay. But whereas who have paid -- for example, 67% of customers who already paid, already paid the interest accrued also, which means about 65% of interest accrued already collected by us.
Sure, sir. Sure. And then lastly, if I look at the data in your commentary, it seems like the COVID-related credit cost would be lower than 5% number, and we have already provided close to 2.2%, 2.3%. So additionally, less than 3% needs to be provided over the next 3 quarters, is it right understanding?
Yes. We need to see -- I mean -- I think it is a -- quarter-on-quarter, we are to see based on situation because, I mean, still, we are sitting in an unprecedented situation or an unknown situation. But our strong belief is that quarter-by-quarter, we can review this further.
The next question is from the line of Saikiran Pulavarthi from...
Just 2 questions. It's been an unprecedented times, and no one has experienced this kind of thing on businesses or a common man. What are the changes which you are seeing on the ground at this point of time, potentially, which might force you to revisit the way you were doing the businesses? Any thoughts on that will be really helpful.
Yes. Actually, no, it's an important question, actually. While we are -- this entire microfinance is a human touch-based business and important to ensure the social distancing, ensure the awareness about the COVID, the field is most important. So what we ensured that every meeting, we will meet only 4 to 6 customers for that -- in every week. So that in a month, we are able to meet all our customers so that we still ensure -- able to ensure social listening. Also the habitual trainings we have to do to everybody, we continue to do; awareness we continue to do, which we are doing. We have enabled the digital payment to customers today. More than 1,000 customers are paying digitally also. Entirely, almost 100% of our -- the funding is -- or disbursement is cashless, which used to be about 70% earlier. So these changes are there. There are some cultural changes also, will be there at the customer level when we start the new customer acquisition. Earlier, we used to do 5 to 10 members group. Probably, we will get into only 5 members group going forward to ensure the distancing measures when we form a new group also. So many things we need to change and ensure and align with our processors, which is important.
Sir, as a follow-up, if I can ask, does this pandemic has exposed any of the fault lines in the existing business? Any thoughts on what you are thinking about to rectify them? Anything which comes to your head, if you can explain, that would be really helpful.
Actually, no. I mean really, pandemic has not exposed this -- any of our fault lines, actually. Okay. This is special and this is unprecedented, which is -- I mean this impacted everybody and is not specific to microfinance business, actually. So we still believe this microfinance will be a customer connect and a human touch business and a disciplined business, and which will remain that way. To some extent, there is a change in the customer behavior already happening since last 4, 5 years. We have increased the penetration of mobile, penetration of digital -- I mean, data availability, penetration of ecosystem and infrastructure, which will probably -- a kind of, what we call, acceleration can happen because all of us are working towards that anyway in next 2 to 3 years. We expect the change in the way we do the collections in a more digital -- or assisted digital, I could say, that anyway, it is under process in this business. Probably, that will hasten a bit, but except for that, we don't see a major change in the -- or major fault we found out of this business -- or out of this pandemic.
The next question is from the line Shreepal Doshi from Equirus Securities.
Sir, firstly, congratulations on a good set of numbers and collection efficiency also going up. Sir, my question with regards to the same is that are we seeing any inconsistencies in the EMIs paid by the customers once they are out of the moratorium? So are we seeing any inconsistencies there?
No, no, no. This is actually -- this is -- it's a very disciplined business with our customers. So we -- even the EMI, what we schedule for them is no change between the earlier EMI to new EMI actually, so that they don't have any challenge of high EMI they have to pay after the moratorium also. We extended the period of tenure of the loan, so not the value of EMI, so that there is no extra stress on them. So there is no inconsistency here.
Okay. Mostly all my questions have been answered. Good luck to the next quarter.
The next question is from the line of Kaushik Warrier from CSB Bank Limited.
Yes. Sir, actually, I have 2 questions. One is that, due to the certain period of pandemic...
Sorry to interrupt. Kaushik, can you come off speaker, please?
I'm already off speaker. I'm speaking through the mic.
Somebody is -- someone else, please mute the phone, please. Some other noise coming. Yes, Kaushik, please.
Is it clear now, sir?
Yes, yes. Perfect.
Yes. So what my question was that due to the ongoing period of this present pandemic, do we foresee any change in the time line of the second phase of the acquisition of MMFL? Or what are you foreseeing the time line of acquisition, the second phase?
No. There's no change, except for 2, 3 months of delay in initiating the integration because we are all in lockdown stages. But for that, we don't foresee any change in our plan in terms of integration or making up the step-by-step changes in the process and then products. I think we don't see -- already, we're now -- we are in -- working on an integration mode. We have appointed PwC for supporting the integration, and we have already -- project is on already. So we don't see any change. That was 2 months of lockdown, obviously, delayed -- to that extent, delay is already there. Otherwise, we don't see any change.
What is approximate time line that you suppose is up for completing this acquisition? Other than that...
We estimate technical integration by this financial year. There may be always legal issue because we need to get -- we need to go to SEBI, and we need to get the NCLT approval, which has its own time lines. But technically, we should be ready by March 31.
Okay. And you also mentioned something like to improve the collection efficiency, we have been appointing various officers. So do you foresee the employee expense to go up radically in the coming quarter or 3, 4 months due to the this?
No, no. We said that we'll be posting from a different zone. For example, with the seniors from different places, we'll move to the place where there is a need of improving collections. So it is the internal transfers and movement of people. For that purpose, we are not expecting any increase in that. No increase in costs.
Congrats on the numbers.
The next question is from the line of Abhishek Murarka from IIFL Securities.
So 2 questions. One for Madura, after the integration is complete, would you be converting the monthly meeting process to weekly or bimonthly? Is there any thought process on that? And also on your own branches, which are currently on monthly collection, have you changed that to weekly or bimonthly? That's the first question. And the second question is with respect to OpEx. So 2 parts, right? Staff costs and nonstaff costs. In staff, I just noticed that there is a drop in the loan officers in this quarter, and maybe you would not have replaced attrition or something like that. But in the medium term, are you looking to rehire that many people? Or is this a permanent efficiency improvement on a per branch staffing basis? And in the nonstaff part, considering in the past, you've also said that there's very little scope to really reduce costs on a permanent basis. Do we expect that part to come back to pre-COVID levels once things normalize?
Yes. Thank you, Abhishek. So MMFL, yes, after the integration, we want to get into one common process of products or tenures across the -- across both organizations together. So we are working on that. And whereas CAGL, there is no multibranches, actually. As you know, we have the tenure decided by customer while taking loan. But still, they would meet every week. So even they take monthly collections, they have monthly payments, they will still meet every week and pay on a once-in-4-weeks basis. So that continues. CAGL process will continue as it is with the option to customer to decide the tenure while taking the loan. Okay. And on the OpEx, what happened? We were -- people we recruited between February and March, who are the trainees, who are not yet confirmed employees, probably some of them have not come back or probably the parents have not allowed them to come. About 250 of them have not come back after the COVID because they were just 1-month or less-than-1-month employees. So -- but for that, we don't have any attrition, actually. And yes, some of them may be -- based on the number of customers, we need employees. We keep hiring some people also. Already in July, we hired almost 170 to 200 fresh employees. But what we did is we've hired our earlier employees who left us who have been good with us, and we give them opportunity for that. We don't need to train them. We don't need to go lie to them. We give the opportunity to come back to our system, which is an immediate step we took so that the difficulties, the fresh hiring, fresh guys, training them, sending to our branches are going to be difficult at this time. That's why whenever any of our employees who wanted to come back, with proper checking actually, we are in the process of taking them back. So there will be increasing employees based on the need. Since we are not immediately opening branches, we may not need too many employees. So -- and when we start opening branches, we will open -- we will take more employees. Nonstaff cost, there is not much scope. As I said already, there won't be much scope, a very less scope we have. Even employee cost also, there is no -- we are actually at the optimal level of OpEx. In fact, 4.1% is not the steady status, okay? Steady status will be 4.9% to 5%. Currently, the Q1, we are showing 4.1%, it is an aberration. For the next 2, 3 quarters, it will actually go back to the normal 4.8%, 4.9% range. So that is -- that -- we still believe that, that is optimal cost.
And just to get this for MMFL, they are on a normalized basis, probably at 5.8% or 5.9%. Would that also -- I mean, what's the plan to bring that down to 5%, which would be like your normalized OpEx to assets?
Yes, yes. That normal currently is 5.6% to 5.9%. Our belief, 1 to 2 years, it will be within our normal range of 5%.
Okay. Sure. And yes, probably just one quick one. So apart from the weekly and monthly collection difference between, let's say, Madura and your -- industry and you, would there be any other reason for a significant difference in collection efficiencies? Let's say, 76 versus 60, 65 for the industry. Would there be any other reason for the difference?
It all depends on the customer centricity, I will tell. I'll take that as a key for us, actually. Connecting with customers, regularly introduce customer, that is -- and the product suitability of the customer, what we provide to their entire need, that's most important for customers. So customer retention is another factor, which is quite important. If you see -- I'll give one more example. We have 43% unique customers, which may not be the case for the industry. And we have another 40% that have only 1 other lender. That is also unique for us. So there are many pieces together makes it different, Abhishek.
The next question is from the line of Saptarshee Chatterjee from Centrum PMS.
My first question is in the 3 major states, Karnataka, Maharashtra and Tamil Nadu, are you seeing any kind of change in repayment behavior pre-COVID of the customers and post-COVID, like during the moratorium? The customers who are paying, who were like normal customers earlier are having the problem or like are given the moratorium or like the customers who are earlier defaulting, but they are paying increased moratorium because they are related to some more essential services versus others. So any sectoral spend for -- behavior you are seeing?
See, I think it's a little difficult to compare because the 2 periods are not comparable period. There are many other reasons for customers who want to pay but not able to pay, I mean, at this point of time. May not be appropriate to compare. But in the 3 states, I don't see such changes actually. So that's it. But I can give one example to you. For example, Vidarbha in Maharashtra, which has suffered a lot during the -- after the demonetization, all of you know. But that showed very high repayment behavior. The collection is close to 80% or more in those belts. I mean probably, that -- if that answers to you. And maybe otherwise, comparing these 2 periods is quite difficult.
That is very helpful. And secondly, like as you have seen, these 3 states constitute most of our portfolio. In medium term, let's say, in 2 to 3 years, do we have any plan to diversify this portfolio because we see microfinance state-wise, there's a high concentration?
If you see, we are already in 15 states. And with Madura, we are at 16 states. And these 3 states, obviously, will come down because our growths are happening only in other states or new branches. Acquisition of more employees and new customer acquisition, majority is happening in other states. For example, Karnataka, our annualized growth even pre-COVID was just 12% or 15%, whereas we grew about 39%. So already, there's a plan, already there's expansion, so which will -- ultimately, in 2 or 3 years' time, will result into a reduction of portfolio in these 3 states.
Sir, sustaining any ballpark number, how much will be the contribution from these 3 states in 3 years' time?
Maybe please connect with Nilesh, he will give a kind of data. Because right now -- offhand, I don't have right now here. Okay. But it will come down significantly.
[Operator Instructions] The next question is from the line of [ Prakash Tu from Equitas ].
So just having one question with respect to the merger with Madura Micro Finance. So just wanted to know, sir, in terms of the time lines that we are expecting, and whether the NCLT filing has already happened, I mean, in terms of the effective date and also the creditor's approval, whether it has been taken for this merger?
So [ Prakash ], as we had mentioned earlier, in all our earlier calls, this is more a process thing wherein we get SEBI approvals, and we then have to file with NCLT. And it's a procedural aspect where we need to go step by step. Because of the COVID, we haven't really been able to do this filing. But we expect that process to kick start anytime in the next quarter. And hopefully, as and when we are done with those approvals, we will file with NCLT, take it in normal course. And as Udaya had mentioned earlier, if you recall, the technical aspect of the 2 entities working as 1, we target to complete by -- the integration by March, which is more important. The legal aspect of it, which is more to do with the procedural approvals even if it goes beyond that, is not a point for us because the effect of merger, the benefits of the merger have already started accruing to the company from this quarter. So therefore, the procedural aspects will take in due time, and we expect this to happen in due course.
The next question is from the line of Karthik Chellappa from Buena Vista Fund Management.
Just 2 questions. First, is the collection ratio that you have stated, does that exclude foreclosures, prepayments and overdue collections as well?
Sorry, sorry. Can you repeat, please, Karthik?
Okay. Sir, the collection ratio of 76% that you have disclosed, does that exclude prepayments, foreclosures or recoveries from overdue accounts? Is it like a clean collection issue? Like...
Yes. Karthik, this is clearly due for the month, collection for the month.
Okay. Excellent. And my...
So no dues, no prepayments, no advance payment considered here.
Okay. Fantastic. That's clear, sir. My second question is, I know it's early days, yes, but I believe that the Credit Guarantee Scheme from the government of INR 3 lakhs crore has now also been extended to individuals, even which are classified within the SME. So I was wondering whether microfinance borrower, especially the large ticket loans, would qualify for this? And what would be your approach, if that was to be the case? Have you give this a thought yet?
Credit Guarantee Scheme, you are talking about the individual DICGC, one which is not covering microfinance at the point of time. And there's a rule that the coverage is only excess of 5% default. So which means it is not quite eligible for us, actually. And we have to pay, I mean, a good amount of fee for that also. At this point of time, it is not very attractive for microfinance borrowers.
Okay. So for all practical purposes, it will not apply to you and you will not be interested to avail it?
You asked for microfinance borrowers. We are in NBFC-MFI. They are 2 different things.
No, no. I think you're talking about the borrowers. Yes, yes. Currently, we are not availing it. So eventually, if there is more beneficial to us, we will look at it. Currently, we are not availing it.
The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.
Sir, I just wanted to understand -- I joined the call a little late. I just wanted to understand what is the interest accrued portion of the net interest income this quarter?
Interest accrued portion, actually, we already recovered 65% of the accrued because as we said earlier, first 3 months, we give the moratorium. And the first installment of our customer, we actually collected interest so that we don't have accrued value too much, but we have a small amount. I don't exactly -- don't have the number here. About 65% of our accrued for moratorium has been already collected and in the month of June itself. The balance is there, but the exact amount is difficult to say -- see. Maybe we can give it off-line.
The next question is from the line of Jeetu Panjabi from EM Capital Advisors.
I've got 2 questions. One, when you sit -- when your team members sit down with the borrowers and some of whom are having difficulty not paying, what is the color you are picking up? What is the reason for them not paying? Is it COVID-related? Is it agri-related? Is it other services-related? And how are these reasons different from what normal reasons come up -- used to come up a year ago.
Actually, the top reason is the cash flow shortage for payment because economic activity is not fully started. It's the top reason. And they also know that they are -- legitimately can avail moratorium until August 31. So these 2 are the combination of reasons, which is, I think -- others are very simple. Some of them -- other group members who have paid although who don't want to pay for the day, they want to prevent them. These are very small, small things. The village is locked down. We are not able to go or customer not able to come back, I mean, not able to meet. Almost 5%, 6% of the cases, we are not able to meet regularly because of the intermittent lockdowns also. So majority are -- and when you say the -- geographically, we have a large number of customers in Maharashtra because our collection itself is 65% only there. And other part is on the high COVID reasons or the cities like Pune and Bengaluru, where we have the -- kind of some portfolio -- around 18% of portfolios is in urban. So some places, we have this case because in urban places, the economic activity started late actually. So that's one of the reason. That's why we could correlate with the economic reason or nonavailability of money or sufficient money is a reason. And they also want to conserve with whatever they have until 31st. Since that's the legitimate availability of moratorium until 31st, they're availing that. I think -- and this is always, say, after discussion, our employees, senior employee will discuss with them. They tell them the impact of moratorium, how it increases interest, how it enhances or extends the time to avail the loan again, we explain them all. Still, they would want to avail it, so we permit them to avail it.
And a linked question, sir, is if group -- those subgroups where people do good borrowing, if half of them want to pay and half of them don't want to take the moratorium, are they still under obligation to be in sync together or not be in obligation to be in sync?
You -- actually, we argue. For example, today, 17% of our customers have -- 16% of customers have taken -- of the group, have partially taken moratorium. Some people in the customers, in the group have taken moratorium. Some people are paying it also. So we allow that flexibility to customer because each one have different businesses, each one have different economic activities. So we need to listen to them, that's most important here. So based on the need, we are giving the moratorium for the -- to individual level, not actually at the group level.
Okay. Interesting. So -- but that group -- then the group obligation breaks down, right? Is that a fair understanding?
Yes, yes. We are -- yes. Currently, we are flexible on that because this is the unprecedented situation. We cannot be imposing those kind of restrictions at this point of time because it's -- legitimately, they can take the moratorium, which is regularly provided, so we are flexible at this point of time.
Okay. And last question, what would -- if you're looking out 3 or 6 months, can you explain what do you think is your path to normalization? Do you think in 6 months, 7 months or 8 months, you will see a more normal environment? Or do you think it could take longer or shorter? And what are the metrics that we'll follow to understand that, yes, it's normalizing or it's not normalizing? Besides just the money collection part, is there something else you look for in understanding whether things are normalizing?
Yes. Our main disclaimer will be the COVID situation, how it will move further or it will increase or it will decrease or it will flatten immediately. It will take time to come back to normal, and the down curve is the more -- an important disclaimer for this answer, actually. But even if you get about 5 to 6 months of normal period in the financial year, and if the COVID comes down clearly in the next 2 months' time, we see a much normal business. Of course, I mean, our -- everybody's estimation that -- is that COVID will not go away. We need to learn to live with COVID, maybe not at this level, maybe at very low level. That is why to the -- abnormally to the extent of distancing, sanitizing, awareness creation, those will be living with us for not 6 months, maybe 1 or 2 years, probably. We need to work with that. We need to live with that. But for that, business normality should come -- it should come in 5, 6 months' time.
The next question is from the line of Rajiv Mehta from Yes Securities.
Congrats on good numbers. Sir, mine is just a clarification on the accrued interest. So when you say that 65% of the morat 1 accrued interest was collected, so of -- so these customers started paying from June. And for a customer who paid June and July in full, the initial installments were attributed to the accrued interest of the moratorium period first. Would that be right? And similar would be the treatment for people who are not paying right now or paying partially. So when the moratorium ends and if they start paying you in September, somebody has not paid you so far. The first few installments will go towards clearing the interest of the moratorium period? And then afterwards, after clearing that, the repayment of the principal -- of the loan will start, right?
Yes, you answered my -- your question already.
Right. So the loan tenure will -- yes. So the loan tenure will be extended?
Correct.
Okay. But not to the extent -- yes.
Not only to the extent of principle, to the extent of additional interest time they were taken. To that extent, total pillar will be extended. You are right.
Okay. So had the interest been capitalized, the loan tenure would have got extended by possibly a higher full year, right?
Correct. Correct. Because there will be a chance of interest on interest also, which we wanted to avoid, because we -- all of us are hearing that there are issues about interest on interest. So we don't want to do -- get into that -- I mean, that problem at all. So no interest on interest is predicted in our business.
I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you for your time. And thank you all, spent almost more than an hour. And have a nice day and stay safe. Thank you, everyone.
Thank you, Udaya.
Thanks, Abhishek. Thank you all.
Thank you.
Thank you. On behalf of IIFL Securities, that concludes today’s conference call. Thank you for joining us, and you may now disconnect your lines