Five-Star Business Finance Ltd
NSE:FIVESTAR
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
609.9
900.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Five-Star Business Finance Limited Q2 FY '24/'25 Earnings Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Raghav Garg from AMBIT Capital. Thank you, and over to you, sir.
Five-Star Business Finance Limited, represented by...
I'm sorry sir, your voice got cut out. Can you repeat that?
Sure. Good afternoon, everyone. We have with us today, the management of Five-Star Business Finance Limited, represented by Mr. Lakshmipathy Deenadayalan, Chairman and Managing Director; Mr. Rangarajan Krishnan, Joint Managing Director and Chief Executive Officer; and Mr. Srikanth Gopalakrishnan, Joint Managing Director and Chief Financial Officer.
Without much ado, I would like to hand over the call to Mr. Lakshmipathy Deenadayalan for his opening remarks. Post which, we can open the floor for questions. Thank you, and over to you, sir.
Yes. Thank you, Raghav. Good evening, everyone. A warm welcome to all the people who are on the line. Happy to take you through on the second earnings call for this financial year. So let me straight away jump into the operational numbers and a few updates, which I wanted to share with you all.
First, let me take you through on the branches. We have opened 113 branches in September quarter. Out of that, 32 of new branches and 77 are split branches. Also, that if people know what the split branch concept where Five-Star has put in, let me repeat, the split branches will address the concentration risk in allocation. So we'll keep continuing the split branches as we go forward.
Now let me take you to the disbursement. We had a good disbursement of INR 1,251 crores versus INR 1,204 crores last September. It's reducing a growth of 4% year-on-year, and INR 1,318 crores in last quarter, June quarter, which shows a negative growth of 5% Q-on-Q. Yes, we have slowed down our disbursement, which is a conscious strategy to moderate our portfolio growth for the full year.
Let me take you to the portfolio. Our portfolio stands at INR 10,927 crores versus INR 10,343 crores in June and INR 8,264 crores in last September, registering a 6% quarter-on-quarter growth and 32% year-on-year growth. Concerning the current environment and regulator reviews, what we hear, the Board has taken a call to slow down the growth. So our guidance for the financial year '25 will stand at 25%. We will take a call in next financial year.
Let me now move towards the collections. We have done well in our collections. Our September quarter collection efficiency was at 98.4% comparing with 98.5% in June. And unique customers collection, which we call [ view of collection ] was at 97% in September versus 97.2% in June.
Now taking you through NPA. Our gross spend -- our gross Stage 3 assets was at 1.47% versus 1.41%, which had an increase of 6 bps. At the current scenario, we have performed well both in collections and maintaining a good asset quality.
Now let me take you through on the liability side. We were able to diversify our liability from banks to other forms of borrowing. Srikanth, CFO, will speak more about that. On the borrowing cost, the borrowing cost for the quarter was at stable at 9.65% versus 9.65% last June. Incremental borrowing cost was at 9.52% versus 9.47%, with an increase of just 5 bps.
Now let me take you through other updates, which I wanted to share with you all. First, the rate of interest. In line with our commentary over the last many quarters, we have now decided to drop our lending rates and incremental disbursement starting from 1st November 2024 by 200 bps. That is from 24.5% to 22.5%. I'm happy to say this. Since our portfolio is a fixed rate portfolio, the spread compression impact will be on the incremental disbursement.
On the second update, which would be more interesting, we have done the bureau scrub of all the primary applicants on active loans as on September 2024. Out of our total active loans of 4.3 lakhs, we find that about 14% of our loans, which is 59,000 loans, are over-leveraged. That is, the applicant having 3 or more loans with other financial institutions.
Of the loans which are over-leveraged, only about 1,600 loans translating to just 0.4% of the total active loans have exhibited lower collection efficiency in last 6 months. Let me repeat, only 1,600 loans translating to just 0.5% of our total active loans have exhibited lower collection efficiency in the last 6 months. We are monitoring this portfolio very closely and also decided to implement stricter underwriting norms for our over-leveraged loans going forward.
So with this update and numbers, now I'll hand it over to Srikanth to go more deeper into it. Thank you.
A very good evening to all of you. As Mr. Pathy has highlighted, we have had a good quarter in the second quarter as well despite some sectoral [indiscernible], especially those that are being faced by the unsecured lenders. But we do have fully secured products with strong underwriting and collections mechanism, I think we have managed to come out with a good set of results even during this quarter.
We have an active loan base of 4.3 lakhs. So we are still not really putting too much of money into the hands of the same borrowers, but diversifying our portfolio into a much larger base of borrowers. Our yields continue to remain consistent at around 24% or so. With these drop in yields that we will be doing from 1st November, you'll see the incremental yields going down, but for it to get reflected in the portfolio will take some time.
The cost of funds, again, remaining flat at 9.65%, which has ensured that our spread has remained flat compared to the last quarter. There has been a slight drop in the net interest margin, primarily on account of leverage, the quantum of debt going up.
Our cost to income, again, pretty much stable compared on a sequential quarter. And as we have been guiding in the past, we expect our cost to income -- and when we mean cost to income, we're also including the credit cost into this.
So inclusive of credit costs, we will be at about 35% of cost to income even in the steady-state scenario. Healthy ROA is at around 8.3%. Our ROE has just crossed 19% for the first time. So this is again on anticipated lines, compression and ROE, and we'll see ROA sort of going up. From a borrowing perspective, we have 43 lenders who have lent funding to us. As we have stated in the past, we are clearly looking at moving towards, other than banks, to get our debt.
And to that extent, we have onboarded Nippon Mutual Fund and Kotak Mutual Fund as lenders to us. They are subscribed to our PTC transactions. Incidentally, given that this is a public call, and today, it could be a public news. We also had HDFC Mutual Fund subscribing to our PTCs today. [indiscernible] HDFC Mutual Fund. So clearly, the intent to diversify the borrowings out of the bank is showing a good traction. We have dropped our other than bank borrowings from 74% to 70% during this quarter.
These come in a slightly higher rate, which is why we are seeing the incremental debt coming in at 9.52% as against 9.47% last quarter. We continue to be good on the liquidity buffer and unavailed sanction lines. So we had a liquidity buffer of close to INR 1,700 crores and close to INR 250 crores of undrawn sanction lines from banks and other institutions.
On the collection efficiency, there was a very marginal dip, which has also contributed to a slight increase in our DPD. But if you look at from the context of what is happening around in the industry, I think the numbers that we have delivered are very impressive.
On the provision coverage, we continue to be attractive. We are maintaining about 1.65% of ECL on the overall AUM, and about 52% of provision coverage on Stage 3 assets. So we will continue to -- like we said, we'll continue to remain cautious on this and build adequate buffer in good times for any contingencies that might arise.
We plugged a PAT of INR 268 crores for the quarter, which is a growth of about 34% year-on-year. And on a sequential basis, our PAT went up by 6% from INR 252 crores to INR 268 crores. Net worth is strong at about a little over INR 5,700 crores. So Mr. Pathy has already given the update. The over-leveraged issue has not really cost much of an issue for Five-Star. The lender -- the borrowers of Five-Star are continuing to pay to us.
So given all of these things, I think, we will continue to remain very focused, remain cautious and look at the environment closely before taking any of the decisions because we all know what is happening around. But the silver lining for us is the portfolio of Five-Star is continuing to perform extremely well. And we will continue to keep monitoring this as we go forward.
So on that note, we'll take a pause and we'll open up for any questions that any of you may have.
[Operator Instructions] The first question is from the line of Renish from ICICI.
Congrats on a good set of numbers. Sir, just 2 things from my side. One on this few business model changes, what we have done like lower growth and a rate cut. So what kind of a profitability impact do you see in FY '25, FY '26? And also, does it also mean that the steady-state ROEs, which you guys might have thought about maybe when we started this business, and now given the changes which are sounding more of a structural in nature, what kind of ROEs this business can now generate going ahead? And any short-term impact because of the changes?
So, Renish, on the first point, definitely, there will be an impact on the profitability on account -- more so in FY '25 on account of the lower growth. Because like we said, the yields dropping will not have much of an impact because it's going to be on a very smaller portfolio rather than -- we have about INR 11,000 crores of portfolios which are fixed rate and running at a higher rate. But because we would grow about 4%, 5% lower than what our original guidance was, there will be an impact on the profitability.
See, we have not really worked out our numbers, but I don't think there is going to be a significant compression in our ROA. So given where our assets will end at, I think we should be closer to about 8% of ROA for this year. But over a period, I think that definitely will drop to about 6% or so. But really, this is not a new information that we are giving to you today. In fact, all the while, we have been saying that our steady-state spreads will be about 12%, which will translate to a steady-state ROA of about 6% or so.
So on a steady-state, there is actually no change in our guidance. The only change will probably be on the growth. But at this point of time, we are not giving you a growth guidance for a longer term, like I said -- like we said the 25% growth is for this year, but we'll continue to be monitoring how things change. And growth is something that we can always find-tune as we go forward. So I don't think there is an issue from a steady-state ROA and ROE as against what we have been talking. It is just that maybe it will happen in a little more faster manner than the sort of gradual manner that we highlighted to you maybe when we have been meeting in the past.
Got it. So I mean, we don't -- we'll see any risk to our 12% steady-state spread as well?
At this point of time, no, Renish. Today, I think the way that the environment is changing, we are also -- while we can be as proactive as possible. There are times when we have to be reacting. But at this point of time, we don't really see a challenge to our 12% spreads.
Got it. Got it. And sir, my second question is on the borrower base, right? So given the kind of news flows what we are getting on the MFI side, and given our ticket size is, maybe if you can just clarify what percentage of our borrower base are having MFI loans? And how is the credit behavior of that pool? And linked to that, do you foresee any, let's say, collection challenge in that pool, especially the ones who might have 2, 3, 4 other MFI loans?
So Renish, just to give you a little bit of context of what we have been telling even in the past. Our belief -- and today, this data stands a lot indicated, is the fact that these borrowers have not seen a compression in their incomes. But obviously, there is a bit of a -- there is some level of over-leveraging that has happened.
So what is happening is people are starting to prioritize. And in the order of their priority, we stand almost on top, so which means that they are repaying us. So -- and out of this scrub which we have done, we see that about roughly 30% of our borrowers also have an active microfinance loan as we speak.
And we are not seeing -- while we have not looked at what kind of delinquencies those microfinance institutions have taken, but we would just have an overall number and not an institution-wise number. But even on the portfolio that there is a microfinance overlap, we have not seen any deterioration. So the lower collection efficiency that we are seeing is just on about 0.4% of our base, which is about 1,600 loans.
So at this point of time, we don't believe that the issues that are being faced by the microfinance companies from their borrowers. The similar borrowers are prioritizing us and repaying us without any issue. And there is no early warning signal or whatever it is that this could also percolate to our portfolio. And like we said, we will continue to keep monitoring the over-leveraged portfolio very closely and be ready for any actions if they are warranted.
So Renish, so let me repeat and give confidence to the listeners. Five-Star last 22 years, see, we have seen 5 crisis starting from Andhra crisis, what happened to MFI; and then [indiscernible], then COVID and COVID 2, and now what we all call as over-leveraged crisis. In all the other 4 crisis, Five-Star came out very successfully because, I keep repeating, even though we lend to middle and lower-middle class people, during the stress time, they prioritize when to pay or not to pay.
So that is why you see the other players who are suffering, whereas the mortgage players, like housing, and us are comfortably placed because of strong security what we have and our collection infrastructure, what we have put at the ground level, both are giving a good result in this quarter. And I hope and I'm confident that this will continue till this gets settled.
The next question is from the line of Viral Shah from IIFL Securities.
So I had 2 questions. One is that with regards to the growth rate percentage specifically, which is 25%, is there any logic behind that? Or is this just based on the discussion with the regulator or the feedback that you would have gotten?
See, as I said in opening remarks, Board has considered the current environment and the regulator's view, which you and me hear from all sources. So Board has taken a very conservative call that to slow down the grow -- or growth in this over-leveraged time. So we've seen that our Board has taken a right call and not grow at the time when everyone speak about over-leveraging. So even we have taken a call to step down our growth a bit from 30%, what we said, to 25% for this financial year. As I said in opening remarks, we will revisit this in the next financial year. When we feel and when the Board feels if this environment is good, we will go back to our stronger growth as we have been doing in the past.
Mr. Pathy, that's crystal clear. On my second question is that you mentioned that the 14% of your portfolio is basically over-leveraged. Is this on a value basis or on volume basis? Like is it in the number of customers or by value of the loans that these customers have with you?
So this is on the basis of number of accounts, Viral, not on value. In fact, on value, it will be slightly lower than this also. Because if they have taken so many loans, our loans also will not be at, let's say, INR 3 or INR 4 lakhs. So our loans would have been lesser. So this is on an account basis. We have not done the analysis for the value, but very clearly, at the value basis, this number will be smaller.
Also because there would have also been a rundown, your exposure, of course, it will be lower level. But as a corollary to that, if we get color in terms of the definition that you use for the whole average customers is that they have 3 or more other loans. Do have color on what are these other loans? Are they secured? Unsecured? What is the value of the outstanding of those other loans? Any of those things?
So again, primarily unsecured, Viral. So we have seen overlap with MFI, overlap with gold loans, overlaps with vehicle loans and agri kind of loans. The overlap with LAP housing or secured business loans are very, very small. And typically, the number is, like we said, 30% overlap with microfinance and maybe a similar overlap with gold. Rest of the overlaps are smaller than 30%.
Right. And when you mentioned that this overlap with vehicle loans, which vehicle, you mean to the 2-wheelers?
Two-wheelers, yes.
Okay. And when you mentioned -- sorry?
Some CVs could be there, but predominantly 2-wheelers.
Got it. And when you mentioned the LAP or the housing piece, do these borrowers have another house or the property against which they would have taken this?
They should be having, Viral, because we don't do any [ part to charge ]. It's an exclusive charge. If they have taken money from us on one property and if they have taken another housing loan, it should be on a different property. The numbers are extremely small.
The next question is from the line of [ Manik Bansal from Master Capital Services Limited ].
Am I audible?
Yes, please go ahead. Yes, please go ahead.
Congratulations on a strong set of numbers. So I'm having a question on like our average loan-to-value ratio has reduced from 40.5% in quarter 1 to 39% in quarter 2, which means that underlying collateral increased around INR 2,200 crores on loan book increase of INR 583 crores. What can be the possible reason? Is the bank focusing on [ prudent ] lending?
So Manik, the growth has slowed, right? The dispersion is lower. And on an LTV basis, when the loans run down, we don't revalue the collateral. But even assuming the same collateral value when the loan runs down, obviously, there will be a drop in the LTV. And when you are not adding higher LTVs at the pace that we have been having in the past, this number will continue to keep dropping. So you will always see a portfolio LTV that will be much -- in a lower growth pace, the portfolio LTV will continue dropping a bit quarter-on-quarter.
Okay. So one -- another question is on like we added 113 new branches this quarter, right? But the company's loan portfolio grown into -- grown about INR 583 crores only in quarter 2. What can be the possible reason for this lower growth?
So Manik, we have clarified that most of these branches are split branches. So a split branch is essentially one larger branch getting broken into 2. So that's what automatically increase your business outcome or portfolio. So it's more a risk management measure, which we have been explaining in the past few quarters. So over the last quarter specifically, we had focused on most of the branches which have more than 1,500 loans, and that's the effort which has happened. So almost 77 branches out of the 113 that we have opened are split branch category.
Also, the other point to note is when you open a new branch, it takes at least 3 to 6 months for the branch to stabilize. So these are investments that we are doing now. And over a period of time, these will yield business. So it's not an immediate and an automatic increase in business.
Okay. And the last question is on like the company securitization portfolio has grown from 14% to 18%. Okay. So there is a 4% increase on securitized borrowing. And as the company's con call shows that we have onboarded Kotak Mutual Fund and Nippon Mutual Fund. So will this impact the cost of funds in coming quarters?
Sorry, we missed your -- what is the question? We have onboarded Nippon and Kotak for DPD transactions, is the question?
So will this impact the cost of funds or overall borrowing mix?
So this is slightly -- like I said, Manik, this is slightly at a premium compared to our, let's say, a bank borrowing. But we are very clear that we want to diversify our borrowing sources. So we end up paying about 20, 25 basis points premium on this. But generally, the way these things work is, it will typically be higher cost in the initial transaction. But once they get comfort subscribing to our portfolios and seeing the performance, we are hoping that at some point of time the cost will start going down. So we don't really see a long-term impact on these -- of these transactions on the cost of funds. But for getting the diversification impact, we have paid a little bit of premium.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Srikanth, the first thing I just wanted to understand, I'm seeing on Slide 6, NIMs have expanded by almost 20 basis points Q-o-Q. Is that the right observation?
Yes, things have expanded a little bit.
Sir, I mean how should we understand this? Because, I mean, all along, what we're understanding is there are no yield increases that we are taking. On top of that, I mean, I would say cost of borrowings, what you reported is largely stable. So leverage is indeed going up. So what explains this new expansion?
No, the last -- Abhijit, the last point is where the difference is. The leverage for this quarter has actually come down a little bit. While it's not material, but if you look at our debt to equity, it's come down from 1.23 to 1.20. So the pace of net worth growth is higher than the pace of the borrowing growth.
Got it. This is clear. The other thing is, I mean -- obviously, I mean, audit for the last year, I'm guessing, would have happened by now. I mean in addition to the industry loan growth and pricing that you have spoken about, any other observations in the audit or the RBI audit?
Abhijit, I have not said this is the outcome of the RBI audit. I said the Board has taken a clear view and what commentaries that we have been saying for last quarter based on that, the rate of interest has been reduced 200 bps, which we have been saying to the market for some quarters, and we have done it now with the approval of the Board and this gets effected from 1st November.
Got it, sir. This is clear, and you explained this out earlier as well. But what I was trying to understand, Pathy, sir, was -- I mean, the audit is over now and there are no observations from RBI, right, is what I'm saying?
So Abhijit, FY '23 inspection report has come. There are no material observations. There are qualitative observations, obviously, how we can strengthen our process around the complaints management. Not compliance, but complaints management. So there are qualitative observations, and we have very clearly taken those suggestions from RBI and will be implementing them. In fact, we have implemented most of it and given compliance to RBI also.
FY '24 has also been completed, but we have still not got the final report from RBI. Our interaction with the inspection team during the inspection leads us to believe that there are no red flags. There are going to be no major observations or inspection findings. But again, we will just want to wait for the final report to come in before we give you a very clear answer.
This is useful, Srikanth, sir, and very, very heartening to say the least. Just one last thing I wanted to understand. While you have already articulated that this 200 basis points cut in our incremental lending rates that we are taking will obviously not have too much of an impact on yields this year. But given that, I mean, in the past, you have said roughly around 25% to 27% of our books, of our existing loan book, runs down every year. How will this impact come into the portfolio yields over the course of time?
So over a course of the time, Abhijit, for sure what you are reading at 24% today -- 24%, 24.1%, will gradually start going down. In fact, it will go down much more quicker than what we have been guiding in the past. So that's what I answered Renish also initially. The impact will be on the faster pace of yields coming down on the book than what we had guided.
So originally, we were thinking that this -- the book will start being at around the incremental yields in 3 years. But maybe today, that could probably be FY '26/'27, we'll start seeing some impact which is more sharper than what we would have guided. So '25, I think we will largely be around 24% or slightly lower than that. For '26, '27, the drop will be a little more sharper than what we have been guiding in the past.
So Abhijit, let me reiterate what Srikanth said earlier. So our long-term guidance, 3 years, 5 years down the line, we will be in the spreads of around 12%. And our return on assets will be around 6%, and that's the steady-state scenario that we are looking for.
The next question is from the line of [ Dinesh from Finsight ].
Sir, can you hear me? Am I audible?
Yes, yes.
Great set of numbers under current tough situations, which we understand. Sir, my question is I would like to know, we have split the branches and we -- if I remember, you mentioned in the previous call that we would like to reduce the number of employees per branch somewhere around, say, like 20-odd we have right now from -- what kind of a number we are looking at? Like I mean, will it be somewhere in the range of 10 to 12? Because definitely, some of the employees will get split, right?
So Dinesh, on a steady state, we expect once a branch reaches what we call is an ideal branch kind of a scenario, it will have an average of about 10 to 11.
Okay. 10 to 11, right? So second question, I mean, on the same line, let's say, we are increasing our branches. We are definitely adding more employees here. And we are reducing our interest rates maybe like, whatever, 200 basis points, and we know that the situation is very tough. What kind of a situation actually is there out in the market? Like say -- and we are reducing our growth targets as well. Like I mean are we expecting the situation will become even worse in the next maybe 2, 3 quarters? Or do you seeing -- are you seeing maybe the last signs of the revival are there? If you could just give -- on the overall macro, what's your view?
Dinesh, I'll add a couple of things, probably invite Srikanth also to add his viewpoint. I think the first point on the interest rate, we have repeated multiple times even as part of this call. But this is a well-articulated strategy that we have had and we have been sort of talking about this for the last few quarters. The spreads that we had additionally enjoyed was because of the lower borrowing costs, and we're waiting for the most appropriate time to pass this on.
And today, the board has given us the final approval, and we are going ahead with the passing of about 200 basis points benefit to the customers. So this is exactly as we have anticipated and this does not deviate from any of the guidance that we have given on the spreads part. So that's clear.
The second part I want to also reiterate is that we are not seeing any stress scenario from our books at this point of time. And with bureau scrub that we have done is additionally giving us the confidence that, if at all, we'll have to look at over-leveraged customers who are sort of not behaving well with us from a collections perspective, it's hardly about 0.4% of the portfolio. Well in control and anyway, the situation is getting very, very closely monitored, including some tightening of underwriting process as we proceed.
But while things within your control are fairly okay, but there will also be scenarios that we have to watch out for from a macroeconomic perspective and what's happening in the sector. So the call to reduce the growth rate from about 30% to about 25% now is more in line with what we are seeing around us rather than what we are seeing within this at this point of time. And Mr. Pathy has very clearly sort of detailed that out is that we are not providing any long-term guidance. We are revising the growth guidance given for this year. And we will, of course, wait and watch as to how the situation evolves and take a call appropriately at the end of this financial year.
Okay. My last point on the things we discussed. You mentioned about over-leveraged loans, maybe around 0.4% or 1,600 accounts, right? My question is, sir, like, say, how do you come to know -- like did we give the loans to them at -- towards the end, like they've already borrowed from somebody else, from some other MFIs and then we gave the loans? Or what is the sequence of loans? Sir, have you done back study as well? Like I mean they were already over-leveraged and then we gave the loans? Or -- because I want to understand the collection efficiency of this particular 1,600 accounts, like they are the below the average or what's the situation out there?
So Dinesh, both the scenarios are possible. Firstly, let me clarify that at the time of sanctioning of the loan, any loans that they would have had outstanding at that point of time, we would have taken it into account before sanctioning our loan, both from a DBR perspective and from our own risk management perspective. So that's clear. But especially with respect to unsecured loans, you cannot stop any of these people to go and borrow from unsecured loans. And that's where the over-averaged is sort of creeping up in the sector.
So I don't have an exact answer how much proportion of the 1,600 had 3 loans or more at the time of sanction and how much got or borrowed 1 more loan for sanction. But today, it stands, put together, about 1,600. But if I were to take a guess, it will be more than 50% of people would have taken a loan after we have sanctioned rather than the other way around.
Okay. So but has this impacted our collection efficiency, because it has marginally gone down, right? So the risk is there, right?
Yes, the risk is there. That's why we are sort of isolating this 1,600 loans and then monitoring closely. Srikanth can give some more color about the 1,600 loans.
So see, even on these 1,600 loans, it's not like none of these guys have paid anytime during these 6 months. There are customers who have been paying maybe 2 installments, 3 installments during this period. But we are definitely seeing drop in collection efficiency, which means there is some level of issue at their cash flow level, which is why we are monitoring this portfolio.
See, the other point, what you said, at the time of underwriting, we have a very stringent mechanism in terms of not going beyond 50% debt burden ratio. So when you take all of that, it's a little unlikely to presume that these customers would have had all this over-leveraged even at the point of -- even at the time of underwriting the loan. So it's more likely that they would have actually taken the loan post re-sanctioning loan. And that's what Mr. Pathy also alluded, right? In a personal loan, there is no security. So for others to just come and give the loan is a lot more easier than when you're doing a secured loan that it can typically be only one lender who can give.
So when there is a little bit of laxity in the discipline in the entire lending ecosystem, everybody in the ecosystem tends to get affected. The good part is the effect on it has been extremely marginal. And unlike many other players who have suffered big on the collection efficiency drops or credit costs or NPAs going up, the impact that we have seen is almost close to nothing.
The next question is from the line of Nischint Chawathe from Kotak Institutional Equities.
Yes. I hope I'm audible. On the credit cost side, I know we're slowing down looking at what's happening around. But given the ECL coverage that we are sitting right now, which is closer to 1.6%, do you think it is required that we kind of just inch it up a little bit and a little bit of a buffer, let's say, that we would have -- something that, let's say, we would have done during COVID or any of the stress periods?
So Nischint, if you look at between the last quarter and the current quarter, it has inched up. It has inched up by about 2 basis points. While obviously, you may think that this number is not a big number. But the ECL model also gives us not too much flexibility to sort of keep pushing these numbers, especially when you have strong PDs and LTVs. But yes, we are fairly in sync with the parts that we have recorded, that we will continue to keep monitoring this portfolio and wherever there is a possibility available to us to push out some of these numbers, we'll continue to keep doing.
So our ECL will always be at an appropriate level depending on how the portfolio is behaving. The bigger impact for us is on the LTV. So even if a loan becomes default, Nischint, the kind of loss that we suffer, and I can give you a number. If you sort of put a weighted average LTV on our entire portfolio -- not on our entire portfolio, on the loans that have gone default, it's around 10%. While if you look at the Stage 3, they are holding almost 52% of provision coverage.
So it's a very high number that we are holding, while maybe a little archaic from a comparison perspective, but if you look at this through the IRAC provisions that's required, we are almost sitting on INR 100 crores of additional provisions, INR 100 crores, INR 120 crores. So I don't think we were going to -- we had a very detailed discussion. And I think all of us, including the management, the Board and the auditors feel this is a very appropriate level of provision that we are sitting on.
Sure. And are there any covenants with banks on net NPA or any of that?
There are covenant, Nischint, but those are more, like, 3%, 4%.
Okay, sure. And just if you can...
So we're near at current levels.
Got it. And I think what you mentioned is that you have around 46,000-odd customers who have more than 3 loans. Is that what you mentioned?
It's about 58,000.
58,000. And total customers as of now are?
About 4,30,000.
Okay. Got it. And what we are then saying is that out of these, around 1,600 are the ones who are -- who probably have exhibited some stress?
Correct. So it is 4,30,000, out of which about 13.7% of 58,000 customers who have 3 or more loans. Out of this 58,000 customers, 1,600 customers have seen some lower collection efficiencies, which could possibly indicate towards some stress in their cash flows, and we are monitoring that portfolio. So on an overall basis, it translates to 4.0%.
Got it. And just a little bit of a waterfall on the steady state 6% ROA that we are looking at, right, if you could give some color on that.
So I think the way that we are looking at it, Nischint, is about 12% spread, which will mean about 14% to 15% of net interest margin at, let's say, 3, 3.5x kind of leverage. From there, if we are looking at maybe about 5%, 5.5% of OpEx and about a percentage of credit costs, we will broadly be at about 8.5% of pretax profit. On a post-tax basis, it should be about 6%.
Got it. And 3.5x leverage is -- 3, 3.5x of equity is something which we've agreed with the lenders?
See, it's compatible at the lender level. And with the kind of profits that we also keep generating, it's -- we would want to get there first before moving to the next level. 3, 3.5x is a very, very comfortable number for lenders, rating agencies and the external stakeholders.
The next question is from the line of Aravind from Sundaram Alternates.
Congratulations on a good set of numbers despite being in a very tough environment. Sir, one question is, so we have revised down our guidance on growth. Like, if I backward, I could see that disbursement has to be flattish or even go down a bit when compared to the second quarter. Like, if that is going to be the case, would we slow down on the branch addition? Or is my understanding right, sir?
So Aravind, branch addition is more a long-term strategy of the company. You will have to keep a lot of things into consideration, including putting up the distribution network, infrastructure, the people that we want to put in a branch and the risk management. So it's not both the quarter-on-quarter growth or in terms of adjusting -- based on specific disbursement requirement of a company for a particular quarter. So our branch expenses are more from a perspective that we have to become a company with larger distribution outlets and we are also becoming a lot more well risk-managed company. So that has no direct impact on quarter on quarter disbursement, so we will continue to do it.
And usually also, if you look at our historical track record, we always upfront the branch addition. So any branches that we wanted to put, it'll obviously be much higher in the first half of the year rather than in the second half of the year, which is what you are seeing even now. So you will automatically not see us expanding branches on the same pace in the second half of this year, which is in line with what we have been doing for the last few years.
Sure, sir. And if you are going slow down disbursements, like, what kind of additional guardrails in terms of underwriting are we going to take? Like, because we are going to slow down disbursements, like, there could be some more -- like, are we going to require much more comfort on LTV? Or like a [ far ] rate? Like, what are the things that you're going to do, like, in the near term?
So Aravind, broadly 2, 3 things we have identified certain pockets where the stress could potentially get built. It could be based on a profile of customers or it could also be based on the leverage of these customers. So for these cases, we'll definitely be tightening the underwriting norms, both in terms of LTVs and DBRs. So that's the first step.
And second, if we're also seeing any collection inefficiencies in particular pockets, there, we will be tightening the entire credit underwriting norms in a much more stringent manner than what we are normally doing for the other part of the portfolio. So we will take a call based on what we are seeing. The bureau scrub give us a lot more insight, and we'll be using that to form the basis of underwriting principles.
The next question is from the line of Chandrasekhar Sridhar from Fidelity International.
I have a few question. So when you dropped disbursement rate from November and given that sort of AUM growth disbursements are really going to be weak in the second half given your sort of AUM number, I mean, if you look historically, I mean, typically 40%, 45% of your AUM is contributed by that year disbursements. That number is actually going to be pretty minimal for this year. And even if you move into next year, the impact is not going to be very [ segregant ].
So I'm really curious to understand why you are seeing that sort of you will get to the 12% spreads on an accelerated fashion especially when disbursement growth is slowing down, the impact on AUM in any ways on 12 months is not particularly significant. And obviously, coupled with that is 70% of the borrowings are variable 12 months out. Even if you have a 25 bps rate cut, it means sort of we get some -- maybe 8 to 10 bps or 15 bps somewhere or some sort of an advantage on the borrowing cost. So just curious to understand how you sort of get to 12% spread within 2 years itself.
So Chandra, what we guided is for this year, it will at 25%. For next year, we are not predicating these numbers on a 25% growth. Hopefully, there will be some betterment of conditions and we could look at different growth. But if you're going to grow at 25%, let's say, for the next 3 years, if the environment is going to stay where it is and we'll have to grow only 25%, then I agree with your point, it may not happen in 2 years.
And even in our guidance that we gave, we have not factored in for any of the rate decreases part. Because I think we also believe that if there is a rate drop by the RBI and our spreads are sort of inching up, we were going to continue to pass -- keep passing these benefits to the customers. We would like to operate at around a 12% spread in a steady-state scenario.
So the question is not whether the spread will go up. The question is we would want to keep the spread around 12%. The only variable in that is the impact of the existing fixed rate book of about INR 10,900 crores, how that is sort of going to run down and how the new disbursements come in. There, I agree with you, the growth rate is -- growth rate continues to be slow, then yes, 2 years may not be a point, you're right. It might get pushed even beyond that. But if we are able to get to a little better growth rate in the years to come, maybe we'll be able to accelerate that a little bit.
So I mean since you're ruling out more than 200 bps, so you're starting off at 200 at some point in time, maybe 12 months out if you get a further rate cut and just pass it on, on further disbursements?
Yes. We will continue to keep evaluating the scenario and give the benefit to the borrowers. We don't want to unduly increase our spreads. We would like to operate around the 12% spread. And the sooner that we can get there, I think that's also a comfort internally as well as for the regulator.
Okay. What does this mean just in terms of -- I mean, given the bulk of -- the OpEx is also largely sort of disbursement-driven business. I mean if the disbursement growth is at slow down, I'm just wondering how do we start thinking. You said 5%, 5.5% OpEx. Just to understand, I mean, I believe your disbursements slows down, your OpEx should actually start slowing down pretty [ good ], right?
So our disbursement -- sorry, our OpEx is a little more skewed towards fixed, Chandra, rather than variable. So while the incentives are variable and are linked towards the disbursements, the proportion of the variable as a component of the overall salary is more like about 30%, 35%. So there is a 65%, 70% component that is fixed. So even if there is a slowdown in disbursement, you'll have to see that.
In fact, if you currently look at it, our OpEx is not even at about 5.5% or so, it's lower. But we are not even assuming any scale benefit to come through there. For the current quarter, the OpEx is about 5.1%. But I'm even assuming a little higher number because if the disbursal continues to remain slow, maybe the benefit still may not come through. So it's actually the other way than what you are thinking. Our OpEx is not much variable, it's about 60% fixed.
Right. And just when you put out a credit cost number sort of steady state in your ROA 3 of 100 bps, I mean, you said that LGD historically has been 10%. Just curious, trying to put the 2 and 2 somehow don't make sense together when you're talking about that -- I guess, it will be the worst -- sort of worst-case scenario you would be thinking of in terms of a credit cost, right? Unless you basically -- you don't want to up your PCR to a certain -- substantially higher level?
See, there is a buffer built there. Let me not disagree with that. But the question is, it is also a question of how does the numbers look like when the portfolio starts getting seasoned. See, on -- what happens when the growth rates slows is that some of these things that we probably have not seen in the last 5, 7 years, could probably come through. So we are making necessary allowances for all of that. So if the portfolio seasons, are we going to start looking at some of these things? And when there are more of legal actions that we take, would that mean that there will be a little more discount that we'll have to give to the customer, which means the LGD, which is a 10% today, will probably go up?
So some of these are points that we have actually assumed when we put out the 1% rate. But you are right, the 1% rate is still -- is probably on the higher end of the range. What we typically guide is about 75 to 100 basis points. When I gave it ROA 3, I took the higher end of the range.
Right. Lastly, just what's the write-off number for the quarter? My calculated number is about INR 10 crores, but I just wanted to get that sense.
Yes, it's about INR 11 crores. INR 11 crores for the current quarter, vis-à-vis INR 7 crores for last quarter. So for the full year, they come up about INR 18 crores.
The next question is from the line of Aditya Padhi from MSC Capital Partners.
Congratulations to the management on the great set of numbers. Sir, wanted to understand that now on the ground, any issue that you're seeing? Are there any particular geographical pockets that you want to call out by where you're seeing a lot of stress?
No specific geographical pockets, Aditya. I think the bureau scrub gave us some insights in terms of particular category of customers, but it is not concentrated to any single geography.
Understood. And sir, a broader point would be that this is a longer-term issue that you are seeing? Because what we're learning from this, is the listed microfinance entity is that, by Q4, the balance sheet of the customers should be fine with the good monsoon and income picking up in the rural areas. Anything that you want to highlight over there?
See, Aditya, this is -- my hope is there is not going to be a longer-term issues. When the microfinance companies slow down their growth, when they are very clear on whom to lend, how to lend, this scenario that is -- we call that as over-leveraged scenario will slowly come down and it'll die soon. We are hoping for that. And regulators also are taking a tighter norms on unsecured loans. So I don't see this panning out for a longer period of time. It's going to be a shorter period of time.
The Board has taken a very clear call. That's during the shorter period of time, let's focus more on collections and credit underwriting rather than growing at this over-leveraged time. So that's why we have brought down our growth. So my hope is, it should be short term, may it not more than 2 quarters from now.
Understood. And sir, another question was that so now we are splitting up branches, how long do you foresee that we splitting up branches and then, finally, we'll be following that organic branch growth? When this entire program is finished, completed?
Yes. Aditya, the split-branch concept is not for growth, that's for the -- addressing the concentration risk at a particular location. We have been explaining in a few quarters that when a branch grows beyond the size, we don't want the bunch of our employees in the same location and bunch of our customers in the same location. So to address the concentration risk, we are splitting that branch into 2, so the accounts are equally split, the employees are equally split.
So the growth will be as normal. Don't take these branches as new branches, because those are old branches where the concentration risk has been put in place. The new branches which we opened, 36, and which we will open as we go forward, that will drive the growth much faster.
But Aditya, if I were to just add a little more context, because I understood your question slightly differently. You are probably asking us how long will we take, where, can we come back to you and say the entire branches are split and it is -- we are done...
Exactly. Exactly. Exactly.
Yes. So I think we started this about -- in a more focused manner about 2 quarters back and we don't want to do all of it together. So we're very choosy and careful in terms of how much we can do in a particular quarter and which states to focus in a particular quarter. Like, for example, this quarter, we focused extremely well on Tamil Nadu. In Q1, we focused a little bit more on AP. So we will split it out in such a manner that we are able to digest it well without any undue risks at the ground level.
We are, right now, focusing on any branch which has more than 1,500 customers. So that's the first port of call. Once we are done with it, then we'll get out to any branch which has sort of more than 1,000 accounts. So I think in about 2 to 3 quarters, we should have been done with most of the splits which are already pending, at this point, of time. Beyond that, it will only be incrementally and organically whichever branch gets to that state, we'll get to a split state. So it's not going to be accelerated like what you are seeing now.
Understood. Understood. So by mid of FY '26, so should we back -- that should have been completed and we can start reporting on an organic growth basis?
Correct. Correct.
The next question is from the line of [ Shinij Khan ], who is an individual investor.
Am I audible?
Yes.
First question is with respect to our borrowing mix, how much is linked to the floating rates or the external EBLR, MCLR works? What is the percentage of it, can you please share?
So we have given this number, so about -- roughly about 35% is what the floating rate book, which is typically even linked to -- about 37% is fixed, I'm sorry, not variable. About 53% is the variable rate, which is broadly -- which is linked to MCLR or EBLR.
Okay. MCLR as well. Next question, so on one of the earlier questions that was asking with respect to which of the states in the bureau scrub that, to us, showing any stress? So I did not catch that. Was there any specific states that are maybe in our core geographies that are showing stress?
No, Shinij, we answered it earlier also. So we are not seeing any geographical concentration of stress. The stress is more about a particular category of borrowers who showing over-leverage rather than any geographical concentration.
Understood. Understood. So on a corollary to that, in our learning states, that is just Rajasthan, Maharashtra, [ Telangana ] and Uttar Pradesh, the new branches that we have opened, how many were in these 4 states? And next question is how much of a learning curve do you see? And when do you start to see these, any one of these or maybe all of these becoming core geographies?
Yes. So just to answer, I think in the last quarter, in Maharashtra, we opened 8 branches. Yes, so we have not opened in any other location. So Maharashtra is the only new learning state where we opened 8 branches. And in the previous quarter, we sort of commented that, in Maharashtra, we are seeing very good signs of growth, at this point, of time. We have had more than 4 to 5 years of experience in the state. And we will see a little bit of growing in a more acclimated pace in Maharashtra. So Maharashtra is coming of age in that sense. From a learning stage, it's becoming one of an important states. The other states will take a little more time for us.
Understood. So Maharashtra will be the next geography that could become a core state?
Yes.
Also, what I wanted to know, incrementally, are we seeing higher growth in the ticket size? Because gradually, our ticket size, on an overall basis, has increased. Is this -- so how much of this is natural? And how much of it is purely a credit hunger that is there in the system?
See, for us, most of the ticket sales growth has only been natural and more inflation driven. So we are still continuing to maintain about 3,50,000 ticket size, which is what we were pre-COVID. And we have been guiding you that any ticket sale increases will largely be inflation driven rather than anything else. Yes, you are right in the sense that this profile of customers are credit hungry, but we are not changing our underwriting practices. So we will only go with what we are comfortable with. And that is -- from a ticket size perspective, it is only largely inflation rate for us.
Understood. And finally, with respect to the credit cost, I think you had said it was INR 11 crores for the current quarter and INR 7 crores for the previous quarter, was that correct?
That's only the write-off. It's not the credit cost. Correct.
Write-off, yes.
The write-off is INR 11 crores for current quarter and INR 7 crores for last quarter, yes.
Understood. And finally, data keeping. What was the sanction to disbursement and the login to sanction ratio in amount and the size, if you could share?
So they have not seen any big differences. The usual login to sanction ratio is about 75% for us. And sanction to disbursement ratio is close to 95%. So these ratios are at similar levels at this point.
So this is both for value of loan and the cases? Or is it different?
Yes. More value, but these numbers are very close to each other.
The next question is from the line of Aditya from Securities Investment Management.
Just one question. So we have taken this decision to cut our disbursement yield by 200 bps. Sir, in the previous quarter's con call, we are looking for a rate cut of around 50 to 75 bps. So what has led to this decision of increasing the rate cut?
So Aditya, I think Mr. Pathy sort of alluded to this, that we have always been wanting to operate at around the 12% spread. But what's happening in the external environment, the views of the regulators in terms of what we are sharing on the public domain. So some of these things have made us to take the call where we are setting the rates a little more sharply than what we have been guiding in the in the past. So we want -- get close to the 12% spread as soon as possible rather than sort of waiting it out and getting into a more gradual manner.
Understood. And has there been a nudge by the regulatory authority to cap the rate at which we can give the loan to the borrowers?
See, there has been public commentary by the regulators, which all of us are aware of. And in some interactions, they have also been sort of trying to understand the reasoning behind the rates that we are charging to the customers. And they have had some inputs, while they've not really pushed or nudged or forced us to do any of these things, but we are taking it more on our own.
But at the same time, we believe that this will also put us in the good books of the regulator. And see, at the same time, our spread being at 12% in 2, 3 years back. And today, it's at 14% isn't really [ gelling ] well. in that. And this is a guidance that we have been consistent, Aditya. We want to get back to the 12% level. Today, we want to get back to that in a little more quicker manner. So that is why it's a decision to cut the rates a little more sharply.
The next question is from the line of Manav, who is an individual investor.
Sir, we know that your AUM growth will be slowed down by now because in Q1, you told it would be around 30%, and now you have told us, it's around 25%. So what is the disbursement growth for this year as far as yearly, sir?
So Manav, what we have always been saying is don't get too focused on the disbursal growth, because the disbursal growth is not the only determinant, right? While it's definitely a pointer towards the AUM growth. It's not the only determinant. The way we will sort of fine-tune our disbursement growth is depending on how the runoffs also stack up. We will ensure that we do adequate disbursals to get to the AUM growth that we want. So while the disbursal growth may not be much for this year, our thought processes is, most likely, you will probably see a flattish disbursal in the second half or maybe a very small increase as compared to -- similar to H1.
So if we do a flattish disbursal, we'll probably end up at about INR 5,200 crores of disbursal for the full year as against about INR 4,800 crores, INR 4,900 crores last year. So -- which will mean, like, 10%, 12% disbursement growth, translating to about 25% AUM growth. So it also depends on what is the vintage of the portfolio, what kind of runoffs are we seeing on the portfolio. So our point is don't get too glued on to the disbursal results. That will be determined by the company in order to achieve the 25% AUM growth that we are guiding you.
Okay, sir. No problem. And sir, on the ROE numbers, as you said, we are on a long-term basis, you said that ROE will be around 6%. And the leverage now, I think you are around [ 2.2%, 2.3% ]. So what will be the ROA number shaping up for the next 1 to 2 years, sir?
So this year, we are not seeing too much of a compression in ROE because the rate cut -- or the rate drop that we are doing is only happening maybe for about 5 months of disbursals. So there will be some compression. But our steady-state guidance, Manav, is -- which we are thinking, in about 2 to 3 years, it'll happen, it will probably -- what we're saying is the ROE will drop to about 6%. And depending on that, the leverage is, at that point of time, the ROE will be a determinant number.
Okay. So can I assume that ROE would be around 21%, 22% by 2, 3 years' time?
Yes. See, the leverage is around 3, 3.5, right? Just fixed into 3, 3.5, Manav. So it's anywhere around 20% to 22%.
The next question is from the line of Viral Shah from IIFL Securities.
Actually, I had a question with regards to the comment, again, that you had mentioned about the over-leveraged portfolio and also what is happening in the environment, especially when customers are going out and taking a loan after you have, say, given a loan. So at a sector level, do you see -- so in case of MFIs, we have seen that MFIN has now come out with a regulation stating that the loans need to be capped for borrowers -- for lenders.
Similarly, have you internally, say, thought about capping -- bringing in some, say, underwriting norm when you onboard the customers? Or conversely, is this under discussion with MFIN to ensure that this kind of lending after some other lender has lent does not happen, not just on MFI loans, but even this -- any other loans?
See, where MFIN can control the MFI loans, I don't think MFIN can control any of the other loans. What we are saying is we will put some stricter underwriting norms, whether we want to disburse loans to over-leveraged customers or -- we don't want to or do we want to cap, lower LTV, DBR and all that. I think a lot more will be driven by internal decisions.
See, unfortunately, unlike MFIN, we don't have a common regulatory body for the other forms of MFIs with other forms of NBFCs, because there are multiple kinds of lenders that can be -- business loan lenders, vehicle lenders and all that. So I think we will put some internal norms. We are not really looking at an instant kind of directive to come for us, but we'll definitely tighten our underwriting norms.
So my -- actually, sorry, Srikanth, my, rather, comment was with regards to have you represented to MFIN? Because many of these customers have gone out and taken a loan after you have given a loan. And in most of those cases, it's MFI. I understand, for other kind of lenders, you don't have this SRO kind of body. But at least for MFIN, you can -- can you ask them, not just, say, for MFI loans, but any of the 4 loans so you don't -- those MFI lenders don't end up giving loans to your kind of customers?
No, Viral, I think MFIN has already taken some action. So we will see how that pans out. But it's a good solution. Let's see. I think we can go and suggest that MFIN take this also [ as ] a point. But I think it's a good suggestion. We'll keep it in our minds. If they are able to reach out to MFIN senior people level, we will definitely do that.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
Just trying to ask one question for Srikanth, sir. I mean given that, I mean, you started doing PTCs and you've seen good reception from Nippon, Kotak and 1 more mutual fund that you spoke about, at some point in time, will you also consider doing direct assignments to banks?
So Abhijit, there is no compulsion for us to do direct assignment. Our capital adequacy is very good. At this point of time, we are not really looking at doing direct assignments because, you know this, we have always been a company which wants to have the assets on our balance sheet. In fact, we started doing PTC only after Ind AS came into the picture, because that allows us to hold the assets on our balance sheet.
So, at this point of time I think there is not very serious part internally to do direct assignments. But we will keep our eyes and ears open, Abhijit. So if there is a benefit that the company can derive based on direct assignments, we can look at it. But anyway, given that we are a held-to-maturity portfolio, we can't do that in big quantums. So as best, it can probably be about 6% to 8% of our overall book.
The next question is from the line of [ Kushal Goenka ], who is an individual Investor.
We can go to the next one.
Since there is no response, we'll move on to the next question. The next question is from the line of Dinesh from Finsight.
Sir, I have a very specific question here. We are doing pretty well in terms of the PAT type number, which is around more INR 250 crores plus for the quarter. Can we expect to cross INR 1,000 crore mark in this financial year? Is it possible?
Yes.
Okay. Great. And sir, I have a suggestion here, because I was going through our deck. And on the last page, on Page 58, we give a very detailed account of, like, number of employees and every count there, because being an investor here, I understand. I would rather suggest we should not give this in so much detail. Because since we are running our operations so well, some of the competitors may take a look at it and it could become disadvantageous for us in the future. We could just give the total number of head count, the employees, I think that would suffice, I believe. Just a suggestion, sir.
Thank you, Dinesh. Your suggestion is taken.
Okay, sir. And my last point is, sir, can we expect our cost-to-income ratio to -- maybe in a foreseeable future in the next 2, 3 years, to decline to less than 30%? Is that a fair assumption or possibility?
So Dinesh, if you're saying without -- our guidance is inclusive of credit costs will be at about 35% to 36%. So whether the cost to income ex credit cost will go down below 30% and all that, at this point, of time, we don't want to guide you. Please go with the roughly about 31%, 32% of OpEx to income and about 3% to 4% of credit cost to income.
The next question is from the line of [ Shinij Khan ], who is an individual investor.
So one question with respect to the branches. So what is the average time for a branch, once it is set up, to reach maybe, say, INR 1 crore of disbursement? Or what is the -- first, what is the breakeven time for the branch to reach? And then what may be duration?
Sure, [ Shinij ]. On an average, a branch takes anywhere between 7 to 9 months to kind of reach this breakeven point. We define a breakeven point at about INR 2.5 crores of AUM. So about INR 2.5 crores, a branch breaks even on its own costs and start contributing towards profitability. Of course, the head office costs are not covered, but all branch costs gets covered at about INR 2.5 crores portfolio. So this -- the branch reaches anywhere between 7 to 9 months.
And then, say, on the disbursements issues, for branch disbursements, what -- how much time does it take to reach maybe, say, INR 50,00,000 of disbursement per month and INR 1 crore? How much time have you seen in your experience to reach these levels?
Yes. I think the rough way to sort of look at it is that each office can do about 3 to 4 disbursements a month. So yes, you can round it off at about, let's say, INR 10,00,000 on an average. So if you have 5 offices or 6 officers in a branch, the branch can easily do about INR 50,00,000 to INR 60,00,000 of disbursement per month. Now this starts happening anywhere after the third month onwards. So that said, it takes so much time for the branch to build up a INR 2.5 crores portfolio between the seventh and the ninth months.
So you're saying INR 50,00,000 to INR 65,00,000 by the third month, you are saying?
INR 50,00,000 to INR 60,00,000 of disbursement, sorry.
INR 50,00,000 to INR 60,00,000 of disbursement, right, you are talking about. Okay. Understood.
Yes, from the third month onwards.
Understood, understood. And one more suggestion that I also had. Would it be possible for us to maybe publish a fact sheet? because that will be very much helpful to maybe go through historical resulting data also. That's just a suggestion.
So when you look at it, at this point of time, we are not giving it. But your point is taken. Let us see when we'll be able to implement it. We'll try to do this sooner than later.
As there are no further questions from the participants, I would now like to hand the conference over to the management for the closing comments. Thank you, and over to you.
Yes. Thank you all for taking your time and asking the questions. Hope we have satisfied all. If anyone has any further questions, clarifications, please reach out to our IR team. We'll be happy to take it forward. So -- and thank you, and Happy Diwali to every shareholder and stakeholders of Five-Star. So see you with better numbers in next quarter. Thank you.
On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.