CreditAccess Grameen Ltd

NSE:CREDITACC

Earnings Call Analysis

CreditAccess Grameen's Record Profit and Expansion

CreditAccess Grameen marked its 25th year with a landmark profit of INR 1,049 crore for 9M FY24, outpacing FY23's full year. The microfinance leader grew its customer base 19.2% yearly, reaching 46.93 lakh customers, and boosted AUM by 31.5% to INR 23,382 crore. A core banking upgrade enhances future scalability, coinciding with a CRISIL rating boost to AA-/Stable. Net interest margin remained strong at 13.1%. Despite brief challenges like Tamil Nadu floods, robust recovery is underway. The quarter saw added branches and stable borrowing costs, with a 50 bps lending rate cut reflecting improved operating efficiencies.

Record Profit and Aggressive Customer Base Expansion

The company has marked a significant milestone in profitability, with the recorded profit after tax reaching INR 1,049 crores for the first 9 months of FY '24, which is a striking increase from the full year profit of FY '23 at INR 533 crores. The growth narrative is largely centered around customer additions, amassing 14.86 lakh new customers over the past year. This expansion exhibits a healthy year-over-year growth of 19.2% in the customer base. Concurrently, Assets Under Management (AUM) rose by 31.5% year-over-year to INR 23,382 crores at the end of Q3 FY '24.

Operational Efficiency Amidst Challenges

Despite adversities such as floods impacting the Tamil Nadu branches, the company has exhibited strong recovery. The Gross Non-Performing Assets (GNPA) in Q3 FY '24 were affected by the usual business slippages and persistent delinquencies outside Karnataka, although the impact was somewhat mitigated by higher loan prices in other states. The company has successfully undertaken a technology upgrade of its core banking solution to improve scalability and business efficiency, which should lead to multiple benefits over time, including better loan pricing and decision-making.

Financial Guidance Reaffirmed

The management has reiterated its financial guidance for the year, although specific figures were not disclosed during the referenced discussion. They maintain firm adherence to their pricing policy, making decisions based on policy reviews rather than market pressure or actions by competitors. There's visibility on operational expenses (OpEx), which for the quarter, is maintained at a low of 4.4% and is projected to remain in the range of 4.5% to 4.6% for the near term, reflecting the company's continued focus on cost management.

Steady Asset Quality with Regional Variations

There have been no significant shifts in asset quality across most states, although minor delinquency increases of about 10 basis points have been seen in the non-Karnataka regions such as the northern part of Gujarat and some parts of Rajasthan. These increases may be due to local migration trends, highlighting the company's attention to geographical risks in its portfolio management.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the CreditAccess Grameen 3Q FY '24 Results Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ajit Kumar from Nomura. Thank you, and over to you, sir.

[Ajit Kumar, analyst]

Thanks, Zico. Good evening, everyone. On behalf of Nomura, I welcome everyone to 3Q FY '24 Earnings Conference Call of CreditAccess Grameen. From the management team, we have with us today Mr. Udaya Kumar Hebbar, Managing Director; Mr. Ganesh Narayanan, Chief Executive Officer; Mr. Balakrishna Kamath, Chief Financial Officer; and Mr. Nilesh Dalvi, Senior Vice President and Head of Investor Relations.

We will start with the opening remarks and then open the floor for Q&A. I'll now hand over the call to MD sir for his opening remarks. Over to you, sir.

[Udaya Hebbar, executive]

Good evening and wishing you all a prosperous New Year and Sankranti. We thank you all for joining the conference call to discuss our third quarter and 9 months of financial year '24 performance. This quarter holds a special significance in our 25 years of inclusive journey, as we redefined many possibilities and continue to display the benchmark standards of excellence in microfinance business.

Our profitability milestone touched the new mark as we recorded profit after tax of INR 1,049 crore for 9 months FY '24, way higher than full year of FY '23, which was INR 533 crores.

We successfully completed the core banking solution upgrade, enabling significant business scalability and making us future-ready. We received a credit rating upgrade by CRISIL from A+/Positive to AA-/Stable, making us the highest rated stand-alone microfinance company in India by 3 credit rating agencies.

Further, we are honored with renowned accolades such as Microfinance Organisation of the Year at Global Inclusive Finance Summit 2023 and Best Small NBFC 2023, at the Mint BFSI Awards Summit 2023.

The thrust of our growth story revolves around customer additions as we added 14.86 lakh customers in the past 12 months, of which 44% came outside the top 3 states. The customer base grew by 19.2% Y-o-Y to INR 46.93 lakhs, while the AUM grew 31.5% Y-o-Y to INR 23,382 crores at the end of Q3 FY '24. Disbursements grew by 10.3% Y-o-Y in Q3 FY '24 to INR 5,344 crore.

Business momentum was temporarily impacted during 2, 3 weeks in November '23, as we completed the major core banking system upgrade and migration process. It subsequently returned to normalcy in December '23, witnessing a disbursement of INR 2,245 crore and a new borrower addition of 1.2 lakhs during the month.

We opened 17 new branches during the third quarter, taking the total branch count to 1,894, spread across 367 districts.

Our average marginal cost of borrowing for Q3 FY '24 stood at 9.8% and 9.7%, respectively. We believe that our cost of borrowing should remain stable going forward in the near term. We draw good comfort from our diversified liability profile with continued access to funds from domestic and international lenders, improved credit ratings, also a well-capitalized balance sheet to maintain sufficient liquidity and strong control on our borrowing cost.

The interest income grew by 45.6% Y-o-Y to INR 1,245 crore. The net interest income grew by 41.6% Y-o-Y to INR 802 crores. Net interest margin stood firm at 13.1%. Operating cost efficiency further improved with a cost-to-income ratio of 29.5% and OpEx to AUM at 4.4% for the quarter.

PPOP stood strong at INR 602 crore, growing by 58.6% Y-o-Y. The gross credit cost stood at INR 126 crore, partially offset by INR 10.9 crore of added recovery resulting in a net credit cost of 0.5% for Q3 FY '24.

Our net credit cost during 9 months FY '24 stands at 1.3%. Collection efficiency, excluding areas, stood at 98.3%. GNPA measured at 60 plus DPD was at 0.97% compared to 0.77% in Q2 FY '24, whereas net NPA was at -- only at 0.29%.

Our PAR 90-plus 0.75%. The PAT grew 63.8% Y-o-Y to INR 353 crore resulting in ROA of 5.5% and ROE of 23.6%. Our 9 months of FY '24 ROE stood at 5.6% and ROE at 24.8%. Capital adequacy remained comfortable at 24.5% at the end of Q3 FY '24.

I shall now briefly discuss the small increase in overall PAR and GNPA during Q3 FY '24. As shown in the Slide 7 in the results presentation, the fresh PAR accretion during 9 months FY '24 has been within the guided range. The PAR increase during Q3 FY '24 was primarily driven by seasonality factors, slightly higher steady-state delinquencies outside Karnataka and the temporary impact of floods in Tamil Nadu.

The PAR in flood impacted Tamil Nadu branches has been coming down as we continue to witness strong recovery. [indiscernible] GNPA during Q3 FY '24 was on account of business-as-usual slippage and higher steady-state delinquencies outside Karnataka. The ECL provisioning rates both for standard and delinquent loans are higher in other states versus Karnataka. Hence, higher growth outside Karnataka will result in slightly higher ECL provisioning.

However, this will be adequately compensated by higher loan prices in the other states. I would like to inform you all that the company has reduced the lending rate by 50 bps for both MFI business as well as retail finance business during the December and January based on our Board-approved pricing policy.

The company reviews the lending rates every quarter, and the current rate cut has been on the back of consistent improvement in operating efficiency and stability in cost of borrowing and cost of borrowing trend over coming quarters.

We expect to maintain guided NIM as the full impact of revised pricing on portfolio yield will be gradually realized over coming 18 to 20 months.

Our proactive strategy of diversifying our liability profile has been executed very well over the last 6 to 8 quarters. As on December '23, our share of fund borrowings stood at 21.5% and the bank borrowings at 50.4%. The share of long-term borrowing stood at 75%.

We maintained a healthy positive ALM mismatch with the average maturity of assets at 18.7 months and the average maturity of liabilities at 24.4 months. We have always believed that the quality of lending business is equally determined by the quality of liability for achieving the sustainable growth path.

I would like to drive your attention to the major technology project that took place this quarter with minimal business impact. We successfully upgraded our core banking solution, which was implemented in 2015. This upgrade will lead to improved business scalability and meet increased business requirements, which shall have enhanced functional profit flexibility and product customization leading to faster go-to-market. Our digital initiatives, improved decision-making and risk management capabilities will enhance our responsiveness to evolving customer requirements.

In our growth story, technology is just not an enabler, but a business partner and hence, this is a big step in that direction. Lastly, we reiterate our guidance for the financial year.

Thank you for all your valuable time. We look forward to answering all your queries during our Q&A session. Thank you very much.

[Operator]

[Operator Instructions] The first question is from the line of Rajiv Mehta from Yes Securities.

[Rajiv Mehta, analyst]

Congratulations on good numbers. Firstly, sir, thank you for giving a very granular disclosure on asset quality in PAR movement.

So my first question is, given that the PAR situation is fast normalizing in the impacted districts of Tamil Nadu, would it be right to presume that our collection efficiency, which had dipped and credit costs, which are slightly spiked in Q3, should normalize or should come back to Q1, Q2 levels in Q4, if all the other regions hold up?

[Udaya Hebbar, executive]

See, Q1, Q2 was a little -- much better than what we anticipated. But Q4, we expect this to come back to normalcy, and we should be within our guided numbers, Rajiv.

[Rajiv Mehta, analyst]

Okay. Okay. And sir, also, now that you have implemented the CBS upgrade, can you quantify the efficiency increase post this? Maybe in terms of business or in terms of disbursement run rate, for the same branches, same LOs, does the disbursement capacity goes up by 5%, 10%, 15% more. Does it have any effect like that?

[Udaya Hebbar, executive]

No, I think it is not just the disbursement. Actually, it's a lot of other factors involved, it involves the scalability for the future, it involves in digitalization of many of our future efforts in retail lending area. And then we also -- the risk and risk mitigation in controlled areas. It also includes the efficiency of center management, group management, location management, travel route management.

So many different factors we actually baked in this upgrade. So I think it will be an overall it takes a little more time, maybe 2, 3 quarters to give a significant benefit to us. It will give benefit in all round area. It's not that 1 area, I would say. It will help us to go to market faster, it will help us to improve our paperless processing or speeding decision making, so many different areas, it works. So disbursement [indiscernible] process itself.

[Rajiv Mehta, analyst]

Got it. Got it. Got it. And just last thing on this lending rate, we have cut by 50 basis points. So I mean, you've kind of broadly explained. But still, I would want to ask you that -- we haven't seen any cost of funds reduction so far, and we are expecting only stabilization going ahead? And we are already the lowest cost lender in microfinance. So what prompted us to cut rates slightly early?

[Udaya Hebbar, executive]

See, pricing policy is determined by 4 factors. One, is your credit cost, other is the operating cost, one is funding cost and your capital cost. So we review this all 3 costs -- 4 costs every quarter. So we have seen that actually, we have major pricing policy initially based on the overall operating cost around 5% because we presume that it will be for a longer term as the new RBI guidelines will make the little higher -- make little higher cost because of the various factors there.

But as we kept on [ reducing ] it, now we are in a stable situation. If you see our cost has come down by almost 50 bps. So automatically, it makes us to pass on that benefit to customers because this is part of the pricing policy. It is not that one -- only borrowing cost will change and will pass on. So it's completely based on the existing policy, which need to be reviewed regularly. So even tomorrow, say, credit cost will go up next quarter, for example, to 25 bps, then we will have to go back and see whether we have to increase the price. Or credit cost goes down by another 25 bps, so we have to go back and check. So the policy clearly defines every quarter to review and recheck. So going by that process, Rajiv.

[Rajiv Mehta, analyst]

Got that. So basically, there was no competitive or growth angle in this decision making?

[Udaya Hebbar, executive]

No, no, no. Not specifically. It's more of a policy and then we have to go by policy.

[Operator]

[Operator Instructions] Our next question is from the line of Abhijit Tibrewal from Motilal Oswal.

[Abhijit Tibrewal, analyst]

Sir, just kind of circling back to the cut that we have done in the lending base about 50 basis points. I'm sure you would have followed that. I mean, another NBFC has reported, shared yesterday that they have also cut their leading rates by 50 basis points. So understandably, you have said in your opening remarks as well as in your presentations, why you did that and the pricing policy, which is in place. Just wanted to kind of reconfirm that. I mean, all the noise around -- and around RBI saying that -- the kind of net interest margins and eventually even ROAs that MFIs are making. There's not been any even soft communication from the RBI, right, which is prompting lenders to review their lending rates?

[Udaya Hebbar, executive]

So when -- if an institution does not form the right policy, and not right disclosures in the policy, definitely, RBI will keep harping and repeating the comments actually. So we have a high pricing policy. We have we kept on reviewing the policy over the quarter. So this [ movement ] is basically baked on our reviews.

But regulator will actually keep -- might ask you if there's a big change in the pricing, if there's a big change in the overall cost to customer, so they will always ask the industry to correspond and review the policies. I think that they are doing their job definitely. So we are doing -- in our responsible lending practices we keep reviewing the [ operations ]. So our passing on benefit is fully based on the pricing policy review.

[Abhijit Tibrewal, analyst]

Okay. Sir, my second question was on -- I mean, again asset quality, I mean, you have, I mean, articulated the impact which was there from the Tamil Nadu floods. But I mean, what we have recently started hearing is that MFI players are kind of also looking at calibrating their business growth in a few states.

So for you outside Karnataka, so non-Karnataka non-Tamil Nadu states, are you seeing, I mean, higher PAR in particular states where delinquencies are higher and you are maybe looking to calibrate your growth in some of those states, if you can speak about a few states if at all?

[Udaya Hebbar, executive]

So there's no significant change in any state. But yes, overall, if you see about 10 bps difference compared to last quarter to this quarter in the non-Karnataka area, particularly coming from North part of Gujarat and some part of Rajasthan, which was some kind of migration [ going on there ]. We are always very careful in those belts. So to that extent, we have seen little variation. But we are not seeing any significant variation in any of our geographies.

[Abhijit Tibrewal, analyst]

And sir, just in the interest of time, I wanted to squeeze in 1 last question. This time around, I mean, OpEx, whether we look at OpEx to AUM or cost income ratios have settled lower than where they used to be in the past, even lower than the last couple of quarters, I would say. So I mean, now given that you, I mean, have been acknowledging that there is positive operating leverage that you are seeing, where -- I mean, on a steady-state basis can either of these OpEx to AUM or cost-to-income ratio settle in?

And sir, another question, you might remember noticing just maybe picking. I mean we have added a few branches around 17 branches this quarter despite that about 250, 300 decline is there in the number of loan officers that you've reported. Is this usual attrition? Or I mean, how to kind of explain that?

[Udaya Hebbar, executive]

So there are few variations in loan officers at the quarter end has nothing to do with quarter end. It may be very small variation. There will be some attrition and some -- but we have actually higher than -- higher employees last quarter, actually, if you see. We opened -- we are planning to open more branches. Therefore, we are hiring more also.

So we don't have any shortage of employees in this area. And there may be a number of loan officers, which are allocated to different branches, maybe on training right now, therefore, it may not be in the loan offices buckets right now. So we have sufficient recruitment in place even for opening branches for next quarter also, that is on your second question.

And the first question is about the -- what is that actually? OpEx, yes, for the quarter, it is low at 4.4%. But if you look at the 9 months, it is 4.5%. So we are looking at least the near term between 4.5% to 4.6% only. So -- and then the OpEx -- sorry, cost to income between 31% to 32% kind of thing is what will be trajected cost-to-income ratio we are expecting.

[Operator]

Our next question is from the line of Shweta Daptardar from Elara Capital.

[Shweta Daptardar, analyst]

A couple of questions. If I look quarter-on-quarter Tamil Nadu portfolio. So while the loan book has definitely marginally sort of increased. But if you look at the number of borrowers, that has slightly come down. So is it that we have -- we are slightly calibrating your -- after the flood impact or the business has already normalized in the entire region?

[Udaya Hebbar, executive]

Yes, I couldn't get your question.

[Shweta Daptardar, analyst]

So if I look on quarter-on-quarter movement in Tamil Nadu belt. Sir, if you look at the loan book that has actually gone a tad higher on a sequential basis, but the number of borrowers -- hello? Sir, am I audible?

[Udaya Hebbar, executive]

Correct, correct, correct. Tell me. So there is slight dip in the borrower...

[Shweta Daptardar, analyst]

Yes. Sir, despite the flood impact, the book as well as the borrowers have slightly gone higher quarter-on-quarter sequentially in Tamil Nadu portfolio -- in Tamil Nadu geography...

[Udaya Hebbar, executive]

Shweta, flood impact happened on 15 December. We have grown from 1st October to 15 December, right? So only 4 districts in the -- on 15 December, afterwards we had -- or 22nd December, sorry, we had some impact, right? Till then, we have grown for both portfolio as well as [ borrowers ] both have grown actually. So I think we are not reduced any growth. That 4 districts, of course, it will take some time to come back to normalcy. So it's already working on that. Other [indiscernible] we're growing, there is no problem there. So number of borrowers reduction -- it's not reduction actually, it's gone up only. Borrowers gone up, portfolio gone up, both gone up in Tamil Nadu....

[Shweta Daptardar, analyst]

Okay. Okay. Got it. Sir, as far as the unique borrower count is concerned, what is the number today?

[Udaya Hebbar, executive]

We are at about 33%, 34%.

[Shweta Daptardar, analyst]

So sir, if I compare with corresponding quarter last year, we definitely were north of 40%. So this is -- is this the outcome of growing outside of home turf. Or is the trend which we'll continue to see going on for that.

[Udaya Hebbar, executive]

Yes. I think if we have to be -- competitively grow in this segment, you need to attract customers from other MFIs. If we attract customers from other MFIs, your [ unique ] count will come down for a period of time. So I think it is no different than growing in all the areas and then competitively advancing. So -- but the good part is, when the customer in the other MFI who joins us, we are seeing in a year, almost 11% of them becoming unique customer to ours. So while joining obviously, there will be in some other MFI, and we are seeing that kind of migration from MFI to us. So I think it's a good part of our expansion trajectory.

[Shweta Daptardar, analyst]

Just a follow-up there on similar lines, the first cycle ticket sizes have also been increasing right, for us?

[Udaya Hebbar, executive]

No. If you look at the slide, for continuously [indiscernible] less than 3 years bucket is same, 40,000 to 40,000 to 40,000 last 4 quarters.

[Shweta Daptardar, analyst]

Okay. So that was always around 40,000-plus. It was never lower than that?

[Udaya Hebbar, executive]

Correct. You are right.

[Operator]

Our next question is from the line of Piran Engineer from CLSA.

[Piran Engineer, analyst]

Congrats on the quarter. And I dialed in a bit late, so I apologize if this is repeated. Just firstly, our client addition of 90,000 was weaker than our usual run rate, right? So any particular thing to read into this?

[Udaya Hebbar, executive]

I think we said that we actually grow -- I mean that the impact was 2 to 3 weeks in November. If you read the Slide 6, we mentioned that actually, there was a lesser disbursement and customer acquisition in November because of our core banking system upgrade and we came back in December. So some [indiscernible] dip in the actual borrowers. Whereas, customer acquisition is still on a quite -- 2.7 lakh growth in this quarter. So which gets converted over a period of time.

[Piran Engineer, analyst]

But sir, I think 1 month worth of customer acquisition of [indiscernible], it would have went from 90,000 to 1,35,000, so it's not -- it's still lower than what it was last quarter.

[Udaya Hebbar, executive]

There is 1 lakh difference because previous quarter, we acquired 3.7 lakh customers. And this quarter, we acquired 2.7 lakh. There's a 1 lakh difference is there in the acquisition. So the borrower growth is not just the acquisition. You are having release and, what we call, attrition also comes there. Attrition, write-off, both comes in the quarter also. You need to look for a longer period.

We have actually mentioned specifically, the 12 months, how much we acquired, how much attritted, how much written-off, everything. So therefore, I think in the quarter, based on this data, we cannot presume that the growth is low, right? We had a 19.5% -- 21.5% customer growth in the 12 months' time.

[Piran Engineer, analyst]

Okay. So let me ask it in another way. For the full year, are we still confident of 25% growth?

[Udaya Hebbar, executive]

Yes. We reiterated that...

[Piran Engineer, analyst]

Growth of 11% for the first 9 months?

[Udaya Hebbar, executive]

All the guidance, we reiterate that we will be able to deliver.

[Piran Engineer, analyst]

Okay. Okay. Fair enough. Sir, secondly, just our OpEx is down Q-o-Q. Can you just remind us what happened there?

[Udaya Hebbar, executive]

So we've become more efficient.

[Piran Engineer, analyst]

I mean [indiscernible] not absolute.

[Udaya Hebbar, executive]

No, no, no. There is -- no, no, there's not truth. I mean, obviously, we normally -- actually efficient OpEx -- if you see the always trajectories, first quarter OpEx will go up, second quarter little down, third quarter little low, fourth quarter further down. These are normal trajectories in the microfinance business. But we are a little higher because there is 1 component about INR 5 crores there is a reversal in the Q3, which is employee cost just pointed higher in the previous quarter. To that extent, this is small aberration actually. Otherwise, it's in the normal steady-state numbers, Piran.

[Piran Engineer, analyst]

Okay. Okay. Fair enough. Sir. And just last question. I don't need to harp too much on this. So the 50 bps interest rate reduction that you have done, how would you think about revising your NIM guidance for next year. Now 1 quarter seems to not change, but for FY '25?

[Udaya Hebbar, executive]

No, no, it needs -- it takes almost 20 months to give you impact of this. It won't happen in 2 quarters or 1 quarter, 2 quarter, actually. It has a 50 bps divided by 20 months, that's impact, actually. So it won't impact anything majorly in any of the quarters. And in the meantime, there will be changes in the quarter borrowing, we see the steady-state, there'll be change there also. So we can -- we keep checking that again and again, we don't see any major impact on our NIM guidance because of this rate cut.

[Operator]

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

[Omkar Kamtekar, analyst]

So first question is with respect to the core banking system upgrade that we have upgraded. So technically speaking, with this update, we will be effectively a bank at scale and technology. Would that be a fair assumption?

[Udaya Hebbar, executive]

Absolutely, you're right.

[Omkar Kamtekar, analyst]

Okay. So in effect, we are a MFI banking company. And with respect to that, then we are also planning to expand ourselves, our presence in other locations and the branch additions that we have made, we have added 17-odd branches in the quarter and over 100 branches in the 9 months. So incrementally, how are we looking to expand? Are we looking to expand in geographies that we are not present or we are further going deeper into the existing geographies. How is the branch addition going to look ahead?

[Unknown Executive]

Okay. Thanks, Omkar. Omkar, most of our expansion has been in our newer geographies, right? So when I say we are not entering new states, wherever we are in our 16 states, leading our top 3, 4 states, our expansion in branches would be significant in the other states. In the top 3, 4 states, our expansion will only be by way of split branches because of the size of the branch.

[Udaya Hebbar, executive]

Yes. When we expand in other states, it's always a district-based expansion going into -- on the contiguous districts only.

[Omkar Kamtekar, analyst]

Okay. So what we -- so what we do is we are tapping into the districts of the particular state. So, for example, if it is Kerala, so specific district that we have not covered, we enter those first time then we move out of the state if it is completely saturated. So that's the way it is?

[Udaya Hebbar, executive]

Yes. Correct. Correct.

[Omkar Kamtekar, analyst]

Okay. And just a clarification and I would want your understanding on. So effectively, we -- with our OpEx to AUM also coming down, staying lower, our cost to income is also being near industry leading at 31%-odd. So I would want to understand how are we able to sustain this? And this effectively becomes like a cost leadership advantage for us. So how -- can you please give us a color some as to how are we able to sustain? Is this sustainable for, say, 2, 3, 4 years or 2 or 3 years, 3 or 4 years would be -- 2 or 3 years?

[Udaya Hebbar, executive]

We believe this is sustainable because we have been sustainable at less than 35% continuously so far because of the low operating costs, low borrowing costs as well as a better NIM, what we have. I think we expect further improvement in efficiencies also. We strongly believe that we can remain between 31% to 32% or 33% of cost-to-income ratio going forward.

[Operator]

[Operator Instructions] Our next question is from the line of Nidhesh from Investec.

[Nidhesh Jain, analyst]

So firstly, on asset quality, there is also a bit of an uptick in the PAR 30 number from 90 basis points to 120 basis points. So what explains that?

[Udaya Hebbar, executive]

No, that's actually -- the slight increase in other states, that is what we said. There's some seasonality factor normally in the Q2, Q3. So to that extent, there's increase in the PAR 30 but it is much -- is equal to Q1, March 31st to some extent. So we always believe that every Q2, Q3, due to rain, due to holidays, due to festivals, sometimes there is an impact. To some extent there will be an impact.

[Nidhesh Jain, analyst]

Sure, sir. Secondly, what is the customer acquisition number for the last quarter? This quarter, you have disclosed around 2 lakhs, but for the last quarter, what was the number?

[Udaya Hebbar, executive]

Previous quarter 3.7 lakh -- 3.3 lakhs and 2.7 lakh. 2.7 lakh is Q3, 3.3 lakh is Q2.

[Nidhesh Jain, analyst]

Okay. 3.3 lakh has become 2.7 lakh just because of the 2 weeks of -- 2 or 3 weeks of delay as it would have been...

[Udaya Hebbar, executive]

Correct. So November is a half month. Correct.

[Nidhesh Jain, analyst]

And sir, out of this 2.7 lakh customers that we have acquired, how much -- how many are new to credit, new to microfinance sector?

[Udaya Hebbar, executive]

Almost 33%, Nidhesh.

[Nidhesh Jain, analyst]

Okay. So that trend still remains, even in the new geographies and we are still able to [ continue to 33% ]. Largely on the retail finance side, what share of the book which will be unsecured, which is individual loans to customer and what is a secured portfolio there?

[Unknown Executive]

The total retail portion is around 2.1%, of which I think majority at this point of time will be the unsecured graduated loans because the mortgage book -- yes, 80% is unsecured loans, the other 20% is your secured loans.

[Operator]

Our next question is from the line of Abhishek Murarka from HSBC.

[Abhishek Murarka, analyst]

Congratulations for the quarter again. So -- can you talk a little bit about the borrowings. So you've been bringing down your bank borrowings for a while. And again, this quarter, we've seen a bit of an increase, especially in light of the fact that this is the quarter where probably there would have been an increase in the cost as well because of the RBI circular. And also your marginal cost is now almost equal to your outstanding book cost, and it is inching up. So how do you see that? Can you just talk a little bit about what's the policy and strategy here?

[Udaya Hebbar, executive]

It's some contra data, Abhishek. So marginal cost has come down. Bank borrowings also has come down from 55% to 50% compared to previous quarter.

[Abhishek Murarka, analyst]

[indiscernible] I think it has gone up, right? Sequentially, the absolute amount has gone up, I think?

[Udaya Hebbar, executive]

Yes, amount would have gone up, but the book has grown, no. Amount will go up, but the percentage of the bank borrowing actually came down in terms of overall liability. So value would have gone up because of the overall borrowing would have gone up, sorry actual number would have gone up. And then marginal cost also is stable 9.6% to 9.7% so that's also stable. But the bank borrowing might go a little up in the Q4 because we are planning to draw the maximum money from banks in this quarter because there are a lot of sanctions undrawn from the banks.

So that normally first and second quarter, we venture for the other kind of borrowings and the quarter 3 and quarter 4 normally borrowed from banks. So -- but still, our idea is always to keep it lower in terms of bank borrowing between 50% to 55%. Balance 45% will be diversified between the international, the DFIs and the NCDs that's what we are doing. And we believe this will change by 5% for the next few years, more 45 to 50, 50 to 55 kind of things.

[Abhishek Murarka, analyst]

Okay. And what would be the marginal cost of borrowing from banks in international and DFI today?

[Udaya Hebbar, executive]

Marginal cost of banks and maybe -- I mean, I will give you a rough number, marginal cost from a bank borrowing may be around 9.4% to 9.5%. International may be 9.8% to 9.9%. DFIs is also approximately 9.6% to 9.7%. And public deposit also -- public NCD also 9.4%.

[Abhishek Murarka, analyst]

Okay. Okay. So all of it is roughly around your outstanding cost?

[Udaya Hebbar, executive]

Correct. That's why average is around 9.8%, stable.

[Operator]

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

[Omkar Kamtekar, analyst]

So sir, firstly, I wanted to ask about the leverage. So currently, our ROE is close to 24% and the ROA is 5.5%. So it implies a 4.4x leverage. And what are -- we are looking to maintain this kind of leverage or we will be looking at any equity raise or some ways that the leverage does not go really high or are we looking to increase the leverage?

[Udaya Hebbar, executive]

Just to correct, leverage is 3.5%, not 4.5% -- okay, so we philosophically always want to maintain at least 20% of capital. So currently, we are at 24.5%. So we are not expecting to raise any capital for at least next 2 to 3 years' time.

[Omkar Kamtekar, analyst]

Okay. Okay. So in that case, I think, the leverage would continue to increase. So if we maintain this kind of ROA, so the ROE would maybe further ramp up, if that is the case?

[Udaya Hebbar, executive]

May not be, may not be because what we are expecting the growth and the ROE may be almost equal. Therefore, to a large extent, this would remain in the same range bound, actually.

[Omkar Kamtekar, analyst]

Okay. And lastly, with respect to the retail loans. So in the product range suite that we have mentioned, what I have observed is the average per loan amount of the retail product has increased. So it has increased from 51.2 thousand in previous quarter of the last year, 162.5 in the current. And I think on an overall basis, this will also pull the total borrowing of per borrower -- so is this continue -- is this trend going to continue? Or are we looking to cap it at a certain level?

[Unknown Executive]

You will continue to see increase in the average outstanding retail finance because you are also building your LAP book where your average is over 5 lakhs, right? So as that book moves up, we will keep moving up.

[Omkar Kamtekar, analyst]

So this will materially move higher. So what is the maximum amount, I did not catch that. What is the amount, that you said, retail finance?

[Unknown Executive]

In our loan against property, the average ticket size is a little over 5 lakhs, right? So as that book keeps building up, so the average of retail finance will keep moving up.

[Udaya Hebbar, executive]

Both digital loans as well as LAP these are the 2 key retail finance products, both are higher than the microfinance average actually. So the digital loan is in a range of [ 1.5 lakh ] kind of average. But as secured loan, which is LAP, is around [ 5.7% ] average, currently. So therefore -- and this portfolio will keep growing up, therefore, retail finance average will go up eventually.

[Omkar Kamtekar, analyst]

Okay. And from the previous con call, what I remember, we are looking to increase this to approximately 12% to 15% of the total AUM was the last -- October session that we had, are we looking to keep it at that? Are we improving that to higher levels of the total AUM going ahead?

[Unknown Executive]

Yes. So this 12% to 15% is a medium-term guidance that we have given, right? So we stick to that and we will be [ range bound there, yes ].

[Omkar Kamtekar, analyst]

Okay. Medium term. Okay. And then the approximate. And just to clarify, on the current guidance of 25% loan growth, I think we'll be close to 2x of the AUM in 3 years' time, so FY '27, so the total size of the book will be close to 6 to 7 -- sorry, 8,000 to 7,000 of the new retail, new products. Would that be a fair assumption?

[Udaya Hebbar, executive]

No, no, sorry. So it's actually -- we said that by '27, '28, we would reach about 12% to 15%. So by that time, would reach that. So it's not 3 years, it's 4 years -- 4 to 5 years.

[Omkar Kamtekar, analyst]

Correct. Correct. Okay. Pardon me, sir. Okay. I understood that. So '27, '28, we'll be there to, 6,000 to 7,000, understood.

[Operator]

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

[Nidhesh Jain, analyst]

The attrition of the customer is -- almost 15% of the opening customer base is getting attritted. So any strategy to reduce customer attrition? And what is the reason that we continue to see almost 15% of customers getting attritted in a year's time?

[Udaya Hebbar, executive]

The 15% is a range bound average between 85% to 88% is retention continuously. It's one of the best retention at this point of time in the industry probably. I think that the retail product, what we have launched [indiscernible] majorly to address this kind of customers who are graduating from a microfinance who would expect better product, higher differentiated products. So therefore, I think as we grow the scale finance. So we will address the majority of the customers who are attritting because of the product gap [indiscernible].

But the customers who really don't want to borrow, don't -- we don't want to lend them. To that extent, always 10% to 12% customers will be there, we may not want to lend them again. So that is a trend always. Almost 8% of customer we always attrite because we don't want to lend to them. About 4% to 5% leaving because they didn't have a proper product with us. So we addressed that factor right now. So I think going forward, we will be able to retain that kind of customer. So we may retain -- attrition might eventually come back to about in 10% to 12% from 15%.

[Operator]

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

[Kashyap Javeri, analyst]

Congratulations for a great set of numbers despite some of the events during the quarter. I have 2 questions. One, if I look at your book in Madhya Pradesh, that's not been sort of growing for almost about 4 quarters, stagnant at about INR 1,450 crores. Any particular reason why that's happening? Second question is on overall ticket size now. If I look at, again, 2 states, Karnataka as well as MP, ticket sizes are either stagnant or declining. On the overall ticket size, what's the view going forward?

[Udaya Hebbar, executive]

So Madhya Pradesh specifically, during the year, we saw some vulnerability in some districts, particularly migration [indiscernible]. But it is not that permanent. Probably we already started growing back there. So we fixed some of the issues, whatever there. We are back into it. We will grow in Madhya Pradesh also.

Karnataka is always a growth of high single digit. We never wanted to grow very high in Karnataka. So it is not -- and our effort was to have to diversify the other states. Therefore, the focus is more on the newer states in terms of growth. Karnataka is more of retaining our clients and maintaining the high-quality portfolio.

[Kashyap Javeri, analyst]

And overall ticket size, let's say, Karnataka is about 63,000, then you have Maharashtra and Tamil Nadu at 53 and 49 and then MP and others at about 42 and 37. Overall, each of the states eventually can converge with Karnataka or its -- Karnataka is different because of our longer-term presence there?

[Udaya Hebbar, executive]

No, there are 2, 3 factors. One is about the vintage of the clients, how long customer is with us, what type of vintage they are with us, so that determines the ticket size.

Second is the income level. What you can give at the first cycle, second cycle, third cycle based on the income of the client. So some states, we may not increase the ticket side at the higher level, even though the vintage is going up. So it may not be as same compared to Karnataka, but probably for a number of customers will go up, not necessarily the same level of ticket size.

So it will evolve over a period of time. Only when -- for example, Tamil Nadu right now is 41,000 not because of the vintage it's because we [ merged ] the Madura, which used to be very low ticket also. So that's why it's a little. That will grow up, actually. Maharashtra is stable state. So it will remain at 50,000 to 55,000 average ticket size. So each state will have its own different, different features. But largely, determined by vintage, income of the client. So these 2 are the key different -- key deciding factors.

[Operator]

Ladies and gentlemen, that was the last question of our question-and-answer session. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

[Udaya Hebbar, executive]

Thank you so much, everybody participating in the late evening. So we'll catch up next quarter. All the best and have a nice day.

[Operator]

Thank you. On behalf of Nomura and CreditAccess Grameen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.