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CreditAccess Grameen Ltd
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Thank you, Ayesha. Welcome to the Quarter 3 FY '21 Earnings Call -- Earnings Conference Call of CreditAccess Grameen Limited. To discuss the financial performance of CreditAccess Grameen and to address your query, we have with us today Mr. Udaya Kumar Hebbar, MD and CEO of CreditAccess Grameen; Mr. Balakrishna Kamath, CFO; and Mr. Nilesh Dalvi, Vice President, Investor Relations.I would like to hand over the call to Mr. Udaya Kumar for his opening comments. Over to you, sir.
Thank you, Nidhesh. Good evening to everyone. I thank you for taking your time and joining us today to discuss our third quarter FY '21 financial performance. Maybe it's an opportunity due to pandemic that we can have a call at this time of the day.We have always believed that the resilience of any business model, its systems, controls and processors get validated during difficult times. We have time and again demonstrated the strength of our business model successfully encountering external shocks in the form of demonetization, systemic credit crunches, natural disasters, local interferences or COVID in recent times. This has been primarily possible because of our management strength, ability to manage the crisis, display faster recovery, our prudence in early risk recognition and conservative provisioning, our balance sheet discipline and ever positive outlook towards future business growth.We began the third quarter on a strong footing with collection efficiency of 88% in September '20. This further improved to 91% in December '20 wherein it was 93%, excluding Maharashtra state, our overall collection, including arrears, is 96% in December '20, and the trend continues in January '20 as well.Collection efficiency in Maharashtra improved from 80% in September '20 to 86% in December '20. The share of portfolio on account of full paying customers increased from 81% in September '20 to 88% in December '20. Partial paying customers decreased from 11% in September '20 to 7% in December '20, and nonpaying customers decreased from 8% in September '20 to 5% in December '20.In line with the improved collections trend, there was also a significant reduction in PAR 0 from 18.8% in October '20 to 11.8% in December '20, very much in line with the recovery trend witnessed during demonetization period. PAR 60 and PAR 90, excluding Maharashtra, were 4.9% and 3.4%, respectively, in December '20, in line with our anticipation of near normalcy by Q3. We expect the PAR to further reduce over coming quarters. As anticipated in earlier conversations, Maharashtra business is in the process of back to near normalcy in Q4.On the back of stabilized field operations and improving collection trend, strong liquidity and capital position, we decided to increase our focus on normalized business growth in quarter 3. Our disbursements reached to pre-COVID level, growing by 35% Y-o-Y and 184% Q-o-Q to INR 4,032 crores in Q3. We added 1,65,194 new borrowers in Q3 FY '21 compared to 84,000 -- sorry, 18,447 in Q2 FY '21. The share of new disbursement from June '20 to December '20 is now close to 49% of total GLP, and they are displaying pre-COVID normalized PAR level. Strong disbursement growth has helped us to grow our GLP by 15% Y-o-Y and 11% Q-o-Q to INR 10,203 crores, higher than March '20 GLP of INR 9,896 crores. We are now comfortably placed to surpass our GLP growth target of FY '21.Given that COVID impact is now behind us and business growth has normalized, we decided to take a stringent view and bold measures on early risk recognition and conservative provisioning. We have built ECL of 5.94% against pro forma GNPA of 6.84%, predominantly at 60-plus DPD. We also -- we would have -- if we would have followed the industry norm of recognizing GNPA at 90-plus DPD, our ECL would have been lower by INR 90 crore at 5.05% against GNPA of 5.09%. We have also written off INR 111.9 crore, including accelerated write-off of INR 84.7 crore and derecognized interest income to the tune of INR 61.2 crore on stage 3, which is 60 DPD portfolio. We now believe that significant provisioning requirement has been completed. And going forward, we will only have business-as-usual provisioning.Talking briefly about MMFL performance. We see it improving but at a slower pace and comparable to the industry. The collection efficiency has improved from 83% in September '20 to 86% in December '20, while PAR 0 is around 14.8%, PAR 60 is 5.5% and PAR 90 is 2.9%, indicating higher proportion of partial paying customers.We have been able to display strong disbursement growth of 9% Y-o-Y and 144% Q-o-Q to INR 558 crore. We added 70,128 new borrowers in Q3 FY '21 compared to 9,794 in Q2 FY '21. GLP has grown by 7% Q-o-Q to INR 2,118 crore, higher than March '20 GLP to -- of INR 2,100 crores. Similar to CAGL, we have built provisioning buffer 4.6% against pro forma GNPA of 2.79%, written off -- and written off INR 19.9 crore and derecognized interest income of INR 5.3 crore on stage 3 portfolio.Our capital adequacy continues to remain comfortable at 31.4% at CAGL and 23.3% in MMFL despite accelerated provisioning and write-offs, which led to loss in Q3 FY '21. However, this early recognition of risk will safeguard our profitability over coming quarters with growth already back into normal.Our consolidated liquidity position continued to remain strong. And with continued support from our lenders, we have INR 1,506.9 crore of cash and cash equivalent, INR 1,599 crore undrawn factions and INR 4,113 crore of sanctions in pipeline as on December 31, 2020. This places us in a comfortable position to achieve our growth targets of FY '21.Overall, we now believe that COVID stress is behind us, and now we can look forward to robust business growth over FY '22 and '23. With strong balance sheet position, we have the opportunity to increase our market share as well as we scale up our presence in existing and newer geographies. We had to take accelerated provisioning depending upon the current PAR situation. However, since we expect the PAR reduced over coming 2 quarters, we believe that the eventual credit loss or write-off will be lower than the current provisioning level.With this overview, I would now like to open the forum for question and answer. Thank you.
[Operator Instructions] The first question is from the line of Renish Hareshbhai Bhuva from ICICI Securities.
Just a couple of questions. So one is on this accelerated provision. Sir, just wanted to understand that despite we don't have any exposure to the problematic states like Assam and West Bengal, what has made us to sort of upfronting the provision despite we are being confident about our customer base, being more resilient than the other geography? So just wanted to understand that part, sir, first.
Renish, it is accounting journey because Maharashtra still have a lot of pending collections, which -- for which -- basically, our additional provisioning goes for Maharashtra requirement at this point of time. So as we anticipated earlier, Maharashtra will take 2 more months -- or 2 more or 3 more months to come back to normalcy. However, we have to actually go through the accounting journey of provisioning against the PAR 60 and PAR 90 of that state. So I think majority of the provisioning is basically for this part of the portfolio.
So -- okay. So it is fair to assume that the provision is more in -- sort of for technical in nature, and we might see a provision reversal as we enter FY '22 and when things normalize for Maharashtra?
Yes. There will be a combination of 2 things. One is a combination of growth as well as combination of write back. Both will be possible between Q1 and Q2 of FY '21, '22.
Got it, sir. Got it, sir. And sir, just a second part of it is that -- so I'm referring to your Slide #8. So our PAR 0, as we speak today, stands at almost 12%, including Maharashtra, against which we have sort of provisioning at 6%. So what about the balance 6%? I mean do we expect the -- our current recovery trend sort of to take this number to the desired level of collections? Or do we foresee some sort of extra provisioning in Q4 as well?
I would like to ask you to see Slide 9 in the presentation where we explained clearly what is the partial payment, what is the no payment and what is the full payment. 88.2% of the portfolio is full payment, 6.9% is the partial payment, where we expect the majority of the portfolio will come back, we have only 4.9% of the portfolio, which is 0 payment, so where also we expect about 10% to 15% to come back.
Got it. Got it. Okay. So basically, in a nutshell, our Q3 provisioning, sir, [indiscernible] has peaked out. And going ahead, we might see a reversal and not be a further provision in Q4?
Exactly. We are talking about the -- all the required risks are mitigated at this point of time.
Got it, sir. And if I can just squeeze in my last question on the growth front. So sir, we have been hearing a lot of MFI player has been going slow on the growth part, and we sort of are trying to coming back to normalcy from Q4 onwards. So if you can just throw some light on which geography is sort of target for us and how we are mitigating the risk in the new disbursement.
See, our majority disbursement is coming from the new branches, actually. So -- but almost 64% growth comes from that branches. But yes, it's evenly distributed between even the old geography also, Karnataka, Tamil Nadu, also some part of Maharashtra, which is quite good in terms of coastal or northern part of Maharashtra is quite doing well, as well as the other states like, I mean, Bihar, Jharkand, UP, Rajasthan, Gujarat also doing well. All of them are close to 98%, 99% of recovery states. So there, we are doing -- and our customer acquisition brands are normal. And our new -- the portfolio behavior of new portfolio also is quite sound at pre-COVID, which you can see in maybe Slide 10 of our presentation. So we believe our -- by and large, we are back to normal in terms of growth, and we are seeing FY '21, '22 is -- has a quite -- in a quite positive note.
[Operator Instructions] The next question is from the line of Amaresh Mishra from HSBC.
Hello. Can you hear me?
Yes, yes. Amaresh, please go on.
Sir, just one -- 2 questions, basically. In your comments, you talked about business-as-usual provision in Q4. So what should we understand by that? I mean business as usual was like something like in FY '19 was business as usual for you. Like INR 74 crores, INR 75 crores of [ credit cost ] was there on -- at that time, whatever was the portfolio there. Should we look at that kind of provisioning, I mean, from -- I mean, obviously, on an annualized basis for you? Is that what you mean as business usual provisioning? What should be mean by that?
Yes. I think probably I'll answer it in 2 counts, Amaresh. One is what I said is your business as usual, you used to have about 0.75% -- 0.75% to 1% of provisioning, which will obviously come as a part of it because we are talking about today COVID-related provisioning. But there is a -- business as usual continues. So to that extent, there could be provisioning. Plus, the growth also will give you provisioning because of that [indiscernible] standard asset you need to keep providing. If I grow more, I have to provide more to that extent. So to that extent, that could be set off or write-back or additional. So that is what the part of business as usual.
So it will be in that 0.7% and 1% kind of range is what you're saying business as usual. And then write-off is something, which is one-off. But otherwise, business as usual would be your normalized credit cost, which used to be put in a non-COVID scenario. Is that what we need to understand from these resources? Sir, I just had one more question...
But one disclaimer, probably, I would anticipate a question actually. Whether pre-COVID business as usual is equal to post-COVID business as usual, our reading is that probably, the -- on an ongoing basis based on behavioral changes due to COVID as well as the moratorium impact and then the regulatory forbearance, all those thing would change the behavior to some extent. That is why your earlier credit cost used to be about 60, 70 basis might go up by about 30, 40 bps for a business as usual at least for near- to medium-term level.
Yes. Understood. Just one more question on -- basically on Maharashtra. Now given the situation, which you just highlighted in other question in Maharashtra, how are we approaching [ growing ] in Maharashtra? If you can just clarify that, like disbursement growth is happening. But how are we approaching in these [indiscernible] it is challenged? And number is also where Maharashtra is today. Can you just throw some light in terms of that, on what is happening? Because [indiscernible] is opening up, are happening, election or anything. So why Maharashtra is lagging? If you can give some color on [indiscernible] on that.
Yes. I refer back to our earlier discussions because Maharashtra was under COVID lockdown for close to 4.5 months, which actually led to customer not able to come back to normalcy immediately compared to other states. That's why we refer Maharashtra will take 2 months more compared to other states. That is why we always said that. But for Maharashtra, business will be near normal by December. Maharashtra would take 2 more months. So if there's something wrong in Maharashtra, it is only the pace of change is a little slow because of the 4.5 months of delay -- or 4.5 months of lockdown as compared to 1.5 months or 2 months in other states. So this impacted the Maharashtra business to some extent further, even rural, urban, semi-urban, everywhere. So it is back into normalcy.In fact, the speed of recovery in Maharashtra is quite fast as of December. We believe in 2 months' time, Maharashtra also will be back to a normalcy. So by Q4, we should be near normal in Maharashtra also. So we are not seeing any challenge in Maharashtra.Whereas growth in Maharashtra is also normal, quite low. It's not very high growth in Maharashtra. But some part of Maharashtra is doing pretty well. For example, coastal Maharashtra is already about 98% of recovery. In fact, Vidharba is -- which was one of the places impacted during demonetization, which is showing almost 94%, 95% recovery rate. So there are pretty good districts in Maharashtra. Whereas the Southern Maharashtra, which impacted by floods last financial year, impacted badly. And by the time they recovered in March, that impacted with COVID for 4.5 months of lockdown. And again, in October, there was a flood, which impacted the crop losses, which impacted certainly the 2, 3 districts, which has some impact, which would take a little over a longer time. Otherwise, Maharashtra also coming back to normalcy in -- within 2 months' time. We are seeing that trend.
Sure. [indiscernible] So 60 to 90 basis point credit cost is the range at normal as business-as-usual provision.
The next question is from the line of Akshay Ashok from Dalal & Broacha Stock Broking.
Yes. Sir, what is the current competition you're seeing from banks and other places in terms of microfinance? Has the competition increased? And this geographical diversification that we had talked about, how is that going about between Karnataka? Still, is the exposure highest to Karnataka? And by how much? And if you could just give me the geographical diversification. And why is Madura is being so -- the recovery in Madura is slowing down, and when do you see that normalizing?
Yes, yes. There are 3 questions, if I understand correctly. One is about competition. We are not seeing any variant, whether it's pre-COVID or post-COVID, as it's a normalized competition, which we have seen. There is no any different variant at this point of time. However, being rural, our overlap with any of the MFIs or large banks is very, very low. So we don't see that is impacting our business also.The second part is about the growth in, what you call, diversified -- diversification. We continue to expand in the states beyond Maharashtra, Karnataka and Tamil Nadu. Karnataka portfolio keeps coming down. We had anticipated 40% by March end, but already, we have 38% portfolio in Karnataka, which is already lower, and that is keep coming down, whereas Maharashtra is about 25%. Whereas the new growth, what we are seeing is majority coming from the northern states, particularly, Rajasthan, Gujarat, Bihar, Chhattisgarh as well as Jharkhand and Odisha. So over a period of time -- and today, currently, more than 1/3 of our branches are in the new geography, which will eventually grow. It is keep coming down. We are focusing more on diversification, which is happening. But in the meantime, we continue to ensure that our district penetration is quite low. Today, 97% of our district having less than 1% of portfolio. So our risk to the extent of districts is quite low. We look at district as a concentration other than state as a concentration, which works much better. And we have seen the -- all the evidences so far we have seen is the district-centric risk points what we saw.On the Madura front, Madura is always a different collection model, which is monthly modern. And there is always a bit lag in collection. If you see Madura collection, our on-time collection is low, but collection in terms of part collection is quite high there. They were all -- actually, GNPA -- or 90-plus is quite low in Madura. The partly payment customer is quite high. So there's a delay in collection, but the -- what we call, the collection -- the loan going into 90 DPD is quite low. That is why we are not having too much worry about Madura. We were monitoring very closely how to improve the on-time connection there. We already moved into, I mean, much more than what it was, and we are closely monitoring that. So we are quite aligned with that, enhancing the on-time collection process there other than going into a partial collection, so which we are working, and we are reaching that. Maybe in the next 2 quarters, we'll see more improvement there. Having said that, the collection is, by and large, equal to the industry in a monthly collection process. [indiscernible] do that. It's actually comparable to that. Okay.
Okay. And then Madura has exposure in West Bengal and Tamil Nadu, right? So next election -- state elections are coming up in 2021. Do you see some waivers or any precautionary [indiscernible] what is the ground scenario in West Bengal and Tamil Nadu?
Yes. Tamil Nadu -- yes. West Bengal is too low. I think less than INR 10 crores actually. We just to open some branches last year. I think that [ INR 6 crores, INR 7 crores ] exposure is there.And then Tamil Nadu, we are larger actually. Together -- Grameen and Madura together, we have about almost [ 22% ] of the consolidated book there.But no, elections will not impact the microfinance business. We have seen it earlier also. Even loan waiver announcements will not impact. Actually, for example, we have seen loan waiver announcements by parties in Chhattisgarh, UP, Madhya Pradesh and Karnataka in the last 4 years, and we have not seen any impact given the announcement of farm loan waivers have not impacted microfinance because these are 2 different category of businesses, and the farm loan waiver and the microfinance are too different. So it is not impacting. Only when the election time, your growth is a little muted because we have to follow a lot of code of conduct. Cash business is impacted. I mean making the group together, working together makes some challenges for us. So for the industry, there will be a little muted growth during the election. But for that, we don't see any challenge in terms of election because elections keep happening in one or other states continuously. So we don't see any challenge because of the elections coming in and that business impact, at least we have not seen so far in our businesses.
Okay. So the stress point is currently only Maharashtra? So that is the only...
Yes. That is that. We've known stress. We are sure -- even September, we even estimated that Maharashtra will take 2 more months. And currently, the result is quietly aligned with what we are thinking, and we are very sure about Maharashtra coming back to normalcy. December, actually, the flowback of Maharashtra is more than the other states, actually. So that -- it clearly shows that Maharashtra is coming back to normalcy.
The next question is from the line of Shreepal Doshi from Equirus Securities.
Sir, my question was with respect to the disbursement number that we have during this quarter. So that is close to INR 4,590 crore. Our AUM book is INR 12,321 crore. And last quarter, there was a disbursement that the AUM number was close to INR 11,000 crore. So basically, last quarter, we had highlighted that there will be receivables for this quarter of close to INR 2,300 crore. So what explains the difference between the receivable and the repayment? So I see that there is a difference of INR 1,000 crore and INR 1,100 crore between these 2. So what would that difference be?
Yes. Shreepal, what happened is Q1 and Q2, customers are not able to draw money, or customers who are near to closure of the loan, they are not able to close it because it took the extra time because of the moratorium and as well as the pandemic situation. So Q3, we allowed the customer if they're already paying well, if they want to take the next level of, what you call, the loan while they're eligible. Because of the delay, they did not wait for the 6 months of moratorium ending or rescheduled value. They can go for that next loan, pay to us the old loan, if they are already in good standing. And two -- the second is the -- all the loans -- what we had given earlier was running at a 21% rate, whereas our rates have come down to 19.35%. If the customers want to encash that benefit of lower rate, they can do so if the loan are already reaching into within 6 months' time of closure. So this benefits customers who are in good standing. So that is why there will be a pre-closure values are there for the customers. For example, they have outstanding of 10,000, they're eligible for 50,000 or 40,000. Based on the new norm, if they are good standing, they can take the benefit, which allowed them to do that. So that's actual difference, to some extent, the difference between collections and disbursement value.
Okay. Okay. Okay. And sir, the second question was, what would be the collection efficiency trend in the largest 10 district exposure that we have, I think, which will broadly be in the state of Karnataka and a couple of them in Maharashtra, I suppose?
Karnataka collection efficiency is already, about 94% or 95-odd percent in terms of -- yes, 94%. So including the -- all the larger districts are in Karnataka only. So all of them are behaving very well.The next -- one of the district is probably Kolhapur. One of that is a little lower because of -- the belt, which was impacted thrice in the last 12 months or 14 months, the floods, COVID -- again, floods like that. So that is why probably Kolhapur is one which is lower at about 80% kind of thing. Otherwise, that also not the large district among the top 5, but still one among the top 10 districts. That is Kolhapur. Otherwise, all the large districts of -- 7 districts, which are in Karnataka, and all are doing well, no problem at all.
Okay. Sir, just last one question. Sir, how do we see the loan book split changing over the next 3 years when -- from the geography state-wise split? If you can give any color.
See, our view is even though we will slow down, I mean, we'll grow faster in the other states. The current states like Karnataka, Tamil Nadu, Maharashtra also will grow at a slower pace, which may be about 10% to 15% or lesser than 10% kind of thing. We believe that Karnataka today is about 38%, will be around 25% to 26% by next 3 years' time. And similarly, Maharashtra might come down to 20%, whereas Tamil Nadu will remain at 20%, 22%, and balance will be the other states. That could be, I mean, what you call just an estimation, but we need to see going forward. But our view is that the top 3 states will come back to about 50%, 60%.
The next question is from the line of Gokul Maheshwari from Awriga Capital.
Just 2 questions. One is on the partly paying customers, have you reversed the interest in the interest income line? That is one. And on the second one, you mentioned in the -- at the end of your opening commentary that the provisions are ahead of the curve, and you see eventual credit losses being lower. So in your estimation, what would be the eventual credit losses, which you have seen once things settled on?
See, what we estimated credit losses equivalent to demand loss what we had. When I say credit loss, it's an eventual write-off. It was 3.9% for demand. Probably, we are looking at a similar 4% kind of thing, write-offs eventual out of the COVID book. That is what our eventual estimation. And we -- currently, also we are in that similar lines that is 0.1. The second question -- sorry.
Partial paying customers.
Partial paying customers. When we said -- we have reversed the income only where if the partial customer is more than 60 DPD. So more than 60 DPD, all [ one ], we have reversed income at this point of time. So only it will be recognized when we recover the money.And then second point, we have to give a caveat. When I say partial paid customer, we took a very conservative approach. This is partially paid in the last 4 weeks or 1 month -- in the month of December. If somebody paid in November, we are not counting that as partial paid. We have taken it as a no paying customers. So -- but we have taken that also a very conservative approach. If they're paid in the month of December, then we'll take that as a partial paying customers. That is why we count that as differently. If they are not paid in December, we'll count that as a no pay, and we provide and go ahead.
The next question is from the line of Apoorv Trivedi from Moon Capital.
Just a couple of questions. First, I just wanted to understand in terms of your interactions with the rating agency, do you think they will be comfortable with the loss in terms of rating action. And for the related point, in terms of your funding covenants, would there be any breaches because of the loss?
Yes. Apoorv, I will answer the second question. I agree that there are covenants in the borrowing, but I think they also will understand the situation for the temporary period. I will -- I want to take you through the earlier case where the demonetization, actually, we have reached almost 8% GNPA at a point of time. We have returned to all the lenders, and all of the lenders are -- accepted our request and even -- not even charged any penalty, even though they can ultimately charge penalty. So I think it's a whole industry in the stress. So obviously, they will recognize this. So we don't see any challenge about the [ covenant breach ]. So we obviously -- as the result declared automatically, we'll communicate to that to all the lenders wherever there's a breach, wherever there's a covenant, and we don't see any challenge.Similarly, rating agencies. So they also anticipated the kind of, what you call, the pool rating they do and the industry rating they do. They also understand that. There won't be any major reaction for this purpose because they do know that there will be eventual 3%, 4% of the loss. And early recognition probably they will appreciate more than the -- taking any [ reactive ] positions. So we don't see any challenge there also. Obviously, we will not be able to talk to them before.
Okay. And second question, in terms of this growth, having picked up fairly robustly. Wanted to understand your sort of outlook for the next 3, 4 quarters on growth as well as how you are thinking about capital at this point. I mean I know you did a decent capital rate, but I just wanted to understand in terms of timing, do you still think you'll be comfortable for next 2 to 3 years?
Yes, yes. Definitely. See, I think we are seeing business as usual going forward, Apoorv. At least, as we said earlier also, for the next 4, 5 years perspective, we should look at 20%, 25% CAGR growth, even with the industry. And I think we are back into a similar situation going forward from FY '21, '22. While it will taper down a bit, but it can start from a -- when we compare to previous 4 years, it's about 40-plus CAGR. Probably, it will slow down from 40 to 35 to -- going back to 20 in the fourth or fifth year. So that kind of growth we can see. That is possible and potential. So we don't see any challenge about it. Which one?
Growth outlook.
Growth outlook. Any other question there or this only? Sorry, I missed one more -- I think I missed one more line.
Capital.
Capital. Sorry, sorry.
[indiscernible] on capital.
Yes, yes, yes. I come back. Capital, today, we already have about very good capital adequacy. We don't see any capital requirement for FY '21, '22. We may FY '22, '23. And probably, we have to look at and review. Because as a policy, we don't want to fall below 20% of capital adequacy. With the combined entity, we should be looking in the second half of '22, '23 to review the requirement, whether that year or next year kind of thing. Until that period, we don't see a challenge about going back to capital requirement.
The next question is from the line of Kaushik Agarwal from HTI Securities.
Sir, am I audible?
Yes, yes. Completely. Thank you.
Yes. Sir, so I have 3 sets of question. Sir, first question is regarding the NIMs. So as highlighted on Slide #18, on a stand-alone basis, the NIM was 8.7%, which was mainly because of higher liquidity that the company is carrying. So what's your stance on the liquidity surplus liquidity in the short- to near-term future? As you mentioned that the growth is back, so I want to understand how much liquidity are you likely to carry on your books.Second is on cost of borrowing. So your cost of borrowing is coming down. So what are the trends that you are seeing? So where would you like to end this year -- for FY '21? And what are the trends for FY '22?And sir, last question is in terms of branch expansion. So what is your target for FY '21 and for next year? And in which geographies can we see that the new branches are getting opened up? So these are the 3 questions.
Yes. Thank you. See, on the NIM, when I say 8.7% adjusted to the liquidity carrying. In fact, one more component is there because we reversed [indiscernible] almost INR 60 crores of income, which impacted the NIM, which is almost about 3.4%. So actually -- but for that, it would have been almost 12% NIM, actually. So the real impact, because of the liquidity carry is just about 0.4% or 0.5%, whereas the higher impact is because of the onetime derecognition of almost INR 60 crores of income. So similar is that -- similar is the impact on the portfolio yield. So we see this is only a onetime impact. About on account of -- on the liquidity, currently, we wanted to carry about 12% to 15% at least for this quarter because we still see uncertainties in terms of liquidity position because we wanted to see through this year fully, and then we'll come back to 8% kind of thing by Q1 and Q2. So I think our continuous position is -- we'll not be holding more than 8% of our AUM. But this financial year, we'll continue to hold about 12% to 15%, owing to the various criticalities in terms of the COVID or second wave or any -- another liquidity squeeze, the budget, many things we have to see. That is why we just wanted to hold to that extent, so which may be a cost we need to carry for the current financial year.And in terms of cost of borrowing, we are already down, but cost of borrowing will, obviously, will get into passing on the benefit to our customer or into regulatory requirement. However, we continue to enjoy the 10% margin. And then it will not impact the -- it will not give you the additional benefit to us -- to the NIM actually, but it will give the benefit to the customer where the price will come down. Currently, we are already lowest pricing among the MFIs, banks, everybody. And we continue to have that positioning going forward also due -- thanks to lenders lending us at a lower rate, which would help us to reduce -- I mean, increase our customer acquisition as well as customer retention because of the low pricing. We see a stable pricing going forward. Already, it's about -- the new borrowing is about 8% to 8.5%. Average borrowing cost between 9% to 9.5%. So I think this will continue for next 3, 4 quarters. So that is what we estimate for the cost of borrowing.And the third one is about the expansion, 2 components. One is where to grow and how much to grow. We always follow the policy of growing the infrastructure by 20% to 25% every year. We give a break in this financial year. But for that, we would have grown -- we would have established branches to the extent of 20% to 25% of the existing and predominantly in the new geographies. So obviously, what the new branch will open is will be the new geography. So the expansion will normally happen only new geography. So this will give us the potential benefit of the growth in the next 3, 4 years.
The next question is from the line of Nilesh Shah from Envision Capital.
You mentioned that the normal credit costs are about 60 basis points and -- in a business-as-usual scenario. But because post-COVID -- due to some behavioral changes, they'll go up by another 30 to 40 basis points. So can you just tell us what is the [ basic ] behavioral change, which has happened post COVID, because of which the credit costs on a business-as-usual scenario gets by -- spiked up from, say, 60 basis points to 90 to 100 basis points?
Yes. Maybe I will -- for the sake of everybody's benefit, I will take this back to a situation where before Andhra crisis, we were almost -- I mean, microfinance industry was about 99.9% collection, not more than 10 bps of losses. Post Andhra crisis, we saw the credit cost moved to by another 20, 30 bps. Because of the situation where probably industries were not lend to customer on time or the defaults happened, that is what happened. Then the demonetization came in 2016, '17. Post demonetization, regular credit cost has changed by another 20 bps, gone to 50, 60 bps. Because of the potential customer can default, can delay and can pay later. So that is what the behavioral change. Now because the regulatory allowed them to pay or not to pay for 6 months -- if they want, they can delay by 6 months, thereafter, what we call, they can pay later. So this kind of allowance can create some customers' mind that they can pay later, they can delay it. So that is why -- and then eventually, they may not pay also. So that is why this behavioral change can trigger another 20, 30 bps of the credit cost. This is why -- what our estimation? I only will be very happy if I'm proven wrong, okay? So that is why we estimate this kind of behavioral change possibility.
This is very helpful. I also just on an extended note, so you said that there was -- of course, Andhra happened, then demonetization, now COVID happened. And the experience of demonetization was that maybe at that point of time, the credit loss was about 3.9%. And probably around this time also, it will be the same. So if I look at it over a period of last 4 to 5 years, we've had about additional 8% hit, which is both 4% each of demo and the COVID. So should we kind of, as investors, in fact, more look at it saying that the normal business-as-usual credit cost will be between, say, 80 to 90 basis points? And then because of such one-off events, which keep happening, for the industry, maybe we should factor in additional, on an annualized basis, another 200 basis point as credit cost. Would that be kind of a fair way to look at, say, the adjusted credit cost for these kind of events?
Maybe right. I'm not pretty sure about every 2 years, we will get into such kind of situation, but we have seen 2 cases at least in the 4 years gap. I mean I will leave it to the investor fraternity to think about that.But if you see, Grameen, even the year of demonetization, we gave almost 2.9% ROA. And even this kind of situation, we will -- we are confident that we will be giving ROA more than 2%. So I will leave it to the investor fraternity to think about how to build a credit cost.
The next question is from the line of Pratik Chheda from IIFL Securities.
Sir, I just want to understand, given the GNPA of -- pro forma GNPA of 6%, are there any specific districts in Maharashtra that are showing additional amount of stress?
Yes, there are. Basically, what I told earlier also that districts, which was suffered because of the flood in the last year, and again, the COVID and again, the flood, that district, particularly Kolhapur, Sangli, Solapur and part of Satara, actually. So these are the 3 districts that have little higher delinquencies compared to other parts of Maharashtra. So maybe that...
Yes.
Please?
And any of these disbursements have been -- I mean the disruption has been driven politically or normal COVID-related issues only?
No, there is no political interventions anywhere, actually. So it is more of a stress there. Two, yes, there are some local activism because of the too long -- the lockdown there. And there are some municipal elections used to happen. So obviously, some localized leaders will create some issues sometime in the last 2 months. But there is no interference in terms of collections at this point of time. We feel -- we're confident that we'll be back to normal within the next 2, 3 months' time.
So one more, just last question. So given the high amount of slippages that we are looking at, I mean, how is the JLG model play? Are other members given the relaxation for payment of dues of the defaulting member? Or what is the stance right now in the JLG model? So is the liability of the other members going up or they have been given a relaxation?
We ourselves are not actually forcing the customers at this point of time because we also need to be patient enough with the customers. So we are giving enough relaxation to our customers also to take their own time to pay in such situation because it is enforcing that JLG. If, for example, 10 customers group, 4 of them not paying, asking another 7 to take the load, we are only actually making more risks to our system. So currently, because of COVID, we are -- we need to be patient. Otherwise, the centers, which are 99% payment, we don't see any challenge. They are already automatically, whenever there is somebody is not well, not able to pay, they are taking care of them on their own. But where the extra stress is there, we are actually allowing them not to, what I call, a fallback to the customers who are paying because they're also paying with difficulty sometime. So we need to be careful. We need to be patient. We need to recognize a stress there. So our employees are trying to manage that very well.
The next question is from the line of Nishant Shah from Macquarie.
I have, like, 2, 3 small questions. So first on just operations right now. How has COVID affected you? Or as like how normalization has happened, what kind of changes have you made to, say, group sizing? Do you run it in batches? Have you reduced, like, the group size? Or have there been any alterations to the frequency of group meetings? And just what is the outlook of group meetings? So that's the first question.
Yes. Actually, we made certain changes to the group meeting initially when the COVID was a little high. Since we are meeting on a weekly basis, we have the opportunity to tell the customers that only 1/4 of them can meet every week so that we have connect with all of them at least once in a month. And after September, October, we moved it to 50%, and now we moved it to 75% so that we have a higher connectivity to them. There is one change we did for temporarily.Two, we actually complete the documentation and simplified the documentation so that the documentation for the new loans are completed at the field itself so that customer need not to travel to our branches using public transportation, all those things. We transfer the money to the bank account. 98% of our money goes back to the customer on bank account.Also made one more changes. Wherever customer centers help -- let's say, they are in the situation. Our employee cannot go. They cannot come back because of the COVID situation. They can pay through either GPAY or the Nearby Pay (sic) [ PayNearby ] or a BBPS. There are many other options are given to customers. Some customers will have to pay from there also. So these are the couple of changes we did in the field process. So some of them we have been following earlier also because we are not connecting from every customer separately. We connect at the group basis, which were trained, the customer earlier also. There is one among the group members need to be there to pay the money among them. So I think those processes, what we did earlier, helped us very well. And this additional process has basically safeguard the customer from travel or to maintain the strong social protection protocol also.
Second, like, just a couple of data questions. So could you tell us, like, during this quarter what was the percentage of your disbursements to new customers, like, new customer acquisition number as well as, like, just the amount disbursed during this quarter to new customers?
Yes. We acquired about 1.62 lakhs of new customers in this quarter, and about 15% to 18% of our disbursement happened to the new customers. And the balance, about 80%, 82% customers that disbursement happened to the current customer who are renewing all additional funding wherever required.
Okay. Perfect. And just last one data keeping question. What would be the cumulative write-offs that you would have taken on a stand-alone and consolidated basis in 9 months so far?
Write-offs, we have taken only this quarter, actually. We have not taken any major write-off in the previous quarters. Maybe about INR 5 crores, INR 6 crores would have done in September, which was -- because we had to regulatorily allow -- view that -- hold the same asset grade during that moratorium period. So we have not changed that. Totally, INR 143 crores consolidated, we have taken up in that. Current quarter is 111 plus 19, that's 130. And earlier, together, is some INR 13 crores. That's all.
The next question is from the line of Aakkash Dattani from HDFC Securities Limited.
So I have 2 questions. Firstly, how is the sort of integration with Madura progressing now given that the situation around COVID is limping back to normalcy?
Correct. Yes. Maybe -- yes, there are 2 parts of the integration. One is the legal merger, one is the process integration. So first, I will talk about process integration. As we indicated earlier, we appointed PwC for the integration purpose, and we created work streams between both the leadership teams. So we are quite ahead in that curve, and we should be ready for operating model by March and April. And we are already aligned with the processes in terms of the products, the processes, the risks, the governance, the financing, funding, all those things we are already aligned with the common process.And the majority of our loan book will start moving into Grameen model in 3 stages starting from February. Initially, first phase, we'll do some branches in the month of February. Second phase, we will take some more branches in April -- April and May, and some more branches in June and July. So that the model of CA Grameen will start implemented in the MMFL book. And people movement and all we can do only after legal day 1. That is what the second part where we already approached the -- both [indiscernible] exchanges, one exchange already approved, other exchange is, I mean, about finalizing approval, then it will go to SEBI. Then SEBI -- we expect that SEBI to approve maybe 3 to 4 weeks' time, then we can go to NCLT while it is a bit black book. But we expect that approval should come 3, 4 months' time, which means either Q1 or Q2, we should get the legal merger approval also. So we are quite ahead in terms of process merger and integration -- process integration. Maybe a little delayed on the legal day 1, but we are process merger ready -- legal merger ready with the process integration by March and April. So we are quite advanced in that.
All right. That's ]. And my second question. So as of December 31 on -- so for CreditAccess on a stand-alone basis, your PAR 90 is close to 5-odd percent on a book of about INR 10,000 crores on a stand-alone basis. Of that book, if I refer to Slide #10, close to half is acquired in the past 6 months. So that would -- if I were to back calculate on half of your book, that half of your book is contributing almost entirely to that PAR 90. So is -- so a, is it the correct way to interpret that? And b, if so, does that -- how would you read into that? Does that worry you in any way?
I think it's a 2-way of looking, but one is the new book is behaving very well, and the past to book is, yes, not behaving very well, which is impacted. So basically, we have recovered that much of money in the last 5 months, right? So that is why -- the COVID book will continue to come back. For example, after 1 year, we will say that the 100% of the book is PAR. It's possible. But the overall ways, what was the book as of March, and the COVID hit, out of that, what is going to be a loss? I think we have to see that way rather than the current book outstanding versus the total outstanding, right? So we are recovering that continuously. So you are absolutely right about 5%, which is including Maharashtra, which is taking a little longer time, but for March at 3.2%. So we estimate that also to come down a bit. But we have to look at the COVID impacted book, which is the book -- which was existing at that point of time, and the percentage of the credit loss based on that book. That is what the way we should calculate.
And if I may just add here, has this sort of dichotomy rise in previous asset quality events as well such as demonetization?
Yes, yes. There also, when we said 3.9% that the portfolio at the time of demonetization, against that.
The next question is from the line of Renish Hareshbhai Bhuva from ICICI Securities.
So just on this write-off, the accelerated write-off is from which book? I mean is it from the existing gross NPL, which we were having at the end of September or this is from the current PAR portfolio?
This is basically the pre-COVID GNPA, Renish. So if you remember, we had a book, which pertained to coastal Karnataka and the flood hit book, the southern Maharashta and northern Karnataka. So that book you are carrying, which had almost past the 180 days plus, I mean, including additional time given by regulator. So we thought that it would be good, we should actually write off that now. And we continue to do the effort, of course, but we thought we take an accelerated rate of that book. So that we have only COVID book today.
Got it, sir. And just last clarification from my side. So sir, on the channel, on book, we have a collection efficiency of 91%. Against that, we have a gross NPL loss of 1.8%, which is excluding this collection. So the total collection, including gross NPL, would have been around 93%, and we are almost carrying a 6% provision. So it is fair to assume that the balance 1% or 2% book [indiscernible] as we speak today?
We don't see that, actually. In that also, you are seeing -- if you see the data in terms of partly paying in the Slide 9. So...
9.
Yes, Slide 9. So out of the 6.9% customers are paying partly, and they are paid partly even in the last 12 months, right? So that means if no payment customer is only, say, 4.9% who are not paid in last 12 months, but they would have paid in October, November also. So we have taken a very conservative estimate of this number. So that is why we believe that our eventual credit loss or write-off out of the COVID portfolio still will be within that -- these are 4%, 4.5% of what we estimate. We don't see just going up from here.
The next question is from the line of Amaresh Mishra from HSBC.
Just one more question from my side was when you say accelerated write-off of INR 85 crores, what do you mean? I mean this INR 130 crores that you consolidated -- [ INR 140 crores ], as you explained in the previous quarter -- previous question was it was on account of that 180 days past due. But -- so then what exactly...
Basically -- Amaresh, basically, as a policy, we write off at 270 days. Whereas here, we write off anything more than 180 days. So that is why it's accelerated write-off.
Okay. And just one more question, sir, on a -- on more from a strategy perspective. I'm not looking at COVID, but how do you see CreditAccess from 3, 4, 5 years perspective? Because, like, we are at INR 12,000 crores, INR 13,000 crores right now combined growth in the system is 25%, 30%, which you've explained earlier from a run rate perspective. And then we have seen most big guys have become banks or whatever. I mean, historically, they have become doing a lot. So how do we see ourselves from that perspective? Like how long can we continue to run like an MFI like this just in the JLG and doing some individual loans, et cetera? What are your thoughts around it if you keep in the COVID thing aside and then see -- if you can give some color to investors on that.
Yes, yes, yes. Amaresh, let's talk about 2025, maybe that could be the milestone, which we have set ourselves as vision 2025, which to be the business partner for INR 1 crore -- Indian low-income households by providing the credit as well as any other requirement -- financial product requirement to the customer and their family. That is what our thinking for 2025 perspective, which means we will continue to work with the rural households. We will continue to work with the low-income households, and we would remain working as microfinance institution, which can address the low-income households' requirement.We might further add the products to customers beyond credit. Currently, we are doing only credit only for the borrower. We will find the opportunities of what else we can provide to the family of the customers, which is feasible way, which are sustainable way, whether directly by us or by -- with partners, by piloting and based on success of the pilots. So our vision is to remain working for the rural households and working in the rural, and the remaining as a microfinance institution. So at least, again, I can talk you about that milestones.
The next question is from the line of Nikhil Rungta from Nippon India Asset Management.
Sir, just one question from my side. On the stage 3 side, you have indicated that our EAD percentage is 6.8% as of December end. How much of that would be partial payment?
Both.
Included both partial payment and no payment?
Yes, yes. We have about 2.5% partial payment in the case of stage 3 and 4.3% is a no payment in December.
Okay. Okay. And you expect write-off at 4% to 4.5% -- final write-off due to...
Yes. That is what our estimation, Nikhil.
All right. And sir, just one more thing. From next year onwards, as you mentioned, we'll start getting write-back from these COVID provisions. So the normal business-as-usual provision of 1% and write-back coming from this, so we can start seeing at net level write-back in the numbers as we saw in FY '18 also, similar way we can start looking at the numbers?
We have to see once it moved to a 90 days bucket and all, it could be a little slow. That is why I said it could be between Q1, Q2. It could be more of a net of nature rather than when rating back possibility. We don't know. But our strong position today is that we have covered significantly whatever the risk at this point of time. So Q1, Q2 depends on business growth as well as the credit cost. Our estimation is slightly, what we call, about 75 to 100 basis points. And the growth prospect also we have to provide, right? If I grow by INR 1,000 crores, I have to provide other 1% equivalent to standard asset on that also. So totally, probably total net-net may not be the write-back, but it prevents the further provision probably. So -- but our strong view is that there will be more profitability going forward than the provisioning.
And this year, if I heard you correct, you indicated that we'll do at least 2% ROA, right?
Yes. Yes, yes. You're absolutely right. We will be more than 2% ROA.
That was the last question. I now hand the conference over to Mr. Udaya Kumar Hebbar for closing comments.
Yes. Thank you very much for participating in this late hour, and we thank you for your continued support. So see you next time.
Thank you. On[Audio Gap]