CreditAccess Grameen Ltd
NSE:CREDITACC
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
920.5
1 763.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
CreditAccess Grameen Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to CreditAccess Grameen Limited Q2 FY '25 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you, sir.
Yes. Thanks, Nirav. Good evening, everyone, and welcome to CreditAccess's Q2 FY '25 Earnings Call. On behalf of ICICI Securities, I would like to thank CA Grameen management team for giving us the opportunity to host this call. Today, we have with us the entire top management team of CA Grameen presented by Mr. Udaya Kumar, Managing Director; Mr. Ganesh Narayanan, CEO; Mr. Nilesh Dalvi, CFO; and Mr. Sahib Sharma, DGM, Investor Relations.
I will now hand over the call to Mr. Udaya Kumar for his opening remarks, and then we'll open the floor for Q&A. Over to you, sir.
Thank you, Renish. Good evening, everyone. Thank you for joining the conference call to discuss our second quarter and first half year of FY '25 business performance. The unsecured lending space, including microfinance marked by high growth has been witnessing an increase in delinquency levels over the past 3, 4 quarters.
Given the short-term nature of unsecured lending and timely calibration by various institutions, we believe this credit cycle to be transient in nature, taking recognition to this, the microfinance industry represented by MFIN implemented the guardrails in July '24 to strengthen the underwriting norms across all regulated entities. While we have been witnessing an accelerated realization of delinquencies in the last few months, we believe that the MFIN guardrails are essential for fostering a healthier environment for the industry in the medium- to long run.
Coming to the second quarter performance. The overall AUM grew by 11.8% Y-o-Y to INR 25,133 crores. With the GL book growing by 9.3% Y-o-Y to INR 24,188 crores. Meanwhile, RF book or retail finance book continued to show robust growth driven by selective customer base with an AUM of INR 945 crores. The customer base grew 7.2% Y-o-Y to 49.33 lakh at the end of September '24. On a Q-on-Q basis, we witnessed 4.4% decline in our overall AUM and 1% decline in the customer base. We added 1.4 lakh new customers during the quarter, and 3.37 lakh during the half year FY '25.
Our branch infrastructure expanded to 2,031 across 398 districts as we added 55 new branches during this quarter. The net income -- net interest income grew by 20.8% Y-o-Y to INR 932 crores, as guided before, our average and margin cost of borrowing remains steady at 9.8% and 9.4%, respectively.
The portfolio yield at 21.1%, an interest spread, 11.4% to remain stable and continue to be one of the lowest in the microfinance industry. NIM stood at 13.5% for Q2 FY '25 compared to 13% in Q1 FY '25 because of higher capital delinquency of 26.2% and low base effect on account of a decline in loan portfolio. Cost-to-income ratio was 30.7% while PPOP grew by 19.5% Y-o-Y to INR 672 crores at the end of Q2 FY '25.
We would now like to draw your attention to the Slides 6 to 10 on the asset quality update. We have observed a temporary increase in delinquency across various geographies on account of several factors. There have been localized disruption in repayments caused by third-party interventions in various states. Customers have been facing tight liquidity and cash flow constraints as lending industry has curtailed disbursement with more focused on controlling delinquency.
Further, certain customers, especially agri labors have also faced income variations on account of low rainfall last year followed by severe heat wave during April to June '24. Furthermore, there has been also transient impact of heavy rainfall in several regions during September quarter.
On the top of all the above segment of overleverage borrowers with lower cash flow, also a part of this delinquent bucket. We expect the situation to stabilize in Q3 FY '25 and business sentiment should improve in Q4 FY '25. The company continues to strengthen its collection effort with additional PAR control measures by deploying senior and experienced field staff, and quality control teams on the back of continuous customer engagement in addition to strong underwriting measures.
We try to understand the current delinquency trend by analyzing the customer overlap with other lenders, along with leverage and vintage. The delinquency is the lowest in the case of unique customers with high vintage and highest in case of customers with low vintage and high velocity of loans being availed from multiple lenders.
As on September '24, CA Grameen 4 and above -- +4 and above accounted for 12.6% of our group lending portfolio and had PAR 15 of 12.2%. Hence, the overall PAR 15+ impact on account of CA Grameen +4 and above customers is 1.5% only.
We have also drawn state-wise comparison of delinquency versus the microfinance industry by sourcing credit bureau data for the month of August '24. As visible on Slide 9, our performance has been relatively better than the industry across our top 5 states accounting for 85% of our gross loan portfolio.
Our collection efficiency, excluding arrears stood at 96.3% for Q2 FY '25, PAR 90+ at 1.74%, GNPA of 2.44%, and NNPA of 0.76%, both predominantly measured as 60+ dpd. The credit cost stood at INR 420 crores for Q2 FY '25, which includes an additional INR 29.8 crore provision on account of increased ECL across all three stages compared to Q1 '25. Overall, the annualized gross credit cost stood at [ 4.1% ] for H1 FY '25.
While analyzing our credit cost figure, we would like to draw your attention to early stress recognition and conservative provisioning policy. The company currently holding 179 bps, which is INR 431 crores higher provisioning over PAR 90+ and 256 basis that is equal to INR 629 crores higher provisioning compared to IRAC prudential norms. Even when we compare us with the average provisioning policy adopted by NBFC-MFI industry, they're currently holding additional INR 102 crores provisions on account of our early recognition and higher provision rate. This will help us to recognize 70% to 75% of our current share within the current financial year instead of deferring into next financial year.
We had comfortable liquidity position as on September '24 with cash and cash equivalent of INR 2,036 crores amounting to 7.6% of total asset. We have sanctions in hand of INR 3,830 crores and another INR 6,918 crores worth of sanctions in pipeline. Our capital adequacy remains strong at 26.1% further adding strength to our balance sheet.
For Q2 FY '25, PAT stood at INR 186 crores with the ROA of 2.7% and ROE of 10.4% -- 10.7%. For H1 FY '25, the PAT stood at INR 584 crores, with ROA of 4.1% and ROE of 17.1%, reflecting our strong operating profitability on the back of resilient business model.
In the light of current industry landscape and short-term challenges encountered, we have revised our estimate for FY '25 annual performance guidance. We anticipate our loan portfolio to grow -- loan portfolio growth of 8% to 12%. NIM, about 12.8% to 13%. Credit cost between 4.5% to 5%. ROA 3% to 3.5%, and ROE between 12% to 14%. We know that revised guidance is based on our estimation of stabilization of delinquencies in Q3 FY '25, followed by improved business momentum in Q4 FY '25.
This should be on the back of improved world economic dynamics during the second half of FY '25 driven by healthy agricultural activities. The country has witnessed the highest monsoon rainfall over the past 4 years, which should help in increased sowing activities resulting in a positive spillover effect. We reiterate our medium-term growth outlook aiming to reach INR 50,000 crores mark by FY '28, as guided earlier through a combination of both microfinance and retail finance business.
Lastly, we would like to share with you an important update related to the management team. Mr. Gururaj Rao has been elevated to the Chief Operating Officer as KMP and KMP was effective from 1st November, who was serving as Chief Audit Officer. Also, Mr. Nagananda Kumar currently serving as Head of Operation is now appointed as Head of Internal Audit is effective from 1st November '24. Both of them have been associated with the company for more than 15 years, contributing to the company's growth and success. I'm confident that under their leadership, we will further strengthen our market share and deliver exceptional value to all our stakeholders.
Thank you for your patience hearing. We look forward to addressing your queries as we open the forum for question-and-answers. In the meantime, I'm requesting Nilesh to give you a 5-minute brief of the asset quality slides what I mentioned, so that he will give a little more clarity on those slides.
Good evening, everyone. I'll be referring to Slide #6 to 10. Since there is a lot of data we have shared, I thought it's better we kind of provide you some interpretation of the data what we have provided.
On Slide #6, we have given a update on how the PAR has moved up from Q1 to Q2. Overall, the PAR 0 has increased by 2.9%. And PAR 90 has increased by around 1%, and PAR 60 has increased by around 1.5%. These percentages are on a pre write-off basis -- sorry, the PAR 0 on a pre write-off basis has increased by around, yes, 2.9%.
Overall, the slippage, what we say at 60 dpd, the slippage is around 1.5%. And at 90 dpd, the slippage is around close to 1%, the new PAR creation. And we have also given the figures across our top 5 states. So Karnataka it is 2.3%. Maharashtra and MP relatively, they're holding well at 4.2% and 4.6%. In TN, it has increased to 6.2%, and Bihar is on the higher side at 8.9%. And other states, it is 8%, but here we have to also take into account that the book degrowth is higher because there are certain states where we are not growing much like Rajasthan, Gujarat, Kerala, et cetera. So to that extent, there is a base effect which is playing out there.
Now we go to the Slide #7. Here we have just tried to analyze the PAR by looking at the vintage lender overlap and the leverage. The first chart, we have shown the portfolio breakup basis the lender overlap and the vintage. Like here we see that unique customers, they are accounting for around 27% of the book in AUM terms, and CA Grameen +4 and above, that segment is accounting to around 12.6% of the overall portfolio. Here, we see that the larger proportion of customers in 4 and above bucket, it is in the low vintage, that is between 0 to 4 years.
And the table to the bottom right, there we have given the PAR 15+, that is Stage 2 and Stage 3 across lender overlap and vintage. Again, here, we see that the PAR is lower in the unique and CA Grameen +1, +2 categories, whereas it kind of inches up in the +3 and +4 and above buckets. CA Grameen +4 and above, it is around 12.2% in the PAR 15 as on September end.
Again, here, we see that the PAR is higher in the 0 to 4 years of vintage bucket. So largely, what we have incurred from this is that customers who we recently onboarded over the last couple of years, who have relatively lower vintage with us. That is where since we cannot meet their entire requirement because we will start with, say, INR 40,000, INR 45,000 kind of a loan. So that is where they have a larger overlap with other lenders because maybe they might have a certain history in the microfinance industry, and their overall funding requirement is higher.
Moving to the next slide -- yes, one more point I wanted to highlight is the CA Grameen +4 and above cohort, it is 12.6% of the overall group loan portfolio, where the PAR 15+ is 12%. So overall, CA Grameen +4 and above cohort is accounting for 1.5% PAR on the overall book, so out of whatever 5% PAR we have, out of that, the impact of this cohort is around 1.5%. CA Grameen +4 and above cohort.
Now moving Slide #8. Here we have, again, tried to analyze the PAR by considering the leverage. As we see in the first table to the top left, total indebtedness of more than INR 2 lakh there, it is around 9.4%, the overall borrowers. And the PAR 15 for that cohort, that is more than INR 2 lakh, it is 6%. Again, here, as we see, the PAR is lower for high vintage customers, even though their overall indebtedness is higher. As we see in the table in the bottom left. And the PAR is higher in case of low vintage customers who have taken higher leverage. Again, the point we're trying to reiterate is that if higher leverage is aligned with vintage, then the PAR is lower. And only in early vintages if customers have taken multiple loans or they have higher leverage that is where the PAR is relatively higher.
Now considering the two tables on the right-hand side, wherein we have tried to understand CA Grameen +4 and above borrowers. So 4 and above borrowers with more than INR 2 lakh leverage, that is 6% of the overall borrower base. And there, the PAR 15 is around 10%. So again, in the bottom right table, same point appears again that the PAR is higher in the low vintage buckets, where the leverage is higher. And as the vintage increases, the PAR is relatively lower.
Now we go to the next slide, that is Slide #9. Here we have tried to assess our performance versus industry during March to August. So across all our operating states, the PAR 1 to 180, we are considering 1 to 180 because the write-off policy varies from player to player across the industries. That is where the 180+ there is a large variance. That's why we are considering 1 to 180 bucket. And that is where, as on August, R1 -- CA Grameen's PAR 1 to 180 was 3.4% versus 6% for industry.
In our top 4 states, we are doing better than the industry. In case of Bihar and UP, we are largely in line with the industry. So overall, top 5 states, which account for 85% of our portfolio, there we are relatively doing much better than the industry, this is the CRIF Highmark data that we have sourced for the month of August, which is the latest available data.
Moving to next slide, on Slide #10. We have indicated the ECL what we have taken as of September. Here, the thing is that since ECL is a forward-looking model. We keep revising the underlying data every quarter. We typically take a 36 data points, that is 3-year data we take. And as the recent data enters into the computation, the ECL rates vary. Here from Q1 to Q2, we have seen the ECL rates have increased across Stage 1 and Stage 2.
In Stage 1, last quarter, our ECL was 0.89%, which is now 1%, and in Stage 2, it has gone to 57.5% from 56%. Because of this, it is helping us to kind of build early provisioning buffers. And that is where, today, we see that compared to IRAC norms, we are almost holding over INR 600 crores of additional provisions. Even when we compare it with the NBFC industry norms, wherein the Stage 2 is provided after 30 days and Stage 3 is provided after 90 days. So compared to that, since we do early recognition, we are providing INR 100 crores of additional provision by booking Stage 2 after 15 and Stage 3 after 60.
To that extent, we believe that the current delinquency, which has arisen, almost 60% of the impact has been taken in the P&L. And that also kind of gives us confidence that the current delinquencies will be largely taken care in this year, so that the spillover effect in the next year will be relatively limited.
These are the larger points I wanted to make. We can now take questions.
[Operator Instructions] The first question is from the line of Dhaval from DSP Mutual Fund.
Yes. And thanks for sharing all these additional data points is quite useful. I had two questions. First is relating to the Slide 6 and Slide 9. So if you look at the change in the August to September in PAR, it seems quite sharp in certain states, the PAR increase has been quite sharp. Is that -- how you expect the -- so first part is, when we think this number start stabilizing based on the past experience? And so that is one part of the question. And the second is, given that you said 60% of the recognition or at least the provisioning part is taken care, do you think this is a peak level of credit cost and we should start seeing a moderation from next quarter?
Okay. First question, PAR, it is not August to September, it is June to September, I think what you asked. The changes from June to September not in the Slide 6...
No, no, sir. Sorry sir, what I was referring to. If you look at the state level PAR that was shared CREDAG versus industry, I think in Slide 9, where you have given, for example, states like Bihar and MP and Karnataka, et cetera. That PAR is as of August for the industry and for us as well. And in September, we have given PAR data in, I think Slide 6. The delta change that I'm seeing in each of the state numbers is quite sharp. I just wanted to reconcile that, that is the kind of magnitude of increase that one has seen. And when do you think this will stabilize, especially in the top 5 states?
I think there are so much of data variation. So PAR 90, it's shown...
Dhaval, as of August, the PAR 1 to 180 is...
We want 1 to 270. See, Dhaval, that's a difference. That is 1 to 180, we need 1 to 270. That's the difference.
The data is 1 to 270, okay? That's the difference between that data, because we don't have 1 to 290 proper data from the system, from the Highmark, which is -- relevant is 1 to 180, that is why we took it, because after 270, there is no process of people rating of -- I mean proper comparable. That is why we took comparable data, which is 1 to 180 from the Highmark data. So our data is 1 to 270 days. Therefore, there will be some difference. Okay? On the second...
Okay. So underlying question is basically this PAR increase that you would have seen, PAR 0 is what I'm referring to, between August and September, what would be the kind of change that you would have seen in the top 5 states? And when do you think this starts peaking out? That's the underlying question actually.
[indiscernible] there may be a difference between 75 bps to 100 bps actually. That's the difference between that. I know every month, there's a variation of 50 bps to 75 bps actually. So maybe September was a kind of peak, it could be about peak, we can't -- it is not right to exact data here because quarter-to-quarter data is available with me here. But it could be a little higher, about 75 bps, it could be higher than August to September, okay? Just from an estimation, it may not be too different.
And on the second part, you said about whether this is the peak? So our view also it should be peak. But credit cost wise, it may not be. What I'm telling you is that the PAR accretion or increase should be peak as far us this quarter or maybe the trend of reversal should start from Q3. So it maybe -- October maybe stabilized, November may start turning around, December maybe big improvement. So that kind of change, we will be -- we are estimating for Q3.
And so credit cost, you're saying that, that should peak in Q3. So credit cost-wise?
Yes. That is what our estimate.
Okay. Understood. And bulk of the pain should be -- I mean, 80%, 90% of the pain should be crystalized in FY '25? Is that how one should think about it?
Yes. That exactly we are talking about because we -- our 15+ it's carrying almost 60% average rate already. Every quarter, we're already carrying more than 60% for the 15+ dpd book. So by default, even at the March level, we would have 60% plus for the 15+ dpd already, right? So automatically, we'll be carrying -- we will crystallizing majority of the cost in the same financial year.
Understood. Understood. And sir, just last question on -- in terms of growth, how should one think about this current environment and going forward for FY '26 as well from a growth standpoint, if you have any thoughts?
Our view is we will -- we should be -- turnaround to start in this Q4, and then this continue afterwards. I think we don't see any challenge in FY '25, '26. So that is why we're reiterating the medium-term growth or medium-term, what we call, guidance of INR 50,000 crores by '28. We are reiterating that.
Next question is from the line of Rajiv Mehta from Yes Securities.
Sir, what was the regular bucket collection efficiency in Q2 and versus Q1? And is October showing an improvement in that parameter?
So Q2 was 96%, and Q1, it was 97% actually there is 1% variation.
Sir, I'm asking for the regular bucket, 0 dpd bucket, collection efficiency, specifically, you have that number?
Yes, Rajiv. So the on-time collection is 95% for September -- quarter, it is 96%.
And October?
As on September end, it's 95%. So usually, you can take it as whatever is in PAR that will be the nonstandard.
So it should be 95%.
Yes.
Okay. Yes, yes. Okay. Okay. And then is it the right thing to understand that this metric has to start stabilizing and improving. So at least the fresh PAR creation will have to start stopping for the whole situation to stabilize? Is that the right way to monitor this number? And would this number be the key...
No, it will not stop, but it will reduce from here on, that is what our estimate is about.
Correct, correct.
So our [indiscernible] peak, maybe September is peak, October is stabilizing at the same level and start coming down. This is what our estimation. And we are seeing that is happening already in a couple of states.
So what is the parameter in terms of collection metric, which you're looking at, which will make you start disbursing again, more and more assertively?
No, we are actually dividing branch between the stable branch and a bit of non-stable branch. In the non-stable branch and stable centers, we are actually planning to start this. Already we are disbursing to some extent. Maybe we'll start looking a little more carefully going from this quarter, actually Q3. So our [ mandate ] is more of a stable branch and stable center [indiscernible] for growth. And non-stable branch and non -- lenders they're more of a focus on control and collections.
And sir, your 0 to 60 dpd...
For a data perspective, I'll tell you, 70% of centers have a 0 dpd actually. So that is why we are actually working on how to renew -- well, how to renew with better underwriting and all. 73%, for a sake of numbers. So 73% of our customer center has 0 dpd.
Okay. Okay. And sir, your 0 to 60 dpd bucket has fell from 1.1% as of June to 2.5% as of September. So I'm sure you've put a lot of collection effort there. But what is your assessment? Would it largely flow into 60+? Or can you reduce the flow because of whatever efforts you have put?
So unfortunately, our view is the flow is higher, actually, not lower because these are the type of customer, it's more of a -- as I said earlier also, it's more customers we acquired in the last 1 to 2 years, probably at the higher multiple lending segment. So we are not seeing too much of recovery from there. That is why we are very careful and providing it upfront. So it will come back to some extent, but not too much. Flow is a little higher compared to earlier.
And sir, one last question. When I look at PAR 0 and PAR 30 figures in Bihar and the newer states, it's pretty high versus the vintage states -- versus the older states. But even in Bihar, we are on a very similar line with the industry, there is no difference between CREDAG and other player of industry as such. Generally, that is not something that we have seen in the vintage states. Even in the newer states...
Bihar is only exception. Bihar is only exception at this point of time. Other states we are...
Even in the newer states side, I believe that when I look at even in the newer states, for which you have not given the data of 1 to 180, I'm sure you're very much around the industry there.
There we explained where we reduce our portfolio drastically, there is the impact of the base effect also. So at least 2% variation is because of the business impact, and the denominator impact is there. Bihar and UP largely, we are in line with the industry.
Next question is from the line of Gaurav Kochar from Mirae Asset.
Three questions from my side. Firstly, how much of this PAR 0 buildup that you have seen in September? How much of this would you attribute to, let's say, the late monsoon that we saw and floods in various areas? And you've also mentioned in your slides that there were floods and there were collection-related challenges. How much of that would you attribute? And in sync with that, let's say, in October, has that PAR book increase?
So flood-related, it is about INR 70 crores, INR 80 crores, in last September, now it has actually already come back to almost INR 20 crores odd. So it's -- flood-related, normally -- okay, there's a small impact in this number because of flood-related, but that will not significantly impact us. It will actually come back. It has already come back to a large extent. So we should not worry about that. That is not a big part. It is small part actually in the September numbers. Then again, October, some more would have gone up in the last couple of days. But again, those will come back. It's not a big number to worry.
What was the second question?
Yes. And just in sync with this, let's say, the overall October collection efficiency trend, has that improved over September so far, while there are still 5 more days?
So far, it is stable alongside with September, Gaurav. There's not too much -- that's what I was telling, October, November, it's more of a stability then we should look at the improve. Maybe November we'll see that it will improve, December, it'll be more improvement.
Got it. Got it. Sure. And sir, the AUM growth guidance that you've given is 12% for the full year. Now even if I take the lower end of that guidance, 8%, that is translating into 15% plus growth in the second half of this year. Given the trends currently and we are in a stabilization sort of a mode, are you comfortable to grow this portfolio by 15% over the September '24 level in the second half?
Yes. That's our estimation. Again, I'll link back to estimation is this Q3, we should be able to turnaround. That is what the income showing in our book as well as in the field level estimation. If that happens, then we'll get almost 4 months of disbursement time, which we believe actually quite sufficient for growing because we have a very large number of customers renewals coming in the second half. Normally in microfinance business second half is higher renewals. And we have a very large number of retained customers. So obviously, we'll be targeting overall renewal customers. So we have a good chance of achieving it.
Got it. And just last question, if I can squeeze in. Your credit cost guidance of 4.5% to 5% for the full year. If I look at first half, you've delivered and if I annualized that, it's closer to 4.6%, 4.7% and you're saying that you expect the collection trends to stabilize in 3Q, and then in 4Q it should improve. So is it more on the conservative side? Or do you believe that overall credit cost outcomes may be slightly better than that? Is it little more conservative on the guidance? Because if I do the math, it translates into, let's say, around INR 700-odd crores or INR 720-odd crores kind of a number, which is pending in the second half. So do you expect that sort of credit cost in the second half?
So that is why we kept a little larger vertical range, right? Larger range we kept because the best case could be the lower range, the worst case should be the other range. That is why, we kept that. Because little uncertainty is there everywhere, right? It can't be very precise as of today. That's why if you see our entire guidance has a larger range compared to our earlier guidances because there is uncertainty, we have some plans. We have some, what we call, indications, accordingly, they are working. Our view is we should do better, that's why if we do better, we will be at a lower range.
[Operator Instructions] The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Two things I want to understand. First thing is in the slide and even in your opening commentary, when you call this as a transitory or temporary increase in delinquencies, I think what we are wanting to communicate is that maybe this credit cycle that we are seeing in the MFI sector today, that would be more short-lived to get over in this year rather than transitory in the sense that these are temporary operational difficulties and will get course-corrected in the coming quarters. Is my kind of understanding correct when we use the word transient or temporary?
Yes, exactly, but at least not necessarily operational difficulties, it's a bit of environmental issues also there. Environmental, I'm talking the whole industry sector. It's not just microfinance industry is struggling, it's a lot of other industry, which is finance sector, microfinance sector, individual loan sector, the personal loan sector, credit card sector, retail loan sector. You can see all of that maybe because of some of the reasons which are in the nature of third-party intervention, some of the nature of lack of income, some of the nature of the lack of liquidity and cash flow because of tight credit norms by everybody. All these are mixed here. So that is why we are saying, because these are short-term loan cycles, so this cycle also should be short term and should be over in this financial year itself. That is what our view.
Yes, Nilesh wants to add.
Abhijit, one more point to add here. So the thing is that the MFIN guardrails, which have been introduced in month of July, so that has significantly tightened the underwriting norms in the industry. So what we are seeing is that because of this, it will be more of an accelerated recognition of the stress. So maybe if -- like what we have been seeing since last year September, there has been a steady-state increase in the delinquencies on account of various factors. So now it is more of accelerated recognition of these delinquencies, which will happen in this financial year or which started in July, June, and maybe it should end somewhere in third quarter. So to that extent, as you said rightly, it will be a short-lived delinquency cycle. And post that, the industry delinquency trend should be relatively better.
Next question is from the line of Shweta from Elara Capital.
Sir, two questions. One is, sir, you have implemented district-based pricing model. But if I look at Q2 versus Q1 yields, they have remained largely stable.
And second question, Nilesh, to you. So you mentioned that customers who were 4 and above lenders are largely the low vintage portfolio customers. And the overlap with other lenders is higher primarily because your origination amount or initial amount have been as low as INR 40,000 to INR 45,000-odd. So does it mean that these customers initially came to you and then suddenly, they move to the other lenders, that's why the number of lender count has increased because you were giving like lesser amount of loans in the initial phase?
Yes. Shweta, I'll take the second question first. So the point I was trying to make is that, as you know, every year, whatever new customers we are adding, so 30% to 35% of the customers are new to credit, which means that the balance, 65% to 70% customers, are from the existing market. And the unique proportion is higher in the core markets wherein we have a longer operating history. And in the newer markets, it's relatively lower around, say, 20% to 25% or 25% to 30%.
So that is where -- what happens is that when we grow in the newer markets and we are tapping customers from the industry, it is very much possible that the customer has been operating in the microfinance industry for 5 to 10 years. But since it is new to us, we have to start at Level 0, wherein we will be lending anywhere between INR 40,000 to INR 50,000. So that is where -- since we are not able to meet their entire requirement, they might end up availing loans from 2 or 3 lenders more. So that is the point I was trying to refer.
And as the customers build higher vintage with us, their eligibility keeps increasing cycle after cycle, post which we are able to largely fulfill their entire financial requirement. So that is where in the higher vintage customers, we see that their exposure with us or their wallet share -- I mean we have a higher wallet share. So that is the point I was trying to make.
Yes. On this district-based pricing, yes, we implemented already. So there's a bit of shuffle between the districts from the state level to district level now. But it should not change too much the numbers because what we'd actually start catching up quarter-by-quarter over a period of time, it may change a bit. But it will actually help us to identify the risk and price this properly at the district level, at a granular level. It will not change too much on the yield immediately, and it actually is not anticipated to have a yield change actually. Yield will remain stable because of this. And we have not grown also, right? We've actually de-grown during the quarter. So it will not make too much difference.
The next question is from the line of Nikhil Rungta from LIC Mutual Fund.
Sir, just two questions. I'll say it in one go. One is, we have seen unseasonal rains in October. Of course, you have mentioned that October, the collection efficiency should be similar or better than September. But because of this unseasonal rain, do we see any impact on October efficiency as well?
Second, when will disbursement growth come back? And also, you had earlier mentioned that in every cycle, there is somewhat the other learning. So what's the learning from this cycle? And how are we implementing the change?
Nikhil, thank you. So recent October -- see, we had almost INR 80 crores of defaults in September because of the rains, because we had rains in Bihar, Madhya Pradesh, Maharashtra, West Bengal, everywhere. But that default has already come down to INR 20 crores. So basically, the rains of such kind of default normally will not be long, this is only 1 week or 2 weeks, and next week, money will come. Similarly, even if in August, October, we may have some difficulty, I'm anticipating Odisha, Bihar will have some default in the next 2 days. But still, this will come back. We really will not worry much about it. So whatever collection efficiency will remain stable even with that. So we don't worry much about it.
Second one is about the growth will come back. We estimate we should get at least 4 months of good, what we call, business momentum in this financial year. Therefore, we calibrated about 8% to 12% growth potential for this financial year.
From a learning perspective, the data, what Nilesh explained, clearly shows that the default rates are coming from the new customers whom we acquired from a different enterprise. And if you see any customer, even the newer customers were behaving better. So we need to be improving the underwriting. MFIN guardrails one way is helping us also. In some states, we have made more changes than the MFIN guardrails, particularly newer states, so that we will not make the similar mistake, what we did before, okay? So it should help us.
We'll continue to retain the customers, which will help us to do well. Again, data clearly shows that. So the other thing is to retain our customers and have a better underwriting for the new customers in the new geography.
Next question is from the line of Shreya Shivani from CLSA India.
I just wanted to ask two questions. First, I'm not sure if you've already shared this, but this 15.3% that you've shared, the CREDAG plus 4 borrowers as of August '24, what would that number be, say, a year ago, 1.5 years ago? That will be useful.
And second, I wanted to understand that you spoke about you split your branches into stable, non-stable, et cetera. So 70% of your branches, that data that you shared, does that mean that those are stable and the group meetings are continuing over there and then the rest, 30%, there is some disruption in the group meetings? I just wanted to understand details of that 70% data that you were speaking about earlier.
First off, CREDAG plus 4, we said about 12% to 13%. One year before, it was about 8%, if I remember correctly, but not exactly. Maybe Nilesh will check it and let you know later.
And in case of branch, I told the centers, not the branch. 73% of centers are behaving. Maybe it's distributed in the branches, but at least 40% to 50% of branches have a lesser PAT, okay? Those branches, we are actually enabling to do business with a better way going forward because, at this point of time, we are actually controlling them also because surrounding system is not very great at this point of time. So we tightened there also. Maybe slowly, by the 6th month, they are able to control within the 2% PAT. I think we are actually starting to work and motivate them to acquire customers and disburse more with a strong underwriting process.
Correct. And these customer centers, which are under stress, obviously, a bigger chunk would be coming from the state of Bihar for you, right?
Not necessarily. Bihar portfolio itself is only 5%, Shreya. It's only 5%. It won't make a toll. It's distributed.
Correct. And sir, just last question, I wanted to understand, if I just check the CRIF Highmark data on Bihar state, the different buckets, it seems like majority of the deterioration has just happened in the past 2, 3 months, right? Because till June, the trends are still not so worse off as it looks right now, at least from your numbers, assuming your numbers are closer to industry in that state.
Yes. It's the last 3 months. Even for our number also, it increased in the last 3 months.
Next question is from the line of Bhavik Dave from Nippon Mutual Fund.
Am I audible?
Yes.
Sir, a couple of questions. One is on incremental growth, right? And when we see -- how difficult was it to add new customers when we've seen new customer addition dropout? And for us to come back to the growth levels that we think about in FY '26 maybe, in the current environment, how difficult will it be to add new customers, considering 6% of our existing customers are already in that 4-plus lenders plus 2 lakhs plus ticket size, right? So even the existing customers will attrite. So a bit on how we're thinking about growth.
See, the growth will come from 2 buckets. One is from renewals and one is from new customer acquisition. So a large number of customers will come for renewal in the second quarter actually. So even if we think about 6% customers we have to drop, so already, if you look at it, we are already acquiring more than 50,000, 60,000 new customers per month with the new guardrails, right? So a bit of scaling normally will happen in the second quarter, second half. So we will have an increase of customers also, increase in renewals also. These two things should take care of, what I call, moderate growth what we estimated.
Next question is from the line of Hardik Shah from Goldman Sachs.
I think Bhavik wanted to ask one or two questions, I think. Sorry to interrupt.
Bhavik, do you have any follow-up questions?
Yes. So another question was, sir, in terms of the customer behavior, right? And we've understood that customers have very high understanding in terms of their credit scores. This cycle wherein the incomes have not got impacted, but obviously, some overleveraging has taken place, do you see customers coming back and repaying as and when they have their money in their account rather than just like going away? Is that recovery or behavior visible in this cycle? Because COVID incomes got impacted, so that during the month, the cycle is very different. So how is the consumer behavior or customer behavior in this cycle? If you could just talk about that.
I think we need to wait and see. As of now, in the last 3 to 4 months, our experience actually, moving forward, it is much higher than the recovery here. So we have to see probably next 3 months and see how it changes. As of now, it's mostly moving forward, lesser recovery we are seeing.
Next question is from the line of Hardik Shah from Goldman Sachs.
Am I audible, sir?
Yes. Hardik, please.
Yes. Sir, I have two questions. One is, last quarter, you alluded that your ability to access customers was better in 2Q, and hence, you were receiving partial payments. How is that trending for the delinquent customers, number one?
And number two, if I see the fresh flows across states from Q1 to Q2, that has gone up across states. Karnataka has gone, for example, from 0.3% to 0.9%; Tamil Nadu from 1% to 1.7%; Maharashtra from 0.5% to 2.6%. So what is giving you the confidence that things will stabilize in 3Q and improve in Q4 given that fresh flows are continuing to come across states?
The access to delinquent customer is still good. But unfortunately, the recovery is a little less compared to earlier actually. We thought in the June quarter, we should be able to recover, but it is not exactly what we had wished earlier. So it is not in the expected lines we expected to recover more. Unfortunately, this kind of customers who have multiple lending and probably, what we say, overleveraged or so, I think actually, there are so many third-party interventions in many states. They are not repaying. So less repayment is coming. It is not as per our wish as of now.
And then the second, what you said is, yes, there is an increase in, what you call, Karnataka, Maharashtra also, but is not as high as compared to the whole industry or compared to the other states. We strongly believe that, that will still be controllable and then we will be able to manage much better. And already, we keep checking the field information, how it's moving. We are seeing the stabilization in both Karnataka, in Maharashtra and Madhya Pradesh and Chattisgarh, the large part of it. Even Tamil Nadu, for example, is showing 6.2%, today PAT 0, but it is actually, by and large, stabilized between, what I call, accrual.
Addition in August or addition in September or this October is not higher than the previous month. So therefore, we are seeing that kind of sign in many states. So therefore, we have a strong belief that we should be able to turn around in Q3, and we should be able to grow in the Q4, unless something more different thing happens.
The ban made by RBI for a couple of NBFCs or also microfinance players, will that accentuate problems in some of the states that you operate in, in terms of liquidity, and hence, the problem that was accentuated by MFIN guardrails could kind of get accentuated even further?
It should not be because our overlap with any of these players are very, very low. So therefore, we don't see any such signs. Because our maximum overlap is only with IndusInd Bank. We have even double-digit overlap actually. So we don't have any worry about that.
Okay. And sir, last question on your retail book, which you've grown a lot in this quarter, although it remains a very low proportion. Any color on the asset quality there? How is that trending?
No, that asset quality is very, very good actually. So I think overall, within 0.6% of PAT 30 kind of thing.
Understood.
Sorry, it's not 0.6%. It's 0.3%, sorry.
[Operator Instructions] Next question is from the line of Gaurav Sharma from HSBC.
Am I audible?
Yes.
So two questions. One is, sir, we have seen that you have increased your branches. But in the number of employees, we have seen that they have decreased from the last quarter. So what explains this divergence? That is number one.
And second, sir, you have mentioned in the medium term that the share of retail finance would be around double digit and given your target of INR 50,000 crores. So do you think you will be growing this segment a little more aggressively and their share may increase in medium term? Or you'll stick to your previous guidance on the share of the retail finance portfolio, sir?
On then second one, our retail finance will grow as per our earlier model of what we said that by '28, we would reach up to 15%. So that is what the way we are growing. So it will not grow too fast, but it's not too slow also. 15% reaching by '28 means we should reach INR 7,500 crores, which is almost from INR 1,000 crores to INR 7,500 crores, it's not small. But it will grow in speed, but percentage will remain about 15%.
On the employees, it's a small operation. I think about a few hundred employees have changed. There may be more in training, which does not come in the number. So there is no, what we call, worry about the employee attrition issues in there.
Okay. And sir, hiring for these additional branches have already been done or it will come in the small branches?
Normally we start with a few employees to start a branch. Normally, once you open the branch, it takes at least 2 months' time to start the branch. So therefore, in that process, we will take employees and we'll hire maybe 1 or 2 employees. We'll have hired first a branch manager and 1 employee. Then within 2 months, we'll hire employees for those branches.
Next question is from the line of Nidhesh Jain from Investec.
So one question. So the key issue in this time is overleverage at the customer level, and this will keep on repeating within 2, 3 years. So what we are doing to make customer exclusive for us? Because the best asset quality experience is provided by the customers who are exclusive to us. So from here onwards, what are the steps we are taking so that more and more customers are exclusive to us?
See, always our operating model is to acquire and retain the best. It's only in that process. It is only revaluated that, that is the best way of running this microfinance business. So I think it's more of an underwriting improvement, which we already know some shares are actually stringent than the MFIN guardrails. Some more analytical ability we have used. So I think we'll keep doing what we did and plus additional underwriting process and high touch will remain as our core business model, which will help us to grow. It's temporary, but yes, we will definitely learn some of these lessons and build a more robust process to retain our customers.
And sir, just to add that MFIN guardrails are also pretty aggressive. They are allowing up to 4 lenders. So isn't that -- it's still reasonably aggressive in my mind, and up to INR 2 lakh, they are allowing. So ideally, we should be operating at much lower numbers, at least in the number of lenders internally.
I think it should be calibrated. I think it's not the time to comment on that from my side. But we should look at a vintage customer versus nonvintage, and then we should work on a different model. As you see from some data, the vintage customer with the high leverage, still, it is good that there's no delinquency or less delinquency, right? So we need to be a little careful in designing it. At least this time, it's important to start something. It may be 3 lender or 4 lender, there was enough debate happened. Finally, we started with 4 lender. Maybe over a period, we'll move to 3 lender. It also depends looking at the implementation and the results actually. But MFIN said that after Q3, they will again review and see the impact of the guardrails, whether to make it more stringent or to add more parameters, they would look at it.
Next question is from the line of Shreepal Doshi from Equirus Securities.
My question was, how are the center meeting attendance trending in the month of October? And from the qualitative aspect side, like how is the inherent will to repay the loan, that aspect, being discussed with customers from your RMs or your senior RMs who are right now going at the ground level probably?
So center attendance, there is no variation in October or September. I think largely, we are more than 60%, 65% in the Southern market. So a little less in the Northern market. It's maybe 50%. That's always we see a difference. And willing to pay, even if you take average 50%, of the 50%, 55% rental terms, your onetime collection is 95%. That itself shows there is a willingness to pay, correct? So they ensure that they're paying to the centers actually.
So if you ask me what is my door-to-door collection, it's only about maybe 3% to 4%, other than everything is paid in center and on time. Therefore, sometimes we need to be giving that extra space for customers. Even though they are not coming to center meeting, they're willing to pay and paying on time in the same center. They may have their own difficulties to attend the center meeting. So therefore, we are fine with that actually.
Got it. Sir, just one last question. From this 27% centers, which are relatively having higher delinquency, so which state would these be coming from or would be part of?
This is the spread in all states. The higher delinquency state will have a higher percentage. Lower delinquency state will have a lower percentage, correct? But largely, these higher delinquency states like in Tamil Nadu, Bihar, Jharkhand, Rajasthan, Kerala, these are the little higher in terms of percentage of centers.
And what strategy we have deployed to improve our collections there?
So those centers are basically assigned to the better experienced employees there. They will have -- in a branch, a higher proportion of such centers will be handled by a more experienced employee to handle and motivate the customers.
Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to Mr. Renish Bhuva for closing comments.
Yes. Thank you, CreditAccess team for such detailed answers. Thank you, everyone. We can now log off.
Thank you. Thank you, everybody, and happy Diwali to everybody.
Thank you, sir. Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.