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CreditAccess Grameen Ltd
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Thank you, Aman. Good evening, everyone, and welcome to the conference call for -- to discuss CreditAccess Grameen's 2Q numbers. From the company, we have the entire management team represented by Mr. Udaya Kumar Hebbar, the 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 will now hand over the call to the management, and after a brief opening comment, we will open up the call for Q&A. I would also like to take this opportunity to thank the management for allowing us to host the call. Thank you, and over to you there for the rest of the call. Thank you.
Thank you, and thank you, Abhishek. Good evening to everyone, and apologies for this late evening call. I thank you for taking your time and joining us today to discuss our second quarter FY '21 financial performance. After resuming collections in 1st week of June, we have been witnessing an improving trend on month-on-month basis. Despite several intermittent lockdowns, localized restriction, we have been able to increase our collection efficiency from 70% in June to 88% in September and 89% in October. Our strong customer relationships, deep rural presence, majority of borrowers being engaged in essential activities and highly motivated field force helped us to record relatively faster recovery in collections. The collections trend temporarily slowed in second half of October due to cyclonic floods in certain districts of Maharashtra and Karnataka, intermittent lockdown imposed in Chhattisgarh and a brief period of festival -- festivities-related change collection dates. Now with the end of loan moratorium, good control over the COVID situation and restrictions getting broadly relaxed to allow normative functioning of the company -- of the economy, we expect further improvement in collection trend in November and December as more and more customers resume normal repayments. The experience so far helped us for the for any second wave or third wave of COVID, which we really do not expect. The proportion of nonpaying customers have also declined over the last 4 months from 17% in June to 18% in September. If you exclude the pre-COVID customers, this further comes down to around 6%. Further in the month of October, we have seen improvement in customer activation. Around 24% of customers who didn't pay in September have paid in October, and we expect further momentum in this front. Deploying additional experienced senior staff in low recovery regions and reassigning old staff wherever necessary helped us to closely engage with customers who had opted for moratorium and motivate them to resume repayments. Overall, looking at the current customer repayment status, we are expecting an eventual tail around 4%, which we must closely monitor over the next few months. As the on-ground situation is gradually improving and as the customers getting back to their normal activity levels, they will require additional funding support, and hence, we expect them to come back to start repayment. We had gradually resumed our disbursement only to existing customers who displayed repayment consistency over initial 2, 3 installments. With an increasing comfort on our customers' repayment behavior, we further increased our disbursements reaching to INR 2,420 crores in Q2 FY '21 compared to INR 46 crores in Q1 FY '21. The disbursement growth further gained traction in October as we started adding new customers and onboarded 38,800 new customers in October. Our October '20 disbursements touched INR 972 crores, which were higher compared to INR 881 crores disbursed in October '19. This indicates normative business growth going forward. Over last 6 months, we have been taking all necessary measures to strengthen our liquidity position. Improving collections trend and continued support from our lenders have helped us to maintain a solid liquidity with INR 1,662 crores cash and bank balance as on September 30, which amounting to 15.1% of our total assets. We also successfully completed qualified institutional placement of INR 800 crores in October, further bolstering our liquidity position. With higher liquidity, we will have little negative carry but we believe it will be worth holding higher liquidity for some more time.We continue to strengthen our risk buffer in line with our conservative approach. We are with the early recognition of delinquencies and building adequate provisioning coverage. Based on the risk profile of our borrowers and their current repayment behavior, we have set aside INR 65.3 crore provisions in Q2 FY '21. While our GNPA considering no change in NPA recognition after August 31 in according to -- in accordance with Supreme Court order is 1.66%. For provisioning purpose, we have considered the actual GNPA of 1.82% as of September 30. Our total ECL provisions now stand at INR 480 crore, which is 5.35% of loan assets. If we exclude GNPA of 1.82% as on September, then overall standard asset provisioning is 3.53%. Overall, on the back of improving collections from field, robust liquidity position, adequate new branches, trained employees and adequate risk and capital buffers in place. Our business strategy during remaining 5 months of FY '21 will focus on portfolio growth and new customer additions. Leveraging our leadership position in the micro finance industry. We expect a normal FY '21, '22 in front of us. We would like to -- I would also like to highlight the transition of Mr. Diwakar B.R. as Group CFO and Director at CreditAccess India N.V. for holding company and appointment of Mr. Balakrishna Kamath, as CFO at CreditAccess Grameen Limited. Mr. Diwakar B.R has stepped down as CFO and Director Finance at CAGL to assume a larger role as Group CFO and Director at our parent, CAI. Apart from the strategic support from CAI, there will be higher focus on -- to strengthen our access in global debt capital markets and increase the share of international borrowings. Well-diversified and stable liability profile across domestic and foreign sources will be pivotal to CAGL's long-term strategy for delivering consistent high growth while operating within the current construct of NBFC-MFI. Diwakar's transition will further strengthen this process. Subsequent to above, Mr. Balakrishna Kamath has assumed the role of CFO at CAGL. Bala joined CAGL as Deputy CFO in March 2020. He has solid 27 years of experience across various Tata Group companies. Prior to joining CAGL, he was associated with Tata Capital Housing Finance Limited as CFO and Compliance Officer. He is a member of Institute of Chartered Accountants of India as well as a member of the Institute of Company Secretaries of India. My hearty congratulations to both Diwakar and Bala, and I am sure their contributions will continue to strengthen CAGL's liability profile even better. Talking briefly about MSA performance. MMFL also despite healthy collection trend in the collection efficiency increasing on 52% in June to 83% in September and 85% in October. The number of nonpaying customer groups significantly reduced from around 40% in June to 12% in September for the September. Talking briefly about MMFL performance, MMFL also displayed healthy collections trend with the collection efficiency increasing from of 54% in June to 83% in September and 85% in October. The number of non-paying customer groups significantly reduced from around 40% in June to around 7% in September. Further, around 33% of customers who didn't pay in September have paid in October. With this encouraging trend, we gradually increased our disbursements reaching INR 228 crores in Q2 FY '21 compared to less than INR 1 crore in Q1 FY '21. The disbursement growth further gained traction in October as we started adding new customers and onboarded 9,700 new customers in October. Our October '20 disbursements touched INR 160 crores, which were higher compared to INR 158 crores disbursed in October '19.The liquidity portion of MMFL also improved to INR 243.9 crores as on September 30 amounting to 11.6% of total assets. As a process of gradually aligning MMFL's ECL policy with CAGL, we continued to build additional risk buffers by setting aside INR 25 crores provision in Q2 FY '21. While our GNPA, considering no change in NPA recognition after August 31 in according to honorable Supreme Court order is 1.21%. For provisioning purpose, we have considered the actual GNPA of 1.52% as on September 30. Our ECL provisions now stand at INR 82 crores, which is 4.3% of loan assets. If we exclude GNPA of 1.52% as on September, then overall standard asset provisioning is 2.78%. Now I shall quickly brief on our quarterly results and then we can proceed with Q&A session. On standalone basis, our gross loan portfolio was up 16.5% Y-o-Y to INR 9,207 crores, and borrower base was up by 6.1% to INR 28.02 lakhs. NII grew by 8.5% to INR 272.8 crore, NIM was at 11.1%. Adjusting for the negative carry impact on account of maintaining higher liquidity position on the balance sheet, NIM would have been 11.7%. Cost-to-income ratio was 39.2% and OpEx-to-GLP ratio was 4.6%. PPOP grew by 9.7% Y-o-Y to INR 170.1 crore. PAT was down 22.5% to INR 78.1 crore on account of accelerated provisioning done during the quarter as discussed before. ROA was 2.7% and ROE was 11.3%. On a consolidated basis, our gross loan portfolio was up 41.5% to INR 183 crore and borrower base was up 47% to INR 38.81 lakhs. NII grew by 31.6% to INR 330.9 crore. PPOP grew by 26.9% to INR 196.9 crore. PAT was down 21.5% Y-o-Y to INR 79.6 crore on account of accelerated provisioning done during the quarter. ROA was 2.4% and ROE was 10.7%. Our consolidated results reflect the benefits of MMFL acquisition, which is completed in March '20. Our FY '21 financial performance will thus the benefits of both organic and inorganic growth.With this overview, I would like to open the forum for Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Kislay Upadhyay from Abakkus Asset Managers.
My question is on the cost of borrowings. Cost of borrowings have gone up for CAGL by 20 basis points and have gone down for Madura. And going up, by far, other NBFCs, we have seen that the cost of borrowing has actually come down. How can we understand this?
Yes. Actually in the previous quarter, if you recall we had 2 facilities from NABARD and Madura, which were at something like around 6.38% and 6.7%. Obviously, the cost was much lower. But the remaining funds were all at the same level of 8.5% to 9%. And therefore it appears that the previous quarter's cost of borrowings was lower but otherwise, it's in line with our usual normal cost of borrowings and nothing otherwise.
Yes, it was not a comparable base between Q1 and Q2 on this.
Okay. And the sources of borrowing, which was at low cost, any reason we did not roll it over to the current quarter also?
No, it is continuing. It is between the interest cost for that quarter versus interest cost for this quarter on the new borrowing actually and the cost. If you see the overall cost this [indiscernible] this is only specific borrowing -- we did literally borrow in Q1, which is a lower cost, whereas we did higher borrowing in Q2, which is little higher cost. The specific special window was open only in Q1. It was not available in Q2 and later on.
Okay, okay. Fair enough, sir.
If you remember special window was given by SIDBI and NABARD, that was at the lower cost.
Yes, yes. I remember. Sir, if you look at the disbursal and AUM trend of Madura, it has gone down over the past 4 or 5 quarters. So I wanted to understand the trend that we should expect? And what is our internal strategy related to the AUM growth of Madura?
Both CAGL and Madura, there is a kind of rundown for some time because we did not disburse much in Q1 and Q2. It's already -- if you see, Madura already started going back so we expect both the companies will grow back in the second half. already told in my remarks that both companies have started disbursement -- together, we already disbursed INR 1,100 crores in this October, and we have next 5 months, we already started a growth trend in both companies. So we expect the next 5 months, there will be a good growth and we will have a positive growth by March in both companies.
Right, sir. But actually, if I look at Y-o-Y numbers also, there is a huge difference between CreditAccess and Madura. Madura’s portfolio came down by 3.6%.
Yes. I agree because between September to March, Madura didn't grow quite high last year because of the capital requirement. So now that we have the support and there's such a growth opportunity so it will grow now. And between March to September, obviously, we are not disbursed. Obviously, there's a rundown on the portfolio But at CAGL, grew very well between September to March, so that is what the difference.
Okay, fair enough. And sir, then finally if you could mention the disbursement number of Madura in October in INR 900-odd crore total disbursement you mentioned.
Correct. Correct.
What was the number for Madura in October out of the INR 900 crore...
INR 160 crores in Madura, that's against INR 158 crores in the October '19 is salary, there's a positive momentum there.
Okay. And then CreditAccess disbursement would be around INR 750 crores?
INR 972 crores.
Okay. INR 972 crore plus INR 160 crores. Fair enough.
Yes.
The next question is from the line of Renish Patel from ICICI Securities.
Congrats on the great set of numbers. Sir, just 2 questions. So one is on the disbursement side for Q2. We have already mentioned that the entire disbursement towards the existing customer base. But in October, sir, what will be the split between existing and new borrower?
As we told earlier, Renish, until September end, we are actually working with customers who behaved well and who paid well. And we told that once COVID situation improved, we'll start forming new groups and which we actually started in October. We already acquired about 38,000 clients in October. And our percentage may be about 40% is new customer and about 60% is old approximately. And 60% is existing customers.
Okay. And sir, in Q2, around INR 1,400 crores disbursement, how much would be the top-up loan?
We don't have a concept of top-up loan, Renish. People can -- because we already are a multi-product company based on the need we provide. So IGL remains 87%, 88% in our business always. If you see our consistency, it is about 85% to 88% is our IGL, which is the same trend even Q2. There is no change in the trend.
So what I just wanted to get a sense is the -- how much of that disbursement would be towards the customer who have not foreclosed the loan, so maybe the extra loan, which they have taken between Q2?
Yes, that means basically when I say IGL, IGL is a fresh loan. So when I say about balance 10% to 12% other loan like maybe medical emergency or a home repair or additional funding that should be about 10% to 12% only.
Okay, okay. And then secondly in terms of the customer activation rate. So though it has been improving the month of October but somehow for Karnataka, it remains low at 22% and the -- actually, even Maharashtra you add in there, so how should one read this number? So is there any, let's say, challenges in Karnataka, which is sort of bringing down the customization rate in October?
No. Actually, if you see customers total numbers in Karnataka, our non-paying customers are only 6%. And if we remove the existing NPA or a gross -- on GNP customers, which used to be the coastal Karnataka which was in the last third quarter it happened. Then only 4% of the customers are non-paying in Karnataka. And the 22% is quite good actually. So next 1 to 2 months, I mean, it's within our expectation of the change. And we also need to consider that there are some intermittent issues happening in Karnataka, particularly in northern part in form of torrential rains, which impacted 4 or 5 days impact there also. So even with that 22% is quite a good number out of only 4,000 non-paying customers.
Got it, sir.
And we expect November, December to improve further.
Got it, sir, yes. Largely in terms, of course, you have highlighted about the -- qualitative comments in terms of the disbursement. But would you mind sharing the AUM growth target for FY 2021, sir?
So we already kind of explained earlier also. We have enough ability to grow in the second half. And in line with -- for 60% growth comes in second half, and we already showcased the first month, already disbursing INR 972 crores. And then we still have another 5 months to work. And with the complete availability of capital, liquidity, manpower, branches, everything in place. So we believe we should be able to grow low double-digit numbers in terms of portfolio.
The next question is from the line of Shreepal Doshi from Equirus Securities.
Sir, my question is with regards to our collection efficiency. So as I mean, 1Q or so we used to give particular customers who are paying 100%, and personally, the customers who are making partial payments and personally customers who have not paid anything. So if you can give that debt bifurcation for CAGL and Madura, it would be very helpful.
Can I request Nilesh to respond to this, please?
Sure, sir. And then my second question like as you have indicated that in the slide that 8% of the customers have not paid anything in September for CAGL and 7% of the customers have not paid anything for Madura. So would these customers be those customers who would have not paid anything during the moratorium time period also?
No. See, we are not -- what we've shown clearly who have not paid in October. If I start counting all the payment from June to here, again actually, I can show 98%, 99%, which we are avoiding. We are showing only what is -- who paid in October is more relevant, September, October. Who paid in August, July, June are not relevant as we don't count. If I take the entire payment who made, actually it is only 2.5% customers have not paid anything from the last 5 months. What we have meant only, who are not paid in October and who are not paid in September. That was more relevant for us.
Okay, okay. Okay. Got it, sir.
Nilesh, if you are there, if you can just give in the first question answer?
,So -- For CreditAccess, around more than 80% customers had made full payments in month of October. And for Madura also, the initial 2 buckets that is 100% and between 50% to 100%, there was around close to 85% of the customer groups who had made the payments in October.
So that is 50% to 100% of the EMI, right?
Yes. In Madura, it is at a group level so in their case, 100% -- and 50% to 100%, it is around 80% to 85% of the groups have made that payment.
Okay, okay.
And in our case, it is over 80% have made full payment. 12% are in partial payment.
Okay, got it. One last question was with respect to our borrower base. So sequentially, we have seen a contraction. So what would be -- so if you can just throw some light why would that be the scenario.
Shreepal, can you come again?
So my question was that sequentially, we have seen contraction in our borrower base from 4.1 million to 3.9 million. So what we -- so if you can just throw some light why would that be the reason?
Hello. Yes, Shreepal, so overall, I think the management has -- the management line has been disconnected. I will tell you. So see overall over the last 6 months, there has been a little rundown in the book. And some of the customers -- I mean, the overall customer count has reduced over the last 6 months. But now from October onwards, as we start adding new customers and as we start -- as the proportion of paying centers is going up, so we'll be in position to service larger number of our existing customers as well. So to that extent, the customer count will now stabilize. In fact in October, it has reversed the trend and both AUM and customer count, both in Grameen and Madura, it has reversed the trend in October. And over the next 5 months, it will now be in the positive project.
So sequentially, this decline, would this mean that these customers who have -- who are not anymore part of this active customer base, you wouldn't be lending to them again?
Yes. So there had been -- we will be lending back to them. So there have been certain customers in which cases there has also been pre-closure of the loans. So they have -- they had few weeks of repayments pending and they have pre-closed their loans. And now as the requirement again arises, they will be coming back. So we already have a certain percentage of waiting customers, who once they finish their current loan after a few weeks, they will again take a fresh loan.
The next question is from the line of Umang Shah from HSBC Securities.
I have a couple of them. One was our operating expenses this quarter have gone up. Should this be seen as a complete normalization of OpEx in this quarter or probably as we start growing the business in the ensuing quarters in the second half, probably the OpEx growth will be higher? And how should we look at the OpEx ratios in the second half?
See, in the Q1 itself, we told Umang that this is not a stable OpEx because there are a lot of expenses not there at that point of time due to lockdown. And now that we've come back to 4.6%. As we earlier also anticipated, our OpEx will be between 4.6% to 4.9% -- 4.8% to 4.9% on annualized basis. Last year, it was 4.9%. We can expect maybe 4.8% or 4.9% this year, where our stable OpEx will be around there 4.8%, 4.9%.
Okay, all right. That is helpful. Sir, my second question was regarding in terms of our new customer acquisition that we have already started from October onwards. If you could just throw some color as to what has changed in terms of the process or our underwriting mechanism when we now evaluate new customers because I believe the bureau data at this point in time would be inconsistent?
Yes. We -- actually, bureau data, is -- it's okay. Actually, we already started the collection data, we have updated. Now we are really updating. All of us are doing it the updating. From September 1, the bureau data is up actually. The only thing we may not get the delinquency data is also available now so we don't have any challenge on the bureau data alone. So on the operation process point of view, 2, 3 things we did. That we were earlier doing -- I mean, group of 10 people, which now we take 5 to 6 members other than 10 members group. And two, the not the lag side. We do it about 6 to 8 people or 4 to 6 people to meet and alternatively, will meet fully that we did. Third, is we actually not allowed the customer to come to branch actually because we don't want them to try in the local bus and reaching the -- I mean, not having sufficient public transportation to reach the branch. So all the processes are done at the field and then directly transfer into a bank account. It's a did. So -- but for that, by and large, there's a rural, we don't have too much of difficulty in emerging things. So the other way, there is no major change. It is a change in the processes. Our existing process of what we call cash flow checking, visiting the customers, business place and home, GRT, CGT, everything intact, we are doing it.
Okay, all right. That is helpful. And 1 last data housekeeping question. Sir, what was the accelerated provisions you mentioned during your opening remarks were made during this quarter on a consolidated basis?
Additionally, INR 66 crores, so overall total provisioning is about 5.35% now.
At the consolidated level?
No, no, at the standalone level.
Okay. So additional INR 66 crores were made for CAGL?
Additional INR 66 crores made for CAGL, about INR 25 crores made for Madura. Madura's total project is 4.8% and CAGL total project is 5.35%.
The next question is from the line of Sarvesh Gupta from Maximal Capital.
Sir, first question is on collection efficiency. So post the moratorium, you would have restructured the loans for a longer tenure, right, for most of the customers. So that would have probably resulted in a higher demand figure for September and October. But it does not look to be the case as per the slide. So can you please explain what all has happened post moratorium? I mean, how has your demand grown per month?
No. There is no restructure of loans, Sarvesh, actually. It's only the extended tenure without increasing the installment for the customers. So therefore, demand would, by and large, remain same only for the post moratorium.
Okay.
So we ensure that customer's EMI is not changed. It's only extension of time is given to him.
Understood. And secondly, from September to October, I would have probably expected a higher acceleration in your collection per month against the demand of that particular month. But that doesn't seem to be the case from September to October, although we were hoping for a much higher figure. So any -- apart from this temporary slowdown in the first half, any other reason?
Yes. I think as I told in my opening remarks, we too expected little higher. But by the middle of the October, we faced the cyclonic floods in the many districts of Maharashtra and Karnataka where customers took a 1-week because the flood situation, we can't do enough for customers. And the next week happened to be festival season. So that impacted a bit in the month of October. And 1 place in Chhattisgarh, there's intermittent lockdown has been imposed in the month of October. So that is why Maharashtra and part of Karnataka and Chhattisgarh, these places, we did not see a high improvement in month of October. So that is why there is no significant change between September to October, whereas other places anyway, already more than 94%, 95% already in place, which is continuing. So with that situation already over, the lockdown is over, the Chhattisgarh also started coming back. Maharastra things also improving. So we expect we change -- significant change in November and December. So it's a temporary -- very temporary because the second half of October, we actually just moved 21% in the middle of October. So a bit of the last 2 weeks of the impact, which has slightly completely temporary.
Okay. And given where things stand right now and I see that your total ECL is around 5.35% on standalone and 4.3% on MMFL. So I mean, what is your expectation, assuming that things settle down by March 31? And what is your expectation of the overall credit cost for this year? And do you expect write-backs on these provisions that we have taken?
We have to see, I mean, this entire quarter to take a decision on whether it is not possible or not. But our expectation is to come to near normalcy by December and itself, to large extent, in all states except Maharashtra, which would take maybe 1 or 2 months more. Maharashtra would take a little bit more time to come through a normalcy. Our overall credit cost should be hovering around 3.5% to 4% would be the old total. Majority of the credit cost would fall into this financial year and maybe some part will fall into next financial year. So this is what is our expectation maybe but more clarity we'll get by end of December.
But that you have already undertaken some COVID provisions so are they're, more or less, over for you with this quarter?
Yes, yes, to large extent, significant coverage we already have. That is what I just wanted to confirm.
The next question is from the line of Nidhesh Jain from Investec Capital.
Sir, firstly, on the non-paying customer in the month of October, should we expect that number is 60 -- 76% or 78%? Or some of the customers were paid in September also have become non-paying inOctober?
There is small but there's some people have not paid but it is not significant, Nidhesh. And the customer was paying -- not paying in September and paying in October is much higher. There's a very insignificant number were not paid. Could be because of the -- some intermittent issues for them. But we feel those also will come back in normal itself. It is not significant change. And this 22% will increase in November, that's what our expectation, in November and December, we should get more.
So why the collection efficiency number is not inching up because if these 20% of these 8% of customers are paid, automatically collection efficiency should at least increase to 90%?
It is -- yes, it is in some tractions, actually. As I said, the last 2 weeks of October have some impact because of 2 reasons, one is flooding; and two is the change for collections due to festivals, which also impacted some customers because previous week, they would not have paid because of floods. And next week because of date change, they saw some impact of the adjustment for them also. So that is why we say it is very temporary for the second half of October.
Sure, sir. And when you say credit cost of 3.75% to 4%, that includes Q4 FY '20. This is the total COVID-related cost?
Exactly, exactly, exactly. So actual cost -- I mean, it can be bifurcated between this year and next year but majority will be this year but overall cost for the event will be around there.
And sir, can you share the stage 2 number as of September 2020? Stage 2 number...
Stage 2 at 15 days or on 30 because 30 -- as of September, within 30 days, deciding may not be an appropriate number at this point of time. So maybe I think it is about INR 526 crores or something. I mean, I don't have right now in front of me but maybe around that. That was it on 15 days basis.
The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.
Yes. Sir, for these non-paying customers in the month of October, now you have about 8% in total? So their loans have also been rescheduled because they haven't paid 2 EMIs [indiscernible] out of 2 months EMIs already. Would you worry about the -- I mean, do you -- how do we think about that?
The audio broke in the last question.
I got it. These loans are not rescheduled -- this is actually -- post moratorium, the new income has started for them but they have not started payments still. Obviously, they will become NPA because the time if they do not pay. We are not seeing a restructuring option at least at this point of time until at least November 30. Because if they are not able to pay for 3 months and it is definitely a risk for us to reschedule that. We have to be extremely careful. So we will definitely follow up and see if they can start paying from November. As I said earlier, when I say 88%, which includes the existing GNPA before March, before the COVID. So if we exclude that, it's only 6.5% or 6% of customers actually have not paid anything to us so far. We expect many of them will come back in November and December. So that's why we are talking about the credit card is hovering around 3.75% to 4%.
The next question is from the line of Renish Patel from ICICI Securities.
Sir, just to follow up on the credit cost part. So 3.75% to 4% is COVID-related or this is including the normal run rates?
This is -- we are talking about COVID-related.
Okay. And so normal run rate would be over and above this, right, sir?
Yes, you are right.
Just to ask 1 more question on that. Sir, what sort of steady state credit cost you would like to build in going ahead, taking the experience from the past event? So what sort of steady credit cost you expect going ahead on a steady state basis?
Yes. Normally in micro-finance, the credit cost used to be about 0.5%. But this trend changed after the demonetization because customer understood that you can pay a little late and then you can may not pay some time. So it has moved to about 0.8% to 0.9% [indiscernible] after the demonization. This year is another long event for them and with the moratorium effective by customer, we can expect a slight change in the behavior of customers because of the event. So our [indiscernible] on a long-term credit cost will be between 1.2% and 1.25%.
Okay, okay. So basically 20 to 30 basis points sort of increase in the number because of change in customer behavior?
Exactly.
Okay. Right, sir. And just sir, last question on this nonpaying borrower pool. So you have rightly mentioned that we have not yet restructured the loans but we would have definitely revised theEMI and not that extended the tenure also. So sir, this non-paying customer pool essentially would be from the state of Maharashtra or maybe couple of other larger states. So is there any, let's say, a geographical or district concentration, which is not yet sort of fully recovered or maybe the type of activity they are into. So maybe more color on what sort of geographies they belong to or maybe what sort of activities they are into?
So majority, as you said, is Maharashtra and particularly southern Maharashtra. There is a reason also, this same geography, which is basically southern Maharashtra, which impacted last year Q3, Q2 because of floods. And then by the time it's recovering, it's hit by COVID and then the 5 months lockdown almost and again floods and then a couple of floods. So that is a geography, which is a little impacted and which will take little more time, but we're very confident being even the last year flood it took some time but all have come back. We are almost come back to 95% kind of thing by March. And then same thing with this is we are expecting again. So that particularly 3, 4 districts in southern Maharashtra and the 2 districts in coastal Karnataka, which was already impacted the same customers probably would not have paid. But for that, we are not seeing any other distractions for us.
Okay, so essentially these 7, 8 districts is essentially consisting this 8% nonpaying pool?
Majority.
The next question is from the line Niket Shah from Motilal Oswal Asset Management.
I just had 1 clarification. When you said credit cost of 3.5% to 4%, we should add another about 50 to 70 basis points of normal credit cost, right? So it will be about close to 4.5% for this year?
Yes. Let me see -- if you see, I mean, fairly, when you say 5.25%, there's already GNP of 1.83%, which is majority belong to pre-COVID, right?
Correct.
Particularly, the coastal Karnataka what we faced last year. So with a base of lockdown, it got extended actually. So that's what is there. So -- but for that, the actual credit cost could be, including those, could be about -- it can reach up to 5% also.
Right, so again you have adequate amount of provision already being made, right, on account of COVID. So safe to assume that from third quarter onwards, those credit costs will be more normalized in that side.
Yes, yes. There could be temporary increase between December and March or can come down also a possibility. So our sense, significant requirements have been already covered. Even if there's a requirement, it could be very, very small based on the growth of the portfolio.
Correct. So I am just trying to understand that from third quarter onwards, the run rate should be less than 1% credit cost on a quarterly basis.
Yes, we expect that.
The next question is from the line of Saikiran Pulavarthi from CLSA.
Sir, just continuing on one of earlier questions. You mentioned that stage 2 based on 15-day basis is INR 526 crores as of September '20. This is for standalone CreditAccess, right?
Yes, yes. Standalone is correct. You are right.
Got it. And sir, how does this number look, if you have to look at on a 30-day basis probably on October? Because there is some sort of an, I think, conclusion we are going to look at based on the September collection and then out of the September. What percentage of the people had given the numbers. So as we have repaid back, but if you have to look at as of October 31, what percentage of your portfolio might be 30-day overdue?
We have not taken that October number as of now, Saikiran. Maybe we can we can take that as a separate question. Right now, we just completed the September number. We only had, I mean, looking at how many customers paid back so that we can update it to you. So if we get it, then if we have not yet taken.
Got it. And then my second question, what is the update in terms of the merger process in terms of regulatory approvals?
We are almost -- see what happened is we have to take -- we have to go to SEBI for approval. I think that some rule came in saying that for the unlisted company, we have to have an audited balance sheet to apply. So we have completed that process also by this week or next week because all that, audit are completed. Next week, we'll be applying to SEBI on the regulatory requirement. And the merger process is already on because that's why that is explained earlier, we have appointed PwC working with the -- both companies' leadership team and creating workstream to align with the process, policies, product, technology, governance, audit, everything. That's already in process. For a legal merger point of view so we are expecting to apply next week itself.
Probably from there on, 6 to 7 months, sir?
We expect to do in about 6 months' time but eventually, it's a black box. But our expectation to complete this before. We are expecting at March, but maybe at least for Q1 we should be completing the process.
The next question is from the line of Akshay Ashok from Dalal & Broacha.
Sir, I am not able to understand this activation percentage. What do you mean that this activation percentage in October, which means percentage of people who have not paid or started paying is it, is that what you are thinking.
Yes, people who had not paid in September, they also started paying in October.
Okay. So 22% from Karnataka who didn't pay in September started paying in October? That is what is there.
Correct. You are right.
And then this Maharashtra number is 81% because of this works and other situation like that, that is the reason why the collection is low?
No, Maharashtra was under lockdown until end of September from May -- from March actually. There is a delay in customers starting their economic activity. Even today, the transfer still not fully available in Maharashtra. So the economic impact is quite long period and because of the longer lockdown. So that is why there is some delay in people coming back to normalcy. So we expected Maharashtra take little more time. That's why the recovery time is little longer for Maharashtra. So that is the reason. Clearly, that is intermittent in October.
But the aim is to get the collection efficiencies between 98%, 99% that close to be the pre-COVID level collection efficiencies, right? What will be the timeframe from which you look to achieve that at least by the year end, hopefully?
Yes, we hope that, to a large extent, we will be near normal, in other states by December itself. And by maybe Maharashtra will be by March end or so. So that it will be definitely more than 97%, 98% at that time.
Okay. And then last question. I just wanted to know about the borrowings. How much total borrowing -- I have like [ INR 800 crores ] is via the INR 280 crores because I mainly see the issue of [indiscernible] via bank. [indiscernible]. So what will be the total borrowing via commercial paper was done for INR 200 crores [indiscernible] And what is the total [indiscernible]?
[indiscernible] INR 600 crores, we can see slight -- slight around that [indiscernible] exact number.
Are you talking about this quarter or?
Around this quarter. [indiscernible] In front of you? [indiscernible]
Around INR 340 crores.
Yes. You can see, I'll give you a special [ TLTRO ] is about INR 267 crore. This also NCD and then -- and [ 150 ] [ TLTRO ] [indiscernible] NCD. And again after the [indiscernible], October, we again took [indiscernible]. NCD [indiscernible] . We have done [indiscernible].
What is the permission you have taken by the board and how much to borrow via NCD, you have taken right in [ INR 1,000 crores ].
I think it is about 3,000 crores. I think, I think about INR 3,000 crores.
The next question is a follow-up question from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.
Just wanted to understand this one. You are referring to having some more provisions to be made in FY '22 also. And I do not know I am sure because it looks like you mentioned in the previous reply, you are done with bulk of the provisioning at [indiscernible] And Q3 onwards, you should more or less stick to regular credits or [indiscernible] right.
So I talked about credit cost that's been writing off, which can happen between this year and next year, and not the provisioning.
Okay.
I told credit cost, which can be part this year, part next year, that means there will be a write-off point of view, I told that it can be spread into 2 financial years, maybe if I am clear, I think.
Right now, sir, this is what I am taking to during the 2 years.
Yes, correct. The real credit cost will be when we write off the actual number, right.
The next question is from the line of Rushabh Doshi from Proinvest Wealth Managers.
I just wanted to understand, like is there any major difference in accounting for CreditAccess and MMFL, like around 8% are zero-payment customers in September for CreditAccess and 7% as a group for MMFL. So can you just tell me how you account for both the entities?
Yes, there is slight difference in accounting. When you say CreditAccesss Grameen, it is at individual customer level, whereas in MMFL, it's at the group level according at this point of time, which we have to change over a period of time. So that is why that is at a group level, where if not -- if a people in a group pay then we conclude that the group is paying. So that is where the small change between this accounting.
Yes. And my second question is in our joint liability group lending, how does the NPA recognition work, if in a group of 15 people, 2 people decide not to pay then do you make the other 13 people liable to pay?
So normally, immediately, but in this COVID situation, you cannot keep pressuring -- I mean, you can't have too much pressure on customers. Now that's a difficult thing. So the liability normally, it's more of a peer pressure other than repressurizing. So in this situation, it's a little difficult but it will be more on a relationship basis. The more relationship with the group, the higher the turns of recovery in those kind of situation.
So like pre-COVID, how it is -- like exactly like how many days or will it take you to recover it?
Pre COVID, normally 1 to 2 installments because normally, 99% is already recovered. It's cash is not about less chances that somebody is not paying. It's not paying It's not paying [indiscernible] it next week or for 2, 3 weeks, then normally, payment would outcome.
We will take the next question that is from the line of Sarvesh Gupta from Maximal Capital.
Sir, just 1 point, I wanted to get some color on from a customer behavior point of view. So one is, I think you mentioned that 80% of your customers have paid all EMIs, 12% have paid partial and8% is zero payment. Is that the right number, sir?
Yes, yes, you're right.
So then we wanted to understand how are you thinking about credit cost from these partial payment bucket and the customers who haven't paid anything. Of course, this 8% has now become 6% because 24% have paid in October. So this 6% plus that 12%, how are you thinking about credit cost from these 2 floors? And second question from customer behavior point of view was that now that I do not know how much of group meetings and all you are doing, and what is that impact on your collection as such?
I think the group meetings, we are able to reach out to all the groups. We are able to be connected with all the customers. So there's a high comfort that the customers who already started paying, they will make a full payment in the coming months between November and December. And the non-paying customers, which is 8% and 6% now probably slowly it will also come back to 3% or 2% by end of December. So the people already started paying partly. The intention of payment started already. That is why we are confident that they will come back normalcy. So nonpaying customers are slowly 1/3, 1/3 will start coming back normalcy between the next couple of months. That's why we talked about it, I mean, the current rate costs and credit cost expected at the end for the year.
So the guys who are partially paid, you expect them to be fully compliant with their payment schedule?
Yes, yes. Exactly, the intention to pay, right. So that is where they started paying. Maybe as the economy improves, they will start coming back to full normalcy because they also need funding afterwards. So majority of them are in, as I said earlier, the key districts where there was a stress because of long COVID -- sorry, long lockdowns and some sort of delay in economic activity. Even today, some of the activities taking time to get the full cash flow or full [indiscernible] like [indiscernible] and tourism, places of worship and pilgrimage, local transportation, schools and colleges dependent ecosystems. So these customers will need little more time to come back to normalcy.
We will take our next question as a last question from the line of Niket Shah from Motilal Oswal Asset Management.
So just 1 question. Just to understand much better, when you said credit cost of 4.5% to 5%, you included the fourth quarter as well, right?
Yes, yes, yes.
So what will be for this year itself? If you can just give us some broad sense. I mean, should we subtract the fourth quarter and arrive at the conclusion for this year number?
Fourth quarter, the increase is going to be increasing. It could be -- even if you do it, it could be standard projecting, right? So we don't see an increase in the delinquency for the fourth quarter. It's only what delinquency is how will come down. The credit cost is the overall cost for the COVID. End of COVID, when you say about 4% for the sake of [indiscernible]. Maybe you have a GNPA that is traditional. So writeoff of this 4% did not be happening in this financial year, correct? So the real cost, which is writing off will not happen entirely the will come next year. Therefore, the actual for this finds are maybe still at 4%, 4.5% only. Some will next financial years.
Yes. So if I understood it correctly, this year itself, it will be [indiscernible]. 4%?
Maybe, approximately. That's what -- I think that could would be the...
Because you have already taken some provisions in the fourth quarter on account of COVID and then balance you have taken the first quarter and the second quarter. That broadly covers for it is what you said. So from third quarter onwards, you should be normalized on it and next year should be 1% credit cost. Is that whole conclusion, correct assumption, right?
I think by and large, around there.
Okay, okay, okay. And sir, what should be the AUM growth that we would be now looking at for this year and your second half and next year?
I say no, it's difficult to give the exact number, but we should be able to do a low double-digit growth.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Abhishek Murarka for closing comments. Thank you, and over to you, sir.
Thank you, Aman. Thank you everybody for participating on the call and a big thanks to the management for letting us host it. Thanks, everyone, have a great weekend, and all the best to the management for the next quarter.