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CreditAccess Grameen Ltd
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Ladies and gentlemen, good day, and welcome to CreditAccess Grameen Limited Q1 FY '22 Earnings Conference Call hosted by ICICI Securities Limited. [Operator instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Renish Bhuva from ICICI Securities Limited. Thank you, and over to you, Mr. Bhuva.
Thanks Neerav. Hello, and good evening to everyone, and welcome to the CreditAccess Grameen Q1 FY '22 earnings conference call. From the management team, we have with us today Mr. Udaya Kumar, MD and CEO; Mr. Balakrishna Kamath, CFO; Mr. Nilesh Dalvi, VP, Investor Relations.We will start with the opening remarks and then open the floor for Q&A. I would like to thank the management team for giving us the opportunity to host the Q1 FY '22 earnings call. I will now hand over the call to Mr. Udaya sir for opening remarks. Over to you, sir.
Thank you, Renish. Good evening to everyone. I thank you for taking your time and joining us today to discuss our first quarter FY '22 financial performance. The quarter was quite challenging as we witnessed the resurgence of COVID much higher intensity compared with last year, causing large-scale impact on human lives across the country.COVID 2.0 was quite devastating as we saw our near and dear ones succumbing to the wrath of pandemic. We are deeply grieved by loss of our 8 employees due to COVID 2.0. We are -- we will support to families of the departed employees, which includes compensation close to 4x of their annual CTC, 1 year monthly salary to the family or a job offering to the eligible family member.The timely response from the government administration in the form of COVID lockdown restriction, ramping up of the medical facility, arranging vaccination drives around the city and increased awareness among people they did learning from COVID 1.0 resulted in COVID 2 winning at a rapid pace.We continue to encourage our employees and customers to get vaccinated at the earliest as vaccination was being conducted in age wise phased manner. As of July '21, around 60% of our fixed staff and 86% of old office staff have got their first dose.As part of our CSR activities, we continue to provide support to local administrations by supplying them with health and medical kits and job opportunities to our customer who contacted COVID. Further, we continue to facilitate vaccination to our customers for at lead banks working with local authorities.Given the shorter duration of COVID 2, many businesses have been able to gradually resume their operations. However, the recovery has been relatively slower across states, which witnessed stringent lockdowns during May and June, which got gradually relaxed in July.At CA Grameen, we saw connections excluding areas to decline from 94% in March to 93% in April and 79% in May, primarily on account of inability of field force to meet customers and certain customers holding back repayment to conserve cash in case of any unforeseen COVID emergency.Reinforcing our employee and customer safety and adhering to the government modifications, we announced deferment of collections in second week of May, largely up to one month, primarily in Karnataka, Tamil Nadu, Kerala and Maharashtra where severity was quite high. While continuing with our collection efforts -- our collection efforts in other states.Important to note that there was no DPD standstill observed during the collection deferent period. Dip down in collections led to increase in older portfolio during first quarter. However, with COVID 2.0 subsiding at a faster pace and increasing relaxation across various states in June and July, the collections gradually picked up to with 81% excluding areas in June and further gained momentum reaching 91% in July.Collections, excluding -- including areas that 95% July indicating robust recovery on the back of improved borrower confidence. We strengthened our collection team by redeploying 200-plus members from various business support teams to enable faster recovery. This will help us to sustain the collection momentum and work toward cost recovery for coming months.While it is early to accurately estimate the impact of COVID 2 on credit cost, the initial signs are very encouraging. The impact of COVID 2 has been less prolonged compared to COVID 1, and hence, we expect the asset quality to recover at a faster pace.Comparing COVID 1 and COVID 2, as highlighted on Slide 6 of our investor presentation, peak incremental [ PAR 30 ] during 2 of around 8.8% calculated on March 31 portfolio compared to 9.8% in wave one. Similarly the peak incremental PAR during wave 2 is around 4.3%, calculated on much March 31 portfolio compared to 6.7% in year 1.Similarly peak incremental nonpaying customers during wave 2 by around 4.2% compared to 6.5% in wave one. So collection efficiency, excluding areas plus 91% within 2 months post the end of collection department compared to 4 months during wave one. Similarly, collection efficiency, including areas plus 95% after 2 months compared to 7 months during wave one. While we are quite positive on the speed of recovery, we will be in a position to provide a better clarity on credit cost by September after witnessing 2 more months of repayment behavior.In accordance to our early risk recognition and conservative provisioning policy, we have created adequate provisioning coverage based on repayment pattern observed during the month of June and July. Since we recognize stage 2 after 15 days of stage 3 after 60 days, compared to industry, we have created INR 143.5 crores of additional provisions against loans in 60 to 30 buckets and 61 to 90 buckets.Talking briefly about MMFL, the collection excluding arrears declined from 90% in March, '21 to 88% in April, 68% in May and 16% in June, which are recovering fastly to 83% in July. External lockdown across 4 markets led to drop in collections during May and June. Collection deferment was allowed during May and June due to inability to meet customer primarily in Tamil Nadu, Maharashtra, Kerala and Karnataka. Collections received -- despite collections, certain deferment helped in reduction of overdues resulting in controlling PAR during quarter.On the back of robust improvement in collection in July, we have again brought our focus back in on business growth. In addition to opening 35 new branch in March, we opened 66 branches primarily across newer states as part of our diversification strategy in July.In the month of July, our disbursement reached INR 1,107 crores at CA Grameen and INR 151 crores in Madura, together surpassing our disbursement during Q1 FY '22. This progress is quite good -- quite a good validation that we are back in the path of expansion and growth.While we shall build expansion of brand network in CA Grameen, at MMFL we shall focus on increasing the business from existing branches through new customer situation and monetizing of existing 10.5 lakh customer base by generating higher business from them and mainly with our efforts of single channel concept of supporting the growing aspiration and our logistical needs. Together, we are on our goals to achieve initial achievement for Madura, we seen this financial year.We back our rural growth story in spite of current challenging times and shall continue to strengthen our competitive position in the market share. We remain cautious of the possible third wave. However, with increasing vaccination throughout the country we believe that the impact of virus on both business and personal life will reduce going forward, paving the way for back to normal course of business.Historically, we have focused our ability to embed learning from adverse events and have risen to the occasion during testing time. The observe, learn and adopt approach adopted by us have proved to be a catalyst in providing the much needed capital creation across the hinterland. We shall continue to capture and -- capture the growth opportunity being the largest trusted microfinance institution in the country.Starting briefly about our consolidated performance highlights during Q1 FY '22, GLP grew by 8% Y-o-Y to INR 12,664 crore. Active borrower declined by 5.6% Y-o-Y to INR 35.85 lakhs, mainly due to the rate off during the period. Total income was flat on Y-o-Y basis at INR 17 crore, primarily due to deliberation over INR 21.3 crores interest income on safety portfolio and reduced lending rate going to reduce cost of borrowing.NII declined 8.3% Y-o-Y to INR 352.7 crores. We had to incur negative carry cost on account of maintaining higher liquidity given the volatile situation due to COVID 2 which is almost INR 2 crores per month. Pre-provision operating cost was INR 216 crores.Impairment on financial instrument of INR 188 crores, which included the impact of write-off of INR 49 crores. Our total recent provision on consolidated basis stood at INR 7.2 crores, amounting to 6.3% of gross on portfolio against G&P of 7.56%, of which 90-plus DPD is only 4.02%. We continue to maintain higher liquidity at -- maintain higher liquidity at INR 2,222 crores, which was around 16% of total assets as on June '21.With improving visibility on business trends and normalized operations, we shall gradually look to bring down the liquidity to 10% with September in the phased manner. This would lower the negative trend impact and increase NIMs going forward. With an improving business environment and opening of new branches, our strong liquidity, capital adequacy and balance sheet will help us to drive growth over coming months, compared to our last year's account.The company has received a demand notice along with the assessment order dated June 25, 2021 for the payment of total -- approximately INR 2,333 crores income tax, including surcharge and cess for the assessment year '18-'19 from the National Faceless Assessment Centre of the Income Tax Department.The company's assessment based on legal advice is that demand notice is based on incorrect information of assessment officers. The company has used the assessment demand in detail along with tax legal experts and is fully confident of defending its legal position before the appropriate tax authority and to ensure that inaccurate basis of arriving at the income tax demand is rectified based on such merits and advice.Further based on advice from legal and tax experts, the company has filed [ restoration ] before Honorable High Court of Karnataka, Bangalore, seeking to cross high the demand notice and assessment order June 25, 2021. This is for assessment of '18-'19 from the National Faceless Assessment Centre.The Honorable High Court of Karnataka has further granted an interim stay on the assessment order, demand notice and company and composition of tax dated 25 June. It issued assessment order -- assessment year from '18-'19 by the National Faceless Assessment Centre of the Income Tax department.The rate of the recent order, the income tax department is restrained from collecting or taking any further steps for the recovery of the demand arising from that appropriate demand notice. So the legal and tax guidance has been given to us that there's no need of accounting this liability in this matter.So with this overview, I would now like to open the forum for question-and-answer session. Thank you very much for patiently listening to me.
[Operator Instructions] The first question is from the line of Shreepal Doshi from Equirus.
Sir, my question was on this collection efficiency number for May, wherein we had given holiday to the customers. So there in the collection efficiency number is only for the non-holiday given customers or is it -- how should we read that number?
This is for non-holiday given number.
Sir, the next question was, like with respect to the branches that we've added during the quarter. So our overall branch number has not increased, so have you closed down some of the branches during the quarter?
No, this branch opening what we did in July, Shreepal. So that's why June number there is no change.
And sir, in the ECL, so for our Stage III, the overall ECL is close to 58%, 59% for the consol also and for the standalone also broadly similar. So I understand that even for Stage III it seems to be around 70%-75%. So do you expect that we will have to do incremental provisioning to reach to that level or we expect there will be rollbacks and it will not be material?
We expect the rollbacks that is why we provided little less, because there's a large number of customers are paying customers. They are paying more than 50% of the monthly due, so where we have taken a little lesser now in this. That is why the average has come down to 59%.
And just one last question, with respect to this rollback so based on your experience, and based on our customer track record also, what percentage of the customers tend to rollback to, say, on the date of payment they didn't pay, so basically becoming standard from PAR 30 bucket. So do you have -- have you done any analysis or any -- some work on that side where we will come to know on this side?
So this is very different from a stable period to pandemic period, Shreepal. So in the pandemic period, the people going into 30, 60 bucket are quite fast and similarly coming out are also quite fast. In stable period, normally, once they cross 60 to 90, there's a little or lesser. In the case of current situation, I can't say it is a continuous for this. July month, we observed close to 52% to 54% more from 60 buckets to 30 bucket kind of thing. From 60 bucket to 0 buckets. And that is the standard global process because the speed of coming back up is also fast, this is what only I can run this year.
Sir, just one aspect that does the weekly collection efficient -- weekly collection model help us here because the EMIs are relatively smaller as compared to the monthly module. So it helps probably weekly collection model more to rollback versus a monthly collection module. So because we have Madura, which is on the monthly side and we are on the weekly side.
I don't want to tell our process as for everybody, they may be very good. So for us, weekly worked always well, and we continue to work on weekly, which is -- its evaluated multiple times for us.
Thank you. The next question is from the line of Apoorv Trivedi from Moon Capital.
A few questions from me. One, on the tax issue, if you can just clarify, what kind of timing do you expect for resolution? Have you received any advice from your lawyers on the process from here on and how long it will take?
Yes. Apoorv, I think, with the stay from the government, actually, there are some orders passed now. It is back in that tax official score, they have to come back and submit the court actually. So unless…
They have to submit justification for their decision?
Yes, yes, they have to come back and tell, till then we are not supposed to act on it actually. So as of now, there is no order for us.
I mean, I guess it will depend on what the tax department comes back with and if they insist on there is, then presumably there is going to subsequent processes.
From the legal and accounting expert point of view, it is -- there is no case. That's why they say that there is need of any provision requirement or contingency requirement also at this point of time.
But just to be clear, so the High Court has asked the tax department for explanation of the demand notice, right? They have not said that the demand notice is not valid?
No. What they said is demand notice is stayed, if any objection, they have to come back.The second question, you mentioned. With stay on the demand and unless income tax will come back with clarification or a modified demand or anything, so till then -- I mean, anything will start only after that. Till then it's none for us.
Second question on the disbursements, you mentioned that they have normalized almost in July. I just wanted to understand what criteria you're using in terms of handling out disbursement, especially to existing customers, where there may be, for example, overdues and things like that.
See, currently, the majority of disbursements happening from the customers who closed loans between April to now or some of them are March also. So -- and maybe as currently the normal disbursement, we don't see any abnormal disbursement for any customers. And there maybe -- we have -- earlier, we were very rigid about -- even one week overdue was not allowed. But now we are realizing that we need to be respecting the situation. So even there is one or 2 weeks of overdue if they pay back then, we will disburse them to also. So there is no further any big change in our disbursement patterns. And we already started the new customer acquisition also. I think August-September, we will see increased customer attrition as well plus reopen many branches so the new customer acquisition starts going forward.
Okay. So just to clarify, when you say 1 to 2 weeks overdue are also, are you…
Yes, they have to pay back the overdue. Then it…
[indiscernible] before they get.
Correct, exactly.
And last question, just in terms of additional provisions. You mentioned, I think you have some INR 143 crores of excess provisions. How do you think about utilizing those provisions? The way I'm thinking is, in the first wave, you had a total of 810 basis points of total provisions. In the second way, so far, it's less than 2%. Is it fair to assume that you're going to see elevated provisions for the next 2 to 3 quarters or you would be utilizing the excess provision?
See, what I said the excess provision is compared to the industry standards because we provide at a 60 days basis. That is why, compared to industry, we have at least INR 143 crores of provisions. However, this is part of our ECL, because our ECL itself is a public provisioning process, which automatically carries the management overlay -- an additional overlay, that is the INR 143 crores. And having said that, we are cautious about what will be the potential provision going forward. For our strong division, we did not have any additional provision requirement in September, we have -- which we have covered significant requirement. So our sense, Q2 should be business as usual.
The next question is from the line of Amit Nanavati from Nomura.
My question, again, on credit cost. So maybe if you can just look at 50 where we peaked last time around [indiscernible] versus today, clearly 18% peak in September versus a 30%, 31% peak in June, right? And provision cover in -where we are sitting at north of 70%, that's run down to 55%-56%. So how should one look at -- and again, it's a repeat question, but how should one look the credit cost at least in the context of grade 1 customer who turned NPA, where you had provided 70%-75%. That should now -- because you had a raise too immediately after the customer turned NPA, should be a 100% write-off case and then you have a VSP impact on top of that, right? So are we still comfortable with the credit cost outcomes to be lower than FY '21.
Yes. I think -- I mean, what our anticipation is clearly the cost of credit for wave 2 should be much less than that wave one. Even earlier, we estimated, even the last year also -- last quarter, we talked about it. Our view is that based on the experience of our employees, based on the experience of the customers, based on the high-risk customer already delinquent as of March 31. So the additional incremental cost for wave 2 should be much lesser than the wave one. But I think these are too early time to give a guidance number. Really by end of Q2, we should be able to give a real indicative. But as for a gross estimation, our credit cost from wave 2 should be -- should not be more than 60% of the wave one.
Secondly, one of the charts that you provided on Slide 7. So on stage 2, there was a 6% of customer, which was not paying you. That number -- and an overall basis nonpaying customer was around 13%. That has come down to 6.5% in July. So to expect that large part of that is just improvement in stage 2, right?
Yes, large part of them in stage 2, correct.
So at a similar level, one is not seeing that kind of improvement in part paying customers, we were 19%, improved to just around 17%. So would be the nonpaying 6% customer now be part paying customers? Is there a fair assumption in it, which is basically looking at the part payment customers?
Sorry I couldn't completely get your question, Nilesh, one minute. Nilesh please.
[indiscernible].
Yes, yes, yes. Okay. So Nilesh is saying to clarify me. He said that, basically, what is happening is nonpaying customer moved to partial. If you see nonpaying they are 12.9%, come down to 6%. So basically, 6.4% of nonpaying become paying as of July.So basically, as of July, 6.5%, majority of them in the -- we call stage 3, because 3.5% of March 31, which was 60-day bucket, have moved to 90 day bucket in the June -- June quarter. It's incremental but -- we are showing in the quite 6%.
Lastly, I didn't catch your comment on your 60-day plus DPD customer, what rollback you've seen in July?
Yes. I said about 50%-50%. Yes, 50%-50% rollback in July. So -- but let us see how much in makes out -- 60 to 90 is 36%; 30 to 60 is about 54% -- the rollback in July month, yes, I think there is quite a speed. We have to see August, September The low-hanging fruit should be done in mid-July, right? August-September there is [indiscernible]. That's why I said -- again on total we should be doing better, overall.
The next question is from the line of Nidhesh Jain from Investec.
So on the credit cost, if I look at the stage 3 number on that, we are making a provision of 60%. There is a reasonable likelihood that we will have to make almost 100% provision on this book over a period of time. Probably this 8% number may reduce to 6%, which is the indication that we have got in July. But going forward, the increment may be much lower. So there will be still probably an elevated credit cost for one more quarter before we see an unrealized credit cost coming in.
I agree, there will be credit cost -- generally additional cost to P&L, and rate off. But today, already, if there are no payments there already we are making 45% Nidhesh. Whatever paying customers -- we are paying more than 50%, we are forwarding 50%. So even when we are rating off, whatever, I agree that about 20% or 25%, we have to take the cost of paying them at that time. So it may be Q3 or Q4. But overall, we also assume that almost 25% will come back, so even for net of the cost. The rollback will take care of that recent requirement.
And in Madura also I think there could be a possibility that the paid costs maybe [ additive ] in the coming quarters because there the correction trends are inferior to CreditAccess.
Yes, correct. So Madura, normally, there will be one quarter lag between us and them. So probably, we will have to do little higher in Q2 because if you see all the past 4 quarter, we have seen that there is little lag after all going into stage 3 because of monthly collection and they both have 90 BPD bucket we use. So there will be slight increase potential in the Q2. But still, we believe it won't be significant.
And sir, lastly, by when we will be moving to weekly modeling Madura, the complete integration of Madura and entire on the process ground.
Yes, I'll tell you. What happened already, about 250 branches we moved into overall systems, security system and the new customer acquisition Madura is already on a new model -- any new customer. During this quarter, as of 250 branches already -- almost between July-August moving the balance of all branches, so that means from September 1, all the branches in Madura will do any new customer in the new model only, not the old model. So even renewal -- even renewal will start from October. So October we will start the renewal model also new. So that only the loan disbursed for the existing customer remains -- will rundown in the 12 or 16 months' time. But new customers always to the new model with the new offering, not just -- like our bouquet of products, like second lead, credit line all these established for the new customers already. And then the fresh new customer, all new branches, all branches will do the new models already. So we provided -- at least our PBS extended to Madura already.
The next question is from the line of Pratik Chheda from IIFL Securities.
My question is overall cost of funds. We've seen a sharp increase in cost of some marginal cost of borrowing on a sequential basis. So is this completely coming from your higher liquidity on your balance sheet or has there been some increase in lending rates from our lenders as well?
Actually, no, we borrowed very little in the quarter. The marginal cost increased because we borrowed only 2 long term funds from international and domestic. That's why, the cost looks high. On a normal course for cost it is not high. Our overall cost in the last 9 to 12 months its slightly because a lot of -- sorry, a lot of fund -- legacy cost is still there. Whatever we borrowed a short term fund in the last 9 to 12 months so there is a rundown of, what you call, low cost funds. So but overall cost is still at 9.2 only, overall cost of borrowing. It is -- slight increase, and the marginal for the cost rate increase. Overall cost of borrowing is still low and our pricing to customer has not changed.
So do you plan to change your pricing then or on the upcoming next 6 months and do you see like the cost of borrowing are typically [indiscernible] at this stage?
We don't see cost of borrowing going up. Probably it will remain stable for some time. We are not expecting increase in the cost of borrowing. However, we have to see how that new regulation comes, maybe there's an opportunity to increase some prices.
The next question is from the line of Akshay Ashok from Dalal & Broacha Stock Broking.
So what is the percentage of top-up loans in the disbursement done in July? And if you can give any idea about any reasoning…
Sorry, what is the percentage, you said, sorry.
The disbursements that you have done in July, which exceeded the entire quarter of June was that, right, what percentage is top-up loan there is?
No, there's no top-up loan.
Can I hear you. So only payers have got this loan or so it's not new customers, right?
It's a renewal of the loan, customer would have paid back in March, April, May, June, we would want to disbursed because of all this strict lockdowns and restrictions in operations. So the renewals have been carried out. That may be insignificant, what you call, other loans like additional loans which is normally low, because loan is yet to be dispersed to customers. They are all waiting borrowers.
What is the percentage of -- in this quarter?
We are what, restructure you're asking?
The restructuring, yes, or how many restructuring?
On to restructuring this quarter. Our overall restructure portfolio is only 0.7%, which was majority done in the quarter of March and I think hardly, which is about INR 6 crores or INR 9 crores -- INR 6 crores in this quarter. So one of the major is we don't have a restructured portfolio.
So you don't have. So you have to maybe write-offs, it flips, can't restructure?
We sort of lost all the opportunities before going to restructure and restructure is only where there is at least some cash flow with the customers. So without that, we won't restructure, it will be a postponement otherwise. So that is why even the last time also we did very little. And this time, we may do very little where some -- there is some cash flow is available, but they need some support, we will do. But maybe in other section we will do, but it will be very -- we are not anticipating too much of restructuring.
What is the percentage growth you guys are anticipating for FY '22 end GLP growth?
We see…
To give a range of.
See I'll like tell you, I'll give you comparative. Last year, we got 6 months -- 5.5 months or 6 months of growth period. We are able to grow close to 13%, okay? This year, we would get, including July, if you say we will get almost 9 months of period. I mean just I'm praying again that there will not be wave 3, okay? So given that we get 9 months' time, definitely will surpass what we did last year.
Last one for these microfinance companies always users are comfortable if the cash inefficiencies get high 90% to 99% levels, right? So you think normalized, you feel we will reach those kind of levels, because microfinance for it to be very successful, you need to hit this high collection efficiency numbers of 98%, 99% in -- at least by the end FY '22, there's no third wave, you hit those collection efficiency numbers again?
I think 98% is potential --98%, 99%. We be…
It is been definitely -- sir, before COVID, that is actually used to all [indiscernible] GNPA was below 1%.
Wait a second, I'm coming there. So the behavioral change has -- changes the overall credit cost from action. Our sense is by 98% -- 99% or 1% cost, probably will move to 1.25%, 1.3% going forward on a stable cost -- stable period. And it won't change too much, but yes, at least 20-30 bps will increase from an earlier period. So that means about 1.25% to 1.3% should be a potential stable credit cost. So that is our estimation.Just to give a clarity, let say, in March, we have done about -- almost 94%, 95% collection we reached. So with about 3.5% -- say 65%, 68% portfolio. So that means we reached 98% almost, correct. 3.5% is our NPA and 95% collection, so that means that the shortfall is only 1.4%, right?
Next question is from the line of Shreya from CLSA. [Operator Instructions]
Sir, I have 2 questions. One is on the side of the state-wise PAR 0 book. So can you -- so the experience has been that in wave one, we saw Maharashtra struggle and we saw the recovery in the state delayed with the assets -- with the collection efficiency problem in that state for quite some time. While we understand that you are anticipating lesser impact of wave 2 and you're seeing lesser impact of wave 2, can you talk about Karnataka and Tamil Nadu because the PAR 0 book is -- I mean, in Karnataka is the highest and Maharashtra and Tamil Nadu are somewhere at par. So if you can talk about these 2 states specifically and what kind of recovery or challenges that you're facing over there?And sir, second question I have is from -- there are these -- your annual report talks about these loans that you have come up with -- there is a COVID exigency loan and there's a 3 year tenure loan to help businesses -- helping restart businesses. You have given such little bit of detail about these loans, how many customers have been given these loans, what kind of share of the gross loan? Is it -- how big is it how small is it? If you can give some details on this.
Sure. So if you see a slide -- Nilesh, its Slide 4. So Karnataka already come back to 92% collection in July, if you see. So that's why we don't see any worry in Karnataka actually. So nor do we have any worry in Tamil Nadu, it's also back to 90% already. We may still have little over in Maharashtra only, there's quite -- it's done very well. But still, we may have a residual impact in Maharashtra more because of the continuous lockdown in many places for a longer period. Also followed by, again, flood impacting majority of the Southern Maharashtra district. So we still have some challenge in Maharashtra, but we don't see any challenge in Karnataka and Tamil Nadu from our collection perspective. The progress, what we are seeing is quite positive in these 2 states. So Maharashtra has little challenge. MP has little challenge. But other states, we are doing very well.
Sir, but the table on figure 4 is for -- it excludes the EMI holiday customers, right? So in spite of that, you don't see any challenges for Karnataka, Tamil Nadu for that market?
No, we don't -- we have not seen any challenge in Karnataka and Tamil Nadu.
So the entire state does not have any pockets of lockdowns the way Maharashtra has been facing those district wise lockdown is still happening.
It was very, very few states, for example, Mysore had some little extra lockdown. And currently, as because of bordering districts have some lockdowns. Bordering districts of Kerala has some restrictions. But we have not seen any major impact in those. There are some delay, but we don't see any challenge there. Maharashtra, we have some challenges because of the multiple impact in that particular geography, particularly Southern Maharashtra, if you see last 2 years, there are multiple impacts continuously -- the flood then the COVID, the long-term lockdown, again flood, again COVID and again flood. So 5 events happened in the last 24 months, which has -- which lower for that geography. So we respect that, and there must be -- there will be some impact. If at all, our higher delinquency it will be Maharashtra, not Karnataka.
And sir on the COVID…
Talking about it decides basically the 2 things. One is about restarting nothing, but the restructure portfolio. I think we did about 11,000 odd customers, about INR 25 crores, which was done in Q4. So that was highlighted in our annual report and we also support the 3-year loan what we started is the retail finance loan -- sorry, even in the microfinance, the loan is more than INR 80,000 if any customer take, we made it 3 years loan, not the 2 years, because we don't want the high EMI for the customer. That we have not dispersed the meaning, but maybe I have comment - 6%, sorry. We have 6% of the loans in 3 years.
6% of gross on portfolio.
Yes, 3 years portfolio.
And sir that COVID exigency loan that is there?
No, that was done initially in the first lockdown time, OTP basis. That is basically INR 2,000 loan, if customer wants emergency to money to pay to the bank loan, because it was lockdown no movement of payers, only banks are operating. I'm taking about March, April of 2020.
Of 2020.
So at that time what we did, if one customer if they have very emergency, they can call us, we can disperse to their bank account INR 2,000 on OTP based authentication. But it was not very, I think 200, 300 people have taken the advantage that time, but that all depends.
The next question is from the line of [ Abhijit ] from Kotak Securities.
So just to go back to the DPD movement, especially the 0 to 31. So what we see is that the 0 to 30 has move down sharply in July, whereas the older buckets are close to kind of flattish. So I want to understand, like in the context of what you said, like there's been some disbursement support to the borrowers given as well. So I want to understand, like, the INR 1,000 crores -- INR 1,100 crore kind of disbursement that you've done in July, if you can quantify what share of that would have been to, let's say, pool of customers, which who are in 0 to 30 pools as of end of June.
I think it is 0 to 30 could be some, but I don't have right now classification of that. But majority is it's actually paying bucket loan. As I said earlier, it's a renewal of loans where customer have paid the loans already between March, April, May, June. So there's no -- I don't think there is a relation between older bucket moving and the disbursement. Older buckets will move because whichever in 60-day bucket, even 30-day bucket of March 30, there's a high tendency of moving in the Q1 because there's a lesser ability for us to go and follow-up and recover at that point of time. That is why the higher bucket remained at that level.
Yes. And just from a thought process point of view, like I want to understand why we have refrained from doing any restructuring as such. Like as in if you're able to cut down the EMIs for the borrowers by, let's say, half, shouldn't that itself kind of drive better behavior on the ground or if you can kind of share what kind of [indiscernible] you have on that.
We need to realize that a group of customer have their own policy and approach. Okay, we should recognize that. If 15 people are there, 5 people like we go and restructure and do everything. There is an impact on the entire -- of the entire group. We should be careful in doing that. That is why we take this as a last approach. We want to go with the current -- because everybody has their own tendency to approach, they have a cohesive nature, they support each other with a specific value and their ability, right? So we, on our own, should not go and dilute that initially. So we will take all the steps possible to recover in a normal course and change the pattern. As a last resort, we may go back and take the group approval to do it not now. So that's why I said, we may do it, but as a last resort. And where there is an ability of customers there to pay at least some money, because we can't go and get changed the -- and do the restructure. There is restructure. Even the last year also, we did not do the same. We did not do that. We actually took the approach of taking last resort and did only some 11-12 odd customers. And it gave us good result. And we believe this will give us good results this time also.And it is not an individual loan, please keep in mind. This group of customers came together, and we are working with the group. We should be extremely careful doing -- tinkering the loan of individual within that group.
And sir, when I look at the PAR trends for Madura, we don't see similar kind of movement as we see for CreditAccess. This is on Slide 8. So has there been a DPD freeze during the interim months like until July, until June?
Yes. In Madura, we had some DPD freeze done in the month of June, actually. So that is why there is -- movement is slightly different. That is why we expect the movement to happen this quarter. That's why there will be some lag in the movement into DPD bucket. So we can expect a little higher state cost coming in Q2 for Madura.
Sir last one is…
Overall perspective it will be insignificant, because we don't expect anything other than business arrears in Grameen. That's why overall, we don't see any impact.
And sir, there was one news article which said that Sa-Dhan, which is the industry body, has recommended that SHG loans should be also included when calculating the household income under the new set of guidelines. So I want to understand like how does it impact our set of geography in terms of overlap with the SHG portfolio that banks run otherwise, let's say, Tamil Nadu only Southern states where we operate?
No, that is already there, Abhijit. So even today, if already she has borrowed it, the data is in bureau, automatically, we will not lend, right? So the first step, they should -- they should work. I mean all of us are insisting RBI and banks that SHG data should be on the bureau. So once it happens, we don't need any other rule. Automatically, one will not lend to them. I mean that will be part of that total exposure requirement automatically. The problem statement there is the non-availability of SHG data on the bureau. I think the priority is to make the data on bureau. So once that happens automatically that exposure overlap will come down.
The next question is from the line of [ Manan ] from ICICI Securities.
Sorry, I'm from ICICI Prudential Mutual Fund. So I had one question on the collections front. The data that you have presented, so we understand the collection deferment would not have gone past June. So is it right to assume that the data that you presented for July include the entire portfolio and the collections around it or there is some deferment that's spent into July as well?
The entire July is there is no deferment at all. It's completely due for the entire portfolio and collection for the entire portfolio.
This remind this is collection. [indiscernible].
For May and June it is there. May and June, there is -- there was some deferment. There is why that collection value is less. Demand and collections are both less. Whereas, July there is no deferment to anybody. I think second week of June deferment was over. I think terms of June, we started entirely collection. So all the book has more than 15 days -- more than 3 weeks, close to 3 weeks minimum as of 30th June. So even if they past -- even there's 15 days delay, it's already moved to a stage 2 bucket.
[Operator instructions] The next question is from the line of Sarvesh Gupta from Maximal Capital.
Sir, just wanted to understand a little bit more on this income tax issue. Obviously, this being 2/3 of the net worth is a very, very large issue to deal with. So how exactly is this INR 2,300 crores demand computed, because it looks very, very large compared to the size of the operation. So can you just throw some light on the calculation of this INR 2,300 crores, what is it actually?
I think we have clarified to the exchanges whatever we can clarify. As we said, there is a gross inaccurate calculation by the tax authorities. And also, we said that the tax and legal people have viewed this and assumed that there's no requirement of contingent liability against it. So to that extent, totally, we can clarify at this point of time, Sarvesh.
Like this INR 2,300 crores can you break it up between the penalties and interest component and how exactly?
No, no, it's a -- the prejudice now there, so we can't do that. So this is -- so it's like matter in the court, right. The court change matter, so we will not be able to do that. But we can give you the implication we have on this head. So what is the implications that the court has changed. And the legal and tax consultant and accounting consultants clearly said that there's no need of contingent liabilities for this. So that much we can tell.
And other thing is that when they have advised you, have they advised you on some settlement amount or anything which you might have to pay to settle this?
No, there is no demand for settlements. Demand itself is canceled, right? When the claim is raised, there is no demand as of now. Stayed -- when they -- when we've stayed means, their demand is not there on our hand right now. So they have to come back with that, whether their objection, demand, clarification, modification and whatever it is. So that's why I don't -- that's why we said there is no need of any contingent liability.
Okay. And since you have put in the data for 10th of the last -- first week of July, what has been the trend in this month of August, like 10th of August or something in terms of the collection?
So the trend in July is continuing as of now. You see, we have put even up the last week of July. Okay. But the same trend -- similar trend is continuing. Page 4, you can see the trend week wise. 10th July, 17th July, 24th July, July month so similar trend is continuing even now.
So given this, in absence of any third wave, are you suggesting that you might see some reversals in the provisions in quarter 2 and beyond?
See, as I said earlier, normally low hanging will get captured in July and slowly, slowly, we'll get into a harder collection capitals. So we can't say the same trend will be there for the entire quarter. And we are not -- it is the early stage in 1 and 1.5 months so we need to see carefully for the entire quarter. That's why we'll have difficulty to give a complete direction on what it will move. But what we can clearly tell that we have covered significant requirements, and the Q2 should be only with the that is requirement. If at all there is a provision it will be with the first. We have spread our first half. But we would need little more time to comprehend the accurate estimation.
And on the gross loan portfolio growth, any guidance for this year?
As I said, considering last year, we got only 5.5 to 6 months, we still grew 13% Y-o-Y, that's why we are down at 8% as of September. So considering that we are getting almost 9 months right now, subject to no third wave, we should be doing, and we should be beating last year's numbers.
And this recent change in regulation or rather the proposed change in regulation for the removal of the interest capabilities -- the spread cap, so have you already -- I mean, when are you expecting that to come in and when is the company going to like act on it and increase the pricing or rather the spread?
Difficult to say now, because we don't know when the regulator will come back because I think they collected the feedback up to 31st July, so this was the time. So normally regular will take one, 2 months' time, but we don't know really. But I think as I said, it should -- we are always ready for changes in regulations and we believe this is positive for microfinance industry and for us also. And being rural will be more helpful than the urban player coming in this regulation. So we believe we are ready whenever it comes. This will give proximity, if at all, whatever the draft will come into rule. We don't know really what will come into rule, what changes will come for the draft. The pricing change will be definitely a good -- and good support so that we will be able to price based on the credit risk, rather than depending on the margin cap. So today, we are not -- for the microfinance industry, particularly [indiscernible] not in a position to place based on the credit risk other than pricing based on the margin cap, which is very unique in the world, so we welcome if that change comes as quickly as possible.
Sir, just one suggestion on the presentation, I think now that we had Madura for almost more than 12 months, and all the comparisons are Y-o-Y, I think we may consider just having one consolidated picture instead of having 2 separate pictures because now it's basically one entity only, and it's been there with us for more than 12 months.
Yes, agreed, we are already planning it, maybe next quarter or so we'll start planning to merge the slides, and that will be one single picture.
Next question is from the line of [ Balakrishna ] from Axon Investments.
My question is related to competition. Because of high-growth in last decade in that is seen in microfinance industry, do you see more competition because of future growth potential? I mean, are you seeing more competition at presently or do you expect more competition in the future?
See, competition will grow. But there's a large opportunity still out in this particular segment. As per our estimation, the unbanked and low-income households in this country are quite large and only 30% to 40% of them have been assessed by microfinance today -- through all the form of microfinance, so it is bank, or investment bank, SHGs, MBFCs and NGOs and debt companies. So almost 60% of them and majority are in rural, [indiscernible] are in rural, actually. We [indiscernible] So despite competition, I think we have large opportunity to earn cash going forward.
Sir, my second question is related to borrowing cycle. Do we have a classification of borrowers on the basis of borrowing cycle?
Yes, we have. We do what -- I think we have, in presentation, as I mentioned. More than 3 years, we have about 12.1 lakh borrowers, which is quite large, actually, almost 30%-40%, which is quite substantial. And we always believe that customer retention is most important. We have the highest customer retention reported at 87%, which is very important for us, which will help us to grow with lower acquisition cost and lesser risk in terms of large customer base.
Another question is with more recognition and standardization of microfinance industry by RBI. Do you see political risk getting reduced gradually and more stable and sustainable growth in the next, let's say, 5 years or 10 years?
Hoping so. But having said that, I'm not sure we are into any one major political risk if you observe today, the regulatory is supportive, the government is supportive, central government is supportive, all state government are supportive. They're supporting the microfinance operation in every state. So there was exception of some, which we are dealing with separately, but by and large all states are supportive. We don't see any major political risks we are facing today.
[Operator Instructions] The next question is from the line of Shreepal Doshi from Equirus Securities.
So just one question. Our strategy has always been to grow the on book balance sheet. While this quarter, we've seen on book upon the overall AUM coming down to 85%. So going forward when the situation normalizes, will we see again the on book growth driving the overall growth?
Shreepal, we deal entirely on book only. I think it is basically the direct assessment what we did from banks for raising funds. It is not what you can non-book portfolio. It's because of the balance sheet in this perspective, we cannot hold both portfolio in our book. That is why there's a difference.
And sir, just on the write-off side, so once we write-off the customer, we never lend to those customers incrementally, right?
No, no, not necessarily. If they pay back the loan, they have to pay back to the whole loan, right? If they pay back the whole we're happy to lend them later, no problem at all. There's a rigorous effort in recovering the money and also, if they pay back the money, we lend them. They join the group back or they form the group, we can then lend them again.
Because then like if the same -- like if some customer has been written off by some other lenders. So that dents his credit score, right? So then in that case, do we take those sort of customers also or acquire those sort of customers?
That is very less. We only we look at our customers in this kind of lending. So normally it's a bureau based customer where there is a negative, we normally don't lend.
And sir, just one aspect, like in our annual report, we've highlighted about becoming a single channel for all lifestyle financial needs of our customer segment so don't you think that also leads to increasing in the risk, like because we -- while we are hitting up the entire pocket of the customer, that also increases the risk because we are lending to that customer segment. So any thought process here?
Of course, we need to review very potential risk in our expanded thought process. So far, also, I think we are one of the high-risk governance model, we will expand that to our new model also. So this thought process is moving from a borrower to moving to -- addressing the borrower family actually. So eventually, our thought process is to address the need of the family, not only the loan, today, we are addressing all loan requirements to them, maybe beyond loans. Obviously, we will review every set of risks, piloting each one of that, identify the risk, identify the controls and then go with what is controllable or we may not do everything from them, but the need, but what is controllable, what is not controllable we definitely will not enter into. But the risk governance, business potential, revenue potential all those things will be taken care before expanding such businesses.
Next question is from the line of Anand Bhavnani from White Oak Capital.
[indiscernible]
Anand, sorry can you…
Sorry, Anand, you are breaking.
Sir, again, your voice is still breaking, I request you to come in a better reception area, please?
Give me a second.
Sure.
I hope this is enough.
That's still low.
Hello?
Go ahead, sir.
Okay. So first question is on tax [indiscernible]
[indiscernible] question Anand.
Fine, I'll come back later.
Yes. Okay. Sorry, I think if you are breaking again, maybe try to get into a proper network area.
Thank you. Ladies and gentlemen, we'll take that as the last question. I will now hand the conference over to Mr. Udaya Kumar for closing comments.
Thank you all. Thank you for your patience hearing and we will -- we, as intuition will continue to put our best efforts to ensure and protect the company's interest, protect the tenures interest and we will -- I think the management team will be to rededicate ourselves to ensure the -- coming back to normalcy, and we are confident about it. So thank you very much. Have a good night, and stay safe. Thank you very much.
Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.