CreditAccess Grameen Ltd

NSE:CREDITACC

Earnings Call Analysis

Company Projects 24-25% ROE in Revised Guidance

The company plans to continue its strategy of maintaining a strong and diversified funding base, aiming to have only 53% of funding from banks with an increased international presence. This approach is seen as vital for future growth. Employee attrition is currently around 13% and is considered normal. The revised guidance projects the company as the first in the microfinance industry to deliver a 24-25% Return on Equity (ROE).

Financial Performance and Strategic Growth

The company exhibited robust financial performance characterized by a sequential increase in disbursement yields of 10 basis points, although executive commentary suggests limited scope for further yield improvements. Nevertheless, strategic initiatives are underway to expand the company's product portfolio. Specifically, the company plans to elevate certain product segments from a current standing of 1-2% of the total portfolio to a substantial 10-15% over the next 4-5 years, reflecting a strong commitment to scale operations significantly.

Operational Excellence and Market Positioning

Operational efficiency remained a point of focus, with a considerable increase in employee count aligning with the company's expansion strategy. This hiring spree supports the additional 90 branches opened recently, with plans to further increase the number to 180-190 branches in upcoming quarters. The company maintains an attrition rate of approximately 28% across loan officers and middle management, perceived as a reasonable level relative to industry standards. This stability in human capital is a reflection of the company's robust operational framework and contributes to favorable operating metrics, such as low customer attrition rates, which bolster cost efficiencies.

Guidance and Future Prospects

The company has conveyed stable net interest margin (NIM) guidance, with expectations set at 12.7-12.8% for the full year, despite incremental disbursement yields being 1% higher than the portfolio yield. This cautious stance accounts for variables such as leverage effects and operating costs associated with aggressive branch expansion plans. In terms of growth, the company has reiterated a healthy guidance of 24-25% and expressed confidence in the microfinance industry's prospects, anticipating an industry-wide Compound Loan Equivalent Index (CLEI) growth of 20-25% over the next 2-3 years.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to conference call to discuss CreditAccess Grameen's Q2 FY '24 earnings. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Elara Securities Private Limited. Thank you, and over to you, ma'am.

[Shweta Daptardar, analyst]

Thank you, Sagar. Good evening, everyone. On behalf of Elara Capital, we welcome you all to the earnings conference call of CreditAccess Grameen to discuss the Q2 FY '24 earnings performance. From the esteemed management today, we have with us Mr. Udaya Kumar Hebbar, Managing Director; Mr. Ganesh Narayanan, Chief Executive Officer; Mr. Balakrishna Kamath, Chief Financial Officer; Mr. Nilesh Dalvi, SVP and Head Investor Relations.

Without much further ado, I now hand over the call to Mr. Hebbar for his opening comments, post which we can open the floor for Q&A. Thank you, and over to you, sir.

[Udaya Hebbar, executive]

Thank you, Shweta. Dear all, a warm welcome to everyone, and a very happy Navratri to you and your family. We thank you all for joining the conference call to discuss our second quarter and first half FY '24 financial performance.

We have witnessed another healthy quarter reflecting strong growth momentum. We are confident of maintaining the business traction in Q2 FY '24 with all key foundation lots in place. The loan demand continues to remain strong supporting the high enterprise spirit. Despite Q2 being historically weaker quarter due to seasonality, we continue to witness robust growth in our borrower base in Q2 FY '24. We added 3.36 lakh new customers, of which 40% came from outside the top 3 states.

Overall, in H1 FY '24, we added a healthy 6.64 lakh new customers with an average monthly addition of over 1.1 lakh, demonstrating customer-led growth across our operating markets. The customer base grew by 21.2% Y-o-Y and 4.1% Q-o-Q to 46 lakh while the AUM grew by 36% Y-o-Y and 3.1% Q-o-Q to INR 22,488 crores. Disbursements grew by 13.5% Y-o-Y in Q2 FY '24 to INR 4,966 crores. We forayed into Andhra Pradesh and Telangana in line with our contiguous district-based approach. With this expansion, our presence is across 16 states and 1 Union Territory. Our branch infrastructure stood at 13,877 spread across 364 districts with 51 new branches opened in this quarter.

Our interest income grew by 53.9% Y-o-Y and 7.4% Q-o-Q to INR 1,187 crores. Our average and margin contract borrowing for Q2 FY '24 stood at 9.8% and 9.6%, respectively. The increase in average cost of borrowing was primarily on account of USD 100 million drawdown of special loan in June '23, followed by INR 990 crore public NCD in September '23. We believe that our cost of borrowing would largely peak out at 9.8% to 9.9% at the incremental drawdown planned for the next 2 quarters are predominantly from domestic sources, as we have by and large achieved our foreign borrowing requirements.

Our NIM stood at 13.1% for the second quarter as the increase in borrowing costs was offset by the increase in our portfolio yield. Further, NIM primarily benefited due to 3 factors: one, superior asset quality, we did to minimal interest reversal, strong control on cost of borrowings, higher share of portfolio growth funded through internal accords. It's important to note that we have delivered healthy NIMs while still remaining 1 of the low-cost lenders for our customers.

We successfully raised INR 990 crores in September '23 through the second tranche of our public NCD. These funds came at an average coupon rate of 9.3%, which is 3% -- 3 bps lower compared to our first tranche last year, with an average tenor of 3 years. The share of public NCD loans stands at 7.9%, the share of foreign borrowing stands at 18.4% and share of long-term borrowing fees around 70%. This has further strengthened our ALM position with an average maturity of assets of 19 months and average maturity of liabilities at 25.2 months, resulting in a positive mismatch of over 6 months.

The robust liability strategy embarked by us has helped us to address liquidity, positive ALM, long-term funding and adequate diversification along with lower price to our customers. While we're basically 1 of the lowest in the market, we have been further able to retain our pricing, which are last changed in February and we shall be maintaining our pace even during Q2. Our operating profitability continued to follow an upward trajectory with the net interest income growing by 49.6% Y-o-Y to INR 772 crores.

Cost to income ratio was 31.7% on the back of improved income profile. PPOP grew at a healthy pace of 68.3% Y-o-Y to INR 563 crores. The credit cost stood at INR 96 stores, which was partially offset by INR 11.7 crore of bad-debt recovery, resulting in a net credit cost of 0.4% non-annualized in Q2 FY '24. By H1 FY '24, net credit cost stood at 0.7% non-annualized and our collection efficiency, excluding areas, was steady at 98.1%.

GNPA measured at 60 + DPD further reduced to 0.77% compared to 0.89% in the last quarter whereas net NPA stood at only 0.24%. Our PAR 90 is at 0.6%. We continue our effort to maintain the best-in-class asset quality underpinned by various quality controls in place. PAT grew 98.1% Y-o-Y to INR 347 crores, resulting in ROA of 5.6% and ROE of 24.7%. Our H1 FY '24 ROA stood at 5.7% and ROE at 25.5%.

Capital adequacy remained comfortable at 25% at the end of Q2 FY '24. On the back of our operating performance during H1 FY '24, we are happy to provide you with revised guidance for FY '24. The key factors which have resulted in the upward revision are, more balanced growth across all parameters, two, improved total income profile and profitability, three, robust capital adequacy, leading to a higher share of growth getting funded to internal accrual and four, strong control on cost of operations.

We maintained our portfolio growth at 24% to 25%. We expect the improvement of NIM in the range of -- to the range of 12.7% to 12.8%. Cost-to-income ratio, which will be in the range of 31% to 33% while we maintain credit cost at 1.6% to 1.8%. We expect improved ROA and ROE in the range of 5.4% to 5.6% and 24% to 25% respectively.

Thank you for your patient hearing. We look forward to answering your all queries during this question-and-answer session. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Renish from ICICI.

[Renish Bhuva, analyst]

Congrats on a good set of numbers. Sir, just 2 questions from my side. First is on the liability side. Now given our balance sheet size, which is now almost touching INR 25,000 crores and we've been in a complete unsecured product business. So how we are going to manage the liability side, especially considering the size and the product nature?

[Udaya Hebbar, executive]

You said two questions.

[Renish Bhuva, analyst]

Yes, yes. So secondly, it's on the borrower attrition side. So just wanted to understand that in last 1 year, we have lost almost 0.5 million customer days. Despite we being the leader in the sector, our lending rate is still far lower than the competition. So to whom we are losing this customer, and if you can also share what are the primary reason for this attrition?

[Udaya Hebbar, executive]

Okay. Okay. So thank you, Renish. So the liability side is one of the things we kept on working to strengthen that strategy since last many years. So we have been witnessing this is going to be one of the primary requirement to expand our liabilities beyond domestic, beyond banks, because the requirement keep increasing at least 25% every year and then many banks will not be able to give that much of money every year in this funding. Therefore, -- and also, we wanted to build up a very, very positive ALM, so that we should not be vulnerable for any liquidity I mean in tight kind of situation.

So therefore, we have been planning to expand our liability beyond banks then beyond domestic territory to go to international also. So in this process, we did a couple of things. One is going to nonbank side, which are DFI and then the international borrowings and the -- what we call non-, what you call, conventional public NCD route. So asset process, as of now, our way -- our view was worth the time, our dependency on the bank should be within 50%. And the 50% of the funding should be outside the bank and as much as possible outside the geography, so that we have a continuous supply of funds with a longer maturity and possibility to return to higher ALM -- positive ALM as well as very strong diversification.

So we are in that process. Probably we are largely in that process today, almost only 53% of our funding is from banks today, almost close to 20%, it's from the international side, which is minimum 3 years all the way up to 7 years, another 7% to 8% from public NCD and then the balance about 11% is from a nonbank DFIs and then about 7% from normal short-term DRP kind of thing, which is very strong, what you call liability side, what we do it. It is most important I think this strategy is important for us to grow in the future. That's why we have made our strategy and working on it. I think this should be helping us continuously while we are diversifying our assets also, so which will match and then we'll have continuous positive liability mismatches.

Maybe second part of question, I'll request Ganesh to respond in terms of our attrition and how we are managing it.

[Ganesh Narayanan, executive]

Thank you, Udaya. So Renish, attrition for us is reinformed currently around 13%. So we've been around 13%. Attrition happens because of a combination of a few reasons, as we have stated earlier, too. There are a certain amount of customers who are moving up. There are a certain amount of customers, who we don't want to lend, and there are certain amount of customers who don't want any further borrowing. So it's generally a combination of these 3 that comprises are attrition. I think It's in the right track.

[Renish Bhuva, analyst]

Got it. Got it. So I was just trying to get a sense that given a leader like us losing customers, does it signal the, let's say, aggressive lending in the segment? Or is it the normal attrition rate?

[Udaya Hebbar, executive]

So far, we have seen is quite normal. And I think in the range of what we have been observing over the last 5, 6 years, we have not seen any new different. But when we started addressing, what we started the product lines, which are addressing by following our customers to combine some of the pilots that we have been doing last year, which we are scaling it now, which are going to address this. 1 set of customers moving up to the next level of attrition or requirement of the larger value that we are addressing through our pilots now. And then who don't want to borrow, who we don't want to lend, it anyway, we don't want to get into. But those who are going into NBFCs kind of thing. So probably, we have already started addressing that to our diversified different non-micro-finance for a change.

[Renish Bhuva, analyst]

Got it. And sir, sorry, just the last question from my side on the revised guidance now. I think we will be the fast MFI company in the industry to say that we'll be delivering 24%, 25% ROE. So is it fair to assume that this will be the, let's say, a new steady state ROE or this is, let's say, this ROE is because of we might be getting some margin benefit as of now and which might not be there maybe earlier down the line? So how one should look at this revised guidance, sir?

[Udaya Hebbar, executive]

I think it should be at least in the medium term to long term, it should be a steady case because our capital adequacy also will be within the same range on between 20% to 25%. We should be able to maintain such kind of rich target going forward.

[Operator]

[Operator Instructions] The next question will be from the line of Ajit Kumar from Nomura.

[Ajit Kumar, analyst]

Am I audible, sir?

[Udaya Hebbar, executive]

Yes.

[Ajit Kumar, analyst]

Okay. So congratulations for great set of numbers. So first question is on disbursement yields, which has increased by another 10 basis points sequentially. So is there any plan or the scope of increasing this further from here on?

[Udaya Hebbar, executive]

Not really. I think we remarked only that our pace is quite compatible, and we are maintaining the same pace customers. We increasing the pace to customers. By and large, over 90% of our lending gap portfolio has been already replaced. So there is not too much scope for increasing the yield.

[Ajit Kumar, analyst]

Okay. Okay. And sir, second question is on the number of employees, which has increased substantially in this quarter. The increase is by roughly 1,800, which is quite higher than the normal run rate. And this is despite the fact that your number of branches has increased by roughly 50 branches every quarter. So what is the reason for that? And in which function this hiring has happened?

[Udaya Hebbar, executive]

No, no. Actually, no. Last quarter, it was low because a lot of transfers, and we have not hired too much. We are in -- most of the time we are spending on completing the transition from Madura to [indiscernible]. Now that everything is settled, we started hiring back and it's a normal growth. That is why we said last time our result at its cost of operations are not the benchmark. It will increase a bit in 1 of the branch opening, hiring, tax expenditure, all those activities, we actually told last call also. These are not -- you have to see combined first half year rather than 1 quarter.

Moderator, there's some echo in our call. Can you look at it?

[Operator]

I'll definitely check that out. The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

[Abhijit Tibrewal, analyst]

Sir, just 2, 3 questions. First thing first, if you could just explain insurance distribution income which has come in higher.

[Udaya Hebbar, executive]

Abhijit, if you are using a cordless, can you speak through the phone or something. Your voice is not clear.

[Abhijit Tibrewal, analyst]

Is it better now? Is it better now?

[Udaya Hebbar, executive]

Okay. Carry on. I think you are using speaker.

[Abhijit Tibrewal, analyst]

Sir, I've come to the handset now. I'm not using the speaker anymore, but let me try.

[Udaya Hebbar, executive]

Okay. Carry on, carry on. I think we can make it, please.

[Abhijit Tibrewal, analyst]

So sir, first thing first. I mean, this insurance distribution income that we've reported and is higher than in the past 2 quarters. Just wanted to understand, are there any things which have got bumped up and kind of bearing this quarter, some income, which were there for earlier quarter and I imagine booked in this quarter? Is this now going to be a steady state run rate in insurance distribution income? And if that is the case, what has kind of led to the start of insurance distribution?

[Udaya Hebbar, executive]

I'm sorry, I didn't understand correctly. So our insurance distribution -- we have been the corporate agent since many years. By regulation, we used to get only 5% commission until Q1. And now that IRD has revised the pricing, which allowed the insurers to give a higher commission, which actually increased between 12% to 13% -- 12% to 15% now. So therefore, this will be a steady state revenue going forward. So there is no bumping, I think about only about INR 8 crores in this, which is insignificant part of the Q1 accrual. Otherwise, this should be the steady state income going forward, at least the medium range until -- unless regulator changes any fees fee -- what do you call, fee cap or something. As of now, we should be assuming that we should get this kind of income on a steady state basis. I don't have anything -- second part to your question, which we could not hear.

[Abhijit Tibrewal, analyst]

So I mean this is exactly what I was kind of trying to understand. So out of the INR 50 crores that you have reported insurance distribution income, you suggested 8 quarters was accrual from the first quarter.

[Udaya Hebbar, executive]

No, no. Actually, in that only INR 30 crores is the insurance, other are the normal other income like FD, interest or individual point interest, all things. So INR 30 crores is the insurance additional income, which is a growing forward steady state income for the quarter.

[Abhijit Tibrewal, analyst]

Got it. Got it. So the second question was, I mean, around margins. So if I look at the first half performance in margins, are at around 13.1%, while we guide for 12.7% to 12.8%, as the revised guidance for the full year. So is it fair to assume that given that you said to the prior participant that not much scope for any further increase in yields. Given the cost of borrowings will increase from here, what we've reported in this quarter as peak margins and from here we should see some moderation in margins. Is that the right way to look at it?

[Udaya Hebbar, executive]

First quarter income is actually a kind of based on the base effect and then the growth also more growth is lesser than the internal accrual, so we use more capital. So when you use the entire year, you use the capital, then when you do more borrowing also. So that average lien will come down. So therefore, however, the lien will come down. Therefore, we said in the first quarter, our ROE is 25%, our growth is only about 15%, right? So obviously, there is a -- there will be a gap. When you complete the whole year, you will use the borrowing than the capital. So automatically NIM will change.

So therefore, we guided steady state NIM potential.

[Abhijit Tibrewal, analyst]

Got it, sir. So just 1 last question. Did this quarter have any impact from floods in the last quarter? I mean in some parts of the country that reported floods, did this quarter had an impact from the floods in the last quarter. And the related question going forward, I mean, given then that we are heading into some state elections, are there any noise or impacts that you are seeing on collections from the upcoming elections?

[Udaya Hebbar, executive]

Not really. I think we have not seen any such impact. I mean even in the impact, if it is 15%, ultimately we would have provided more than 50% our PAR would have increased. So it's a -- no such impact so far we observed. And we strongly believe that what we guided is sufficient on the credit cost point of view as we see for the second half -- including second half.

[Operator]

[Operator Instructions] The next question is from the line of Shreepal Doshi from Equirus Securities.

[Shreepal Doshi, analyst]

Congrats on good set of numbers. Sir, my first question was on the -- I mean, when we are entering a new state, in fact, in the last couple of years, you've entered newer states like Bihar, UP, even Rajasthan and Gujarat. So what is the kind of new to credit ratio that we are seeing? Because these are not our vintage states per se. So I wanted to understand what is the kind of new to credit ratio that we are seeing in these states? And also, what is your thought process on ramping up our operations in AP and Tamil Nadu -- and Telangana?

[Udaya Hebbar, executive]

I think we've said already, we already entered to AP and Telangana through a contiguous distribution model and to Tamil Nadu, Karnataka, Maharashtra, Odisha. We opened 8 branches in Andhra Pradesh and 4 branches in Telangana in the bordering districts. So that we continue to do same approach of contiguous district approach here also. So we have done that. The first part of your question is we -- when we go to new geography, there's less new to credit because probably we are entering to a place where already some people are operating.

So -- but still, it will be in the range of 20%, 25% kind of new to credit. But whereas in the existing states, like Maharashtra, Karnataka or Chhattisgarh or MP, our new to credit is close to 40% to 45%.

[Shreepal Doshi, analyst]

Okay. Okay. Sir, my -- the second question was like, what is the thought process in the sense that, like currently, we've added 8 branches in AP and probably 4 branches in Telangana. So from here on, like how many more branches do we plan to add in these states, say, over the next 12 to 18 months' time period? Is there a process to sort of scale it up further?

[Udaya Hebbar, executive]

As a policy, we don't look at the state-wise numbers, instead we look at our district actually. How many of our districts around us where we have to operate, to evaluate. But yes, Telangana and Andhra are new. But still we would go, again, the contiguous only, probably we will enter. We opened a few branches. We will open a few more branches during this year or first quarter of next year and then penetrate and go to next district. So that is what we observe. That is the way we operate. Maybe over a period of time, we will penetrate the entire state. It will take a couple of years for us. So same like we're still expanding in Bihar, expanding in UP, expanding in Rajasthan, expanding in Gujarat. Similarly we are operating here also. So we look at districts rather than state when we expand.

[Shreepal Doshi, analyst]

Got it. Got it. Sir, the second question was on the non-micro-finance segment that we want to -- we aspire to sort of scale it up. So how is the management bandwidth that we are planning to create over the next 12 months, so that we are able to scale up that segment as well?

[Ganesh Narayanan, executive]

So -- this is Ganesh here. So from a management bandwidth perspective, I think we are adequately staffed. So we have adequate resources to take care of the newer businesses. In fact, the newer business, most of them are run through a separate vertical. And we have a business where we have an NCM. So we will have all the manpower already in place, right? So apart from expansion in field staff, we don't see a requirement coming in for management for the new business.

[Shreepal Doshi, analyst]

Got it. Got it. And sir, one last question was with respect to recovery. So we have -- like we have taken the hit of the COVID and we have written off portfolios -- we written off some accounts. So are we seeing any healthy recoveries lined up in the third quarter or in the fourth quarter, like we have seen during this quarter as well, but do you expect that there could be some healthy recoveries coming up in the second half?

[Ganesh Narayanan, executive]

The stronger recovery from COVID portfolio has almost been completed now. And for the last few quarters, we've seen a similar trend. So it will be the range of around INR 4 crores, INR 5 crores a month. And that's just coming, but as a broad guidance, we can always see around 10% to 15% of recovery coming from it every year.

[Shreepal Doshi, analyst]

Got it. Got it, sir. Good luck for the next quarter, sir.

[Operator]

The next question is from the line of Nidhesh from Investec.

[Nidhesh Jain, analyst]

So firstly, on the new initiatives, new business that they are scaling up. If you can share some progress, how has the traction been in this quarter?

[Udaya Hebbar, executive]

Okay. So new initiatives, as I said earlier also has happened. Earlier, the more of our time we spent last year on pilots, and this year, we started scaling up. The 2 products, which is particularly higher individual loans unsecured, which is not more than INR 2 lakhs per client, which is actually going very well. I think we should be start presenting the numbers from the next quarter. And also the -- what we call LAP, which is also progressing very well. The 2 wheeler are still in the nascent stage. And home loan, we are planning to pilot from this year.

And the last one, gold loan, we are not very sure still. So we are still INR 2 crores, INR 3 crores of portfolio, which we are continuing our pilot to evaluate and see whether it's the right product, we should continue or not. So other products are getting scaled up. Probably from next quarter on, we start presenting the non-micro-finance initiatives also.

[Nidhesh Jain, analyst]

Sure, sir. And secondly, from an ROE point of view, reporting 24%, 25% ROE, how do we think about creating buffers for future as passing on benefit to the customer? Or we are okay with 24%, 25% ROE, are we expanding beyond that also with operating leverage?

[Udaya Hebbar, executive]

No, no. There are 2 things -- 2, 3 things on that. The passing on can happen through the operating efficiency, the cost of borrowing. So for many of the areas are there, there may -- I think we are seeing the cost of borrowing keep getting into peak now, it is actually start moving down or stable and then moving down. OpEx again, the today is 4.7 is actually basically including the investment what we are working with retail and all these new initiatives also. So that also there will be some leverage. This all will get passed on to customer actually going forward, so that we'll be trying to keep the return intact as far as possible. And as the capital consumption is becoming more and more, then we'll be able to maintain this easily without any difficulty.

[Nidhesh Jain, analyst]

With this sort of internal approval, we should not require capital in future because our growth is also around 25%, book value growth is higher than 25%, so ideally, we should not quite require capital.

[Udaya Hebbar, executive]

Ideally, yes. At least for near future, we are not looking for any capital.

[Operator]

The next question is from the line of Abhishek from HSBC.

[Abhishek Murarka, analyst]

Udaya and team, congratulations for the quarter. So my question was again on the new products. Can you share what is the disbursement in those products in the last quarter? And let's say, in a year's time, what percentage of AUM are you targeting to get to in terms of the mix?

[Udaya Hebbar, executive]

Yes. So, currently, it's about 1.5% of portfolio approximately, and our disbursement last quarter is close INR 170 crores.

[Abhishek Murarka, analyst]

Sorry.

[Udaya Hebbar, executive]

So last -- this last quarter disbursal is close INR 160 crores to INR 170 crores. And then the portfolio is around 1.5% of the total portfolio. And then it's behaving quite well.

[Abhishek Murarka, analyst]

Yes. So let's say, by the end of next year, what percentage do you think will be contributed by this portfolio? Do you have any target in mind or any threshold?

[Udaya Hebbar, executive]

I think we spelled out clearly in our analyst meeting, we said that in the 4, 5 years, which we will be achieved about 12% to 15% in this, which means around INR 6,000 crores to INR 7,000 crores of our target to reach by the next 4, 5 years' time.

[Operator]

The next question is from the line of Aravind R from Sundaram Alternates.

[Aravind R., analyst]

I have a few questions in my mind, this might have been answered, but -- so the average disbursement rate is like 1% higher than the portfolio yield and like cost of borrowing was also like lower than like 20 bps higher -- or lower than the marginal cost of borrowing is 20 bps lower than book cost of borrowing. Does it mean that like yields -- sorry, the NIMs can improve further from here over the next several quarters? That is my first question.

[Udaya Hebbar, executive]

So NIM may not go up further because most of the portfolio is rebased already. And the marginal cost is not a reflection. You have to look at the average -- weighted average cost, which is the real cost, which is getting into overall financial inventory. So marginal cost only for the cost on the borrowing for that quarter. So for the next quarter, we got borrowing higher cost, let margin cost is growth. So therefore, the marginal cost does not have a bearing, weighted average costs is what we have to look at.

So we believe it will go up by another 10, 20 bps minimum and what we call, predictive -- portfolio yield may not change too much because average portfolio not yield too much. So therefore -- and then actually use more capital -- sorry, more borrowings in the next 2 quarters because normally, our disbursement or a growth almost 60%, 65% will come from second half, which means we start using the borrowed money in the next 2 quarters, whereas we use more capital these two quarters. Therefore, with these 2, 3 combinations, we believe the NIM will come down, hence we guided the lesser NIM than the current.

[Aravind R., analyst]

Understood, sir. So my another question would be like number of branches, I could see like Tamil Nadu and -- sorry, Maharashtra, similar branches to Karnataka or like even slightly higher, but the portfolio is like almost only just half of the portfolio in size in Karnataka. Like when can -- I mean like is it -- is there any target like reaching the current levels of Karnataka book in Tamil Nadu, Maharashtra like in the next 3 years, something like that?

[Udaya Hebbar, executive]

So from Karnataka book, which is quite old branches, quite mature branches. And then we continue to grow the same way that is quite higher whereas as we go more and more to the newer geography like Maharashtra was next and then the Madhya Pradesh, and we keep on doing all this just like that. It's always based on the vintage branches will grow. So eventually, most of them will get that level. Tamil Nadu specifically because it has many Madura branches has become a part of the Grameen in this financial year, where those outstandings are quite low. The average book is a bit lower. So our whole idea of Madura acquisition needs to grow there. Obviously, we'll grow there. So eventually, all this will come into a similar range of productivity.

[Operator]

The next question is from the line of Kashyap Javeri from Emkay Investment Managers.

[Kashyap Javeri, analyst]

Congratulations for a good set of numbers. I had one question, which is on the disbursement side. Quarter-on-quarter, our disbursements have grown by about 3% and Y-o-Y about 18%, which then looks like a slower growth as you said for the new initiatives of about INR 150 crores, this number would have been down by about another 3%. So for the full year, what's your view on the disbursement growth as well as why it would be a lower number this quarter?

[Udaya Hebbar, executive]

So these are lower, actually, if you see first half growth, I mean in any year, probably we have done better than any other year, actually. So you have to look at what is the normal natural first half growth and second half growth. And we also said that we are retaining the guidance. We said that we are -- our guidance is 24%, 25% annual accrual, which we are retaining this guidance and probably I think that is intact. And normally, third quarter and fourth quarter the higher disbursals will happen. Therefore, I don't see any reason to worry about the potential growth guidance what we have made.

[Operator]

The next question is from the line of Manoj Oberoi from Yes Securities.

[Rajiv Mehta, analyst]

This is Rajiv. Congratulations on a very good set of numbers. My question is on credit cost guidance. So when I look at -- you have maintained your credit cost guidance. But when I look at the collection efficiency, excluding earlier, it is at 98.7% on the whole portfolio. Your PAR 30 number is also small. Your buckets are even smaller, and you are carrying good provisions on Stage 2 and Stage 3 assets. So can we then not under shoot -- I mean, could we have not lowered the credit cost guidance? Or are you expecting that collection efficiency may not hold up?

[Udaya Hebbar, executive]

Credit cost is not just the PAR, our credit cost is higher compared to the -- because we provide a 60 days for NPA, 15 days for state, so we deploy our credit quality is higher than the comparison to NPA, right? So these are validated. Only in the first quarter, it was a mix a better mix, which is much better, which -- but that is not the comparison, but Q2 is a comparison. If you see Q2, our cost was about 4% -- 0.4%. I know it is 1.6%, right? I think we are quite in line with our guidance. And I thought suddenly you changed your name, Rajiv.

[Rajiv Mehta, analyst]

No, just from the collection efficiency being reported on the whole portfolio, ex of arrears was 98.7%, was implying that the flows going into Stage 2 and Stage 3 are also less, which is -- which is why the requirement could be low.

[Udaya Hebbar, executive]

No, no, it's because of the policy, because if you go by the current -- if you go by the gap methodology, our requirement of provision will be half of what we are doing. Correct? Okay, but whereas we are doing more, right? So automatically, it will go up. [indiscernible] GNP of 0.7, we are 1.6% of provisions, right?

[Rajiv Mehta, analyst]

Correct. Correct. And sir, on the NIM guidance, again, I mean, just a clarification because when I look at the first half NIM, it is 13.1. You have given a full year NIM guidance of 12.7, 12.8. But again, when I look at your incremental disbursement yield, it is 1% higher than the portfolio yield. So that gain will come and unless the cost of fund goes up significantly, and I understand the leverage part that you will grow much higher in the second half. But is it just a leverage or something else also are you building some cushion for any other reason as well?

[Udaya Hebbar, executive]

No, it's more of it. So look at last quarter. Last quarter, we -- I mean everybody was ROE revising. Look at our yield gone up, but ROE has come down, right? So NIM has slightly gone up, but the ROI, ROE has come down, correct? It's more linkage between the leverage, the operating cost. There's operating cost increased by 20 bps. So that has an impact, a huge ramification. Even if 10 bps increases, there will be ramification, because the growth is -- we are talking about opening many more branches also next 2 quarters. So we have opened 90 branches whereas the plan is to open 180, 190 branches, correct? This is one impact. And then the usage of capital is another impact. So all these 3, 4 things we have to look at together. So we did that analysis and then come out with a stable potential NIM for the year.

[Rajiv Mehta, analyst]

Okay. Okay. And sir, you have maintained your growth guidance between 2 quarters. So do you see some risks or -- of growing faster than 24%, 25% because we have the capacity, you have been expanding in our market and the cycle is also good, collections are also good. So is there any harm in growing slightly faster?

[Udaya Hebbar, executive]

Not necessarily, but we also believe that 24%, 25% is good growth at the base of what we are operating. And then second, newer market entry will actually give you expansion, but the growth you will get only next year, not current year normally. So I think we are preparing for the, what you call, the expansion for next year by entering the new markets. So I think 24%, 25% is a decent growth. We still need to do a lot for that. Annual guidance for the annual growth is only 16%. We need to really grow at about 30%, 40% annualized growth for next -- second half to achieve this itself [indiscernible] is we actually want to retain the same guidance.

Maybe 1 point I want to add is we are actually strengthening our operations also in this point of time. It's always good to strengthen our operation when the good time is going on, right?

[Operator]

The next question is from the line of Shreepal Doshi from Equirus Securities.

[Shreepal Doshi, analyst]

So I wanted to check with like where we differentiate among the peers and the landscape is on the OpEx upon AUM front, where we are probably at 4.5%, 4.6%. So on that front, I wanted to understand -- so with that angle, I wanted to understand what is the attrition rate at loan officer level and middle management level?

[Udaya Hebbar, executive]

So our attrition rate is around 28%, including loan officer and middle management together. If you ask only loan officer, maybe it's about another 5%, 6% more and middle management probably are higher, maybe about 5% less. Average around 28-29%, which seems to be reasonable for us. Maybe it's lesser than the market, but we don't have an appropriate number for other figure. Similarly the customer attrition is quite low for us, which is 1 of the reasons why our operating cost is better, because the growth is largely coming from the retained existing customers, which is also an advantage for better operating metrics.

[Shreepal Doshi, analyst]

Right. You said 13% to 15% is the attrition for the customers, right?

[Udaya Hebbar, executive]

Yes, which I think we observed the indices around maybe, I mean, north of 25%.

[Shreepal Doshi, analyst]

So the customer attrition is north of 25%, you said?

[Udaya Hebbar, executive]

Yes, for the industry.

[Shreepal Doshi, analyst]

For the industry. Okay. Okay. Got it. Got it, sir. And sir, just 1 bit. On the OpEx upon AUM front, there won't be any further improvement, and we would want to maintain these levels, right?

[Udaya Hebbar, executive]

So it's a AUM bond, if you see the same between 4.5 to 5 years, sometimes some quarter -- quarter-on-quarter, we don't see -- and there will be some gaps. But annually, we saw it between 4.5% to 4.75%, not more than that.

[Operator]

The next question is from the line of Omkar Kamtekar from Bonanza Portfolio.

[Omkar Kamtekar, analyst]

Firstly, on the end, I think it was previously answered, but just to get a proper understanding. So even in the guidance, you have said that NIMs have expanded because we have used internal accruals and own funds for growth. Therefore, in the near term, I think we may not require any external funding. So I think the INR 990 crores that we raised, I think, would be fair enough for the year?

[Udaya Hebbar, executive]

We don't need capital, sorry. We don't need capital. Funding we need, because our book runs the 75% is the borrowing only. We don't need capital. That's what we said.

[Omkar Kamtekar, analyst]

Sure, thank you for the clarification. Next, I see a small -- I need a growth guidance or maybe a color from you. In the GLP product mix segment, the home improvement and the retail segment has shown good growth. So the -- so the home improvement has almost doubled, and retail finance has almost increased by 60% on a year-on-year basis. The growth has been more so ramped up since Q4 to Q1 and Q2. So do you see this ramping up? And also the average amount per loan is also increasing for both. So could you give us an understanding of how much this can go up to as a part of the entire portfolio? And will this be margin accretive?

[Udaya Hebbar, executive]

See, Omkar, these are the products we piloted last year, scaling up this year. Last year INR 10 crores, this year, INR 20 crores, 100% growth. That is what the way it was in the initial figures. So this all was piloted last year and we are actually growing now and scaling it up. Therefore, it's a number of I mean, growth is definitely important, and it will happen. As I said earlier to somebody -- some other question -- responded to somebody. So -- I think Abhishek, so we have a plan to grow this at least from the current 1% to 2% portfolio to almost 10% to 15% in the next 4 to 5 years. Therefore, there will be a ramp-up of these products continuously.

[Omkar Kamtekar, analyst]

Okay. Okay. And it's a small clarification on the -- I would want your view on the micro-finance industry as a whole of a quick overview of what do you feel the next 2 or 3 years would be for the industry -- MFI industry as a whole from your lens?

[Udaya Hebbar, executive]

So our view is quite stable. Actually, post regulation changes, things are definitely good. Post-COVID also I think the industry has been very, what we call, resilient in terms of coming back to normalcy. Customer segment where we operate also very resilient. So we believe the industry should actually move well with at least 20-25% CLEI growth for next 2, 3 years.

[Omkar Kamtekar, analyst]

Okay. So 20% to 25% CLEI on the next 2, 3 years. Okay.

[Udaya Hebbar, executive]

Yes, that is a potential to grow.

[Operator]

The next question is from the line of Aravind R. from Sundaram Alternates.

[Aravind R., analyst]

So sir, I just had 1 query. So these non-JLG loan we are looking to grow -- is that margin accretive? Like can you give me some grade -- guidance on what would be like the yields in those products?

[Udaya Hebbar, executive]

So these products yields are actually equal or more than the group loan actually, because if you are individual loan, we charge a little higher, whereas group loan, we have a differential rate between high risk, low risk and medium risk branches, whereas here is a common rate of 20% to 23%. Therefore, yield is higher for this. So therefore, the margin accrual is also higher because we are giving only for the existing customers who are moving to next level. Therefore, you don't have acquisition cost also. So therefore, this will give additional advantage for us in terms of margin.

[Aravind R., analyst]

Okay. Okay. And like I did see like not for CredAc but for other banks, banks and NBFCs, even the sector data like loans, which are like less than INR 50,000 ticket size started to seeing some signs of stress. Is that the cost of for you? Do you see any issues in the ground, not necessarily for CreditACC, but for the industry itself?

[Udaya Hebbar, executive]

It depends on what type of clients. If you want to go and give individual loans to new to credit or a new to corporate customer, then probably there is a challenge. But our model is clearly to the existing, retained, loyal customer who have been with us for at least 3 years, always paid well with the good credit history. Therefore, I think this is very less comparison for this.

[Operator]

Ladies and gentlemen, we would take that as our last question. I now hand the conference over to Ms. Shweta Daptardar for closing comments. Please go ahead.

[Shweta Daptardar, analyst]

Thank you. On behalf of Elara Capital, we thank the management of CreditAccess Grameen to give us the opportunity to host the earnings call. Thank you, and thank you all.

[Udaya Hebbar, executive]

Thank you very much, and I think very, very happy festival season for all of you. Thank you so much.

[Operator]

Thank you so much. On behalf of Elara Securities Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.