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CreditAccess Grameen Ltd
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Ladies and gentlemen, good day, and welcome to CreditAccess Grameen Limited Q3 FY '22 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Arash Arethna from IIFL Securities Limited. Thank you, and over to you, sir.
Yes. Thanks. Firstly, I'd like to thank the management for giving us the opportunity to host this call. From the management side, we have Mr. Udaya Kumar Hebbar, Managing Director and CEO; Mr. Balakrishna Kamath, CFO; and Mr. Nilesh Dalvi, Vice President of Investor Relations. Let me now hand over the call to the management for the opening comments. And post that, we can proceed to open the floor for Q&A. Thank you.
Thank you. Good morning, friends. A sincere thanks to everyone for taking their time in this morning and joining us today to discuss our third quarter and first 9 months financial performance. At the outset, we are happy to inform that we have been again certified as A Great Place To Work successfully for the third time. This reinforces our strong work culture, employee centricity and commitment to reach greater heights in the future. Coming to our business. We witnessed significant improvement in our financial performance during the third quarter that had sustained business momentum and consistent improvement in asset quality. Strong portfolio growth, lower delinquency and improved borrower recoveries led to a sharp improvement in operating profitability. We have reclaimed our quarterly PAT of more than INR 100 crore after 2 years. Our monthly disbursement run rate at CA Grameen further improved from over INR 1,100 crores in September to over INR 1,400 crores in December. Our new disbursement across all states since June '21 are paying very good quality with current PAR [ 1 to 30 ] of only around 1% with limited flow forward. MMFL is also back into growth trajectory and our new loans are dispersed under CA Grameen model since October, amounting to over 45% of the book and showing very high asset quality comparable with CA Grameen. As indicated earlier, monthly disbursement run rate at MMFL also doubled from INR 180 crores in September to INR 360 crores in December. We are back into growth trajectory in terms of disbursement and growth in MMFL now. At a consolidated level, we disbursed INR 4,720 crores in Q3 FY '22 and acquired over 2 lakh new borrowers. Over the past 12 months, we acquired over 5.4 lakh new borrowers, out of which 48% were from outside the top 3 states as we continue to do the approval and expand our presence in newer states. We continue to witness [ MOEM ] reduction in delinquencies during the third quarter. At CA Grameen, collection efficiency, excluding arrears rose from 93.3% in September to 95% in December and further in -- further to 95.6% in January. Excluding nonpaying NPA customers, collection efficiency stood at 98% in December and 99% in January. The collection efficiency in MMFL, which constitutes 15% of our consolidated GLP, gradually improved from 87% in September to 89% in December and 90% in January. Excluding nonpaying NPA groups, collection efficiency is 91% in December and 92% in January. At CA Grameen, the asset quality maintained the improvement momentum at PAR 30 reduced from 8.5% in September to 5.4% in January. And PAR 60 reduced from 5.4% in September to 4.2% in January. Similarly at MMFL, PAR 30 reduced from 13.4% in September to 10.7% in January, and PAR 60 reduced from 10.2% to 8.5% in January. On a stand-alone basis, our gross loan portfolio grew by 19.4% Y-o-Y. And 8.9% Q-o-Q to INR 12,180 crores in Q3 FY '22. However, the borrower base declined by 1.9% Y-o-Y to INR 38.14 lakhs, primarily due to the rate of 4.2 lakh borrowers during the last 12 months as well as lesser inactivation in the first 6 months of the financial year. However, on a Q-o-Q basis, borrower base increased by 50,000 in Q3 FY '22 as we added over 1.8 lakh new borrowers partially offset -- the offset the rate of our 45,000 borrowers in Q3 FY '22. The NII grew by 40.4% Y-o-Y to INR 349.4 crores while NIM stood at 11.4%. Adjusting for the impact of interest income, the recognition and impact of maintaining high liquidity on balance sheet, NIM would have been at 12.4%. The cost-to-income ratio was at healthy 36.1%, while OpEx to GLP seen reduction at 5.1%. PPOP grew by 67.1% Y-o-Y, to INR 244.6 crores. Credit cost was INR 73.8 crores, which also included the impact of write-off of INR 134.9 crores. The third quarter was partially offset by INR 26.8 crores bad debt recovery during the current -- during the third quarter. PAT for the third quarter was INR 129.2 crores, leading to ROA of 3.8% and ROE of 13.6%. GNPA at 60 DPD reduced from 7.18% in September '21 to 5.5% in December '21. Overall, ECL stood at 4.4%. On a consolidated basis, our gross loan portfolio grew by 18.4% Y-o-Y to INR 14,587 crores and borrower base to 37.39 lakh, primarily due to write-off of 3.9 lakh borrowers during the last 12 months. NII grew by 35.5% Y-o-Y to INR 4.412 crores to INR 412 crores. PPOP grew by 60.6% Y-o-Y to INR 273.5 crores. Third quarter are INR 117.9 crores, which also included the impact of write-off of INR 190 crore. The credit cost was particularly -- partially offset by INR 29.2 crores bad debt recovery during third quarter. So PAT was in INR 117 crores, resulting ROA of 3% and ROE of 1.9% on a consolidated basis. This is as seen on our financial performance during 9 months FY '22 on a consolidated basis. Our NII grew by 11.4%, to INR 2,133.6 crores. PPOP grew by 13.8% to INR 708.7 crores. Rate was declined 14.4% to INR 445.7 crores. Bad debt recovery was robust at INR 47.6 crores in 9 months. While the gross rate growth during 9 months was 3.6%, the net security cost after occupancy and bad debt recovery is 3.2%. PAT grew by 150% to INR 197 crores, resulting in ROE of 1.1%. Liquidity continues to remain comfortable with total cash and cash equivalents of INR 1,625 crores amounting to 10.3% of total assets. Capital adequacy remained strong at 24.8% at consolidated level. The field integration is complete and portfolio is transitioning into CA Grameen model along with growth momentum is picking up. With speed in MMFL, we believe that positive bottom line contribution is following forward in MMFL financial. We continue to remain our focus on foraying into newer rural markets as part of our geographical diversification strategy and tap the unserved or the underserved markets. The total of 194 branches have been opened during the financial year, primarily across the newer markets. Our overall branch network stood at 1,617 as on 30 January 2022. With an improved visibility on business environment, on back of reducing fluidity of pandemic and increased vaccination, we have provided performance guidance for FY '22 in last quarter. As on 9 months FY '22, we are happy to inform that our performance has been fairly in line with the guidance. While the country did face temporary challenges on account of Omicron variant during January, our business remained unaffected without any disruptions. In fact, key indicators like portfolio growth, control-based collections and asset quality further improved in January compared to December. Happy to note that we also achieved a major milestone with our consolidated loan portfolio crossing USD 2 billion mark in January. Assuming that there are no further severe business disruptions on account of COVID, we are confident of achieving our guidance for FY 2022. We're learning from previous deals and the pragmatic approach adopted give us enough confidence to [ veer ] loss. The government has made its stance clear during the budget '22/'23 with capital expenditure push and inclusive dollars and agenda being the drivers of creating long-term job opportunities for millions of [ growing commercials ]. Given our strategic position of deeper role presence, we are called to partner in the growth journey and contribute towards the next level of capital creation story of Bharat. With this brief note, I would like to open the floor to you for any questions. Thank you.
[Operator Instructions] The first question is from the line of Shreepal Doshi from Equirus Securities.
Firstly, if you look at in January, the nonpaying customer has increased versus the December number from both Madura and Credit. So what would be the reason for the same?
There is a small momentum, which is already there in some of the NPA category, which is already more than 90 days for this kind of thing. There is slight thought forward off there, right, thought it forward. So it is not -- it's already NPA-forwarded customers. So some of them have not paid during January this time. If there's no paying customer in the standard category, move to the other side.
Okay. It's broadly the partially paying moving to non-paying?
Yes. Some of them went up on top. They may not have paid in December. They may not have paid in January. They may pay it in February. Particularly, these are -- already, most of them are more than 90 days or 100-day-bucket customer, Shreepal.
Got it. Got it, sir. And sir, if you look at -- I mean, you have given a split of ticket sizing -- vintage-wise ticket size. So if you could also give a split of customer split as per the vintage. I mean, so in a similar category wherein below 3 years, 3 to 6 years, 6 to 9 years and more than 9 years.
Yes, we have given that.
So if you can give the customer split also, like even ticket size, so if you can give customers split also.
Shreepal, actually, our portfolio split is available on the top of the slide. It largely reflects the customer borrower split also actually. Maybe you can provide that. Nilesh can prove that because it's a portfolio stated there in the top-bar slide. So the number of customers slightly varies because the high-vintage customers or higher portfolio, for their slight variation, maybe we can provide next time. Or we can -- Investor Relations can get it.
Sure. And you -- as highlighted in the same slide that 48% of the customers are new, which are from noncore states for us. So these will be the Bihar, UP, Gujarat, Rajasthan?
Yes. By and large, other than this -- by and large, other than this -- the 3 core states and largely from Bihar, Jharkhand, the UP, Gujarat, Rajasthan and Odisha.
And what is the ticket size that you are beginning for these customers in this geography?
So if you see the same slide, there it is mentioned the outstanding in the other states are only average, it's only 32,000. In the same slide, rates have gone up.
Right. But what will be the beginning, like the first cycle that we are doing for this?
Beginning is 30,000 to 35,000, Shreepal.
Got it, sir. And one, like -- okay, so I'll comment if you have more questions. So thank you so much.
[Operator Instructions] The next question is from the line of [ Siddarth Gupta ] from CreditAccess.
So I just wanted to know what does the company expect the credit cost to be next year in FY '23.
Sorry, who is online?
Siddarth Gupta.
Okay. So we have guided in the Q2 itself on the paid cost overall between 4.2% to 4.7%. So we should be within that.
No, I'm talking about the next year, next financial year. What is your guidance for credit cost for the next financial year?
Next financial year, we are not able to guide right now. Probably, we'll look at after Q1, we'll be able to guide. So we believe that it would be a majority of the COVID impact cost will be taken now. So therefore, it should be business as is. But there will be a little higher cost considering the behavioral change of the customers at this point of time. But we presume that it will be at least 70%, 80% more than the normal. But anyway we will provide it after Q1.
Okay. And do you expect any write-offs due to Omicron wave, second or third part of Omicron wave?
No. Not for third. There's no impact for the third Omicron wave.
[Operator Instructions] The next question is from the line of Digant Haria from GreenEdge Wealth.
My first question is on these harmonization guidelines if they come. Do we have a chance to correct our lending rates? Because I believe we are -- in a lot of places, we are lending at rates which are even lower than the banks.
Digant, yes. Definitely, if there is -- what do you call? An opportunity for us, we should be placing for the grade cost. As of now, we are the lowest-placed as against banks or NBFC or -- against everybody. In the entire market, we are the lowest-placed there, MFI, today. However, because currently, we are constrained with the 10% margin cap of RDA, we are not able to appraise for the cost of credit if it is much higher in some markets. So definitely, if the opportunity is given by the regulation, we should be definitely charging the credit costs to some extent, so which will have an opportunity for us to at least pay the cost, if possible.
Sir, and that opportunity would be between 50 to 100 bps? Or is this more or -- that's a ballpark number, right? Doesn't mean exact number?
It should be 100 to 150 bps, actually, on a major geography -- from major geographies.
Right. Okay. Okay. I got it. That's the first question. Sir, second question is, sir, mainly on the steel operations that because of COVID, because of this being a physical-touch -- highly physical-touch model and the attendance had suffered in first few months of COVID. So now do you think that those disruptions are really behind and -- or that customer behavior has changed in such a way that even the group model eventually will be -- a lot of people will be forced to migrate to individual models? And can you just answer maybe a question in FY '23, can we look at normalcy? Like no COVID disruptions and physical touch comes back?
Actually, it's already back normally. Only those groups were 1 or 2 or 3 before the customer. Such center, some disciplines are there. The customers who are paying more than 75%, 80% of the groups who are paying fully are normal. I believe a lot discipline are there and that's normal. So we don't see any challenges there and it's only improving going forward.
Okay. Okay. Sir, and my last question is on the growth debt. Because so many customers are either under restructure or PAR or NPA -- for other MFIs and other bank MFIs also, like does it put strain on our growth pool that maybe the next year, even if it is a normal year, we would have grown 25%? But is that availability of customer, because they may have the experience, data would show that they are overdue somewhere or restructured somewhere. So just any thoughts on that? Then that's it from my side.
Yes. I think we as an institution keep expanding in the deep rural and beyond the urban and all. So our sale target is always from the new-to-create customer to bring into the microfinance and support them for their own growth. If you see last year, I mean, at least stable years, our new-to-create customers is almost 40% to 45% when we acquire the new customers, which are renew and new. So you all know also, we believe we'll be able to target the new-to-create customer more, and not necessarily we should go and lend to the customers who defaulted or so. So there is an opportunity. If you see today, only 35%, 40% of the addressable market has been achieved by the industry. So there's huge 50% of non-addressed market available in the geographies where we operate and particularly in rural. So therefore, we don't see a challenge for growth considering that there is some delinquent customers at this point of time. That's at least only 20%. If you count 6 crores customer currently, even 24% to 20% customer are delinquent in between or so, so still 80% are not. And plus the new-to-create. I think we don't see any challenge about the growth. Highway is still available.
[Operator Instructions] The next question is from the line of Nidhesh Jain from Investec.
Firstly, on the income from recovery that you have reported this quarter is quite strong at INR 29 crores. How should we think about this income going forward? What is the write-off pool on which we are trying to recover?
Nidhesh, what happened is the denominator also increased in rates because last 1 year, 12 months, we have recovered some also. But compared today, they are almost close to [ INR 80,000 crores, ] right? I mean -- and at current cost. So it is very good at 2%, 2.5% of the return of portfolio. So I think at least for the next 2 to 3 quarters, we should see INR 1,500 crores of recovery because there is a natural trend. When we write off 270 days, we wrote off even some of the partly paying customer also, right, because of the policy of operating at 270 days. So obviously, there will be the clearing from those customers, also some of the customers who want to come back or who want to, say, borrow from some others. Obviously, they have to come and pay for it before doing that. And when we have put a large team to address this, to go and meet all the delinquent customers. Also recollect that we did some aggressive or early rate of also at [ 180 ] at some time. So sir, there is an opportunity to go back and collect some money. So our sense at least for next 2, 3 quarters, we should be able to recover at least INR 15, INR 20 crores every quarter.
Sure, sir, sure. And secondly, sir, from a number of customers' perspective, the number of customers have remained flat or declined over the last 2 quarters because of writing -- write-offs that we have been doing. But from next 2- to 3-year perspective, how should we think about then customer base growth for the company?
It is growing already, as I said in the initial remarks, through the Q3, we have grown already actually. So we are acquiring almost close to 90,000 customers every month now. So maybe at least 1 more write-off, a higher large number, probably Q4 would impact a bit. But afterwards, it should be only the positive every Q-on-Q, Nidhesh.
Sure, sure. So this INR 90,000 crores -- 90,000 customer addition will be sustainable on a monthly basis?
Simply because we created good infrastructure, almost 200-odd banks has been added already. And again, normally Q1, Q2, we will open fresh branches every year. Given that if there is no disturbance, we should be going ahead and then keep opening 10%, 15% of infrastructure every year, which will also give additional support for customer growth.
[Operator Instructions] The next question is from the line of [ Anand Bhavnani ] from [ Baidu Capital ].
So I just wish to understand over the last 7, 8 quarters, as you're expanding into newer geographies and even in existing geographies, how is the competition intensity as compared to prepandemic? Have you seen any changes in the competitive intensity post the pandemic?
Yes. The last 8 quarter is -- not a quarter can be compared, Anand, because of the disturbance. By and large, if you see the 8 quarters, at least 4 quarters, nobody operated last 6 months in the FY 2021, 6 months in '21/'22. So there is no expansion by anybody. So it's more of fighting with the pandemic crisis. So it's not comparable. But still, real growth for industry come only in the second half in both last 2 financial years.But having said that, important to note that we are a deeply rural-penetrated in this institution, which is having very less competition comparatively compared to the urban-penetrated institution. Just to give an example to you. We have a large number of MFIs and then the banks operating across geography. To put it in perspective, almost 43% of customers, we are the only lenders. And again, out of 39% of customers, we have only 1 lender other than us. So that then just show that the competitive intensity in the field is not impacting us. And to your other side of the reflection, who is the largest overlap with us in terms of common customers? So we help Bharat Finance, which is largest -- it is one of the largest, double of our size, which has only 8% of overlap with us. And the next is maybe 5%, it is [indiscernible] overlap 5%, 6%. Thereafter, maybe [indiscernible] about 3% to 4% overlap. So by default, by design of our operation, we are not susceptible for a larger competition because of our deep rural presence and our tendency of acquiring new-to-create customers. Probably, I answered your question.
Sure, sir. Sure. That's very helpful. Sir, second part is, if you were to look at the industry over the last 7, 8 years, a lot of firms were funded by private equity. Now because of the sequence of event that has happened since 2016, if you were to see the rate of return for a lot of the private equity players in microfinance in India are subpar and some of them are not even able to get credits. So with respect to fresh capital, are you seeing that private equity is reluctant when you see, as an industry partner, are you seeing -- because I want to understand competitive intensity. So if incremental funding from private equity lowers, and do you see it staying low for the next few years?
Anand, definitely, if you see despite pandemic the last 2 years, we had sufficient equity of loan to microfinance. And microfinance is not suffering from any equity charter today despite 2 years of all these problems. But it self-validates that there is enough interest of capital flowing into industry and debt funding also. The banks also that the government support, RDAs come with the plans. So I don't think any issue about equity or about funding for the industry. And the industry has grown continuously, whether it is 2 years or 4 years or 6 years, you see that we have the only 10 bonds. So I don't see any challenge about equity raising today for anybody. So when we are able to raise equity in the -- even in the pandemic years, I think it reflects the strength of the industry.
Sure, sure. Sir, my question was more for our peers because I understand we are able to raise equity. We have...
No, no, I'm not talking about them. I'm talking about the industry, not the -- sorry, sorry, Anand, I'm also telling the industry, not Grameen. Grameen was about to make a round. There is not one institution suffered because there's an equity today even after 2 years of pandemic, correct. So that's what I'm telling.
Got it, sir. And sir, last question, if I may. Do we have any sense when can these new regulations, which is now, I think, almost 8, 9 months since they were kind of contemplated there. Do you have any sense, when can we expect some final decision on this?
Both of us are in the same information stage, Anand. So I don't know. We expected this in the last quarter itself, for some of them, not yet. But it may be in the next. We will have more other periodic probably. But it should be coming this quarter. That's what we are hoping.
Okay. And Madura is on track to be merged by end of the current quarter, that is Q4 FY '22, right?
Not necessarily. Our legal merger might take more time because of the -- because of the regulatory issues with MCLP article. Hearings have taken time because of COVID and they don't have sufficient bandwidth to manage the pending cases. So I think, again -- but from our own perspective, we are already integrated. From an operational perspective, from a product perspective, work perspective, integrated. Only we may still have to carry 2 Boards for some more time.
[Operator Instructions] The next question is from the line of [ Kartik Shahani ] from [ Mylar Asset Management ].
Sir, I just wanted to ask what is your guidance on the loan book growth, say, in the next 2 years?
I mean, Kartik, see, despite pandemic years, last year, we grew 13% to 14%. This year, we guided to grow almost 17% to 19%. So we believe that this can be a little more than this one, a much stable year going forward. At least 20%, 20%-plus a year for the next 3 years is potential for the industry.
The next question is from the line of Amit Nanavati from Nomura.
A couple of questions on write-offs. Firstly, if I look at the PAR split, right, now we've nearly kind of normalized. And when you look at the part being customers, there's more or less nonpaying customers, it's more or less crystallized. So to that extent, should one expect the nonpaying customer largely to be written off for the course of next 2 quarters? Or if you can just explain some behavior around that, what you expect to recover hopefully over some time.
So we expect the majority of this should be written off in the fourth quarter itself or maybe some mix look lower to Q1 also. But yes, you're -- what you mentioned is correct. Large action beats the nonpaying NPA. But as a policy, write off all the customers who is the NPA or if delinquency bucket crosses to 70 days. We write off, actually that's the policy. So out of our current PAR 90, so largely might be getting written off in the end of Q4 and Q1. We have to overwrite.
Okay. So the credit cost guidance is largely now -- if I look at it on an incremental basis, it will be largely towards the write-off requirement, which would work as an excess provision?
Yes. You're right.
Secondly, if you can only explain in terms of write-off side that we have done in the past 12 months. What would be the similar vintage split of borrowers that you would have written off? Basically, how -- in terms of ticket size, in terms of vintage, how was this broad split around less than 3 years, 3 to 6 years, more than 9 years, et cetera?
We've not done that direct, Kartik. Probably we would publish that, too. You can reach out to Nilesh and he'll be able to collate the data and share with you. But yes, we are not with the vintage of rate of numbers at this point of time. Probably we can do that. Nilesh, you don't have any specific data available on this?
I'll provide it to him. I'll provide it to him. Currently, I don't have it.
Yes.
Yes, broadly, sir, if you can just on the top of your head, if you can, if you would have seen any stark difference between whether the write-offs was low-vintage customer or a higher-vintage customer?
Amit, it's actually our write-offs are linked to pandemic today, not the vintage. You cannot correlate the vintage versus write-off because with a specific event, which impacted the customers who are not in the essential activities or support specifically because of the low footfall kind of business, which is we already discussed earlier, what kind of business were impacted in the last 2 COVID situations. With respect whether it's a new or vintage customer it is more of an industry and customers who are impacted, actually. The customer could be 5 years, also customer could be 1 year. But if she's running equity for herself or around the family in head of, say, salons, or they're in travel or tourism or a pilgrimage-centric, so it's impacted. So there is -- it may not be a right, what you call, data to see whether based on vintage or non-vintage. It's more of an essential and nonessential was the key in terms of, what you call, the impact and the result and write-off, in fact, at this point of last 4 to 5 quarters split-off. Anyway, I think Nilesh can provide data, but we can't derive any decision based on that because of these other external reasons.
The next question is from the line of [ Anand Bhavnani ] from [ Baidu Capital ].
Sir, just a couple of questions. One is on Madura, you mentioned we are now integrated. But I mean in the COVID, we saw there was stark difference in the credit quality and maybe it was due to the legacy book. But since the legacy book are completely runoff in the last couple of years. From here on, we should expect broadly the performance to be similar barring some geographical disturbances. But barring that, broadly, the loan book performance should be in sync with credit, right?
Anand, the -- only 45% of the book is, if you would, under the Grameen model. 55% is still the old, is yet to run off, and it's going on. It is actually -- we are not discussing anything under the old model. Everything as a new model, which is exactly behaving the way Grameen is bearing. So -- but if you see Madura write-offs are with the lag compared to Grameen. We have taken write-off early. Whereas Madura, it's write-off comes later because there's always -- it's a different kind of model. So the recovery slowly, slowly happens there. That is why write-offs have chartered, not only there. So it will take maybe 2, 3 quarters to, what you call, breakdown those delinquencies, which we are not able to recover. Maybe next 2 quarters, we will receive somewhere. But still, we believe that the current growth momentum, which will help us to generate enough revenue to take such costs and we should be still positive in the Madura book, so from here on out.
Okay. Okay. Just I'm wondering, we took over the company Q3 or Q4 of FY '20. So it's close to 24 months now. And generally, the loans are for that tenure. So shouldn't -- I mean, I'm surprised by the 55% figure being the legacy book. Because it would have run off, right? The books run off very sharply in microfinance. So how come we have 55% still in the old?
Sorry, Anand, we are in the middle of COVID. We are not in the normal stable period. We were not able to go and implement the technology and all those things. It always needs a year to integrate. And 1 year, we have turned the integration and the new business, new book under the modern change is not easy for the old book, old book has gone off. So new book under the model, we started in October. We would have started in March, but again, COVID wave 2 impacted us. We had to postpone that. And we're starting September, October. So there afterwards, the new book build, that is 45% now. So old book is to run off. It will because this is the process it takes. We can't just convert the book into a model, which impacts the customers there. So we have taken a very pragmatic approach in doing it, and we believe what we did is right.
Sure, sir. Sure. Any ballpark expectation you have for write-off in Madura for the next 2, 3 quarters, as you said? Any sense you can give us on that?
No, you have the data in front of you about the NPA. And whatever we have, we have provided about it, right? Write-off will not impact the mobility, right? It's only the non-provided component will be impacted. So we have taken the recognized level of NPAs and provided against it.
Sure. And sir, in terms of the expansion plan, we added quite a bit of branches in last 2 years. How do you see branch addition going forward for, let's say, next couple of years?
So we keep taking stock at a point of time. Normally, we add the branches. If you see the history of us, we add about 10% to 15% infrastructure every year, which includes number of branches, employees, everything. So probably we should -- we will be going in a similar direction.
The next question is from the line of Abhishek Murarka from HSBC.
Congratulations for the quarter. Sir, the question is on Madura. So this new book and old book split that you've given, this is from what date? So are you counting from the date of your first investment? Or are you counting from the date of the official integration?
No, no, no. I'm counting -- when I said new book, I said book which is built in the Grameen model, not the new book in the new model. So we have shifted the model, transitioned to our own technology in that all, that book which is publicly fortunately the way what we do. So that we have actually already done. So that would be 45%, right? So Madura itself kept on disbursing money. That new book perspective is slightly different. But still, it is a old model, right?
Right. Yes, that's what I heard.
You are absolutely right. The new technology, new process, the new product, the new weekly, fortnightly model started in October which is -- this is the book I'm telling, which is exactly a Grameen model.
Right. So basically October, November, December, January. Those 4 months, that is 45%?
Yes. Exactly. Almost 10% is getting shifted, Abhishek. Every 10% -- every month, almost 10% is getting shifted.
Perfect. Perfect. That's what I thought, sir. And the other thing is, going forward, what is the BAU credit costs that we are estimating? And if I look at pre-demonetization, a long-period average was 1.5%. Post demonetization, now is coming to 2%, 2.5%. So there, what are we looking at an average business-as-usual credit cost?
Pre demonetization go up to 60 to 80 bps, not even to 1.5%.
Pre demonetization is not even to 1.5%. Yes, got it.
Post demonetization went to about 125, 130 bps actually, okay. So we believe it will, again, further getting added. We added 50, 60 bps going forward because of this important behavioral change impact because of 2 years of COVID, there are moratoriums, there are restructures. So some things are there for the industry, actually. So for the customer also. So based on this, there will be some behavioral change which will impact the overall discipline and the repayment behavior. That's why we believe it will be additional 50 -- at least 150 to 180 bps. Maybe your -- the best that we will create going forward.
Okay, okay. And are you able to still pass on higher yields? Like one of the impact of harmonization was expected to be like you could -- as an NBFC-MFI migrate to 22%, 23% yield. So are you able to charge anything higher?
Yes. We are expecting that. One of our reasons for reaching out to RDA is to consider the credit cost asset for the pricing actually. So it is what RDA has recommended in their doc guidelines. So we believe it will be implemented as soon as possible, sooner. So it will give us leverage to create the cost.
Right. And that would look like...
And still we should be able to give a stable returns to the investors.
Sure, sir. And sir, finally, on retail finance. 3, 4 years back when we started, we had a lot of plans for it. In the last 2 years, it has clearly been wound down, and it's just about 2%. But going forward, what is the plan for that book?
Got it. So the acquisition impacted the retail book actually indirectly. The investment that we made in Madura was catered as non-finance book, non-microfinance book because nonqualified asset. Let's say we didn't have headroom to grow in the retail book. In many case, unsecured book, we didn't want to grow also strongly probably. But we realize that this kind of event will hit the individual microfinance book. Definitely, it's not a good idea. After these 2 years, actually we learned the lesson on the this. And so we started reducing the portfolio, but now it's 2%. But our plan is to move towards the secured book. So we are already working on various pilots. I think last time also I appreciated this, we are working on business loan backed by assets, particularly properties, affordable housing, home improvement, [ home ] loan, [indiscernible] loan. All these are being worked out. We are actually building the team and developing that technology and then creating a pilot to learn the new centers. So my sense, we should -- we will have a very good traction in FY 2023 on this asset-backed book. By the time we complete the legal integration, we will get headroom to go also. So before that, we will be ready for -- with our pilots so that we can grow our secured book. So our target is to use the opportunity of non-microfinance portfolio. It will be secured book going forward. So we are working on that.
And any milestone, let's say, 2 years out, where this 2% should go? Maybe targeting at 4%, 5%. I mean, any milestone that you have in mind with respect to these loans?
Next 2 years, by '24, FY '24, we should be crossing the 10% to 12% in lease.
Okay. 10% to 12%, sorry?
By 2024, we should be achieving about 10% to 20% of our book -- secure book.
Of the overall microfinance of the GLP?
Correct, overall GLP. Because we are currently about 2020 maximum of about 13% to 14%. We can't do more because 85% has to be qualified, right? So at least 10% to 12%, the balance should be our normal balance sheet assets.
[Operator Instructions]
If there's no question, maybe I would request our CFO to give a...
Sorry to interrupt, but there are a few questions lined up just right now. Can we take that up?
Yes, yes, please. No problem.
The next question is from the line of [ Manoj Oberoi ] from Yes Securities.
This is Rajiv here. My congratulations on very strong numbers. So just one question from my side. You spoke about the new normal of credit cost being 1.5%, 2% going ahead. But when I look at your January collection efficiency, on the paying customers, including some overdue customers as well as some NPA customers who are paying, it's 99%. So why do you think that your incremental credit cost in a normalized environment will be higher at 1.5%, 2%?
So we need to see, Rajiv. So going forward, it may not be entirely stable as we have seen before 2016, okay? There will be -- and we are now across geographies. There are floods here, there are something else there. These are going to be common. So we have a very good stable 1 month, it cannot be reflecting our entire future, right? So the behavioral changes, one, which would impact 99% is good for a nonpaying customer. But still, we have other customers there who are defaulted also there, right? Almost 5.4% of customers' property is still there, right? So 1 month is great, but not necessarily all the month. So regular -- on a regular basis, it could be 1.5% or to 2%. It may be about 1.5% will be our stable business credit cost because it is -- credit cost is not just the write-off, the target credit cost including the provisions. The standard for this service is close to 1%, right? So what -- any additional will become the ECL of more than 1.5% to 2%. You remember before COVID, everything was stable, so ECL was almost 2% even though -- because standard itself, we provide almost 1%, right? So not it's not yet including your provisions.
Right, right. Sir, in this stage 2, we are holding 20-odd percent provision right now and of course, Stage 3 60-odd, but a lot of it will get written off and then we'll also build provisions in fourth quarter. Stage 2 on a stage-to-stage basis, what is the kind of provision we would typically hold? Would we want to hold a 30% on a stage 2 book going ahead?
It will be between 20% to 40% on a stable basis. Currently, what is happening in the stage 2 regular, a number of them are paying more than 50% of the deal. Then, sir, we have provided a little less that, currently. It's a 3 buckets within the stage 2. One is nonpaying. One is paying less than 50% overdue. On paying more than 50% overdue. So because of that, it's coming around 30%. But on a stable basis, it will be 20%, but stage 2 will not be that high also because it's only 50 to 60 days only, right? So it will be quite low. So in part, yes.
The overall quantum will come down, yes, correct.
Yes. Correct.
The next question is from the line of Madhu Gupta from Quantum AMC.
Most of my questions have been answered. Just one question on this item...
[Operator Instructions]
Am I audible now?
Yes.
So actually, most of my questions have been answered. Just 1 question. So the company has received an ICE notice of around INR 23.3 billion for the assessment year FY '19. So any update on that?
Madhu, we have updated this on 27 January to the exchanges. So the high court of Karnataka heard the case between December income tax and we have set up the order at this point of time.
Okay. So the order has been set aside. There was an entrance fee on that. So that's still continuing?
It will not stay. Now the order itself is set and held by the court.
Okay. So that means -- so that means the company does not have to provide for that contingent liability?
Yes, yes, yes. Even before also the tax experts or et cetera, has clearly told us that there's no need to provide. Even earlier also. But no, there is order to set this aside. There's no need of any provisions.
So in a way, sort of the company has won the case in a way? So that's the reason why it will not arise in future. Is that the understanding?
See, if you go back in the income by department and there will be -- again, they may have to relook at the case and then they'll come back, and then we'll say appropriately to them. So at least there is no demand at this point of time.
Okay. At this point of time, it's not there. But okay, got it.
We said if I may switch rates.
The next question is from the line of Abhishek Murarka from HSBC.
Sir, just on your cost. And your margin cost of borrowings is now quite low, but incrementally, how much of your borrowings mature in this year? And just given the TD rates, et cetera, going up, what is the general borrowing plan for '22/'23?
Yes, yes. short-term borrowing, it's already available in the slide actually. We have put in the bucket of short, medium and long. So I think about 10% is only the short-term or which is less than 12 months maturity. I agree that we have more than 40% is more than 3 year's bucket. There will be -- the interest hardening is potentially -- yes, actually. So -- but considering that we have a good line of grade from the bank with a lower cost and the legacy costs are a little higher on average basis, it should not increase too much. It may be the variant maybe 10% to 15% considered in the next 2, 3 quarters' point of view. So we don't see too much variation on the average cost of borrowing for us.
Okay. So the gap between marginal and weighted average, that 1%, will it still take some time to converge?
Yes. It will take. Currently, our weighted average is around 9.1% or so. So yes, maybe just a question of maybe even if a little hardening, at least for next 2, 3 quarters, it can be at 15% various basis points. There is variation potential, not more than that because of the legacy cost, legacy borrowings, which are being paid out and the new borrowing, you are getting at a lower rate. On average, it will be really at that point between, 9.1% to 9.3% only.
Sir, within your bank borrowings, how much would be linked to any external benchmark? Or not MCLR, any relevant step-forward detail or something?
No other. Only the external borrowing about 10%, 11% is linked to LIBOR. And that also annual effect, okay? The LIBOR can change and which can happen. Sorry, yes, that also has happened actually, given that. And domestic, maybe about 45% to 50% are floating, with that according to MCLR.
Okay. Yes. So but non-MCLR external benchmarking in case domestically is very low.
No, no. Insignificant.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.
Yes. Thank you very much for joining this call, and we appreciate all the questions. We hope we are able to give you clarity. In case anybody have further questions for the data requirement, please reach out to our investors desk so they will help you. Thank you very much. Have a nice day.
Thank you. On behalf of IIFL Securities Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.