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CreditAccess Grameen Ltd
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Thank you for taking your time and joining us today to discuss our Q3 FY '20 financial performance. We recorded a robust business growth along with improved profitability in the third quarter. Gross loan portfolio increased by 45% Y-o-Y to INR 8,872 crores driven by 22.5% Y-o-Y growth in our borrower base to 27.7 lakhs. Disbursements grew by 68.9% Y-o-Y to INR 2,977 crores. Our total brand network grew by 40.8% Y-o-Y to 928 branches and total employees grew by 34% to 10,645 at the end of December '19. During 9 months FY '20, we opened 258 branches totally, 80% higher compared to 143 branches during last year 9 months. Our branch implementations during first half has enabled us for this robust growth during Q3, and this expanded brand network will further provide strong growth in fourth quarter and next financial year. We continue to hold comfortable liquidity position and INR 2,354 crores funding is in pipeline. This will take care of our growth over the coming 2 quarters. Interest income increased by 30.4% Y-o-Y to INR 416.7 crores. Portfolio yield was 19.7% compared to 20.9% in Q3 FY '19. Weighted average cost of borrowing was 10% compared to 10.7%. Marginal cost of borrowing was 9.4% compared to 10.7% in Q3 FY '19. We successfully raised INR 2,182.3 crores of fresh funds in the quarter at a weighted average cost of 9.3%, which also included the INR 398 crores raised through direct assignment. Net interest income increased by 28.1% to INR 3,300 crores. Cost-to-income ratio of 34.8% and OpEx/GLP ratio of 5.1% in Q3 FY '20 were lower compared to Q2 FY '20 on the back of robust business growth. Pre-provisioning operating profit increased by 22.3% Y-o-Y to INR 200.6 crores. Provision were at INR 54.7 crores. The profit after tax increased by 8.2% to INR 108 crores. Provisions in Q3 FY '20 are not directly comparable with Q3 FY '19, primarily on account of more conservative provisioning policy adopted in March '19 and evolution of stabilized -- evolution of ECL methodology over last 4 quarters. However, we note that there was an increase in provisioning -- provisions compared to Q2 FY '20. During the second quarter, we had seen impact of floods in certain districts of North Karnataka and South Maharashtra. The situation has been improving over time and currently, 75% to 80% of customers have regulated their accounts. We have been constantly engaging with the customers, building awareness and focusing on collection. During the third quarter, since November, there has been an external interference in 2 districts in coastal Karnataka. The heavy rains in Q2 FY '20 had caused stress in certain customers in August '19. This issue was magnified by certain external elements who started misguiding customers for loan waiver under Karnataka Debt Waiver Scheme, which impacted the portfolio of the industry. The situation is now under control and ring-fenced within the 2 districts. Both SROs, MFIN and Sa-Dhan and AKMi is supporting all the lenders with their extensive work with state administration. State administration is continuously supporting us on this issue. We continue to display patience and maintain cautious -- continuous customer connect. Many customers have come back and resumed payments. We have less than 1% each of our portfolio in these 2 districts, and our collection is around 70% in these districts. And our conservative recognition of GNPA at 60 days DPD and conservative policy enabled us to have much higher provision coverage against these delinquencies. This policy also enables us to early recognition of impact and provide adequately instead of waiting for 90 days,after delinquency. With situation already under control, we do not see any further delinquencies due to this impact. Our overall asset quality continued to remain strong. Our GNPA 60 days DPD was at 0.85% in Q3 FY '20 compared to 0.52% in Q2 FY '20 and compared to 1.19% year before, which was at 90 days DPD. ECL provisioning was 1.61% in Q3 FY '20 compared to 1.23% in Q2 FY '20. Credit cost of INR 54.7 crores in Q3 FY '20 included INR 28.4 crores on account of normal business growth and INR 26.3 crores on account of these specific issues. Overall collection efficiency was at 98.3%. The ROA is at 4.6%, ROE at 16.5%, debt/equity at 2.4% and capital adequacy at 32.4%. With this brief overview, I would now like to open the forum for question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Nishant Shah from Macquarie.
Just on this Karnataka and Maharashtra issue, could you maybe talk about what is the kind of portfolio that you have which is affected in those districts? And maybe what -- how big are these districts from an industry point of view? And secondly, whether you're seeing this gather steam? Or is it now completely dying down? Those 2 questions first, please.
Sure. See Maharashtra issue, which was basically flood impacted during August '19. So it went to a bit of peak with the delinquency of about INR 80 crores for us at that point of time and come down now, about only INR 20 crores is around there in the 60-plus DPD. Almost 80% of that we have collected actually. So from an industry point of view, I don't have full idea, but it could be about -- maybe about INR 200 crores, INR 300 crores of the total issue, but I'm not sure about the correct numbers. But for the entire industry, this has come down because, eventually, with almost 5 months now, it has come down. It's not a too much impact right now. That is why I just gave the update on what it is there right now. Whereas coastal districts, which started along with the flood situation, they also had the flood at that time, we had a small delinquency at that time. But overall industry in this place is maybe about INR 400 crores to INR 500 crores. And we have about totally INR 120 crores portfolio there, and we are collecting -- our collection efficiency is almost 70% there at this point of time, so which is less than -- it's actually less than 1% each of our portfolio in both the districts. And the actual 60-plus is actually not very high at this point of time, whereas credit cost we recognized well in advance, that is why INR 26 crores, we have already recognized credit cost for this portfolio, even though it has not gone into 90 days DPD or so.
Perfect, sir. And just one follow-up question. Are there any other regions also similarly which are flooded, which have not yet seen intervention which may potentially see intervention?
No, actually. Whatever the impact is only these 2, which is already particularly Kolhapur, Sangli and Belgaum, which was happened in August, which has come down, which is today maybe about 20% we had to recollect, it's going on. Whereas these 2 districts, which is ring-fenced completely, so no -- there were no -- the side by districts impacted. And we believe this will actually come down eventually. So -- and we have not seen any other place -- in our all the 13 states, any other place we have any other issues we are seeing.
Okay, sir. And just one last question I want to sneak in. There were some headlines about the district collector of Kolhapur district asking for microfinance companies to submit data, which was then to be tabled with the chief minister. Is that something which just usually happens? Or could you -- any qualitative comments over there? Do you think that situation can escalate a little bit?
Okay. This is actually part of the flood district actually where the delinquent customer requested the DCs that they need a waiver from the government. That is why they asked the data which are delinquent customers to give to government because government is, I mean, planning to do some support to customers, not waiving the loan, but to support materials. For that purpose, they have collected the data. It is not for waiver of loans because government already provided some facilities or providing some facility. That is why they collected the delinquent customer data.
Okay. What do you mean by support, services -- like support?
They would support building the house or buying something. I mean I don't know what exactly materials or...
Okay. So basically in kind of situation. Fair enough. I have more questions, but I'll come back in the queue.
To do that they need data. That is why they collected data.
[Operator Instructions] The next question is from the line of Antariksha Banerjee from ICICI Mutual Fund.
The first question is related to both the...
[Operator Instructions] Your voice is not audible.
Is it better?
Yes.
Yes. So the first question is related to the previous point regarding the 2 districts. So if I heard it correctly, INR 120 crores is in the coastal Karnataka and INR 20-odd crores is your delinquent account in the South Maharashtra-Karnataka. Is that right?
Yes, you are right.
And the total provision on this INR 140 crores together is INR 26 crores, what you have taken one time...
No, no, no. We said only credit cost. Increase in this quarter is the addition. Our provision is 1 point -- see actually our 60 days DPD is 0.85%, and our provision cover is 1.61% of the portfolio. That's almost 200% coverage we have.
Sure. So the point I was driving at is because you have taken such a high cover, and you're also seeing your collection efficiency pick up, do you expect these to reverse in the coming quarters? Because your PAT guidance that you have is unchanged for the last 3 quarters?
Yes. We don't see any significant increase or increase of any provision for next quarter. Maybe we will have a normative business growth, we'll continue to have because we always provide for standard assets as well. Every growth in our business, we'll have to cover additionally. That is what the way we made our policy. But we will be definitely in a position to meet our annual guidance.
Sure. And the other question is, what is the direct assignment pipeline we have for the year? And how do we go about that?
Direct pipe assessment is not, I mean, a targeted number. It's only based on relationship and some banks, specifically request for it, along with our term loan we will do, otherwise direct assignment is not our regular plan because it's a short-term funding. We always control this within our 10% to 15% of our total portfolio. But this is only relationship business. If there is a specific need for any bank which they want to do in a quarter, then we will do, otherwise, normally, we don't do much direct assignment.
Demand will pick up in the fourth quarter, right?
Yes, of course. But we may not do much actually. We may do -- maybe over 10% of our raising we may do DA, if required, that's all.
And on cost-wise, it's at par with our other borrowing costs?
It is lower because it is short-term funding.
The next question is from the line of Nidhesh Jain from Investec.
Firstly, the INR 28 crore run rate of the normal business is also on a slightly higher side versus our historical run rate. So should we assume that this will be a normal 1.3%, 1.4% credit cost run rate on a sustainable basis?
Nidhesh, the issue is our -- the conservative provision policy will actually keep on providing even the growth also, correct? So that is why our total provision will go up because of the -- even for standard asset we provide for 0.6%, even for 15 days, [ 60 days, it's 0.40% ], that is why it keeps going up. So -- but overall, credit cost should not be more than 1% actually.
Sure, sir. Sure. Secondly, I have noticed that we have grown -- we have added a lot of branches. We have added a lot of employees in the last 9 months, which is a very different trajectory of growth versus last few years. At the same time, we are -- we will be doing integration with Madura. So what is the rationale of growing at a fast pace when next year we'll be integrating with Madura also?
See. Normally, we -- normally, we grow by about 25% to 30% infrastructure, but we did a little higher this year just because we entered into 4, 5 states, new states, we thought we should have at least a significant number of at least 15 to 20 branches in each of the states. That's why we added some 30, 40 additional branches as against our original plan, which also will be a position of advance opening for the next financial year also. So because we have a sufficient bandwidth needed for integration, everything, probably we will not do the similar infrastructure for next year because these infrastructure give us growth next year automatically. Our next year growth -- I mean infrastructure growth may be a little less than the current year because we have to do all these integrations. So we are well planned on this point of view.
And sir, lastly, on the ticket size for the customer, I've noticed that it has grown almost 7% sequentially, and customer growth is not commensurate to the infrastructure growth. So should we expect substantial client growth in the next few quarters? And so that the ticket size will again moderate to INR 30,000 odd levels?
See, the customer will grow definitely in the next 2 quarters, actually, because of the growth of infrastructure what we put in, but there will be a small increase in ticket size will happen because the retained customer base is continuously going up actually. That is why if you observe in the last 5 years, our ticket -- our average GLP per customer kept on growing between 10% to 12%. So what is -- because of that because we have more than 40 -- almost close to 41% customers are more than 3 years with us, so which will keep increasing. However, also one more point is regulator also allowed the cap to INR 1.25 lakhs now, which is another reason that GLP per customer might go up on even the industry level also. However, we thought that it may not be good to increase beyond INR 1 lakh beyond a point. We would retain within INR 1 lakh. But in between, between INR 40,000, INR 50,000 level, probably, we may increase a small INR 5,000 kind of increase because to remain in competition also. So that is why there will be kind of 10% increase on an annual basis. We will remain a normative increase of ticket size for the customers.
The next question is from the line of Renish Bhuva from ICICI Securities.
Congrats on a great set of numbers specifically in a difficult environment. So sir, first in on the industry dynamics, so we are hearing a lot of articles in the newspaper and people are kind of giving sort of soft commentary on a few states, Northeast and a few in South. So sir, what is our reading at what is happening at the industry level? And how CAGL is placed to navigate all these issues?
Yes. I think the commentary, what you heard is about Northeast basically not very relevant to our current business, actually, where we are not operating. But however, we need to keep watching such issues to get the early warning signals. That is definitely important for us to keep reading and keep understanding and reevaluate with our business. Whereas Karnataka coastal, I already specified it's a specific event within 2 districts, and we are able to control that. And our district-specific risk control of not having too much portfolio per district is also saving us in this case because our portfolio per district is less than 1%. If you see, close to 90% of our districts, we are operating less than 1% of our portfolio, which itself is a big risk control mechanism what we put in. And within our own business, we always looked at a resilient business with customer-centric, high-touch, weekly collections, continuously innovating and designing products at the customers' requirement to their life cycle. These are the very strong propositions to have the high customer connect actually, which will eventually help us -- which has helped us in very earlier events, and we believe this will help us in all the -- even if there's an event. But however, at this point of time, except these 2 districts which had an issue, which is already controlled other than we don't have any issue, whatever happened because of the flood in Maharashtra, Kolhapur, Sangli, Belgaum, we're able to come back almost 70%, 80% by the last 5 months. So that itself shows that our readiness, even if 1 or 2 such events in any districts.
Yes. Sir, second question is on basically our stage-wise asset portfolio. So if you can just give us the stage 2 asset numbers as of now?
Stage 2, we have about INR 90 crores.
It's 90 crores?
Approximately, yes. It is 16 days to 60 days.
This is 16 days to 60 days?
Yes, yes, correct.
The next question is from the line of Aakash Dattani from HDFC Securities.
My first question is the progress on sort of -- merger with Madura Microfinance, there is -- is there any change in the time line or anything of that sort? Or does that basically stand as is?
So, there's no change in the time line. It's going as per schedule and as per plan. We have submitted our application to RBI and to the exchanges. And the normal process in terms of the merger approval is going on, and it's -- we expect it to be going as per our time lines.
Okay. And Madura Microfinance, I believe, also has some presence in these areas that you have mentioned in your investor presentation. So would you be able to comment if we have seen any issues, any similar issues?
No, actually. We are in touch with the business. We have not seeing any developments in any districts where they're operating. So majority of the -- all the places where they are operating, we are also there. So we have the first-hand information of the geographies.
The next question is from the line of Parag Jariwala from White Oak Capital.
Yes. If you can just update me on 2 things. One is the personal loan portfolio, which we are doing in addition to microfinance. I don't -- our endeavor is to grow it slow and steady. But any update there? That's one. And secondly, how are you handling the acquired identity if the merger process is complete? So are they doing the business on their own? Or you have people along with the outgoing management team to handle the growth and other aspects?
So I'll handle the second question, which is related to the merger, Parag. So here, the point is, till we get our approvals, till we do the first part of the merger process, which is essentially the acquisition, they will operate as per their original scheduled business plan, and we are actually not even getting into any of that at any point of time. It's not really required, nor it's allowed. So they will continue to do their business as normal, and we continue to do our way. That said, once the acquisition is done, again there is a process. There is an integration management, and there's a program where there is a process in which we will integrate the 2 entities, leading to an eventual merger. So till such time, they will be doing their business on their own. First part, Udaya will answer.
Yes, yes. On the first part is, basically, you're talking about the individual loan portfolio, if I understand correctly. So our growth is not less, but we are growing little slow because it is a new business, no, of course, we have to be quite careful in growing it. So this will -- I mean the speed of the growth will pick up only maybe after one year or so because that is why we keep growing slowly, make the right business model, so to -- not to just grow there. So that is the whole idea. That's all.
And lastly, sir, basically on the capital raising plan on the equity side, anything which we want to highlight? Or probably just one thing is that whenever we raise capital, how much tenure you think that should be sufficient before you raise the next round? Will you raise for 2 years, 3 years capital requirement at a go?
So Parag, as I said in the last con call, we are yet to finalize our capital raising plans in terms of timing, size and all that. Having said that, typically, when you raise capital, as you rightly said, it will be first like a horizon which is more palatable for both the coming investors and also the existing ones, which will take care of reasonable level of growth for at least a few years. We'll appraise you as and when we finalize our capital raising plans.
The next question is from the line of Arpit Shah from Stallion Asset.
I have 2 specific questions. One, what would be your PAR 30 or PAR 50 in this Karnataka portfolio? And why is the finance cost in absolute terms have gone higher when your marginal cost of borrowing has been 60 bps sequentially?
So can you repeat the second question, please?
Second question is why your finance costs have gone higher in absolute terms as compared to your interest income?
Okay. Our PAR 30 in Karnataka is about INR 90 crores and PAR 60 is about INR 35 crores and PAR 90 is INR 21 crores. And the cost of finance in absolute term because our cost of -- I mean, volume of borrowing has gone up because we have not done many d -- or something till December, only December we did some transaction. So with the volume growing up, the portfolio has grown up by 40%, our borrowing has also gone up the same way. So that is why the actual value of interest paid definitely increased.
No. We had about 10% in Q2 FY '20. We had about Q3 FY '19, it was about 10.7%. And for this quarter, it's 9.4%.
You are talking about cost of borrowing. You're talking marginal cost, which is borrowing for that quarter. That quarter, our borrowing cost was less because we got a funding from Mudra at about 6.5% also, INR 250 crores, which is the cost of that average during that quarter, that is why it's showing a little low for that quarter, specific quarter.
Even for the borrowing this quarter, it was up 72%. So major part would have been replaced by these lower costs, right?
No, there are many borrowing with it. Even the DA, we did about 8-point something percent. And the term loan from SBI, we did about 9.05%. On average cost, it is the total -- replacement cost will not come in this marginal cost. What is the fresh borrowing during that quarter, what is the cost, that is what comes under marginal cost.
The next question is from the line of [ Omkar Kulkarni ], an individual investor.
What would be your targeted growth once you receive the approval as and when you get it as a combined entity? And what would be your target ROE for the combined business as well as for the stand-alone business in the coming 2 years?
See, [ Omkar ji ], the way we look at this business and acquisition is that they are a very similar business and similar line and the way 2 entities have culturally done the business has been on a very similar path. So historically, the way we have built this business in terms of the growth and also the ROEs, we don't see any significant difference in terms of the potential impact or a change in the future as well. We expect these to be normative as much as possible in the coming quarters also. This proposition of acquisition or merger will not, in any manner, impact our growth rates or ROEs.
So it will remain the same as it is now?
Yes, it is value accretive fundamentally because of acquisition, mainly because the difference in pricing between what we are and what they are. And therefore, the ROE differential will accrue automatically and normatively. That aside, there won't be any additional piece in terms of the average comes through and therefore, that the benefit of that merger will come through. So that ROE change is inevitable. But over and above that, we don't see any significant difference in growth rates or ROEs.
Okay. And in terms of provisioning, what would you expect in the next financial year? Say, would it continue to rise? Or would you be able to contain it?
We do not expect an increase in provisioning. First time, it is a onetime event. We don't estimate any provisioning more than 1.25% of our yield. That is with the conservative provisioning policy what we have now.
The next question is from the line of Kislay Upadhyay from Abakkus.
Congratulations on the robust growth. My first question is on yield, the 45%, 46% increase in GLP did not translate into increase in interest income because primarily of increased -- yields going down. Can you give a commentary and outlook on how the yields would be going ahead?
Yes. Actually, we had mentioned about this in the previous quarter. The yields had essentially been sort of coming down a couple of quarters essentially because of the revision in interest rates, which we had done. But in November '19, we have revised our interest rates on our repeat loans to 20% from 19%. So therefore, the drop in yield, the rate at which it has fallen actually has come down, and you actually have started seeing reversal in terms of the increasing yield now. So we expect the yields to stabilize around these levels because of the increase in rates of interest from November '19.
Okay. And sir, what was the rationale for the decrease that we did and then the subsequent increase?
Yes. As you know, our industry is essentially driven more by the regulatory spread gap, which is around 10%. That is the cost of borrowings, plus 10% is the maximum at which we can charge. So as and when we have a reduction in cost of borrowings, we need to, as an entity, pass this benefit to our borrowers by reducing the -- on lending rates, which is what we had done last year. Whenever we see that we have a cushion to -- when there is a case for us to improve our yields and that the regulatory spread we are going down a little bit more than what is tolerable, we can increase our rates, and that's one of the reasons why the yields have gone up.
Okay. So it was almost entirely for the regulatory spread?
Yes, please. Yes.
Sir, if I see PAR 90 and if I'm right in understanding that the 2 events won't have a major role to play in the PAR 90 numbers. The PAR 90 has gone up by about 20 basis points. Is it -- so if you could help us understand, is it a general economic or increased delinquency across all districts or how we should see it?
The PAR 90 of 0.6% is, by and large, normative in microfinance actually. There was a slight increase because of the last -- whatever the flood situation what we had, some part of that moved, whatever is beyond 60 is also in the part of 90 also. Otherwise, it's a normative increase. It is -- the industry comparison is GNPA of 0.6%, right? It's equal to an industry comparison of 0.6%.
The next question is from the line of [ Tushar Sarda from Athena Investment. ]
I wanted to understand how does the risk management happen. For example, the situation in Karnataka or Assam, when you come to know that there is disturbance, you recall the loans quickly or has to stick to the schedule of repayment and then how much does it translate in terms of loss and all that? And if you get early signals, then what are the steps you take because there is some money already out in the system, you can control your disbursement, but what is out in the system, how do you manage that?
Yes. What you say is right. Now what is out in the already disbursed, you cannot control immediately. Wherever we find early signals, obviously, we will slow down the business in such districts or locations or villages, actually. But wherever it's already disbursed, when we find some situations, we cannot recall the loan. It's not the loan which is based on assets or something. So we need to convince and continuously connect with the customers, keep them awareness about the issues and work with them to come back to normalcy. The further disbursement will stop in such districts. But existing disbursement till the normalcy comes, we will not do many disbursement there. To that extent, normally in our -- all the experience, 60%, 70%, 80%, 90%, even in the demonetization time, we recovered almost 90% of our delinquencies. So eventually, we get back the money. Reason being, one is these customers are -- all their data is in Credit Bureau, they cannot borrow any money from any MFI post such delinquency with us or any others. And even other lenders don't lend to them. Banks are not lending to them. So eventually, they will come back, but still about 5%, 10% maybe a loss. That is what the loss we always eventually come back within -- overall within 1%, that is not the way we've maintained our credit costs so far because of such small events, but it eats away some money.
The next question is from the line of [ Vignesh ] from Emkay Global.
I had 2 questions. One was on data and other was on our strategy. So if I see your PPT on Slide 17, I'm able to see that borrowers per branch and borrowers per loan officer sequentially has been declining. So whether it is group or whether it is retail finance. So any color on this?
Okay. I'll answer that. This is basically a numeric because we opened 258 branches, and we added almost 4,000 customers. Obviously, the current data gets divided by these additional numbers. So that is what the reason. It gets normative once the branches become fully productive.
That is what I was also thinking, so sequentially because of this additional brand openings, this will be reducing and this should start picking up once your overall branch opening should normalize, right?
Yes, exactly. That will -- as the branch becomes productive, normally the branch is productive between 14 to 18 months' time. By that time, all becomes normalized, actually.
With your acquisition happening, this will remain under pressure for a while. Can we assume that? Because we only had...
We don't see any such, I mean, impact on our acquisition because of this. That is only 20% of our business. This is 80% actually.
Okay. Understood. And my second question, I mean, more on a theoretical basis. What we are seeing is there had been significant checks and processes as far as CIBIL check or your Equifax check, everything is concerned. My concern remains with -- technically with 2 set of customers, one which are completely new to banking. So for those guys, there won't be any data available to you, right? Then how do you assess those guys? And number two, the customers which are already there with some SHG, self-help group and those customers, if comes to you, so how do you assess that, whether that particular set of customers are over-leveraged or under-leveraged and all because for not new to bank or new to system, they could have taken money from some money lenders and all. So how do you assess that? Or what's your process to check or to tap such kind of customers? Or how do you deal with them? So if you could...
I would request you to go through the Slide #26 in our presentation, which clearly defines the way of how we actually acquire our customers and how we appraise the group, how we -- I mean this is equal for a new customer as well as old customer. But I agree with your view that the Credit Bureau, when we -- when the new customer, it could be [indiscernible] 0, right? There's no other borrowing against her. But in such case, we're actually not lending also too much. We are lending only maybe INR 25,000 to test them initially. And eventually, they -- once they build the business, once they are able to showcase the creditworthiness and repayment track record, then it keeps increasing by 10%, 20%. So there's a different methodology between the new customer and the old customer. Old customer would have already displayed the repayment capacity, repayment trend that are available from Credit Bureau. And the new customer, we have our own views. Within one year time, we know exactly how they behaved because we have a check of their cash flow. We have a utilization check. We have a repayment check. We have multiple information available by next one's year time.
Okay. And SHG, by any way, can you check whether that particular customer has taken loan from SHG or not? Or use the same way that your smaller ticket will start with it and then probably based on that lending will grow? So same methodology?
Yes, yes. Methodology is same. But in the SHG cases, in some cases, we get the Credit Bureau data but in some cases, we may not get Credit Bureau data. We assume that in SHG, there will not be any multiple and large loans because normally, these bank-led funding, one loan over a period of time, there is no guarantee that they will reduce our loan. So we check only to the group and methodology. Wherever Credit Bureau data available, of course, it gets added. And cash flow mechanism when we check with the customers, we get certain inputs to arrive at the repayment capacity of them along with that loan also. So long it is within the total overall about INR 1 lakh, we still go ahead if we have the data with them. Sometimes we may not have data, but it is insignificant, actually.
Understood. And just lastly, who will be this personal loan customer? Will this be the -- this will be the existing customers only, right?
We do not have personal loans. The individual loan is basically a business loan for the graduated customer who are already in the group, experienced, we tested them, who have stable business and stable cash flow. We gave higher than MFI loans to them on an individual basis. That's called retail finance. So this is basically our captive customers who have shown the good repayment capacity as well as good cash flow and good business.
So on an average, how many cycles this customer would have completed?
Minimum 3 cycles.
Minimum 3 cycles. So that is the benchmark. Nothing to...
We start with that.
Next question is from the line of Kaitav Shah from Equirus.
Sir, this relates to over a 3-year period, how do you see your geographic concentration reducing? Which states look better today for lending over a 3-year period?
See, our concentration, basically we started with Karnataka and then stepped into the next state. Obviously, Karnataka, Maharashtra, Tamil Nadu looks a little higher. And eventually, as we grow more and more, this automatically comes down. In 3 years down, our view is that Karnataka will come around less than 30%, Maharashtra would remain about 20%. So that will happen actually.
Okay. And any specific couple of states where you are focusing today more?
See, one was -- our view was to do exposure -- I mean take a higher exposure or do higher business in Tamil Nadu, which we achieved through this acquisition route, that's one we achieved actually. Other states, we are continuously exploring more districts. The new states we entered, particularly Gujarat, Rajasthan, or UP, Bihar, we keep on evaluating districts which are contiguous to us and keep on exploring it. So there's no specific state that is targeted state or targeted district for us. We'll target all the continuous district and explore it. That's what the way we have been growing, and that is a good methodology, which is very strong in our point of view, and we'll continue to explore such way.
Okay. Sure. Sir, my second question is, are there any districts or states where you have slowed down or exited in the last 6 months apart from what we have already discussed? Are there any visible signs of stress in any other states that you'll see or districts?
No. Actually, we have not -- see, what happens is sometimes when we start district, if we know that district may not be good, we may end up with only one branch. We have about 20-odd such districts where we end up with only one branch. We've not expanded beyond. So that's what the beauty of this contiguous expansion. Or some districts we not even enter because we find the signs of problem, we will not even enter that district. There are several districts within our own operating area we have not entered also. So that -- the process helps us to do that. But there is no -- within so far that we actually stopped the business in a district and come back -- or closed our business, that we have not done so far. We have not found such situation so far.
Okay. Fair enough. One last question. What would -- of the percentage of your customers, what would be first-time credit takers, new to credit?
New to credit is, last financial, we had about 46%. This financial it may be about 40%. However, maybe the other point of view is that 42% of our customers are only with us, I mean they operate only with us.
The next question is from the line of [ Rajesh Ranganathan ] from Dolat Capital.
You already answered the question with respect to the lower productivity in terms of per branch numbers, mainly because if you open lot of branches, typically, your branch opening stops in the first half. This year, it hasn't. Actually, you've continued to be quite aggressive in the third quarter as well. Can you help us understand what was the reason for that?
Yes, [ Ranganath ], what happened is since we entered into 5 states, we thought that we will have a little significant number of branches in each state so that we can evaluate properly, so there are at least 15 to 20 branches in each state. So that is why, though we have completed -- from a target point of view, we have finished, but we thought we'll add some another 10 branches each in these states. That is why we thought to have significant numbers in these states. So about 40 branches we have added later basically as an advance from the next year point of view.
Okay. Because that is different from your normal SOP, so to speak?
Exactly. Basically advance. For next year, we opened this year itself.
And the concentration in the top 10 districts, that is something which had been reducing previously. But if you look at this presentation, you can see that, that process has stopped. In a sense, the concentration in the top 10 district has not dropped anymore. And is there a plan or a target for you to do that? Because that number, I would say, is relatively something which has scope to reduce?
I think it is not that value of the district will come down because we continue to grow -- we continue to service the customer there. Percentage wise it's already come down.
Yes. But it hasn't, in the sense, I think the top 10 district this quarter versus, say, previous 2 quarters, it isn't falling anymore. Do you have a target on what that number should be?
If you look at the Slide #19, where we have the data, the top 10 districts, top 1, top 3, top 10, what is for the percentage and what is the contribution of growth there, which clearly shows percentages are coming down, contribution from -- the growth from those districts is also coming down, even this quarter.
Okay. I'll relook at it. Maybe I missed. But any points [indiscernible] what is your target, though, in say -- and what time frame?
I'll give. Today, we have only 4 districts having portfolio more than our 3% actually. While we had 5% as a minimum in a district, we are eventually moving into minimum -- less than 3% per district. So within the next 1 to 2 years, we'll be less than 3% per district of concentration, which was 5% earlier. Our target is to keep moving it down actually. Maybe in 3, 4 years, coming down to 2% per district.
And this problem that you've had in Karnataka, a couple of districts, did I hear you correct in saying that the problem has been sorted out already or not yet?
It's controlled and ring-fenced. We are not seeing any more disturbances at this point of time.
The next question is from the line of Rohan Advant from Multi-Act.
My first question is a data point question. Our collection efficiency that we've reported is 98.3%. I just wanted to understand how is this calculated? Because one of your peers report something called on-time repayment rate and another reports cumulative repayment rate. So I just want to understand what are the differences in these terminologies or it's just the same thing called differently.
These 2 are 2 different terminologies. On-time repayment is due and -- on that day due and collection, whereas cumulative is probably last week's due were collecting today that becomes cumulative, it can go beyond 100% also. Correct? So what we publish is on-time collection rates. Today, it is due and today it's collected. That is on-time collection. Something's due of yesterday, if I collect it, I will not add to these collections.
Okay, okay. So if something is due of yesterday, and they have only paid last weekly installment but not paid this weekly installment, so if they are behind by a week, will there be any -- yes, what will...
I'll give you an example. Today, 10 customers are supposed to pay INR 10,000, you collected, then it's on-time. Okay. For example, today, somebody is not -- one is not paid, you become 99.9%. Whereas last week, somebody defaulted paid today, and it can become -- then become 100% cumulative, but on-time, maybe 99.9% only. Okay?
Okay. Okay. Sir, my second question is, sir, during times of stress like you are seeing, say, you have seen in Karnataka, do you see any meaningful difference in collection efficiency based on the collection frequency, as in say, a, weekly, biweekly or monthly group is behaving better than the other; and b, in terms of the cycle that the customer is in?
All the events so far, whether it is demonetization or any other stress situation, we found that higher customer connectivity will yield better. So that is where the advantage what we have, collection -- weekly meetings. So that is why our collection behavior is much better than the collection of fortnightly or monthly behaviors. So which is proven all the time actually. So I think that chance -- this business is basically a high-touch business. So high-touch institutions will have advantage always.
Sir, but around 40% of our collection is still biweekly. So any thoughts on shifting it to weekly?
No. I think what I said is weekly meetings. So they would have chosen to pay fortnightly, but they still connect weekly. So we weekly position our repayment to the customers, then we give them the choice to pay, but the meeting will happen every week.
And on the cycle of the customer, is there any difference in behavior?
No, actually, no. That's a little tricky to say because the higher the cycle, there's chances of higher repay -- higher borrowings also, including 1 or 2, 3 institutions also. I think higher the outstanding, the delinquency, even number of borrowers less, but the volume can be higher. So it's quite difficult to say which is size, but there is no much difference in terms of total volume point of view.
The next question is from the line of Harsh Agrawal from Infina Finance.
I just wanted to understand in these 2 districts of Karnataka, where we have an outstanding of around INR 120 crores, are we still disbursing in these areas?
See, 70% of customers are paying. In any village and any locality, where there's no disturbance, customers are normal, they pay back. So we do their due disbursement. Where in a village where even one center is default or a surrounding center is default or some problem, in that location we avoid. So we will -- we'll choose and disburse to them. So our growth is very less there. Actually, if you see Q-o-Q, I think our growth is just 1% there. But it is not that we just stop disbursement to everybody in the district because one village may be working, one village may not be working. So where it is working properly, we discuss money.
Sure. And sir, just a follow-up on this, like when we say 70% of the customers are paying, we are talking about the OTR of 70% or it's a cumulative rate of 70% you're talking about?
It is OTR, on-time repayment.
Okay. So the 70% is as on December 31, 70% for the month of December?
Exactly. Yes. It's on time means is on a daily basis. They're due and paying.
Yes, but this 70% will be for the whole of the December, right?
As of December, yes, you can say that.
So but still they might be...
No, no, no, there is some -- see, October, November -- October is much better. November is slightly reduced, but December end, by that time, it is 70% on-time.
Great. But that 70% is only of the dues which were -- the amount which were due in December, right?
Exactly. Okay.
It is 70% of that. But there were some amounts which were due in November and...
No, no, no, those are -- it's not that boss. Basically, if 70% of customers they're due, they're paying regularly. Okay? So there may be 30% of customers are not paying on a regular basis. On-time, they are not paying, sometimes they pay late, sometimes they do not pay. That's why the delinquency is there.
So sir, just for a broad understanding, like we have this INR 120 crores outstanding. So would it be fair to understand that, say, around 30% of this, which is around INR 35 crores, is what has not been collected on time or like which is...
Yes, you are right.
Some payments are delayed, and we have...
Delayed or not paid. Some people are not paying. Some people are paid partly or intermittently. All these together it is.
Yes. So together, that would be around, say, INR 35 crores, INR 40 crores, and that is where we have made INR 26 crores of provisions?
Correct.
The next question is from the line of Akshay Ashok from Dalal & Broacha.
Congratulations on a very good set of numbers. In your Q2 numbers, your retail loans have gone up by almost Y-o-Y 128%. And will your GLP -- will the proportion of your IGL and retail loans continue to remain the same going forward? That is your target? Or would there be wherein Q3, Q4, your retail loans percentage will increase and your IGL will decrease? Do you know what is that IGL percentage?
We -- I think currently, we are maintaining 95.5% only, 95.5%. I think at least for next 2, 3 quarters, it will remain there only.
It will remain there. Okay. And last one more question. This Madura time line, by when you expect the approvals to come through, mostly?
Yes, we have targeted at least the first part, which is the acquisition part, hopefully, to be completed by the end of this financial year, expecting the approvals from RBI and SEBI to come through for the first part, essentially before this time. That's our expected time line.
The next question is from the line of Saurabh Dhole from Trivantage Capital.
So I have 2 questions. One is on the average ticket size or maybe the average outstanding amount per borrower. As you already mentioned that this has been inching up in the last few quarters, partly because more number of customers are moving to the non-first cycle and also because the regulator has raised the cap on ticket sizes. But just to understand from you, what is the growth in this average outstanding per customer that we can foresee in the next 1 year? So right now, it's at about INR 31,000 and it was at about INR 26,000 last year. So what is the growth that you're seeing in the next 1 year on the average outstanding per customer? So that is question number one. Question #2 is on this Madura acquisition. As I understand, the book there is largely the TN base book, and we are already quite heavy on the TN side. So what is it that this acquisition brings to you in terms of synergies or in terms of complementarity? If you could elaborate on that?
Yes. I'll take the second question first before Uday gets onto the average ticket size piece. See, the Madura piece, incidentally, if you had gone through the details of our previous call post the announcement, we had mentioned that there are about 11 lakh borrowers and the overlap with the borrowers per se is hardly around 50,000, 60,000. So essentially, we were having around 5% of overlap and although geographically, there could have been an overlap in terms of branches. The fact that there is not much commonality between borrowers essentially meant that we are technically getting 10 lakh borrower straightaway into our fold. So the merger per se is actually helping us to straight away increase our customer base without much effort. So that's one of the key reasons. So the synergies of the merger, if we come to it, culturally, Madura has been an -- is a very old organization and built with the right principles in terms of customer centricity, which aligns very well with CreditAccess Grameen's methodology and approach to building business. So no better combination in terms of the right type of entities to get merged. And the fact that it combines well with us in terms of our -- diversifying our current portfolio in different states, thanks to their presence in Tamil Nadu, which is currently or as of September, 70% of their portfolio is in Tamil Nadu. It's not that they are exclusively in Tamil Nadu. They are also in other states. So it brings a good variety for us, ability to diversify a ready set of customers and mainly, they're fully leveraged, and that brings in a -- and they're a high ROA, ROE company. So it gels very well with our current set of numbers also, and it's value-accretive from day 1. So that's the reason why we are going ahead with this particular acquisition and merger. Maybe you can take the first one.
Yes. On the ticket size, if you observe, in the last 5 years, we have -- actually, our ticket size has gone up -- I mean [ outstanding ] per customer has gone up almost 10.5% CAGR. So it is natural that the more you have the customer retention, which is supposed to be the most important thing in microfinance, to that effect keep growing. So with this change of the policy, there is a slight change, while RBI told up to INR 1,25,000, we said we will not take the INR 1,25,000 the top level, we'll restrict at INR 1 lakh. Whereas in the mid -- in the start and the middle, we'll probably tweak a bit. So with that change, maybe it will go up by about 15% from -- on a year-on basis for next 2 to 3 years' time. So it won't change too much, but it's all linked back to retained customers who have more experience and better handling the cash.
The next question is from the line of Sandeep Agarwal from Naredi Investment.
Sir, my question is regarding in our liability mix, securitization portfolio reduced to 0.1%. Sir, any specific reason?
No. There is no reason as such. During the course of the year, we do DA, direct assignment, and securitization transaction. And it is just that we did very few transactions in the last 18 months, and that has actually run down. In this particular financial year, we did more of a DA. And that's it. It's a normative reduction and nothing specific.
You always need to see both together, actually. So not independent because both have the similar characteristics of short-term funding.
We move to the next question from the line of [ Deepak Hooda from Sapphire Capital. ]
Sir, my first question is regarding your Madura Microfinance. So you mentioned that there's no significant difference of growth rate. So that... [Technical Difficulty]
[Operator Instructions]
Hello? Am I audible?
Yes, yes. Please.
Yes, you are audible.
Yes. Sir, my first question is regarding your Madura Microfinance. Now you mentioned that there's no significant difference in terms of growth rate. So that particular business is also growing at in the range of 40%, 45% that we are growing?
Yes, they have actually grown in that range last year and the previous year also around that same range.
In the same way. And in terms of our base business, do we expect the current run rate in terms of our AUM growth to basically continue as we go into next year FY '21?
As I told earlier also, the growth will streamline EBIT -- I mean reduce EBIT. So today, if you see -- when you see it is 45%, it's 45% at the base of December '18. If you see the annualized growth of the current year, it's 31% only. So we would not be growing 45% on an annual basis, but it's a correct -- I mean arithmetical. So our view is the growth will actually taper down from 40% to 35% to 30%, like that. Over the next 4, 5 years, we may have a CAGR of 25% to 30% growth for the next 5 years point of view.
25% to 30% growth, right? So -- and in terms of PAT, I think PAT has always lagged, and especially in this year, maybe it might be because of your impairment of financial instruments. So is that the PAT should also be following our AUM growth? Or will there be any other factor that might impact your PAT tracking your AUM growth?
That should be in similar range actually, unless exceptional circumstances.
As there are no further questions, I now hand the conference over to Mr. Udaya Kumar Hebbar for closing comments.
Thank you very much for your questions, and hope you're all -- we answered the questions to your satisfaction. We look forward for the next quarter in the month of April or May. Thank you. Have a nice day.
Thank you. Ladies and [Audio Gap]