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CreditAccess Grameen Ltd
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Ladies and gentlemen, good day, and welcome to CreditAccess Grameen Limited Q4 FY '22 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you, Mr. Bhuva.
Yes. Thanks, [ Nital ]. Hello, and good morning to everyone. Welcome to the CreditAccess Grameen Q4 FY '22 Earnings Conference Call.
From the management team, we have with us today Mr. Udaya Kumar, our Managing Director and CEO; Mr. Ganesh Narayanan, Deputy CEO and Chief Business Officer; Mr. Balakrishna Kamath, CFO; and Mr. Nilesh Dalvi, Head Investor Relations.
I will now request Mr. Udaya Kumar to take us through the earnings highlight of Q4, and then we'll open the floor for Q&A. Over to you, sir.
Thank you. Thank you, Renish. Thank you, [ Rishek ]. Good morning to everyone. Our sincere thanks to all you -- all of you for joining us today morning to discuss our fourth quarter and FY '22 financial performance.
We have successfully navigated the year, exceeding the revenue performance guidance on the back of more robust operation controls and catering to pent-up demand in rural India. The rural economy is showing strong signs of rebound, coupled with an expected good monsoon toward India [indiscernible].
Our consolidated gross loan portfolio grew by 22.2% Y-o-Y to INR 16,599 crores on the back of 38.2 lakh borrowers. The borrower base shows a 2.2% Y-o-Y decline due to 3.8 lakh borrowers written off during FY '22. However, on a Q-o-Q basis, we have reached a 2.3% increase in strong borrower addition traction in Q4 '22. We added roughly 3 lakhs new borrowers in Q4 FY '22 on the back of an expanded branch network and stable operating environment.
Over the last 12 months, CA Grameen acquired 5.8 lakh borrowers, of which 49% were outside the top 3 states, showing the good [indiscernible] calibrated diversification efforts. In the same period, MMFL added over 1 lakh new borrowers, of which 49% were outside Tamil Nadu. Overall, disbursement grew largely in line with the portfolio growth on a Y-o-Y basis to INR 5,792 Q4 FY '22 on a consolidated basis.
MMFL is currently [ show a strong growth directly ] with [ 65% ] of the book being converted to CA Grameen model at the end of March '22 reflecting very superior asset quality. [indiscernible] products and services are being offered based on our [indiscernible] concept with flexible [ settlement ] option [ plan ], weekly and biweekly.
At CA Grameen, collection efficiency has largely [indiscernible] reaching 96% excluding arrears while, including arrears, figures stood at 97% in March '22. Excluding nonpaying customers, collection efficiency goes to [ 91.5% ] for the same period. The collection efficiency at MMFL, which constitutes [ 17% ] of our consolidated GLP has been consistently improving with 92% collection efficiency excluding arrears and 94% including arrears in March '22 compared to 89% and 91% respectively in December '21.
Collection efficiency for April has improved further 97% excluding and including arrears for CA Grameen. And for Madura, it showed at 92%, excluding arrears and 93% including arrears for the same period.
The asset quality at CA Grameen has shown remarkable trend with PAR 30 reducing from 5.6% in December '21 to 3% in March '22, whereas PAR 0 stands at just 3.6%. At MMFL, PAR 30 reduced from 11.1% in December '21 to 7.5% in March '22.
On a stand-alone basis, core NII grew by 10.4% Y-o-Y to INR 446 crores, while NIM stood at 11.5% for FY -- sorry, Q4 FY '22. Adjusting for the impact of interest income de-recognition, NIM would have been 12.5%. The cost-to-income ratio stood comfortably at 30.4% while OpEx to GLP [indiscernible] at 4.5%. PPOP grew by 10.9% Y-o-Y to INR 332.2 crores.
Impairment cost was INR 128.3 crores which also included the impact of write-off in -- write-off of INR 243 crores. Our credit cost was partially offset by -- there's a [ INR 70.8 crores ] bad-debt recovery during the fourth quarter.
PAT for the fourth quarter was INR 152.1 crores leading to ROA of 4.1% and ROE of 15.6%. GNPA [indiscernible] reduced from 5.5% in December '21 to 3.12% in March '22, and NNPA reduced to 0.9% as of March '22. PAR 90, which is standard across our company, stands at 2.26%. NPL stood at 3.19%.
On a consolidated basis, our NII grew by 11.4% Y-o-Y to INR 1,653.2 crores for FY '22. PPOP grew by 13.2% Y-o-Y to INR 1,077.5 crores. Credit cost declined 22.6% Y-o-Y to INR 596.7 crores compared to INR 771.4 crores a year ago.
Bad debt recovery stood strong at INR 74.1 crores in FY '22 compared to INR 15.7 crores in FY '21. PAT for FY '22 grew at 171.8% Y-o-Y to INR 357.1 crores, resulting in the ROA of 2.2%. On a consolidated basis, our GNPA was 3.61% and NNPA was 1.31% as of March '22.
Liquidity continues to remain comfortable with total cash and cash equivalent to INR 1,761.4 amounting to 10.1% of total assets, while capital adequacy remained strong with 22.8% at a consolidated level.
We'll continue to tap new geographies and cater to unserved and underserved markets as a part of our capital [indiscernible]. A total of 211 branches have been opened during FY '22, of which over 91% came outside of the top 3 states, while overall branch network stood at 1,635 at the end of March '22.
The Q4 -- [ if I will point ] in the Indian microfinance industry with the awakened new microfinance guidelines announced by the Central Bank creating a level playing field. CA Grameen, being the industry leader, stood at the forefront to capture the maximum opportunity with its deep [indiscernible] focus, company [indiscernible], one of the highest customer retention and strong governance standards.
The microfinance market scope has widened. We received 3 lakh household income providing [indiscernible] at a significant [indiscernible] market share expansion and anticipation of both higher [ and fixed income ] assets, given our unique customer-centric business model.
We have set on a very [indiscernible] journey of catapulting from [indiscernible] to meeting the financial requirements of the entire household by leveraging the microfinance system and increasing wallet share per household in line with the recent [ desire ] of being the preferred financial [ partner ] for lower income households.
We take confidence of the rising interest rate and [indiscernible] scenario and believe that we shall continue to remain competitive. The new microfinance guidelines announced by RBI allowing us to be exports-facing will have a positive impact on [ loan-facing ]. [indiscernible] increase in the cost of borrowings can be gradually passed on to the [indiscernible] partially offset by moderate margin compression in the existing loan portfolio. Further, compared to FY '22, FY '23, we'll witness lower interest reversal and lower negative [ value ] impact [indiscernible] which will boost net interest margin.
Based on our current estimated liability profile, we believe that even at a 100 bps increase in benchmark rates, and even if entirely passed on by the lenders which will result in [ 20 to 25 ] bps increase in [indiscernible] cost of borrowing by March '23 compared to March '22. [indiscernible] rate of floating rate -- rate of floating new borrowings will be partially offset with decline in the share of higher cost [ subsequent ] borrowings. Hence, we believe that our average cost of borrowings for FY '23 remains at the range of [ 9.2% to 9.4% ] on a [ consolidated ] basis or non [indiscernible] situation. Overall, we foresee NIM to improve by 50 to 60 bps in FY '23 compared to FY '22, thanks to risk-based [ taking ].
Assuming a stable operating environment, we look forward to achieving loan portfolio growth of 24% to 25% in FY '22. Our portfolio growth may remain muted during Q1 FY '23 as we implement the new RBI guidelines on the field and ensure required [indiscernible] on new process and controls to our employees. Also many of the processes will be put in reviewing multiple credit bureaus, assessing the [indiscernible], et cetera, would remain a manual process for a few months. However, we are confident of achieving the gradual growth for the financial year.
We are anticipating a [indiscernible] cost of 1.8% to 2%, which would include the impact of residual write-offs on account of [indiscernible] during [indiscernible] for CA Grameen and MMFL book. Overall, we aim to achieve an ROA of 4% to 4.2% and ROE of 16% to 18% in FY '22.
On [indiscernible] platform, along with the MMFL and I think by our overall focus, customer-centric approach, strong liquidity, capital adequacy, highly experienced management and strong balance sheet, gets us at the forefront to drive growth in the largest microfinance industry in the world.
With this brief note, I would like to open the floor to you for any questions.
[Operator Instructions] The first question is from the line of Nikhil Rungta from Dipan Ingham Mutual Fund.
Congratulations on this great set of numbers.
Sir, 2 questions from my side. First is, you have already given a slide on how Grameen is well placed in the rising interest rate scenario and you based upon that in your opening remark as well. But I just wanted to know, historically, whenever they're having -- I mean, whenever Grameen has been in the rising interest rate scenario, how has the portfolio performed?
So in the rising interest scenario, one thing [indiscernible] is to play best case for our customers, Nikhil. If you observe, we have been able to trade much better among the industry player for our customer, which entirely has helped us to retain our customers and then manage our portfolio better. And we are able to view without modification of NIM, actually. By and large the NIM remains same despite interest rates is high cost [ something ].
So for example, FY 2018 and 2019 have higher interest rate scenario. Our NIM used to be around 1.5 and [ 12.5 ] actually. We're able to manage better. And we're able to trade better. The competitive edge is always there, being a largest player and able to -- ability to negotiate with the bank for the [ value pay ], which also helps us to trade our customers and retain our customers and also build our portfolio which [ always help us ].
Okay, okay. And so whatever this impact we'll see will be taken care of from rising yields, can we say that?
Absolutely, absolutely. We are not actually expecting any reduction in NIM on [indiscernible]. It will be only improved because we have a double impact. One is our repayment obligations are high paced and on borrowing, we detect lower paced than the current average borrowing cost, actually.
That is why we expect that you will need 75 bps increase or 100 bps increase in the financial year, but actual increase may not be more than -- I mean credit [indiscernible] for example, and we have agreed to pass on the price, pass on the cost to customers. And third one is ability to trade based on risk where risk is higher, price little higher, which will be additional advantage.
Right. Sir, second question is you had mentioned that provisioning in FY '23 could be in the range of 1.8% to 2%. But on a normalized scenario, you have always highlighted that the sustainable provision should be around 1.4% to 1.5%. So can we say that this additional 30 to 40 basis points is because of write-off of these pending things which are there. And this will be taken care of in earlier quarters itself?
Got it, got it. So we need to recognize that we still have 1.3% NNP as of March '22, correct? So this will -- this [indiscernible] which will actually get written off or the cost allow to be taken in the Q1, Q2. So that is why the average cost probably will go up to I mean, 1.8% to 2%, including [ group ] costs.
And we'll maintain the policy of NNPA at 0%?
Most probably yes because we'll go with the IND AS route, [indiscernible] for example. It all depends on how the cadence [indiscernible]. To a large extent, we will continue to recognize the RBI recognition of [ rates ] which is going to be [indiscernible] continuously.
The next question is from the line of Kashyap Javeri from Emkay Investment Managers.
Congratulations for a great set of numbers. 3 questions from my side. One, if I look at assignment, we have gone looking [ strong ] this year, and considering that the incomes from that part is also significantly lower versus last year. So one, what is the -- what was the sort of processes behind the assignments this year? And how do you see direct assignment funding's [ direction ] next year? That's the first question.
Secondly, in terms of our gross Stage 3 and net Stage 3, I can't find actually the absolute numbers in the presentation. So if you can probably help with that.
And the last question is on the OpEx side that this year, we have seen a lot of growth. I'll throw out a number, [ 30% ]. For medium term, let's say, next 2, 3 years, what will be the expense growth? And would there be any savings on [ cost to income ] ratio?
Sure. So BL is one which is actually an instrument which we use as a short-term funding, only where there is a demand or request from our lender because we prefer borrowing term loan, we normally not prefer to do assignments and [ to go off ] balance sheet. With efficient and adequate capital adequacy, we wish to grow in the balance sheet, not to do BL. But sometimes, we have obliged some lenders who require the BL, that is why we do, because it's only based on the demand from the bank. Otherwise, we prefer not to do BL. So that's the first question. Based on demand whenever we have to sometimes oblige, that is why we do BL on the BL front.
Otherwise, our interest is not to do BL. We want to remain growing in the balance sheet growth rather than do it through BL.
Gross[ trade ] maybe[ it shouldn't be ] because the OpEx, I will tell you. OpEx will actually continue to go down based on economy of operation. Maybe we had a bit of exception we would see in the first half of this year while managing the new regulation. Maybe we'll have some, what we call, inefficiency because of manual processes we have to follow. But it will remain lower than the current year for next year. But while we are already in the optimal OpEx stage, the reduction will not be very high. It will be lower.
So probably we took 4 years to bring it from 6% to 5%, probably, we need another 4 years to take it from 5% to 4%. So that's why [ in the ] OpEx, optimal level of OpEx, the changes, it will not be very fast. It will be slow, but it will be continuous improvement. Take the assets actual number.
Kashyap, it's on page number -- Slide #8 and Slide #10, yes.
There is a reconciliation of the entire...
But I remember, we have given for CA Grameen stand-alone, wherein the GS3 is 3.1% and net NPA is 0.9%. And on Slide 10, it is for Madura, wherein the GS3 is 5.8% and NNPA is 3%.
[Operator Instructions] The next question is from the line of Amarnath from Ministry of Finance of Oman.
Am I audible?
Yes, sir, you are.
Sir, considering your past performance and the current year, GLP growth of 22.2% and all the favorable points you said so far, I'm surprised why the future guidance for GLP is just 24%, 25%. When everything has fallen to the place in current year and maybe next year. Did you take conservative assumptions or there is a headroom for it?
Actually, as the base increases, speed of the growth will not be exactly when the base are small, right? So it's actually a kind of industry growth -- more the industry growth. Probably, we would expect industry growth between 20%, 25%, and we would actually match the industry growth or beat the industry growth.
When the size are small, what do you say, great, the growth number can be more and more. The ability of growth is linked to the ability of establishing your infrastructure across geography, ability of recruiting manpower and train for the quality operation and good [ implementation ] because microfinance is not just distributing money, it's lending -- it's a collection business. We need to have a right kind of employee -- our infrastructure right, and the employee right, conduct employee training adequately for the growth. So we need to be very careful in choosing the geography, choosing the right people and climb and grow. So I definitely feel that 22% or 23% is a reasonable good growth. It is not conservative. It is well thought growth.
Sir, I understand this part. What I'm trying to say is that [indiscernible] but see, last 2 years, because of this corona and COVID, we keep on increasing our infrastructure. That infrastructure part is good that we keep on increasing. But because of the outside environmental situation, we did not able to grow our book, and that risk was there in the market, so we [ trade ] conservative in the last 1.5 years. Now all those cumulative impact of whatever we have done, it's supposed to be flowed back quite nicely in the next 2, 3 years.
Happy to [indiscernible] that. But for FY 2021, we have not added the branches, probably you mixed that. Because of the COVID year, we have not added any branches. Only last year 2021, '22 we added branches. That's one.
Two, as I explained in my opening remarks, Q1 would be muted growth. They may not be muted growth because of implementation of new regulation, probably. We'll really get 2 or 3 quarters to grow with speed, but say we are committed and it's a well thought process.
Okay. And second question, sir, relating to, to fuel this kind of a growth, assuming 25%, say, for next 2, 3 years, the current level of capital adequacy, what you have, will it be -- and whatever the profit you will accrue, will it be enough? Or we need to have some kind of a capital raise?
And second, actually this goes to -- say, for example, management decides that we want to grow more than 25% because the market is giving that opportunity, because many of the small people in the market, either they are managed or they have consolidated here and there. So the bigger player like you will always have a higher opportunity, especially the business and economies open up and the demand for the microfinance loan will be huge, supported by this RBI new guidelines.
So I'm just trying to understand whether the current levels -- though, our capital adequacy currently quite high, will it be enough or within 2, 3 years, or maybe 1, 2 years down the line, we need to raise capital?
We might raise capital but not immediately, probably, as I said, maybe 1 to 2 years down, probably, we need capital, but at least -- because we want to continue to maintain adequacy more than 20%. With that context, we might have to go back to raising capital in the next 6 to 7 quarters.
And due to this new RBI guidelines, and since we are probably one of the lowest charging interest rate in the market at the moment, what is your best estimate? How much our yield can get into? I remember in the last call, you have given -- though it was not confirmed that point of time, but you have given a basis that around 150 bps of yield increase is possible if the RBI [ pays ]. Now they have done it. So do you believe that you're able to maintain that 150 bps what you've given last time or it will be more or less?
So actually, this -- the increase in [ placing ] will come gradually because this will be only with the new disbursement not in the old disbursement. And we're [ placing not part within ] microfinance. However, we already complied and published our [ interest shares ] for the new policy and we already complied on everything on the RBI policies, requirements. We presume that, should [indiscernible] increase its [indiscernible] for this financial year because the future disposal only will get the benefit of a new [ placing ] -- our average [ placing ] increased by 1.25% to 1.5% actually. But gain for the year would be about 50, 60, 70 bps, the full impact we would get in FY '23, '24.
[Operator Instructions] The next participant is Nidhesh Jain from Investec.
Three points. Firstly, what is the expectation of new customer acquisition for FY '23. Secondly, how should we think about the increase in share of 3-year tenure loan? I understand it's quite positive from full year and down and from customers monthly [ outlook ]. But are there any downside of risk to this strategy? And thirdly, sir, what is the yield strategy, if you can explain to which customer -- how are we deciding to which customer, at what rate we will be offering the [ value ]? These are my 3 questions, sir.
So basically, new customer acquisition will definitely go up [indiscernible] because last 2 years, we are not able to -- while we acquired some customers, but it's not really optimal. Definitely, we would go a little high because branches are there and both companies should start acquiring customers, which will help us. Probably we want to be able to [ get the right amount ] but it should be more than 8% to 10% Y-o-Y growth what you're targeting for next financial year. That's our estimate and expectation.
In the case of 3-year loan, probably it will go to about 25% to 30% of the total portfolio of microfinance. But as we acquire more customers, we said that will come down, currently because -- it is squeezed because we are not acquiring many customers, with now higher vintage customers sitting in the book. That is why [indiscernible] high. As we start acquiring more and more customers, this percent will come down. But for the vintage customer, it's good strategy. The [indiscernible] loan and then continue to provide what we call credit line products so that the products are available for them and along with the [indiscernible].
In case of yield, it is little difficult to say geography-wise, but what we did is high-risk [indiscernible], we actually put that premium on a higher appraising, low risk -- low and medium risk, medium appraising. So overall, the appraising will be between 8.75% to -- 18.75% to 21.5%, high-risk actually [indiscernible] currently. For example, I'll give you an example of a state, Maharashtra, probably the high risk at this point of time, which will actually be in the higher appraising geography, which will be tracked every quarter or every half year. We check and see all components of the appraising. And if there's a change, we will appraise again.
And also we took on more strategy of benefiting to the long -- what we call long-standing clients [indiscernible]. What we observed that after 3 to 4 years of experience with us, before, their risk is coming down near to 0. So for them, we actually -- we are charging 1% lesser than the normal price. So overall, it's about 1.25% to 1.5% higher NIM potential. But probably 50% will be encashed during this financial year and we'll get the full benefit for the next financial year.
Sure. Just some clarification, you mentioned 8% to 10% growth in client base, active client base for next year, right?
Correct.
The next question is from the line of Digant Haria from GreenEdge Wealth Services.
My question is a little more on these new guidelines. So in the past 7, 8 years, we've always seen that any form of regulatory easing has eventually been misused by the industry in terms of like over lending and just trying to not implement those things in spirit. So what are the risks that you see in these guidelines? Is it possible that maybe in the next 1 year, we see overleveraging again and despite of us being conservative, we have to face all the industry issues? So any thoughts on this? Because I think it's now 2 months, and there have been a lot of thought on those guidelines. That would be really helpful, sir.
Thank you, Digant. One side we observe that there are leveraging issues for over lending. Unfortunately, the regulation was one-sided and only for one entity. That's why we have seen some difficulty. So that the whole reason the industry went back to regulators asking for a common guideline, correct? So whereas SRO was able to control NBFC-MFI, but others, there was no really extended control by SRO, whereas they help banks or, as I said before, different groups. So Obviously, there will be a different regulation, different way of doing the business with different entity, which definitely resolve by the current RBI guidelines.
And now that every micro lender, irrespective of the entity nature, has to follow one common guideline. And also directly regulatory RBA comes under a one common regulation may be supported by SRO. We believe that discriminatory in terms of [ ForEx laws ] might change, might control. Having said that, while we observed that last 7, 8 years, there was no such over lending. But if you see the data, there's only 4.5% customers got -- I mean, borrowed more than 3 lenders, actually, as of December '21. And more there, only 7.5% of borrowers borrowed more than INR 1 lakh. So it is not that there's a huge vertical, mis-selling or mis-gearing loans also. It is not. But there comes -- there are going to be some districts might have had some issues.
But otherwise, by and large, everybody follow the rule. There are small black sheep. [indiscernible] so I don't think that should be the key problem. But yes, overall, 98%, 99% people have followed the rules. Otherwise, let me give you an example. We are -- enterprise can give loan up to INR 1.25 lakhs actually since 2015. But average of standing for borrowers still around 40,000 only. So it just validates that MFI itself behaved very responsibly.
All right. Sir, the second and my last question is, sir, because the last 2 years have not really seen a lot of new disbursements or even new borrower addition to the whole industry and to our fold also, so do you think the -- with MFI again starting disbursement, the liquidity itself can also help rural India? So if you can just give some flavor of what's happen -- what happened in last 2 years versus what is the sentiment or the real cash flow situation in rural India? That's it from my side sir.
So liquidity flow will always help to boost our rural economy and MFIs are at the forefront to do this. And see, disbursement was not that only for -- in the last financial or previous year. For example, last financial year, almost [ 5 months ] people have disbursed money and then Grameen maybe have [indiscernible].
We believe that there will be good customer additions, also good disbursement in the rural, which will definitely help the -- bottom of the pyramid. So -- and with the liquidity available across, so we should not see any difficulty for -- I'm not quite sure [indiscernible]. Of course, there is some sentiment about cost of borrowing. But yes, that is there. We can't help because it may be -- even if 1% increase or 2% increase for our borrower, actually, they are paying just INR 10 more per week actually. So they don't mind too much about the price, which will be much, much lesser than their alternative money -- borrowing from money lenders. So that's why I don't think this will be a negative impact on them.
However, there is some inflationary trend which are talking about [indiscernible]. But our belief is that inflationary variation also is not a deep impact on the rural [indiscernible] because they also generate the product, they sell the product. Where they buy the raw material, they also use for consumption. In the buying and selling, they actually break the inflationary cost ultimately. So net impact on them is less.
To give an example to you, at least 55% of micro customers are in dairy business. They take care of cow, and they sell milk. Probably the milk price would have gone up by INR 2.50. Probably some further [indiscernible] would have gone up. So net impact probably either positive or flat for them, even though in the [ inflationary environment ].
So we don't see too many challenges. Given that we assume this year it will be stable, there will not be too many this year. I think industry also will be able to establish themselves in the rural and the deep, what you call, [indiscernible] and which should help [indiscernible] indefinitely.
[Operator Instructions] The next question is from the line of Jai Mundhra from B&K Securities.
Yes, sir. just one question. In your opening remarks, you had said that due to new guidelines, there would be some slowdown in disbursement as you attune to the new guidelines. If you can elaborate on the theme, that what do you intend to do in terms of household assessment? Or if you can elaborate there as to what you need to do or...
Yes. Key regulation asks you to do assessment of household income that we are doing already. That is not the problem. Actually, problem is to digitize their data and data going to bureau and bureau need to be ready for that. That's the challenge, bureau yet to be ready for that. That is first challenge.
Second one is you also need to get the household liability or a borrowing side, which again, dependent on the bureau, multiples bureaus, microfinance bureau and the consumer bureau. And you need to get the total view of the family in terms of all borrowing from all members of the family from all bureaus and giving the one, what you call, one view about what is the obligation of them against the household income. So these are all currently not automated. It takes time. Bureau will take time to get a common view for you to get it all other bureaus.
Today, what we ought to do is we have to generate from individual bureaus and manually aggregate. You can see what is the obligation, what is the income and what we can lend. So many of that latency will be there for 2 months. And that is 1/3 of the bureau and household.
In the meantime, we also need to train our entire full stop on household income and bureau and [indiscernible] because they need to be aware about every fact we explain to our customers also. So this all will be a challenge in the first few months to implement everything and also with the inefficiency of some manual work with the bureau data and the household data. That is why we said that first quarter may be muted due to this kind of inefficiency [ where we are going ].
Right. And in this process, in the interim, do you suspect that banks or universal banks may have slightly higher edge? Or I mean all of the participants would have to readjust [ import ]?
No, actually, this will work for everybody. Everyone has to do this activity. Without that, they cannot lend. The whole industry will be muted for first quarter.
Right. Understood, sir. And you think second quarter should normalize, right? I mean it should not last beyond let's say, $2 million, $3 million.
Exactly. Exactly. Exactly.
The next question is from the line of Renish Bhuva from ICICI Securities.
Congrats on a great set of numbers. Sir, just 2 questions from my side. So one is with regards to regulation. So of course, it helps us in terms of pricing, our loans are much better than the earlier cycles. But if I were to look at the, let's say, the entire regulations impact on P&L, how do you see, net-net, it will impact us? Because see, our operating cost is likely to go up because now we have to get the comprehensive report. Wherein, sir, earlier, we might be taking only a borrower's bureau report. Wherein now, we have to take all household members bureau report and then there is operational cost also involved because [indiscernible] has to spend a bit more time on the field assessing the income of the household.
So if I have to factor all these things, how do you see ROE impact of this new regulation? I mean there should there be margin accretion for sure. But if I were to adjust for the higher operational costs, how should it look like on the ROE?
So actually, it will be impact initially for a few months, actually, when we do manually some of the things. When you're automated, it won't be too costly. We think actually this increase will be replaced anyway, Renish, what happened. When we start pricing the customers, the pricing today is based on your cost of borrowing, cost of running the company, cost of operation and cost of risk, right? So if your cost of borrowing -- cost of operations goes up, obviously, the price will get passed on to that extent. So we don't see that very high that it can be [indiscernible], but still we have opportunity to replace every quarter. That's why the net is in case [indiscernible] in quarter's operations, still it won't eat up the margin. That is what our view.
But in any case, we are not expecting the overall OpEx is going up actually because probably it may remain muted for this year because every year we are seeing about 10% to [ 15% reduction ]. We may not see the reduction this year and from next year, a full reduction. So to that extent, we don't see an impact of OpEx -- on OpEx because of the regulation.
Got it. Helpful, sir. And secondly, again, linked to the regulation. So now we are allowing to build the 25% of non-qualifying [ methods ]. So do you see that this is the opportunity for all MFI players to diversify and build the secured book? And structurally, the industry can move to, let's say, 50-50, if at all, I mean, assuming regulation will further allow us to build a 50% maybe over 3 to 5 years.
Yes, I'm not sure about 50% because that, we hope, it will happen over a period of time. But the [ 20% to 30% ] definitely help the industry to stabilize to some extent with the at least 10% of non-microfinance book or a secured book or a stable book.
So this is a start point, maybe it takes 2, 3 years for the people to really build it because all of us are expert in microfinance, so not expert in other products. It needs time, slow and to build it carefully. So -- but in terms of over a period of time, we would see this resiliency of very much spread book in the microfinance segment. So it's potential definitely.
And what is our plan on that front?
We do -- we already told about this. We already planned many secured products and unsecured products also to grasp the value of the customer in terms of loans, [indiscernible], asset-backed loans, [ like lab ] and also affordable homes. These are the 3, 4 segments. Also, the goal on 3, 4, 5 type of products we are piloting right now. So we will see good traction this year and probably scaling this will be possible during next financial year.
But the pilots are already -- some pilots already begin. Some of them are in the process of piloting. So this year, we will definitely see the pilots and choose the right business model so that we can scale up [ much faster ].
Got it. And just the last follow-up on that. So -- of course, this building of the retail assets will require a higher OpEx because we need to help the collection team and the entire process has to be different from what we have been doing on the MFI side. So even after factoring some of the upfront investment towards building retail assets, net-net cost [ to our sites ], where should it settle in '23 and '24?
Yes. Yes. Yes. There won't be any increase of our operating cost because we have manpower only acquired without branches set up already. So -- and we have a technology enhancement we already made. So we don't have any -- we are not expecting any increase, except, I mean, hiring great people from the field. Other than that, we don't see any [indiscernible]. That's why overall impact on the cost will not be -- will be very [indiscernible].
And any thought on building up the separate collection team for retail assets?
As we move, we will do definitely. So as we move, based on the [indiscernible] for microfinance loans, we have a separate collection team now. So obviously we'll build for that also. As the portfolio build up, we'll start building that also.
Next question is from the line of Abhishek Murarka from HSBC Bank Limited.
Sir, two questions. One is, what portion of MMFL's portfolio is now as per CREDAG rules, so underwriting rules? And why are the yields different between MMFL and CREDAG? Is there still a difference in the customer profile? Or is it because of some other computational reasons? So that was my first question. I'll come back to the second.
There is actually the -- it's only the borrowing cost variation slightly because Madura borrowing cost is higher than CREDAG. But we are trying to make it lower. We are trying to -- we reduced almost 2% last 2 years. But we still have some gap between [indiscernible] and MMFL in terms of borrowing cost. So -- and that's probably because of the recognition is a little high and OpEx also a little higher than us that's why this [indiscernible].
Okay. And what portion of MMFL's portfolio is now underwritten as per CREDAG's rules?
65%, now. 65%.
All right. All right. And my second question, sir, is when you study this customer information to figure out the [ foyer ] and how much headroom you have in terms of being able to give a loan, do you see any differences between states? Do you see the headroom being higher in some states, Southern or Western? So any sort of comment or insight on that would be useful.
Maybe it is too early to give -- I mean, get the insights, Abhishek. Probably at 1 or 2 quarter's time, you'll have significant numbers because we get -- made that rule hardly. We disclosed less than INR 100 crores in the new model. So probably we'll try to highlight next time if possible. Right now, we don't have our specific insights.
The next question is from the line of Piran Engineer from CLSA India.
Just had a couple of questions. Firstly, in the last 4, 5 quarters, our customer count has not changed, but our loan book is up 30%, 35%. And now, next year also, we are targeting 8%, 10% customer growth with 25% loan growth. So over a 2-year period, basically, customer leverage is up 50%. So how comfortable are we really with this strategy?
And my second question is, we've also started 3-year, 10-year loans. Have others in the industry also started this?
Yes. So on the customer leverage, it is more of a -- for last 2 years, as you are aware, we are not able to add customer for many months in the first year and second year. Whereas we had to lend to the customer who are already finishing our loans. Automatically, based on the [ win take ], they will get a little higher loan than the earlier loan. So our presentation clearly depicts the nature of increase the portfolio.
Now we will clearly see that the CAGR increase of [ DLP ] per borrower is not more than 10% to 15%, which is mentioned continuously, and the increase in borrowing is only for the retail customer. So non-retail customers, both the portfolio for customers remain same, probably [indiscernible] about how this increase happened.
Then the second question is -- sorry, I just missed. How you answer...
[indiscernible]
No, no. Before that, you also said that growth is 25%, whereas customer accretion, maybe 10%. In microfinance, the customer growth and the portfolio growth should be -- should not be more than 25%, [ the difference ]. That means if the growth of customer is 10%, portfolio growth cannot be more than 30% to 35%. That is the thumb rule actually. If you do more than that, [ you're over leveraging ]. But if you see here, we are talking about 10% to 15% variation between these two, which will not leverage the customer. And with the inflationary trend, the requirement of borrowing for the customer vintage of the borrower, which all adds to the customer portfolio. So that's why we don't see any leveraging issue here.
And on the 3-year loan, we really don't have good insight about others so far, whereas we started the 3-year loan almost 1.5 years back. So it's not new. We only highlight actually because the EMI load, sometimes people in that outstanding, it goes up. Whether that's a load on customer, then it's clearly depicted here again. Whether the customer -- even though that's leveraging of trading per borrow, borrow goes up, [indiscernible] tends to goes up. So that there is no load on the customer.
The cable, what we made in the Page 7, it's clearly the same run of INR 10,000. What happens, what is the EMI increase, 1 year, 2 years and 3 years? So load on customer will be lessened. That's why there is no additional risk because of giving a higher loan for the higher vintage customer.
The next question is from the line of Alpesh Mehta from IIFL Securities.
Congrats for the good set of numbers. Just two questions. First is, sir, the comment about increasing ticket size. Most of the lenders are giving more or less a similar kind of comment since last two years, the customer acquisition has not been that great and the vintage of the customer has increased. So the question over here is, until the time the bureau recalls are being updated, is there a possibility that in the last 6 to 8 months, the leveraging of the customers would have increased meaningfully? And simultaneously, is that also one of the reasons why we are seeing some kind of an improvement in the asset quality at the system level?
The second question is related to the other comprehensive income. There is almost INR 100 crores plus kind of a charge that will be classified to the P&L in the future due to the ensuing quarters. So what is this regarding?
And lastly, on to these margin stuff. Competitive intensity while obviously RBI has given us the leeway in terms of increasing the pricing. But would the competitive intensity restrict that? And are we increasing the processing fees?
Do I have to go back to one by one now? Firstly, it's about the increase, what you say, plus 5, 6 months' delay in upgrading the bureau. There is no delay in bureau by anybody so -- and no MFI length without checking with the bureau or reporting to bureau. So the SRO ensures that every MFI reports on time and fixed bureau report before lending. Therefore, there's no chance of MFI or anybody lending without the bureau data. So that's why that question is not, I said, sounded clearly.
The second one, we said about comprehensive income. Other comprehensive income. Nilesh, you have any insight?
Alpesh, that is basically increase is passed on to fair valuation of the loan assets. So the loan assets, which we typically held -- which we hold eligible for selling under the direct assignment transaction. So those assets we typically book in our balance sheet as fair value assets. And accordingly, as the interest rate changes, those assets get revalued and the entry is passed through the [ OCI ] directly into the results. So I mean, last year, you must have seen our lending rate was reducing every quarter. And in fourth quarter, it was almost at 19.05%. So it is more of an accounting entry, which needs to be made.
Under [ India's law ], we have to publish the [indiscernible].
Okay. And just the last question on the processing fees, are you planning to increase this?
Yes. We actually -- considering that there is a cost of operation is slightly going up, we had increased both processing fee by [indiscernible] which takes care of all the -- I mean expected increased OpEx in our lending.
Okay. And lastly, sir, just about the bureau data. Are the SMB data is also being updated regularly on to the 0 data [indiscernible] ?
Yes. SMB, banks, NBFCs, [indiscernible], all are providing data at the bureau [indiscernible] everybody. So -- [indiscernible] fully 100%.
The next question is from the [ Amarnath Bhakat ] from Ministry of Finance of Oman.
Sir, just one thing. The secured portfolio, now you have alluded to go up to 25%. Is there any first-hand plan that within how many years you will try to achieve up to that 25%? And associated with that, will the ROA and ROE profile will be different for the secured part of the assets compared to your nonsecured part of assets?
Yes. We expect the ROE or OpEx will be different for these products. But when we say 25% leeway, it is not necessarily only for secured [indiscernible] non-microfinance assets. When we say assets, it's at a balance sheet level, including all other assets also.
But let's assume that at least 20%, 22% will be available for finance lending. So it could be -- even the -- particularly microfinance means noncomplying with the new regulatory norms. If a product is noncomplying, that's because of the non-microfinance assets. So one can do unsecured loan also, secular also.
But what we believe that sector would be better to do because of the diversification point of view because the entire other book is unsecured book. That's why it will be good to do the secured book. So our view that it could take some time for us to build, but at least 3 to 4 years, it will take 15%, 20% kind of assets here because the microfinance would continue to grow. That is why we decided also to keep growing that way.
How will be the ROA, ROE profile for those type of assets?
Difficult to say now. It will take -- it will have some [indiscernible] to build up ROA. But still at the fourth year, we should be giving about 44% ROA there also.
The next question is from V.P. Rajesh from Banyan Capital Advisors.
All my questions have been answered except just one. I was just curious, what is your current market share? And where do you see it going in the next 3 to 5 years in the MFI business?
So in the industry, MFI market share is worth 5.6% and the NBFC, so it's about 18-odd percent actually. But yes, we would continue to grow but difficult to see the market share point of view. We've not put a specific target number again because it's supporting the industry that a lot of people are moving into the market. So -- but we definitely will maintain our shape and the time as far as [indiscernible] market share.
The next question is from the of Nikhil Rungta from Nippon India Mutual Fund.
Sir, just one question from my side. Recent checks suggest that the rural agri is doing very good. And you mentioned rightly that 50% to 55% of our portfolio are involved in this allied agri. Sir, do you think that if this rural agri comes out to be very good, as expected, then our growth could be higher than what we have guided and our provision could be significantly lower than what we have guided because of repayment from these borrowers?
Hoping actually, let's see how it works. But yes, difficult to give estimation now, Nikhil. The provisions actually, as stated earlier, is more of a legacy carryforward for this year that's why we said it's not yet. But that is well calculated number because 1.3 carrying that, the [ NPA ] will definitely [indiscernible] next financial year. So we expect a better year definitely. So a little bit of hope for the best.
As there are no further questions, I will now hand the conference over to the management for closing comments.
Thank you, all. Thank you for spending time in the early morning and look forward for a good year, and all the best to everybody. Thank you very much.
Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.